Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 39321 September 2009

Proposed Loan and Administration of Grant People’s Republic of : Biodiversity Conservation and Demonstration Project

CURRENCY EQUIVALENTS (as of 24 September 2009)

Currency Unit – yuan (CNY) CNY1.00 = $0.1464 $1.00 = CNY6.83

ABBREVIATIONS

ADB – Asian Development Bank EA – executing agency EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan EMU – environmental management unit FIRR – financial internal rate of return FYP – five-year plan GDP – gross domestic product GEF – Global Environment Facility IA – implementing agency IEE – initial environmental examination LFF – Louguantai Forest Farm LIBOR – London interbank offered rate PDRC – Provincial Development and Reform Commission PMO – project management office PPMS – project performance monitoring system PRC – People’s Republic of China QBCDA – Qinling Biological Conservation and Demonstration Area QMEFCA – Qinling Mountains Ecosystem Function Conservation Area QNBG – Qinling National Botanical Garden SARC – Shaanxi Animal Rescue Center SFB – Shaanxi Forest Bureau SIEE – summary initial environmental examination SOE – statement of expenditures SPG – Shaanxi provincial government TA – technical assistance VDP – village development planning WACC – weighted average cost of capital WWF – World Wide Fund for Nature

WEIGHTS AND MEASURES

ha – hectare km – kilometer km2 – square kilometer mu – 0.067 hectare t/d – tons per day

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December.

(ii) In this report, "$" refers to US dollars.

Vice President C. Lawrence Greenwood Jr., Operations 2 Director General K. Gerhaeusser, East Department (EARD) Director K. Kannan, Agriculture, Environment, and Natural Resources Division, EARD

Team leader R. Renfro, Principal Economist, EARD Team members A. Djusupbekova, Senior Counsel, Office of the General Counsel S. Ferguson, Principal Social Development Specialist (Safeguards), EARD D. McCauley, Principal Climate Change Specialist, Regional and Sustainable Development Department L. Medina, Project Officer, EARD F. Radstake, Environment Specialist, EARD M. Vorpahl, Social Development Specialist, EARD N. Zhiming, Project Officer (Environment), EARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page LOAN AND PROJECT SUMMARY i MAPS I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2 III. THE PROPOSED PROJECT 5 A. Impact and Outcome 5 B. Outputs 6 C. Activities Financed by the Global Environment Facility 10 D. Special Features 10 E. Project Investment Plan 11 F. Financing Plan 12 G. Implementation Arrangements 12 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 16 A. Benefits and Impacts 16 B. Financial Analysis 16 C. Economic Benefits 16 D. Environmental Benefits and Impacts 17 E. Poverty Impact and Employment 17 F. Gender and Development 18 G. Land Acquisition and Resettlement 18 H. Risks and Mitigation Measures 19 V. ASSURANCES AND CONDITION 19 A. Specific Assurances 19 B. Condition for Disbursement 21 VI. RECOMMENDATION 21 APPENDIXES 1. Design and Monitoring Framework 22 2. Problem Tree Analysis 26 3. Sector Analysis and Lessons Learned 27 4. External Assistance 30 5. Detailed Cost Estimates 31 6. Flow of Funds 32 7. Organizational Chart 33 8. Implementation Schedule 34 9. Procurement Plan 35 10. Terms of Reference for Consulting Services 39 11. Financial and Economic Analyses 43 12. Summary Initial Environmental Examination 48 13. Summary Poverty Reduction and Social Strategy 53 14. Summary Resettlement Plan 57

SUPPLEMENTARY APPENDIXES (available on request) A. Qinling Biodiversity Conservation B. Qinling Biological Conservation and Demonstration Area Strategy C. Legal and Institutional Review D. Financial Management and Governance Assessment E. Conservation Standards and Guidelines F. Endangered Species Recovery Management Plans G. Rural Livelihoods and Conservation H. Environmental Management Plan I. Detailed Project Costs J. Detailed Financial and Economic Analyses

LOAN AND PROJECT SUMMARY

Borrower People’s Republic of China (PRC)

Classification Targeting classification: General intervention Sector (subsector): Agriculture and natural resources (land-based natural resources management, forestry) Themes (subthemes): Economic growth, environmental sustainability (natural resources conservation) Climate Change: Climate change adaptation Location impact: rural (medium) Partnership: Global Environment Facility

Environment Category B. An initial environmental examination was undertaken. Assessment

Project Description The Qinling Mountains are an internationally important biodiversity hot spot and represent about 70% of the PRC’s biodiversity, including an estimated 300 giant pandas. The Qinling Mountains are central to soil and water management of the and Yellow rivers. The Project will improve biodiversity conservation and management by restoring forest habitat, improving endangered species management and providing sustainable livelihoods for the population of the project area, and demonstrating the benefits to the rest of the Qinling Mountains and other similar areas in the PRC. The Project will provide significant environmental, economic, and social benefits throughout the project area. It will address underlying causes and effects of historical and contemporary resource degradation.

The project area is 458 square kilometers (km2), about 45 kilometers southwest of Xi'an, the capital of Shaanxi, and is identified as the birthplace of the Taoist religion. The project area is divided into a plains area for ecotourism and agriculture development, and a mountainous area for biodiversity conservation. It is home to about 20,400 people. The plains have about 15,800 residents (77% of the total) who live on about 58 km2 (13% of the total project area) bordering the northern end of the project area. The poverty incidence is about 23%. This area also includes the township of Louguantai; several Taoist temples; the Qinling National Botanical Garden (QNBG) and nursery; the Shaanxi Animal Rescue Center (SARC), which includes threatened species of giant panda, golden monkey, golden takin, and crested ibis; and the Louguantai Forest Farm. About 71 million tourists visit Shaanxi province annually, of which about 400,000 visit the project area and about 1 million visit the ii

Qinling Mountains. The larger but scarcely populated mountainous area is called the Qinling Biological Conservation and Demonstration Area (QBCDA), where the management objective is low-impact development that supports the conservation of biodiversity and provides sustainable livelihoods for about 4,600 residents (23% of total) on about 400 km2 (87% of project area).

The Project will produce three primary outputs: (i) participatory biodiversity management in the mountainous area, (ii) enhancement of biodiversity conservation in the plains area, and (iii) improved project management. Using sustainable financing mechanisms for biodiversity conservation, the habitat of the mountainous area, QBCDA, will be improved to promote mixed forest coverage, and flora and fauna species expansion. The small population lives in scattered settlements in QBCDA and will be encouraged to support biodiversity conservation objectives and minimize unsustainable farming and other activities.

The Project will develop biodiversity-based attractions that will generate funds for the management and enhancement of QBCDA. The commercial activities will involve a botanical garden, wildlife breeding and research (including a giant panda center second only to province’s Wolong Nature Reserve), and related ecotourism. QNBG will address a major weakness of the many past biodiversity projects by ensuring sustainable financing using part of the ecotourism revenue. Links with the Qinling Mountains nature reserves and an increase in biodiversity corridors will be pursued.

Rationale The Qinling Mountains is biologically rich with many endangered, threatened, and endemic animal and plant species that need to be protected. The Qinling Mountains have about 25 national and provincial nature and forest reserves, many of which have received assistance from the Global Environment Facility (GEF), World Bank, and World Wide Fund for Nature (WWF).

The geography is dominated by mountains, rivers, streams, and forests. The major environmental issues are related to land and environmental degradation, endangered animals and plants, the presence of some exotic tree species, and the need for long-term animal and plant species regeneration and expansion as well as sustainable conservation and preservation management techniques. Other issues include employment and income- generating opportunities for the inhabitants, the availability of financing for biodiversity conservation in the project area and Qinling Mountains, and basic rural services in the project area. About 37% of the population in the project area is poor, with poverty increasing markedly from Louguantai south into the rugged mountain and forest terrain.

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Because of the prevailing poverty, the project area and nature reserves in Qinling Mountains are subject to a high level of competing land-use pressure. This is a major reason why the sustainable management of biodiversity resources is important to the Shaanxi government, the Asian Development Bank (ADB), GEF, and WWF. However, the financial sustainability of biodiversity conservation is precarious, because conservation cannot compete financially with other less environment-friendly forms of land use. Species diversity is largely a public good, and the revenue generated from ecotourism often does not cover the costs of creation and management. To improve the funding situation, protected areas must generate their own revenue. Because of its favorable location in relation to Xi'an, the project area will be able to generate revenues to cover most, if not all, of its operational and management costs.

The Project will pursue a market-based approach to biodiversity conservation, featuring sustainable revenue generation and use, along with land and conservation management. Biodiversity conservation is a high priority of the Government, as reflected in the 11th Five-Year Plan (2006–2010), the Ministry of Environmental Protection’s biodiversity strategy, and the Qinling Mountains Ecosystem Function Conservation Plan. The Project will strengthen the management of nature reserves in the Qinling Mountains through integrated approaches, including market- oriented measures to sustain environmental and biodiversity objectives while increasing rural incomes and reducing poverty. The public sector is required to ensure preservation of the natural and cultural heritage sites in the project area.

The lessons from previous environmental projects in the PRC and Shaanxi province, as well as other major provinces with biodiversity activities including Sichuan and Yunnan, have been incorporated in the Project. The provincial government and the Implementing Agency (IA), QNBG, have strong commitment to and ownership of the Project. All major stakeholders have been extensively consulted. Linking biodiversity conservation with revenue generation in the project area and the Qinling Mountains is fully supported. The Project is well focused in terms of area coverage, and the outputs are well defined, closely linked, and within the capacities of QNBG to effectively manage. The Shaanxi provincial government (SPG) has successfully implemented three ADB-financed projects in environmental protection, roads, and railways. It has also successfully implemented 12 World Bank- financed projects in forestry, water, agriculture, poverty reduction, and environmental protection. Several of these projects are cofinanced with GEF. Many of the successful features of WWF assistance in biodiversity conservation and income generation have been included in the Project.

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Impact and Outcome The project impact is sustainable biodiversity conservation in order to protect globally-significant species and to sustain economic growth. The expected outcome of the Project is improved and integrated biodiversity management that provides sustainable livelihoods for the population of the project area. The outcome will also be shared and demonstrated to the rest of the Qinling Mountains.

Project Investment Plan The Project is estimated to cost $132.64 million, including taxes and duties of $5.65 million.

Financing Plan A loan of $40 million from ADB’s ordinary capital resources will be provided under its London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.15% per year on undisbursed funds, and such other terms and conditions as set forth in the loan and project agreements. The GEF grant cofinancing of $4.27 million was endorsed by the GEF Chief Executive Officer in July 2009.

Total Source % ($ million) Asian Development Bank 40.00 30.2 Global Environment Facility 4.27 3.2 Government 88.37 66.6 Total 132.64 100.0 Source: Asian Development Bank estimates.

Allocation and Relending The Government will relend the proceeds of the ADB loan to SPG Terms under the same terms and conditions as those of the original loan. The interest rate will be at the same LIBOR-based rate paid by the PRC and will be subject to the same terms and conditions as the PRC loan. SPG will onlend to the IA (QNBG) under the same terms and conditions as the relending to SPG, including a 25-year loan with a 5-year grace period. The interest rate payable on the loan would be subject to the same LIBOR-based terms and conditions as the loan to SPG.

Period of Utilization Until 31 October 2015

Estimated Project 30 April 2015 Completion Date

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Implementation The Project will be implemented by SPG, the Executing Agency, Arrangements through the Provincial Development and Reform Commission. SPG has formed a project leading group to provide policy advice and conflict resolution, and to approve work plans. SPG will be supported by a project management office (PMO) comprising the Provincial Development and Reform Commission, the Shaanxi Provincial Finance Department, and the Shaanxi Forest Bureau. The PMO will be responsible for the overall administration and monitoring of the Project. QNBG will be the IA, which consists of three divisions for the Shaanxi Qinling Botanical Garden, the SARC, and the QBCDA.

Executing Agency Shaanxi provincial government

Procurement All goods and works will be procured in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million will be procured using international competitive bidding procedures. Contracts for goods and works estimated to cost less than the international competitive bidding values, but more than $100,000, will be procured through national competitive bidding procedures, in accordance with the PRC Tendering and Bidding Law, 1999, subject to clarifications agreed upon with ADB. Contracts for goods and works estimated to cost $100,000 or less will be procured using shopping procedures. The relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) will be included in all procurement documents and contracts.

Consulting Services The Project will require 84 person-months of consulting services, comprising 15 person-months of international and 69 person- months of national experts. These will be procured in two packages. Package A, which comprises six individual consultants for 1 month each contracted by QNBG, will be financed by the GEF grant. Package B, comprising 78 person-months of consultants, will also be financed by the GEF grant. The PMO will contract the package through a consulting firm using the quality- and cost-based selection method (80:20), in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

Project Benefits and The Project targets residents within the project area, of which Beneficiaries about 4,600 live within QBCDA and 15,800 in the plains area. An additional 23,400 residents within the immediate fringe of the project area, especially those close to the plains area, will also benefit. Within the project area, the poverty ratio is estimated at 37% on a head count basis, or close to 40% on a household basis. However, the incidence of poverty is over 70% in QBCDA, compared with 23% in the plains area. Poverty will be reduced through (i) the creation of a significant number of jobs during

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construction, (ii) the generation of about 1,370 full-time jobs by QNBG, (iii) indirect economic benefits provided to QBCDA, (iv) development of home-based businesses, (v) development of 10 home-stay community tourism enterprises, (vi) provision of better mountain pathways and roads, and (vii) social infrastructure programs. More than 90% of QBCDA residents are expected to benefit directly from the Project. The major environmental benefits include (i) better welfare of animals; (ii) the advancement of science related to endangered species recovery; (iii) genetic species collection; (iv) public awareness and conservation; (v) overall conservation of biodiversity; (vi) better ecological functions from more and higher-quality forest cover; (vii) intangible benefits from the conservation of Taoist religious sites; and (viii) better environmental quality through improvements in sanitation, wastewater, and management systems.

Risks and Assumptions Delays in construction would place significant pressure on the cash flow of QNBG. Recognizing this risk, the SPG has committed to underwrite the cash flow with counterpart funds. Weak management and poor operation of the proposed investments will threaten the financial viability of QNBG, which is assessed as adequate but not strong. All of the agencies consolidated into QNBG, including the Shaanxi Qinling Botanical Garden, SARC, and the Louguantai Forest Farm, have many years of biodiversity project experience. QNBG is well staffed with experienced and qualified personnel. The challenge for QNBG will be to work together to effectively manage all project activities related to habitat restoration, species regeneration, botanical gardens, SARC, ecotourism, and income-generating activities for poor residents in the mountainous and plains areas. The SPG has agreed to strengthen QNBG by providing additional staff, start-up funds, and sufficient staff training. QNBG will undergo institutional strengthening through the use of consulting services, as well as the recruitment of expert and experienced staff in biodiversity conservation, ecotourism promotion, management, and engineering. The financial sustainability of QNBG and the Project will be ensured through ecotourism revenue generation sufficient to meet all projected operation and maintenance costs, plus the expansion of biodiversity conservation activities in the Qinling Mountains. The design of the Project has factored in the potential risks from invasive species and poor animal welfare by introducing international expertise and limiting QNBG to plant species from the Qinling Mountains. The risks of food supply shortages and price increases because of the resettlement of affected farmers in the plains area are considered minimal, even in local village markets. The risks associated with agricultural or other encroachment on forest land are also considered minimal. QNBG is adequately staffed to enforce regulations regarding encroachment on forest land, and will employ local residents as forest monitors and ecotourism guides.

Map 1

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SHAANXI QINLING BIODIVERSITY CONSERVATION AND DEMONSTRATION PROJECT IN THE PEOPLE'S REPUBLIC OF CHINA

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed loan to the People’s Republic of China (PRC), and (ii) proposed administration of a grant from the Global Environment Facility (GEF), both for the Shaanxi Qinling Biodiversity Conservation and Demonstration Project. The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. Shaanxi province is home to about 2.8% of the country’s population, contributes about 1.8% to its gross domestic product (GDP), and has about 2.1% of the PRC’s land area (206,000 square kilometers [km2]). The rate of economic growth in the western PRC has lagged the eastern provinces. Shaanxi province grew on average of about 7.5% per year during 1990– 2000, compared with a national average of about 10%. When coupled with population growth, GDP per capita in Shaanxi is only about 60% of the national average. Since 2000, Shaanxi has grown more quickly, equaling or exceeding the national average largely because of the implementation of the western development strategy under the country’s 10th Five-Year Plan (FYP). During 2000–2007, Shaanxi’s GDP grew on average of about 11% per year, faster than the national average; and Shaanxi’s per capita GDP was about 63% of the national average. Of the 31 provinces, autonomous , and independent municipalities in the PRC, Shaanxi ranks 16th in population size, 22nd in terms of the size of the economy and production base (as measured by GDP and industrial production), and 26th in GDP per capita.

3. The capital, Xi'an, accounts for 21% of the population, but it produces more than 40% of the province’s GDP. The GDP per capita in the poorer rural counties of Shaanxi is less than 30% of the national average, and 55 of the 88 counties are classified as poor. In 2008, the average annual income of Shaanxi urban residents was CNY12,858 while the per capita income of the rural population was CNY3,136. Rural incomes are only 35% of the $1.25 per day benchmark for extreme poverty and about 50% of the average provincial income. Low living standards and high levels of poverty are a result of past natural resource degradation and a cause for ongoing degradation. Many of the counties classified as poor are in the Qinling Mountains, including where the Project is located.

4. The success of the Shaanxi province under the 11th FYP (2006–2010) depends heavily on protecting the biological and natural assets from which ecotourism products and services can be developed. The main natural asset is the Qinling Mountains range, which is immediately to the southwest of Xi'an and runs east-west, straddling the southern part of Shaanxi. More than 90% of the range lies within Shaanxi province, where it forms a north-south divide and is a major climatic influence on the northern PRC and the water resources of the Yellow and Yangtze rivers. The southern slopes contribute more than 50% of the water stored in the Danjiangkou Reservoir on the River, a tributary of the Yangtze River. The northern slopes supply water to the system, which flows to the dry northern parts of the country. The Qinling Mountain range is the most valuable environmental and biological resource for future biodiversity conservation in Shaanxi.

5. The development of cities and counties, and the use of the Qinling Mountains forestry and biodiversity resources, began more than 2,000 years ago during the and Han dynasties. Currently, the Qinling Mountains support about 5 million residents, or about 14% of the Shaanxi population. The Qinling Mountains, which consist of a temperate broad-leaved and mixed forest, is a global biodiversity hot spot supporting many endangered and endemic plant 2 and animal species. 1 The endangered species include the giant panda, the global icon of conservation, and the only known wild population of one of the world’s rarest birds, the crested ibis (the national bird of Japan). The Qinling Mountains are characterized by very high levels of endemic biodiversity and a vertical spectrum of vegetation types. Of all the vegetation types in the PRC, about 70% can be found in the Qinling Mountains.2

6. The project area is in the Qinling Mountains, about 45 kilometers (km) from Xi'an, and covers a rural area of about 458 km2 with about 20,400 people. The geography is dominated by mountains, rivers, streams, and forests. About 37% of the population is poor, with poverty increasing markedly south of the plains into the rugged mountain and forest terrain. About 15,800 people live in the 2-km strip of plains along the national 4-lane east-west highway (an area of about 58 km2) that borders the northern end of the project area. In this area, which is largely dependent on agriculture, the poverty incidence is about 23%. This area also includes the small town of Louguantai; several Taoist temples (Taoism was founded here); the Shaanxi Animal Rescue Center (SARC), which includes the threatened species of giant panda, golden monkey, golden takin, and crested ibis; the Louguantai Forest Farm (LFF); the Qinling National Botanical Garden (QNBG); and the Louguantai hot springs. Shaanxi wants to divide its tourism products into two major categories of attractions: historical and environmental. The strategy stresses the need to increase the value of each visitor, as opposed to increasing the number of visitors. It lists 10 priority-tourism developments including QNBG.3 About 71 million tourists visit Shaanxi province annually, of which about 400,000 visit the project area and about 1 million visit the Qinling Mountains. Based on survey results, an additional 4,600 people live in the mountainous interior, widely spread out in several villages in the 400 km2 Qinling Biological Conservation and Demonstration Area (QBCDA). Poverty incidence in this area is about 70%.

B. Analysis of Key Problems and Opportunities

1. Project Area Situation

7. The key problems affecting the Qinling Mountains and the project area include (i) loss of biodiversity, (ii) low incomes and limited jobs for the poor inhabitants, and (iii) poor institutional effectiveness and coordination to manage biodiversity conservation and natural resources. The problem tree analysis is in Appendix 2. The major problems are related to land and environmental degradation, animals and plants (including forest) endangered or under threat, the presence of some exotic or alien tree species, the need for long-term species regeneration and expansion, and the need for sustainable conservation and preservation management techniques. The loss of biological resources, ecosystems, and habitats for rare and endangered species is strongly correlated with habitat loss because of land degradation. As such, biodiversity conservation and habitat restoration in the Qinling Mountains and the project area

1 Eight animal species are in class I, including the giant panda, golden monkey, golden takin, crested ibis, clouded leopard, and oriental white stork; and 34 animal species are in class II. The Qinling Mountains have considerable biodiversity with more than 3,100 plant species and more than 600 animal species. The Qinling Mountains have World Wide Fund for Nature conservation status. 2 More than 15 animal species are on the national priority protection wildlife list, including the giant panda (Ailuropoda melanoleuca), golden takin (Budorcas taxicolor), golden snub-nosed monkey (Rhinopithecus roxellana), crested ibis (Nipponia nippon), brown-eared pheasant (Crossoptilon mantchuricum), red panda (Ailurus fulgens), clouded leopard (Neofelis nebulosa), and giant salamander (Andrias davidianus). The Qinling Mountains, home to about 20% of the People's Republic of China's (PRC) total wild panda population, has the highest giant panda population density in the country. Many important plant species are endemic (1,428 species), relic, rare, or endangered, including the ginkgo, one of the oldest tree species in the world. The Chinese mountain larch (Larix chinensis), oneflower kingdonia (Kingdonia uniflora), the important source-species of the cultivated peony (Paeonia suffruticosa), the Mao-tai maple (Acer miaotaiense), and the Chinese fir (Cunninghamia lanceolata) are also endangered and listed by the Government as protected species. 3 The Qinling National Botanical Garden (QNBG) obtained national botanical garden status, and is one of only two such gardens in the PRC. The other is in .

3 require interventions that respond to land degradation and its underlying causes. The practice of agriculture on sloped land is a continuous threat to biodiversity. Simultaneously, deforestation has given rise to shrub lands and the replanting of exotic species that crowd out native tree and shrub species. However, many other less-severely degraded areas have options for restoring, sustaining, and enhancing the productive capacity of the land for mixed forests through the adoption of the appropriate controls and better land management measures. The Project will address all these major problems.

