Ningxia Desertification Control and Ecological Protection Project

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 67626-CN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

Public Disclosure Authorized

IN THE AMOUNT OF US$80.0 MILLION

TO THE

PEOPLE‘S REPUBLIC OF CHINA

Public Disclosure Authorized FOR THE

NINGXIA DESERTIFICATION CONTROL AND ECOLOGICAL PROTECTION PROJECT

April 12, 2012

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

Public Disclosure Authorized This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank‘s policy on Access to Information. CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2011)

Currency Unit = RMB (Yuan) RMB 6.3 = US$1 US$ 0.158 = RMB 1

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

CNAO China National Audit Office CPS Country Partnership Strategy CQ Consultant Qualifications DA Designated Account EMP Environmental Management Plan FMM Financial Management Manual IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IFR Interim Financial Report NCB National Competitive Bidding NRDRC Ningxia Hui Autonomous Region Development and Reform Commission NFB Ningxia Hui Autonomous Region Forestry Bureau NFD Ningxia Hui Autonomous Region Finance Department NXAO Ningxia Hui Autonomous Region‘s Audit Office PAD Project Appraisal Document PDO Project Development Objective PM Procurement Manual QBS Quality-Based Selection QCBS Quality-and-Cost-Based Selection RPMO Regional Project Management Office SBD Standard Bidding Document SIL Specific Investment Loan

Vice President: Pamela Cox, EAPVP Country Director: Klaus Rohland, EACCF Sector Director: John A. Roome, EASSD Sector Manager: Paul Kriss, EASCS Task Team Leader: Ulrich Schmitt, EASCS

China Ningxia Desertification Control and Ecological Protection Project

Table of Contents I. STRATEGIC CONTEXT ...... 1 A. Country Context ...... 1 B. Sectoral and Institutional Context ...... 2 C. Higher Level Objectives to which the Project Contributes ...... 3 II. PROJECT DEVELOPMENT OBJECTIVES ...... 3 A. PDO ...... 3 Project Beneficiaries ...... 4 PDO Level Results Indicators ...... 4 III. PROJECT DESCRIPTION ...... 4 A. Project Components ...... 4 B. Project Financing...... 5 Lending Instrument ...... 5 Project Cost and Financing ...... 5 C. Lessons Learned and Reflected in the Project Design ...... 6 IV. IMPLEMENTATION ...... 7 A. Institutional and Implementation Arrangements ...... 7 B. Results Monitoring and Evaluation ...... 7 C. Sustainability ...... 8 V. KEY RISKS AND MITIGATION MEASURES ...... 8 VI. APPRAISAL SUMMARY ...... 9 Annex 1: Results Framework and Monitoring...... 14 Annex 2: Detailed Project Description ...... 16 Annex 3: Implementation Arrangements ...... 21 Annex 4 Operational Risk Assessment Framework (ORAF) ...... 32 Annex 5: Implementation Support Plan ...... 34 MAP IBRD 39020 ...... 36

. PAD DATA SHEET China Ningxia Desertification Control and Ecological Protection Project (P121289) PROJECT APPRAISAL DOCUMENT

. EAST ASIA AND PACIFIC EASCS

. Basic Information Date: 12-Apr-2012 Sectors: General agriculture, fishing and forestry sector (90%), Irrigation and drainage (10%) Country Director: Klaus Rohland Themes: Other environment and natural resources Sector Paul Kriss/John A. management (80%), Rural services and Manager/Director: Roome infrastructure (10%), Water resource management (10%) Project ID: P121289 EA B - Partial Assessment Category: Lending Specific Investment Instrument: Loan Team Leader(s): Ulrich K. H. M. Schmitt Joint IFC: No

. Borrower: International Department, Ministry of Finance Responsible Agency: Ningxia Hui Autonomous Region Forestry Bureau Contact: Mr. He Quanfa Title: Project Management Office Director Telephone No.: Email: [email protected]

. Project Implementation Period: Start Date: 17-May-2012 End Date: 30-Sep-2017 Expected Effectiveness Date: 01-Oct-2012 Expected Closing Date: 31-Mar-2018

. Project Financing Data(US$M) [ X ] Loan [ ] Grant [ ] Other [ ] Credit [ ] Guarantee For Loans/Credits/Others Total Project Cost (US$M): 113.75 Total Bank Financing (US$M): 80.00

Financing Source Amount(US$M) Borrower 33.75 International Bank for Reconstruction and 80.00 Development Total 113.75

. Expected Disbursements (in USD Million) Fiscal Year 2013 2014 2015 2016 2017 2018 2019 Annual 10.00 15.00 15.00 20.00 15.00 4.00 1.00 Cumulative 10.00 25.00 40.00 60.00 75.00 79.00 80.00

. Project Development Objective(s) The Project Development Objective is to control desertification and degradation and protect key farmland and infrastructure in strategically selected locations in Ningxia Hui Autonomous Region.

. Components Component Name Cost (USD Millions) Component 1: Controlling Desertification and Degradation 89.38 Component 2: Protective Shelterbelt Plantations 17.37 Component 3: Project Management, Capacity Building and M&E 6.80

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

. Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ X ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ]

. Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X

. Legal Covenants Name Recurrent Due Date Frequency Project Implementation Arrangement and X Yearly Implementation Units Description of Covenant Throughout implementation, Ningxia shall maintain a Regional Leading Group, Regional Management Office, County Project Management Offices, and Expert Working Group acceptable to the Bank. Name Recurrent Due Date Frequency Project Implementation Manual X Yearly Description of Covenant Ningxia shall apply and cause the Project Counties to apply in the implementation of the Project, the Project Implementation Manual, in an efficient and timely manner satisfactory to the Bank. Name Recurrent Due Date Frequency Safeguard Instruments X Yearly Description of Covenant Ningxia shall implement and cause the Project Counties to implement the Process Framework, Environmental Protection Guidelines, and Pest Management Plan, in a manner satisfactory to the Bank. Name Recurrent Due Date Frequency Process Framework X Yearly Description of Covenant Ningxia shall carry out measures for improving the living standards of Project Affected Persons in accordance with the Process Framework, and carry out external monitoring and reporting. Name Recurrent Due Date Frequency Cultural Heritage X Yearly Description of Covenant Ningxia shall take or cause to be taken all such action as shall be necessary in the implementation of the Project to protect cultural heritage sites in the area of influence of the Project. Name Recurrent Due Date Frequency Annual Implementation Plan X Yearly Description of Covenant Ningxia shall furnish to the Bank a final annual implementation plan, including Bank's comments, by December 31, and implement the project according to the annual implementation plan. Name Recurrent Due Date Frequency Implementation X Yearly Description of Covenant Ningxia shall not amend, suspend, fail to enforce or waive the Process Framework, the EPG, the PMP or any annual implementation plan.

Name Recurrent Due Date Frequency Treatment Models and Technical Standards X Yearly Description of Covenant Ningxia shall cause the Project Counties to implement and protect plantation and vegetation rehabilitation according to agreed models and standards and adequate land management arrangements. Name Recurrent Due Date Frequency Straw Market Analysis X Yearly Description of Covenant Ningxia shall, periodically, carry out a market analysis of the local straw markets in order to monitor price developments and any market distortions from the extensive procurement of straw. Name Recurrent Due Date Frequency Financial Management and Procurement Manuals X Yearly Description of Covenant Ningxia shall apply the Financial Management Manual and the Procurement Manual in implementing the Project for monitoring the entire procurement process and the financial transactions.

. Team Composition Bank Staff Name Title Specialization Unit Marta Molares-Halberg Lead Counsel Lead Counsel LEGES Syed I. Ahmed Lead Counsel Lead Counsel LEGES Zong-Cheng Lin Senior Social Senior Social EASCS Development Specialist Development Specialist Jinan Shi Senior Procurement Senior Procurement EAPPR Specialist Specialist Junxue Chu Senior Finance Officer Senior Finance Officer CTRLN Wenyan Dong Operations Analyst Operations Analyst EASCS Jin Liu Senior Rural Senior Rural EASCS Development Specialist Development Specialist Chunxiang Zhang Operations Analyst Operations Analyst GFDRR Haiyan Wang Senior Finance Officer Senior Finance Officer CTRLN Ulrich K. H. M. Schmitt Sr Natural Resources Team Lead EASCS Econ. David I Sr Financial Sr Financial EAPFM Management Specialist Management Specialist Haixia Li Sr Financial Sr Financial EAPFM Management Specialist Management Specialist Yiren Feng Senior Environmental Senior Environmental EASCS Specialist Specialist Yunqing Tian Program Assistant Program Assistant EACCF

Zijing Niu Program Assistant Program Assistant EACCF Yuan Wang Procurement Specialist Procurement Specialist EAPPR Guzman Garcia-Rivero Consultant Consultant Advisor EASIS Non Bank Staff Name Title Office Phone City Josef Ernstberger Senior Agriculture Economist

. Locations Country First Location Planned Actual Comments Administrative Division China Ningxia Hui Ningxia Hui x The project will be Autonomous Autonomous implemented in 7 Region Region cities/districts/counties within the territory of the Ningxia Hui Autonomous Region.

I. STRATEGIC CONTEXT

A. Country Context

1. Desertification in the arid and semi-arid areas of Northwest China is among the many environmental issues that China is facing today. Desertification is caused by the complex interaction of environmental and anthropogenic factors over long periods of time. Environmental factors include a naturally dry climate, recurrent periods of prolonged draughts, and specific topographic and geographic conditions. Among the anthropogenic factors, which are often exacerbating the natural proneness to degradation and desertification, are poor land management, inadequate farming techniques and over-cultivation, overgrazing and removal of natural vegetation, misuse of water resources, and poor environmental and ecosystem management. These latter factors are generally regarded as the main driving forces behind desertification. About 2.62 million square kilometers (about 27.3 percent of China‘s total land area) are described as desertification-affected, of which sand encroachment is a threat to 1.73 million square kilometers. About 400 million people are estimated to be affected by desertification and eco-refugees have appeared in some regions due to desertification.

2. Desertification is not an isolated environmental issue but acts as an impediment to the Government‘s development efforts in Northwest China. Advancing sand areas, loss of farmland and dwindling water resources are threatening the gains made over the past decades in rural and agriculture development and in infrastructure construction and, ultimately, are threatening human livelihood. Desertification impacts are not confined locally. They are felt across all of northern China, including the main coastal cities, and even regionally in neighboring countries and have become a global concern.

