$ Report No: RES00057 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF Climate Smart Management of Grassland Ecosystems APPROVED ON 19-Nov-2019 TO People's Republic of China Agriculture and Food East Asia And Pacific Regional Vice President: Manuela V. Ferro Regional Director: Anna Wellenstein Country Director: Mara K. Warwick Practice Manager: Paavo Eliste Task Team Leader(s): Wendao Cao The World Bank Climate Smart Management of Grassland Ecosystems (P166853) ABBREVIATIONS AND ACRONYMS CPMO County PMO FMS Financial Management System ICR Implementation and Completion Report IOC Incremental Operation Costs ISM Implementation Support Mission M&E Monitoring & Evaluation MOF Ministry of Finance MARA Ministry of Agriculture and Rural Affairs MRV Monitoring, Reporting and Verification MTR Mid-Term Review PDRC Provincial Development and Reform Commission PDF Provincial Department of Finance PAD Project Appraisal Document PDO Project Development Objective PES Payment for Environmental Service PMO Project Management Office PM&E Project Monitoring and Evaluation PPMO Provincial PMO The World Bank Climate Smart Management of Grassland Ecosystems (P166853) @#&OPS~Doctype~OPS^dynamics@restrhybridbasicdata#doctemplate BASIC DATA Product Information Operation ID Operation Name P166853 Climate Smart Management of Grassland Ecosystems Product/Financing Instrument Geographical Identifier Investment Project Financing (IPF) China Approval Date Current Closing Date 19-Nov-2019 31-Dec-2024 Original EA Category Partial Assessment (B) (PAD Approval Package-19 Nov 2019) Organizations Borrower Responsible Agency People's Republic of China Ministry of Agriculture and Rural Affairs @#&OPS~Doctype~OPS^dynamics@restrhybridoperationstatus#doctemplate OPERATION STATUS Project Development Objective (DO) Original Development Objective To pilot climate smart grassland management practices in Qilian County of Qinghai Province. Disbursement Summary (in USD million) Source of Funds Net Commitment Disbursed Balance % Disbursed IBRD -- -- -- 0 IDA -- -- -- 0 Grants 3.90 1.90 2.00 48.68 i The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Policy Waivers Does this restructuring trigger the need for any policy waiver(s)? No @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate @#&OPS~Doctype~OPS^dynamics@restrhybridmpa#doctemplate ii The World Bank Climate Smart Management of Grassland Ecosystems (P166853) TABLE OF CONTENTS I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING ........................................................................................1 II. DESCRIPTION OF PROPOSED CHANGES ....................................................................................................................3 III. PROPOSED CHANGES ................................................................................................................................................4 IV. DETAILED CHANGE(S) ...............................................................................................................................................4 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. This restructuring paper seeks approval for a 12-month extension of the closing date of Climate Smart Management of Grassland Ecosystems Project from December 31, 2024 to December 31, 2025. This is the first project restructuring. 2. A grant of US$3.77 million from the Global Environment Facility (GEF) (Grant Number: TF0B1658) was approved by the World Bank Board of Executive Directors on November 19, 2019 for the China: Climate Smart Management of Grassland Ecosystems (CSMGE) (P166853). It is a child project under PRC-GEF Partnership Program for Sustainable Agricultural Development, which was endorsed by GEF CEO on September 5, 2019. The Grant Agreement was countersigned by Ministry of Finance (MOF) on January 22, 2020. The project became effective on February 26, 2020. The current closing date is December 31, 2024. 3. The Project Development Objective (PDO) is to pilot climate smart grassland management practices in Qilian County of Qinghai Province. The project has four components: Component 1 – Grassland Management Pilots (GEF Financing: US$2,719,083); Component 2 – Policy and Strategy Development (GEF Financing: US$450,000); Component 3 – Knowledge Management (GEF Financing: US$420,520); and Component 4 – Project Management (GEF Financing: US$179,480). 