Nepal - Hill Community Forestry Project

Document of The World Bank FOR OFFICIAL USE ONLY I t a0;28e_w;2. Report No. 763lb-NEP STAFF APPRAISAL RE.PO7T NEPAL HILL COMMUNITY FORESTRY PROJECT MAY 10, 1989 Agriculture Operations Division Asia Region Country Department I This document has a restricted distibution and may be used by recipients only in the performance of their offlcifl duties. Its contents may not otherwise be disclosed without World Bank authorizaton.  CURRENCY AND EQUIVALENT UNITS Nepalese Rupee (NR) = 100 paise US$1.00 (January 6, 1989) - NRs 25.50 WEIGHTS AND MEASURES 1 meter (m) = 1.09 yards (yd) = 3.28 feet (ft) 1 kilometer (km) - 0.62 miles (mi) 1 square kilometer (km2) = 100 hectares (ha) 1 hectare (ha) = 10,000 m2 (0.01 km2) = 2.4)1 acre (ac) 1 cubic meter (m3) = 35.315 cubic feet (ft3) 1 kilogram (kg) = 2.2 pounds (lb) 1 metric ton (m ton) = 1,000 kg = 2,205 lb ABBREVIATIONS ADAB - Australian Development Assistance Bureau ADB - Asian Development Bank CFDD - Community Forestry Development Division (of FD) CFO - Community Forestry Officer CIDA - Canadian International Development Agency DANIDA - Danish International Development Agency DFO - District Forest Officer DFPR - Department of Forestry aud Plant Research (of MFSC) DGF - Director General of Forests, also the Project Coordinator EEC - European Economic Community FAO/CP - Food and Agriculture Organization of the United Nations/ Cooperative Program PD - Forest Department (of MFSC) FINNIDA - Finnish Tnternational Development Agency GTZ - Deutsche Gesellschaft Fur Technische Zusammenarbeit HMG - His Majesty's Government of Nepal IFAD - International Fund for Agricultural Development LRMP - CTDA-assisted Land Resources Mapping Project MFSC Aistry of Forests and Soil Conservation MPLD istry of Panchayat and Local Development ODA -erseas Development Administration of the Government of the United Kingdom Panchayat - 2lected Local Administration at District, Town and Village Levels PF - Panchayat Forest lands PPF - Panchayat Protected Forest lands SAC - Structural Adjustment Credit provided by IDA SATA - Swiss Agency for Technical Assistance TD - Training Division (of MFSC) UNDP - United Nations Development Programme USAID - United States Agency for International Development FISCAL YEAR July 16 - July 15  FOR OFFICUIL USE ONLY NEPAL HILL COMMUNITY FORESTRY PROJECT Table of Contents Page No. CREDIT AND PROJECT SUMMARY .............................................. i I. INTRODUCTION ............................. ............... 1 II. BACKGROUND .. 1 A. General Economic Situation and Forestry Sector ........ _1 B. HMG's Strategy for Forestry Development ................... 2 C. Forestry Institutions .................................... 5 D. External Assistance ...................................... 6 E. IDA's Strategy for Forestry Deveiopment .................. 7 F. Rationale for IDA Involvement .10 III. THE PROJECT ................................................ 10 A, Project Area . .10 B. Project Objectives and General Description . .11 C. Project Components .. 12 D. Project Implementation . . 21 IV. PROJECT COSTS, FINANCING. AND DISBURSEMENTS . . 24 A. Project Cost Estimates ......................... 24 B. Financing Plan ................. 25 C. Procurement .25 D. Disbursements .28 E. Accounts and Audit .29 V. ORGANIZATION AND MANAGEMENT . .30 A. Project Organization .30 B. Monitoring and Evaluation .34 C. Review and Coordination among Staff and Donors .35 VI. DEMAND, PRODUCTION, AND FINANCIAL IMPLICATIONS . .35 A. Demand and Usage of Forest Products .35 B. Production and Yields .36 C. Cost Recovery .37 VII. BENEFITS, JUSTIFICATION. AND RISKS . . 38 A. Project Benefits ....................................... 38 B. Economic Analysis ....................................... 39 C. Environmental Impact .................................... 42 D. Risks and Remedies ...................................... 43 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS ...................... 44 This report is based on the findings of an appraisal mission which consisted of Ms. Ai-Chin Wee (mission leader), Messrs. Orhan Baykal, Ajit Banerjee, and William Magrath (IDA), Ms. Kirsten Evers-Andersen. Messrs. Henrik Hvidberg-Hansen and Erling Nielsen (DANIDA), and Mr. Mark Treacy (Consultant). This document has arestricteeddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise bedisclosed without World Bank authorization.  TABLES IN THE TEXT 3.1 Foreign Technical Assistance Requirement .. . 21 3.2 Indicative Phasing of Project Activities .. . 23 4.1 Project Cost Summary ...................................... . ... 24 4.2 Proposed Financing Plan .... 25 4.3 Procurement . ... .... ..................... ..... ... 26 7.1 Rate of Return and Sensitivity Analysis .. . 42 ANNEXES 1. Ongoing Community Forestry-Related Projects in the Hills ...... 46 2. Cases of Successful Village Forest Management ................. 47 3. List of Pro3ect Districts .. ............ 51 4. Detailed Cost Tables Table 1: Institutional Support ... 52 2: Forest Resource Management .......................... 55 3: Training and Extension . . ............................ 56 4: Research .......................... . .. . ... .60 5. Training Program .. ......... . .... 61 6. Operational Action Program .. ... 62 7. Terms of Reference for Expatriate Consultants ............. 65 8. Project Cost Summary Table l: Project Components by Year ....... 72 2: Summary Accounts by Froject Components .............. 73 3: Summary Accounts by Year ...... ... .. 74 9. Project Financing Table 1: Financing Plan by Proiect Components .... 75 2: Financing Plan by Summary Accounts .................. 76 3: Proposed Credit Allocation . ......................... 77 4: Disbursements of Financiers by Semester ............. 78 10. Incremental Staff Requirement . . ............................... 79 11. Documents and Data Available in Project File .... 80 CHARTS 1. Organization Chart 1 - The Principal Functions of MFSC ........ 82 2. Organization Chart 2 - PD . ...... 83 MAP IBRD 21343Rs Project Area  - i - NEPAL HILL COMMUNITY FORESTRY PROJECT Credit and Project Summary Borrower: Kingdom of Nepal Beneficiaries: Ministry of Forests and Soil Conservation (MFSC) Department of Forests (PD) Department of Forest and Plant Research (DFPR) Forest User Groups Amount: SDR 23.5 million (US$30.5 million equivalent) Terms: Standard, with 40 years' maturity. Cofinanciers: DANIDA will provide a grant of US$6.9 million, and UNDP will provide a grant of US$0.5 million, as part of an ongoing US$2.3 million project. Project Description: The proposed project would help His Majesty's Government implement important components of its Forestry Master Plan and Forestry Sector Policy, by helping to establish a system to conserve and expand the forest resources which sustain traditional farming systems in the Hills. Forest User Groups would be formed among villagers to protect, manage, and utilize areas of State-owned forests in their vicinity. FD staff would be trained to provide technical and materi- al assistance to enable these Groups to properly manage the existing forests and establish and maintain new plantations in degraded areas. The project would be implemented by MFSC, FD, DFPR and the User Groups over a period of seven years in the Hill Districts of Nepal. The project would consist of four components: (a) An Institutional Support com- ponent which would strengthen FD's organization to enable it to identify and establish about 4,000 User Groups and transfer management responsibility for some 400,000 ha of forest land to them; (b) a Plantation Establishment and Management component, under which at least 56,300 ha of forest would be established, and about 18 million seedlings would be distributed to farmers for private planting; (c) a Training and Extension component which would communicate HMG's Community Forestry policy to FD staff and the Lommun- ities, and improve the technical and managerial capa- bility of both FD and the communities to manage the forest resource; and (d) a Research component which  - ii - would help DFPR to generate improved silvicultural techniques to conserve and increase the productivity of forest resources, and socio-economic information on resource utilization to permit better planning. The project would provide technical assistance, civil works, vehicles, equipment, materials, and additional staff. IDA would provide retroactive financing of US$3.0 million to procure materials and equipment, and to initiate plantation establishment. Benefits and Risks: With these inputs, the project would conserve and stabilize a fragile ecosystem, as well as regenerate and expand Nepal's hill forest resources by promoting fLrest resource management over some 400,000 ha of forest land and 56,300 ha of new plantations. Over 100,000 years equivalent of full-time employment would be generated in the incremental production of some 45 milliorL tons of fuelwood and fodder and 4.3 million m3 of timber. The project would help reduce erosion, sedimentation, and the severity of flash flooding, often attributed to the removal of forest cover in the Hills. Providing improved access to fuelwood and fodder to local users would also benefit women, who spend increasingly long hours collecting these and other forest products to provide for farm and family. By enabling a guaranteed supply of needed products, the project would improve the living and working conditions of rural women. The main project risks are that (a) FD staff may inadequately implement HMG's community forestry policy, although to mitigate this risk, MFSC would issue clear procedures and instructions to its staff, undertake an intensive training and reorientation program, and create a strong monitoring system to supervise the effort; (b) local communities and User Groups may be slow in anderstanding the new policy or in assuming related responsibilities, although extension activities and provision of incentives would minimize this risk; and (c) local bureaucracies and User Groups may face conflict of interest for the use and management of forest resources--this risk would be minimized by clearly defining the role and functions of User Groups, their benefits from participation, and technical and financial support for their forestry development activ- ities. Measures to mitigate th6se risks and introduce -ecessary incentives have been included in the project sesign and conditionalities as required.  - iii Proiect Cost: 1/ Project Component Local Foreign Total C- (USS million) ----- Institutional Support 6.86 0.82 7.68 Forest Resource Management 19.31 - 19.31 Training and Extension 3.30 4.02 7.32 Research 0.33 0.02 0.35 Total Baseline Costs 29.80 4.86 34.66 Physical Contingencies 0.26 0.31 0.57 Price Contingencies 9.58 0.58 10.16 Total Project Cost 39.64 5.75 45.39 1/ Net of taxes and duties, which are negligible. Financing Plan Financier Local Foreign Total ----- (US$ million) ----- IDA 30.00 0.55 30.55 DANIDA 2.16 4.69 6.85 UNDP - 0.51 0.51 HMG 4.33 - 4.33 User Groups 3.15 - 3.15 Total 39.64 5.75 45.39  - iv - Estimated IDA Disbursements: FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 ------------------------(US$ million)----------------------- Annual 0.7 2.3 3.0 3.0 3.0 4.0 5.0 5.0 4.5 Cumulative 0.7 3.0 6.0 9.0 12.0 16.0 21.0 26.0 30.5 Economic Rate of Return: 36Z  NEPAL HILL COMMUNITY FORESTRY PROJECT I. INTRODUCTION 1.1 In line with its major concern to sustain Hill farming systems and arrest forest depletion and environmental degradation, His Majesty's Govern- ment (1MG) requested IDA's assistance to implement its Community Forestry program in the Hills. The first IDA..assisted Community Forestry Development and Training Project started in 1980 in response to HMG's intention to place most of the country's resources under the management of local communities. The Forest Rules of 1978, the Decentralization Act of 1982 and Rules of 1984, subsequent modifications through the Amendments of 1988, as well as the new Forestry Master Plan and Forestry Sector Policy have defined HMG's intentions in increasing detail (para. 2.7). The local communaities, in particular the Forest User Groups, would be responsible for utilizing, protecting, and man- aging those forest areas which they have traditionally accessed for their needs and which would now be assigned to them formally. Recognizing security of tenure as a condition for interest in resource protection and maintenance, the proposed project envisages a large-scale transfer of management responsi- bility over forest lands to the communities, thereby establishing a resource base for social, economic, and environmental betterment in the Hills. The proposed project would also be the first major effort to implement the new Forestry Master Plan and Forestry Sector Policy. It would provide imple- menting agencies and communities with the financial, technical, and organ- izational sutpport needed to institutionalize community forestry as a long-term resource management system in the Hills. II. BACKGROUND A. General Economic Situation and Forestry Sector 2.1 Landlocked between China and India, Nepal occupies an area of 147,484 km2. Nepal's population was estimated at 17.' million in 1987, and growing at 2.72 p.a. Nepal's overall population density with respect to cultivable land (590 persons per km2) substantially exceeds that of Bangladesh, India, and Pakistan. Despite 30 years of organized development efforts supported by growing external assistance, Nepal lags behind most other Asian countries in terms of almost all indicators of economic and social welfare, and remains one of the poorest and least developed countries in the world. Per capita GNP in 1987 amounted to only US$160. 2.2 Nepal can be roughly divided into three broad ecological regions: the Terai (lowlands), the Hills, and the Mountains, covering 172, 68Z, and 15Z, respectively of the country's total area. The resource base for crop production is severely limited by the rugged terrain. About 21Z of total land area is under agriculture, which contributes nearly 602 of total GDP and  - 2 - sustains 90Z of the population. Another 35Z is under natural forest (34Z) and forest plantation (1X), 52 under degraded forests and shrublands, 112 under grasslands, and the remaining 282 under park reserves, barren land or otherwise uncultivated. 2.3 In the Hills, where 48? of the population lives, forests are an integral part of the subsistence farming system and provide 402 of the fodder for livestock, leaf litter for livestock bedding and compost making, and fuel- wood for household energy. The Forestry Master Plan estimated annual fodder and fuelvood consumption in the Hills to be 3.8 and 3.3 million m tons, growing at 1.72 and 2.02, respectively. Population pressure has resulted in the cultivation of marginal lands, a decline in soil fertility, and the rapid depletion of grasslands and forests as sources of fodder and fuel. Up to 682 of forest and pasture land in the Hills and 182 of that in the Terai are now classiried as degraded as a result of over-utilization, mainly for fuelwood and fodder.l/ Over the next 25 years, it is estimated that about 600,000 ha of natural fo-ests will be lost to deforestation, overgrazing, and expansion of agricultural land, despite the projected development of about 1.1 million ha of plantation and unmanaged natural forest.2/ 2.4 Due to the wide range of climatic and topographic conditions across the country, almost every known forest type (except for tropical rain forest) is found in Nepal. Forests above an altitude of 2,600 m consist mainly of conifers with some hardwoods, but much of this forest is overmature and in- acceseible. The forests between 300 m and 2,600 m are quite diverse, compris- ing blue pine (Pinus sp.) and oak (Quercus sp.) which predominate at higher altitudes, gradually giving way to chir pine (Pinus roxburghii), Prunus, Castanopsis, Schima, and Alnus spp. at medium elevations, and to sal (Shorea robusta), a hardwood, at lower elevations. Hill forests, despite being frag- mented and overharvested, have gcod regeneration capacity and potential value. The sal forest of the Terai, comprising 0.5 million ha or about 9? of total forest area in Nepal, is the only remaining forest of commercial significance in Nepal. It also supplies the bulk of the fuelwood used in urban areas. Many hardwood species can easily be coppiced and therefore, if managed properly, can provide fuelwood and fodder almost indefinitely at very low cost. B. HMG's Strategy for Forestry Development 2.5 Forest Legislation. Under the Private Forest Act of 1957, Nepal nationalized practically all of its private forests except for small tracts of isolated woodlots. However, it was the Forestry Act of 1961, with its sub- sequent amendments and subsidiary rules, that became the basic law governing forest administration in Nepal. It established a strong State authority over the forests, and incorporated traditional forest laws which deal with the demarcation of State forests, exclusion of private rights in State forests, 1/ Nield, R., Fuelvood and Fodder Problems and Policy, Water and Energy Commission Secretariat, Kathmandu, Nepal, 1985. 2/ According to Forestry Master Plan (para. 2.7).  - 3 - sale and distribution of forest products, and offenses relating to State forests. The Forest Protection (Special Arrangements) Act of 1967 attempted to further strengthen the State authority, but it has never be.n enforced. Although these rigorous laws still remain on Nepal's statute books, forest policy became more relaxed in the mid-1970s, and three sets of rules--the Panchayat Forest (PF), Panchayat Protected Forest (PPF), and Leasehold Forest Rules--were passed in 1978 to involve communities and private concerns in the development, management, and protection of forests. The first two sets of rules enable the handing-over of denuded forest lands or areas of State forests to nearby Panchayats either as PF (degraded forest areas that need to be repianted and protected to re-establish forest cover) or PPF (forested areas), for their protection and management, and suggest modes for the distri- bution of forest products or the proceeds from their sale. These Rules en- abled the implementation of the first IDA-assisted Community Forestry Project, but are now considered inadequate to devolve responsibility and incentive for protection dorm to the level of the local forest users. 