China - Daxinganling Forest Fire Rehabilitation Project

Document of The World Bank FOR OFFCIAL USE ONLY Report No. 13564 PROJECT COMPLETION REPORT CHINA DAXINGANLING FOREST FIRE REHABILITATION PROJECT (CREDIT 1918-CHA) SEPTEMBER 27, 1994 Agriculture Operation Division China and Mongolia Department East Asia and Pacific 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 MOP: US$1.00 = Y3.71 = SDR 0.7225 PCR: US$1.00 = Y8.71 = SDR 0.7369 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.62 miles 1 hectare (ha) = 2.47 acres 1 metric ton (mt) = 1,000 kg 1 cubic meter (cm)= 35.31 cubic feet ABBREVIATIONS DCA Development Credit Agreement DXAL = Daxinganling Forest ERR = economic rate of return FRR = financial rate of return MFO = Ministry of Forestry MOP = Memorandum and Recommendation of the President PCR = Project Completion Report PMO = Project Management Office RVP = Regional Vice President  FOR OFFICLAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Offie of D' - -GenwA Oprwaon Evluatin September 27, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT Subject: Project Completion Report on China Daxinganling Forest Fire Rehabilitation Project (Credit 1918-CHA) Attached is the Project Completion Report on China: Daxinganling Forest Fire Rehabilitation (Credit 1918-CHA). Parts I and III were prepared by the East Asia and Pacific Regional Office. The Borrower prepared Part II. The project was a disaster relief operation approved under special procedures following a 1987 forest fire that burned more than one million ha of standing timber, killed 211 people, and destroyed essential infrastructure in four forestry bureaus in Heilongjiang Province and Inner Mongolia. The objectives of the project were to salvage 15 million m of burned timber, reduce the risk of future forest fires, and support regeneration of the burned area. The project was designed in six months and implementation began following a start-up workshop. Despite rapid preparation, borrower ownership of the project was substantial and project objectives were agreed by relevant stakeholders. Less timber was salvaged than had been anticipated at approval because the scale of the operation had been overestimated, but the salvage component proved highly profitable, earning a net profit of more than US$100 million. Fire forecasting and protection have proved highly effective, but the regeneration component has displayed mixed results. Two design weaknesses emerged during implementation: the original design paid insufficient attention to forest regeneration, and the distribution and use of profits was not addressed. The project's ERR is estimated at more than 200 percent and the overall project outcome is satisfactory. Institutional development under the project has been substantial and sustainability overall appears likely, dependent on provision of operating funds. Sustainability of the regeneration component is less certain. The quality of the PCR, from Bank and Borrower perspectives, is most satisfactory. The PCR describes a strong overall performance but acknowledges implementation problems: toxic pesticides were used at the start of the project to preserve harvested timber, contrary to Bank recommendations, but this was discontinued following Bank supervision; procurement of essential fire fighting equipment was slow and inefficient; and, investment in new plantations was suboptimal. In Part II, the Borrower provides valuable insights on the application of Bank procedures in a disaster relief operation. An audit or an impact evaluation may be undertaken. 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 CHINA DAXINGANLING FOREST FIRE REHABILITATION PROJECT (CR. 1918-CHA) Table of Contents PREFACE ............................................... EVALUATION SUMMARY ................................... iii PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE Project Identity ........................................ 1 Background .......................................... 1 Project Objectives and Description ............................ 2 Project Design and Organization .............................. 3 Project Implementation .................................... 4 Project Results ......................................... 6 Project Sustainability ..................................... 7 Bank Performance ...................................... 8 Borrower Performance .................................... 8 Project Relationship ..................................... 9 Consulting Services ...................................... 9 Project Documentation and Data .............................. 9 Findings and Lessons Learned ............................... 9 PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Summary ............................................ 12 Project Preparation ...................................... 12 Project Implementation .................................... 13 Project Achievements .................................... 16 Achievements of the World Bank ............................. 18 Achievements of the Borrower ............................... 19 PART III - STATISTICAL INFORMATION Table 1: Related Bank Loans and Credits ...................... 22 Table 2: Project Timetable ............................... 23 Table 3: Estimated and Actual Credit Disbursement ................ 24 Table 4: Project Implementation Indicators ...................... 25 Table 5A: Project Costs ............ I ..................... 26 Table 5B: Project Financing ............................... 27 Table 6A: Project Results: Direct Benefits ....................... 28 Table 6B: Project Results: Economic and Financial Impact ............. 29 Table 6C: Project Results: Research Work ....................... 30 Table 7: Status of Covenants .............................. 31 Table 8A: Use of Bank Resources: Staff Inputs ... 32 Table 8B: Use of Bank Resources: Missions ...................... 33 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.   - 1- PROJECT COMPLETION REPORT CHINA DAXINGANLING FOREST FIRE REHABILITATION PROJECT (CR. 1918-CHA) PREFACE This is the Project Completion Report (PCR) for the Daxinganling Forest Fire Rehabilitation Project in China, for which Credit 1918-CHA in the amount of SDR 41.1 million was approved on June 9, 1988. The credit was closed on March 31, 1994, two years behind schedule. It was 100 percent disbursed, with a cancellation of SDR 0.5 million on March 1, 1991. The last disbursement was on June 9, 1994. The PCR was jointly prepared by the Agriculture Operations Division, China and Mongolia Department, East Asia and Pacific Region (Preface, Evaluation Summary, Parts I and III), and the Borrower (Part II). Preparation of this PCR was started during the Bank's final supervision mission of the project in April 1994, and is based, inter alia, on the Memorandum and Recommendation of the President (with Technical Annex), the Development Credit Agreement, supervision reports, correspondence between the Bank and the Borrower, and internal Bank memoranda.   - iii - PROJECT COMPLETION REPORT CHINA DAXINGANLING FOREST FIRE REHABILITATION PROJECT (CR. 1918-CHA) EVALUATION SUMMARY Objectives and Design i. The Daxinganling Forest Fire Rehabilitation Project was designed as an emergency operation in the aftermath of a devastating fire that destroyed one million hectares of China's most important forest in May 1987. Its main objectives were to: (a) recover 15 million m3 of burned timber through development of an emergency salvage operation; (b) reduce the incidence of future fire damage through modernization of the fire prevention and control program; and (c) support the regeneration of the burned area through development of research trials and procurement of nursery equipment. The project was well designed: the objectives were clear and agreed by all stakeholders; the project activities correctly targeted the most pressing investment requirements; and there was a high degree of government ownership of the design process. Two design weaknesses emerged during implementation. First, the original project focussed heavily on the immediate requirements of timber salvage and fire protection and did not address the secondary issue of forest regeneration in any detail. Second, the original project design did not focus on the distribution and use of the huge amount of profits generated by the timber salvage operation, estimated at RMB 880 million, most of which are being used to finance a large new regeneration program. Implementation Experience ii. The project was implemented effectively within the basic framework designed at appraisal. Actual implementation indicators have met or exceeded the original targets in most areas. Under the salvage component, the Government effectively coordinated the construction of roads, the establishment of temporary logyards, and the felling, logging, and storage of 11.7 million m3 of burned timber (the original salvage target was revised from 15 to 11.7 million m3 following detailed timber surveys). During implementation, the Government made two useful modifications to the project design by accelerating the logging schedule and by storing all burned timber in temporary logyards instead of in local rivers. Under the fire protection component, new fire detection activities were introduced, including helicopters for aerial patrol, weather forecasting and detection, a computerized fire information management system, look-out towers, and microwave and UHF communication systems. Similarly, the existing fire-fighting capacity was enhanced through an increase in the number of fire brigades and provision of new fire- fighting equipment. During implementation, the Government made a useful modification to the project design by reducing the number of aircraft for fire detection and control and relying instead on ground-based systems, such as look-out towers. Under the regeneration component,  - Iv - the Government implemented the limited activities related to research and nursery development and then launched an ambitious and expensive nine-year program to reforest the entire burned area, which was not included in the original project. iii. While overall performance was strong, three implementation problems were encountered. First, highly toxic pesticides were used for the preservation of harvested timber in the temporary logyards at the start of the project, and not water sprinkling as recommended in the Bank's technical documents. This was quickly corrected following Bank supervision mission recommendations. Second, procurement of key fire protection equipment was slow and inefficient, which delayed the commissioning of the fire protection system and led to two extensions of the credit closing date. Third, the new investment in plantation establishment is not optimal: (a) the afforestation models have not been subject to sufficient economic analysis and, consequently, do not optimize costs and benefits; (b) the current site classification system used in the project area does not adequately assess plantation productivity and tree growth; (c) many of the newly established plantations are of poor quality, with large variation in tree height, poor stem formation, some pest and animal damage, and inadequate tending; and (d) the quality of planting materials is uneven, reflecting problems