Nepal - Hill Community Forestry Project

Document of The World Bank FOR OFFICIAL USE ONLY ca~~ a a, _ ? Report No. P-5004-NF1 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 23.5 MILLION TO THE KINGDOM OF NEPAL FOR THE HILL COMMUNITY FORESTRY PROJECT MAY 10, 1989 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disdosed without World Bank authorization.  CURRENCY AND EQUIVALENT UNITS Nepalese Rupee (NR) - 100 paise US$1.00 (January 1989) - NRs 25.50 (Official and Free Market Rate) WEIGHTS AND NEASURES 1 metric ton (m ton) - 1,000 kg = 2,205 lb ABBREVIATIONS DANIDA - Danish International Development Agency DFPR - Department of Forest and Plant Research (of MF(.) FD - Forest Department (of MFSC) HMG - His Majesty's Government of Nepal MFSC - Ministry of Forests and Soil Conservation MPLD - Ministry of Panchayat and Local Development PF - Panchayat Forests PPF - Panchayat Protected Forests UNDP - United Nations Development Programme FISCAL YEAR July 16 - July 15  F OWICIAL USE ONLY NEPAL HILL COMMUNITY FORESTRY PROJECT Credit and Proiect Sumiary Borrowers Kingdom of Nepal Beneficiaries: Ministry of Forests and Soil Conservation (MFSC) Department of Forests (FD) 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 Onlending Terms: Not applicable Financing Plan: USS million IDA 30.S DANIDA 6.9 UNDP 0.5 EMG 4.3 User Groups 3.2 Total 45.4 Economic Rate of Returns 362 Staff Appraisal Reports Report No. 7631b-NEP IBRD 21343R This document has a nstricted distributin and may be used by recients on in the prfornmae of their offcial dutis Its contents may not otherwise be disclosed without Wodd Bank authboztln  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF NEPAL FOR A HILL COMKUNITY FORESTRY PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Kingdom of Nepal for SDR 23.5 million (USS30.5 million equiv- alent) is submitted for approval. The proposed credit would be issued on standard IDA terms with 40 years' maturity. It would help to finance forestry sector investments, training and extension, research, and institutional devel- opment to support the implementation of Nepal's Forestry Master Plan and Forestry Sector Policy. The project would be cofinanced by grants of US$6.85 million equivalent from the Danish International Development Agency (DANIDA), and US$0.51 million equivalent from the United Nations Development Programme (UNDP). 2. Background. Forestry in Nepal accounts for about 62 of both GDP and exports, and meets over 90S of rural energy needs. In the Hills, forests are an integral part cf the farming system, providing fodder for livestock, leaf litter, and fuelwood for household energy. Hill forests supply about 402 of the feed for livestock, estimated at 3.8 million metric (m) tons annually. Leaf litter is used for bedding which, mixed with animal dung, provides compost, almost the only fertilizer and soil-improving input to crop produc- tion in the Hills. Hill farmers use about 3.3 million m tons of fuelwood annually. Annual consumption of fodder and fuelwood is projected to grow at 1.72 and 2.01, respectively, per year during 1990-2020s without the project, deforestation is expected to accelerate. Population pressure and the increased demand for arable land and forest products has reduced the forest cover by about 27t in the past 15 years, while about 219,000 ha of forest have been degraded as a result of overutilization. Both His Majesty's Government (HMG)'s recent Forestry Master Plan and Forestry Sector Policy have the major objective of meeting the basic needs of the people for forest products. These production goals would largely be attained by decentralizing from the present State control over forest resources towards enlisting the people's partici- pation in forest development, management, and conservation. 