Document of

The World Bank Public Disclosure Authorized

Report No. 15917- HO

STAFF APPRAISAL REPORT Public Disclosure Authorized

HONDURAS

RURAL LAND MANAGEMENT PROJECT Public Disclosure Authorized February 28, 1997

Central America Department Latin America and the Caribbean Region Public Disclosure Authorized CURRENCY EQUIVALENTS

Currency Unit= Lempira US$1.00 = Lp. 12.94 Lp. 1.00 = US$0.0773

GOVERNMENT FISCAL YEAR

January 1- December 31

WEIGHTS AND MEASURES

Metric System

ACRONYMS, ABBREVIATIONS AND GLOSSARY

AFE-COHDEFOR State ForestryAdministration--Honduran Forest Development Corporation(Administraci6n Forestal del Estado- Corporacion Hondurena de Desarrollo Forestal)

AGSAC AgriculturalSector Adjustment Credit (Cr. 2540-HO)

AML AgriculturalModemization Law (Ley de Modernizaci6n Agricola)

BANADESA GovenmmentAgricultural Credit Bank (Banco de Credito Agricola)

CEMAPIF Centerfor Managementand Utilizationand SmallForestry Industry (Centro de Manejo, Aprovechamiento y Pequena Industria Forestal)

CIDA CanadianIntemational Development Agency (Agencia Internacional de Desarrollo Canadiense)

CIDICCO HonduranNGO workingon uplandTechnologies

COCONA NationalAdvisory Council on the Environment(Consejo Nacional del Ambiente)

CODA Commissionon AgriculturalDevelopment (Comisi6n de Desarrollo de Agricultura)

CONACTA NationalAdvisory Council on AgriculturalTechnology (Consejo Nacional de Tecnologia Agricola)

CONAPH National AdvisoryCouncil for ProtectedAreas (Consejo Nacional de Areas Protegidas)

COSECHA HonduranNGO specializedin uplandtechnology

Vice President: Shahid Javed Burki, LACVP Director, Country Department: Donna Dowsett-Coirolo, LADCN Manager, Sector Leadership Group: Michael Baxter, LASLG Sector Leader: Mark Cackler, LADCN Task Manager: Augusta Molnar, LASLG - 11-

CSJ Supreme Court (Corte Suprema de Justicia)

DAPVS Protected Areas and Wildlife Department (Departamento de Areas Protegidas y Vida Silvestre)

DDR Directorate of Rural Development (Direccion de Desarrollo Rural)

DEC Department of Cadastre (Departamento Nacional de Catastro)

DICTA Directorate for Agricultural Science and Technology Transfer (Direcci 6n de Ciencia y Transferencia de Tecnoloia Agricola)

EJIDO Municipal lands allocated during the pre-independenceperiod for communal use and urban expansion

FAMA Honduran NGO working with poor farmers

FHIS Social Investment Fund (Fundaci6n Hondurella de Inversiones Sociales)

FINNIDA Finnish Development Authority

FMU Forest Management Unit

FOLIO REAL A system of parcel based land information and registration

GDP Gross Domestic Product

GEF Global Environmental Facility

GOH Government of Honduras

GPS Global Positioning System

GTZ German Technical Assistance

IBRD International Bank for Reconstruction and Development

ICB International Competitive Bidding

IDA International DevelopmentAssociation

IDB Inter-American Development Bank

IFC International Finance Corporation

IGN National Geographic Institute (Instituto Geogr6fico Nacional)

IMF International Monetary Fund - iii -

INA National Agrarian Institute (Instituto Nacional Agrario)

LUPE USAID-Financed Upland Development Project

M & E Monitoring and Evaluation

MIS Management Information System

NCB National Competitive Bidding

NGO Non-Government Organization

NRM Natural Resource Management

PACO/CARE Upland project financed by the Christian Relief Agency (CARE)

PBDL Broadleaf Forestry DevelopmentProject (Proyecto de Desarrollo del Bosque Latifoliado)

PDF Project Development Facility

PPF Project Preparation Facility

PR Property Registry (Registro de la Propiedad)

PRODEPAH Honduran Project for Support to Agriculture Development

SAG Secretariat of Agriculture and Livestock (Secretaria de Agricultura y Ganaderia)

SERNA Secretariat of Natural Resources and Environment (Secretaria de Recursos Naturales y del Ambiente)

SINAPH National System of Protected Areas of Honduras (Sistema Nacional Hondurefo de Areas Protegidas)

SNIITA National System of Agricultural Technology

SNITTA National Research and Technology Transfer System

TVF Land of Forest Vocation (Tierra de Vocacion Forestal)

UNDP United Nations DevelopmentProgramme

UPEG New name of UPSA (Unidad de Planeaci6n y Evaluacion)

UPSA Planning Unit of SAG

USAID United States Agency for International Development HONDURAS

RURAL LAND MANAGEMENT PROJECT

TABLE OF CONTENTS

Page No.

Credit and Project Summary...... i

1. BACKGROUND ...... 1

A. CountryOverview and MacroeconomicBackground ...... 1 B. GovernmentPolicy, Institutional and LegalFramework ...... 2 C. LessonsLearned ...... 4 D. Country Assistance Strategy...... 6

2. THE PROJECT ...... 6

A. ProjectOrigin ...... 6 B. Rationale for IDA Involvement...... 7 C. Project Objectives...... 8 D. Project Description...... 8 E. Program Objective Categories...... 13 F. ProjectCosts And FinancingPlan ...... 14 G. Financial Analysis...... 14

3. PROJECT IMPLEMENTATION, PROCUREMENT, DISBURSEMENT AND REPORTING ...... 15

A. Project Implementation, Coordination and Management...... 15 B. Technicaland FinancialAudits ...... 22 C. Procurement...... 22 DDisbursement ...... 25 E. ProjectReporting, Monitoring and Evaluation...... 26 F. Supervisionby IDA...... 26

This report is basedon the findingsof pre-appraisaland appraisal missionswhich visitedHonduras in March and May of 1996respectively, comprising Messrs./Mmes. Augusta Molnar (TaskManager), WilliamBeattie (LA2NR), John Joyce,James Smyle,Luis Zelaya,Maria Luisa Pardo, NelsonEspinoza, and Ana LuciaMoreno (RUTA);Richard Owen (FAO);and Tom Korczowski,Daan Vreughdenhil,Maria Correia,Juan Martinez,and Robinle Breton (Consultants).Ms. DonnaDowsett-Coirolo is the Country Director, Mark Cackleris the SectorLeader, and MichaelBaxter is the SectorLeadership Group Manager. ii

Page No.

4. ECONOMIC ANALYSIS, BENEFITS AND RISKS ...... 27

A. Benefits...... 27 B. EconomicAnalysis ...... 27 C. Environmental Impact ...... 30 D. Participation and Social Impacts...... 31 E. Risks...... 33 F. Sustainability...... 35

5. SUMMARY OF AGREEMENTS, ASSURANCES AND RECOM4MENDATION ...... 35

A. Agreements and Assurances...... 35 B. Recommendation...... 37

TABLES:

Table 1: Project Costs Table 2: Project FinancingPlan Table 3: ProcurementArrangements Table 4: Summaryof PotentialEconomic Benefits

CHARTS:

Chart 1: Use of Funds by ProjectAgencies Chart 2: OrganizationChart NaturalResources Management Component Chart 3: OrganizationChart for the LandAdministration Modemization Component

ANNEXES:

Annex A: InstitutionalArrangements and ImplementationSchedule Annex B: LandAdministration Modemization Component Annex C: NaturalResources Management Component InstitutionalStrengthening ForestManagement Annex D: Fundfor Upland ProducersSub-component Annex E: ProtectedAreas Sub-component Annex F: Cost Tables,Financing Plan and DisbursementSchedule AnnexG: ProjectMonitoring, Reporting, and Evaluation Annex H: ProjectAnalysis EconomicAnalysis EnvironmentalAnalysis SocialAssessment and Participation Annex I: ProjectImplementation Detailed Plan (PIP) Contents ProjectBrief IDB AgriculturalTechnology Annex J: Documentsin ProjectFile

