Nepal - Second Forestry Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4353-NEP STAFF APPRAISAL REPORT NEPAL SECOND FORESTRY PROJECT June 8, 1983 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 US$1.00 = Nepalese Rupee (NR) 14.30 WEIGHTS AND MEASURES Metric System FISCAL YEAR July 16 - July 15  FOR OFFICIAL USE ONLY ABBREVIATIONS ADBN - Agricultural Development Bank of Nepal AF - Assistant Forester AO - Attached Officer AU - Afforestation Unit CCF - Chief Conservator of Forests CDO - Chief District Officer CFAD - Community Forestry and Afforestation Division CFDTP - Community Forestry Development and Training Project CFO - Community Forestry Officer CFU - Community Forestry Unit CR - Community Ranger DCCF - Deputy Chief Conservator of Forests DDP - District Development Plan DFO - Divisional Forest Officer FAO - Food and Agriculture Organization FCN - Fuelwood Corporation of Nepal FD - Forest Department FI - Institute of Forestry FM - Forest Motivator FPDB - Forest Products Development Board FR - Forest Rangers GDP - Gross Domestic Product GNP - Gross National Product .IMG - His Majesty's Government of Nepal ICB - International Competitive Bidding LCB - Local Competitive Bidding LDO - Local Development Officer MEDU - Motivation and Education Unit MEU - Monitoring and Evaluation Unit MFTW - Ministry of Forest Training Wing MPLD - Ministry of Panchayat and Local Development MFSC - Ministry of Forests and Soil Conservation NPC - National Planning Commission NPV - Net Present Value ODA - Overseas Development Administration (UK) PF - Panchayat Forest PO - Plantation Offices PPF - Panchayat Protected Forest SCF - Standard Conversion Factor SIU - Stove Improvement Unit SP - Stove Promoter TCN - Timber Corporation of Nepal TCFPU - Terai Community Forestry Project Unit USAID - United States Agency for International Development VDP - Village Development Plan 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.   -ii- NEPAL SECOND FORESTRY PROJECT Table of Contents Page I. INTRODUCTION ............................................. 1 I. BACKGROUND.. 1 A. The Panchayat System of Government. 2 B. Forestry in Nepal. 3 The Sector. 3 Importance to the Economy. 4 Policy for Forestry Development. 6 Forestry Institutions. 6 Forestry Training. 7 Forestry Projects. 8 III. THE PROJECT. 9 A. General Description. 9 Project Phasing ..................................... 11 B. Detailed Features ...................................... 12 Nurseries and Planting Materials .................... 12 Planting and Tending ................................ 13 Panchayat Forests ................................... 14 Tree Planting on Private Land ....................... 15 Strip Plantations ................................... 16 Demonstration Woodlots .............................. 16 Forest Department Agro-forestry Plantations ......... 17 Forest Improvement .................................. 17 Support for Forestry Department ..................... 18 Forestry Research ................................... 21 Improved Stoves ..................................... 22 Monitoring and Evaluation ........................... 23 Forestry Training ................................... 23 Forestry Development Planning ....................... 25 Technical Assistance ................................ 25  -iii- IV. COST ESTIMATES AND FINANCING ............................... 27 A. Cost Estimates ......................................... 27 B. Financing .......................................... 28 C. Procurement and Disbursement ........................... 28 D. Accounts and Audit. .30 V. ORGANIZATION AND MANAGEMENT ................................ 30 Project Coordination ................................... 30 Forestry and Agro-forestry ............................. 31 Improved Stoves ........................................ 32 Forestry Research ...................................... 33 Training .......................................... 33 National Forestry Development Plan ............... 33 VI. PRODUCTION, MARKETS AND COST RECOVERY ...................... 34 Production and Yields .................................. 34 Markets .......................................... 34 Distribution of Produce ................................ 35 Financial Results ...................................... 35 Cost Recovery .......................................... 35 VII. BENEFITS, JUSTIFICATION, AND RISKS .36 Benefits and Beneficiaries .36 Economic Analysis and Rates of Return .37 Project Risks .38 VIII. RECOMMENDATIONS .39  -iv- ANNEXES I. Forestry Sector Background Information Table 1 - Main Physical Forestry Targets in Sixth Plan Table 2 - Forestry Sector Revenue and Expenditure Table 3 - Forestry Royalty Rates Table 4 - Current International and Bilateral Assistance in Forestry Table 5 - Departments of Ministry of Forest and Soil Conservation Table 6 - Civil Works at Institute of Forestry, Hetauda and Pokhara II. Project Costs Table 1 - Project Component bv Time Table 2 - Farm, Institutional and Panchayat Plantings Table 3 - Road and Canalside and Riverbank Plantings Table 4 - Demonstration Woodlots Table 5 - Promotion and Distribution of Improved Stoves Table 6 - Incremental Staff Table 7 - Vehicles and Equipment Table 8 - Building, Furniture, and Fittings Table 9 - Nursery Construction Table 10 - State Agro-Forestry Plantations Table 11 - State Agro-Forestry Nursery Construction Costs Table 12 - Improvement of Natural Forests Table 13 - Research Operational Costs Table 14 - Training Table 15 - Technical Assistance and Monitoring and Evaluation Table 16 - Road Construction and Fire Protection Table 17 - University and Training Wing Construction Table 18 - Summary Account by Time Table 19 - Summary Account by Project Component Table 20 - Community Forestry Plantation Program Table 21 - State Forestry Plantations Nursery Production Costs  -V- III. Assumptions for Financial and Economic Analysis Table 1 - Yields by Ha per Component Table 2 - Forestry Output Shares Table 3 - Financial and Economic Prices Table 4 - Financial Price for Fuelwood Table 5 - Economic Price for Fuelwood Table 6 - Financial Prices of Sawlogs Table 7 - Economic Prices of Sawlogs Table 8 - Financial and Economic Prices of Poles Table 9 - Economic Prices of Fertilizer Table 10 - Agricultural Activity on One Hectare of Agro-Forestry Table 11 - Agricultural Activity on One Hectare of Agro-Forestry (Financial Input/Output) Table 12 - One Hectare Financial Flow to Private Plantings and Agricultural Activity Table 13 - Economic Costs and Benefit Stream by Component Table 14 - Economic Costs and Benefits by Type Table 15 - Switching Values IV. Implementation Schedule V. Estimated IDA Disbursement Schedule VI. Chart 24655 - Proposed Organization Chart VII. List of Materials Available in Project File MAP - IBRD 16908 - Project Area  NEPAL SECOND FORESTRY PROJECT I. INTRODUCTION 1.01 In order to remedy the deteriorating forestry situation in Nepal, His Majesty's Government of Nepal (HMG), together with IDA and several bilateral aid agencies, has embarked upon a program of reforesta- tion and forest improvement. Initial efforts were concentrated in the north (Hills), where a reforestation project is now operating in each administrative district. As part of its strategy for development, HMG has now decided to pay increased attention to the forestry needs of the southern plains (Terai), where shortage of fuelwood supply is becoming critical. Together with the FAO/IBRD Cooperative Program, HMG has prepared a report entitled "Nepal Terai Forestry Project", which forms the basis for its request for IDA assistance in the financing of a forestry project in the eastern Terai. The proposed project is in line with the objectives and priorities of HMG's Sixth Development Plan. This report is based on the findings of an IDA appraisal mission consisting of A. J. Pritchard, R. Moreno (IDA); and F. B. Armitage and N. Chatterjee (consult- ants), which visited Nepal in November/December 1982. II. BACKGROUND 2.01 Nepal is landlocked between China and India. It is divided into three parallel ecological zones running east-west: the Terai Plain, an extension of the Gangetic Plain of India; the Hills, actually the foothills of the Himalayas, ranging from 500 m to 4,000 m in elevation; and the Himalayan Mountains to the north. These three zones account for 17%, 68% and 15% of the total area (140,800 sq km), respectively. Rivers and streams, running north-south, cut the Hills into isolated areas and varying microclimatic conditions provide a range of environments for plant growth, depending on elevation, aspect, cloud cover, slope, etc. 2.02 Nepal's population, 96% of which is rural, is currently estimated at 15 M and is increasing at a rate of 2.7% annually. About 44% of the population lives in the Terai, where a higher annual rate of population increase (4.1%) is partially due to migration from the Hills and India. GNP per capita in Nepal, at about US$156, is one of the lowest in the world. 2.03 Agriculture dominates the country's economy, providing a livelihood to over 90% of the population and generating about two-thirds of GDP and 60% of all exports. The major crops are paddy, maize, and wheat. Eighty percent of the cultivated land in Nepal is in the Terai region, in particular the eastern Terai. The national average holding of arable land is about 0.43 ha/family, but in the Terai the mean landholding is 1.8 ha/family. Possibilities for expanding agricultural land in the  -2- Terai are now limited, since the forests which grew on the relatively fertile alluvial Terai soils have already been converted to arable farm- lands. The remaining natural forest is on coarse sands and gravel (bhabar soils) which are unsuitable for sustained agricultural production. Live- stock play an important role in the way of life of rural Nepal and animal products form an integral part of the subsistence diet. Cow dung is the major source of manure but in regions such as the eastern Terai, where fuelwood is scarce, it is also used as fuel. A. The Panchayat System of Government 2.04 Administratively, Nepal is divided into five development regions. Each of these comprises a section of the country, running north to south, containing mountain, hill and Terai areas. Each development region is divided into either two or three development zones, which are further divided into districts. The districts contain varying numbers of town and village panchayats (the range is from 38 to 104 in the eastern Terai) and there are usually nine wards (the smallest socioeconomic units) in each. The ward consist of about two hamlets. 2.05 The panchayat system of government is a partyless system derived from the traditional village council of elders. It includes political and development organizations and is structured in three tiers. The lowest political level is the village panchayat or, for areas with a population of 10,000 or more, a town panchayat. The next level is the district panchayat. The highest level is the national panchayat, whose 140 members are either elected by the people or appointed by His Majesty the King. 2.06 The Ministry of Panchayat and Local Development (MPLD) is responsible for operating the panchayat system. The Chief District Officer (CDO) belonging to MPLD, besides being responsible for law and order, is also the administrative head of all functionaries of government line ministries working at the district level. A Local Development Officer (LDO), subordinate to the CDO, is responsible for implementing district development plans (DDP). These officers operate a district secretariat which also functions as the secretariat to the district panchayat. 2.07 The policy of HMG is to encourage the people's participation in development, by tranferring to the district and village panchayats, responsibility and accountability for development programs. Based on the overall objectives and policies for development set by cabinet, the resources available, estimated implementation capabilities, and priorities set by the district panchayat, village development plans (VDP) are formu- lated each year by a series of consumer (subject matter) committees con- sisting of panchayat residents. Assistance is provided by a service center, established by HMG as a branch of MPLD in the village, in for- mulating and evaluating VDP, advising on technical and financial matters,  -3- evaluating progress and disseminating information. The VDP are submitted to the relevant district panchayat plan formulation committee (PFC) of which there are five - agriculture and irrigation; works and maintenance; industry, forestry and soil conservation; health and population; and education. VDP are incorporated into DDP at a meeting of all PFC called by LDO. Supervision of implementation of VDP and DDP is provided by a district supervision committee. 2.08 The district panchayat allocates funds to the various projects that have been approved. However, until recently, the flow of funds was through the line agencies, and the panchayats were bypassed. Funds are now released on a quarterly basis to the district offices of the line ministries, after authorization has been received from the department concerned, through District Account Control Offices which are under the office of the Financial Controller. Under this system, the line ministry remains accountable for funds received but the process of disbursement has been improved. The initial release of funds in any year is contingent upon the Controller receiving a statement of expenditure from the preced- ing year. Final release requires receipt of the annual audit. B. Forestry in Nepal The Sector 2.09 The present area under forests in Nepal is estimated at 3.8 M ha (2.9 M ha in the Hills, 0.9 M ha in the Terai). Forests above an altitude of 2600 m consist mainly of conifers, with some hardwoods; much of this forest is overmature and inaccessible. The forests in the Hills, lying between 2600 and 300 m, vary considerably and are scattered in patches. In general, fir and oak predominate at higher altitudes, gradually giving way to chir pine, Prunus, Castanopsis, Shirma, and Alnus at medium eleva- tions, and ultimately to sal, a hardwood. In the Terai (below 300 m) mixed hardwood forest, mainly sal and asna, is found, which contains no softwood species (see Project File, Item 1). Population pressure and constant increased demand for arable land and forest products have caused an estimated reduction in forest cover of 40% in the last 15 years. Many of the remaining forest blocks, particularly in the Terai, are of very low quality, having been logged in earlier years with removal of the best merchantable stems followed by indiscriminate burning, over-grazing and browsing, as well as illegal removal of fuelwood and poles. 