3. Rationale for IDA Involvement. The proposed project would complement actions initiated under the earlier forestry sector projects, and would support implementation of HKG's Forestry Master Plan and Forestry Sector Policy through promoting active participation by local forest users in the development of community forests. This would be achieved by entrusting res- ponsibility for the protection and management of Hill forests which hill farmers rely upon to sustain their livelihood to these forest users. Successful examplee of effective local management exist all over Nepal. The responsibilities of Forest Department (FD) staff will change significantly, from protecting the forest resource to encouraging and facilitating local communities to assume this role. Such a change requires substantial reorien- tation of attitudes and functions on the part of implementing agencies to ensure that meaningful solutions are found to redress protection and manage- ment problems at the local level. Building on existing working relationships with the implementing agencies, IDA's involvement and support will help to  ensure that these far-reaching changes are implemented efficiently and in a timely manner. 4. Project Obiectives. The proposed project is designed to mobilize people and resources in the Hill districts of Nepal towards establishing a forest management system which would conserve and expand the forest resources needed to sustain traditional farming systems and livelihood in the Hills. It would support a policy and institutional development process aimed at: (a) training FD extension staff to identify and assist farmers to organize themselves into User Groups which would be established as legal entities with rights of use over State-owned forest lands which they have traditionally used; (b) provision of VD technical and financial assistance to enable User Groups to protect, improve, and maintain existing forests, or establish forests in degraded areas in the areas that they would manage; tc) improving the supply of fuelwood, fodder, leaf litter, and timber; (d) rehabilitating overutilized areass (e) improving the vegetative cover which ie essential for conserving soil and regulating water regimes; and (f) protecting the environment. 5. Proiect Description. The proposed project would be implemented over a period of seven years by the Ministry of Forests and Soil Conservation CMFSC) through its Training Division, FD, Department of Forest and Plant Research (DFPR), and User Groups. The project includes the following com- ponents: (a) an Institutional Support component to enable the acquisition of land use maps and the rapid identification of the forest areas regularly accessed by rural communities for community forestry development. About 400,000 ha of forested (PPF) areas would be handed over to local User Groups for protection and management. For degraded forest areas (PP), User Groups would be formed to replant, protect, and manage the forest resource; (b) a Forest Resource Management component comprising (i) the production of some 117 million seedlings for establishing and maintaining comunity plantations, and distribution to farmers for private planting--a nominal charge would be levied on seedlings for the latter, and seedling uptake would be monitored as a basis for pricing and longer-term privatization of seedling production; (ii) the establishment, protection and maintenanc.. )f about 46,700 ha by User Groups and about 9,600 ha by ID; (iii) the management of forested areas, to assist User Groups to revive about 400,000 ha of degraded forest under the Project; and (iv) the management of plantations, previously established by ID, to be handed over for management by User Groups. Financial support to the Groups would be provided for the first three years only; (c) a TraininR and Extenrion component comprising (i) local and overseas training for PD staff and local officials, as well as commnity leaders through a series of Reorientation and Extension workshops, study tours and technical courses to be held in Kat)mandu and at five regional training centers; and (ii) maintenance of a continuous field extension program to inform rural comunities about the objectives of the Community Forestry program and the provisions under the Project, empha- sizing