Document of The World Bank FOR OFFICIAL USE ONLY Report No: 36399 IMPLEMENTATION COMPLETION REPORT (IF-N0390 SCL-43250 TF-27155) ON A LOAN IN THE AMOUNT OF US$100 MILLION AND A CREDIT IN THE AMOUNT OF SDR 73 MILLION (US$100 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A FORESTRY DEVELOPMENT IN POOR AREAS PROJECT JUNE 27, 2006 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2005) Currency Unit = Yuan (Y) Y 1.00 = US$ 0.12 US$ 1.00 = Y 8.07 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CFA Community Forestry Assessment ERR Economic Rate of Return FDPA Forestry Development in Poor Areas Project FRDPP Forestry Resource Development and Protection Project FRR Financial Rate of Return GoC Government of China IDA International Development Association MOF Ministry of Finance NAP National Afforestation Project NDRC National Development and Reform Commission NFPP Natural Forest Protection Program NPV Net Present Value PAD Project Appraisal Document PMC Project Management Center PMO Project Management Office PRA Participatory Rural Approach SDR Special Drawing Right SFA State Forestry Administration TEATO Technical Extension and Training Office TVE Township and Village Enterprise Vice President: Jeffrey S. Gutman, EAPVP (Acting) Country Director David R. Dollar, EACCF Sector Manager Mark D. Wilson, EASRD Task Team Leader/Task Manager: Liu Jin, EASRD CHINA FORESTRY DEVELOPMENT IN POOR AREAS PROJECT IMPLEMENTATION COMPLETION REPORT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 11 6. Sustainability 13 7. Bank and Borrower Performance 14 8. Lessons Learned 16 9. Partner Comments 17 10. Additional Information 17 Annex 1. Key Performance Indicators/Log Frame Matrix 18 Annex 2. Project Costs and Financing 19 Annex 3. Economic Costs and Benefits 22 Annex 4. Bank Inputs 23 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6. Ratings of Bank and Borrower Performance 25 Annex 7. List of Supporting Documents 26 Annex 8. Borrower's ICR 27 Project ID: P046952 Project Name: Forestry Development In Poor Areas Team Leader: Jin Liu TL Unit: EASRD ICR Type: Core ICR Report Date: June 27, 2006 1. Project Data Name: Forestry Development In Poor Areas L/C/TF Number: IF-N0390; SCL-43250; TF-27155 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Forestry (86%); Micro- and SME finance (7%); Agricultural marketing and trade (4%); Irrigation and drainage (3%) Theme: Land administration and management (P); Rural markets (P); Small and medium enterprise support (P) KEY DATES Original Revised/Actual PCD: 01/24/1997 Effective: 12/16/1998 12/16/1998 Appraisal: 02/19/1998 MTR: 10/13/2001 10/13/2001 Approval: 05/21/1998 Closing: 12/31/2005 12/31/2005 Borrower/Implementing Agency: The People's Republic of China /The Ministry of Forestry Other Partners: STAFF Current At Appraisal Vice President: Jeffrey Gutman (acting) Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Mark D. Wilson Geoffrey B. Fox Team Leader at ICR: Liu Jin Richard Scobey ICR Primary Author: Albert Nyberg; Weiguo Zhou; Zong-cheng Lin 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The Forestry Development in Poor Areas Project (FDPA) was designed to develop forest resources in poor areas of central and western China on a sustainable and participatory basis to support poverty reduction, forestry development and improved environmental management. China long has been a forest-poor country. The increasing gap between timber supply and demand is a key constraint to sustainable forestry development which in turn has led to a significant threat to biodiversity and natural forest protection. While the launch by the Government of China (GoC) of the Natural Forest Protection Program (NFPP) in 1998 was environmentally beneficial to China, it further widened the gap between timber supply and demand by imposing a nation-wide logging ban. The increase of forest resources is a priority in China's development strategy. Most poor areas are in the remote mountainous areas of central and western China, where agricultural land is extremely poor and forest resources are the most important production asset available, shifting the focus of afforestation activities from the more developed southern and coastal provinces to the poorer inland regions would not only contribute to the forestry development, but also support farmers' income generation, particularly for poor households, to contribute to poverty alleviation in these areas. The project objective reflected the government's development priorities and was highly consistent with the Bank's County Assistance Strategy (CAS) for China, which fits well within its goals of: (a) "Improving efficiency and sustainability of the use of natural resources" and (b) "reducing growing disparities and improve income in disadvantaged sectors and regions in China". The project objectives were clear and well understood by the participating provinces and county implementation agencies. 3.2 Revised Objective: The objectives remained unchanged throughout the project period. 3.3 Original Components: The primary focus of the project was timber and economic tree crop expansion, supported by strong technical services to develop new genetic materials, training for participants to extend new technologies and management experience on effective forest establishment and management, and the development of physical infrastructure. Additionally, credit for the development of small scale forestry product enterprises was provided. The project components are summarized below. The appraisal cost estimates included physical and price contingency provisions. (1) Timber Plantation (US$121.8 million, 33.5 percent of total project cost at appraisal). Although afforestation has continued for many years and nationwide forest coverage has increased, it remains low at about 18 percent. Deforestation and barren fragile lands have - 2 - contributed to major flooding and erosion problems and many of these lands are not sufficiently productive to generate adequate income for the resident population. The primary objective of the project was to develop forestry resources to support poverty reduction and forestry development in the mountainous areas of twelve provinces in central and western China, where most of the designated poverty counties are located. This component financed the establishment of about 315,000 ha of timber plantation. The forestry resources were intended primarily to provide to construction timber and secondarily to provide pulpwood and mine pit-props. The main afforestation entities were to be individual households, groups of households, shareholding cooperative forest farms and village/township collective forest farms. The improved silvicultural management program initiated in the Forest Resource Development and Protection Project (FRDPP) were to be continued and the new research results were to be extended to the project planting activities. (2) Economic Forest Crops (US$135.2 million, 37.1 percent of total project cost at appraisal). This project component was designed to generate income for poor households in a shorter time period than would be generated from timber investments. It was designed to finance the establishment of about 230,000 ha of economic forest crops, comprising 110,000 ha of new/rehabilitated bamboo and 120,000 ha of fruit, nut and medicinal tree crops. The varieties/species selected were to be based on farmers' preferences ­ influenced by local market conditions and the climatic/ecological suitability of trees to site conditions. Site selection was based on soil fertility, rainfall, temperature, erosion potential, access to markets and poverty status of the local populace. The afforestation entities were to be individual households, groups of households and shareholding cooperative forest farms. (3) Technical Support Services (US$ 81.5 million, 22.4 percent of total project costs at appraisal). This component was designed to strengthen technical support in planting stock development, training and extension, rural infrastructure, and monitoring and evaluation. Over 50 present of the funds in this component were allocated to improve the quality of planting materials and introduce improved genetic materials and nursery/production management technologies. Existing agricultural and forestry extension networks were used to disseminate/train project beneficiaries. An additional US$8.0 million project funding was allocated for training and extension - given project beneficiaries' relatively low education levels and unfamiliarity with silvicultural practices. Some infrastructure ­ forest trails, limited irrigation facilities for some economic tree crops, small storage sheds, etc. ­ was perceived as necessary to implement the project effectively. (4) Township and Village Enterprise (TVE) Development (US$25.5 million 7.0 percent of total project costs at appraisal). This component provided on-lending support to develop and expand small-scale, labor intensive, commercially-oriented TVEs engaged in forest product processing and manufacturing. This component was expected to generate employment for unskilled surplus labor, allow local communities to capture the economic benefits of added-value to local production, and to expand the local market. - 3 - 3.4 Revised Components: The original components remained unchanged throughout the project implementation period. However, the scale and financing of the various components were adjusted to reflect the altered conditions. In particular, the activities of TVE Component were substantially reduced following the project mid-term review. Following the logging ban in 1998, several forest product enterprises, located in counties containing forests covered by the NFPP, were unable to obtain sufficient raw material. Moreover, some proposed TVEs faced rapidly changing markets and management risks. Consequently, interest in borrowing funds to establish or expand forest product enterprises was greatly reduced. Meanwhile, instead of developing TVEs many communities requested more tree plantings as increasing planting would cover more households, particularly the poor households, and forest products have a more stable market. At the mid-term review it was agreed to reduce the TVE establishment target from 64 to 14 enterprises. The cost of TVE activities was reduced from 7 percent to 1.6 percent of the total project cost. The funds saved by reducing the TVE establishment number were reallocated to plantation activities. The logging ban also caused some counties to reconsider their level of participation because some sites were no longer available for timber production and harvesting. Subsequently, the number of project counties was expanded from 183 to 216 to ensure that the development targets would be met and the funds spent. 3.5 Quality at Entry: A Quality at Entry review was not carried out by QAG for this project. However, timely and successful project implementation, with only modest revision, proved that the Quality at Entry of the project was satisfactory. The project objective was consistent with the CAS and government priorities in poverty alleviation and sustainable nature resource management. The project concept, albeit unique, was well developed and incorporated lessons learned from previous forestry and poverty alleviation projects, Quality Assurance Group/Operations Evaluation Department reviews of forestry and poverty alleviation projects, and sector studies on forestry and poverty. Considerable liaison was required between technical forestry staff and local poverty alleviation offices/staff to ensure appropriate selection of high-return tree species and identification of poor farmer participants. A large training component was included, primarily on economic tree management for both forestry bureau staff and farmers, and complemented existing institutional capacity in timber management. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The achievement of the project objective is rated as satisfactory. The project was managed by the State Forestry Administration (SFA), Forestry Departments in 12 Provinces/Autonomous Regions and 216 county Forestry Bureaus as well as township Forestry Station staff. It was implemented by individual households, groups of households, shareholding cooperative forest farms and village/township collective forest farms, accounting for 43.2, 28.1, 14.5, and 14.2 percent of the total planting areas, respectively. The project objective was achieved and the project outcome is rated as - 4 - satisfactory with very favorable impacts on poverty alleviation, environmental improvement, and increased timber and economic tree crop production. The project demonstrates that the afforestation effort in poor areas could not only contribute to forestry development but also greatly assist in poverty reduction, which is quite different from other forestry development projects that focused mainly on forest resource increases. The main outcomes and achievements were as follows: (1) Poverty Alleviation: A primary goal of the project was to develop forestry resources to support poverty reduction in the mountainous areas of central and western China where most of the designated poverty counties are located. Within the 216 project counties, 162 counties are national and provincial poverty counties, accounting for 75 percent of the total. About 891,700 households participated in the project's activities of which approximately two-thirds were designated as poor households. Results of household surveys conducted in villages of all 12 Project Provinces indicate significant poverty reduction impacts have been produced by the project. Average annual per capita incomes of project participants increased from Y670 in 1998 to Y1653 in 2004 ­ an increase of approximately 150 percent. Products from economic trees, such as Jujube, Tea, Bamboo and Pear planted under project auspices, contributed Y573 of that increase ­ an 85 percent increase over the 1998 baseline and substantially over the 60 percent target. The balance of the increased income was primarily due to off-farm employment; the proportion of households with per capita annual incomes of Y1,500 or more increased from 7.5 percent to 47 percent and the proportion of very poor households earning less than Y500/ per year decreased from 41 percent to 2 percent between 1998 and 2004. The overall poverty rate in the project counties declined from 40 percent in 1998 to 17.5 percent at project closing in 2005, which exceeded the project target of 20 percent. Equally important was the training farmers received, which improved their production and management skills, increased their self-confidence and stimulated additional plantings external to the project. In addition, the project planting activities also created about 110 million man-days of employment for the local farmers. (2) Forestry Development. An element of all forestry projects is their contribution to the national forest resources. A total of 375,080 ha of timber plantations was established under the FDPA, accounting for 119.1 percent of the target in the Project Appraisal Document (PAD). Most of the plantations have reached the anticipated quality standards. Though project planted timber trees are too immature to be harvested, estimates of the standing timber volume indicate that the project closing target of 3 million m3 was exceeded by about 25 percent as the result of a more rapid growth rate than appraisal estimates and an increase in the planted area of timber trees. Similarly, the `end of cycle' volume of standing timber is estimated to exceed the full impact target by 20-25 percent. (3) Environment Improvement. The third goal was to improve the environment through increased forest coverage, thereby improving water conservation and reducing soil erosion. This objective was also realized. A close examination of historical county-level data indicates that the actual forest coverage in project counties in 1997 was 39.1 percent rather than the 45 percent recorded in the PAD. The total forest coverage in the project counties was 45.8 percent in 2005 - an increase of 6.7 percentage points over the 1997 base and far above the - 5 - target of around 2 percent. Among the total forest cover increase, tree plantings under project auspices increased forests by 1.2 percent on average in the project counties. The impact of forest coverage, including economic tree plantings, on water conservation and soil erosion was evaluated in cooperation with the Bureau of Water Conservancy under specific conditions (degree of slope, amount of rainfall, etc.). Although these conditions are highly variable, applying the derived coefficients to the project area implies that project tree planting reduced water run-off (increased water conservation) and soil erosion very substantially - by 67 to 75 percent compared with the bare sites. 