2.6 Forestry Sector Policy. HMG's Forestry Sector Policy, first declared in the Sixth Five-Year Development Plan (1981-85), emphasizes the protection and improvement of the forest areas and protection of the environment. Special emphasis was placed on having the community participate in achieving these objectives, particularly in the management, conservation, and utiliza- tion of forest resources. Since 1978, the Forest Rules have been amended to reflect HMG's increasing recognition that sustainable community forest devel- opment can only be achieved by devolving forest management to the level ef the forest User Groups and their committees. This belief, which echoes HMG's recent Decentralization Policy, is again highlighted in HHG's new Forestry Sector Policy of 19E8 (Annex 11, item 1). The new Policy stresses people's participation in forestry resource development, management and conservation, and the legal and organizi.tional frameworK needed to enhance the contributions of communities and forestry institutions to forestry devclopment. It states unequivocally that the PF and PPF Rules of 1978 need to be improved to promote true community forestry in the spirit of decentralization, and proposes the following strategy: (a) phased handing-over of all accossible hill forests to the com- munities which are willing and able to manage them; (b) Panchayats to entrust the task of protecting and managing the forests to User Groups, who would receive the revenue arising from this forest resource and spend it on forest improvement; (c) formulation of management plans and simple management agree- ments to reguiate harvesting, management, and reforestation; (d) exercise of daily management decisions by users' committees, of which at least one-third of the members should be women; and (e) retraining of MFSC staff for their new role as advisors and extensionists. 2.7 Forestry Sector Development Plans. The first plan for forestry developrent in Nepal was implemented frem 1957, the year in which all forests  - 4 - were nationalized without compensation. It recognized the critical demand for forest products and made the provision of fuelwood for people a priority goal of Government. The strategy was ^to maintain a proper balance between nature, population and environment.' Huwever, it was not until the Fifth Five Year Plan (1975-80) that it was recognized that forestry development in the densely populated Hills depended on cooperation with the local population. In 1980, the concept of community forestry was put into effect through the first IDA- supported Community Forestry Developm%ie and Training Project (Credh 1008-NEP). Assisted by ADB and FINNIDA, HHG completed and adopted in 1983 a Forestry Master Plan for the next 22 years (Annex 11, item 2) which identified ways to expand and manage the forest resource to meet the basic fuelwood, fodder, and timber requirements of the people of Nepal. The plan proposed to do this throughs (a) improving the productivity of some 1.1 million ha of existing forests through intensive forest management by the State and communities; (b) expanding the wood production base by establishing some 0.5 million ha of State, community, and private plantations; and (c) reducing the rate of growth of demand for fuelwood by introducing alternative fuels and energy-efficient stoves. 2.8 The Forestry Master Plan and Forestry Sector Policy have the major objective of meeting the basic needs of the people for fuelwood, fodder and timber. This is an appropriate objective for a society -where most of the population ib rural and lives at subsistence levels. The emphasis on decen- tralized community forestry is also appropriate since demand for fuelwood and fodder is dispersed and has to be met within a short distance of a very large number of human settlements, unlike large urban concentrations of demand which can be more easily supplie,d from state-controlled forests and depots. Both the Forestry Master Plan and Forestry Sector Policy acknowledge the nature of the forest-based rural economy in Nepal and advocate a transitionary stage of strong St&te involvement in establishing and institutionalizing community- managed forestry for the longer-term. They ;all for a review of the existing forestry program and projects to bring them into line with the long-term de- velopment objectives for the sector. The Ministry of Forests and Soil Conservation (MFSC) and its Departments would continue to maintain, screen and guide new development projects to ensure that they are compatible with these long-term objectives. 2.9 HMG has demonstrated i.s commitment to the cause of community foras- try by clearly declaring its Forestry Sector Policy, effecting changes in its Forestry Rules, reorganizing MFSC and FD in line with the development objec- tives of the Master Plan, and setting development targets in its Forestry Master Plan. However, while the Panchayat Farest and Panchayat Protected Forest Rules devolved responsibility and control over forest protection and management from the FD to the level of the Panchayats, this still inhibits wholehearted efforts to develop awareness and responsibility at the level of the forest users, who ultimately will determine the success of the program.  2.10 In 1982, HMG enacted Nepal's Decentralization Act, which sought to decentralize governmental authority in order to enable people to take deci- sions dnd make arrangements themselves in matters relating to their day-to-day needs. The Act describes the context of HMG's intentions, while the Rules or Working Arrangements of 1984 and subsequent amendments to the Rules provide the detailed procedures for implementation. The original aim of introducing the user group ("Consumers' Committee") concept in the Decentralization Act was to ensure the local population's participation in, and subsequent commit- ment to, the maintenance of infrastructure created through HMG investments in the districts. It was thought then that such participation and commitment could be generated by putting a liability on the local village Panchayat to form user groups to execute partic-ilar development schemes. 2.11 The Decentralization Act and Rules thus went beyond the original Forest Act and Rules of 1978, which designated the village Parchayat as the local institution for forest management. A 1988 amendment to the Panchayat Forest and Pan'shayat Protected Forest Rules of 1978 subsequently adopted the concept of the user group by making a reference to current decentralization law. This, however, still endows the village Panchayat with the right *o form user groups and their committees, which would be chaired by ward or Panchayat chairmen, with no provision to form the user's committee through election from among the beneficiaries. The Rules also empower the Panchayat to formulate Working Plans and utilize forestry revenues for forestry activities. Addi- tionally if activities are not carried out as per the Working Plan, the Panchayat can dissolve the users' committee and form another one to take its place. Local experience has found these provisions to be powerful disincen- tives to local users' full participation in the protection and management of the forest resource, a commitment which is fundamentally important for long- term sustainabil.ty. In general, the Village Panchayat is usually too large a unit and too far removed to supervise and manage local forests which are util- ized by local inhab'cants. The proposed project therefore seeks to devolve the level of participation and decision-making to that of the actual users who would be formed into forest User Groups (paras. 3.8-3.10, and 5.9-5.10). C. Forestry Institutions 2.12 MFSC is responsible for managing and protecting forest resources in Nepal. MFSC has four Departments reporting to an Additional Secretary; these are: (a) Department of Forests (FD); (b) Department of Forestry and Plant Research (DFPR); (c) Department of Soil Conservation and Watershed Management; and (d) Department of National Parks and Wildlife Conservation. MFSC also supervises the Forest Products Development Board, the Nepal Rosin and Turpentine Industry Ltd., and the Herbs Production and Processing Company Ltd. At headquarters, MPSC has four Divisions (Training, Communication and Extension, Monitoring and Evaluation, Survey and Statistics) which report to a second Additional Secretary, and a Planning and Administration Division which reports directly to the Secretary (see Organization Chart 3). 2.13 FD is the oldest and by far the largest of MFSC's Departments and has an extensive field organization (Chart 2). It is headed by the Director General of Forests (DGF), who oversees four Division Chiefs in charge of  - 6 - Planning, Forest Administration, Forest Management and Utilization, and Community Forestry Development. The field organization consists of five Regional Directorates headed by Regional Directors, and 75 forest Districts, each headed by a District Forest Officer (DFO). Each District forest office supervises two to five Ranges. There are a total of 222 Range Offices, each headed by a Ranger, who is responsible for all forestry operations within his territory and has some administrative and judicial authority with respect to forest regulations. Ranges are further divided into beats, each under the charge of an Assistant Ranger. Existing Range offices handle territorial duties which include policing to protect the state's forest estate. As an important departure from this tradition, the Forestry Master Plan envisages the eventual establishment of 453 Forest Service Centers which, being dispersed, would be better placed to perform extension services to promote private and community forestry. There are a total of 5,915 approved staff posts in FD. These include 150 professional foresters, 521 forest rangers, 1,043 assistant rangers, 2,476 forest guards, and 1,725 administrative staff. 2.14 At the field level, the DFO is the member-Secretary of the Industry, Forest and Soil Conservation Committee, which is one of five sectoral Plan Formulation Committees responsible for preparing inputs for the District Annual Development Plan. In this capacity, the DFO compiles funding require- ments for forestry sector development based on development plans for community forests (under PF or PPF) or national forests under his jurisdiction. At present, the furctions of FD's Regional Directors are not well defined, with the result that they are not fully integrated into the chain of command be- tween DGF aad DFO. The project proposes to strengthen the Regional Directorates as an important intermediate level between headquarters and the district level for organizing, coordinating, and supervising the implemen- tation of the forestry development program (para. 5.4). 2.15 Forestry Training. The first professional forestry course was estab- lished at the Hetauda campus of the Institute of Forestry in 1981 and was later transferred to the Pokhara campus. The Institute offers a three-year Bachelor's program in forestry for about 40 students each year. Forest tech- nicians obtain training at the two-year certificate course in Pokhara and Hetauda Forestry Schools. Both schools are adequately staffed and equipped. About 110 students are admitted to each of these schools every year, and grad- uates enter the forest service as Assistant Rangers. In-service training is provided by MFSC's Training Division (TD), which was established in 1980. D. External Assistance 2.16 Since the early 1970s, the international community has become in- creasingly interested in helping Nepal develop its forest resources, espe- cially in the Lills. At present, twelve externally-assisted projects provide support for community forestry development activities in Nepal. IDA, ADB, USAID, ADAB, EEC, UNDP, FINNIDA, IFAD, ODA, CIDA, GTZ and SATA are the main supporters of the forestry development prograums in Nepal (Annex 1). The as- sistance provided by these agencies is either channeled through projects con- sisting only of forestry activities or others in which forestry activities are part of a multisectoral development project. Tihe forestry projects supported  by these agencieb cover areas of work such as forest sector planning, commer- cial forestry operations, community forestry, resource inventory, and forestry research. In training, the Institute of Forestry is assisted by USAID, while FINNIDA has recently proposed a comprehensive program to provide training assistance for staff at all levels. 2.17 External assistance to the forestry subsector has been marked by lack of coordination among the donors. However, regular informal meetings of these donors have recently been initiated in Kathmandu. A more coordinated approach is evolving through the recent adoption by HMG of the new Forestry Master Plan, under which umbrella, development inputs and programs are identified for donor assistance. To implement the Master Plan, a strong Planning Division, and a Monitoring and Eval_-..tion Division would be established within MFSC, a development proposed to be su ported by FINNIDA and USAID. This proposed project would become the lead vehicle to implement the community forestry program as proposed in the Master Plan and Forestry Sector Policy. By helping to develop operational procedures for involving local er Groups in its im- plementation, the project would enable both the lmplemeuting agencies and donors to cootdinate their approaches towards community forestry development in Nepal, along the lines envisaged by HKG. E. IDA's Strategy for Forestry Development 2.18 IDA's Forestry Sector ReW'ew of 1978 identified two key problems which are still relevant today--the rural energy crisis, and the environmental deterioration caused by overutilization of forests--and recommended stepping up rural afforestation by encouraging local community participation. Apart from population pressure in the Hills, the main constraints to forestry dev- elopment were identified as shortages of trained forestry staff and resources to initiate and maintain a large-scale forest resource development program. IDA's strategy ror assisting forestry development in Nepal has evolved from funding investment programs (mainly plantations, training and extension), to policy interventions, attempts to help HMG integrate its policy pronouncements with its operational procedures and instructions to its field staff, and assistance to implement sound forest management strategies that take into account the valuable experience gained by various donor efforts to date. IDA's particular concern in assisting a strong community forestry development effort stems from the experience of previous assistance projects (paras. 2.19-2.24), but also from observations of successful local community forestry management (Annex 2). 2.19 Credit 1008-NEP. IDA's assistance in Nepal's forestry sector began in 1980 through this US$17.0 million Credit for the Community Forestry Development and Training Project. The project aimed to develop community forestry in the Hills by involving local communities (Panchayats) in forest management and protection. To enable this, training and institutional support was provided. Started in 1980, this project covered 29 Hill Districts and has established community forests on 15,000 ha (compared to target of 12,000 ha) of denuded forest land as PF, and has been able to hand over only 18,000 ha (compared to 39,000 ha) of degraded natural forest as PPF. These plantations were established by the FD using local contract labor, and planted according  - 8 - to FD designs which did not always reflect the needs or preferences of local users. The plantations and other PPF forest areas that were handed over by FD to the Panchayats effectively excluded the common villager from decision- making regarding the use -^ the resource and revenues generated therefrom, sustaining the notion that local users could not be entrusted with protection of the forest estate. Therefore, while FD formally vested these responsibil- ities with the Panchayats, the local users continued to use, and often deplete a resource which was necessary for their livelihood. Although the management of PF and PPP was nominally handed over to Panchayats, in fact FD undertook the establisnmeat, maintenance, and protection of these areas. About 3.7 million (compared to a target of 0.9 million) seedlings were also distributed to farmers for private planting, and 16,000 fuel-efficient cookstoves were installed. A new division, the Community Forestry and Afforestation Division (CFAD),3/ was created to organize project implementation. The project also provided assistance for improving training facilities at Hetauda and Pokhara campuses and in Kathmandu. This five-year project, which was extended by two years, was completed on January 6, 1989. The Project Completion Report is yet to be prepared. 2.20 The project successfully attained most of its physical targets and institutionalized ths community forestry approach within Nepal through a net- work of nurseries and plantations. It also successfully instituted a monitor- ing and ev.alation system, communications and publicity support, silvicultural manuals and regular workshops and training sessions. However, the project was less successful in transferring management responsibilities to the Panchayats. One reason for this is that the procedures used by FD to demarcate and hand over areas as community forests were restrictive and cumbersome. (HKG has since removed the acreage ceilings set on land that can be transferred from the state forest areas into PF and PPF areas.) Second, the Panchayat, an administrative organization, was not the appropriate body for managing local community forests which were generally small and rarely coincided with Panchayat boundaries. Third, it took time to build up and orient the exten- sion capability of FD towards working with local users. Fourth, the forest management plans formulated by FD were not always appropriate to the tradi- tional utilization patterns of the communities nor simple enough to allow communities to take over responsibilities for their implementation. Fifth, there was a lack of clear instructions and operational guidelines for FD staff to devolve their authority and management responsibility to the level of the local community. 2.21 Despite these shortcomings, HMG recognizes that community forestry remains the only means of sustainirg the Hill farmer and reversing environmen- tal degradation in the Hills, and that the impediments to more successful implementation can be removed. A move in this direction is already under way. The Decentralization Act of 1982 and its Rules of 1984 introduced the concept of the user group ("Consumers' Committee"), whose needs would form the basis for ational development programs. While this concept is a major departure from that of the community being represented by the Panchayat, community par- ticipation still needs to devolve to the level of the local users. If suc- cessful, this approach would lead to a large-scale and systematic allocation of forests to user groups which would induce the communities to claim and 3/ This has since been renamed Community Forestry Development Division (CFDD).  - 9 - manage the forests which they regularly utilize. Improved extension efforts frcm the FD would likewise induce user groups to come forward to assist in plantation establishment on denuded areas. MFSC and FD would thus be enjoined by both higher-level decision makers and the user groups to fully implement the Community Forestry policy of HMG in response to the communities' needs. While there have been significant positive changes in the attitudes of the FD towards community forestry, there needs to be further development of the skills they need to work with local groups. 