REQUEST FOR CEO ENDORSEMENT/APPROVAL PROJECT TYPE : FULL -SIZED PROJECT THE GEF TRUST FUND

Submission Date: 30 September 2011 Re-submission Date: 14 December 2012 Re-submission Date: 7 March 2012

PART I: PROJECT INFORMATION GEFSEC PROJECT ID: 4114 Expected Calendar (mm/dd/yy) GEF AGENCY PROJECT ID: XX/SRL/09/X01 Milestones Dates COUNTRY (IES ): Sri Lanka Work Program Nov 2009 PROJECT TITLE : Bamboo processing for Sri Lanka Agency Approval date Oct 2011 GEF AGENCY (IES ): UNIDO Implementation Start June 2012 OTHER EXECUTING PARTNER (S): Mahaweli Authority of Mid-term Evaluation Nov 2015 Sri Lanka GEF FOCAL AREA (s): Climate Change/Technology Project Closing Date May 2019 Transfer GEF-4 STRATEGIC PROGRAM (s): CC – SP 4: Promoting Sustainable Energy Production from Biomass NAME OF PARENT PROGRAM/UMBRELLA PROJECT : TT Pilot (GEF-4)

A. PROJECT FRAMEWORK Project Objective: To develop a bamboo supply chain and product industry in Sri Lanka, leading to reduced global environmental impact from GHG emissions and a sustainable industry base. Indicate Project whether Expected Expected GEF Financing* Co-financing* Total ($) Components Investment, Outcomes Outputs TA, or STA ($) % ($) % Component 1: STA Outcome 1: Output 1.1: 265,300 78% 75,000 22% 340,300 Policy Assessment of National strategy framework existing developed for the framework and development of shortcomings and the bamboo a supportive industry framework Output 1.2: adopted National policy adjustments supported Output 1.3: Land use policy adjustments Output 1.4: Supportive policies and regulations on a local and regional level Output 1.5: Information on the project activities disseminated to the public and decision-makers Component 2: TA and Outcome 2: Output 2.1: 221,300 11% 1,706,000 89% 1,927,300 Bamboo Investment Bamboo Acquisition and Tissue reproduction installation of Production technology laboratory transfer - National equipment for capacity to appropriate provide bamboo species

1 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 planting material Output 2.2: on a large scale Functional laboratory and availability of high quality planting material for appropriate species Component 3. TA and Outcome 3: Output 3.1: 367,400 3% 11,223,000 97% 11,590,400 Plantation Investment Plantations Bamboo establishment established to plantations provide feedstock established in for bamboo unused lands in industry the dry zone and wet zone Component 4. TA and Outcome 4: Output 4.1: 233,050 4% 4,968,000 96% 5,201,050 Plantation Investment National know- Economically operation how how to sustainable, maintain bamboo functional bamboo plantations plantations running in currently unused dry lands and wet lands Component 5. TA and Outcome 5: Output 5.1: 657,850 20% 2,625,000 80% 3,282,850 Bamboo Investment Bamboo Bamboo processing processing processing equipment technology machinery for transfer to Sri industrial use Lanka bought and installed Output 5.2: Establishment of bamboo flooring production capacity Output 5.3: Establishment of bamboo shoots by-product industry Component 6. TA and Outcome 6: Output 6.1: 410,450 54% 350,000 46% 760,450 Pelletising / Investment Biomass Pelletising / briquetting / pelletising / briquetting / chipping briquetting / chipping chipping machinery bought technology and installed for transfer and bamboo development Output 6.2: Production of biomass pellets / briquettes / chips Project management 199,650 36% 350,000 64% 549,650 Total project costs 2,355,000 21,297,000 23,652,000

Details of the split between TA and investment for both the GEF grant and the cofinancing are given in the table in Annex K. Component 6 will be implemented from the middle of the project period (3 rd year) after bamboo plantations have been successfully established. The co-financing of Component 6 is the subject of the mid-term review (see PART IV for more details).

B. SOURCES OF CONFIRMED CO -FINANCING FOR THE PROJECT

Name of co-financer (source) Classification Type Amount % Mahaweli Authority of Sri Lanka Nat'l Gov't Cash 2,400,000 11.3% Mahaweli Authority of Sri Lanka Nat'l Gov't In-kind 10,520,000 49.4% Ministry of Industry and Commerce Nat'l Gov't Cash 1,500,000 7.0%

2 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Forest Department of Sri Lanka Nat'l Gov't Cash 4,377,000 20.6% UNIDO Impl. Agency Cash 60,000 0.3% UNIDO Impl. Agency In-kind 40,000 0.2% Touchwood Investments PLC Private sector Cash 1,300,000 6.1% Bamboo Resources Development (Pvt) Ltd Private sector Cash 1,100,000 5.2%

Total co-financing 21,297,000 100.0% Note that details of cash and in-kind contributions are included in Annex M.

C. FINANCING PLAN SUMMARY FOR THE PROJECT ($)*

For comparison: Project Agency Total with GEF and Co- Preparation Project Total Fee Agency Fee financing at PIF GEF 100,000 2,355,000 2,455,000 245,000 2,700,000 2,355,000 Co- 100,000 21,297,000 21,397,000 10,700,000 financing Total 200,000 23,652,000 23,852,000 245,000 2,700,000 13,055,000 *Note, this table is slightly altered from the Request for CEO Endorsement Template to include the column marked “Total with Agency Fee”. This is to address the issue as to why the numbers in the column ‘for comparison’ is different from the total for the Project Preparation, the Project, the Total, and the Agency Fee. ** Note that the GEF and Cofinancing amounts at PIF do not reflect the Agency Fee nor the Project Preparation Grant. With these two additional amounts added, the total comes to the same as the “Total with Agency Fee” amount.

D. GEF RESOURCES REQUESTED BY AGENCY (IES ), FOCAL AREA (S) AND COUNTRY (IES )

N/A

E. CONSULTANTS WORKING FOR TECHNICAL ASSISTANCE COMPONENTS : Estimated person GEF Co-financing Project total ($) Component weeks amount($) ($) Local consultants * 3780 790,900 860,000 1,650,900 International consultants* 201 387,000 215,000 602,000 Total 1,177,900 1,075,000 2,252,900 * Details to be provided in Annex C.

F. PROJECT MANAGEMENT BUDGET /C OST

Total Estimated Person Co-financing Total Cost Items GEF ($) Weeks (PW) ($) ($) Local consultants * 1,308 98,060 175,000 273,060 International consultants* - - - - Office facilities, equipment, vehicles 64,400 105,000 169,400 and communications* Travel* 16,600 52,500 69,100 Contingency 20,590 17,500 38,090 Total PM Budget 199,650 350,000 549,650 * Details to be provided in Annex C.

3 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ** For others, it has to clearly specify what type of expenses here in a footnote.

G. DOES THE PROJECT INCLUDE A “NON -GRANT ” INSTRUMENT ?

No, non-grant instruments that are included in this project do not make use of GEF funds.

H. DESCRIBE THE BUDGETED M & E PLAN :

The M&E framework will assess the Project’s impact on the development of a sustainable market for industrial energy efficiency. The foundation of the framework is given in the logical framework (see Annex A) which includes indicators, targets, and timelines.

Monitoring and evaluation of the project will take place at two levels, both at the activity level and the general project level. Activities at the activity level will be monitored by participation partner industries with overall monitoring responsibility undertaken by the UNIDO Project Execution Body (PEB) which will collect and review the industry and consultant output reports. Appropriate M&E forms and protocols will be developed as part of the Project Implementation. Industry partners will report to the PEB at agreed intervals. The M&E information will be aggregated to analyse overall program inputs and may provide the basis for the development of success stories, to be used in outreach activities and in the knowledge management component.

At the general project level, the PEB will be responsible for M&E of project activities and results. All data for the project outcome and results indicators will be coordinated by the PEB and reported to UNIDO and Government of Sri Lanka’s Ministry of Industry & Commerce.

Monitoring and verification of the results is critical to determining the success of the programme. Participating companies, farmers, and farmers associations will need to agree to provide required information on materials use and sales as part of an agreement that will be signed prior to the start of the capacity building program and distribution of equipment/plant material. In addition the usual confidentiality arrangements must be agreed upon.

The external M&E will take place with summarised reports showing the overall progress and projects that receive financing and can be used officially.

The project coordinator is responsible for regular progress reports (every 6 month period) with full support of and in agreement with the participating companies and Government programmes. The reports also will be discussed with the Project Steering Committee – which will include the Mahaweli Authority (under the Ministry of Irrigation & Water Management), the Ministry of Power & Energy, the Ministry of Industry & Commerce, and the Ministry of Environment.

The project’s indicative M&E work plan is shown in Table 1 below.

Table 1: Project’s Indicative Monitoring and Evaluation Workplan Type of M&E activity Responsible Parties Budget US$ Time frame Within first two 0 Inception Workshop (IW) - Project Coordinator (PC) months of project start

up - Project Execution Body 0 Immediately following Inception Report - PC IW - PC will oversee the hiring Measurement of Means of of specific institutions and Start, mid and end of Verification for Project 10,000 delegate responsibilities to project Purpose Indicators relevant team members

4 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Type of M&E activity Responsible Parties Budget US$ Time frame Measurement of Means of Annually prior to Verification for Project - Oversight by PC and APR/PIR and to the Progress and Performance 10,500 UNIDO HQ definition of annual (measured on an annual work plans basis) APR and PIR - PC 0 Annually Following Project IW Advisory Committee - PC 0 and subsequently at Meetings - UNIDO HQ least once a year Quarterly progress reports - PC 19,000 Every three months To be determined by - Project Execution Body 0 Technical reports Project Team and

- Hired consultants as needed UNIDO / BEE Mid-term Review and - PC 34,000 At the mid-point of External Evaluation - External Consultants project - Project Execution Body 34,000 Terminal Project At the end of project

Evaluation and Report - PC implementation - External consultants At least one month - PC 0 Terminal Project Report before the end of the

- UNIDO HQ project Lessons learned - Project Execution Body 14,000 Yearly Visits to field sites (UNIDO staff travel costs - PC 0 Yearly to be charged to agency fees) - UNIDO HQ 121,500 TOTAL indicative COST 1

PART II: PROJECT JUSTIFICATION:

A. STATE THE ISSUE , HOW THE PROJECT SEEKS TO ADDRESS IT , AND THE EXPECTED GLOBAL ENVIRONMENTAL BENEFITS TO BE DELIVERED :

A.1. Sri Lanka’s energy and land-use patterns

National economic growth in Sri Lanka of 6 to 8% per annum has resulted in all sections of the population improving their standard of living. One significant change in the household and commercial sectors is the gradual switch to Liquid Petroleum Gas (LPG) from fuel wood for cooking purposes. In general, the use of petroleum in energy supply has increased by over 300% in recent years – from 55.7 million GJ in 1990 to 179.5 million GJ in 2007. This increase results in increased associated GHG emissions.

At the same time deforestation has been and continues to be dramatic – resulting in over 400,000 ha of forest cover being eliminated in the last 20 years. Sri Lanka has a land area of about 6.5 million ha. Its closed canopy forest cover has dwindled rapidly from about 84% in 1881, to 44% in 1956 and subsequently to 27% in 1983. The closed canopy natural forest cover is projected to decline to about 17% of the country in 2020. This deforestation is related to the increasing demand for timber and fuel

1 Excluding project team staff time and UNIDO staff and travel expenses

5 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 wood. In the future, the rate of population pressure, economic growth, and the management of its land and energy resources are central to the sustainability of the forests of Sri Lanka.

Table 2: Deforestation in Sri Lanka from 1990-2005 Year Forest Cover Decrease in Forest Cover % 1990 2,350,000 ha 2000 2,082,000 ha 268,000 ha 11.4% 2005 1,933,000 ha 149,000 ha 7.2% Source: http://rainforests.mongabay.com/deforestation/sri_lanka.html

About 72.5% of the national biomass consumption is in the household sector for cooking. The small commercial and manufacturing applications consume around 20.3% and agro industries consume about 7.3% of the total biomass consumption. Biomass use in industry is growing as a result of price increases in petroleum fuels. Within the industrial sector, the Tea industry, which is mainly concentrated mainly in the hill country, is the largest consumer of fuel wood. It consumes around 455,000 tonnes/ year – 43% of the total fuel wood consumption by the industrial sector. In recent decades, difficulty in obtaining fuel wood from such sources has prompted the tea industry to rely on diesel and other heating oils to fire their dryers. However, a significant number of tea processing industries are switching from oil to biomass for their thermal energy requirements.

The traditional small and medium industrial sectors also use biomass energy, particularly fuel wood, for their thermal energy needs. The Brick & Tile and hotel sectors in particular use considerable amounts of fuel wood from different sources. The rubber processing industry, with more than 1,000 factories distributed in the wet zone of the country is a heavy user of fuel wood. The distribution of various fuel wood consuming industries is reflected in the regional variation in fuel wood consumption in the country.

According to the estimates made in the 2007 Energy Balance of Sri Lanka, fuel wood demand for the industrial sectors has shown a steady increase during the last few years while the demand in the household sector does not show any significant growth. The demand increase in the industrial sector from 2000 to 2007 had been around 28% or 3.5% per year.

In addition to biomass demand for energy, Sri Lanka also has an established wood industry which is facing a shortage of feedstock. The annual demand for timber is around 1.975 million cubic meters in 2008. This demand for timber in 2008 already exceeded the predicted demand (1.864 million m 3) for 2020 by the Forestry Sector Master Plan (FSMP) – up from 1.320 million m 3 in 1995. A growing population demands more fuel and places a higher demand for housing construction materials with wood. The demand for logs and poles is now estimated to increase to 2.7 million m 3 in 2020, and the requirement for biomass energy is expected to increase to 9.7 million tonnes in the same time period.

Because the supply of timber from natural forests has been diminishing there is a growing interest directed towards the other forest resources such as forest plantations and agroforestry lands.

The increase in demand for biomass for energy and materials, combined with a lack of sustainably managed land for biomass energy production, can result in numerous environmental problems including: • Increased erosion and flooding; • Degraded lands; and

• Increasing net CO 2eq emissions due to a reduction in forest cover.

The replacement of biomass fuel with the burning of unsustainable sources of fuel for energy – such as fuel oil and coal – would result in very high greenhouse gas (GHG) emissions. The use instead of carbon-neutral sustainable biomass feedstock would mitigate the equivalent emissions from fossil

6 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 fuels. Any additional deforestation prevented due to the development of carbon-neutral sustainable biomass would also reduce net GHG emissions.

Within this context, a sizeable part of the agricultural lands in different parts of the country have become marginal or uneconomic. There are now 1.2 million ha of land that are unproductive or put to limited use. The FSMP has identified 1.6 million hectares of scrub land which are urgently in need of some kind of cover to prevent further degradation. This can be done by introducing energy plantations on these lands. It is estimated that at least 40 million tonnes of wood could be produced on currently unused or under-used public lands – equivalent to 20 million tonnes of coal or 58 million tonnes of CO 2eq . It is essential that energy plantations meet fuel wood needs without affecting agricultural lands. These energy plantations on degraded lands can provide economic benefits while improving soil fertility of degraded lands, which are located mainly in the eastern side of Sri Lanka.

As such, there is a significant need to develop sustainable biomass resources within Sri Lanka to address materials and energy needs using the land available which is not otherwise used. There is a major type of plant which can be used for these purposes which will be addressed in this project: Bamboo, which is a type of grass that can be used for wood products and biomass energy. The project is likely to also support inter-cropping of bamboo with other biomass resources, which have not yet been specified. Intercropping is an important aspect of agroforestry – including for bamboo resources for a number of reasons: 2 • Intercropping can improve the value of the crop/forestry yield on a per hectare basis in terms of the land equivalent value - especially when it does not dramatically increase harvesting or planting costs. • Intercropping with fast-growing trees and other grasses can further decrease erosion in areas prone to flooding and rapid currents. • Intercropping can decrease the rate of loss of soil fertility and improve performance in tems of net yield. • When using crops with shorter yield times than bamboo (for instance ginger or soy beans), the intercropping can result in shorter-term economic benefits. • Intercropping can act as a hedge against the technical risk of one type of crop failing or the economic risk of the value of one crop dropping.

Bamboo in Sri Lanka

Bamboo can serve as a substitute for trees (for industrial wood applications) and as an energy crop (for wood pellets). It is advantageous to use for these purposes because bamboo is much faster growing than most trees, they help with soil quality and prevent erosion, and there are many different species which can adapt to numerous environmental circumstances. Newly planted tropical bamboos generally take about 3-4 years to develop into full sized clumps 3 and a total of 6-7 years before being fully harvestable. The vertical growth of the each aerial stem (or culm) of the bamboo plant bamboo is completed in a period of 3 to 4 months. Unlike trees, bamboo culms do not undergo secondary growth, i.e. the diameter of each culm remains unchanged over the years. Culms undergo a process of lignification and harden over time, and are usually fully mature and ready for harvesting as timber after 3 years.

It is important to note that bamboo is a grass and not a tree. Because it is a grass, in order to maintain its vigour, bamboo must be harvested. Otherwise, numerous potential problems can occur. Thus, it is critical that the harvesting be financially sustainable in order to continue it into the future.

2 See, for example, Nath et al. (2009) Bamboo Based Agroforestry for Marginal Lands with Special Reference to Productivity, Market Trend and Economy. Available at http://jharenvis.nic.in/files/Bamboo_agro- forestry%5B1%5D-S%20Nath(80-96).pdf 3 A clump is a group of culms – or stems.

7 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Most tropical species occur in warm and humid climates with rainfall of 1000mm – 2000mm with precipitation of about 300mm of per month during a 3-4 month growing season. There are several species of bamboo that are drought resistant and which can survive with an annual rainfall of 750mm. Bamboos establish well on light, well drained soils with abundant humus and nutrients, and with a pH in the range of 5 to 6.5.

In previous decades many countries that have strived towards industrialization have considered bamboo as a weed that should be eliminated, and accordingly, vast areas of bamboo were destroyed and converted to crops with greater commercial value. However, there has been increased awareness of the value of bamboo as one of the fastest growing sources of timber in nature. As such, many countries in Africa, Asia, and America are now promoting bamboo for industrial uses.

Sri Lanka currently has very limited bamboo resources and no significant bamboo-based industries. Bamboo resources are mainly scattered around the south-western “wet zone” of the country (see Figure 1 for the location of the dry versus wet zones of the country). It occurs largely as understory growth in state forests, and there are no large concentrations anywhere in the country, i.e. there is no bamboo forest that can facilitate the short term development of large bamboo industries. The total area of bamboo resources in Sri Lanka was reported to be 3,000 ha in 2005. This figure represents approximately 0.2% of the total forest area of Sri Lanka in 2005 (1.933 million ha). It should however be noted that the reported figure of bamboo resources in the country for the years 1990 and 2000 was also 3,000 ha; i.e., the reported figure did not change in 15 years and may not be accurate, but it is unlikely to be much higher.

Figure 1: Map of Sri Lanka’s wet zone and dry zone (Source: http://lcweb2.loc.gov/frd/cs/sri_lanka/lk02_01b.pdf)

8 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

In Sri Lanka, bamboo has not been used as an industrial product. It has traditionally been used by the handicraft sector, mainly for making baskets (e.g. used by tea farmers). It has also been used for scaffolding for building construction – though this usage is in steep decline recently since it has become possible to rent metal scaffolds.

In global terms, bamboo industrialization is a relatively recent trend. Many countries in South-east Asia – where bamboo has played an important cultural role for millennia – are only beginning to move beyond traditional uses of bamboo and develop bamboo industries. Thus, it is not surprising that bamboo in Sri Lanka has not yet developed into an industrial crop.

However, recent major advances within Sri Lanka can assist in advancing the role of bamboo in the country. A functional tissue culture lab has been successfully established within the Riverine Bamboo Project (RBP) which is dedicated to the mass propagation of bamboo species. The lab is fully operational and currently has an annual production level of 250,000 plants. See Annex G for more information on this project.

This project’s success is a clear indication that bamboo development in Sri Lanka is taking a strong industrial turn. This remarkable technical achievement has been accomplished systematically in a relatively short period time by local scientists, and it represents a great opportunity for developing bamboo as an industrial resource in the country.

However, in order to reduce soil erosion and deforestation in the dry zones of the country, it is necessary to introduce drought resistant bamboo species. This project will help in this endeavour by including five species into the existing bamboo propagation programme to develop bamboo on an industrial scale for industrial use and energy generation. This project will help in this endeavour by including the following five species into the existing bamboo propagation programme 4:

• Bambusa bambos (native, drought resistant) • Dendrocalamus strictus (introduced, drought resistant) • Dendrocalamus cinctus (native, drought resistant) • Bambusa blumeana (not yet introduced, drought resistant) • Oxytenanthera abyssinica (not yet introduced, drought resistant)

The propagation program will carefully investigate the suitability and environmental impact of newly introduced individual species. It may also be possible for the RBP to extend its propagation program to other species with industrial potential, for example: D. asper , D. longispathus , D. latiflorus , and T. siamensis , all of which have already been introduced into the country.