8. Despite these problems affecting the Qinling Mountains and the project area, they offer many opportunities to address biodiversity loss, low incomes and limited jobs, and poor management of biological resources. Through ongoing and planned economic opportunities that do not adversely affect the biodiversity conservation objectives, more visitors to the Qinling Mountains may choose to visit the wildlife facilities, botanical gardens, hot springs, religious sites, and protected biodiversity areas, raising revenues and generating more jobs for residents. Secured land rights on community forest lands coupled with income-generating activities, such as those popularized in the Qinling Mountains by the World Wide Fund for Nature (WWF), can lead to more sustainable and environment-friendly activities of QBCDA and other Qinling Mountains residents. More reforestation on community and state forestry lands of indigenous species will encourage the restoration of land to original conditions, which will lead to the gradual proliferation of endangered and threatened species of plants and animals. More effective management and agency coordination of biodiversity including at the SARC, and the gradual and scientific reintroduction of captured animals to the wild, will also support the regeneration of the natural environment. Better links and an increase in biodiversity corridors can improve all nature reserves and forest reserves of the Qinling Mountains. Institutional and community strengthening activities will encourage better planning, design, implementation, and monitoring of infrastructure, forestry, agriculture, and income-generating activities. As a result, the project area can generate more ecotourism revenue, as well as jobs and income opportunities. Some of this additional revenue can be used for more effective and sustainable biodiversity conservation in the Qinling Mountains and the project area.

2. Government Policies and ADB’s Country Strategy

9. The PRC aims to conserve 90% of key wild plants through state protection by 2010. To reverse land degradation, the Government instituted the Sloping Land Conversion Program (known as the “grain for green” program) in 2000. The program provided grain, cash, and saplings to farmers who convert their steep farmlands to grassland or woodland. The program has been carried out on 600,000–800,000 hectares (ha) in the Qinling Mountains, including a portion of the project area. The PRC ratified the Convention on Biological Diversity in January 1993, and has implemented many of the actions required by the convention to achieve ratification. The Government also approved the Biodiversity Conservation Action Plan in June 1994. The Government approved the first National Strategy for Plant Conservation in February 2008 to document and conserve plant diversity, and to generate public awareness. The system of nature reserves and forest reserves in the Qinling Mountains has been expanded, particularly in eastern areas. The financing and management of the 25 nature reserves4 in the Qinling Mountains have been significantly improved in the past few years.

10. The Qinling Mountains are listed as one of the 11 most critical regions for biodiversity conservation in the PRC,5 and the Ministry of Environmental Protection nominated the Qinling

4 This number covers 19 nature reserves that are administered by the Shaanxi Forest Administration and forestry departments and bureaus at the provincial and local government levels, and six smaller nature reserves managed by other government agencies such as water resources and the Environmental Protection Bureau. 5 State Environmental Protection Administration. 1998. China’s Biodiversity: A Country Study. (it is now known as the Ministry of Environmental Protection).

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Mountains Ecosystem Function Conservation Area (QMEFCA) as a national pilot program in 2001. The strategies proposed to protect the Qinling Mountains include (i) establishing joint management with forest bureau staff and villagers; (ii) establishing biological corridors to counter the impacts of highways and railways; (iii) strengthening management of nature reserves and forest reserves along highways to counter illegal entry by villagers and livestock, and blockage of wildlife movements by fences installed to protect natural forests; (iv) enhancing the administration of, and increasing investment in, nature reserves and forest reserves; (v) improving tourism management; and (vi) diversifying village enterprises.

11. The Government has introduced subsidy programs to encourage voluntary resettlement out of the mountainous area. In 2007, the Shaanxi government announced a program to reform forest lands owned by the state and collectives to improve forest management by contracting more user rights to farmers and other investors for up to 70 years. Such land-use policies will be essential to achieving the permanent forest cover that will enable households to improve their livelihoods from lands that are too steep for cultivation. The New Socialist Countryside Policy of 2006 emphasizes accelerating rural income growth, acknowledging that the persistent decline in natural resources and the deteriorating environment need to be addressed.6

12. The project area is included within the Regional Strategy, which prioritizes sustainable economic development, conservation and protection of ecological resources and functions, and the need to build local enterprises to address rural poverty by linking the rural poor to local value-adding industry and market chains. Tourism, including ecotourism, is also identified as an important element of the economic development strategy.

13. The Asian Development Bank (ADB) country partnership strategy for the PRC (2008– 2010) supports poverty reduction and investment that improves the quality of life for those on low incomes.7 It also provides assistance to protect natural resources and environmental assets, especially those that have regional or even international significance. ADB’s operations will support the Government’s policies with a focus on improving equity and environmental sustainability.

3. External Assistance

14. Biodiversity conservation programs have been well supported within the Qinling Mountains since 1985 when the first World Bank-GEF protected area and nature reserve program was implemented (Appendix 3). The program sought to strengthen nature reserve management capacity, and to introduce new approaches to conservation management built on development-partner collaboration. WWF has supported species management for the giant panda, habitat protection and restoration, capacity building programs, and rural livelihood and ecotourism programs in the Qinling Mountains with considerable success and influence. WWF’s Qinling Panda Focal Project emphasizes cooperation with nontraditional conservation forces, such as national and regional government projects and economic development activities (Appendix 3). The Government has implemented some related initiatives over the past decade with ADB and other international partners. Related programs and projects that will offer valuable links and potential collaboration with this Project include the ongoing PRC-GEF Partnership on Land Degradation in Dryland Ecosysbtems, and the Capacity Building to Combat Land Degradation Project cofinanced by ADB and GEF. 8 Land degradation, especially through

6 Communist Party of China Central Committee. 2007. Vigorously Developing Modern Agriculture and Steadily Promoting the Construction of a New Socialist Countryside. Beijing. 7 ADB. 2008. People’s Republic of China: Country Partnership Strategy 2008–2010. Manila. 8 ADB. 2004. Technical Assistance to the People’s Republic of China for Capacity Building to Combat Land Degradation Project. Manila (approved on 28 June for $7.7 million, which was provided by GEF as a grant); and ADB. 2004. Technical Assistance to the People’s Republic of China for the Support Implementation of Capacity Building to Combat Land Degradation Project. Manila (for $1.0 million).

5 human activities that destroy natural habitats such as land conversions, industrialization, poor management of water resources, and deforestation, severely endangers the PRC’s rich biodiversity. The World Bank has successfully implemented 12 environmental improvement projects in Shaanxi, while the International Fund for Agricultural Development has implemented one project. Japan has also implemented one reforestation project in Shaanxi. The total value of these projects exceeds $1 billion (Appendix 4).

4. Lessons

15. The following lessons are derived from similar ADB projects: (i) provincial governments should ensure strong ownership; (ii) an effective provincial-level leading group is necessary to provide leadership and guidance; (iii) commercial operations should adopt a flexible approach, and be sensitive to changes in market demand and prices; and (iv) consultants must support institutional capacity building of the stakeholders involved, including project management. Key lessons from World Bank-funded projects (Appendix 3) include the need to (i) build in financial sustainability, (ii) involve local people, (iii) identify community forest rights and responsibilities in resource use, and (iv) establish supportive policies and incentives for resource conservation. Key lessons from GEF’s experience with global projects and activities in biodiversity conservation include the need to ensure stakeholder participation through user groups, village project committees, and decentralization of project management. Close cooperation among major stakeholders, including local government agencies, nongovernment organizations, and local inhabitants, was found to be critical to project success.

16. The lessons from previous agriculture and environment projects in the PRC and Shaanxi province, as well as in other major provinces with biodiversity activities including Sichuan and Yunnan provinces, have been incorporated in the Project. The provincial government and QNBG, as the Implementing Agency (IA), have a strong commitment to and ownership of the Project. All major stakeholders have been extensively consulted. Linking biodiversity conservation with revenue generation in project area and the Qinling Mountains is fully supported. The Project is well focused in terms of area coverage, and the outputs are well defined, closely linked, and within the capacities of QNBG to effectively manage.

III. THE PROPOSED PROJECT

A. Impact and Outcome

17. The expected impact of the Project is sustainable biodiversity conservation to protect globally-significant species and sustain economic growth. This will be measured by a reduction in degraded land and soil erosion, an increase in the area that protects endangered species, and an increase in rural incomes and employment. Livelihood diversification, including the ability of the rural poor to access higher-paying employment, will increase rural incomes and skills. Biodiversity conservation will be enhanced through habitat protection and restoration programs linked to conservation forestry, stronger management, and species management programs outside their original location, and extensive awareness and education programs.

18. The expected outcome of the Project will be improved and integrated biodiversity management, providing sustainable livelihoods for the population of the project area. The outcome will also be shared and demonstrated to the rest of the Qinling Mountains. The Project will provide significant environmental, economic, and social benefits throughout the project area. The Project will address underlying causes and effects of historical and contemporary resource degradation. The main monitoring indicators will be (i) livelihood improvements for farmers and QBCDA residents, (ii) management plans prepared for at least five endangered species, (iii) increases in quantity and quality of habitat within the project area, and (iv) contributions to well- managed conservation breeding programs.

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B. Outputs

1. Participatory Biodiversity Management in the Mountainous Area

19. This component will support (i) the demonstration of biodiversity conservation, and (ii) forest-based livelihoods for poor villages through restoration of about 7,000 ha of forest habitat suitable for the indigenous flora and fauna. The mountainous area is not suitable for agriculture, but has been used to grow some food on steeply sloping lands. Biodiversity conservation in the project area and elsewhere in the Qinling Mountains will be financed with revenue from QNBG (including SARC) through an innovative revenue-sharing and redistribution program. QNBG will transfer grant funds annually to QBCDA. QNBG will ensure that sufficient funds are available for QBCDA.9

20. Demonstrating Conservation of Biodiversity. This subcomponent will have three major activities: (i) restoration of state forest land managed by the Shaanxi Forest Bureau (SFB), (ii) preparation of a forest management plan, and (iii) development of endangered species management programs. About 2,000 ha of habitat on state forest land will be restored for ecological research, forest silviculture, understory planting, and canopy manipulation. State forest land is managed by SFB throughout the Qinling Mountains, and specifically by QNBG in QBCDA. The objective of habitat restoration is to transform the existing monoculture into mixed forest cover. Non-endemic species will not be introduced into the forest area. Existing non- endemic species will be identified and removed during the reforestation. QBCDA has been selected as a demonstration and training site for those working in other parts of the Qinling Mountains. In effect, it will function as a field conservation training and demonstration area. Methods and skills will be developed and lessons disseminated from the area. A detailed forest and habitat management plan will be prepared consistent with the village development plans for QBCDA as a training program for agency staff in the Qinling Mountains. QNBG will work with local inhabitants to develop the plans and implement the habitat restoration programs in a participatory manner conducive to adoption of more sustainable livelihood activities. The local inhabitants, assisted by QNBG, will be responsible for habitat restoration management. QNBG will provide training and employment to participating QBCDA inhabitants to restore mixed forest habitat. The costs for land preparation, nurseries and seedlings, planting, establishment and maintenance, pest control, and labor will be financed by QNBG under the Project. GEF financing will support the conservation forestry programs.

21. The Project will also develop at least five endangered species management programs that will operate within and beyond nature reserve boundaries. Support will be provided to integrate the management of SARC under QNBG. The SARC division of QNBG, in cooperation with the SFB, will implement the endangered species recovery plans. The objectives of the plans are to (i) remove the target species from the endangered list,10 and (ii) progressively lower the threat level from endangered to threatened. For example, the crested ibis foraging habitat in wetlands and rice fields would have to be restored in the project area and maintained to enable the eventual release of captive birds into the wild. The integration will be developed through shared research, joint planning exercises, and sharing of data and experiences for controlled release programs. The demonstration model framework will be replicated in other parts of the

9 Funds can be allocated for the following activities: (i) habitat development, 40% ($160,000); (ii) monitoring, 25% ($100,000); (iii) livelihood improvement, 25% ($100,000); and (iv) implementation of endangered species management plans, 10% ($40,000). As the revenue increases, the funds allocated to wider livelihood and conservation programs will increase, including support for the Qinling Mountains, such as grants for residents to work in conservation and livelihood enterprises. 10 The criteria for delisting species from the endangered species list include (i) decline of a population by less than 20% over the last 20 years, (ii) a population of more than 10,000, and (iii) less than 20% probability of extinction in the next 100 years.

7 province, as well as in other provinces in the PRC. The endangered species management program will use the project area as a field conservation research area from which monitoring can be carried out and lessons can be disseminated throughout the Qinling Mountains.

22. Improved Village and Forest-Based Livelihoods. The Project will support the development of about 5,000 ha of conservation forestry and agriculture on collective forest land in the mountainous area in cooperation with local inhabitants on a voluntary basis. This will be achieved through the provision of technical support, planting materials, and site management technologies, including shade planting to enhance light penetration and intercropping. Local inhabitants operate and manage the collective forest land after being granted long-term land- use rights. Local residents will receive support for the development of nurseries, land preparation, and planting and tree maintenance costs. Inhabitants in QBCDA will be compensated for any losses incurred in replacing subsistence farming with more sustainable and environment-friendly forest and income-enhancing activities. QNBG will assist local inhabitants with livelihood improvements that will encourage the replacement of unsustainable activities.11 Mixed flora species that mature into natural forests will generate substantial benefits, including reduced soil and water loss, and forest and non-forest products. To help increase rural incomes, valuable medicinal plants and trees will also be promoted on a household scale. The Project will support forest-based production systems to enable policy reforms and future replication of successful models. The village development plans will identify collective forest lands that will be surveyed and demarcated. The SFB, along with Zhouzhi County and village leaders, will issue forest-user rights contracts to all households. During the planning process, village forestry associations will be formed through which the conservation forestry program will be implemented. The Project will introduce environmentally compatible rural technologies, infrastructure, and business practices for villagers that choose to shift into forest management and ecotourism livelihoods. This will enable local residents to remain in QBCDA in a manner that supports the forest conservation and biodiversity objectives. All 16 village communities in the area have expressed support for the Project.

23. QNBG will upgrade community infrastructure, including up to about 17.5 km of roads along the Tianyu River and about 100 km of mountain pathways, to reduce travel time and ensure access during bad weather. QNBG will also promote home-stays and other income- generating activities, which will directly benefit residents. This activity will be modeled after the successful WWF-supported home-stays and income-generating activities in several nature reserves in the Qinling Mountains. Training and technical advice will be provided to farmers to encourage them to adopt these eco-friendly activities. QBCDA communities will also access project funds on a grant basis for small home-based business development, including sustainable forest production systems and other benign activities, such as beekeeping, and essential oil and medicinal plant production. Support will be provided for market research to ensure viability and links to local value chains. Grants will also be available for villages and all households to develop alternative energy sources (biogas and solar), and water supply and sanitation schemes where these are identified during the village development plans.

2. Enhanced Biodiversity Conservation in the Plains Area

24. This component will support QNBG, a public sector enterprise, in enhancing biodiversity conservation through the development of botanical gardens, and rehabilitation of the animal

11 QNBG, in consultation with community leaders, will provide small income-generating grants to the households in the Qinling Biological Conservation Demonstration Area (QBCDA) (totaling about 1,000 households) for such business activities as beekeeping, poultry raising, handicraft making, establishment of small restaurants, and production of biogas digesters. The grants will not exceed CNY25,000 per household.

8 rescue center.12 QNBG will manage all operations in the project area, including biodiversity conservation in QBCDA. Through QNBG, the Project will (i) enhance public awareness of biodiversity conservation; (ii) create off-farm jobs, especially for the poor population residing in and around the project area; (iii) expand and diversify the ecotourism industry in Shaanxi province; (iv) transfer a portion of QNBG’s revenues to support biodiversity conservation and alternative livelihood development activities in QBCDA; and (v) support QBCDA activities through research and technological assistance.

25. The Shaanxi provincial government (SPG) has proposed a long-term plan for the project area, with ADB and GEF providing finance during 2010–2015. The SPG and the private sector would provide financing for a longer second phase of gradual expansion, based on lessons learned from the Project, to the wider Qinling Mountains. The Project is designed to (i) formulate a long-term plan for the project area based on the successful models that will be demonstrated; (ii) reach an agreement with villages on land uses and forest management practices that will ensure forest conservation and biodiversity; and (iii) establish sustainable levels of financing from the SPG, ecotourism, and forest management enterprises. This would allow for (i) expansion of infrastructure for ecotourism in the project area, (ii) preparation of plans to improve biodiversity conservation in the other nature reserves and forest reserves in the Qinling Mountains, and (iii) incorporation of lessons learned from the Project. The Project will undertake construction of essential infrastructure, including internal site roads, drainage system, water supply, animal exposition and display areas, animal enclosures, lighting, water supply investments, and integrating Taoist features into cultural developments with QNBG.

26. Botanical Gardens. QNBG’s botanical gardens will consist of gardens linked by walkways. Public education and awareness displays along these walkways will provide information on themes such as natural history, environment, and biodiversity. QNBG will also construct a major exhibition hall to represent aspects of natural history and a service reception center. The 18 contiguous botanical gardens and other infrastructure will cover about 269 ha. The gardens will also be linked by walkways and a cable car to a series of Taoist and Buddhist cultural sites that will be restored or recreated.13 Taoism, Buddhism, and local culture and history will be displayed along the entrances to these sites.

27. Revenues will be generated from day visitors and the use of entry tickets along with profits from attractions or services, including the cable car, restaurants, rental cars, temple sites, and an exhibition hall. The number of visitors to the gardens alone is expected to rise from 350,000 in 2011 to about 478,000 on project completion to more than 1.2 million in 2020. Forecasts indicate that revenue will increase from about CNY30 million to about CNY65 million in 2015 and about CNY158 million in 2035. Employment will increase from the current 40 to more than 250 staff by project completion; as the number of visitors grows, employment could reach about 600.

28. Animal Rescue Center. QNBG’s SARC operates from a 141-ha site within the LFF. The main rescue center is a 6-ha area for animal pens for public viewing. The site is in disrepair and facing significant animal welfare issues. The center attracts about 30,000 visitors per year. The Project will significantly expand SARC to reposition it as a center of excellence operating at

12 The Shaanxi provincial government established QNBG in August 2007, as an amalgamation of the Shaanxi Qinling Botanical Garden, Shaanxi Animal Rescue Center, and the Louguantai Forest Farm, to facilitate the management and financing of improvements in QBCDA. QNBG will be under the supervision of the Shaanxi Forest Bureau. QNBG is fully operational and has three divisions: Botanical Garden, Shaanxi Animal Rescue Center, and QBCDA. 13 QNBG and the Louguantai Taoist Temple will jointly undertake the restoration program. The temple will assist in the identification of legitimate sites and design specifications. The temple will be required to ratify the final designs to the project management office before any ADB approval for the financing of these sites. This approval will include design and operational parameters, including the sharing of revenue.

9 international standards in the management, display, and gradual release of threatened indigenous species. The Project will modernize the center by (i) increasing the personnel and their capacity in wildlife conservation; (ii) achieving more efficient rescue of wild, endangered animals and their gradual rehabilitation and release; (iii) developing a high-quality tourism site; (iv) increasing the quantity and quality of research into wildlife; and (v) creating an awareness and education program for visitors and local communities on wildlife and biodiversity. The Project will entail an increase in the area from 141 ha to 1,008 ha. The enlargement will include the development of satellite sites in more natural environments for the major endangered species—giant panda, crested ibis, and golden snub-nosed monkey.

29. At project completion, SARC will have about 70% of the forage area developed and will be able to support about 80% of total planned numbers of iconic species. As numbers and the science allow, SARC will undertake the controlled release of species from breeding centers. The Giant Panda Breeding and Research Center will be expanded to include 10 nursery rooms, 32 enclosures, a reception and display area, and a research and feed-growing area. The Crested Ibis Center will include the construction of a 140,000-square meter facility comprising an artificial wetland on which a large flight aviary will be constructed to enable nesting colonies to be established. The Golden Monkey Center will involve about 10 ha of forested land that will support about 30 animals. The number of visitors is projected to increase to about 430,000 by project completion in 2013, and then increase to more than 1 million in 2030. Revenue will increase to about CNY33.3 million by project completion, CNY63 million by 2015, and CNY130 million in 2035. SARC management will contract a commercial tourism operator. Current staff levels of 28 full-time jobs will increase to 200 full-time jobs by 2013.

3. Improved Project Management

30. The component will comprise (i) strengthening the project management office (PMO) and IA, (ii) institutional strengthening, and (iii) a conservation replication and dissemination program. Successful practices in biodiversity conservation and habitat restoration with community participation and livelihood development will be analyzed and documented for replication in the Qinling Mountains.

31. Strengthened Project Management Office and Implementing Agency. The Project will be implemented through a PMO that will support QNBG in coordinating implementation. The PMO will be supported with 11 newly recruited staff supplied and financed by the Shaanxi Department of Finance, the Provincial Development and Reform Commission, and the SFB. The Project will finance staff, office facilities, field monitoring equipment, project impact (including resettlement monitoring), and training. Fifteen professional job exchanges for up to 2 months are allocated—10 to staff of QNBG, the IA; 5 to staff of the SPG, the Executing Agency (EA) staff. Project procurement will be undertaken by the IA and will be administered by a local company contracted by the PMO.

32. Strengthened Biodiversity Safeguards. The Project will develop options for sustainable management and development to safeguard and mainstream biodiversity. The Project will review policies and regulations, and develop recommendations for the Government on (i) collective forest land tenure and management, and (ii) ecotourism guidelines and standards. The studies will be contracted to reputable research institutions with a strong knowledge of the subject matters. QNBG will ensure that the recommendations of the studies are implemented to strengthen biodiversity conservation.

33. Conservation Dissemination Program. The Project will undertake a series of participatory dissemination programs involving biodiversity experts from the Qinling Mountains, using the project area as a basis for developing and testing approaches to biodiversity

10 conservation. The SFB, with earlier support from WWF, has made important gains in landscape approaches to management of nature reserves, and in linking corridors with remaining forest and farm lands. Support will be provided to further define and test landscape planning and conservation management models for the Qinling Mountains. The models will be evaluated and then used to prepare landscape management guidelines for the Qinling Mountains. Participants will form a professional communication network to build a stronger professional cadre. The Project will assist stakeholders in developing an ecotourism master plan that can guide QNBG’s investment program.

34. Support will be provided for (i) the development of a data collection system, including procurement of field monitoring equipment (such as camera traps and global positioning systems); (ii) data collection and interpretation of imagery; (iii) training for existing QNBG staff to enable them to form a field monitoring team; (iv) monitoring of biodiversity and habitats using geographic information system application of data; and (v) dissemination of this data and analysis throughout the Qinling Mountains. The dissemination program will include the communication of data, analysis, and lessons learned from the Project to a wide set of stakeholders within the Qinling Mountains. WWF may be considered for this activity because of its extensive monitoring program in the Qinling Mountains and its close association with the SFB. The baseline will be formed through a series of contracted field survey and research studies involving (i) vegetation, (ii) vertebrates, (iii) invertebrates, (iv) fish and aquatic biodiversity, (v) amphibians, and (vi) soil microbial organisms.