2.22 Credit 1400-NEP. IDA's involvement in the forestry sector continued with this US$18.0 million Credit for a Second Forestry Project in 1983. This six-year project covers 14 administrative Districts in the Terai. The project aimed to establish State, private, community and agro-forestry plantations and to improve selected natural forests in the Terai. During the past three years, progress in implementing seedling distribution for private planting, and in establishing road and canalside plantations has been good. However, very little progress has been made on improving existing forests and estab- lishing agro-forestry plantations. This shortcoming is partly due to certain design problems, including lack of a clear HMG policy regarding allocation of land for PF and PPF plantations; FD reluctance to hand over PF and strip plan- tations to Panchayats/User Groups; and problems of administration and liaison between project and FD headquarters. Project performance is expected to improve significantly following the Mid-Term Review in 1988, during which HMG agreed to implement proposals to resolve current problems. Lessons learned from Credit 1400-NEP which would be avoided in the proposed project include (a) the need to clearly identify areas to be handed over (para. 3.7); (b) agreement on policy issues regarding formation and handing over lands to User Group management (para. 3.10); and (c) details of support to User Groups (para. 3.11). 2.23 Credit 1727-NEP. This IDA-assisted Rasuwa-Nuwakot Rural Development Project, which became operational in 1987, includes a forestry component that reflects HMG's Community Forestry policy. FD is responsible for implementing the forestry component, which would be guided by and administratively inte- grated with the proposed Hill Community Forestry Project when this becomes operatior.l. 2.24 Credit 1769-NEP. Through this first Structural Adjustment Credit (SAC), which became effective in 1987 and was completed in 1988, IDA was in- volved in developing an appropriate policy environment for the implementation of the Community Forestry program in Nepal. The conditionalities of this Credit included the following, which were achieved: (a) removal of ceilings on land that could be allocated from state forests to PF or PPF; (b) a study by HMG of the effects of regulations governing the use of forest products grown on private land with a view to reducing such controls; (c) modification of legal and administrative regulations concerning revenue collection to allow Panchayats to retain the entire revenue realized from the sale of forest products; and  - 10 - (d) entitlement of Forest Committees formed within the Panchayats to control forest revenues. The results of (a) and (b) have beenT to enable a better rationalization of the use of forest land and resources from restrictive state guardianship towards greater decision-making by the communities. Items (c) and (d) have devolved such decision-making to the Panchayats. A later attempt to modify this by asking that User Groups be empowered to retain sales revenues and enter into work contracts was agreed to by HMG, but not fully incorporated into the subsequent 1988 amendments to PF and PPF Rules which clearly retain these powers in the hands of the Panchayats. F. Rationale for IDA Involvement 2.25 The proposed project would support the single most important measure to be undertaken by HMG in its attempt to arrest environmental and agricul- tural deterioration in the Hills. In line with HMG's Forestry Master Ilan and Forestry Sector Policy, it would promote active local participation and con- tribution by local forest users towards the development of community forests. This would be achieved by a large-scale transfer to forest User Groups of responsibility for the protection and management of those Hill forests which hill farmers rely upon to sustain their livelihood. The project would extend and build on successful examples of this, which exist on a smaller scale all over Nepal (Annex 2). The responsibilities of FD staff will change signif- icantly from protecting the forest resource to encouraging and facilitating local communities to -ssume this role. Such a change requires substantial reorientation of attitudes and functions on the part of implementing agencies to ensure that meaningful solutions are found to redress development problems at the local level. Building on existing working relationships with the implementing agencies, IDA's involvement and support for implementation of this program will help to ensure that these far-reaching changes will start to be realized. III. THE PROJECT A. Project Area 3.1 The proposed project would support a program activity iui an area of about 5.6 million ha in the Hill Districts. Initially, it would be concen- trated in 37 out of 55 Hill Districts which do not presently have Community Forestry projects supported by other donors (Annex 3). However, its coverage could be extended into any of the other Hill Districts where User Groups can be formed and forest areas transferred in accordance with the Operational Guidelines being developed by MFSC (para. 3.11). The terrain in these Hill Districts is rugged, due to the numerous hills which rise gradually toward the north and merge with the main Himalayan range. Most of the valleys are sparsely inhabited, partly because malaria has been a problem and partly because the valley floors tend to be very narrow. However, the hillslopes  - 11 - between 1,000 and 2,000 m elevation are mostly under intensive terrace culti- vation and are among the most densely inhabited parts of Nepal. Such areas have little remaining productive forest apart from shrubs. Above 2,000 m, cultivation occurs in dispersed locations and settlements are scattered. Above 2,400 m, large-scale cultivation almost ceases. The combined population of the Districts in the project area is 5.4 million with an average density of 96 persons per km2- 3.2 About 242 of the project area is under cultivation. Another 50? comprises forests and shrublands, and the remainder is grassland. The eco- logical conditions vary greatly, and about 30 types of vegetation are found in the area. The Hill farming system relies on close integration between fores- try and farming. Forests provide fodder and leaf litter for animals, which generate compost for the fields. The present human and livestock population has resulted in over-intensive land use, which has accelerated the natural geological process of erosion and run-off, especially where the soils are fragile. Forests have to be conserved and replenished to enable sustained livelihood in the Hills. 3.3 There are few roads in the project area, and several days' travel on foot is needed to reach many of the Panchayats. Telephone contact is also limited. These factors explain in part the low level of commercial activity in the project azea. B. Project Obiectives and General Description 3.4 The main objective of the project is to mobilize people and resources in the Hill Districts to establish a forest management system which would conserve and expand the forest resources needed to sustain traditional farming systems and livelihood in the Hills. To this end, FD extension staff would identify and assist farmers to organize themselves into User Groups estab- lished with rights of use over State-owned forest lands which they have tradi- tionally used. Since 1956, these lands have remained under government protec- tion and local inhabitants have been allowed limited access. One of the basic instruments of HMG's new community forestry policy is a return of management responsibility over forest resources to the local communities which share their use. FD would also train and provide technical and financial assistance to enable User Groups to protect, improve, and maintain existing forests, or establish forests in degraded areas that they would manage. These efforts would improve the Hill villager's access to fuelwood for energy, supplementary forage (tree fodder and grass), leaf litter for compost, and timbar for con- struction. They would also help to rehabilitate over-utilized areas, improve the vegetative cover which is essential for conserving soil and regulating water regimes, and protect the environment. 3.5 Under the project, User Groups would have the right to decide how to manage and utilize their respective fore'ts, and be provided technical assis- tance from FD. Because the users are heavily dependent on forest products, this entitlement would give them incentive to manage their forests properly and should ensure that this resource is not depleted. Resource utilizatiorn would be regulated by simple Operational Plans to be drawn up in agreement be-  - 12 - tween User Groups and FD. FD would assist User Groups with extension advice about appropriate forest management techniques and options open to them, and assist the Groups to formulate Operational Plans which state the objectives and implementation arrangements. Financial assistance would be provided to help User Groups employ local villuge foresters to manage and protect the forests and to implement the Operational Plans; this assistance is only for the initial three years during the transition from FD to User Group manage- ment. The implementation arrangements and User Group uptake would be closely monitored and evaluated throughout the project. 3.6 The project would be implemented over a period of seven years by MFSC through its Training Division, its FD, and its DFPR and User Groups. In line with its objectives, the project would include the following four components: (a) Institutional Support to PD, including support for identifi- caticn of Community Forestry lands and User Group formation; (b) Forest Resource Management, including Seedling Production and Distribution, Plantation Establishment, Forest Management, and Management of Plantations established under the previous project (Credit 1008-NEP); (c) Training and Extension; and (d) Research. Details of each of these components are given in Part C below, and in Annex 4, Tables 1-4. C. Project Components Institutional Support (US$9.96 million) 3.7 Identification of Lands for Community Forestry. It is expected that at least 400,000 ha of forest land, both Panchayat Forest (PF) and Panchayat Protected Forest (PPF), would come under community management during the pro- ject period; this will represent about 352 of the forest areas that are reg- ularly accessed by rural communities in the Hills. To enable and accelerate the handing-over process, FD would obtain LRMP land use maps which are avail- able from the Topographic Survey Branch; obtain planning information for each project District; and, using these, fairly rapidly identify those areas of state forests that would be handed over for management by local forest User Groups to be formed for this purpose. The rest of the forest meanwhile would continue to be maintained as National forests by the territorial staff of FD. FP would initially concentrate extension efforts and User Group formation in five Districts, one in each region. Agreement was reached at negotiations that, by December 31, 1989, MFSC would obtain LRMP maps and relevant planning information for all project Districts and identify those areas of State forests which will be handed over to local User Groups (para. 8.1(a)).  - 13 - 3.8 Formation of Forest User Groups. The project would support the for- mation of forest User Groups, formed around their shared interest in the es- tablishment, protection, and sustained use of their forest resources. These Groups would consist of those individuals recognized as having traditional rights for the use and management of a particular forest area, hence the size of Groups in different localities would vary. Groups could be formed to manage PF and/or PPF lands as follows: (a) Groups comprising traditional users of existing forest (PPF). Here the Group would agree to protect, maintain and utilize the forest in ways acceptable to the FD, and as defined in the Operat!onal Plan, in return for FD recognizing their rights for continued access, use, and sale of excess products; (b) Groups formed to replant, protect, and manage degraded forest areas that need to be replanted and protected to re-establish forest cover (PF). Here the Group would contribute labor for all operations (for which they would receive support payments (paras. 3.15, 3.19)) in return for being able to utilize the forest products as specified in the agreed Operational Plan. 3.9 At the local level, the DFO, Forest Ranger, Local Development Officers, and community leaders would explain HMG's Community Forestry policy and prog.ams, and how groups would be formed. In many cases, User Group for- mation is a matter of recognizing groups that already exist. The Ranger/DFO would confirm his lists of interested participants witil the concerned Village Panchayats, which serve as a clearinghouse to determine legitimate interest, decide equitable access for affected households, and resolve any potentially conflicting claims. On the basis of User Group request and the Ranger*s recommendation, the DFO would issue a Certificate to the Panchayat, describing the area to be assigned. The Panchayat would, in turn, endorse the Certificate to the Users' Committee, so that the authority of the User Group within its assigned forest lands would be clearly established. Attached to this Certificate would be a sketch map and a list of all the households com- prising the Group. The Certificate would be registered with the Panchayat. The Ranger would then assist the Group to formulate a simple Operational Plan for its assigned forest area. The Operational Plan (described in more detail in the Guidelines discussed below) would contain basic information about the forest resources and condition in the designated area, the Group's management objectives and desired outputs. It would describe the agreed modes of protec- tion, silvicultural treatment, and harvesting of a given forested area or an area to be planted, according to local needs. The Operational Plan would also describe the Group's consensus on modes of benefit distribution, potential sales, and individual household labor contribution. These Operational Plans could be modified from time to time. Within these Plans, annual activities would be defined. The DFO would include a suimmary of these activities in the Annual Village Panchayat Development Plan and reflect them in the budget (para. 3.12). The Ranger would help the DFO to estimate the nature and amount of HMG funding required to support User Group activity in the following year. These estimates would be submitted to headquarters by each December in time for budget provisions for the next fiscal year starting in July. Where plan- tations are to be established by User Groups, a Management Contract would also be drawn up between FD and the User Group, represented by its Committee.  - 14 - 3.10 The size of the Groups vary, depending on their acknowledged interest in the common area of forest land. Each Group would be represented by an elected Committee, and would be recognized by the Panchayat, as well as by PD. Whereas the Decentralization and Forestry Rules at present empower the Panchayats to appoint or replace Users' Committees, which have been formed to deter User Group initiatives (para. 2.11), MFSC has informed IDA that (a) the forest User Groups proposed under the project can be authorized under MFSC's Guidelines, and (b) their roles and functions would be clearly defined in the Guidelines (para. 3.11). The Guidelines would contain detailed operational procedures and instructions for the implementation of the Community Forestry program, and lay down the procedures for identifying and forming User Groups and their Committees. It would detail their members..ip, powers, and functions in ways which would provide incentives for such Groups to form voluntarily and undertake the activities proposed under the project, including the autonomy to manage their financial and other affairs, their authority to sell forest products and deposit the funds in their own accounts, and the ability to take decisions that would ensu-e their continued functioning and interest over the longer term (subject to the technical safeguards they are subject to under their approved Operational Plans). Agreement was reached at negotiations that during the project period, MFSC would cause to be established forest User Groups with membership, functions, and powers in accordance with such criteria which are acceptable to IDA (para. 8.1(b)). 3.11 In order to undertake the above program and guide the establishment of User Groups and their formulation of Operational Plans, detailed Guidelines for implementing this program would be formulated by MFSC. The broad contents of the Guidelines containing detailed Procedures and Instructions for imple- menting the Community Forestry program was agreed during negotiations. These Guidelines would be issued by MFSC, with HMG approval, and would have general application to all concerned with the Community Forestry program. In its final form, the Guidelines would also include a clear delegation of authority for the transfer of individual areas of forest lands, within the areas identi- fied as in pars. 3.7 above, from the Secretary of Forests to the DFOs, to accelerate the program of handing over forest lands for community forestry development. Agreement was reached at negotiations that, as a condition of effectiveness, the Guidelines would be finalized and distributed to FD's field staff and all concerned, after taking into account IDA's comments (para. 8.2). The provisions of these Guidelines would also be thoroughly explained and discussed in the Reorientation Workshops to be held for FD and other HMG staff and community leaders at project start-up (Annex 5 and Operational Action Program, Annex 6). 3.12 PD would provide technical assistance as well as financial support by way of compensation or contract payments to be made to the Group for labor it contributes to plantation establishment and protection for the initial three years. Project funds would be released in the form of compensation or con- tractual payments to User Groups through FD. Such funds would be placed under a separate budget head and HMG would ensure that adequate funds would be made available for project implementation (para. 4.3). Agreement was reached at negotiations that disbursement of funds allocated to User Groups would be in accordance with terms and conditions agreed with by IDA (paras. 4.10 (d) and (e), and 8.1 (b)).  - 15 - Forest Resource Management (US$25.94 million) 3.13 Seedling Production and Distribution, The project would produce about 117 million seedlings, about 99 million of which would be used to estab- lish and maintain community plantations, and the remaining 18 million seed- lings would be distributed to farmers for private planting. FD would initial- ly maintain a number of temporary nurseries at the District, Panchayat, and Range level. However, local persons or groups would be encouraged to estab- lish private nurseries to take over seedling production. FD would assist them by eupplying seed collected locally in the case of indigenous species, or supplied by FD's Seed Center in the case of coniferous and other imported seed. FD would also supply polyethylene containers and the che.emicals needed for seedling production. The cost of these inputs would be recovered when FD pays the private nurseries for seedlings which it buys back for the planting program as well as for sale to farmers under the Private Planting program. This purchase price will be based on FD's own seedling production cost. FD would institute a system of nursery registers and keep records of seedling production costs, survival, and uptake by local villagers. 