Other biomass resources

While bamboo represents an important potential fuel source and material for use in industrial applications, it is envisioned that the project will also include inter-cropping and some level of support for energy crops beyond bamboo (see section A.1for more on why inter-cropping is important). While the biomass crop will be established within the project’s implementation period (year 3), based on initial analysis, it is likely that Gliricidia sepium will be supported and potentially limited technical assistance related to non-energy cash crops (such as ginger, pigeon peas, soybeans & turmeric). In addition to Gliricidia sepium, Teak trees have also been identified as a potentially important non- bamboo biomass source to be planted along with bamboo.

4 More about these species can be found in the report prepared during Project Preparation “Technical Report – Bamboo Processing in Sri Lanka – Preparatory Assistance – Road Map for Bamboo Development”.

9 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 The Ministry of Science and Technology conducted a systematic study to determine the optimum parameters for Short Rotation Coppice (SRC) energy plantation during the period 1999 to 2004. This study identified Gliricidia sepium as the best species which could be grown as an agro-energy crop in the degraded marginal lands in Sri Lanka. The Ministry also purchased two sets of biomass gasifiers from India to demonstrate the technical feasibility of using Gliricidia wood to replace petroleum fuels used in the generation of heat for industrial applications and for the generation electricity. Based on the success of this study, the Ministry of Plantation Industries in June 2005 obtained approval to designate Gliricidia sepium as the 4th Plantation Crop (Tea, Rubber and Coconut are the first three plantation crops) in Sri Lanka.

Government efforts have resulted in over 25 factories which have switched from petroleum fuels to biomass fuels. Some of these factories consume over 50 tonnes of biomass per day. Additionally, 4 power plants operating on biomass are generating electricity and either feeding it to the national grid or using it for their internal use. The largest biomass based power plant connected to the grid is 10 MW. Many other power plants are planned to be commissioned in the near future. Industries which have switched to Gliricidia sepium include Tea factories, Dipped products, Unilivers, MGT Knitting, Lalan Rubbers, Industrial clothing etc.

A.2. Description of the barriers to the functioning of the biomass market – especially for bamboo – in Sri Lanka

The successful development of a bamboo sector in Sri Lanka entails a convergence of three major areas: an enabling policy framework, an appropriate an extensive supply of raw materials and bamboo based products, and a sufficient demand for those products. There are currently a number of barriers preventing the biomass market from fully functioning and realising the potential for GHG reductions and economic benefits.

1. Policy barriers:

Inappropriate subsidies on fossil fuels: Since 2008 CPC has been selling furnace oil nearly at half the cost of importing it. This reduction in price has made companies reduce the price of biomass fuel significantly. This reduction in price results in inadequate quantities of biomass fuels being produced in a sustainable fashion which would be available for new industries willing to switch from petroleum fuels to biomass fuels. On the initiative of the Ministry of Science and Technology, the Government has now agreed to remove this subsidy soon. If this is done many industries and power producers presently consuming furnace oil are expected to switch to biomass fuels.

Restrictions on the transport of bamboo products within the legislation: Forest Regulation No. 01 of 2008 made by the Ministry of Environment and Natural Resources under subsection 1 of Section 24 of the Forest Ordinance (Chapter 451) restricts the transport of numerous forest species including bamboo without a permit that is duly issued by a recognized authority as stipulated under the law. This law was intended to preserve bamboo and other forest resources, but in many cases has had the impact of decreasing the sustainable production and harvesting of bamboo culms and other forestry products on the market because of the difficulty in securing legal transport. Experience with bamboo in other countries (e.g. Kenya) has shown that the imposition of legal restrictions on the trade and traffic of bamboo leads to the mismanagement and neglect of the resource base, which has negative environmental effects.

Additionally, the process for changing the land-use policy to allow degraded public lands to be used for biomass production can be quite complicated – which can lead to a lack of interest in investment. The steps that are generally followed are: 1) Submit an application to the District Secretary (Project report must be included).

10 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 2) The District Secretary will consult the District Land Use Planning Committee (DLUPC) for their observations. 3) The observations of the DLUPC are forwarded to the Conservator General of Forests by the District Secretary. The Conservator General will forward his observations to the Secretary of the Ministry in-charge of Forestry. 4) The recommendations of the Conservator General of Forests will be put to the Inter- Ministerial Committee 5) If approved by the Inter-Ministerial Committee, the applicant is requested to make an EIA or IEA depending on the size and impact of the project. 6) The EIA/IEA reports are forwarded to the Secretary of the Ministry in-charge of Forestry. 7) If approved the land is released by the Department of Forests to the Commissioner General of Lands. 8) The commissioner General of Lands releases the land with suitable conditions.

No clear Government strategy for encouraging large-scale plantations and associated industrial investments by the private sector for bamboo. Though the Government has addressed the strategy for energy production using biomass (i.e. demand in the energy sector), there is no clear strategy for the supply of biomass – particularly bamboo – and demand for materials, means that there is not a sufficient signal from the Government as to how the biomass industry should develop and how the Government will support this development. Despite the provision of incentives for farmers to plant bamboo, there are no incentives for large industrial investment to absorb the stocks of harvested bamboo in the future.

As noted above, one item to note which does not appear to be a barrier is the policy framework for power production from biomass resources. A feed-in tariff is in place which aims to stimulate the market for biomass-based power production. The Government has set a target of achieving 80 MW of power from biomass by 2015 (see Part II, Section B below). Financial and capacity barriers definitely exist which should be addressed, and it is believed that the UNDP/FAO/GEF project “Promoting Sustainable Biomass Energy Production and Modern Bio-Energy Technologies in Sri Lanka” will be integral to increasing demand for biomass for power production. Additionally, there are significant markets for biomass pellets outside of Sri Lanka – where there is sufficient and growing demand.

2. Supply-side barriers:

This project will actually focus most of its resources addressing the supply-side barriers to the sustainable production of bamboo resources. There are a number of supply-side barriers that exist which must be addressed.

Bamboo production limited because it is not taking place on idle lands: Whilst biomass production in general and bamboo planting in particular within Sri Lanka are growing due to various Government programmes and regulations, in general, this production is taking place in the wet zone of Sri Lanka – often as a supplement to other agricultural activities. This is not a problem if the biomass growth does not restrict other important commodities, but it would be far more beneficial if industrial-scale biomass production were to dramatically increase on already degraded lands or lands which are not utilised – for example, in the dry zone of the country. Bamboo species can provide this industrial-scale production, prevent erosion of river banks, and improve land quality.

Logistics and transportation are not developed for bamboo resources: Logistics and transportation and form a crucial part of the production chain of biomass resources. In particular, the distance and subsequently transport costs to processing centres and to the final consumer have a significant impact on the profitability/economic sustainability of biomass production. There are also issues of storage of the biomass, having effective and clear off-taker agreements as to who and when parties are responsible for transporting/processing biomass resources, etc. This system is currently not well developed for bamboo resources in Sri Lanka.

11 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Insufficient knowledge of how to manage production and distribution amongst potential producers of bamboo: In order to produce bamboo resources on existing idle lands, it will be necessary to build capacity amongst farmers, industrial producers, and land-managers to reach a higher potential for biomass production. Large private sector companies involved in agribusiness are currently not aware of the potential of bamboo in the country. Apart from preliminary activities within the project development stage, there has not been a consultative process with stakeholders of the private sector, which can support the definition of a nation-wide strategy for private sector participation in the development of bamboo industries. A lack of understanding of how to grow and harvest the appropriate species on an industrial scale for the appropriate environment – and then market the product to consumers (in the form of biomass energy or materials). For example, current bamboo production is limited to 4 species while species with strong potential like B. bambos , D. strictus are ignored. Significant technology transfer is needed to address this barrier.

Supply chain and the link to demand is not established: In general, there is a lack of a supply chain between bamboo and the potential consumers (energy producers and, for example, parquet floor producers). This should be addressed for both materials use and energy production – especially by developing biomass pellets from bamboo. The existing lack of a supply chain is partly linked to legal restrictions on transporting bamboo and other timber products. In particular, the trade of bamboo falls within an informal sector dominated by rural communities that lack the financial means, technical, know-how, and market access to transform raw materials into high value added products.

3. Demand-side barriers :

In addition to the supply side barriers, there is one major demand-side barrier which needs to be addressed within this project to assure the industrial development of the bamboo market. 5

Industrial use of sustainable bamboo materials is limited: Bamboo processing is limited to traditional applications such as weaving and basket making. Larger-scale industrial uses such as for parquet floors, for shoots for food, or other wood/potentially bamboo-using industries need to be developed in order to secure a demand for the bamboo materials which are not used for energy. This is due both to the lack of sufficient supply and the lack of awareness amongst producers of finished products using biomass materials. Similarly, sustainable bamboo material can be used for energy – especially by transforming the bamboo into pellets for energy production. There is currently no pelletisation of bamboo within Sri Lanka, though other biomass resources are pelletised. Since bamboo is a fibrous plant, making pellets from bamboo is not straight-forward, and thus requires additional efforts to develop as a market.

A.3. General project summary – including global environmental benefits to be delivered

This project will focus on addressing barriers and developing the production of sustainable bamboo for use in the production of energy, building materials, and food production in Sri Lanka. It is likely that, intercropped with bamboo, other species of biomass will be included in production. The project involves a comprehensive approach to address the policy framework, the technology transfer and capacity buildings needs for increased supply, and to ensure sustained demand of these materials via technology transfer for industries which use bamboo as a resource for production. As Sri Lanka already has a wood processing industry, focusing the industry on processed and engineered bamboo products could increase the quality and value of bamboo production in the country, which in turn could increase the value added and the profitability of the industry sector in general and the biomass sector in particular. The project’s impact indicators are listed below:

5 Additional demand-side barriers for the use of biomass from bamboo do exist but are considered as a supply- side barrier in this analysis.

12 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Table 3: Project objectively verifiable indicators Incremental targets (in Indicator Baseline addition to baseline) Tonnes CO per year avoided (direct 2eq 36,630 182,300 reductions) by end -of -project (EOP) Tonnes CO avoided over the lifetime of the 2eq 366,300 1,823,000 measures introduced (direct reductions) MWh in electricity and heat per year generated using biomass energy as a direct 0 311,180 result of this project by EOP Number of innovative technologies 0 4* demonstrated or deployed Status of technology 0 4** demonstration/deployment Enabling policy environment created for Insufficient policy Policy environment national innovation and technology transfer environment for bamboo improved for bamboo policy No capacity to bring Capacity to bring bamboo to industrial bamboo to industrial Enabling policy environment created through scale of production and scale of production and institutional and technical capacity building sale scale * Technologies will include: new species of bamboo grown, floor material production using bamboo, edible bamboo shoots production, and biomass pellet / briquette production of bamboo. See Table 4 below. ** Based on the following scale: 0 - no suitable technologies are in place; 1 - technologies have been identified and assessed; 2 - technologies have been demonstrated on a pilot basis; 3 - technologies have been deployed; 4 - technologies have been diffused widely with investments; 5 - technologies have reached market potential

Technology Transfer is a process of transferring skills, knowledge, technology, business process and methods between organisations, regions, and countries. In line with the terminal report of the project “Climate Change Enabling Activity (Phase II) on technology transfer (2003), the needed technology transfer to selected areas of Sri Lanka are listed in Table 4 below. These technologies will be transferred in most cases from other Asian countries, in particular India and China.

Table 4: Technology transfer that will be a part of this project Component Technology transfer needs and opportunities - Transfer of bamboo tissue reproduction technology through creation of suitable Component laboratory equipment for propagation (see Annex I for a list of equipment); 2 - Identification of suitable bamboo species, transfer of technical approaches to transfer technologies in environmentally sustainable ways Component Development of stable feedstock by transferring skills to plantation owners and 3 operators to develop environmentally sustainable plantations; - Technology transfer through provision of technical support and guidance to conduct outreach to farmers, and entrepreneurs to ensure successful operation and harvesting of bamboo plantations; Component - Technology transfer by improving business processes via technical support and 4 guidance in the development of business plans and marketing; - Building skills through the transfer of knowledge to workers in good practice growing and harvesting techniques; - Transfer of technology for bamboo processing, and building stills for the production of bamboo flooring; Component - Bamboo shoot production including transfer of skills to establishing the supply- 5 chain of raw materials (bamboo shoots) for food processing, transfer of knowledge in the use of equipment for production; - Enhancement of skills in the provision of maintenance;

13 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 - Enhancement of business processes in marketing the edible bamboo shoots domestically and abroad; - Establishing the supply-chain of raw materials (bamboo and others) for pelletisation / briquetting or chip production; - Enhancing skills in operating the equipment for production for bamboo pellets / Component briquettes / chips; 6 - Enhancing skills for the provision of maintenance as necessary; - Technical Assistance in quality control and marketing the biomass pellets materials domestically a nd abroad as needed;

Description of Project Outputs/Activities

Component 1: Policy Framework

Component 1 of the project will work to address the policy barriers to the full functioning of the biomass market – especially for bamboo.

Outcome 1: Assessment of existing framework and shortcomings and a supportive framework adopted Within the existing policy framework, there are a number of shortcomings that can be delineated at the following levels: • The national strategic planning level; • National policy/regulatory support; • Local and regional policy/regulatory support; and • Land use policy changes;

The activities carried out within this component will lead to addressing these shortcomings in the existing policy framework.

Output 1.1: National strategy developed for the development of the bamboo industry

At a national level, there is a need for a strategic plan to stimulate the bamboo industry in order to maximise the potential of this resource in an environmentally sound manner. The national strategy on bamboo should aim towards enhancing the resource base, developing demand driven industries, protecting the environment including reducing land degradation while protecting biodiversity, and creating sustainable economic growth of the sector.

Corresponding activities in this section will include the following: • Assessment of all existing data and initiatives related to bamboo and other agro-energy crops and their potential in Sri Lanka. • Development of a draft national bamboo strategy for Sri Lanka that includes: o The protection of biodiversity of endemic species and sustainable development and utilization of bamboo resources; o The promotion of bamboo plantations (individual and community owned), community-based bamboo industries, and promotion of the bamboo sector development as part of the national rural development strategy; and o The promotion and development of bamboo products, including those for export. • An awareness-raising program for government officials on achieving this strategy, its benefits, and the need to sustainably manage bamboo and other agro-energy crops. • Strategic Environmental Impact Assessment and identification of mechanisms to mitigate impacts and reduce risks.

14 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 • Seminars for all stakeholders on producing and marketing value-added bamboo-based products and on the rural development and environmental protection potential of bamboo as an energy crop.

Output 1.2: National policy adjustments supported

In addition to a national strategy being developed, support for other adjustments in the national policy framework will also be necessary. GEF resources will go towards Technical Assistance to assist the Government institutions involved in developing policy for the development of bio-energy, including the establishment of Bamboo and other biomass plantations in all state owned lands suitable for such cultivation. This support will include helping to devise economically sustainable programmes which will benefit local livelihoods and communities by providing employment while food security, protect the environment in particular biodiversity, lead to reductions of net CO 2e emissions, and prevent or reverse land degradation. This may involve providing the necessary incentives to the private sector to engage in the establishment of such plantations in private lands.

Activities involved in achieving this output will also involve coordination of an intra-governmental working group on bamboo development and agro-energy policy more generally.

An example of the kind of policy support necessary is what level of subsidy is cost-effective and financially sustainable for encouraging farmers to grow and harvest bamboo. The RBP has proposed that when culms are ready to harvest, the NGO/CBO responsible for planting should harvest the culms under the guidance of the responsible Mahaweli officer and 50% of the income should be paid to the Riverine Bamboo project. The RBP has requested a policy decision on this matter, which remains pending.

Another specific policy which must be addressed in order to stimulate the bamboo market is the restriction on transport of bamboo resources. In 1990, the Government imposed a complete logging ban in all natural forests following recommendations of the Conservation Review Committee. This ban is still in place, and there is strong public support to maintain the ban until the depleted forests are rejuvenated. However, one of the provisions of national forestry policy is Forest Regulation No. 01 of 2008 by the Ministry of Environment and Natural Resources. The regulation restricts the transport of numerous other forest species including bamboo without a permit. This is particularly important for bamboo – which is a grass and not a tree, and must be harvested to grow sustainably.

In practice, this means that farmers and entrepreneurs do not seek to grow bamboo – and other potentially important biomass species – on degraded public lands (for example, via a leasing programme). However, there is an abundance of degraded land available throughout the country which could be utilised for these purposes. These include public lands which are within 5 metres of river banks, and numerous patches of land throughout the country – especially in the dry zone.

The corresponding activities for this output will include: • Establishment of an intra-governmental working group on bamboo development and agro- energy policy more generally. 6 • Review of national forestry policy and determination of the jurisdiction of these policies for bamboo and other agro-energy crops. • Drafting of suitable revisions in national forestry policy and supporting legislation and/or regulations as necessary – especially related to the provision for the transport of bamboo biomass resources, paying particular attention to address concerns about deforestation and biodiversity. • Presentation of the revisions to the responsible government officials for adoption. • Monitoring of adoption and implementation.

6 Note that if the UNDP project “Promoting Sustainable Biomass Energy Production and Modern Bio-Energy Technologies in Sri Lanka” is approved, the project implementation team will be sure to coordinate activities.

15 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

Output 1.3: Land use policy adjustments

In addition to the national level forestry policy changes required, land use policy changes would be beneficial to stimulate the growth of the bamboo production industry. As noted, there are thousands of hectares of degraded lands – especially in public ownership – which could be converted to produce biomass resources. However, the current land use policy makes it difficult for changes to be implemented. As of the writing of this document, there has been no drive by any of the Ministries that have access to these lands to support cultivation. Many state institutions are in possession of many thousands of acres of land that could be planted or inter-planted with biomass plants such as bamboo in order to increase productivity and to obtain other economic benefits, while reducing land degradation, avoiding disruption of ecosystems, and sustaining biodiversity.

Additional, non-public lands belonging to tea and rubber estates have not been brought under cultivation for a number of reasons such as physical unsuitability for tea and rubber, labour shortages, management difficulties etc. Some of these lands have been subsequently utilized for activities such as village expansion and resettlement programmes, but the balance still remains unutilized. However the extents of these unutilized lands are not available at present.

The Land Use Policy Planning Department is collecting information on unutilized lands in all of the Districts as part of the 2009-2013 Action Plan. As of the writing of this document, this information has been collected in one or two divisions in each district.

The Plantation Management and Monitoring Division of the Ministry of Plantation Industries is also in the process of collecting information on the extents of unutilized lands on all these estates. They expect to have this information ready in a few months’ time.

For any development project the Other State Forest land has to be released by the Conservator General of Forests. Obtaining the approval of the Conservator General is a long drawn out procedure. As such, any Other State Forests firmly identified during the course of the project for cultivation (year 2) will have to go through this process. The project will therefore pursue these land-use policy changes as appropriate to the plantation lands which have been identified. Additionally, ways of streamlining the process for future expansion will be explored.

Corresponding activities will include the following: • Review of national land use policy as it pertains to the development of locations for bamboo and other agro-energy crops. • Carry out environmental impact assessments and implement mitigation mechanisms • Carry out the application process for changing land-use policies on degraded lands to allow for the development of energy crops – particularly bamboo species. • Review the process for changing national land use policy and provide recommendations for streamlining the process to encourage better use of degraded lands. • Presentation of the revisions to the responsible government officials for adoption. • Monitoring of adoption and implementation. • Support to land registration and inspection, and regulation of illegal land use change as necessary to address environmental sustainability of the plantations.

Output 1.4: Supportive policies and regulations on a local and regional level

While national policies are critical to the successful expansion of biomass resources – especially from bamboo – local and regional policies can also have an impact. This can include policies which encourage local markets for environmentally sustainable biomass (either energy or materials), locally controlled land use policies, procurement policies for construction, etc.

16 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Corresponding activities for this output will include the following: • Review of any regional and/or local forestry, land use, energy, and rural development policies with recommendations on how they might be more supportive of bamboo and other agro-fuel crops – especially in the dry zone, while protecting biodiversity and ecosystems. • Drafting of local and regional “good practice” policies and regulations to support and implement the National Bamboo Strategy to be developed under the project (Output 1.1).

