Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 68990-CN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$80 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR THE

HUNAN FOREST RESTORATION AND DEVELOPMENT PROJECT

November 21, 2012

China & Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region 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.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 1, 2012)

Currency Unit = Renminbi (RMB) Yuan (Y) RMB6.25 = US$1

US$0.16 = RMB1

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS CPMO County Project Management Office CPS Country Partnership Strategy DA Designated Account EA Environmental Assessment EIRR EMDP

Economic Internal Rate of Return Ethnic Minority Development Plan

EMP Environmental Management Plan EPG FIRR

Environmental Protection Guidelines Financial Internal Rate of Return

FMM Financial Management Manual GoC Government of China HPAO Hunan Provincial Audit Office IA Implementing Agency IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICR Implementation Completion Report IFR Interim Financial Report IP Indigenous People IRR Internal Rate of Return ISP Implementation Support Plan km kilometer m2 square meter m3 cubic meter M&E Monitoring and Evaluation MOF Ministry of Finance NCB National Competitive Bidding NPV Net Present Value OCC Opportunity Cost of Capital ORAF Operational Risk Assessment Framework PDO Project Development Objective PDRC Provincial Development and Reform Commission

PFA Provincial Forestry Academy PFinB Provincial Finance Bureau PFB Provincial Forestry Bureau PFSDI Provincial Forest Survey and Design Institute PIP Project Implementation Plan PMP Pest Management Plan PLG Project Leading Group PMO Project Management Office PPM Participatory Planning Manual PPMO Provincial Project Management Office PRA Participatory Rural Appraisal QBS Quality Based Selection QCBS Quality &Cost Based Selection SA Social Assessment SIL Specific Investment Loan SSG Scientific Supporting Group SW Staff Week VSL Variable Spread Loan WA Withdrawal Application

Regional Vice President: Pamela Cox, EAPVP Country Director: Klaus Rohland, EACCF

Sector Director: John Roome, EASSD Sector Manager: Mark Lundell, EASCS

Task Team Leader: Liu Jin, EASCS

CHINA Hunan Forest Restoration and Development Project

CONTENTS

I. STRATEGIC CONTEXT .........................................................................................1

A. Country Context ................................................................................................ 1

B. Sectoral and Institutional Context ..................................................................... 1

C. Higher Level Objectives to Which the Project Contributes.............................. 2

II. PROJECT DEVELOPMENT OBJECTIVES ....................................................2

III. PROJECT DESCRIPTION ..................................................................................3

A. Project Components .......................................................................................... 3

B. Project Financing .............................................................................................. 4

C Lessons Learned and Reflected in the Project Design ...................................... 5

IV. IMPLEMENTATION ...........................................................................................6

A. Institutional and Implementation Arrangements .............................................. 6

B. Results Monitoring and Evaluation .................................................................. 7

C. Sustainability..................................................................................................... 7

V. KEY RISKS AND MITIGATION MEASURES ................................................8

VI. APPRAISAL SUMMARY ....................................................................................9

A. Economic and Financial Analyses .................................................................... 9

B. Technical ......................................................................................................... 10

C. Financial Management .................................................................................... 11

D. Procurement .................................................................................................... 11

E. Social (including Safeguards) ......................................................................... 12

F. Environment (including Safeguards) .............................................................. 13

Annex 1: Results Framework and Monitoring ............................................................15

Annex 2: Detailed Project Description ...........................................................................18

Annex 3: Implementation Arrangements ......................................................................28

Annex 4: Operational Risk Assessment Framework (ORAF) .....................................41

Annex 5: Implementation Support Plan ........................................................................44

MAP IBRD 39235 ............................................................................................................47

.

CHINA

HUNAN FOREST RESTORATION AND DEVELOPMENT PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASCS

.

Basic Information

Date: 21-November-2012 Sectors: Forestry (100%)

Country Director: Klaus Rohland Themes: Climate change (50%), Other environment and natural resources management (50%) Sector

Manager/Director: Mark R. Lundell/John A. Roome

Project ID: P125021 EA: Category

B - Partial Assessment

Lending Instrument: Specific Investment Loan

Team Leader(s): Jin Liu

Joint IFC: No

.

Borrower: People’s Republic of China: Ministry of Finance

Responsible Agency: Hunan Provincial Forestry Bureau

Contact: Mr. Li Shuming Title: Project Management Office Director

Telephone No.: 86-731-8555-0019 Email: hnfrdp@163.com

.

Project Implementation Period:

Start Date:

31-January -2013

End Date:

31-December – 2018

Expected Effectiveness Date:

30-April-2013

Expected Closing Date: 31-March-2019

.

Project Financing Data(US$M)

[ X ] Loan [ ] Grant [ ] Other

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost (US$M): 115.2

Total Bank Financing (US$M): 80.0

.

Financing Source Amount(US$M)

Borrower 35.20

International Bank for Reconstruction and Development

80.00

Total 115.20

.

Expected Disbursements (in USD Million)

Fiscal Year

2013 2014 2015 2016 2017 2018 2019

Annual 3.00 10.00 15.00 20.00 15.00 12.00 5.00

Cumulative

3.00 13.00 28.00 48.00 63.00 75.00

80.00

.

Project Development Objective(s)

The project development objective is to enhance the resilience and environmental function of selected ice storm affected ecological forest plantations in Hunan Province by increasing forest species diversity and vegetative tree cover in those areas.

.

Components

Component Name Cost (USD Millions)

Component 1: Reforestation and rehabilitation of damaged ecological forest plantations

103.3

Component 2: Institutional support and technology enhancement 11.7

.

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ]

.

Does the project require any waivers of Bank policies? Yes [ ] No [ X ]

Have these been approved by Bank management? Yes [ ] No [ X ]

Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]

Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ]

.

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X

.

Legal Covenants

Name Recurrent Due Date Frequency

Institutional Arrangements X Yearly

Description of Covenant

Throughout the period of implementation of the project, Hunan shall maintain Provincial and County Leading Groups, Provincial and County Project Management Offices, as well as a technical support team with terms of reference, staffing and other resources acceptable to the Bank.

Name Recurrent Due Date Frequency

Project Implementation Manual X Yearly

Description of Covenant

The Project Implementing Entity shall carry out the Project in accordance with the Project Implementation Plan and shall not amend, suspend, or waive the said plan or any part thereof without the prior written agreement of the Bank.

Name Recurrent Due Date Frequency

Safeguards Instruments X Yearly

Description of Covenant

The Project Implementing Entity shall implement the Environmental Management Plan (EMP, including therein the Environmental Protection Guidelines and the Pest Management Plan) and the Ethnic Minorities Development Plan (EMDP) in a manner and substance satisfactory to the Bank, and shall not, amend, suspend, or waive the EMP and the EMDP without the prior written concurrence of the Bank.

Name Recurrent Due Date Frequency

Procurement Management X Yearly

Description of Covenant

All goods, works and services required for the Project and to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of the Project Agreement and Procurement Plan.

Name Recurrent Due Date Frequency

Financial Management X Yearly

Description of Covenant

The Project Implementing Entity shall maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Bank, both in a manner adequate to reflect the operations and financial conditions of the Project Implementing Entity, including the operations, resources and expenditures related to the Project.

Name Recurrent Due Date Frequency

Project Monitoring, Reporting, Evaluation X Yearly

Description of Covenant

The Project Implementing Entity shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the indicators set forth in the Project Implementation Plan. Each Project Progress Report shall cover the period of one calendar semester, and shall be furnished to the Bank not later than two months after the end of the period covered by such report.

Team Composition

Bank Staff

Name Title Specialization Unit

Kishor Uprety Senior Counsel Senior Counsel LEGES

Zong-Cheng Lin Senior Social Development Specialist

Senior Social Development Specialist

EASCS

Wenyan Dong Operations Analyst Operations Analyst EASCS

Jin Liu Senior Rural Development Specialist

Team Leader EASCS

Ulrich K. H. M. Schmitt Sr. Natural Resources Econ.

Sr. Natural Resources Econ.

EASCS

Haixia Li Sr. Financial Management Specialist

Sr. Financial Management Specialist

EASFM

Yiren Feng Senior Environmental Specialist

Senior Environmental Specialist

EASCS

Yunlong Liu Procurement Specialist Procurement Specialist EASRP

Yunqing Tian Team Assistant Team Assistant EACCF

Non Bank Staff

Name Title Office Phone City

David Lamb Sr. Ecologist Sydney, Australia

Mohamed Noureddine Benali

Sr. Programming and Project Design Specialist

Corona, CA, USA

Weiguo Zhou Sr. Economist Gaithersburg, MD, USA

.

Locations

Country First Administrative Division

Location Planned Actual Comments

China Hunan Provincial Forestry Bureau

Changsha, Hunan Province

X X The project will be implemented in 22 counties of Hunan Province.

.

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I. STRATEGIC CONTEXT

A. Country Context 1. Over the past three decades, China has seen an unprecedented economic growth coupled with a considerable degradation of its natural resources. This had a deleterious effect on its soils, water resources and air quality. As a consequence of this visible deterioration of the natural environment, sustainable natural resources management has become a high priority for Chinese policy makers and Chinese society in general. Because incomes and living standards have been improved greatly during the past decades, the Chinese authorities feel that the country can now afford to move natural resource management towards a more balanced and sustainable development path. This move towards improved management of natural resources has been reflected in the Government’s more eco-friendly national policies and articulated in its 12th Five Year Development Plan (2011-2015).

B. Sectoral and Institutional Context

2. At the provincial and national levels, forests play an important role in providing income, raw materials and environmental services such as soil and water conservation, carbon sequestration, support for habitats of plant and animal species, as well as human well-being. In the past, China’s forestry sector was traditionally focused on the extraction of timber and income generation. While environmental services were recognized as necessary, their importance was deemed secondary. As a result of growing pressure on the environment and the ensuing ecological degradations, as well as natural disasters and the changing preferences of the public at large, forest environmental services have gained increasing recognition and importance in government policies and priorities. This shift is most evident in economically better-off provinces, which are now spending more funds on natural resource management and environmental protection, and in the areas that experience frequent and severe natural disasters. 3. In 2008, the Central-Southern parts of China suffered from an exceptionally severe ice storm that affected around 22 million hectares of forests and caused direct economic losses of about US$9 billion. Hunan Province was one of the most affected, with about 4.5 million hectares (35 percent of the provincial forest area) being partially or totally destroyed. Besides the loss in income resulting from damaging timber production, the destroyed forest areas were subsequently affected by insect and fire calamities that quickly transformed them into degraded grasslands and bamboo shrub lands. These grasslands represent a tertiary climax vegetation type typical for highly degraded lands. Because of being prone to fire and other biotic disasters, these grasslands will most likely prevent natural vegetation succession and delay the recovery of tree growth and forest ecosystems re-establishment. 4. Most affected by the storm were the planted single forest species and single storey coniferous forest stands. Forests that comprised mixtures of various trees species (mostly native species) as well as multiple-storey plantations suffered much less damage. Experience from this disaster points strongly to the importance of establishing more

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diverse forests stands, consisting of native and locally adapted species. These fundamental characteristics are at the core of resilient natural forest plantations that would better withstand and/or adapt to the impacts of natural disasters. 5. Hunan Provincial Government has recognized that major efforts in the form of investments and changes in management approaches are required to restore and sustainably manage these forest areas. It has begun to shift its policies and programs from production-oriented forest plantations towards more sophisticated multi-purpose forests and environmental landscape management. Significant public resources have been earmarked for the restoration of forest lands degraded by the 2008 ice storm. Bank assistance in the form of financial support and knowledge transfer is being sought to implement Hunan’s new forestry development agenda.