3.14 The project would finance the establishment of temporary nurseries by FD and seedling production costs. Seedlinigs would be supplied free of charge to User Groups implementing tne Community Forestry program. A nominal charge of Rs 0.10 would initially be charged on seedlings required by farmers for private planting. During the project period, MFSC would undertake a study of seedling uptake and formulate a draft seedling pricing policy aimed at creating market conditions that would induce privatization of seedling produc- tion in the medium- and longer-term. Agreement was reached at negotiations that MFSC would, by December 31, 1991, undertake a study on seedling uptake and submit the results of the study as well as the draft pricing policy to IDA for review; and by June 30, 1992 implement such a policy, taking into account IDA's comments (para. 8.1 (c)). 3.15 Plantation Establishment. The project would support the estab- lishment, protection, and maintenance of some 56,300 ha, of which 46,700 ha would be new plantations established by User Groups, and 9,600 ha by FD in the first project year which would thereafter be handed over to the User Groups. Additional acreages may be established, depending on project progress as well as the ability of User Groups over time to accept lower compensation payments for the cost of their labor in establishing and maintaining plantations. For plantation establishment, the Groups' labor contribution would be in kind, and estimated at about 20? of the total cost, based on FD's established norms and estimated per hectare cost. Local arrangements for protection would be the responsibility of these Groups; the project would support plantation protec- tion by local village foresters who would be recruited by User Groups. Support would cover 80 of estimated wages for one local village forester per User Group for three years only. The effectiveness of this support would be monitored closely and evaluated during the Mid-Term Review. MFSC would, over the project period, seek an increasing share of local resources to finance the Community Forestry program activities, taking into account the periodic assessments of the rate of program uptake and the level of incentive support payments necessary to encourage User Group interest in the program (para. 3.28 (c)).  - 16 - 3.16 Denuded forest areas and poorly regenerated areas would be planted with suitable tree species desired by the communities according to their Operational Plans. These plans would emphasize planting of multipurpose species that could provide fodder, fuelvood, timber, and fruit. However, final species selection would depend on the site characteristics, User Group preferences for particular outputs, outcomes including soil conservation, requirements for forage and other desired outputs, and the preferences of the women who depend on forest products for running the farm and household. A silvicultural consultant would be provided for 24 months to research improved nursery and planting techniques and to train staff (Table 3.1). The consul- tant would be assisted by five associate experts provided by UNDP, and stationed in one of the five regions for three years. The silviculturist would work with FD staff during the first two years of the project to develop new technical models, such as silvopastoral models which more adequately address environmental and sustainable local forage needs (Operational Action Program, Annex 6). 3.17 As lead time is required to train FD staff and form User Groups, expectations of planting that would be achieved by User Groups have been kept modest in the early years (starting with 1,200 and 3,200 ha respectively in Years 2 and 3), increasing to 12,000 ha annually by the seventh year. As an interim activity, FD would plant some 9,600 ha in Year 1 only, using seedlings produced under Credit 1008-NEP (para. 3.15). 3.18 Management of Forested Areas. It is expected that, during the project period, at least 400,000 ha of forests would be handed over to User Groups with traditional rights of access to these areas. Large parts of these forests, comprising such species as Schima wallichi, Castanopsis spp., Quercus app., Machilus spp., Pinus roxburghii, are at present subject to unsystematic cutting for fuelvood, overgrazing by cattle, and intentional burning annually to obtain fresh grass growth. Where there is a nearby market, trees are often removed for sale. Much of this forest is therefore degraded. 3.19 Studies have shown, however, that such forests hav- the potential for revival if acientifically managed. There are local examples in Nepal where the people themselves have been able to halt the degradation and restore the forests by protecting them for a few years; some of these cases are described in Annex 2. FD's Rangers would assist the forest User Groups to prepare ap- propriate Operational Plans for the areas under forest cover to be handed over to these Groups. These plans would prescribe harvesting options which would permit srstained utilization of the forests and expansion of the forest resource over time. Management methods include simple coppice 4/ or coppice- with-standard 5/ systems as well as silvipastoral systems to provide forage for livestock. A forest management consultant would be provided for 12 months to help FD develop management options and guidelines, according to the principles of community forestry management (Table 3.1). As in the case of the PF plantatic-'s (para. 3.15), PPF User Groups would also be provided 4/ For certain broad-leaved species, stems are cut at stump level to permit regrowth from the stumps. 5/ A modified coppice system in which some trees are allowed to grow to timber size, while the balance are cut at shorter intervals to permit regrowth from the stumps.  - 17 - financial assistance for three years to hire a local village forester to implement the management plan and heip protect the PPF forest until such time as it regenerates sufficiently to produce adequate income. 3.20 Management of Plantations previously established by PD. Plantations which were previously established under the earlier IDA-assisted project (Cre- dit 1008-NEP) are mostly of pine of varying ages and uneven quality. Depending on the preferences of the User Group, these plantations can be main- tained as such or, if degraded, can be converted into broadleaved plantations over a few years. PD would offer technical assistance to the User Group in preparing appropriate Operational Plans to attain the Group's objectives. The Operational Plan would prescribe appropriate measures for maintenance, in- cluding a plan specifying which trees to harvest and which to retain in different years. Silvopastoral systems involving cut-and-carry of forage or controlled grazing would be emphasized and incorporated into plantation design. Where it is intended to convert from pine to broadleaved plantation, underplanting with broadleaved species would be undertaken. Where substantial underplanting or replacement planting is required, prescribed pl.anting tech- niques would be followed, and the Group would be compensated as if these were plantations on PF lands (para. 3.15). 3.21 The area under existing plantations established under the previous project (Credit 1008-NEP) totais 30,000 ha. It is estimated that much of this would be handed over for management by User Groups during the project period, while any remain'.ng areas would continue to be under Pp's management. The User Group would be expected to take over responsibility for plantation pro- tection. Wherever PD may previously have hired local forest watchers, these watchers would, together with the plantations, become the responsibility of the User Group. However, they would now have expanded management responsi- bilities as village foresters. It would be up to the Group to negotiate contract terms and arrangements with the forest watchers at the time FD hands over the plantations to the Group. Training and Extension (US$9.04 million) 3.22 Training. The training program would communicate to PD staff and local officials the objectives of HMG's Community Forestry policy and its operating environment, and would concentrate on improving the technical and managerial capability of both PD and the communities to undertake community forestry systematically. The training program would be coordinated by the Community Forestry Development Division (CFDD) of FD, and implemented by the Training Division (TD) of MFSC and five Regional Training Centers. Agreement was reached at negotiations that five Trainir- Officers will be posted, one to each Regional Training Center, by December 31, 1989 (para. 8.1 (d)). 3.23 Locally, the program aims to train approximately 7,700 FD staff throug-i a series of courses and workshops. A hostel to accommodate 40 train- ees for the TD would be built in Kathmandu. Three regional training centers with the capacity for 30 trainees each would be constructed in the Eastern and Mid-Western and Par-Western Regions. Facilities at Hetauda and Pokhara Campuses would be used for regional-level training for the Central and Western  - 18 - Regions. The project would provide training materials and equipment, a senior Training and Extension Coordinator and one Training Consultant for 84 and 24 months respectively, stationed within CFDD, and five Training and Extension Advisors, one to be stationed at each of the five regional training centers for three years each. The training experts would also draw upon the findings of the Benchmark Survey and the Socio-economic Study (para. 3.28), and would design training course material to increase the awareness among FD staff of the role of women in community forestry. 3.24 Outside Nepal. the project would also provide for 532 weeks of study tours, mainly in neighboring Asian countries, covering subjects relevant to community forestry. Details of the proposed training and study tours are given in Annex 4 Table 3, and Annex 5. 3.25 Extension. FD would maintain a continuous field extension program to inform rural communities about the objectives of the Community Forestry pro- gram and the provisions under the project. At the national level, the Extension and Communication Section of CFDD would coordinate the extension program and support the Regions by providing them with general guidance and printed material. The Regional Training and Extension officer would formulate extension programs and implement them through the Training and Extension officers at the District level. At the Range level, Assistant Rangers would implement the extension programs, and selected forest guards would be trained to ascist the Assistant Rangers. At the local level, extension staff would assist in identifying and forming local Groups, and help them to define their goals and manage their assigned forests and plantations for sustained produc- tion. The scope and intensity of extension coverage would gradually increase as new information becomes available through technical and socio-economic research, and as field experience is gained and disseminated through training sessions. 3.26 The Training and Extension component makes provision for buildings, vehicles, training materials and equipment, staff travel allowances and train- ing expenses. Staff mobility is crucial and HMG/MFSC would review their travel and field allowance policy to ensure its consistency with the field work that FD staff need to undertake, including any expenses associated with developing Operational Plans such as nominal compensation for arranging village meetings and local help to make simple sketch maps for the Operational Plans as prescribed in the Guidelines (para. 3.11). Agreement was reached at negotiations that HMG/MFSC would, by December 31, 1989, have reviewed FD travel and field allowance policy and thereafter take steps to implement the findings, taking into account IDA's comments (para. 8.1 (e)). Research (US$0.45 million) 3.27 The Silvicultural Research program would be implemented by the Forestry Research Division (V'RD) of the Department of Forest and Plant Research (DFPR) which has been receiving substantial technical and financial assistance from ODA. The project would only provide additional staff and facilities to supplement an extensive ongoing research program to include additional trials and observations on (a) local si;--opastoral practices; (b) cases of effective natural forest management; (c) successful establishment and management of plantations, particularly those planted with indigenous  - 19 - species; and (d) development of new models emphasizing silvopastoral and environmental requirements. Silvicultural research on native hardwood species would also be emphasized. A detailed community forestry research program is being prepared by FRD and would incorporate these requirements. Proposed trials and experiments would be located near Kathmandu where FRD has its head- quarters, and in the Eastern and Midwestern regions where two new research stations were recently constructed. Agreeiz-nts were reached at negotiations that HMG/MFSC would ensure that, by December 31, 1989, key staff including four Senior Research Officers and seven Junior Research Officers would be sanctioned and appointed to their ps_s and that all other project staff would be sanctioned and appointed to their posts as specified in the Operationa;- Action Program (para. 8.1 (d)). 3.28 The Socio-economic Research program would be implemented by CFDD with the advice of a Monitoring and Evaluation Expert to be recruited under UNDP assistance (Table 3.1). The Drogram should be undertaken jointly or in close consultation with (a) the Monitoring and Evaluation Division (MED) of MFSC, as well as FRD's Community Forestry Research Programme 1990-95 Lo ensure comple- mentarity of efforts. A major goal is to understand the socio-economic deter- minants of successful community management of common property. Ongoing com- munity development projects would be periodically reviewed and evaluated to gain relevant experience of community interactions. The villagers' need for forest products would also be assessed and measured in order to avoid indis- criminate pilferage in forests that shouxld be retained as National forests. To help CFDD staff design and implement these socio-economic research pro- grams, local consultants would be recruited to undertake the following studies and surveys under the direction of CFDD in close coordination with MED and FRD: (a) Benchmark Survey. A research team would repeat the 900-house- hold survey carried out at the start of the ongoing Community Forestry Development and Training Project (Credit 1008-NEP) in the Hills, using that earlier study as a baseline. The study would determine the impact of the first Community Forestry Project on the supply of needed forest products in the Hills. The survey findings would suggest lessons to be learned for meeting the requirements in the target areas. The team would comprise a research coordinator for seven months, an assistant research coordinator for four months, eight enumerators for three months each, two enumerators-cum-data-processors for seven months each, and secretarial support. The team would be recruited by December 1, 1989 and the study would be completed by August 31, 1990. (b) Socio-economic Study. A research team would conduct a study of the socio-economic aspects of utilization of forest pro- ducts, including usage and collection patterns, local needs and preferred tree species, and related factors that should be considered in project design and to guide or improve the form- ulation of Operational Plans. The team would comprise a forester, a sociologist, and a specialist on the participation of women in forestry activities, for eight months each. The team woulC be recruited by June 30, 1990 and the study would be completed by March 31, 1991.  - 20 - (c) Periodic Assessment Studies. A survey team to conduct per- iodic evaluation of the rate of program uptake in the Hill Districts, including an assessment of the approaches cf var- ious ongoing Community Forestry projects. This team would consist of two foresters and two social scientists (six months each). The team would complete their first evaluation by June 30, 1992 and subsequent evaluations each second year there- after (1994, 1996). These studies would assist MFSC to assess the responsiveneris of the hill communities and the extent to which it can seek an increasing share of lcal resources to finance Community Forestry program activities in Nepal (para. 3.15). The conduct of these studies is included in the Operational Action Program (Anner 6). Studies may be undertaken from time to time, and advisers re- cruited as necessary using the 18 months of unspecified consultancies which would be provided by UNDP and DANIDA (Table 3.1). 3.29 Civil Works, Equipment and TA (included in Prolect Components). The project would finance the construction of offices, training facilities and staff accommodation, as well as vehicles, equipment, maps, additional staff and travel allowances, and other facilities required for project implemen- tation. It would also provide tecnnical assistance to support MFSC, the Department of Forestry and Plant Research, and FD in conducting extension and training activities, establishing technical guidelines, and planning program development. 3.30 Civil Works. The civil works to be funded under the project would consist of (a) buildings under the Institutional Support Component, which comprise one FD annex building to house CFDD, 16 DFO offices and and 20 DFO residences, 40 Range offices, 30 Range quarters and 3 guest quarters; (b) buildings under the Training component which comprise a Training Division hostel in Kathmandu and, at the Regional headquarters, 3 training buildings, 3 hostels, and 6 residences for training officers and instructors. The cost of civil works is estimated at US$3.45 million. 3.31 Vehicles and Equipment. To increase staff mobility, the project would provide 6 minibuses, 6/ 20 four-wheel-drive pick-ups, 71 90 motorcycles, 8/ 70 bicycles, and 16 horses for the use of project staff. The total cost of these vehicles and conveyances is estimated at US$0.57 million. In addition, equipment and furniture for field operations, training, extension and research would be provided under the project, at an estimated cost of US$0.16 million. 3.32 Technical Assistance. The project requires technical assistance totalling 190 months of international specialists, estimated to cost US$3.12 million. About 52 months of this would be provided under an ongoing UNDP 6/ One for each of five Regional Training Centers, and one for the Training Division at Kathmandu. 