with nursery management practices. Project Results iv. Despite the minor problems in implementation, the project has been quite successful. Under the salvage component, the sale of burned timber generated Yuan 2.6 billion in gross revenues and Yuan 880 million in pre-tax profits, leading to an extremely high financial rate of return (FRR) in excess of 200 percent. This impressive return, however, is slightly below the appraisal estimate since the actual salvage quantity was less than projected. The economic rate of return (ERR), also estimated in excess of 200 percent, is in line with the appraisal estimate as the reduction in salvage amounts was more than offset by an increase in the economic prices for timber. Under the fire protection component, fire losses have been dramatically reduced: the average number of fires per year has decreased from 42 before to 15 after the project; and the extent of fire damage per year has decreased from 135,000 ha before to 75 ha after the project. These results exceed the original appraisal estimate of annual fire damage of 30,000 ha at the end of the project. The FRR and ERR for this component are estimated at 83 percent and more than 200 percent, respectively. The regeneration component has displayed mixed results. The activities that were included in the original project have generally performed well: the provision of new nursery equipment permitted a significant increase in seedling production and the research trials have provided a number of useful findings about regeneration. However, based on limited data made available so far, it seems that many of the newly established plantations are not growing well, which will lead to sub-optimal rates of return over time. Proiect Sustainability v. The salvage component is completely finished and no additional costs or benefits are expected after project completion. The fire protection component is expected to maintain a significant level of net benefits throughout the twenty-year life of the equipment. Its sustainability, however, will depend on: (a) the provision of adequate budgetary support for future operation and maintenance requirements, particularly for the microwave communications system, fire information management system, and fire fighting equipment; and (b) the  - v - continuation of high technical and management standards. The sustainability of the regeneration component is uncertain at this point and the Government will need to carefully monitor the costs and benefits of regeneration investments. In particular, the Government will need to review measures to enhance productivity and lower investment costs in plantation establishment, through revisions to the silvicultural prescriptions and improved seedling quality. Findings and Lessons Learned vi. Overall, the project should be considered a success. It has generated a wide array of economic and social benefits, including the accelerated logging of burnt timber that would have otherwise been lost for economic use, improved fire protection of China's largest forest, increased employment and income in a remote rural area that had suffered a devastating socio- economic loss, regeneration of an important natural resource that provides essential environmental services, and significant technology transfer and capacity building. The only weak part of the project is the small plantation establishment program in the regeneration component. The key lessons include the following: e The importance of developing integrated forest management plans and sustainable harvesting programs for the remaining natural forest areas in China; - The importance of developing an effective institutional mechanism for coordinating the various government and non-government agencies involved in implementation and technology transfer; 3 The importance of reviewing and revising the traditional silvicultural prescriptions used in plantation establishment in China, with emphasis on the introduction of new species, improved planting materials, and more efficient silvicultural practices; e The importance of developing detailed environmental management guidelines for project implementation to avoid problems such as excessive reliance on toxic pesticides; and * The need to improve MFO understanding of: (a) Bank procurement guidelines, particularly international competitive bidding procedures; and (b) project economic and financial analysis, particularly in the evaluation of cost-effective afforestation techniques. vii. In response to these lessons, the Bank has supported a series of forestry activities, including the FY90 National Afforestation Project, the FY93 Institutional Development Fund grant for forestry, and the FY94 Forest Resource Development and Protection Project, that have emphasized: (a) improved planning and management of natural forests and nature reserves; (b) introduction of new afforestation technologies for plantations and protection forests, particularly new species and improved planting materials; (c) formulation of environmental management plans with detailed specifications for site preparation, water conservation, and pest and fire control requirements; and (d) capacity building in MFO in the areas of project management, procurement, and economic and financial analysis.   PROJECT COMPLETION REPORT CHINA DAXINGANLING FOREST FIRE REHABILITATION PROJECT (CR. 1918-CHA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE Project Identity Project Name: Daxinganling Forest Fire Rehabilitation Project Credit Number: 1918-CHA RVP Unit: East Asia and Pacific Region Country: China Sector: Agriculture Subsector: Forestry Background 1. The forest sector plays a critical role in the Chinese economy, providing 40% of household energy, almost all of the lumber and panel products for the large construction sector, and raw material throughput for the domestic pulp and paper industry. The resource base is small, with a total forest area of 120 million ha at the time of appraisal, and demand has exceeded sustainable supply for several decades. Consequently, natural forest areas have been heavily depleted outside of the remote northeast and the level of per capita roundwood consumption has remained among the lowest in the world. In response to the growing imbalance between supply and demand, the Government's sectoral development strategy at the time of appraisal emphasized: (a) increased timber production from intensively managed high-yielding plantations; (b) more intensive exploitation of mature and over-mature natural forests in the northeast; (c) expansion of forest industries; and (d) expansion of forest research, education, and extension. The Government was aiming to increase the forest cover by 20 percent by 2000, which was intended to support a doubling of the annual level of industrial roundwood harvesting and a tripling of the annual level of wood-based panel production. 2. The Government's development strategy was hampered by three key problems. First, plantation forestry did not adequately utilize improved silvicultural technologies, particularly high quality genetic material, improved nursery management, and optimal use of labor and chemical inputs in planting and tending. Second, the policy framework for afforestation, particularly the heavy emphasis on state forest farm investment and controls on pricing and marketing, undermined efficient development of non-state forest resources. Third, the country suffered from an extremely high level of annual fire losses, estimated to reach 10 percent of national industrial timber production before the project, as a result of limited fire prevention and control programs and obsolete fire-fighting equipment.  -2- 3. The forest fire problem was highlighted in May 1987, when a huge fire swept through the Daxinganling Forest (DXAL Forest) in the far northern portion of Heilongjiang Province. The DXAL Forest, which covers 22.7 million ha, is China's most important forest resource and contains almost one-quarter of the country's total forested area and standing volume of wood. The fire, which was the most disastrous in China's history and one of the worst in the world, burned one million ha of standing timber, killed 211 people, and destroyed a large amount of infrastructure in four forestry bureaus. The total timber loss was estimated at 38 million m3, including 15 million m3 of high quality larch and pine trees with an approximate railside value of US$980 million (equivalent to national softwood log imports of three years). Fire damage had long been a dangerous problem in the DXAL Forest, where an average of 135,000 ha of forests were lost each year during the two decades prior to the 1987 fire. 4. The Government launched an extraordinarily impressive campaign to rebuild the social and economic infrastructure that had been destroyed in the fire; almost all of the homes, schools, factories, and other buildings had been replaced within six months. The Government then approached the World Bank Group in end-1987 to assist in developing a program to salvage the burned commercial grade timber (although the trees were killed by the fire, the wood remained saleable for a period of two to three years before insect and fungus attack destroyed the fibers); and to modernize the DXAL fire protection system. Project Objectives and Description 5. The main objectives of the project were to assist the Government in: (a) recovering the economic value of the burned timber through development of an emergency salvage operation; (b) reducing the incidence of fire damage through modernization of the fire prevention and control technologies in the entire DXAL Forest (the objective was to reduce annual fire losses from 135,000 ha to 30,000 ha and the average fire size at detection from 60 ha to 2 ha); (c) improving the institutional capacity of the Government to manage the massive salvage operation and new fire protection program; and (d) restoring the economic and environmental benefits of the DXAL forestry resources through development of technical support services for regeneration, such as improved research and nursery programs. A related objective was to minimize the processing time for project preparation in view of the urgency of the salvage and fire protection operations. Hence, the project was designed as a disaster relief operation and was processed under special procedures. 