C. Higher Level Objectives to Which the Project Contributes

6. The proposed project would promote reforesting and rehabilitating ice storm-damaged ecological forest plantation areas with diversified local adapted species and long-term forest management, which will contribute to significantly enhancing the forest ecosystem resilience to natural disasters and climate variability and its environmental functions. It is consistent with the Bank’s Country Partnership Strategy (CPS, 67566-CN, discussed by the Board of Executive Directors on November 6, 2012) for China (FY2013-2016), which calls for supporting greener growth in China with a focus on promoting ecological forestry approaches that maximize ecosystem health, soil and water conservation, carbon sequestration and climate resilience. 7. The project would also contribute to the objectives and targets of China’s 12th Five-Year Development Plan (2011-2015), which focuses on improving environmental sustainability to reduce ecological systems degradation and promoting sustainable natural resources management.

II. PROJECT DEVELOPMENT OBJECTIVES

A. Project Development Objective (PDO) 8. The PDO of the project is to enhance the resilience and environmental function of selected ice storm-affected ecological forest plantations in Hunan Province by increasing forest species diversity and vegetative tree cover in those areas. B. Project Beneficiaries 9. Project beneficiaries include rural households, farmer cooperatives, forest farms, village groups and communities living in or around the affected forest areas. An estimated 26,130 households, located in more than 1,150 villages belonging to 230 townships within the 22 participating counties, would participate in and benefit from the project under a range of the project operational arrangements. In addition, county-level state-owned forest farms manage around 16 percent of the forest plantation areas that would be restored and rehabilitated under the project.

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C. PDO Level Results Indicators 10. Progress towards the achievement of the project objective would be monitored through increases in: (a) the number of indigenous species planted in the rehabilitated forest; and (b) tree canopy cover.

III. PROJECT DESCRIPTION

A. Project Components

11. The project would focus only on those forest areas that are classified as ecological forest plantations and it has two components: 12. Component One - Reforestation and Rehabilitation of Damaged Ecological Forest Plantations (Total Base Cost: $98.22 million):

(a) Carrying out a program of reforestation of ecological forest plantations completely denuded by the ice storm, through the replanting of about 27,700 hectares (ha) of forest land with various locally adapted mixes of conifer and broadleaf indigenous species.

(b) Carrying out a program of rehabilitation of damaged ecological forest plantations, including:

(i) The supplemental reforestation of about 18,600 ha of damaged and partially denuded ecological forest plantations by inter-planting them with mixes of conifer and broadleaf indigenous species; and (ii) The natural regeneration of about 12,600 ha of damaged ecological forest plantation, where spontaneous germination of forest seedlings as well as sprouts from damaged stumps would be nursed through silvicultural management practices and supplemented by partial replanting of mixes of conifer and broadleaf indigenous species.

13. These newly reforested and rehabilitated areas are expected to be developed into multi-storied vegetation communities of uneven-aged stands with a mixture of tree species. Forests developed in this landscape would contribute to a stable forest ecosystem that can be tolerant of future disturbances and change – including those caused by climate change. The long-term management of these forest stands would also promote their sustainability. 14. Component Two---Institutional Support and Technology Enhancement (Total Base Cost: $11.73 million):

(a) Nursery Upgrading and Planting Material Development. Carrying out a program to increase the number of species available for forest replanting and

4

improve the quality of planting materials by supporting better nursery management technologies and the production of 60.5 million seedlings of species, including the upgrading of two central nurseries in Taoyuan County and Suxian District and one provincial demonstration nursery located in Ningxiang County.

(b) Forest Cooperatives. Carrying out a program to establish and strengthen 22 farmer forest cooperatives for the purpose of replanting, rehabilitating and long-term management of the ecological forest plantations. (c) Research, Technical Service and Extension. Carrying out an applied research, capacity building and knowledge dissemination program, covering areas and topics of nursery technologies and management, silvicultural management systems, ecological forest plantation management, enhancing and monitoring carbon sequestration in forest plantations, and climate change impacts on forest ecosystems. (d) Project Monitoring and Evaluation (M&E). Establishing and implementing the project’s progress, outcome, and impacts monitoring and evaluation system. (e) Project Management and Institutional Development. Providing support for capacity building and institutional strengthening for project management offices (PMOs) at both provincial and county levels.

B. Project Financing

Lending Instrument 15. The selected project lending instrument is a Specific Investment Loan (SIL). It will be on standard IBRD terms, with a LIBOR-based US dollar denominated Variable Spread Loan (VSL) with all conversion options, level repayment of principal following a schedule linked to commitments and a repayment of 26 years, including a 6 year grace period.

Project Cost and Financing

16. The total financing required for the Project is US$115.20 million, of which US$80 million (69.4%) would be financed by IBRD and US$35.20 million (30.6%) would be provided as counterpart funds by the Hunan Provincial and County Governments and project beneficiaries. Project cost by component and sub-components, and the share of IBRD financing are summarized in Table 1 below:

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Table 1: Estimated Project Cost Summary a/

Project Components Project Cost (US$ million)

IBRD Financing

(US$ million)

IBRD Financing

(%)

A. Reforestation and Rehabilitation 98.22 75.32 76.7

1 Reforestation of Forest Lands Totally Denuded

64.03 49.10 76.7

2 Rehabilitation of Damaged Forests 34.19 26.22 76.7 B. Institutional Support and Technology Enhancement

11.73 4.48 38.2

1 Nursery Upgrading and Planting Material Development

2.43 1.44 59.2

2 Forest Cooperatives 0.26 0.23 88.5

3 Research, Technical Services and Extension

1.58 0.81 51.3

4 Project Monitoring and Evaluation 2.09 0.96 45.9

5 Project Management and Institutional Development

5.37 1.04 19.3

Total Baseline Costs 109.95 79.80 72.6 Contingencies 5.05 - -

Total Project Costs b/ 115.00 79.8 69.4 Front-end Fees 0.20 0.20 100.0

Total Financing Required 115.20 80.00 69.4 a/ Totals may not tally due to rounding. b/ Taxes and duties have not been identified, since the Bank loan will also finance taxes and duties. C. Lessons Learned and Reflected in the Project Design 17. Previous Bank-supported forestry projects in China have been successful in achieving their development objectives. A number of lessons have been learned from past projects: (a) innovations introduced under Bank projects have changed the forestry plantation paradigm and introduced more efficient technologies; (b) afforestation/reforestation practices and models became more efficient as soon as new technologies were demonstrated and well understood; (c) farmers and the forestry institutions learned from and made good use of information acquired during training sessions and study tours; (d) simple and well-designed M&E programs worked better than extensive and complicated M&E systems; and (e) output and quality-based disbursements in plantation establishment worked well in China and contributed to the rapid implementation of projects. All of the above lessons have been incorporated in the design of this project. 18. Building on past experiences, the proposed project would introduce a number of innovations, including, inter alia, (a) a greater focus on public good forestry and ecosystem protection; (b) a program of native species seed collection, evaluation and multiplication to promote and increase the availability of indigenous tree species planting

6

material for ecological forest restoration; and (c) the development of reforestation and rehabilitation models (the plantation models) based on new research results and national and international experience in forest ecosystem management, to replace single species and single-structure plantations with adapted, multi-species and multi-structure stands; (d) modern management methods of sustainable forest management such as selective thinning, natural generation, and management for structural stand diversity; and (e) applied research to be implemented along with the replanting program to observe, evaluate and refine the plantation models.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

19. The management structure of the proposed project has already been set up. It includes Project Leading Groups (PLG) at provincial and county levels, chaired by the provincial vice governor and respective county vice governors. The leading groups would provide overall policy and implementation guidance, review work programs, and ensure inter-agency coordination. In addition, Project Management Offices (PMOs) have been established at the provincial and county forestry bureaus. The provincial PMO (PPMO) and county PMOs (CPMO) are responsible for day-to-day project implementation, supervision, and monitoring and evaluation. Project Liaison Groups have been set up at the municipality/prefecture level to coordinate the provincial and country level PMOs. 20. The PPMO would be supported by the provincial Scientific Support Group (SSG), which consists of technical experts from the Provincial Forestry Academy (PFA) and the Provincial Forest Survey and Design Institute (PFSDI). The PSG would assist in monitoring project progress, conducting quality control of reforestation and forest rehabilitation work; and coordinating and facilitating project environmental and social impact monitoring, as well as training and dissemination. Some participating counties are new to the Bank project and would need significant training and close monitoring from both the PPMO and the Bank. The full institutional structure is detailed in annex 3. 21. During project preparation, a consultation and participatory design process has been carried out in the proposed project villages and with other stakeholders. Based on the consultations conducted, four types of project beneficiaries/operational arrangements have been identified. They are: (a) individual households, to whom land usage right has already been allocated; (b) villages, where land usage right has not been allocated to individual households and remains communal; (c) forest cooperatives, to which land usage right owners contribute their land towards a cooperative management system; and (d) county level state-owned forest farms, which own the usage right of their own ecological forest plantations. Contractual arrangements would be formalized by Implementation Agreements (IA) to be signed between the CPMOs and their respective project beneficiaries to undertake the reforestation and forest rehabilitation activities.

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B. Results Monitoring and Evaluation

22. Project monitoring would include: (a) monitoring project implementation progress; (b) monitoring the quality and performance of reforested and rehabilitated forest plantations, as well as the efficiency of technical and institutional supporting systems; (c) evaluation of the achievement of the PDO; and (d) assessment of the environmental and social impacts of project activities. The PPMO and the CPMOs would be responsible for project monitoring and evaluation. CPMOs would also be responsible for keeping track of all planned and completed activities under the project, as well as planned and completed expenditures. A detailed project monitoring and evaluation plan, acceptable to the Bank, has been developed by the PPMO. 23. Project progress and outcomes will be checked and recorded regularly by the CPMOs. The CPMOs would submit semi-annual progress reports on December 31 and June 30 of each year to the PPMO. The PPMO would prepare and submit consolidated provincial semi-annual progress reports to the Bank on February 28 and August 31 of each year. 24. In addition to the semi-annual reports: (a) an annual project work and budget plan for the next calendar year would be furnished to the Bank for review by December 15 of each year commencing December 15, 2012; (b) a mid-term review report would be submitted to the Bank by the PPMO on March 1, 2016; (c) a project Implementation Completion Report (ICR) would be submitted to the Bank by the PPMO by March 1, 2019; and (d) two project technical and socio-economic surveys reports, to be completed before the end of year three and year six of the project, would be furnished to the Bank for review by March 1, 2016 (first report) as part of mid-term review report and March 1, 2019 (second report) as part of the project ICR.

C. Sustainability

25. The project concept is fully integrated into the overall context of sustainable forestry development in Hunan Province. Through the participatory process and the use of various forest management arrangements involving private and public entities/institutions, the interests of different stakeholders have been taken into consideration. Using public funds to provide grants to various types of beneficiaries for the rehabilitation of ecological forest plantations would ensure that the public goods delivered will be appropriately funded. Maintenance of reforested/rehabilitated ecological forest plantations would mostly be contracted out to communities/villages, householders and/or forest farms. The government would pay for maintenance through the existing government ecological compensation fund. Thinning of forests would also provide some returns to the operators and would help defray the cost of maintaining plantations beyond the life of the Project. Though all project sites are ecological forest plantation sites and the land use rights owners do not rely on them for their livelihoods, long-term forest management such as thinning and regeneration cutting as well as non-forest products (e.g., mushroom and medicine plants raised in the forest plantations) would generate some income that would benefit land use rights owners.