7/ One in each of the 20 Districts where there are motorable roads. 8/ Four motorcycles in each of the 20 Districts with motorable roads, plus 2 in each of five Regional Training Centers.  - 21 - Community Forestry Development Project (NEP/8S/017) designed to strengthen CFDD and FD's field offices so that they can coordinate Community Forestry program activities more effectively. DANIDA would finance 138 months of specialists to help implement the Training and Extension component under a separate grant agreement. The foreign technical assistance requirement of the proposed project is shown in Table 3.1. Besides consultant specialists, Associate Experts and Advisors would also be provided. These technical assis- tance requirements are. dictated by the decentralized management and the diffi- cult terrain to be covered by project personnel and advisors. HMG would undertake to recruit the required expatriate Lonsultants in a timely manner (Operational Action Program, Annex 6). Terms of reference for additional expatriate specialists are included in Annex 7. Local consultants would also be required; the project will finance 21 local consultants for a total of 159 months to undertake the studies and surveys described in para. 3.28 (see also Annex 4, Table 1). Table 8.1: FOREW4 TECMNICAL ASSISTANCE REqUIREUENT (months) Total ongoing Proposed Project UNDP-Coomunity DANIDA Spectalization Requirement Forestry Project Support (NEP/56/017)/l Forest Manaqement Specialist 9 9 Monitoring and Evaluation Specialist 12 12 Land Use Planning Specialist 8- Si Iviculturit 24 ^ 24/2 Training and Extension Coordinator 84 84/3 Training Consultant 24 24 Mid-Te rm Review Consultante 11 11 - Unspecified Consultants 1S 12 6 Total 190 62 138 /1 The project totals US82.8 million and supports development of Community Forestry activities in Nepal. The months listed hereunder are only pert of the project provisions. /2 Five Associate Exprts would be recruited under UNDP assistance to assist the SIlviculturist, and would be sttioned In each Region for 2 years each (para. 8.10). /8 Five Training and Extension Advisors would be recruited, one In each of the Regional Training and Extension offices for S years each, to be sponsored by DANIDA (para. 3.2B). D. Pro1ect Implementation 3.33 The phasing of project activities is shown in Table 3.2. Project indicative targets are based on the assumption thLt, despite experience gained under Credit 1008-NEP and other forestry projects in plantation establishment,  - 22 - the new, increased emphasis on community participation would maintain the pace of new (community-managed) plantation establishment at roughly the same level as that achieved during the previous project (Credit 1008-NEP). The rate at which natural forest can be brought under improved management by User Groups would depend on the readiness of the communities to take over management res- ponsibilities for these areas, the responsiveness of FD staff to relinquish their control over the-forest estate, and the effectiveness of the extension services in promoting changes in forest utilization and management practices. The organizational measures and incentives to ensure such responsiveness are described in Chapter V below.  - 23 - Table 8.2: INDICATIVE PHASING OF PROJECT ACTIVITIES / Activity Unit Year 1 Year 2 Year a Year 4 Year 6 Year 6 Yoar 7 Total 1. Preparation of LRMP District maps on 1:126,000 scale Setn 86 - - - - - - 36 2. Preparation of Block maps on 1:60,000 scale Sots - 600 600 700 - - - 1,800 3 Indicntive progres of User Group Formation No. 100 200 850 60 700 900 1,160 4,000 4. Transfer of Forest Lands to User Groups V '000 he 6.0 15.0 29.0 61.0 79.0 95.0 125.0 400.0 5. Plantation Establishment by (a) FD (as carry- over from previous project) '000 ha 9.6 - - - - - - 9.6 (b) User Group ! 000 ha - 1.2 8.2 7.2 10.0 12.1 12.1 46.7 6. Seedling Distribution (e) for Community Forestry Mill. 16.90J 2.1#/ 5.6 12.7 19.2 21.8 21.8 99.1 (b) for Private Planting Mill. 1.9 2.1 2.8 2.6 2.7 8.0 8.8 17.8 / For details of Training Activities, smo Annex 4. y Simple Operational Plans would be drawn up by User Groups with the assitance of FD. Similar Plans would be drawn up for Plantations to be transferred to User Groups. E/ Planting by FD on Panchayat Forest land, a continuation of activities under the previous project (Cr. 1008-NEP). !Y Expected uptake by User Groups, for Year 2 and thereafter.  - 24 - IV. PROJECT COSTS, FINANCING, AND DISBURSEMENTS A. Project Cost Estimates 4.1 The total cost of the seven-year project is estimated at NR 1,157 million (US$45.39 million), including price and physical contingencies. Foreign exchange costs amount to NR 146.6 million (US$5.75 million), or about 13Z of total project costs. The cost estimates are summarized below in Table 4.1, and in Annex 8, Tables 1-3. 4.2 Cost estimates are based on October 1988 prices, adjusted to April 1989, the date of negotiations. Physical contingencies of 102 have been applied to the cost of civil works and training; 5Z to the cost of equipment, vehicles, and technical assistance. No physical contingency has been applied to the cost of studies and surveys, forest establishment and management, sal- aries and allowances, materials, and O&M costs. Price contingencies are based on the Bank's projections as follows: 62 for local costs, and 5Z for 1989-90 and 4.1Z thereafter in respect of foreign exchange costs. Project costs are estimated net of duties and taxes, which are negligible and from which Government procurements are exempt; the bulk of project costs include forest establishment by local labor, travel allowances, and technical assistance. Ta a4.1: PRAJWT COST SMARY as of OM A; II tenl tM i I lltonl bacn Project Component Lacel Foreign Total Local Foreign Total Ict Institutional Support 174.9 20.9 195.0 6.9 0.6 7.7 22 Foret Resoure- #anageunt 492.4 - 492.4 19.8 - 19.8 6 Training and Eatension 65.1 102.5 167.6 8.8 4.0 7.8 21 Resnrch 8.6 0.4 9.0 0.8 - 0.3 1 Total Boel ine Costs 761.0 12S38 6811.8 28.8 4.8 84.7 100 Physical Contingencies 6.6 7.8 14.4 0.2 0.8 0.8 2 Price Contingencies 244.2 18.0 259.2 9.6 0.6 10.2 29 Teenl Preieet ^At 1.010.8 146.6 1.157.4 89.6 8.7 48.4 181  - 25 _ B. Financing Plan 4.3 The proposed IDA credit of US$30.55 million would finance about 67Z of total project costs, including 10? of foreign exchange costs, and 76? of local costs. Of this, US$30.45 million is for investment costs, and US$0.10 million for recurrent costs. DANIDA has agreed to finance the Training and Extension component under a grant, and would contribute US$6.85 million or 15? of total project costs. UNDP would contribute US$0.51 million for technical assistance or 1X of total project costs. Local User Groups would contribute US$3.15 million or 7Z of total project costs. HMG's contribution would be US$4.33 million (10X); during the project period, HMG would undertake to reflect the total project cost in its annual budget and make timely and adequate budget allocations to ensure that the project is implemented on schedule. The Ministry of Finance has established a Special Operation Fund for timely releases of project funds to enable smooth implementation of project activities which span different fiscal periods. The proposed project financing is shown in Table 4.2 below, and in Annex 9, Tables 1-4. IDA would provide retroactive financing in the amount of US$3.0 million for expenditures incurred after October 31, 1988 for procurement of materials and equipment and to initiate plantation establishment, under the categories to be financed under the project. Table 4.2: PROPOSED FINANCING PLAN (US$ million) Financiers Local Foreign Total Percent IDA 30.0 0.5 30.5 67 DANIDA 2.2 4.7 6.9 15 UNDP a/ - 0.5 0.5 1 HMG 4.4 - 4.4 10 User Groups b/ 3.1 - 3.1 7 Total 39.7 5.7 45.4 100 a/ UNDP contribution here reflects only part of the US$2.3 million, allocated under the Community Forestry Development Project (NEP/85/017). bl User Group contribution in kind, and in the form of labor for plantation establishment and forest protection. C. Procurement 4.4 The total procurements expected to be made, by procurement method, are indicLted in Table 4.3. All figures include contingencies.  - 26 - Table 4.3: PROCUREMENT (USS million) Procurement Method Not Total Category ICB LCB Other Applicable Cost 1. Works - - 3.45 - 3.45 (1.26) (1.26) 2. Goods Vehicles 0.58 - - - 0.58 (0.22) (0.22) Equipment 0.14 0.02 - - 0.16 (0.06) (0.02) (0.08) Materials a/ - - 1.11 - 1.11 3. Services Technical Assistance - - 3.12 - 3.12 Training - - 1.65 - 1.65 Studies & Surveys - - 0.21 0.21 (0.21) - (0.21) 4. Labor Staff Costs b/ - - - 2.30 2.30 Staff Travel, User - - 6.88 - 6.88 Group Formation and (6.07) (6.07) Technical Support c/ Plantation Labor and Management d/ - - - 25.93 25.93 (22.71) (22.71) TOTAL 0.72 0.02 16.42 28.23 45.39 (0.28) (0.02) (7.54) (22.71) (30.55) Note: Figures in parentheses are the amounts to be financed by IDA. a/ Includes materials, OWM. bi Includes salaries and training allowances. c/ These expenditures pertain to extension and travel associated with Group formation and are considered as investment costs (para. 3.9); includes travel and field allowances for research staff (US$0.1 million). d/ These expenditures include compensation payments made to User Groups for plantations to be established under contract with FD; support for initial protection of plantations and forests (para. 3.15 ant 3.19) and Forest Manaaement Awards (para. 5.10).  - 27 - 4.5 Works. IDA would finance US$1.26 million of the works, costing approximately US$3.45 mlllion. All the works would either be too small (none would exceed US$0.5 million), scattered over too wide an area, or schedulea too far apart to be of interest to foreign firms. The major items are one office annex building and four training hostels. However, ever these five buildings are minor, as they would cost no more than US$1.0 million in total. 4.6 Goods. Vehicles (US$0.58 million) and most of the equipment (totalling US$0.16 million) would be procured on the basis of international competitive bidding (ICB). A margin of preference equal to 15Z of the CIF bid price of imported goods, or the actual custom duties and import taxes, which- ever is less, would be allowed domestic manufacturers on the US$0.28 million worth of goods under ICB to be financed by IDA. The remaining US$0.02 million of goods to be financed by IDA is too small to be of interest to foreign firms and will be procured under local competitive bidding procedures acceptable to IDA. 4.7 Services. All the services, estimated to cost US$4.98 million except for the US$21C,000 for studies and surveys, would be financed by donors other than IDA and employed under procedures acceptable to their agencies. The firms needed to perform the US$210,000 of studies and surveys will be selected in accordance with Bank guidelines. 4.8 Labor. IDA would finance approximately US$28.78 million of the total incremental costs of labor for plantation establishment, out of the US$35.11 million of incremental staff and labor costs required under the project. This US$28.78 million includes (a) US$6.07 million of staff travel required as an investment cost to establish User Groups and provide technical support for their initiation, and (b) US$22.71 million to compensate User Groups for labor required to establish plantations, following Operational Plans to be executed by User Groups as well as to undertake Forest and Plantation protection for three years. Because this labor would be scattered throughout the Hills and would require specialized organization by FD staff, who monitor and give the Groups technical supervision, these works are not suitable for contracting. The remainder of the project labor would be financed by User Groups themselves (US$3.15 million) and carried out in the same manner as the IDA-financed labor. 4.9 All goods and services would be packaged whenever practicable to attract competition. All ICB goods to be procured under IDA financing would be subject to IDA prior review. The remaining US$20,000 of contracts for equipment, vehicles, goods and furniture would be procured under LCB and would be subject to IDA's post-award review. Items to be financed by DANIDA would be procured under its own guidelines.  - 28 - D. Disbursements 4.10 Disbursement of IDA funds would be against: (a) 100? of foreign expenditures for directly imported equipment, furniture, and vehicles; 1002 of local expenditures (ex-factory cost) for locally manufactured goods; and 75Z of local expen- ditures for goods procured locally (US$0.30 million): (b) 402 of expenditures for civil works (US$1.26 million); (c) 100? of expenditures for staff travel, User Group formation and technical support (US$5.97 million); (d) 1002 of expenditures for seedling production and plantation establishment by FD (US$9.84 million); (e) 80? of expenditures for plantation establishment by User Groups (US$9.91 million); (f) 80? of expenditures for Forest and Plantation protection by User Groups (US$2.96 million); Cg) 1002 of expenditures for travel and field allowances for research staff (US$0.10 million); and Ch) 1002 of expenditures for consultant services for studies and surveys (US$0.21 million). (See Annex 9, Table 3.) 4.11 Disbursements against (a) equipment, vehicles, goods, and furniture contracts above US$20,000 would be fully documented; for those below US$20,000, itemized statements of expenditure would be used and the documenta- tion retained at CFDD and made available for review by IDA supervision mis- sions. Disbursements against (b) civil works would be fully documented. Disbursements for (c) Group formation and technical support would be made against statements of expenditure. Disbursements against (d) and (e), plan- tation activities, would be made against statements of expenditure which would have to be submitted with details of plantations, including location; area planted or managed; type of expenditures; and whether plantations were estab- lished under force account or by contract (following individual Operational Plans) with User Groups. Statements of expenditure would be prepared by the Ranger in charge of the area where plantations are located and would be cer- tified by the DFO. Disbursements for (f) forest and plantation protection; and (g) travel and field allowances would be made against statements of expen- diture. Disbursemeits against (h), all consultant services, would be fully documented. Documents supporting statements of expenditure (including, in the case of User Group plantations, copies of their Certificates and Operational Plans) would not be submitted to IDA for review, but would be retained at CFDD and would be made available for inspection and review by IDA representatives  - 29 - during project supervision. To the extent possible, withdrawal applications would be aggregated in amounts of US$50,000 or more prior to submission to IDA. 4.12 The project would be implemented over a seven-year period, and build on the existing institutional base established during the first Community Forestry project (Credit 1008-NEP). Project implementation is expected to be slower during the first two years because of tLe time required to train exten- sion staff, promote the concept of community forestry within the communities, and help form and train the User Groups to take over their assigned forests. The experience from the ongoing Community Forestry projects in Nepal indicates that once the system is established, the pace of project implementation and hence the rate of disbursement would be faster than IDA's ten-year average disbursement profile for Nepal. For this project, the expected disbursement period is 8.5 years, given the time lag between implenentation and disburse- ments. In order to facilitate disbursements, IDA would set up a Special Account in the amount of US$1.5 million, representing an estimated 4 months' expenditure, with the Nepal Rastra Bank to cover the categories funded by IDA (Annex 9, Table 3). Funds from this Account would be withdrawn in proportion to the categories financed. An indicative disbursements schedule is shown in Annex 9. Table 4. The estimated Completion Date for the proposed project is December 31, 1996, and the estimated Closing Date is December 31, 1997. E. Accounts and Audit 4.13 Accounts. HMG would require the implementing agencies--MFSC (Training Division), Department of Forestry and Plant Research (Forestry Research Division), and Forest Department--to maintain separate accounts and records of project expenditures, including separate records for the Special Account and for items disbursed against statements of expenditures, by project component and subcomponent. All records of expendituares, deliveries, and payments should be retained until one year after the Closing Date and made available for inspection by IDA. HMG would establish funds under a separate budget head for compensation and support payments to User Groups for plan- tation establishment, forest protection, and Forest Management awards. 4.14 Audit. The Auditor General is responsible for auditing all accounts. HMG undertakes to ensure that all accounts are maintained according to sound accounting principles and that the scope of the audit is sufficient to eval- uate the economy, efficiency, and effectiveness of public expenditure. The performance of HMG in fulfilling IDA accounting and audit requirements has improved in recent years but in many instances the submission of audited pro- ject accounts has been late. This is because (a) the projects are audited by the Auditor General as part of the overall financial records of the imple- menting department; and (b) the Auditor General does not release his full audit report to IDA until it is cleared through several steps including as a final step, presentation to the National Panchayat. 4.15 To facilitate compliance with covenants related to auditing require- ments in IDA-supported projects, an IDA consultant would be available to  - 30 - assist project accounting staff to prepare separate wcoject accounts in the detail and format required. IDA has also agreed wit. HHG on the draft format and content of the auditor's report on accounts. These can be prepared by an independent auditor acceptable to IDA, without waiting for the full audit report of the Auditor General on the concerned depactment's overall annual financial accounts. Similar procedures would be instituted, as necessary, for specific audit certification of all withdrawal applications based on statements of expenditure. 