4.2 Outputs by components: (1) Timber Plantation. A total of 375,080 ha of timber plantations was established. About one-third of the area was planted to conifer species and two-thirds were planted to broad-leaved species. There were nominal targets for individual species but farmers and communities were permitted to select those which they concluded, after consultation with local forestry stations, were better suited to the local environment and which faced better market prospects. The area planted to timber species exceeded the PAD target by about 19.1 percent. The project's Environmental Protection Guidelines were applied correctly to both timber plantations and economic tree crops, which effectively mitigated any negative environmental impacts by proper planting practices and enhanced the sustainability of the forest resource management. An inventory carried out by forest design institutions at project completion indicates that the growth of most plantations (94.4%) exceeds or is close to the designed growth target, and the growth rate of a few plantations is below the project standards. This under-target statistic is due in part to natural disasters including fire, drought and flood; an estimated 70 percent of the lower growth plantations are attributable to natural disasters. The balance is due to inappropriate species selection for the local environment and production mismanagement ­ the most common being insufficient use of fertilizer. Action plans to improve the plantation quality and to provide the necessary financing have been developed by relevant county Project Management Offices (PMOs) and planting entities. (2) Economic Forest Crops. Plantings of economic trees (fruits, nuts, tea, and medicinal/ industrial oils) totaled 156,980 ha and 132,440 ha of bamboo were established or rehabilitated. These plantings exceeded their PAD targets by 30.8 percent and 20.4 percent, respectively. Plantings of virtually all economic tree species exceeded their targets; ginkgo was the notable exception. The project design incorporated, as much as possible, a wide range of tree species to ensure that poor households would receive a diversified income over both the short and long terms. The quality inventory classified 95.8 percent of bamboo plantations up to the growth target. Other economic tree crops had a somewhat lower proportion of 93.2 percent above or within the satisfactory category. Longan, tea, chestnut and hazelnut were among the better quality plantations ­ ginkgo and tung were the lowest. An important reason for the lower proportions of the economic crops is the decline in prices for a few of these economic tree products, - 6 - which reduced farmers' enthusiasm and discouraged their use of fertilizers and other cash inputs. It is noteworthy that while the proportions of plantations that met the growth standards were relatively lower during the initial years of the project, between 90 percent to 95 percent, the proportion improved noticeably and exceeded 97 percent, during the final two years of planting. (3) Technical Support Services. The technical support services component comprised four sub-components: (a) The planting stock development program focused on the provision of superior seeds and seedlings. Two-thirds of seed was collected from mother trees and seed orchards and one-fourth of seedling was clonal planting stock. About 460 superior provenance, families and clones of timber species and 260 new varieties of economic species were introduced to the project areas. About 1.5 billion Grade 1 seedlings were produced to meet the project demand of 1.1 billion ­ some 400 million seedlings in excess of the project needs, which were then made available to non-project households. Improved nursery technology (including tissue culture) and management experience were adopted. All Grade 2 seedlings were removed, ensuring that the project used only Grade 1 seedlings. (b) The technical extension and training program provided technical and management training to a large number of farmers and staff of project implementation agencies in tree production and management. Project training achievements exceeded targets. Senior managers participated in international study tours/training in 12 different countries involving about 3,000 person-days; approximately 49,000 person-days of management and technical training were held for Provincial and County staff by Central-and Provincial-level PMOs; and almost 300,000 person-days of training were held at the County level for township forest station staff and farmer leaders ­ about 400 percent more than the 60,480 target. More than 121,000 farmer leaders were trained to provide on-the-spot routine technical information. In addition, about 3.3 million farmer training days were completed ­ or seven percent more than the original target of 3.1 million. An important element of the training program were demonstration forests which were established on 29,520 ha (about 300 percent greater than the 5,815 ha target) in 161 project counties and covering all of the important plantation species, including several minor broad-leaf and economic tree species. Managerial and technical material, exceeding 470,000 volumes, were printed at the Central and Provincial levels for project staff and over 2.5 million leaflets, booklets and handbooks were printed at the county level (all 216 counties) for distribution to farmers. In addition, numerous audio-visual aids were produced to train staff in superior cultivation and management techniques. Since project areas are largely located in the remote poor counties, and most of the project households were poorly educated and unfamiliar with improved silvicultural practices, the training and extension program was extremely important to improve farmers' capacity in planting technologies, production and management. Interviews with field technicians and farmers confirmed that they received significant technical training and other technical services including market information, and adopted a series of modern techniques for - 7 - plantation establishment and management. The project introduced and institutionalized plantation management skills would benefit poor farmers through increased income generation and contribute to sustainable forest management. (c) Rural marketing infrastructure (transportation, cold storage facilities, etc. for economic tree crops) expected to be constructed during the final two years of project implementation was reviewed by Provincial officials and was largely considered unnecessary as the private sector has responded quickly to the market needs in this area to generate short-term income by such investment. Only Shanxi Province utilized project funds for infrastructure investment and the unutilized funds were reallocated to alternative uses following the review. This sub-component should have received a more thorough analysis at appraisal. (d) The monitoring and evaluation program was successfully undertaken. A simple project monitoring and evaluation system was established to monitor project performance in achieving its development objectives and regularly assess the project's environmental and socioeconomic impacts. Also, various data bases were maintained. The effective monitoring contributed to improving the project implementation quality; it also provided timely feedback to project implementation agencies enabling them to improve or adjust implementation as issues arose. In addition: (a) household surveys were undertaken to provide baseline, mid-term and project closing information and data; (b) an income survey was conducted at project closing to determine the project's impact on poverty alleviation; and (c) a plantation growth survey was carried out at the end of the project to collect the technical data necessary to evaluate achievement of the project's production objective. These surveys and data bases facilitated the effectiveness of the monitoring and evaluation program. Plantation establishment and environmental protection monitoring was effectively conducted throughout project implementation. However, inadequate attention was accorded the community participation process at the early stage of the project. The monitoring of farmer participation and project beneficiary selection was improved following the Bank's recommendation, thus ensuring that the participatory process would be maintained during project implementation and that the majority of project benefits would accrue to the poor counties, communities and households. (4) Township and Village Enterprise Development. During the mid-term review, the TVE target number was reduced from 64 to 14. Accordingly, a total of Credit funds of SDR 2.48 million and Loan balance of US$ 6.10 million of the TVE component finances were reallocated to plantation establishment. The implementation of the component was poorer than expected and it is rated as unsatisfactory. Of the 14 TVEs included in project financing, nine remain in operation and five have failed. Several reasons have been identified for reduced interest in borrowing for timber product TVE development and the poor performance of some TVEs. First, the launched NFPP (enacted in 1998) banned logging in natural forests, thereby limiting the supply of raw material for many proposed TVEs. Second, the lack of professional staff in the provincial and county PMOs and the complex review and approval process caused - 8 - design and approval delays. Third, during this elapsed time market demand for several products changed substantially. Fourth, the enterprises were small-scale requiring relatively low quantities of technical inputs but intensive labor inputs, thus making them scale inefficient and less competitive. It is noted that great attention was paid by both client and the Bank task team to improve the management of the TVEs during the project implementation and timber processing specialists were hired to provide technical and management assistance to the project TVEs. With great effort, the operational efficiency of some TVEs was strengthened and the market competitiveness was improved. Several enterprises performed very well. However, the performance record of individual TVEs was mixed. Clearly, more thought and analyses should have been directed toward this component during preparation and appraisal. 4.3 Net Present Value/Economic rate of return: The major quantifiable benefits of the project are derived from the incremental value of timber, horticultural products and TVE outputs. Other significant non-quantifiable benefits were derived from: (a) environmental benefits such as reduced soil erosion and carbon sequestration; (b) improved technical support services; and (c) capacity building. Economic analysis was carried out for each of the 32 species models, each individual TVE, the Timber Production Component, the Economic Forest Crops Component, the TVE Development Component and the project as a whole. Compared to the PAD projections, the analysis showed an overall improved economic rate of return (ERR) at 26.2 percent for the project. The improved ERR for the Timber Production Component is due mainly to higher economic value of timber, the slightly lower ERR for Economic Forest Crops Component was due mainly to higher labor cost, and the substantially reduced ERR of the TVE Development Component was due mainly to the reduced numbers of TVEs and ineffective management of some TVEs. The Net Present Value (NPV) of the project was re-estimated at 5,419 million Yuan ($655 million equivalent) with the opportunity cost of capital at 12 percent and calculated over a 27-year period. This result is very robust to wide changes in key variables. Annex 3 provides more details. ERR Estimate (%) Appraisal Estimate Latest Estimate Component Timber Production 20.1 24.4 Economic Forest Crops 27.9 27.5 TVE Development 37.9 14.7 Total Project 24.4 26.2 - 9 - 4.4 Financial rate of return: Financial analysis, using a cost and benefit analysis approach, was carried out for each species model, each individual TVE, the Timber Production Component, the Economic Forest Crops Component, the TVE Development Component and the project as a whole. For consistency and compatibility, the analysis followed the methodological assumptions observed at project appraisal: (a) one rotation for all timber species; (b) a 25-year time period; (c) complete production and harvesting costs; and (d) complete actual investment costs. Benefits are derived from timber, horticultural products and by-products (such as fuel wood and resin) but neither investment for, nor revenue from, inter-cropping is considered. Financial prices are in 2005 current prices. Actual import prices or the market prices paid were used for inputs. Weighted average roadside prices and average market prices collected from all project provinces were used for timber products and economic forest crop products, respectively. An average daily rate for labor was used in labor valuation, which was increased by about 20 percent from the appraisal estimate. All these prices have been converted to 1998 constant prices based on the official inflation indices during the period. Financial rates of return (FRR) are estimated at 23 percent, 18.3 percent, 25.9 percent and 19.4 percent, respectively, for the project as a whole, the Timber Production Component, the Economic Forest Crops Component and the TVE Development Component. These FRRs are all significantly higher than those at project appraisal, except that for TVE Development Component. This overall improved project FRR was attributable mainly to: (a) the increase in the plantation area; (b) more favorable market prices for many project products; and (c) reduced or exempted tax obligations. The FRRs for individual species models range between 12.1 percent and 59.5 percent. The estimated FRRs are generally sensitive to market prices, assumptions about the stand's age at final harvest and tree productivity. The detailed calculations for FRRs are available in the project file. The future fiscal impact of the project for the government budget will be for the support service expenditures for staff and facilities and adequate budget provision has been firmly committed by various levels of government. Commercial operations such as TVEs have positive impacts by generating tax revenues. FRR Estimate (%) Component Appraisal Estimate Latest Estimate Timber Production 14.7 18.3 Economic Forest Crops 24.2 25.9 TVE Development 28.7 19.4 Total Project 19.8 23 - 10 - 4.5 Institutional development impact: The project had a substantial institutional development impact. The project enhanced and expanded the effective administrative system developed under prior projects ­ including technical standards, regulations and guidelines ­ leading to improved extension effectiveness. The broad theoretical knowledge and practical skills of senior forestry academics and practitioners were captured by forming a national technical consultancy team (211 experts). This team of experts assisted in developing and promoting advanced forestry management and cultivation technologies that the Forestry Station staff introduced to farmers, greatly improving farm-level efficiency and productivity. The project's training component provided extensive administrative and intensive technical training which introduced new management and technical skills at all levels in the forestry sector. The technical skills of Forestry Station personnel, who interact with farmers, were upgraded and expanded to include economic tree cultivation and management. All of the project expertise has been retained by integrating project activities into routine forestry activities; furthermore, staff turnover was limited to retirement. Lastly, skilled farmer leaders were trained to provide a stable line of communication from Forestry Stations to other village farmers. The institutional development success is demonstrated by the large areas of timber and economic tree establishment, using the improved technologies that has occurred outside the project. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Several external factors affected project implementation, both positively and negatively. On the positive side, the increased prices for products of most timber species increased farmers' interest in participation and improved the financial/economic benefits of the project. Economic tree product prices fluctuated, but the average prices and net incomes appear to have been relatively stable. However, other factors negatively affected project implementation and success. Firstly, the changes in the US$ exchange rate with respect to the SDR during implementation reduced the US$ value of the IDA Credit by an estimated US$1.57 million. This is a small impact as an undisbursed Loan balance remained at Project closing. Secondly, several localized natural disasters affected tree survival and quality. For example, droughts in three provinces (Henan, Shanxi and Hebei) in 2002 contributed to some plantations' failure to reach growth standards, and fires affected an estimated 0.8 percent of the plantings in Hunan Province. 