MAP: IBRD No. 28168 HONDURAS

RURAL LAND MANAGEMENT PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: The Republic of Honduras

Implementing Agencies: Secretariat of Agriculture and Livestock (SAG) State Forestry Administration - Honduran Forestry Development Corporation (AFE-COHDEFOR)

Poverty: Program of Targeted Interventions

Amount: SDR 23.5 million (US$34.0 million equivalent)

Terms: Standard IDA terms, with 40-year maturity

Commitment Fee: Standard

Financing Plan: See page 7 in Annex F

Net Present Value: See Chapter 4, Section B

Map: IBRD No. 28168

Project Identification No.: HO-PA-7398

HONDURAS

RURAL LAND MANAGEMENT PROJECT

STAFF APPRAISAL REPORT

1. BACKGROUND

A. COUNTRYOVERVIEW AND MACROECONOMIC BACKGROUND

1.1 After a decadeof slow economicgrowth, averaging 2.5 percent per annum,and mounting fiscaland trade disequilibria,external debt, and marketdistortions, the Governmentof Honduras (GOH)undertook a structuraladjustment program in 1990,supported by the SecondStructural AdjustmentCredit (3257-HO). Key elementsof this market-orientedprogram were fiscalreform, trade liberalization,removal of price controls,and liberalizationof the foreign exchangesystem. While someimportant progress was made duringthe 1990-94administration and GDP improved substantially,the administrationleft seriousmacro-economic imbalances unsolved. 1.2 The present Government,which took officein January 1994,had initialsuccess in addressingthese imbalances.It completedthe secondyear of an InternationalMonetary Fund (IMF)Enhanced Structural Adjustment Facility program, but was then unableto agree with the IMFon a third year program. It has also foundit difficultto maintainprogress in strengthening fiscalpolicy, as a result of pressuressurrounding the presidentialprimaries in November 1996 and generalelections scheduled for November 1997.Although the Governmenthas taken some revenuemeasures (raising gasoline taxes and telephonerates), further actionswere needed and, in this connection,a revisedtax code is presentlyin Congress. Thesemacro developmentshave causeda delayin declaringeffective the PublicSector ModernizationAdjustment Credit. On the other hand, the Governmenthas continuedto make progresswith severalof the structuralreforms supportedby the Public SectorModernization Adjustment Credit (especiallyin the areas of employmentrationalization, changes in the legalframework for telecommunications,legislation permittingconcessions, and modificationof the PublicAdministration Law, setting the basis for meaningfulrestructuring of publicagencies). Growth is estimatedto have decreasedfrom 3.6 percent in 1995to 3 percent in 1996. The IMF is continuingdiscussions with Governmentwith the aim of finalizingagreement on an economicprogram for 1997. 1.3 Governmentpolicy reforms have had an overallpositive impact on the real incomesof the rural poor. Between 1988and 1993,the real incomesof agriculturalworkers grew at an average annualrate of almost 10 percent and producerprices of major agriculturaloutputs also rose. Despite this, muchremains to be done to reduce widespreadrural poverty. Nationalhousehold surveysand WorldBank studiesindicate that about 78 percent of householdsin the poorest 30 percentileof the populationare rural. Farms of less than 5 hectaresaccounted for 72 percentof all farmsin 1993,compared to 64 percentin 1974. A studyon rural poverty in Honduras(June 29, 1995),supported by IDA, recommendsincreasing public investment in the rural sectorby disseminatingmarket information and productivetechnologies to smallfarmers. The report also notes that redressingthe inequitabledistribution of assets (especiallyland) is a criticalneed. 1.4 Public sector reform would make an important contribution to reducing poverty in Honduras. Altering the role of the government and reducing the size of the public sector and state-owned enterprises could free public resources for investments in human resources and the poor. The government has taken steps to reduce its size and promote private sector involvement in providing public goods and services through its Public Sector Modernization Program. These efforts are to be supported by an IDA Public Sector Modernization Structural Adjustment Credit (6740-HO). Measures to reduce the Government's role in the economy are needed, as public expenditures are well above average for both low- and middle- income countries, and employment in the public sector still accounts for 8.2 percent of GDP.

1.5 In the agricultural and forestry sectors, important policy and institutional reforms were embodied in the Agricultural Modernization Law (AML) of 1992, which was supported by the Inter-American Development Bank (IDB) and IDA through an adjustment credit (AGSAC, Cr. 2540-HO). The AML reversed a 1974 law which dictated that the ownership, management and use of forest land and trees came under Government purview. Under the AML, forest ownership and appropriation rights were returned to the forest-land owner. The current law entrusts Government with regulating, protecting and managing protected areas and national forests through the Agriculture and Livestock Secretariat (SAG). In addition to redefining the role of the SAG, the reform also streamlined other sector agencies, eliminating sub-agencies that duplicated services and transferring important functions to the private sector. This included an attempt to shift rural credit responsibilities from an inefficientgovernment agricultural credit bank (BANADESA) to credit societies and unions. Under the new framework, forest management plans have been prepared in over 300 km2 of public forest-lands and protected areas, public timber auctions have been held which have stimulated substantial increases in timber's market price, and some 70 or more management plans have been approved in private and ejido forests (municipal lands aliocated during the pre-independence period for communal use and urban expansion). These are encouraging signs that in some areas forest management is becoming an increasingly attractive alternative to agricultural conversion. Much remains to be done, nevertheless, this is a positive beginning.

B. GovERNMENT POLICY, INSTITUTIONAL AND LEGAL FRAMEWORK

Government Agencies and other Organizations

1.6 Under the AML, the SAG remains the lead government institution for agriculture and forest sector policy and action. The SAG is comprised of: (a) the Economic Policy Unit (UPEG), a planning and policy cell which was strengthened under AML to set policies of the formerly autonomous land and forest agencies; (b) the State Forestry Agency (AFE-COHDEFOR), a semi- autonomous forestry agency, which was formerly a para-statal corporation with manufacturing and marketing responsibilities;(c) the National Agrarian Institute (INA), a semi-autonomous rural land titling agency formerly burdened with rural development programs as well as land reform; (d) the Directorate for Agricultural Science and Technology (DICTA), a semi-autonomous agricultural research and extension agency which, among other responsibilities, sets criteria for channeling government funds to small producers and research organizations; (e) a phyto-sanitary directorate; and (f) the Department of Rural Development (DDR), a small directorate established to assist marginal farmers which has yet to be given a clear mandate or work program - 3 -

1.7 Other agencies involved in the rural sector are: (a) the Commission on Agricultural Development (CODA), an advisory committee consisting of agency heads and SAG, which was formed to ensure that the sector maintains a consistent policy direction; (b) the National Council for Agricultural Technology Generation and Transfer (CONACTA), a public/private sector council established to coordinate the country's new National Research and Technology Transfer System (SNITTA); (c) the Economic Cabinet; and (d) the Technical Advisory Committee (CONAPH) of the National Environment Advisory Council (COCONA), which comprises DAPVS, the new Secretariat of Natural Resources and Environment (SERNA), SAG, and academic and non-governmental institutions and is responsible for setting policy related to protected areas and biodiversity.

1.8 Land administration is the responsibility of a number of institutions. The Property Registry (PR), an entity under the control of the Supreme Court, records deeds and transactions. INA grants titles to farmers settled on lands legally described as "agricultural vocation" lands. The Department of Cadastre (DEC), an autonomous institute recently moved from the Planning Ministry to the Ministry of the Presidency, sets standards for legal surveys. Municipalities are responsible for maintaining legal cadastres within their boundaries in return for taxation authority, and the National Geography Institute (IGN) sets mapping standards.