4.16 At negotiations, agreement was reached that MFSC would (a) maintain separate records and accounts for all project expenditures, by individual project component and subcomponent, and in accordance with appropriate ac- counting principles; (b) within six months of the end of each fiscal year, submit to IDA copies of the project accounts (including the Special Account), certified as to their authenticity and accuracy by the Auditor General or such other independent auditor au he may delegate to; (c) within twelve months after the end of each fiscal year, submit to IDA certified copies of the annual audit reports as well as audit opinions on both the project accounts (including the Special Account) und the statements of expenditure (para. 8.1(f)); and (d) furnish to IDA such other information concerning audits and accounts as IDA shall from time to time reasonably request. Included in the annual audit reports would be a separate opinion from the auditor as to whether the disbursements made on the basis of statements of expenditure submitted during the fiscal year were incurred for the purposes of the project, and whether the procedures and internal controls involved in the preparatio-. of these statements can be relied upon to support the related withdrawals. V. ORGANIZATION AND MANAGEMENT A. Project Organization 5.1 The proposed project would be the main vehicle for implementing MFSC's Hill Community forestry program. Although the project would initially concentrate on 37 out of 55 Hill Districts (Annex 3), it would have consider- ably wider impact on the implementation of the Community Forestry program through its support to FD in the areas of planning, training and extension, and monitoring and evaluation, and to DFPR in the area of forestry research. Project activities can be undertaken in any of the other Hill Districts, should their existing programs discontinue or prove inadequate. The role of FD staff in project organization is discussed below and details of existing staff and incremental staff requirements are given in Annex 10. 5.2 The Director General of Forests (DGF) would be designated as the Project Coordinator and would have overall responsibility for implementing the project. He would be assisted by the Community Forestry Development Division (CFDD) to oversee project implementation and monitor project progress. DGF would also delegate responsibility for day-to-day project implementation to the five Regional Directors; this would allow him to concentrate on central issues such as program development; budgetary support; staff deployment and  - 31 - training; coordinationi with other line Ministries and other relevant agencies; assessment of program impact on local communities; incentives, extension support and pricing policy issues. 5.3 CFDD. CFDD, one of the four Divisions of FD, is responsible for coordinating the implementation of Community Forestry programs at the national level, and ensuring that the activities carried out in the Districts conform with the policy guidelines and targets of HMG's Forestry Sector Policy. CFDD would ensure that the field organization is supported in its work with maps, planning data, technical assistance, and research and other inputs from related projects, as well as the findings of special studies and vurveys to help improve technical standards of operations. Under the proposed project, CFDD functions as the secretariat of DGF, assisting him to oversee project implementation. Among its duties, CFDD would liaise with relevant Ministries to ensure timely budgetary allocations and smooth flow of funds; coordinate training and extension activities with other agencies and other bilatercl- funded community forestry projects; monitor project progress and project accounts, and handle procurement and disbursement matters; and hire special- ists as needed from time to time. CFDD would be headed by an officer at the Deputy DG level, and would have three specialized Sections: (a) the Community and Private Forestry Section; (b) the Afforestation Section; and (c) the Extension and Communication Section. It would be strengthened by the addition of a Senior Accountant/Procurement Officer to be seconded from FD's Financial Administration Section; agreement was reached at negotiations that he would be in post by December 31, 1989 (para. 8.1 (d)). Technical specialists recruited under the project will also be attached to CFDD and work closely with the Forest Research Division of DFPR; they include the land use, forest manage- ment, and monitoring and evaluation specialists, as well as others recruited to undertake the various studies and surveys (para. 3.28). 5.4 Regional Directors. The Regional Directors w,ould act as Regional Project Coordinators within their respective territories. They would (a) review district forestry development proposals prepared by DFOs to ensure that they are technically and economically sound, and conform to the Community Forestry policy of HMG; (b) supervise program implementation; (c) undertake and prepare pariodic monitoring and evaluation reports to be submitted to DGF and copied to the DFOs under their charge. Each of the five Regional Direc- tors would be assisted by three Assistant Forest Officers responsible for Training and Extension, Monitoring and Evaluation, and Forest Management, respectively. 5.5 The DFO vould be responsible for implementing the project at the District level. He would identify the areas of State forest land in his District which can be transferred to local community management at PF and PPF, and verify with the Panchayat that these lands are not under dispute and can be transferred according to FD-established criteria. The Procedures and Instructions for doing this would be described in the Guidelines which MFSC is developing. The Guidelines would also authorize the DFO, in consultation with the Regional Directors, to authorize such transfers of individual areas of forest lands into PF and PPF (para. 3.12). DFO is also responsible for assessing program uptake, the number of Groups expected to form in his area, and the areas to be planted or handed over. This assessment forms the basis of FD's budgetary projections for the following year, which becomes indicative  - 32 - ceilings for expenditures under a separate PF or PPF Operational Plans pro- posed by individual User Groups (paras. 3.13 and 3.14). 5.6 Each of the DFOs in the project area would be assisted by an Attached Officer (Gazetted III), who will be designated as Community Forestry Officer (CFO). The category A and B Districts, which already have Attached Officers, will designate these as CFOs with tto additional tusk of Community Forestry organization, training and extension. In the category C Districts, the DFO will be assisted by a Ranger in performing these duties. In these category C Districts (the less developed Districts), the DFOs would concentrate more on community forests, as national forests in these Districts would be of minor importance. If at a later stage these DFOs are called on to do tasks other than Community Forestry, the FD will assign an Attached Officer to the District. At the field level, the DFO would be assisted by his Forest Rangers and Field Assistants. 5.7 Field Staff. The Forest Ranger, Assistant Ranger and Fleld Assistant would perform the tasks of initiating Community Forestry organization, pro- viding technical support to User Groups, and encouraging private planting. Through extension work and village-level discussions, the Ranger would create the init'al awareness of the provisions of the Community Forestry program. As Groups form, the Ranger would register their applications as statements of interest in and commitment to the protection, maintenance and astablishment of specific forest areas, and would submit these to the Panchayat for clearance and endorsement (para. 3.9). When this is completed, the Ranger ensures that the Group, through the Panchayat, receives a Certificate from FD (para. 3.9). The ganger then helps the Group to draw up a simple Operational Plan, advising the Group on technical options (species, spacing, harvesting modes and rota- tional patterns for utilization of fuelwood and fodder), and any improvement3 over indigenous management systems. The Ranger would facilitate group consen- sus on User Group labor contribution, and protection and harvesting measures. The DPO and Ranger would maintain close contact with established User Groups through routine visits, and assess progress of field work in order to author- ize compensation payments and provision of agreed inputs according to the Operational Plan (which includes d Management Contract between the User Group and FD for plantation establishment) and according to rates for compensation payments set by FD under individual work Contracts with User Groups. 5.8 In accordance with FD's intentions, territorial Forest Rangers at present assigned to the protection of National forests would gradually trans- fer from solely territorial functions to Community Forestry functions as in- creasing areas of National forests are handed over to the User Groups. The Forestry Master Plan envisages the designation of 222 Range offices as ter-i- torial offices (whose functions are mainly to safeguard and regulate activi- ties in National forests), and 453 Range offices as "Forest Service Centers, which would function as extension and service centers to assist local cormuni- ties to undertake community and private forestry activities. In the Hill Districts, it is envisaged that more and more territorial Range offices would gradually transform into Service Centers over time, in recognition of the dependence of the Hill population on the forestry resource. Eventually, a minimal number of Range offices would retain territorial duties over those areas of stFte forest lands which are to be retained as National forests.  - 33 - 5.9 User Groups. The proposed project calls for the establishment of up to 4,000 or so User Groups as functionally operative entities which would implement the bulk of project plantation and forest resource management activ- ities. The User Group concept is a mecharism that has the flexibility to incorporate actual forest users into program and project implementation, reflect traditional usage patterns, and thereby potentially harness the incen- tive of the local population to develop and enhance the forest resource to which their traditional access can be recognized and safeguarded. Group mem- bers may reside within one, or a combination of Wards and Panchayats. The important feature of the Group as a behavioral unit is its shared interest in resource management; its cohesiveness is reinforced by the realities of daily social interacticn as members go about utilizing a shared resource according to recognized informal ground rules for maintenance, protection, and utiliza- tion. The Groups vary in size, and comprise those households having a vested interest in the shared resource. Such organizations are known throughout Nepal, and have persisted even despite previous efforts of officialdom and various forestry projects to manage and improve what is legally a State-owned forest estate. Cases of successful village forest management by local User Groups are documented in Annex 2. 5.10 EMG's Community Forestry policy now recognizes that sustained devel- opment of the Hill forest resource can only be achieved by full participation and cuoperation of local users. In accord8nce with this, there is a need to develop vehiclus for local participation and representation which are formed at the grassroot level, even lower than that of the Panchayat or Ward. The social groupings that already exist would therefore be recognized and for- malized and their roles and functions would be clearly defined. As a body entrusted with the management of a valuable aset, the User Groups will enable sustained lotal resource mobilization so that the rural communities can even- tually share the cost of rural and community forestry development with Government, according to HMG's stated intentions. During the establisbment phase, the Ue.r Groups would be told that they could apply for financial assistance of up to three years to employ local village foresters to help implement their Operational Plan and protect the forest. This arrangement is deliberately kept temporary, and is only to give additional incentive for User Groups to form and participate in project activities. Once convinced of the importance and benefits of protection and management, it is envisaged that local Groups would work out their own arrangements for protection and manage- ment, including labor contributions by individual member-household, or tradi- tional remuneration for the continued services of a village forester using mani-pathiV (Annex 2). Where more than one village forester may be required, the User Group twould provide the additional personnel as a matching contribution. The estimate for number of village foresters (Annex 4, Table 2) is based on a phased estimate of one foreater per User Group for three years. As an additional incentive, Forest Management Awards would be given to indi- vidual User Groups which make good progress in implementing their Operational Plans. This system has been found to be very effective and generates con- siderable local interest, recognition, and pride in local achievements. FD would work out the mode for giving these Axards.  - 34 - B. Monitoring and Evaluation 5.11 An important aspect of the project would be the monitoring and eval- uation of project activities at a number of administrative levels. At hea- dquarters, a monitoring and information system would be designed by the Monitoring ard Evaluation Division (MED) of MFSC in collaboration with CFDD, and with the assistance of the Monitoring and Evaluation consultant. Drawing upon the experience gained from the first IDA-financed Community Forestry project and from other donor-assisted projects, the Monitoring and Evaluation specialist and MED would help CFDD, Regional and District forest offices to develop a simple, integrated system of record-keeping based on measurable indications of project progress which can be maintained at the relevant levels of operation and which would funnel from the field through the Regional Directorates, to CFDD. With this system, MFSC and FD would also be able to monitor the overall condition of the forest, the required baseline information for which would be recorded by FD's field staff in the Operational Plans prior to the handing-over of management responsibility of the forest to the User Group. Copies of the Operational Plans would be kept in the DFO's office. 5.12 At the Regional level, Regional Directors would be responsible for monitoring. They would each be assisted by a Monitoring and Evaluation Section, headed by one officer of DFO grade, and five Forest Rangers. Members of the Section would visit the Districts regularly to evaluate the progress of program implementation, prepare progress reports every six months, and submit them to DGF, with copies tc the concerned Districts. Based on these Regional reports, CFDD would prepare a consolidated semi-annual progress report (cover- ing each six-month period ending every July 15 and January 15) for review and approval by DGF and the Senior AccountantlProcurement Officer in DGF's office. The report would then be submitted to IDA every March 15 and September 15. The report would include indicators of physical and financial progress, including procurements; disbursements; progress in formation of User Groups; formulation of Operational Plans; extension training and research activities; performance of the nurseries, including seedling survival, seedling demand and distribution; User Group response to level of compensation payments made as well as support for the hiring of local village foresters; and comments on program uptake and general performanre. The reports would also include actions taken, further recommendations by the Regional Directors and follow-up actions decided by DGF. Submission of these semi-annual reports is a require- ment under the Operational Action Program (Annex 6). 5.13 Mid-Term Review Report and Workshop. A Mid-Term Review of the project would be carried out by MFSC 'Monitoring and Evaluation Division) and FD (CFDD) to assess the effectiveness of project implementation, taking into account the progress indicators included in the semi-annual reports (para. 5.12) as well as the Periodic Assessment Studies (para. 3.28 (c)). It would recommend adjustments in project scope, strategy, or implementation targets as necessary. Both foreign and local consultants would be recruited for this task. The Mid-Term Review report and recommendations would be sub- mitted to IDA and DANIDA by Marcn 15, 1993. Following this Review, MFSC would conduct a Workshop to which key project staff and donors would be invited. The Workshop would discuss the Report and Recommendations of the Mid-Term Review, project status, and suggestiots for implementation arrangements in the  - 35 - remaining project period. Agreement was reached at negotiations that MFSC would hold this Coordinating Workshop no later than May 1, 1993 (para. 8.1 (g)). 5.14 Project Completion Report. At project completion, a Project Comple- tion Report would similarly be submitted to IDA and DANIDA by MFSC no later than six months after project closing. Submission of the Mid-Term, Review Report and Project Completion Report is incladed in the Operational Action Program (Annex 6). C. Review and Coordination among Staff and Donors 5.15 To enable the sharing of experiences between the various Hill Districts, at least one day of the Reorientation workshops to be held for DFOS, CFOs, LDOs and Rangers (Annex 5) will be devoted to reviewing progress in their respective Districts on Group formation, formulation of Operational Plans, and implementation arrangements. Such workshops have been found bene- ficial in the past, especially where new programs are being introduced. These workshops would be held at Katbmandu or at the regional training centers. Donors and relevant agencies would be invited to observe and contribute to these discussions. The Training Division would ensure that these reviews would form an integral part of those Reorientation workshops held after January 1, 1990 (Operational Action Program, Annex 6). VI. DEMAND, PRODUCTION, AND FINANCIAL IMPLICATIONS A. Demand and Usage of Forest Products 6.1 Fuelwood. The annual per capita household energy requirement is approximately equivalent to 708 kg fuelwood, 53Z of which is collected at no monetary cost frca public forests, and the balance from privately-owned land in the form of fuelvood and agricultural residues. The total household energy requirement of the project area, expressed in terms of fuelwood equiv- alent, is about 3.8 million tons. About 0.5 million tons of this is supplied from agricultural residues, while 3.3 million tons is fuelwood, of which 2.0 million tons is obtained from forests, with the rest coming from private lands. According to Central Bureau of Statistics projections, the population in the Hills is estimated to grow at 2Z annually. Assuming that the current per capita consumption of fuelwood remains unchanged, demand for energy in the project area will reach 5.9 million tons by the year 2010. Within the same period, projected annual incremental fuelwood output of the project would be about 2.2 million tons. This would bring the totai fuelwood output of forests to 4.2 million tons, which would meet about 71% of demand. At this level of production, the share of forests in fuelwood supply is esti- mated to increase about 8Z. The Hill farmer's energy needs would require about a 32 annual increase in agricultural residues and supply of fuelvood from non-forest areas. Commercial markets account for only a small portion of total fuelwood consumption in the Hills. However, markets for fuelwood do  - 36 - exist. Data obtained from the Nepal Rastra Bank show that prices for fuel- wood in Hill towns has risen in real terms at an annual rate of over 6z over the last 17 years, largely reflecting the cost of collection from more remote areas. Given the rates of population growth and depletion of forest resources, this trend can be expected to accelerate. 