5.2 Factors generally subject to government control: Factors which were subject to government control also had both positive and negative impacts on project implementation. Positive factors include: (a) the government's decision to eliminate the eight percent Agricultural Tax which had the effect of improving the net income of farmers and foresters and stimulated interest in increasing agriculture and forestry production; and (b) the very favorable macroeconomic climate of strong economic growth and reform contributed to increased labor movement and improved ability to earn - 11 - off-farm income and reduce poverty. The transfer of surplus labor out of the poverty areas increased farmer labor wages and reduced interest in labor-intensive agricultural production. As a result of the smaller labor requirement for forest crops, this transfer had a positive impact on project implementation. Unfavorable implementation factors included: (a) the National NFPP that prohibited logging in selected areas of Sichuan, Guizhou and Yunnan. Some project areas identified for initial afforestation were in these protected zones and were no longer available for timber plantation establishment. The plantation tasks and funding were then reallocated to other project provinces and counties; (b) the logging ban, coupled with market changes in a liberalized market environment, impacted negatively on raw material supply to forestry TVEs and the market for processed timber products, causing some to downsize or discontinue operations; and (c) the logging ban also reduced financial revenues in counties located in the Program areas, which reduced the availability of counterpart funds. In addition, the selection of project counties focused on poverty counties which are inherently budget constrained and limited the capacity to meet counterpart commitments. Government counterpart funds provided were below commitment levels, and the shortage was largely compensated by increased investment by farmers and planting entities. 5.3 Factors generally subject to implementing agency control: The project management system and structure was very strong and indispensable to successful implementation and sustainability. Skilled, high-level advisory groups were established at the Central level which further improved management and technical skills. The pyramidal management structure, from the Central level down to township Forestry Station level was well coordinated, staff were knowledgeable and capable, and staff turnover was minimal and favorably facilitated project implementation, training and information flows. The project developed a delivery mechanism for extension capable of reaching individual households and providing detailed information on appropriate tree species for specific locations that, combined with a participatory implementation approach, enabled farmers to plant tree species of their own selection and ensured strong farmer participation interest. Successful implementation was further supported by research and training (involving new technologies, demonstration plots, plantation management, etc.). Community Forestry Assessment (CFA) was first introduced into China's large-scale plantation development by the FDPA, and became a distinct factor enabling the project to involve large numbers of farm households, especially the poorer ones. Based on a participatory rural approach (PRA) , CFA was the mechanism linking project planning and farmers' demands and aspirations, and facilitated local communities' participation in the entire project process. CFA oriented the project design and implementation toward poor households, on the basis of their needs. As a result, the project widely benefited poor households. - 12 - Early in project implementation, management perceived the difficulties of implementing the TVE component under the altered Forest Policy environment and appropriately requested downsizing that component, along with the marketing infrastructure sub-component, and reallocated the released funds to afforestation activities. 5.4 Costs and financing: Total project costs are estimated at US$370.3 million, about 2 percent over the appraisal estimate of $364.0 million. The project cost among components was adjusted during project implementation to support an increased number of both timber plantation and economic forest crops. While financing sources remain unchanged from the appraisal plan, both absolute and relative contributions by each source changed. Contributions from all sources were reduced except for the beneficiaries' contribution. Of the total financing required, about 52 percent was funded by the Bank, 3 percent lower than the appraisal estimate. The aggregated financial contributions of all government entities were reduced to 17 percent from the appraisal estimate of 27 percent. The beneficiaries' contribution increased from 18 percent at appraisal to 31 percent, mostly in the form of labor, organic manure and a limited amount of cash. An undisbursed balance of about US$5.5 million was cancelled from the Loan Account. Project costs and financing are outlined in Annex 2. 6. Sustainability 6.1 Rationale for sustainability rating: A complex set of factors are combined to rate the sustainability of the project's development impact as highly likely. The physical project activities were largely completed and it is highly likely that the plantations will survive and grow as anticipated, which will generate economic and financial returns and environmental benefits as forecast. Administrative and technical support for timber and economic tree production is well established ­ from the central SFAs down to township Forestry Stations ­ and is well respected by farmers/foresters. The prices of many timber and economic tree species have increased, increasing tree crop profitability. The participatory approach initiated under the project was welcomed by farmers and they remain enthusiastic. Farmer training in new technologies and management techniques led to productivity gains greater than anticipated at appraisal, in both timber and economic tree crops, leading not only to higher household incomes but improving human capital and farmer self-confidence. Many farmers have further developed and expanded tree crop areas outside the project, utilizing their own resources for expansion. Tree plantings under project auspices increased the forested area in project counties; in addition, non-project planting increased the forested area by more than 5 percent in the project counties during the project implementation period, indicating both interest and capability. 6.2 Transition arrangement to regular operations: The institutional arrangement for regularizing post-project activities is well-developed, understood and effective. The forestry management, organization and structure facilitate the merging of project activities including pest management, fire prevention and control, technical assistance to farmers and planting entities, as well as other plantation maintenance - 13 - functions into their operational routine and this has been largely achieved. The Bank ICR mission emphasized that because the plantations have a long gestation period before delivering their final economic benefits, and the appropriate post-project management arrangements are essential to ensure that the expected project benefits are achieved. Many project entities have developed post-project action plans to ensure continuity and others have committed to prepare post-project plantation management action plans. The funds for post-project plantation management will be largely derived from selling economic tree products, harvest of existing plantations and using other short-term income. Though some of the poorest farmers might have difficulty in meeting their initial loan repayments, particularly if they selected timber species, local County governments are committed to supporting the poor and have promised repayment assistance if necessary. In addition, the provincial and county PMOs have committed to strengthen information service to the farmers and planting entities to improve the linkages between plantation production and markets needs. 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank's performance in the identification, preparation and appraisal of the project is rated as satisfactory. The project's objectives and scope were consistent with the government's strategy for sustainably increasing forestry stocks/supplies, improving the environment, and reducing poverty. The project also reflected the Bank's CAS priorities in these areas. The Bank team appropriately appraised government's commitment and the Forestry agencies' capacity to implement the project. The project incorporated experiences and lessons learned from previous forestry and poverty alleviation projects. No major identification/preparation shortcomings have been identified. However, greater in-depth evaluation of the marketing infrastructure at the preparation stage could have determined that demand for such infrastructure was relatively weak. The TVE component was weakly implemented, which was largely because the preparation team could not have foreseen the policy change that affected the viability of forestry TVEs. In addition, the small-scale and labor-intensive TVE design reduced the competitive capacity of the enterprises. 7.2 Supervision: The Bank's supervision performance in implementing the project is rated as satisfactory. A stable task team including a forestry specialist and a social development specialist was maintained throughout the implementation period. Supervision teams retained continuity, made flexible but timely visits and included appropriate combinations of skills to address issues as they became relevant. This continuity fostered a mutually trusting working relationship with the implementing agencies and facilitated superior supervision; implementation problems and issues, such as a revised disbursement rate and adjusted TVE activities, were promptly addressed. - 14 - 7.3 Overall Bank performance: The overall Bank performance during project identification, preparation and supervision is rated as satisfactory. Borrower 7.4 Preparation: The borrower's performance in project preparation is rated as satisfactory. Adequate resources were committed to project preparation; all levels of government and project implementation agencies strongly supported the project objective and goals and made the political and financial commitments necessary for successful implementation. Appropriate lessons learned from previous forestry and poverty projects were incorporated into the project design ­ including sufficient extension staff and farmer training to ensure that new technologies and management practices were thoroughly understood and incorporated into farm-level production. During project preparation, numerous meetings were held at township and village levels to identify potential village and farmer participation. Government officials and implementing agency staff worked closely and continuously with the Bank's preparation staff. SFA's strong organizational structure for project preparation and implementation ensured all relevant agencies were appropriately involved and issues requiring resolution were effectively and promptly resolved. The only preparation weakness was insufficient attention to, and analysis of, the issues that affected on-lending for TVE development and expansion. 7.5 Government implementation performance: The government's implementation performance is rated as satisfactory. Poverty reduction and environmental protection are high priorities and the government maintained strong interest in the project throughout implementation. When changes in implementation became necessary, the government promptly responded with appropriate requests and comments, and the government-Bank cooperation remained strong throughout implementation. 7.6 Implementing Agency: The performance of the implementing agencies, from the central PMC through all levels down to township Forestry Stations, is rated as satisfactory. The project employed a participatory approach not before utilized in forestry projects, which was highly successfully and enthusiastically supported by farmer participants. There was full compliance with the legal covenants in the Credit and Loan Agreements; the quality of physical implementation was consistently high and outputs exceeded targets. Problems with fertilizer procurement were addressed, although not fully resolved until a number of necessary fertilizers were purchased locally and Organic manure was largely applied. 7.7 Overall Borrower performance: The overall performance of the borrower is rated satisfactory. - 15 - 8. Lessons Learned The successful implementation of the project provided the following lessons which will be useful in designing future forestry projects in poor areas: (a) Farmer participation and empowerment through CFA was an appropriate project innovation that helped to ensure that social objectives were achieved. Although staff intensive, the CFA model was effective and instrumental in poor farmer participation, and farmers keenly supported the concept. This process should be replicated in future forestry development and poverty alleviation projects. (b) A strong research-extension-training linkage was fundamental to transferring new production techniques/technologies and management to farmers/foresters. A highly qualified senior consultancy group and researchers provided advice and information and was effectively linked through the project structure with farmers. This strong linkage also provided superior planting materials and facilitated timber and economic tree productivity gains that exceeded targets. (c) The development of a fertilizer market implies that farmers can obtain fertilizer more efficiently than through central procurement and distribution. Future projects should include fertilizer costs in farmers' loan packages. (d) The participatory approach is effective in ensuring farmers/foresters feel a sense of `ownership', but very poor farmers/foresters must be cautioned that planting timber species could result in loan repayment difficulties as maturity and harvest are long term. They should be encouraged to plant early-bearing economic tree crops or to diversify planting species to include both short term and long term species. Long rotation timber species might be appropriate if farmers have other short-term income generating activities that meet their livelihood needs before timber can be harvested. (e) Intensive and detailed TVE analyses are necessary for projects with TVE on-lending components. Manufacturing enterprises are more susceptible to market shifts than producers of raw materials and therefore requires critical evaluation. If TVE components are included in future projects, project preparation and implementation agencies must have staff qualified to appraise enterprises to ensure; (a) commercial viability in both input and output markets; (b) scale efficiencies are achievable; (c) there is sufficient flexibility to adjust to policies that may limit input or output markets; and (d) inventory and cash flow management are realistic and consistent with borrowing and repayment capacity. - 16 - 9. Partner Comments (a) Borrower/implementing agency: Thanks to the concerted efforts and sound cooperation between us and the World Bank over the past seven years, the implementation of FDPA well achieved the designated targets. We regard that the ICR has objectively reflected the project performance. (b) Cofinanciers: No cofinancing was involved in the project. (c) Other partners (NGOs/private sector): No other partners were involved in the project. 