1.9 Honduras also has an NGO sector active in small-farmer development and watershed management, which has provided a wealth of experience on low-cost, effective extension methods and management practices to increase productivity on small farms while controlling and even reversing soil degradation. Several bilaterally-funded projects have attempted to extend this experience, but these efforts have been impeded by limited institutional capacity and the low priority assigned by government to sustaining these initiatives following termination of external financing. In some instances the Protected Areas and Wildlife Department (DAPVS) has successfully experimented with joint protected areas management, whereby important management and eco-tourism roles have been transferred to locally-based NGOs and community groups, thus enhancing protection and management within the limited capacity of the public sector. Other rural sector entities to note are producers' organizations (found primarily among farmers with better quality land) and a federation of forestry cooperatives organized around industrial and community forestry, particularly resin collection.

Policy and Legislation

1.10 Under the reform process, the Government has established a new policy framework which consists of several complementary laws and regulations: (a) the AML, which guides policy for the sector as a whole; (b) the Municipal Law of 1991, which devolves responsibilities for maintaining cadastre records, managing ejido forests and decision-makingto the municipal level while increasing budget transfers from central government; (c) the Property Registry Law of 1987, which mandates that the personal property registry be replaced by folio real (a parcel-based system in which physical cadastral infornation is overlaid with a consistent legal register of that parcel--Annex B); (d) the Environmental Law, which creates a system of Environmental Impact Assessment and assigns an oversight role to the Natural Resources and Environment Secretariat (SERNA) for biodiversity conservation and land-use zoning; (e) the Public Sector Reform Program (and accompanying draft General Law of Public Administration), which continues the process of down-sizing and streamlining agriculture sector agencies; and (f) the Forest Incentives - 4 -

Law of 1993, which approves incentives for forestation and forest management to encourage private and community tree plantation, agro-forestry and forest regeneration.

C. LESSONSLEARNED

Country Specific Lessons

1.11 IDA/World Bank projects in Honduras have often experienced problems due to weak institutions and budgetary constraints for counterpart financing. These problems have been avoided in the Honduran Social Investment Fund (FHIS) lending programs (Credit No. 2212-HO. -February 1991, Credit No. 2401-HO, May 1992, and Credit No 14181-HO, June 16, 1995) by channeling resources through an autonomous agency and allowing it to operate free of government administrative regulations and salary constraints. In light of this, the proposed project would: (a) establish a Project Coordinating Unit (PCU) reporting directly to the Minister level (thus placing it above the Secretariat's own executing agencies) to channel external resources to participating government agencies and to oversee procurement and disbursement activities; (b) channel resources for upland development directly to beneficiaries by means of an agricultural research and extension fund, to be managed by a private sector contractor; and (c) include institutional development measures to increase the capacity of executing agencies in the private and public sectors.

Sector Lessons

1. 12 Land Administration. A World Bank report on the experiences of 12 rural titling projects revealed that investments performed well under the following conditions; (a) where the project had political support and government was committed to providing resources to the project; (b) where implementation capacity existed; (c) where there existed a comprehensive, modem system of land administration, which combined reliable physical and legal cadastral information; and (d) where project objectives were consistent with the overall policy environment.' Analyzing the proposed project in light of these prerequisites, it is clear that the project has both the commitment and political support of the Government, as evidenced by the creation of an active, inter-agency land modernization commission and the establishment of a PPF. With regard to implementation capacity, however, the necessary conditions are not fully met, and the design of the project has been tailored to allow for existing weaknesses. Given the lack of a modem registry system with reliable data, the proposed project will not carry out cadastral or land titling activities before modernizing the system within which information is generated and maintained. In addition, the land administration activities themselves have been phased to allow for adjustments based on pilot experiences and to fit current and projected institutional capacity.

1.13 Natural Resources Management. World Bank experience demonstrates that there are three fundamental areas where a Forest Department must have information in order to begin effective forest management. They must know: (a) where the forest is located; (b) what the forest resources are; and (c) the trends in forest use. AFE-COHDEFOR, is still in the process of establishing this knowledge base. The natural resources management component of the proposed project is thus targeted at building up this knowledge and the capacity to use and maintain it. It

1 See WorldBank, Researchand PolicyDivision Working Paper No. 1992-35, March, 1992. - 5 - seeks to accomplish this through practical exercises involving planning, training, execution and follow-up. World Bank experience has also shown the value of building local capacity to engage in forest and watershed management and in land conservation. The project proposes to bring local populations and their organizations into the discussion of resources management and to finance training and technical assistance to increase local capacity in this activity. Specifically,the project would build on the positive experiences in forestry from the Canadian International Development Agency (CIDA) and the Finnish Development Authority (FINNIDA), which have developed models to organize settlers and municipal members into small entrepreneurial units to log and manage selected forest areas. The project would also seek to mainstream these models within AFE/COHDEFOR's normal functions, working with field offices to upgrade professional skills, improve forest information systems and develop new forest management standards and regulations.

1.14 Support to Poor Upland Farmers. Experience in Honduras indicates that poor farmers working on marginal lands can increase agricultural productivity and incomes and improve their land use. Successful projects have been linked to the following factors: (a) employing technically competent NGOs tc provide extension services; (b) using participatory training and extension methods; (c) encouraging on-going adaptation and gradual innovation on the part of farmers, focusing on a limited number of priority activities; and (d) focusing on the human resources of the farmer by increasing motivation and promoting self-sufficiency. Lessons from the FHIS projects also demonstrate that targeting resources to the poor can be effective when processes are transparent and beneficiaries are involved in project planning from the outset. Following this experience, project preparation has relied on extensive consultation with potential beneficiaries and NGOs; and it would establish an independent fund for productive activities, to be accessed directly by upland small-scale producers (both in forest management and small farm production systems), using NGOs, producer organizations and municipalitiesas intermediary service providers.

1.15 Biodiversity Conservation. Lessons from World Bank financed projects containing biodiversity components reveal a number of key social, political and economic factors determining project success.2 Successful projects were linked to: (a) institutional strengthening, including staff training, infrastructure, equipment and improved management systems; (b) participation of local stake-holders to gain commitment and ownership; (c) financial sustainabilityof protected areas, particularly for recurrent costs; (d) flexibilityin implementation to allow the project to adapt to lessons learned; and (e) decentralized management of protected areas to increase efficiency and develop local capacity. The project responds to these issues by: developing self-financing mechanisms; working in consultation with local organizations and NGOs; setting aside funds to study traditional land uses within protected areas; establishing protected blocks within selected national priority areas (six to ten areas of thirty forest plots each); and providing funds for capacity building at the local level.

1.16 Gender. In addressing gender issues, the project draws on documented experiences from neighboring Central American countries, which indicate that a gender perspective changes the

2 See The World Bank and the Environment, A Progress Report, World Bank, 1993; and Mainstreaming Biodiversity in Development: A World BankAssistance Strategyfor Implementing the Convention on BiologicalDiversity, World Bank Environment Papers, Draft for Discussion,October, 1995. - 6 - scope and economicpotential of forestryand agricultureinterventions. In El Salvador,for example,gender roles and dynamicshave affectedthe outcomesof fuel-woodand reforestation initiativesbecause of men's and women's conflictingviews over the use of wood. The El SalvadorAgriculture Sector Reform and InvestmentProject (LoanNo. 10933-ES)and the NicaraguaAgricultural Technology and Land ManagementProject (LoanNo. 11802-NI)have shownthat positiveoutcomes can be achievedby includinga gender perspectiveduring project design.Hence, the proposedproject establishestargeted extensionand trainingprograms for women.

