Document of the International Development Association acting as Administrator of the Interim Trust Fund Public Disclosure Authorized Report No. T-7024-BLI Public Disclosure Authorized TECHNICAL ANNEX BOSNIA AND BERZEGOVINA FORESTRY PROJECT Public Disclosure Authorized April 29, 1998 Public Disclosure Authorized RuralDes elopment and EnvironmentSector Unit Europe and Central Asia Itegion CURRENCY EQUIVALENTS Currency Unit = Konvertible Marka (KM) 1 KM = 1DM = US $0.57 (as of March, 1998) WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AAC Annual Allowable Cut BH Bosnia and Herzegovina BHS Bosanskoherzegovacke Sume CAS Country Assistance Strategy CFI Communal Forest Inspector EA Enviromnental Assessment EC European Commission EU European Union FAO Food and Agriculture Organization FIS Forest Inspection Service FMP Forest Management Plan GPN General Procurement Notice GSP Gross Social Product IBRD International Bank for Reconstruction and Development IDA Intemational Development Association IPCHNH Institute for Protection of Cultural, Historical and Natural Heritage of BH ITF Interim Trust Fund NMAFW Ministry of Agriculture, Forestry and Water Resources of Republika Srpska MAWF Ministry of Agriculture, Water Resources and Forestry of the Federation of BH NGO Non-Governmental Organization PIU Project Implementation Unit RIU Regional Implementation Unit RS Republika Srpska SFE State Forest Enterprise SOE Statement of Expenditure SS Srpske Sume SPP Sumsko Privredno Preduzece TA Technical Assistance UNHCR United Nations High Commissioner for Refugees VAT Value Added Tax GOVERNMENT FISCAL YEAR January 1 - December 31 Vice President Johannes Linn Country Director Christiaan Poortman Sector Director Kevin Cleaver Sector Leader John Hayward Task Manager Francois Wencdlius BOSNIAAND HERZEGOVINA FORESTRYPROJECT TECHNICALANNEX Table of Contents A. BACKGROUND 1 General 1 Forest Resourcesand Management 1 Wood Industry 6 InstitutionalFramework 7 B. BANK RESPONSEAND STRATEGY 10 C. DETAILEDPROJECT DESCRIPTION 11 Project Objectiveand Rationale 11 Design Considerations 11 DetailedFeatures 12 Project Managementand Monitoring 16 Project Cost and Financing 17 EnvironmentalImpact 18 D. PROJECTIM[PLEMENTATION 19 Responsibilitiesand Management 19 FinancingMechanisms 20 Procurement 21 Disbursement 22 ImplementationSchedule 23 Accounts,Auditing and Reporting 23 Monitoringand Evaluation 24 E. PROJECTBENEFITS AND RISKS 24 Project Benefits 24 EconomicJustification 25 Risks 26 F. AGREEMENTSREACHED 26 Appendix1 DetailedCost Tables Appendix2 ProjectProcurement Plan and GeneralProcurement Notice Appendix3 ProjectInplementation Schedule Appendix4 SummaryTechnical Specifications Appendix5 List of State Forest EnterprisesEligible for Project Support Appendix6 EnvironmentalAssessment Report Appendix7 Forest ManagementPlans Appendix8 Monitoringand Evaluation Appendix9 Economicand FinancialAnalysis Technical Annex Page 1 of 27 A. BACKGROUND General 1. Bosniaand ]Herzegovina(BH) has a total area of 51,500 km2. As a consequenceof the Dayton agreementthe countryis administrativelydivided into two parts: the Federationof Bosniaand Herzegovina (the Federation),which is mainly inhabitedby the Muslim and Croat ethnic communities(approximately 26,500 kn2), and RepublikaSrpska (RS), with mainly Serb communities(approximately 25,000 ki 2). The populationbefore the war was 4.4 millionpeople. In 1996, it was estimatedthat over onemillion people lived abroad and another 1.5 millionwere refugeeswithin the boundariesof BH. Rural areas in many parts of the countrywere totally abandonedby its formerinhabitants. 2. Before the war, forestry and wood based industries were an important part of the economy, accountingfor more than 10 percent of GSP1. Forestry alone accountedfor about two percent of GSP, with important and well managed forest resources. In 1990 the forest and the forest industry sector employed36,000 persons and accountedfor an exportvalue of US$250million. The forest industrieswere well developedand exportedhigh qualityproducts. Due to the war, the extractionof wood from the forests and the productionof the wood industrywere much reduced. It is estimatedthat, for the period 1992-95, the total utilizationof installedcapacity was onlybetween 10 and 15 percentof pre-warlevels. Forest Resourcesand Management 3. Forest Resources. The forest resourcesof Bosniaare amongstthe highestin Europe,in terms of extent and stock,when relatedto the size of the country. Forest land covers about 2.6 millionha, or about 50 percent of the total BH land area, of which about 2.1 million ha are actually covered with forests -- including1.3 millonha of high forests and 0.8 millionha of low forests -- the balancebeing composedof bare lands2 . About 65 percentof the standingstock of Bosnianforests are broadleaves,mainly beech and oak species,and 35 percent conifers, includingfir, spruce, and pine species. About 45 percent of high forests stands are mixed broadleavesand coniferswhile pure broadleavesand conifersrepresent 40 percent and 15 percentof these stands respectively;low forests stands are composedof broadleavesonly, eitherin mixed stands (55%) or pure stands of beech or oak. The State owns 81 percentof forest land and private holdingsconstitute 19 percent. The total growingstock on BH State land amountedto 359 millionm 3 (i.e., 93% of the total) or 215 m3/ha of forestedland in 1990. Correspondingfigures for the private forests were 27 millionrn 3 (i.e., 7% of the total) and 62 ni3/ha respectively. The present distributionof forest resources, in terms of areas and standing stock is about 55 percent for the Federationand 45 percent for RS. Correspondingfigures are shownin Table 1 below. 