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26. Most farmers or communities who engage in replanting or rehabilitation of damaged ecological forest plantations would see a marked increase in the resilience and vegetative cover for their forests. They are likely to sustain tending and sound management practices to limit the impacts of runoff water-induced erosion (landslides and crop losses and etc.). Concurrently, governments at all levels would sustain their efforts and financial support, because of decreased silt deposits in rivers and dams, more stable soils and water conservation in the ecological forest plantation areas, and more stable and productive cropped soils around the forests. It is anticipated that farmers would see their crops achieve better yield levels, which would translate into increased incomes. 27. The commitment to a better environment has been stated unequivocally on several occasions by the Chinese central government and the Hunan Provincial Government. Both the central and provincial governments, as well as county governments, have begun earmarking substantial budget allocations for environmental activities and are likely to continue to do so beyond the life of the project. Finally, the training programs, demonstration sites and steady extension efforts deployed by the governments and the forest bureaus to educate forestland usage right owners will bear fruit. This is particularly true for those farmers who have recently received new land and forest user right certificates and technical support to better manage their ecological forest plantations.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary

Risk Rating

Stakeholder Risk Low

Implementing Agency Risk

- Capacity Moderate

- Governance Low

Project Risk

- Design Moderate

- Social and Environmental Moderate

- Program and Donor Low

- Delivery Monitoring and Sustainability Moderate

Overall Implementation Risk Moderate

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B. Overall Risk Rating Explanation

28. The overall risk of the project is rated as moderate. Risks and associated mitigation measures are presented in Annex 4 – Operational Risk Assessment Framework (ORAF). The main risks are related to: (a) innovative aspects of plantation models; and (b) lack of project implementation and management experience of a number of participating county PMOs, particularly in financial management and procurement procedures required by the Bank. 29. Project design has incorporated appropriate risk management: (a) introducing international and national experience and lessons learned in project design; (b) intense technical support and extension programs for project management and implementation; and (c) having the highly experienced PPMO take a leading role in providing training to the CPMOs and closely monitoring their work. A project financial management manual, a procurement manual and a procurement plan have been prepared and distributed to all CPMOs to guide financial management and procurement activities.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analyses

30. Economic analysis. An economic analysis has been carried out for each plantation model, nursery investments, and the project as a whole. The project is expected to generate significant tangible and intangible economic benefits, including: (a) direct revenue generated from forest products, such as timber from thinning/tending and non-timber forest products; (b) seedling production; (c) improved eco-system services in the form of reduced soil erosion, water and nutrient runoffs, increased biodiversity and landscape integrity, improved micro-climate and carbon sequestration. The economic analysis took into the consideration of the following key quantifiable benefits: (a) returns to the production of quality seedlings; (b) carbon sequestration; and (c) the retention of water, soil and nutrients. The overall project Economic Internal Rate of Return (EIRR) is estimated at 17.6 percent, with a Net Present Value (NPV) of RMB1,273.7 million (at a discount rate of 8 percent). Because a number of other important benefits which are difficult to quantify in a classical cost-benefit analysis have not been included, the total economic returns are likely to be higher than the quantifiable EIRR. Sensitivity analysis of changes in the opportunity cost of labor and the economic value of CO2 emission reduction credits indicates that project economic returns are relatively robust. 31. Financial analysis. Financial analysis has been conducted to evaluate the incentives for beneficiaries to participate in the project. The direct production benefits are the incomes and revenues generated by wood, fuel wood and bamboo poles from thinning, and harvesting of bamboo sprouts from forest plantations; harvesting red bayberries and nuts from firebreaks and some economic species, as well as seedlings produced by the three upgraded nurseries. The overall Financial Internal Rate of Return (FIRR) is calculated at 8.4 percent, with an NPV of RMB69.4 million. The FIRR of

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individual plantation models varies between 8.1 and 10.1 percent. As expected, the FIRR for reforestation activities is lower than that of commercial timber plantation investments, but is in line with the benefit expectations of key stakeholders from an ecological forestry project. The project economical and financial analysis results are summarized in Table 2 below. 32. Project financing arrangements take the primary public good nature of the project into consideration. The Hunan Provincial government and project county governments would provide about two thirds of the required counterpart funding and take responsibility for IBRD Loan repayment. Participating farmers will be responsible only for about 11 percent of total project investment and would achieve an FIRR of about 15 percent on their investment. These embody the necessary incentives to attract farmers’ strong interest to participate in the project. To some participating farmers, raising mountain chickens, developing herbs and other non-timber products under forest stands would provide additional sources of income. Table 2: Summary of Project Economical and Financial Analysis

Activity Modelsa/ Economic Financial

NPVb/ EIRR (%)

NPVb/ FIRR (%)

M1: Conifer + Broadleaf (P) 562.0 18.9 24.8 8.4 M2: Conifer + Precious Broadleaf (P) 156.4 18.8 22.5 9.2 M3: Precious and High-value Broadleaf (P)

78.4 24.6 8.0 9.2

M4: Mixed Broadleaf (P) 57.6 26.0 0.5 8.1 M5: Conifer + Broadleaf (R) 190.0 18.9 20.7 8.9 M6: Conifer + Precious Broadleaf (R) 63.5 18.8 15.7 10.1 M7: Bamboo + Tree (R) 15.6 11.4 9.1 10.0 M8: Natural Regeneration with Treatment (R)

180.0 18.0 2.7 8.1

Nurseries 32.0 23.8 27.4 21.6 Total Project – including administrative costs

1,273.7 17.6 69.4 8.4

a/ P=Reforestation and R=Rehabilitation; b/ in RMB million and at 8% of OCC;

B. Technical

33. Site Selection. The project would undertake the rehabilitation of ecological forest plantations in the 22 counties where the ice storm damage was most pronounced. A list of the counties has been agreed during project preparation. In addition, assurances were sought at appraisal that within these 22 counties, project site selection would be made in accordance with the following criteria:

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(a) Sites to be included in the project would be made up of ecological plantation areas damaged by the 2008 ice storm; (b) Private and collective ecological forest plantations would be included in the project only at the request of land use rights owners; (c) Sites selected for the project would be free of claims and/or disputes and would be outside the boundaries of any natural forest, habitat and/or cultural heritage site.

34. Technical Models. During project preparation, eight plantation models were developed for ecological forest restoration and rehabilitation. Four models would be available to guide the reforestation of forest stands that were completely denuded by the ice storm. An additional four models have been designed to support forest rehabilitation/supplemental planting and management of partially damaged forestland. Technical plantation and management models as well as applicable sites are discussed in Annex 2. 35. It is expected that adoption of the eight plantation models would enable the creation, through a mixture of indigenous tree species and undergrowth, as well as long-term forest stand management, of ecological forest plantation stands characterized by a deep resilience, enhanced carbon sequestration capability, and an improved environmental function. During project preparation, the Bank team reviewed and appraised the proposed technical models to ensure their technical feasibility and environmental soundness.

C. Financial Management

36. Bank loan proceeds and the oversight of the Designated Account (DA) would be under the responsibility of the Hunan Provincial Finance Bureau. A financial management capacity assessment has been conducted by the Bank and actions to strengthen the project’s financial management capacity have been agreed with the Provincial Finance Bureau and PPMO, and included in the project design. The financial management assessment concluded that with the implementation of agreed actions, the financial management arrangements satisfy to the Bank’s minimum requirements under OP/BP 10.02. Annex 3 provides additional information on financial management.

D. Procurement 37. The PPMO, with the assistance of the CPMOs, would be responsible for the procurement of all project contracts and procurement implementation, including: communication with the Bank, preparation and updating of the procurement plan, preparation of bidding documents/request for proposals, organizing the bidding/selection process, monitoring of procurement and contracts, obtaining domestic approvals, and submission of procurement documents for Bank review. The provincial and county PMOs would be also responsible for guiding project entities to carry out reforestation and forest rehabilitation activities through a community participation procurement approach.

12

38. The procurement capacity and risk assessment for the implementing agencies identified that there will be a large number of implementing units to be responsible for their own procurement. However, payments for contracts procured through community participation would be made on the basis of unit costs agreed with the Bank, as verified by CPMO and the PPMO. 39. A key challenge is that some CPMOs lack experience in managing Bank-financed projects and are not familiar with Bank procurement policies. Mitigation measures have been agreed with the PMOs and will be carried out during project implementation. Further details are provided in Annex 3. 40. An acceptable Procurement Plan for the first 24 months of implementation has been prepared by the provincial PMO and approved by the Bank. The procurement plan would be updated annually as needed and be submitted to the Bank for review and approval.

E. Social (including Safeguards) 41. Indigenous Peoples OP/BP 4.10. Several ethnic minority groups reside in the project area, including Miao, Yao and Tujia people. Some of them have been identified as Indigenous Peoples in accordance with OP4.10. 42. Social Assessment. A social assessment (SA) study has been carried out during project preparation, with a focus on ethnic minority groups. Based on the findings of the study, an Ethnic Minority Development Plan (EMDP) was developed to ensure that project activities on ecological forest plantation restoration and rehabilitation are offered to these communities in the same way as other project beneficiaries and that their participation in the Project would be fully on a voluntary basis. The EMDP would also help mobilize additional government resources and social services for the development of village infrastructure in these ethnic minority communities. 43. Participatory Planning. The project has also established a broader participation mechanism throughout the project area. A Participatory Planning Manual (PPM) has been prepared to guide the project design and implementation. The PPM requires a three-step process to secure local villages and farmers’ voluntary participation in the project: (a) dissemination of detailed information on the proposed project activities in all project villages; (b) establishment of a two-way communication process between households and county PMOs on the selection of plantation models and tree species; and (c) a process of formal application and contracting between the participating villages or households and the CPMOs for project participation. 44. During project preparation, a detailed consultation and participatory design process was carried out in all project villages and with key stakeholders to ensure that all land users would participate in the project on a voluntary and transparent basis and farmers’ and communities’ concerns are appropriately addressed.

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45. Mainstreaming Gender. Special attention has been paid to the views and needs of women, so as to mainstream gender concerns in project planning and implementation. The PPM includes specific provisions for involving women representatives in project training, consultation and decision-making, to enable equal access for women in the development opportunities under the project. Women participated actively in the consultation meetings and interviews and around 35% of the consulted farmers were women. Women would also participate in the reforestation and forest management activities, as well as training and other programs. The relevant records will be appropriately documented.

F. Environment (including Safeguards)

46. The project is rated as a Category B project. It is expected to generate significant positive environmental impacts in the project areas. Negative impacts are unlikely because Hunan Province has a long and rich experience in managing similar forestry projects and the detailed design for reforestation and forest rehabilitation has been carried out carefully. Environment risks would be mitigated and managed through the selection of appropriate plantation models and the safeguards measures proposed under the project, which are included in the project implementation plan (PIP). 47. Applicable Bank environmental safeguard policies include: (a) Environmental Assessment (OP4.01); (b) Forests (OP4.36) and (c) Pest Management (OP4.09).

(a) Environmental Assessment OP4.01. An Environmental Management Plan (EMP), acceptable to the Bank, has been prepared for the project, building on the experience of previous forestry projects in China. The EMP includes Environmental Protection Guidelines (EPG) and a Pest Management Plan (PMP). Potential environmental risks have been identified and the preventive and mitigation measures for the construction and operational phases of the Project have been developed. (b) Forest OP 4.36. The project’s main activities are the reforestation and rehabilitation of damaged ecological forest plantations. The project would mainly use indigenous species and has developed plantation models with significant environmental benefits. The plantations would be largely managed by communities and villagers on lands for which the villages and villagers own land use rights. The plantations would keep a permanent forest cover in order to generate the anticipated ecological functions. Only the thinning that would promote forest growth, healthy and natural regeneration, and selected cutting for regeneration purposes would be allowed. The project does not entail conversion of natural forests and the introduction of any invasive species.

(c) Pest Management OP4.09. The establishment and initial management of forest plantations would require the limited use of pesticides or herbicides. In accordance with OP4.09, a PMP has been prepared. It describes a range of methods, scope of application, and recommendations for different situations. It lists all the chemicals that might be potentially needed for the project. The

14

chemicals listed fully meet Bank safeguard requirements and are in the World Health Organization’s recommended categories. The relevant training program and monitoring plan have been developed and costed, as part of the project overall design and budget plan.