6. The project supported the following activities. (a) The salvage component was designed to recover 15 million m3 of burned timber over four years. It involved: (i) construction and upgrading of 3,900 km of access and logging roads; (ii) felling, logging, and storing of timber in temporary logyards or in local rivers; and (iii) transporting and marketing of timber to end-users in line with road and rail capacities. (b) The fire protection component focussed on (i) aerial and satellite fire detection; (ii) aerial suppression to initiate fire-fighting measures; and (iii) improved  - 3 - communication systems, ground facilities for aircraft, and fire brigade performance. (c) The regeneration component involved research on regeneration methods and provision of nursery equipment. Since little technical information existed about species succession in natural regeneration under extreme climatic conditions, the component supported regeneration trials and the selection of appropriate nursery materials and equipment. (d) The technical assistance component supported a large planning workshop to develop detailed implementation schedules, short- and long- term consultancy assignments in a variety of technical subjects required during implementation, overseas study tours to assist in the selection of project equipment, and domestic and foreign training in a variety of subjects. Project Design and Organization 7. The project was identified and prepared over a six-month period following the fire by a team of experts from the World Bank, Ministry of Forestry, DXAL Forestry Administration Bureaus in Heilongjiang and Inner Mongolia (DXAL Administration), experts from local forestry universities and research institutes, various Government officials, and foreign consultants in a variety of fields. The project was well designed: the objectives were clear and agreed by all stakeholders; the project activities correctly targeted the most pressing investment requirements following the fire; and the organizational structure that was developed was effective in coordinating the large number of people and institutions involved in implementation. In particular, the project design included two innovative features that contributed to a high degree of government ownership of the project: (a) a three-week workshop was held at the start of the project in which Government officials, Bank staff, and technical experts mutually developed detailed implementation arrangements; and (b) project staff visited a number of different countries on study tours to identify the optimal equipment for fire protection activities before equipment and procurement arrangements were finalized under the project. 8. While the overall design was effective, two weaknesses emerged during project implementation. First, the original project focussed heavily on the immediate requirements of timber salvage and fire protection. It did not address regeneration issues in any detail, except for the provision of a small amount of funds for nursery equipment and silvicultural research trials. Since the regeneration of the one million hectares of burned land has become the main focus of Government effort and investment following the completion of the timber salvage operation, the original project design might have addressed more systematically the complicated technical and economic issues involved in regeneration of boreal forests. Second, the original project design did not focus on the distribution and use of the huge amount of profits generated by the timber salvage operation, estimated at RMB 880 million. The project might have reviewed these distributional issues more carefully to ensure an optimal allocation of the economic benefits generated by the Bank and Government's investment. While the Bank did raise both of these points during project preparation, the Government was more concerned about the immediate emergency investment requirements and did not want to focus on secondary implementation issues.  -4- Project Implementation 9. The project was implemented effectively within the basic framework designed at appraisal. As shown in Table 4 in Part III, the actual project implementation indicators have met or exceeded the original targets in almost every area. Throughout the six years of implementation, project staff have basically complied with all of the covenants of the Development Credit Agreement (DCA) and the understandings reached at project negotiations. Similarly, most of the recommendations of Bank supervision missions were adopted. Specific implementation issues by component are reviewed below. 10. Salvage Component. The Government's performance in timber salvage was extraordinarily impressive by international standards. It effectively coordinated the construction of 2,277 km of roads; the establishment of 15 temporary logyards; the felling, logging, and storage of 11.7 million m3 of burned timber; and the transport and marketing of 11.6 million m3 of timber (0. 1 million m3 of timber of stored timber deteriorated during the project and was not suitable for sale). In fact, the salvage program was completed more quickly than scheduled in the original project design, which contributed to less deterioration in the quality of the harvested timber than was expected and, consequently, higher sales revenues. 11. There were two important changes to the original project design during implementation. First, the detailed timber assessment studies that were commissioned at the start of the project indicated that the preliminary estimate of salvageable commercial timber used in preparation documents was too high: the revised estimate was 11.7, not 15, million m3. Consequently, the road construction, logging, storage, and marketing implementation plans were adjusted accordingly. Second, the original project design made provision for temporary storage of up to 5 million m3 of timber for several years in the Amur and Pangu Rivers, since it was expected that Government would not have sufficient space or time for the development of temporary logyards (water storage of logs is standard practice for protecting timber from insect and fungus infestations until transportation can be arranged). However, the local implementation capacity proved to be very strong and temporary logyards were developed for all timber storage, which eliminated the extra costs associated with river storage and led to higher net benefits for the project. 12. Only one problem emerged during implementation of the salvage component: the Government relied on highly toxic pesticides, and not water sprinkling as recommended in the Bank's technical documents, for the preservation of harvested timber in the logyards at the start of the project. Bank supervision missions emphasized that this practice generated severe environmental and health hazards for the local community and violated the environmental management covenant of the DCA. The Government agreed to stop using pesticides and thereafter developed a comprehensive water sprinkling program at the end of the first year based on Bank recommendations. 13. Fire Protection Component. The implementation of the new, comprehensive fire management program was good, though slow. New fire detection activities were introduced, including helicopters for aerial patrol, weather forecasting, lightening detection, development of a sophisticated computer fire information management system, establishment of look-out  - 5 - towers, and introduction of new microwave and UHF communication systems. Similarly, the existing fire-fighting capacity was improved through an increase in the number of fire brigades and provision of equipment, such as all-terrain vehicles, commanding vehicles, transportation trucks, wind blowers, and radio communication equipment. The Government made one significant and effective modification to the original project design during implementation. It reduced the number of aircraft for detection and fire-fighting purposes and relied more heavily on ground-based systems, such as look-out towers, lightening detectors and weather monitoring stations. This change reduced investment costs and operational complexity without any significant loss in fire protection capacity, thereby contributing to higher net benefits for the project. 14. While the Government recognized the urgency of the fire protection program, the implementation of this component was quite slow as a result of widespread procurement delays, which led to two extensions of the credit closing date. In addition, the Government failure to follow the agreed procurement procedures for six all-terrain vehicles led to the cancellation of SDR 500,000, equivalent to about US$ 692,000, of the credit. These procurement problems reflected three factors: (a) the Bank's original timeframe was unrealistic for the selection and procurement of the large amount of complicated equipment financed under the project; (b) the internal government procurement procedures were not timely and efficient, as the participation of many different local departments slowed and complicated the decision-making process; and (c) some suppliers did not provide equipment and service in line with their contractual obligations, which delayed the commissioning of the microwave communications system for over one year. 15. Regeneration Component. The regeneration of the burned forest was not an important element in the original project design; the project simply made a small provision for establishment of research trials related to natural regeneration and procurement of equipment for nursery production and seed processing. However, following the successful completion of the salvage operation, the Government decided to launch an ambitious nine-year program to reforest the entire burned area in order to maximize economic, environmental, and social benefits. This huge and expensive operation, which is largely financed by the profits generated by the timber salvage operation, involves natural regeneration (about 65% of the area), plantation establishment (16%), natural regeneration with "human interface" such as enrichment planting or aerial seeding (11%), and hill closing (8%). The Government's program has been well designed based on careful analysis of site conditions and relatively appropriate reforestation models, particularly the heavy reliance on low-cost natural regeneration. However, several implementation problems have emerged with regard to the most expensive part of the program, the establishment of commercial timber plantations, as reviewed below. 16. First, the afforestation models used in plantation establishment have not been subject to sufficient economic analysis and, consequently, do not optimize costs and benefits. For example, they do not incorporate many of the improved silvicultural treatments for planting densities, planting hole size, fertilizer application, and tending that were recently developed for other parts of Heilongjiang under the FY94 Forest Resource Development and Protection Project. Second, the current site classification system used in the project area does not adequately assess plantation productivity and tree growth, and, consequently, is not conducive  - 6 - to efficient selection of plantation sites. The productivity-based classification system that is currently used in Southern China offers a more cost-effective approach. Third, many of the newly established plantations are of poor quality, with large variation in tree height, poor stem formation, some pest and animal damage, and inadequate tending. If expensive plantations are going to be established in poor growing conditions, it is essential that they be managed more carefully in order to maximize growth potential. 17. Finally, the quality of planting materials is uneven due to three factors, which contributes to the low productivity of plantations and a low return on investment. First, the selection of the nursery equipment financed under the project was not carefully thought out; as a result, some pieces of equipment such as the bed former, transplanter, and root cutter are not being used at all in project nurseries. Second, seedling quality could be further enhanced through better identification of seed origination and parent material, more widespread use of undercutting to promote better root formation, and additional research on seed sowing, nursery bed depth, and lining out and wintering of seedlings. Third, there has been insufficient dissemination of technical assistance to project nurseries. For example, nursery staff are not familiar with many of the technical suggestions provided by previous Bank supervision missions. Similarly, the nurseries themselves have not effectively shared their own research results and implementation experience with each other. 