Sri Lanka - Forest Resources Development (Forestry I) Project

Document of The World Bank FOR OFFMCIAL USE ONLY Report No. 10679 PROJECT COMPLETION REPORT SRI LANKA FOREST RESOURCES DEVELOPMENT PROJECT (CREDIT 1317-CE) MAY 29, 1992 Rep,rt- !X.-,. 3r:!679-C L Ty,po (i''R) l~CfAL.D2'O)i, / X3 137 i ,' ':P /Z 'T)hIDDI) Agriculture Operations Division Country Department III South Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Sta'f Appraisal Report (1982) - US$1 = SL Rs 21 Average 1983-1989 US$1 - SL Rs 28.8 Completion Year Average (1990) - US$1 - SL Rs 40.1 ABLREVIATIONS ADB Asian Development Bank ERR Economic Rate of Return DCA Development Credit Agreement FAO Food and Agriculture Organization of the United Nations FD Forest Department FINNIDA Finnish International Development Agency FMP Forestry Master Plan FPU Forestry Planning Unit FRDP Forest Resources Development Project FSDP Forest Sector Development Project GDP Gross Domestic Product GOSL overnment of Sri Lar.ka IDA International Development Association M.Sc. Master of Science Degree NGO Non-Governmental Organization O&M Operation and Maintenance PCR Project Completion Report SAR Staff Appraisal Report STC State Timber Corporation UNDP United Nations Development Pzogramme USAID United States Agency for International Development USJ University of Sri Jayawardenapura FISCAL YEAR January 1 - December 31  THE WORLD BANK FOR OFFICIAL USE ONLY Washington. D.C. 20433 U.S.A. Office of Drector-General Opefatins Evaluaton May 29, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on SRI LANKA Forest Resources Development Proiect (Credit 1317-CE) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Sri Lanka - Forest Resources Development Project (Credit 1317-CE)" prepared by the Operations Evaluation Department. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT SRI LANKA FOREST r1.SOURCES DEVELOPMENT PROJECT (Credit 1317-CE) Table of Contents Page No. PREFACE . . .... . . . . . . . . . . . . . . . . . . . . . . . i EVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . iii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . 1 Project Identity . . . . . . . . . . . . . . . . . . . . 1 Background .... . . . . . . . . . . . . . . . . . . . 1 Project Objectives and Description . . . . . . . . . . . 2 Project Design and Organization . . . . . . . . . . . . . 2 Project Implementation . . . . . . . . . . . . . . . . . 3 Project Results . . . . . . . . . . . . . . . . . . . . . 4 IDA Performance .... . . . . . . . . . . . . . . . . . 7 Borrower Performance .... . . . . . . . . . . . . . . 8 Project RelaUionship . . . . . . . . . . . . . . . . . . 8 Consulting Services .... . . . . . . . . . . . . . . . 8 Project Documentation and Data . . . . . . . . . . . . . 9 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . 11 PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . 17 Related Bank Operations .... . . . ..... . . . . . 17 Project Timetable . . . . . . . . . . . . . . . . . . . . 17 Credit Disbursement . . . . . . . . . . . . . . . . . . 18 Project Implementation . . . . . . . . . . . . . . . . . 19 Project Costs and Financing . . . . . . . . . . . . . . 21 A. Project Costs. . . . . . . . . . . . . . . . . . . 21 B. Project Financing .... . . . . . . . . . . . . . 21 Project Results and Studies . . . . . . . . . . . . . . . 22 A. Project Results .... . . . . . . . . . . . . . . . 22 B. Studies .... . . . . . . . . . . . . . . . . . . . 23 Status of Covenants .... . . . . ..... . . . . . . 25 Use of Bank Resources .... . . . . . . . . . . . . . . 26 A. Staff Inputs .... . . . . . . . . . . . . . . . . 26 B. Missions . . . . . . . . . . . . . . . . . . . . . . 27 MAP IBRD 16518 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT COMPLETION REPORT SRI LANKA I FOREST RESOURCES DEVELOPMENT PROJECT (CREDIT 1317-CE) PREFACE This is the Project Completion Report (PCR) for the Forest Resources Development Project, for which Credit 1317-CE in the amount of SDR 8.5 million (US$9 million) was approved on January 18, 1983. The loan was cofinanced by FINNIDA for US$2.44 million. The Credit closed on December 31, 1990 after an extension of one year, with disbursements amounting to SDR 4,568,987.93 (US$5.6 million) (54 percent of the credit). A balance cf SDR 3,931,012.07 remained unspent and was cancelled as of March 13, 1992.1/ The PCR was prepared by an FAO/World Bank Cooperative Program mission which visited Sri Lanka in March 1991, revised by the Agricultural Division of the Asia Technical Department (Parts I and III) and the Borrower (Part II), and