2.10 The rate of forest destruction significantly increased after the nationalization of forests in 1957 when villagers, believing the govern- ment had appropriated their property and removed their rights of free access to, and use of the forests, ceased to apply traditional rules for forest management and proceeded to collect fuelwood, timber, and fodder indiscriminately. The employment of forest guards and the prosecution of those caught illegally removing forest produce failed to reverse the trend  -4- and HMG, realizing that the reintroduction of community responsibility for forests was the only way of preventing their total destruction, has encouraged private planting and community owned and managed forests. This policy has been successful in the Hills where the village populations are homogenous and stable but has yet to be tested in the Terai. 2.11 The forest areas now remaining in the Terai are limited to the zone of bhabar soils and the slopes of the Churia Hills. Where these areas adjoin agricultural land, there is heavy over-grazing by domestic stock and all small trees and undergrowth have been removed, mostly for fuelwood, leaving the forest heavily degraded. Behind this degraded zone, the forest is usually in reasonable condition and capable of being managed productively, provided it can be protected. The cost of establishing and maintaining adequately staffed forest stations for this purpose would exceed the returns that could reasonably be expected from these partially exploited forests which, in the absence of protection, will gradually but inevitably be destroyed. Thus, effective protection and management of the better quality forest blocks can only be carried out in cooperation with the local inhabitants, and provided that sufficient trained staff work and live close to these areas. Moreover, the recent HMG announcement that no further conversion of forest land to agricultural settlement would be allowed, indicates that development plans for the surviving forest areas can now be made with some reasonable assurance of success provided that the local population can be convinced of the long-term necessity to main- tain the productive forests and that they themselves agree to cooperate with the Forest Department (FD) in conservation measures. 2.12 Land Ownership. The ownership of all forest land in Nepal was vested in HMG until 1977 when legislation provided for the allocation of forest land to panchayat management in the categories of Panchayat Forest (PF)(bare land for reforestation), and Panchayat Protected Forest (PPF)(existing forest for protection and management). In the Terai, virtually all remaining forests are classified as government forest reserve, with demarcated boundaries. In contrast to the Hills, only limited land is available for use as PF in the Terai. Importance to the Economy 2.13 Early forestry activities in Nepal were concentrated on the exploitation of the highly valuable sal (Shorea robusta) forests in the Terai. With the depletion of the sal forests the direct annual revenue from the forests has now fallen to less than 5% of total national revenue. The amounts of public revenue and expenditure within the forestry sector for the four fiscal years 1976/77 to 1979/80 are shown in Annex I, Table 2. Because of traditional concessions to village communities living near the forest areas, the bulk of forest products, including local construction timbers, are being collected free of cost or at nominal prices. From the forest reserves, major forest products are sold either on a royalty basis  -5- or by auction. Minor forest products are subject to the payment of license fees. For PPF, 75% of any income accrues to the panchayats and 25% to HMG. Scales of royalties and fees are given in Annex I, Table 3. 2.14 Timber export to India, which in recent years accounted for 20% of the value of Nepal's exports, has now been prohibited by law. The trade gap has widened steadily but has so far been covered by increased earnings from tourism and foreign aid disbursements. 2.15 Consumption. The average annual requirement for fuelwood has been estimated at 1 m3/person in the Hills and 0.85 m3 for the Terai where less heating is required. National requirements for domestic fuelwood are therefore about 13 M m3/year. Alternative sources of energy, such as kerosene, gas and electric power are either too expensive or are unavail- able to the bulk of the population. In many areas, the shortage of fuel- wood forces the rural population to burn animal dung and crop residues as fuel. Quantities of dung consumed are small, relative to fuelwood and were estimated at 250,000 tons for 1974/75. However, if the present rate of forest destruction continues, the use of crop residues and dung for fuel could rise substantially. In the eastern Terai, 28% of the domestic fuel requirement is now met by cow dung and towards the Indian border the proportion can be as high as 50%. Surveys indicate that even if the supply of fuelwood were increased, some 20% of fuel needs of traditional dung-burning areas would still be met by cow dung, since its use is preferred for certain types of cooking practices such as slow-cooking of milk. Increases in the supply of fuelwood would therefore lead to only limited reduction in the use of cow dung in these areas. 2.16 In order to meet the demand for fuelwood and other major forest products, Nepal will require about 1.3 M ha of productive forest by the end of this century. As part of this total, the 1978 Sector Review 1/ recommended that the existing natural forest estate should be augmented by an annual planting target in the Terai (the only suitable region for large-scale plantations) of 20,000 ha over a 20-year period to give a total of 400,000 ha. The review indicated that the plantation target could be attained if the problem were approached from the village (ward) level with each village and individual farmer undertaking a modest plant- ing program together with the establishment of large-scale government plantations and the management of natural forests, the latter especially to supply urban demands for fuelwood, timber and other forest products. 2.17 The annual per capita demand for fuelwood in the eastern Terai is about 0.65 m3 (500 kg). The current population in the project area (see para. 3.02) is 4.7 M, with a projected population of about 8 M by the 1/ Nepal Forestry Sector Review (1952-NEP), 1978; p. 23.  -6- end of the century. The fuelwood demand for such a population could therefore be as high as 5 M m3/year, equivalent to the annual yield from more than 300,000 ha of well managed plantations of fast-growing species. Policy for Forestry Development 2.18 The guidelines for forestry development in Nepal were set out by the National Planning Commission (NPC) in the Sixth Five-Year Plan (1980/85). This plan gives priority to community forestry development and afforestation in the Hills; to development projects which emphasize peoples- participation in the protection and development of forests, and to projects which increase availability of forest products. The main physical targets to be achieved in the Sixth Five-Year Plan period are given in Annex I, Table 1. At present, no overall national forestry strategy exists for the achievement of these targets. Forestry Institutions 2.19 Overall responsibility for forestry and natural resource conser- vation is vested in the Ministry of Forests and Soil Conservation (MFSC). Within MFSC there are five departments, three companies and three semi-autonomous corporations of direct relevance to the proposed project. (Annex VI, Table 5). It has been proposed by HMG that the three corpora- tions, (the Timber Corporation (TCN), the Fuelwood Corporation (FCN), and the Forest Products Development Board (FPDB)) be amalgamated to form a new body, probably to be entitled the Forestry Corporation, with respon- sibilities for timber harvesting, forest industries and some reforesta- tion. This arrangement will streamline forestry harvesting operations and marketing, and the amalgamation of staff and facilities will reduce the costs of administration. 2.20 About 11,000 persons (including some 1,700 army troops and armed guards) are employed by MFSC; of these 80% are employed by FD and the three corporations TCN, FCN, and FPDB. The next largest department is National Parks and Wildlife with 10% of the manpower. The third largest is the Department of Soil Conservation and Watershed Management with 2%. 2.21 Under the management and technical direction of the Chief Con- servator of Forests (CCF), FD is responsible for the overall administra- tion and management of the national forest estate. The territorial organization of the FD consists of 9 major sub-divisions known as circles, further divided into 40 divisions and 174 ranges. 2.22 In addition to the territorial divisions of the FD, a Community Forestry and Afforestation Division (CFAD) has responsibility for the development of community forests in the Hills and for the initiation of large-scale plantation projects in the Terai. The Divisional Forest Officers (DFO) are responsible for implementing CFAD's forestry programs,  -7- but receive additional staff (Community Forestry Assistants) and support from CFAD's five units, which are: (a) Community Forestry Unit (CFU), which is responsible for com- munity forestry operations and related silviculture. (b) Monitoring and Evaluation Unit (MEU), which follows project progress and assesses the socio-economic impact of the refores- tation projects on the lives of the rural people. (c) Motivation and Education Unit (MEDU), which carries out forestry extension activities at village, district and national level. (d) Stove Improvement Unit (SIU), which carries out research, development and distribution of improved cooking stoves for more efficient use of fuelwood. (e) Afforestation Unit (AU), which is responsible for afforestation on Government lands and plays an important role in collecting and distributing tree seed. Forestry Training 2.23 Prior to 1981, there was no professional forestry course in Nepal and forest officers were trained mainly at the Indian Forestry Institute at Dehra Dun. In recent years it has been increasingly dif- ficult for non-Indian nationals to gain admission there. Steps have now been taken to reverse this unsatisfactory situation with the establishment in Nepal of a 3-year degree course in forestry and soil and water conser- vation. This course is now taught at the Institute of Forestry (FI), Hetauda, but will be transferred to FI's Pokhara campusl/ where permanent teaching facilities are being provided under the on-going IDA-assisted Community Forestry Development and Training Project (CFDTP). The first graduates from the course (planned annual output of 40) will be available in mid-1984. Meanwhile, an average of about 10 Nepalese foresters will continue to graduate from Dehra Dun for the next 3 or 4 years. 2.24 The training of forest technicians at the certificate level (a 2-year course) is conducted at FI. Certificate holders enter the forest service in the rank of Assistant Ranger (AR). Forest Rangers (FR) were originally trained by means of an additional one-year senior certificate 1/ It has been proposed that FI's Pokhara campus will be renamed; the Institute of Renewable Natural Resources.  -8- course available upon completion of the certificate course, but this has been dropped and FR now receive the necessary additional training through in-service training programs conducted by the Ministry of Forests Training Wing (MFTW). The present annual intake of students for technical training is 100 to 110. 2.25 Previously, training was oriented towards commercial exploita- tion in the Terai, which was the most important forestry activity. With the increasing importance of community forestry throughout the country, and the need for large-scale plantations of fast-growing species in the Terai, a reorientation of current forestry training towards community and plantations forestry became of paramount importance for forestry develop- ment in Nepal. This issue was addressed under CFDTP by the revision of both in-service and training institute curricula. Forestry Projects 2.26 International support for community forestry activities in Nepal began in 1965 with the Trisuli Integrated Watershed Development Project (UNDP/FAO). This type of activity has been expanded with support from other international and bilateral agencies, and reforestation and rural development projects now cover virtually all the hill districts. A list of these various projects is given in Annex I, Table 4. Minor forestry activities were included in the Rural Development Project (IDA Credit 617-NEP). 