18. Technical Assistance Component. The technical assistance program, comprising 1 large planning workshop at the start of the project, 37 domestic training courses for 1,439 technicians, 29 overseas study tour and training programs for 156 technicians, and 2.6 person- months of consultancy activities, was implemented effectively and in line with the appraisal program. Proiect Results 19. Despite the few problems with equipment procurement and plantation establishment, the project has been quite successful. It has generated a wide variety of financial, economic and environmental benefits, including the accelerated logging of burnt sawlogs for the industrial and construction sectors that would have otherwise been lost, improved fire protection of the most important forest resource in China, increased employment and income in remote rural areas that had suffered a severe economic loss, and restoration of an important environmental habitat for biodiversity preservation. 20. Salvage Component. The sale of the burned timber generated Yuan 2.6 billion in gross revenues and Yuan 880 million in pre-tax profit, of which Yuan 430 million was paid to the Ministry of Finance in a variety of taxes and fees and Yuan 450 million was retained by the DXAL Administration. The financial rate of return (FRR) of the salvage component is estimated in excess of 200 percent, which is based on the assumption that the incremental production attributable to the project is 6.7 million m3 since the Government had logging capacity for 5 million m3 prior to the project. However, this impressive FRR is below the appraisal estimate since the actual salvage quantity was 3.3 million m3 less than projected. Actual unit production costs and sales revenues were quite close to appraisal estimates. The economic rate of return (ERR) excluding environmental and social benefits, is also estimated in excess of 200 percent,  - 7 - in line with the appraisal estimate. The revised ERR remains high since the reduction in the salvage quantity was more than offset by an increase in the economic prices for timber (economic output prices in the analysis are based on free market prices prevailing in the DXAL project area during implementation, which are close to border price equivalents). Given the level of national imports and national consumption, the release of the additional timber onto domestic markets did not exert any adverse impact on domestic market prices. 21. Fire Protection Component. Fire losses have been dramatically reduced under the project, despite the delays in commissioning key equipment: the average number of fires per year has been reduced from 42 before to 15 after the project; and the extent of fire damage per year has been reduced from 135,000 ha before to 75 ha after the project. This remarkable achievement, which exceeds the original appraisal estimate of annual fire damage of 30,000 ha per year at the end of the project, is due to the increased coverage of ground and aerial monitoring, improved fire forecasting, expanded fire brigades, and new fire-fighting equipment. The FRR and ERR for this component are estimated at 83 percent and more than 200 percent, respectively. The revenue stream in the discounted cashflow analysis is calculated from the estimated change in the incidence of fire losses as a result of the project (only lost timber production, not any savings related to human life or property, is valued). 22. Regeneration Component. The regeneration program has displayed mixed results. The activities that were included in the original project have generally performed well. The provision of new nursery equipment permitted a large increase in nursery area, from 23 ha before to 214 ha after the project, and annual seedling production, from 5 million seedlings before to 117 million seedlings after the project. However, as reviewed in para. 17, seedling quality remains uneven and there is significant scope for enhancing quality through improved nursery management practices (a new bilateral aid program is addressing these nursery issues). In addition, as reviewed in Table 6C in Part III, the research trials supported under the project have provided a number of useful findings to support development of an effective regeneration strategy. However, based on limited data made available so far, it seems that many of the newly established plantations are not growing well, which will lead to sub-optimal rates of return over time. 23. Technical Assistance Component. The training, workshop, study tour, and local and foreign consultancy activities significantly raised domestic institutional capacity to manage the diverse and complicated project activities. Proiect Sustainability 24. The salvage and technical assistance components are completely finished and no additional costs or benefits are expected after the completion of the project. The fire protection component is expected to maintain a significant level of net benefits throughout the twenty-year life of the equipment. Its sustainability, however, will depend on (i) the provision of adequate budgetary support for future operation and maintenance requirements, particularly the microwave communications system, fire information management system, and fire fighting equipment; and (ii) the continuation of high technical and management standards. The DXAL Administration has both the financial and human resources to ensure the continued strong performance of the  - 8 - fire protection system. The sustainability of the regeneration component is uncertain at this point and the Government will need to carefully monitor the costs and benefits of regeneration investments. In particular, the Government will need to review measures to enhance productivity and lower investment costs in plantation establishment, through revisions to the silvicultural prescriptions and improved seedling quality. Bank Performance 25. Bank staff responded very quickly and effectively to the Government's request for emergency assistance. Despite the Bank's unfamiliarity with the sector (the Bank had financed only one previous forestry project in China), the project was prepared and appraised in a six- month period and Board approval occurred less than ten months after the first identification mission. Similarly, despite the complexity of the operation, the project utilized a relatively small amount of staff resources (81.6 staff weeks from identification to Board approval). During the preparation and appraisal stages, staff performed well in developing a quick and comprehensive understanding of the emergency requirements, explaining Bank lending and procurement procedures, framing a realistic and useful project design, and, most importantly, building a strong relationship with the Ministry of Forestry (MFO) and the DXAL Administration. While overall Bank performance was strong, some aspects of the appraisal were weak as a result of the time pressures to process quickly the emergency operation. As reviewed in para. 8, there was limited attention given to developing a cost-effective regeneration strategy for the burned area and reviewing the use of the huge profits generated by the sale of the burned timber. 26. The Bank also invested a large amount of resources in supervision, including 58.5 staff weeks and five missions between 1988 and 1992, in response to implementation problems. Supervision missions focussed on the salvage operation, particularly the storing, transporting, and marketing arrangements, and the regeneration program, particularly the quality of the planting material. However, the fire protection system and regeneration program were under- supervised towards the end of the project, as no supervision missions visited the project area between May 1992 and April 1994. The regeneration program in particular would have benefitted from additional Bank input about the quality of the planting stock, improved silvicultural prescriptions, and the economic analysis of the afforestation models. Borrower Performance 27. The Borrower's performance was very effective, which is particularly impressive in view of the emergency context of the operation, the complexity of project activities, the introduction of many new technologies, and the implementing agencies' general lack of familiarity with Bank guidelines and operating procedures. The project management office (PMO) at MFO and the senior project staff at the DXAL Administration provided excellent management and supervision, the seven design institutes that were involved in project preparation developed comprehensive and detailed planning documents, the staffs in the two project provinces cooperated very well, and the technical staff at the forestry bureau level displayed good technical competency throughout implementation. Two minor weakness with the Borrower's performance emerged over the life of the project. First, as reviewed in para. 14, the management of procurement activities, particularly with regard to international competitive  - 9 - bidding procedures, was not timely and efficient. Second, some forestry bureau field staff did not adequately follow up on recommendations made by Bank supervision missions to improve the operation of nurseries in the regeneration program. Project Relationship 28. The relationship between the Bank and the Borrower was strong throughout the project. A few minor conflicts arose during implementation with regard to procurement and the regeneration program, but these did not undermine the joint cooperation or commitment to the project. Consulting Services 29. Total consulting services under the project amounted to 2.6 person months, including 1. 1 person-months for timber storage and preservation, 0.5 person-months for pest and disease control, and 1.0 person-months for weather and telecommunication equipment. The consultants generally performed well. The performance of contractors supplying equipment was less satisfactory, as the suppliers of the telecommunications equipment did not provide equipment and services in line with their contractual obligations. Proiect Documentation and Data 30. No Staff Appraisal Report was prepared for the project since it was processed as an emergency operation under special procedures. The Memorandum and Recommendation of the President, including its technical annex, and the working papers in the project file provided a useful and clear framework for both the Bank and the Borrower during implementation. In addition, the semi-annual progress reports and quarterly production reports prepared by the PMO and the excellent data records maintained by the DXAL Administration facilitated close monitoring of the project during implementation. The data required for the PCR were readily available at the PMO and the DXAL Administration. Findings and Lessons Learned 31. Overall, the Daxinganling Forest Fire Rehabilitation Project should be considered a success. It has generated a wide array of economic and social benefits, including the accelerated logging of burnt timber that would have otherwise been lost for economic use, improved fire protection of China's largest forest, increased employment and income in a remote rural area that had suffered a devastating socio-economic loss, regeneration of an important natural resource that provides essential environmental services, and significant technology transfer and capacity building. The only weak part of the project is the small plantation establishment program in the regeneration component, which is likely to generate positive but low rates of return. 