4. A joint World Bank and MARA Mid-Term Review (MTR) mission was conducted during August 21-24, 2023. The MARA, Qinghai province and Qilian county continue to be strongly committed to the project’s implementation, and the key design features and project activities are appropriate for achieving the PDO. 5. Progress towards achievement of PDO was rated Satisfactory and the overall implementation progress was rated Moderately Satisfactory in the last archived ISR. Based on the 2023 M&E report, the achievement of the three PDO-level indicators is as follows: (i) Increase of natural grassland productivity in project areas: 27.2 percent (end target value: 30 percent); (ii) Increase in soil carbon at the project sites: 139,100 metric tons (end target value: 160,000 metric tons); and (iii) Net increase of herding incomes in project areas: 8.5 percent (end target value: 10 percent). By the end of April 30, 2024, the total disbursement stands at 47 percent (US$ 1.77 million). Out of the remaining US$2 million grant funds, about US$ 1.6 million has been committed. 6. The project became effective in 2020, which coincided with the beginning of the COVID-19 pandemic, resulting in the pilot activities being put on hold which significantly delayed implementation start up. The implementation progress has accelerated after the COVID restrictions were lifted. The implementation status by component is summarized below. a) Component 1: Grassland Management Pilots. Interventions to restore productivity of natural grasslands include: (a) no-till grass seeding/fertilization for degraded natural grasslands to restore grassland productivity; (b) no- grazing in spring for about 50 days on winter/spring pasture to allow initial grass growth; and (c) enhancement of cultivated grasslands. This component has progressed well over the last two years. By the end of 2023, the project county successfully established “core demonstration area” to restore productivity of natural grasslands. It includes: (a) 544 ha (annual target: 530 ha) of degraded natural grasslands improved with no-till grass seeding/fertilization; (b) 4,150 ha (annual target: 3,200 ha) of pens constructed for no-grazing in spring season to allow initial grass growth; and (c) 40 ha (annual target: 32 ha) of grassland cultivated in 2022. Through professional modeling monitoring, calculation, and analysis, it was found that the activities of no-till grass seeding/fertilization and no-grazing in spring have contributed significantly to carbon storage. These results Page 1 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) were achieved with the active participation of 160 herder households from all 27 Natural Villages, selected through a randomized and transparent process. By the end of 2023, about 70 percent of the grant activities were completed. It is estimated that there are about 20 percent of grant resources (around US$500,000) under this component whose utilization would extend beyond the original closing date, including last payment for pilot activities, third party M&E activities and extension service/Farmer Field Schools. b) Component 2: Policy and Strategy Development. This component supports MARA to distill lessons learned from Component 1 into policy recommendations and the four priorities considered include: (a) measures to scale up climate-smart grassland management and herding practices in future grassland conversion program; (b) how to design and implement evidence-based payment for ecosystem service (PES) schemes to link financial incentives with actual achievements of desired conservation practices and results; (c) a study on the valuation of ecosystem services provided by grasslands; and (d) examine actions needed to include carbon credits generated from improved grassland management practices into China’s national carbon trading system. The implementation of this component is lagging behind. Four studies have been ongoing and the completion of these studies will depend on outcomes/results achieved in Component 1. By the end of 2023, about 60 percent of the grant activities were completed. It is projected that there are about 30 percent of grant resources (around US$135,000) under this component would not be utilized by the original closing date. The policy studies of evidence-based payment for ecosystem service (PES) schemes and the study of valuation of ecosystem services provided by grasslands and strategy development are under implementation by the contracted consulting firms. The Terms of References (TORs) of the study on development of technical guidance related to scaling up climate- smart grassland management and herding practices and study on development of MRV for grassland system have been approved by the Bank and the recruitment process is under way. c) Component 3: Knowledge Management. This component extends support to MARA for developing a knowledge management and