6.2 Fodder. The livestock population of the project area includes ap- proximately 2.4 million cattle, 1.0 million buffaloes, and 1.7 million goats and sheep. According to Master Plan estimates, fodder requirements for these numbers total more than 3.8 million tons of digestible nutrients (TDN) per year and are expected to grow at a rate of about 1.72 per year. Leaf fodder obtained from forests comprises about 212 of the total fodder supply. Projected incremental fodder production of the project would reach and level off at 0.8 million tons of TDN by Year 15. Although this is a 212 increase over the current supply of fodder, the fodder deficit in the Hills would continue to grow unless drastic measures are taken to produce feed in the agriculture sector and reduce livestock population ' the Hills. Like fuel- wood, fodder is also collected from public lands, and is frequently a strong incentive for both improved community management of forest lands, as well as a switch to stall-feeding. 6.3 Leaf Litter. Dry leaves gathered from the forest floor are used extensively for livestock bedding and for mixing with manure for compost. Reliable data are not available on the volume of biomass removed from the forest in this way. Data on compost use on cropland suggest that, on aver- age, more than two tons of manure and leaf litter is applied per hectare to cultivated land in the Hills. It is estimated that more than 502 of total litter production is removed from the Hill forests; this seriously impedes the nutrient cycle and results in transfer of soil fertility from the forest to the fields in the long run. 6.4 Timber and Building Poles. Consumption of wood for home and farm construction, agricultural implements, and other uses amounts to about 0.04 tons/person per year. B. Production and Yields 6.5 Under the project, fuelwood plantations are expected to yield mean annual increments (MAI) of 6.9 tGns of solid wood and 0.7 tons of fodder per hs over thirty years. Forage yields will initially be at least 2.1 tons/ha/year due to rapid establishment of undergrowth. As canopy closure occurs (Year 6), yields may fall to about 0.5 tons/ha/year by Year 6. However, it is expected that new silvopastoral models developed under the project will allow yields to be maintained at initial high levels. Fuelwood harvested will primarily be from regular thinning, pruning and singling oper- ations, with major harvests at longer intervals, say Years 15, 20, 25 and 30. Timber harvested will total 251 of solid wood extracted and is estimated to also take place in Years 15, 20, 25 and 30. Yields from private planting of seedlings distributed under the project are assumed to parallel those of plantations. For private plantings, a seedling survival rate of 752 and stocking rate of 540 seedlings per ha are used to estimate plantation area  - 37 - equivalence; planting would usually be supplemental and often designed to maintain ground cover, grasses, and understorey species. Minor forest products such as grass for thatching, medicinal plants, and edible products would be additional benefits from the project. Under the project, individual Operational Plans would be established according to User Group requirements. 6.6 Species planted under the project would include chir pine (Pinus roxburghii), utis (Alnus nepalensis), Lapsi (Choerospondias axillaris) and other species. The reliance during the first Community Forestry project (Credit 1008-NEP) on coniferous species would be reduced and greater emphasis placed on broadleaved species, which are valued by communities for fodder production and for high quality fuelwood. However, pines would continue to be important because of their better performance in difficult environments. 6.7 In existing natural forests, management practices promoted under the project will enhance yield and hopefully reverse yield declines due to over- cutting. Natural forests which are normally stocked currently yield 2.3 tons/ha/year, while degraded forests currently yield about 0.7 tons/ha/year. Over the project period, yields are expected to rise in both types of areas to 5.5 tons/ha/year over a thirty-year period. In addition, the project would prevent the degradation of the more accessible parts of the normally stocked forest that would otherwise be threatened by overutilization. .Avoidance of these losses is tantamount to an additional yield ranging from 2.3 to 0.7 tons (averaging 1.6 tcns) per ha per year for the area to be brought under management each year. Improved management is expected to result in an increased fodder yield of 0.5 tons/ha/year, and an average incremental yield of 0.2 tons/ha/year of timber. Environmental and social concerns would be addressed over the course of the project through developing new silvopastoral methods which would maintain vegetative ground cover and understorey species. 6.8 New silvopastoral models will be required to be developed during initial project years which can better meet environmental needs and forage requirements through improving forage production and maintaining vegetative ground cover and understorey shrubs and bushes by decreasing the number of trees per hectare and making use of contour planting technologies. These new models would also provide more sustainable supplies of desired products. Overall, the incremental production from the project is expected to total 43.0 million tons of fuelwood, 17.6 million tons of fodder, and 6.2 million tons of timber over a thirty-year period. C. Cost Recovery 6.9 Poverty is widespread in the project area. Project output would supplement the fuel and fodder which is traditionally collected without pay- ment from public forests, and it is not feasible to institute a pricing mech- anism or to expect full cost recovery at the outset. In lieu of direct cost recovery, the project is designed to intensify community involvement in plan- tation management and forest establishment, which would result in cost-shar- ing by the communities. As community forestry becomes institutionalized, and as benefits from community forests are realized, the financial assistance  - 38 - initially extended by HKG to User Groups in the form of plantation estab- lishment and initial protection costs would decrease. The rate at which User Groups form and are able to undertake afforestation and forest protection will be assessed periodically, with the objective of reducing HMG's financial support to the community forestry program over time. As labor comprises 75Z of plantation establishment costs, a principal indicator of the long-term success and sustainability of the project would be the extent to which com- munity participation evolves to absorb a share of plantation costs. HKG would also monitor seedling uptake as a basi.s for gradually increasing seed- ling prices charged to the community, and creating market conditions condu- cive to privatization of seedling production in the longer term (para. 3.14). VII. BENEFITS, JUSTIFICATION AND RISKS A. Project Benefits 7.1 The proposed project would help Nepal establish a forest management system that would conserve and expand the forest resources needed to sustain the traditional farming systems in the Hills. Specifically, it would do this by helping to: (a) conserve and stabilize a fragile ecosystem, as well as regen- erate and expand Nepal's Hill forest resources, and promote long-term forest resource management. Environmental benefits would accrue from the protection and improved management of at least 400,000 ha of forest lands and -he establishment of some 56,300 ha of new plantations following the introduction of new models which include silvopastoral and ground cover consider- ations. This would guard against overutilization and help stabilize the fragile mountain soils that characterize the Hills region (paras. 7.9-7.10). Local strategies for the management of these forests would be developed, and areas assigned as National and Community Forests would be clearly identified so that the needs for each, and the responsibil- ities for their management, may be clearly defined; (b) increase the production of fuelwood, fodder, and timber needed by the local communities. The direct benefits to the popula- tion of the target area include the production of some 30.8 million m tons of fuelwood, 13.6 million m tons of fodder, and 4.3 million m3 of timber and poles over a thirty-year period. Other direct benefits include the generation of over 100,000 years of full-time employment with total wage payments exceed- ing NR 0.5 billion. The women who traditionally collect fuel and fodder would benefit from the improved supply and access to renewed sources. An important benefit would be the acceD- tance of the rights of local users to much-needed forest produce, the harvesting of which currently puts them in tech- nical violation of existing forest regulations. By systemat- ically implementing HMG's stated Forestry Sector policy and  - 39 - enabling the orderly transfer of forest land to local commun- ities, the project would reduce a major source of friction between the people and government authorities and support the livelihood of the rural poor; (C) increase the capability of FD to plan resource allocation and assist local User Groups to manage and develop forests. This would be achieved, inter alia, througt the provision of inten- sive staff training which would increase staff productivity in the medium- and long-term, as well as detailed maps, a basic tool to aid program planning. The project would create the facilities and policy environment to permit improved develop- ment plann.ng and implementation. The project does not en- visage any radical change in the existing institutions. It supports the intensive redeployment and retraining of FD sta1.f and reorientation of FD's forest management and program imple- mentation priorities in the Hills. B. Economic Analysis 7.2 The economic analysis is estimated only on the direct benefits from forest management, plantation establishment, and seedling distribution. Bene- fits resulting from institution building and environmental protection and improvement, although substantial, are difficult to quantify and have not been included in the analysis. 7.3 Input Prices. All inputs, except for unskilled labor, are valued at border prices using the standard conversion factor of 0.9 for non-traded inputs. Wages for labor engaged in plantation establishment (which generally occurs during peak agricultural periods) currently valued at NR 28 per day, are adjusted by a conversion factor of 0.9. Wages for labor engaged in main- tenance and protection (which is done throughout the year) are adjusted by a conversion factor of 0.6. Taxes and duties have been excluded from the analysis. 7.4 Output Prices. Most forest products that would be produced under the project are currently collected by family members at no cost other than the time and labor involved. Alternative approaches to calculating economic prices were considered: these included using the price of substitutable com- mercial fuels, the productive value of non-traded substitutes such as cattle dung, and the value of labor expended in collection of forest products. The first two alternatives were rejected for the following reasonst the use of alternative fuels such as kerosene is extremely limited in the project area and it is generally used only for purposes such as lighting and not for cook- ing or space heating; and surveys conducted under the first project also show that, contrary to expectations, only negligible amounts of cattle dung are burned as fuel in the Hills. Consequently, the value of forest products has been based on the value of wages foregone for collection. The assumption is that true willingness to pay for a good would at least equal and possibly exceed the value of resources foregone in its procurement. This yields an estimate of the value of wood at the farmgate which is used directly as the  -40 - value of wood produced from the private planting component. Economic prices are therefore valued in terms of labor expended, using the wage rates and conversion factors (shadow prices) mentioned in para. 7.3. In the base case, prices are assumed to rise 62 per annum in real terms along the trend of the last 17 years (para. 6.1).9/ 7.5 Fuelwood. Estimates of the time that Hill families devote to fuel- wood collection vary tremendously, from about 75 staff-days of labor per year to over 130 for collection of approximately 4 tons of firewood. According to Shrestha (1982) and Joshee (1986), perhaps one-third of this work is performed by children.10/ Fuelwood collection takes place throughout the year, thus minimizing conflicts with peak agricultural periods. Available information indicates that two-thirds of fuelwood is collected during the off-season. and the remainder during the peak season. Accordingly, using the wage rates dis- cussed in para. 7.3 above, fuelwood is valued at NR 262/ton 11/ at the farm- gate. This estimate compares with NR 867/ton as calculated for the appraisal of the first project using a cattle dung equivalency approach and with NR 917/ton as calculated by the FAO/CP preparation team also using a dung equiv- alency approach. This comparison is reasonable and consistent with the find- ing that dung is not used as fuel. The economic prices are considerably below the urban market prices. This is reasonable, given high transportation and marketing costs and the monopolistic structure of the major urban markets. To account for transport costs, plantation output and incremental yields from natural forest management are valued on the stump at NR 150/ton; this is equi- valent to assuming that plantations are located so as to reduce the distance travelled to collect wood by about 60Z. 7.6 Fodder. Data from a number of farm management studies indicate that the time devoted to fodder collection by the average family is 250 staff-days per year. This labor requirement varies by season, with most collection being done during the late summer and autumn months. Fodder collection during this period may fall short of nutritional requirements, reducing milk yields. Consequently, valuing fodder on the basis of labor time is a conservative approach and probably understates the real value of fodder. Assuming that one-half of collection takes place during peak periods and using the wage rates and conversion factors (shadow prices) given above, the economic price of fodder is NR 150 per ton of fodder.12/ 9/ This assumes that the observed price increase is due to the dimunition of forest cover and the need to travel and transport wood over greater distances. 10/ Child labor has been valued the same as adult labor because children often perform other farm tasks, especially animal feeding and tending, which substitute for adult labor, and because other pursuits, including schooling, may actually present higher social opportunity costs. 11/ 50 days x NR 20/day X .6 - 600, plus 25 days X NR 20/day X .9 - NR 450, equals NR 1050. NR 1050 divided by 4 tons - NR 262/ton. 12/ 125 days X NR 20/day X .9 - NR 2250 plus 125 days X NR 20/day X .6 = NR 1500, equals NR 3750 divided by 25 tons = NR 150/ton.  - 41 - 7.7 Rates of Return and Net Present Value. The economic analysis compared direct incremental output with directly productive investment costs, thereby excluding the costs of the Training and Research Components. The Training and Research components were excluded from the analysis because the primary benefits of these investments will be mainly institution building and human resource development, which are difficult to quantify. The evaluation indicated an overall economic rate of return (ERR) of 36Z. Plantation com- ponent benefits and direct costs were also analyzed and found to yield a rate of return of 21Z. The economic rates of return (ERR) and net present values (NPV) are as follows: ERR NPV I (at IOZ in NR million) Project 36 5058 Plantation (Benefits and direct costs) 21 965 7.8 Sensitivity Analysis. The sensitivity of the rate of return esti- mates was studied by allowing for changes as follows: (a) a more conservative rate of output price increases; (b) a lower initial level of prices; (c) in- crease in the overall level of costs; and (d) delayed onset of project bene- fits due to slower than anticipated rate of User Group formation. The resuilts of this analysis are shown below in Table 7.1.  - 42 - Table 7.1 - Rate of Return and Sensitivity Analysis (1) (2) Scenarios Plantation Project Component 1. Base case 36? 21? (assumes 6Z p.a. real price increase) 2. Sensitivity Analysis, assuming: (a) 3? p.a. real price increase 31? 16Z (b) initial output price level at 60? of base case 29? 17? (c) total cost increase by 70? 28? 17? td) delayed onset of benefits by 2 years 29? 16? The ERR is relatively insensitive to cost and benefit changes, largely due to the Forest Management component which yields high benefits in return for minimal direct costs, except for that of institutional support and extension staff over- heads. The analyksis nhows that even with large changes in the assumptions used in project design, the project would remain economically viable. C. Environmental Impact 7.9 Loss of forest cover has been the dominant form of environmental degradation in Nepal during recent years. The proposed project will help to reverse this degradation through direct investment and by furthering HMG's policy of decentralizing control over forest resources in heavily populated areas to enlist the cooperation of local villagers. Institutional support to FD and the provision of detailed maps for planning, will improve PD capability to monitor and plan the development of the forest resource. The emphasis on  - 43 - extension and the obligation to seek out and work with local forest users will also ensure that the community forestry program is solidly based with support at the grassroot level. 