3. National efforts to address desertification threats started back in 1978 with the initiation of the Three North Shelterbelt Program. In 2001, the Government integrated the various efforts into six major ecological programs, including the: Natural Forest Protection Program, Conversion of Cropland to Forest Program, Key Protective Forest Program in Three North and Yangtze River, Combating Desertification Program in Sand Desert Areas Around Beijing and Tianjin, Wildlife Conservation and Natural Reserve Development Program, and Forestry Industries Base Development Program in Key Regions. Of these, the Combating Desertification Program and the Fourth Phase of the Three North Shelterbelt Program cover more than 85 percent of the land area in China that is exposed to desertification dynamics. These programs represent the main efforts of China‘s program for national combating desertification.

4. Implementation of these programs has yielded encouraging results in terms of at least halting the aggregate expansion of desertification and degradation and, in some locations, even resulted in a slight reversal, as documented in the latest National Survey on Desertification and Land Degradation carried out in 20091. Despite these positive signs, the country‘s arid and semi- arid areas remain in a highly fragile balance that is threatened by continuing pressure from population growth and economic development, with the expected climate change being an additional risk factor that could trigger and accelerate desertification forces.

1 According to the 4th National Monitoring Survey (2009), desertification areas in China decreased by 12,454 square kilometers or by 0.47% during the period from 2004 to 2009. 1

B. Sectoral and Institutional Context

5. The Government has paid much attention to combat desertification. The country is a signatory of the United Nations Convention to Combat Desertification (UNCCD) since 1994. China coordinates desertification control and monitoring following international standards and agreements. In 1996, China developed (and revised in 2003) a National Action Plan to Combat Desertification, which includes improved legislation and institution building, as well as a range of programs to prevent land degradation and desertification. Over the past 20 years, a comprehensive legal and institutional framework has been put in place, which includes a number of important laws directly relevant to combat desertification: the Integrated Law on Combating Desertification (2002), the Forest Law (1998), the Land Management Law (1986, revised in 2004), the Soil and Water Conservation Law (1991), the Water Law (2002), and the Grassland Law (2002).

6. A National Coordinating and Leading Group on Combat Desertification, set up by the State Council in 1991, provides overall guidance and coordination on national desertification control efforts. The State Forestry Administration with its National Bureau to Combat Desertification, the National Research and Development Center on Combating Desertification at the Chinese Academy of Forestry, the National Training Center on Combating Desertification at the Beijing Forestry University, and the China National Desertification Monitoring Center are among the major national level institutions involved in desertification control programs.

7. In 2008, the State Council issued the circular ―Comments of the State Council on Further Promoting Economic and Social Development of Ningxia Hui Autonomous Region‖ and selected Ningxia to become a national demonstration area for desertification control and environmental rehabilitation in Northwestern China. Ningxia‘s desertification area is about 2.97 million hectares covering about 57 percent of the total territory of the Region. More than 3 million people in 13 counties are estimated to be impacted by desertification, sandstorms and land degradation. With Ningxia also being one of the poorest regions in China, the purpose of demonstration goes beyond environmental protection and rehabilitation but also includes aspects of regional economic development, reducing poverty and protecting and improving agriculture, food production, and local livelihoods. With expanding investments into economic development in the Yellow River plains, the main development area of Ningxia, desertification control has become a matter of critical importance.

8. Over the past decade, Ningxia has gained substantial technical expertise and practical experiences in desertification control. The Region has implemented numerous related international cooperation projects (with an estimated total investment volume of CNY300 million) that have promoted the establishment of shelterbelts, the reclamation of sandy soils through irrigation and cultivation, the establishment of vegetation cover in sand dune areas, hill side and mountain closures, and albeit limited in scale, even the manual excavation of sand- buried farming soils. These technical approaches to combat desertification have been the outcome of decade-long intensive local research efforts and have been well tested in the field through numerous pilots and through project implementation.

9. Investment efforts in desertification control and environmental protection are nevertheless deemed to have been insufficient. One the one hand, weak local fiscal capacity and

2 funding gaps have prevented the scaling up of desertification control interventions in a strategic manner. On the other, the need to fulfill top-down planning targets may have diverted attention away from the environmentally and ecologically most appropriate measures for desertification control and have often led to less than optimal implementation outcomes. A typical example is the focus on tree planting, often accompanied by costly investments in permanent supplemental irrigation, in places that are not suitable for tree growth in the long-term because of lack of natural precipitation. These over-investments have often come at the expense of neglecting the more suitable restoration and management of natural grassland or shrub vegetation. Survival rates of such tree plantations have often been low and tree cover has only been maintained through increased water consumption, and the implementation of effective management and maintenance models has lagged behind. As a result, desertification has advanced in many areas and is threatening critical infrastructure, settlements and farmland in the Yellow River corridor.

10. The Government of Ningxia is providing strong leadership to control desertification throughout the province, and has integrated control measures firmly into the local economic and social development strategy. In 2003, Ningxia also introduced a grazing ban to support vegetation rehabilitation on state and collective lands. A Provincial Leading Group, chaired by the Governor of Ningxia, and with representation from the departments of Finance, Development and Reform, Water Resources, Transport, Environmental Protection, Forestry and other line agencies is coordinating all foreign-funded projects, including the proposed World Bank project, with the aim of directing these investments strategically across the Region. Areas for desertification control and rehabilitation are being prioritized along key farmland areas, waterways and urban and industrial centers and include primarily state-owned land, i.e. state forest farms, and collectively-owned lands.

C. Higher Level Objectives to which the Project Contributes

11. The World Bank‘s Country Partnership Strategy (CPS) for China for 2006-20102, under its third pillar, is supporting China toward better ―managing resource scarcity and environmental challenges‖ with a focus on improving the management of natural resources such as land, grasslands, forests and water resources. The CPS also promotes the piloting of improved approaches to natural resource management, by involving communities and promoting socially- responsible private investment, to contain resource degradation and the resulting negative externalities. The project is fully in line with the objectives and directions of the CPS.

12. The project would contribute to the objectives and targets of China‘s 12th Five-Year Plan (2011-2015) with its focus on environmental sustainability, development of the Western Regions, sustainable growth, and improving the quality of life.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

13. The PDO is to control desertification and degradation and protect key farmland and infrastructure in strategically selected locations in Ningxia Hui Autonomous Region.

2A new Country Partnership Strategy 2011-2015 is currently under preparation but has not yet been finalized. 3

Project Beneficiaries

14. The project will support desertification control, vegetation rehabilitation and ecological protection measures in seven cities/districts/counties of Ningxia Hui Autonomous Region, including: Pingluo County, Lingwu City, Litong District, Qingtongxia City, Xingqing District, Yanchi County, and Zhongwei City. The project is expected to generate local environmental benefits for the entire population within the participating cities/districts/counties estimated at around three million people, as well as to protect a number of key infrastructure facilities on the eastern bank of the Yellow River, which are of strategic importance for the economic development of the Region. Since the project areas are located in a wind corridor affecting major parts of Northern China and have been identified as one of the major sources of sandstorms, the project would benefit indirectly a much larger number of people living as far as Beijing or Tianjin.

PDO Level Results Indicators

15. Achievement of the PDO will be measured by: (a) the extent of the areas treated under the project where desertification is controlled in a manner that prevents further desertification and degradation; and (b) the economic value of infrastructure and farmland protected under the project. Desertification is considered controlled when vegetation cover exceeds the pre-defined threshold of a minimum ground coverage of 30 percent on moving sand dunes, and when a ground vegetation cover of above 40 percent has been permanently established on degraded arid and semi-arid land.

III. PROJECT DESCRIPTION

A. Project Components

16. The project will be implemented over a period of five years. Desertification control and ecological restoration activities will cover an approximate total area of 72,000 hectares in Ningxia. The project will include three components, as described below:

17. Component 1: Controlling Desertification and Degradation (Total Cost: US$89.38 million). The component will address the main drivers of desertification and degradation which relate to moving sand through wind erosion dynamics and unsustainable land use practices. It comprises three sub-components:

(a) Moving Sand Stabilization (Total Cost: US$68.50 million), carrying out a program to halt the movement of shifting sand dunes and prevent encroachment of shifting sand onto agricultural land, settlements and infrastructure through, inter alia, the establishment of straw checker boards combined with the seeding and planting of indigenous shrub and grass on about 19,000 hectares of moving and semi-moving sand dune areas in Ningxia, and implementing fire control measures, including the construction of fire breaking tracks and passage routes, watch towers, and small buildings for technical staff and workers, information boards and warning signs.

(b) Degradation Control and Re-vegetation (Total Cost: US$15.44 million), carrying out a program to control and reverse degradation of arid and semi-arid shrubland and steppe areas through, inter alia, closing, protecting and managing for natural re-vegetation about 42,000 hectares of degraded arid and semi-arid areas, shrub planting and assisted vegetation restoration in an additional 4,600 hectares, including construction of access tracks serving as fire breaks, watch towers and other infrastructure required to manage and monitor the rehabilitated areas.

(c) Integrated Land Management (Total Cost: US$5.44 million), carrying out a program to mitigate any potential negative impacts on land users from desertification control and vegetation rehabilitation measures resulting from the implementation of component 1 (a) and (b) of the project, including implementing the Process Framework, carrying out economic tree plantations and fodder production for livestock to compensate for access restrictions to grazing areas, and developing long-term land management arrangements for selected sites.

18. Component 2: Protective Shelterbelt Plantations (Total Cost: US$17.37 million). This component includes carrying out a program to protect key farmland and infrastructure from desertification and sand encroachment through, inter alia, the establishment of multi-layer and multi-storey tree and shrub shelterbelts in about 5,500 hectares along roads, irrigation canals and around agricultural fields and fruit orchards in selected locations, including installing supplemental irrigation systems to ensure the successful establishment of shelterbelt plantings.

19. Component 3: Project Management, Capacity Building and M&E (Total Cost: US$6.80 million). This component includes the provision of technical assistance support for carrying out: (a) information and awareness campaigns for project beneficiaries and stakeholders; (b) the detailed technical design, field implementation and construction, construction supervision, and final acceptance checks of desertification control works, safeguards supervision, and Project progress reporting; (c) applied research; (d) training on the establishment, maintenance and post-management of desertification control and plantation investments for long-term sustainability; and (e) desertification control impact monitoring and field demonstration that is integrated into the national and regional desertification monitoring systems.