10. Additional Information - 17 - Annex 1. Key Performance Indicators/Log Frame Matrix Actual as % Indicators Projected in Actual/latest of appraisal PAD estimate estimate A. Poverty Reduction 1. Number of participating household 700,000 891,695 127 2. % of poor household 70 67 96 3. % of minority household 18 19 106 4. Per capita income of project beneficiaries increased by % 60 85 142 5. Incidence of poverty decreased from 40% in 1996 to 20 18 114 B. Forest Resource Development 1. Incremental standing volume of timber (million m3) 54 64.9 120 2. Incremental horticultural production value (RMB million) 2,300 3,060 133 C. Environmenal management 1. Rate of forest coverage increased, % 39 46 117 D. Capacity Building (person-day) 1. Overseas Study Tours/Training 3,675 3,060 83 2. Training at national level 3,410 3,840 113 3. Training at provincial level 26,730 45,181 169 4. Training at county level 60,480 296,143 490 5. Training at township level 3,112,085 3,298,804 106 6. International consultants 120 66 55 7. National and local consultants 105,400 Output Indicators: Actual as % Indicators Projected in Actual/latest of appraisal PAD estimate estimate A. Tree Plantation Total plantation area (ha.) 545,000 664,497 122 Grade I plantation, % 85 95 112 Class I seedlings produced (billion pieces) 1.1 1.5 136 % of clone planting stock 20 25 125 Number of sheds constructed (shed) 3,000 1,576 53 Value of marketing investments ( RMB million) 40 1 3 B. Township and Village Enterprises Number of TVEs established 64 14 22 Number of jobs created 8,320 1,500 18 of which, % poverty farmers 70 60 86 Gross TVE output (RMB million) 212 87.5 41 Notes: a. All the indicators are valued at the project close except B1 incremental standing volume and B2 horticultural production value, which are the estimated values at full impact of the project. b. Per capita income increase of project beneficiaries includes the income of the householders who have planted economic tree crops. - 18 - Annex 2. Project Costs and Financing Actual/Latest Actual/ Actual/ Appraisal Estimate MTR adjusted Estimate Appraisal MTR component US$ million US$ million US$ million % % A. Timber Plantation 121.80 131.50 128.6 106 98 B. Economic Forest Crops 135.20 145.20 149.8 111 103 C. Technical Support Services 81.50 81.50 86.3 106 106 D. TVE Development 25.50 5.80 5.6 22 97 Total 364.00 364.00 370.3 102 Project Costs by Procurement Arrangements (Appraisal Estimate) (in US$ million equivalent) Expenditure Category Procurement Method Total Cost /c ICB NCB Other /a NBF /b 1. Works 1.1 290.0 291.1 (0.6) (143.5) (144.1) Plantation Establishment 278.0 278.0 (137.6) (137.6) Civil Works 1.1 12.0 13.1 (0.6) (6.0) (6.5) 2. Goods 39.3 8.6 14.4 62.3 (39.3) (4.7) (9.2) (53.3) Equipment 1.8 8.1 10.5 20.3 (1.8) (4.2) (5.3) (11.3) Vehicles 11.8 11.8 (11.8) (11.8) Silviculture Inputs 25.7 0.5 4.0 30.2 (25.7) (0.5) (4.0) (30.2) 3. Services 4.1 6.5 10.6 (2.6) - (2.6) Training and Study Tours 0.9 5.4 6.2 (0.9) - (0.9) Consultant Services 3.2 1.1 4.4 (1.8) - (1.8) Total 39.3 9.7 308.5 6.5 364.0 (39.3) (5.3) (155.4) (0.0) (200.0) Note: Figures in parenthesis represent the amount financed by the Bank. /a Other procurement methods include force account and community participation for plantation establishment, some rural infrastructure civil works (trails, sheds, irrigation facilities, and marketing infrastructure); and some TVE civil works; direct contracting for seeds; limited international bidding for pesticides; international shopping for some equipment; and training and consultant services. /b NBF means non-Bank financing. /c Total cost includes contingencies. - 19 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (in US$ million equivalent) Expenditure Category Procurement Method Total Cost ICB NCB Other /a NBF /b 1. Works 326.0 326.0 (173.5) (173.5) Plantation Establishment 314.7 314.7 (167.7) (167.7) Civil Works 11.4 11.4 (5.9) (5.9) 2. Goods 12.4 0.8 5.7 17.0 35.9 (12.4) (0.8) (5.1) - (18.3) Equipment 0.4 0.5 0.3 1.2 (0.4) (0.5) (0.2) (1.2) Vehicles 9.0 9.0 (9.0) (9.0) Silviculture Inputs 3.0 0.3 5.4 17.0 25.7 (3.0) (0.3) (4.9) - (8.1) 3. Services 2.4 6.1 8.4 (1.1) - (1.1) Training and Study Tours 0.8 2.7 3.5 (0.8) - (0.8) Consultant Services 1.6 3.4 5.0 (0.3) - (0.3) Total 12.4 0.8 334.1 23.1 370.3 (12.4) (0.8) (179.7) (0.0) (192.9) Note: /a Other procurement methods include force account for plantation establishment, all civil works; direct contracting for seeds; limited international bidding for pesticides; international shopping for some equipment; and training and consultant services. /b NBF means non-Bank financing. Figures in parenthesis represent the amount financed by the Bank. - 20 - Project Financing by Component (in US$ million equivalent) Component Appraisal Estimate Bank Government Beneficiaries Total A. Timber Plantation 121.80 B. Economic Forest Crops 135.20 C. Technical Support Services 81.50 D. TVE Development 25.50 Total Project Cost 200 98.5 65.5 364.00 Component Actual/Latest Estimate Bank Government Beneficiaries Total A. Timber Plantation 76.8 22.7 29.2 128.6 B. Economic Forest Crops 74.4 23.7 51.6 149.8 C. Technical Support Services 39.1 15.2 32 86.3 D. TVE Development 2.6 0.7 2.3 5.6 Total Project Cost 192.90 62.30 115.10 370.30 Component Percentage of Appraisal Bank Government Beneficiaries Total A. Timber Plantation 106.0 B. Economic Forest Crops 111.0 C. Technical Support Services 106.0 D. TVE Development 22.0 Total Project Cost 96.5 63.0 176.0 102.0 Note: /a No breakdown of financing by component was made at project appraisal. /b Total may not tally due to rounding. - 21 - Annex 3. Economic Costs and Benefits Economic Analysis Financial Analysis Appraisal Estimate Latest Estimte Appraisal Estimate Latest Estimte Species ERR % NPV (yuan) ERR % NPV (yuan) FRR % NPV (yuan) FRR % NPV (yuan) Timber Production 20.1 1,290,339 24.4 2,097,079 14.7 363,708 18.3 848,582 1 Masson Pine (14) 18.3 4,364 17.2 4,117 13.1 630 12.9 555 2 Masson Pine (16F) 18.6 4,417 17.4 4,118 13.4 767 13.1 660 3 Masson Pine (16P) 19.1 5,585 18.3 5,735 14.6 1,647 14.3 1,580 4 Slash Pine (16) 19.5 6,329 18.9 6,874 15.3 2,254 15.4 2,496 5 Slash Pine (14) 19.9 6,090 19.2 6,480 15.2 1,976 15.2 2,204 6 Slash Pine (12) 20.2 5,619 19.2 5,651 14.8 1,537 15.0 1,781 7 Loblolly Pine (14) 20.2 6,423 19.3 6,693 15.5 2,222 15.2 2,183 8 Loblolly Pine (12) /b 19.2 5,668 14.8 1,748 9 Chinese Fir 20.5 8,295 19.1 8,060 16.0 3,286 14.9 2,475 10 Japanese Larch (16) 16.6 3,145 16.1 3,366 12.1 42 12.1 62 11 Chinese White Poplar 21.6 7,185 22.7 9,612 17.3 3,292 17.6 3,703 12 Populus Simonii /b 21.9 2,756 16.0 982 13 Italian Poplar 29.3 5,854 38.0 12,450 20.7 2,551 29.7 6,926 14 Eucalyptus 34.0 4,864 42.2 9,163 24.6 2,527 32.3 5,101 15 Black Locust 18.7 2,514 19.1 3,280 13.0 302 13.1 379 16 Broad-leaf Trees 16.2 2,565 15.6 2,581 12.1 72 12.0 20 Economic Tree Crops 27.9 2,402,271 27.5 3,314,319 24.2 1,736,839 25.9 2,835,182 1 Moso Bamboo - new 18.8 3,665 22.6 7,674 13.4 672 20.0 5,373 2 Moso Bamboo - rehab. 23.6 5,468 28.2 10,601 17.6 2,290 25.6 8,050 3 Arundinaria 32.5 10,019 27.9 8,402 32.2 10,909 23.2 5,484 4 Dendrocalamus 40.8 12,687 43.7 16,689 34.2 9,768 37.2 12,402 5 Walnut 26.6 14,013 26.3 15,940 21.1 7,551 28.5 20,041 6 Chestnut 26.3 14,358 26.5 17,611 24.1 11,711 22.0 10,642 7 Eucommia 19.4 5,006 19.7 5,599 15.6 2,182 17.8 3,915 8 Gingko 34.5 24,397 18.8 5,678 31.9 20,982 14.7 2,066 9 Jujube 24.9 8,768 31.6 18,598 19.1 4,420 27.8 13,649 10 Pear 33.4 20,712 28.6 17,015 32.2 20,451 36.1 29,992 11 Tea 25.0 11,365 36.4 28,771 21.9 8,003 34.4 25,383 12 Anise 33.8 30,942 19.3 6,115 31.3 24,004 17.3 3,974 13 Orange 35.7 35,705 25.3 16,991 33.6 32,411 35.4 40,349 14 Oil Tea - rehab. 28.4 11,382 24.9 10,906 23.9 7,495 23.4 9,052 15 Hazelnut - rehab. 34.6 4,212 74.8 18,395 26.0 2,586 59.5 12,528 16 Apricot 41.2 37,320 39.9 37,720 38.4 33,281 31.1 20,810 17 Tung Tree 25.0 3,849 15.4 935 18.6 1,883 12.4 101 18 Longan 36.3 21,628 24.5 11,005 33.6 19,362 20.5 6,809 TVE Development 37.9 413,308 14.7 7,309 28.7 212,129 19.4 14,942 1 Solid Wood Floor Board 44.4 11,488,164 28.7 5,115,611 2 Ply-Bamboo Concrete Formwork 42.2 6,694,993 27.7 2,813,968 3 Fine Wood Board 41.0 7,392,646 32.2 3,919,054 4 Rosin $ Turpentine 32.2 7,335,396 19.5 2,090,634 5 Fruit Cold Storage 27.8 3,734,645 22.3 1,851,862 6 Wicker-work 26.4 1,811,950 32.4 2,425,869 Total Project 24.4 3,990,174 26.2 5,418,622 19.8 2,214,589 23.0 3,698,632 Notes: a. Based on 12% discount rate. b. Loblolly Pine (12) and Populus Simonii were dropped during project implementation. c. NPV for the individual components and the total project is in '000 yuan. d. Analytical results for individual TVEs actually supported under the project are not shown due to their irrelevance to the TVE groups at appraisal. - 22 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 11/1996 4 TL, ECO, PM, SD 04/1997 7 TL, ECO, ID, PM, SD, S, H Appraisal/Negotiation 10/1997 6 TL, PM, SD, H, LM, M 03/1998 8 TL, ECO, PM, SD, E, FS, LM, M Supervision 11/1998 5 TL, D, E, PM, S S S 06/1999 4 TL, D, PM, S S S 12/1999 4 TL, D, PM, S S S 04/2000 6 TL, D, ET, PM, S, TP S S 10/2000 8 TL, D, AE, SD, S, H, TP, PM S S 05/2001 5 TL, H, TP, SD, D S S 10/2001 7 TL, D, AE, SD, S, H, TP S S 06/2002 3 TL, S, H S S 11/2002 6 TL, DS, SD, S, H S S 09/2003 5 TL, FM, SD, S, H S S 05/2004 4 TL, FM, SD, E S S 03/2005 4 TL, FM, SD, E S S ICR 04/2006 4 TL, E, AE, SD S S AE = Agricultural Economist D = Disbursement Specialist E = Economist ECO = Ecologist ET = Economic Tree Crop Specialist FM = Financial Management Specialist FS = Forestry Specialist H = Horticulturist ID = Institutional Development Specialist LM = Land Management Specialist M = Marketing Specialist PM = Plant Materials Specialist S = Silviculturalist SD = Social Development Specialist TL = Team Leader TP = Timber Processing Specialist (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 14.6 55.01. Appraisal/Negotiation 30.3 115.53 Supervision 150.9 363.21 ICR 11.2 33.52 Total 207.0 567.27 - 23 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 24 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 25 - Annex 7. List of Supporting Documents 1. China FDPA ICR by PMC, SFA, March 2006. 2. China FDPA Technical Extension and Training Summary Report, March 2006. 3. FDPA Third Household Survey Report, March 2006. 4. FDPA Community Forestry Assessment Summary Report, March 2006. 5. FDPA Young Plantation Quality Inventory Report, March 2006. 6. FDPA Environmental Monitoring Analysis Report, March 2006. 7. FDPA Performance Indicator Monitoring Table, March 2006. 8. Henan Province FDPA ICR, April 2006. 9. Anhui Province FDPA ICR Brief, April 2006. 10. Aide-Memoire for FDPA ICR Mission, April 2006. - 26 - Additional Annex 8. [Borrower's ICR] Implementation Completion Report World Bank Loan Project Management Center, SFA, China March 2006 Executive Summary Project name: Forestry Development In Poor Areas Project (FDPA) (N039/4325-CHA). Execution period: From December 16, 1998 to December 31, 2005, seven years in total. Project objective: Establish 545,000 ha of timber plantation, economic tree crops, and bamboo forests, based on sustainable and local participatory principles, in 12 project provinces (regions) of central and western China, to add forest resources and speed up forestry development, alleviate local poverty and improve the environment. The borrowers: The project borrowers are of 4 levels. The first level is the Ministry of Finance, P. R. China (on behalf of the Chinese government); The second level is the people's governments of the 12 provinces (regions) of Hebei, Shanxi, Liaoning, Anhui, Jiangxi, Henan, Hubei, Hunan, Guangxi, Sichuan, Guizhou and Yunnan; The third level is the people's governments of the 216 counties (cites) of the above 12 provinces (region); The fourth level is the 470,000 entities (households, household groups, shareholding forest farms or collective forest farms) of the above 216 project counties (cites). Total investment: The planned total project investment is RMB3.02 billion Yuan (equivalent to 364 million USD in 1998), including World Bank borrowing of 200 million USD (IBRD 100 million USD, and IDA interim fund credit 74.3 million SDRs equivalent to 100 million USD) or RMB1.66 billion Yuan, and national counterpart fund RMB 1.361 billion Yuan ( equivalent to 164 million USD). By December 31, 2005 the total accomplished project investment is 370.3 million USD (equivalent to RMB3.066 billion Yuan), including World Bank borrowing 193 million USD (IBRD loan 94.477 million USD, IDA credit 98.430 million USD), and the actual national investment of counterpart funds is RMB1.469 billion Yuan. Output/impacts: (1) Established 664,500 hectares of high standard and highly diverse tree species and intensively managed plantations, which made a significant addition to the local forest resource reserve. The established timber/bamboo forest totaled 510,000 hectares have been taken as the demonstration forest of the China National Fast-growing and High-yielding Timber Production in Key Areas Program. (2) The implementation of the project has accelerated the pace of poverty reduction in the poor population in the mountainous areas of central and western parts of the country, a positive contribution to the realization of the central government's target of Eighty Million Population Out-of-Poverty Within Seven Years Program; (3) The project is a beneficial and successful exploration of poverty alleviation by - 27 - China's forestry sector, especially by using international financial resources to solve the survival and development problems of the poor households in mountainous areas; and (4) For the first time in China, a large project employed a participatory method on a wide scale to prepare, implement and monitor afforestation, thereby raising the capability of local forestry department to adopt social instruments to manage forestry projects. Main benefits: It has been estimated that, at maturity, the project will produce forest standing volume of 64,924,700 cubic meters, firewood - 4,064,600 tons, rosin - 111,325,000 kg, bamboo timber and bamboo shoots - 11.77 billion kg, fruit (plus leaf, bark) - 8.169 billion kg, and the Eucommia tree can produce 350,000 cubic meters of timber. The total value of these products would result in total project income of 53.9 billion Yuan, an after-tax financial NPV 3.699 billion Yuan, and an after-tax financial internal rate of return 23%. Project implementation benefited approximately 3,830,000 people including 2,610,000 members of poor households, whose recent income has substantially increased, living conditions and standards have improved, and a foundation for long-term development firmly established. The town and village enterprises the project supported played a role in using local forest by-products as raw materials, employ poor farmers and generate additional income. Forest coverage in the project areas increased by approximately 2 percent and sequestered 0.4 billion tons of carbon. The implementation of the project provided local employment of about 0.11 billion person days. General Information 1.1 Project Background 1.1.1 Forests are the main part for forestry development, ecological improvement and environmental protection, but China long has been a forest resource deficit country. 1.1.2 The World Bank funded forestry projects such as the National Afforestation Project (NAP), Forest Resource Development and Protection Project (FRDPP), have facilitated speedy forest growth in China since mid-1980s and became a chief driving force for the reformation and opening-up to the outside world of China's forestry sector and for the development of its intensively managed forest plantations program. 1.1.3 Poverty-alleviation is a principal developmental strategy for the Chinese government as well as the World Bank. To further enrich the forest resources, improve the environment, and improve the livelihood of the local people, State Forestry Administration (SFA, formerly the Ministry of Forestry) lodged an application to the National Development and Reform Commission (NDRC, formerly the State Planning Commission) and the Ministry of Finance (MOF) for World Bank loan Phase III afforestation project, which was formally listed for financing for 1998 fiscal year, following the negotiation between Chinese government and World Bank for the 1997-1999 pipeline program in May 1996. - 28 - 1. 2 Project formation 1.2.1 Project proposal, identification and pre-appraisal. From October to November 1996, a project identification mission of the World Bank headed by Mr. R. Scobey, visited China to verify the project. In January 1997, the NDRC approved the project proposal. In April through May 1997, World Bank working team had further discussion with SFA, NDRC and MOF and named the project "Forestry Development in Poor Areas Project". In Oct.-Nov. of the same year, the World Bank pre-appraised the project. 1.2.2 Appraisal, negotiations and effectiveness. On the basis of thorough preparatory work at the provincial level, from February to March 1998, the World Bank appraised the project and in April the Feasibility Studies were approved by NDRC. From April 6th through 10th 1998, an in-depth negotiation was held in World Bank headquarter Washington D. C., USA regarding the provision of an IBRD loan of USD100 million and a interim fund credit of 74.3 million SDR (1SDR=USD1.34731, approximately USD100 million), and the Project Credit Agreement, Loan Agreement and the Minutes of Negotiation signed. On December 16, 1998, World Bank EASRD notified Chinese government that the above two Agreements should take effect as of that date, indicating the conclusion of the 2-year-long project preparation, and the formal kick-off for the implementation. 1.3 Goals, components and locations of the Project 1.3.1 The project was designed to develop forest resources in poor areas of central and western China on a sustainable and participatory basis to support poverty-alleviation, forestry development and environmental improvement. The World Bank Project Appraisal Document stipulated specific development indicators for poverty-alleviation, forestry development and environment improvement. 1.3.2 The project activities include: (1) Timber plantations of 315,000 ha, mainly broadleaf trees such as pine, poplar, and Chinese fir; (2) Economic tree crops of 230,000 ha, including 110,000 ha of new or rehabilitated bamboo forest; (3) Technical supporting services, including the development of planting materials, technology dissemination and training, rural infrastructure and project monitoring; (4) Development of village and township enterprises: by using the local forest products/by-products as raw materials to attain added values. 1.3.3 Twelve provinces with suitable forestry development conditions were selected for the project. The 12 provinces fall within the economically underdeveloped area of the country. 