7.10 The investments and activities in the proposed project will enable reforestation of degraded land and improvement of existing forests. These results will help to reduce erosion, sedimentation, and the severity of flash flooding often attributed to the removal of fore't cnver in the Hills. Since soil and water erosion can still take place in plantations and forests where there is no ground cover, environmental rehabilitation will also be addressed through developing new silvicultural models which decrease spacing of trees, encourage grass, shrub, bush, and other understorey growth, and through exper- iments with contour planting of trees and grasses. D. Risks and Remedies 7.11 The main risks of the project and proposed remedial measures are as follows: (a) Forest Department policy and staff. FD staff may inadequately implement HHG's Community Forestry policy, due to insufficient clarity of objectives, and inadequate organization and moti- vation of FD staff. This risk would be minimized by (i) ensur- ing that the responsibilities of ?D and entitlements of local User Groups are clearly defined; (ii) simplifying the adminis- trative procedures and establishing clear implementation targets and performance indicators for PD staff; (iii) develop- ing and implementing effective training programs for FD staff and local communities; and (iv) strengthening the monitoring, evaluation and supervision capabilities of FD. Remedies for these risks are provided for under the project through the proposed organizational, structure of the project, the required Guidelines incorporating operational procedures and instruc- tions for FD staff, & strong monitoring and evaluation system, and an intensive training program, as described in Chapter III and in conditions to be met during the implementation of the project (Chapter VIII). (b) The local communities and User Groups. Local communities and User Groups may not fully understand the new policy or may be slow in assuming related responsibilities. To minimize this risk, the project provides for intensive extension and training of the FD staff as well as communities, and in particular, the User Groups. (c) Potential conflict of interest between local bureaucracies (Panchayats) and User Groups to cooperatively manage the forest resources. Political interests at the Panchayat level to retain a source of revenue and the needs at the local village level for forest products may work against co-neration for longer-term conservation. There is currently no incentive for  - 44 - communities to manage the forests they utilize while effective management is well beyond the means of the Forest Department. However, experience from various community forestry projects in Nepal indicates that rural forest users have responded to in- centivea such as clear management responsibilities for forest areas which they have protected, direct control over the choice of silvopastoral models which are relevant to local needs, and the ability to use products thereby generated. The project seeks to vest these powers in the hands of local forest users so that the incentives to protect and maintain forest areas are not negated by bureaucratic control. Measures proposed to mitigate this risk include clear definition of User G-oups' role and functions, their benefits from participation, and technical and financial support for their forestry d'velopment activities. These measures and the necessary incentives have been iLcluded in the project design and conditionalities below. VIII. AGREEMENTS REACHED AND RECOMMENDATICNS 8.1 Agreement was reached at negotiations that: (a) MFSC would, by December 31, 1989, ootain LRMP land use maps; obtain planning information for each project district; and identify those areas of state forests that would be handed over to local forest User Groups to be formed for this purpose (para. 3.7); (b) MFSC would, during the project period, cause to be established forest User Groups with membership, functions, and powers ac- ceptable to IDA (para. 3.10), and that disbursement of funds allocated to User Groups would be in accordance with terms and conditions agreed with IDA (para. 3.12); (c) MFSC would, by December 31, 1991, undertake a study on seedling uptake and submit the results of that study and a draft seed- ling pricing policy to IDA for review and by June 30, 1992 implement such a policy, taking into account IDA's comments (para. 3.14); (d) HMG/MFSC would ensure that by December 31, 1989, the following key project staff would have been sanctioned and appointed to their posts: at the Regional Training Centers of MFSC, five Training Officers (para. 3.22); at the Forestry Research Division of the Department of Forest and Plant Research, four Senior Research Officers and seven Junior Research Officers (para. 3.27); at CFDD, a Senior Accountantl Procurement Officer (para. 5.3); and that all other necessary project staff would be sanctioned and appointed as specified in the Operational Action Program (Annex 6 and Annex 10);  - 45 - (e) HMG/MFSC would, by December 31, 1989, carry out a review of their travel and field allowance policy and thereafter take steps to implement the findings, taking into account IDA's comments (para. 3.26); (f) MFSC would (i) maintain separate records and accounts for all project expenditures, by individual project component and sub- component, and in accordance with appropriate accounting prin- ciples; (ii) within six months of the end of each fiscal year, submit to IDA copies of project accounts, (including the Special Account) certified as to their authenticity and accur- acy by the Auditor-General or such other independent auditor as he may delegate to; (iii) within twelve months after the end or each fiscal year, submit to IDA certified copies of annual audit reports and audit opinions on the project accounts (in- cluding the Special Account), and on statements of expenditure; and (iv) furnish t' IDA such other information concerning audits and accounts as IDA shall from time to time reasonably request (para. 4.16); and (g) HMG/MFSC would, by May 1, 1993, conduct a Workehop among key staff and donors to discuss the Mid-Term Review Report to be submitted to IDA and DANIDA by March 15, 1993 (para. 5.13). 8.2 HMG agreed that, as a condition of effectiveness, MFSC would be caused to finalize and distribute to its field staff the agreed Guidelines containing operational procedures and instructions for the implementation of the Community Forestry program (para. 3.11). 8.3 With the above conditions and assurances, the project would be suit- able for an IDA Credit of SDR 23.5 million (US$30.55 million equivalent) to HMG. The Credit would be provided on standard IDA terms with 40 years' maturity.  NEPAL HILL COMMUNITY FORESTRY PROJECT Onaoinn Community Forestry-Related Projects In the Hills Date of Expected Project Donor Coverage Total Cost Effectiveness Completion Date Community Forestry Development and IDA/UNDP 29 Hill Districts US$17 million Sopt. 1980 June 1989 Training Project Second Forestry Project (Teral) IDA/EEC 14 Teora Districts US$18 million Nov. 1983 June 1990 Rasusa Nuwakot Integrated Rural IDA Rasuwa and Nuwakot USS19.1 million Nov. 1987 Dec. 199k Dovelopmnt Project (RNIROP) Districts Hill Forestry Development Project ADB/FINNIDA Kathkandu, US$19.2 million Juno 1984 June 1990 (HFDP) Bhaktapur, Lalitpur, Kaski Districts Rapti Area Development Program II USAID Dangdeokhuri, Pyuthmn, USt1.89 million July 1987 July 1995 (RADP) Sallyan, Rolpa and RUkum Districts Nepal-Australia Forestry Project ADAD Sindhu-Pulchowk and A$7.4 million 1988 Dec. 1990 (NAFP) Kabre Districts Kernali-Sherl Intetrated Rural CIDA Surkhot, Dellekh and NR 246.6 million July 1986 July 1990 Development Project (K-BIRDP) Jumla Districts. Kosi Hill Ares Rural Development ODA Dhankuta, Tehrathum, 1996 1991 Project OKNARDEP) Bhojpur e-. Sankhusabha Districts Tinau Waterohed Project (TV) SATA/OTZ Palpa District NR 67 million 1978 1993 Integrated Hill Development Project SATA Dolakhe District SF 45 million 1976 1990 (DP) Comunity Forestry-Related Projects Recently Completed Sagarmatha Intograted Rural AD8/IFAD Siraha, Saptaerl, and NR 4.6 million 1979 1988 Development Project (SIRDP) Udayapur Districts Resource Conservation and USAID Oorkha, Myaqdl and 1988 Utilization Project (RCUP) Mustang Districts NEPAL  - 47 - ANNEX 2 Page 1 of 4 NEPAL HILL COMMUNITY FORESTRY PROJECT Cases of Successful Village Forest Management 1. Support for User Groups to manage local forest resources is a concept that has grown out of the collective experience of the FD, various Community Forestry projects, and other researchers and observers. Belief is widespread that consistent forest management for sustained production is best guaranteed by the participation of the local population in forest development and protec- tion. This experience has been shaped through various stages of development, evolving from public response to the nationalization of the forests in 1957, through the initial attempts of various Community Forestry projects to insti- tutionalize Panchayat-based forestry, and to the growing realization that traditional management systems have persisted (and even emerged) despite nat- ionalization and the efforts of various forestry development projects. Current thinking acknowledges, learns from, and seeks to enhance traditional systems in the areas where they still exist, and to build new systems on the same principles where they do not exist. 2. HMG's attempts to control the utilization of forest resources through nationalization effectively disenfranchized the earlier traditional management systems in many areas, especially those in closer proximity to HHG control. A case in point is the isolated "Big Pine Forest' (salleri) near Galleshor, in Ghatan Panchayat, Myagdi District. Local tradition dates the origin of the protection and utilization system back to about sixty years to one individual. This man encouraged villagers to preserve about 75 ha of degraded, burnt-over pine forest to allow it to regenerate naturally. In time, the renewed pine forest was opened, for a fee, to cutting of dead and dying trees. The fees plus payments of grain (mana-pathi) from each household paid for a watchman to monitor cutting and watch for fires. With nationalization, the forest became state property, but local management remained intact until the 1970s. Local management collapsed when the DFO was pressured to sell timber permits to build the nearby booming district headquarters of Beni. The forest is presently selectively cut and indiscriminately grazed; both uses do not favor reproduction of pine, and the stock is gradually diminishing. 3. From the early 1980's, the Community Forestry projects ventured to interpret the 1978 PF/PPF legislation into various forms of community organ- ization for forest development. Most of these forms were variations of a model developed by the first IDA-assisted Community Forestry Project (Credit 1008-NEP) of Panchayat-based, FD-advocated technical prescriptions with min- imal user involvement. Typical of the top-down paternalistic approach which was current at that time was the FD's initial effort in Myagdi District again in Ghatan Panchayat, to hand over an FD-administered forest to become a PPF in 1982, which would be administered by the Panchayat for its own use. A 125 ha mixed broadleaf forest of predominantly Alnus sp., Schima sp., and Engelhartia sp. was deemed appropriate by the DFO to become a PPF. A Panchayat mAeeting was called to represent all asers, though ultimately only the elected offi-  - 48 - ANNEX 2 Page 2 of 4 cials were involved in the formulation of the management plan. A Ranger wrote a management plan after making measurements and describing the growing stock, harvesting, and distribution schemes in foresters' terms. The p'an was agreed upon by a Panchayat forest committee and filed, but never implemented. Later, men from one of the villages in the Panchayat nearest the forest, announcing that they would exact what they perceived to be their due share since they were part of the Panchayat, razed a portion of the forest for logs and firewood. 4. The experience of Ghatan Panchayat was repeated in numerous cases across Nepal. P. B. Chand, DFO of Darchula, compared his earlier unsuccessful attempts at group organization in Huti Panchayat with a later, more successful case in Hikili Panchavat, and analyzed the different group organization fac- tors operating in each case. The negative factors in Huti Panchayat were: (a) the forest committee was established by DFO without any discus- sion with local villages of its role; (b) the committee's purpose was never fully understood, therefore the community hesitated to support its decisions; and (c) a management plan was prepared by the Ranger according to a prescribed official format, with limited ground observation and without further consultation with the committee. The plan was neither technically acceptable nor intelligible to villagers. The positive factors in Hikili Panchayat were: (a) the fo_est users (mainly women), together with prominent members of the community, decided how to manage a natural forest, wrote a simple agreement regarding protection, harvest, and distribution, and made it well publicized to all village!s; (b) the committee was elected and accepted with unanimous support; (c) the people who were to implement the plan wrote it themselves; and (d) the DFO sanctioned the management agreement after a trial period of several months. 5. These trial-and-error lessons emerged together with the growing rec- ognition of the existence and efficacy of village-initiated management systems, many formed independently in the past decade despite nationalization and Community Forestry programs. One such system exists in Chasa, Lete Panchayat, Hustang District. There, the villagers recognized in the 1960s the need to conserve a rapidly deteriorating pine forest. They closed off about 5 ha to allow regeneration, and contro:led access with patrolling by members of a local committee. Grazing access has been forbidden to sheep and goats since 1974, though larger animals may enter. Poles and timber may be cut for public use (e.g. school construction, bridge repair) by permission of the committee,  - 49 - ANNEX 2 Page 3 of 4 though cutting fuelvood and building material by individuals is prohibited under threat of fines levied by the committee. Litter is collected by each househG'.d each winter for cattle bedding and to reduce fire risk. When Forest Department suggested that this forest should become PPF with an accompanying management plan, villagers declined for fear of losing control, preferring tc manage the forest without outside interference. 6. A more recent system has begun, flourished, and even spread to neigh- boring Panchayats in recent years in Dhading District. Eight villages have been inspired by the example of a protected, regenerating sal and chilaune forest in Gimirigaun, Nilkanta Panchayat. All forests have their own rita- tional protection systems. In Gimirigaun, the forest committee has identified the areas to be replanted, made a map indicating a scheme for rotational pro- tection and utilization, and even started to construct its own nursery facil- ities, all without any outside assistance. The villagers here also express concern about dubbing these protected areas as PPF for fear of forfeiting a local resource to the whole Panchayat. 7. The most recent and successful approaches to community organization for forest management have acknowledged the capacity of the villagers, as survival experts, to cope with their forestry situation wisely. With this approach is an appreciation of the need to learn from any local tradition of organization where it exists, or to work with local users to evolve ideas for management, where no local tradition exists as yet. Any development scheme can only be based on a thorough understanding of local priorities and usage patterns, and should be presented in terms understood by the villagers. Such an approach calls for an extension approach which is very sensitive to and respectful of the rights of local communities. 8. Localized examples of FD's efforts to legitimize and support trad- itional usage were instituted during the first IDA-assisted project and are now becoming apparent. Ir one case, traditional management rights to a small sal forest in Bagmari Panchayat by members of neighboring Danauri Panchayat in Dang District were recently abandoned due to difficulties they faced in having to contend with forest guards whose job it was to protect the State forest. The DFO, Y. B. Thapa, recognized the value of the traditional system, and formally reinstated villagers' rights as a User Group to manage the resource. In Darauni Pokhari Panchayat of Kabhre District, DFO M. R. Maharjan directed extension efforts to help a traditional User Group to assume responsibility for a project-supported nursery and afforestation program. This group has formed a subcommittee that will work with the Ranger towards developing a utilization strategy for a maturing PP plantation. 9. Similarly, appropriate systems are being devised in many areas where no traditional systems have existed. In Naudanda village of Kaski District, DFO B. K. Khanal encouraged locals to devise a simple, four-compartment rota- tional fodder and fuel system for about 15 ha of mixed broadleaf forest. In Sejwal Thakura Panchayat of Sallyan District, DFO G. Serchan helped to put in place a two-tiered local structure in accordance with recent HMG efforts at decentralization: the Panchayat forest committee handles the overall judicial and accounting functions, while the User Group executive subcommittee has installed a rotational fodder grass cutting scheme in a plantation area with shared benefits to all users.  - 50 - ANNEX 2 Page 4 of 4 10. This recent experience is especially encouraging, and suggests pos- sibilities for recognizing and encouraging the legitimate role of local Users in Community Forestry development in Nepal. The initial fervor to impose management regimes from FD to the Panchayats is gradually giving way to a more sensitive approach which trusts local experience and seeks to enhance local capability. Trust between the FD and some communities is beginning to form, but is still fragile. An enormous challenge lies ahead for FD to build on this base, and work to spread realistic sustainable forest management through- out the country. The proposed Hill Community Forestry Project is designed to assist this development. Recognizable elements of this project take off from the lessons learned and efforts initiated during the first project; these include the need to train and reorient FD staff towards community forestry goals, the need for intensive extension activities, the organization of local User Groups and recognition and technical support for the formulation of their Workplans, through which the project will substantially be implemented.  _ 51 - ANNEX 3 NEPAL HILL COMMUNITY FORESTRY PROJECT List of Proiect Districts Region Proiect Districts Far Western 1 Darchula B 2 Baitadi A 3 Dandeldhura A 4 Bajhang C 5 Doti A 6 Bajura C 7 Achaam B Mid Western 8 Humla C 9 Muga C 10 Dolpa C 11 Jumla B 12 Jarjakot C 13 Kalikot 14 Mustang C 15 Myagdi C 16 Baglung B 17 Gulmi B 18 Arghakhanchi B 19 Manang C 20 Parbat B 21 Kaski A 22 Lamjung B 23 Syangja B 24 Tanahu A 25 Gorkha A Central 26 Dhading B 27 Kathmandu A 28 Bhaktapur B 29 Lalitpur A 30 Sindhula A Eastern 31 Solokhumbu B 32 Okhaldunga B 33 Khotang B 34 Taplejung C 35 Panchtar C 36 Ilam A 37 Udayapur A Associated Districts 1/ 1 Rasuwa B 2 Nuwakot A 1/ Presently covered by IDA-assisted Rural Development Project (Credit 1727-NEP).  HILL Como IT F51KL02 310421 966it1. fi, tEtolruI tamt 0tiatjld got ltl. 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