Output 1.5: Information on the project activities disseminated to the public and decision-makers

In order to support the policy objectives, information dissemination will be carried out about the project’s activities and results via the media outlets (national, local, and international), and expert- oriented media outlets. This information dissemination is critical to ensuring the ongoing support of the public and therefore policy-makers for developing biomass resources – specifically related to bamboo.

Corresponding activities for this output will include the following: • The development (based on project activities and other activities in the sector) of a periodic newsletter to be disseminated electronically to decision-makers, stakeholders, and media representatives; • The placement of stories via press releases and interviews about the project in various media sources, including local and national news media (TV, radio, and newspapers). Additional efforts will be made by UNIDO centrally to gain attention in international media circles; • The placement of stories via news articles written on various web-pages related to project implementation. It is not foreseen that the project will have its own web-site, but rather the stories will be placed on the web-sites of those organisations involved with the project (including UNIDO). • The development and dissemination of four (4) short videos (maximum 10 minutes) highlighting the project’s accomplishments and activities throughout various stages of the project. These will be disseminated to various TV channels in and outside of Sri Lanka, via web-sites, and be available for use by the GEF.

Summary of Financing: In Component 1, GEF funds will support Technical Assistance for achievement of the outputs, as well as the development of videos to highlight project activities. In- kind support by the Government will cover institutional involvement in the achievements of the outputs, office expenses, information dissemination via web-sites, etc.

Risk mitigation approach Careful monitoring of project progress will be carried out throughout project implementation and deviations from those intended will identified early and mitigation actions taken. Component 1 relies on the active involvement of the national and local government. The main risk is in the development of functional policies and legislation which is adopted by governments, and then is put into action. While adoption of policies is the responsibility of democratically elected representatives, and thus cannot be guaranteed by a donor funded project, the project outcome is fully in line with government priorities, ownership and buy-in from local stakeholders is demonstrably high (not least in the level of co-financing), and the project is designed in such a way as to foster cooperation and working towards mutual shared goals. The project team will be based within the Mahaweli Authority and will thus have high level access and influence. Ongoing efforts to ensure buy-in and commitment will be made.

Component 2: Bamboo Tissue Production

Component 2 will be essential to the introduction of bamboo tissue production for species that are a part of Component 3 (Plantation establishment) by developing the production methods and providing planting material on a large scale of the five species which have been identified for large-scale propagation in Sri Lanka. The activities within this component will focus on integrating the five

17 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 species into the propagation program of the RBP Tissue Culture lab.

Outcome 2: Bamboo reproduction technology transfer - National capacity to provide bamboo planting material on a large scale

Output 2.1: Acquisition and installation of laboratory equipment for appropriate species

Within Sri Lanka, one tissue culture lab has successfully been established and is currently mass propagating bamboo species – the Mahaweli Authority lab at Mawathura, Kothmale. Four species are currently being mass propagated at this lab: • Dendrocalamus giganteus • Dendrocalamus hookeri • Ochlandra stridula • Neololeba atra (syn. Bambusa atra)

Mass propagating additional bamboo species which are drought resistant is necessary to successfully introduce bamboo into the eastern “dry zone” of the country. As can be seen from Figure 1, the “dry zone” takes up over half of the country’s land-area of 64,630 km 2, meaning there is significant land area within this zone. The cultivation of drought resistant bamboo species will involve some species that are already present in the country – but not being produced at the tissue culture lab – which are particularly suited for planting close to river banks. It also means introducing, only on conditional that outcomes of environmental impact assessments are positive and suitable control mechanisms are in place, other bamboo species – one from Africa and one from Southeast Asia. These species will be integrated into propagation program of the RBP TC lab under careful assessment and observation of environmental impacts by introducing new species.

The species which will be introduced are as follows:

Bambusa bambos : The largest native bamboo with multiple industrial uses is Bambusa bambos . This is a drought resistant species which occurs in the dry zone of the country. Unlike most bamboos, it can survive in areas with short rainy seasons, and it is also quite resistant to flooding. B. bambos is a timber bamboo with spiny branches. Due to its thorns, it needs to be intensively managed in order to facilitate harvesting. This bamboo is widely used in India’s pulp and paper industry. It was estimated in 1991 that the resource of this species in Sri Lanka was about 4 ha. B. bambos is widely planted in parts of Asia, especially for erosion control, and as a source of timber. It is a native species of Sri Lanka and it can potentially be used for controlling erosion in the RBP. Since it is a drought resistant species, it can be planted along the banks of rivers that dry up, and which only flow during the rainy season.

Dendrocalamus strictus : Dendrocalamus strictus is also known to be drought resistant. Its distribution in Sri Lanka is restricted to one or two isolated forested areas, such as Ritigala which is located in the North Central region of the country. D. strictus was reportedly introduced by the Forest Department as a source of fibre for the paper industry. In 1998, the total extent under D. strictus was estimated at 2,750 acres (920 ha) as a pure crop and 888 acres (297 ha) as a mixed crop with eucalyptus.

Dendrocalamus cinctus: Dendrocalamus cinctus is also known to be drought resistant. The addition of this species to the propagation program of the TC lab can make it an option to cultivate bamboo in areas that are less suitable to cash crops.

Following environmental assessment, and only if suitable safeguards can be assured, non-native species of bamboo may be introduced under controlled conditions. These are:

18 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Oxytenanthera abyssinica – an African species – thrives in Ethiopia, close to the Sudan in areas with less than 1,000 mm rainfall per year. The species also grows in dry areas of western Africa. O. abyssinica is a solid stemmed bamboo which has strong potential as a biomass crop.

Bambusa blumeana – a native of South East Asia – is a spiny bamboo with tall straight culms. It shares many similarities with B. bambos and can thrive under the same conditions as the latter. B. blumeana is also a species that can withstand periods of drought and extend periods of flooding during the short rainy seasons.

Before planting bamboo species in plantations and up-scaling the programme, following detailed environmental assessments, laboratory equipment must be acquired and installed at the RBC tissue culture lab. This will include initial samples of the various species to be developed for industrial production.

Corresponding activities for this output will include the following: • Review assessment on potential impacts and risks on environment by introduced new species • Identification of suitable laboratory equipment and tissues for the production of bamboo tissue from the five selected species • Procurement of the equipment and bamboo planting material • Installation of the equipment

Information on the equipment to be procured and installed using GEF resources under this component is included in Annex I.

Output 2.2: Functional laboratory and availability of high quality planting material for appropriate species

In addition to the procurement process, it will be necessary to provide training for staff which will be using the equipment. This will occur via south-south technology transfer and knowledge sharing, especially with experts from India, where UNIDO has excellent expertise and experience in the development of the bamboo industry. There may also be additional south-south knowledge sharing from Ethiopia and Southeast Asian countries such as the Philippines related to the newly introduced species. This technology transfer will take place in the form of purchased equipment. The knowledge sharing will take place in the form of consultants hired to carry out trainings during visits to Sri Lanka and continue providing advice and guidance from abroad.

The equipment purchased will be used to develop the first high quality planting material for the 5 species identified.

Corresponding activities for this output will include the following: • Provision of training to laboratory staff • Establishment of production targets for the laboratory • Oversight of equipment performance and provision of maintenance as needed. • Monitoring of laboratory performance and tissue production by assessing production levels, consumer satisfaction and delivery lead times.

Summary of Financing: In Component 2, GEF funds will support the cost for equipment and tissue samples additional to existing equipment at the Mahaweli Authority facilities as well as Technical Assistance for procurement, training and development of planting material. Co-financing will be used to support part of the cost for equipment and tissue samples, as well as use of existing equipment for the project. In-kind support provided by the Government will cover staff time and building expenses within the RBP in developing the planting materials and implementing the outputs.

19 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Risk mitigation approach Careful monitoring of project progress will be carried out throughout project implementation and deviations from those intended will identified early and mitigation actions taken. Component 2 has been designed to minimize technology risks through the introduction of multiple bamboo species, and the use of species that have excellent track records where technology transfer from nearby countries can be facilitated. Climate risks are also mitigated to some extent by the selection of drought and flood resistant species. In addition the project will be implemented through the Mahaweli Authority where local experts and staff have a proven track record in bamboo tissue production.

Component 3: Plantation establishment

Component 3 of the project will involve moving the plant material out of the lab and establishing bamboo plantations. For species that have already been established in the marginal lands during RBP, Technical Assistance will support identifying methods to improve distribution and economic/financial sustainability of the plantations.

Prior to the development of plantations environmental impact assessment will be carried out. While the introduction of bamboo on degraded land is intended to have positive environmental outcomes, it must only be done where degradation of ecosystems is avoided and protection of biological diversity can be assured.

The conducting of field trials before establishing plantations is not deemed necessary because all of the identified species have been cultivated extensively in other countries under similar climatological and land-quality circumstances. Scientific data on their growth patterns and needs can be obtained from previous studies and field trials in other countries, and will be used in the local environmental assessments.

In implementing this component of the project, UNIDO and the executing partner the Mahaweli Authority will focus on developing a stable feedstock for bamboo-based industries and building capacity for plantation owners and operators to continue operations in an environmentally sustainable manner, ensuring protection of ecosystems and biological diversity.

UNIDO and the Mahaweli Authority will also involve working local authorities, extension offices, larger landowners, and local Farmers’ Organisations/Rural Producers’ Organisations in identifying lands for production and involving local farmers in bamboo production. 7

Outcome 3: Plantations established to provide feedstock for bamboo industry

Output 3.1: Bamboo plantations established in unused lands in the dry zone and wet zone

During project preparation, almost 10,000 ha of suitable degraded land – most publicly owned – has already been identified for potential cultivation of bamboo. Some of the lands may be well-suited to intercropping of bamboo and another energy crop or building material. It is important to state that the biomass resources to be produced during the project will be on lands which are currently degraded – not natural forests or those used for traditional agroforestry systems, and environmental impacts will be assessed before establishment.

Some of the lands identified have been used by locals “illegally” for cultivation of temporary crops seasonally. Hence there could be resistance on their part to give up these lands completely. Therefore, particular attention will be paid to ensuring local community involvement and ensuring that food resources are not compromised and revenue is shared. This will involve working with local leaders and Farmers’ Associations to identify appropriate lands, conducting stakeholder outreach, and either

7 There are over 700 Farmers’ Organisations around Sri Lanka which are active. See http://zunia.org/post/profiles-of-farmers-organisations-in-sri-lanka/ for more information.

20 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 leasing the land at favourable rates to local community members for establishing bamboo crops or establishing revenue-sharing programmes for the proceeds from the sale of bamboo where local community members are involved in the planting/harvesting.

The land is envisioned to continue to be in the ownership of the Government, but secure land tenure for a set period (to be decided during project implementation) will be established for those farmers interested in developing and harvesting bamboo and other biomass resources. The monetary value and rents paid for the use of this land will also be established during project implementation in cooperation with stakeholders.

Additionally, tens of thousands of hectares are represented by land which is immediately adjacent to the river banks – which is publicly owned, not used for food crops by local populations, and currently undergoing erosion leading to water quality problems. Some of these lands would be a part of Phase II of the RBP project.

The Project Execution Body will work with local communities and officials to ensure sustainable planting of bamboo species on appropriate public lands in both the dry and wet areas of the country. Particular attention will be paid to ensuring local community involvement. This will involve either leasing land at favourable rates to local community members or establishing revenue-sharing programmes for the proceeds from the sale of bamboo where local community members are involved in the planting/harvesting.

When finalising the public land to be developed into plantations, a number of factors will be considered including: a) The land being used for bamboo should not directly conflict with food crops or existing forests – it is expected there is plenty of land which meets this criteria either because of the land characteristics or location (e.g. too close to the river banks) b) The likely financial sustainability (in terms of costs versus projected revenues) of production of bamboo – and other biomass resources – in this location. This consideration will incorporate the logistics including distance to the industrial users/ processors of bamboo/other biomass resources (either for industrial processes, biomass energy, or pelletisation – see Components 5 and 6). c) Developing bamboo resources at the location will not threaten biodiversity in the area.

Market assessments were made during project preparation and the financial sustainability was analysed. These showed potential positive cash flow within a reasonable investment period. An example analysis is given in Annex L.

In addition to publicly owned land, there are privately owned lands which are degraded, where businesses and land-owners have expressed interest in growing bamboo as an energy crop or as a material for use in construction. Based on consultations held during project preparation, it is expected that private entrepreneurs will likely invest in bamboo production and plantations on their land if there is intervention of Technical Assistance provided by the project. The RBP currently encourages owners of economically marginalized and degraded lands to cultivate bamboo. There are an estimated 23,300 ha of such lands in the upper Mahaweli catchment. Most of these lands are reportedly abandoned tea plantations and thus are not suitable/currently used for food production. 8 Already, due to activity during project preparation, approximately 285 acres (115 ha) have been committed for bamboo production by the company Bamboo Resource Development (Pvt) Ltd, and additionally 354 ha by the Forest Department. Almost 10,000 ha of land in total has been identified as suitable during the PPG. Through the activities in this project they will be secured along with identification of economically and ecologically suitable areas.

8 It is not expected that more than 1500 ha of private land will be developed for the project.

21 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

Overall, it is estimated that 2,000 new ha will be planted each year over a 5 year period (starting in year 2 of the project). It may be very difficult to reach the 10,000 ha bamboo plantation target in any single district – especially within the wet zone of the country. For this reason, areas in both the wet and dry zones of the country will be targeted for development. The main initial target will be river banks in the dry zone of the country and then expanding from there – including by incorporating private lands.

During project preparation, it has been found that a number of fast growing tree species could be inter- planted with bamboo in order to maximize biomass productivity. This will potentially include teak trees and Gliricidia sepium, though other species are also possible. This specific mix will be decided upon based upon ecological characteristics such as local hydrological and soil conditions.

Activities under this output will include the following: • Finalize the list of publicly owned land to be used for bamboo production; • Mapping logistically and ecologically suitable land for bamboo production and spatiotemporal monitoring after planting; • Establish leasing agreements/revenue sharing agreements for farmers who will carry out bamboo production; • Establish cooperation with private sector landowners for their plantations; • Acquire plant stock necessary for crop production.

Summary of Financing: In Component 3, GEF funds will support Technical Assistance in identifying and finalizing land to be cultivated. In addition, GEF funds will be used in the form of a small subsidy to incentivize the purchase of appropriate equipment for bamboo plantation establishment. In-kind support provided by the Government will cover additional technical analysis of lands to be cultivated, a percentage of the cost of the plant material to be distributed along with the land used for the cultivation of bamboo.

Risk mitigation approach Careful monitoring of project progress will be carried out throughout project implementation and deviations from those intended will identified early and mitigation actions taken. Component 3 has been designed to minimize technical risks from plantation failure. Planting will involve 10,000 ha with ~100 ha plots spread over a large area, so that the failure of an individual plot will not significantly affect the project outcomes. Local researchers in Mahaweli Authority have capacity and experience to to implement the project including with environmental assessment and monitoring for evaluating site condition, biodiversity, and land use.

Planting will start from better site conditions based on suitability mapping for planting identified by local researchers under supervision of the project manager (e.g. Mahaweli riverbanks in wet and dry zone); Selection of planting location will be based on economically-assessed logistics options and land suitability (hydrology, soil condition), which are part of the technical assistance under this project.

In Output 3.1 the project will be implemented by working with the local population as co-beneficiaries of any harvesting of bamboo developed. Component 3 includes capacity building and outreach activities that demonstrate the local benefits of bamboo-related industries.

Component 4. Plantation operation

Component 4 of the project will build directly on Component 3 (the establishment of plantations) to provide Technical Assistance to ensure that the plantations established are successful both in terms of production and finances.

Outcome 4: National know-how for maintaining bamboo plantations

22 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Output 4.1: Economically sustainable, functional bamboo plantations running in currently unused dry lands and wet lands

The GEF project will support Technical Assistance to assure the economically sustainable functioning of bamboo plantations. This will involve harvesting bamboo culms for either biomass or building materials or harvesting bamboo shoot by-product which can be used as a food source.

Through the establishment of a demand for biomass materials made from bamboo (See Components 5 and 6) and the establishment of partnerships with local communities and farmers who can lease the land for favourable rates, the project will be able to create an enabling infrastructure for the functioning of bamboo plantations on currently unused, publicly owned lands.

The output will also include involving private owners of lands which are – for the most part – currently underutilised and could be used for bamboo or other biomass resources. These would include degraded tea plantation lands among others. Owners of these lands are often reluctant to invest on improving soil fertility, as it does not lead to attractive short-term benefits. In order to encourage these farmers to adopt changes on their own land, an awareness and training program should be developed and implemented to raise the confidence of the landowners about the profitability of growing bamboo.

During project development, a number of landowners who are interested in developing bamboo were identified, including one firm agreement for the development of ~115 ha. Significantly more is expected to be identified during project implementation. During project implementation, increased bamboo and biomass resources on private lands due to the project will be tracked along with investment levels.

Once planted, plantations will be dependent on proper maintenance, efficient management and harvesting techniques for success. The following groups of stakeholders will have to be trained in order to ensure the successful operation of the plantations: • RBP/ Mahaweli Authority of Sri Lanka staff who will conduct outreach to farmers and entrepreneurs (training of trainers); • Local farming extension services (also training of trainers); • Local farmers who farm “illegally” on public lands and could benefit from the programme; • Local entrepreneurs who would harvest and sell bamboo/biomass (potentially those already involved in harvesting and selling biomass from forest resources).

Activities under this output will include the following: • Technology transfer through provision of technical support and guidance to RBP/ Mahaweli Authority of Sri Lanka staff to conduct outreach to farmers and entrepreneurs (training of trainers); • Technology transfer through provision of technical support and guidance to farmers, extension services, private plantation owners and managers via trainers from the RBP/Mahaweli Authority; • Technology transfer by improving business processes via technical support and guidance in the development of business plans and marketing. This will include support to establish logistics and infrastructure for a simple collection/distribution approach using storage facilities as hubs to ensure the stable quantity of supply to the proposed sites/factories (flooring, shoot, for handcraft by local farmers) under other components; • Building skills through the transfer of knowledge to workers in good practice growing and harvesting techniques.

Summary of Financing: In Component 4, GEF funds will support Technical Assistance and training for the development of management of the bamboo plantations. In-kind support provided by the Government will cover complementary Technical Assistance. GEF funds will additionally support

23 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 sound management of bamboo resources through investments in equipment for drying, storage, and/or equipment to facilitate logistics.

Risk mitigation approach Careful monitoring of project progress will be carried out throughout project implementation and deviations from those intended will identified early and mitigation actions taken. Component 4, as for component 3, has been designed to minimize technical risks from plantation failure. Planting under component 3 will involve 10,000 ha with ~100 ha plots spread over a large area, so that the failure of an individual plot will not significantly affect the project outcomes under component 4. Local researchers in Mahaweli Authority have capacity and experience to implement the project and, under component 4 significant capacity building and outreach activities that demonstrate the local benefits of bamboo-related industries will be included. Since multiple uses of the bamboo will be supported through technology transfer including bamboo shoots, materials and energetic use, the viability of the plantations is more assured, and the risk of minimal take-up is reduced.

Component 5. Bamboo processing equipment

Phase I of the RBP project involved the establishment of a Tissue Culture Laboratory and mass propagation of Bamboo in Sri Lanka (Dendrocalamus Species). It has been very successful. However, despite the achievements of RBP Phase I, industrial development and investment in utilising bamboo for various industries has not occurred. Phase II of the project is focused on propagation of bamboo on river banks (consistent with Component 4 of the project).

RBP Phase III (Enterprise development for processing of Bamboo) will involve strengthening inter- sectoral linkages in order to activate private sector involvement. During the course of project preparation, a number of industrial actors were identified which are interested in developing industries based on bamboo feedstock. These are predominantly in the building materials sector (floor materials and other timber uses) and in the food production industry (using bamboo shoots by-products). These baseline activities will be enhanced and accelerated by the GEF project.

Bamboo processing equipment will be essential to creating a market for the bamboo that is harvested on the plantations established under Components 3 and 4 of the project. A South-South technology transfer is possible from larger bamboo markets in (for example) China or India. The transfer of these technologies would be a prerequisite to local use of bamboo on an industrial scale.

Note that these industries are likely to be profitable for businesses which endeavour to move into the sector. A more detailed financial analysis of likely profitability is provided in Annex L.