C. Activities Financed by the Global Environment Facility

35. The GEF will provide $5 million to the Project. After deductions to recover the project preparation costs and a 10% management fee, the net GEF investment funds available to the Project will be $4.27 million. GEF funds will be used for the components that are directly related to strengthening the conservation of biodiversity in the project area and the Qinling Mountains. The approach to using the GEF funds emphasizes the development of communication and shared information and lessons through (i) wider participation in conservation planning and decision making; (ii) the demonstration of new management systems related to landscape-wide planning; (iii) the development of species management plans in the Qinling Mountains; (iv) the adoption of new technologies, including monitoring and information systems; (v) the use of analog forestry models; and (vi) the development of ecologically defined habitat restoration programs. The GEF support will also help test innovative models for scaling up in other parts of the Qinling Mountains and the PRC.

36. For assisting biodiversity management in the mountainous area (output 1), GEF and loan funds will support the demonstration of biodiversity conservation (subcomponent 1), including (i) the preparation of a habitat and natural forest management plan; (ii) ecological research grants to develop the data sets and to test silviculture systems for habitat restoration; (iii) technical assistance in conservation forestry to support the habitat restoration programs; and (iv) programs for endangered species recovery, including field survey contracts, species recovery management plans, and initial implementation of recovery implementation programs. To assist project management (output 3), GEF funding will support (i) legal reform studies, (ii) landscape conservation planning, (iii) field conservation monitoring, (iv) technical assistance for species and monitoring expertise, (v) monitoring baseline research contracts, (vi) job exchange opportunities for technical conservation staff, and (vii) a replication and awareness program.

D. Special Features

37. An important feature of the Project is the demonstration of biodiversity conservation in a smaller and focused area, and its link to other Qinling Mountains conservation programs. The link includes a review of conservation priorities and plans for the Qinling Mountains; the

11 demonstration of new technologies and practices; and the sharing of information and opportunities for research, monitoring, and management. The institutional and organizational reforms in the project area mirror the major challenges to improving management in the wider Qinling Mountains. The vast array of scattered and often overlapping organizational interests have resulted in competitive behavior, lack of cooperation, resources wastage, and the dilution of skills in short supply. The consolidation of various agencies into one management entity for biodiversity conservation represents a significant achievement that could be replicated throughout the PRC and internationally.

38. Another innovation is the demonstration model for financial sustainability of biodiversity conservation. The SPG has embarked on an ambitious program to use protected areas to generate revenue to help cover its costs for conservation establishment and management. In this case, QNBG will respond to customer demand for rare animal experiences, and will expand the market of natural attractions, such as the botanical garden, the animal center, the birthplace of the Taoist religion, and the remarkable landscape. The proposed model for transferring financial resources to the wider biodiversity conservation program will provide a sustainable financing mechanism that will not depend on continued donor or government support. The development of QNBG offers world-class and highly-demanded ecotourism opportunities linked to globally-iconic species. SARC will be developed as a world-class center for the care and welfare of animals, and will be the conduit for expanding animal biodiversity throughout the project area. The project area’s proximity to Xi'an and the mass tourism market provide a good opportunity to establish links to the Shaanxi tourism market chain. The potential benefits from ecotourism are also expected to help reduce poverty in the project area.

E. Project Investment Plan

39. The Project is estimated to cost $132.64 million, including taxes and duties of $5.65 million. The investment plan is in Table 1 and details are in Appendix 5.

Table 1: Project Investment Plan ($ million) Item Amounta A. Base Costb 1. Participatory Biodiversity Management 16.27 2. Enhancing Biodiversity Conservation 93.92 3. Improved Project Management 3.94 Subtotal (A) 114.13 B. Contingenciesc 13.88 C. Financing Charges During Implementationd 4.63 Total (A+B+C) 132.64 a Includes taxes and duties of $5.65 million. b In 2009 prices. c Physical contingencies computed at 5% for civil works; 5% for field research and development, surveys, and studies; and 2% for training. Price contingencies computed based on ADB-prescribed (international and national) price escalation factors; and include provisions for potential exchange rate fluctuations under the assumption of a purchasing power parity exchange rate. d Includes interest and commitment charges. Interest during construction has been computed at the 5-year forward London interbank offered rate plus a spread of 0.2% and a commitment charge of 0.15%. Source: Asian Development Bank estimates.

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F. Financing Plan

40. The Government has requested a loan of $40 million from ADB’s ordinary capital resources to finance about 30.2% of the project cost. The loan will have a 25-year term, including a grace period of 5 years, an interest rate to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility for US dollar loans, a commitment charge of about 0.15% per year on undisbursed funds, and such other terms and conditions set forth in the loan and project agreements. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. The GEF grant of $4.27 million will finance about 3.2% of the project cost. The remaining $88.37 million (66.6%) will be contributed by the SPG as counterpart funds or from IA revenues. The financing plan is summarized in Table 2.

Table 2: Financing Plan ($ million) Source Total % Asian Development Bank 40.00 30.2 Global Environment Facility 4.27 3.2 Government 88.37 66.6 Total 132.64 100.0 Source: Asian Development Bank estimates.

41. The Borrower is the PRC, which will relend the proceeds of the ADB loan to the SPG for onlending to the IA on the same terms and conditions as those of the ADB loan. The flow of funds and onlending arrangements are shown in Appendix 6. The Chinese Academy for the Advancement of Science, the SPG, and State Forestry Administration each will provide about 28.5% of the counterpart funds for QNBG, while the remaining 14.5% will be provided by the Xi'an municipal government.

G. Implementation Arrangements

1. Project Management

42. The SPG will be the EA responsible for overall implementation of the Project. The SPG will coordinate activities with the Shaanxi Provincial Finance Department and the SFB. The SPG has formed a project leading group, chaired by a vice governor with representatives from the Provincial Development and Reform Commission, the Shaanxi Provincial Finance Department, SFB, the Shaanxi Audit Department, the Shaanxi Tourism Bureau, and the Xi'an municipal government. The project leading group will provide policy advice and approve annual work plans. The SPG has also formed a PMO through the Provincial Development and Reform Commission which, upon project approval, will be provided with 11 full-time staff members. The organizational chart is in Appendix 7. The PMO will support project implementation by contracting a procurement agency to undertake the project procurement program on a fee-for- service basis. The SPG has successfully used this approach previously for ADB and World Bank projects. The PMO’s major tasks and responsibilities include (i) overseeing all implementation matters; (ii) preparing annual work plans and budgets in consultation with the EA and IA; (iii) supervising procurement according to ADB guidelines; (iv) maintaining project accounts; (v) preparing and submitting to ADB applications for loan and grant fund withdrawals; (vi) monitoring physical and financial progress, including benefits and costs to beneficiaries; and (vii) ensuring adequate and timely counterpart financing.

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43. QNBG will be the IA for all components and activities. Its three divisions for the botanical gardens, SARC, and QBCDA will be responsible for (i) habitat restoration and reforestation; (ii) procurement and provision of inputs for construction and habitat restoration; (iii) preparation of village development, habitat restoration, endangered species, and landscape management plans in a participatory manner with local inhabitants; (iv) construction, operation, and maintenance of the botanical gardens and SARC; (v) training of QNBG staff and QBCDA inhabitants in biodiversity conservation, forest management, project implementation, and financial management; and (vi) close consultation with the Louguantai Daoist Temple on all design and implementation aspects of reconstruction, and improvements of religious and historical relics and buildings.

2. Implementation Period

44. The Project will be implemented over 5 years from April 2010 to April 2015. The implementation schedule is in Appendix 8.

3. Procurement

45. All procurement of goods and works will be carried out in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million will be procured using international competitive bidding procedures. Contracts for goods and works estimated to cost less than the international competitive bidding values, but more than $100,000, will be procured through national competitive bidding procedures in accordance with the PRC Tendering and Bidding Law, 1999, subject to modifications agreed upon with ADB. Contracts for goods and works estimated to cost $100,000 or less shall be procured using shopping procedures. Details are in Appendix 9. The relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) will be included in all procurement documents and contracts. In accordance with ADB procedures, an assessment has been made of the procurement capacity of the SPG and other project agencies. The assessment concludes that the SPG and QNBG have adequate procurement experience in domestically- and ADB-financed projects. However, their staffs will need training on financial management, and ADB procurement procedures and requirements to ensure compliance with ADB’s Procurement Guidelines. For this purpose, SPG and QNBG staff will be nominated to attend ADB-sponsored courses and seminars on procurement and project implementation.

4. Consulting Services

46. Consultants will be recruited in line with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). The Project will provide 84 person-months of consulting services, comprising 15 person-months of international experts and 69 person-months of national experts. These services will be procured in two packages. For package A, which will be financed under the GEF grant, QNBG’s SARC division will select and engage six individual consultants for 1 month each—one international and one national expert for each of the giant panda, crested ibis, and golden monkey habitats and plans for effective conservation. For package B, which will also be financed under the GEF grant, the PMO will select and engage a consulting firm using the quality- and cost-based selection method (80:20) and the full technical proposal procedures. The consulting firm will provide expertise in biodiversity conservation, species recovery management, ecotourism planning, village development planning, animal exposition and breeding, wildlife veterinary services, species recovery and survey, conservation forestry, and geographic information systems. The terms of reference for consulting services are in Appendix 10.

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5. Advance Contracting and Retroactive Financing

47. The Government requested retroactive financing for procurement and construction activities during 2009. The detail of activities to be procured and financed will be set out in a written request to ADB. The Government was advised that retroactive financing could only apply to up to 20% of the ADB loan for expenditures incurred prior to loan effectiveness but not earlier than 12 months before the signing of the Loan Agreement. All contracts proposed for advanced action and retroactive financing will be undertaken in accordance with ADB’s Procurement Guidelines.

6. Anticorruption Policy

48. ADB’s Anticorruption Policy was explained to and discussed with QNBG and SPG. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB and GEF in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of the QNBG, SPG, and all contractors, suppliers, consultants, and other service providers as they relate to the Project. The project design and implementation arrangements provide for mitigating corruption risks. Risks associated with project management, including procurement and disbursement, will be mitigated by (i) engaging an international consultant and a national consultant to advise and assist in the procurement of goods and services, and the engagement of other consultants; (ii) introducing a dual signing system in which the civil works contractor awarded the contract will also sign an anticorruption contract with the employer; and (iii) the PMO periodically inspecting the contractor’s activities related to fund withdrawals and settlements. The SPG will ensure that the PMO establishes financial control and management arrangements in accordance with ADB’s Guidelines for the Financial Management and Analysis of Projects (2005) and ADB’s Loan Disbursement Handbook (2007, as amended from time to time).

7. Disbursement Arrangements

49. The proceeds of the loan will be disbursed in accordance with ADB’s Loan Disbursement Handbook. To facilitate project implementation and the flow of funds, an imprest account will be set up in a commercial bank acceptable to ADB upon loan effectiveness; a separate imprest account will be opened for the GEF grant funds. The SPG’s Department of Finance will manage both accounts. The initial advance to be deposited to the loan imprest account will not exceed either 6 months of estimated expenditures to be financed from an imprest account or about 10% of the loan amount, whichever is lower. The initial advance to be deposited to the grant imprest account will not exceed either 6 months of estimated expenditures to be financed from an imprest account or 20% of the grant amount, whichever is lower. The direct payment procedures will apply for the large contracts. If the SPG initially funds eligible expenditures from its own resources, the reimbursement procedure will be used. To expedite funds flow and simplify the documentation process, the statement of expenditures (SOE) procedure will be used for liquidation and replenishment of imprest accounts and reimbursement of eligible expenditures not exceeding $100,000 per individual payment. Payments exceeding the SOE ceiling will be reimbursed, liquidated, or replenished based on full supporting documentation. A financial management assessment of the SPG and QNBG was conducted (Supplementary Appendix D). The assessment concludes that they satisfy ADB’s

15 financial management requirements, and that they have satisfactory financial management capability. The PMO will provide training on project and financial management.

8. Accounting, Auditing, and Reporting

50. All agencies involved in project implementation will maintain records and accounts that identify goods and services from loan proceeds and the GEF grant, financing resources received, expenditures incurred, and use of local funds. These accounts will be established and maintained in accordance with sound accounting principles and internationally-accepted accounting standards. The PMO will review and consolidate these accounts, and have them audited annually in accordance with sound accounting practices by externally appointed auditors of the Government or other auditors acceptable to ADB. The audit report will include a statement verifying whether the funds disbursed by ADB were used for the purposes for which they were provided, as well as the separate auditor’s opinion on the use of the imprest account and SOE procedures. Copies of the audited accounts and auditor’s report will be submitted to ADB within 6 months of the end of each financial year. The PMO will prepare consolidated semi-annual reports indicating progress made, problems encountered during the period, steps taken or proposed to remedy the problems, proposed program of activities, and progress expected for the following 6 months. In addition, SPG will provide to ADB a brief report 3 months prior to each semi-annual report summarizing contract awards, disbursements, and physical progress to cover the 3 months under review. The loan and GEF grant will be covered in these reports. Within 3 months of physical completion of the Project, the PMO will submit to ADB a completion report that describes the achievements in relation to the Project’s expected impact, outcome, and outputs. QNBG will have its accounts audited and its financial statements prepared in accordance with international financial reporting standards by auditors acceptable to ADB.

9. Project Performance Monitoring and Evaluation

51. To monitor the progress of the Project in achieving the planned outcome and outputs, the PMO will establish and maintain a project performance monitoring system (PPMS), which will be designed to permit adequate flexibility to adopt remedial action regarding project design, schedules, activities, and development impacts. The PPMS will adopt the following agreed-upon indicators: (i) project progress, (ii) enabling framework improvements (policies and legal harmonization and clear institutional mandates), (iii) results of capacity development, (iv) progress towards demonstration and pilot targets using participatory procedures, (v) beneficiary impacts, (vi) related improvement to the sustainable financing of field conservation, and (vii) ADB safeguards compliance. At project inception, the PMO, in consultation with QNBG and with the assistance of the consultants, will develop comprehensive PPMS procedures to systematically generate data on inputs and outputs of the project activities; and the socioeconomic, health, and environmental indicators to measure project impacts. This will include individual and consolidated work plans, which, once approved, will form the basis for assessing progress and achievements. The PMO will refine the PPMS framework, confirm achievable targets, firm up monitoring and recording arrangements, and establish systems and procedures no later than 6 months after loan effectiveness. QNBG will report baseline and progress data at the requisite time intervals to the PMO, including resettlement monitoring results and reporting on environmental management. The PMO will be responsible for analyzing and consolidating the reported data through its management information system, and for reporting the outcome to ADB through quarterly progress reports.

10. Project Review

52. In addition to regular monitoring, ADB and SPG will jointly review the project performance at least once a year. The review will assess implementation, and financial

16 performance and progress towards achieving project outcome and outputs. It will also identify issues and constraints affecting implementation, and work out a time-bound action plan for their resolution. ADB and SPG will undertake a midterm review before the end of the third year to assess implementation status and take appropriate measures, including modifying the scope and implementation arrangements, and reallocating loan and grant proceeds, as appropriate, to achieve the Project’s impact and outcome.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Benefits and Impacts

53. The population of some of the endangered species has declined rapidly. Under the Project, this population will slowly regenerate, expanding in numbers and coverage area. The area experiencing soil degradation and erosion will be reduced through forest expansion and better management. The Project seeks to achieve these objectives by including local villagers in the improvement and management of forest lands. The residents in QBCDA will be provided with user and management rights for 70 years. Further, they will receive grants and technical assistance to (i) establish analog forest systems, (ii) develop local value-adding industries for forest-derived products, (iii) establish home-stays, (iv) introduce alternate energy and water supplies, and (v) improve access by upgrading the Tianyu River road and a network of mountain pathways. The Project will substantially increase the production of non-forest products. An estimated 100 permanent jobs for the home-stays, about 100 jobs for the home-based businesses, and about 200 jobs for maintaining the conservation forest program on state land will be generated.

54. In the project area, the plains area has been earmarked for revenue-generating activities based on QNBG and the existing Taoist cultural sites. QNBG will generate resources that will be transferred for investment into the sustainable biodiversity management within QBCDA and the Qinling Mountains. QNBG will generate a significant number of jobs for local residents in the project area and the surrounding fringe areas. Revenue-generating activities will be planned with safeguards to ensure that environmental pollution is managed, including solid waste, wastewater, and noise and air pollution. About 10,000 jobs will be created during the construction phase, and an additional 870 permanent jobs will generated within the related agencies. These jobs will be awarded to local inhabitants wherever possible. The quality of life for local inhabitants will be improved through access to safe drinking water, better sanitation and wastewater treatment, and biogas systems.

B. Financial Analyses

55. Financial analyses were carried out for the botanical gardens, SARC, and the home-stay activities in QBCDA. The home-based businesses and the conservation forestry livelihood activities were not financially assessed because (i) the exact nature of the small businesses and their scale are uncertain, and (ii) the high proportion of public good benefits linked to habitats and improved ecological services is long term in nature. The botanical gardens, SARC, and home-stays display financial internal rates of return (FIRRs) both before and after tax that exceed the weighted average cost of capital. QNBG may lack liquidity during the construction period, and the Government has agreed to underwrite this working capital requirement of QNBG during this period. The before-tax FIRR for QNBG is 9.5%, while the post-tax FIRR is 8% (Appendix 11). An FIRR was not calculated for the Project as a whole.

C. Economic Benefits

56. Economic analyses were undertaken for the botanical gardens, SARC, home-stays, and the Project as a whole. The quantified benefit stream was limited to the visitor and revenue data

17 for each, and did not include the contribution to global species management, genetic collections for biodiversity, cultural and religious values, and scientific contribution to biodiversity conservation. Major non-quantified benefits include (i) payment for the establishment of conservation forestry on about 7,000 ha in the mountainous area that will provide increased jobs; (ii) shorter travel time because of better road and mountain pathway access; (iii) higher economic output derived from alternative livelihoods through the provision of about 40 small business development grants, about 10 home-stays, and about 100 household biogas systems; and (iv) better health from improvements in access to water, alternative sources of energy, and reduced fuelwood cutting. No economic benefits were quantified for the impacts and benefits arising from the profit redistribution to the QBCDA program. The economic internal rate of return (EIRR) for QNBG including SARC is 13.7%. The EIRR for the home-stay activity is 23.4%. No EIRR was calculated for biodiversity management in the mountainous area (output 1) because of the public good nature and uncertainty attached to the quantification of benefits. The benefits are substantial in terms of potential livelihood and environmental improvements in QBCDA and the wider Qinling Mountains. The quantified EIRR for the total project is 10.9% however, there are additional substantial nonquantifiable environmental and other benefits (Appendix 11).

D. Environmental Benefits and Impacts

57. The Project is classified as category B, according to ADB’s Environment Policy (2002). A summary initial environmental examination (IEE) has been prepared, including an environmental management plan and environmental monitoring plan (Appendix 12). The majority of the project impacts are environmentally beneficial, including improvements to long- term biodiversity conservation and sustainability in the Qinling Mountains. The major environmental benefits include (i) improvement in the welfare of animals in SARC and QBCDA; (ii) advancement of science on endangered species recovery from SARC; (iii) the genetic collection established at QNBG; (iv) public awareness and education regarding the Qinling Mountains and biodiversity conservation; (v) overall conservation of biodiversity; (vi) improvement in ecological functions in QBCDA from more and higher-quality forest cover; (vii) intangible benefits arising from the conservation of Taoist religious sites; and (viii) better environmental quality through the provision of better sanitation, wastewater, and management systems. Some adverse impacts may also occur, including (i) the introduction of nonnative plants into the botanical garden with the potential to become invasive species; and (ii) the gradual release of faunal species, such as the giant panda and the crested ibis, in the wild. The potential impacts have been assessed, and these will be mitigated to acceptable levels.

E. Poverty Impact and Employment

58. The incidence of poverty is over 70% in QBCDA, compared with 23% in the plains area, where most of the people live. Poverty in QBCDA is highlighted by low grain availability per capita of only 198 kilograms compared with 422 kilograms in the plains area. A survey found that QBCDA’s income per capita was about CNY600 in 2007, only 18% of the national average and 27% of Shaanxi’s rural population average. The livelihood survey conducted under the technical assistance 14 found that the stakeholders had extremely limited human capital, as reflected in the poor education levels among adults. The habitation in QBCDA are scattered (12 persons per km2 compared with 267 per km2 elsewhere in the project area) because of the mountainous and isolated conditions. Physical capital has improved with the road upgrading along the Tianyu River, but other infrastructure is virtually nonexistent because the local government had encouraged people to move out of the mountains. Access to formal banking services is limited because of the lack of security, deposits, and access to banks. Many of the

14 ADB. 2005. Technical Assistance to the People’s Republic of China for Preparing the Dryland Farming in the Northern Project. Manila (TA 4631-PRC).

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QBCDA residents depend on subsidy payments from government programs. Households in the plains area are better off as they have access to physical infrastructure, especially roads; health and education services; more opportunities for off-farm employment; and access to productive land and markets for high-value crops, including kiwi fruit. A summary poverty reduction and social strategy is in Appendix 13. About 1,200 households in QBCDA will receive benefits from (i) employment, (ii) opportunities to start small businesses, (iii) forest-use rights with supporting conservation forest plantings, and (iv) better access to water supplies and alternative energy sources. About 10,000 jobs will be created during project construction, with an additional 870 directly employed full time. Benefits will arise from more ecotourism and economic development. The shift into forest-based livelihoods will provide long-term benefits.

F. Gender and Development

59. Gender roles are determined by a combination of cultural factors, environmental conditions, education levels, and jobs. In the project area, income inequities create incentives for rural workers to migrate to urban labor markets. However, because it is close to good roads and to county towns, female laborers—particularly young women—share the available opportunities with men for off-farm jobs. Agricultural feminization is only slight in the developed commercial and agricultural area. Young people in QBCDA tend to be mobile, and the group left behind is older. In general, the Project will benefit women significantly and will not have an adverse impact on women or children. Women will benefit from the ecotourism facilities, and will have greater access to information and jobs, and more opportunities for starting small income- generation activities. They will get jobs during the construction of QNBG. As part of the participation strategy, women will be prioritized for direct and indirect project benefits and for protection against social risks. Special gender measures have been included in the resettlement plans. Gender-disaggregated indicators will be monitored in the PPMS. The Project will not have significant negative impacts on women, and they will participate equally in project activities and have equal opportunities for access to social services, training, employment, land relocation, and beneficiary agreements.

G. Land Acquisition and Resettlement

60. A summary resettlement plan has been prepared (Appendix 14). For the construction of QNBG, 19.6 ha of land will be permanently acquired. The land acquisition will affect 115 households with 504 people. The houses of 143 households with 617 people totaling 19,319 square meters will be demolished, and these people will be relocated nearby in the same village of Dianzhen. QNBG will pay compensation of about CNY28.9 million, including taxes and management fees. QNBG will also lease the land-use rights for an additional 249.7 ha, affecting about 3,780 people in 948 households (i.e., the entire village population). The village and the households will continue to own this land. QNBG will sign land-lease agreements with the affected groups of Dianzhen village to establish a 50-year land-use right for the botanical gardens. QNBG will make fixed annual payments to affected households for 50 years, plus annual payments based on gate revenues or profit when the botanical garden becomes operational. The improved village and forest-based livelihood improvement programs in QBCDA will be implemented with the 16 villages on a voluntary basis. No adverse impacts are anticipated, but QNBG has assured the livelihoods of local inhabitants will be safeguarded.