B. Project Financing

Lending Instrument

20. The selected lending instrument is a Specific Investment Loan (SIL), denominated in US$, with a variable spread interest rate , a five year grace period, and a total repayment term of 30 years.

Project Cost and Financing

21. Project costs by component and sub-component, and the share of IBRD financing are summarized in Table 1, as follows:

Table 1: Project Cost

Total Cost (including Contingencies) IBRD Loan Project components and Subcomponents (US$ US$ Financing million) % million % A. Controlling Desertification and Degradation Moving Sand Stabilization 68.50 60.2 50.69 74.0 Degradation Control and Re-vegetation 15.44 13.6 11.42 74.0 Integrated Land Management 5.44 4.8 4.02 74.0 Subtotal Controlling Desertification and Degradation 89.38 78.6 66.14 74.0 B. Protective Shelterbelt Plantations 17.37 15.3 12.86 74.0 C. Project Management, Capacity Building and M&E Design, Construction Supervision & Management 3.95 3.5 - - Applied Research 0.21 0.2 - - Training and Extension 1.84 1.6 - - Project Monitoring and Evaluation 0.80 0.7 0.80 100 Subtotal Management, Capacity Building, M&E 6.80 6.0 0.80 11.8 Total PROJECT COSTS 113.55 99.8 79.80 70.3 Front-end Fee 0.20 0.2 0.20 100.0 Total Costs to be Financed 113.75 100.0 80.00 70.3

22. Retroactive Financing. Retroactive financing will be allowed under the project for eligible expenditures under all project components. Withdrawals for eligible expenditures up to an aggregate amount not to exceed US$8 million may be made for payments within 12 months prior to the date of Loan Signing, but on or after February 1, 2012.

C. Lessons Learned and Reflected in the Project Design

23. Project design builds on experiences gained in national programs and on relevant and transferable experiences from other Bank-financed projects focused on resource management, ecosystem restoration, and public environmental goods provision in China. Key lessons incorporated into the design include: (a) the project is embedded into Government programs and priorities; (b) it works through existing institutions and draws on experience and expertise developed and available locally; (c) it builds on existing monitoring and evaluation methods and works through the Government‘s mandated M&E institutions; (d) it builds on simple but locally proven technologies and limits complex or challenging innovations in an implementation environment where capacity is relatively weak and there is little experiences with Bank projects and procedures; and (e) the project promotes local ownership through integrating local stakeholders and providing tangible benefits through project participation.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

24. The Regional Leading Group, chaired by the Governor of Ningxia and with representation from the departments Finance, the Development and Reform Commission, Water Resources, Transport, Environmental Protection, Forestry and other relevant agencies will be provide overall policy guidance to the project and will oversee project implementation and management of foreign funds, and coordinate to resolve any implementation problems that may arise. It will establish the necessary regulatory framework for successful project implementation, carry out project progress and performance reviews, and oversee the assessment of project impacts and performance of the implementing agencies.

25. A Regional Project Management Office (RPMO) has been established within the Ningxia International Forestry Cooperation Center of the Ningxia Forestry Bureau. The RPMO will perform the operational coordination of project activities that will be implemented at the county levels. It will prepare annual implementation plans, carry out the overall project impact monitoring and evaluation (M&E) in coordination with the Ningxia Forestry Planning and Design Institute, guide the implementation of the research and demonstration activities, and will centralize reporting on physical progress, financial matters, and procurement planning. The RPMO will also serve as the main liaison for the Bank‘s supervision and implementation support activities.

26. Each project city/district/county has established a Project Management Office (PMO) housed in the respective forestry bureaus. The PMOs are responsible for the day-to-day implementation and management of project activities, technical supervision and acceptance checks, and input-output and progress monitoring and reporting to the RPMO. The PMOs are responsible for the preparation of county-level annual implementation plans and procurement plans for submission to and consolidation by the RPMO. The PMOs are also responsible for procurement plan implementation and contracting as well as for the financial reporting and preparation and submission of reimbursement requests to the higher level authorities.

B. Results Monitoring and Evaluation

27. The project‘s monitoring and evaluation system will include: (a) a basic project progress (input-output) monitoring and reporting system based on government procedures and project requirements; and (b) a longer-term impact monitoring system to assess the desertification control impacts of the project and the achievement of the PDO through the indicators referenced in the project‘s Results Framework.

28. Detailed input and output monitoring will be undertaken by the PMOs, which will be coordinated and verified by the RPMO. Impact monitoring will be integrated into the Government‘s existing Monitoring and Evaluation (M&E) framework for desertification control. Monitoring will be based on remote sensing technologies, permanent plots and field verification, and will apply existing monitoring protocols and indicators.

29. The Ningxia Forestry Planning and Design Institute, which has the mandate and is responsible for the periodic assessments of the Government‘s desertification control programs, 7 has been assigned the task of project impact monitoring and for integrating project outcomes into the M&E framework of the Region. The specific responsibilities of the Institute are described in the Project Implementation Manual along with the technical M&E approach and reporting. Details of the incremental support to be provided through the project, such as supplementary satellite imagery for project sites, and incremental operational costs, would be documented in a Memorandum of Understanding between the Ningxia Finance Department, the RPMO and the Institute and would be available in draft at negotiations and will be in place at project start-up. The Regional PMO may also recruit qualified consultants to carry out the M&E work.

C. Sustainability

30. Several parameters assure the sustainability of the project investments and outcomes: (a) the project is fully integrated into the overall context of regional and national policies, programs and strategies for desertification control and prevention; (b) the project is implemented through the established institutions, which have an ongoing mandate for desertification control and land degradation prevention; and (c) the project follows non-complex technical designs, which have evolved and have already been successfully tested in the project areas over several decades.

31. In addition, the project is integrated in the regions overall strategy of restructuring the livestock sector and providing support to livestock owners for changing from grazing to pen feeding based on produced fodder. In line with this strategy, the Integrated Land Management Sub-component 1(c) will provide local farmers affected by and involved in project measures (e.g. by the closing and protecting of areas from animal grazing) with alternative sources of livelihood, for which the project provides funding. Integrating local stakeholders in desertification control measures will be an important element for sustainability.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Risk Rating Stakeholder Risk Low Implementing Agency Risk - Capacity Substantial - Governance Low Project Risk - Design Low - Social and Environmental Low - Program and Donor Low - Delivery Monitoring and Sustainability Moderate Overall Implementation Risk Moderate

B. Overall Risk Rating Explanation

32. Overall risk rating for the project implementation is moderate. Risks and associated mitigation measures are presented in the Operational Risk Assessment Framework (Annex 4). The main risks to the achievement of the PDO are: the lack of capacity of the implementing agencies at the regional and county levels to implement a Bank project, especially in terms of adherence to Bank procurement and financial management requirements; and delivery monitoring in terms of contract management. Risk management measures have been included in project design, including the adoption of a Project Implementation Manual, and procurement and financial management training for relevant staff.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

33. The project is integrated in the Government‘s strategy for desertification control and land degradation prevention in Ningxia in support of economic development and sustainability in the Region, particularly in the Yellow River Corridor. The project may also generate benefits through an improved environment that may extend across parts of northern and northwestern China, including in areas as far away as Beijing or Tianjin. Such benefits have both a time and a spatial dimension beyond the project duration and project area and thus pose a significant challenge for quantification. In addition, attributing these benefits to a single project would not be legitimate. Instead of a standard cost-benefit-analysis, a number of cost effectiveness considerations have been taken into account to promote a cost effective use of project funds.

34. Site selection. The project site selection process focused on areas with the highest possible impact. In areas of strategic importance, sand dune stabilization through straw checkerboards and seeding/planting is proposed. Such sites include the Yindong Chemical Production Base on the east bank of the Yellow River, important farmland resources, and the Yellow River itself. Hill closures will cover those areas that are under immediate threat of further degradation and are unlikely to recover naturally. Multi-layer shelterbelt plantations are being selected only in areas of importance for high value agricultural production (e.g. grape and fruit development areas) and along important roads and canals. The site selection has been carried out in a consultative manner and participation of stakeholders in the project is voluntary.

35. Desertification control models. Technical options and models for the stabilization of moving sand include sand bags, wind baffle boards, construction of ditches, or binding the surface with adhesive agents or asphalt emulsion. A cost comparison shows that some of these techniques may be cheaper on a per hectare basis. Environmental concerns and, in particular, limited technical effectiveness make these methods unsuitable for application on a large scale. The project‘s use of a combination of mechanical wind break (such as straw checker boards) and biological measures (seeding and planting) is considered to be much more cost effective in the long-run. The choice of material, type and age of seedlings, and planting densities proposed for the project are the result of pilots and long-term implementation experience in Ningxia. Technical models designed during project preparation represent an appropriate balance between technical and cost effectiveness. These will be further fine-tuned during detailed design.

36. Competitive contracting. Implementation of plantation works will follow competitive procurement procedures to select contractors, which are expected to results in significant cost savings compared to the Government‘s standard implementation procedures. Because of the increased demand created by the project for local wheat straw (for use in checker boards), a price effect on the local straw market cannot be excluded. The project includes regular market analyses to monitor wheat straw price. If needed, the project would respond to price increases by shifting to the use of alternative raw materials or procure straw from other locations.

37. Local acceptance and sustainability. Cost effectiveness will also be assured by paying attention to the involvement of local communities in project design. In particular through Component 1 (c), the project seeks to ensure that use regulations and management plans for closed areas, along with compensatory livelihood measures, will generate sufficient interest and acceptance among local farmers to maintain and protect project investments.

38. Fiscal impact. The public goods investments in desertification control and rehabilitation are not expected to have significant fiscal impacts. The participating counties, districts and cities have been selected based on their strong fiscal positions due to revenues from vibrant industry, mining and agriculture sectors. Since the project will not create any new institutions, any additional budgetary burden on government finances will be avoided as well.

B. Technical

39. Project areas have been selected following regional and national prioritization criteria to assure the maximum impact.

40. Site conditions. Project sites have been assessed and classified by soil type, site condition, topography, water availability (both precipitation and ground water), and the prevailing natural vegetation in order to ensure that the plantation model applied is best suited for the site conditions.

41. Technical models. The seven basic technical treatment models that will be used under the project have been tested and successfully applied under similar conditions within Ningxia and in the neighboring provinces. These models also take micro-conditions, such as different moisture regimes and leeward and windward sloping areas, into account.