4. AnnualYield, AllowableCut and Removal. Actual removalof wood from BosnianState forests before the war, when comparedwith the Annual AllowableCut (AAC) and estimatedyield, indicates a conservativeharvesting policy. Between 1981 and 1990, the estimatedannual current incrementof the standingstock of BosnianState forests was 9.1 millionrn 3 . During the same period, the AAC for these forests -- which is the sum of the individualAACs adopted under the forest managementplans (FMPs) developedfor each State Forest Enterprise(SFE) -- averagedabout 6.8 millionni 3. The recordedgross I Within the former Yugoslavia, the measure of national income was Gross Social Product (GSP), a measure which excludes services, eccept those involved in the transportand distributionof goods. High forests are defined as forests originating from seeds, low forests are defined as forests originating from coppicing, bare lands include 60% of productive bare lands, with productive potential, and 40% of unproductive bare lands which are unsuitable for forest production. TechnicalAnnex Page 2 of 27 harvesting in State forests for the same period averaged 6.2 million rn3 (including 3.7 million ni3 of logs) or 91 percent of AAC and 68 percent of the annual current increment. In addition, the annual current increment estimated in 1990 for the subsequent 10-year period in BH State forests was projected at 10.4 million rn3. This suggests an increasing productivity compared with the previous 10-year period. Despite this increase in productivity, the AAC for State forests over the same period, resulting from the AACs adopted in current FMPs, is unchanged at 6.8 million rn3 . Now that the country is partitioned into two administrative entities, the total AAC in State forests is about 3.6 million rn3 for the Federation (of which 3.3 million rn3 in the high forests) and about 3.2 million m3 for RS (of which 2.9 million m3 in the high forests). More detailed figures about estimated yield and AAC in the Federation and RS are shown in Table 1 below. Table 1. Forest Resources in 1990: Area, Stock, Yield, and AAC ForestResources in 1990 Federation RS Total Forest Land (ha) 1,430,000 1,122,000 2,552,000 .HighForest 720,000 609,000 1,329,000 Low Forest 411,000 373,000 784,000 Bare Lands 299,000 140,000 439,000 of which State Forests(ha) 919,000 753,000 1,672,000 HighForests 664,000 535,000 1,199,000 LowForests 255,000 218,000 473,000 Standing Stock (1,000 m31ha) 216,900 169,300 386,200 High Forest 184,100 145,000 329,100 LowForest 32,800 24,300 57,100 of which State Forests(1,000 m3/ha) 204,300 154,500 358,800 High Forests 178,300 136,900 315,200 LowForests 26,000 17,600 43,600 AnnualYield/State Forests (1,000 m3/yr) 5,786 4,663 10,449 High Forest 4,864 3,891 8,755 LowForest 922 772 1,694 AnnualAllowable Cut (1,000m 3/yr) 4,130 3,620 7,750 High Forest 3,520 3,180 6,700 Low Forest 610 440 1,050 of which State Forests(1,000 m 3/yr) 3,670 3,160 6,830 HighForests 3,300 2,900 6,200 e LowForests 370 260 630 The above table is based on data collected from differentsources which are generally consistent However, some adjustnents had to be made in order to make the data fully coherent 5. During the war, the actual harvesting of wood was considerably reduced. After adjustment for illegal cutting of logs and fuel wood (the latter mainly took place in low forests), the total harvesting in BH is likely to have been about 2 million rn3 per year during the war or about 20 percent of the estimated current increment of the standing stock and 30 percent of the AAC. In 1995, the recorded harvesting of logs amounted to about 0.6 million m3 (0.2 million rn3 for the Federation and 0.4 million m3 for RS) or about 15 percent of pre-war levels. Following the war, about 20 percent of the forest area has become inaccessible because of minefields which makes it necessary to reduce the AAC accordingly -- e.g., the AAC adjusted for mine areas in State high forests is an estimated 2.7 million m3 for the Federation and 2.3 million ni3 for RS. 6. Since 1996, wood harvesting has resumed significantly in accessible areas; recorded figures for the Federation and RS in 1996 are 1.0 million m3 and 0.9 million m3 respectively, in 1997 they are 1.6 million mn3 and 1.3 million m3 respectively. The recorded 1997 level of wood harvesting is close to 60 percent of TechnicalAnnex Page 3 of 27 the AAC adjustedfor mine areas. Since adequatecontrol over harvestinghas not yet been re-established, there are increasingaccounts of illegalharvesting and log smuggling.