61. The upgrading and expansion of SARC will use an additional 1,008 ha of land, but most already belong to LFF. Only 9 ha need to be acquired permanently from three villages for the construction of the Crested Ibis Center (2 ha), the Golden Monkey Center (3 ha), and the Giant Panda Breeding and Research Center (4 ha). The land acquisition will affect 30 households with 125 people; 2.9 ha of land is dry farmland, 5.5 ha is sloped land, and 0.6 ha irrigated land. QNBG will pay compensation of CNY13.6 million to the affected villages.

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H. Risks and Mitigation Measures

62. Construction delays will place significant pressure on the cash flow of QNBG. Recognizing this risk, the SPG has committed to underwrite the cash flow with counterpart funds. Weak management and poor operation of the proposed investments will threaten the financial viability of QNBG, which is currently assessed as adequate but not strong. All of the agencies consolidated into QNBG, including the Shaanxi Qinling Botanical Garden, SARC, and the LFF, have many years of biodiversity project experience. QNBG is well staffed with experienced and qualified personnel. The challenge for QNBG will be to work together to effectively manage all project activities related to habitat restoration, species regeneration, botanical gardens, SARC, ecotourism, and income-generating activities for poor residents in the mountainous and plains areas. The SPG has agreed to strengthen QNBG with additional staff, start-up funds, and sufficient staff training. QNBG will undergo institutional strengthening through the use of consulting services, as well as the recruitment of expert and experienced staff in biodiversity conservation, ecotourism promotion, management, and engineering. The financial sustainability of QNBG and the Project will be ensured through the generation of ecotourism revenue sufficient to meet all projected operation and maintenance costs, plus the expansion of biodiversity conservation activities in the Qinling Mountains. The design of the Project has factored in potential risks from invasive species and poor animal welfare by introducing international expertise and limiting QNBG to plant species from the Qinling Mountains. The risks of food supply shortages and price increases because of the resettlement of affected farmers in the plains area are considered minimal, even in local village markets. The risks associated with agricultural or other encroachment on forest land are also considered minimal. QNBG is adequately staffed to enforce regulations regarding encroachment on forest land, and will employ local residents as forest monitors and ecotourism guides.

V. ASSURANCES AND CONDITION

A. Specific Assurances

63. In addition to standard assurances, the Government, the SPG, and the IA have given the following assurances that have been incorporated into the legal documents:

(i) Counterpart financing. SPG will ensure that (a) all domestic financing necessary for the Project is provided in a timely manner, and (b) additional counterpart financing is provided in the event of any shortfall of funds or cost overruns to complete the Project.

(ii) Change of ownership. In the event that any change in ownership of the project facilities, or any sale, transfer, or assignment of the shares of QNBG is anticipated, the SPG and the IA will consult with ADB at least 6 months prior to the implementation of such change. The SPG and the IA will ensure that such change be carried out in a lawful and transparent manner.

(iii) Land acquisition and resettlement

(a) The SPG and the IA will ensure that (1) the full resettlement plan for QNBG and the short resettlement plan for SARC are implemented in accordance with their terms; (2) all land and rights-of-way required for the Project are made available in a timely manner; (3) the provisions of the resettlement plans, including compensation and other entitlements for affected persons will be implemented in accordance with all applicable government laws and regulations and ADB’s Involuntary Resettlement

20

Policy (1995); (4) compensation and resettlement assistance are given to the affected persons prior to dispossession and displacement; (5) the provision of counterpart funds for land acquisition and resettlement activities is timely; (6) any obligations in excess of the resettlement plan budget estimates are met; and (7) the affected persons will be at least as well off as they would have been in the absence of the Project.

(b) The SPG and the IA will ensure that (1) the inhabitants of QBCDA are provided with support to improve the environmental sustainability of their livelihood practices without adversely affecting their income and living standards, and (2) unsustainable activities will only be stopped when they have been replaced with beneficial livelihood alternatives. If any resettlement impacts should occur to the inhabitants of QBCDA, the SPG and the IA will ensure that the resettlement plan is submitted and approved by ADB in accordance with ADB’s Involuntary Resettlement Policy.

(c) The SPG and the IA will also ensure that (1) adequate staff and resources are committed to supervising and monitoring the implementation of the resettlement plans, providing to ADB quarterly reports on the implementation, and a resettlement completion report; (2) an independent agency acceptable to ADB is engaged to carry out investigations to monitor progress annually and to evaluate results through annual survey updates for 2 years after completion of resettlement, and forward reports to ADB and SPG simultaneously; and (3) data are disaggregated by gender, and monitoring includes gender impacts and vulnerable groups.

(iv) Poverty reduction. The SPG and the IA will cause the contractors involved in the project implementation to maximize the employment of local poor people, including affected persons who meet the job and efficiency requirements for employment. Such workers will be provided with adequate on-the-job training. SPG will monitor the project impact on poverty and submit annual monitoring reports to ADB during project implementation.

(v) Environment. The SPG will cause the IA to construct, maintain, and operate the project facilities in strict conformity to (a) all applicable national and local government environmental laws, regulations, and procedures; (b) ADB’s Environment Policy; and (c) the environmental mitigation and monitoring measures set out in their environment impact assessments for the Project.

(vi) Environment monitoring plan. The SPG will ensure that the IA (a) allocates sufficient resources to implement the environmental monitoring plan; and (b) provides monitoring reports to the PMO, which will coordinate the preparation of a semiannual environmental report on the implementation of the environmental monitoring plan in a format acceptable to ADB for the duration of the Project.

(vii) Labor standards. The SPG and the IA will ensure that under the Project all the employment and labor standards provided in the applicable laws and regulations of the Government are complied with, and in particular, that all civil works contractors engaged under the Project (a) provide timely payment of wages on at least a monthly basis and safe working conditions to all workers, with such requirements being included in the civil works contracts and monitored by the construction supervision consultants; (b) provide employment opportunity to

21

women and ethnic minorities, where appropriate, and pay equal wages to the male and female employees for equivalent works; and (c) do not employ child labor in the project works.

(viii) Gender and development. The SPG will cause the IA to (a) take necessary steps to ensure the timely and effective implementation of the project-specific participatory gender and sustainable livelihood plans, (b) carry out awareness- raising campaigns to encourage women in the project area to participate in the planning and implementation of the Project, and (c) monitor the project impacts on women during project implementation by collecting and analyzing gender- disaggregated data and information.

(ix) Land tenure and ecotourism guidelines. The SPG will ensure that not later than 31 December 2010, the IA (a) completes the review of the policy and regulatory framework on collective forest land tenure, and (b) makes recommendations to the SPG on collective forest land tenure and management. The SPG will cause the IA to (a) develop and approve ecotourism guidelines and standards not later than 31 December 2010, and (b) ensure implementation of the ecotourism guidelines.

B. Condition for Disbursement

64. Disbursement of the loan proceeds will be conditional on the Government’s certification, in form and substance satisfactory to ADB, that the SPG and the IA have executed and delivered the onlending agreement, including terms and conditions as required in the Loan Agreement, and which has become effective and binding in accordance with its terms.

VI. RECOMMENDATION

65. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank and recommend that the Board approve

(i) the loan of $40,000,000 to the People’s Republic of China for the Shaanxi Qinling Biodiversity Conservation and Demonstration Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the Loan and Project Agreements presented to the Board; and

(ii) the administration by ADB of a grant not exceeding the equivalent of $4,270,000 to the Government of the People’s Republic of China for the Shaanxi Qinling Biodiversity Conservation and Demonstration Project to be provided by the Global Environment Facility.

Haruhiko Kuroda President

30 September 2009

22 Appendix 1

DESIGN AND MONITORING FRAMEWORK Design Performance Targets and/or Data Sources and/or Assumptions Summary Indicators Reporting Mechanism and Risks Impact Assumption Sustainable biodiversity Land degradation and soil Monitoring reports of the Institutional arrangements to conservation protected erosion reduced by 15% by 2020 Shaanxi Environmental support sustainable for globally-significant in the mountainous area, QBCDA Protection Bureau and PMO development are fully in species and increased place economic growth Natural habitat and species Monitoring reports of recovery increased by 15% in all Shaanxi forestry, agriculture, Risks nature reserves in the Qinling and other related bureaus Urban growth exceeds Mountains by 2020 forecasts, and exerts more Annual reports of the pressure on available Rural incomes increased by 15% Shaanxi Poverty Reduction infrastructure and and rural poverty halved by 2020 Bureau ecosystems

11th and 12th five-year plan Slower growth than evaluations anticipated in the PRC economy Government statistics on rural incomes, employment, Weak and uncoordinated and small businesses enforcement of environmental, land use, and related laws and regulations Outcome Assumptions Improved and Five globally-threatened species Biodiversity species data— Continued growth in demand integrated biodiversity protected through habitat baseline and annual for ecotourism for management providing regeneration and management by monitoring data of the biodiversity, and religious sustainable livelihoods 2015 species in the original area and historical sites for the population of the from environmental project area. The Endangered and threatened protection and forestry Proper construction and outcome will also be species monitored, with numbers bureaus and the WWF maintenance of infrastructure shared and increasing by 2015 demonstrated to the Shaanxi statistical yearbooks Establishment of supporting rest of the Qinling Ecotourism visitors increased and data from county and institutional and regulatory Mountains from current 400,000 per year to townships mechanisms for about 800,000 by 2015, and implementing biodiversity about 1.2 million by 2020 Household surveys, management approach including migration data New small businesses created Continued voluntary and about 1,200 jobs generated Visitors, occupancy, resettlement from the Qinling by local communities and project- revenue, and other data from Mountains without major related activities by 2015 participating tourist disputes attractions (botanical garden outside their original location, Risks eco-lodges, etc.) Improving the environment of the Qinling Mountains is Government statistics given lower priority

Project reports and Insufficient enforcement monitoring systems to guard against encroachment on forest land and conservation areas

Revenue is not shared equitably Outputs Long-term plan for the project Project monitoring reports Assumptions Component 1: area developed by 2013 Project area is perceived as Participatory Government statistics and being representative for Biodiversity About 7,000 ha of forest poverty reduction office data wider biodiversity Management in the successfully managed by 2015 conservation demonstration

Appendix 1 23

Design Performance Targets and/or Data Sources and/or Assumptions Summary Indicators Reporting Mechanism and Risks Mountainous Area Habitat restoration plan prepared Eco-fund records Improved livelihoods will by 2012 result in better conservation 1. Demonstrating Enterprise accounts and protection of natural conservation of QBCDA poverty households, resources and biodiversity. biodiversity decline by 50% by 2015 Tourism and visitor numbers, 2. Improved village and gate ticket sales, and Communities will engage in forest-based livelihoods Small businesses providing jobs revenues commercial enterprises to local poor by 2015 linked to ecotourism, and

Field surveys for habitat and natural resource processing. About 10 home-stay ecotourism wildlife monitoring enterprises, half in QBCDA, Support from government started by 2013 Project benefit monitoring agencies and programs and evaluations Up to 17.5 km of roads improved Risks by 2013 Ecotourism benefits less than projected About 100 km of mountain pathways upgraded by 2015 Lack of management and quality control Land-use and forest- management practices specified Conservation program not by 2014 implemented successfully

Sustainable financing plan for biodiversity conservation by 2015

Endangered animal baseline data collected and management plans prepared by 2012

Endangered animal research contracts, and monitoring systems in place by 2015 Component 2: Assumptions Enhanced QNBG and SARC provide Site inspection and project Timely completion of Biodiversity technical and financial support for implementation reports infrastructure Conservation in the biodiversity conservation in Plains Area QBCDA by 2015 Enterprise financial accounts Shaanxi Environmental Project monitoring and Protection Bureau enforces 1. Develop the national About 269 ha botanical gardens reporting via PMO environmental monitoring botanical garden established and supporting public standards 2. Improve the animal education facilities by 2014 Procurement records rescue center Effective stakeholder Wastewater and solid waste participation and ownership About 18 Taoist sites restored by 2014 system data (rate of capacity utilization, and influent and Activities and construction of One cable car constructed by effluent flow volumes) facilities fully engage and 2014 respect the Taoist culture Water supply data (rate of QNBG revenue increased from utilization and flow volumes) Adequate ecotourism CNY30 million to CNY65 million revenues invested in by 2015 Water quality monitoring QBCDA and the Qinling program data, including Mountains QNBG invested about 15% of its monitoring wells around profits into QBCDA by 2015 Louguantai Risks Invasive species introduced About 90% of wastewater ADB review missions to the Qinling Mountains generated is properly treated and household surveys disposed of by 2015 Disease and pandemic risks Annual reports of the EA to to captive species

24 Appendix 1

Design Performance Targets and/or Data Sources and/or Assumptions Summary Indicators Reporting Mechanism and Risks ADB Loss of well-being for rural residents Satellite imagery for changes in land use, forest cover, etc. Increases in local food scarcity and prices because of loss of agricultural land in the plains area Component 3: Assumptions Improved Project Project disbursement ratio targets The Qinling Mountains Businesses benefit from Management achieved 85% of the time by management forum minutes wider conservation programs 2015 and plan 1. Strengthened PMO The Qinling Mountains and IA Policy and legal studies completed Habitat restoration and program considers project and proposed actions and/or management plan for the area as representative and 2. Strengthened reforms submitted to the provincial Qinling Mountains relevant biodiversity safeguards people's committee by 2015 Project monitoring data and Replication of institutional

Sustainable financing program for WWF monitoring data sets models linked to QBCDA 3. Conservation QNBG operating by 2012 and reports programs dissemination program Ecotourism master plan PMO records on project Risks completed as part of the habitat activities and evaluations Weak coordination of the EA, management plan by 2012 IA, and PMO Project records and outreach Conservation monitoring data programs Resistance by some available and used by 2012 stakeholders Project area plans Public awareness on QNBG Ecotourism facilities not fully raised with increasing numbers of Business records commercialized, and school classes visiting from 2012 therefore not able to repay onwards Training program evaluation loan and generate surplus to records support biodiversity Research contracts awarded and conservation completed by 2013

Integrated landscape habitat management plan completed with action planning and capacity building by 2014

Professional job exchanges conducted by 2015 Activities with Milestones Inputs: ($ million) Component 1: Participatory Biodiversity Management in the Mountainous Area 1.1 Demonstrating Conservation of Biodiversity ADB Loan 40.00 Activity (1) Habitat restoration and management for about 2,000 ha of state forest GEF Grant 4.27 land (by end 2014) SPG 88.37 Activity (2) About 5,000 ha of collective forests with certificates awarded to Total Financing 132.64 individual households, planted and maintained as conservation forests (by end 2013) Civil Works 64.90 Activity (3) Endangered species management plan for five species based on field Equipment 10.17 research contracts (by end 2014) Vehicles 0.65 1.2 Improved Village and Forest-Based Livelihoods Materials 4.97 Activity (4) Provide 16 village development plans, including conservation Training 1.27 forest and nature resources plans, providing socioeconomic baseline Surveys 5.41 data and livelihood plans ensuring subsistence of local poor (by end Resettlement Costs 5.57 2012) Design and Supervision Activity (5) Provide about 100 alternative energy (biogas) and about 100 water Costs 3.77 supply systems (by end 2015) Activity (6) Conservation forestry planting on about 5,000 ha (by end 2014)

Appendix 1 25

Activities with Milestones Inputs: ($ million) Activity (7) Small business development grants awarded, home-stay ecotourism operators selected and operational, road improvement programs and Consulting Services 0.64 pathways upgraded, and grants awarded for social infrastructure Staff Costs 0.41 (by end 2014) Contingency 13.88 Activity (8) Small businesses developed within villages, having increased incomes Total Investment Costs from transition to higher-value, and more sustainable rural industries (at 111.64 least 20 by 2014) Total Recurrent Costs Component 2: Enhanced Biodiversity Conservation in the Plains Area 16.37 2.1 Construction of QNBG, Exhibition and Research Buildings, Nursery, Temple Total Base Costs Restoration, Access Roads, Cable Car, and SARC Improvements 128.01 Activity (9) Establish specialized gardens (by end of 2012) Financing Charges 4.63 Activity (10) Complete the greenhouse development, paleontology museum, Taoist Total Costs 132.64 historical sites, wastewater treatment facility, and other civil works and infrastructure (by end of 2011) Activity (11) Complete the cableway, procure office and vehicles, and complete training programs (by end 2012) Activity (12) Complete initial resettlement process (completed by end of 2009), and full process completed (by end 2013) Activity (13) Complete design input (by end 2009), complete marketing and education (by end 2014) Activity (14) Upgrade animal exposition area to international standards (by end 2012) Expand and refurbish SARC with enclosure and satellite areas for crested ibis, giant panda, and golden monkey (by end 2015) Activity (15) Upgrade exhibit area and support service for SARC (by end 2015) Component 3: Improved Project Management 3.1 Strengthened PMO and IA Activity (16) Establish and staff PMO within 6 months of the Project implementation with agreed work plans, procurement plans, and training plans Activity (17) Contracting of resettlement monitoring before loan effectiveness, and project benefit monitoring and evaluation system (by end 2010) 3.2 Strengthened Biodiversity Safeguards Activity (18) Propose options to improved management of the income-generating facilities and biodiversity conservation activities for sustainable management of project facilities (by end 2013) Activity (19) Collate data for the project area, complete remote sensing analysis, and store with operational database accessible to staff (by end 2014) 3.3 Conservation Dissemination Program Activity (20) Establish a conservation monitoring center (by end 2010); and design, implement, and evaluate a conservation monitoring program as part of the Qinling Mountains capacity building and awareness program (by end 2012) Activity (21) Develop and implement a communication and awareness program for disseminating the project lessons in the form of a publication in Mandarin (by end 2012) Activity (22) Complete a project area master plan by applying a biodiversity conservation and planning model (by end 2013) ADB = Asian Development Bank, EA = executing agency, GEF = Global Environment Facility, ha = hectare, IA = implementing agency, km = kilometer, PMO = project management office, PRC = People’s Republic of China, QBCDA = Qinling Biological Conservation and Demonstration Area, QNBG = Qinling National Botanical Garden, SARC = Shaanxi Animal Rescue Center, SPG = Shaanxi provincial government, WWF = World Wide Fund for Nature.

26 PROBLEM TREE ANALYSIS

Rural poverty Low economic Poor quality of life Higher costs and Lost economic opportunities 2 Appendix growth and for local inhabitants damage from flash income sources floods

Data not Increased cost Irreversible shared or not of mitigation damages Out- Loss of Land available Effects migration ecological degradation and aging functions and population services Insufficient capacity to Externalities Limited service Declining manage projects provision incomes

Social decline and Non-sustainable use of land and other natural resources Competing inequity agencies

Key problems Loss of biodiversity Inadequate institutional framework

Low Overexploitation Loss of Loss of Lack of Weak ecotourism of natural habitat ecosystem coordination and incentives for volume and resources functionally integrated sustainable revenue programs development

Causes

Past Lack of Low Demand for Illegal Forest Pollution Social development commercial productivity animals and hunting, fragmentation disruption increases attractions in plants for medicinal vulnerability ex-situ and commercial plants, and in-situ areas use logging

Economic Poor Overlogging growth from Lack of access to natural Resource- Uncontrolled Lack of expansion development of forest-farm ecotourism planning and ecotourism resources and unclear dependent structural within ownership or rights communities coordination competing potential incentives sectors Unclear Limited markets and Rapid population Separation of people from Lack of spatial planning. institutional Economic inadequate education, growth, economic conservation management- No value assigned to mandate, development at cost health services, water demand conflicting objectives biodiversity or ecological jurisdictions, of environment resources decreasing between people and functions authorities, and conservation responsibilities

Source: Asian Development Bank. Appendix 3 27

SECTOR ANALYSIS AND LESSONS LEARNED

A. Introduction

1. The goal of the biodiversity program of the People’s Republic of China (PRC) is the conservation of biodiversity that provides its people a fair and equitable share of benefits from a better utilization of generic resources. However, increasing population pressures, cultural traditions, and economic development have degraded the PRC’s biological resources. The large population combined with limited land and water resources have caused extensive loss of habitats to meet the growing needs for housing, infrastructure, farming, logging, fuelwood collection, and livestock grazing. These problems are also characteristic of the Qinling Mountains. As a result, 804 species in the PRC are on the International Union for Conservation of Nature list of globally-threatened species. Of these, 442 are plants and 362 are animals. The PRC’s own Red Data Book of threatened species includes a much larger total.

B. Biodiversity Conservation

2. The project area and the Qinling Mountains have three types of protected areas: nature reserves, forest reserves, and ecological function conservation areas. The Qinling Mountains has 27 nature reserves and forest reserves, and one ecological function conservation area. The nature reserves cover 557,298 hectares (ha) or nearly 10% of the total of 5 million ha. The Shaanxi Forest Bureau, with support from the World Wide Fund for Nature (WWF), planned and established the reserve network for giant pandas. It includes five well-established nature reserves, nine recently-established nature reserves, five corridors, and five planned nature reserves. While the protected area system in the Qinling Mountains is excellent in its coverage of the upper elevations, the lower slopes that support forests and provide winter habitats for many species, including the giant panda and the golden takin, have little protection. 1 The difficulty in protecting the lower slopes is that they have been settled and farmed for centuries. The Project addresses the need to protect lower elevation habitats of the Qinling Mountains.

3. In March 2002, WWF launched its Qinling Giant Panda Project to protect the giant pandas and their habitats in the Qinling Mountains. The Qinling panda population includes about 300 pandas that are geographically and genetically isolated from other panda populations in Gansu and Sichuan provinces. Similar to the Asian Development Bank–Global Environment Facility (GEF) project, the WWF panda project seeks balance between conservation and development. WWF involves private sector investors to fund the development of new industries, activities, and livelihoods for villagers to reduce or eliminate human-caused pressures on panda habitats. WWF’s panda project plans to achieve a 10% increase in the Qinling giant panda population by 2012, and a 20% increase in the area of protected panda habitats.

4. The World Bank–GEF China Nature Reserve Management Project began in 1995 and was completed in 2002. The project focused on nature reserves of Poyang Lake in Jiangxi, Shengnongjia in Hubei, Wuyi Mountain in Fujian, Xishuangbanna in Yunnan; nature reserves of Changqing, Foping, Niubeiliang, Taibaishan, and Zhouzhi in the Qinling Mountains, Shaanxi; and Wuyishan nature reserve in Jiangxi, and Changqing Forestry Bureau in Shaanxi. This project drew on project experiences from other countries under the GEF pilot phase and from nongovernment organizations (NGOs). The Project draws on the following related lessons from

1 Li Diqiang, Song Yangling, and Ouyang Zhiyun. 2003. Research on the National Forestry Nature Reserve System Plan. World Bank-GEF Forest Resources Development and Protection Project, Nature Reserves Management Project. Beijing: China Land Press (in Chinese and English).