42. Technical standards. Detailed plantation designs for each site will specify technical standards and implementation requirements to ensure highest possibly planting success and long- term survival rates. Contractors will be accountable for adherence to the agreed standards and, if required, responsible for replanting the following year to meet plantation and survival targets. High quality seedlings will be selected from local nurseries to avoid excessive transportation stress and guarantee adaptation to the local conditions.

43. Implementation phasing. Implementation planning and phasing of project activities poses specific challenges due to the seasonality of the plantation program but also because various preparatory activities need to be implemented in a specific sequence and time frame so as to allow the plantation program to proceed on time and successfully. The planting season in Ningxia is from April to June and from September to November each year. Critical steps in the implementation planning include: the early dissemination of information of seedling 10 requirements (number, species, specifications) to nurseries for the following year‘s plantation season (at least one year may be required to produce the required seedlings of some species); completion of detailed designs for plantation works in a given year; the competitive selection, contracting, and mobilization of contractors at the beginning of the plantation season; implementation of the plantation works; and field checks and acceptance. The sequence of these recurrent project activities and the specific timing will be described in the Project Implementation Manual.

C. Financial Management

44. The IBRD loan proceeds, including overseeing the Designated Account, will be managed by Ningxia Hui Autonomous Region Finance Department. A financial management (FM) assessment conducted by the Bank identified the principal risks as the lack of experiences of financial management staff in the Regional PMO and county-level PMOs in the management of Bank projects, and the timely and adequate provision of the required counterpart funds. Actions to strengthen the project FM capacity have been agreed with the relevant implementing agencies and include: implementation of a FM training plan throughout project implementation; application of a Financial Management Manual; and confirmation of mobilization of counterpart funds by local governments. The assessment concluded that with the implementation of these actions, the proposed financial management arrangements will satisfy the Bank‘s minimum requirements under OP/BP 10.02.

D. Procurement

45. The RPMO will: (a) lead and coordinate project procurement activities; (b) provide guidance to the PMOs on procurement and contract management; (c) review procurement documents prepared by county, city and district PMOs; (d) centralize procurement reporting for the project and (e) supervise and monitor procurement activities carried out by PMOs. The RPMO has limited experience with Bank procurement policies and procedures and limited managerial capacity.

46. Procurement under the project will be carried out by each county/district/city PMO for the investments in the respective jurisdictions in accordance with a Procurement Manual reviewed by the Bank. For each PMO, a full-time procurement staff has been designated and is in place. Procurement risk exists primarily because of the PMOs‘ lack of experience in procurement for Bank-financed projects and that procurement would be implemented by staff without any experience in Bank-financed projects. To manage and mitigate this risk, all designated procurement staff at RPMO and PMO-levels will attend detailed procurement training to be organized by the RPMO and, in addition, are required to attend World Bank procurement training courses.

E. Social (including Safeguards)

47. Involuntary Resettlement (OP4.12). No involuntary resettlement or land acquisition is expected under the project. The project will involve the protection of open access degraded steppe and grassland areas through hill closures. These closures will reinforce the Government‘s general grazing ban policy and may result in access restrictions to resource use on those lands. It

11 is expected that a total area of around 42,000 hectares of open access areas will be closed for vegetation rehabilitation and protection (Component 1(b)). The resulting access restrictions may affect 24 villages and 5 forestry farms. The Bank‘s policy on Involuntary Resettlement (OP 4.12) will therefore be applicable.

48. Social Assessment. A Social Assessment was carried out during project preparation to solicit stakeholder interest in participating in the project and identify risks and potential adverse impacts to local people in project-affected areas. The assessment included an analysis of local livelihood conditions, an assessment of potential impacts of hill closures on households, field surveys, and consultations with farmers on collective land and workers on state farms of all seven project counties. The assessment defined safeguard measures to mitigate and offset potential negative impacts and provide livelihood alternatives. These measures have been integrated in the project design (Component 1(c)).

49. A Process Framework has been developed to guide implementation of the safeguards measures and provide a framework for community and household participation in the project. It defines the mechanisms for information dissemination, training, and the participation of affected people in the design and implementation of the project and in the design and implementation of compensatory measures to restore income losses. The Process Framework also sets forth the provision for social impact monitoring, and includes a complaints handling mechanism.

F. Environment (including Safeguards)

50. The project is a Category B project. It is designed to generate significant positive environmental impacts in the project areas and to result in improvements of the ecological environment in Ningxia. Negative impacts may occur if the project is not properly implemented, for example, because of poor detailed design such as selection of unsuitable plantation models and species, insufficient consideration of hydrological aspects of vegetation establishment, poor site management, uncontrolled use of pesticides, etc. Such negative impacts are unlikely to materialize because of the prior experience with such projects in Ningxia and the detailed preparation work undertaken during project design. Applicable environmental safeguard policies for the project include: Environmental Assessment (OP4.01); Natural Habitats (OP4.04); and Pest Management (OP4.09).

51. Environmental Assessment (OP4.01). An Environmental Assessment was carried out in accordance with Bank Operational Policy OP4.01. The assessment includes an analysis of the potential positive and negative project impacts, an alternative project analysis, a description of mitigation measures, and an environmental monitoring plan that is integrated into the project‘s overall M&E approach. It documents the public consultation carried out during the preparation of the project. The assessment concluded that the project will bring significant positive impacts to the natural and the socio-economic environments. Project activities have been designed to avoid or minimize any adverse impacts on the physical environment. Environmental Protection Guidelines have been developed that specify mitigation measures in case any negative impacts occur.

52. Natural Habitats (OP4.04). A number of project sites selected for natural rehabilitation include habitats of Ammopiptanthus mongolicus, a second-class protected species indigenous to

12 the desert areas of Western China, including Ningxia. Despite the current status of degradation, these areas still represent valuable natural habitats. The Environmental Assessment and Environmental Management Guidelines describe the current habitat status in Ningxia and in the project areas and the threats to these areas to be addressed by the project. The guidelines also detail the treatment measures to successfully rehabilitate these vegetation communities and ecosystems. No conversion of the A. mongolicus or other natural habitats areas is foreseen.

53. Pest Management (OP4.09). The establishment and management of protective plantings and shelterbelts may require the control of pests and use of pesticides. In accordance with OP4.09, a Pest Management Plan has been prepared. It describes a range of pest and disease control and management methods, including Integrated Pest Management, and the scope of the recommended application in various situations. The plan also provides a detailed list of pesticides and herbicides that may be required under the project and that are in compliance with the provisions of the World Health Organization‘s recommended categories. The plan includes detailed provisions for training for project stakeholders and a monitoring program. Implementation of the training and monitoring programs has been included in the project cost.

54. Public consultation and disclosure. In accordance with the Bank‘s disclosure policy, consultations with project-affected people were conducted during the Environmental Assessment processes. The Environmental and Social Assessment Reports, including the Environmental Protection Guidelines, the Pest Management Plan, and the Process Framework have been reviewed by the Bank during project appraisal and have been disclosed locally in the project areas in Ningxia, at the central government level in Beijing, and in the Bank‘s InfoShop.

Annex 1: Results Framework and Monitoring

China: Ningxia Desertification Control and Ecological Protection Project

Project Development Objective (PDO): Desertification controlled and key farmland and infrastructure protected in strategically selected locations in Ningxia Hui Autonomous Region

Description PDO Level Results Unit of Cumulative Target Values** Data Source/ Responsibility for Baseline Frequency (indicator Indicators* Measure YR 1 YR 2 YR3 YR 4 YR5 Methodology Data Collection

Core definition etc.) Indicator One: Project Results can only be areas, where desertification Ningxia Forestry judged 3 years Mid-term, is controlled3 0 0 0 8,000 0 30,000 Field Survey Planning and after control ha end-project Design Institute measures implemented Indicator Two: Value of RPMO/ Ningxia infrastructure and farmland Mid-term, Forestry Planning US$ 0 0 0 7.5 0 30 Field Survey protected by project end-project and Design (billion) investments Institute

INTERMEDIATE RESULTS Intermediate Result (Component One): Controlling Desertification and Degradation Intermediate Result indicator Ningxia Forestry One: Sand areas reaching Mid-term, 0 0 0 2,500 0 10,000 Field Survey Planning and shrub vegetation cover ha end-project Design Institute above 30% Intermediate Result indicator Results for Ningxia Forestry Two: Closed areas reaching Mid-term, indicators 1, 2 and ha 0 0 0 5,000 0 17,000 Field Survey Planning and a vegetation cover of over end-project 3 can only be Design Institute 30% measured with a Intermediate Result indicator time lag of 3 years Three: Project area of Ningxia Forestry Mid-term, degraded land restored with ha 0 0 0 500 0 3,000 Field Survey Planning and end-project trees and shrubs with a Design Institute cover of over 40% Intermediate Result indicator Four: No. of Households Annually Project No. 0 0 50 100 200 300 RPMO involved in management from year 2 Reporting arrangements

3 Desertification is considered controlled by a vegetation cover of over 30% on moving sand dunes, and a shrub/tree cover of over 30% on degraded arid and semi-arid land combined with a full protection from livestock grazing. 14

Intermediate Result (Component Two): Shelter Belt Plantation Protecting Key Farmland and Infrastructure Intermediate Result indicator Annually Project One: Areas of farmland ha 0 0 0 2,000 5,000 8,000 RPMO from year 3 Reporting protected under project Intermediate Result indicator Annually Project Two: Road and railway km 0 0 0 200 400 600 RPMO from year 3 Reporting infrastructure protected Intermediate Result (Component Three): Project management, capacity building and M&E Intermediate Result indicator Person Project One: Client days of training  0 500 2,000 6,000 9,000 11,500 annually RPMO times Reporting provided.

*Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators) **Target values should be entered for the years data will be available, not necessarily annually.

Annex 2: Detailed Project Description

CHINA: Ningxia Desertification Control and Ecological Protection Project

1. Ningxia Hui Autonomous Region is located between the middle reaches of the Yellow River in a transitional belt between the Loess Plateau, and three of China‘s main deserts: the Mao Wu Su to the east, the Tengger to the west, and the Ulan Buh to the north. In particular, the Mao Wu Su Sand Land in the east and the Tengger Desert in the west cover extensive parts of Ningxia in addition to fragmented pieces of sand-covered land in the middle of Ningxia and the Yinchuan (Yellow River) Plain. The total area of land threatened by desertification dynamics in Ningxia is 2.97 million hectares (57.2% of its total land area).