Outcome 5: Bamboo processing technology transfer to Sri Lanka

Output 5.1: Bamboo processing machinery for industrial use bought and installed

Products produced of bamboo other than handicrafts are not often seen in Sri Lanka, though it could be an excellent source of raw material for a variety of industries. During year 3 of the project, the Project Execution Body will begin providing Technical Assistance to industrial actors which are interested in using bamboo in industries. Using UNIDO’s international expertise, technology transfer will take place through assistance to firms in Sri Lanka in procuring machinery and installing it for appropriate use in developing flooring materials from bamboo resources. This equipment will likely be imported and expertise shared from companies in India, China, and/or Timor Leste where UNIDO has had successful experience in developing bamboo processing. A list of the equipment which would be necessary to install can be found in Annex I. This equipment will include, among other things, bamboo crosscutting machines, dashing and slicing machines, node removing machines, a drying oven, precision planning machines, solar driers, etc.

24 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Already, a first interested company, Touchwood Investments PLC, plans to cooperate with the project to develop bamboo processing for flooring materials. This will include a cofinancing investment of USD 1.3 million. Additional companies will be sought which are already involved in wood-processing and would be interested in developing bamboo processing for flooring materials.

Equipment procured will be owned by local companies – either publicly or privately owned. Training will be carried out on the use and maintenance of the equipment under Outputs 5.2 and 5.3 (below). A more detailed description of the type of equipment which will likely be purchased is included in Annex I. While it is currently foreseen that the parquet/ flooring industry and bamboo shoots industry will be the focus of this component, it is possible that this will change during the course of the project implementation. Any change in which products will be pursued will be subject to a review and majority vote by the Project Steering Committee.

Activities under this output will include the following: • Information on the potential utilisation of technologies distributed to various businesses in the appropriate industries; • Identification of the businesses interested in purchasing the equipment; • Identification of suitable equipment; • Identification of applicable renewable energy systems for the installed facilities; • Procurement of the equipment; • Installation of the equipment.

Output 5.2: Establishment of bamboo flooring production capacity

Wood flooring including parquet is a small sector in the wood industry in Sri Lanka. A handful of companies are making parquet locally with locally available raw materials. At the same time some companies import cheaper parquet using wood substitutes and a laminated surface, and local producers import them to diversify their product range. A major parquet export company – Parquet Lanka was forced to stop production due to raw material availability issues. Some plantation companies with lands under 99-year leases are involved in parquet production with small units as a strategy for diversification to minimize costs. Some companies have come to the market with parquet flooring and are doing fairly well in export processing with international partnerships.

At present, there is no bamboo parquet production facility in Sri Lanka. In discussions with a number of industrial entrepreneurs, this existing hole in the supply of the market is potentially an attractive one – if some form of Technical Assistance in the operation of the equipment and plant can help mitigate the risk.

Project resources will go towards Technical Assistance in utilising equipment procured in Output 5.1 in order to establish and maintain the bamboo flooring production capacity.

Activities under this output will include the following: • Technology transfer to establish the supply-chain of raw materials (bamboo and others) for industrial processing (from Component 4); • Transfer of skills in operating the equipment for production; • Enhancement of skills for the provision of maintenance as necessary; • Enhancing business processes and capacity in marketing the flooring materials domestically and abroad as needed.

Output 5.3: Establishment of bamboo shoots industry

Edible bamboo shoots are a by-product of bamboo production. There is significant scope to develop this industry within Sri Lanka – likely predominantly for export markets. Conversations with a number of food processing industries have indicated a significant interest in developing this product for export.

25 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

Depending on the movement of the market in the next year and a half, project resources will be directed towards technology transfer in using equipment that is either already in place or has been procured as a part of Output 5.1. There is good knowledge about the bamboo shoots industry in many other countries in the region, most notably in China. Whilst it is not clear if the project resources will be used to intervene in this exact segment of the market, it is relatively likely.

Activities under this output will include the following: • Transfer of skills in establishing the supply-chain of raw materials (bamboo shoots) for food processing (from Component 4); • Transfer of knowledge in using the equipment for production; • Transfer of knowledge in the provision of maintenance as necessary; • Transfer of skills and business methods in marketing the edible bamboo shoots domestically and abroad as needed.

Summary of Financing: In Component 5, GEF funds will support Technical Assistance for procurement, technology transfer, and use of bamboo processing equipment. Funds will also provide Technical Assistance for technology transfer by establishing the supply chains, for utilising the equipment, and for marketing finished products. GEF funding will also be used to incentivize the purchase of appropriate processing equipment. Co-financing will be used to pay for equipment and in the business development activities of the various enterprises which will be involved in the project. In- kind support provided by the Government will also cover some of the Technical Assistance costs for assisting these businesses.

Risk mitigation approach Careful monitoring of project progress will be carried out throughout project implementation and deviations from those intended will identified early and mitigation actions taken. Component 5 takes a comprehensive value-chain approach to the transfer of bamboo processing technology for flooring and bamboo shoot production, addressing both production and capacity building to support entrepreneurs to market the products.

Since GEF funds won’t be used to subsidize equipment, risks of inappropriate selection of equipment and insufficient ownership of outcomes will be very low.

Component 6. Pelletising / briquetting / chipping

Component 6 will focus on palletising, briquette production and/or chips of bamboo resources – both for the domestic and international market. As noted in Section A.1, biomass use in Sri Lanka is currently unsustainable. At the same time, the use of other fuels – particularly furnace oil – is subsidised by approximately 50% of its actual cost. Partly because of the rising prices of furnace oil, these subsidies will be cut in the near future. This will lead to an even greater increase in pressure for biomass resources for heat and power. Already, domestic biomass use in industry is growing as a result of price increases in petroleum fuels. Therefore, there is a great opportunity to replace furnace oil fuel or unsustainable biomass locally with sustainable bamboo/biomass energy. At the same time there is great opportunity for export of this sustainable fuel source.

For example, the Ministry of Power and Energy is exploring the feasibility of using biomass as a supplementary fuel (co-firing) at the coal fired power plants in Sri Lanka. If this option is found to be technically and economically feasible, then it will be able to generate the equivalent of 900 MW of electricity from biomass through this option. Additional large investments in biomass are expected in Sri Lanka in the coming years – with over 200 MW of power based on biomass being planned (See Annex J for more).

26 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 This component thus addresses the need for technological transfer to develop the pelletising and briquetting industry in Sri Lanka – especially from bamboo – in order to provide feedstock for biomass based power and heat.

Outcome 6: Biomass pelletising / briquetting / chipping technology transfer and development

Output 6.1: Pelletising / briquetting / chipping machinery bought and installed for bamboo

Biomass – mostly in the form of fuel wood – is used extensively in Sri Lanka, especially for cooking. However, the production facilities for pelletising or briquetting biomass from bamboo, in particular, or other sources such as dry tree species are not well known, and the transfer of technology is thus necessary. Products produced from bamboo other than handicrafts are not often seen in Sri Lanka, though it could be an excellent source of raw material for a variety of industries. During year 2 of the project, the Project Execution Body will begin providing technology transfer assistance to actors that are interested in using bamboo for making biomass pellets or other energy feedstock such as briquettes and chips – primarily for domestic use though with possibilities for export. Using UNIDO’s international expertise, firms will be assisted in procuring machinery and installing it for appropriate use in developing biomass pellets from bamboo resources. As it has already been noted, there is a large existing demand for biomass fuel in Sri Lanka – which is likely to grow dramatically with the introduction of biomass-fired or co-fired power plants.

Because it will take a few years for the bamboo to be ready for harvest, feedstock from existing sustainable wood industries – such as wood waste – will be used for the initially. This can be supplemented at a later stage when bamboo resources (large scale plantations) and other energy crops are ready for harvesting.

The equipment will be owned by local companies – either publicly or privately owned. Initial conversations have been carried out with a number of companies. Over the course of project implementation, the levels of production and investment among firms that receive technology transfer will be tracked as a part of project reporting. UNIDO experts and companies from whom the equipment is purchased will carry out training for these companies on the use and maintenance of the equipment under Output 6.2 (below) as part of the technology transfer programme. A more detailed description of the type of equipment which will likely be purchased is included in Annex I.

Activities under this output will include the following: • Transfer of knowledge about on the potential utilisation of technologies distributed to various businesses in the appropriate industry/related industry; • Identification of the businesses to purchase the equipment; • Identification of suitable pelletising equipment or other possible options such as briquetting; • Transfer of knowledge and methods to support the procurement of the equipment; • Transfer of technical knowledge about the installation of the equipment.

Output 6.2: Production of biomass pellets, briquettes or chips

After the equipment for the pelletisation or briquetting is purchased and installed, production and human capacities must, as part of the process of technology transfer be built in order to ensure the sustainability of the market. This will first entail training equipment operators and maintenance staff. Additionally, though the demand for biomass pellets – including from bamboo – is expected to be high both within Sri Lanka and externally, assistance should be provided in assisting companies in their marketing of the product.

Project resources will go towards Technology Transfer in utilising equipment procured in Output 6.1 in order to establish and maintain the production of biomass pellets or briquetting. This will also include Technical Assistance in establishing the supply-chain of raw materials – including in utilising

27 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 waste resources from the bamboo processing industries (in Component 5) and quality controls of the products.

Activities under this output will include the following: • Technology transfer in establishing the supply-chain of raw materials (bamboo and others) for pelletisation (from Component 4 and using feedstock from existing wood industries until the bamboos are available); • Technology transfer by enhancing skills in operating the equipment for production; • Technology transfer by enhancing skills for the provision of maintenance as necessary; • Technical Assistance in quality control and marketing the biomass pellets or briquettes domestically and abroad as needed.

Summary of Financing: In Component 6, GEF funds will focus on Technology Transfer for procuring, utilising and maintaining equipment for pelletisation, and for establishing market links. Note that GEF funds will also be used to incentivise the purchase of appropriate equipment. Co- financing will be used to support the purchase of the equipment and in business development activities of the various enterprises which will be involved in the project. In-kind support provided by the Government will cover additional technology transfer assistance and institutional support.

Risk mitigation approach Careful monitoring of project progress will be carried out throughout project implementation and deviations from those intended will identified early and mitigation actions taken. Component 6 will mitigate risks by taking a fairly neutral technical stance so that the most appropriate technical solutions for the use of bamboo for energy based on financial viability. This flexibility will allow for management to select the most appropriate technical solutions.

Since GEF funds won’t be used to subsidize equipment, risks of inappropriate selection of equipment and insufficient ownership of outcomes will be very low.

B. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH NATIONAL AND /OR REGIONAL PRIORITIES /PLANS :

This project is directly aligned with national priorities and plans. Sri Lanka does not have a technology needs assessment document. The report “Initial report under the UNFCCC” (2000) and Project Terminal Report Climate Change Enabling Activity (Phase II) Project (2003) on technology transfer, submitted by the Sri Lanka government to UNFCCC, both stress the impact of climate change on forestry, notably rubber plantations, and the need to develop alternative forest types and reverse deforestation trends.

Additionally, the following national policies are relevant:

National Energy Policy and Strategies: (NEPS)

The project’s focus on the use of biomass energy to provide feedstock for energy production is also directly in-line with the National Energy Policy and Strategies (NEPS) – adopted by the Sri Lankan Parliament in 2008. This policy document covers all sub-sectors with in the energy sector – with a strong emphasis on the electricity sub-sector, including the promotion, utilization and development of renewable energy. It clearly indicates that the biomass energy sector should be developed and commercialized. Specific new initiatives are included in this policy to expand the delivery of affordable energy services to a larger share of the population, to improve energy sector planning, management and regulation, and to revitalize biomass as a significant resource of commercial energy.

The NEPS defines strategies to achieve a target of generating 10% of grid electricity using Renewable Energy resources. According to the Corporate Plan prepared by the Sustainable Energy Authority of

28 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Sri Lanka (SLSEA – the implementing authority of the NEPS), the targets for biomass power produced for the year 2015 are 80 MW. To achieve this target, the Government has introduced feed-in tariffs for the purchase of electricity generated through non-conventional energy resources (see Table 5). Under these tariffs, the government owned electricity utility (called Ceylon Electricity Board) undertakes to purchase all the energy generated through such projects at the agreed prices for a period of 20 years.

Table 5: Standardized Power Purchase Tariff for the Year 2010/2011 All inclusive rate (LKR/kWh) Technology USD/kWh for years 1-20 Mini-hydro 13.04 0.12 Mini -hydro – Local 13.32 0.12 Wind 19.43 0.18 Wind – Local 19.97 0.18 Biomass (Dendro) 20.7 0.19 Biomass (Agricultural & Industrial Waste) 14.53 0.13 Municipal Waste 22.02 0.20 Waste Heat Recovery 6.64 0.06

In addition to the above, under general strategies, there are some additional specific references on renewable energy within the NEPS: • Measures will be taken to obtain maximum benefits from international arrangements such as the Clean Development Mechanism, which would benefit the global environment and in the process facilitate the financing of energy efficiency improvement as well as renewable energy development projects in the country. • The Sri Lanka Sustainable Energy Authority (SLSEA) has been established as a central agency empowered to ensure that policy measures are implemented regarding energy efficiency and renewable energy development. • Research and development addressing energy sector issues will be encouraged and promoted. Existing research institutions will be supported to undertake research and development on energy, with a view to creating a specialized national centre for energy studies.

In order to provide the necessary finance for the development of renewable energy projects, the Ministry of Finance has arranged a scheme to provide financing through the commercial banks in Sri Lanka. This has been done with the assistance of the World Bank through a project entitled Renewable Energy for Rural Economic Development (RERED).

National Forest Policy

The project is also consistent with the National Forest Policy. The National Forest Policy was adopted by the Government in 1995, and it provides an integrated and coordinated approach to the management, conservation and sustainable development of forests and provides for their multiple and complementary functions and use and recognizes the need for participatory approaches and development of partnerships for forestry activities. The National Forest Policy provides the framework for developing the bio energy sector.

The policy recognizes that home gardens and other agro-forestry systems, and trees on other non- forest lands, have a crucial role in supplying timber and biomass resources. The policy does not address energy issues directly, but it provides a supporting framework for increasing fuel wood production in home gardens and other agro-forestry systems. The policy describes the need to improve land and tree tenure, facilitate the transport of forest products, as well as to provide Technical Assistance and other support services to the people.

29 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 The National Forest Policy has proposed policies and strategies to optimize the forestry sector’s role in national energy supply and assist people in meeting their energy needs. The National Forest Policy consists of three policy objectives of which the two following objectives are directly related to the project’s goal of the development of biomass resources: • To increase the tree cover and productivity of the forests to meet the needs of present and future generations for forest products and services. • To enhance the contribution of forestry to the welfare of the rural population, and strengthen the national economy, with special attention paid to equity in economic development.

The Forestry Sector Master Plan

The project is also directly aligned with the Forestry Sector Master Plan (1995-2020) (FSMP). The FSMP was developed in 1995 to implement the National Forest Policy and is a comprehensive long term development framework for the forestry sector to ensure that the valuable natural forests, the related wildlife and other biodiversity resources will be conserved and the forests and agro-forestry systems to provide sustainable environmental services and forest products including fuel wood to meet the needs of the people sustainably.

The FSMP has thirteen development programmes providing a clear framework for detailed project formulation, implementation and resource allocation. Of these thirteen development programmes, there is an extensive programme on bio-energy development described. The long-term goals of the bio-energy development programme of the FSMP are as follows: • Areas and particular groups of people such as the rural landless, estate sector, and urban poor suffering from energy scarcity have access to adequate bio-energy or alternative energy sources. • Bio energy including firewood is utilized sustainably to meet most of the energy needs in the rural sector, and alternative energy sources are available to facilitate fuel switching. • There is optimum efficiency of energy use by the households and firewood consuming industries.

In order to attain these long term goals of the bio-energy development programme, FSMP has formulated the following four components shown below: • Conservation of fuel wood and other bio energy, with two sub-components; o Promotion of improved cooking stoves; o Energy conservation in fuel wood consuming industries; • Development of biomass resources on homesteads and other non-forest lands; • Development and promotion of alternative energy sources, with emphasis on meeting the energy needs of fuel wood deficit areas; • Strengthening of institutional capacity, with two sub-components; o Development of information and a monitoring and evaluation system for the bio- energy sector; o Development and implementation of bio energy strategies;

However, as the priority has up until now been on forest conservation, the bio-energy development programme of the FSMP discussed above was not taken up as a priority area for implementation until recently. Hence, it has not been included in the seven year investment programme of the FSMP which was implemented as the Forest Resources Management Sector Project (FRMSP) funded by the ADB and implemented from 2001 – 2008. Currently, a renewed focus on the bio-energy development programme means that the project will be directly aligned with the Government’s priorities in this area.

Haritha (Green) Lanka Programme

30 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 The project is also directly consistent with the Government’s Haritha (Green) Lanka Programme. This programme is implemented by the National Council for Sustainable Development, which was formed in 2009 under the chairmanship of the President of Sri Lanka. The Council includes all the Ministries in charge of major economic development programmes. The Haritha Lanka Programme has 10 missions namely: 1. Clean air everywhere 2. Saving the fauna, flora and ecosystems 3. Meeting the challenges of climate change 4. Wise use of the coastal belt and the sea around 5. Responsible use of the land resources 6. Doing away with the dumps 7. Water for all and always; 8. Green cities for health and prosperity 9. Greening the industries; and 10. Knowledge for right choices.

In particular, this project is closely aligned with the Mission 3: Meeting the Challenge of Climate Change, and Mission 9: Greening the Industries.

Within Mission 3: Meeting the Challenge of Climate Change, there are twelve strategies in achieving the above objective. Of these, the following two strategies are directly related to the project’s focus on renewable energy resources and/or bio-energy sources: • Promote the use of economically viable, environmentally friendly, renewable energy resources with emphasis on non-conventional energy resources. • Optimize energy consumption through energy efficiency in enterprises and promoting substitution of fossil fuels by renewable energies in economic and production sectors. • Promote renewable energy resources such as dendro, wind, waves, solar, ocean thermal energy conversion (OTEC), wastes to energy, biogas from sewage etc. • Replace petroleum based fuel by Gliricidia fuel wood for industrial heat. • Promote the use of wood gasification technology. • Promote the use of alternate transport fuel technologies that reduce GHG emissions (eg. Bio fuels in place of petrol and diesel) • Promote biogas use for household cooking and lighting. • Adoption of fuel switching to water heating by introducing bio-mass broilers.

Within Mission 09: Greening the Industries, there are six strategies under this mission in achieving the objective. Of these, the strategy four focus on “greening the supply chain”. The following actions are included in this Mission which directly align with the project’s activities: • Develop guidelines to facilitate industries to select and procure environmentally friendly raw materials. • Encourage industries to apply for carbon credits for their renewable energy projects. • Encourage the use of renewable materials in industries in place of non-renewable materials wherever possible.

C. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH GEF STRATEGIES AND STRATEGIC PROGRAMS :

The project is fully consistent with GEF’s strategic programme on technology transfer. The project aims to bring about the transfer and diffusion of new technologies related to the processing of bamboo and potentially other biomass sources. This will lay the ground for a new industrial sub-sector in Sri Lanka and promote bamboo and biomass plantations as sources of feedstock for this sector. The GHG emission reductions linked to this are fully consistent with the goals of the Climate Change Focal Area.

31 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Some of the products (pellets) will promote biomass as a source of renewable energy. This is fully consistent with Strategic Program 4 (SP-4) “Promoting Sustainable Energy Production from Biomass”. During project preparation, close attention has been paid to ensure that the biomass supplies will not threaten indigenous biodiversity or contribute to further land deterioration or water misallocation – but exactly the opposite. The project impact is expected to include a positive effect on land which has already been deteriorated or is at risk of deterioration. This issue will continue to be closely tracked within project implementation.

Furthermore, the project is highly consistent with the observations made in the GEF’s 2010 report “Implementing the Poznan Strategic Program on Technology Transfer” (p. 4): • The project approaches technology transfer as an activity to be undertaken “through markets, and barriers to the efficient operation of those markets must be removed systematically”. The project has a heavy focus on the market component of bamboo/biomass feedstock production as a business proposition, which must be understood in the market context. • The project approaches the technology transfer as “not a single event or activity but a long- term engagement, during which partnerships and cooperation, often requiring time to develop and mature, are mandatory for the successful development, transfer, and dissemination of technologies”. Already during project preparation a number of private and public institutions have been identified for long-term partnerships in developing the bamboo production and utilisation markets in Sri Lanka. • The project takes a “comprehensive approach incorporating capacity building at all relevant levels”. This includes working at the policy level to remove barriers, working with government agencies and programmes, working with local farmers and landowners who will grow the bamboo, and with industrial partners who will utilise the feedstock. • Finally, the project has a heavy focus on private/public partnerships (discussed on p. 27 of the report), having already identified two companies who are committed to this partnership (Touchwood Investments PLC and Bamboo Resources Development (Pvt) Ltd) and who have already committed 2.4 million in co-financing investment. Further partnerships are also being explored and many positive reactions to the project indicate that further commitments will be forthcoming during project implementation.