reviewed by the Agriculture Operations Division, Country Department III, South Asia Region. A copy of the PCR was sent to the Finnish International Development Agency (FINNIDA) with the request that their comments be received by October 13, 1991. To date, FINNIDA has not replied to IDA. The PCR is based on a review of the Staff Appraisal Report, Development Credit Agreement, supervision reports, and project files. This report is also based on discussions with Government staff and World Bank personnel familiar with the project, and data collected during the PCR mission's field visit. I/ The Credit Account was kept open pending receipt of an outstanding balance in the Special Account. This refund was received on March 13, 1992.  - i_ii - PROJECT COMPLETION REPORT SRI LANKA FORFST RESOURCES DEVELOPMENT PROJECT (Credit 1317-CE) EVALUATION SUMMARY Objectives 1. The main objectives of the Forest Resources Development Project (FRDP) were to: (a) provide Sri Lanka with a strategy for the development of its forestry sector through the formulation of a Forestry Master Plan and a Five-Year Investment Program; (b) strengthen the Government's forestry training capability, through the establishment of a two-year postgraduate university course for professional foresters and technical training courses for forest guards and rangers; (c) establish 8,000 ha of industrial plantations and manage 10,000 ha of teak plantations as well as carrying out silvicultural treatments over 15,000 ha of young stands of teak, pine and eucalyptus; (d) carry out various species/provenance and land clearance/preparation trials. 2. Total project costs over six years were estimated at US$15 million of which US$9 million was to be financed through an IDA credit (mainly for plantations), US$2.4 million through Finnish aid (technical assistance) and US$3.6 million by the Government of Sri Lanka (GOSL). A Forestry Planning Unit (FPU) was established in the Ministry of Lands, Irrigation and Mahaweli Development and was given responsibility for overall project implementation. The Forest Department (FD), also part of the Ministry, was to be in charge of the plantation activities, forest management and technical training. The University of Sri Jayawardenapura (USJ) was to provide university training. Although the FRDP was basically considered an institution-building project, an economic rate of return (ERR) of 20% was calculated in the staff appraisal report (SAR) for the investments directly related to the plantation establishment (40% of project costs). Implementation ExRerience 3. The implementation of the project was severely hampered by the political disturbances in Sri Lanka at the time. The existing Forestry Institute in China Bay was closed in 1985 for security reasons and the training courses for forest rangers and guards were practically suspended until a new institute was built with USAID and IDA funds in 1989 at Nuwara Eliya. The disturbances also caused the temporary closure of all universities in 1989 resulting in a shortage of candidates for the university courses in forestry at the USJ. In addition, of the four selected districts of Batticaloa, Amparai, Hambantota and Moneragala, the plantation activities in the first two had to be suspended in 1987. Because of the disturbances and to  - iv - provi-.e a smooth transition with the follow-up project (Forest Sector Dev.relopment Project, Cr. 2043-CE), the credit closing date was extended by one year, up to December 31, 1990. Results 4. The project achieved the objective of providing Sri Lanka with a perspective development plan for its forestry sector. The Forestry Master Plan (FMP) and the Five-Year Investment Program provided GOSL with a sense of direction in the development of its forestry sector, but drew strong criticism from various interest groups in "ri Lanka and elsewhere (mainly non- governmental organizations and universities) for not attending to environmental aupects (Part I, para. 12). A detailed forest inventory was prepared covering 278,000 ha of natural forest in the wet zone and 98,000 ha of established plantations in both the wet and dry/intermed.'ate zones. Moreover, an indicative inventory was carried out for over 340,000 ha of natural forest area in the dry zone. On the basis of the inventory, the FPU set up a computerized forest management system which was transferred to the FD in 1988 (Part I, para. 13). However, only one FD officer, who subsequently left in 1990, was trained to use the system. As a result, the data base has only been updated sporadically since then. The management plans prepared for wet zone forests require revision. GOSL's forestry training capability was effectively increased, although not to the extent expected due to the political disturbances (Part I, para. 14). The shortage in training has had an adverse effect on the implementation of other components. 