People's Republic of China: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project

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People's Republic of China: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project Technical Assistance Final Report Project Number: 42022 April 2010 People's Republic of China: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project Prepared by: AFC Consultants International GmbH, Germany For the Forestry Department of Jiangxi Province This report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.) Asian Development Bank Preparing the Jiangxi Sustainable Forest Ecosystem Development Project (TA 7179-PRC) FINAL REPORT Report submitted by AFC Consultants International GmbH March 2010 This report was prepared at the request and with the financial support of the Asian Devel- opment Bank. The views expressed are those of the Consultants and do not necessarily reflect those of the Government of PRC, the Forestry Department of Jiangxi Province or the Asian Development Bank. Contributors Mr. Volker Kohler, Team Leader Mr. Lu Ping, Deputy Team Leader Mr. Bi Huaxing, GIS Specialist Mr. Gardette Eric, Environmental Specialist Mr. Guo, Yongli, Agricultural Insurance Specialist Mr. Indu Chandra Ram, Agricultural Insurance Specialist Mr. Ru Taoqin , Silvicultural Specialist Mr. Sun Tuohan, Environmental Specialist Mr. Wang Dehai, Social Development Specialist Mr. Zheng Shaofeng, Financial Specialist Key Data Sheet Name of project: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project [TA: 7179-PRC] Contractor: AFC Consultants International GmbH, Germany in association with GENERTEC CONSULTING CO. LTD., PRC Contracting authority: Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Start / end date 15 May 2009 / 15 March 2010 Budget: US$669,000 Beneficiary: Provincial Government of Jiangxi Province, PRC Primary location: Nanchang, Jiangxi Province, PRC Secondary locations: Selected cities (8) and counties (23) of Jiangxi province Final Report Contents ABBREVIATIONS IV GLOSSARY VI KNOWLEDGE SUMMARY 1 Project Description 1 Project Rationale 2 Impact and Outcome 2 Financing Plan 3 Allocation and Re-lending Terms 4 Period of Implementation and Project Completion 4 Executing Agency 5 Implementation Arrangements 5 Procurement 5 Technical Assistance and Consulting Services 5 Project Benefits and Beneficiaries 6 Risks and Assumptions 6 1. BACKGROUND 9 2. SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 10 2.1 Sector Performance 10 2.1.1 Forest Resource 10 2.1.2 Timber Production 11 2.2 Socioeconomic Situation 13 2.2.1 Land Resources and Farming System 14 2.2.2 Labor and Migration 15 2.2.3 Household Income 15 2.2.4 Management of Forest Land 17 3. ANALYSIS OF KEY PROBLEMS AND OPPORTUNITIES 20 3.1 Key Problem 20 3.2 Lessons 21 3.3 Government Policy 22 th 3.3.1 Jiangxi Forestry 11 Five Year Plan 22 3.3.2 Forestry Medium-Long Term Plan 22 3.3.3 “One Big and Four Small” 23 3.4 External Donor Supported Forestry Projects/Programs 24 3.5 ADB Strategy for the PRC 27 3.6 Project Rationale 27 4. THE PROJECT DESIGN 29 4.1 The Project Area 29 4.2 The Proposed Project 30 4.2.1 Project Impact and Outcome 30 4.2.2 Project Outputs 30 4.2.3 Project Components 30 4.2.4 Climate Change Fund (CCF) Activities 35 I ADB TA 7179-PRC: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project Final Report 4.2.5 Special Feature 35 4.3 Project Investment Plan 36 4.3.1 Project Costs 36 4.3.2 Financial Plan 38 5. IMPLEMENTATION ARRANGEMENTS 41 5.1 Project Management 41 5.2 Subprojects Selection 41 5.3 Project Implementation 44 5.4 Project Implementation Plan 46 5.5 Procurement 47 5.6 Financial Management 47 5.7 Re-lending and On-lending Arrangements 48 5.8 Accounting, Auditing and Reporting 49 5.9 Project Performance Monitoring System 49 5.10 Capacity Building 50 5.10.1 Training 50 5.10.2 Study Tours 50 5.10.3 Consulting Services 51 6. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 52 6.1 Institutional Impact 52 6.2 Social Impact 52 6.3 Environmental Impact 54 6.4 Financial and Economic Impact 55 6.5 Assumptions and Risks 58 7. ASSURANCES 61 7.1 Social Safeguards 61 7.2 Ecological Safeguards 61 ANNEX : 62 Annex 1: Design and Monitoring Framework Annex 2: Basic Data Annex 3: Problem Tree Annex 4: Forestry Sector in Jiangxi Province Annex 5: Timber Market Annex 6: Forest Land Tenure Reform Annex 7: Forest Types Design Annex 8: Tree Species Used in Afforestation Annex 9: Implementation Plan Annex 10: Procurement Plan Annex 11: Financial Management Annex 12: Financial and Economic Analysis Annex 13: Capacity Building Program Annex 14: Social Assessment Annex 15: Summary Initial Environmental Examination Annex 16: Summery Poverty Reduction and Social Strategy II ADB TA 