48. Safeguard Documents Disclosure. In accordance with the Bank disclosure policy, prior to project appraisal, the latest safeguards documents, including the EMP and the PMP, the SA report, the EMDP and the PPM, were made available and accessible on April 20, 2012 in the Provincial and the County PMOs, as well as in project county libraries. These documents were also disclosed on the websites of Hunan Forestry Bureau. Meanwhile, all the safeguard documents mentioned above were disclosed at the Bank InfoShop on May 23, 2012.

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ANNEX 1: RESULTS FRAMEWORK AND MONITORING

PDO Level Results Indicators Core Unit of

Measure Base-line

(2012)

Cumulative Target Values

Frequency

Data Source/Methodology

Responsibil-ity for Data Collection

Description (indicator definition)

2013 2014 2015 2016 2017 2018

Diversity of species and tree structures in replanted or rehabilitated forests increased to improve forest resilience: Number of species introduced by the project in all sites.

No.

Mono-culture

15

20

30

40

40

40 Annually

Recurrent check and acceptance system.

PMO & Contracted surveying institution.

Incremental tree canopy cover increased to improve environmental protection function: (i) In fully replanted forests. (ii) In partially replanted forests. (iii) In naturally regenerated forests with treatment.

% % %

0% 32% 24%

- - -

- - -

7% 35% 30%

- - -

- - -

25% 48% 50%

Mid-term, end-project

Field Survey in Yr.3 and Yr.6

PMO & Contracted surveying institution.

Results can only be measured three years after replanting and/or partially replanting activities are implemented.

Intermediate Results Indicators

Core Unit of Measure

Base-line (2012)

Cumulative Target Values Frequency Data Source/Methodology

Responsibil-ity for Data Collection

Description (indicator definition)

2013 2014 2015 2016 2017 2018

Component One: Reforestation and Rehabilitation of Damaged Ecological Forest Plantation

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Area reforested Of which: (i) Areas with denuded forests which are fully replanted with multiple species (ii) Areas with damaged forests which are partially replanted with multiple species (iii) Areas with damaged forests which forest resilience is attained through natural tree regeneration, land treatments and multi-species partial replanting

ha ha ha ha

Zero

Zero Zero Zero

8,900 4,200 2,800 1,900

26,600 12,500 8,400 5,700

47,200 22,200 14,900 10,100

58,900 27,700 18,600 12,600

58,900 27,700 18,600 12,600

58,900 27,700 18,600 12,600

Semi annual Reports

Check and acceptance system

PMO/Contracted surveying institution.

Component Two: Institutional Support and Technical Enhancement 1. Nursery upgrading and planning material development:

a. Number of upgraded nurseries which are able to produce high quality seedlings of indigenous species. b. Number of seedlings produced for project reforestation and rehabilitation.

No. Million

Zero Zero

2 9.1

3 27.2

3 48.3

3 60.5

3 60.5

3 60.5

Semi annual Reports

Nursery M&E reports

Nursery management and PPMO

2. Forest Cooperatives: Number of forest cooperatives established or strengthened with their operational plans completed.

No.

Zero

10

16

22

22

22

22 Semi annual

Reports

CPMO semi-annual M&E reports

CPMO and PPMO.

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3. Research, technical services and extension: a. Number of on-going research topics.

b. Number of workshops undertaken to disseminate project experience in applying technical models among project and non-project staff/counties.

No. No.

Zero Zero

3 1

4 1

5 2

5 2

5 2

5 3

Every Year starting in Year 1 1st year, 3rd Yr and 6th Yr.

Project semi-annual reports.

PPMO

c. Number of project management staff trained on project management and technical innovation. d. Number of beneficiaries trained.

Person days Person day

Zero Zero

4,300 11,900

6,800 29,700

10,900 49,000

13,000 59,400

13,400 59,800

13,800 60,200

Semi annual Reports

M&E report

CPMOs PPMO

4. M&E: System fully operational.

Zero

Yes

Yes

Yes

Yes

Yes

Yes Semi annual

Reports M&E report

CPMOs PPMO

5. Project Management and Institutional Development: Fully staffed & functional PPMO & CPMOs kept during project period.

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Semi annual Reports

M&E report

CPMOs PPMO

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ANNEX 2: DETAILED PROJECT DESCRIPTION

A. The Project Area Landscapes

1. The project aims to enhance the resilience and environmental function of selected ice storm-affected ecological forest plantations in Hunan Province. The selected sites are distributed over three distinct parts of Hunan Province, including the Southeast (Zixing City, Suxian District, Yongxin County, etc.), the Northwest (Yuanling County, Mayang County, etc.), and the Northeast and Central parts (Ningxiang City of Changsha Municipality, Yueyang and Pingjiang Counties, etc.). With the exception of a few characteristics, landscapes are quite similar across the three project regions. 2. The Southeast region of the project area includes the upper reaches of the Xiangjiang River. It has mountainous landscape. Seventy percent of the land is covered by forest and the rest is agricultural land, wetland and population centers. Forest cover includes conifer species and broadleaf trees, but dominated by a few conifer species such as Masson pine and Chinese fir. This area is an important source of drinking water for several regions in Hunan and a few other downstream locations in other provinces. Rehabilitation of damaged forest plantations in this area would help in restoring forest cover and improve the quality of forest plantations, which hence sustain the supply of drinking water and improve its quality. 3. The Northwest and Central regions of the project area (referred to later as the Northwestern region) have a mountainous landscape that is traversed by the Zijiang and Yuangjiang rivers. The mountains of the Northwest are steeper than in the southeast and present a sharper geological morphology in which the highest peaks reach about 1600 meters. Sixty five percent of the land area is covered by forest. The remainder is made up of agricultural land and some wasteland. The landscape is marked by limestone and ‘purple’ shale that are typical of this part of Hunan Province. The region is very prone to soil erosion mainly because of the steep slopes and the fact that the upper reaches of the Zijiang and Yuangjiang rivers have poor sandy soils. Rehabilitation of damaged forest plantations in this area would help reduce soil and water losses caused by excessive water runoff. 4. The Northeast region of the project is a hilly area. The landscape is marked by forest, covering approximately fifty percent of the area. The rest is in rich agricultural land where extensive areas are devoted to rice and other grain crops. This area is urbanized and densely populated, and has an industrial economic base. The forested area is covered with coniferous and broadleaf trees, as well as some bamboo. This area is part of the Government shelter belt program aimed at improving agriculture production conditions and urban environmental conditions. Rehabilitation of damaged forest plantations in this area would demonstrate forest multiple functions in sustaining water to improve agricultural production conditions; improve water quality and reduce soil heavy-metal pollution, as well as the urban and rural landscapes.

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5. With the agreement of landholders, sites to be reforested and rehabilitated have been selected to cover complete watersheds within these areas.

B. Project Components. 6. Component One: Reforestation and rehabilitation of damaged ecological forest plantations (Total Base Cost: $98.22 million). This component would include two subcomponents:

(a) The full reforestation of ecological forest plantations completely denuded by the ice storm. This would be achieved by replanting about 27,700 ha of forestland with various locally adapted mixes of conifer and broadleaf indigenous species.

(b) The rehabilitation of damaged ecological forest plantations, which would include:

(i) Supplemental reforestation for about 18,600 ha of damaged and partially denuded ecological forest plantations by inter-planting them with mixes of conifer and broadleaf indigenous species. (ii) Regeneration of about 12,600 ha of damaged ecological forest plantations, where natural regeneration (spontaneous germination of forest seedlings from seed dropped by mature trees and stored in the ground as well as the sprout from the damaged stumps) would be promoted. Physical and other treatments would be undertaken to promote additional germination of seed stocks already in the ground. Some partial replanting of mixes of conifer and broadleaf indigenous species would also be undertaken in bare areas.

7. Site Selection Criteria and Participating Counties. The project would undertake in 22 counties where the ice storm damage was most pronounced; see Table 2.1 below. Within these 22 counties, project sites have been selected in accordance with the following criteria. In addition, the project activities under each county have been also agreed, which is detailed in PIP. Site selection criteria are the follows:

(a) Sites to be included in the project would only be made up of ecological plantation areas damaged by the 2008 ice storm. (b) Private and collective ecological forest plantations would be included in the project only at the voluntary request of land use rights owners. (c) All sites to be selected for the project would be free of claims and/or disputes and would be outside the boundaries of any natural forest, habitat and/or cultural heritage site.

8. The project sites may be adjusted to reflect any changes during project implementation in accordance with the site selection criteria, and based on stakeholder consultation.

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Table 2-1: List of Participating Project Counties County Name County Name

1-Ningxiang 12- Zixin 2-Liling 13- Suxian 3- Leiyang 14- Guidong 4- Changning 15- Guiyang 5- Hengnan 16- Anren 6-Xinshao 17- Yongxing 7- Pingjiang 18- Shuangpai 8- Yueyang 19- Jindong 9-Taoyuan 20- Mayang 10-Dingcheng 21- Yuanling 11- Rucheng 22- Luxi

9. Technical Models. The areas damaged by the ice storm fall into two categories.

Under the first category, the forest was so damaged that the sites are now completely deforested and are occupied by grasses and shrubs. In the second category, some residual trees remain although the density of these varies and there are usually large spaces between these trees. Eight basic plantation models have been designed to allow these areas to be reforested, with four models being used to replant the bare areas now without trees and four being used to rehabilitate damaged forest plantations in the areas retaining some tree cover. These models cover technical/silvicultural prescriptions for species composition and mixture structure, site selection, seedling standard, planting density, site preparation, tending (weeding and fertilizer application) and long-term forest management. The plantation models are detailed in the PIP.

10. Key principles guiding the development of these models were:

• New forests should be composed of species’ mixtures rather than monoculture. Although some would initially be even-aged (e.g., at sites where no residual forests remain) they would be managed to eventually generate a range of age classes.

• The long term aim of the project is to encourage the use of native species representative of natural vegetation patterns in the area (i.e., zonal climax species) rather than fast-growing species or exotic species.

• The management objective is to create stable and resilient new forests, able to withstand future natural calamities; the forests are not being established for commercial timber production, although some thinning would be possible.

• Planting configuration design for the uneven-aged multi-species’ forests would reflect the ecological and silvicultural characteristics of the species used. Any thinning should be carried out to create gaps in the forest canopy to foster seedling regeneration and allow the stands to become self-sustaining. The primary

21

purpose of thinning is not to remove trees of poor form or increase the growth of the remaining trees.

• Advantage would be taken to natural regeneration whenever possible. Reforestation costs can be reduced if natural regeneration is promoted systematically. This would be done by surveying each proposed planting site to assess the (a) density, (b) distribution (i.e. patchiness) and (c) identity of seedlings of major naturally regenerated species. Based on this data, the location of full or partial replanting sites can be accurately determined.

• Long-term stand management is necessary to help the forests change from even-aged stands to uneven aged stands.

11. The choice of diversified forest species adapted to local conditions is of paramount importance. This diversity forms a forest system with complex composition and structure that is tolerant to increased climatic and human disturbances. By working closely with scientific research institutions, around 40 local species have been assessed and selected for the use by the Project, see Table 2-2 below. When preparing reforestation and forest rehabilitation design, the specific geographical location and environmental conditions of project sites were taken into consideration and the relevant species and mix of structures were used to promote the environmental functions and tolerance to extreme climate, fires and pest attacks of rehabilitated ecological forest plantations. The selected species with their characteristics are detailed in the PIP. 12. A long-term forest management plan has been developed to ensure continuous silvicultural tending and thinning practices. This would help maximize the stability of forest stands and enhance the natural regeneration of a self-sustaining forest system. The detailed design for long-term forest management is included in PIP.