1.4 Identification of beneficiary groups. Selection of the project counties considered the project objectives, natural conditions, and existent technological capacity of the counties; the - 29 - project counties were adjusted during the implementation period in accordance with of the project objectives (Table 1). Detailed arrangements including project investment scale, management method, tree species and benefiting townships/villages and households selection were made by using Community Forestry Assessment (CFA) procedure. Table 1: FDPA Participation Counties Total State-level Poor Counties Provincial-level Poor Non-poverty Counties Year county Counties number Number Number Number 1999- 216 101 61 54 -2005 1.5 Project implementation results. FDPA was launched in early 1999 and closed in the end-2005. With the guidance and help of the World Bank and arduous efforts of the project localities over the 7 years; the Loan/credit Agreements, the PAD, the on-lending agreements of concerned domestic parties at various levels, along with the managerial/technical regulations were strictly implemented. Consequently, the expected targets for the four key designated activities of the project were achieved. Project Execution 2.1 Project implementation by component 2.1.1 Forest establishment (1) Afforestation accomplishment. Under the afforestation program of the project from 1999 to end 2005, according to the results of project inspection and acceptance checking, a total of 664,500 hectares forest was established. The designated target of 545,000 hectares in the Project Credit Agreement and Project Loan Agreement, was exceeded by about 119,500 ha. and the established area represents 121.9% of the project target. Furthermore, the revised target of 630,000 ha. established during the project's mid-term review, was exceeded by 34,497 ha. representing 105.5% of the revised afforestation plan. The area of timber plantation is 375,078 hectare or 101.8% of the adjusted planned 368,388 hectares; bamboo forest - 132,440 hectares or 109.4% of the adjusted planned 121,070 hectares; and the economic tree crops - 156,979 hectares or 112% or the adjusted planned 140,035 hectares. For the specific tree species, all species except the Masson pine, Exotic pines, Chinese white poplar, Eucommia, etc. exceed the planned targets. There are two main reasons for over-fulfilling the planting targets. Firstly, with World Bank support and modification of the Credit/Loan Agreements, surplus funds from other categories totaling 13,710,000 SDR and 23,400,000 USD was reallocated to the afforestation category to add 85,000 hectares of plantations. Secondly, with the implementation of the National Natural Forest Protection Program, the timber market prospered and the project bamboo forest and economic tree crops had better short-term - 30 - benefits than expected, therefore, farmers' enthusiasm in participating in afforestation increased. There are two reasons for not meeting the planting targets of some tree species. The changing markets affected the planting decisions of farmer households. Based on the applications and suggestions of the project provinces, MPC made some flexible adjustments when arranging the afforestation plans. (2) The quality of the established forest. Acceptance checking in the twelve project provinces determined that the average planting area verification rate to be 99%, the average planting survival rate 93%, the average forest increment compliance rate 105%. For the seven indicators reflecting the quality of afforestation, i.e. superior seeds use rate, Grade I seedlings use rate, planting area verification rate, the survival/maintenance rate, forest incremental compliance rate, increment tree compliance rate, environmental protection compliance rate all reached or exceeded the national ministerial standards. During the second half of 2005 a quality inventory was conducted of young FDPA forests. According to the results of the inventory, by project completion, the combined acreage of Class I and Class II plantations accounted for 94.4% of the total project afforestation area, indicating that the quality of afforestation remained high. (3) Young plantation tending. Tending (thinning, pruning, etc.) of the 664,500 ha. was in accordance with the technical models of the project tree species. Tending-hectares totaled 1,485,000 - indicating that, on average, each of the 664,500 plantation hectares was tended more than twice - implying primary completion of the tending task of the established forest. (4) Supplemental works. According to the local actual needs and the operational design of the project, the project financed the construction of 1,576 guard and storage sheds, and a considerable amount of economic tree crop origination facilities, forest roads, tree nurseries equipment/facilities, as well as forest firebreaks. 2.1.2 Planting stock development program In close consideration of the actual local needs and the characteristics of project, and by adopting the successful practices of the Planting Stock Improvement and Breeding Plan of NAP and FRDPP, the FDPA Planting Stock Development Plan was formulated. The FDPA plan stressed selection of high quality planting materials and application of related new technologies to provide sufficient quantity of high quality planting stock for the project. Following the implementation of the FDPA Planting Stock Development Plan, for the past 7 years, all designed development targets of the plan were realized, with the general completion condition as follows. (1) Prioritization of superior seed source and provenance. During project implementation, the timber plantation provenance zonation was defined and it was clarified that the economic tree crops afforestation should adopt popular, special, superior, new and/or rare species or varieties. According to the genetic requirements of the project planting - 31 - species, the existing condition of the seed production bases of the country, and in compliance with the national forest tree seed zones and standards, the FDPA Recommended Provenance List of Key Tree Planting Species was formulated and implemented throughout the project areas. During project implementation, 1,343,270 kg seed was used; including 37,307 kg of seed orchard seed, 897,184 kg of mother tree stands seed, 404,845 kg of high quality provenance seeds, and 3,934 kg of imported seed. The superior quality seed adoption rate of project afforestation reached 99%. (2) Expanded use of clonal seedlings and root trained seedlings. During project implementation the total planting stock reached 1,452,290,000, of which the bare-root seedlings were 1,159,840,000, root trainer seedlings were 22,510,000, and polybag seedlings were 269,940,000. Classified according to the method of propagation, the project produced 1,088,130,000 seedlings comprising 75% of the total and clonal planting stock of 364,150,000 sets constitution 25% of total production. The production of planting stock exceeded project targets. (3) Nursery management technologies improved. Targeted at the problems existent in the former project tree nurseries, FDPA adopted further improved technical measures such as reduced seed application rate, prompt seedling culling, adequate root undercutting, higher organic matter content of seedling cultivation containers. By the FDPA Key Tree Species Seedling Standards, the previously allowed Grade II seedlings were removed and only Grade I seedlings were permitted for project afforestation, the ratio between the seedling height and the collar diameter was reduced, and the planting stock standards of the major species for bamboo forest and economic tree crops were added. The FDPA Tree Nurseries Technical Management Guidelines, specified that nursery management data be maintained. The above measures indicate that the management level of the nurseries was improved. (4) Strengthened extension and application of new technologies, new research achievements of planting stock development and seedling production. With the FDPA Technical Extension and Training Program, including Internet technologies, training and distribution of technical publications, the development of planting stock was a focal component. Consequently, related technologies were adopted by the project nurseries, farmer households and planting entities. In total, 37 seedling production technologies such as seedling container organic matter prescription, bud sprout transplanting, rooting powders (ABT, GGR), tissue culture (Eucalyptus) nursery, moisture and land fertility management etc. were adopted, and the extended technologies covered all project planting species. According to the project planting plan and afforestation models, the county level central and key nurseries played the dominant role in supplying quality planting stock for project planting. The goal to use only Grade I seedlings was realized basically. According to statistics, the project demand of Grade I seedlings was 1,097,740,000 while the actual production reached 1,452,270,000 or 132.3% of the plan. 2.1.3 Execution of the technical extension and training plan Technical extension and training was an important part of the project, organizational - 32 - development and various extension and training forms during project implementation played a promotional and supporting role in ensuring the application of technical standards and guidelines, raised the overall technical level of project management, upgraded the technological capability of the project staff at different administration levels, and improved farmer households' competence in forestry knowledge and forestry production skills. (1) The organizational development. FDPA established at the central level the Technical Extension and Training Supporting Leading Group, the technical consultancy expert database, and the FDPA Office of Technical Extension and Training Office (TEATO) in the Chinese Academy of Forestry. And, in each project province and county corresponding organizations were established while at the township level, the responsible staff were arranged for technical extension and training. Meanwhile implementation plans for technical extension and training plans were formulated at the central, provincial and county levels. (2) Managerial and technical training. During project implementation the PMC, in joint effort with TEATO, conducted 39 central level technical training courses comprising 3,840 person-days of staff from the 12 project provinces (regions) and key project counties, exceeding the planned target of 3,410 person days by 12.6%. Meanwhile, the World Bank Management Offices (PMOs) of the 12 project provinces conducted 257 training courses covering the topics of financial management, goods procurement, quality management, environmental protection, CFA, household survey and specific technical topics such as the prevention and control of pests and diseases, totaling 45,181 person-days at the county level, exceeding the planned target by 69%. The project counties conducted 4,599 technical training courses for project township technicians and staff, village administrators and leading farmers totaling 296,143 person-days, which is 3.89 times greater than the planned 60,480 person-days. Additionally, the township level conducted 55,758 technical training courses or field demonstrations with farmer participation of 3,298,804 person-days, exceeding the plan by 5.99%. (3) Preparation and dissemination of technical information. TEATO, of the Chinese Academy of Forestry, organized more than 20 forestry experts to compile and publish the book, World Bank Loan Forestry Project Technical Series that contained 25 booklets. In May 19999, 300,000 sets of the book were printed and distributed to different levels of the townships, counties, and leading household farmers of the 12 project provinces; this was greatly welcomed, especially by the grass-roots technical people and project farmers Additionally, TEATO selected audio-video materials of 19 key economic tree crop species with related high-yield and high-quality cultivation technologies and made and distributed 800 sets of video tapes them to the PMO of every project county in May 2000 - allocating 4 -5 tapes (and types) to each county. Every year during project implementation 4 editions of the Project Bulletin of World Bank Project Technology were compiled and circulated to report progress and achievements. The Bulletin also played a role in having the project people exchanging information and experiences regarding technical extension and training, and strengthening the communication of different organization levels. In 2001, TEATO opened its website (WWW.CAFWB.net) serving FDPA technical extension that includes 9 columns. The website raised efficiency and the speed of technical extension. Meanwhile the - 33 - 12 project provinces distributed their own reading materials, videotapes or VCDs to disseminate needed project technologies. (4) Demonstration forests are important carriers of learning and technical training. During the implementation period the 12 provinces constructed 29,521 ha. of demonstration forest, 4.1 times the planned target of 5,815 ha. The demonstration forests were in 161 project counties, or 74.5% of all project counties, and covered almost all the project's tree species. (5) In 1999, the central level technical consultancy experts were organized to establish in Yangxin County of Hubei Province and Xixian County in Shanxi Province, two central level integrated technical demonstration zones and 35 demonstration gardens (forest stands, nurseries), where 75 farmer household technical demonstration were located. This activity trained numerous county and town level technical people. (6) Overseas study tours and training. To improve the project staff's management expertise PMC organized international study tours/training for 170 staff to enable them to learn about advanced forestry technical practices and experiences. The study tours and training covered 12 countries; Australia, New Zealand, America, England, Canada, Finland, Germany, Italy, Japan, Chile, Brazil and South Africa. The study tours totaled 1,207 person-days and training totaled 1,853 person-days, making up 83% of the plan. The study tours and training centered around afforestation practices and forest resource management specifically seedling production and nursery management, planting site preparation, planting methods, plantation tending and thinning, pest and insect management, wood felling, and timber processing. Part of the training also aimed at raising the level of English language skills. (7) Expert technical consultancy. During project execution, four international consultants namely Mr. Neville Freeman, Wang Yuzhu, Jakob-Hinrich FEINDT, and Liu Qizhi were recruited to offer technical consulting services on fruit marketing/economic tree crops, and plantation pests/diseases. These experts toured the project areas and offered advice. Their consultancies comprised 63 person-days. In addition, national and local experts have provided around 105,400 person-days consultancy services. 2.1.4 Goods procurement (1) International bidding, national bidding and shopping, procured 59,263 tons of chemical fertilizers (urea, calcium super-phosphate, etc.) - comprising 38% of the total chemical fertilizer used (156,428 tons). In addition, the farmers procured 97,165 tons of chemical fertilizer, or 62% of the total. Project farmers applied organic fertilizers to meet a portion of the fertilizer demand of project plantations. Around 19,840 kg of seeds of Slash pine, Loblolly pine and Walnut were also procured. Procured equipment include 268 forest protection/forest firefighting command vehicles, 115 pickup trucks, 9 field motorcycles, 608 sets of office equipment such as computers and printers, and 97 sets of irrigation/plastic sheet greenhouse/nursery equipment. Goods procured utilized 17,602,600 USD of World Bank funds. - 34 - (2) Project goods procurement was executed strictly as planned. To raise the procurement efficiency of chemical fertilizer and meet actual needs of the project forest farmers and the established plantations, the World Bank approved the proposal to change the international bidding method of chemical fertilizer to the shopping method of procurement by the PMOs of the provinces or counties. To adapt to this shift, PMC developed the project document, FDPA Domestic Shopping Procurement Management Methods of Chemical Fertilizer, conducted shopping procurement training courses for project provinces and counties, and sent staff to the provinces and counties for guidance and supervision to ensure the procurement shift was implemented. Use of chemical fertilizer totaled 156,428 tons (excluding the organic fertilizer the forest farmers used), or 93.8% of the planned target of 166,707 tons. Other procurement work was completed basically in line with the targets. 