32. One of the valuable results of the project was an increased understanding of economic development and project management issues in the forestry sector for the Bank and  - 10 - Government. The key lessons, which helped shape the development of the Bank's successive forestry investments in China, include the following: * The importance of developing an effective institutional mechanism for coordinating the various government and non-government agencies involved in implementation and technology transfer; * The importance of developing integrated forest management plans and sustainable harvesting programs for the remaining natural forest area in China; * The importance of reviewing and revising the traditional silvicultural prescriptions used in plantation establishment in China, with emphasis on the introduction of new species, improved planting materials, more efficient silvicultural practices, and lower stocking densities; * The importance of developing detailed environmental management guidelines for project implementation to avoid problems such as excessive reliance on toxic pesticides for timber preservation; and e The need to deepen MFO understanding of: (a) Bank procurement guidelines, particularly international competitive bidding procedures; and (b) project economic and financial analysis, particularly in the evaluation of cost-effective afforestation techniques. 33. In response to these lessons, the Bank has supported a series of forestry activities, including the FY90 National Afforestation Project, the FY93 Institutional Development Fund grant on forestry, and the FY94 Forest Resource Development and Protection Project, which have emphasized: (a) improved planning and management of natural forests and nature reserves; (b) introduction of new afforestation technologies for plantations and protection forests, particularly new species and improved planting materials; (c) formulation of environmental management plans with detailed specifications for site preparation, water conservation, and pest and fire control requirements; and (d) capacity building in MFO in the areas of project management, procurement, and economic and financial analysis.  - 11 - PROJECT COMPLETION REPORT DAXINGANLING FOREST FIRE REHABILITATION PROJECT (CR. 1918-CHA) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Prepared By: The Project Office for the Emergency Loan from the World Bank Ministry of Forestry People's Republic of China Date: April 1994  - 12 - PROJECT COMPLETION REPORT DAXINGANLING FOREST FIRE REHABILITATION PROJECT (CR. 1918-CHA) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. SUMMARY 1.1 According to the Credit Agreement on Da Xing An Ling Fire Control and Rehabilitation Project signed by IDA of the World Bank and the Chinese Government on July 15, 1988, the World Bank provides SDR41,100,000 (equivalent to US$56,900,000) with long term and free interests, and the Chinese Side provides counterpart fund of RMB156,900,000 Yuan. The fund provided by the two sides is used to salvage 15,000,000 cubic meters of burned timber (later confirmed as 11,740,000 cubic meters) in Da Xing An Ling forest region in Heilongjiang Province. At the meantime, the fund is also used to establish such systems as aerial forest protection, microwave communication, automatic weather stations, lightning location, integrated fire information processing through the use of computer. The duration of the project is three years, from Oct. 15, 1988 to Oct. 31, 1991. At the approval of the World Bank, the credit amount was adjusted from SDR41,100,000 to SDR40,600,000, the project was prolonged to March 31, 1994. The counterpart fund, after the approval of the Chinese Government, was adjusted to RMB199,310,000 Yuan. 1.2 Thanks to the support from related departments in China and the guidance and supervision from the World Bank, as well as the efforts from local project implementing agencies, the various components of the project is successful one which has realised the expected objectives. 2. PROJECT PREPARATION 2.1 The big fire on May 7, 1987 in Da Xing An Ling forest region in Heilongjiang Province resulted in great losses to forestry production and the living of the people. The local ecological environment was severely damaged. In order to recover the forest resources in the burned areas and establish an integrated fire management system in forest regions both in Heilongjiang and Inner Mongolia so that the two forest regions could develop production under safe and stable conditions, and finally increase the administrative and management level and improve the ecological environment, the Ministry of Forestry applied to the State Council for the Da Xing An Ling Forest Fire Control and Rehabilitation Project in June 1987. In August the same year, the State Council and the State Planning Commission approved the use of the World Bank loan by the Ministry of Forestry. 2.2 In light with the proposals of the project identification mission from the World Bank on the issues of timber salvage, the establishment of air-ground combined forest fire control system and the regeneration of forest resources in the burned areas, Ministry of Forestry started, in  - 13 - December 1987, to study and discuss the allocation of credit from the World Bank and the counterpart fund from the Chinese side for Da Xing An Ling forest areas in the two provinces. Ministry of Forestry also organised and drew up the project feasibility study report. 2.3 In January 1988, the pre-feasibility appraisal mission from the World Bank visited China and carried out appraisal on DXAL Project and later on submitted official project proposal to the World Bank. The DXAL Project was then approved by the World Bank after the commercial negotiation of the project between the World Bank and China in May 1988 and was signed by both sides on July 15 the same year. The project came into effect on Oct. 15 and the official implementation of the project thus began. 2.4 From the project implementation point of view, the project identification mission and the pre-feasibility appraisal mission from the World Bank raised very good recommendations on timber salvage, forest regeneration and fire management system for DXAL project. Meanwhile, it is correct that the World Bank appraisal mission decided to focus on timber salvage and increase the portion of credit on forest fire control component. In general, except the fact that the credit categories needs to be adjusted because of change of exchange rate, the increased cost for equipment procurement, and the requirement of labour cost in civil works specified as "to be allocated" by the credit agreement, other items are basically in line with the implementation of the project. SDR40,600,000 provided according to credit agreement ensures the procurement of equipment and technical assistance necessary for the project. Because the project was listed as an emergency loan project, valuable time was saved for the project implementation. 3. PROJECT IMPLEMENTATION 3.1 In order to realise the objectives and accomplish the obligations required by the credit agreement, in accordance with project components and implementation time table, Ministry of Forestry allocated the credit and counterpart fund to DXAL Forest Company in Heilongjiang Province and the DXAL Forest Management Bureau in Inner Mongolia. The two local project implementing agencies drew up the implementation plans according to the implementation time table, the counterpart fund from the Government and the fund raised by themselves. The implementation plans need to be approved by Ministry of Forestry. Because of late delivery of micro-wave communication equipment by the suppliers, the construction period was prolonged. The original construction task of the communication equipment was basically finished within the prolonged period. 3.2 From the project implementation point of view: A. The credit and the counterpart fund ensure priorities. The use of fund is rational. The total investment accomplished under the project is RMB526,624,000 Yuan, of which, RMB97,384,000 Yuan for timber salvage, accounting for 18.5% of the total investment; RMB411,097,000 Yuan for forest fire control, accounting for 78.0% of the total;  - 14 - RMB10,423,000 Yuan for forest regeneration, accounting for 2% of the total; RMB7,720,000 Yuan for other cost, accounting for 1.5% of the total; B. Existin2 Problems. The progress of the project is unbalanced. The construction of forest fire management system is relatively slow. The construction of micro-wave communication, automatic meteorology and lightning location system could not be accomplished within the original time span. The main reasons are: (1) forest fire management system is a very complex engineering project. It's a difficult technique, which needs good technical conjunction from various aspects, from the system design, planning and implementation to equipment installation. The actual time taken is longer than expected; (2) There are too many formalities to go through when dealing with equipment tendering. There are many interventions by the domestic departments. The time for procurement is delayed too much. It usually takes 6-12 months at least for each equipment procurement (international competitive bidding) from publication of bid notice to the signing of the contract; (3) Suppliers fail to be in compliance with the contract; Late delivery of goods happened. For example, the micro-wave equipment offered by Telettra, Italy was delivered ten months late in comparison with the time specified in the contract. The micro-wave engineering project in Inner Mongolia was, therefore, delayed for nearly one year. Both Telettra and Siemens of Italy often delivered either wrong or less equipment. This issue has not been solved by the end of October 1993. The installation in China had to wait for contract-specified equipment for three months. In addition, the supervising and monitoring personnel from Telettra and Siemens have not come to China to implement contract up to the end of February 1994, resulting in a severe delay on project completion and acceptance; (4) The progress of some engineering projects has been affected by insufficient fund raised by local governments themselves. Equipment Procurement 3.3 A total of 276 sets/pieces of equipment such as vehicles, aircrafts, telecommunication and silviculture have been purchased during the implementation of the project either through international competitive bidding or three quotations. The purchase was organised by Ministry of Forestry and participated by technicians from such departments as design, manufacturing and by experts from related sectors. The equipment mentioned above has been inspected and accepted by the two local project implementing agencies as well as commercial inspection department, and has been allocated to final end users. 