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Table 2-2: Key Species Selected for the Project Forest Restoration and Rehabilitation

No Science name Common name Chinese

name No Science name Common name Chinese

name No Science name Common

name Chinese

name

1 Cunninghamia lanceolata Chinese fir 杉木 15

Castanopsis eyrei

Eyer Evergreenchinkapin 甜槠 29 Michelia figo

Benana shrub 含笑

2 Taxus chinensis var.mairei Mair Yew 南方红豆杉 16

Cyclobalanopsis gilva

Cyclobalanopsis gilva

赤皮青

冈 30 Acer elegantulum Acer elegantulum 五角槭

3 Pinus massoniana Masson Pine 马尾松 17

Dalbergia hupeana Hupeh rosewood 黄檀 31 Cerasus serrulata

Cerasus serrulata 山樱花

4 Cupressus funebris Mourning cypress 柏木 18

Albizzia julibrissin Silktree albizzia 合欢 32

Koelreuteria bipinnata

Panicled goldraintree 栾树

5 Pinus elliottii Engelm Slash Pine 湿地松 19

Manglietia fordiana Ford manglietia 木莲 33

Zelkova schneideriana

Schneider zelkva 榉木

6 Larix kaempferi Japanese Larch 日本落叶松 20 Liquidambar formosana Beautiful sweetgum 枫香 34 Castanea henryi

Henry chinkapin 锥栗

7 Metasequoia glyptostroboides Dawn Redwood 水杉 21 Sassafras tzumu Common sassafras 檫木 35 Quercus sp. Oaks 栎类

8 Schima superba Schima 木荷 22 Choerospondias axillaris

Choerospondias axillaris 南酸枣 36 Magnolia officinalis

Magnolia officinalis 凹叶厚朴

9 Cyclobalanopsis glauca Blue Japanese Oak 青冈栎 23

Liriodendron chinese Chinese tuliptree 鹅掌楸 37

Phyllostachys heterocycla

Mao bamboo 毛竹

10 Castanopsis sclerophylla

Bitter Everygreenchinkapin 苦槠 24

Betule luminifera Brich 光皮桦 38 Myrica rubra

Chinese waxmyrtle 杨梅

11 Phoebe zhennan Bourne phoebe 楠木 25 Robinia pseudoacacia L Black locust 刺槐 39 Castanea.mollissima

Chinese chesnut 板栗

12 Elaeocarpus decipiens

Commnon Leaocarpus 杜英 26

Ailanthus altissima

Tree of heaven ailanthus 臭椿 40 Carya illinoensis Walunt 核桃

13 Cinnamomum camphora Camphor tree 樟树 27 Toona sinensis Chinese Toona 香椿 41 Camellia oleifera

Oiltea camellia 油茶

14 Cinnamomum micranthum

Cinnamomum micranthum 沉水樟 28 Ginkgo biloba Ginkgo biloba 银杏

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13. Component two: Institutional support and technology enhancement (Total Base Cost: $11.73 million): This component would finance five sub-components described below. 14. Nursery Upgrading and Planting Material Development. This sub-component would increase the number of adapted species available for replanting damaged ecological forest plantations and improve the quality of planting materials. These two goals would be achieved by supporting better nursery management technologies and the production of the 60.5 million seedlings. All seeds, to be used for the production of seedlings, would be subject to rigorous provenance criteria and would be locally harvested from seed orchards, seed stands, or areas of selected provenance. The total needs of the Project for seedling required for the replanting effort would be met by existing, selected central nurseries. These central nurseries would be complemented by several smaller nurseries located near planting sites to minimize transport distances and handling operations. The central nurseries were selected on the basis of a number of criteria, which included: the number of years of management experience, technical capacity, adequate infrastructure, and working capital needed to produce adequate numbers of high quality seedlings. The central nurseries would provide technical assistance and training to the small nurseries. All seedlings would conform to detailed growth standards for each species, including collar diameter, seedling height, and root system configuration established by the project. Nursery management requirements and seedling growth standards have already been developed and are included in the PIP.

15. Two central nurseries (one each in Taoyuan County and Suxian District) and a provincial demonstration nursery located in Ningxiang County will be upgraded to produce quality seedlings of indigenous, rare and high-value species. Special equipment and upgraded skills and technologies required would be made available or developed and demonstrated under the project. The project would finance nursery equipment (e.g., irrigation facilities, greenhouses, sprayers, and office equipment); on-site irrigation system (sub-lateral and smaller ditches); small-scale on-site civil work; training and technical services. 16. Research, Technical Services and Extension. The implementation of a research program would strengthen the operational focus of provincial research efforts and ensure the timely dissemination of research findings in the field and promote greater ecological forest resilience and environmental functionality. The focus of the research program would be to fine-tune the current technical models; explore the use of more broadleaf local species by overcoming existing challenges in the production of their seedlings and silvicultural technologies; assess the impact of climate change on forest ecosystems and develop adaptation and mitigation approaches. The main areas of research and types of problems to be studied are listed below. Some of these tasks may be completed within the lifetime of the project and others however, may take a longer period of time. Additional

24

research problems may emerge as a result of the monitoring program. The research topics would, among others, include:

(a) Development of technologies on seedling production and nursery management for various newly adopted, rare and precious local broadleaf species; e.g., increasing germination rates of seed (especially those where it is presently <50%) and accelerating seedling growth and readiness for transplanting of some rare species’ seedlings. (b) Refining of silvicultural technologies to identify and select new adapted, rare and precious species, which could be added to technical models for forest replanting/rehabilitation (this would require improved knowledge of species-site relationships). (c) Developing better understanding of the behavior of various tree species under mixed structure plantations and the long term impact of thinning on seedling regeneration of various species. (d) Studies on carbon capture to clarify certain issues, e.g., wood density of the main species planted under the project and the rate of carbon capture by the different planting models. (e) Analysis of the impact of climate change on forest ecosystems in Hunan, as well as the formulation of adaptation and mitigation strategies to alleviate the impact of climate change.

17. Implementation of training and extension activities would help introduce the designed plantation technical models and species mixes, as well as nursery production and management techniques to planting entities and households. These activities would also enhance the needed technical skills of forestry staff.

18. Under this sub-component, the project would also support training and other technical services to disseminate new techniques and management guidelines to the implementation agencies, as well as to project beneficiaries. The existing forestry extension networks at county and township levels would be used for this purpose. Specifically, the technical services program would support: (a) training and extension, including the provision of training materials to provincial and county staff, farmers and forest farms; (b) overseas training to learn the effective implementation of forest resources management and biodiversity conservation; and (c) consultancy services in a variety of technical areas. In addition, demonstration plantations would also be established with supporting by necessary facilities, consisting of installing information boards, monitoring the performance of the plantation models, sheets or brochures preparation and dissimilation, and construction of access tracks, to showcase improved technologies for environmental forest management. Lessons from previous Bank projects showed that field demonstrations are extremely useful in transferring new technology to individual farmers and forest farms.

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19. The proposed domestic training program includes 7,400 person-days for provincial and county PMO staff; 6,400 person-days for the township forest station staff and nursery managers; and 60,200 person-days for participating farmers, forest farms and community heads. The training program also includes 204 person-weeks of overseas training and 48 overseas study tours. Training courses and technical services focus on, inter alia: (a) project management systems and guidance on the project financial management and procurement management, and information system management; (b) introduction of technical models and new technologies; (c) planting material development and nursery management; (d) application of safeguard policies; (e) community consultation process and participatory planting design; and (f) farmer cooperatives development, and other activities requested by participating farmers and entities. 20. Forest Cooperatives. The project would finance the establishment or strengthening of 22 beneficiary cooperatives for the purpose of replanting, rehabilitating and managing ecological forest plantations. In many of the project areas, individual farmers who own forestland use rights have expressed a keen interest in organizing themselves to manage their forestlands as a group. The establishment of farmers cooperatives would allow farmers to, inter alia: (a) organize themselves to purchase inputs and/or services; (b) assign specific individuals to take care of forest stands in order to release labor for outside job opportunities; (c) participate in training programs and field visits, as well as other technical services; and (d) carry out long-term forest management. To facilitate this, the project would finance: the establishment of farmer cooperatives (facilities and charter development); and training and associated activities to help land users adopt and implement new technologies and forest management plans.

21. Project Monitoring and Evaluation. Project monitoring and evaluation systems would be put into place to monitor project progress, measure outputs and evaluate its impact. Component outputs that would be monitored include, among others: (a) around 27,700 ha fully damaged forestland are replanted and around 31,200 ha damaged ecological forest plantation are rehabilitated by year six of the project; (b) about 60.5 million seedlings are produced for the project purpose, with three nurseries (located in Ningxiang, Taoyuan and Suxian) being upgraded by year four; (c) 22 forest cooperatives are established/strengthened by year three; (d) five research topics are completed and preliminary results are made available by year five; (e) an illustrated glossary of indigenous and useful forest species is published in year three and an ecological forest plantation management techniques booklet is produced and distributed by year six; (f) 22 forest demonstration plots are established by year six; and (g) a total of about 60,200 and 13,800 person days of training, respectively for project beneficiaries and forestry staff, are completed by year six of the project. An acceptable project monitoring plan, which includes, inter alia, plantation quality inspection, monitoring on environmental quality improvement such as water and soil erosion impacts, pest management, plant diversity conservation, as well as carbon sequestration, has also been developed by the project implementation agencies.

26

22. Officials responsible for project M&E would report not only the raw data, but also their analysis of the data. Regular semi-annual reports would include updated data for all agreed monitoring and results indicators (see Annex 1). Project technical and socio-economic surveys would also be conducted in year 3 and year 6 of the project to assess both the implementation of the technical design and the Project’s social impact, particularly the execution of the EMDP. Results of the monitoring effort would be translated into timely actions to adjust and improve project design and implementation.

23. Project Management and Institutional Development. This sub-component would support the institutional strengthening and capacity building of the PPMO and the 22 CPMOs in order to ensure their satisfactory operation and performance in the implementation of project activities. 24. In order to implement the institutional support and technology enhancement activities, the Project would finance the procurement of specialized nursery equipment (green houses, growth and germination chambers, laboratory equipment and tools, etc.) and materials (seeds, chemicals, fertilizers), as well as specialized training for nursery staff in native plant material collection, treatment and seedling production. The Project would also finance workshops to disseminate lessons learned to a broader audience, as well as office equipment including computers, cameras and operational vehicles. 25. Project implementing agencies have developed a detailed project training and extension plan, a planting material development and nursery management plan, and a monitoring and evaluation plan, which are acceptable to the Bank and included in PIP. C. Project Financing by Sources

26. The total project cost is estimated at RMB720.00 million or about US$115.20 million equivalent (at an average exchange rate of US$1=RMB6.25). The financiers of the project include the World Bank, the provincial and county governments and project beneficiaries. It is anticipated that US$80 million or 69.4% of the total financing requirement would come from the IBRD Loan with the remaining US$35.20 million or 30.6% of the total financing requirement to be provided as counterpart funds at about 9.8%, 10.0% and 10.8% respectively from the provincial government, county government and project beneficiaries. Project beneficiary’s contribution is expected to be both in cash and in the form of own labor. The table below shows the project cost by components.