D. COUNTRYASSISTANCE STRATEGY 1.17 IDA's CountryAssistance Strategy for Hondurasdates back to July 14, 1993 and was discussedwith the Board on August5, 1993. The next CAS will be producedin early 1998 to coincidewith the politicalcycle. At that timethe strategywould be up-dated and would concentrateon helpingthe Governmentattain its three medium-termobjectives: (a) reducing poverty;(b) modernizingthe economyand the publicsector and creatinga favorableenvironment for privatesector development;and (c) managingthe country's naturalresources more effectively. These goalswould by reachedby: carryingout economic,social, and sector analysesfocused on structural,sectoral and institutionalissues; building institutional capacity in the publicsector; mobilizingconcessional funding for economicand socialprograms; and developinga lending portfoliofocused on policy-basedsector rehabilitation and investmentoperations. IFC has a potentialrole to playin facilitatingthe transitionfrom publicsector to privatesector servicesin areas such as electricity,telecommunications and port/airports. IDA would continueto work closelywith the IDB and the IMF on sensitivereform programs to minimizeconflicting policy advice and increaseaid mobilizationfor reform operations.

2. THE PROJECT

A. PROJECTORIGIN

2.1 Duringpreparation of the AGSAC,the Governmentrequested future IDA and IDB assistancein implementingthe agreed policyreforms. The Governmentspecifically asked for help in: (a) puttinglarge areas of nationalforest under activemanagement and reducingpressures on prioritywatersheds and biodiversityareas; (b) promotingeffective research and extensionfor smallfarmers living on productivelands and for those settled on marginaluplands; and (c) modernizingthe land administrationsystem. In 1994,IDA sent severalfact-finding missions to evaluateproblems and opportunities,and in December1994 a workshopwas held with key agenciesto identifya potentialproject. The Decemberworkshop identified a range of problems and potentialprograms which were subsequentlyassigned priority for a proposedproject at a secondworkshop in May 1995. 2.2 One component,land administration,was not addressedcomprehensively in the AGSAC, becauseland issueswere handledby a numberof differentagencies with no clearcross-agency coordinatingmechanism. Thus the SupremeCourt convenedan inter-institutionalcommission- madeup of the SupremeCourt itself,the Property Registry,INA, DEC, and UPSA (now UPEG)-to studyland administrationpolicy. This commissionvisited Argentina, Peru and Costa - 7 -

Rica to discuss their experiences in modernizing land administration. The study tour was the first step in developing a strategy for a more systematic and reliable land registry system based on a folio real, the system currently mandated by law but as yet not implemented.

2.3 In October 1995, 1DB expressed interest in funding technology generation and extension for farmers in areas of commercial potential and an institutional strengthening program for DICTA. As a result, a decision was made to separate the project into two: an IDB-financed project focused as above, and an IDA-financed project focused on land administration and natural resources management. The preparation team also explored the feasibility of preparing an associated GEF project to focus on sites within the Meso-American Biological Corridor to complement an emerging component of protected areas management. The GEF Secretariat approved a Project Preparation and Development Facility (PDF) grant of $300,000 in January 1996 to assist in preparing a joint UNDP/lDA biodiversity conservation program in the Honduran portion of the Meso-American Biological Corridor. Preparation should be completed later this year, and a formal funding request will be submitted to the GEF Council for approval as part of the inter-session work program in early 1997.

B. RATIONALE FOR IDA INVOLVEMENT

2.4 The proposed project is consistent with the Country Assistance Strategy for Honduras, as noted above. This strategy gives priority to poverty alleviation, public sector modernization and sustainable environmental and natural resources management, the latter within the framework of implementingthe AML. Specific approaches to environmentally sustainable development include: (a) natural resources management, including forestry; (b) conserving biodiversity; (c) reducing destruction of marine resources; (d) gaining a consensus on priority areas; and (e) strengthening the legal and institutional framework, including land tenure. Each of these approaches, except the one related to marine resources, is an important part of the proposed project.

2.5 IDA is in a unique position to support the activities in the proposed project, given its key role under the AGSAC in assisting the Government with drafting the AML and with its initial implementation. Planned land administration modernization activities are intended to build long- term government institutional capacity to establish and maintain information on land and forest rights. Land activities move beyond land titling within the AGSAC context to modernize the cadastral system and the Property Registry. The modernization draws upon the experience with other recent World Bank and IDA-assisted projects in the region. The forest management, upland producer technology support, and biodiversity conservation activities provide investment resources to consolidate AGSAC-related reforms. They will foster greater integration of social and environmental concerns into forest and upland management, and improve technical soundness, drawing upon lessons from earlier experience.

2.6 As mentioned earlier, the macro-economic situation facing Honduras is difficult. Despite this, there are good reasons for proceeding with the proposed project. Not only is it important to maintain the momentum of the AGSAC by providing investment resources, but Honduras' long- term development priorities (rural poverty alleviation, land administration, natural resources management), as embodied in the proposed project, will remain a fundamental part of IDA's Country Assistance Strategy in future. The next CAS is scheduled to coincide with the next political cycle, with Board discussion in early 1998. - 8 -

C. PROJECT OBJECTIVES

2.7 The proposed Honduras Rural Land Management Project would focus on important forested areas and on pilot municipalities. Its objectives would be to: (a) modernize the system of rural land registration, laying a foundation for more effective land titling; (b) strengthen the forest administration of AFE-COHDEFOR in its new normative role and promote participation of local populations in managing their natural resources; (c) improve agriculture and forestry practices in upland farms to stabilize income and thereby decrease forest encroachment; and (d) rationalize the national protected areas system, putting representative areas of the nation's ecosystems under management for their conservation.

2.8 The project would address the following key problems: (a) the limited access of poor upland farmers and forest producers in marginal areas to improved technology and extension; (b) the country's antiquated system of registering and titling forest and agricultural land and its lack of a parcel-based records system; (c) conflicting claims to land title between small-scale farmers, agrarian reform enterprises, indigenous groups and farmers engaged in community forestry; (d) the weak institutional capacity of INA, DEC, AFE/COHDEFOR and DICTA, and the lack of coordination between them; (e) the poor capacity of local organizations to manage forest resources; and (f) the lack of systematic land use planning.

D. PROJFCT DESCRIPTION

2.9 The proposed project would finance a five-year program with two components: (a) Land Administration Modernization, to test and install a land administration modernization system based onfolio real), focusing on the Departments of Comayagua, Cortes, , Olancho and Francisco de Morazan. These departments have the greatest potential for agricultural and forest sector development, and also experience a high incidence of land conflict. (b) Natural Resources Management, to be implemented in priority public forest blocks (as defined by AFE- COHDEFOR) in the Departments of Yoro, Olancho and Francisco Moraz6n. This component would finance: (i) forest management with local participation; (ii) improved upland agriculture and forestry, building capacity in producer organizations and NGOs; and (iii) management of key protected areas and design of strategies for self-financingin the protected areas system. The work in protected areas would go beyond the priority public forest blocks to (two to four) additional sites with ecosystems important to the Meso-American Biological Corridor.

Component 1. Land Administration Modernization

2.10 The projectwould finance a modem system of land administration, based onfolio real, in which cadastral information would be maintained at a local level, as defined by the jurisdiction of each registry unit. It would aim to increase security of land and forest tenure and to begin resolving tenure conflicts on forest lands. In doing this, it would provide a basis for increased productivity and improved management of natural resources in rural areas and it would also increase the level of environmental protection. In urban areas and in small rural communities (aldeas and caserios) surveys and legal investigation would be carried out to provide the municipal authorities with the necessary data to allow proper land adjudication under the Law of Municipalities. - 9 -

2.11 Implementationwould be in two distinctphases, comprisingfive separateactivities. Phase 1 (pilot) would financeUS$2.2 milliontotal costs: (a) the creation of a pilot land informationbase; and (b) backgroundanalysis and participatoryfield adjudicationof property rights. Phase 2 (expansion)would financeUS$10.8 milliontotal costs: (a) improvedregistry servicesin decentralizedregistry offices; (b) trainingof the employeesand consultantstaff of the federaland municipalinstitutions involved; and (c) a catalogueof nationaland municipalforest areas enteredinto the PR. Expansionof activitiesin the secondphase would be conditioned againstthe satisfactoryimplementation of the criticalactions indicated in the joint plan resulting fromthe evaluationof the pilot phase.