2.27 The Community Forestry Development and Training Project (IDA Cr. 1008-NEP). IDA's first major participation in the Nepal forestry sector began with CFDTP, which is being implemented by CFAD in the Hills. This project aims at increasing the supply of fuelwood in the hill areas by establishing new plantations and rehabilitating degraded forests. In spite of delays with procurement and disbursement, most of the planting targets have been achieved. At the end of 1982, its second year, 268 nurseries and 1,810 ha of PF had been established and 660,000 seedlings planted on private land. A total of 159 panchayats had become involved in project activities and over 1 M people had been brought into contact with the concepts and aims of social forestry. It is too early as yet to assess the definitive lessons learned from the ongoing project. However, some aspects have already become apparent within the limited two-year period. Firstly, indications are that villagers are receptive to the concept of community forestry and that this increases as contact with the community forestry program grows. However, clarity with respect to both ownership of forests and individual trees and rights to forest products is of utmost importance in obtaining village and panchayat participation. To this end, the proposed project seeks to ensure that rights of ownership to planted trees are clearly defined before implementation (para. 3.19). Secondly, it is evident that to obtain the support from the surrounding  -9- population in forest protection, clear assurances must be given to vil- lagers that they will be allowed to collect a share of the forest products once plantings have matured. Both HMG and IDA recognize the important role that technical assistance is playing in assisting the monitoring and technical support aspects of CFDTP. Adequate provisions for technical assistance have therefore been included in the proposed project. Thus, the proposed project, appraised in this report, takes into account the experiences of the ongoing CFDTP. III. THE PROJECT A. General Description 3.01 Following CFDTP (para. 2.27), the project would be a second IDA supported phase in the development of community forestry and forestry training facilities in Nepal. The project would increase supplies of fuelwood, poles, timber and fodder, in the eastern Terai, by establishing PF, farm and other private plantations, strip plantations, woodlots, and larger scale plantations; and by improving areas of natural forest. As a fuelwood conservation measure the project would introduce, popularize, and distribute improved cooking stoves. Training facilities would be expanded to meet the additional need for technical and professional forestry staff. Forestry research, field operations and planning activities would be strengthened and training and study tours provided for FD staff. 3.02 The project area covers 20,000 sq km with a population of 4.7M (about 30% of the total population of Nepal) and consists of 13 administrative districts in the eastern Terai, extending from Jhapa in the east to Kapilbastu in the west. The districts of Saptari and Siraha have been excluded since these are served by an Asian Development Bank project. The project districts are included in 7 forest divisions (Map 16908) and parts of 5 forest circles (see para. 2.21). 3.03 In the Terai, the ethnic diversity of the population (comprising indigenous peoples augmented by immigrants from the Hills and India) tends to retard the development of the community spirit necessary to carry out panchayat based forestry projects. Because problems associated with mixed communities may hinder rapid implementation of the planting program it has been decided to set a relatively small target of 2,000 ha for PF plantings during the project period. However, a nucleus of settlers from the Hills exists in the project area who have a tradition of planting fodder trees and are interested in participating in community forestry. The sociologi- cal survey (Project File, Item 8) undertaken to provide baseline data for the proposed project also indicates a positive individual attitude toward social forestry concepts. Thus, all indications are that with the assis- tance of MEDU, the above-mentioned problems should be overcome and full cooperation should be achieved during project implementation.  -10- 3.04 During a six-year period, the project would: (a) Provide funds for staff, equipment, nurseries, civil works, operating expenses and establishment costs for: (i) 2,000 ha of Panchayat Forest; (ii) 32 M seedlings for planting on private and institutionally owned land; (iii) the equivalent of 2,550 ha of strip plantations on roadsides, canal banks, and river banks; (iv) 2,200 ha of demonstration woodlots; and (v) 5,900 ha of plantations of fast growing species, on land presently under degraded forest, using agro-forestry techniques. (b) Provide funds for staff, equipment and vehicles for the improve- ment of 35,000 ha of natural forest. (c) Enlarge CFAD, the Forest Survey and Research Office, territorial divisions and the Planning Division of MFSC, by providing funds for staff, buildings, vehicles, equipment and operating expenses for: (i) directing and supervising nursery and plantation programs; (ii) expanding forestry research activities; (iii) designing, producing and distributing 20,000 fuel efficient wood-burning stoves; (iv) monitoring and evaluating project implementation; and (v) preparing a National Forestry Development Plan (d) Expand staff training opportunities by: (i) providing funds for constructing teaching facilities at the Institute of Forestry, Pokhara; at the Institute of Forestry, Hetauda; and at the Ministry of Forests Training Wing, Kathmandu; (ii) funding fees, travel and allowances for training 109 Assistant Rangers and 34 Forest Officers; and (iii) funding an in-service training program and costs of study tours for professional and forestry extension staff. (e) Provide about 28 man-years of expatriate technical assistance and 8 manyears of local consultancy services for: (i) a mid-term review of project progress; (ii) establishment and management of community forestry and agro-forestry nurseries and plantations;  -11- (iii) forestry research; (iv) in-service forest training; (v) stove technology; (vi) preparation of a National Forestry Development Plan; and (vii) monitoring and evaluation surveys. 3.05 Direct planting by FD has been confined to strip plantations (2550 ha) demonstration woodlots (2200 ha) and agro-forestry plantations (5900 ha). This program is sufficient for providing a demonstration to farmers and communities, and training for forest staff. Experience with other projects in South Asia has demonstrated a high level of success with private planting. In the proposed project, therefore, the aim would be to plant 52% of seedlings on privately owned land. 3.06 Responsibility for implementing the community forestry, agro-forestry, plantation, natural forestry improvement, stove distribu- tion, study tour, overseas training, and in-service training components of the project would be with the Ministry of Forests and Soil Conservation. The Tribhuvan University would be responsible for investments at the educational institutions at Pokhara and Hetauda, and for certificate level training courses. Project Phasing 3.07 The proposed planting and forest improvement programs are sum- marized below. The PF and demonstration woodlot planting programs are based on the induction of an estimated 20 village panchayats into the project in the first year and 50 in each subsequent year. Table 3.1: PROJECT PLANTING AND IMPROVEMENT PROGRAM (ha) Project Year Forest Type 1 2 3 4 5 6 Total Private Planting Farm Forestry - 200 800 2,500 4,000 5,000 12,500 Institutional Woodlots - 50 200 250 250 250 1,000 Panchayat Planting - 200 300 500 500 500 2,000 Strip Plantations - 200 400 650 650 650 2,550 Demonstration Woodlots - 200 500 500 500 500 2,200 Agro-Forestry Plantations - - 600 1,400 1,900 2,000 5,900 Total Plantations - 850 2,800 5,800 7,800 8,900 26,150 Natural Forest Improvement - 7,000 7,000 7,000 7,000 7,000 35,000  -12- B. Detailed Features Nurseries and Planting Material 3.08 Planting material would be distributed free of costs from FD, village panchayat and private nurseries. This is in line with HMG's objective of providing incentives for small farmers and communities to take up tree planting in situations where most of the output to be produced would be needed for domestic consumption and not for resale. Experience in both Nepal and elsewhere has demonstrated that without such incentives, farmers are unlikely to respond. Cost recovery for tree seedlings could be introduced in a possible follow-up project in those situations where larger farmers can produce surplus wood for resale. In the proposed project, priority in seedling allocation would be given to smaller farmers. CFAD, operating through FD's divisional organization, would establish 220 village panchayat nurseries on the basis of about one for each participating village panchayat, or about 30 per forest division. These would be managed by the panchayat under the technical direction of CFAD. Assurances were obtained at negotiations that CFAD would make the necessary production inputs (seed, pots, fertilizer, etc) available to the village panchayat nurseries. In addition, 100 nurseries would be estab- lished under private ownership. Of these private nurseries, 27 would be used to provide the plants needed for FD strip plantations and demonstra- tion woodlots and the remainder would produce seedlings for PF and plant- ing on on privately owned land. The capacity of each nursery would be about 60,000 potted plants with an average annual production of 48,000 after allowing for culls and failures. FD would also establish eight large nurseries, one for each agro-forestry plantation scheme (para. 3.23) and each with a production capacity of 580,000 seedlings annually. The existing 25 range nurseries would be improved and would provide backup support for private, village panchayat, and agro-forestry nurseries. 3.09 In keeping with FD policy to encourage private enterprise, the project would assist in establishing private nurseries (para 3.08) by providing necessary production inputs such as seed, plastic pots, and fertilizer to individual entrepreneurs. Nursery owners would be allowed to defer payment for such production inputs until the sale of seedlings to FD. Input costs, fixed at the time of provision, would then be deducted from the seedling price which would be equivalent to FD nursery production costs for seedlings. Under this arrangement, nursery owners would be obligated to sell the seedlings produced to FD. The Agricultural Develop- ment Bank of Nepal (ADBN) has expressed an interest in providing credit for private nurseries, using lending criteria presently used for estab- lishment of horticultural nurseries. At present ADBN has funds for this purpose, but assurances were obtained at negotiations that HMG would make adequate funds available through ADBN should additional finance to support private forestry nurseries be required. Assurances were also abtained that necessary production inputs would be furnished by FD to private  -13- nurseries and seedlings purchased each year in the planting season, com- mencing on May 1, 1984, at prices not less than the equivalent of produc- tion costs of FD nurseries, less costs of production inputs. 3.10 Seed. Arrangements for local procurement of good quality seed to meet the requirements of the project do not yet exist. Constant shortages of seed occur for species, such as sisoo, of which the foliage and twigs are collected as fodder. Genetically improved seed stands and orchards, designed in collaboration with the FD Forest Survey and Research Office would be included in the agro-forestry plantation program. Until the seed stands are in production, all seed would be provided through the DFO who would either arrange for its collection by staff of panchayat, range or agro-forestry plantation nurseries, or obtain it through CFAD's seed section in Kathmandu which has been provided with large modern facilities for collection and storage under an Australian aided project. DFO would also "buy" selected seed trees in the project area so that they can be protected to produce seed. Planting and Tending 3.11 Planting pits would be aligned and dug before the onset of the monsoon in May each year and, if considered necessary, the area would also be fenced during this period (see para 3.13). Planting would commence in June each year, coinciding with the onset of the rains. Fodder grasses and legumes would be produced in PF, woodlots, institutional and strip plantations from naturally regenerating indigenous species, but high yielding fodder species would be planted between trees as seeds become available either as a result of seed propagation programs at nurseries, or by direct import from overseas. 3.12 Weeding. Weeding would be essential for satisfactory survival and growth, particularly in the first year. The amount of weeding required thereafter would be minimal as villagers would collect grass from planted areas and, in many instances, this would be sufficient to remove weed competition. 3.13 Protection. Once villagers have been motivated to participate in social forestry programs and identify themselves with the forests established, experience in the Hills has shown that protection is not a problem. Villagers cooperate in controlling livestock grazing and comply with the forest management procedures laid down in the forest management plan, so that, in general, fencing is unnecessary. Where considered essential, however, e.g. near recognized cattle paths, fences would be built or live hedges planted. The project would provide labor and materials to fence approximately 25% of the perimeter of PF, demonstration woodlots and agro-forestry plantations.  -14- Panchayat Forests 3.14 PF would be planted on 2,000 ha over the project period. The species used would be those suitable for fuelwood, fodder or fruit produc- tion. A list of 32 possible species and details of planting density and forest management are given in Project File, Item 2. Given the pressing need for fuelwood and the technology available, it is probable that in the early years of the project, the species selected would be those with which the villagers are best acquainted, such as sissoo, eucalyptus and to a lesser extent, teak. The Motivation and Education Unit (MEDU) and the Monitoring and Evaluation Unit (MEU) of CFAD would arrange seminars, meetings and field visits to target panchayats and provide necessary visual aids and educational material to encourage the panchayat, individual farmers and village institutions (schools, medical centers, temples, etc.) to participate in the project. This approach has been successful in the Hills and MEDU has produced useful manuals and teaching aids which could be used in the Terai with only minor modification. 