capacity building strategy through broad consultations. MARA is, therefore, expected to organize and participate in knowledge exchange and capacity building events on sustainable grassland management domestically and internationally. However, during the first two years of project implementation, the COVID-19 pandemic limited progress under this component. In 2023, the Central Project Management Office (PMO) planned a number of events and activities, including dissemination workshops, study trips, and technical standard and guidance development. Due to the mandated requirement by MARA that the Procurement Agency should be hired for all foreign-financed projects’ procurement work, and the length of time it takes to recruit such an agency, no progress has been made under this component in the past year. The Procurement Agency was finally put in place in April 2024. By the end of 2023, about 35 percent of the grant activities were completed. It is projected that there are about 40 percent of grant resources (around US$160,000) under this component would not be utilized by the original closing date. These activities include dometic and oversea study trips, dissemination workshops and operationlization of the Knowlaege Platform. d) Component 4: Project Management. This component supports MARA to properly manage project implementation in close collaboration with local entities. To date, investment progress under this component is on schedule, with disbursements beyond the original allocation. 7. Compliance with Covenants: The project is in compliance with its legal covenants (related to Institutional Arrangements, Implementation Agreements, Project Implementation Manual, Annual Work Plans, Safeguards Instruments, and Mid-term review). Page 2 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) 8. Environmental and Social Safeguards: The latest environmental monitoring report (received in March 2024) confirmed that environmental management measures are generally well implemented in the project sites. The mitigation measures specified in the Environmental Management Plan (EMP) and the Pest Management Plan (PMP) had been well implemented. It was confirmed by the external environmental monitoring report and Provincial Project Management Office (PPMO) during the mission that no Occupational, Health and Safety (OHS) incident had occurred since project effectiveness. COVID-19 control measures were adopted consistently throughout the pandemic period. The project’s social safeguard documents including the Social Assessment, the Ethnical Minority Development Plan (EMDP) and the Process Framework are well implemented. Overall performance of social safeguards implementation is also Satisfactory. There is no land acquisition issue, and the project did not involve physical displacement. The Grievance Redress Mechanism (GRM) established for affected communities and individuals is functioning well, and there is no pending issue reported. 9. Fiduciary: Procurement was delayed in the past year due to the slow progress of hiring Procurement Agency, which was finally put in place in April 2024. The external auditors had identified some weaknesses in contract management in the audit report for FY2022 and actions have been taken by the related entities to address them. All procurement and financial management activities are in compliance with Bank’s policies and requirements. 10. Risks Assessment. The proposed extension of project closing date by 12 months does not affect the previously agreed scope and nature of the project activities as well as risk levels related to the technical design, safeguards, institutional capacity and fiduciary. Performance of the Borrower and of the Implementing agencies is satisfactory. The overall risk rating for the project remains Moderate. B. Rationale for Restructuring 11. The World Bank received an official request from the Ministry of Finance on March 6, 2024, requesting an extension of the project closing date from December 31, 2024 to December 31, 2025. The extension will allow: (i) the completion of two grant activities under Component 1. First, to complete the project-specific PES to treatment herder households based on their actual implementation results of agreed project activities at the end of 2023, as the pilot activities were delayed by one year. Second, to complete M&E consulting services related to grassland productivity, biodiversity and carbon sequestration, as well as third-party M&E of Environmental and Social Safeguards; (ii) the completion of all Component 2 activities related to the policy studies of evidence-based PES schemes, valuation of ecosystem services provided by grasslands and strategy development and technical guidance related to scaling up climate-smart grassland management and herding practices; (iii) the completion of the grant activities under Component 3 regarding establishment of a web platform, dissemination workshops, domestic and international study trips, extension services and technical standard and guidance development, which was seriously delayed due to the COVID challenges and the lengthy procedure for recruiting the Procurement Agency requested by MARA; and (iv) the achievement of the PDO and all the project results indicators. 