the role of local User Groups in assuming management responsibility over areas to be assigned to them. This component would be financed by a grant from DANIDA; and td) a Research component comprising (i) silvicultural research to supplement an ongoing research program to include additional trials and observations on local silvopastoral practices, effective natural forest management, and successful establishment and management of plantations, including those of native species; and (ii) socio-economic research to  - 3 - understand the deteminants of successful coumunity r4nagement of comon propeLty including survey of previous community forestry experience, socio- economic aspects of forest production utilization, studies to assess program uptake, and other studies as may be required for the project. 6. Project cost is estimated at US$45.39 million (April 1989 prices), with a foreign exchange component of US$5.75 million (13X). This includes investment costs of US$40.99 million (902) and incremental operating costs of US$4.40 million (10X). IDA would finance US$30.55 million (67Z of total costs), including US$30.45 million for investment cost (including User Group formation and plantation establishment) and US$0.10 million for recurrent costs. DANIDA and UNDP would cofinance US$6.85 and US$0.51 million -nder their respective grants, the latter being part of a US$2.3 million project (NEPl85/017). The project would be implemented in close coordination with ongoing multilateral- and bilateral-assisted rnmmunity forestry programs in Nepal. Retroactive financing of US$3.0 millimn would be provided to cover expenditures incurred after October 31, 1988 for procurement of materials and equipment, and to initiate plantation establishment to be financed under the project. A financing plan and breakdown of costs are shown in Schedule A. Amounts and methods of procurement and disbursements are shown in Schedule B. A timetable of key processing events and the status of Bank Group operations in Nepal are given in Schedules C and D, respectively. A map, IBRD 21343R, is attached. The Staff Appraisal Report, No. 7631b-NEP, dated May 10, 1989, is being distributed separately. 7. Agreed Actions. HKG has agreed on the following actionst (a) by December 31, 1989, (i) to procure maps and information for detailed planning of field operations in all project Districts, (ii) to appoint key staff, and (iii) to implement a travel and field allowance policy satisfactory to IDA; (b) to establish User Groups with agreed characteristics; to disburse project funds to such Groups only against their proper Certification and Operational Plans, and according to agreed compensation rates; and to submit to IDA, at prescribed intervals, certified and audited project accounts; (c) by December 31, 1991, to submit for IDA's coments, the results of a study on seedling uptake and draft seedling pricing policy, and to implement the agreed recommendation by June 30, 1992; (d) by May 1, 1993, to conduct a coordinating Workshop to discuss the Mid-Term Review Report to be prepared by MFSC; (e) by December 31, 1989, to appoint key research and training staff to MFSC, PD, and DFPR; and (f) to finalize the Operational Guidelines (which specify the membership, powers and functions of forest User Groups, and procedures for transfer of forest lands to such Groups) in agreement with IDA, and issue them as a condition of credit effectiveness.  a 4 - 8. Benefits. The project would (a) conserve and stabilize a fragile ecosystem; (b) increase fuelvood, fodder, and timber productions (c) Improve FD's capability to plan resource allocation and work with local users to manage, improve, and develop the forest resourcel and ld) alleviate poverty. The economic rate of return of the project is estimated to be 36SZ. 9. Environmental Impact and Benefits to Women. Beyond the immediate project benefits, the project would help reverse environmental degradation by reforestation and improve existing forest and vegetative ground cover. These actions would reduce erosion, sedimentation, and the severity of flash flooding often attributed to removal of forest cover in the Hills. Providing improved ac2ess to fuelvood 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. Representation of rural women in User Group committees would also ensure that management plans are designed with these needs in mind. By allowing for a guaranteed supply of needed products, the project would improve the living and working conditions of rural women. 