D. JUSTIFY THE TYPE OF FINANCING SUPPORT PROVIDED WITH THE GEF RESOURCES .

During the course of the project development and related project development work, UNIDO has held numerous meetings with stakeholders dealing with biomass, forests, agriculture, and bamboo in Sri Lanka, including policy-makers, entrepreneurs, Government officials, experts, and existing practitioners of biomass development. On the basis of these discussions and a thorough analysis of existing market barriers, UNIDO has ascertained that the most effective approach to developing bamboo production and consumption market is through a combination of Technical Assistance, which is incorporated into all project components, and investment in certain targeted interventions – specifically for equipment and plant material for the RBP Tissue Culture lab.

Stakeholder discussions have indicated that there is substantial potential for developing the bamboo market but a holistic market development approach must be taken. This includes addressing policy barriers, supply barriers, and demand barriers.

Support in the form of Technical Assistance and some targeted investment via a grant would be the most effective way to implement this project to ensure that the new bamboo species and technological investments in bamboo processing are successful – leading to sustainable market growth.

E. OUTLINE THE COORDINATION WITH OTHER RELATED INITIATIVES :

The proposed project will establish the necessary communication and coordination mechanisms through a Project Execution Body and Project Steering Committee with other biomass related projects in Sri Lanka. UNIDO Sri Lanka will also take the lead in ensuring adequate coordination and

32 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 exchange of experiences – especially with the UNDP/FAO project “Promoting Sustainable Biomass Energy Production and Modern Bio-Energy Technologies in Sri Lanka”. This GEF project (GEF ID 4096) will address policy, guidelines and capacity barriers to the sustainable plantation management and the use of biomass (generally) for heat and power. Coordination with the UNDP-FAO project will be facilitated through the involvement of the Ministry of Environment (and their Department of Forestry of Sri Lanka), who are also key stakeholders in the UNDP-FAO project.

In recent years, the “Edible Bamboo Shoots Project” (which is officially called “Transfer of Technology in Bamboo Shoot Production, Processing and Marketing from China to Bangladesh and Sri Lanka”) has been underway in Sri Lanka funded by the Common Fund Commodities (CFC) and supported by the International Network for Bamboo and Rattan (INBAR). The project focused on tsunami disaster victims with a goal to diversify bamboo industries in Bangladesh and Sri Lanka by introducing simple techniques of bamboo shoot production and processing and establishing international standards for bamboo shoots production and trade. The project’s executing agency was the International Centre for Bamboo and Rattan (ICBR). The national partner for the project in Sri Lanka was the Industrial Technology Institute (ITI). Under this project there was some limited technology transfer with a donation of machinery and equipment for processing, canning and vacuum packing of bamboo shoots to ITI via ICBR. This was the first time that edible bamboo shoots were introduced to the country, and at the end of the project approximately 7 ha was under cultivation. The project ended in 2009. Three bamboo species were introduced to Sri Lanka for this project, namely Dendrocalamus latiflorus and Dendrocalamus oldhamii , and Melocanna baccifera . It remains unclear what broad impact the project will have within the country, as so far there is little demand for bamboo shoots in Sri Lanka. However, the international market for this food is quite large and it is likely that Sri Lankan producers can do well in it. UNIDO will also ensure that the project will build on the successes and incorporate the lessons learned by the INBAR project. Furthermore under The INBAR project aims at growing bamboo for shoots, while the proposed UNIDO project will broaden the product range to engineered wood products and pellets. Coordination will be facilitated through the involvement of the Industrial Technology Institute in the Project Steering Committee.

The project will also build on the successes and incorporate lessons learned from the World Bank project which is expected to be completed soon titled “Renewable Energy for Rural Economic Development”. This project, which started in 2002, focused on the on and off-grid electricity sector, with, for example, efforts to address tariffs, and grid-connected renewables, predominantly address financial barriers, and has influenced policy development for grid-connected biomass in Sri Lanka. Biomass, which has been a minor part of the project, was to focus on one coconut-based facility and smaller wood-waste projects at sawmills. Originally due to close in 2007 it was extended until 2011. Although given the focus of the WB project the synergies with the proposed UNIDO activities are limited, opportunities for linkage or information relevant to the project will be further explored.

The project aims to stimulate the production of an environmentally and economically sustainable feed- stock for an already growing biomass power industry within Sri Lanka and elsewhere. As described in Annex J, significant investments are already being planned for the use of biomass in power production. Additionally, as stated by the letter of support from the Sri Lanka Ministry of Power and Energy, this project is directly linked to the ongoing renewable energy projects in the country – which already entails private sector commitments to develop 10 MW of biomass-based power plants. It is critical that the feedstock does not come from unsustainable sources, but rather from a sustainable source such as well-managed bamboo plantations.

F. DISCUSS THE VALUE -ADDED OF GEF INVOLVEMENT IN THE PROJECT DEMONSTRATED THROUGH INCREMENTAL REASONING :

Without GEF support, the development of the bamboo industry will not be initiated on a substantial scale and other biomass resources will be less widespread. This would imply continued land degradation, reduced access and increased cost of fuel for the population, higher GHG emissions and no development of new industries with their positive impact on economic development and poverty

33 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 alleviation. The baseline scenario will involve three negative consequences for the global environment: • First, fuel needs for power production will likely continue to rise quickly along with increasing economic activity in Sri Lanka. This will lead to a continued increase in GHG emissions if the sources for the fuel for energy production are not sustainable – for example if the fuel source is fuel oil or unsustainable biomass. • Second, for energy for household cooking needs, the unsustainable use of biomass would continue relatively unabated, resulting in net GHG emissions due to land use changes and the degradation of existing forests. • Third, the materials used for construction and for building materials (e.g. timber, plastics) would likely continue to come from unsustainable sources, also resulting in continued net GHG emissions.

Most importantly, the baseline scenario will not involve the development of a sustainable market for bamboo resources either for biomass power, heat energy, or for materials – which would greatly limit the market potential for bamboo in Sri Lanka.

The baseline Government project (the Riverine-Bamboo Project) will likely lead to some emissions reduction from bamboo due to the carbon sink created by bamboo planting on river banks. It is estimated that 3,000 ha of bamboo would be planted in the dry zone without the GEF intervention. On the optimistic assumption that all of this bamboo is harvested and used for materials (thus becoming a “carbon pool”, the baseline GHG reduction would be 36,630 tonnes CO 2eq per year.

With GEF Involvement

The goal of this project is to develop an internationally competitive industry. The GEF funding will serve to provide Technical Assistance and some investment input to develop and stimulate this industry. As a result of stimulating this industry, a number of positive outcomes are expected for the global environment.

Regarding energy for power , it is expected that 25% of the biomass produced and harvested within the project would be used to replace existing non-sustainable fuel sources for power production – including fuel oil and non-sustainable biomass. The total estimated power from renewable sources would be 113,800 MWh per year. In total, the direct incremental emissions reductions from this project resulting from displacing unsustainable fuels for power production are expected to be 76,530 tonnes CO 2eq per year, or 765,300 tonnes CO 2eq over a 10 year period. Ten years has been used as the investment lifetime for power, cooking and material use based on the GEF guidance “Manual for Calculating GHG Benefits of GEF Projects” which states that a “typical expected lifetime for Bagasse [is] 10 years” (paragraph 144). This also appears to be an appropriate figure for use in the bamboo sector.

Regarding energy for cooking, it is expected that 25% of the biomass produced and harvested within the project would be used to replace non-sustainable biomass from disappearing forests. The total estimated energy from renewable sources would be 198,000 MWh. In total, the emissions reductions from this project resulting from displacing unsustainable fuels for cooking are expected to be 80,320 tonnes CO 2eq per year, or 803,200 tonnes CO 2eq over a 10 year period. The investment lifetime relates not to the end user appliances but to the plantations and fuel production equipment, so 10 years seems appropriate.

Regarding materials use , it is expected that the use of bamboo (and potentially wood materials) which are sustainably grown will result in a carbon pool – thus taking out CO 2eq and depositing it into the materials such as flooring material. The CO 2eq removed from the standing stocks would then be replaced by new bamboo growth. In total, the net incremental CO 2eq emissions reductions are expected to be 25,453 tonnes per year or 254,530 tonnes GHG over a 10 year period. While the 10-year

34 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 investment lifetime for materials is conservative it is considered to be appropriate given the market and technical uncertainties in this sector.

In total, the incrementaldirect emissions reductions from the project are expected to be 182,300 tonnes CO 2eq per year with renewable energy generated equivalent to 311,800 MWh per year. This reduction is in addition to 36,630 tonnes of CO 2eq per year under the baseline project.

Indirect emissions reductions are estimated to be:

• Bottom-up indirect emissions reductions are estimated to be 5,469,100tonnes CO 2eq . • Top-down indirect emissions reductions are estimated to be 6,567,900 tonnes CO 2eq .

Additional information on the methodology for estimating GHG reductions is provided in Annex F.

G. INDICATE RISKS , INCLUDING CLIMATE CHANGE RISKS , THAT MIGHT PREVENT THE PROJECT OBJECTIVE (S) FROM BEING ACHIEVED AND OUTLINE RISK MANAGEMENT MEASURES :

Risks can be a result of many reasons including: environmental (including climate change related), technical, economic, policy, the market, and finance. In this project, no significant environmental/climate change risks have been identified.

Project risks, their rating and proposed mitigation measures are as follows:

Risk Description Risk Potential Proposed Mitigation Measure Type Level Impact Technical Failure of new Low Alternative Five potential species have been identified risks bamboo species species need during project preparation. These are well to be known species with significant technical identified knowledge available in neighbouring countries. By selecting 5 species there is already scope of substitution, if a few of the options are not successful. In addition, economically and ecologically suitable sites for cu ltivation will be carefully identified. Technical Plantation fails Moderate Replanting Planting will involve 10,000 ha with ~100 risks because of needed/ ha plots spread over a large area, so that the adverse weather adjust failure of an individual plot will not conditions, fires machines for significantly affect the project. or insects. other types of wood feedstock Climate The climate Low Poor bamboo Careful selection of suitable species that are change changes in such a yields, well known in neighbouring countries and risks way as to make reduced which are flood and drought resistant bamboo sustainability mitigates this risk to some extent. production unviable Economic/ Local population Moderate Illegal Output 3.1 will work with the local Market does not share harvesting population and make them co-beneficiaries Risks plantation of any harvesting of bamboo developed; benefits Output 1.4 will oversee the Development of a National Bamboo Strategy in which local benefits and incentives will be clearly delineated.

35 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Price of pellets Low Project Component 6 of the project will develop drops in the becomes both a local and an export pellet market. In international uneconomic addition, alternative feedstock production market such as bamboo briquettes and chips will be considered;

Components 4 and 5 will also develop alternative uses for the bamboo produced that will provide revenue even if demand for pellets is reduced;

In order to minimize the risks of inappropriate equipment selection and insufficient ownership of outcomes, private companies will invest in the processing equipment in the project. Regulatory Local policies Moderate 10,000 ha Output 1.2 will specifically address land use Risks favour other land target policy, and Output 1.3 will address the use becomes necessary changes in local and regional infeasible regulation;

Components 3-6 will include capacity- building and outreach activities that demonstrate the local benefits of bamboo- related industries;

The project relies on strong local ownership within the government and private sector. This commitment is significant. The Project Execution Body will continuously monitor and encourage commitments, while co- financing has been increased since PIF submission and the project approach is fully consistent with the overall government strategies.

H. EXPLAIN HOW COST -EFFECTIVENESS IS REFLECTED IN THE PROJECT DESIGN :

These direct CO2eq emissions reductions from the project are expected to be 1,823,000over the course of the 10 year investment lifetime. With a budget of USD 2,355,000, the cost per tonne of GHG reduced for the GEF is thus USD 1.29. These figures are in addition to baseline emission reductions of 366,300 tonnes over a 10 year lifetime.

PART III: INSTITUTIONAL COORDINATION AND SUPPORT

A. INSTITUTIONAL ARRANGEMENT : If more than one GEF Agency is involved, discuss the responsibility and role of each Agency and how each will undertake the tasks in the project.

UNIDO is the only GEF Agency involved in this project.

36 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 B. PROJECT IMPLEMENTATION ARRANGEMENT :

Explain the roles of each GEF Agency, if this is a joint project, as well as the role of executing partners, and how each Agency and executing partner(s) will undertake the project.

The GEF Implementing Agency UNIDO holds the ultimate responsibility for the implementation of the project, the delivery of the planned outputs and the achievement of the expected outcomes.

The project will be carried out as a collaborative effort between UNIDO, the Mahaweli Authority (under the Ministry of Irrigation & Water Management), the Ministry of Power & Energy, Ministry of Industry & Commerce, and the Ministry of Environment. A Project Steering Committee (PSC) will be formed with core members from the baseline project, together with UNIDO and the Ministry of Industry & Commerce, and other local stakeholders to bring synergies between the public bodies, as described below. Within the project management structure these organisations, will, through technical transfer activities, accelerate and leverage the baseline project to deliver the incremental impact of this GEF project.

UNIDO will be responsible for the general management and monitoring of the project, and reporting on the project performance to the GEF. UNIDO will be in charge of procuring the international and national expertise needed to deliver the outputs planned under the six project components. It will manage, supervise and monitor the work of the international and national teams and ensure that deliverables are technically sound and consistent with the requirements of the project.

UNIDO will also bring synergies for this project by collaborating as in-kind with related UNIDO sections for agri-business development, which has an extensive expertise in bamboo processing in India, China and Vietnam.

Project Implementation

The project will be coordinated through a two tiered system, consisting of a Project Steering Committee (PSC) and a Project Execution Body (PEB).

Project Steering Committee

A Project Steering Committee (PSC) will be formed and composed by the representatives of the main Government stakeholders and UNIDO. It will perform as the apex body for the project. It will be responsible for overall guidance and making policy decisions for the project. It will review project plans, provide advice on strategic approaches and solutions to ensure that project objectives are achieved. It will ensure that required resources are committed, arbitrate any conflicts within the project and negotiate a solution to any problems with external bodies.

The PSC will be chaired by the Secretary of the Ministry of Industry & Commerce – Government of Sri Lanka. The PSC will meet every 6 (Six) months. UNIDO will prepare the Annual Work Plan, as per UNIDO rules and regulations, and present it for consideration to the PSC one month before the end of every calendar year. Based on the approved AWP, quarterly plans will be prepared by the UNIDO-PM and accordingly executed by the Project Execution Body (PEB).

The PSC will include representatives from the Ministry of Industry & Commerce, the Mahaweli Authority (under the Ministry of Irrigation & Water Management), the Ministry of Power & Energy, and the Ministry of Environment (including the Forest Department). The PSC, on a need basis, can decide to invite other stakeholders (e.g. regulators, farming associations, industry actors, research institutes, etc.) while taking care that the PSC remains operational by its size. Coordination with other initiatives in Sri Lanka will be facilitated by involvement of stakeholders from those initiatives in the PSC. This will include the Industrial Technology Institute who is part of the INBAR project.

37 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 UNIDO Project Co-ordinator will be the Convenor Secretary of the PSC.

Project Execution Body

The PEB will consist of a Project Co-ordinator (PC), supported by a Project Assistant and an Administrative Assistant. The Project Co-ordinator will be the field extension of the UNIDO-PM and will lead the PEB. He/ She will be responsible for executing the quarterly WP and the day-to-day management, monitoring and evaluation of project activities as per the approved AWP.

All field staff will be hired as per UNIDO procurement rules.

The PEB will be hosted at the Ministry of Industrial Development, Government of Sri Lanka. During the entire implementation period of the project, UNIDO will provide the PEB with the necessary management and monitoring support.

The PEB will be responsible for the overall operational and financial management in accordance with rules and regulations imposed by UNIDO/GEF for directly executed projects. It will prepare progress reports, financial reports etc. which are to be submitted to UNIDO-HQ and the PSC. It will also produce annual progress reports, at least two weeks before the annual meetings. At the end of the project, the PEB produces the terminal report, which is to be submitted to the Project Steering Committee at least two weeks before the Terminal meeting.

The overall project management structure is outlined in the diagram below.

38 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Project Steering Committee

- UNIDO’s Sri Lanka Focal Point within the Ministry of Industry and Commerce (Currently Mr. Nawaz RAJABDEEN);

UNIDO Representatives from: Project Execution Body - The Mahaweli Authority (under the Ministry of Irrigation & Water Management), - The Ministry of Power & Energy, and - Project Coordinator - The Ministry of Environment - Project Assistant

Senior Expert(s): Policy expert(s) Senior Expert(s): Bamboo Plantation & Senior Expert(s): Engineered bamboo (Component 1) Bamboo Tissue Culture expert(s) applications expert(s) (Components 5 (Components 2, 3, 4) & 6) - Additional local & international consultants - Additional local & international - Additional local & international consultants consultants

Beneficiaries & Partners: Beneficiaries & Partners: Beneficiaries & Partners: - Government agencies - Mahaweli Authority - Floor material producers - Local decision-makers - Department of Forest Conservation - Bamboo shoot producers - National decision-makers - Local farmers - Pellet and other biomass energy - Landowners & private companies producers

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

39 Project timing

The timing of Project activities is shown in the Gantt chart below: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Component 1: Policy framework

Output 1.1: National strategy developed for the development of the bamboo industry

Output 1.2: National policy adjustments supported

Output 1.3: Land use policy adjustments

Output 1.4: Supportive policies and regulations on a local and regional level

Output 1.5: Information on the project activities disseminated to the public and decision-makers

Component 2: Bamboo Tissue Production

Output 2.1: Acquisition and installation of laboratory equipment for appropriate species

Output 2.2: Functional laboratory and availability of high quality planting material for appropriate species

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

40 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Component 3. Plantation establishment

Output 3.1: Bamboo plantations established in unused lands in the dry zone and wet zone

Component 4. Plantation operation

Output 4.1: Economically sustainable, functional bamboo plantations running in currently unused dry lands and wet lands

Component 5. Bamboo processing equipment

Output 5.1: Bamboo processing machinery for industrial use bought and installed

Output 5.2: Establishment of bamboo flooring production capacity

Output 5.3: Establishment of bamboo shoots by-product industry

Component 6. Pelletising / briquetting / chipping

Output 6.1: Pelletising / briquetting / chipping machinery bought and installed for bamboo

Output 6.2: Production of biomass pellets / briquettes or chips

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

41 PART IV: EXPLAIN THE ALIGNMENT OF PROJECT DESIGN WITH THE ORIGINAL PIF:

The project outcomes and components are directly aligned with those of the PIF. Some of the text has been slightly altered to express a more results-based approach. At the output level, while the central ideas have largely remained the same, some of the outputs in the PIF are now described as targets within the Project Results Framework.

The most significant difference between the PIF and the RCE is in the change of budget allocations. It should be noted that the cofinancing level expected at the PIF stage was USD 10,700,000, when in fact USD 21,297,000 has been identified. This significant increase in identified cofinancing indicates a real commitment from the Government and from the private sector to investing in sustainable bamboo production and processing in Sri Lanka.

Partly due to the cofinancing identified, and partly due to additional considerations, the budget allocations from GEF have been altered to some extent. These differences and their justifications are described in Table 6.

Table 6: Significant differences in budget allocations for project components between the PIF and RCE stages Project GEF GEF Justification for change Component financing at financing at PIF stage RCE Stage Component 1. 90,000 292,850 An increase in the budget for this component is Policy called for because activities within this Framework component will also address altering land-use for numerous plantation sites to allow for sustainable biomass production. It will also allow for dissemination of project results to media outlets both nationally and internationally to strengthen the public support for the policies – including developing videos highlighting project achievements. Component 4. 175,000 233,050 An increase in GEF funding was called for Plantation because this component will involve a number of operation years of operating the plantations and ensuring that the supply chain is fully established such that the biomass products are financially viable. Component 5. 900,000 657,850 A decrease in funding from the GEF was decided Bamboo upon because additional cofinancing for this processing component was identified (2.625 million at RCE equipment stage versus 2 million expected at the PIF stage). Component 6. 255,000 410,450 A minor increase was called for because this Pelletising / component will be crucial for the long-term briquetting / emissions reductions in the project. Thus, chipping additional resources – especially reflected in an increase of international consultant Technical Assistance – have been added to ensure the long- term sustainability of pelletisation of bamboo resources. Additionally, the co-financing is the subject of mid-term review. This energy component starts from the middle of the project period (in the 3 rd year) after the successful establishment of the plantations. Therefore, the investment opportunities for this component can

42 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 be more realistically foreseen as the project is underway during first half of the project implementation. Also, this component should be stimulated as the market demand for local/international energy feedstock develops in the next 5-10 years – which is expected due to local and international trends towards biomass utilisation. Other comparative processing options such as briquetting and chipping including other woody wastes will also be considered to increase co-financing for this energy component. Therefore this component has been renamed to reflect the STAP comment on utilisation of bamboo pellets. Initial discussions with numerous stakeholders such as Ministry of Energy and private sector indicate there is strong interest in this component. The negotiation to increase co- financing will be continuously tracked as a part of project monitoring during implementation.