5. As regards education, a two-year university degree program has been established at USJ under which 73 M.Sc. candida_es graduated during the project period. IDA's involvement in technical training was limited to provision of some civil works for the Forestry School at China Bay. However, after the closing of this school due to civil disturbances, IDA increased its support to the new training facility at Nuwara Eliya completed in 1989. 6. The plantation activities are difficult to assess because of FD's reluctance to maintain adequate records. Contrary to expectations at appraisal, the bulk of plantation benefits came from management of existing rather than establishment of new plantations (see para. 7). Between 7,000 and 8,000 ha of industrial plantations were established but the average survival rate is estimated to be only around 50%. This low survival rate is due to a failure to develop appropriate technical packages for the dry zone where most of the plantations are located. Also, 6,200 ha of teak plantations were thinned and silvicultural treatments were carried out over 21,800 ha of young stands, including the teak plantations established under the project. The trials that were carried out led to the development of some readily useable technical packages. These, and other practical findings were incorporated into the follow-up project. 7. The final project cost is estimated at US$10.20 million or 68% of the SAR estimate. The disbursement shortfall is due to the political disturbances as well as to the depreciation of the rupee against the US$ - close to 50% over the implementation period - and depreciation of the US$  -v - against the SDR. The SAR's ERR of 20% was only for plantation establishment. The ex-post ERR for this component is lower, about 10%. However, the project has generated large benefits due to silvicultural treatment of existing plantations, both in terms of immediate benefits from production of wood and future benefits from stand improver. nt. Sustainability 8. The project has achieved its main objectives, and its achievements appear sustainable. First, FPU has been formally established as an integral part of the Ministry of Lands, Ivrigation and Mahaweli Development (MLIMD) and is currently in charge if guiding, reviewing and monitoring all forestry programs. Second, FD .ias adopted the forest resource management system and is expected to have full control in implementing it by the completion of the Forest Sector Development Project (para. 3). Third, the teaching cadre of forestry courses at USJ has been strengthened as staff sent overseas have been returning and joining the faculty after completing their postgraduate education. Fourth, lessons from the failures in establishing plantations have been acknowiedged and more appropriate technology is now adopted. bnder these circumstances, the systems and technologies initiated and developed under the project are expected to be sustained in the long term. Fifth, a new technical training facility has been established at a new location and is now fully operational, which should provide for the training of an adequate number of staff in the future. Findings and Lessons Learned 9. The success of plantation activities depended heavily on the development of technical packages and performance of selected species, about which past experience was limited. In spite of acknowledgement of this risk a_ appraisal, ambitious plantation targets were adopted. Three sites were selected for plantation establishment. Two of these sites had to be closed due to civil disturbances. When new investment opportunities were identified. by forest inventories, the Government requested IDA agreement to expand the plantation program to new areas. This required amendment of the DCA and took some time. The appraisal team should have anticipated such development and provided flexibility in site sclection subject to agreed investment criteria. 