Component 2. Natural Resources Management

2.12 This component would have three sub-components, as described in Annexes C, D and E: (a) Natural Forest Management, to strengthen the capacity of AFE-COHDEFOR and local communities to manage natural forests; (b) a Fund for Upland Producers, to provide technical assistance, training and research for better management of uplands (laderas); and (c) Biodiversity Protection.

Natural Forest Management (ref. Annex C)

2.13 US$12.2 million total costs would be targeted to: (a) institutional development, especially strengtheningthe capacityof AFE-COHDEFORat the locallevel to managenational forests and respondto communityneeds; and (b) sustainableforest resourcesmanagement, especially building the capacity of local groups and municipalitiesto manage forest resources and supporting applied research in natural forest management. These activities would be executed in stages, and they would build on experiences of a number of pilot projects already carried out in Honduras (financed inter alia by CIDA, USAID, GTZ, FINNIDA, WWF, UNDP, NORAD and Norwegian aid). The proposed project would aim to cover eleven forest management blocks (unidades de gesti6n) and 22 priority micro-watersheds within the forest units. It is expected that the management activities in these forest areas would provide lessons on expanding the pilot experience to larger areas within the policy guidelines of the AML. The project experience should in turn influence other donor-assisted initiatives in adjacent forests and foster more consistency in AFE-COHDEFOR's overall program of decentralization.

2.14 Institutional Development. In accordance with agreements reached under AGSAC, the project would finance the continuing decentralization of AFE-COHDEFOR functions and flow of funds to the regions and field units initiated under the AGSAC. This would include: (a) establishment of an in-house training program for AFE-COHDEFOR staff in natural forest managementand administration;(b) logisticaland infrastructuresupport to fieldunits and regionaloffices in the form of standardizedequipment packages; (c) informationsystems to allow for effectivedecision making and monitoringof naturalresources; and (d) technicalassistance, related to projectimplementation and specificcritical subjects related to naturalforest management.Priority areas for technicalassistance would include:upgrading administrative systemsand procedures(e.g., personnel,budgeting, supervision, development of operational manuals);usufruct/tenure options and instrumentsfor regularizingrights of forest occupantsand operating a social forestry program; cost/benefit analysis and recommendations for modifying forest chargesand regulatorycosts; developmentof technicalnorms and regulations;and implementingan improvedenvironmental system of privateand ejido forest regulationfor - 10 - bureaucratic efficiency and reasonable control. A plan for decentralized functions and flow of funds in AFE-COHDEFOR has been agreed at negotiations.

2.15 Sustainable Forest Resources Management. The project would support AFE- COHDEFOR and local communities in forest tenure, regulation and forest management. Activities would be initiated in seven priority forest blocks. Expansion of activities to four additional forest blocks would be conditioned on satisfactory implementation of the critical actions indicated in the mid-term review. The following main areas of assistance would be included:

(a) Forest Tenure and Usufruct. The objective would be to clarify the location and status (legal and customary usage) of national forest lands and their occupants. Investments would consist of: (i) mounting and maintaining a permanent database (Catdlogo de Patrimonio Forestal Inalienable) of all legal information on the official limits of national forest lands, holdings and tenure status (forest and land); (ii) a census of national forests occupants (11 FMUs) plus participatory rural diagnostics to verify census accuracy and identify length of occupancy, traditional uses and perceptions of rights held by forest occupants; (iii) regularization of the traditional rights of occupants of national forest lands, including mechanisms for negotiation and conflict resolution; and (iv) delimitation and demarcation of 1,400 km of national forest boundaries.

(b) Forest Planning. The project would finance planning for forest protection and management within the 11 project FMUs, including: (i) environmental impact assessments and protection plans for approximately 545,000 ha; and (ii) silviculturaltreatment plans for approximately 120,000 ha.

(c) Forest Inventory. In production pine forests, the project would finance: (i) FMU- level forest inventories for approximately 300,000 ha; (ii) stand-level inventories for approximately 150,000 ha; and (iii) annual operating plan inventory and marking activities (for silviculturaltreatments and harvesting) for approximately 150,000 ha.

(d) Promotion, Participation, and Public Consultation. The project would aim for transparency in state decision-making regarding public forest lands. Investments for this purpose would consist of: (i) dissemination of information on public forest management objectives, plans and activities in public forests; (ii) public seminars (85 total) on topics of importance to communities, municipalities,industry and private forest owners regarding legal, environmental, social and technical aspects of forest resources management; (iii) public awareness campaigns on forest fire, illegal logging and private forest management options; (iv) municipal-levelpublic consultations (25 total) on forest management plans; and (v) community-level public consultations (60 total) on forest management plans and annual operating plans.

(e) Forest Management. The project would finance: (i) forest fire control (including a system of fire watch towers) for approximately 545,000 ha; (ii) forest vigilance for approximately 545,000 ha; (iii) silviculturaltreatments for approximately - 11 -

120,000 ha; (iv) implementation of timber auction plans for approximately 30,000 ha; (v) implementation of protection plans in 7 protected areas; and (vi) forest road improvements/rehabilitationon 45 km of forest roads.

(f) Forest Research would include data collection, analysis and presentation of findings from permanent sample plots in support of upgrading technical prescriptions for sustainable harvesting of forest products.

Fund for Upland Producers (Annex D)

2.16 US$7.2 million total costs would be applied to the Fund for Upland Producers, which would support improved natural resources management in agriculture and livestock; natural forests and micro-watersheds. It would reach approximately 6,500 households over the life of the project and would finance: (a) technical assistance and training for upland farmers and municipalities; (b) applied research in support of agriculture, livestock and natural forest management for upland areas; and (c) training of natural resources professionals who provide technical services to upland farmers.

2.17 Details of the technical assistance, training and research programs which would be eligible for financing from the fund are given in Annex D. Eligible activities would include (a) extension services (technicians, para-technicians, extension materials and operational expenses); (b) agriculture and forestry inputs for communal/municipalnurseries and the initial introduction of plant germplasm for conservation and soil fertility management (seed, vegetative material, germplasm, simple agricultural tools, and agro-chemical); (c) costs of certain legal procedures (such as assistance to organizations in obtaining legal status and usufruct contracts); (d) applied research in small-scale (community) natural forest management, non-traditional species utilization, hill-slope agriculture technology (soil and moisture conservation and soil fertility management), improved small-scale livestock management and integrated pest management (IPM); and (e) training courses, seminars and workshops for natural resources professionals, focusing on technical aspects of natural resources management (hill-slope production systems and natural forest management) and on methodological aspects of extension and participatory diagnostics, planning and evaluation.

2.18 Financing of technical assistance and training from the fund would be in the form of grants to private technical assistance providers, based on contracts established between SAG, these entities and farmers, or communities and municipalitiesin the upland areas. Financing of applied research would be channeled through eligibleinstitutions and entities which are members of the National Research and Technology Transfer System (SNITTA). Priorities would be set through a series of consultations in which the national research policy entity (CONACTA) would participate.

2.19 The fund would be treated from the outset as a pilot, to be reviewed and amended at the first review exercise which would be held at the end of the second year of the project. Further amendment may be needed at the formal mid-term review during the third year of the project. At the beginning of the project, activities requiring funding would include: (a) completion of the procedures manual, including preliminary testing of design and adjustments; (b) setting up a roster of experienced consultants and a management information system; (c) research and training prioritization exercise (i.e., series of consultations and workshops with clients and end-users); - 12 -

(d) establishment of the Fund Secretariat; and (e) contracting of a Fund Manager. At present, IDB has agreed to finance (d) and (e) out of the complementary Agricultural Technology Project.