PART V: AGENCY(IES) CERTIFICATION

This request has been prepared in accordance with GEF policies and procedures and meets the GEF criteria for CEO Endorsement.

43 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX A. PROJECT RESULTS FRAMEWORK

Table 7: Project Impact Indicators Applicable GEF Strategic Objective and Program: Climate Change Strategic Program 4: Promoting sustainable energy production from biomass Applicable GEF Expected Outcomes: Adoption of modern and sustainable practices in biomass production, conversion and use for modern energy Applicable GEF Outcome Indicators: Tonnes of CO2e avoided, the adoption of modern biomass conversion technologies, kWh of electricity and heat generated from biomass sources Objectively verifiable indicators Incremental targets Risks and Strategy Source of Indicator Baseline (in addition to Assumptions verification baseline) Project Goal: Reduction of Project reports, GHG emissions due to 36,630 182,300 Tonnes CO2eq per year avoided (direct PIRs, mid-term Bamboo plantations increased use of sustainable reductions) by end-of-project (EOP) evaluation and don't fail due to bamboo biomass for energy Tonnes CO2eq avoided over the lifetime of climate problems. 366,300 1,823,000 final evaluation production and for materials the measures introduced (direct reductions) MWh in electricity and heat per year Local communities generated using biomass energy as a direct 0 311,800 engaged in income result of this project by EOP generating activities. Number of innovative technologies Project Objective: To develop a 0 4* demonstrated or deployed Company reports, Price of biomass bamboo supply chain and Project activity pellets does not drop product industry in Sri Lanka, Status of technology 0 4** reports, dramatically leading to reduced global demonstration/deployment PIRs, compared to other environmental impact from Enabling policy environment created for Insufficient policy Policy environment Project M&E fuels. GHG emissions and a national innovation and technology transfer environment for improved for reports sustainable industry base. policy bamboo bamboo No capacity to Capacity to bring No radical shift in bring bamboo to bamboo to industrial national or local Enabling policy environment created through industrial scale of scale of production political priorities. institutional and technical capacity building production and sale and scale * Technologies will include: 5 new species of bamboo grown, floor material production using bamboo, edible bamboo shoots production, and biomass pellet / briquetting / production of bamboo

** Based on the following scale: 0 - no suitable technologies are in place; 1 - technologies have been identified and assessed; 2 - technologies have been demonstrated on a pilot basis; 3 - technologies have been deployed; 4 - technologies have been diffused widely with investments; 5 - technologies have reached market potential

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

44

Table 8: Project Progress indicators

Objectively verifiable indicators Risks and Strategy Incremental Targets End Indicator Baseline Source of verification Assumptions of Project Outcome 1: Assessment of existing framework and Assumes no radical Changes in national and local Changes have not Changes (as per outputs Government policy shortcomings and a shifts in Government policies and practices adopted been adopted below) have been adopted documents supportive framework priorities adopted Output 1.1: National Development and adoption Assumes no radical strategy developed for the Existence of a national bamboo Government policy No strategy exists of a national bamboo shifts in Government development of the bamboo strategy by EOP documents strategy priorities industry Allows for and facilitates Forbids transport of Changes in the national forestry sustainable biomass bamboo and is not policy regarding bamboo resource development and favourable for development and exploitation by exploitation - especially Assumes no radical development and Output 1.2: National policy end of year 2 of the project bamboo - on degraded Government policy shifts in Government exploitation adjustments supported lands documents priorities Allows for and facilitates Changes in land use policy Does not allow sustainable biomass adjustments allowing for bamboo/ bamboo - or other resource development and Land-use approval biomass development on degraded biomass - exploitation - especially documents and Assumes no radical lands by end of year 1 of the development on Output 1.3: Land use policy bamboo - on degraded Government policy shifts in Government project degraded lands adjustments lands documents priorities Allows for and facilitate Does not encourage sustainable biomass Changes in local and regional bamboo - or other resource development and Output 1.4: Supportive policies supporting bamboo biomass - exploitation - especially Assumes no radical policies and regulations on development and exploitation by development on bamboo - on degraded Local and regional shifts in local a local and regional level EOP degraded lands lands policy documents Government interest Output 1.5: Information on Number of stories about the the project activities project/bamboo development in 0 20 Assumes the ability to disseminated to the public national, international, and expert- Project reports from the gain media attraction and decision-makers oriented media outlets media consultant on the issues.

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

45 Outcome 2 Bamboo The five new species Full integration of five new The five new species are reproduction technology are not integrated bamboo species into the integrated into the transfer - National capacity into the programme Project reports propagation program of the RBP programme of the RBP to provide bamboo planting of the RBP Tissue Tissue Culture lab. Tissue Culture lab material on a large scale Culture lab Number of appropriate bamboo Output 2.1: Acquisition and species for which there has been installation of laboratory acquisition and installation of 4 9 equipment for appropriate equipment by end of year 2 of the species project Number of species for which there Output 2.2: Functional is appropriate, functioning laboratory and availability laboratory equipment and of high quality planting 4 9 available high-quality planting material for appropriate material by end of year 3 of the species project Outcome 3: Plantations Feedstock available from the established to provide bamboo plantations once 0 200,000 Bamboo plantations feedstock for bamboo established (t/yr) don't fail due to industry Project reports from the climate problems. Number of hectares of bamboo Riverine-Bamboo Project and Project Local communities Output 3.1: Bamboo established in unused lands in the 0 5,000 Implementation Unit engaged in income plantations established in dry zone by EOP generating activities. unused lands in the dry Number of hectares of bamboo 3000 5000 zone and wet zone established in unused lands in the wet zone by EOP

Outcome 4: National know- Local knowledge available to Self-sustaining plantations how for maintaining - sustain benefits after project end established bamboo plantations Number of tonnes per year of Output 4.1: Economically bamboo culm being harvested by 0 150,000 sustainable, functional EOP bamboo plantations running in currently unused dry Number of tonnes per year of lands and wet lands bamboo shoots by-product being 0 250,000 harvested by EOP

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

46 Outcome 5: Bamboo processing technology transfer to Sri Lanka

Output 5.1: Bamboo Number of major producers of processing machinery for finished bamboo products with 0 5 industrial use bought and machinery bought and installed by Bamboo plantations installed EOP Project reports from don't fail Output 5.2: Establishment Production and sale of bamboo companies engaged and of bamboo flooring flooring material per year by EOP 0 120,000 Project Implementation Interest among private production capacity (m2) Unit companies continues Output 5.3: Establishment Production and sale of bamboo and is engaged of bamboo shoots by- shoots by-product by EOP 0 20,000 product industry (tonnes/year) Outcome 6: Biomass Technology available via pelletising technology Availability of local technology Largely not available local agents transfer and development Output 6.1: Pelle tising / Number of producers of biomass Pri ce of biomass briquetting / chipping pellets / briquettes / chips with pellets does not drop 0 3 machinery bought and machinery installed for bamboo by Project reports from dramatically compared installed for bamboo EOP companies engaged and to other fuels Project Implementation Output 6.2: Production of Production of biomass pellets / Unit Interest among private 25,000 biomass pellets / briquettes briquettes / chips per year by EOP companies continues / chips (tonnes/year dry weight) 0 and is engaged

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

47

ANNEX B. RESPONSES TO PROJECT REVIEWS (from GEF Secretariat and GEF Agencies, and Responses to Comments from Council at work program inclusion and the Convention Secretariat and STAP at PIF)

STAP comment: STAP commends the comprehensive framework (TT chain and multiple uses of bamboo) proposed in the project aiming at establishing bamboo supply chain and processing in Sri Lanka. Project seems to benefit from South-south TT from India and China. At the CEO endorsement phase, STAP expects that project proponents provide specific details on how to assure and enforce sustainability of bamboo plantations and processing without adverse impacts on competitive agricultural land-use/food security and biodiversity conservation.

UNIDO Response: The sustainability of bamboo plantations and processing without adverse effects on food security, ecosystems and biological diversity is a key aim of this project. In all activities – at national, regional and local levels – these factors are key. The work under component 1, for instance, will aim to develop bamboo strategies by building on analysis from a strategic environmental impact assessment, and embed mechanisms to protect the environment and local livelihoods into policies and practices. This is also a key element of components 2 and 3 where assessment of environmental impacts and the protection of ecosystems are prerequisites for propagation and plantations. While the land that will be used is degraded land, rehabilitation of this land will be done in such a way at to protect or restore local ecosystems, and enhance biodiversity.

The biomass to be used will not be sourced from natural forests and existing traditional agroforestry systems. The biomass resources to be produced during the project will be on lands that are currently either partially or mostly degraded – not natural forests or those used for traditional agroforestry systems.

STAP comment: Empiric evidence is ambiguous on the impact of non-timber forest products on local livelihoods. A number of safeguards and monitoring mechanisms have to be employed to demonstrate positive effects of the proposed industrial bamboo processing on the income of the poor. At the project preparation phase, STAP recommends exploring specific mechanisms of how to engage local communities and assure continuous income transfer. Without these mechanisms, sustainability of project impacts will be compromised.

UNIDO Response: The project will use an entrepreneurial mechansism to engage with local people and ensure sustainability. Equipment will, in most cases, be in ownership of entrepreneurs, and with the support of community based organsations and NGOs. This complements and extends the government approaches under the Riverine Bamboo Project, where, for example, incentives are provided to local farmers to do the planting under the guidance of NGOs and CBOs. The incentive scheme involves providing plants and paying farmers to plant and maintain the plants for up to 2 years after planting. The total disbursement per bamboo that is planted is Rs 105, which is paid in 3 instalments as follows: · Rs 65 one month after planting · Rs 25 in the first year after planting · Rs 15 in the second year after planting

Incentive payments are made on the recommendation of the CBO/NGO partner organization. The Field planting team of the RBP makes the inspections and certifications for these payments.

Most project outputs under components 3, 4, 5 and 6 will engage with local communities. Output 3.1 will for example work with farmers in the local communities, through proven approaches used by the Mahaweli Authority of Sri Lanka to ensure that food resources are not compromised, local ecosystems

48 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 are preserved, and revenue is shared. This will involve working with local leaders and Farmers’ Associations to identify appropriate lands, conducting stakeholder outreach, and either leasing the land at favourable rates to local community members for establishing bamboo crops or establishing revenue-sharing programmes for the proceeds from the sale of bamboo where local community members are involved in the planting/harvesting, and make them co-beneficiaries of any harvesting of bamboo developed.

Skills transfer and knowledge transfer are key components of all technology transfer activities.

STAP comment: Selection of Bamboo alone for the plantation project needs more justification. Though we agree that bamboo is an important option, it is necessary to compare bamboo with short rotation woody plantations. Short rotation woody plantations can provide higher biomass productivity. The yield assumed (15 tonnes per/ha/yr) seems to be very high; a more realistic yield could be around 5 tonnes/ha/yr. Short rotation woody plantations are more hardy and suitable for different soil and rainfall conditions. Bamboo may not be suitable for cultivation under all soil and rainfall conditions. Thus, there is a need for serious consideration of other species also along with bamboo.

UNIDO Response: During project preparation, it has been found that a number of species could be inter-planted with bamboo in order to maximize biomass productivity. This will potentially include Teak trees and Gliricidia sepium, though other species are also possible such as rubber and coconut trees. This specific mix will be decided upon economic and ecological suitability based on local climatological and soil conditions.

Yields for bamboo, in practice, are usually higher than 15 tonnes per ha per year (cf. Table 10 in Annex F for the references), with even low productivity bamboos such as Phyllostachys pubescens having average yields of 18-20 t/ha/yr. Tropical bamboos such as Bambusa bambos typically have yields of twice this figure.

STAP comment: Utilization of bamboo pellets for local energy use may be a difficult proposition given the cost of pelleting process. Export of bamboo pellet may not be a feasible proposition given the cost of pelleting, storage, transport, handling etc.

Developing market for bamboo sprouts and pellets as food may be a challenging proposition given the cost involved.

UNIDO Response: The financial aspects of biomass production – particularly bamboo – have been analysed at: 1. The planting and harvesting level – It has been found that, if each culm can be sold at 60 rupees (~USD 0.54) at the farm gate, it is assured that the production of bamboo will be economically sustainable. In the relatively conservative scenario provided, the bamboo production will be profitable at a minimum after the second harvest (after 8 years). This analysis takes into account relatively high fixed costs for clearing the land and initially planting the bamboo; and 2. The pelletisation level – For pelletisation, it is estimated that the price for production – including raw materials (i.e. bamboo), transportation, processing, and machinery investment would conservatively be between USD 108 and USD 137 per tonne – making this the break- even point for biomass pellet production. The current price on the international market is at least USD 170 per tonne of finished pellet product from various woody biomass resources. As such, the biomass production of bamboo appears to be viable. Further analysis to confirm the full costs of the pellet production will be conducted during the project execution, and alternatives such as bamboo briquette and chip production will be considered.

49 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 An initial model for calculating production costs (including shipping to processing centres) has been developed (see Annex L, Table 18). This will be refined during project implementation and utilised in decision-making.

To reduce the risks of the pellet market the project will also consider creation of markets for briquettes and chips from bamboo resources.

STAP comment: The proposal talks about transfer of processing technology. There is a need for clarification on what processes and technologies will be transferred to Sri Lanka.

UNIDO Response: Details of technology transfer, which includes skills, knowledge and processes for the use of technologies are listed in Table 4 on page 13. Specific details of the potential technologies involved are given in Annex I. All of these technologies are fully proven and have been utilised in other countries (such as India and China).

STAP comment: A more realistic assessment of the global environmental benefits is necessary since many of the GEBs listed are indirect and some of them may not be realized at all (e.g., EU demand for bamboo pellets). Will bamboo residue be used for cooking or for process heat or biomass power generation?

UNIDO Response: A detailed assessment of the global environmental benefits has been made and is presented in Annex F. Incremental Reasoning. Bamboo residue will be used for cooking, process heat and potentially biomass power.

50 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

ANNEX C. CONSULTANTS TO BE HIRED FOR THE PROJECT USING GEF RESOURCES * Provide dollar rate per person week. ** Total person weeks needed to carry out the tasks. Position Titles $/Person Week Estimated PWs Tasks to be performed

For Project Management Local Project Coordinator 600 70 1) Responsible for overall project objectives, inputs, outputs and work plans. 2) Ensures effective monitoring and evaluation of the project 3) Assists in establishing and operating the project and act as secretary of the steering committee. 4) Prepare and support the missions of international consultants and national consultants. 5) Establish a coherent system of information covering each activity of the project and transmit required details to UNIDO and the counterparts as required. 6) Prepare bimonthly reports and the terminal report at the end of the project including the activities carried out including lessons learnt and recommendations. 7) Prepare a final report at the end of the contract comprising of all relevant information compiled from interim reports, conclusions and recommendations. Long-term project assistant 250 62 Assisting the Project Execution Body in project management activities Project clerk 120 338 Perform duties as required suc h as collecting and delivering materials, organising documents, purchasing of office materials and paying bills, etc.

International None

Justification for Office facilities, equipment, vehicles and communications: In this 7 year projects the cost breakdown for these items are as follows: Rent of field office: $250 per month over 84 months = 21,000 USD Communications, including internet and phone: $500 per month over 84 months = 42,000 USD

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

51 Position Titles $/Person Week Estimated PWs Tasks to be performed Advisory committee meetings: $100 per meeting for 14 meetings = 1,400 USD Total for office facilities, equipment, vehicles and communications: 64,400 USD

Justification for Travel: Project management travel of 132 days (approximately 19 days per year over 7 years) at a cost of $100 per trip and DSAs of $100 per night, making a total cost of USD 16,600.

For Technical Assistance Local Technical Coordinator 600 264 Assisting the Project Implementation Unit and consultants in carrying out various activities - including undertaking field functions through close contacts with the government /counterparts, local purchase of equipment, assistance to national experts. In particular, taking the lead on implementing Component 1 - Policy Framework Long -term technical assistant 250 269 As sisting the Project Implementation Unit in carrying out various activities Land Expert 350 105 Prepare list of potential plantation areas. Find suitable land for bamboo cultivation and mapping out logistically feasible supply chain route in the wet & Dry zone. Asses the present Bamboo Plantations to check the availability of matured bamboo for industrial/ energy use. At least two consultants will be involved in this role. Plantation expert 350 225 Design suitable plantation/Agro-forestry system for the sustainable economic exploitation of bamboo, introduction and selection of bamboo species, plan and implement cultivation of bamboo in selected parts of the country in order to facilitate industrial development, promotion of bamboo plantations on private & state- owned lands, promoting bamboo sector development as an essential component of rural development, employment and income generation, working with stakeholders to improve bamboo productivity to become

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

52 Position Titles $/Person Week Estimated PWs Tasks to be performed a profitable and attractive economic enterprise, providing assistance in technical matters related to bamboo planting, production, and harvesting in ways which are conducive to processing, low-cost, and sustainable. At least two consultants will be involved in this role. Tissue culture expert 350 140 Assist ing in developing suitable planting materials, in the purchasing of required equipment, chemicals, etc., in the managing of nursery activities National expert - Trainers 600 126 Assisting bamboo processing industries (flooring, pelletizing and shoots) in marketing their products and developing their businesses National expert - Business Development Expert 700 247 Assisting bamboo processing industries (flooring, pelletizing and shoots) in marketing their products and developing their businesses - including business plans, quality control methods, organising joint ventures, seeking capital, etc. At least two consultants will be involved in this role. National expert - policy expert 350 90 Assisting in developing national and local policies related to bamboo and biomass production. National expert - biomass supply chain 350 285 Assisting in developing the supply chain of bamboo/biomass materials for the national and international market for processing. At least two consultants will be involved in this role National expert - media advisor 350 60 Collect, collate, and ensure dissemination of project information through periodic newsletter and other media sources. Justification for Travel, if any: Extensive local travel will be required for delivery of tech nical consulting services and coordination. The project will involve bamboo development in the dry and wet zone of Sri Lanka

International

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

53 Position Titles $/Person Week Estimated PWs Tasks to be performed International Consultant - plantation expert 3,000 50 Work with local consultants to design suitable plantation/Agro-forestry system for the sustainable economic exploitation of bamboo, introduction and selection of bamboo species, plan and implement cultivation of bamboo in selected parts of the country in order to facilitate industrial development, promotion of bamboo plantations on private & state-owned lands, promoting bamboo sector development as an essential component of rural development, employment and income generation, working with stakeholders to improve bamboo productivity to become a profitable and attractive economic enterprise, providing assistance in technical matters related to bamboo planting, production, and harvesting in ways which are conducive to processing, low-cost, and sustainable. At least two consultants will be involved in this role. International Consultant - engineered bamboo applications 3,000 79 Work with local consultants to develop engineered bamboo applications for various industries - especially bamboo flooring, bamboo shoots, and pelletisation. This will include technical assistance in purchasing, installing, maintaining, and utilising equipment. It will also include examinations of opportunities for gains in efficiency and increased profitability of bamboo processing industries. It is likely that two consultants will be involved in this role. Justification for Travel, if any: International travel and DSAs will be required for expert consultants to provide technical inputs, validate technical reports prepared by national experts and contribute to the steering committee meetings.

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

54

ANNEX D. STATUS OF IMPLEMENTATION OF PROJECT PREPARATION ACTIVITIES AND THE USE OF FUNDS

1. EXPLAIN IF THE PPG OBJECTIVE HAS BEEN ACHIEVED THROUGH THE PPG ACTIVITIES UNDERTAKEN .

The PPG objective has been fully achieved through the PPG activities undertaken. A comparison between the aims of the PPG and the actual achievements is provided in Table 9:

Table 9: Activities of the PPG and actual achievements

Project Preparation Activities Approved Actual Achievements

1. Compilation of relevant policy The background policy information has been compiled along with background information and information about relevant industry players related to biomass development of a network of relevant production. Interviews were also carried out with numerous industry players stakeholders.