28 Appendix 3 this project and ADB’s 1991 Operations Evaluation Department’s report on forestry:2 (i) the importance of integrating the management of protected and unprotected natural forest areas into regional forest management plans, (ii) the importance of developing restructuring programs for inefficient state forestry enterprises, and (iii) the need to expand the protected area system and improve management technologies for forests with high biodiversity and environmental services values. The community participation program supported under the Project incorporates lessons learned from several ongoing pilot activities in the PRC managed by NGOs and the Government, particularly (i) the importance of integrating local villagers into the assessment of community needs through participatory rural appraisal techniques; and (ii) the need to establish clear, mutually-agreed contracts that identify the respective rights and responsibilities of nature reserve staff and local communities in resource use.

5. The World Bank-financed Sustainable Forestry Development Project3 was approved in 2002 and will be completed in 2009. It has three components: (i) plantation establishment, (ii) natural forests management, and (iii) protected area management. GEF and Aid provided cofinancing grants. Important lessons included the following:

(i) forestry needs to be fully integrated into land-use planning; (ii) successful management is only possible with a defined and enforced permanent forest area; (iii) decisions on forest management must take into account the interests of all stakeholders; (iv) all management options for forests, even total protection, have financial and economic costs; the options selected must have long-term financial and economic sustainability; (v) alternative resource control systems, such as decentralization and co- management with government agencies, local communities, the private sector, NGOs, and others, should be supported; (vi) effective policy analysis and development should be prioritized, because policy and market failures have been more serious than technical problems of forest management, silviculture, and conservation; (vii) support for commercial forestry plantation development should continue to reduce pressure on natural forests and expand domestic wood supply; and (viii) the GEF program should be expanded, because biodiversity resources warrant a larger share of international support than is currently received.

C. Threats to Biodiversity Conservation

6. General threats to biodiversity in the Qinling Mountains were identified in 19984 as (i) intensive commercial timber harvesting near nature reserves, (ii) agricultural encroachment, (iii) illegal harvesting of natural resources, (iv) fragmentation of nature reserves by construction of national highways and reduced potential for gene exchange, and (v) unregulated development of tourism. In 1998, logging was banned in natural forests nationwide. While this stopped commercial logging (except in forest plantations), it did not regulate household use of timber for construction, cooking, and/or heating. Extensive household use of timber remains a threat to nature reserves nationwide, because villagers live within or near all nature reserves. Agricultural

2 ADB. 2001. Project Performance Audit Report for the Compensatory Forestry Sector Project in Malaysia. Manila (Loan 709-MAL). 3 Verich K. H. M. Schmitt. 2002. Sustainable Forestry Development Project. Washington, DC: World Bank. 4 Zhang Jingliang, Li Huanfang, Zhang Mingxia, and Hou Lingyu. 1998. Some of the Main Problems of the Qinling Nature Reserves and Managing Strategies. Chinese Biodiversity 6(4):312–315.

Appendix 3 29 encroachment onto forest lands began in modern times, as population pressures pushed farmers further into the mountains in search of arable lands. Farming on the steep slopes caused soil erosion that washed away valuable soils and choked waterways. The Government instituted the Sloping Land Conversion Program (or “Grain for Green” program) beginning in 2000. The program provides grain, cash, and saplings to farmers who convert their steep sloping farmlands to grassland or woodland.5 The program has been implemented on 600,000– 800,000 ha in the Qinling Mountains. To counter the other threats, strategies were proposed to (i) establish co-management with villagers living in and around nature reserves; (ii) establish biological corridors to counter the impacts of highways and railways; (iii) restrict illegal entry by villagers and livestock, and blockage of wildlife movements by fences installed to protect natural forests; (iv) improve the management of ecotourism; and (v) diversify village enterprises.

7. Each of these strategies has been implemented to some extent. Co-management is now standard operating procedure in Taibaishan and Foping nature reserves in the Qinling Mountains, and seems to be working well. The impact of these co-management policies has been that the villagers now consider protection of nature reserves and natural resources not only as their right and responsibility but also their most reliable means of achieving higher standards of living. Biological corridors have been established in part by an aggressive campaign by the Government and WWF to establish new nature reserves. Two significant issues appear to remain with respect to links between critical habitats. These are reforestation projects of the 1950s and 1960s that involved two nonnative species of larch (Japanese Larch Larix kampfera and North China Larch Larix princi), which have grown in mono-species stands that block natural colonization by other species. The result is large expanses of forest that lack understory vegetation and have little floristic diversity. These are referred to as “green deserts” by ecologists because, from a distance, they appear as beautiful natural forests, but on closer inspection, they are ecologically barren. The inability of bamboo and other plants to colonize these plantations precludes their use by pandas and many other species. The exotic trees were planted to compensate for prior excesses in timber exploitation, but now stand in the way of effective nature conservation. The second outstanding issue related to links between habitats is the growing number of highways and railways through the Qinling Mountains, especially the associated chain-link fences that restrict animal movements and migration for giant pandas, clouded leopards, and golden takins. Resolution of this issue might require a combination of (i) modification of the fences, (ii) construction of wildlife underpasses and overpasses, and (iii) stronger management of those nature reserves alongside rail and road corridors.

8. Virtually all stakeholders in the PRC conservation note that funding is seldom adequate for anything more than paying salaries. Nature reserves in the PRC receive about one-eighth of the world's average budget allocation per unit area ($113 vs. $893 per square kilometer [km2]), and even less than the average allocation for reserves in developing countries ($157 per km2). Provincial and local reserves receive even less ($57 per km2). In general, nature reserves receive government funding for about one-third of their spending requirements only. The balance must be met by entrepreneurial efforts that are often antagonistic to the conservation mandate of the reserves. Regulation of tourism is needed to ensure that natural resources are not further degraded in the interest of economic gain.

5 Xu Jintao, E. Katsigris, and T.A. White. 2001. Implementing the Natural Forest Protection Program and the Sloping Land Conversion Program: Lessons and Policy Recommendations. China Council for International Cooperation on Environment and Development Task Force on Forests and Grasslands. Beijing: China Forestry Publishing House.

30 Appendix 4 EXTERNAL ASSISTANCE

Amount Donor Project Title Year ($ million) Asian Development Bank Xi'an-Xianyang-Tongchuan Environment Improvement 1995 0.50 Shaanxi Environment Improvement 1997 0.59 Xi'an-Xianyang-Tongchuan Environment Improvement 1997 156.00 Improvement of Environmental Management in Shaanxi 1997 0.94 Shaanxi Environment Improvement 1999 102.00 Shaanxi Air Quality Improvement 1999 0.70 Capacity Building to Combat Land Degradation 2004 1.00 Total 261.73

World Bank Forest Project and Nature Reserves Management 1985 2.00 Shaanxi Agriculture Development 1989 106.00 The Fourth Agriculture Loan 1990 30.00 Agriculture Services 1993 6.71 Provincial Environment Technology Assistance 1993 0.39 Xi'an Environment Technology Assistance 1993 0.21 Forest Resource Development and Protection 1994 200.00 Loess Plateau Soil and Water Conservation I 1994 37.00 Qinba Mountains Area Poverty Alleviation 1997 72.00 Irrigated Agricultural Area Rebuilding 1999 100.00 Loess Plateau Soil and Water Conservation II 1999 41.00 Yangling Sustainable Development 2000 0.30 Total 595.61

World Bank and GEF China Nature Reserve Management 1995 23.60 Sustainable Forestry Development 2002 242.34 Total 265.94

IFAD Qinling Mountain Area Integrated Agriculture Development 2000 18.15 GEF = Global Environment Facility, IFAD = International Fund for Agricultural Development. Source: Asian Development Bank.

Appendix 5 31 DETAILED COST ESTIMATES ($’000)

Asian Development Global Environment The Local Duties Bank Facility Government Total Foreign (Excl. and Amount % Amount % Amount % Amount Exchange Taxes) Taxes A. Investment Costsa 1. Civil Works a. Construction 10,484.3 36.5 0.0 - 18,250.9 63.5 28,735.2 2873.5 24,424.9 1,436.8 b. Planting 1,339.9 29.4 416.3 9.1 2,800.6 61.5 4,556.8 455.7 3,873.3 227.8 c. Infrastructure 7,280.7 38.8 0.0 - 11,483.0 61.2 18,763.7 1876.4 15,949.1 938.2 d. Landscaping 3,203.3 26.0 0.0 - 9,129.0 74.0 12,332.3 1233.2 10,482.5 616.6 Subtotal (A1) 22,308.2 34.6 416.3 0.6 41,663.5 64.7 64,388.0 6438.8 54,729.8 3,219.4 2. Equipment a. Equipment-Machinery 3,226.5 83.3 0.0 - 649.0 16.7 3,875.5 968.9 2,286.5 620.1 b. Equipment-Outfitting 605.7 79.6 0.0 - 155.5 20.4 761.2 190.3 449.1 121.8 c. Other Equipment 2,419.2 76.1 43.1 1.4 717.5 22.6 3,179.8 318 2,384.8 477.0 d. Office Equipment 1,649.3 84.9 0.0 - 292.9 15.1 1,942.2 194.2 1,456.7 291.3 e. Equipment-Furniture 290.1 85.0 0.0 - 51.2 15.0 341.3 0.0 290.1 51.2 Subtotal (A2) 8,190.8 81.1 43.1 0.4 1,866.1 18.5 10,100.0 1,671.4 6,867.2 1,561.4 3 Vehicles - Cars and Trucks 510.0 78.8 0.0 - 137.2 21.2 647.2 161.8 381.9 103.5 4. Materials a. Planting Material and Supplies 1,827.4 40.0 119.0 2.6 2,624.0 57.4 4,570.4 0.0 3,884.8 685.6 b. Office Materials and Supplies 84.9 16.3 0.0 - 434.4 83.7 519.3 0.0 441.4 77.9 Subtotal (A4) 1,912.3 37.6 119.0 2.3 3,058.4 60.1 5,089.7 0.0 4,326.2 763.5 5. Training a. Technical Training (agencies) 32.0 48.0 0.0 - 34.6 52.0 66.6 0.0 66.6 - b. Stakeholder Technical Training 178.9 84.9 0.0 - 31.7 15.1 210.6 0.0 210.6 - c. Vocational Training 90.3 73.8 32.0 26.2 0.0 - 122.3 0.0 122.3 - d. Community Training and Extension 0.0 - 266.7 100.0 0.0 - 266.7 0.0 266.7 - e. Demonstrations 204.0 31.7 373.3 58.0 66.2 10.3 643.5 0.0 643.5 - Subtotal (A5) 505.2 38.6 672.0 51.3 132.5 10.1 1,309.7 0.0 1,309.7 - 6. Surveys and Studies a. Planning 15.3 3.7 346.7 83.9 51.3 12.4 413.3 0.0 413.3 - b. Monitoring and Evaluation 29.3 11.3 173.3 67.1 55.6 21.5 258.2 0.0 258.2 - c. Field Technical Surveys and Trials 916.5 35.3 848.5 32.6 834.2 32.1 2,599.2 0.0 2,599.2 - d. Socio-economic Surveys 704.7 36.3 2.0 0.1 1,236.6 63.6 1,943.3 0.0 1,943.3 - Subtotal (A6) 1,665.8 31.9 1,370.5 26.3 2,177.7 41.8 5,214.0 0.0 5,214.0 - 7. Compensation 0.0 - 0.0 - 5,567.8 100.0 5,567.8 0.0 5,567.8 - 8. Design and Supervision 11.3 0.3 392.6 10.4 3,368.5 89.3 3,772.4 0.0 3,772.4 - 9. Technical Assistance a. International Consultants - 782.0 100.0 0.0 - 782.0 782.0 0.0 - b. National Consultants - 474.5 100.0 0.0 - 474.5 0.0 474.5 - Subtotal (A9) 0.0 - 1,256.5 100.0 0.0 - 1,256.5 782.0 474.5 - 10. Staff costs 0.0 - 0.0 - 413.4 100.0 413.4 0.0 413.4 - 11. Contingencyb 0.0 - 0.0 - 13,877.9 100.0 13,877.9 0.0 13,877.9 - Total Investment Costs 35,103.6 31.4 4,270.0 3.8 72,263.0 64.7 111,636.6 9,054.0 96,934.8 5,647.7 B. Recurrent Costs 1. Operation and Maintenance a. Staff costs 0.0 - - 2,233.4 100.0 2,233.4 0.0 2,233.4 - b. Rental 0.0 - 0.0 - 1,000.0 100.0 1,000.0 0.0 1,000.0 - c. Vehicles 0.0 - 0.0 - 138.9 100.0 138.9 0.0 138.9 - d. Maintenance Garden infrastructure 0.0 - 0.0 - 4,755.9 100.0 4,755.9 0.0 4,755.9 - e. Materials 0.0 - 0.0 - 2,821.9 100.0 2,821.9 0.0 2,821.9 - f. Forage 0.0 - 0.0 - 3,653.4 100.0 3,653.4 0.0 3,653.4 - g. Medical cure 0.0 - 0.0 - 833.4 100.0 833.4 0.0 833.4 - h. Marketing 266.7 28.6 - 666.8 71.4 933.5 0.0 933.5 - Total Recurrent Costs 266.7 1.6 0.0 - 16,103.7 98.4 16,370.4 0.0 16,370.4 - Total Project Costs (A+B) 35,370.3 27.6 4,270.0 3.3 88,366.7 69.0 128,007.0 9,054.0 113,305.2 5,647.7 C. Interest During Implementationc 4,589.8 100.0 0.0 - 0.0 - 4,589.8 4,589.8 0.0 - D. Commitment Chargesc 39.9 100.0 0.0 - 0.0 - 39.9 39.9 0.0 - Total Disbursement (A+B+C+D) 40,000.0 30.2 4,270.0 3.2 88,366.7 66.6 132,636.7 13,683.7 113,305.2 5,647.7 a In 2009 prices. b Physical contingencies computed at 5% for civil works; 5% for field research and development, surveys, and studies; and 2% for training. Price contingencies were computed based on ADB-prescribed (international and national) price escalation factors; and include provisions for potential exchange rate fluctuations under the assumption of a purchasing power parity exchange rate. c. Includes interest and commitment charges. Interest during construction has been computed at the 5-year forward London interbank offered rate plus a spread of 0.2% and a commitment charge of 0.15%. Note: Figures may not add up due to rounding. Source: Asian Development Bank estimates.

32 Appendix 6

FLOW OF FUNDS

ADB GEF

Loan: ADB LIBOR-based Grant rate, 25 years with 5-year grace period Government of the People’s Republic of China (Ministry of Finance) Relending: ADB LIBOR-based Grant rate, 25 years with 5- year grace period Shaanxi Provincial Government (Department of Finance)

Separate imprest accounts for ADB Loan and GEF Grant in $ and CNY

Onlending: ADB LIBOR-based rate, 25 years with Grant 5-year grace period

Shaanxi Project Forest Management

Bureau Office

Onlending: ADB LIBOR-based

rate, 25 years with 5-year grace period

Subborrower: Qinling National Botanical Garden (Implementing Agency)

ADB = Asian Development Bank, GEF = Global Environment Facility, LIBOR = London interbank offered rate. Source: Asian Development Bank.

Appendix 7 33

ORGANIZATIONAL CHART

Project Leading Group

Project Management Office (Executing Agency)

Qinling National Botanical Garden (Implementing Agency)

Shaanxi Animal Rescue Qinling Biological Botanical Garden Division Center Division Conservation and Demonstration Area Division

Source: Asian Development Bank.

IMPLEMENTATION SCHEDULE 34 Year 1 Year 2 Year 3 Year 4 Year 5 Components and Activities Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 A. Component 1: Participatory Biodiversity Management

1. Demonstrating Conservation of Biodiversity 8 Appendix Louguantai habitat program Endangered species management 2. Improved Livelihoods

Village development plans Conservation forestry (7,000 ha) Small business development Home-stay development Training program Road and mountain paths upgraded B. Component 2: Enhancing Biodiversity Conservation 1. Construction of Botanical Garden Establish specialized gardens Other civil works and infrastructure Cableway Office and vehicles Resettlement Training and education programs 2. Improved Animal Rescue Center Giant panda breeding center Crested ibis breeding center Animal exposition area upgraded Golden monkey center Training C. Component 3: Project Management 1. Strengthening PMO PMO staffing and office Professional job exchanges Project procurement contracts Resettlement monitoring 2. Institutional Strengthening Legal review Training 3. Conservation Replication Program Biodiversity planning Ecotourism planning Establishment of information center Dissemination program ha = hectare, PMO = project management office, Q = quarter. = Full-time activity Source: Asian Development Bank.

Appendix 9 35

PROCUREMENT PLAN

Table A9.1: Project Information Country People's Republic of China (PRC) Name of Borrower PRC Project Name Shaanxi Qinling Biodiversity Conservation and Demonstration Project Project Number/Loan Reference P39321/L Date of Effectiveness To be determined Loan Amount ($) $40,000,000 Of which, Committed Nil Executing Agency Shaanxi provincial government Period Covered by this Plan 2010-–2015

Table A9.2: Procurement Thresholds, Goods, Related Services, and Works Procurement Methods To be used above/below ($) International Competitive Bidding Works > $10,000,000 International Competitive Bidding Goods > $1,000,000 National Competitive Bidding Works $100,000 National Competitive Bidding Goods $100,000 Shopping Worksa

Table A9.3: Procurement Thresholds, Consulting Services Procurement Method To be used above/below ($) Quality- and Cost-Based Selection At least $200,000 Consultants Qualifications Selection Less than $200,000 Least-Cost Selection Less than $100,000 Individual Selection

Table A9.4: List of Contract Packages for Goods, Works, and Consulting Servicesb

ADB GEF Expected Component/ Estimated Financed Financed Procure- Date of Goods/ Number Sub- Costs Amount Amount ment Advertise- ADB Works/ of component Contract Description ($'000) ($ 000) ($'000) Methods ment Reviewa Services Contracts 1 2 345678910 A. QBG A1. Special Gardens and Lawns A1.1 18 Gardens and lawns, seedlings (including transport) 3,355.10 1,497.80 ICB/NCB First 18 Prior/Post Goods 1 - 6 months A1.2 18 Gardens and lawn land preparation, planting, 1,019.80 455.20 NCB Post Works 1 replacement planting for seedlings A1.3 18 Garden mobile irrigation equipment and other 427.00 190.60 NCB Post Goods 1 equipment (plant quarantine equipment, plant disease and insect pest protection equipment, nursery bed and equipment, spray seedbed) A1.4 18 Garden and lawn equipment and materials 958.60 427.90 NCB Post Goods 1 (infrastructure) A1.5 18 Gardens and lawn landscaping and construction 1,394.60 622.60 NCB Post Works 1

A1.6 Magnolia garden office equipment 18.40 18.40 SHP Post Goods 1 A1.7 18 Garden land vehicles 27.40 27.40 SHP Post Goods 1 A2. Green house A2.1 Green house construction 4,786.70 2,393.30 NCB First 18 Post Works 1 A2.2 Green house various equipment and materials 1,281.90 640.90 ICB/NCB months Prior Goods 1 - 2 A2.3 Green house plant 56.50 28.20 SHP Post Goods 1

36 Appendix 9

ADB GEF Procure- Expected ADB Goods/ Number Component/ Estimated Financed Financed ment Date of Reviewa Works/ of Sub- Costs Amount Amount Methods Advertise- Services Contracts component Contract Description ($'000) ($ 000) ($'000) ment A3. Paleontology Museum A3.1 Paleontology museum construction 3,621.30 1,616.60 NCB First 18 Post Works 1 A3.2 Paleontology museum various equipment and 1,194.40 533.20 ICB/NCB months Prior Goods 1 - 2 materials (infrastructure) A3.3 Paleontology museum various equipment and 1,854.70 1,597.90 ICB/NCB Prior Goods 1 - 3 specimens A3.4 Paleontology museum railcar system 423.30 423.30 NCB Post Goods 1 A4. Restoration of Temples and Historical Buildings A4.1 Restoration of temples and historical buildings 5,616.10 2,507.10 NCB First 18 Post Works 1 months A5. Multi-function Building A5.1 Multi-function building construction 1,322.40 590.30 NCB First 18 Post Works 1 A5.2 Multi-function building various equipment and 1,155.90 830.30 ICB months Prior Goods 1 materials (infrastructure) A6. Infrastructure A6.1 Roads and bridges system construction 3,395.20 1,515.70 NCB First 18 Post Works 1 A6.2 Square, parking, gate, wall construction 1,694.90 756.70 NCB months Post Works 1 A6.3 Water supply, drainage system construction 260.20 125.60 NCB Post Works 1 A6.4 Power supply and telecom system construction 886.30 395.70 NCB Post Works 1 A6.5 Environment protection and fire control system 567.20 271.70 NCB Post Works 1 construction A7. Cableway A7.1 Cable way construction 581.50 259.60 NCB First 18 Post Works 1 A7.2 Cable way equipment 2,050.90 1,728.90 ICB/NCB months Prior Goods 1 - 2 A8. Vehicles A8.1 Vehicles 270.40 270.40 NCB First 18 Post Goods 1 months A9. Office Equipment A9.1 Office equipment 19.90 19.90 SHP First 18 Post Goods 1 months A10. Training A10.1 Staff Training (manager) 5.60 5.60 Individual First 18 Prior Service 1 A10.2 Staff Training (admin staff) 1.90 1.90 selection months Prior Service 1 A10.3 Staff Training (operation staff) 12.40 12.40 Prior Service 1 A10.4 International training 160.00 160.00 Prior Service 1 A10.5 Horticultural worker training 76.00 76.00 Prior Service 1 B. SARC B1. Panda Breeding Base B1.1 Panda Breeding Base construction 6,014.70 1,533.70 NCB First 18 Post Works 1 B1.2 Panda Breeding Base landscaping 4,402.70 1,122.70 NCB months Post Works 1 B1.3 Panda Breeding Base material and equipment 361.10 159.70 NCB Post Goods 1 B1.4 Panda Breeding Base office and monitoring 97.10 97.10 SHP Post Goods 1 equipment B1.5 Panda forage base planting 888.00 226.40 NCB Post Works 1 B1.6 Panda Breeding Base vehicle 120.00 120.00 NCB Post Goods 1 B2. Crested Ibis Breeding Base B2.1 Crested Ibis Breeding Base construction 520.00 137.80 NCB First 18 Post Works 1 B2.2 Crested Ibis Breeding Base material and equipment 64.10 17.80 SHP months Post Goods 1 B2.3 Crested Ibis Breeding Base office and monitoring 21.90 21.90 SHP Post Goods 1 equipment B2.4 Crested Ibis Breeding Base vehicle 20.00 20.00 SHP Post Goods 1 B2.5 Ibis forage base 124.00 32.90 NCB Post Works 1 B3. Animal Rescue Center B3.1 Animal Rescue Center construction and landscaping 2,563.70 679.40 NCB First 18 Post Works 1 B3.2 Animal Rescue Center materials and equipment 816.50 608.70 NCB months Post Goods 1 B3.3 Animal Rescue Center office and monitoring 122.70 122.70 NCB Post Goods 1 equipment B3.4 Animal Rescue Center vehicle 73.30 73.30 SHP Post Goods 1 B4. Golden Monkey Breeding Base B4.1 Golden Monkey Breeding Base construction and 555.00 147.10 NCB First 18 Post Works 1 landscaping months B4.2 Golden Monkey Breeding Base material and 85.20 41.00 SHP Post Goods 1 equipment (including office and monitoring) B4.3 Golden Monkey Breeding Base vehicle 6.70 6.70 SHP Post Goods 1 B4.4 Golden monkey forage base planting 279.60 74.10 NCB Post Works 1