3.4 During the process of equipment procurement, the procurement guidelines of the World Bank was strictly adhered. The relationship between domestic and foreign manufacturers were correctly treated. The quantity and quality of the equipment purchased was ensured by the fair evaluation on the technical and economic specifications offered by responsive bidders. The bid evaluation was done in accordance with procurement guidelines of IDRC and IDA of the World Bank. From the current operation of the equipment procured, most of them are in good operational conditions and have realised the expected objectives. 3.5 To summarize the equipment procurement, we have successful experiences, we do also  - 15 - have problems, which are: (1) It is relatively difficult to undertake bid evaluation because there are quite a lot of responsive bidders who provided insufficient technical clarification necessary for such a complex system; (2) The current procurement formalities are complicated with too many departments in charge of approval, resulting in very much delayed equipment procurement; (3) The domestic bid evaluation procedures are not comprehensive. There are also too many participating departments and too many interventions. What's more, it takes a very long time to finalise the evaluation results because there is not any appropriate institution to coordinate. It takes one year and seven months, and one year and four months for the evaluation of all-terrain vehicles and micro-wave equipment respectively; (4) Because of inadequate knowledge on the technical performance of foreign silvicultural equipment, and the actual domestic requirement in these equipment, some of the foreign silvicultural equipment procured has not been made best use of. Some equipment for green houses needs to be further improved so as to create benefits as soon as possible. Adiustment of Credit Category and Counterpart Fund 3.6 During the process of project implementation, along with the changing situations, the credit categories and counterpart fund have been adjusted within the scope of credit agreement, and in accordance with the quantity and price of equipment to be procured, and the actual requirement of the project. The adjustment made is as follows: A. Credit Category Adjustment Category I: The amount for equipment & facilities, vehicles and aircrafts has been increased from the original SDR33,700,000 to SDR34,280,000; Category II: The labour cost of civil works has been increased from the original SDR3,000,000 to SDR 6,000,000; Category III: The cost for training and study tours has been reduced from SDR600,000 to SDR320,000; Category IV: SDR3,300,000 listed as "to be allocated" has all been reduced out. 3.7 The reasons for adjustment of credit categories are: (1) According to the agreed minutes of negotiations on the DXAL Fire Control and Rehabilitation Project, the labour cost for civil works is SDR6,000,000 (equivalent to US$8,000,000). SDR3,000,000 was therefore increased to be used for labour cost in the construction of fire-control roads; (2) At the stage of feasibility study report and appraisal, it is impossible to have accurate estimation on the price of equipment to be procured and on the equipment quantity necessary for forest fire management system.  - 16 - During the project implementation, some of the equipment prices went up. An additional amount of SDR580,000 needs to be invested in this aspect; (3) The training and study tours have been accomplished according to the original plan. The surplus fund was therefore reduced out. B. The Adjustment of Counterpart Fund 3.8 The original domestic fund approved by the State is RMB156,900,000 Yuan. After verification, the total domestic fund necessary for the project is RMB199,310,000 Yuan, 27% more than the original plan. The reasons are: (1) The going-up price increased the cost of the project. Statistics from Inner Mongolia and Heilongjiang shows that the price of construction materials rises 15-20% each year. (2) During the drawing up of feasibility study report, the estimation on the price of civil works and domestic equipment is too low. The preliminary design budget exceeded the original estimated price. (3) In the feasibility study report, some civil works necessary are not included and the amount of some civil works are not sufficiently estimated. (4) Because there is no definite idea about the changes of exchange rate, in order to prevent overspending of credit, part of the equipment and spare parts which should have been procured by the credit were actually purchased by using domestic fund. This increased the portion of counterpart fund. 3.9 In short, the adjustment on credit categories and counterpart fund is tally with the actual situation and could make more rational use of credit and counterpart fund, finally ensuring that the objectives of various project components be realised. 4. PROJECT ACHIEVEMENTS 4.1 Within the Implementation Period: A. Timber salvage: 11,740,000 cubic meters, transportation of burned timber 11,578,000 cubic meters, local timber processing 550,000 cubic meters; Road construction 2,2777 km, 15 temporary log yards for transportation of burned timber. The following equipment was procured: 184 timber trucks, 76 sets (pieces) of road construction equipment, 11 debarkers, 20 sets of timber loaders, 624 sets (pieces) of trailers of various kinds for timber transportation. B. The regeneration area for burned regions is 722,000 ha. 186.2 ha. of nurseries affected by the fire have been improved and expanded. Two sets of advanced seed processing equipments, four sets of green house seedling breeding equipment, one set of container soil production line have been procured. The annual seedling production reaches 117,205,000, meeting the regeneration requirement. C. An integrated forest fire management system has been established, combining ground fire control facilities and aerial forest protection. (1) The ground fire control facilities set up are: 47 micro-wave communication station, 39 UHF stations; 77 automatic weather forecasting stations; 9 lightning location stations; 3 sets of fire information processing through the use of computers; 771.7 km of fire control roads; 352.4 km of passes to stations of micro-wave, weather forecasting and lookout towers;  - 17 - 64 lookout towers; 45,389.10 square meters of houses and buildings; 4 helispots; 3 oil filling stations (garages). (2) The equipment procured includes: two 4-ton helicopters, eight 2-ton helicopters; 34 all-terrain vehicles; 33 commanding vehicles; 54 transportation trucks of various kinds; 130 pieces of radio communication equipment, instruments and facilities; 3,590 pieces of professional fire suppression equipment, tools and instruments etc. 4.2 Since the implementation of the DXAL Fire Control and Rehabilitation Project in the past five years, the World Bank missions have visited China for the project inspection for many times and believe this is a successful project. At the same time, project inspection has also been carried out by the project administrative authorities at different levels, and the auditing agencies at central and provincial levels. The inspection results indicate that all components of the project have been completed and the expected objectives of the project specified by the credit agreement have been reached. Namely: A. Good benefits have gained from the salvaged timber. The total sale of burned timber is 11,578,000 cubic meters with an income of RMB2,610,000,000 Yuan. If deducting the direct and indirect production cost, the net income is RMB880,000,000 Yuan. This income is used for forest regeneration. The cleared burned areas and the sanitary conditions are helpful for forest regeneration and have accelerated the recover and development of forest resources. B. The capacity of timber production and road construction in DXAL forest region in Heilongjiang has been obviously improved. In order to complete timber salvage and transportation, advanced road construction machinery, machinery for timber transportation and storage have been procured. The timber production capacity is expanded by 600,000 cubic meters, and the annual mechanized road construction capacity in new forest areas increased by 100 km. C. Silviculture and afforestation level has been greatly increased. In order to ensure a successful forest regeneration in the fire affected areas, in addition to the procurement of advanced seed processing and seedling breeding equipment so as to produce high- quality seedlings, cooperative research activities were also undertaken between forestry colleges, universities and research institutes to carry out research on seedling breeding and silviculture and afforestation. 38 items of research results have been achieved, of which 25 have been put into actual production. The use of the results has increased the plantation quality. The survival rate can reaches 85.3%, 33.2% more than before. D. The aerial forest protection capacity has been improved. Because of the procurement of helicopters, the aerial patrol capacity has been increased by 100%. Should there is emergency, the fire crews transported by helicopters to the fire site can be increased by 20% and 10% for Heilongjiang and Inner Mongolia respectively. E. The speed and accuracy of the fire detection and forecasting in the forest areas has been increased. Because of the establishment of such systems as automatic weather forecasting, lightning location, fire information processing through the use of computer  - 18 - and the establishment of lookout towers, a comprehensive monitoring and forecasting system for fire status in the whole forest areas has been formed. The fire information is transmitted timely and effectively through micro-wave communication and UHF communication. Through this system, fire occurrence can be discovered within 15 minutes in the developed areas and within 30 minutes in the unopened areas. The accuracy for fire location in developed areas reaches over 95% and 85% in unopened areas. Because of the increased fire forecasting speed and fire location accuracy, conditions are created to suppress fires at an earlier stage. F. Fire suppression capacity has been increased. The professional fire brigades in the two local project implementing agencies has been increased from 4,035 to 6,777. Because of the procurement of all-terrain vehicles, radio commanding vehicles, heavy- duty transportation trucks, wind blowers and radio telecommunication equipment, the fire brigades can reach the fire site within one-two hours. The fire suppression capacity has been increased by 50% in comparison with the period before the project implementation. G. Commanding form for fire control has been enhanced and the scientific management level increased. Due to the establishment of fire control information network from lower level to higher level, that is, from forest bureaux to forest management bureau (forest company in case of Heilongjiang Province) to the National Fire Management Headquarters in Ministry of Forestry, fire occurrence and fire hazard information can be sent immediately from lower level to higher level through this network, thus creating conveniences for dispatching, commanding and deployment for fire suppression activities. H. Because of the successful implementation of the DXAL Fire Control and Rehabilitation Project, the timber salvaged has been made the best use of, forest resources been recovered gradually and the regional ecological environment been improved. Especially, the establishment of micro-wave and UHF communication network and the network of computers has not only changed the backward communication situation in the forest regions but also deployed and created job opportunities for 995 people. It has promoted the stable development in economy and society in the forest areas. This project has been a model which combines economic benefits and environmental benefits. 