27

Table 2-3: Project Cost Estimate by Sources*

Component

RMB million US$ million

WB

Loan

Counterpart Fund

Total WB

Loan

Counterpart Fund

Total

A. Reforestation and Rehabilitation 470.77 143.07 613.84 75.32 22.90 98.22

1 Reforestation of Forest Lands Totally Denuded

306.90 93.27 400.17 49.10 14.93 64.03

2 Rehabilitation of Damaged Forests

163.87 49.80 213.67 26.22 7.97 34.19

B. Institutional Support and Technology Enhancement

27.98 45.35 73.33 4.48 7.25 11.73

1 Nursery Upgrading and Planting Material Development

8.97 6.19 15.16 1.44 0.99 2.43

2 Forest Cooperatives 1.43 0.22 1.65 0.23 0.03 0.26

3 Research, Technical Services and Extension

5.09 4.80 9.89 0.81 0.77 1.58

4 Monitoring and Evaluation 6.00 7.06 13.06 0.96 1.13 2.09

5 Project Management and Institutional Development

6.49 27.08 33.57 1.04 4.33 5.37

Total Base Costs 498.75 188.41 687.16 79.80 30.15 109.95

Contingencies 0.00 31.59 31.59 0.00 5.05 5.05

Total Project Costs 498.75 220.00 718.75 79.80 35.20 115.00

Front-end Fees 1.25 0.00 1.25 0.20 0.00 0.20

Total Costs to be Financed 500.00 220.00 720.00 80.00 35.20 115.20

* Totals may not tally due to rounding.

27. The project financing plan covers all financing required including base costs, contingencies (projected at 2.1% per annum during the implementation period) and front-end fee (calculated based on a current applicable rate of 0.25% of the total IBRD loan amount payable at loan effectiveness), but excluding interest during implementation which would be financed by the county government through a separate budgetary

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ANNEX 3: IMPLEMENTATION ARRANGEMENTS

A. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 1. The management structure of the proposed project would be similar to that of previous Bank projects in forestry sector of China, particularly the on-going and successful Guangxi Integrated Forestry Development and Conservation Project. 2. At the provincial level:

(a) A Project-leading Group (PLG) has been established with representatives from the Hunan Provincial Development and Reform Commission (PDRC), the Provincial Finance Bureau (PFinB), the Provincial Forestry Bureau (PFB) and would be chaired by the Deputy Governor in charge of the forestry sector. The PLG would meet on a semi-annual basis or when requested by the PPMO. The PLG would be responsible for setting policy guidance, approving work plans, facilitating inter-agency coordination and evaluating progress of the project. (b) The PPMO operates within the provincial forestry bureau and currently has 13 staff members specialized in forestry, environmental protection, training and extension, financial management and procurement. It has extensive experience with the Bank and has implemented four Bank-financed forestry projects. In discharging its functions, the PPMO would call for assistance from two prominent provincial institutions: the Provincial Forestry Academy (PFA) and the Provincial Forest Survey and Design Institute (PFSDI).

3. The SSG has already been established within the PFA and would provide on-demand assistance to the PPMO on a number of subjects. The work of the SSG would be fully financed by counterpart funding. Specifically, it would assist PPMO implement the Project’s research, technical services and training program, such as define research topics, prepare Terms of Reference of research programs, develop extension materials, coordinate forest plantation demonstration, training and extension activities. 4. The PFSDI would, under the leadership of the PPMO, be responsible for the preparation of the Project’s technical master design, including the forest management plan and the quality check system of replanted/rehabilitated project ecological forest plantations. It would also be responsible for the coordination of project monitoring and evaluation activities. 5. At the municipal or prefecture level, a municipal/prefecture liaison group has been created, regardless of the number of project counties/districts under their jurisdiction. Its role would essentially be to coordinate between the Province and the County level PMOs.

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6. At the county level, the County PLG has been established and includes representatives from the county development & reform commission, finance bureau and forestry bureau. The PLG is led either by the county magistrate or by the deputy county magistrate responsible for the forestry sector. PMOs at county level (CPMO) have been set up and would prepare project implementation plans and execute them. Each CPMO are staffed with about five people, including a director, a forestry specialist, a financial management specialist, a procurement specialist and a safeguards staff. They would be responsible for organizing project activities and project management, including keeping both technical and financial records for the project. 7. The forest station, which is a branch of the county forest bureau and represents the CPMO at township level, would assist the CPMO in supporting project beneficiaries on day-to-day implementation of project activities. They would be the primary interface with individual farmers, communities and villages. 8. At project beneficiary level, four specific operational models would be used, as discussed below:

(a) Individuals/household groups. Around 17,120 individual households and/or household groups would sign implementation agreements (IA) directly with the CPMOs. They would conduct reforestation/replanting and rehabilitation activities (project activities) either individually or as group, with a budget and technical support provided by the CPMO including forest station. Households would contribute labor needed for plantation activities in a timely manner. They would participate in training provided by the CPMO and the township forest station to strengthen their skills and knowledge. (b) Villages. For forest land collectively owned by villages and where the land use rights have not been allocated to individual households, the IA would be signed between the village committees and the CPMO. Village Committees would organize replanting and rehabilitation activities and would be responsible for long-term management of the rehabilitated forests. The village committees would receive funding from the CPMO, but would still provide the labor and self-funding needed for plantation activities. (c) Forest Cooperatives. For forest land managed by forest cooperatives, where the land use right owners contribute land towards a cooperative management system, the IA would be signed between the Cooperatives and the CPMO. The cooperatives would organize the replanting and rehabilitation activities, with funding and technical support from the CPMO and the township forest station. Forest cooperatives would also prepare a forest management plan; conduct trainings and provide technical guidance to the participating households, provide seedlings to members; raise the self-funding needed in a timely manner and support the annual plantation quality check and acceptance exercise conducted by the CPMO.

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(d) State-owned Forest Farms. For the state-owned forest farms, which own the usage right of their own ecological forest plantations, the IA would be signed between the Farms and CPMOs. The Farms will undertake the plantation activities, raise self-funding needed on a timely manner; conduct quality control and prepare their annual progress reports. They would also support CPMOs for the annual plantation quality check and acceptance exercise.

Table 3-1: Forest Area Managed under Each Operation Model

Total

Individuals household & Household

groups

Villages/ Communities

Forest Cooperatives

State-owned Forest Farms

Area (ha) 58900 27,530 8,850 13,100 9,420

Percentage (%)

100% 46.8% 15.0% 22.2% 16.0%

9. The PPMO has prepared an Bank acceptable PIP, based on plans submitted by the CPMOs. The PIP includes a detailed description of the guidelines and procedures agreed with the Bank to implement the selection of potential project beneficiaries and project sites, technical design, institutional and management arrangements, safeguard policies, procurement activities and financial management, as well as monitoring and evaluation. Project management measures/guidance were formulated, which include various seeds, seedling and plantation quality standards; Financial Management Manual (FMM); Procurement Manual (PM); plantation models; Monitoring and Evaluation Plan and etc. The PIP is in both Chinese and English and is accessible to all the staff involved in the implementation of the project. B. FINANCIAL MANAGEMENT, DISBURSEMENTS AND PROCUREMENT Financial Management

10. Overall, the project financial management risk after mitigation measures taken, is assessed as Moderate. Table below summarizes the action plan for addressing the weaknesses identified.

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Table 3-2: Financial Management Risk and Mitigation Actions Weakness Actions Responsible

Person Completion

Date Most CPMOs do not have experience with financial management and disbursement for Bank-financed projects. Accounting and financial reporting knowledge and experience of staff is not strong.

Financial management training (formal and ad hoc) to be provided to all project financial staff before and during project implementation.

PPMO, PFinB, and the Bank.

Before and during project implementation.

A FMM has been prepared and issued, which standardizes project financial management procedures and provide guidance to project financial

staff.

PPMO The final FMM was finalized before project appraisal.

Lack of sufficient and timely counterpart funds.

Local government counterpart funds allocations should be further confirmed in the government annual budget plan during project implementation, though the overall counterpart funding has been committed by the Government.

PPMO and CPMO

During project implementation.

11. Funding sources for the project include Bank loan and counterpart funds. The Bank Loan Agreement would be signed between the Bank and the People’s Republic of China through the Ministry of Finance (MOF). For Dingcheng District of Changde City, Suxian District of Chenzhou City, Jindong District of Yongzhou City, and Luxi County of Xiangxi Autonomic Prefecture, on-lending arrangements for the Bank loan would be signed between MOF and Hunan provincial government through PFinB, then between provincial government and municipal government through the municipal finance bureau, and finally between municipal government and county government through county finance bureau. For other project counties, on-lending arrangements for the Bank loan would be signed between MOF and PFinB, then between PFinB and the county finance bureaus. Loan repayment would be borne by the county finance bureaus. 12. Budget. An annual project implementation plan, including the funding budget and the sources, has been prepared by the PPMO. Budget for counterpart funds has been committed by local government and the annual budget plan would be reviewed and approved by the local People’s Congress and included in the annual sectoral budget during project implementation period. Based on the approved budget and

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implementation progress, the related finance bureaus would provide government appropriations to the project. Budget variance analysis would be conducted on a semi-annual basis by the PPMO and necessary actions would be taken to implement the project as planned. The Bank would work with the PPMO to enhance budget plan preparation and execution.

13. Flow of Funds. Bank loan proceeds would flow from the Bank into a project DA to be set up at and managed by the PFinB. The PFinB would be directly responsible for the management, maintenance and reconciliation of the DA. For the activities implemented in county level, the supporting documents required for Bank disbursements would be prepared and submitted by CPMOs through municipal and/or county finance bureaus, as well as PPMO, for review and verification before sending to the PFinB for further disbursement processing. For other expenditures, supporting documents would be submitted to PFinB by PPMO. 14. Accounting and Reporting. The administration, accounting and reporting of the project would be set up in accordance with Circular #13: “Accounting Regulations for the Bank-financed Projects” issued in January 2000 by MOF. The PPMO and each CPMO would manage, monitor, and maintain project accounting records for the activities they execute. The PPMO would work together with the PFinB to prepare the project consolidated financial statements. Unaudited semi-annual project interim financial reports (IFRs) would be prepared and furnished to the Bank by the PPMO no later than 60 days following each semester (the due dates would be August 31st and February 28th). 15. Internal Control. The related accounting policy, procedures and regulations were issued by MOF to uniformly align the financial management and disbursement requirements for all the Bank financed projects. The project FMM includes project financial management policies and procedures.

16. Auditing. The Hunan Provincial Audit Office (HPAO) has been identified as the auditor for the project. Annual audit reports of the project would be issued by HPAO. The annual audit reports of project financial statements would be due to the Bank within 6 months after the end of each calendar year.

Disbursements

17. Four disbursement methods would be available to the project: advance, reimbursement, direct payment and special commitment. Supporting documents required for Bank disbursement under different disbursement methods are described in the Disbursement Letter. 18. The project would have a DA denominated in US dollars which would be opened at a commercial bank acceptable to the Bank and would be managed by PFinB. The ceiling of the DA is documented in the Disbursement Letter.

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19. Unit Costs and Output-based Disbursement. Unit costs and output-based disbursement would be used for reforestation and rehabilitation undertaken by households, villages/communities, forest cooperatives and forest farms. To achieve the desired outputs, as the eligible expenditure, the project will finance the inputs that are requested (fertilizer, seedlings and labor for site preparation, planting, tending, walking path and fire-prevention tree belt preparation). Unit cost disbursement models for the Bank Loan were derived by combining the plantation models. The Bank disbursement would amount to about 76.7% of the actual unit cost and is shown in the table below.