3.15 For initiating PF plantations, a panchayat forest committee would be established in the village panchayat and would be responsible for making an application to the DFO for participation in the project. After approval by the DFO the proposal would be passed through the village and district panchayat system. At each district headquarters, the DFO would act as secretary of the relevant district PFC; in this case the district industry, forestry and soil conservation committee (para. 2.07). PFC would include LDO, the chairmen of various district working committees, l/ as well as the chairman of the district panchayat. PFC would make recom- mendations to the district panchayat on the technical feasibility of the proposal, the priority level to be accorded, and a proposed date for acceptance into the project. The final decision on the acceptance of the proposal would be made by the district panchayat and for this, the proposal must meet HMG's criteria, which are that it must provide direct benefits to the public, increase production, use local techniques, increase employment opportunities, be part of the Sixth Five-Year Plan and protect the environment. In addition, CFAD requires that: (i) the land to be planted is proven to be vacant, free from dispute and available for plantations; (ii) the forest management plan has been agreed by the village panchayat (this will include details for the future arrangements for the fair distribution of forest products which are likely to differ between panchayats depending on the availability of forest and local demands for its produce); 1/ Nepal Ex-Servicemen Organization, Nepal Labor Organization, and Industry and Commerce.  -15- (iii) a site for the nursery has been selected, and is available and suitable; (iv) there is a high level of need for fuelwood and fodder; (v) evidence is available of the village panchayat's ability to organize cooperative work (e.g. from other development projects); (vi) the village panchayat is accessible and near a FD office; and (vii) other village panchayats are in the vicinity which could be influenced by the example of establishing PF. 3.16 After approval, areas would be demarcated by DFO and Circle Conservators in agreement with village panchayats, FD and the Land Survey Department. The suitability of demarcated areas for PF would be confirmed by the CFO who would have previously assisted in preparing the forest management plan, and explaining the nature and provisions of the agreement to be entered into between the village panchayat and the CFAD. The management plan and agreement would be based on the proforma developed for the Hills (Project File, Item 2). The plan would include details of sites; procedures for fuelwood, timber and fodder collection; planting; protection; and distribution of produce. 3.17 Once the proposal has been formally agreed upon and DFO informed, village panchayats would be assisted with implementation through regular visits and supervision by CFAD and divisional community forestry staff. Local labor would be recruited for forestry and nursery operations and paid according to HMG rates. Seedlings, tools, fertilizer, and fenc- ing materials would be provided under the project. Tree Planting on Private Land 3.18 Villagers would be encouraged to plant trees on their own land near the homestead or along the boundaries of their fields. These would be mostly fodder trees, but some easily propagated fruit trees would also be planted. The target would be to raise about 100 trees on 50% of the farm holdings in the project area. This would be equivalent to 12,500 ha of plantation and assuming an 85% survival rate would require about 30 M seedlings. In addition, 2.0 M seedlings would be distributed for estab- lishing woodlots on land belonging to institutions such as schools, temples, hospitals, social clubs, etc. Seedlings would be provided free of cost (para. 3.08) but small quantities of seed, e.g., enough to raise 100 seedlings, would be made available at panchayat nurseries to farmers wishing to raise their own planting stock. 3.19 Because of misinterpretation and ignorance of forest rules, farmers are uncertain of the ownership rights to trees planted on private land. Prior to negotiations, FD provided a concise clarification of the forest rules which can be used to assure farmers of their ownership of trees planted by them on their holdings.  -16- Strip Plantations 3.20 In the project area there are about 250 km of roads and more than 300 km of canal banks and an unknown amount of land on river banks available for plantation. Some of the land on roadsides and canal banks has already been encroached by illegal settlement and its use for tree plantations would now pose severe litigation and sociological problems. It is estimated that the equivalent of about 2,550 ha of vacant land would be used for strip plantations during the project period. 3.21 Strip plantations would be planted by local labor, paid and supervised by community forestry staff (CF0 and CF). Forest watchers would be employed to protect the strip plantations, but minor forest products, e.g. grass, fruit, medical plants, would be available to the local population free of charge. Prior to negotiations, FD entered into agreements with the Ministry of Transport and Commnication and the Minis- try of Water Resources, which permit FD to establish, manage and harvest trees planted on roadsides, canal banks and river banks. A management plan for each plantation would be drawn up in consultation with the vil- lage panchayat concerned. This would contain procedures for establishing, maintaining, protecting and harvesting the fuelwood, poles and timber produced. Minor forest products (fodder, fruit, twigs, etc.) would be made available to panchayat inhabitants free of cost. River bank land is usually privately owned, but a continuous plantation is required to protect the bank and plantations in small areas by private individuals would be unlikely to be effective. CFAD would therefore organize and estabish plantations designed to stabilize river banks, after agreements had been reached with landowners and village panchayats regarding the maintenance, protection and ownership of trees (Project File, Item 3). Demonstration Woodlots 3.22 Throughout the Terai, but more specifically near remaining large forest blocks, there are small isolated blocks of degraded forest suitable for woodlots. Sites for woodlots to be established under the project would be selected jointly by the village panchayat forestry committee and DFO. This land would then be cleared by TCN (and where necessary, FCN), and used for demonstration woodlots to be established under CFO supervi- sion. CFO would arrange for planting and maintaining the woodlot for a four-year period, employing local labor for this purpose. Thereafter, protection would be the responsibility of the village panchayat. Manage- ment and distribution of forest products would be in accordance with the procedures outlined in paras. 3.11 to 3.13 and rules for operating PF (para 3.16). Details of woodlot planting and management are given in Project File, Item 4.  -17- Forest Department Agro-Forestry Plantations 3.23 Two blocks of degraded forests, 1,000 ha or more in size would be selected in each of four districts 1/ for conversion to plantations using agro-forestry methods. Planting would begin in project year 3. Fast-growing species would be planted to produce fuelwood and smaller quantities of poles and sawlogs. The existing forest cover would be cut by TCN and FCN. Residual trees and smaller stumps would be cleared by FD, mainly by hand, but using agricultural tractors where necessary. There- after, the land would be allocated in 0.5 ha lots to the landless, preference being given to those engaged as forest laborers. It would be used exclusively for agricultural cropping (mainly upland rice, maize, wheat and mustard) for one year before being pitted and planted with trees under the supervision of FD at the beginning of the second monsoon. Intercropping would take place for a further two years. Cultivators would be allocated 0.5 ha of newly cleared land each year so that from the third year onwards and for as long as their agreement with FD remains valid, cropping would take place simultaneously on three separate 0.5 ha areas. The forest rotation would be on a 10-year harvesting cycle, after which the area would again be divided into 0.5 ha lots and intercropping per- mitted for three years. Details of these operations are given in Project File, Item 5. Use of the land would be subject to a legal agreement between FD and each cultivator which would define the rules for the agro-forestry operation, including land tenancy arrangements and the responsibilities of each party. Assurances were obtained at negotiations that the format for this agreement would be furnished to the Association for approval not later than December 31, 1984 and utilized from May 31, 1985 onwards. Under the proposed project, staff, staff housing, offices, sheds, forest roads, a nursery, vehicles, a tractor and trailer and equip- ment would be provided for each agro-forestry block. Forest Improvement 3.24 Blocks of better quality natural forest would be managed through silvicultural improvement operations which would include removal of dis- eased trees and cutting climbing vines. Such blocks would be selected in each of the seven forest divisions of the project area, wherever possible, adjacent to other forestry operational areas for maximum convenience of both protection and supervision of the harvesting of resulting produce. Sawlogs would be removed by TCN and the remaining fuelwood made available to local villagers. The cooperation of the panchayat forestry committees would be sought to ensure that fuelwood headloads were collected only in 1/ Three of these have been tentatively identified in Bara, Chitwan and Morang Districts.  -18- the forest areas under active rehabilitation. Details of the forest improvement program are given in Project File, Item 6. Support for Forestry Department 3.25 Staff. The community forestry (PF, private planting, strip plantations and woodlots) and stove distribution programs would be imple- mented in the Terai through CFAD, which is presently responsible for these activities in the Hills. A Terai Community Forestry Project Unit (TCFPU) would be established under CFAD to be responsible for community forestry in the Terai in the same way that CPU (to be redesignated Hill Community Forestry Project Unit) is responsible for community forestry in the Hills. Assurances were obtained at negotiations that TCFPU would be established, and the post of Head of TCFPU created and then filled by an officer with suitable qualifications and experience not later than 30 days after credit effectiveness. The project would also finance three additional senior staff posts for SIU, MEU and MEDU (para 5.02) and a post of Deputy Chief Conservator of Forests (DCCF) for the overall direction and management of the enlarged CFAD. Assurances were obtained at negotiations that CFAD would be maintained and that the post of Head of CFAD upgraded and filled by an officer with qualifications, experience and TOR satisfactory to the Association not later than 30 days after credit effectiveness. 3.26 CFAD was established under CFDTP, but too few support staff were originally provided for its administration so that difficulties were experienced with accounting procedures. These difficulties led to delays in budget preparation and consequently to delays in release of funds from the Controller's office. Recently, steps have been taken to improve the situation by appointing 18 Accountants at divisional level and 2 more accountant posts have been requested for CFAD headquarters. With these appointments CFAD would have sufficient support staff for the proposed project. 3.27 Special units for carrying out operations in the natural forestry improvement program and establishment of large scale agro-forestry plantations would be set up under the DFO and the circle Conservators respectively (see Annex VI, Chart 24655). Incremental staff would also be provided for forestry research and to the Planning Division of MFSC for the preparation of a National Forestry Development Plan (para. 3.41). Details of incremental staff required under the proposed project are given below:  -19- Table 3.2: INCREMENTAL STAFF REQUIREMENTS Staff Number Professional staff Deputy Chief Conservator of Forests 1 Head of Terai Community Forestry Project Unit 1 Planning Officers, Silviculturists 3 Forest Officers 31 Rangers 101 Assistant Rangers 8 Forest Guards 5 Clerks 27 Accountants 8 Typists 12 Peons/Watchmen 41 Drivers 21 Tractor Operators 9 Forest Motivators/Stove Promoters 293 Forest Watchers 270 Field Supervisors 53 3.28 The positions of DCCF and Head of TCFPU would be filled by promo- tion. The phasing of recruitment for other professional and technical posts is given in Table 3.3, below: Table 3.3 Staff Recruitment Phasing Project Year Year 1 Year 2 Year 3 Year 4 Total Forest Officer Grade 13 15 5 1 34 Rangers and Asst. Rangers 27 53 28 1 109 3.29 FD has agreed that staff vacancies would be filled either by secondment from territorial forestry divisions in the Terai or by new trainees as they graduate from Hetauda (Diploma and Certificate holders), or by those returning from overseas training (Dehra Dun, India or Peshawar, Pakistan). It would be essential that recruitment into the project be arranged so that there is a mix of experienced and new staff. 