5. ACHIEVEMENTS OF THE WORLD BANK 5.1 During the appraisal and implementation of the project, many World Bank missions have visited China for project inspection and guidance, raised helpful suggestions and solved new problems timely. In general, the World Bank has made outstanding achievements in the management of the DXAL Fire Control and Rehabilitation Project. The achievements are mainly reflected through the following aspects: High Efficiency Management 5.2 It takes only about nine months from project identification, appraisal of feasibility study  - 19 - report, to the signing of the credit agreement. Before the signing of the credit agreement, considering the emergency situation for timber salvage, the World Bank agreed to procure equipment for logging and transportation and road construction with an amount of US$6,900,000 through retroactive financing. Guidance and support were provided by the World Bank to solve the problems occurred during the process of procurement. Approval for various procurement items were also undertaken timely. All these measures have played a very important role in timely accomplishment of timber salvage and transportation, and equipment procurement. Strict Project Inspection and Monitoring 5.3 The inspection and management system undertaken by the World Bank for this project is effective and successful. In addition to the review of the submitted documents like project progress report, financial statement and auditing reports as well as various procurement papers, the World Bank sent working missions consisting of the Bank officials and consultants to undertake on-site inspection in China. These working missions raised timely suggestions and solutions to the problems occurred during the process of project implementation, which have improved the production technique, project organization and management, forming a sound base for the successful implementation of the project. 5.4 The credit category adjustment was approved by the World Bank in light with exchange rate change, the equipment procurement quantity and the going-up price. This makes the use of credit in different categories more rational. Meanwhile, the World Bank agreed to delay the project duration, which ensures the smoothly implementation of the project from time point of view. 5.5 Constructive suggestions were raised by the World Bank inspection teams regarding the problems and constraints in forest regeneration and in the use of foreign silvicultural equipment. These suggestions have been accepted and used in the project implementation, resulting in a further improvement of management level both in afforestation and management. 6. ACHIEVEMENTS OF THE BORROWER 6.1 Competent project management organizations were set up. Project leading groups were set up in Ministry of Forestry, DXAL Forest Company in Heilongjiang and DXAL Forest Management Bureau in Inner Mongolia. Project offices were also set up under the project leading groups. Professionals and managerial staff in the field of forestry, capital construction, planning, finance, equipment procurement and fire control etc. The project offices are relatively independent. It has such functions as external coordination, organization & management, monitoring the project implementation. The main responsibilities of the project offices include:organize project implementation, arrange equipment procurement and planning of civil works, organise technical experts and related department to compile draw up bid documents for equipment procurement, tendering and bid evaluation and deal with approval formalities, grasp goods arrival information and coordinate problems occurred during procurement. It also has the functions to approve and adjust credit and counterpart fund plan, raise suggestions on the amendment of credit agreement, organise the review and approval o the project preliminary design, hold meeting of various kinds and carry out project inspection either at fixed or unfixed  - 20 - dates. The successful implementation of the project is ensured from the organisation point of view. Enhance Proiect Management 6.2 The main measure taken by project management institutions at different levels are: A. To undertake job training for managerial staff in an attempt to increase their professional and management level. The project management agencies at different levels organised the study and training through multiple forms for the people in the field of planning, finance, fire control and equipment procurement. At the same time, 37 technical courses on timber storage, anti-decay for timber, micro-wave and lightning location etc. were held with 1,439 technicians trained. Theses training courses have promoted a more effective use of credit and thus increased the benefits of project investment. B. To enhance design and operation management. For many times, the seven design institutes were organised by DXAL Fire Project Office in Ministry of Forestry to carry out design liaison and coordination, and review of preliminary design. The design plan and preliminary design have all met or surpassed the economic specifications specified by the feasibility study report. At the same time, the DXAL Project Office in Ministry of Forestry, together with local administrative sectors, reviewed and inspected the operational charts and budget for some key engineering projects. This kind of review and inspection has made technical specifications more reliable and the fund be more accurately allocated. C. Enhance the Monitoring. Inspection and acceptance for the Progress and Quality of Engineering Projects. During the process of project implementation, many inspections have been carried out by Ministry of Forestry and the local project implementing agencies in the aspect of progress of engineering projects, installation quality, the use of imported equipment, allocation and use of counterpart fund. Problems found have been solved timely. The Commanding Headquarters has also been set up in the local project implementing agencies in accordance with different responsibilities of the related department. The headquarters is responsible for direct commanding, management and monitoring of some main engineering projects in an attempt to ensure high-quality projects. D. Absorb Advanced Technologies and Experiences. Increase Technical and Management Level. Ten overseas study tours and 18 overseas training groups for contract implementation have been sent by Ministry of Forestry with 156 man/times of technical and managerial staff trained. These people, after came back from foreign countries, direct project implementation and management with their knowledge learned abroad. For example, a professional team with quite high technical and management experiences has been formed through the overseas training and study on micro-wave engineering project. It has successfully accomplished micro-wave installation and test trial by overcoming great difficulties, thus ensuring a smoothly operation of the communication network.  - 21 - E. The project management agencies have enhanced their close cooperation with such sectors as planning, finance, auditing, banks, customs and commercial inspection. The great support and professional guidance from the World Bank Department in Ministry of Finance and the World Bank Resident Mission in Beijing ensures the successful implementation of the project.  - 22 - PART III - STATISTICAL INFORMATION TABLE 1: RELATED BANK LOANS AND CREDITS Loan/Credit Loan/Credit Purpose Year of Status Comments Title No. Appioval North China Plain Cr. 1261-CHA Establishment of 232,C00 ha FY82 Completed 12/87 Agriculture Project of forests, orchards and shelterbelts Forestry Development Cr. 1605-CHA Establishment of 82,000 ha of FY85 Completed 6/91 Project plantatiors and improved management of existirng forests Pishihang-Chaohu Ln. 2579/ Production of 61 million FY85 Completed 6/92 Satisfactory Area Development Cr. 1606-CHA seedlings for border arnd progress; PCR Project commercial plantations planned in FY93 Red Soils Area Cr. 1733-CHA Establishment of 8,515 ha FY86 Completed 6/92 Satisfactory Development Project of orchards and 4,350 ha. of progress; closing woodlots date 6/92 Shandong Agricultural Cr. 2017-CHA Establishment of 30,000 ha FY89 Under Satisfactory Development Project of forest and 12,500 ha of implementation progress Chinese dates National Afforestation Cr. 2145-CHA Establishment of 985,000 ha FY90 Under Satisfactory Project of timber plantations; implementation progress strengthening of research arid institutional capacity Second Fed Soils Area Cr. 2563-CPA Establishment of 14,000 ha of FY94 Board approval Development Project forests and 17,000 ha of in 3/94 orchards Loess Plateau Watershed Cr. Establishment of 270,000 ha of FY94 Board approval Rehabilitation Project commercial and conservation in 5/94 forests.  - 23 - TABLE 2: PROJECT TIMETABLE Item Date Date Date Planned Revised Actual Identification 8/87 8/87 Preparation 10/87 10/87 Appraisal Mission 1/88 1/88 Negotiations 5/88 5/88 Board Approval 6/88 6/88 Signing Date 7/88 7/88 Effective Date 9/88 9/88 Closing Date 1/ 3/92 3/93 3/94 Completion Date 9/91 6/93 5/94 Notes: 1/ The closing date of the credit was extended twice in order to complete the commissioning of the fire protection control and monitoring system, which was delayed due to slow preparation of procurement documentation and late delivery of goods and services from suppliers.  - 24 - TABLE 3: ESTIMATED AND ACTUAL CREDIT DISBURSEMENT (US$ MILLION) Appraisal Estimate Actual Actual as I Year Absolute Cumulative Cumulative of Estimate 1988 0.00 0.00 7.35 1/ 1989 25.00 25.00 14.19 57% 1990 22.00 47.00 18.71 40% 1991 7.00 54.00 32.33 2/ 60% 1992 2.90 56.90 48.35 85% 1993 0.00 56.90 52.01 91% 1994 0.00 56.90 55.10 3/ 97% Notes: 1/ Includes US$ 5.5 million deposited into the Special Account. 2/ SDR 0.5 million, equivalent to US$ 0.692 million, was cancelled on 3/1/91. 3/ The credit was fully disbursed as of 6/10/94. Fluctuations in the SDR/USS exchange rate over the project period led to a slight decrease in the US$ equivalent value of the credit.  - 25 - TABLE 4: PROJECT IMPLEMENTATION INDICATORS Indicators Unit Appraisal Revised Actual Actual/ Actual/ Estimate Target SAR Revised (%) I. FOREST FIRE CONTROL 1. Aerial Fire Fighting a) Aircrafts 1/ no. 22 10 10 45 100 b) Patrol Airports no. 2 2 2 100 100 c) Heliports no. 8 B 8 100 100 2. Ground Fire Fighting a) Vehicles 2/ no. 256 170 189 74 111 b) Buildings m2 16,795 45,389 45,389 270 100 3. Fire Control Facilities a) Roads & Forest Tracks km 1,316 1,124 1,124 85 100 b) Lookout Towers no. 89 64 64 72 100 4. Communications Network a) Microwave/UHF Stations no. 36 86 86 239 100 b) Computer Terminals no. 36 35 35 97 100 5. Weather Forcasting km a) Stations 3/ no. .. 95 95 .. 100 b) Labs no. 2 2 2 100 100 6. Lightening Monitoring no. 4 8 8 200 100 II. TIMBER SALVAGE 1. Roads and Forest Tracks km 3,900 2,277 2,277 58 100 2. Logging Equipment no. 138 915 915 630 100 III. REGENERATION 1. Greenhouses no. 80 44 44 55 100 2. Equipment no. 7 7 7 100 100 Notes: 1/ Including small and medium helicopters, small patrol airplane, and water dropping airplane. 2/ Including all-terrain trucks, commanding cars, trucks, and motorcycles. 3/ Including automatic weather, observation, relay, and base weather stations.  - 26 - TABLE 5A: PROJECT COSTS (US$ MILLION) Appraisal Estimate 1/ Actual Item Local Foreign Total Local Foreign Total Cost 2/ Cost Cost Cost 3/ Cost Cost Timber Salvage 379.1 22.7 401.7 307.4 12.6 320.0 Forest Fire Control 75.3 34.0 109.3 31.3 39.1 70.4 Regeneration 3.8 1.3 5.1 91.5 1.4 92.9 Technical Assistance and Training 0.1 0.8 0.9 0.0 0.4 0.4 Total Project Cost 458.2 58.8 517.0 430.2 53.5 483.7 Notes: 1/ Appraisal estimate from Schedule A of MOP 2/ The appraisal estimate assumed a constant exchange rate throughout implementation (US$1.00 = Y3.71 = SDR 0.7225). 3/ The actual exchange rates were as follows: 1988 US$1 = Y 3.72 = SDR 0.7692 1989 US$1 = Y 4.72 = SDR 0.7407 1990 US$1 = Y 4.72 = SDR 0.7299 1991 US$1 = Y 5.70 = SDR 0.7246 1992 US$1 = Y 5.70 = SDR 0.7143 1993 US$1 = Y 8.70 = SDR 0.7194 1994 US$1 = Y 8.70 = SDR 0.7194  - 27 - TABLE SB: PROJECT FINANCING (USS MILLION) Planned 1/ Revised 2/ Actual 3/ % of % of % of Source Amount total Amount total Amount 3/ Total IDA Credit 56.9 11.0% 56.2 na 55.1 10.7% Domestic Sources 460.1 89.0% na na 428.6 82.9% Total Financing (US$ million) 517.0 100.0% na na 483.7 100.0% Notes: I/ Planned estimate as in Development Credit Agreement, using US$1.00 = SDRO.7225 exchange rate. 2/ Credit allocation was revised in line with cancellation of US$0.692 million equivalent. 3/ The final credit allocation is based on an average exchange rate of US$1.00 - SDRO.7369  - 28 - TABLE 6A: PROJECT RESULTS - DIRECT BENEFITS Indicators Unit Appraisal Actual/ Estimate Actual Appraisal I. FOREST FIRE CONTROL 1. Coverage of ground fire monitoring % 82 85 104% 2. Coverage of aerial monitoring % 100 100 100 3. Time for discovering fire A. Developed areas minutes 15 15 100% B. Undeveloped areas minutes 30 30 100% 4. Accuracy of fire forecast A. Developed areas 4 95 95 100% B. Undeveloped areas % 85 85 100% 5. Fire damage area/total area % 3 0.015 >1,000% 6. Forest area saved million m2 48 96 200t 7. Stumpage value saved million Yuan 242 482 200% II. TIMBER SALVAGE 1. Anual timber harvesting capacity 1,000 m3 600 600 100% 2. Anual road building capacity km 100 100 100% 3. Burned timber salvage quantity million m3 15 11.74 78% III. REGENERATION 1. Seed collection kg 3,500 5,360 153% 2. Nursery development ha 1SO 214 142% 3. Anual seedling production million ha 84 117 140% 4. Forest regeneration 1,000 ha 1,044 722 69% A. Plantations 1,000 ha 172 101 59% B. Natural regeneration w/ enrichment 1,000 ha 115 98 85% C. Natural regeneration 1,000 ha 677 463 68% D. Hill closing 1,000 ha 79 59 75%  - 29 - TABLE 6B: PROJECT RESULTS - ECONOMIC AND FINANCIAL IMPACT Rate of Return Net Present Value at 10% 1/ (%) (million Yuan) Appraisal Final Appraisal Final Estimate Estimate 2/ Estimate Estimate 2/ ECONOMIC IMPACT: Timber Salvage Component 3/ >200 > 200 1645 642 Fire Management Component 4/ > 200 > 200 1576 177 FINANCIAL IMPACT: Timber Salvage Component 3/ > 200 > 200 747 443 Fire Management Component 4/ 29.3 83 425 101 Notes: 1/ The MOP used a 10% discount rate in the discounted cashflow analysis, which has been followed in the PCR calculations. 2/ Final estimates for the timber salvage component are based on actual data for 1988-1993. Final estimates for the fire management component are based on actual data for 1988 - 1993 and projected data for 1992- 2018. 3/ The revenue stream for the timber salvage component is based on: (i) the incremental production from salvaging burned timber (it is assumed that the existing capacity prior to the project could have salvaged 5 million cubic meters); and (ii) the residual value of project assets. Production costs include initial capital investments and annual recurrent operating costs, comprising wages, fuel, administrative overhead, and other recurrent expenditures. Financial input prices were adjusted by an average conversion factor of 1.30 to derive economic prices, which is a weighted average of the standard conversion factor for non-tradables and actual border price equivalents for tradables. Economic output prices were based on free market prices prevailing in the DXAL project area during implementation, which are close to border price equivalents (about 75 % of project output was sold at state administered prices and 25 % at free market prices). The final estimates of the NPV for the economic and financial cashflows are lower than in the MOP due to the fact that the actual salvage quantity was 3 million cubic meters less than projected and to different exchange rate assumptions. 4/ The revenue stream for fire management component is calculated from the estimated change in the incidence of fire losses as a result of the project (only lost timber production is valued, not any savings related to human life and property). Financial costs were adjusted by an average conversion factor of 1.25 to derive economic costs, which is a weighted average of the standard conversion factor for non-tradeables and actual border price equivalents for tradables. The final estimate of the FRR and ERR are higher than in the SAR because the actual incidence of fire during the past seven years has been dramatically lower than the assumptions used in the MOP. However, the final estimates of the NPV for the economic and financial cashflows are lower than in the MOP due to different exchange rate assumptions.  - 30 - TABLE 6C: PROJECT RESULTS - RESEARCH WORK Research Work Purpose Status Impact Forest regeneration methods. Provide technical standards for Completed Standards have been forest regeneration. 1993 applied in four areas. Planting technology in high- Establish pilot plantations to try Completed 250 hectares of pilot yielding plantations. out regeneration models and 1993 plantationsestablished. technical standards that fit local Impact not clear. local conditions. Techniques of cultivation of spruce and Increase the cultivating Completed Under experiment. fragrant poplar; breeding of Xingan area of rare species. 1992 poplar; selection of birch. Natural regeneration model. Further understanding the technology Completed ITproved margetn and application of natural 1992 measures used in regeneration. fire affected areas. Regeneration methods that can be Provide standard technical Completed Some experiments applied to seeding on steep slopes. specifications. 1991 were conducted in Amur. Impact not clear. Standardization of seedling breeding Advance nursery development Completed Objective met at 2 techniques for large nurseries. and increase seedling production. 1991 of 4 nurseries. Use of root containers for improved Improve the seedling quality by Completed Study results used at seedling. 20% to meet national standards. 1991 1 of 4 nurseries. Application of peat to potting soils. Improve quality of soil medium in Completed Results have been conainterized seedlings. 1990 applied in Tuqiang and Tahe nuseries. Direct seeding in afforestation. Reduce afforestation costs and Completed Results indicated speed up regeneration program 1990 limited application for direct seeding. Disease control techniques for Scotch Identify appropriate control Completed Disease successfully pine seedlings. measures. 1990 controlled. Pests and diseases control techniques Identify appropriate control Completed Results have been in in plantations. measures. 1990 applied inplantations. Seed propagation technology for Improve quality and quantity of Completed Some success in Scotch Pine and Larch. seed. 1990 improving quality and quantity of seeds. Use of agrochemicals in weeding. Select approperiate herbicide. Completed Results widely used 1990 in nurseries. Seedling standards for boreal Develop seedling standards Completed Results widely used. forest species. to ensure uniform quality. 1989  - Ji - TABLE 7: STATUS OF COVENANTS Covenant 1/ Description Status DCA 3.02 Goods, works and consultant services would be procured Largely in compliance throughout the in accordance with schedule 3 of the DCA project, although the original ceiling on non-ICB procurement was exceeded DCA 3.03(a) Project would be implemented in accordance with environmental Largely in compliance, except for the standards acceptable to IDA. initial use of pesticides for timber preservation. DCA 3.03(b) All necessary measures would be taken to reduce fire and pest In compliance throughout project. hazards in project area. DCA 3.04 Borrower would establish satisfactory arrangements for aircraft In compliance throughout project. operation and maintenance. DCA 4.01 Project accounts would be audited annually and submitted to IDA Largely in compliance, although June 30 of the following year. accounts were sometimes submitted late. NU (2) Company owning aircraft would be established with satisfactory Completed. A service contract with financial and technical structure or a service contract with CAAC was signed. CAAC would be executed prior to disbursement for aircraft. NU (5) MFO would provide updated information on damaged timber Completed. volumes, including commerical quantities, by August 1988. NU (7) MFO would provide semi-annual progress reports and quarterly Largely in compliance. production reports. Notes: 1/ DCA = Development Credit Agreement of 7/88 NU - Negotiation Understanding from agreed minutes of negotiations of 5/88.  - 32 - TABLE BA: USE OF BANK RESOURCES - STAFF INPUTS (IN STAFF WEEKS) Stage of Project Cycle Planned Revised Final Through Appraisal na na 75.8 Appraisal Through Board na na 5.8 Approval Board Approval Through na na na Effectiveness Supervision 82 80 58.5 TOTAL na na 140.1  .33 - 33 - TABLE SB: USE OF BANK RESOURCES - MISSIONS Stage of No. of Days in Specialization Performance Type of Project Cycle Date Persons Field Represented 1/ Rating 2/ Problems Identification Aug-87 4 17 PO, FI, F, FF Preparation Oct-87 5 16 PO, FI, F, FF,E Appraisal Jan-88 2 17 FO, FI Supervision 1 Jul-88 2 17 PO, Fl 2 Technical Supervision 2 Mar-89 2 21 PO, FI 2 Procurement Supervision 3 Oct-89 1 5 FI 2 Procurement Supervision 4 Jun-90 5 16 PO, FR, F, FF,FI 2 Procurement Supervision 5 Mar-92 3 27 PO, FR, FI 1 PCR Mission Apr-94 3 14 PO, Fl, RA 1 Total Supervision 16 100 2 Total over Project Life 27 150 2 Notes: 1/ E = Economist, F- Forester, FI * Forest Industries Specialist, PO - Project Officer FR Forestry Research Specialist, RA - Research Assistant, FF - Forest Fire Specialist 2/ Key to performance rating: 1 - Problem free or minor problems 2 - Moderate problems 3 - Major problems