7179-PRC: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project Final Report Overview on tables Table 1: Project investment estimate (in US$ Million) 3 Table 2: Financing plan 4 Table 3: Summary risks and mitigating measures 7 Table 4: Forest resources in Jiangxi Province 10 Table 5: Main forest products output in Jiangxi Province 13 Table 6: Participation in forest activities 15 Table 7: Poverty classification of the project counties 16 Table 8: Holdings of forest land area by households 17 Table 9: Proportion of households with intention to leasing their lands to others 19 Table 10: Utilization of foreign fund in forest sector in Jiangxi Province 25 Table 11: Project investment estimate in US$ million 36 Table 12: Project investment estimate by county in US$ million \1 37 Table 13: Financing plan 38 Table 14: Financing plan by component in US$ million 39 Table 15: Financing plan by county in US$ million \1 39 Table 16: Project beneficiaries 43 Table 17: Project implementation schedule 46 Table 18: Demand for employment 53 Table 19: Financial and economic analysis 56 Table 20: Estimate of weighted average cost of capital for various models 57 Table 21: Financial and economic sensitivity analysis 57 Table 22: Risks and mitigation measures 59 Overview on figures Figure 1: Project counties Forest Ecosystem Sustainable Development Project in Jiangxi Province VIII Figure 2: Public welfare forest in Jiangxi Province IX Figure 3: Distribution of forest lands in Jiangxi Province 11 Figure 4: China conifer log import 1998-2007 12 Figure 5: Comparison of 2008 wood output in Jiangxi and China 12 Figure 6: Households attitude to leasing forest land 18 Figure 7: Distribution of forest lands in the project area 29 Figure 8: Implementation modalities 45 Figure 9: Fund flow 48 III ADB TA 7179-PRC: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project Final Report ABBREVIATIONS ADB – Asian Development Bank ACWF – All China Women’s Federation CCF – Climate Change Fund CPMO – County Project Management Office CPLG – County Project Leading Group CSP – Country Strategy and Program DRC – Development Reform Commission EA – Executing Agency FD – Forestry Department EIRR – Economic Internal Rate of Return FIRR – Financial Internal Rates of Return ENPV – Economic Net Present Value FNPV – Financial Net Present Value EMA – Environmental Management Plan EMP – Environmental Monitoring Arrangements EPB – Environment Protection Bureau (county level) FPD – Environment Protection Department FMA – Financial Management Assessment FMP – Forest Management Plan (operational plan for cluster of forest stands) FSR – Feasibility Study Report FYP – Five-Year Plan GDP – Gross Domestic Product GIS – Geographical Information System IFAD – International Fund for Agricultural Development IA – Implementing Agency IEE – Initial Environmental Examination IT – Information Technology JPG – Jiangxi Provincial Government JXEPB – Jiangxi Environmental Protection Bureau JXPFD – Jiangxi Province Finance Department MOF – Ministry of Finance MVRS – Monitoring a Verification Reporting System NDRC – National Development Reform Commission OCR – Ordinary Capital Resources O&M – Operation and Maintenance PADO – Poverty Alleviation and Development Office PBC – People’s Bank of China PCR – Project Completion Report PDRC – Provincial Development Reform Commission PICC – People’s Insurance Company of China PIO – Project Implementation Office PLG – Project Leading Group PMO – Project Management Office PPMS – Project Performance Management System PPTA – Project Preparatory Technical Assistance PRC – People’s Republic of China REDD – Reduced Emissions from Deforestation and forest Degradation RCC – Rural Credit Cooperative SEPA – State Environmental Protection Agency IV ADB TA 7179-PRC: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project Final Report SERF – Shadow Exchange Rate Factor SFA – State Forestry Administration SFM – Sustainable Forest Management SIEE – Summary Initial Environmental Examination SME – Small and Medium Enterprise TA – Technical Assistance TOR – Terms of Reference WACC – Weighted Average Cost of Capital WB – World Bank WTO – World Trade Organization V ADB TA 7179-PRC: Preparing the Jiangxi Sustainable Forest Ecosystem Development Project Final Report GLOSSARY Afforestation is the process of establishing a forest on land that is not a forest, or has not been a forest for a long time, by planting trees or their seeds. Barren mountain & waste land refers to barren mountain sites and otherwise unused land, which is suitable and available for afforestation. Burned area refers to land which has been seriously damaged by fire and needs to be re- planted to restore the vegetation cover. Commercial
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