10. Risks. The main risks are that (a) FD staff may inadequately imple- ment HMG's Community Forestry policy, although to mitigate this risk, MPSC would issue clear procedures and instructions to its staff, und-'rtake an intensive training and reorientation program, and create a strong monitcring system to supervise the effort; (b) local communities and User Groups may be slow in understanding 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 inter- est for the use and management of forest resources--this risk would be avoided by clearly defining User Groups' role and functions, their benefits from par- ticipation, and technical and financial support for their forestry development activities. Measures to mitigate these risks and introduce necessary incen- tives have been included in the project design and conditionalities as required. 11. Recommendation. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recomend that the Executive Directors approve the proposed Credit. Barber B. Conable President Attachments Washington, D.C. Hay 10, 1989  Schedule A NEPAL HILL COK"PNITY FORESTRY PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Costs: 1/ Local Foreisn Total (US$ uuillion) Institutional support 6.9 0.8 7.7 Forest Resource Management 19.3 - 19.3 Training and Extension 3.3 4.0 7.3 Research 0.4 - 0.4 Total Baseline Costs 29.9 4.8 34.7 Physical Contingencies 0.2 0.3 0.5 Price Contingencies 9.6 0.6 10.2 Total Project Cost 39.7 5.7 45.4 1/ Net of taxes and duties, which are negligible. Financing Plan: Local Foreign Total (US$ million) IDA 30.0 0.5 30.5 DANIDA 2.2 4.7 6.9 UNDP - 0.5 0.5 HMG 4.3 - 4.3 User Groups 3.2 - 3.2 Total 39.7 5.7 45.4  Schedule B Page 1 of 3 NEPAL HILL COMMUNITY FORESTRY PROJECT PROCUREYENT METHOD AND DISBURSEMENTS Procuremnt Method Not Total Category ICB LCB Other AODlicable 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 - - 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 - - - 2.30 2.30 Staff Travel, User - - 6.88 - 6.88 Group Formation (6.07) (6.07) and Technical Support a/ Plantation Labor and Management bI - - - 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. al These expenditures pertain to extension and travel associated with Group formation and are cons:-dered as investment costs. b/ These expenditures include compensation paid to User Groups for plantation establishment and forest protection in the initial establishment period.  Schedule B Page 2 of 3 NEPAL HILL COMMINlTY FORESTRY PROJECT Proposed Credit Allocation Amount of the Percent of credit allocated expenditures to Category (expressed in US$ be financed million) Goods Vehicles and Equipment 0.28 }100Z of foreign expenditures; }100X of local expenditures )(ex-factory cost); and 75Z of )local expenditures for goods )procured locally Works 1.00 40? User Group Formation and Technical Support 4.60 100l Seedling Production and Plantation Establishment by PD 9.00 100? User Group Activities Plantation Establishment by User Groups 9.48 80s Forest (and Plantation) Protection by User Groups 2.80 802 Travel and Field Allowances for Research Staff 0.10 lOO0 Consultants' Services (Studies and Surveys) 0.19 100? Unallocated 3.10 Total 30.Y5  Schedule a PaSs S of S Estimated Disbursementes PY90 MFl FY92 l3 F4 FY93 MO mo 97 FY98 %-- ..a......... "www.. (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 l2.0 16.0 21.0 26.0 30.5  Schedule C NPAL HILL COMQUNITY FORESTRY PROJECT Tiwmtable of Key Project Processing Events (a) Time taken to preparat Three years (b) Prepared bys MG vith FAO/CP and IDA assistance. (c) First