2.1.5 Environmental management The FDPA project established and implemented Environmental Protection Guidelines to ensure adequate environmental management. The guidelines built on well executed, good practices developed in past World Bank afforestation projects. The average environmental protection compliance rate of the project afforestation reached 97%. (1) Planting land selection accorded afforestation priority to suitable mountainous barren wasteland, bush land, sparse wood land (canopy closure below 0.2), and low productivity, artificial forestland (annual increment less than 3 m3/ha). By this priority/ procedure ecological conservation was practiced and local biodiversity protected. (2) By considering the characteristics of FDPA and the lessons of previous World Bank forestry project environmental protection guidelines, improved measures were adopted, including specifying "one tree one pond (the moisture retention pit)" measure as an upland planting site preparation method for economic tree crops. For the economic tree crops and bamboo forests, possible environmental problems were considered and adjustments made, including replacing tending work with intercropping, hole-type, or strip-type site preparation methods at slopes more than 16 degrees, maintenance of the existent vegetation at the top, ridge and foot of the hills. For bamboo shoot harvesting, attention was devoted to soil and water erosion prevention. Adapting to actual conditions in provinces such as Shanxi and Jiangxi included measures directed toward plateau platform land and red soil environments ­ with good results. (3) Reinforced pest and disease management for the plantations. In February 2001 the Planted Forest Pests and Diseases Prevention Plan was issued and executed throughout FDPA provinces. The project carried out planting stock quarantine measures, reinforced inspection and management, and took prompt environment-friendly measures to pest and disease incidence. Due to the integrated adopted measures of prevention and control, there were no significant pest and disease outbreaks during project implementation. (4) Project plantation environmental monitoring. Although all of China's forestry - 35 - projects pay attention to environmental monitoring, FDPA gave it higher significance because it included improved environment as a project goal. From 1991 to 1995, the NAP carried out detailed environmental monitoring for timber plantations. To understand the impact of planting program implementation, the FDPA Environmental Monitoring Implementation Plan, formulated by TEATO, designated 35 monitoring locations in 8 project provinces to monitor the condition of pests and diseases, soil fertility, and soil and water erosion of economic tree crop and bamboo forests. By end 2005, the 11 soil and water erosion monitoring spots, 10 soil fertility monitoring spots and 14 pest/disease monitoring spots completed their monitoring tasks and required data was collected. (5) Environmental impact assessments were made before the construction of the small enterprises of FDPA. And after their establishment, the enterprises were supervised following the national and local environmental protection stipulations, and health and safety regulations, such as the discharge of pollutants. 2.1.6 Town and village enterprises (TVEs) TVE development was designed to support the small-scale, labor intensive, commercially operating town/village level enterprises using local forest raw materials, to provide the surplus non-technical laborers with employment/income opportunities and to deepen the project product market. According to project design, 12,800,000 USD sub-loan should be used to build 64 small processing/marketing or post-harvesting treatment enterprises. Following the launch and implementation of the China National Natural Forest Protect Project, in some project areas the supply of raw materials became insufficient and the market demands changed significantly, so some project provinces proposed to adjust TVE investment. Based on China's application, in May 2001 the World Bank supervision team agreed to downsize the 64 TVEs target to 14. In line with the TVE approval procedures, PMC issued FDPA TVE Provisional Stipulations Regarding Relevant Issues, and Feasibility Study Standards and Requirements of TVEs according to which no enterprises should commence construction without county, province (region) and central project approval of the feasibility study reports. With related stipulations 14 TVEs were approved in Anhui, Guizhou, Jiangxi, Sichuan and Yunnan. The approved TVEs, five newly established and nine upgraded TVEs, following capital construction procedures, started and finished construction smoothly and timely with a construction period of about one year, and related equipment was purchased according to the approved procurement list and World Bank procurement guidelines. By April 2003, all the 14 verified and approved enterprises became operational. The total investment for the 14 enterprises was RMB 46,394,000 Yuan, of which, the World Bank loan provided the equivalent to 22,457,000 Yuan. The sub-component created about 1,500 full-time jobs either through direct enterprise employment or through supplying raw materials for the enterprises. More than 60% of the employees were below the poverty line. TVE employment increased household income by around 1,000 Yuan annually. From the initial production to end-2005, the 14 enterprises cumulative tax revenues totaled 8,761,300 Yuan. While producing fair economic and social benefits to the locality, the project - 36 - supported TVE enterprises also left some lessons for thought and future consideration. 2.1.7 Marketing facility development The marketing infrastructure under FDPA, according to project design, should be built during the last two project implementation years to improve the towns (townships) and village level marketing performance by financing product packaging, cold storage, fresh-keeping equipment and facilities, etc. of economic tree products to ensure increased income for project farmer participants. In May 2002, each project province conducted marketing infrastructure investigations. Based on the provincial investigation results and the suggestions of the project international consultants, PMC submitted to World Bank in January 2003 the FDPA Marketing Facilities Survey Report, indicating that as the private enterprises have established a number of marketing facilities in many of the project areas during the project period, 11 provinces planned to use the existing marketing channels and facilities for the project economic tree crop products and didn't intend to build new marketing facilities, while Shanxi province alone proposed a marketing facility construction plan. The World Bank approved the marketing facility construction plan of Shanxi Province which included the construction of one air-conditioned fruit storehouse, 60 sets of fruit airing sheds, and 100 farm vehicles. World Bank loan funds equivalent to RMB 960,000 Yuan was to be used. With construction efforts for two years, two of the above three approved activities were executed - the airing sheds were not executed because the households decided later to use available yard space and roofs to do the fruit airing. The storehouse and the vehicles used World Bank loan equivalent to RMB 899,600 Yuan, or 93.3% of the plan. The fruit storehouse in Xixian County has functioned satisfactorily by smoothing out seasonal price fluctuations, particularly during harvest season and in mobilizing the local fruit processing industry. The 66 farm vehicles procured for villagers in Hunyuan County solved the local farmer's problem of transporting fruit to market, accelerated fruit distribution, and added value to the fruit. 2.2 Accomplishment of the investment By December 31, 2005, FDPA completed a total investment of 370.3 million USD (3.066 billion Yuan equivalent) which is 101.74% of original project budget of 364 million USD (RMB 3.021 Yuan equivalent). Of the total investment, the World bank loan comprised 193 million USD (RMB 1.597 million Yuan equivalent the exchange rate 1 USD = 8.28 RMB during project implementation) accounting for 52.1% of the total investment; The domestic funds used was 1.469 billion Yuan in form of counterpart fund making up 47.9% of the total. - 37 - 2.2.1 Use of the World Bank fund (1) Credit fund. The project used credit funds totaling 74,049,300 SDR, or 99.7% of 74.3 million SDR stipulated in the Project Credit Agreement. The breakdown of the used credit is as follows: Category I (goods) ­ 9,018,500 SDR; Category II (afforestation) ­ 62,513,100 SDR; Category III (consulting services, etc.) ­ 450,000 SDR; Category IV (TVE) ­ 2,027,300 SDR; Category V (marketing facility) ­ 40,300 SDR. (2) Loan fund. The project used loan funds totaling 94,476,800 USD taking 94.5% of the 100 million USD stipulated in the Project Loan agreement. The breakdown of the used loan is as follows: Category I (goods) ­ 6,662,900 USD; Category II (afforestation ­ 87,243,800 USD; Category III (consulting services, etc.) - 521,900 USD; Category V (marketing facility) ­ 48,300 USD. 2.2.2 National counterpart fund. The project's domestic counterpart fund totaled RMB 1,469.17 million Yuan, of which the provincial-level contribution was 281,092,200 Yuan, the prefecture (city) level contributed 56,222,500 Yuan, the county level provided 178,490,000 Yuan, and the afforestation entities contributed 953,362,200 Yuan (including labor value of RMB 734,697,800 Yuan). 2.2.3 Project investment and scale adjustment. Two investment and scale modifications to the Project Credit Agreement and Project Loan Agreement in 2002 and 2003 were made, with due consideration to: (1) unchanged project objectives, beneficiaries, and development areas; (2) the changes in macroeconomic and local market situation which created new problems requiring resolution; and (3) actual requirements of the project areas and wishes of farmer households. These investment and scale adjustments include the following: (1) The unit price of economic tree crops planting. Because of the rise of the seedling price, the World Bank approved an increased in economic tree crop afforestation unit costs from May 2000; (2) World Bank fund financing rate. To solve the problem of county level counterpart fund shortages and ensure project planting quality, from January 2002 the World Bank reimbursement rate for afforestation was raised from 50% to 60%; and (3) the adjustment of the funds among the categories. In May 2003 the World Bank approved a request to reallocate World Bank funds from Category I (goods), Category III (TVE), Category V (marketing facility), as well as Category VI (unallocated) to Category II (afforestation, increasing the planned afforestation area from 545,00 ha. to 630,000 ha. Quality Ensuring Measures of Project Implementation FDPA developed measures in addition to those applied in previous World Bank forestry projects to ensure successful implementation quality. While adopting the successful quality management organizational framework of previous afforestation projects, the participatory method adopted in FDPA gave full participation decisions to the project target group - the poor household farmers. The participatory method and related monitoring and evaluation - 38 - work assisted in ensuring high quality project preparation and implementation, offered reliable assurance for a favorable project outcome, and facilitated timely adjustment of activities to achieve the beneficiaries' wishes and realize project targets and objectives. 3.1 The systematic and efficient management system The organizational system of FDPA contained two main two parts. One part was project implementation agencies including the PMC at the central level and the PMOs at the provincial and county levels with specific project implementation and management responsibility. The other part was the fund management agencies for project fund on-lending, withdrawal, reimbursement and debt obligation management, etc. , which include the International Department of MOF along with financial departments (bureaus) of the project provinces and counties. The two parts of government agencies with clearly defined responsibilities cooperated closely to form the project organization system and ensure efficient and smooth project implementation. To achieve the high standard and high quality requirements of afforestation design, the organization structure of the project embodied a set of functionary organs covering planning management, financial accounting, planting stock development, technical extension, planting technical management, quality inspection, environmental protection, monitoring and evaluation etc, with separate management methods, standards and guidelines. In planning management, for instance, the compulsory document of FDPA Planning Management Methods was formulated. And when finalizing the annual afforestation plans for the project areas, the method of "bottom-up plus top-down" was adopted. In other words, at the beginning of every project year, indicative plans were issued to localities according to the project planting targets, after which PMOs at different project levels would follow the indicative plans to prepare detailed plans for counterpart funds, planting land, working labor, seedling requirements, etc. Based on the actual situation the PMOs of different levels proposed adjustment options to the indicative plan. With confirmed preparation acceptance, the formal afforestation plans were finalized and issued. After the insurance of the formal plan, the plan became the implementation guideline and could not be changed at will. 3.2 The pioneering Community Forestry Assessment (CFA) FDPA covered numerous provinces, counties and townships, villages and millions of poor farmer households as the primary beneficiaries and participants, making it distinct from former World Bank afforestation projects. To adapt to this difference and meet project objectives, significant changes were made in information collection. During project preparation, and with reference to the Participatory Land Use Planning demonstration in Sichuan and Yunnan in 1980s, the World Bank and Chinese officials agreed to adopt the CFA participatory method by soliciting advice and listening to the farmer to develop project implementation plans. Project implementation achievements and household survey information confirmed the significant contribution CFA made to FDPA. Firstly, CFA makes the project farm-level - 39 - design conform to the actual situation and wishes of the farmers which assured the quality of project feasibility studies. Secondly the approaches and procedures adopted aroused the sense of responsibility and the enthusiasm of the farmers contributing to the realization of project targets. Thirdly, the abundance of ongoing information, such as household participation, farmers' preference in species selection and production arrangements, and benefits to the farmers, would be collected, which have provided the bases in project decision-making and adjustments. The CFA method reflected, to a large extent, the wishes of the beneficiary groups, maximized the number of project beneficiaries, particularly for poor households, minimized the project economic risk, and protected poor household benefits, so represents the future of forestry development. This was the first time to adopt the CFA process in preparing and implementing a large forestry loan project in China. 3.3 The strict, scientific typical household surveys FDPA carried out successive surveys of household/shareholding forest farms to monitor and evaluate the project. According to the World Bank mission aide-memoire of February 1998, the data for project household income condition should come from typical sample surveys of the households. Based on World Bank requirements, and with the assistance of the Chinese Academy of Forestry and the Economic Development and Research Center of State Forestry Administration, the FDPA Action Plan for Household Survey was worked out in 1998. Three surveys were conducted. The first survey (1999) collected project baseline data. The second survey (2001) supported the mid-term evaluation and project adjustment; In March 2005 as per the World Bank's request, PMC organized the 12 project provinces to carry out the third household survey during the second half of this year to provide information for project completion. Each province has identified independent provincial-level socioeconomic institutions to conduct the survey and provide the necessary training to enumerators. The field survey was conducted strictly and the survey result reflected the project's income improvement accomplishment. The systematic, stage-based household surveys undertaken in FDPA, adopted consistent uniform survey standards and comparable analysis, making the analysis results highly reliable. 3.4 The strict project quality control Quality-assurance relied heavily on the strict inspection and checking acceptance system established. Firstly, the Four-level Inspection and Checking Acceptance System required actions from the planting entities, the county, the province and the central level. The field checking was conducted by successive working procedures of site preparation, planting, tending etc. and the procedural steps must be acceptable before proceeding to the step. Secondly, high attention was paid to the verification and review of the statement of expenditures. To achieve this at the central level, the fund claim documentation were crosschecked by integrated responsible reviewers from the planning division, financial division and planting management division. Any claim that failed to meet the required standards were not accepted. Thirdly, the proven "reimbursement system" was employed. - 40 - The systematic, standard reimbursement verification procedure was an effective fund flow mechanism to provide funds for completed work that reached the required quality standards. Fourthly, strict fund management and fund use auditing was practiced. Based on the requirement of the World Bank, every year the National Audit Office sent staff to the project to check and supervise the financial accounting and fund use. The auditing offices of the grassroots levels, the planting entities, the State and the World Bank, responsibly performed their respective duties. The management at different levels reacted promptly to follow up the auditing comments on raising fund use efficiency and promoting implementation quality. 