2. Desert encroachment has been a historical challenge in Ningxia. During the first half of the 20th century, intense over-cutting and overgrazing destroyed vegetation and caused many of the former semi-fixed and fixed dunes (sandy lands) to lose their protective vegetation cover. Most of these areas are considered unsuitable for any livestock grazing on a long-term sustainable basis. The Government has thus followed a policy of restructuring the livestock sector away from grazing towards systems based on fodder production and pen feeding.

3. A series of major programs implemented in the last three decades has worked to partially restore some land productivity, resist the spread of shifting sand and reduce damage from sandstorms, by gradually fixing some shifting sand and helping some semi-fixed dunes become fixed. These efforts have resulted in a noticeable reduction of the overall desertification and land degradation process, and in some locations, even in a slight reversal. Overall, the Region remains in a fragile balance and is threatened by a continued pressure from population growth and economic development. Combined with the expected climate change, the efforts against desertification remain a continuous struggle. Currently, the Mao Wu Su Sand Land to the east of the Yellow River covers 891,000 hectares covered by sand, of which 150,000 hectares are drifting or semi-drifting sand dunes. The Tengger Desert in Zhongwei City stretches over 124,000 hectares of sandy land, of which 70,400 hectares are drifting or semi-drifting sand dunes. These drifting sands are threatening farmland, villages and houses, as well as putting important infrastructure assets at risk.

4. A combination of ecological vulnerability analysis and assessment of economic development importance has been used under the project to select seven cities/counties/cities for inclusion into the project: Pingluo County, Lingwu City, Litong District, Qingtongxia City, Xingqing District, Yanchi County, and Zhongwei City. Project sites are linked to significant economic infrastructure in Ningxia: Ningdong Heavy Chemical Energy Base, Yinchuan Hedong Airport, Xin‘ning Energy and Chemical Base, Zhongwei Xiangshan Airport, Beijing-Tibet Highway, West to East Gas Pipeline Project, Baotou-Lanzhou Railway, Taiyuan-Zhongwei- Yinchuan Railway and West to East Electricity Transmission Corridor.

Project Design

5. The project has three components: (a) Controlling Desertification and Degradation; (b) Protective Shelterbelt Plantations; and (c) Project Management, Capacity Building and M&E.

The total project cost is estimated at US$114 million, of which US$80 million will be financed by the IBRD loan; the remaining US$24 million will be provided as counterpart funds. The project would be implemented over a period of five years. The components include the following sub-components and activities:

6. Component 1: Controlling Desertification and Degradation (Total Cost: US$89.38 million). This component will address the main drivers of desertification and degradation which relate to moving sand through wind erosion dynamics and unsustainable land use practices. It comprises three sub-components:

(a) Moving Sand Stabilization (Total Cost: US$68.50 million). This sub-component will support the planning, design, and establishment of straw checker boards and the seeding and planting of indigenous shrub and grass on about 19,000 hectares of moving and semi- moving sand dune areas, with focus on the Mao Wu Su Desert on the Eastern Bank of the Yellow River and the Tengger Desert in Zhongwei. Both sand areas are continuously expanding and encroaching on farm land, human settlements, roads and other infrastructure. They threaten to impact the course of the Yellow River and thus pose an additional risk to the stable flow of the river and for the existing infrastructure.

The establishment of straw grids, combined with supportive grass and shrub planting will allow an initial fixation of the sand. The grids remain intact for about three to five years, allowing time for the development of the vegetation cover and subsequently for the permanent stabilization. This stabilization is a long-term process of ecological recovery. It is sustained through the development of inorganic and organic soil crusts formed by atmospheric dust, weathering, desert algae and mosses, and the accumulation of organic matter over time along with the natural succession to shrub vegetation. Planting activities will be complemented in selected sites by supporting investments in fire control equipment, construction of fire breaking tracks and passage routes, watch towers, small scale supplemental but temporary irrigation infrastructure, small buildings for technical staff and workers, and project information and warning signs.

(b) Degradation Control and Re-vegetation (Total Cost: US$15.44 million). This sub- component will control and reverse degradation of arid and semi-arid shrub-lands and steppe areas caused by unsustainable land use, mainly overgrazing, and to restore a natural protective vegetation cover. Some 42,000 hectares will be closed, protected, and managed for natural re-vegetation supplemented by shrub planting and assisted vegetation restoration in all seven project counties. An additional 4,600 hectares will be planted with trees and shrubs. The sub-component will also support construction of access tracks, fire breaks, watch towers and other infrastructure required to manage and monitor the rehabilitated areas.

(c) Integrated Land Management (Total Cost US$5.44 million). This sub-component will complement sub-components 1(a) and 1(b) by mitigating potential negative impacts on land users and ensuring acceptance and long-term sustainability of the desertification control outcomes. It will complement Government policies and programs of supporting a restructuring of the livestock sector from traditional grazing to pen feeding, and support the implementation of the project‘s Process Framework to improve acceptance and

ensure long-term sustainability of project outcomes. It will finance compensatory investments, such as economic tree plantations and fodder production for livestock where access restrictions to grazing areas occur. Such alternative livelihood options would be identified through a participatory process and would be funded under the project. It will also support the development of long term land management arrangements for all relevant project sites where such arrangements are feasible.

7. Component 2: Protective Shelterbelt Plantations (Total Cost: US$17.37 million). The objective of this component is to protect key farmland and infrastructure from desertification by tree and shrub shelterbelt plantations. This component will provide funding for plantation contracts for a total some 5,500 ha of shelterbelts along roads, irrigation canals and around agricultural fields and fruit orchards in key strategically selected locations. These plantations will serve as wind breaks, improve the ecological environment, and help sustain and increase agricultural yields.

8. Component 3: Project Management, Capacity Building and M&E (Total Cost: US$6.80 million). This component will support: (a) information and awareness campaigns for project beneficiaries and stakeholders; (b) the detailed technical design, field implementation and construction, construction supervision, and final acceptance checks of desertification control works, safeguards supervision, and project progress reporting; (c) applied research on selected topics such as desertification control, vegetation restoration, landscape and grazing management, and other topics that will be demand-driven and identified during implementation; (d) training and extension for staff of county-level Project Management Offices, and forest farms, as well as communities and other local stakeholders on the establishment, maintenance and post- management of desertification control and plantation investments for long-term sustainability; and (e) desertification control impact monitoring and field demonstration that is integrated into China‘s national and regional desertification monitoring system.

Specific Design Considerations

9. Site selection. Project sites have been assessed and classified in five categories according to soil type, site condition, topography, water availability (both precipitation and ground water) and existing natural vegetation to guide the selection of the most suitable treatment models for each location. Based on the environmental conditions and strategic protection importance, key project sites have been identified. A detailed list of project sites and sub-sites is included in the Project Implementation Manual. Stakeholder interest in project participation has been solicited during the preparation (social assessment) and voluntary participation will be ensured through the application of the Process Framework. All sites and investment activities focus primarily on public benefit plantation/protection and would be implemented on state land or collective land, which do not require any land acquisition.

10. Treatment models. Seven basic treatment or technical models for desertification control and vegetation rehabilitation have been designed taking into consideration the purpose of the treatment and site conditions. The general approach of these models is to build on non-irrigative plant protection and vegetation establishment. Some temporary watering is required for the initial stage of plant establishment. In the longer term, however, vegetation cover would develop based on the existing soil moisture and precipitation regimes without drawing on additional

18 ground or surface water exploitation. Only locally adapted indigenous species or species widely introduced and successfully tested in the project areas will be used. Treatment models, including specific parameters such as site preparation, species, seedling types, planting densities, and supplementary activities are described in the Project Implementation Manual.

11. Seedling supply and nursery infrastructure. The project will require about 25 million seedlings annually during the main implementation period. There are about 2,000 hectares of nursery gardens in the seven project counties/cities/districts that are supplying an estimated 110 million seedlings annually of a diverse range of species, including various types of broadleaved and evergreen trees, fruit and economic trees and deciduous arbor trees and shrubs.

12. The existing nursery structure includes private and forest enterprise owned nurseries (often sub-contracted to household operators) of different size and capacity. The existing nursery capacity and structure is considered sufficient and flexible to respond to the project needs. A specific challenge, however, is that the project will require a large number of indigenous tree, shrub, and grass species that may not yet be readily available in the market. To allow nursery operators to be ready and be able to respond to the project demand, each PMO will implement an information dissemination program to all local nursery operators to inform nurseries well in advance of the project‘s seedling requirements and give sufficient lead time to expand seedling production and adjust the types of seedlings accordingly. Because the project will not directly procure seeds and seedlings from nurseries but through contractors for plantation works, contractors will have to rely on the availability of appropriate seedlings in the plantation areas.

13. Straw for checkerboards. For the stabilization of drifting sand dunes, straw grids (checker-boards) will be built covering nearly 20,000 hectares. Checker boards consist of 1x1 meter wide straw grids formed by strips which are about 10-20 centimeters high and 5-10 centimeters wide. Grid construction requires are about 12-15 tons of wheat straw per hectare, equivalent to a total demand of 240,000-300,000 tons of straw over five years. Ningxia has an annual wheat production area of some 230,000 hectares, potentially yielding around 300,000- 600,000 tons of straw annually. Straw is traditionally considered a by-product of limited value in crop production and is often still being burnt on the field. However, its value as a source of energy or raw material is increasingly recognized. In particular in Ningxia, a significant amount of straw is harvested and used in the paper industry and for other on-going desertification control programs. An additional project demand of about 60,000 to 80,000 tons per year (comprising some 20-30 percent of the existing local production) could have a noticeable impact on the local straw market.

14. To avoid market distortions, the RPMO will closely monitor the wheat straw market and price developments and will prepare an annual market report. In case the project has a significant influence4 of the project on local straw markets, alternative options would be considered. These could include procuring straw from neighboring provinces or considering the use of other materials for checker boards (e.g. rice straw).

4 ‗Significant influence‘ will be defined by observed price increases exceeding 20% over the average market prices for the years 2009 to 2011.

15. Monitoring long-term impact. The success and impact of desertification control measures can only be assessed over the longer term, which is beyond the scope of the five-year project. The project will therefore rely on and use the existing desertification monitoring institutions and infrastructure and complement them. Specifically, the Ningxia Forestry Planning and Design Institute, which has the formal mandate and is responsible for the periodic monitoring and assessment of the Government‘s own programs on desertification control, would be assigned the task of long-term monitoring. The specific responsibilities of the Institute as well as the details of the incremental support to be provided through the project, including supplementary satellite imagery and operational costs, will be detailed at project start-up in a Memorandum of Agreement between the Ningxia Finance Department, the RPMO and the Institute.