3.30 To relieve the strain on manpower resources that the demands of the project would make, a number of technical and professional training courses would be financed, equivalent to the number of new positions created under the project (para. 3.39). On completion of these courses trainees would either take those posts in the project temporarily filled  -20- by staff on secondment or fill vacancies in the territorial divisions resulting from such secondment. 3.31 Housing. Much of the success of CFAD and FD activities would depend on regular and frequent visits by field staff to village panchayats and individual farmers, as well as supervision of plantation establishment and subsequent tending, all of which would be scattered over wide areas. It is, therefore, vital that field staff and their supervisors live near to their work to enable them to function effectively. At present, housing for rent in rural areas is limited and staff often live far from their work relying on public transport. To help overcome this, the project would construct housing units which would provide accommodation for 60% of forestry field staff. However, the use of rented accommodation would be encouraged wherever possible. Assurances were obtained during nego- tiations that HMG would ensure that field staff would live in the area assigned for their operations and for this purpose would provide such housing or rent allowances as necessary. Designs for houses to be con- structed under the project would be in accordance with existing government standards. Assurances were obtained at negotiations that land required for the project would be acquired by HMG. Table 3.4: HOUSING REQUIREMENTS Unit Cost NRs Thousand No. CFO 189 4 CR 113 46 Junior Staff 139 4 Inspection Quarters 83 7 Plantation Officers 189 5 Rangers/Assistant Rangers 86 23 Bunk Houses 166 8 Research Rangers 83 3 Research Forest Guards 69 3 3.32 Transport. It is important that staff be sufficiently mobile to properly carry out their responsibilities. To that end, the project would provide the following vehicles:  -21- Table 3.5: VEHICLE REQUIREMENTS Category Project Year Total 1 2 3 4 5 6 Cars 4 - - - - - 4 Pick ups 8 6 2 - - - 16 Motorcycles 36 8 15 - - - 59 Bicycles 7 33 - 13 - - 53 The project would provide funds for loans to FR, CR and Assistant Rangers (AR) to purchase bicycles, and following the system used by the Agricul- tural Extension Service, a small monthly allowance (NRs 30) would be paid to ensure maintenance of these bicycles. Assurances were obtained at negotiations that bicycle loans and allowances would be sufficient to encourage their purchase and use. Forestry Research 3.33 The Forest Survey and Research Office of FD has already con- ducted some research in the Terai. This has consisted of trials with eucalyptus, ipil-ipil and exotic pines. In addition, information has been collected on inter-cropping sissoo and eucalyptus plantations, with mus- tard, rice and wheat, and on the yields of some fuelwood species. Techni- cal assistance has been provided by the Australian and United Kingdom governments and by the Asian Development Bank. The amount and scope of the research effort must now be increased to provide a continuing flow of information and improved technology. The project would therefore provide staff, vehicles, buildings and operating expenses for an expanded research program in the topics listed below. (i) Species and Provenance Trials These would be conducted with several Eucalyptus species, sissoo, ipil-ipil, Robinia pseudoacacia and other promising species, in order to increase the availability of fast-growing plantation species and provenances. (ii) Improved Seed Seed collection would be upgraded in selected existing stands, seed orchards established and individual genetically superior trees identified.  -22- (iii) Nursery Practice Methods for raising quality stock at the lowest cost would be developed, and the effects of fertilizer, pot size, soil mixtures and root pruning measured on recommended species. (iv) Inter-cropping The inter-relationships of trees with crops (including fodder crops) would be investigated. (v) Silviculture Studies would be made of the effects on tree growth of seedling size at planting, pitting methods, fertilizer and management practices (thinning and coppicing). Tree growth under social forestry conditions in the Terai and yield under different harvesting procedures would be measured. Growth rates would also be measured in existing natural forest with a view to prescribing improved management plans. (vi) Bamboo Methods of propagation, planting and management on small farms would be studied. (vii) Poplar The techniques for poplar cultivation developed in India and Pakistan would be tested in Nepal. Improved Stoves 3.34 New stoves have been designed and tested in the Hills under CFDTP. These stoves reportedly require only half the amount of fuel used by the traditional Nepalese stove and can be manufactured from local clay at a small cost (approximately NRs 75 per stove). Assurances were obtained during negotiations that SIU would be maintained. Under the project, SIU would arrange for the manufacture of 20,000 improved stoves and their distribution among the households in the project area. During the project period, emphasis would be on testing, promotion and motiva- tion, and a wide dissemination of the stoves would be required. Since it would not be possible to sell the stoves at this stage, no charge would be made during the project period, but assuming that a demand had been created and a market developed, a charge would be levied under any future stove distribution program. Funds would be provided to purchase stoves from potters (who would be trained by SIU employed experts) and to employ stove promoters and installers (Annex II, Table 5). Installation would be  -23- done by locally recruited individuals who would receive training from CFAD and be paid at a rate of NRs 21.5 per stove installed. Research and development would also be supported by the project since the present stove design would have to be adapted to fit the sociological, economic and environmental conditions of the Terai. Monitoring and Evaluation 3.35 The project would provide funds to strengthen the existing MEU by adding a second qualified and experienced Forest Officer (Economist) to work in the Terai, assisted by a statistical tabulator and a FR for data collection. Funds would also be provided for local consultant firms to be employed on a contract basis to carry out socio-economic surveys designed by the Sociologist/Economist consultant employed under technical assis- tance. The consultant would also assist in setting up systems for project monitoring. Based on the information collected, MEU would suggest improvements for project implementation, assess villagers' acceptance of social forestry activities, and determine tree survival rates of the community forestry components. MEU would also participate in a mid-term evaluation of the project at the end of the third year of project implementation. MEU would produce six-monthly progress reports, each July and January, in phase with the fiscal year. The reports would give details of staff in each field unit and at headquarters, a summary of activities carried out during the preceding six months, targets achieved, and problems encountered during project implementation. Assurance were obtained at negotiations that MEU would be maintained under CFAD for purposes of monitoring and evaluating project progress, including prepara- tion of the mid-term review. Forestry Training 3.36 The shortage of trained forestry staff is a constraint limiting the rate of development of the forestry sector. Manpower requirements (including a 10% replacement of the existing establishment) have been estimated at 40 Forest Officers and 200 technicians (Assistant Rangers) annually.I/ In order to provide the facilities by which the necessary manpower could be trained in Nepal, the construction of the FI campus at Pokhara and the extension of FI at Hetauda were supported under CFDTP. It is now apparent that the provision under CFDTP was inadequate. The plinth area to be constructed was originally estimated at 9539 sq m at Pokhara and 2050 sq m at Hetauda. The requirements are now estimated to be 15191 sq m and 3658 sq m respectively. In addition, some essential items of civil works (such as a road, water supply and boundary wall) were 1/ Community Forestry Development and Training Project Staff Appraisal Report (IDA 2663a-NEP), pages 56-57, March 25, 1980.  -24- omitted from the original list of civil works. Finally, there have been substantial and unforseen escalations in building costs over the last two years. Details for the long-term development of the infrastructure required at both FI campuses are now complete and HMG proposes to phase its civil works construction program at Pokhara and Hetauda. The funds available under CFDTP would be used to construct the basic facilities required to enable the course at Pokhara campus to begin to function, and a student hostel at Hetauda. Both campuses would be completed under the proposed project by the provision of extra offices, houses, student hos- tels, and workshops at the Pokhara campus, and staff housing and an auditorium at Hetauda. The designs for all these buildings have been approved by IDA. The list of civil works for training institutions and the proposed phasing of construction is given in Annex 1, Table 6. Ade- quate teaching staff, equipment and vehicles have been provided under CFDTP. 3.37 In-service Training. To provide for the in-service training needs of CFDTP a Ministry of Forests Training Wing was established. Assurances were obtained at negotiations that MFTW would be maintained. To accomodate the extra courses required for the proposed project, the capacity of the MFTW center in Kathmandu would be increased by adding another story to the building now under construction, providing some equipment and an extra two man-years of technical assistance in course design and management (para 3.42). 3.38 Training Courses. The project would finance in-service train- ing by MFTW for DFO, CFO Plantation Officers and CR and basic training courses for junior staff (Annex II, Table 16). The training would largely be in the field of forestry extension but other courses would be offered (para 5.10). The CFO, assisted by CR, would arrange short courses in the field on forestry extension for Forest Motivators (para 5.04); nursery production for nursery foremen; and forest rules and protection for Forest Watchers; using curricula designed by MFTW. Assistance to CFO in conduct- ing these in-service field courses would be given by the Forest Officer appointed to MEDU (para. 5.02) and consultants recruited for the motiva- tion and education program in the field. Plantation Officers (para. 5.07) would arrange reorientation courses for subordinate staff engaged in plantation work. The quality of present training is satisfactory. However, to help strengthen the in-service training program to accomodate the increasing need for trained staff, the project would provide technical assistance (para 3.42 c). 3.39 Stipends and Scholarships. The project would fund the train- ing costs for 109 Assistant Rangers at FI and 34 Forest Officers at over- seas institutions. These are the numbers of additional trained staff required under the proposed project.  -25- 3.40 Provision would be made for 22 man-months of overseas training in the form of study tours for senior plantation and community forestry staff. It is proposed that visits be made to countries where development of community forestry, forest management, and methods of fire detection and suppression under tropical conditions, are well advanced. Visits to countries with long experience in the management of short rotation eucalyptus crops would be included. The project would also fund short tours for junior staff to neighboring countries. Forestry Development Planning 3.41 HMG has decided to produce a National Forestry Development Plan, which is to be based on a reliable inventory of forest resources and projected demands for forest products. Under this plan HMG would seek to integrate the large number of externally aided forestry development projects into a comprehensive development program for forestry in Nepal. During the preparation of this plan pricing policies for timber and fuel- wood would be reviewed and proposals made for revision of prices charged by TCN to bring them into line with prevailing market prices. Policy guidelines would also be set for the introduction of cheaper methods of reforestation, including the possibilities for leasing forests to firms and private individuals for tree farming. The preparation of the plan would require 15 man months of consultancy services (para 3-42). Experts in forestry planning and inventory would be appointed to work with MFSC Planning Division. Assurances were obtained at negotiations that such experts would be employed no later than June 1, 1985 with qualifications, experience and terms cf reference satisfactory to the Association. Assurances were obtained that the National Forestry Develop- ment Plan would be produced and forwarded to the Association for review before December 31, 1986. Technical Assistance 3.42 The concept of community forestry is new to the Terai. Since experienced forestry staff are scarce, the project would require substan- tial amounts of technical assistance, not only to assist in executing field planting programs, but also in helping with the training and research programs. The following technical assistance needs have there- fore been identified and included in the project. Draft terms of reference for consultants to be provided under technical assistance are given in Project File, Item 15. (a) Community Forestry Development Program - CFAD Central Office and Field Program (i) Socio-Economist (5 man-months); (ii) Stove Designer/Ceramist (10 man-months); (iii) Stove Technology Development and Training Expert  -26- (36 man-months); and (iv) Foresters (144 man-months) (b) Agro-Forestry Plantation (i) Plantation Adviser and Silviculturist (24 man-months); (ii) Silviculturist (30 man-months); (iii) Tractor Operator Training (4 man-months); and (iv) Fire Protection Specialist (8 man-months). (c) Training (i) Specialist in design and organization of in-service training courses (24 man-months); (ii) Training Institution Management Specialist (5 man-months); and (iii) Sociologist (6 man-months) (d) Research (i) Seed Production and Procurement Specialist (12 man-months) (e) Forestry Development Planning (i) Forestry planning expert (12 man-months) (ii) Inventory expert (3 man-months) 3.43 Technical assistance amounting to five man-months would be provided for a mid-term evaluation of project implementation. This review would serve as a basis for any adjustment of project objectives and programs, as well as for the design of any subsequent forestry project in the Terai. At negotiations, an assurance was obtained that the terms of reference and the membership of the review team would be agreed with IDA before June 30, 1986. Draft TOR are given in Project File, Item 14. Assurances were also obtained that upon completion of the mid-term review, the report would be furnished to IDA for review and comment. 