Biodiversity Conservation (Annex E)

2.20 US$5.8 million total costs would be targeted for biodiversity conservation in protected areas. This sub-component would strengthen existing SINAPH (National Protected Areas System) areas of national and international significancewithin COHDEFOR. The component would be complemented by an associated GEF grant (under preparation jointly with UNDP). Within the overall regional priorities of the Meso-American Biological Corridor, the proposed IDA project would finance management of those priority sites with outstanding economic potential (eco-tourism) judged to be capable of being financiallyself-sufficient, while the proposed GEF grant would finance management of those sites with the highest biodiversity value. The proposed GEF Biodiversity Conservation Project would include: (a) institutional strengthening; (b) investments similarto the ones financed under the proposed IDA credit for seven protected areas in the biological corridor, including one visitor center; (c) buffer zone investments; and (d) monitoring.

2.21 National Priority Setting for SINAPH. A map of Honduran ecosystems is being prepared partially with PPF and GEF preparation funds to help analyze the "representativity" of the existing SINAPH areas, along with a gap-analysis (i.e. identification of ecosystems under- represented or absent in the SINAPH). Through this project and the proposed GEF grant, SERNA and the Protected Areas Agency, DAPVS, would host a series of consultations to evaluate the current protected areas system, identify gaps in this coverage and any deterioration in areas which may change their conservation priority. National consensus for a rationalized SINAPH would be sought through a consultative process, and these priorities would be approved in dialogue with concerned municipalitiesand their residents. It is not anticipated that during the life of the project any current SINAPH areas would be de-gazetted or suffer a change in legal protection status. Nor is this an objective of the exercise. The basic objective is to ensure that there is an adequately defined SINAPH, fully representing biodiversity and landscape values and that it has a well-defined set of priorities to allow rational decisions to be made in protected area management.

2.22 Preliminary Selection. In the absence of a national consensus on a rationalized SINAPH, it was agreed with GOH that the IDA project would focus investments on areas which retain significantportions of their natural habitats or have outstanding income generation potential or for the presence of high-profile species. There is a high degree of certainty that in a rationalized SINAPH these "core areas" would still maintain a top priority status. To identify these areas, reconnaissance flights and field inspections were carried out that covered almost all 107 protected areas. Areas with more than 90 percent unaltered vegetation in their core areas and with little or no permnanenthabitations were considered to qualify as core areas. Areas with less than 75 percent natural vegetation and considerable human presence in their core areas were considered to qualify as areas of regional biodiversity potential. The latter would also have additional values for other management objectives, such as multiple use, watershed management or forestry programs. Five areas which fell in between these categories need further investigation. Based on this analysis, sixteen areas or clusters of areas were identified that could constitute the core management units of largely pristine habitat. Additionally, two cave sites were included as natural - 13 - monuments for their visitation potential and some few beach sites in the Gulf of Fonseca to protect marine turtle nesting sites.

2.23 Investments in Protected Areas. The IDA project will focus on those priority sites within the SINAPH with outstanding value for eco-tourism development while the GEF will focus on those sites with the highest biodiversity value. This IDA project sub-component would finance infrastructure and equipment to: (a) establish in three high interest protected areas (PAs) visitor centers of international standing, including interpretation programs and nature trails; and (b) upgrade seven existing areas with duty stations and basic administrative centers for management staff and rangers, trails or access roads to duty stations, vehicles, motorcycles, horses, and radios for communicationsto and within protected areas.

2.24 Management Planning and Demarcation. Under this sub-component, management plans and demarcation activities would be prepared for at least two high-interest PAs being funded.

2.25 Self-financing Mechanism and Coverage of Recurrent Costs. This sub-component would consist of: (a) the creation of a fund (fideicomiso) to administer income from entry fees charged at visitor centers and possibly income from other sources, to be managed by a commercial bank, which would handle entry fees, make all payments to the PAs that qualify under a pre-established set of rules (salaries and maintenance of equipment and infrastructure). Assuming continuing government funding of the SINAPH at current levels, it is expected that the fund would be self-supporting for the core areas by the third year of the project; (b) institutional strengthening (hiring of personnel) of the unit for the management and administration of the core protected areas; (c) recurrent costs of vehicles and equipment in the first two years (until income generated from entry fees at the visitor centers takes over). Assurances were obtained at negotiations that GOH would ensure adequate budget for the incremental protected areas staff to be recruited and their expenses, should the Protected Areas Fund not generate the expected resources to cover these costs.

2.26 Training. The project would finance training of staff to implement the self-financing mechanism, to manage and protect the core areas, and to work with visitors and local communities.

Project Coordinating Unit (PCU)

2.27 The PCU would be responsible for the overall management of the proposed project. PCU financing would be used for: (a) planning and monitoring of project budgetary resources; (b) processing disbursement, procurement of goods and services, and carrying out technical audits; (c) monitoring and supervision; (d) evaluation and special studies in land management, agricultural technology and natural resources; (e) training of PCU staff; and (f) office equipment.

E. PROGRAMOBJECTIVE CATEGORIES

2.28 The proportion of the poor among project beneficiaries is expected to be significantly larger than their proportion in the overall population, and therefore this project fits the criteria for inclusion in the Program of Targeted Interventions. The project belongs primarily to the - 14 -

Environmentally Sustainable Development and Poverty Reduction and Human Resources Development Program Objective Categories.

F. PROJECT COSTS AND FINANCINGPLAN

2.29 Total project costs including contingencies and taxes are estimated at about US$41.8 million equivalent, (see Table 1, below). Baseline costs are estimated at US$38.1 million and physical contingencies at US$1.4 million, or 4 percent of total baseline costs, including a Project Preparation Facility of US$2 million. Price contingencies were estimated at US$2.3 million, or about 6 percent of baseline costs plus physical contingencies. Annual price increases were applied to foreign costs in all categories in US dollar terms at a rate of 2.6 percent, assuming purchasing power parity during the five-year disbursement period.

Table 1. Estimated Project Costs (US$ million)

% % Total Foreign Base Local Foreign Total Exchange Costs

A. LandAdministration Modernization Pilot Phase 1.2 0.9 2.1 42 5 Post Pilot Phase 9.0 0.7 9.7 7 26 Subtotal: 10.3 1.5 11.8 13 31

B. NaturalResources Management ImprovedNatural ResourcesManagement 5.0 6.0 11.0 54 29 Fund for UplandProducers 6.8 0.0 6.8 - 18 BiodiversityConservation 4.1 1.2 5.4 23 14 Subtotal 15.3 7.2 23.1 31 61

C. ProjectCoordination Unit 3.1 0.1 3.2 2 8 Base Costs 29.3 7.2 38.1 23 100 PhysicalContingencies 1.0 0.5 1.4 31 4 Price Contingencies 1.9 0.5 2.3 18 6

Total 32.2 9.6 41.8 23 110

Note: Due to rounding, totals may not add precisely.

2.30 The proposed IDA credit of US$34.0 million equivalent would finance 81 percent of total costs excluding taxes and duties. Foreign exchange accounts for 23 percent of the proposed costs of the project. IDA would cover an amount equivalent to the total amount of foreign exchange costs (US$9.1 million) plus US$24.9 million of the local costs (excluding taxes).

G. FINANCIAL ANALYSIS

2.31 GOH Counterpart Funding. The GOHis experiencing severe financial constraints, and recent salaryadjustments for all publicservants and debt servicepayments leave little room for accommodatingnew commitments.However, the proposedproject would implement activities which are of high priority for GOH in its attempt to stimulate economic growth. Furthermore,the Natural ResourcesManagement component, the largest part of the Project,is - 15 - directly targeted at a potentially highly productive sector -- forestry. The income generated during the life of the project from stumpage fees in the project area alone would be between US$30 million and US$45 million, more than adequate to finance the counterpart requirement for the entire project. Based on the policy letter contained in AGSAC, the AFE's budget will in the future be allocated from within the Government's budget, and all revenues from forest products or services rendered by AFE will be deposited in the Government's general account.