Annex 3: Implementation Arrangements

Project Institutional and Implementation Arrangements

1. Regional Leading Group. The Government of the Ningxia Hui Autonomous Region has established a Regional Leading Group, which is chaired by the Governor of Ningxia and includes representation from the departments of Finance, the Development and Reform Commission, Water Resources, Transport, Environmental Protection, Forestry and other line agencies, to provide overall guidance for foreign funded projects in Ningxia (Chart 1). The Leading Group will be responsible for providing policy guidance and oversight of the project, for establishing the regulatory framework for its implementation, and for the performance of the implementing agencies. The Secretariat of the Leading Group is housed in the Foreign Debt Management Department of the Ningxia Finance Bureau.

2. Regional Project Management Office (RPMO). A RPMO has been established in the International Forestry Cooperation Center of the Ningxia Forestry Bureau. The RPMO will be responsible for the overall coordination of project activities, M&E, and will centralize all progress, financial, and procurement reporting for the project. Specific responsibilities include: (a) preparation of consolidated annual implementation and procurement plans; (b) technical supervision of the quality of outputs, including final check and acceptance; (c) coordination of training and capacity building, technical exchange, training and studies; (d) coordination and overall supervision of procurement implementation in the counties; (e) coordination of the project impact M&E activities with the Ningxia Forest Planning and Design Institute; and (g) liaison with the Bank for supervision and implementation support.

3. County/city/district Project Management Offices. Each project county, city and district has established a PMO under the respective forestry bureaus. Main responsibilities include: (a) formulate the annual work and procurement plans for submission and approval by the RPMO; (b) implement the annual procurement plans and be responsible for all procurement for activities to be implemented in the area; (c) be responsible for day-to-day implementation of project activities; (d) carry out technical training and provide technical guidance to contractors and staff; (e) supervise the performance of plantation works contractors; (f) carry out final inspection and acceptance of plantation works; (g) carry out financial reporting in line with government regulations; (h) prepare periodic physical progress reports to be submitted to the RPMO for review and consolidation; and (i) under the coordination of the RPMO, participate in the technical supervision of the project activities and collaborate in the implementation of the M&E system.

4. Expert Working Group. The Project will enroll a group of qualified and experienced specialists in key areas of expertise to constitute an Expert Working Group to provide all-around consulting service for the project and provide technical guidance and support. The expert group will work directly under the RPMO.

Chart 1: Project Organizational Arrangements

Ningxia Government Foreign Debt Management Leading Group

Ningxia Development and Ningxia Finance Ningxia Forestry Bureau Reform Commission Department NFB) (PDRC) (NFD)

Ningxia Regional Project Consultant Management Office Working Group (RPMO)

County (district, city) Finance County (district, city) County (district, city) DRC Bureaus Forestry Bureaus

County (district, city) Project Implementation Offices

Pingluo Xingqing Lingwu Yanchi Litong Qingtongxia Zhongwei PMO PMO PMO PMO PMO PMO PMO

Financial Management, Disbursement and Procurement

Financial Management

5. Financial management capacity. Designated financial staff with relevant educational background and work experience has been assigned to the RPMO to be responsible for the financial reporting and review of disbursement applications at the regional level. At the county level, the PMOs have assigned dedicated financial staff as well. Most of the project financial staff in the RPMO and the PMOs does not have experience in the management of Bank-financed projects. The timely provision of adequate counterpart funds has also been identified as a project risk. An action plan has therefore been developed to address the main weaknesses in financial management (Table 1). The financial management risk was assessed as substantial. With the implementation of the action plan, the residual risk is rated moderate.

Table 1: Action Plan to Address Weaknesses in Financial Management Weakness Actions Responsible Completion Person Date Project financial staff FM training plan to be prepared. NFD and Before and does not have experience RPMO during project with Bank financed All project financial staff to be trained implementation projects. before and during project implementation.

A Financial Management Manual has been RPMO and August 15, 2011 prepared to standardize FM procedures and NFD provide guidance to project financial staff

Lack of timely and Local government need to confirm that NFD and PMOs During project sufficient counterpart counterpart funds have been mobilized. implementation funds

6. Budgeting. Each PMO will prepare an annual project work plan, including an annual project budget and list of funding sources. Counterpart funds committed by the county, district and city governments will be reviewed and approved on an annual basis and be included in the project budgets. A budget variance analysis will be conducted semi-annually to ensure that project implementation can proceed as planned. The annual work (and budget) plan and the budget variance analysis will be submitted to the RPMO for review and comments.

7. Accounting and Financial Reporting. The administration, accounting and reporting of the project will be set up in accordance with Circular No. 13: ―Accounting Regulations for World Bank Financed Projects‖ issued in January 2000 by MOF. The PMOs will be the lowest level for project accounting. The RPMO and each of the PMO will be managing, monitoring and maintaining their respective project accounting records for the activities they execute. Original supporting documents will be retained by the originating PMO. The Bank will monitor the accounting process, especially during the initial stage of implementation, to ensure complete and accurate financial information will be provided in a timely manner.

8. The RPMO and the PMOs will be responsible for project financial reporting. The RPMO and the PMOs will prepare their stand alone financial statements, which will be reviewed and consolidated by the RPMO, with assistance from the Ningxia Finance Department, before submission to the Bank for review. The unaudited semi-annual consolidated project financial statements will be prepared and furnished to the Bank by the RPMO by March 15 and September 15. , in form and substance satisfactory to the Bank.

9. Internal Control. The Ministry of Finance has issued the relevant accounting policy, procedures and regulations. The project Financial Management Manual issued by the RPMO will align the financial management and disbursement requirements among PMOs. In addition, monitoring by the RPMO and regional and county finance bureaus (which will review each withdrawal application) and the annual external audit will serve as mechanisms to ensure that financial management controls are functioning appropriately.

10. Audit. The Audit Office of the Ningxia Hui Autonomous Region will carry out the external audit of the project accounts and will issue an annual audit report. The annual audit report of the project financial statements will be due to the Bank within six months after the end of each calendar year. This requirement is stipulated in the loan agreement. The RPMO is the responsible agency to provide the audit report to the Bank.

Disbursement

11. Disbursement Arrangements. Four disbursement methods will be applied under the project: advance, reimbursement, direct payment and special commitment. Supporting documents required for different disbursement methods will be documented in the Disbursement Letter issued by the Bank. The Bank loan would be disbursed against eligible expenditures (taxes inclusive) as presented in the Table 2.

Table 2: Disbursement Methods IBRD Loan Disbursement Category Allocated Amount Percentage of Expenditures to (US$ million) be Financed 1. Civil Works and Goods 79.00 74 2. Services, Training and 0.80 100 Incremental Operating Cost 3. Front-end-Fees 0.20 100 Total 80.00

12. Fund flow arrangements. A Designated Account, denominated in US dollar, will be opened at a commercial bank acceptable to the Bank. The Designated Account with be managed by Ningxia Finance Department. Bank loan proceeds will flow from the Bank into the Designated Account. Loan proceeds will then be disbursed either to city/district county finance bureaus and then to city/county/district PMOs or directly to contractors or suppliers based on withdrawal applications. The finance bureaus at the regional and county levels will be responsible for reviewing the withdrawal applications for Bank loan reimbursement. Chart 2 below describes the fund flow mechanism.

13. Retroactive financing. Retroactive financing of US$8.0 million will apply for this project for eligible expenditures commencing February 1, 2012 and is specified in the Loan Agreement.

Chart 2: Fund Flow Arrangements

World Bank

RPMO NFD

PMOs CFBs

WA Flow

Contractor/ Funds Flow Supplier

Procurement

14. Capacity assessment. The procurement capacity assessment identified the lack of experience with World Bank financed projects of the procurement staff in the RPMO and the PMOs as the principal risk. Mitigation measures include: (a) procurement training provided during project preparation; (b) preparation of a procurement training plan by the RPMO to train all procurement staff before and during project implementation; (c) preparation of a Procurement Manual and issuance by the RPMO to standardize project procurement procedures and provide guidance to project procurement staff; and (d) procurement agents with experience in World Bank procurement procedures recruited by the RPMO or the PMOs to assist with procurement planning and implementation. Overall procurement risk is considered ‗substantial‘.

15. Applicable guidelines. Procurement will be carried out in accordance with the ―Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers‖ dated January 2011; and ―Guidelines: Selection and Employment of Consultants by World Bank Borrowers‖ dated January 2011; and the provisions stipulated in the Loan Agreement. NCB shall be carried out in accordance with the Law on Tendering and Bidding of the People’s Republic of China promulgated by Order of the President of the People‘s Republic of China on August 30, 1999 subject to the modifications stipulated in the Legal Agreement in order to ensure consistency with Bank Procurement Guidelines.

16. Procurement of Works. Works procured under this project will include: (a) establishment of straw checker boards combined with indigenous shrub and grass seeding and planting; (b) enclosure, protection and management of heavily degraded arid and semi-arid areas and natural re-vegetation supplemented by shrub planting and assisted vegetation restoration; (c) plantation of shelterbelts along roads, irrigation canals and around agricultural fields and fruit orchards in selected locations; and (d) construction of access tracks, fire breaks, watch towers and small buildings for staff and workers, and project information and warning signs. Procurement will be conducted using the Bank‘s Standard Bidding Documents for all International Competitive Bidding (ICB) and National Model Bidding Documents agreed with or satisfactory to the Bank for all National Competitive Bidding (NCB).

17. Planting/seeding would be procured under single responsibility civil works contracts. The contractor would be responsible for purchasing and planting of trees, indigenous shrub and seedlings, in order to ensure the survival of the trees and indigenous shrub and seedlings planted.

18. Procurement of Goods. Goods procured under this project will include office and monitoring equipment for the PMOs and the RPMO. Procurement will be done using the Bank‘s Standard Bidding Documents for all ICB and National Model Bidding Documents agreed with or satisfactory to the Bank for all NCB.

19. Selection of Consultants. Consulting services will include: (a) consulting services for the supervision and acceptance checks of plantation works; (b) project M&E of implementation achievements and environmental and socio-economic impacts; and (c) applied research and demonstrations. Chinese universities and research institutes may be included in shortlists as a source of consultants, provided they possess the relevant qualifications and they are not in a conflict of interest situation. In such cases, QBS or CQS (for small assignments) would be used, if the shortlist also includes consulting firms.