3.44 Monitoring and evaluation of the project would require a series of surveys in the project area (para 3.35). The project would finance the equivalent of about eight man-years of local consultancy services to conduct these surveys.  -27- IV. COST ESTIMATES AND FINANCING A. Cost Estimates 4.01 The total estimated six year project cost is NRs 342.9 M (US$ 24.0 M), including price and physical contingencies. Cost estimates are summarized below and details are given in Annex II, Tables 1-21. Foreign exchange amounts to NRs 104.9 M (US$ 7.3 M) or about 31% of total project costs. Duties and taxes included in total costs are estimated at NRs 24.2 M (US$ 1.7 M). Cost estimates are based on findings during appraisal, updated to projected June 1983 values. The project would require about 36 man-years of consultancy services at an estimated total cost of US$1.8 M. The average man-month cost for local consultants is estimated at US$1,000 and for expatriate consultants at US$10,500, including salary, reimbur- sables, and international travel. 4.02 Physical contingencies of 10% have been applied to construction and maintenance costs of buildings and roads, and to fertilizers and chemicals. Price contingencies are estimated at about 26% of project base costs and are based on expected international price escalations of 7.7%, 7.2%, 6.5%, 6.0% 6.0%, 6.0%; and domestic price escalations of 9.0%, 8.0%, 7.0%, 6.0%, 6.0%, and 6.0% per annuR for 1983/84 through 1988/89. NEPAL SECOND FORESTRY PROJECT PROJECT COST SUMMARY tNRs. '000) (US$ '000) o Or ----------------------------- ----------------------- Foreign l of Total Local Foreign Total Local Foreign Total Exchange U8se Costs A. PROJECT COORDINATION 159 - 159 11 - 11 - 0.1 8. NATIONAL FOREST PLANNING 718 302 1.020 50 2i 71 29.6 0.4 C. COMMUNITY FORESTRY 1. PRIVATE PLANTING 8l,511 - 18S511 1,295 - 1,295 - 6,9 2. PANCHAYAT PLANTING 6,241 1,688 7,929 436 118 554 21.3 3.0 3. DEMONSTRATION PLANTINGS /a 15,144 1.876 17,020 1,059 131 119?0 11.0 6.4 4, STOVE DISTRIBUTION 3,160 280 3,440 221 20 241 8.1 1.3 5, OTHER COMMUNITY FORESTRY COSTS /b 39,111 9,143 48,254 29735 639 3,374 18.9 18.0 Sub-Total COMMUNITY FORESTRY 82,168 12.987 95,155 5,746 908 6,654 13.6 35.5 R. STATE AGRO FORESTRY 50,557 29,947 80.504 39535 2.094 5.630 37.2 30,0 E, NATURAL FOREST IMPROVEMENT 4.042 307 4,349 283 21 304 7.1 1.6 F. RESEARCH, TRAINING, TA AND MfE 14,959 28,541 436500 1,046 1,996 3,042 65.6 16.2 G. UNIVERSITY AND TRAINING SING 29,876 13.439 43,315 2,089 940 3.029 31,0 16.2 Total BASELINE COSTS 182,479 85,522 268,001 12,761 5,981 18,741 31.9 100.0 Phgsical Contingencies 5,219 3,214 8,433 365 225 590 38.1 3.1 Price Contingencies 50,347 16,136 66,483 3,521 1,128 4,649 24.3 24.8 Total PROJECT COSTS 238,044 104,873 342o?17 16,646 7,334 23,980 30.6 128,0 /a INCLUDES DEMONSTRATION WOODLOTS AND STRIP PLANTINGS /b CIVIL WORKSYSTAFFvNURSERY COSTSYVEHICLES AND EQUIPHENT ETC. SUPPORTINGTHE COMMUNITY FORESTRY COMPONENT Mau 13. 1983 11;.50  -28- B. Financing 4.03 Project costs would be financed as follows. Table 4.1: PROJECT FINANCING Foreign Exchange Local Currency Total US$ Million % US$ Million % US$ Million % HMG - - 4.8 29 4.8 20 IDA 7.3 100 10.7 64 18.0 75 Farmers - - 1.2 7 1.2 5 7.3 100 16.7 100 24.0 100 4.04 The IDA credit of US$18 M to HMG on standard terms would be equivalent to about 75% of total project costs, 81% of project costs net of taxes and duties, or 85% of project costs net of taxes and duties and net of farmers- contribution. It would finance the full foreign exchange costs amounting to US$7.3 M and about 64% of local costs amounting to US$10.7 M. HMG would contribute about US$4.8 M, of which US$1.7 M would be taxes and duties. Farmers and villagers would contribute about US$1.2M in the form of agricultural inputs. C. PROCUREMENT AND DISBURSEMENT 4.05 The construction of major civil works for training Institutions at Pokhara and Hetauda totaling US$3.OM would be procured by ICB in accordance with Bank guidelines. Eligible domestic bidders would be entitled to a preference of 7.5% in bid evaluation. The balance of construction to be financed under the project totaling US$1.4M consists of minor works and buildings scattered throughout the project area which are not likely to interest foreign bidders. These would be carried out either by force account (US$0.3M) or by locally advertized competitive bidding procedures (US$1.IM) which were found at appraisal to be satisfactory to the association. 4.06 Vehicles, totaling US$1.7M, would be grouped into appropriate bidding packages and procured by ICB in accordance with Bank guidelines. Eligible domestic manufacturers would receive a preference in bid evaluation of 15%, or the import duty, whichever is lower. Equipment and goods in packages less than US$100,000 in value and totaling approximately US$3.5M would be procured under local competitive bidding procedures which were found at appraisal to be satisfactory to the Association. 4.07 Disbursement of funds would be on the following basis: (a) 100% of foreign expenditures and 85% of local expenditures for civil works (US$3.5M);  -29- (b) 85% of local expenditires for civil works carried out by force account (US$0.3 M); (c) 100% of foreign expenditures for directly imported equipment, furniture and vehicles and 100% of local expenditures (exfactory cost) for locally manufactured goods and 75% of local expendi- tures for goods procured locally (US$4.0 M); (d) 100% of expenditures for training (US$0.9 M); (e) 100% of total expenditures for consultant services, including architects/engineers (US$2.3 M); (f) 50% (average) of local expenditures for salaries and project allowances for incremental staff engaged in the project (US$1.1 M), on a declining basis; 75% of expenditures in FY84, 85 and 86; 50% in FY87 and 88; and 25% in FY89; (g) 50% of local expenditures for project operating costs (US$4.5 M); and (h) unallocated (US$1.4 M). 4.08 Disbursements against civil works carried out by force account and by local contracts worth US$5,000 equivalent or less and (f) and (g) above would be made against statements of expenditure, certified by the Secretary of Forest or Joint Secretary of Education, whichever is appropriate. Documents supporting statements of expenditure would not be submitted to IDA for review, but would be retained by HMG and would be made available for inspection and review by accredited IDA representatives during project supervision. Requests for disbursement against other items would be fully documented. Disbursement estimates are given in Annex V. The disbursement schedule differs from the disbursement profile for IDA agricultural credits in South Asia, mainly in the mid-term period when disbursement under the project are expected to be rapid due to the comple- tion of investments in training programs and civil works at training institutions; and at the end, when delays would be unlikely since infrastructure would have been completed and disbursements would be mainly against staff and nursery operating costs. The disbursement schedule is reasonable in view of the experience gained with CFDTP where physical implementation targets have been met and delays in disbursement have been due to problems with administrative procedures which have now been largely overcome. Furthermore, changes in the system for release of funds to line agencies in project districts (para. 2.08) is ensuring prompt completion of financial statements on which disbursement requests can be based. The closing date would be June 30, 1990.  -30- D. Accounts and Audit 4.09 The accounting offices of HMG and Tribhuvan University were visited during appraisal and found to be adequate to carry out project accounting procedures. Assurances were obtained at negotiations that HMG and the University would: (a) record all project expenditure under a separate head of account in accordance with sound accounting practices, including separate accounts for statements of expenditure; (b) furnish to the Association as soon as available but not later than six months after the end of each fiscal year, certified copies of financal statements for the year; (c) cause the records and accounts to be audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; and (d) provide a statement by such auditors that funds disbursed against statements of expenditure had been used for the purpose for which they were provided. 4.10 Financial statements are internally audited by the Financial Controller of the ministry concerned (an officer seconded from the Account General's Office) and then forwarded to the Auditor General for external audit. The audit report is prepared by the Auditor General and after approval by the National Panchayat would be made available to IDA. V. ORGANIZATION AND MANAGEMENT Project Coordination 5.01 As various divisions of MFSC (FD territorial divisions, plan- ning, CFAD, etc.) would be responsible for carrying out project activities, it would be necessary to ensure coordination of these func- tions. Consequently, a Project Coordinator would have to be appointed and it would be a condition of credit effectiveness that CCF had been desig- nated Project Coordinator. In order to assist the Project Coordinator in his day to day duties an assistant would be appointed. Assurances were obtained at negotiations that the post of Assistant to the Coodinator would be created and filled with an officer with suitable qualifications and experience not later than 30 days after credit effectiveness. The Project Coordinator would also be assisted by the Project Coordin- ating Committee established under CFDTP, which would provide coordin- ation and cooperation between the diffrent Ministries involved in project implementation. The Committee is under the chairmanship of the Secretary for Forests and its membership includes the Director General  -31- Soil and Water Conservation, the Dean of FI, the Head of the Survey and Research Division of FD, the Director General of the Survey Department of the Ministry of Land Reform, and representatives from the Ministries of Panchayat and Local Development, Finance, Education and Agriculture. Representatives from the Ministries of Water Resources and Works and Transport and from NPC would also serve on the Committee. Assurances were obtained at negotiations that the Project Coordinating Committee would be maintained. Forestry and Agro-Forestry 5.02 Community Forestry. CFAD operations in both the Hills and Terai would be organized and managed by DCCF (see Chart). Under the proposed project, the CFAD support units (para 2.22) would be strengthened by the addition of three professional officers for motivation and education, monitoring and evaluation, and stove promotion (Annex II, Table 6). TCFPU would be added and take responsibility for community forestry and for technical support for the agro-forestry plantations in the Terai. CFAD would be responsible for technical direction, budgeting, and provision of funds through the District Accounting Offices. 5.03 The seven DFO, working under the head of TCFPU would be respon- sible for the overall development and administration of community forestry programs in the forestry divisions. They would each be assisted by a CFO (Class III officer) who would have received orientation training in comn- munity forestry from MFTW. The CFO would be responsible for all community forestry activities in a particular division and would be assisted in each administrative district, by five CR, who would be responsible for forestry extension and motivation, coordination of the stove program, monitoring and evaluation, control of community forest nurseries, and supervision of forest watchers, stove promoters, forestry motivators and stove installers. To establish PF and to develop a joint management plan, the CR would work as an assistant to the CFO who would be directly responsible for all management plans for the division. Job descriptions for CFO and CR are given in Project File, Item 12. 5.04 Part-time Forestry Motivators (FM) and stove promoters (SP) would be employed under the project at the village level and would be recruited either from among progressive farmers or literate village panchayat members. They would operate under the direction of CR. CFO or CR would train both FM and SP in simple communication and extension tech- niques, as well as provide comprehensive orientation concerning the project and its objectives at the divisional level. FM would coordinate operations in village woodlot establishment, private forestry, strip plantations and nursery production. However, the main task of the FM would be to promote the farm forestry scheme. The benefits from estab- lishing private plantations would be explained to farmers and records of individual plantings maintained. Farmers would be visited (individually  -32- or in groups) at least once a month to discuss problems that may arise from project implementation. If these cannot be solved satisfactorily they would be referred to CR or to CFO. In addition, FM would carry out simple administrative activities such as monitoring survival rates of trees, recording data from research trials at village and farmer's level, and provide a link between CR and the village panchayat, as well as CR and the farmer. 