Appendix 9 37

ADB GEF Expected Component/ Estimated Financed Financed Procure- Date of Goods/ Number Sub- Costs Amount Amount ment Advertise- ADB Works/ of component Contract Description ($'000) ($ 000) ($'000) Methods ment Reviewa Services Contracts B5. Animal Expo First 18 B5.1 Animal Expo construction and landscaping 6,539.20 1,739.80 NCB months Post Works 1 B5.2 Animal Expo material and equipment 212.80 71.70 NCB Post Goods 1 B5.3 Animal Expo vehicle 13.30 13.30 SHP Post Goods 1 B6. Training B6.1 Staff training 46.80 46.80 Individual First 18 Prior Service 2 selection months B7. Consulting B7.1 International consultant 296.80 296.80 QCBS First 18 Prior Service 1 B7.2 National consultant 346.80 346.80 QCBS months Prior Service 1 B8. Service Center B8.1 Service Center construction 3,671.30 1,275.40 NCB First 18 Post Works 1 B8.2 Service Center villa equipment 883.50 132.50 NCB months Post Goods 1 B8.3 Service Center eco-restaurant equipment 654.50 550.60 NCB Post Goods 1 B8.4 Service Center equipment for infrastructure 2,199.20 1,463.00 ICB/NCB Prior Goods 1 - 3 B8.5 Service Center vehicle 40.00 40.00 SHP Post Goods 1 B8.6 Staff Training 60.00 60.00 Individual Prior Service 3 selection C. QBCDA C1. Village-based Livelihood C1.1 Village development planning 1,719.40 395.50 NCB First 18 Prior Works 1 - 6 C1.2 Conservation forestry 3,916.00 1,320.50 NCB months Post Works 1 C1.3 Conservation fgriculture 60.80 19.50 SHP Post Works 1 C1.4 Small business development 2,110.00 988.70 NCB Prior Works 1 - 6 C1.5 Homestays tourism 398.30 246.80 NCB Post Works 1 C1.6 Road and pathway improvement 4,010.00 1,343.60 NCB Post Works 1 C1.7 Social infrastructure 1,500.00 491.00 NCB Post Works 1 C2. Conservation of Biodiversity C2.1 Louguantai habitat progam 1,023.50 723.50 CQS First 18 Prior Service 1 - 6 C2.2 Endangered species management 952.44 673.20 CQS months Prior Service 1 - 6 C3. Institutional Reform C3.1 Forest tenure reforms 125.80 125.80 CQS First 18 Post Service 1 C3.2 Sustainability reforms 209.60 209.60 LCS months Prior Service 1 - 3 C4. Biodiversity Replication C4.1 Landscaping master plan 526.30 526.30 LCS First 18 Prior Service 1 - 6 C4.2 Louguantai tourism plan 225.80 225.80 LCS months Prior Service 1 - 3 C4.3 Monitoring 795.30 795.30 CQS Prior Service 1 - 6 C4.4 Dissemination progam 133.30 133.30 LCS Prior Service 1 - 3 C5. Project Management C5.1 Office equipment 16.30 16.30 SHP First 18 Post Goods 1 C5.2 PMO vehicle 40.00 40.00 SHP months Post Goods 1 C5.3 Project monitoring 53.60 53.60 LCS Prior Service 1 ADB = Asian Development Bank, CQS = consultants’ qualifications selection, GEF = Global Environment Facility, ICB =international competitive bidding, LCS = least-cost selection, NCB = national competitive bidding, PMO = project management office, QBCDA = Qinling Biological Conservation Demonstration Area, QBG = Qinling Botanical Garden, QCBS = quality- and cost-based selection, SARC = Shaanxi Animal Rescue Center, SHP = shopping. a For international competitive bidding, invitations for bids, invitations for prequalification, draft prequalification documents, draft bidding documents, prequalification, and bid evaluation reports are to be submitted to ADB for prior review and approval. For national competitive bidding, the first draft English language version of the procurement documents should be submitted to ADB for review and approval regardless of the estimated contract amount. ADB-approved procurement documents should be used as a model for all national competitive bidding procurement financed by ADB for the Project, and need not be subject to further review. ADB will review the bid evaluation report and award of contract on a post-review basis. For shopping and direct contracting, ADB will normally review the award of contract on a post-review basis. b Procurement under the Project is expected to be completed within the first 18 months of implementation. Source: Asian Development Bank.

National Competitive Bidding

1. The Borrower’s Law of Tendering and Bidding of the People’s Republic of China promulgated by Order No. 21 of the PRC President on 30 August 1999, is subject to the following clarifications required for compliance with ADB’s Procurement Guidelines (2007, as amended from time to time):

38 Appendix 9

(i) All invitations to prequalify or to bid will be advertised in the national press, or official gazette, or a free and open access website in the Borrower’s country. Such advertisement will be made in sufficient time for prospective bidders to obtain prequalification or bidding documents, and prepare and submit their responses. In any event, a minimum preparation period of 30 days will be given. The preparation period will count (a) from the date of advertisement, or (b) when the documents are available for issue, whichever date is later. The advertisement, and the prequalification and bidding documents will specify the deadline for such submission. (ii) Qualification requirements of bidders and the method of evaluating the qualification of each bidder will be specified in detail in the bidding documents, and in the prequalification documents if the bidding is preceded by a prequalification process. (iii) If bidding is preceded by a prequalification process, all bidders that meet the qualification criteria set out in the prequalification document will be allowed to bid and no limit will be placed on the number of prequalified bidders. (iv) All bidders will be required to provide a performance security sufficient to protect the Executing Agency in case of breach of contract by the contractor, and the bidding documents will specify the required form and amount of such performance security. (v) Bidders will be allowed to submit bids by mail or by hand. (vi) All bids will be opened in public; all bidders (either in person or their representatives) may attend the bid opening, but are not required to be present. (vii) All bid evaluation criteria will be disclosed in the bidding documents and quantified in monetary terms or expressed in the form of pass or fail requirements. (viii) No bid will be rejected solely on the basis that the bid price falls outside any standard contract estimate, margin, or bracket of average bids established by the Project Executing Agency. (ix) Each contract will be awarded to the lowest evaluated responsive bidder, that is, the bidder who meets the appropriate standards of capability and resources and whose bid has been determined (a) to be substantially responsive to the bidding documents, and (b) to offer the lowest evaluated cost. The winning bidder will not be required, as a condition of award, to undertake responsibilities for work not stipulated in the bidding documents or otherwise to modify the bid as originally submitted. (x) Each contract financed by the loan proceeds will provide that the suppliers and contractors will permit ADB, at its request, to inspect their accounts and records relating to the performance of the contract and to have said accounts and records audited by auditors appointed by ADB. (xi) Government-owned enterprises in the Borrower’s country may be permitted to bid if they can establish that they (a) are legally and financially autonomous, (b) operate under commercial law, and (c) are not a dependent agency of the Project Executing Agency. (xii) Rebidding will not be allowed solely because the number of bids is less than three.

Appendix 10 39

TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Package A: Shaanxi Animal Rescue Center Species Expert Team (6 positions, 1 person-month each)

1. Package A will be contracted directly by the Qinling National Biological Garden’s Shaanxi Animal Rescue Center (SARC) division as individual consultants using the Global Environment Facility grant. Six positions will be hired—a national and an international expert for each of the specialists on giant panda, crested ibis, and golden monkey. Each expert will have about one person-month of input and will be responsible for the following: (i) reviewing the current species management program at SARC; (ii) completing a field inspection of the proposed satellite sites (animal release pens); (iii) identifying management safeguards for the movement of animals; (iv) recommending management techniques to ensure the majority of animal movement is successful; (v) reviewing current record systems and updating to ensure stud book details are kept and used by management; (vi) reviewing the endangered species management planning process and including the role of the ecotourism development program within; (vii) providing a set of satellite site recommendations for improving animal welfare and animal husbandry programs; (viii) reviewing science and veterinary programs to ensure international best practices are applied; and (ix) working with the animal exposition design expert (package B) and recommending design improvements for the animal exposition area.

B. Package B: Support for Biodiversity Conservation Program

2. Package B will provide technical support to the biodiversity conservation program in the Qinling Biological Conservation and Demonstration Area (QBCDA), as well as the replication and outreach program for the Qinling Mountains. The package is financed by the Global Environment Facility and will include 78 person-months which will be engaged through a firm using the quality- and cost-based selection procedure (80:20). The project management office (PMO) will recruit the consultants.

3. Species Recovery Management Expert (international, 2 person-months). The expert will be responsible for the following: (i) working with and supervising the species recovery management specialist, and the species recovery and survey specialist (national consultants); (ii) reviewing species recovery priority rankings in the project preparatory technical assistance final report and revising as needed; (iii) reviewing and revising national and provincial species recovery plans for priority species; and liaising with stakeholders to determine the status of those plans; (iv) supervising the drafting of species recovery plans for priority species based on threats analysis; and (v) assisting with initial implementation of recovery plans.

4. Biological Survey Expert (international, 2 person-months). The expert will be responsible for the following: (i) reviewing the survey techniques used by the Shaanxi Forest Bureau (SFB) and World Wide Fund for Nature (WWF), and assessing their application and outputs; (ii) in collaboration with SFB, WWF, and staff, designing a biodiversity, ecological, and environmental monitoring program for the project area and QBCDA;

40 Appendix 10

(iii) indicating the options for field surveys, including detailed methodological inputs, their strengths and weaknesses, implementation requirements, data collection, and analysis requirements; (iv) presenting a review of technological options to support the field survey program, including remote sensing, camera trapping, and telemetry; (v) assisting WWF in supervising the field survey programs and addressing any issues that arise, including the management and reporting of data; and (vi) training SFB and WWF in field monitoring and survey techniques.

5. Biodiversity Conservation Expert (international, 2 person-months). The expert will be responsible for the following: (i) designing the overall biodiversity conservation plan for the Project; (ii) integrating biodiversity priorities and management techniques within the habitat management plan, ensuring that conservation objectives are maximized and used to prioritize silviculture interventions; (iii) assisting the PMO in preparing a detailed terms of reference for any ecological- or biodiversity-related research contracts by developing research priorities; (iv) defining the parameters through which biodiversity and conservation will be fully integrated within the proposed landscape planning program; (v) ensuring that the biodiversity planning is fully integrated within the Project and that the links between QBCDA and the area outside QBCDA are reflected in designs planning and work programs, including the conservation forestry programs developed through the village development planning (VDP) process; (vi) preparing biodiversity guidelines within the dissemination programs; (vii) contributing to the design of field conservation programs that seek to demonstrate new technologies and approaches; and (viii) providing training in biodiversity conservation, including awareness raising for senior project officials and technical training for field staff.

6. Ecotourism Planner (international, 2 person-months). The expert will be responsible for the following: (i) forming a spatial planning task force to provide leadership in defining and then undertaking the spatial planning process; (ii) undertaking a series of meetings and workshops that identify the scope of the proposed plan; identify the planning stakeholders, their perspectives, and expectations; and identify existing data sources and systems; (iii) undertaking training for ecotourism facilitators; (iv) assisting the national planner in conducting the planning exercise, including the stakeholder preferences; (v) identifying mechanisms for addressing conflicting tourism needs and implementing measures to resolve conflicts; (vi) preparing a draft plan and holding public consultations in the planning area and within the project area, Zhouzhi County, and the Shaanxi provincial government; (vii) developing implementation targets and programs with supporting budgets using the planning work groups; (viii) identifying the need for regulations and legal reforms to implement the spatial tourism plan effectively; and (ix) preparing the final planning document and supporting maps.

7. Animal Exposition Design Expert (international, 2 person-months). The expert will be responsible for the following:

Appendix 10 41

(i) working with the SARC staff, the international zoo management expert, and the local design team to assist in the development of a master plan for SARC and site layouts for the four satellite centers; (ii) assisting in the development of detailed designs for all of the facilities in SARC and at the satellite centers; and (iii) advising on materials and equipment for the center and the satellite centers.

8. Wildlife Veterinary Expert (international, 2 person-months). The expert will be responsible for the following: (i) reviewing and commenting on the plans for SARC; (ii) assisting in developing the layout and the detailed design for the veterinary and associated facilities in SARC; (iii) assisting the veterinary team in the production of an equipment list for the center and for the wildlife rescue unit; (iv) advising on the latest techniques and equipment for wildlife rescue and for the veterinary care of animals in a captive environment; (v) assisting in the development of a training program for veterinarians and technicians at SARC; and (vi) advising on the development of husbandry guidelines (including the veterinary care) for the species held at the center and in the satellites centers.

9. Village Development Planner (national, 10 person-months). The expert will provide 4 months of input in the first year and 2 months annually over the rest of the 3-year period. The expert will be responsible for the following: (i) undertaking a consultative rapid assessment of needs and awareness raising of the Project and the VDP process; (ii) developing a plan for the VDP process based on the findings of the rapid assessment, including rudimentary socioeconomic baseline data; (iii) recruiting VDP facilitators and training these in participatory survey methods, the planning process, and the context of the Project; (iv) implementing the VDP and supervising the facilitators; (v) providing a written description of each VDP and having each village leadership sign off on the plan; and (vi) preparing a program for the PMO to maintain and develop the communication network among the villages.

10. Ecotourism Planner (national, 25 person-months). The expert will provide inputs over a 3-year period, including 7 months in the first year, 10 months in the second year, and 8 months in the third year. The expert will be responsible for the following: (i) compiling data for tourism planning in the project area and the Qinling Mountains; (ii) assisting with the design and defining a spatial planning framework for tourism and the project area; (iii) developing training programs in spatial planning and the implementation of the training for agency, operators, and potential investor stakeholders; (iv) providing regular reports to the PMO on the status of the planning exercise and its achievements; (v) developing concept plans for design, service delivery, product development, and a coordinated marketing and promotion program; and (vi) working with local government officials and stakeholder groups to develop implementation plans for achieving the plan objectives.

11. Conservation Forestry Expert (national, 11 person-months). The expert will be responsible for the following:

42 Appendix 10

(i) reviewing the VDPs and establishing village-level forest associations or groups; (ii) developing a conservation forestry plan for each group, including the survey and demarcation of collective lands, species mixes to be planted, and a planting schedule to be followed; (iii) demonstrating transition from existing forest cover into conservation forestry systems; (iv) developing a village-level monitoring system for the establishment and monitoring of village-level conservation forestry; (v) preparing a set of conservation forestry guidelines for SFB and providing training to forest staff; (vi) facilitating the forest staff with the development of a forest habitat plan for the non-collective land that develops a number of treatments to enhance the conservation value of the forest cover; (vii) preparing a habitat enhancement plan for 2,000 hectares of the state forest farm land and training staff in the silviculture required to complete this; and (viii) providing supervision and ongoing training to support staff in their development of conservation forestry.

12. Geographic Information System and Remote Sensing Expert (national, 7 person- months). The expert will be responsible for the following: (i) working with the PMO to structure the conservation monitoring contract with WWF; (ii) working with the project staff and WWF to develop a fully integrated monitoring database and analytical framework; (iii) providing training and assisting in the interpretation of time series imagery for the project area; (iv) establishing time series databases using the imagery analysis, and completing a trend analysis on the Qinling Mountains and the project area; (v) providing training to forest and WWF staff in the use of image interpretation; (vi) seeking means for integrating data sets between the image data, field observations, and the intensive monitoring framework outputs; and (vii) preparing a detailed report and presenting it to the Shaanxi provincial government.

13. Species Recovery and Survey Expert (national, 13 person-months). The expert will be responsible for the following: (i) assessing the status of survey and monitoring data for all priority species; (ii) compiling all relevant national and provincial species monitoring, research, recovery, management plans, and other documents; (iii) obtaining a digital map of the Qinling Mountains showing all nature reserve boundaries, corridors, county boundaries, highways, water bodies, topography, and other features relevant to recovery planning; (iv) working with SARC to develop their field conservation programs for monitoring and surveying globally-threatened species; (v) assisting in the drafting of species recovery and monitoring plans, and integrating those plans with the monitoring programs of WWF to strengthen the existing program; (vi) assisting in the implementation of monitoring plans, collection and analysis of data, and reporting; and (vii) preparing a detailed report with WWF inputs.

Appendix 11 43

FINANCIAL AND ECONOMIC ANALYSES A. Introduction

1. Financial and economic analyses were undertaken for the project components. The Project has three components. The first component supports a number of activities in the protected biodiversity area called the Qinling Biological Conservation and Demonstration Area (QBCDA) and the wider Qinling Mountains, including (i) habitat reestablishment and endangered species management for which project costs have been estimated and benefits assessed in qualitative terms; and (ii) support for residents to transition to new and more sustainable livelihood options, including home-stay ventures, road and mountain pathway improvement, small family-based business development, and the creation of rights to collective forest land to be planted into analog forest systems. Project costs have been estimated and benefits estimated for representative businesses related to essential oils, medicinal plants, and the home-stays. No benefits have been quantified for the shorter transport and travel times, and improved water and energy supplies. The second component provides support to biodiversity conservation. The Implementing Agency is the Qinling National Botanical Garden (QNBG), which will develop the botanical garden and also consolidate the Shaanxi Animal Rescue Center (SARC) and QBCDA. For QNBG, project, financial, and economic costs and benefits have been assessed based on the associated revenue receipts. The third component includes project management support for (i) institutional arrangements, (ii) institutional strengthening, and (iii) conservation replication and awareness. The first two subcomponents are treated as overhead, while the third is a public good and global-value set that is assessed only in qualitative terms.

B. Key Assumptions

2. The economic and financial analyses are in constant 2009 prices. The project life is calculated to end in 2035. For the financial analysis, a weighted average cost of capital (WACC) of 2.6% is used. The financial analysis is based on cash items with noncash items, such as depreciation and amortization of intangible assets, separated from operating costs. Most of the financial analyses are based on the net cash flow before the payment of corporate tax to remove the influence of differing taxes based on the overall tax position of each enterprise. Domestic price escalations are assumed to be 0.8% for 2009, 1.0% for 2010, 1.5% for 2011, 2.0% for 2012, and 2.0% for 2013 onwards; while international price escalations are assumed to be 1.9% for 2009, 1.0% for 2010, 0.0% for 2011, 0.3% for 2012, and 0.5% for 2013 onwards. Physical contingencies are (i) 5% for civil works, materials, surveys, and studies; (ii) 10% for resettlement costs; and (iii) 2% for training. The economic analysis uses the domestic price level (not the world price level) as the numeraire or reference point for converting financial prices into economic prices. Financial prices were converted to economic prices by removing taxes, subsidies, and market distortions. Sales taxes were removed from operating costs and/or cash outflow and a factor of 0.95 was applied to the nonwage purchases of the revenue-earning entities. This is consistent with a sales tax rate of about 5%. A shadow wage rate factor of 0.8 has been applied to casual and unskilled labor costs. A standard conversion factor of 0.9 was used for construction, and botanical tree and garden planting costs. Upgrading of road and mountain pathways used a standard conversion factor of 0.84 for casual labor.

C. Project Assessment

3. In addition to the quantified benefits that have been incorporated into the financial and economic assessments, the Project will generate many benefits that have not been quantified. Most of these benefits fall into two major categories: (i) environmental and ecosystem benefits; and (ii) quality of life, cultural, religious, and heritage values. Together, these are significant

44 Appendix 11 benefits that add further justification for the Project, whose primary impact is to develop sustainable conservation of biodiversity. Included in these categories are (i) benefits accruing from the improvements in the welfare of animals in SARC and in QBCDA; (ii) benefits from endangered-species recovery from SARC; (iii) benefits from the genetic collection established at QNBG; (iv) benefits arising from public awareness and education with respect to the Qinling Mountains and biodiversity conservation; (v) benefits in the overall conservation of biodiversity; (vi) improvement in ecological functions in QBCDA from more and higher-quality forest cover; (vii) intangible benefits arising from the conservation of Taoist religious sites; and (viii) improvements in environmental quality through the provision of better sanitation, wastewater, and management systems. Further tangible but not quantified benefits are generated for the current 4,600 residents of QBCDA. These include (i) payment for the establishment of conservation forestry over 7,000 hectares that will provide jobs; (ii) shorter travel time because of improved road and mountain pathway access; (iii) higher economic output derived from alternative livelihoods, as represented by medicinal plants, essential oils, biogas systems, and home-stay tourism; and (iv) better health from improvement in access to water, alternative sources of energy, and reduced fuel wood cutting.

1. Component 1: Participatory Biodiversity Management in the Mountainous Area

4. The Project will gradually improve the population of endangered flora and fauna species in QBCDA by increasing mixed forest coverage and creating the incentives for species regeneration. Forest expansion and improved management will also reduce soil degradation and erosion. The production of non-timber forest products that increases forest pathways will be improved. Local communities in QBCDA are keen to participate in the Project and assist with forest management and species regeneration. They are also eager to improve livelihoods and quality of life through ecotourism home-stays and village development planning. Community- based ecotourism home stays for medium- to high-value clients will be developed to support the growing demand for overnight accommodation in wild or natural environments. The financial analysis indicates a financial internal rate of return (FIRR) of 19.1% for a 4-room home-stay that will employ 8–10 people full time. The financial model assumes 40% occupancy, increasing to 50% after 10 years, and stabilizing at that level with an average tariff per night of CNY150. The economic internal rate of return (EIRR) for a single home-stay is 23.4%, indicating that the home-stay is economically justified. Community infrastructure, including 17.5 kilometers of roads along the Tianyu River and about 100 kilometers of mountain pathways, will be upgraded to reduce travel times and ensure access during adverse weather. No estimates have been made of the time savings. Grants are proposed for either villages or households to develop social infrastructure, especially alternative energy sources (biogas and solar) and water supply schemes. The benefits have not been quantified.

5. The investment in component 1 is estimated to generate about 10,000 jobs during the construction phase of the Project, and about 450 from 2015. These levels of employment are significant and suggest that close to 33% of QBCDA households could receive an additional wage after the construction period. Equally important, the conservation forestry program could affect more than 70% of QBCDA households through participation in planting programs and obtaining secure tenure to collective forests.