2.32 In general, counterpart funding for the project should not represent an additional burden to GOH's finances. The same is true of the proposed IDB credit for Agricultural Technology, which has a counterpart requirement of about US$12 million. As this would be targeted to farmers with high commercial potential, there should be a short-term revenue gain, as a result of the IDB financed project, from taxes on the increased marketing of cash crops. Given the expected phasing of the two projects, GOH's finances should not be overburdened by the combined impact of their counterpart requirements.

3. PROJECT IMPLEMENTATION,PROCUREMENT, DISBURSEMENT AND REPORTING

A. PROJECTIMPLEMENTATION, COORDINATION AND MANAGEMENT

3.1 Project Coordinating Unit. A project coordination unit (PCU) would be established in the SAG to manage the project, facilitate coordination among the various implementing and policy-making agencies, assume responsibility for significant procurement and audits, and prepare global supervision and evaluation reports. To ensure consistency of project implementation with sectoral policies, this unit would be housed within UPEG. To complete the tasks assigned to it, the PCU would require four full-time technical consultants, two full time administrative personnel and 20 months of local consultants to assist in project implementation as needed. It would be provided with one vehicle, computers, office equipment and operating costs. Establishment of the PCU has already been initiated in SAG with the appointment of several staff dedicated to the start-up of the project. The PCU will be formally established and fully staffed as a condition of effectiveness.

3.2 The SAG, through the PCU, would be responsible for the overall management of the proposed project. GOH has agreed to maintain adequate staff and/or engage consultants with qualifications and experience acceptable to IDA to carry out the project. The administrative and technical responsibilities of the PCU are discussed in greater detail in the Project Operations Manual (Manual de Operaciones para la Ejecuci6n del Proyecto de Administracion de Areas Rurales de Honduras) which can be found in the project files (see Annex J). The content of a Participation Agreement among SAG and the various implementing agencies involved in the Land Administration Modernization Component was agreed at negotiations. Signing of the Participation Agreement is a condition of effectiveness. In general, the PCU would:

(a) prepare, in the implementation of the proposed project, the annual operating plan and budget, in consultation with all participating agencies and organizations; - 16 -

(b) monitor project budgetary flows over and above those which the implementing agencies in the SAG would receive through direct SHCP budgetary procedures;

(c) track and report to the appropriate agencies of the GOH and IDA, all expenses incurred during project implementation;

(d) track the progress in project implementation using the agreed upon performance and impact indicators;

(e) supervise disbursement, procurement of goods and services, and audits;

(f) act as a procurement agent for larger packages of goods and services financed under the project to reduce the administrative burden on implementing agencies;

(g) manage the land administration modernization component, in coordination with the ad hoc Advisory Council for Land Modernization under the CSJ;

(h) review the terms of reference of selected contracts and technical specifications of selected equipment to ensure consistency with project objectives and established implementation targets;

(i) provide intellectual leadership on innovative aspects of project implementation, such as strategies for beneficiary participation in forest and protected areas management plans, and the treatment of indigenous groups in the land adjudication process; and

(j) initiate periodic supervision missions with or without IDA participation, including preparing necessary documentation.

3.3 Land Administration Modernization. The PCU and an ad hoc Advisory Council established by CODA at the federal level would coordinate the land administration modernization component. The component would involve the following entities: (a) an Executing Unit, consisting of staff from DEC and INA, and reporting to the PCU, which would be responsible for carrying out cadastre and adjudication work at the field level; (b) a Territorial Commission, comprising representatives of INA, AFE-COHDEFOR, DEC, UPEG, the municipalitiesand the Executing Unit, which would be responsible for coordinating participating institutions and arbitrating conflicts that arise in the municipalities;(c) DEC, which would be responsible for managing cadastre information, technical quality control of private companies, and establishing technical norms for cadastre and adjudication; (d) INA, which would administer the titling program at the field level and be responsible for promotional activities at the community level; (e) the CSJ Advisory Team, which would assure that cadastre and adjudication are carried out according to the laws of the country; (f) the Property Registry (PR), which would reform the registration process and establish information and computer systems; and (g) UPEG, which would oversee implementation of the component (see organizational chart below). A Municipal agreement would be signed by each municipalityprior to initiating activities in that municipality.

3.4 Natural Forest Management. AFE-COHDEFOR would be responsible for carrying out the Forest Management sub-component as follows: (a) the regional offices of AFE- - 17 -

COHDEFOR-with the participation of local communities-would carry our forest inventories and forest management planning as well as prepare related terms of reference, technical specifications etc.; and (b) the central offices of AFE-COHDEFOR (Planning, Norms and Control and Promotion and Extension Departments) would carry out activities related to institutional strengthening, information systems, and forestry regulations. For the biodiversity sub-component, the Protected Areas Agency would be responsible for preparing a human resources development plan, recruiting and training staff, coordinating actions related to biodiversity with donors and financial institutions and the content of a contracting physical improvements in park areas (see organizational chart below). The contents of a subsidiary agreement between SAG and AFE- COHDEFOR was agreed upon at negotiations and the signing of this agreement is a condition of effectiveness.

3.5 The Upland Fund. The SAG, through DICTA and the PCU, would be responsible for implementing the Upland Fund. The following entities would also be involved in its implementation: (a) an Upland Fund Committee (UFC) (a joint private/public sector committee with eight to nine representatives from AFE-COHDEFOR, DICTA, SNITTA, the Finance Ministry, professional colleges, farmer and forestry groups would approve fund activities according to CONACTA policies; (b) a private sector organization or firm would be contracted as Fund Manager to promote the fund, carry out the technical review of proposed fund activities, supervise disbursements of fund resources, and maintain quality control; (c) private sector TA providers would be contracted to provide extension and training to upland farmers; and (d) accounts would be maintained in a private bank which would disburse resources to TA providers according to the directions of the Fund Manager. Before submissionto the UFC for approval, all proposals would be passed to the PCU for verification that they were consistent with the IDA Credit Agreement. The creation of the Selection Committee and the establishment of the fund are both conditions for disbursement against this subcomponent.

3.6 IDB would, within the same time frame as this project, finance a technology transfer and generation project targeted at large, medium and small producers with commercial potential (i.e., in terreno de vocaci6n agricola). IDA has agreed with IDB that the same management structure would be used for the two funds in order to support the establishment of a GOH mechanism for channeling of technology funds nationally. The regulations and criteria for the fund were agreed at negotiations and comments were made on a draft decree for establishing the Technology Fund. The effectiveness of the fund would be evaluated during the first pilot review and the formal review and action plans for future operation of the fund would be agreed during each of those reviews.

3.7 A longer-term mechanism has been proposed by SAG/DICTA for channeling and administering funds through the creation of a separate foundation or trust. The IDB-funded project would have as a goal over its five year life the creation of this entity. As this would require a legislative act (which may require several years to obtain) the project would begin implementation through an interim mechanism. If pilot and mid-terms reviews recommend that a legally constituted foundation or trust is set up in later years, the Upland Fund mechanism could be modified to reflect the needs of a more permanent institution.