12. The proposed 12 months extension of the project closing date will be backed by a time-bound implementation action plan (see Annex 1), indicating the timeline for all the ongoing and remaining activities to be completed by the newly proposed closing date. The action plan has been reviewed by the Bank team and will be finalized during the upcoming implementation support mission scheduled for August 2024. II. DESCRIPTION OF PROPOSED CHANGES Page 3 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) a) Grant Closing Date. The project closing date is proposed to be extended from December 31, 2024 to December 31, 2025. b) Implementation Schedule. The implementation schedule will be adjusted to the newly proposed closing date. Annex 1 proposes a work plan for the extended project period. c) Disbursement Estimates. The IBRD disbursement estimate will be revised to reflect disbursements to date and disbursements expected during the extended implementation period. d) Results Framework: The dates of the end-of-project targets will be revised to align with the newly proposed closing date. @#&OPS~Doctype~OPS^dynamics@restrhybridsummarychanges#doctemplate Summary changes III. PROPOSED CHANGES Operation Information Proposed Changes Operation Information Proposed Changes Disbursements Estimates Yes Loan Closing Date Extension Yes Development Objective No Implementation Schedule Yes Safeguard Policies Triggered No Loan Cancellations No ISDS No Reallocations No MFD/PCE No Financial Management No Results No Procurement No Risks No Institutional Arrangement No Legal Covenants No Conditions No Implementation Modalities No Disbursements Arrangements No DDO No Clients No Appraisal Summary No Components No @#&OPS~Doctype~OPS^dynamics@restrhybriddetailedchanges-disclose#doctemplate IV. DETAILED CHANGE(S) Page 4 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) COSTS & FINANCING Private Capital Facilitation Is this an MFD-Enabling Project (MFD-EP)? Is this project Private Capital Enabling (PCE)? LOANS Loan Closing Original Revised Proposed Proposed Deadline Loan/Credit/Trust Status Closing Closing(s) Closing for Withdrawal Fund Applications TF-B1658-001 Effective 31-Dec-2024 31-Dec-2024 31-Dec-2025 29-Apr-2026 Expected Disbursements (in US $) (Absolute) Original Estimation at Preparation Actual Year Revised Estimation (Approval Package – 19 Nov 2019) FY2020 133,333.32 0.00 0.00 FY2021 400,000.00 400,000.00 400,000.00 FY2022 600,000.00 644,444.30 644,444.30 FY2023 600,000.00 553,470.40 553,470.40 FY2024 600,000.00 170,000.00 170,000.00 FY2025 1,369,083.00 1,000,000.00 0.00 FY2026 0.00 1,001,168.00 0.00 Page 5 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Annex 1: Implementation Action Plan_Climate Smart Management of Grassland Ecosystems Componet Activities Date of Budget completion (US$) 1. Grassland Complete the project-specific Payment for End April, 2025 145,000 Management Environmental Service (PES) to treatment herder Pilots households Extension service End Oct. 2025 53,000 Operationalize the Farmer Field School (FFS) End Dec. 2025 50,000 Third-party Monitoring and Evaluation consulting End Oct. 2025 147,100 serivces of grassland productivity, biodiversity and carbon sequestration, as well as third-party M&E of Environmental and Social Safeguards 2. Policy and Policy studies of evidence-based payment for End Nov. 2025 50,000 Strategy ecosystem service (PES) schemes Development Valuation of ecosystem services provided by End Aug. 2025 50,000 grasslands and strategy development Development of technical guidance related to End Sept. 2025 30,000 scaling up climate-smart grassland management, and herding practices Development of MRV for grassland system End Oct. 2025 100,000 3. Knowledge Domestic and Oversea Study Trips End Oct. 2025 50,000 Management Dissemination workshops End Nov. 2025 40,000 Operationlization of the Knowlaege Platform End Dec. 2025 20,000 4. Project ICR preparation End Dec. 2025 20,000 Management IOC and Project management End Dec. 2025 55,000 Total 810,000 Page 6