IDA mission: September 1987 (d) Appraisal mission departures October 1988 Se) Date of negotiations. April 17, 1989 (f) Planned date of effectiveness: September 30, 1989 (g) List of relevant PCRs and PPARs: none  *10 - Schedule D Page I of 2 NZPAL The Status of Bank Groni ODerationo in NoDal A. statement of IDA Credits a/ 7I (as of March 31, 1989) Amount (lese cancellations) --US$ million-- No. Year Borrower Purpose IDA Undisbursed 27 Credits fully disbursed 198 1 1055 1980 Kingdom of Nepal Irrigation (Mabhakall) 16.0 0.7 1100 cl 1981 Kingdom of Nepal Agricultural Ext. & Research 17.5 4.4 1101 c/ 1981 Kingdom of Nepal Hill Food Production 8.0 3.7 1198 el 1982 Kingdom of Nepal Second Education 14.3 6.1 1260 c/ 1982 Kingdom of Nepal Petro. Exploration Promotion 7.9 2.4 1316 cl 1983 Kingdom of Nepal Irrig. VI - Bhairava Lumbini 16.0 5.5 1339 cJ 1983 Kingdom of Nepal Cash Crop Development 6.0 1.7 1379 cl 1983 Kingdom of Nepal Technical Assistance II 6.0 2.4 1400 c/ 1984 Kingdom of Nepal Second Forestry 16.0 16.9 1452 cl 1984 Kingdom of Nepal Rarnali Preparation 11.0 3.8 1463 c/ 1984 Kinagdom of Nepal Primary Education 12.8 10.7 1478 cl 1984 Kingdom of Nepal Marsyangdi Hydroelec. Power 107.0 81.2 1515 c/ 1985 Kingdom of Nepal Third Highways 47.5 40.8 1534 cl 1985 Kingdom of Nepal Agricultural Manpower Dev. 8.4 9.0 1535 c/ 1985 Kingdom of Nepal Industrial Development 7.5 5.2 1570 cl 1985 Kingdom of Nepal Agricultural Extension $$ 7.2 8.0 1588 cl 1985 Kingdom of Nepal Telecoamunication IV 22.0 20.9 1696 cl 1986 Kingdom of Nepal Cottage and Small Ind. $I 10.0 8.1 1715 cl 1986 Kingdom of Nepal Naryani III Irrigation 24.5 27.0 1727 cl 1986 Kingdom of Nepal Third Rural Development 19.1 20.1 1814 cl 1987 Kingdom of Nepal Sunsari Morang Irrigation SI 40.0 37.2 1902 cl 1988 Kingdom of Nepal Third Technical Assistance 14.4 13.7 1922 cl 1988 Kingdom of Nepal load Flood Rehabilitation 15.5 12.6 1924 cl 1988 Kingdom of Nepal Mahakali Irrigation II 41.3 38.1 1988 dl 1989 Kingdom of Nepal Municipal Dev. & Housing Rec. 41.5 39.9 Total 835.8 420.1 of which has been repaid 4.7 Total now outstanding b/ 831.1 Total now held by IDA 831.1 Total undisbursed 420.1 a/ No Bank loans have been made to Nepal. bl Prior to exchange adjustments. cl IDA 6th and 7th Replenishment Credits, principal amounts shown in US dollar equivalent at date of negotiations, as shown in President's Reports, and undisbursed amounts shown in US dollar equivalents are valued at the exchange rate applicable on the date of this statement. In some cases, therefore, the undisbursed balance indicates a dollar amount greater than the original principal credit amount expressed in dollars. d/ Not yet effective.  - 11 - Schedule D Page 2 of 2 NEPAL HILL COMWNITY FORUSTRY PROJECT D. Statement of IFC Investments (As of March 31, 1989) Xnveetmsiit Tyen of Original Imeetmemt B/ IFC Holdins Totl Number Year 0I&laor _lasna E..l-t Lon Total Isujtz Lon Total Undiebursd -12 1975 Soltse Hoetl TourIm 0.4 2.7 8.1 0.4 - 0.4 Limited C24 1982 Nepl Orted Vining - S.0 5.0 - 7.7 7.7 Maneltre) (Private) Limited Total 0.4 7.7 8.1 0.4 7.7 8.1 3/ There arm so particlpane.  2BRD 21343R ,_ ,,, - v_ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~N E P A L -'6s S 7o, HILL COMMUNITY FORESTRY PROJECT I 9 A n Z ! l5C H I N A PROJECT AREA INDIA CHN 20' 1 ~~~~~~~~~~~- HILL DISTAICTS WITHIN P001K? AREA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ELDSTICS IHI POEC AE _/ .,. . , ELL DISTRICTS fENTLY OUTSIDE PROECT AIA mW DISTRCTS OUTSDE PROECT AMA o REGIONAL PORES HEADQUARTERS DISTinCT PORESY CENTERS *--"&I K A 0 O~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~DSTAICT NEADGUAEIRT . NATIONAL CITAL / '4' @ e e e_ * INTERNATONAL A1PnT t DOMESTI AIRPORTS IPAVEQI T ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~DISTRIT BOUNDARIES ZONE BOUNDARIS DEVEOPMEN REGION BOUNDARIS SWSYAEAG ..~~~~~~~~~~~~~~~~~~ ~INTERNATIONAL EOUNDARIO rz~~~~~~~~r- 2r 4 2 h , | I ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~I N D II ,r , fa 0 20 0 f0 1 o lAo MuS MAY1989