3.5 Indicator to monitor the implementation progress To monitor the progress of project implementation and project goal realization, the FDPA Indicator Monitoring Table was developed to reflect implementation of project activities by using input and output performance indicators. The Table was consolidated and submitted to the World Bank on a half-year basis, and proved to be very useful tool for monitoring project progress. In a word, FDPA adopted appropriate and effective quality-assuring measures, and these measures contributed to raising project operational efficiency, assuring quality implementation progress. The Implementation Achievements Due to the adoption of the proven practices of the previous World Bank financed forestry projects, international and national advances in technical and management concepts, project implementation processed smoothly towards the project targets and objective. The project has produced positive economic and social benefits, environmental benefits, and technical management benefits that will become more notable over time. 4.1 Economic benefit 4.1.1 The 664,500 hectares forest, established in accordance with proven afforestation models, will produce the expected economic benefits. Based on the calculation of increment standing volume, the established 375,000 ha. timber plantation will reach 64,924,700 cubic meters, plus 4,064,600 tons of firewood and 111,325,000 kg of rosin. The 132,400 ha. of bamboo forest can produce bamboo timber and 11.77 billion kg. bamboo shoot, and the 157,000 ha. economic tree crops can produce 8.169 billion kg of fruit, leaf and bark, the Eucommia trees can produce 350,000 cubic meters of timber. 4.1.2 The total afforestation income from the project plantations should reach 53.9 billion Yuan. The financial NPV after tax is 3.7 billion Yuan and the dynamic cost recovery period after tax is 11.3 years, the financial internal rate of return after tax is 23%, which is 3.2% higher than the project appraisal target. The above financial and economic analysis results indicate that the economic benefit of FDPA will be very notable. 4.1.3 The income level and assets of project households increased. The third household survey indicated the household income benefits. The survey determined that 82 households - 41 - had a net income greater than 1,500 Yuan in 2005, while in 1999 only 13 households had such an income level. This indicates that the number of households with this income level in 2005 was 6.3 times as many households as in 1999. For the lower income group, the number of households with net income below 500 Yuan decreased from 71 in 1999 to 4 in 2005, representing 41.0% of the total surveyed households in 1999, but only 2.3% in 2005. Household total income rose substantially during project implementation. For the 173 comparable households in the three surveys, the average annual household income was 13,749.37 Yuan in 2005, representing an incremental income increase of 5,112.12 Yuan over 2001 and an increase of 8473.54 Yuan over 1999. The household surveys also showed that farmer living conditions improved substantially and included improved housing and drinking water; and more farming equipment, electronic appliances, etc., were purchased by the households. A parallel sample survey was carried out along with the third household survey in 19 village communities of the 12 project provinces to understand the early income generation conditions resulting from FDPA. The results indicate that to the incremental revenues derived from the FDPA project increased per capita incomes of farmers in 2004 by 572.6 Yuan - 85.4% above the baseline income level of 670.5 Yuan before the project. 4.2 Social benefit The successful implementation of FDPA is illustrated by its obvious social benefits, especially the poverty reduction benefit. Throughout the project implementation period, poor farmers remained the major participants and beneficiaries of the project, and the related completion indicators exceeded the designed targets. 4.2.1 The poor household is the major project target group, and the project beneficiary coverage is immense. The updated 2005 CFA report showed that during FDPA implementation the benefiting townships numbered 1,630 with a benefiting rate of 39%, or 9 percentage points higher than that in 1998. The number of benefited villages is 9,910 with the village benefiting rate 29%, or 4 percentage points higher than that in 1998. A total of 973,578 households (including farmers who directly manage the plantations and those who share the benefits from collective forest farms) benefited from the project including 645,185 poor households ­ representing 66% of the benefiting households. Some 3,834,111 people benefited from the project, of which the poor population was 2,614,381 ­ representing 68.2% of the total. These figures indicate that the poor households comprised the main portion of the project, and the poor population was the main beneficiary. By project closing, 891,695 households directly participated in the project, an increase of 211,807 household or 23.8% over the appraised target of 679,888 households. Of the 891,695 households, poor households numbered 598,187 ­ an increase of 88,128 households or 17.3% over the appraisal target of 510,059 households. By project completion, 474,299 entities participated in the project, an increase of 72,916 or 18.2% over the appraisal target of 401,383. Of the 474,299 entities, 444,844 are individual households with a land management area of 287,210 hectares. The number of household groups totaled 23,000, - 42 - managing an area of 186,847 hectares, shareholding farms managing 96,232 hectares numbered 3,586,. Collective forest farms numbered 2,869 and managed 94,208 hectares. Individual households and household groups planted the largest land areas while the shareholding forest farms and collective forest farms were of lesser importance. 4.2.2 The general situation of the poor households including the development capability improved. The household survey analyses showed that the educational level of the project labor force was raised substantially. Additionally, more than 95% of the households attended technical training courses and learned practical forestry technologies, improved their market economic awareness, and increased their scientific/technological knowledge level. Project activities improved poor households' access to outside information and technical knowledge, which broadening their vision and spurred the communication activities. With added income from the project activities, the poor households' long-term development capacity was enhanced. 4.2.3 FDPA promoted surplus labor employment and social development of the poor areas. Compared with past World Bank projects, afforestation under FDPA offered substantial employment opportunities, alleviating the pressure of the re-employment of the surplus rural labor, through site preparation, planting, and young forest tending of timber plantations; but more particularly by the more labor intensive economic tree crops subcomponent which requires labor for pruning, canopy forming, fertilizer/pesticide application, fruit harvesting, etc. It was estimated that the project created about 110 million person-days of local employment, including about 60 million person days from the economic tree crops and bamboo forest subcomponents of the project. Also, under the TVE sub-component numerous poor farmers were employed or benefited directly from the established enterprises. Additionally, FDPA's poor and minority household selection criteria, the fair, open and just operational measures of CFA work, contributed greatly to the social security and the harmonious development of the project areas. 4.3 Environmental Benefit 4.3.1 Addition of forest resources of project areas. The 664,500 hectares. of high quality plantation, developed consistent with environmental protection guidelines, which increased the local forest coverage and optimized the local forest structure and species structure in the project areas. In addition, with the maturing of the forest, the severe imbalance between timber supply and demand in the project area will be partially alleviated, and will contribute to natural forest resource conservation. 4.3.2 Environmental improvement with reduced soil and water erosion, and protection of local biodiversity. By strict adherence to the Environmental Protection Guidelines the established plantations reduced local soil and water erosion substantially while promoting water retention capacity. At the same time, the measures of strict selection of planting land, the afforestation models, the high diversity of tree species, site vegetation maintenance for wildlife habitat, integrated pest/disease management by protecting the pest predators and mitigating chemical pesticide application, etc, contributed - 43 - to biodiversity conservation and ecological environment improvement in project area. 4.3.3 Carbon sink benefit. Global warming is a problem affecting the survival and development of humankind. Greenhouse effect has proven to be a very important accelerating factor for global warming, though the unusual global climatic changes cannot yet scientifically explained. Trees that absorb atmospheric carbon dioxide and store it through photosynthesis reduces the greenhouse effect. The carbon sink impact of FDPA afforestation was calculated by experts of Chinese Academy of Forestry. The carbon sink of the timber plantation increases with the increase of the standing volume, the carbon sink of the economic tree crops obviously increases for the first five years after afforestation, and for the bamboo forest, the carbon sink capacity increases in the first six years following the planting or rehabilitation as the bamboo grows more dense and increases in diameter. The 664,500 hectares of FDPA plantation within its in entire growth period, can store about 407,354,931 tons of carbon, equivalent to carbon emission of burning 581 million tons standard coal. 4.4 Technological progress Compared with former World Bank loan forestry projects, the technological progress in FDPA is obvious, as shown below. (1) Learning from previous projects, a series of technical and management standards and guidelines were designed and executed. Additional afforestation models were explored and extended. Afforestation site preparation methods were improved, the planting density was reduced, species diversity increased, etc, all of which laid a good foundation for high standard, scientific management. (2) More superior varieties/species and advanced forestry technologies were applied. Seedling production technologies were extended and improved planting/forest management technologies such as fruit tree pruning and forming, etc. strengthened technical afforestation. (3) The FDPA intellectual development impacts are notable. In the course of project implementation, the domestic and international study tours and training, expert consultancy, as well as management practices combined to produce a number of highly competent forestry technicians and managers at provinces, counties, and townships and a great number of project beneficiaries, especially the poor, learnt how to manage forests. Project Implementation Lessons and Suggestions FDPA is a large-scale forestry project, government implemented with World Bank financial assistance in the underdeveloped central and western Provinces of China. The project implementation period was seven years, during which time experience was accumulated in forestry development aspects that should be considered in future projects using international donor funds. - 44 - 5.1 Lessons from FDPA implementation 5.1.1 Learning from the past World Bank projects with a spirit of innovation established a solid foundation for the smooth execution of FDPA The World Bank financed NAP and FRDPP were successful with notable impacts, and provided a good foundation for FDPA implementation. However, FDPA contained various innovations and new developments, including bamboo forests, economic tree crops, and town and village enterprises development. In terms of the implementation entities, the project concentrated to the individual households especially the poor households; The CFA methodology was adopted for the selection of beneficiary groups, and FDPA focused its technical development efforts on dissemination of advanced, practical technologies improving the farmer capacity and land productivity. The training program focused on these new developments and innovations and represented an important new direction for World Bank financed Chinese forestry projects; a move toward higher standards and innovative development. FDPA adopted CFA, an open, transparent procedure to carry out project feasibility and design according to farmers' wishes. The three systematic socioeconomic surveys on households' survey across the 12 provinces, as well as other M & E measures, helped monitor the project implementation moving towards the project objectives, which produced notable results. The added economic tree crops and bamboo forest components allowed farmers to generate income benefits within a few years of project implementation. On technical management, the training and extension work provided the project with needed high quality provenance, the increased application of clonal stock, etc. ensured the realization of high planting quality and more rapid income, thereby contributing to poverty reduction and improved living conditions of farmers. FDPA made major progress in adding other objectives to its afforestation objective (Table 4). Table 2: FDPA vs. NAP and FRDPP in afforestation Project NAP FRDPP FDPA Objective Fast-growing and Expanded forest resources to Afforestation to add high-yielding timber reduce natural forest cutting forest resources, reduces plantation to solve the timberpressure and protect the poverty, and improves supply problem environment the environment. Scale 985,000 ha 900,000 ha 545,000 ha Types Timber plantation Timber plantation, Timber plantation, protection forest bamboo forest, economic tree crops Species 20 afforestation models 29 afforestation models 34 afforestation models, tree species highly diverse Entities State/collective forest farms Collective forest farms Households 13,000 entities 104,000 entities 470,000 entities Beneficiaries State/collective forest farms Collective forest farms 68% are poor households CFA No No Yes - 45 - 5.1.2 Improved organization and strengthened technical management built up firm institutional and quality-assuring basis for a successful project FDPA had a complicated design with multiple objectives covering 12 provinces. Thanks to government leader's high attention to the project at all levels, cooperation and collaboration among different departments and sectors were close and efficient, so that necessary human, financial and physical resources were mobilized to serve project operations. In the aspect of organizational structure, FDPA extended the NAP/FRDPP institutional framework. At the central level, the FDPA Leading Group was set up with the SFA administrator as the group leader, and heads of related departments as the leading group members (such as Afforestation Department, Chinese Academy of Forestry, the Forestry Planning and Design Institute, the general Station of Forest Farms and Tree Nurseries, PMC, etc.). The central-level leading group took the responsibility for establishing project principles and strategies and solving significant problems, and the routine project implementation management work was conducted by PMC. Similarly, project leading groups were set up in the provinces and counties with the key government leaders of the same level as the group leader and the group members including, planning commission, finance, forestry, etc. and PMOs who would be responsible for the project implementation were of the same administrative level. Each of the functionary components, including planning management, financial accounting, planting stock development, technical extension, planting technical management, etc. of project management was provided with staff and specific duties, making a responsibility-clear, efficient, and integrated project management structure. To improve implementation management, PMC formulated a set of technical guidelines, management regulations and standards, and accordingly the provincial PMOs established implementation schemes or supplementary guidelines based on their particular situation for standardized and consolidated project implementation. PMC formulated 21 standards, management methods and technical guidelines, which were well implemented across the project provinces. 