10. With hindsight, most of the public criticism of the Master Plan could have been avoided if a transparent planning process had been maintained. GOSL could have involved the public at various stages of Plan formulation. The draft plan was made public when completed, but this was too late to change previously formed opinions. Although GOSL later on arranged a series of seminars and workshops open to the public, criticism persisted until a dialogue was established during the processing of the follow-up project. Similarly, FD should have been involved sooner and more directly in the establishment of the forest management system. 11. Introduction of a computerized data base and decision-making system has proven to be a remarkably successful method for introducing dynamism and professionalism into a previously dormant Forest Department. However, maintenance of high-tech management systems requires a longer technical assistance effort than was actually provided.  PROJECT COMPLETION REPORT SRI LANKA FOREST?RESOURCES DEVELOPMENT PROJECT (Credit 1317-CE) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE Project Identity Project Name Forest Resources Development Project Credit No. 1317-CE Vice Presidential Unit South Asia (SA3AG) Country Sri Lanka Sector Agriculture Sub-sector : Forestry Background 1. Although Sri Lanka's forestry sector accounts for only 5% of GDP (including industrial wood processing), forestry products are still the main source of energy, representing around 70X of total energy consumption. Total forest areas are estimated at 2.5 million ha or 40% of the country, as opposed to 46% in 1956. This decline is due primarily to the clearing of land for agricultural development but also to illicit felling and shifting cultivation. Practically all the forest resources are owned by the Government of Sri Lanka (GOSL) and, so far, have been managed primarily for timber production. The Ministry of Lands, Irrigation and .Mahaweli Development (MLIMD) is the main institution responsible for forestry matters, through its Forest Department (FD) in charge of forest and plantation management, its State Timber Corporation (STC) in charge of wood harvesting in the state forests, and its Department of Wildlife Management. 2. IDA's involvement in the forestry sector started with the preparation of a sector review in 1979 aimed at assisting GOSL in formulating a development strategy for its forestry sector. The main constraints to development identlfied by the review were a lack of reliable data, a shortage of trained personnel, and an absence of planning and programming capability. In order to overcome these constraints, and with UNDP funding, a Swedish consulting firm was contracted to prepare the Forest Resources Development Project (FRDP) in 1980. The GOSL requested the postponement of appraisal until 1982 due to budgetary constraints. IDA appraised the project in that year.  -2- Project Objectives and Description 3. Project Objectives: The main objectives were: (a) to provide Sri Lanka with a strategy for the development of its forestry sector; (b) to strengthen GOSL's forestry training capability; (c) to establish and manage plantations as well as carry out silvicultural treatments; and (d) to strengthen applied research programs. 4. Project DescriRtiun: The FRDP was to cover a six-year period (1983- 1988) and provide for: (a) the reorganization of the Forestry and Environment Division of the MLIMD into a Forestry Planning Unit (FPU) at the ministerial level; (b) (i) the extension of an ongoing national forestry inventory project which UNDP/FAO was financing; (ii) the formulation of a Forestry Master Plan (20-year horizon) and a Five-Year Investment Program on the basis of the inventory and of preliminary studies to be carried out mainly in the fields of institutional development, logging and transportation, marketing and demand; and (iii) the preparation of operational forest management plans; (c) the establishment of a two-year postgraduate university course for professional foresters ind technical training courses for fore t guards and rangers; (d) (i) the establishment of 8,000 ha of industrial plantations; (ii) the management (thinnirg) of 10,000 ha of teak plantations; (iii) the carrying out of silvicultural treatments over 15,000 ha of young stands of teak, pine and eucalyptus; and (iv) the harvesting and replanting of 1,000 he of over-mature eucalyptus stands; and (e) the carrying out of various species and provenance trials, land clearance and preparation trials. 5. Total project costs over six years were estimated at US$15 million of which 53% was for all plantation activities, 23% was for the formulation of the Master Plan (including inventory and specific studies), 12% was for university training and 12% was for other costs. US$9 million was to be financed through the IDA credit (mainly fc