20. Training and Workshops. Plans for training and workshops will be developed by the RPMO and the PMOs, and included in project annual work plan for Bank review. Expenditures incurred in accordance with the approved plans for training and workshops will be the basis for reimbursement.

21. Procurement Plan. A Procurement Plan for the first 18 months of project implementation has been prepared by the PMOs and consolidated by the RPMO and found acceptable by the Bank. It will be made available in the project‘s database and on the Bank‘s external website. The Procurement Plan will be updated annually or as required to reflect implementation needs and improvements in institutional capacity.

22. Frequency of Procurement Supervision. Prior review supervision will be carried out through the World Bank office in Beijing. During the first year of implementation, the first civil works contract in every county will be subject to prior review, regardless of the contract value. Ex-post procurement reviews will be carried out by the Bank every 12 months. The ex-post review sampling ratio will be one out of five contracts.

23. Prior-Review Thresholds. The prior-review thresholds are indicated in the table 3 below.

Table 3: Procurement Thresholds

Prior Review Thresholds Procurement/Selection Method Thresholds (US$ million) (US$ million) Least ICB NCB Shopping QCBS QBS CQS SSS Cost Goods ≥0.3 ≥1.0 <1.0 <0.1 Works ≥5.0 ≥20 <20 <0.2 Consulting ≥0.1 for -- -- <0.3 -- -- Services firms ≥0.05 for individuals All for SSS Note: (a) ―—‖ refers to No Threshold; and (b) there are no contracts subject to international competition during the first 18 months.

24. Retroactive financing. Civil works expected to be procured under retroactive financing are included in the Procurement Plan and will be subject to 100% prior review.

Environmental and Social Aspects (including safeguards)

25. The project is a Category B project. The project is designed to generate significant positive environmental impacts in the project areas and to result in improvements of the ecological environment in Ningxia. Negative impacts are unlikely to materialize because of the long-term experience with desertification control and protection activities in Ningxia and the detailed preparation work undertaken during project design. Applicable environmental safeguard policies include: Environmental Assessment (OP4.01); Natural Habitats (OP4.04); and Pest Management (OP4.09).

26. Environmental Assessment (OP4.01). An Environmental Assessment was conducted in accordance with Bank Operational Policy OP4.01 and national regulations and a comprehensive Environmental Assessment Report was prepared. The assessment includes an analysis of potential positive and negative impacts, an assessment of the various options of shrub and grass species, planting models, planting sites selection, an alternative project analysis, a description of mitigation measures, and an environmental monitoring plan that is integrated into the project‘s overall M&E approach. It documents the public consultation carried out during preparation.

27. The Environmental Assessment concluded that the project will bring significant positive impacts to the natural and socio-economic environments. The project would yield these benefits through stabilizing the moving sands in project areas, restoring and increasing natural vegetation cover, protecting key farmland areas and other measures. Project activities have been designed in ways to avoid or minimize adverse impacts on the physical environment. Environmental Protection Guidelines have been developed that specify mitigation measures in case negative impacts materialize. With the proper implementation of the pre-designed desertification control and planting models and adherence to these guidelines, negative environmental impacts can be avoided. 27

28. Natural Habitats (OP4.04). A number of project sites selected for natural vegetation rehabilitation and restoration include habitats of Ammopiptanthus mongolicus, an evergreen xerophyte shrub indigenous to the desert areas of Western China, including Ningxia. This species is also classified as a second class protected plant by the Chinese Government. Despite the current status of severe degradation, these areas still represent valuable natural habitats. The Environmental Assessment and the Environmental Management Guidelines describe the current status of these habitats in Ningxia and within the project area as well as the threats to these habitats that will be addressed by the project. The Guidelines also describe the specific treatment models and measures to successfully rehabilitate these natural vegetation communities and ecosystems. No conversion of the A. mongolicus steppe areas is foreseen under the project.

29. Pest Management (OP4.09). The establishment and the management of protective plantings and shelterbelts may require the control of pest and diseases and the use of pesticides and/or herbicides. The project will improve current pest management practices in the project areas through: (a) promoting the primary use of Integrated Pest Management; (b) the use of the application of high efficiency biological pesticides, and where needed, low toxic, low residual effect chemicals; and (c) prohibiting the use of high toxic, high residual effect pesticides; (d) reducing the reliance on chemical pesticides and chemical fertilizers; and (e) promoting the use of non-chemical technologies for insect and pest control.

30. In accordance with OP4.09, a Pest Management Plan has been prepared. It describes the overall policy framework and institutional responsibilities for pest management and control in Ningxia, includes an environmental, occupational health and safety risk assessment. It also describes a range of pest and disease control and management methods, including Integrated Pest Management, and the scope of their recommended application in various situations. The Plan also provides a list of pesticides and herbicides that may be required under the project potentially and are in compliance with the provisions of the World Health Organization‘s recommended categories. The Plan also includes detailed provisions for training of project stakeholders and a monitoring program. Implementation of the training and monitoring programs has been included in the project budget.

31. Arrangements for environmental monitoring. The Environmental Monitoring Plan included in the Environmental Assessment and the provisions of the Environmental Protection Guidelines and Pest Management Plan provide the framework for the project‘s compliance monitoring with the environmental safeguards. Responsibility for such compliance monitoring rests with the RPMO, the Ningxia Forestry Design and Planning Institute, and the PMOs. The specific arrangements for environmental compliance monitoring are detailed in the Project Implementation Manual.

32. Involuntary Resettlement (OP4.12). No involuntary resettlement or land acquisition is expected under the project. The project will, however, involve the protection of open access degraded steppe and grassland areas through hill closures. Such closures will reinforce the Government‘s closure policy and general ban on grazing and may result in access restrictions to resource use on those lands. It is expected that a total area of around 42,000 hectares will be closed for vegetation rehabilitation and protection (Component 1(b)). The resulting access restrictions to these open areas may affect 24 villages and 5 forestry farms with a total population

28 of 23,250 people. The Bank‘s policy on Involuntary Resettlement (OP 4.12) will therefore be applicable.

33. Social Assessment. As part of the overall due diligence process, a Social Assessment Study was carried out during project preparation to identify the specific risks or potentially adverse impacts to local people in project-affected areas. The social assessment focused on those sites that have been selected for hill closure and vegetation rehabilitation. Project- supported closures will reinforce the official hill closure policy and ban on grazing and thus may result in the reinforcement of access restrictions to these open access lands with some livelihood implications. The assessment included an analysis of local livelihood conditions and an assessment of potential impacts of hill closures on households in project areas. The assessment also included detailed field surveys and consultations with farmers on collective land and state farm workers on state farms of all seven project counties. Although the hill closure sites are not legally designated protected areas under Bank OP4.12, the social assessment defined various safeguard measures to mitigate and offset potential negative impacts and provide livelihood alternatives. These measures have been integrated in the project design (Component 1(c)).

34. Process Framework. A Process Framework has been developed to provide a framework for household participation in project implementation and guide the implementation of the social safeguards measures. The framework defines the mechanisms for information dissemination, training, and the participation of affected people in the design and implementation of compensatory measures to restore income losses. It also sets forth appropriate compensatory and mitigation measures to ensure people‘s livelihoods are compensated and negative livelihood impacts brought about by the project are avoided or mitigated. The framework sets forth a number of livelihood activities to choose from, such as pen-breeding and feedlot construction, fodder production and storage, rotational grazing, remunerative labor input to project activities, and economic tree planting. The Process Framework also sets forth the provision for social impact monitoring and includes a complaints handling mechanism. Responsibility for social impact monitoring rests with the RPMO and the PMOs.

35. Public consultation and disclosure. In accordance with the Bank‘s disclosure policy, consultations with project-affected people were conducted during the Environmental/Social Assessment processes during July-October 2010 and during July-September 2011 and are documented in the respective reports. Public participation under the Environmental Assessment process included the publication and dissemination of project information in project areas (in July 2010 and October 2010), solicitation of feedback on overall project design and technical models during several occasions, and a separate questionnaire survey covering all seven project counties/districts/cities and over 500 households. Results of the survey confirmed the public‘s perception of the current bad environmental conditions and the strong support to the project. The public consultation process under the Social Impact Assessment involved interviews with government, forest farms, and local villagers, mapping and rapid rural appraisals, analysis of stakeholder demands and expectations and consultations on the process and principles for participation.

36. The Environmental and Social Assessment Reports, including the Environmental Protection Guidelines, the Pest Management Plan, and the Process Framework were reviewed by the Bank as part of project appraisal and disclosed locally in the project areas in Ningxia (in

November and December 2011), at the central government in Beijing, and in the Bank‘s InfoShop.

Monitoring and Evaluation

37. Input-output monitoring. Responsibility for physical progress (input-output) monitoring rests with the PMOs at the county/city/district levels. The quality of all works implemented under the project will be checked, and if technical standards are met, accepted by the PMOs. The PMOs will be responsible for construction supervision and acceptance checking of 100 percent of the (checker board/planting/seeding) works contracts implemented in their respective areas, in accordance with government procedures and guidelines. The PMOs will also prepare semi-annual progress reports, which will be consolidated by the RPMO.

38. The RPMO will check and verify at least 30 percent of all works based on random selection. The RPMO will engage a construction supervision agency or agent to carry out such random checks, but will retain the responsibility for ensuring timely progress reporting to the Bank and for the accuracy of the information. To facilitate random field checks, detailed maps and tables with all project activities geo-referenced and coded have been be prepared during project preparation. These will be further detailed and confirmed during detailed design. The location of individual project activities will be marked with coordinates. Remote-sensing technology, in particular the Global Positioning System, will be used to verify field works. The quality and accuracy of project works would be assured by assigning clear responsibilities within the PMO management structure. Specific implementation arrangements and institutional responsibilities are detailed in the Project Implementation Manual.