2. Collection of background data on suitable sites for plantation in terms of Suitable sites for plantations were identified with almost 10,000 ha accessibility, land availability, water initially identified for planting. Additionally, potential equipment availability, local interest and acceptance suppliers have been identified for bamboo resources development

(tissue culture production) and bamboo processing resources Identification of potential equipment suppliers

A visit to the state of Assam & Meghalaya in North East India took place in the first week of May (3 rd to 9 th ). A 4-member team from Sri Lanka and 2 from Delhi office (Total=6) joined the mission. Sri 3. Study tour for 10 Sri Lanka national, Lankan team comprised of 1 representative from UNIDO – Sri regional and local government officials Lanka office, 1 from the Mahaweli Authority, 1 from the Ministry and wood industry representatives to see of Industry & Commerce, 1 from Touchwood Industries. operation of and institutional framework The group visited bamboo plantations, a tissue lab, and for the Bamboo industry in China and manufacturing units of high end bamboo applications for furniture, India roofing, flooring & housing. An intensive consultative discussion with industrialists, architects and policy experts was also organised, which also had technical presentations. Awareness raising activities – including bilateral meetings – have 4. Awareness raising workshop with been held with numerous government, industry, and financing government, industry and the financing community stakeholders, resulting in firm commitments of community in Sri Lanka to discuss the cofinancing and cooperation for the project. A 2-day awareness prospects of a Bamboo industry workshop for various stakeholders & policy makers is planned for the 1 st week of September in Sri Lanka. 5. Preparation of project document in The project document has been completed, though it was decided cooperation with the Cleaner Production that the Cleaner Production Centre would not be actively involved Centre in the project.

2. DESCRIBE FINDINGS THAT MIGHT AFFECT THE PROJECT DESIGN OR ANY CONCERNS ON PROJECT IMPLEMENTATION , IF ANY :

All findings have been incorporated into the current project design. There were no findings which led to concerns about project implementation.

55 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 3. PROVIDE DETAILED FUNDING AMOUNT OF THE PPG ACTIVITIES AND THEIR IMPLEMENTATION STATUS IN THE TABLE BELOW:

Co- GEF Amount ($) financing Project Preparation Implementation Amount Activities Approved Status Amount Amount Uncommitted Spent ($) Approved Committed Amount* To date 1. Compilation of relevant policy background information and Completed 12,500 12,500 12,500 0 12,500 development of a network of relevant industry players 2. Collection of background data on suitable sites for plantation in terms of accessibility, land availability, water Completed 12,500 12,500 12,500 0 12,500 availability, local interest and acceptance

Identification of potential equipment suppliers 3. Study tour for 10 Sri Lanka national, regional and local government officials and wood industry representatives to see Completed 25,000 25,000 25,000 0 25,000 operation of and institutional framework for the Bamboo industry in China and India 4. Awareness raising workshop with government, industry and the financing Completed 17,500 17,500 17,500 0 17,500 community in Sri Lanka to discuss the prospects of a Bamboo industry 5. Preparation of project document in cooperation with the Completed 15,000 15,000 15,000 0 15,000 Cleaner Production Centre Local travel expenses 5,000 5,000 5,000 0 5,000 Local project management support 12,500 12,500 12,500 0 12,500 through NCPC Total 100,000 100,000 100,000 0 100,000

56 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Any uncommitted amounts should be returned to the GEF Trust Fund. This is not a physical transfer of money, but achieved through reporting and netting out from disbursement request to Trustee. Please indicate expected date of refund transaction to Trustee.

ANNEX E. CALENDAR OF EXPECTED REFLOWS

Provide a calendar of expected reflows to the GEF Trust Fund or to your Agency (and/or revolving fund that will be set up)

No revolving funds or reflows to GEF are envisioned within the scope of this project

57 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX F. INCREMENTAL REASONING

Introduction & System boundary

The project is designed to stimulate production and consumption of sustainable biomass resources in Sri Lanka – particularly bamboo. The system boundary for the estimate of the incremental impact of the project is in Sri Lanka. Within the energy sector, there are two main sub-sectors which will be addressed – power production and cooking. Additionally, carbon pools will be developed from using bamboo resources for building materials.

The baseline scenario

Without GEF support, the development of the bamboo industry will not be initiated on a substantial scale and other biomass resources will be less widespread. This would imply a continued land degradation, reduced access and increased cost of fuel for the population, higher GHG emissions and no development of new industries with their positive impact on economic development and poverty alleviation. The baseline Government project (the Riverine-Bamboo Project) will likely lead to some emissions reduction from bamboo due to the carbon sink created by bamboo planting on river banks. It is estimated that 3,000 ha of bamboo would be planted in the dry zone without the GEF intervention. On the optimistic assumption that all of this bamboo is harvested and used for materials (thus becoming a “carbon pool”, the baseline GHG reduction would be 36,630 tonnes CO 2eq per year. Table 10 outlines this calculation.

Table 10: Emissions reduction from carbon pools - flooring production - Baseline emissions reductions Units Value Total land area used for bamboo plantations by the end of the project Ha 3,000 tonnes dry weight of Average above ground biomass weight gained per year* bamboo/ha-year 15.00 Total carbon uptake rate per year** tonnes CO2eq/ha -year 12.42 Total dry weight of bamboo biomass harvested per year for tonnes dry weight of bamboo/ materials year 45,000 Emissions for transportation of biomass tCO2eq/ kt of biomass 13.80 Emissions for transportation of biomass tCO2eq/ year 620 Total emissions reduction under BAU incorporating emissions from transportation tCO2eq/ year 36,630 * Sources: Yield rate based on an estimation from examining numerous sources on annual yields per ha of various bamboo species (oven dry tonne), e.g. http://dx.doi.org/10.1007/s11027-011-9324-8; http://dx.doi.org/10.1016/S0961-9534(00)00069-6; http://www.springerlink.com/content/x7h275389273n173/fulltext.pdf ; http://www.inbar.int/show.asp?NewsID=373 ** figures taken from http://www.inbar.int/show.asp?NewsID=373 which gives a figure of 149 tonnes over 6 years. 149/6 = 24.83 tonnes /ha-year – then taken as half this amount due to a conservatively low estimation of yields.

GEF Alternative Scenario

Under the alternative scenario, GEF support (along with co-financing) is expected to remove many of the existing barriers and reduce the impact of others, thereby transforming the market for bamboo biomass production. The Project will include the following components which address the barriers to bamboo production in a systematic way: • Component 1: Policy framework • Component 2: Bamboo Tissue Production • Component 3. Plantation establishment

58 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 • Component 4. Plantation operation • Component 5. Bamboo processing equipment • Component 6. Pelletising / briquetting / chipping Direct reductions:

The direct emissions reductions will be a result of three basic types of reductions:

Regarding energy for power – The project estimates that 25% of the biomass produced and harvested within the project would be used to replace existing non-sustainable fuel sources for power production – including fuel oil and non-sustainable biomass. The total estimated power from renewable sources would be 113,800 MWh per year. In total, the direct emissions reductions from this project resulting from displacing unsustainable fuels for power production are expected to be 76,530 tonnes CO 2eq per year, or 765,300 tonnes CO 2eq over a 10 year period. Ten years has been used as the investment lifetime for power, cooking and material use based on the GEF guidance “Manual for Calculating GHG Benefits of GEF Projects” which states that a “typical expected lifetime for Bagasse [is] 10 years” (paragraph 144). This also appears to be an appropriate figure for use in the bamboo sector.

More information on the detailed calculations is included in Table 11.

Table 11: Emissions reduction from fossil fuel replacement for power production Units Value Total land area used for bamboo plantations Ha 2,500 Dry biomass produced per ha per year* tonnes of bamboo/ year 15.00 Total dry biomass produced per year tonnes of bamboo/ year 37,500 Energy per tonne of bamboo** MWh/ tonne of bamboo 5.28 MWh electricity/ MWh of Conversion efficiency from dry biomass to electricity*** energy 57.5% Total power produced per ha per year**** MWh/ year-ha 45.52 Total power produced using biomass (bamboo) instead of BAU fuel use MWh/ year 113,800 * These figures are already corrected for moisture and ash content ** Source: http://dx.doi.org/10.1016/S0961-9534(00)00038-6 *** Assumes that 80% of the pellets will go to CHP power plants and 20% will go to power plants without heat production. ****Tonnes of dry biomass produced per year x Energy per tonne of dry biomass x conversion efficiency

BAU emissions Units Value Total power produced using biomass (bamboo) instead of BAU fuel use (mix of fuels including coal, fuel oil, biomass) MWh/ year 113,800 tCO2eq/ Current grid emissions factor* MWh 0.6816 tCO2eq/ Total emissions under BAU year 77,570 * Based on calculations carried out for the CDM project - 10 MW Biomass Power Generation Project - Tokyo Cement, Trincomalee, UNFCCC 2772. This grid coefficient is 0.6816 tonnes CO 2eq per MWh produced.

Additional calculations were also done to compare the emissions impact of the project with the baseline use of non-sustainable biomass resources for cooking (in closed stoves) and to calculate the net CO 2eq emissions impact due to the carbon pool resulting from harvesting bamboo to use for raw materials in, for example, flooring material.

The CO 2eq emissions impact due to sequestration in plantations themselves has not been estimated. This is due to the fact that it is expected that the predominance of the bamboo resources produced during project implementation will be utilised for some industrial purpose at some point. Thus, above-

59 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ground sequestration will – over the longer term – be minimal comparing to the emissions reductions for energy use and carbon pools. Below-ground carbon sequestration – including increased soil carbon, sequestration in the bamboo rhizomes, and as a result of litter waste – was not calculated due to the uncertainty in this calculation.

With project as an alternative Units Value Total power produced using biomass (bamboo) instead of BAU fuel use per year MWh/ year 113,800 tCO2eq/ MWh Emissions factor for biomass* produced 0.00684 Emissions for transportation of biomass** tCO2eq/ kt of biomass 6.90 Emissions for transportation of biomass tCO2eq/ year 260 Total emissions under "with project" scenario tCO2eq/ year 1,040 Emissions reduction per year tCO2eq/year 76,530 Lifetime of the investment Years 10 Total emissions reduction from power from biomass tCO2eq 765,300 * Source: International Greenhouse Partnerships Office (2000) http://www.siame.gov.co/siame/documentos/documentacion/mdl/03_VF_Bibliografia/IGP/fossil_fuels.pdf **0.0004829 tCO2/km travelled x (1000 tonnes produced/7 tonnes biomass per trip) x 100 km per trip (Based on calculations carried out for the CDM project - 10 MW Biomass Power Generation Project – Tokyo Cement, Trincomalee)

Regarding energy for cooking – it is expected that 25% of the biomass produced and harvested within the project would be used to replace non-sustainable biomass from disappearing forests. The total estimated energy from renewable sources would be 198,000 MWh. In total, the emissions reductions from this project resulting from displacing unsustainable fuels for cooking are expected to be 80,320 tonnes CO 2eq per year, or 803,200 tonnes CO 2eq over a 10 year period. More information on the detailed calculations is included in Table 12.

Table 12: Emissions reduction from traditional biomass replacement for cooking Units Value Total land area used for bamboo plantations (ha) Ha 2,500 Dry biomass produced per ha per year* tonnes of bamboo 15.00 Total dry biomass produced per year tonnes of bamboo 37,500 MWh/ tonne of Heat produced per tonne of dry biomass from bamboo bamboo 5.28 Total heat produced per ha per year by pellets MWh/ year-ha 79.20 Total power produced using biomass (bamboo) instead of BAU fuel use (MWh per year) MWh/ year 198,000

BAU emissions Total power produced using sustainable biomass (bamboo) instead of BAU fuel use (wood from unsustainable sources) MWh/ year 198,000 Emissions factor - closed heater using wood from unsustainable sources** tCO2eq/ MWh 0.41508 Total emissions under BAU tCO2eq/ year 82,190

* Source: Yield rate based on an estimation from examining numerous sources on annual yields per ha of various bamboo species, e.g. http://dx.doi.org/10.1007/s11027-011-9324-8; http://dx.doi.org/10.1016/S0961- 9534(00)00069-6; http://www.springerlink.com/content/x7h275389273n173/fulltext.pdf ; http://www.inbar.int/show.asp?NewsID=373

60 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ** Source: International Greenhouse Partnerships Office (2000) http://www.siame.gov.co/siame/documentos/documentacion/mdl/03_VF_Bibliografia/IGP/fossil_fuels.pdf - note that this does not count black carbon effects.

With project as an alternative Total energy produced using biomass (bamboo) instead of BAU fuel use MWh/ year 198,000 tCO2eq/ MWh Emissions factor for sustainable biomass produced 0.00684 tCO2eq/ kt of Emissions for transportation of biomass biomass 13.80 Emissions for transportation of biomass tCO2eq/ year 520 Total emissions under "with project" scenario tCO2eq/ year 1,870

Emissions reduction per year tCO2eq 80,320 Lifetime of the investment Years 10 Total emissions reduction from power from biomass tCO2eq 803,200

Regarding materials use – it is expected that the use of bamboo (and potentially wood materials) which are sustainably grown will result in a carbon pool – thus taking out CO 2eq and depositing it into the materials such as flooring material. The CO 2eq removed from the standing stocks would then be replaced by new bamboo growth. In total, the net CO2eq emissions reductions are expected to be 25,453 tonnes per year or 254,530 tonnes GHG over a 10 year period. More information on the detailed calculations is included in Table 13.

Table 13: Emissions reduction from carbon pools - flooring production With project intervention Units Value Total land area used for bamboo plantations by the end of the project ha 5,000 tonnes dry weight Average above ground biomass weight gained per year* of bamboo/ha-year 15.00 tonnes CO2eq/ha- Total carbon uptake rate per year** year 12.417 tonnes dry weight Total dry weight of bamboo biomass harvested per year for materials of bamboo/ year 75,000 Total emissions reduction with project tCO2eq/ year 62,083 tCO2eq/ kt of GHG emissions for transportation of biomass per kt of biomass biomass 13.80 GHG emissions for transportation of biomass per year tCO2eq/ year 1,030 Total GHG emissions reduction with project - incorporating transportation emissions tCO2eq/ year 61,053 Less estimated baseline emissions from carbon pools tCO2eq/ year 36,630 Total incremental GHG emissions reduction impact per year tCO2eq/ year 25,453 Lifetime of investment years 10 Total lifetime incremental GHG emissions reduction impact tCO2eq 254,533 * Source: Yield rate based on an estimation from examining numerous sources on annual yields per ha of various bamboo species, e.g. http://dx.doi.org/10.1007/s11027-011-9324-8; http://dx.doi.org/10.1016/S0961- 9534(00)00069-6; http://www.springerlink.com/content/x7h275389273n173/fulltext.pdf ; http://www.inbar.int/show.asp?NewsID=373 . ** figures taken from http://www.inbar.int/show.asp?NewsID=373 which gives a figure of 149 tonnes over 6 years. 149/6 = 24.83 tonnes /ha-year – then taken as half this amount due to a conservatively low estimation of yields.

61 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Note: This assumes that most/all bamboo waste during materials production will be used for energy production through pelletisation or briquetting.

In total, the direct emissions reductions from the project are expected to be 182,300 tonnes CO 2eq per year with renewable energy generated equivalent to 311,800 MWh per year. Over a 10 year lifetime of investments, the CO 2eq reductions would equal 1,823,000 tonnes.

Direct post-project emission reductions

No Direct Post Project emission reductions have been counted in this analysis.

Indirect emissions reductions

Indirect emissions reductions were calculated according to the GEF bottom up and top down methodologies. The indirect impacts will result from the policy and capacity building work within the project.

Indirect emissions reductions – bottom-up

The indirect emissions reduction estimate using the bottom-up methodology assumes that the project’s emissions reductions will have an indirect impact by a multiple of 3 – associated with projects that are involved with market transformation and demonstration capital. The direct emissions reduction (1,823,000 tonnes CO 2eq ) multiplied by 3 is thus 5.47 million tonnes of CO2eq .

Indirect emissions reductions – top-down

The indirect emissions reduction estimate using the top-down methodology estimates that within 10 years after project completion there is a potential market for bamboo production equivalent to approximately 50,000 ha throughout the country. This would include private degraded forest lands and additional river banks. Using this estimate for potential land use and similar proportions for use of the biomass from this land, the 10 year potential market (using the lifetime of the investment) would be 10,946,467 tonnes. Using a causality factor of 60% (substantial but modest), this results in a top-down estimate for indirect emissions reduction of 6.58 million tonnes of CO 2eq . More detail about this calculation is provided in Table 14.

Table 14: Summary of the calculation for the 10-year market potential of CO 2eq reductions Power production Cooking Flooring production fuel fuel and other carbon Units replacement replacement pools Total Total potential land area (ha) 12,500 12,500 25,000 50,000 Total potential dry biomass (tonnes) 187,500 187,500 375,000 750,000 Total power produced (MWh/year) 569,010 990,000 N/A 1,559,010 Total tonnes CO2eq per year reduced 382,660 401,570 310,417 1,094,647 Total tonnes CO2eq over the lifetime of investments (10 year market potential) 3,826,600 4,015,700 3,104,167 10,946,467

62 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Summary of CO 2e emissions reductions

In total, the project is expected to deliver the following GHG emissions reductions and energy savings above the baseline:

• Direct emissions reductions: 1,823,000 tonnes CO 2e over a 10 year period • Indirect bottom up emissions reductions: 5.47 million tonnes CO 2e • Indirect top down emissions reductions: 6.57 million tonnes CO 2e

63 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX G. THE RIVERINE BAMBOO PROJECT (RBP)

The Riverine Bamboo Project (RBP) is an initiative of the Environment and Forest Conservation Division (EFCD), Mahaweli Authority of Sri Lanka, Ministry of Agriculture Development and Agrarian Services. RBP is a long term project that was launched in 1998. The project addresses environmental issues including the lack adequate protection against tidal actions that cause sedimentation, clumping of banks, and overall widening of the river. Lack of vegetative cover along the riverbanks causes the formation of new gullies and disrupts the river flow. The high rate of catchment erosion has resulted in siltation in the Mahaweli reservoirs, and the RBP aims to reduce this erosion.

The primary objectives of the RBP is: • to control soil erosion along the Mahaweli River, its tributaries, and Mahaweli reservoir banks by cultivating giant bamboo on river banks, • environmental conservation in catchment areas to sustain a year-round flow of the reivers and streams with a good quantity of quality water, and • introducing improved horticultural crops to Mahaweli settlers.

The secondary objectives are the development of a bamboo Industry and horticultural based industry to enhance income of rural poor.

The field planting programme is a joint action of the Mahaweli Authority, government organsations, the Department of Agrarian Sevice, Ma oya & Daduru oya, and NGOs and CBOs.

The project was designed in 3 phases as follows: • Phase I: (1998 to 2007) Establishment of Tissue culture laboratory and Mass propagation of Bamboo (Dendrocalamus Species) by Tissue Culture Technology; • Phase II: (2008 to 2012) Mass propagation of Bamboo and Planting of Bamboo on the bank of the Mahaweli River and main tributaries; • Phase III: Enterprise development for processing of Bamboo.

Phase I of the project has been successfully completed. A tissue culture laboratory has been established and a fully integrated production unit comprising sterile production facilities, acclimatization chambers, greenhouses and open field nurseries are in place. The climate controlled laboratory is equipped with a standby generator and production at the lab adheres to professional standards. Although 4 bamboo species are in production, the main emphasis is on the production of Dendrocalamus species (D. giganteus & D. hookeri). The tissue culture protocols and overall design of the lab was achieved with the assistance of scientists from Institute of Fundamental Studies in Kandy and the University of Peradeniya, Faculty of Agriculture.

Local experts in the bamboo tissue laboratory and bamboo nursery at Mawathura, Kothmale in Mahaweli Authority have been interviewed to review the status of capacity needed for project implementation. The laboratory was established in 2005 and 10-15 laboratory staffs are working for the propagation of bamboo. About 100,000 nursery plants are cultivated annually (75 weeks per cycle from bud collection to pot plant). Currently, they are propagating 4 major bamboo species (Dendrocalamus giganteus, D. hookeri, Bambusa vulgaris, B. ventricosa), which can be used for commercial purpose. Their production capacity can be increased by improving several existing equipments (e.g. water distillation unit) and increasing man power for planting as well as transportation. The nursery was located near the tissue laboratory and very well maintained. About 200,000 bamboo pot plants were ready to deliver in the 5 ha of the nursery. About 10-20 persons from local communities were working in the nursery.

The selling price per plant (ready for planting in the field) is Rs 75. A discount of 20% is offered for purchases of at least 500 plants.

64 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

Assuming that there is indeed a demand to plant bamboo along the Mahaweli catchment area then it would seem feasible to carry out a planting scheme of 1000 ha per year given the current production level of the RBP’s TC lab.

The aim of Phase II is to engage in large scale planting of bamboo along the upper Mahaweli catchment area. The areas targeted for planting are river banks, the perimeter of reservoirs, and degraded areas along the Mahaweli Catchment.