Table 3-3: The Bank Loan Disbursement Unit Cost (Around 76.7% of the actual unit cost)

Reforestation and Rehabilitation Models

Unit Cost for WB

Loan WB Loan Disbursement (RMB/ha) (RMB)

Year 1 Year 2 Year 3

Reforestation Models Model 1 Conifer + broadleaf (P)

7,000 2,000 1,360

Model 2 Conifer + precious broadleaf (P)

Model 4 Mixed broadleaf (P) 10,360 Model 3 Precious and high value broadleaf (P) 11,380 8,000 2,000 1,380

Rehabilitation Models

Model 5 Conifer + broadleaf (R)

4,000 1,080

Model 6 Conifer + precious broadleaf (R) Model 8 Natural regeneration with treatment (R) 5,080 Model 7 Tree + bamboo (R) 4,670 4,000 670

20. In order to ensure a robust internal control system, the following measures would be adhered to by all relevant parties involved in the execution of project activities:

(a) signing of implementation agreements (IA) between the CPMOs and households/other project entities, to specify: (i) the scope and location of the plantations; (ii) the agreed total financing and source of financing, including agreed unit cost for each plantation model; (iii) the implementation schedule; (iv) the technical and quality standards to be met by the completed plantations; and (v) the supervision regime and the final acceptance criteria. (b) implementing project activities by households and household groups, forest cooperatives, villages/communities, and forest farms, in line with the IA, with technical guidance from the CPMOs. (c) Verification and Payment. CPMOs would designate forestry inspectors to visit the plantation sites to measure/verify the species planted, the area claimed as planted, and conformity of the plantation with the agreed quality standards in line with the signed IA including technical standards. A certificate would be signed by the inspectors and payment would be made on a unit cost basis against the completed physical plantations. The PPMO would undertake

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field checks on the basis of random samples, when they receive withdrawal applications submitted by CPMOs. The plantation inspection and acceptance guidance has been developed and included in PIP, which is a tool for the plantation site quality check.

21. Training, Workshops and Study Tours. Expenditures incurred in accordance with the approved detailed programs would be the basis for reimbursement. 22. Forest Demonstration Facilities. Disbursement for forest demonstration activities would be for expenditures incurred to implement annual plans approved by the Bank. Applicable site selection criteria, technical standards, and quality check arrangements are included in the PIP. 23. Loan proceeds would be disbursed against eligible expenditures (inclusive of taxes) as indicated in the table 3-4 below. The disbursement conditions for the reforestation and forest rehabilitation activities are detailed in the table 3-5 below.

Table 3-4: IBRD Disbursement Methods

Expenditure Category

IBRD Loan

Allocated Amount

Percentage of Expenditure to be

financed (I) Reforestation and Forest Rehabilitation

75,320,000

100

(II) Goods and Equipment

1,720,000 100

(III) Consultants’ services, Non-consulting services, Training, Demonstration Facilities

2,760,000 100

(IV) Front-end Fee 200,000 100 Total 80,000,000

Table 3-5: Disbursement Conditions for Category (I)

Expenditure Category

Disbursement Conditions

All payments under Category (I) pertaining to Sub-financing for reforestation and rehabilitation of forest plantations, shall be output based and shall not be made unless: (a) the Unit Cost estimated for each reforestation and rehabilitation technical models have been agreed by the Bank and the Borrower; (b) the Outputs have been achieved in compliance with the provision of the PIP, including the quality, technical standards and specifications set out therein; (c) after the relevant CPMO has carried out an inspection

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(I) Reforestation and Forest Rehabilitation

of the related Sub-project after its completion; and the PPMO, on the basis of reports issued by the respective CPMO, has certified, on the basis of the plantation inspection and acceptance guidelines included in PIP, the following: (i) the number of hectares of plantations completed or improved; (ii) that the Output or Outputs have been achieved in compliance with the provisions of the implementation agreements, including the quality, technical standards and specifications, and the provisions of the safeguards instruments; (iii) that the amounts to be withdrawn with respect to expenditures is equal to the amount resulting from multiplying the certified Output or Outputs times the Unit Cost; and (iv) that the said Output or Outputs have not been claimed by the Borrower to support a previous withdrawal application from the Loan Account.

24. Retroactive financing of up to $ 8 million would be available for eligible expenditures incurred on and after July 1, 2012 for the implementation of reforestation and forest rehabilitation activities, training, as well as the procurement of nursery equipment.

Procurement

25. The key procurement risk identified under this project is the large number of implementing units which could pose a challenge to coordination and procurement/contract management, monitoring and supervision. The overall procurement risk rating is assessed as “Moderate” and the following mitigation measures were agreed with the PPMO and the CPMOs: (a) training to the CPMOs by the PPMO, with assistance from the Bank procurement specialist on an as-needed basis; (b) preparation of a procurement manual and sample procurement documents to guide procurement cycle management; (c) regular field procurement supervision missions and procurement guidance; and (d) employment of a qualified procurement agent with experience in procurement for projects financed by the Bank or other multilateral financial institutions. 26. Procurement for the proposed project would be carried out in accordance with: World Bank "Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers," dated January 2011; "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers," dated January 2011; and the provisions stipulated in the legal agreement. National competitive bidding (NCB) will be carried out in accordance with the Law on Tendering and Bidding of the People’s Republic of China promulgated by Order of the President of the People’s Republic of China on August 30, 1999, subject to the modifications stipulated in the Legal Agreement.

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27. Community Participation in Procurement for reforestation and forest rehabilitation. Community Participation in Procurement would be used for the reforestation and rehabilitation of ecological forest plantations, which constitute the bulk of the project’s activities. Work on plantations, including land clearance and preparation, seedlings, planting and tending, would be implemented by project beneficiary households, villages/communities, forest cooperatives and forest farms utilizing local labor, materials, equipment and technology in accordance with the agreed procedures for community participation in procurement, as described in the PIP and project procurement plan. 28. Procurement Plan. The initial 24-month procurement plan for the Project, prepared by PPMO, was found to be acceptable to the Bank and it has been finalized at project appraisal. The Procurement Plan, which includes the detailed procurement items, contract descriptions, estimated cost, procurement methods, Bank review requests and planned execution timetable, would be updated annually in agreement with the Bank or as required in the response to project implementation needs. 29. Procurement Methods and Bank Prior Reviews. The thresholds for procurement methods and Bank prior review are indicated in the Table 3-4 below. Contracts not subject to Bank prior review would be subject to procurement post review by the Bank, at a sampling ratio of one in ten. All plantation work implemented under Community Participation in Procurement would be subject to Bank post review.

Table 3-6: Thresholds for Procurement Methods and Prior Review

Expenditure Category

Contract Value Threshold

(US$) Procurement Method

Prior Review Threshold (US$)

1. Civil Works

≥20,000,000 <20,000,000 <200,000

ICB NCB Shopping

All ICB Contracts (Not anticipated) ≥5,000,000 and the first NCB contract regardless of value First shopping contract

2. Goods ≥1,000,000 <1,000,000 <100,000

ICB NCB Shopping Direct Contracting

All ICB Contracts ≥500,000 and the first NCB contract regardless of value First shopping contract All direct contracting contracts regardless of value

3. Consultant Services

≥300,000 <300,000

QCBS CQS Individual Consultants Single Source Selection (Firm and Individual)

All ≥100,000 (firm) ≥50,000 for individual consultants All single source contracts regardless of value

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30. Frequency of Procurement Supervision. In addition to the prior-review, Bank procurement supervision missions or post-review on procurement activities would be conducted at least once every 12 months. C. ENVIRONMENTAL AND SOCIAL (INCLUDING SAFEGUARDS)

Environment 31. Environmental Assessment. The project is rated as a Category B project. An Environmental Management Plan (EMP) was prepared. It includes Environmental Protection Guidelines (EPG) and a Pest Management Plan (PMP). In addition to OP4.01, the project triggers environmental safeguards policies on Forestry and Pest Management. 32. The project is expected to generate significant positive environmental impacts by restoring and rehabilitating damaged forestland which would strengthen the resilience and environmental functions of rehabilitated ecological forest plantations. Negative impacts might occur if the project is not properly designed or implemented; e.g., improper site selection, poor site preparation, inappropriate use of pesticides. These impacts are expected to be moderate to insignificant and mostly of a temporary nature. With proper implementation of the mitigation measures, such negative impacts and risks would be avoided and/or minimized. 33. EMP. An EMP, acceptable to the Bank, has been prepared. It includes an environmental management system, mitigation measures, monitoring plans, institutional arrangements, capacity building, and estimated costs for the mitigation measures, as well as monitoring programs. 34. More specifically, the EMP includes: principles to be followed to implement the requirements of OP4.36 on Forestry; the process to be followed to ensure meaningful consultation with affected local communities in developing sustainable forest management arrangements under the project; process to be followed in documenting the voluntary participation in the project by affected local communities; chance finds procedures for physical cultural resources; the institutional, monitoring and reporting arrangements, and budget for implementation of the EMP, as well as the EPG and the PMP.

35. EPG. The EPG covers the entire cycle of reforestation and forest rehabilitation from site selection, site preparation, species selection and distribution, tending management (including weed and soil loosening, fertilization, irrigation, and pest control), fire prevention and control, to forest regeneration felling. Good practices from previous forestry projects in Hunan have been incorporated into the Guidelines. 36. Pest Management (OP4.09). The project would improve on-going integrated pest management in Hunan Province. Specifically, it would: (a) disseminate the

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application of high efficiency, low toxic, low residual effect chemicals and biological pesticides; (b) prohibit the use of high toxic, high residual effect pesticides; (c) reduce the reliance on chemical pesticides and chemical fertilizers; and (d) promote the use of non-chemical technologies for insect and pest control. 37. A PMP was prepared for the project, which includes: a preface; major pest issues; pesticides management methods and their scope of application; and recommendations for different situations. It summarizes the Integrated Pest Management approaches to be adopted by the project, and lists all chemicals that might be potentially needed for the project, which meet Bank requirement and fall within the World Health Organization’s recommended categories. It also describes the pesticides management organizations in Hunan and their respective responsibilities. The PMP also includes environmental, occupational and safety risk assessments, as well as training and monitoring programs. 38. Forestry (OP/BP4.36) The project complies with the Bank’s forestry policy. Interventions envisaged under the project would result in the creation of rehabilitated multi-species ecological forest plantations, with an optimum canopy cover allowing them to be more resilient to the effects of future natural disasters, and to provide better soil and water conservation and other environmental functions. The project would use local species and develop a diversified forest plantation structure. It would not introduce any invasive species and out of any critical nature habitat. As the usage rights of most project sites are owned by communities and households, the project forest plantations would largely be managed by these communities and individual households. Social 39. The project covers 22 counties in 10 municipalities/prefectures and there are ethnic minority populations including Miao, Yao, Tujia and Hui in 12 of the counties. The Hui population is scattered in some project areas, but without any concentrated groups or communities. The Tujia are mostly integrated with local neighboring Han communities as well as intermingled with mainstream society. The Miao and Yao ethnic groups meet the criteria for triggering Bank Indigenous People’s policy (OP4.10). They mainly live in concentrated groups in five counties in the western and south-western parts of Hunan Province. 40. A social assessment (SA) was conducted by a qualified team including anthropologists and sociologists, which carried out intensive fieldwork in 24 sample villages in ten project cities/prefectures, with a focus on the Miao and Yao ethnic minority communities. The Miao and Yao villages/communities fully understood the potential risks and opportunities associated with the project, and expressed their interest, enthusiasm and broad support to the project activities. 41. An Ethnic Minority Development Plan (EMDP) was developed to steer project activities in the ethnic minority areas. The EMDP would enable project activities to fit well within both the restoration of the local ecosystems and the development of

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livelihoods for ethnic minority communities. Some income-generating fruit and nut trees were selected for the Miao and Yao communities. A time-bounded action plan has been set up to implement effective measures for the socio-economic development of the Miao and Yao peoples. The action plan would also help mobilize local government investments from local poverty alleviation programs for village infrastructure construction, livelihood earning and social services. 42. Moreover, county PMOs and local township/village authorities systematically extended the SA exercise across the overall project areas. The project information dissemination and consultation campaign was carried out in all project villages of the 22 project counties. Farmers showed their enthusiasm to participate in the project activities and discussed with the project staff and technicians the type of tree species they would like to plant in their contracted ecological forest land and how the forest ecosystem would be restored and nurtured while they would benefit either environmentally or economically. A project Participatory Planning Manual (PPM) was developed to guide the consultation process. Through extensive consultations on the ground, the design and preparation of the proposed project components are on a fully informed and voluntary basis. The consultation process will be continued during the project implementation period. 43. The consultation process identified four operational and management arrangements included in the project: (a) approximately 17,120 households would participate in the project by managing their forestland either individually or in household groups; (b) about 4,260 households would participate in the project by managing their forestland in the form of cooperatives; (c) 39 villages, which cover about 4,750 households would participate in the project in the form of community groups. As members of a village community, the villagers would participate in the project activities and share in its benefits. As a whole, around 26,130 households would participate in and benefit from the project through various management arrangements. In addition, some county level state-owned forest farms would also participate in the project, as the fourth operational arrangement. Public Consultation and Information Disclosure 44. Public consultations, including expert consultations, questionnaires, symposia, and interviews, were conducted with various stakeholders of the proposed project for both EA and SA processes. The majority of those consulted expressed strong support to the project. In accordance with Bank disclosure policy, prior to project appraisal, the safeguards documents, including EMP, PMP, EMDP, SA report and PPM were made available in the project area on April 20, 2012 and are accessible at provincial and county PMOs, as well as in the project county libraries. They were also disclosed at the websites of the local government agencies. Meanwhile, all the safeguard documents mentioned above were also disclosed at the Bank InfoShop on May 23, 2012.