5.05 Experts recruited under technical assistance would be employed to assist DFO and CFO with training staff in motivation and extension activities. These experts would be guided either by the advice of the head of UNDP/FAO team presently employed on CFDTP or head of CFAD. 5.06 Improvement of Natural Forests. Forestry improvement would be implemented through a separate unit under the direct control of DFO. A Forest Officer (Attached Officer) would be provided together with a staff of one FR and one AR. 5.07 Agro-forestry. The agro-forestry plantation component would be under the direction of the circle Conservators. Plantation Officers would be appointed in each of the four districts in which plantation blocks are to be developed. The Plantation Officers would be responsible for land clearing, nursery production, agro-forestry, tree planting, roads, fire protection and vehicle maintenance, and would be assisted by teams of FR, AR, Field Supervisors, Accountants and Clerks. Details are given in Annex 11, Tables 12 and 13. Improved Stoves 5.08 The program for design, construction, and distribution of improved stoves would be organized by SIU, which has operated a similar program in the Kathmandu valley under CFDTP. A total of 700 stoves have been distributed and are well accepted by villagers. Contracts for research and development of stoves suitable for the Terai would be arranged with competent organizations (e.g. RECAST 1/ of Tribhuvan Univer- sity). Training of potters would be provided in Kathmandu and of installers at the proposed Pottery Training and Extension Center to be constructed at Bhaktapur with West German assistance. The stove improve- ment program is described in detail in Project File, Item 13. Part-time SP would be employed to encourage villagers to accept the new stoves. In this role they would be recruited and operate in a similar manner to FM (para 5.04) and under the direction of CR. They would visit villages to initially set up demonstration stoves at points of greatest impact (e.g. tea houses, schools). This would be followed by a second visit when new 1/ Research Center for Applied Science and Technology.  -33- stoves would be installed in houses selected to provide a demonstration to all castes and social classes. FD has agreed to establish procedures and criteria to ensure a fair and equitable distribution of stoves in the project area. Basic training in the use of stoves would be provided by CFO and CR assisted by SIU and other support available from CFAD. Forestry Research 5.09 The forestry research program would be directed by the Head of the Research and Mensuration Unit of the MFSC Forest Survey and Research Office. Community Forestry research would be coordinated by the existing Community Forestry Technical Committee, established under CFDTP. Training 5.10 In-service. MFTW has been set up under a Chief Training Officer to provide practically oriented in-service training in forestry and soil and water conservation. The number of courses would be increased to cover the needs of the project and additional courses offered on forestry in the Terai, reorientation, motivation and education, plantation establishment and planning and management. MFTW would also equip trainers at the divi- sional level with the necessary instructions and course notes to enable them to train nursery workers, FM and SP working in the divisions. 5.11 Professional. The Dean of the FI would be responsible for the organization and management of the technical training component. Overseas training and study tours would be arranged by the Project Coordinator. National Forestry Development Plan 5.12 The responsibility for preparing the National Forest Development Plan would lie with the Planning Division of MFSC. A broadly based plan- ning group would be established which would be assisted by the Experts in forestry planning and inventory recruited under technical assistance. The Forest Survey and Research Office would be responsible for providing data on the natural forest resources of the country, more particularly of the Terai. The inventory expert would assist in updating the assessment of growing stocks in this area by establishing temporary sample plots randomly distributed within forest areas delineated on the 1982 1:50,000 Land Utilization Maps. 1/ 1/ Published by Typographical Survey Branch, Kathmandu; relevant sheets are available in South Asia Information Center.  -34- VI. PRODUCTION MARKETS AND COST RECOVERY Production and Yields 6.01 The main products from forests established under the project would be fuelwood, timber, poles, fruits and fodder. Minor products of lesser economic importance would be bamboo poles and medicinal plants. Agricultural crops would be produced as a results of the agro-forestry program from the third project year onwards. Summary of production levels and yield estimates of the major products, such as timber, fuelwood, and leaf fodder are given below, with details in Annex III, Tables 1-2. Table 6.1: ESTIMATED YIELDS AND PRODUCTION Yields per ha at Total Project Product full development Production a/ Fuelwood 7 m3 6.4 M m3 Poles 1 m3 1.0 M m3 Timber 0.5 m3 1.4 M m3 Fodder 2.1 mt 1.7 M mt Fruit 1 mt 0.3 M mt a/ Over 40 year project period. Markets 6.02 All project produce would be marketed in the Terai. Because of the acute shortage of fuelwood, fodder, and timber, no marketing difficul- ties are foreseen. Fuelwood, poles, and sawlogs are marketed both through official government outlets (FCN and TCN), as well as through private auctions and smaller dealers. FCN and TCN prices are based on a no-profit, no-loss policy and include a royalty to HMG (see Annex I, Table 3) over and above that necessary to cover operating costs of FCN and TCN. These prices and royalties are adjusted periodically to reflect changes in operating costs. Private market prices are generally higher; about 17% above the official HMG prices. Fuelwood is sold in the Terai both by large and small dealers as well as individual collectors who often walk long distances to collect headloads for sale. The network of smaller dealers is informally linked to larger dealers and auctions in Kathmandu, Hetauda, and the Terai in general. Markets for timber and poles are also well established as are those for fodder, fruit, as well as agricultural crops. Market prices for all project products are summarized in Annex III, Tables 3-10. The present national demand for fuelwood alone is estimated at about 13 M m3/year. With a 6.4 M m3 total incremental fuel- wood production over the 40 year project life, or a 0.16 M m3 average annual incremental output, the project would have no major impact on  -35- market prices. Project incremental output for other commodities relative to demand is also small. Distribution of Produce 6.03 Forest products from farm forestry and institutional woodlots would be the property of the farmers or institutions concerned, to be used or disposed of in a manner determined by them. The produce from PF and demonstration woodlots would become the property of the panchayat to be divided among panchayat members in a manner determined and prescribed in forest management plans and in accordance with forest rules. The manner of disposal of produce from strip plantations would be determined by each management plan (para 3.22). However, it is likely that in order to ensure that villagers cooperate in the protection of strip plantation, it will be necessary that a substantial part of the harvest be allocated to them. 6.04 The majority of forest produce from land clearing needed for establishing agro-forestry plantations and arising from natural forestry improvement would be extracted and marketed by TCN and FCN (or the cor- poration which supersedes them (para 2.19)). Residual fuelwood and poles would then be harvested by local villagers for their own consumption, free of cost, under prevailing rules which allow for one head-load per day. Financial Results 6.05 Financial rates of return have been calculated using market prices for all inputs and outputs. In fact, most labor would be con- tributed in the form of self or family labor and most fuelwood would be consumed domestically. As calculated, therefore, the financial rates of return reflect existing market incentives for such operations. The finan- cial rate of return to villagers for their investments in community forestry would be approximately 38%; for panchayat plantings, 33%; and for agro-forestry, 21%. Details of the financial analyses for these activities are presented in Annex III, Tables 10-12. Cost Recovery 6.06 Villagers would harvest forest products mainly for their own use and under communal arrangements embodied in the forest management plans. Furthermore, there would be little cash income from community forestry. Abject poverty is widespread in the project area and the population would be unable to pay for the services provided under the project. No cost recovery is proposed for these components. This is a reasonable policy given the benefits expected to accrue to the poorer segment of the popula- tion, and in the light of experience with social forestry elsewhere, where it has proven difficult to arrange for an efficient and cost effective method for collecting numerous small fees.  -36- 6.07 Revenues would be collected by FCN and TCN from the sale of sawlogs, fuelwood, small timber and poles resulting from the agro-forestry and natural forest improvement programs. On this basis, the NPV of project costs, discounted at a rate of 10%, slightly exceeds the NPV of revenues by NRs 12.3 M (or 6.8 %). The financial rate of return to HMG would be about 6%. 1/ This is considered satisfactory in view of the employment generated, the forest products collected without charge by the local population, and the indirect benefits of improved living standards and environmental conditions. VII. BENEFITS, JUSTIFICATION AND RISKS Benefits and Beneficiaries 7.01 Project production would include fuelwood, timber, poles, fod- der, fruit, and agricultural crops. In addition, the project would result in increased employment opportunities, improved distribution of forest plantings, and increased accessibility to fuelwood by the rural poor. The project afforestation program would have the additional benefit of con- tributing towards arresting ongoing environmental degradation (para. 7.04), while the introduction of 20,000 improved stoves could result in savings of at least 5,000 mt (6,900 m3) of fuelwood annually over and above incremental annual production of some 116,000 mt (160,000 m3). By reducing the need for alternative forms of imported energy, the project would have a positive impact on the country's foreign exchange position. The project would have a positive impact on the standard of living of all panchayat residents. Those with some land would benefit from private plantations and from trees planted on field boundaries. Under the forest management plans agreed by the panchayat, residents, including the land- less who suffer from acute shortages of fuelwood, would be entitled to a share of the available fodder and fuelwood from panchayat forests, strip plantations and demonstration woodlots. They would also be permitted to collect headloads of fuelwood and fodder resulting from the operations of the natural forest improvement program and the agro-forestry plantation program. 7.02 Employment. Over the six year project period 8,000 ha of largely unproductive land, roadsides, and canal banks would be brought under production using labor intensive methods. In addition, labor would be employed in replanting degraded forest areas and in improving timber stands in existing forest. The anticipated total of about 2.5 M mandays of employment would largely benefit the disadvantaged and landless sec- tions of the community which are the usual source of manual labor. 1/ In real terms.  -37- 7.03 Food Production. Landless and forest laborers would be per- mitted to grow crops as part of agro-forestry techniques for forest estab- lishment. At full operation of the agro-forestry component, annual production, in terms of foodgrains would be 4,500 mt; enough to satisfy the needs of about 5,600 families. 7.04 Environmental Impact. The major environmental benefits of project forestry activities would be soil conservation, protection of rural water supplies, micro-climatic improvements and restoration of soil fertility. Economic Analysis and Rates of Return 7.05 The return of the project to the economy has been calculated separately for each component and for the project as a whole. The follow- ing assumptions have been made in the analysis: (a) all costs have been included except those related to the con- struction of the university and training wing; (b) both benefits and costs are expressed in end 1982 constant border prices (net of local taxes and duties); (c) project benefits include production of fuelwood, timber, poles, fodder, fruit, and minor agricultural crops; (d) incremental project inputs and outputs are valued in economic terms as detailed in Annex III, pages 1-3 and Tables 3-9. Economic value of traded commodities are based on their projected world market prices; non-traded commodity prices are adjusted by an appropriate conversion factor. Because of exist- ing markets for fuelwood (para 6.02), as well as for alternative fuels (cow-dung, kerosene, etc.) in the Terai, the market price of fuelwood is taken as the basis upon which the economic price is calculated (see Annex III, Table 5). (e) the exchange rate is taken at a constant NRs 14.3 = US$1; the standard conversion factor is taken to be 0.9; (f) the average financial wage rate is taken at NRs 10/manday; the economic wage rate at 50% of the financial wage, adjusted by the SCF; (g) physical contingencies have been included; and (h) the period of analysis is taken as 40 years, the period needed for full production.  -38- 7.06 Using the above assumptions, the best estimate for the economic rate of return is 27% (based on 84% of project costs). The Nepalese economy would realize net benefits from project investments (at an oppor- tunity cost of capital of 10%) of about NRs 285 M. Economic rates of return for the individual components are summarized below: Table 7.1: ECONOMIC RATES OF RETURN BY COMPONENT Rate of Return Project Overall 27 Community Forestry 30 Demonstration Woodlots 19 Improvement of Natural Forests 100 + Agroforestry 100 + 7.07 Sensitivity tests indicate that the economic rate of return for the project as a whole, as well as for individual components, is not particularly sensitive with respect to price, yield, and cost changes. Summary information is presented below. More detailed analysis can be found in Annex III, Table 15. The results indicate that benefits (i.e. prices or yields) would have to fall considerably (65%) below expected values before the net present value would become zero. A similar, but greater, insensitivity of the project rate of return exists with respect to costs. Table 7.2: SENSITIVITY ANALYSIS Sensitivity a/ Values All Costs + 190 All Benefits - 65 a/ Percentage change in variable which will make the net present value, at an opportunity cost of capital of 10%, equal to zero. Project Risks 7.08 The project faces no major risks in terms of unsatisfactory rate of return since the sensitivity analysis shows that large changes could  -39- occur either in costs or benefits before the project would become economi- cally non-viable. Furthermore, large increases in costs or decreases in benefits are improbable. Variations in fuelwood price over time have been minimal and the generally stable long-term nature of fuelwood production make short-term price fluctuations uncommon. Fuelwood will likely remain the basic energy source for the majority of the population. Risk levels for the individual project components are also low (Annex III, Table 15). 7.09 The project aims at fostering community involvement in affores- tation programs and forest protection, with the initiative for participa- tion coming from the panchayats. There is a risk that the number of village panchayats willing to participate may not reach the targets set. However, a survey of social attitudes (Project File, Item 8) clearly indicates the interest of individuals in forestry enterprises of both an individual and community nature. With the assistance and experience of MEDU and MEU and a reorientation of forestry staff towards the methodology required for successful implementation of community forestry programs, the risl:s from panchayat apathy and ignorance are considered to be low. Monitoring the progress of the project, including the survival rates for seedlings planted on private land would be continuous, and the mid-term review would enable the project-s goals and targets to be adjusted so that its impetus is maintained and its achievements are satisfactory. VIII. RECOMMENDATIONS 8.01 During negotiations, assurances were obtained that: (a) CFAD would make the necessary production inputs available to village panchayat nurseries when needed (para 3.08); (b) HMG would arrange sufficient finance for credit for private nurseries through ADBN (para 3.09); (c) nursery production inputs would be furnished to private nur- series; and seedlings purchased each season beginning May 1, 1984, at prices not less than the equivalent of production costs of FD nurseries, less costs of production inputs (para 3.09); (d) the format for an agreement between FD and agro-forestry cul- tivators would be forwarded for IDA's approval by December 31, 1984 and utilized by May 31, 1985 (para 3.23); (e) CFAD would be maintained, and a Terai Community Forestry Project Unit would be established for conducting forestry programs in the Terai (para 3.25);  -40- (f) the head of TCFPU post would be created and filled by an officer with suitable qualifications and experience not later than 30 days after credit effectiveness (para 3.25); (g) the post of head of CFAD would be upgraded and filled by an officer with qualifications, experience and TOR satisfactory to IDA not later than 30 days after credit effectiveness (para 3.25); (h) field staff would live in their area of operation and would obtain housing or rent allowance for this purpose (para 3.31); (i) land required for the project would be acquired by HMG (para 3.31); (j) loans and maintenance allowances would be provided for the purchase and use of bicycles (para 3.32); (k) SIU would be maintained (para 3.34); (1) MEU would be maintained under CFAD for monitoring and evaluating project progress (para 3.35); (m) MTTW would be maintained (para 3.37); (n) Experts in forestry planning and inventory would be employed to assist with the preparation of the National Forestry Developmerit Plan with qualifications and terms of reference satisfactory to IDA before June 1, 1985 (para 3.41); (o) the National Forestry Plan would be prepared and forwarded to IDA for comment and review before December 31, 1986 (para 3.41); (p) TOR and membership of the mid-term review team would be agreed with IDA before June 30, 1986 (para 3.43); (q) upon completion of the mid-term review, the report would be furnished to IDA for review and comment (para 3.43); (r) separate accounts would be kept and audited annually by an independent auditor acceptable to IDA; financial statements to be certified and submitted to IDA within nine months after the close of the fiscal year (para 4.09); (s) the post of Assistant to the Coordinator had been created and filled by an officer with suitable qualifications and experience not later than 30 days after credit effectiveness (para 5.01); and  -41- (t) the Project Coordinating Committee established under CFDTP would be maintained (para 5.01). 8.02 A condition of credit effectiveness would be: (a) that CCF had been designated as Project Coordinator (para 5.01). 8.03 With the above assurances and conditions, the project would be suitable for an IDA credit of $18.0 M on standard IDA terms. The Borrower would be His Majesty's Government of Nepal.  -42- ANNEX I Table 1 NEPAL SECOND FORESTRY PROJECT Main Physical Forestry Targets in Sixth Plan Program Unit Target Protection and Improvement of Forest ha 82,189 Afforestation ha 33,545 Checkdam Construction ha 2,000 Families to be Re-settled Family 30,158  -43- ANNEX I Table 2 NEPAL SECOND FORESTRY PROJECT Forestry Sector Revenue and Expenditure (NRs) Fiscal Revenue Expenditure Year Regular Development 1976/77 86,858,456 442,268 22,748,679 1977/78 80,858,458 488,505 36,380,317 1978/79 80,364,843 619,887 38,268,382 1979/80 80,983,494 641,004 45,106,873 1980/81 112,350,000 N/A N/A  -44- ANNEX I Table 3 NEPAL SECOND FORESTRY PROJECT Forestry Royalty Rates Current Rate Roundwood Royalty Rates Timber Species (NRs/ft3) Dar, Sagban (Teak), Okhar, Satisal 22.30 Champ, Sisoo 19.40 Sal 13.00 Khair 30.00 Asna 7.20 Toon 5.30 Jamun, Karma 6.20 Tikul, Shaur, Bijaysal, Siris, Phaldu, Sandan, Padan, Bonji 5.00 Somal 4.70 Bhudkul, Gutel, Pipali 3.75 Chiluani, Ghamari, Katus 3.00 Utis, Lampata 1.80 Khotta Salla (Chir Pine) 5.30 Other kinds of pine 4.40 Deodhar 3.45 Firs, Spruce 2.80 Kimbu 6.25 Miscellaneous spp. 1.20 Khair stump per stump 50.00 Fuelwood Royalty Rates (NRs/stack) a/ Household use 214 For commercial purposes 322 For export 428 a/ One stack of 20 x 5' x 5 equivalent to 1 truck load of 80 quintal. Source: Forestry Department of Nepal  -45- ANNEX I Table 4 NEPAL SECOND FORESTRY PROJECT Current International and Bilateral Assistance in Forestry Financing Agency Rasuwa-Nuwakot (Hills) WB/HMG Kosi (Hills) UK/HMG Sagarmatha (Terai and Hills) AsDB/IFAD/HMG Chautara (Hills) Australia/HMG Gurkha-Mustang-Khulkani (Hills) USAID/HMG Lamsangu-Jiri (Hills) SATA/HMG Tinal Khola Catchment (Hills) GTZ/SATA/HMG Rapti Zone (Hills) USAID/HMG Karnali-Bheri (Hills) CIDA/HMG Community Forestry Development in 28 Hill Districts IDA/USAID/UNDP/HMG Sagarnath (Terai) AsDB/OPEC/HMG  -46- Annex 1 Table 5 NEPAL SECOND FORESTRY PROJECT Departments of Ministry of Forests and Soil Conservation Departments Forest Department Department of National Parks and Wildlife Department of Soil Conservation and Watershed Management Department of Medicinal Plants Department of Drug Administration Planning Department Cooperatives and Companies Timber Corporation of Nepal Fuelwood Corporation of Nepal Forest Products Development Board Resettlement Company Royal Drugs Company Herbs Production and Processing Company  -47- Annex I Table 6 Page 1 NEPAL SECOND FORESTRY PROJECT Civil Works at Institute of Forestry, Hetauda and Pokhara I. Civil Works to be provided under CFDTP: NRs '000 A. Pokhara Classroom building 2,921 1/ Laboratory building 2,959 Library 1,831 Administrative block 2,000 Student hostel 6,426 Staff housing 3,030 Site development 2,000 B. Hetauda Hostel 3,883 C. Architectural and Engineering Fees 1,852 Total - 26,902 II. Civil works originally under CFDTP to be financed under Forestry II: A. Pokhara Workshop building 1,840 Common building 1,259 Administrative block 1,400 Student hostel 6,167 Staff housing 6,030 B. Hetauda Staff housing 3,124 Bachelor quarters 944 Auditorium 712 Total - 21,520  -48- Annex I Table 6 Page 2 III. Civil works not included under CFDTP to be financed under Forestry II: Pokhara site development 7,517 (Water Supply Road, paths, boundary wall, etc.) Hetauda site development 163 Furniture 2,167 Architect's fees 2,315 Total - T27r62 1/ Mid 1982 prices  -49- ANNEX II Table 1 NEPAL SECOND FORESTRY PROJECT Project Component bY Time ; NRs. '000) Base Costs Total 83/84 84/85 85/86 86/87 87/88 88/89 NRs. (USS '000) A. PROJECT COORDINATION 26 26 26 26 26 26 159 11 B, NATIONAL FOREST PLANNING 350 58 153 153 153 153 1,020 71 C. COMMUNITY FORESTRY 1. PRIVATE PLANTING - 343 1,371 3,771 5,828 7I199 1B,511 1,295 2. PANCHAYAT PLANTING - 528 1,088 19828 2,200 2,286 7,929 554 3. DEMONSTRATION PLANTINGS /a - 1,015 2,834 4,017 4,483 4,672 17,020 1,190 4. STOVE DISTRIBUTION 968 540 483 483 483 483 3,440 241 5. OTHER COMMUNITY FORESTRY COSTa /b lO987 5,455 6,616 7,711 8S223 9,262 48,25'4 3,374 Sub-Total COMMUNITY FORESTRY ll955 7YB80 12,392 17,810 21,216 23,902 95,155 6,654 D. STATE AGRO FORESTRY - 24,329 15,424 13,518 16,139 11,093 80,504 5,630 E. NATURAL FOREST IMPROVEMENT 167 969 803 803 803 803 4,349 304 F. RESEARCH, TRAINING, TA AND MIE ?9987 13,770 11,317 4,366 2,672 1,388 43,500 3,042 G. UNIVERSITY AND TRAINING WING - 27,794 13,311 737 737 737 43,315 3,029 Total BASELINE COSTS 22,485 74,828 53,426 37,413 41,746 38,102 268,001 18,741 Phssical Contingencies 584 3,681 1,912 720 805 733 8,433 590 Price Contingencies 946 9,761 11,549 11,036 15,656 17r536 66,483 4,649 Total PROJECT COSTS 24,014 88y270 66,B86 49,169 58,206 56,371 342,917 23,980 Taxes 4,201 9,806 5,095 1,705 1lS68 2,062 24,737 1,730 Foreign Exchange 11,446 39,235 21,737 11,619 11,856 8,981 104,873 7,334 /a INCLUDES DEMONSTRATION WOODLOTS AND STRIP PLANTINGS /b CIVIL WORKS,STAFF,NURSERY COSTS,VEHICLES AND EQUIPMENT ETC. SUPPORTINGTHE COMMUNITY FORESTRY COMPONENT _-- 1____ 1983 __ 1__ __ __ _ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ MaS 13Y 1983 11.049  NEPAL SECOND FORESTRY PROJECT FARM . INSTITUTIONAL * AND PANCHAYAT PLANTINGS Detailed Cost Table Base Costs 2uantitY (Nks. '000) ---------------------------------------------------t----------- -------- Unlt ---------------------------- Unit 83/84 84/85 85/86 86/87 87/88 88j89 Total Cost 83184 84/85 85/86 86/87 87/88 88189 Total 1. INVESTMENT COSTS A. PRIVATE PLANTINGS PLANTS FOR FARM PLANTINGS - 480Y000 1.9209000 6,000,000 9,600,000 12,000,000 30,000,000 0.6 - 274.2 19097.0 39428.0 5,484.9 6.856.1 17,140.2 PLANTS FOR INSTITUTIONAL PLANTINGS - 120.000 480.000 600000 600,000 600.000 2,400,000 0.6 - 68.6 274.2 342.8 342.8 342.8 1,371.2 Sub-Total PRIVATE PLANTINGS - 342.8 1,371.2 3,770.8 5,827.7 7,198.9 186511.4 B. PANCHAYAT PLANTINGS ____________________ 1. MATERIALS PLANTS - 400,000 600,000 1000000 1,000.000 1000.000 4,000.000 0.6 - 228.5 342.8 571.3 571.3 571.3 2P285.4 WIRE kg - 10,000 15,000 25,000 25,000 25,000 100,000 14.2 - 141.7 212.6 354.3 354.3 354.3 19417.0 FERTILIZER kg - - 14,000 21,000 35,000 35,000 105,000 5.8 - - 80.6 120.9 201.5 201.5 604.4 LEGUME SEED - - - - - - - - 2.2 3.2 5.4 5.4 5.4 21.6 Sub-Total MATERIALS - 372.4 639.2 1051.9 1,132.5 1,132.5 4,328.4 2. LABOR LAYOUT AND SURVEY ad - 600 900 1,500 1,500 1,500 6,000 10.8 - 6.5 9.7 16.2 16.2 16.2 64.7 FENCING ad - 2,000 3.000 5,000 5,000 5.000 20,000 10.8 - 21.6 32.3 53.9 53.9 53.9 215.6 STAKING ad - 800 1,200 2,000 2,000 2,000 80ooo 10.8 - 8.6 12.9 21.6 21.6 21.6 86.2 PITTING nd - 6,400 9,600 16,000 16,000 16,000 64,000 10.8 - 69.0 103.5 172.5 172.5 172.5 689.9 PLANT DISTR ad - 200 300 500 500 500 2,000 10.8 - 2.2 3.2 5.4 5.4 5.4 21.6 PLANTING ad - 4,400 6,600 11,000 11,000 11.000 44,000 10.8 - 47.4 71.1 118.6 118.6 118.6 474.3 FILLING BLANKS td - - 1,200 1,800 3,000 3.000 9,000 10.8 - - 12.9 19.4 32.3 32.3 97.0 FERT APPLICATION ad - - 2,800 4,200 7,000 7,000 21,000 10.8 - - 30.2 45.3 75.5 75.5 226.4 SOWING LEGUME FODDER cd - - 1,000 1Y500 2,500 2,500 76S00 10.8 - - 10.8 16.2 27.0 27.0 80.9 WEEDING ad - - 15,000 28.500 50,500 58.500 152,500 10.8 - - 161.7 307.2 544.4 630.6 1,644.0 Sub-Total LABOR - 155.2 448.4 776.2 1,067.2 1.153.5 39600.5 Sub-Total PANCHATAT PLANTINGS - 527.6 1,087.6 1,828.0 2,199.7 2.285.9 7,928.9 Total INVESTMENT COSTS - 870.4 2,458.8 5,598.9 8,027.3 9,484.8 26,440.3 Total BASELINE COSTS - 870.4 2,458.8 5,598.9 8,027.3 9,484.8 269440.3 Mas 13, 1983 1148 x - - - - - - - - - -- -- -- - -- - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - -- - - - -- -- - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - -  NEPAL SECOND FORESTRY PROJECT ROAD AND CANALSIDE AND RIVERBANK PLANTINGS Detailed Cost Table Base Costs Quarititv (NRs. 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