According to Mr. R.B. Herath, Director of RBP it was initially estimated that nearly 3000 ha of land were available for bamboo planting along river banks. However, many lands have been encroached upon or are illegally utilized. It is estimated that only about 1500 ha are available for cultivation.

As of mid-2011, the project reportedly planted over 576,000 plants, with a 75% survival rate. These have been planted in the Mahaweli Upper Catchment (over 320,000 plants), the Mahaweli Zones (over 89,000), Ma oya & Daduru oya (131,000), and other areas (34,000).

In order to speed up planting activities, the Environment and Forest Conservation Division engages the support of non-governmental organizations (NGOs) and community based organizations (CBOs) through an incentive scheme.

The incentive scheme has been implemented for people to do the planting under the guidance of NGOs and CBOs. The incentive scheme involves providing plants and paying farmers to plant and maintain the plants for up to 2 years after planting. The total disbursement per bamboo that is planted is Rs 105, which is paid in 3 instalments as follows: • Rs 65 one month after planting • Rs 25 in the first year after planting • Rs 15 in the second year after planting

Incentive payments are made on the recommendation of the CBO/NGO partner organization. The Field planting team of the RBP will make the inspection and certifications for these payments.

Given that the cost of planting material is Rs 75, the provision of the incentive scheme amounts to Rs 180 (or approximately US$ 1.58) per bamboo that is planted on the field.

If planting is carried out at distances of 7m x 7m then about 200 plants will be needed per hectare. The cost of planted hectare is estimated at US$ 316 or US$ 316,000 per 1000 hectares. This however does not take into account plant mortality. A provision should be made to cover losses after initial planting.

Phase III involves enterprise development for processing of bamboo. To achieve this, sufficient bamboo resources need to be available; the logistics and supply chain should be efficiently managed and accessible for industrial use.

This represents a major opportunity for developing bamboo in the country, but constraints such as market demand for bamboo and lack of interest from industrial investors and landowners are challenges that need to be overcome.

65 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX H. ADDITIONAL INFORMATION ON BAMBOO SPECIES TO BE INTRODUCED

Since most of the available land in the country is in the eastern dry zone it is advisable to introduce the following species into the dry zone: • Dendrocalamus strictus (D. strictus) • Dendrocalamus cinctus (D. cinctus) , and • Bambusa bambos (B. bambos)

In addition to these 3 species, it is worthwhile to import 2 exotic species: • Oxytenanthera abyssinica and • Bambusa blumeana .

It is advisable to plant these species in the dry zone, preferably along river banks. These species will be integrated into propagation program of the RBP TC lab.

Bambusa bambos : The largest native bamboo with multiple industrial uses is Bambusa bambos . This is a drought resistant species which occurs in the dry zone of the country. Unlike most bamboos, it can survive in areas with short rainy seasons, and it is also quite resistant to flooding. B. bambos is a timber bamboo with spiny branches. Due to its thorns, it needs to be intensively managed in order to facilitate harvesting. This bamboo is widely used in India’s pulp and paper industry. It was estimated in 1991 that the resource of this species in Sri Lanka was about 4 ha. B. bambos is widely planted in parts of Asia, especially for erosion control, and as a source of timber. It is a native species of Sri Lanka and it can potentially be used for controlling erosion in the RBP. Since it is a drought resistant species, it can be planted along the banks of rivers that dry up, and which only flow during the rainy season.

Dendrocalamus strictus : Dendrocalamus strictus is also known to be drought resistant. Its distribution in Sri Lanka is restricted to one or two isolated forested areas, such as Ritigala which is located in the North Central region of the country. D. strictus was reportedly introduced by the Forest Department as a source of fibre for the paper industry. In 1998, the total extent under D. strictus was estimated at 2,750 acres (920 ha) as a pure crop and 888 acres (297 ha) as a mixed crop with eucalyptus.

Dendrocalamus cinctus: Dendrocalamus cinctus is also known to be drought resistant. The addition of this species to the propagation program of the TC lab can make it an option to cultivate bamboo in areas that are less suitable to cash crops.

Given that a number of exotic species have already been introduced into the country, it is also advisable to introduce the African species Oxytenanthera abyssinica and the Southeast Asian species Bambusa blumeana into Sri Lanka and integrate these species in the TC propagation program of RBP.

O. abyssinica thrives in Ethiopia, close to the Sudan in areas with less than 1,000 mm rainfall per year. The species also grows in dry areas of western Africa. O. abyssinica is a solid stemmed bamboo which has strong potential as a biomass crop.

Bambusa blumeana is a native of South East Asia. It is a spiny bamboo with tall straight culms. It shares many similarities with B. bambos and can thrive under the same conditions as the latter. B. blumeana is also a species that can withstand periods of drought and extend periods of flooding during the short rainy seasons. Introducing these 2 species to the TC program of RBP’s lab could lead to very positive results.

66 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX I. EXAMPLE OF THE TYPE OF EQUIPMENT WHICH WILL BE PURCHASED UNDER COMPONENT 2, COMPONENT 5 AND COMPONENT 6

The GEF financing is used for purchasing equipment under Component 2 (see Table 15 for the budget and specifications of the equipment), component 3, 4, 5 and 6. The private sector purchases equipment under Component 5 and 6 on a competitive and market-based basis.

1. Laboratory equipment for the mass propagation of bamboo species (Component 2)

The following equipment is necessary for the expansion of mass propagation of bamboo species at the tissue culture lab of the Mahaweli Authority at Mawathura, Kothmale. This equipment will enable the facility to propagate additional species of bamboo which will be feasible for commercial production in the dry zone of the country.

Table 16: List of Required Equipment for the Riverine Bamboo Project Unit Name of the Quantity Approximate No Specification Price Equipment (Unit) Value (USD) ($)

1 Half body lorry 2 350, Double wheel $30,000 $60,000 Capacity -200L -250L. Cabinet underneath for 50ml-1000ml glass bottles. Stainless steel wash chamber and exterior. Door 2 Dish washer 1 safety inter-locking. Display shows cycle $1,000 $1,000 progress, chamber temperature and fault detection. Electrical requirement- 220V- 230V, 50Hz-60Hz. Culture media 3-6 Fingers. Electrical requirement- 220V- 3 1 $400 $400 dispenser 230V, 50Hz-60Hz. Deionized unit 20L capacity, Rate-30-40L/hr. Electrical 4 1 $300 $300 with distillation. requirement- 220V-230V, 50Hz-60Hz.

5 Lap top 1 P4, RAM-2GB, Hard-360GB $800 $800 Analytical Readability 0.0001g -200g, Electrical 6 1 $1,000 $1,000 Balance requirement- 220V-230V, 50Hz-60Hz. 7 Hot plate with 1 stirrer Speed Range: 60-1500 rpm, Temperature Range: Ambient +5 to 380°C, Platform: 7.5” x 7.5”/19cm x 19cm, Control: Quick $300 $300 Adjustment Knobs, Dimensions: 8” x 9” x 4.5” (WxDxH), Electrical requirement- 220V-230V, 50Hz-60Hz.

Mist irrigation Wetted diameter 1.2m, Filtration 8 80 $35 $2,800 Unit requirements 100microns Max. temperature 100ºC, Stainless steel 9 Water bath shaker 1 bath, Bath capacity 35-40L, Electrical $400 $400 requirement- 220V-230V, 50Hz-60Hz. Copier with Scanning, Printing, Copying, Printing 11 1 $500 $500 Printer Paper size Max. A3 Pass box type. Automatic Mode. Dimensions of work area (WxHxD) - Air shower- 800mm x 2000mm x 1000mm. 1-2 Person 12 Through 1 $600 $600 wash at a time. Hepa filter efficiency Entry/Exit 100%, Electrical requirement- 220V- 230V, 50Hz-60Hz.

67 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Unit Name of the Quantity Approximate No Specification Price Equipment (Unit) Value (USD) ($) Total $68,100

2. Equipment for a bamboo boards/ flooring production facility (Component 5)

The following equipment would be necessary for a facility which would be able to produce 25-30,000 m2 of bamboo boards/flooring a year (1 shift operation 8 hours per day 20 days per month). The finished product could then be sold to the local markets for USD 10-12 per m 2. The production cost for the board (not counting the initial equipment costs) is around USD 6-7 per m 2. The total investment for the machinery would be 600,000 USD. Assuming a 10-year useful life of the equipment with a residual value of USD 50,000, the annual net revenue would be at least USD 20,000 with an estimated maximum of USD 125,000.

Equipment description Number of units needed Bamboo crosscutting machines 2 Dashing & slicing machines 2 Node removing machines 2 Width -sizing & slicing machines 2 Drying oven 1 Precision planing machines 2 Laminating press (cold press) 1 Laminating presses (2.40 x 1.20m) hot press 2 Solar dryers 2 Boilers 2 Preservation tanks 4 Two side planning machines 2 Glue spreading machines 2 Additional machine tools N/A

3. Equipment for biomass pelletisation (Component 6)

For bamboo pellet production, the following machinery and equipment would be necessary in order to produce ~1.5 tonnes of pellets per hour – for a total of 3,000 tonnes per year. The total investment for the machinery and equipment would be ~USD 800,000.

• Dryer • Hammer Mill • Pellet Machine • Cooler • Storage Conveyors, separators • Peripheral Equipment

68 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX J. PLANNED BIOMASS/ MUNICIPAL SOLID WASTE BASED POWER PLANTS IN SRI LANKA

Location Fuel Capacity (MW) Status Hingurana Paddy Husk 2.00 Energy Permit Issued Galparuyaya, Mahiyangana Gliricidia 0.95 Dodangoda, Kalutara 4.00 Buttala, Monaragala 5.00 Thirapane, Anuradhapura 1.50 Ellawela, Polonnaruwa 10.00 Ninthavur, Ampara Paddy Husk 2.00 Monaragala Gliricidia 10.00 Embilipitiya 5.00 Mahingamuwa, Kegalle Cashew Shell 0.50 Provisional Approval Avissawella Gliricidia 0.90 Issued Tunkama, Hambantota 10.00 Keliyapura, Hambantota 10.00 Trincomale 5.00 Loggal Oya, Mahiyangama 2.00 Nedunkulam, Vavuniya 5.00 Anuradhapur a 10.00 Bathalayaya, Mahiyangama 5.00 Ampara 10.00 Bloemendhal, Colombo Municipal Solid 10.00 x 4 Kurunagala Waste (MSW) 0.625 Gohagoda, Kandy 10.00 Pothunilkumbura, Colombo 20.00 Kaduwela 6.00 Kerawelapitiya 40.00

69 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX K. BREAKDOWN OF TECHNICAL ASSISTANCE VERSUS INVESTMENT FOR EACH COMPONENT

GEF grant Cofinancing Cofinancing sources TA Investment Total TA Investment Total Component USD % USD % USD USD % USD % USD Component 1: Policy framework 265,300 100% - 0% 265,300 75,000 100% - 0% 75,000 Output 1.1: National strategy developed for the development of the bamboo industry 46,300 - 46,300 20,000 20,000 Mahaweli Authority: $ 20000 Mahaweli Authority: $ 15000 Output 1.2: National policy adjustments supported 56,200 - 56,200 15,000 15,000 Output 1.3: Land use policy adjustments 52,050 - 52,050 15,000 15,000 Mahaweli Authority: $ 15000 Output 1.4: Supportive policies and regulations on a local and regional level 41,750 - 41,750 20,000 20,000 Mahaweli Authority: $ 20000 Output 1.5: Information on the project activities disseminated to the public and decision-makers 69,000 - 69,000 5,000 5,000 Mahaweli Authority: $ 5000

Component 2: Bamboo Tissue Production 141,300 64% 80,000 36% 221,300 500,000 29% 1,206,000 71% 1,706,000 Output 2.1: Acquisition and installation of laboratory equipment for appropriate species 72,550 80,000 152,550 150,000 1,100,000 1,250,000 Mahaweli Authority: $1,250,000 Output 2.2: Functional laboratory and availability of high quality planting material for appropriate species 68,750 - 68,750 350,000 106,000 456,000 Mahaweli Authority: $ 456,000

Component 3. Plantation establishment 292,400 80% 75,000 20% 367,400 400,000 4% 10,823,000 96% 11,223,000 Output 3.1: Bamboo plantations established in Mahaweli Authority: $6,346,000 unused lands in the dry zone and wet zone Bamboo RD Ltd: $ 500,000 292,400 75,000 367,400 400,000 10,823,000 11,223,000 Forest Dept: $4,377,000

Component 4. Plantation operation 183,050 79% 50,000 21% 233,050 1,000,000 20% 3,968,000 80% 4,968,000 Output 4.1: Economically sustainable, functional bamboo plantations running in currently unused dry Mahaweli Authority: $4,368,000 lands and wet lands 183,050 50,000 233,050 1,000,000 3,968,000 4,968,000 Bamboo RD Ltd: $ 600,000

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

70 GEF grant Cofinancing Cofinancing sources TA Investment Total TA Investment Total Component USD % USD % USD USD % USD % USD Component 5. Bamboo processing equipment 484,700 74% 173,150 26% 657,850 175,000 7% 2,450,000 93% 2,625,000 Mahaweli Authority: $ 80,000 Output 5.1: Bamboo processing machinery for Touchwood Inv: $1,150,000 industrial use bought and installed Ministry Ind& Comm: 93,900 173,150 267,050 80,000 2,150,000 2,230,000 $1,000,000 Output 5.2: Establishment of bamboo flooring Mahaweli Authority: $ 50,000 production capacity 194,025 - 194,025 50,000 150,000 200,000 Touchwood Inv: $ 150,000 Mahaweli Authority: $ 45,000 Output 5.3: Establishment of bamboo shoots by- Ministry Ind & Comm: product industry 196,775 - 196,775 45,000 100,000 145,000 $ 100,000

Component 6. Pelletising 310,450 76% 100,000 24% 410,450 - 0% 350,000 0% 350,000 Output 6.1: Pelletising machinery bought and Ministry Ind & Comm: installed for bamboo 130,850 100,000 230,850 - 300,000 300,000 $ 300,000 Ministry Ind & Comm: Output 6.2: Production of biomass pellets 179,600 - 179,600 - 50,000 50,000 $ 50,000

Project management Mahaweli Authority: $ 250,000 199,650 100% - 0% 199,650 290,000 83% 60,000 17% 350,000 UNIDO: $ 100,000 Total 1,876,850 80% 478,150 20% 2,355,000 2,440,000 11% 18,857,000 89% 21,297,000

UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012

71 ANNEX L. FINANCIAL ANALYSIS OF THE LIKELY RETURNS ON INVESTMENT FOR BAMBOO GROWTH, BAMBOO MATERIALS PROCESSING, AND FOR PELLETISATION

Table 17: Approximate costs and income for planting and harvesting of bamboo raw material Activity Unit cost Number Cost / ha Cost/ha – Remarks - Rupees of units Rupees USD per ha Supplying Planting 75 400 30,000 USD Average for Mahaweli project, material 270.32 5.5 m X 3 m for planting distance Land clearing 49,400 1 49,400 USD Rs. 20,000/= per acre 445.13 Lining 8,600 1 8,600 USD Rs. 3,500/= per acre 77.49 Harrowing 29,600 1 29,600 USD Rs. 12,000/= per acre 266.71 Holing 50 400 20,000 USD Spacing 5 m X 5 m and hole 180.21 size (1.5 X 1.5 X 1.5) - Rs. 50 /= per planting hole and 160 holes per acre Closing planting holes 10 400 4,000 USD Rs. 10 per planting hole 36.04 Basal resin 50 400 20,000 USD Rs. 50 per tree 180.21 Planting 20 400 8,000 USD Rs. 20 per planting hole 72.09 Total initial costs 169,600 USD 1,528.20

Maintenance costs per harvest Maintenance labour 30 1,200 36,000 USD Rs. 400 per man-day with 3 324.38 years of maintenance at 30 man-days per ha Fertiliser 40 400 16,000 USD Rs. 40 per plant 144.17 Harvesting - man days 400 40 16,000 USD 40 man days/ ha 144.17 Harvesting - tractor 8,300 1 8,300 USD Tractor cost of 300 USD per 74.79 day (including fuel) and 4 ha per day Total maintenance costs per harvest 76,300 USD 687.51

Total planting and harvesting costs per hectare 245,900 USD (1st harvest) 2,215.71 Total planting and harvesting costs per hectare 76,300 USD (2st harvest) 687.51 Total planting and harvesting costs per hectare 76,300 USD (3rd harvest) 687.51 Total costs for 3 harvests 398,500 USD 3,590.74

72 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Activity Unit cost Number Cost / ha Cost/ha – Remarks - Rupees of units Rupees USD per ha Unit sales price at the 60* 3,000 180,000 USD Assumes 7.5 plants per culm – farm gate 1,621.91 a conservative estimate for an intensively managed bamboo field Total income for 3 harvests 540,000 USD 4,865.74

Total net income after 3 harvests (per hectare) 141,500 USD The bamboo growth becomes 1,275.00 profitable after at most two harvests * Note that 60 Rupees per culm is a conservative estimate. It may be significantly higher – up to 300 Rupees per culm for higher quality culms for processing.

Table 18: Projections of net revenue for bamboo flooring under a minimum and maximum net revenue scenario Minimum net Maximum net

revenue scenario revenue scenario Expenses Transportation Km from the farm gate to the processing site 75 20 Cost per km of travel per load (USD) 0.57 0.57 Tonnes per load 7 7 Square metres of flooring material produced per tonne of bamboo 8 8 Total transportation costs (USD per m2) 0.76 0.20 Cost of production of boards (per m2) 7 6 Total area of boards produced per year (m2) 25,000 30,000 Total annual costs of production (including transportation costs) 194,085 186,107

Total equipment cost 600,000 600,000 Useful life of asset 10 10 Residual value 50,000 50,000 Annual depreciation expense 55,000 55,000 Total annual expenses 249,085 241,107

Income Price of boards on the market (per m2) 10 12 Total area of boards sold per year (m2) 25,000 30,000 Total income 250,000 360,000

Net annual revenue 915 118,893 Net annual revenue as a percentage of investment 0.4% 49.3% * Assumes 7 tonnes per truck load, with 8 m2 of flooring produced per tonne of bamboo, with transportation costing USD 0.57 per km per load.

73 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 Table 19: Projections of net revenue for bamboo pelletisation under a minimum and maximum net revenue scenario Minimum Maximum net revenue net revenue scenario scenario Expenses Bamboo raw material (per tonne) 40.00 40.00 Transportation Km from the farm gate to the processing site 75 20 Cost per km of travel per load (USD) 0.57 0.57 Tonnes per load 7 7 Tonnes of pellets produced per tonne of bamboo 0.5 0.5 Total transportation costs (USD per tonne) 12.21 3.26 Operating costs of production of pellets (per tonne - including energy and labour) 9 60 40 Total tonnes of pellets produced per year 3,000 3,000 Total operating costs of production (including transportation costs) 336,643 249,771

Total equipment cost 800,000 800,000 Useful life of asset 10 10 Residual value 50,000 50,000 Annual depreciation expense 75,000 75,000 Total annual expenses 411,643 324,771

Break-even point (expense per tonne of pellets) 137 108

Income Price of pellets on the market (per tonne) 170 170 Total tonnes of pellets sold per year 3,000 3,000 Total income 510,000 510,000

Net annual revenue 98,357 185,229 Net annual revenue as a percentage of investment 23.9% 57.0%

9 Though specific costs weren’t available for Sri Lanka, these costs are based upon the conservatively high estimates for costs as shown in Mani et al. 2004 - http://biomassinnovation.ca/pdf/Research/Developments%20in%20Biomass/Economics%20of%20Producing%2 0Fuel%20Pellets%20From%20Biomass.pdf

74 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012 ANNEX M. BREAKDOWN OF COFINANCING – IN-KIND VERSUS CASH

Organization In-kind Cash Total Mahaweli Authority of Sri Lanka 2,400,000 10,520,000 12,920,000

Ministry of Industry and Commerce - 1,500,000 1,500,000 Forest Department of Sri Lanka - 4,377,000 4,377,000 UNIDO 40,000 60,000 100,000

Touchwood Investments PLC - 1,300,000 1,300,000

Bamboo Resources Development (Pvt) Ltd - 1,100,000 1,100,000 Total 2,440,000 18,857,000 21,297,000 Note: Though some of the cofinancing letters indicate that the contribution is “in-kind”, because much of it will actually be money spent on the project or physical assets used for investment (such as land), we believe that for reporting purposes, this cofinancing should be counted as cash contributions.

75 UNIDO-Bamboo Processing forSriLanka-ID4114-CEOEndorsement-.3.1 – 05032012