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D. MONITORING & EVALUATION (M&E) 45. The project’s M&E includes: (a) monitoring implementation progress; (b) monitoring the quality and performance of the reforestation activities and technical and institutional support systems; (c) evaluation and analysis of the achievement of the PDO; and (d) assessment of environmental and social impacts. A detailed project M&E plan, acceptable to the Bank, has been developed by the PPMO. 46. The PPMO and the CPMOs would be responsible for the project monitoring and evaluation. County PMOs would be responsible for keeping track of all planned and completed activities, as well as planned and completed expenditures. The CPMOs would also be responsible for the control of the quality of plantation by conducting quality checks on completion of the replanting and rehabilitation activities. The PPMO would be responsible for overall project progress, its performance and impact monitoring. It would contract with relevant institutes and social development expert team to conduct project technical and socio-economic surveys, as well as assess environmental and social impacts and achievement of the PDO. 47. CPMOs would furnish semi-annual progress reports to the PPMO on December 31 and June 30 of each year. The PPMO would consolidate county/district semi-annual reports into a project semi-annual report and furnish it to the Bank on February 28 and August 31 of each year, commencing on August 31, 2013. These reports would include an updated results monitoring table (Annex 1) indicating the progress made by the project towards achieving its outputs and impact indicators. 48. In addition to the semi-annual reports, the PPMO would furnish to the Bank: (a) a project annual work and budget plan for the next calendar year by December 15 of each year, commencing on December 15, 2012; (b) a mid-term review report on March 1, 2016; (c) a project ICR on March 1, 2019; and (d) project technical and socio-economic survey reports, to be conducted in year 3 and year 6 of the project, by March 1, 2016 and March 1, 2019.

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ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)

Project Stakeholder Risks

Stakeholder Risk Rating Low

Description: Risk Management:

The project development objective is fully in line with the Hunan Provincial 12th Five Year Plan; there is, therefore, strong commitment from the provincial government. There is also strong commitment from participating county governments and project entities (e.g., forest cooperatives, communities, individual households and forest farms). Participation of the project entities is on a voluntary basis.

Stakeholder consultation and participation is fully incorporated in the project design and both will continue during project implementation.

Resp: Client Stage: Implementation Due Date: 31-March-2019

Status: In Progress

Implementing Agency (IA) Risks (including Fiduciary Risks)

Capacity Rating Moderate

Description: Risk Management:

The PPMO has successfully implemented four Bank-financed projects in the forestry sector. The PPMO and the CPMOs are fully staffed with the needed expertise for the project implementation. However, some CPMOs are new to the Bank project and they are lack of experience in Bank procedures and requests. Provincial government and each project county government have committed to provide adequate and timely counterpart funding to the project. However, counterpart funding allocation could be delayed sometime.

A project financial management manual and procurement manual have been prepared and circulated to all PMOs to guide financial management and procurement activities. The EMP, the EMDP and the PPM have also been developed to guide project entities to implement Bank safeguard policies. The PPMO has arranged necessary training programs and would provide the training to the CPMOs and closely monitor their daily work. Bank missions would monitor the counterpart funding allocation closely.

Resp: Client & Bank

Stage: Implementation Due Date: 31-March-2019

Status: In Progress

Governance Rating Low

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Description: Risk Management:

Based on previous Bank-financed forestry projects, the governance and decision making structures of the forestry sector in China are appropriate for the project. The PIP clearly spells out the rules and responsibilities for both provincial and county PMOs, as well as other project entities.

Bank mission will monitor the performance of project agencies as part of the project supervision.

Resp: Client

Stage: Implementation

Due Date: 31-March-2019

Status: In Progress

Project Risks

Design Rating Moderate

Description: Risk Management:

Forest restoration and rehabilitation, which focus on improving resilience of forest systems, are new to China. Technical knowledge in promoting climate change mitigation and adaptation in forestry sector is limited. Top class national and international experts were hired during project preparation to help the PMO with technical model designs, and the experience and lessons learned from relevant Bank projects have been incorporated into project design, which has appropriately addressed the risk.

Relevant technical expertise would be continually provided by national and international experts during project implementation. Technical training and services would be provided to project staff and farmers, as well as other project entities, during project implementation.

Resp: Client and Bank

Stage: Implementation

Due Date: 31-March-2019

Status: In Progress

Social and Environmental Rating Moderate

Description: Risk Management:

Some county PMOs have limited experience in implementing relevant safeguards action plans, e.g., EMP, PMP and EMDP.

The PPMO will take a leading role in monitoring the implementation of relevant safeguards action plans. Appropriate training and monitoring arrangements have been incorporated in the project design to effectively address identified potential negative social and environmental impacts, as well as compliance with safeguard implementation. Regular Bank implementation supervision missions will focus on the review of safeguards policies implementation.

Resp: Client and Bank

Stage: Implementation

Due Date: 31-March-2019

Status: In Progress

Program and Donor Rating Low

Description: Risk Management:

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KfW is developing a new project in Hunan focusing on sustainable forest management; however, there is no overlap in project areas or activities. Provincial Forestry Department has coordinated closely with KfW through regular information exchange between the KFW and with the Bank task team during the project preparation.

Bank missions will continue to coordinate with KfW on a regular basis during project implementation.

Resp: Client and Bank

Stage: Implementation

Due Date:31-March-2019

Status: In Progress

Delivery Monitoring and Sustainability Rating Moderate

Description: Risk Management:

Technical designs may not be fully adhered to during project implementation.

Specific training on technical models, monitoring and etc. would be conducted and the needed technical services would be provided through provincial and county PMOs, consultant services and the Bank. Bank missions and the PMOs would also monitor the implementation of PIP. Implementation of the capacity building activities of the project will also be closely monitored by Bank missions to ensure the project sustainability.

Resp: Client and Bank

Stage: Implementation Recurrent:

Due Date: 31-March-2019

Status: In Progress

Overall Risk

Overall Risk Rating: Moderate

Description: Hunan has successfully implemented four Bank forestry sector projects. Technical challenges have been appropriately addressed during project preparation by incorporating international and national experience and lessons learned in project design. Adequate technical support and support for implementing Bank policies satisfactorily have been built into project design. The Bank will provide necessary implementation support through regular missions.

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ANNEX 5: IMPLEMENTATION SUPPORT PLAN

A. Strategy and Approach for Implementation Support

1. Implementation support plan (ISP) for the project has been developed taking into account the risks identified and risk management measures described in the ORAF (see Annex 4). The overall implementation risk is rated moderate and all risk categories are rated either low or moderate. Accordingly, the ISP focuses on the management of the identified risks. In addition, the ISP will support project agencies to comply with Bank fiduciary and safeguard policies. 2. Technical Support. National and international forest restoration and sustainable management experts have contributed to the design and preparation of the Project and the technical risks have been largely appropriately addressed during the project preparation. The expert team would continue to provide extensive technical support to the implementation of plantation models, research and extension programs, monitoring & evaluation and dissemination of the experience gained and lessons learned. 3. Procurement. Procurement implementation support would be provided by Bank procurement specialist, which include: (a) the facilitation of a multi-stage training program targeting procurement staff in provincial and county PMOs; (b) the review of procurement documents and provision of timely feedback on the results of prior reviews and post reviews; (c) the detailed guidance on Bank Procurement Guidelines to project procurement staff; and (d) the monitoring on procurement progress against the agreed Procurement Plan. 4. Financial Management. Project financial management would be reviewed and evaluated on a regular basis by the Bank’s financial management specialist (FMS). The FMS would join Bank implementation support missions to review the implementation of the FMM. The FMS would also provide technical support to project implementing agencies and help with timely resolution on potential financial management issues, as well as the issues identified by auditors. The FMS’ reviews would include the adequacy of the financial management arrangements in place, disbursement process, loan on-lending arrangements, counterpart fund allocations and document filing system. 5. Environmental and Social Safeguards. Bank project environmental and social development experts would provide implementation support for the EMP, the PMP and the EMDP, as well as the PPM. They would provide guidance to project implementing agencies on addressing issues that arise during project implementation. They would also help ensure that community and stakeholders consultations continue during the project implementation and that farmers’ and communities’ participation in the project is on a voluntary basis.

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B. Implementation of Support Plan 6. Many of the Bank team members would be based in the China Country Office in Beijing. This would allow for a rapid and effective response to the Borrower’s needs for implementation support. In addition, Washington based staff and international consultants would contribute global expertise. Formal implementation support missions and field visits, covering all aspects of project implementation, would be carried out semi-annually. These would be supplemented by ad hoc need based visits by small groups. 7. Estimated inputs from different specialists in different stages of project implementation are outlined below. Table 5-1: Supervision focus of Project Implementation Support Team

Time Review Focus Resource Estimate

First twelve months

Technical design implementation and technical support

Forest restoration/sustainable management /climate adaptation monitoring specialists 8 SWs

Financial management and disbursement training/capacity building

FMS 3 SWs

EMDP and community consultation process

Social development specialist 3 SWs

Environmental training, implementation of EMP and PMP

Environmental specialist 3 SWs

Procurement process and training

Procurement specialist 3 SWs

Overall project management/Team leadership

Task Team Leader 6 SWs

13-48 months

Technical support for project implementation

Forest restoration/sustainable management/ climate adaptation specialists 12 SWs

Environment and social safeguards implementation

Environmental specialist(s) 6 SWs Social development specialist 6 SWs

Financial management &disbursement and procurement and necessary support

FMS 6 SWs Procurement specialist 10 SWs

Monitoring & Evaluation/Institutional capacity building

M&E specialist 6 SWs

Task leadership Task Team Leader 12 SWs Note: SW – Staff Week

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Table 5-2: Required Skill Mix of Implementation Support Team Skills Needed Number of Staff

Week Number of Trip Remark

TTL/Project management

6 SWs annually Two trips Bank staff

Forest restoration/sustainable management/ climate adaptation specialists

4 SWs annually Two trips each Bank staff and consultants

Procurement specialist

3-4 SWs annually One-Two trips Bank staff

Social development specialist

2-3 SWs annually One-Two trips Bank staff

Environment specialist

2-3 SWs annually One-Two trips Bank staff

FMS 2-3 SWs annually One-Two trips Bank staff Monitoring &evaluation specialist

2-3 SWs annually One-Two trips Bank staff and consultant

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MAP IBRD 39235

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Province Boundaries

International Boundaries

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

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KILOMETERS

PROJECT COUNTIES

EXPRESSWAYS

NATIONAL HIGHWAYS

RAILROADS

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PROVINCE CAPITAL

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CHINAHUNAN FOREST RESTORATION AND

DEVELOPMENT PROJECT

IBRD 39235

APRIL 2012

CHINA