5.1.3 Compliance with the requirement of market economic laws and the wishes of beneficiary groups, created a favorable condition to realize project targets FDPA was a large-scale forestry loan project. To realize the project targets it was necessary to follow market economy principles to maximize the resource use benefits by treating the households as primary stakeholders. In practice, the production scale, species selection and management arrangements were determined based on the costs and profit analysis and market survey to ensure efficient and optimal fund was used by the households. In addition, The CFA process reflected the wishes of farmers and ensured their participation in both the design and implementation of the project, which are undoubtedly requisites of project target realization. - 46 - 5.1.4 Technical extension as important component to raise the project forest land productivity and reduce poverty Science and technology combined with technical extension and training improved farmer productivity, reduced poverty, and met afforestation targets. FDPA technical development concentrated technical extension and training on households and planting entities. (1) The 4-level technical extension and training system of central, provincial, county and town levels were established; (2) Multi-level, multi-disciplinary well-targeted technical training was conducted with notable effect; (3) The research technologies promoted increased growth, productivity/production, and quality. Statistics show that during FDPA implementation, 121,066 leading farmers participated in the township level technical extension and training groups, implying that there were 74 leading or key farmers in every project township or 12 key farmers in every project village. This also means one key farmer who has been well trained and grasps modern planting management technology is available for every 30 farmer beneficiaries. This is a farmer-based, large forestry project with good potential to benefit poor households in long term due to the technical and knowledge upgrading of the households. This level-by-level training practice, extension/training topic selection based on project demands, and establishment of demonstration households targeted at the poor, were both effective technical extension mechanisms for the Chinese situation and an indispensable mechanism to raise land productivity in rural forestry projects, thereby improving the welfare of poverty-stricken farmers. 5.1.5 Reinforced development of planting stock is a crucial measure of the implementation of high-standard and high-quality afforestation projects "Superior seeds and vigorous seedlings" was the first and basic linkage for successful afforestation. All the World Bank financed forestry projects in China prioritized Planting Stock Development Plan in project implementation. This project built on past Planting Stock Development Plans by greater use of new technologies and improved standards. The decision to emphasize superior planting stock selection and improved technology extension strengthened nursery management and facilitated higher quality afforestation; (1) The project established at the central, provincial and county levels the "FDPA planting stock leading group" comprised of specialized technical staff of the departments of research, technical extension and seed/seedling production; (2) By focusing on the "central nurseries", the planting stock production technologies were improved dramatically with special attention to the technologies used for initial planting stock production procedures; (3) Strengthened extension and application of practical technologies and research improved all-around quality of project afforestation planting stock. Project practice proves that the "three fixations (fixed supplier of seeds, fixed place for seedling production, fixed high quality supply of planting stock)", "two certificates" (quality seed use certificate, Grade I seedling certificate), improved nursery management/technologies, and increased use of clonal planting stock, were all consistent with project demands. It is these measures that led to achieving superior planting stock development performance indicators ­ such as high quality seed use rate 99%, Grade I seedlings rate 95%, clonal planting stock rate 25% all of which helped raise project - 47 - afforestation quality. 5.1.6 Adjustment to the plans at appropriate time and to appropriate extent based on project practical needs is a prerequisite of project smooth implementation In the implementation and preparation of FDPA, adjustments were made regarding the project activities, financing categories, financing ratio, unit planting costs, chemical fertilizer procurement method, etc. These project implementation adjustments were timely and accurately reflected the objective requirements of the project and market changes. Consequently, these adjustments optimized the structure and efficiency of the project's financial resources and played a very important role in improving project operational efficiency. In 2001, adjusting the method of chemical fertilizer procurement from PMC based unified bidding to provincial/county shopping, was not only economical, but also promoted timely fertilizer use. According to the application of the provinces, based on the requirement of project households, two major financing category adjustments were made in 2002 and 2003 to reflect macro changes in project operation and the fundamental interests of project beneficiaries. The seven-year-long implementation period of FDPA proved that timely and appropriate plan adjustments were feasible, while continuing to focus on the original project objectives and still achieve smooth project implementation and realization of expected targets. 5.2 Lessons and suggestions FDPA despite its successful implementation and good practice had some lessons requiring further attention in the future similar projects. 5.2.1 More efforts can be adopted to resolve the contradiction between artificial forest long income generation period and the short-term project loan repayment requirement. The FDPA afforestation implementation shows that tree species such as Masson's pine, Loblolly pine, Slash pine, etc. with longer rotation period (15-20 year) were rarely sought by the project planting entities and so target achievements were lower. With a seven-year loan repayment grace period, these types of trees are incapable of producing any profit by the initial repayment time. FDPA entities are mainly farmers located in the mountainous areas, where transportation, production and living infrastructure, and general economic conditions are poor, and make this contradiction even more severe. To substantially solve this problem, apart from integrated design to combine short-term, medium-term and long-term benefit-generating species and activities, other measures should be adopted including more preferential polices and assistance by different levels of government to build up a steady income mechanism for participating poor households, or adding diverse rural short-term production project activities, etc. - 48 - 5.2.2 There is potential to further improve the procurement method of chemical fertilizers. Though the project chemical fertilizer procurement process has been improved by decentralizing the procurement from central project implementation agency to the lower level, however it was found that the procurement process was not as satisfactory enough as expected. The related investigation discovered the following reasons: (1) The small procurement quantity made the manufacturers unwilling to offer bid quotations, slowing down the procurement progress; and (2) The small local manufacturer usually doubts the required "provide goods, followed by payment" project practice so they request partial payment for the goods. Therefore, a number of necessary fertilizers under the project have been purchased by the county PMOs using counterpart funds and by farmers using their own funding. In addition, organic manure has been largely applied. In view of these factors, it is suggested more flexibility be allowed for project procurement of chemical fertilizer, for example, by using counterpart fund for the procurement, or incorporating the fertilizer (chemical and organic) requirement into the unit cost of the afforestation for reimbursement. 5.2.3 Improvement of the performance of the township and village enterprises needs more cautious operations Judging from the present outcome and the implementation of the TVEs, the general design of the TVE subcomponent was correct ­ and the execution, management of the subcomponent were strict. Nevertheless, in comparison with project design and the expectations, the operating conditions of some of the 14 enterprises financed were not satisfactory. Investigation revealed the following reasons: (1) The macro policy adjustment following the National Natural Forest Protection. The logging ban policy, etc. led to raw material supply shortages of some of the enterprises that then could not produce normally; (2) Some of the TVEs were part of the production lines of the other enterprises whose breakdown led to production stoppages of the project enterprises; (3) The small scale, weak competitive strength and market risks, and the poverty reduction responsibility (by employment), etc. made enterprise survival difficult or less profitable; and (4) The enterprise project preparation time with the examination/approval procedures was long and complicated, making some enterprises miss the best market opportunities. Therefore, it is suggested that in the future a more cautious attitude be adopted regarding TVE investment. World Bank Participation The successful implementation and accomplishment of FDPA is the result of concerted efforts of World Bank and Chinese government officials. Executives and working teams of the World Bank exerted great efforts over the seven years of FDPA implementation by dispatching 12 missions to China for site inspection and supervision. These missions not only helped the Chinese team solve problems and difficulties encountered during project implementation, but also offered constructive suggestions and proposals for project management improvement. In a word, the distinguished performance of World Bank in guiding and monitoring the project laid a firm foundation for the project success. - 49 - 6.1 Adherence to scientific approaches for assessment One feature of FDPA is the adoption of a participatory methodology, mainly through CFA, for project preparation and implementation, a methodology not employed by the previous World Bank forestry projects in China. For a forestry development project involving tens of thousands of poor households, the World Bank working teams and the international consultants were of great help in familiarizing the staff of PMC and PMOs with this approach. The success of FDPA indicates that the participatory method (CFA approach) is a scientific and feasible project preparation and implementation methodology for maximizing the project beneficiaries. 6.2 Flexibility and operational practicality FDPA is a complex project involving numerous factors subject to changes in policies and market demands, and affect afforestation, TVE, and marketing infrastructure, and therefore making implementation complex. In recognition of this complexity the World Bank demonstrated timeliness and flexibility by accepting and approving China's suggestions for project modification, which in turn, contributed to the smooth completion of the activities. One example is the modification in the selection of project sites at the initial stage of FDPA when China's National Natural Forest Protection Program was launched. Taking into consideration the difficulties that poverty-ridden counties have in providing the counterpart funds, World Bank agreed to raise the financing rate for afforestation from 50% to 60% providing needed help to these counties. 6.3 Rigorous inspection and effective guidance Over the 10 years from FDPA preparation to its conclusion, the World Bank sent a total of 16 missions (4 during project preparation) to China, involving more than 70 professional staff. World Bank officials Mr. Rick Scobey, Madam Liu Jin served as FDPA project managers successively. With other officials and international/domestic consultants, the World Bank task team visited project sites for inspection and provided guidance. Their effective work improved project quality and their devotion inspired their Chinese counterparts and enhanced the local farmers' confidence in attaining project objectives. Following each supervision, the mission completed a detailed memorandum, and the higher-level World Bank executives wrote separately to the MOF, SPC, SFA of China commenting on achievements as well as on key problems identified. World Bank's code of conduct, highlighted by discussion, to solve the problems encountered and strict compliance to agreed problem-solving measures, wins widespread affirmation of Chinese colleagues and individuals regardless of whether or not they were involved in project implementation. 6.4 Friendly cooperation The success of FDPA provides one more testimony for the satisfactory cooperative relationship between the Chinese government and World Bank. For instance, in the World - 50 - Bank working teams' visits to the grass-root level of project sites, they patiently listened to the Chinese technicians and rural population to hear and understand the particular situations and local concerns which greatly facilitated project implementation. Meanwhile the specialists and officers of procurement, payment and finance, social management of World Bank Office in China, readily and efficiently addressed the problems raised by their Chinese counterparts. This friendly cooperation and working relations provided the foundation for a successful project. The Post-Management Plan 7.1 General requirement After the completion of FDPA, the protection and management of the young forests become important tasks. In the years from 2006 through 2021, operational priorities would be given to appropriately maintaining and improving the management of the plantation established under the project. The follow-up management plan by integrating technical measures with policy and administrative measures are developing by the provincial and county PMOs and the Governments of project counties have committed to provide the support in terms of project management and necessary finance support to the poor farmers. 7.2 Actions to be taken 7.2.1 An institutional capacity corresponding with the demands of post-management would be maintained After project completion, the project implementing agencies will continue to provide the support to the project management. However, the main responsibilities would shift from organizing plantation establishment to plantation management. Consequently, capacity development to enable the staff to meet the demands of post managerial operations becomes an imperative task of the administration. Under the guidance of the provincial PMOs, the county PMOs are expected to maintain a relatively stable work team, with each member given specific responsibilities to ensure that effective and timely guidance/assistance be provided to the project afforestation entities and farmers. 7.2.2 Forest classified management to be worked out in accordance with quality of the forests at present The young plantation quality inventory survey in 2005 revealed that the quality of majority of project plantations have reached or exceeded the project growth standards and a few portion of plantations growth still need to be further improvement. The post management Plan would specify the technical and management measures to all types of the plantation to ensure that the post plantation management or maintenance will be guided appropriately. - 51 - 7.2.3 Preventive measures are to be taken to guard the healthy growth of the forests It is committed by the project provincial and county forestry agencies that the preventive measures, namely protecting the forests from fire, disease/pest injuries, and man/animal-induced damage, will be incorporated into the routine work of the local government and its forestry authorities. Arrangements in such aspects as staffing, funding and regulations would be in place to ensure that the young forests are not subject to natural or man-induced damages. Firstly, these measures will take full advantages of the existing capacity for predicting and fighting fire, pest and disease. Secondly, by the implementation of the principle "active prevention and complete elimination", related work would be carried out including publicity and education efforts to enhance the local people's awareness for forest protection. Thirdly, incentive measures would be taken to mobilize grass-root governments and village committees to arrange for routine surveillance and patrolling of the forests to ensure their healthy development. 7.2.4 Technical and information aid would be made readily accessible to the farmer households Technical training and demonstration programs for forest tending and thinning practices would be made available to the forest entities by the forestry administration at each level ­ with the coordination of the provincial PMOs. Providing technical services to the households and planting entities would rely on the existing agriculture and forestry extension system by using the public funding, which have been committed by the government. Market information concerning the demands and supplies of forest products such as timber, fruits, etc would be made readily accessible to the farmers through the forestry administrative/extension departments of each level. The farmers would also be encouraged to set up corresponding associations to strengthen their independent marketing capacities. 7.2.5 Clarified debt relations to ensure the World Bank loan is repaid on secured and timely basis Clarification of the debt rights and obligations is essential for repaying the World Bank loan and the resources of repayment have been identified. A mechanism and arrangement will be established to ensure the borrower at each administrative level is firmly responsible, in accordance with corresponding on-lending agreements, and the fund for annual repayment is arranged in advance to guarantee that the project repayment is made on a secure, timely basis. - 52 - - 53 -