2. Component 2: Enhanced Biodiversity Conservation in the Plains Area

6. QNBG will derive its revenue from the botanical garden division and the SARC division. It will generate total revenue of CNY127.5 million by 2015, and CNY250 million by 2025. Benefits were estimated based on a visitor profile for the botanical garden, starting from the

Appendix 11 45 current level of 350,000 and increasing at an average rate of 5.3% over the life of the analysis. For SARC, the visitors are projected to start from 280,000, and grow at 15% per year. The total number of visitors is expected to reach about 800,000 by 2013, which is a conservative estimate given the higher rates of growth for tourism, including ecotourism in Shaanxi province. Entry fees of CNY50 per visitor were used in the analysis.

7. The FIRR for the QNBG division is 9.5% before tax and 8.0% after tax. Sensitivity analysis was conducted on the financial rates of returns for shifts in revenue and costs, and found to be robust (Table A11.1). The EIRR of the QNBG division was estimated to be 10.9%. The EIRR is sensitive to the movement in revenue and costs (Table A11.2). Given the difficulty in revenue forecasting, a careful reassessment of the investment and the underlying assumptions is needed. A conservative estimate was taken for visitor numbers. The QNBG division is a viable investment, but the risk of commercial failure during the first 5–10 years is considerable. Experienced commercial management, cost reviews, and more market research are important risk management strategies.

Table A11.1: Qinling National Botanical Garden Division Financial Sensitivity Analysis Financial Internal Rate of Return (%) Item Before Tax After Tax Base Case 9.5 8.0 Investment Cost and Implementation Delay (10% increase) 8.7 7.2 Ecotourism Revenue (10% decrease) 8.0 6.6 Source: Asian Development Bank estimates.

Table A11.2: Qinling National Botanical Garden Division Economic Sensitivity Analysis Item Economic Internal Rate of Return (%) Base Case 10.9 Investment Cost and Implementation Delay (10% increase) 10.0 Investment Cost (20% increase) 9.4 Ecotourism Revenue (10% decrease) 9.3 Source: Asian Development Bank estimates.

8. For the SARC division, the FIRR was estimated to be 16% before tax and 13.5% after tax, both of which are well above the WACC. The income transfer to QBCDA based on 8% of the net profit will produce a contribution of $160,000 in 2013 and reduces the post-tax FIRR to 12.75%. The financial viability was found to be robust under scenarios involving up to 30% movement of current projections (Table A11.3). Strengthening management will reduce the risks attached to the operation of SARC. The EIRR of SARC is 17.9%, based on the net cash flow for “with project” and “without project” scenarios. The EIRR was found to be robust up to 20% movement in either the costs or revenue streams. Given the conservative visitor numbers, the investment as forecast is considered to be economically feasible (Table A11.4).

Table A11.3: Shaanxi Animal Rescue Center Financial Sensitivity Analysis Financial Internal Rate of Return (%) Item Before Tax After Tax Base Case 16.0 13.5 Investment Cost (30% increase) 13.6 11.5 Ecotourism Revenue (30% decrease) 10.5 8.7 Source: Asian Development Bank estimates.

46 Appendix 11

Table A11.4: Shaanxi Animal Rescue Center Economic Sensitivity Analysis Item Economic Internal Rate of Return (%) Base Case 17.9 Investment Cost (40% increase) 14.5 Ecotourism Revenue (20% decrease) 13.6 Ecotourism Revenue (30% decrease) 11.8 Source: Asian Development Bank estimates.

9. The combined QNBG divisions have an estimated FIRR of 12.1% before tax and 10.2% after tax. The FIRR declines to 9.3% after the inclusion of shareholder payments for QNBG resettlement and the transfer of funds to the conservation investment program in QBCDA and the Qinling Mountains. All FIRRs are well above the WACC of 5.6% (Table A11.5).

Table A11.5: Financial Forecasts and Analysis of Consolidated Qinling National Botanical Garden Divisions (CNY million) Item 2008 2009 2010 2011 2012 2013 2014 2015 2016–2025 Revenue – – 12 64 89 103 115 127 127 Sales Tax (5.5%) – – 1 3 5 6 6 7 7 Cash In – – 11 60 84 97 109 120 120 Investment 114 320 119 23 – – – – – Operating Cost 19 37 44 46 47 47 60 59 59 Cash Out 133 357 163 69 47 47 60 59 59 NCF Before Tax (133) (357) (152) (10) 37 50 49 61 61 Income Tax – – – 0.0 3 71 56 10 10 NCF After Tax (133) (357) (152) (10) 34 43 43 51 51 FIRR After Tax (%) 10.23 – – – – – – – – Financial NPV After Tax at 10% 112 – – – – – – – – NCF less Shareholding (after tax) (133) (357) (152) (10) 33 41 42 49 49 Financial Transfer to QBCDA – – 0 0 3 3 3 4 4 NCF (Post Tax) including Transfer (133) (357) (152) (10) 30 38 39 45 45 FIRR (after financial transfer) 9.28 – – – – – – – – Post-Tax (%) ( ) = negative, – = not available, FIRR = financial internal rate of return, NCF = Net Cash Flow, NPV = Net Present Value, QBCDA = Qinling Biological Conservation and Demonstration Area. Source: Asian Development Bank estimates.

10. The EIRR for the combined enterprises is estimated to be 13.7% and is considered to be economically justified (Table A11.6). These benefits do not include the intangible benefits linked to species conservation, awareness and education, and the scientific knowledge to be developed from QNBG and SARC. The beneficiaries include the domestic and international tourists who will visit the ecotourism sites and enjoy the facilities and services, and will learn more about the Qinling Mountains resources, history, culture, and religions. The target beneficiaries within the project area will receive jobs generated by constructing and operating the facilities. The EIRR was found to be robust up to 30% movement in either the costs or revenue streams, and the investment as forecast is considered to be economically feasible (Table A11.7).

Appendix 11 47

Table A11.6: Economic Cash Flows for Consolidated Qinling National Botanical Garden (CNY million) Division 2008 2009 2010 2011 2012 2013 2014 2015 2016–2025 QNBG (93) (243) (29) (3) 22 27 22 28 28 SARC (34) (82) (107) 2 20 29 32 39 39 Consolidated QNBG (127) (326) (137) (2) 42 56 55 67 67 EIRR 13.7% ( ) = negative, EIRR = economic internal rate of return, QNBG = Qinling National Botanical Garden, SARC = Shaanxi Animal Rescue Center. Source: Asian Development Bank estimates.

Table A11.7: Economic Sensitivity Analysis Item Economic Internal Rate of Return (%) Base Case 13.7 Investment Cost and Implementation Delay (10% increase) 12.6 Investment Cost (20% increase) 11.8 Ecotourism Revenue (10% decrease) 11.7 Source: Asian Development Bank estimates.

3. Summary of Project Assessment

11. The Project results in significant economic and environmental benefits. Indirect benefits include the supply of goods and services by local businesses and households, and contracts to village groups and small businesses to conduct biodiversity conservation activities. Another set of benefits is the value that people place on improvements to the Qinling Mountains. To some degree, these benefits can be quantified and given monetary values through willingness-to-pay surveys and through the donations that private individuals, foundations, corporations, and other groups may provide to accelerate government and international efforts to restore the Qinling Mountains.

12. The estimated EIRR for the whole project is 10.9%. The EIRR is sensitive to price changes. Additional nonquantifiable benefits relating to biodiversity conservation, ecological function improvement, and rural livelihoods benefits are significant and will further increase the overall economic performance. The investment is considered economically feasible and environmentally sound, and these benefits will make the EIRR for the entire Project within the acceptable range.

48 Appendix 12

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION 1. The Project is classified as environment safeguard category B. This summary initial environmental examination (SIEE) was prepared based on the Qinling National Botanical Garden (QNBG) environmental impact assessment (EIA) report1 prepared in accordance with the regulations of the People’s Republic of China (PRC). These reports comply with Asian Development Bank requirements for category B projects.

A. Project Description 2. The project area is on the northern slope of the Qinling Mountains, about 45 kilometers (km) from Xi'an, comprising an area of 458 square kilometers with about 20,400 people. The Qinling Mountains is an internationally-important biodiversity hot spot and represents about 70% of the PRC’s biodiversity, including an estimated 300 giant pandas. The Qinling Mountains is central to soil and water management linked to the Yangtze and Yellow rivers. The Project will improve biodiversity conservation and management by restoring forest habitat, improving endangered species management, and providing sustainable livelihoods for the population of the project area, and demonstrating the benefits to the rest of the Qinling Mountains and other similar areas in the PRC. The Project will provide significant environmental, economic, and social benefits throughout the project area. The Project will address underlying causes and effects of historical and contemporary resource degradation. It will have three primary outputs: (i) participatory biodiversity management in the mountainous area, (ii) enhanced biodiversity conservation in the plains area, and (iii) improved project management. Using sustainable financing mechanisms for biodiversity conservation, the habitat of the protected area, Qinling Biological Conservation and Demonstration Area (QBCDA), will be improved to promote mixed forest coverage, and flora and fauna species expansion. The small population that lives in scattered settlements in QBCDA will be encouraged to support biodiversity conservation objectives and stop unsustainable farming and other activities.

3. Plains Area. This area consists of a 2-km wide strip of predominantly flat land along the north side of the Qinling Mountains that is developed for ecotourism, agricultural, and residential purposes. The population is about 15,800. The Project will support the following:

(i) QNBG. The activities proposed under this subcomponent include building 18 specialized gardens and other infrastructure, covering about 269 hectares (ha); one greenhouse of 600 square meters (m2); two main exhibition halls; and research facilities and infrastructure, including irrigation system, drinking water supply, wastewater treatment, solid waste management, roads, and cableway. This component also includes restoration of 18 Taoist religious buildings and temples. The number of annual visitors to the gardens and Shaanxi Animal Rescue Center (SARC) is projected to be 478,000 by 2015. (ii) SARC. The proposed SARC development will expand from the current 141 ha to 1,008 ha. The expanded SARC is being designed to promote animal welfare and captive breeding of at-risk species. These functions are linked to ecotourism development, as well as to the adoption of new innovative approaches for rescuing, protecting, and improving the living conditions of endangered and rare wild animals. The proposed activities include (a) building an animal hospital, a rescue and emergency department, a zoology research lab, and a dormitory for experts; (b) breeding and raising bases for giant pandas, crested ibis, and golden monkeys, and other artiodactyls, as well as forage bases for the above animals;

1 The Shaanxi Qinling Botanical Garden and the Shaanxi Animal Rescue Center completed by Xi'an University of Architecture and Technology, May 2007.

Appendix 12 49

(c) establishing animal protection and exhibition facilities; and (d) constructing infrastructure, including internal roads and paths, and a wastewater treatment plant.

4. QBCDA. QBCDA consists of steep land with a population of about 4,600 persons dispersed over about 400 square kilometers. The Louguantai Forest Farm previously managed the area, which had large areas that were heavily logged. More remote areas retain high- biodiversity values. The Project will support habitat rehabilitation for biodiversity conservation. QBCDA has a number of isolated communities practicing unsustainable agriculture on steep slopes that will be assisted to develop more sustainable livelihoods and adopt more appropriate land-use practices. The long-term vision for QBCDA is to develop and enhance the ecological sustainability of natural resources and ecosystems to increase biodiversity. Models developed in the management of QBCDA will be extended with financing to nature reserves in the Qinling Mountains.

B. Description of the Environment 5. More than 90% of the Qinling Mountains has been degraded through inappropriate farming, logging, overuse of natural resources, destructive mining operations, and pollution from solid waste and agro-chemicals over many decades. As a result, the water resource quality is in serious decline. The project area has two major rivers, the Tianyu and Jiuyu rivers. The water quality of Tianyu River meets the class I water standard—water from natural sources, except coliform bacteria, which is associated with the discharge of human and animal waste. Groundwater from Dianzhen village adjacent to the site of the botanical garden meets the class III quality standard for groundwater, except ammonia and coliform. The high ammonia may be associated with the agricultural activities.

6. The Qinling Mountains is biologically rich, with many endangered rare or endemic plant and animal species, including the giant panda, golden takin, golden snub-nosed monkey, and crested ibis (the national bird of Japan). The mountains are characterized by very high levels of endemic biodiversity found in temperate and subtropical ecosystems, as well as a vertical spectrum of vegetation types; 70% of all vegetation types in the PRC are represented. In the project area, six species are globally threatened, including four amphibians and two reptiles. Two species of fish are vulnerable, one of which is protected in Shaanxi, the other is listed in the national red data book as class II. Noted species of concern in the Tianyu River include the Manchurian trout, the giant salamander, and the soft-shelled tortoise. The project area is included in the Qinling Mountains Ecosystem Function Conservation Area (QMEFCA) within the high-priority Central Conservation Zone of Qinling Water Resources and Biodiversity Function Zone. The proposed activities in this Project are consistent with the requirements of the QMEFCA. Under the proposed QMEFCA framework, the Environmental Protection Bureau prepared and approved the Shaanxi Qinling Mountains Northern Slope Ecological Environment Protection Plan in March 2007. The Project conforms to the development standards stated in the plan. The population of the project area has living standards well below provincial averages.

C. Environmental Impact and Mitigation Measures 7. QNBG. Potential adverse impacts associated with the QNBG include (i) those arising from road and cableway construction; (ii) impacts of exotic species on indigenous species; (iii) impacts on local water resources from water supply extraction; (iv) wastewater and solid waste impacts; and (v) impacts to landscape, culture, and religion. A total of 33.5 km roads will be improved (including about 13 km of roads in the plains area and 17.5 km of the road in QBCDA), and a cableway will be constructed for QNBG. Potential adverse impacts from road

50 Appendix 12 and other construction activities would affect soil, water resources, and air quality. Potential impacts on the soil by road construction are from soil erosion and soil contamination. Mitigation measures against soil erosion during construction will include appropriate engineering design (batter slopes, compaction levels, installation of culverts, etc.), planting of vegetation, construction of appropriate storm water drainage, and limiting off-corridor vehicle movements. Mitigation against loss of agricultural land includes (i) where possible, not locating construction camps and material storage areas on agricultural land, and using preexisting hardstand storage areas; (ii) where this is impossible, rehabilitating agricultural land after completion of construction, and removing the construction camps and material storage areas; and (iii) confining construction traffic to the existing road corridor. Mitigation measures against soil contamination will include (i) appropriate storage of hazardous materials (including hydrocarbons), and hazardous and nonhazardous wastes; (ii) provision of an oil interceptor for all vehicle wash-down activities; and (iii) disposal of all hazardous wastes and nonhazardous wastes at local municipal waste disposal facilities; there will be no site-specific landfills developed for the Project. The potential impact on water resources along the alignment includes hydrocarbon leaks and sewage discharge from construction camps. Sanitary wastewater from the construction camps will be collected and disposed at nearby municipal treatment facilities. Sanitary wastewater will not be disposed untreated in adjacent waterways. Hydrocarbon leaks will be mitigated through appropriate storage and handling of hydrocarbon in work camps, including secondary containment and provision of spills cleanup equipment.

8. The specialized gardens will involve more than 1,000 species of plants. Exotic species possibly invading QBCDA is a threat. QNBG will develop and implement an environmental risk assessment for biosafety as part of the detailed design. QNBG will receive water from two sources. About 1,405 tons per day (t/d) of surface water will be taken from the Tianyu River (less than 1% of total flow) for the irrigation system (west part). About 252 t/d of groundwater will be extracted from a well near the Tianyu River. Given the sufficient precipitation and surface water recharge in the area, the demand is not significant and potential impacts can be minimized by site selection, water saving, and a monitoring program. About 201 tons of wastewater and 1.51 tons of solid wastes will be produced daily. Secondary sewage treatment will be constructed to treat sewage up to the national irrigation standard, and discharge will be used for grey water irrigation purposes. Solid waste will be collected and sorted for recycling on- site, and then trucked to the municipal solid waste treatment facility. Reconstruction of the eight historical culture sites ranging from 200 m2 to 3,600 m2 will add to local cultural values. The public and religious groups will be consulted on the design and style of these reconstructions to ensure the building designs are acceptable.

9. SARC. Potential impacts will include (i) soil erosion, (ii) source water protection, (iii) loss of vegetation, (iv) water pollution, and (v) waste disposal. Of the expanded area, 85% will be used for forage bases to plant bamboo and other suitable plants and fruits for the animals. This operation will be favorable for water and soil conservation. However, 64 ha of land will be converted for animal breeding and raising. Development of infrastructure facilities in these bases may create soil erosion during construction. The soil erosion will be effectively controlled by sound planning, good engineering, and integrated management. Water pollution associated with SARC would mainly occur in the main area and the satellite centers. A secondary wastewater treatment facility with a capacity of 300 t/d is designed for treating wastewater generated by animals and visitors. The sewage generated in the satellite centers is relatively small and scattered, and is currently sold to local farmers. The treated effluent will be used for irrigation, and none will be discharged directly into the surface water. Solid waste management and the potential impacts from road construction will be managed in a similar way as proposed for QNBG.

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10. QBCDA. QBCDA will be managed for the primary purpose of biodiversity conservation. The long-term vision for QBCDA is to develop and enhance the ecological sustainability of natural resources and ecosystems to enable biodiversity to be increased, managed, and secured. The long-term status of QBCDA involves better coverage and quality of forest to increase the habitat for the Qinling Mountains biodiversity. The reforestation and silviculture development proposed, while on a large scale, is not expected to have any negative effects and will be managed through the preparation of a habitat and forest management plan for QBCDA. The project management office (PMO) and QNBG will screen any small business development, including home-stay tourism and forest-product processing.

11. The provision of social infrastructure is linked to water and solar energy, and ecotourism activities. These will be mitigated by the following environmental considerations: (i) the design should be consistent with the landscape and will include sustainable practices to reduce environmental impact; (ii) low energy consumption technologies for lighting will be utilized; (iii) biodegradable solid waste will be converted into compost that can be used on site. Nonbiodegradable waste would be collected and removed for disposal in the municipal landfill or recycled; (iv) water supply is expected to come from a local spring source (quality tested); (v) for sewage and wastewater, septic tanks combined with on-site small biological treatment will be applied; (vi) existing footpaths will be used for walking trails; because there are few users, no upgrading or surfacing of paths will be required; and (vii) the ecology, home-stay, and other micro-scale resource-based tourism activities will be managed under an environmental monitoring plan.

12. Some road and mountain pathway improvement will also be conducted, including the canyon road (17.5 km) and mountain paths (100 km). Potential adverse impacts are (i) uncontrolled vehicles and visitors; (ii) construction requiring earthworks; (iii) possible blockage of wildlife movement; (iv) impacts during construction (wildlife disturbance and temporary or permanent displacement); (v) riverbank erosion by increased traffic, unintentional wildlife, and habitat disturbance; and (vi) other construction-associated impact. Mitigation measures will include (i) careful site (alignment) design to avoid encroachment into the sensitive wildlife area; (ii) controlled attendance at the QNBG entrance and implementation of an access management plan; (iii) no construction between dusk and dawn, and avoidance of excessive noise; and (iv) replanting and afforestation along the road and riverbanks to minimize soil erosion and protect habitat. Construction mitigation measures for the roads component will be the same as described for the QNBG.

D. Institutional Requirements and Environmental Management Plan 13. Institutional Requirements. The Shaanxi provincial government, the Executing Agency for the Project, will have overall responsibility for ensuring that all environmental standards and procedures are followed. Under the supervision of Provincial Development and Reform Commission, the Implementing Agency, QNBG, will be responsible for the implementation of all corresponding environmental mitigation measures and for monitoring programs recommended in its EIA and this SIEE. Before project construction, QNBG will form an environmental management unit (EMU) for environmental management and operation, including environmental supervision of contractors. The EMU will ensure the implementation of the environmental management plan and environmental monitoring plan during construction and operation of the Project. The construction contractor will designate an environmental representative, who will be

52 Appendix 12 responsible for the environmental management of construction activities during project construction.

14. Environmental Management and Monitoring Plan. The summary environmental management plan (EMP), included in this SIEE, is based on the full EMP included in the EIA reports. The PMO will translate the SIEE, including the summary EMP, into Chinese. The PMO will ensure that the SIEE (including summary EMP) and the full EMP in the corresponding EIA are included in all contractors bidding documents and operating contracts. The EMU will be responsible for implementing the EMP during project construction and operation. The EMU will ensure that the EMP is updated periodically during construction. The Project will utilize appropriately qualified environmental monitoring service providers for conducting the environmental monitoring duties specified in this SIEE. The environmental monitoring agency will conduct the monitoring program and submit monitoring reports to the (i) PMO, (ii) Shaanxi Environmental Protection Bureau, (iii) QNBG, and (iv) Asian Development Bank semiannually during construction.

E. Public Consultation and Information Disclosure

15. Public consultation consisted of issuing questionnaire surveys to affected persons and holding workshops with relevant stakeholders. Two public consultative surveys were conducted during project preparation, consisting of (i) 24 valid respondents from 30 questionnaires during preparation of the EIA, and (ii) 97 valid respondents from 101 questionnaires during the supplementary EIA study. The surveys are considered to have sufficient representatives in the project area. Two workshops were also held with a panel of 47 participants, including provincial and local government representatives. Leaders of the townships and villages in the vicinity of the project area, academy, and nongovernment organization representatives, such as the Xi'an office of the World Wide Fund for Nature, were fully involved in the workshops. Information regarding the Project was also disseminated to the public through media and QNBG’s website. The public participation has played an important role in the EIA and project design. For example, the width of the road from Jinniuping to Caihulu via Shouyangshan has been reduced from 6 meters to 1.5 meters with a saving of about $1.7 million. These adjustments will not only save the project cost but reduce the potential environmental impact on the fragile ecosystem in the project area and contribute to a sustainable and cost-effective investment.

F. Conclusion

16. The analysis undertaken in this SIEE indicates that the majority of the Project’s impacts is environmentally beneficial, and will have a large and positive impact on securing long-term biodiversity conservation and sustainability in the Qinling Mountains. Some minor adverse impacts are associated with the Project, mainly related to construction activities. All of these can be mitigated by appropriate measures. Therefore, no further EIA is required.

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SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY Country/Project Title: People’s Republic of China/Shaanxi Qinling Biodiversity Conservation and Demonstration Project Lending/Financing Department/ East Asia Department/ Project based Modality: Division: Agriculture, Environment, and Natural Resources Division I. POVERTY ANALYSIS AND STRATEGY A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy

The Asian Development Bank (ADB) Country Partnership Strategy 2008–2010 for the People’s Republic of China a (PRC) highlighted ADB’s priorities which are in line with the 11th Five-Year Plan (2006–2010) and stresses its continual efforts to support the Government to (i) sharpen its fight against poverty; and (ii) achieve the Millennium Development Goals, including policy work in such areas as social protection, strengthening the role of nongovernment agencies in reducing poverty, and cooperating with development partners to advance policy dialogue on the changing nature of poverty in the PRC. Nationally, the majority of the poor live in the central and western provinces, which lag behind the eastern provinces in achieving the Millenium Development Goals. In these regions, poverty is rural and strongly correlated to access to land and the incidence of land degradation. Growth has outpaced environmental sustainability in many of these areas and the environment has become a major constraint to sustained economic development. Environmental protection, ecosystem restoration, and biodiversity conservation are the key priorities in the western development strategy. The majority of ADB’s lending to the interior provinces seek to create a climate for pro-poor economic growth. Ongoing ADB-financed policy work is addressing poverty-related issues in health, education, social protection, nutrition, land degradation, access to clean drinking water, and sanitation in rural areas. The Poverty Partnership Agreement, signed by the Government and ADB in September 2003, sets out strategies and interventions for poverty reduction. The Government and ADB will continue to (i) cooperate on a broad range of activities related to policy and regulatory reform, and capacity building in the environment sector; and (ii) support projects to address environmental problems. Projects will be designed so that the poor capture some of the environmental benefits. To sharpen the poverty focus of its environmental work, the Government and ADB are addressing land degradation by supporting the implementation of the 10-year PRC-Global Environment Facility (GEF) Partnership for Land Degradation in Dryland Ecosystems.