39. Impact Monitoring and Evaluation. Desertification monitoring in China is implemented by the Desertification Monitoring Center of the Forestry Surveying and Planning Institute of the State Forestry Administration. The Center was established with the responsibility to: (a) formulate technical methods for desertification monitoring, data processing and management, and forecasting of desertification trends; (b) guide the establishment of local desertification monitoring systems; and (c) prepare national and regional desertification project feasibility reports and progress reports. The Center has developed the: ―China Desertification Monitoring Technical Regulations‖ and ―China Desertification Monitoring Indicator System‖. Every five years, the center carries out a country-wide desertification survey and assessment; the latest was carried out in 2009. At the Ningxia regional level, the Ningxia Forestry Planning and Design Institute is the direct counterpart of the national level Desertification Monitoring Center. The Institute has the official mandate for the periodic assessments of the Government‘s desertification control programs in Ningxia.

40. Impact monitoring under the project will be integrated into the Government‘s existing impact monitoring. It will be based on standard remote sensing technologies, field verification (permanent plots), and will apply existing monitoring protocols for desertification control. Specifically, for the purpose of project monitoring, the Ningxia Finance Department and the RPMO will sign a Memorandum of Agreement with the Ningxia Forestry Planning and Design Institute at project start-up or, alternatively, recruit qualified consultants. This agreement or terms of reference will detail: (a) the list of indicators, which would include at least all indicators listed in the project results framework as survey indicators; (b) sample size and sampling

30 methods; (c) frequency of data collection; and (d) reporting format. The details of the incremental support to be provided through the project, such as supplementary satellite imagery for project sites, and incremental operational costs, would be confirmed at project start-up.

Annex 4 Operational Risk Assessment Framework (ORAF)

China: Ningxia Desertification Control and Ecological Protection Project (P121289)

Project Stakeholder Risks Stakeholder Risk Rating Low Description: Risk Management: The Project is integrated into the Regional Government‘s strategy of desertification The Bank team will discuss desertification issues with central, regional, and county level governments on a regular basis to confirm control, ecological rehabilitation, and economic development. The project also supports complementarity between government policies, plans, and activities and the project. national targets. There is strong commitment from the Regional Government to the project as is reflected in government strategic documents and program. Resp: Bank Stage: Implementation Due Date: 31-Mar-2018 Status: Not Yet Due

Public perception of this project in the country, and particularly among local stakeholders, is expected to be positive because of the beneficial environmental impacts expected. Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Substantial Description: Risk Management: The RPMO and PMOs have only limited experience with Bank-financed projects and Preparation and application of the detailed Project Implementation Manual, that describes the implementation procedures and need to develop and implement the required management, FM, procurement, and responsibilities, activity sequencing, project monitoring and reporting, procurement, financial management and other important reporting systems. Other capacity risks include: implementation aspects. Continuous training, particularly on procurement and financial management. Regular and on-demand Bank supervision and implementation support, including extensive prior review of procurement activities during the first year of (1) Limited experience in contract management. implementation. (2) Weak FM and procurement capacity (3) Inter-departmental coordination issues. Resp: Bank Stage: Implementation Due Date: 31-Mar-2018 Status: Not Yet Due (3) Phasing of project activities due to the seasonality of the planting program. (4) Possible counterpart funding shortages or delays. Governance Rating Low Description: Risk Management: A strong overall governance framework for project implementation is place. A Governor- Regular and on-demand supervision, with particular focus on ownership, commitment, accountability, and decision making, especially level leading group will oversee overall project implementation and provide policy on procurement and financial management. guidance. The Ningxia Finance Department is fully involved in financial management of project funds. Resp: Bank Stage: Implementation Due Date: 31-Mar-2018 Status: Not Yet Due

Project Risks Design Rating Low Description: Risk Management: The technical design of the project is straightforward and is based on prior experience in The Project Leading Group and the RPMO will monitor implementation closely. Regular Bank supervision will monitor Ningxia. Project activities will be concentrated in a small number of counties in Ningxia implementation closely and identify any need for design changes or adjustment. and project sites have been identified. The models for desertification control and rehabilitation are tested. Resp: Bank Stage: Implementation Due Date: 31-Mar-2018 Status: Not Yet Due Social and Environmental Rating Low Description: Risk Management: Environmental: Negative impacts may occur only, if the project is not properly Environmental: implemented, for example, because of selection of unsuitable plantation models and Project sites have been carefully screened for maximum positive environmental impact in strategic locations. Possibly negative impacts species, insufficient consideration of hydrological aspects of vegetation establishment, of temporary nature will be managed through the implementation of the Environmental Protection Guidelines, Environmental poor site management, uncontrolled use of pesticides. Monitoring Plan, and Pest Management Plan. Social: Social: Hill closures will reinforce the Government‘s general grazing ban. The resulting The RPMO and the Bank team will carefully supervise: (a) the implementation of the Process Framework developed as part of the access restrictions may affect 24 villages and 5 forestry farms. Social Assessment and consultation process; and (b) implementation of compensatory measures under sub-component 1(c). Resp: Client Stage: Implementation Due Date: 31-Mar-2018 Status: Not Yet Due Program and Donor Rating Low Description: Risk Management: The project is free-standing and does not involve other donor or government activities. The task team will liaise with Ningxia and other donors active in Ningxia on related activities during regular supervision. The project can benefit from coordination with other ongoing programs. Resp: Bank Stage: Implementation Due Date: 31-Mar-2018 Status: Not Yet Due Delivery Monitoring and Sustainability Rating Moderate Description: Risk Management: Underdeveloped skills in project management and, in particular, limited experience in Continuous training on procurement and financial management will be carried out. The County PMOs will recruit procurement agents procurement and contract management. to assist procurement and contract management during the initial implementation phase. During the first year of implementation, all first civil works contracts regardless of contract value will be subjected to the Bank‘s prior review. Input-output monitoring is based on standard government procedures and impact monitoring has been outsourced to the Ningxia Forestry Design and Planning Institute for Resp: Bank Stage: Implementation Due Date: 31-Mar-2018 Status: Not Yet Due integration into an existing government M&E program.

Institutional and technical capacity to maintain project investments is well developed and government programs are sufficiently funded to help maintain project outcomes. Overall Risk Preparation Risk Rating: Moderate Implementation Risk Rating: Moderate Description: Overall project management capacity was considered relatively weak at PCN stage. Capacity gaps and the inexperience with the Bank‘s fiduciary policies and procedures were to be taken into consideration by simplifying the project design, training, and the development of clear manuals and procedures.

Annex 5: Implementation Support Plan

Strategy and approach

1. Weak implementation capacity of the RPMO and the PMOs has been identified as the key risk to implementation. Bank implementation support will focus on assisting the client in strengthening implementation capacity, particularly in financial management and procurement, immediately following project start-up. Frequent supervision early on during the first half of the implementation period is expected to effectively assist the client to be in compliance with Bank FM and procurement policies and procedures. In addition, Bank support will focus on building capacity of the client through ensuring that the required training and capacity building measures in financial management and procurement are being implemented quickly and will be continued if needed.

2. Procurement capacity building will include: (a) the preparation and implementation of a procurement training plan by the RPMO to train all procurement staff during project implementation (including refresher training); and (b) the issuance of the Procurement Manual by the RPMO to standardize project procurement procedures and provide guidance to project procurement staff. The Bank team will ensure that procurement training is implemented as planned and PMOs are required to attend Bank-organized procurement training.

3. In FM, the Bank team will supervise the implementation of the FM training plan and pay specific attention to the timely provision of the required counterpart funds. The FM specialist will ensure that counterpart funds committed by the Regional level as well as county, district and city governments will be included in annual sectoral budgets. A budget variance analysis will be conducted semi-annually. If needed, necessary remedial actions will be taken to make sure that project implementation can proceed as planned. Standard provision on interim financial reporting and external audit apply and their compliance will be monitored.

4. Specific technical expertise on desertification control, M&E, and economic aspects will be mobilized during regular semi-annually supervision missions. The challenges associated with the timely planning and careful phasing of activities to match the seasonality of the plantation program will be monitored by the Bank‘s technical specialists during routine supervision. The team‘s environmental specialist will monitor compliance with environmental safeguards and adherence to the provisions of the Environmental Management Guidelines and Pest Management Plan as well as Environmental Monitoring Program. The Bank‘s social specialist will pay particular attention to the implementation of the Process Framework under component 1 (c) and supervise PMO performance in monitoring livelihood impacts from access restrictions and corresponding compensatory measures and benefits to local communities. Field visits are required on a semi-annual basis. The Bank‘s task team leader and most of the team members are based in Beijing and can provide timely and on-demand implementation support to the client when needed.

5. An overview of the focus and timing of Bank support is presented in Table 1 and the required skill mix in Table 2.

Table 1: Supervision input requirements. Resource Estimate Time Focus Skills Needed (annually, in staff weeks) First twelve Task and team leadership TTL 6 SW months Technical support to overall Technical Specialist/ 6 SW project implementation Economist Process Framework Social Specialist 2 SW Implementation EMP Implementation Environmental Specialist 1 SW

Financial Management FM specialist 2 SW

Procurement Procurement Specialist 2 SW

12-48 months Task and team leadership TTL 10 SW Technical support to overall Technical Specialist/ 20 SW project implementation Economist Process Framework Social Specialist 8 SW Implementation EMP Implementation Environmental Specialist 4 SW

Financial Management FM specialist 6 SW

Procurement Procurement Specialist 8 SW

Table 2: Skill Mix

Number of Staff Number of Skills Needed Remark Weeks Trips TTL/ Rangeland Management/ 6 SWs annually 2 Bank staff Environment/ Desertification Control Agriculture economics 8 SWs annually 2 Bank staff / Consultants Procurement 2 SWs annually 1-2 Country-office based Social Development 2 SWs annually 1-2 Country-office based Environmental Management 1 SW annually 1 Country-office based Financial Management 2 SWs annually 1-2 Country-office based

RUSSIAN 106° 107° FEDERATION ToWuhai

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Machenghe Guojiagou PROJECT AREAS Guyuan To 36° 36° Xiji Qinyang To Lanzhou EXPRESSWAYS Pengyang NATIONAL ROADS GANSU RAILROADS AIRPORT GREAT WALL To Longde RIVERS Jingning Maojiagou Xiasi CITIES AND TOWNS Yanchuanzi COUNTY CAPITALS To Jingyuan Jingchuan PREFECTURE CAPITALS 0 1020304050 PROVINCE CAPITAL KILOMETERS COUNTY BOUNDARIES PREFECTURE BOUNDARIES This map was produced by the Map Design Unit of The World Bank. PROVINCE BOUNDARIES JANUARY 2012 The boundaries, colors, denominations and any other information shown

on this map do not imply, on the part of The World Bank Group, any IBRD 39020 judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

105° 106° 107°