The Project directly contributes to these objectives by introducing biodiversity management models, which promotes market- driven biodiversity conservation and provides sustainable livelihoods for the population of the project area that can be demonstrated for, and replicated in the wider Qinling Mountains. The Project promotes the participation and empowerment of rural communities and sustainable livelihood by means of (i) improved agricultural and other technologies; (ii) value addition; and (iii) non-extractive use of natural resources using commercial enterprises in such areas as ecotourism, Chinese herbal medicines, non-timber forest products, biodiversity conservation services, and innovation in public–private-community partnerships.

The project area is within the Qinling Mountains and is a highly-complex area of different geographic features, settlement patterns and densities, and multiple and overlapping land use and related management rights among forestry and other government agencies, Zhouzhi County, and various townships, villages, and households. The total registered population in the project area is about 20,400 including 3 townships and 30 administrative villages. No ethnic minorities are living in the project area. Poverty is widespread both in the Qinling Mountains and the project area based on the national poverty benchmark, with small-scale agriculture on steep slopes, very limited infrastructure throughout the rugged and isolated valleys, and few links to the modern economy. Zhouzhi County is directly under Xi'an City. Its total area is 2,974 square kilometers, including 2,200 square kilometers of mountain area in the Qinling Mountains that takes up 74% of the total land area, cultivated land covers 60,000 mu (land measurement) and forestland 196,600 mu. Gross domestic product/capita in Zhouzhi County is estimated to be only 50% of the provincial average, 30% of the average for the total country, and only 20% of the average for the Xi'an urban districts. Zhouzhi County is well below the provincial and national averages in virtually all of the main socioeconomic indicators—retail sales per capita, gross fixed investment, household savings, and fiscal capacity. Net farmer per capita income in Zhouzhi County was only CNY1,317 in 2005, which was only 40% of the national average, and 64% of the provincial average in that year. Despite its low household incomes and levels of development, Zhouzhi County is not a national or provincial poverty county under national or provincial programs. However, about 17% of the Zhouzhi County population reportedly is below the poverty line, and 103 out of 379 administrative villages in the county are considered to be poverty villages. Poverty levels are particularly high in the mountain areas where 60% of the population is below the poverty threshold. Mountain areas account for about 74% of the county’s land area, 60% of its poverty population, but only 10% of the total population.

54 Appendix 13

B. Poverty Analysis Targeting Classification: General intervention 1. Key Issues Poverty in the project area remains significant. Using the poverty line of Shaanxi province of CNY865 per capita per year results in 21 villages out of 30 being poor. A survey done in 2005 by the Provincial Poverty Reduction Office shows that a total of 7,586 people in both ex-situ and in-situ are counted as poverty population covering 1,889 households. Further splitting the poverty populations into the protected and mountainous Qinling Biological Conservation and Demonstration Area (QBCDA) and the commercial and agricultural area in the plains or flat lands, higher poverty incidence occurs in QBCDA. About 4,600 people or 23% of the total population in the project area live in QBCDA, of which about 73% is poor. By contrast, of the 19,800 residents in the plains area, about 27% is poor. The poverty ratio in the overall project area is about 37%. The project poverty classification fits the “general intervention” as less than 50% of the population comprises the poor among project beneficiaries.

Poverty analysis was undertaken using formal field surveys and participatory key informant discussions throughout the project area. Institutional consultation was undertaken regarding the ongoing efforts and experiences in poverty reduction in the province. The design of interventions on improving rural livelihoods and poverty reduction will result in improvements through increased incomes while conservation of the environment, a strong and growing ecotourism sector through construction of an international standard Qinling National Botanical Garden (QNBG), an expansion of the Animal Rescue Center (Shaanxi Animal Rescue Center [SARC], which is part of QNBG), reconstruction of several temples with the cooperation of the Louguantai Daoist Temple, as well as associated alternative livelihood opportunities and training for more sustainable livelihoods through higher incomes, job creation, and small business opportunities.

2. Design Features A social and poverty assessment was carried out in compliance with ADB’s Guidelines on Incorporation of Social Dimensions in Bank Operations (1997). The assessment included a rural livelihood assessment which confirmed disparate growth rates between sectors resulting in large income inequities between rural and urban residents, and between different rural areas. The causes of poverty in the project area are complex, but these are associated with land degradation and the harsh human living conditions. The following causes were identified during the household survey and the assessment exercises: (i) pervasive small-scale agriculture on steep slopes, threatened by wild animals; (ii) limited infrastructure; (iii) limited alternatives for other livelihood activities; (iv) unsustainable land conversion program, and no alternative job and income opportunities for surplus labor; (v) poor access to social services such as education and health care with few links to the modern economy; and (vi) traditional agricultural practices are used as the main exit from poverty, which leads to limited solutions for high poverty levels and can further degrade the environment.

The National Poverty Reduction program is still being implemented in QBCDA. Specific alternative livelihood activities as well as improvements to infrastructure such as roads, water supply, etc., will directly benefit these communities, reduce their reliance on low-productive sloped land farming, and provide increased access to income-generating activities.

II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis Key Issues. The villages in the biodiversity conservation area, QBCDA, are poorer and with less social services and economic opportunities than the villages in the northern plains section of the project area that has more tourism and agriculture with substantially more population. The population in QBCDA of about 4,600 will be targeted for employment opportunities in ecotourism and forest replanting on community forest land. These villagers have experienced substantial out- migration of younger people seeking more lucrative employment opportunities. The remaining population practices unsustainable agriculture on steep slopes that is environmentally harmful to the biodiversity of QBCDA. Under the Project, these villagers will receive (i) direct employment benefits; (ii) paid land conversion programs supporting conservation forest plantings; and (iii) opportunities to start small businesses, and improved access to water supplies and alternative energy sources. It is expected that villagers in QBCDA will voluntarily move out of agriculture and into forest-based livelihoods that will provide long-term benefits. The Project will provide more sustainable alternative livelihoods.

B. Consultation and Participation Consultation with stakeholders, beneficiaries, and directly-affected people has been undertaken and will continue during the design and implementation of the Project. Detailed discussion with the Xi'an City government, the line agencies, representatives of QNBG and other investors, cultural and ecotourism operations, and groups of rural residents were held. The project management office (PMO) under the Executing Agency, the Shaanxi provincial government, was established. The leading group is chaired by the Governor, and will coordinate and enlist the support of involved and concerned agencies to ensure smooth implementation. The group will also play its role as a steering committee. The PMO is engaging 11 staff and links closely to the existing QNBG. In addition, the ongoing PRC-GEF Partnership on Land Degradation will provide an opportunity to build capacity in project planning and implementation. The PMO has provided assistance in making local experts from different disciplines available to work with the Project.

Appendix 13 55

A participatory and consultative methodology was adopted to undertake the social analysis and rural livelihood survey during the project preparatory technical assistance. It involved (i) a formal questionnaire survey of 200 households; (ii) discussions with project stakeholders; (iii) key informant interviews in rural communities; (iv) a series of stakeholder workshops; and (v) interviews with key government staff, nongovernment organizations, and women. During project implementation, the participation of stakeholders will be further supported and deepened. An institutional framework is included, which will provide further opportunity for participation in both planning and implementation. Institutional capacity building will be undertaken early in the project design to facilitate successful operation of the Project. The resettlement plans include consultation and participation during implementation. Participatory village development planning will further enhance the participation of beneficiaries.

2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment

3. Was a C&P plan prepared? Yes No Villagers in QBCDA will be involved and will participate fully in the village development plans and the implementation of conservation forestry activities on community forest land. Resettlement by QNBG will be conducted with full participation of affected villagers near Dianzhen village.

C. Gender and Development 1. Key Issues. Gender roles are determined by a combination of cultural factors, occupations, environmental conditions, education levels, and employment opportunities. In the project area, income inequities create incentives for rural workers to migrate to urban labor markets. However, due to its close location to good roads and to both county town and township compounds, female laborers, particularly young women, share the available opportunities with men for off-farm jobs. Only slight agricultural feminization in the developed commercial and agricultural area is observed, while in QBCDA, young people tend to be mobile and the group left behind is older. There is high illiteracy among women in some QBCDA villages.

2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures No action/measure

In general, the Project will benefit women significantly and will not have an adverse impact on women or children. They will benefit from the ecotourism facilities, greater access to information and jobs, and increased opportunities for starting small income-generating activities. Women will gain employment during the construction of QNBG. As part of the participation strategy, priority will be given to women for direct and indirect project benefits and for protection against social risk. Special gender measures have been included in the resettlement plans. Gender disaggregated indicators will be monitored in the project performance management system. The Project will not have significant negative impacts on women, but a proposed gender plan will ensure equal participation of women in project activities and equal opportunities of women for access to social services, training, employment, land relocation, and beneficiary agreements.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Significant/Limited/ Plan or Other Measures Issue Strategy to Address Issue No Impact Included in Design Involuntary Significant With close consultation and careful screening Full Plan Resettlement procedures, the land acquisition and Short Plan resettlement impacts are considered Resettlement significant.b QNBG will have resettlement Framework impacts, requiring permanent land acquisition No Action and relocation of houses and people. The resettlement involves about 143 households for relocation, 115 households for land acquisition, and 948 households for land-use restriction for the Botanical Garden; and 30 households for land acquisition for SARC. In total, about 4,000 people will be affected by different resettlement impacts. Total land acquisition will be 28.6 hectares, while another 249.7 hectares of small landholders’ will be

56 Appendix 13

Significant/Limited/ Plan or Other Measures Issue Strategy to Address Issue No Impact Included in Design put into the shareholding system due to the change of land use. Resettlement plans have been formulated for the Botanical Garden and SARC that will ensure adequate compensation for affected people. Indigenous Peoples None In the Qinling Mountains there are Hui, Korean, Man, and Mongolian minorities, with a Plan total minority population of about 36,000 (less Other Action than 1% of the the Qinling Mountains Indigenous Peoples population) However, none of these Framework indigenous people inhabits the project area. No Action Therefore, indigenous people will not play a significant role in the project design.

Labor Not Significant There will be some shifting of locations related Employment to new economic opportunities because of the opportunities design and implementation of project activities Plan Labor such as the construction and operation of Other Action retrenchment QNBG. Biodiversity conservation and No Action Core labor ecosystem restoration will require some standards restrictions on livelihood activities. The Project is designed to minimize these negative impacts on rural communities, otherwise any such plans will incorporate mitigating measures through rural employment opportunities especially for seasonal employment for women and the rural landless.

Affordability None Suitable pricing arrangements will be set up Action including lease options and private investment No Action options in conservation and ecotourism to ensure sustainable use of resources. The project work in this area will ensure that the poor are not adversely affected.

Other Risks and/or Not significant The Project will require adjustment of Plan Vulnerabilities livelihood and land use to suit long-term and Other Action HIV/AIDS sustainable ecosystem management. The No Action Human trafficking Government will need to build capacity to Others(conflict, ensure smooth implementation of the Project. political instability, Current plans may include employment etc), please specify guarantees, funds provided for alternative livelihood, establishing a rural minimum living standard protection system, etc.

IV. MONITORING AND EVALUATION Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? x Yes □ No a ADB. 2008. People's Republic of China: Country Partnership Strategy 2008–2010. Manila. b ADB's Involuntary Resettlement Policy (1995) defines resettlement as “significant” where 200 or more people experience major impacts. Major impacts are defined as involving affected people being physically displaced from housing and/or losing 10% or more of their productive, income-generating assets.

Appendix 14 57

SUMMARY RESETTLEMENT PLAN

1. The Project has three components or activities that could cause resettlement impacts: (i) the Qinling National Botanical Garden (QNBG), (ii) the Shaanxi Animal Rescue Center (SARC), and (iii) the forest conservation in the Qinling Biological Conservation and Demonstration Area (QBCDA). Each subcomponent was investigated and it was found that only two required a resettlement plan—QNBG and SARC. The other two subcomponents do not involve resettlement impacts. The Implementing Agency is QNBG, 1 which is responsible for the botanical gardens, SARC, and QBCDA.

2. QNBG. QNBG is planned to cover an area of 269.3 hectares (ha), or 4,039.5 mu,2 of collective land that is currently owned by Dianzhen village. QNBG plans to acquire up to 427 mu3 of land for the main buildings and other infrastructure, and to lease the remaining 3,612.5 mu of garden areas from the villagers who will become shareholders in the QNBG company. For the initial stage, 293.63 mu of land will be permanently acquired, including (i) 133.0 mu of irrigated land, (ii) 42.2 mu of dry farmland, (iii) 29.7 mu of orchards, (iv) 42.9 mu of housing land, and (v) 45.83 mu of uncultivated land. The land acquisition will affect 115 households with 504 people. In addition, 19,319 square meters of houses will be demolished, which will affect 143 households with 617 people, who will be relocated to the main residential section of the village. Supporting infrastructure, including walls (3.54 kilometers [km]), power lines (0.96 km), telecom lines (01.125 km), 1 well, and 7,150 trees. QNBG will pay compensation of CNY51.7 million, including taxes and management fees. The affected farmers will receive lump sum compensation payments for permanently acquired land and housing. QNBG will lease the land- use rights on 3,612.5 mu of farmland, which will affect 948 households with 3,780 people. However, village and the households will continue to own this land. QNBG will sign land-lease agreements with the affected groups of Dianzhen village to establish a 50-year use right for the botanical gardens. QNBG will make fixed annual payments to affected households for 50 years, plus annual payments based on gate revenues or profit when the botanical garden becomes operational. QNBG will also employ more than 250 people after full development, and preference will be given to these shareholders for jobs. This way, local villagers will be adequately compensated for interim incomes losses, and will earn wages and income from payments as QNBG generates more revenues from new visitors to QNBG and SARC.

3. SARC. SARC will be expanded from 141 ha to 1,008 ha, but most of the land area already belong to the owner, the Louguantai Forest Farm, which manages 18,780 ha of forest area. The expansion will require 9 ha of collectively owned land in three small parcels to be acquired permanently for the construction of (i) the Crested Ibis Center (2 ha), (ii) the Golden Monkey Center (3 ha), and (iii) the main research center (4 ha). This land acquisition involves minor impacts on three villages: East Louguantai, Qiandongming, and West Louguantai. The affected land includes 2.9 ha of dryland, 5.5 ha of slope land, and 0.6 ha irrigated land, which will affect 30 households and a total of 125 people. QNBG will pay compensation of CNY13.65 million, including taxes and management fees. The affected farmers will receive lump sum compensation payments for land that is permanently acquired.

4. Forest Conservation in QBCDA. This subcomponent includes better sustainable management and conservation of natural resources, including forestry and wildlife habitat. The residents of QBCDA will be directly involved in this program, development of 5,000 ha of conservation forestry, and ecotourism-based business development. All of these programs will

1 A public sector entity has been established consisting of QNBG, SARC, and the Louguantai Forest Farm, and this entity manages QBCDA. 2 15 Chinese mu = 1 hectare (ha). 3 Initially, only 293.63 mu is to be acquired. The remainder will be purchased as the botanical gardens expand.

58 Appendix 14 be voluntary. Villagers will benefit from higher agro-forestry incomes, more secure land-use rights on collective forest land, and employment in new ecotourism businesses. There is no need for land acquisition. Any local road or village road improvements would be done along existing alignments for environmental reasons.

5. Existing Socioeconomic Conditions. The incidence of poverty in QBCDA is more than 70%, compared with 23% for the narrow northern strip of land in the project area where the great majority of the population reside. Poverty in QBCDA is highlighted by low-grain availability per capita of only 198 kilograms, compared with 422 kilograms in the other area. QBCDA income per capita is only 18% of the national average. The livelihood survey conducted under the technical assistance4 found that the stakeholders had extremely limited human capital and adults were poorly educated. The residents in QBCDA are sparsely scattered in 16 villages (12 persons per square kilometer compared with 267 per square kilometer elsewhere in the project area). The mountain environment has limited the development of social capital, and the local government has encouraged out-migration to solve poverty. Recently, the physical capital has improved with road upgrading along the Tianyu River, but other infrastructure is virtually nonexistent. Although the natural capital is extremely rich, much of the land are degraded and the forest resources can no longer be exploited by the local residents. Many of these households depend on subsistence agriculture and subsidy payments from government programs. The narrow strip of good farmland just north of the Qinling Mountains supports 15,800 residents. They are mainly engaged in farming, but many obtain most of their income from tourism-related businesses. These households are significantly better off as they have access to (i) physical infrastructure, especially roads; (ii) health and education services; (iii) more opportunities for off-farm employment; (iv) access to productive land and markets for high- value fruit crops, including kiwi fruit; and (v) land for renting to commercial enterprises. However, households that are entirely dependent on farming remain relatively poor.

6. Summary of Project Impacts. To avoid or minimize land acquisition and resettlement, local officials, village committees, and affected persons were consulted during project feasibility planning and resettlement plan preparation. Most of the lands to be used for the Project already belong to the Louguantai Forest Farm. This has minimized the need to acquire collectively owned land. However, to preserve the forest resources, commercial ventures would only be located on the plains north of QBCDA. This necessitated the acquisition of some farmland for the botanical gardens and some small parcels of land for SARC. The impacts on the Dianzhen village would be serious. For this reason, a land-shareholding agreement was proposed that would allow these villagers to benefit directly from the Project. In total, the Project requires permanent land acquisition of 28.6 ha, of which 17.2 ha is farmland; this will cause partial land loss (50% on average) for 629 persons. The Project will require the displacement of only 143 houses with 617 persons, who will be compensated and relocated nearby. An additional 3,780 persons will receive shareholding agreements for the lease of their farmland.

7. Legal Framework and Resettlement Principles. For people unavoidably affected, the resettlement objective is to achieve equal or better income and living standards in line not only with the People’s Republic of China (PRC) laws and regulations but also the Involuntary Resettlement Policy (1995) of the Asian Development Bank (ADB). The PRC laws and regulations provide the legal basis for the Project, primarily the Land Administrative Law, the Decision on Reinforcing Reform in Land Administration (State Council [2004] No.28), and the PRC Ministry of Land Resources Guidelines on Improving Land Acquisition and Relocation Regulations (Document [2004] No. 238). In addition, Shaanxi province and Xi'an municipality

4 ADB. 2005. Technical Assistance to the People's Republic of China for Preparing the Dryland Farming in the Northern Region Project. Manila (TA 4631-PRC).

Appendix 14 59 have formulated related documents for implementing the new regulations. All these documents have provided the essential policy and procedural basis contained in the resettlement plans. For this Project, the following resettlement principles were adopted: (i) involuntary resettlement should be avoided or minimized where feasible; (ii) compensation and entitlements provided for the affected persons should be able to at least maintain or improve their “pre-project” standard of living; (iii) no matter whether they have legal entitlements, all affected persons will be compensated and assisted; (iv) where land per capita, after land acquisition, is not sufficient to maintain livelihood, compensation by cash or through land replacement and other income- generating activities will be provided for; (v) all affected persons will be adequately informed on eligibility, compensation mode and standards, livelihood and income restoration plans, and project timing, and will be involved in resettlement plan implementation; (vi) no land acquisition will take place unless replacement land or sufficient compensation are given to affected persons; (vii) the Executing Agency and an independent third party will monitor compensation and resettlement operations; (viii) vulnerable groups will receive special assistance to ensure they are better off; (ix) all affected persons should have the opportunities to benefit from the Project; (x) resettlement plans should be combined with overall county and township planning; and (xi) implementing agencies should provide adequate and timely funds, including any obligations in excess of the resettlement plan budget estimates.

8. Compensation and Rehabilitation Plans. Land compensation will be paid to the affected village and/or affected persons, and the resettlement subsidy and other compensation for individual asset loss will be paid to the affected persons. Villagers who lease their lands will receive annual payments from QNBG for the 50-year lease period. Households to be relocated will receive compensation at replacement cost for the lost structures and attachments without consideration of depreciation. The affected household can rebuild their houses by themselves with free house plots provided by the village. Affected persons can salvage the structural materials, and a moving subsidy will also be provided. The new section of the village for relocating the 143 households has been designed based on modern standards with good streets, water supply, drainage, electricity, and communication lines. The local government will contribute funds for village infrastructure. The detailed programs of restoration and relocation have been set out in each resettlement plan to mitigate the resettlement impacts for affected persons and to restore their living standards according to the economic characteristics of affected villages. People can choose the options according to their own requirements. The Project will not have any impacts on ethnic minorities. Any affected persons will be identified and provided preferential treatment to ensure their rehabilitation. Assistance measures include provision of training and employment for project construction and operation (including 50% women), and other employment information for jobs in the area.

9. Resettlement Costs and Funding. The estimated cost for land acquisition and resettlement is about CNY38.04 million, including contingencies and land taxes. In addition, QNBG will make annual payments for 50 years ranging from CNY1.5 million in 2011 to CNY4.4 million in 2025 for leasing the land from Dianzhen village. Detailed measurement surveys will be conducted in each village, and the compensation contracts will be negotiated and signed with village committees, households, and enterprises. The resettlement costs are included as part of total project cost and will be funded by QNBG and guaranteed by the Shaanxi provincial

60 Appendix 14 government. Affected persons have been informed about the key elements of land acquisition and resettlement through consultation during the planning stage and distribution of resettlement information booklets. During meetings, interviews, focus group discussions, public consultation workshops, and community consultation meetings, local representatives participated in the planning, and concerns were integrated into the resettlement plans.

10. Resettlement Implementation and Monitoring. The project management office (PMO) is responsible for overall coordination of resettlement planning, supervision, monitoring, and reporting. QNBG will establish a land acquisition and resettlement unit for supervising implementation, continuing public consultation, responding to grievances, and reporting progress. The main responsibility for administration of land acquisition, compensation, and resettlement is Zhouzhi County. The grievance redress procedures are set out in the resettlement plans. The resettlement implementation schedules were prepared based on the feasibility study and construction timetable. Internal and external monitoring of resettlement implementation will be required. QNBG and the PMO will handle internal supervision and monitoring to ensure compliance with the provisions of the resettlement plan. The PMO will engage an independent agency, acceptable to ADB, for external monitoring and evaluation. The detailed requirements and terms of reference for external resettlement monitoring are stipulated in the resettlement plans. External monitoring reports will be forwarded directly to the PMO and ADB, and will be uploaded to the ADB website.