3.8 Flow of Funds. Chart 1 below lists the agencies charged with approval of expenditures related to the different components of the project. The two agencies with final expenditure - 18 - approval are the PCU, acting for the SAG, and AFE-COHDEFOR. In the Land Administration Modernization Component, the PCU would approve withdrawals from the Special Account to cover eligible expenditures, agreed in annual operational plans drawn up by the implementing agents (INA, DEC, PR and the Territorial Commissions at field level). INA and DEC would also make expenditures under the project using counterpart funds provided through normal budgetary processes. In the Forest Management and Institutional Strengthening Sub-Components, excepting Protected Areas Strengthening, AFE-COHDEFOR would make withdrawals from the Special Account against agreed Annual Operating Plans for eligible expenditures, which would be supplemented by counterpart resources derived from its own operating budget. It may also advance its own field offices up to three months of eligible expenditures for agreed project activities. In the case of the Biodiversity Conservation sub-component, the PCU would approve expenditures from the Special Account to be made by the Protected Areas Agency within the new Environment and Natural Resources Secretariat. In the case of the Upland Fund, a current (Upland Fund) account would be established in a commercial bank, which would make payments to service providers against established contractual arrangements. This Upland Fund Account would be replenished regularly from the Special Account in accordance with agreed operational plans and on authority of the PCU. These replenishments would be contingent on presentation of eligible SOEs.

B. TECHNICALAND FiNANCALL AuDrrs

3.9 The PCU would maintain records and accounts of all transactions related to the Project. The Government would hire independent auditing services satisfactory to IDA to prepare annual audits at the end of each Honduran fiscal year, starting January 1997. The audit reports would include separate opinions on the use of SOEs and the special account. The PCU and AFE- COHDEFOR would submit the audit reports to IDA within six months of the close of each fiscal year. International consultants would conduct technical audits of the land administration modernization and natural resources component at the end of year 2 and year 4. These would be critical given the newness of thefolio real approach in Honduras and the lack of experience in AFE-COHDEFOR with decentralized procedures. Procurement arrangements were agreed with GOH during negotiations. - 19 -

Chart 1. Use of Funds by Project Agencies

...... ;.;...... ;Ac?Icg...... ;...... C...... t...

ComponentlActi-vity AgencyApproving AgencyIncurrng Expenditures Against Credit Expenditures AgainstCredit ...... Land Administration Modernization PCU Territorial Commissions formed at Establishment of Land Information municipal/fieldlevel Base ...... Registration of Land Information PCU Property Registry ...... Training and Capacity Building PCU PCU or concerned sub-agency (INA, Activities DEC, PR) ...... Forest Management

Institutional Strengthening AFE- AFE-COHDEFOR COHDEFOR Management Plans Field Offices AFE- Training and TA COHDEFOR AFE-COHDEFOR

Catalogue of National AFE- AFE-COHDEFOR/Land Administration Forest Lands COHDEFOR Agencies ...... Participatory Planning PCU AFE-COHDEFOR and PCU consultants ...... I...... Upland Fund Upland Proposals PCU PCU; Fund Management approve expenditures on an account managed by private bank

Consultants to Fund Manager PCU PCU; Fund Management

Audits/Evaluations PCU PCU

Biodiversity Conservation Feasibility PCU AFE-COHDEFOR (DAPVS) and Management Studies ...... Park Infrastructure PCU AFE-COHDEFOR (DAPVS) E a a o o P k u a d A iP UC .... A C HF...... O...... Evlaion of Park Fund and Audits PCU PCU/AFE-COHDEFOR

...... - 20 -

Chart 2: Organizational Chart Natural Resources Component

Policy Making Bodies CONACTA CODA CONAPH

Ministerial SAG PCU A SERNA Bodies UPSA

Implementing Agencies AFE- Depto. de | DICTA| ~UPLAND / COHDEFOR ._Areas PAs Fund FUND /I Protegidas -- \ |~Unidad (DPS -- \ ~~RegionalI

Contracted gmentrciallana

Fund(F-Agent) ~~~ParkManage- ment Staff

|NGOs | | Producer Research |Providers | GrowDs | Municioalitv Isiuin

Fund Recipients/ Community Participants in Manage- Forestry Group Environmental ment Plans Advocacy Groups - 21 -

Chart No. 3. Organizational Chart for Land Administration Component

Policy CSJ Advisory Territorial Committee Making Bodies Council on Land in Pilot Municipalities Administration

Ministerial Level Corte Suprema SAG de Justicia Bodies PCU Superintendencia de Registro

Implementing Executing Unit in Pilot Agency Bodies Area

DEC-INA-Muni-Consults. Registry Pilot Area Registry j = - -i ~~~~~~Office FOLIOREAL-- J BASEDATO.D

iMunicipalities l |Local | Local Level rAFE Institutions/ Other Office Participants Cooperatives/ NGOs Social Forestry Groups - 22 -

3.10 AFE-COHDEFOR and SAG would maintain separate central project accounts, including consolidation of accounts from different directorates. Each of AFE-COHDEFOR's four regional offices would also maintain separate accounts for project expenditures incurred by them. All accounts would adequately reflect project expenditures made in accordance with sound accounting practices. The PCU would review financial documents (procurement, disbursements requests, budget audit reports) before submissionto IDA. A certified copy of the project audit by independent auditors acceptable to IDA and in accordance with the Guidelines for Financial Reporting and Auditing of Projects Financed by the World Bank (March, 1982), would be submitted to IDA not more than six months after the completion of each financial year. The audit report would include a separate opinion by the auditor on disbursements against certified Statements of Expenditures (SOEs) and the Special Account. The PCU would contract the auditors as a multi-year contract to increase likelihood of compliance with this activity. The PCU would make SOEs available to IDA and its supervision missions. Accounting and auditing arrangements were agreed at negotiations.

C. PROCUREMENT

3.11 All project components financed under the proposed IDA credit would be procured in accordance with the Guidelines for Procurement under EBRDLoans and IDA Credits (January 1995, and revised in January and August 1996). Procurement arrangements are summarized in Table 2. The SAG or AFE-COHDEFOR would be responsible for all the procurement of items to be financed by IDA.

3.12 Given the fact that this is the first IDA project to be implemented by the SAG, training on IDA' s procurement procedures started during preparation with the management of a PPF and assistance from UNDP. Procurement skills of the SAG would be further enhanced by having staff undergo IDA sponsored procurement and disbursement training courses.

3.13 Works. To the extent practicable, contracts for works would be grouped into bid packages estimated to cost the equivalent of US$150,000 or more. Such contracts would be awarded through National Competitive Bidding (NCB) using standard bidding documents acceptable to IDA. Smallworks valued at less than US$150,000 would be procured under lump- sum, fixed-price contracts awarded on the basis of quotations from at least three qualified domestic contractors, up to an aggregate amount of US$325,000.

3.14 Goods. Vehicles, computers and office equipment purchases would be packaged into contracts valued at more than US$150,000 and procured through Limited International Bidding (LIB) from suppliers with established service and maintenance facilities in Honduras and neighboring countries. Goods (including vehicles, computers and office equipment, field equipment and furniture) would be procured through NCB in packages valued at more than US$25,000 but less than US$150,000, up to an aggregate amount of US$800,000. Miscellaneous equipment items valued at US$25,000 or less, up to an aggregate amount of US$500,000 would be procured using national and international shopping procedures, based on price quotations from at least three suppliers. - 23 -

Table2: ProcurementArrangements (US$ Million)

Procurement Method International National Competitive Competitive Bidding Bidding Other NABF. Total

A. Works /a - 3.2 0.3 b/ - 3.5 (2.5) (0.3) (2.8) B. Goods 1.2 0.8 1.9c/ - 3.9 (1.0) (0.7) (1.5) (3.0) C. Consultants - - 16.6 d/ - 16.6 (16.2) (16.2) D. Training - 2.4 2.4 (2.4) (2.4) E. Subprojects - - 7.2 - 7.2 (5.3) (5.3) F. PPF - - 2.0 -. 2.0 (2.0) (2.0) G. Incremental Recurrent Costs - - 6.2 - 6.2 (2.2) (2.2) Total 1.2 4.0 36.6 - 41.8 (1.0) (3.2) (29.8) (34.0)

Note: Figures in parenthesis are the respective amounts financed by IDA a/ Include mapping works. b/ Three quotations procedure for small works. c/ Includes LIB ($1.4 million) and national/international shopping ($0.5 million) d/ Services to be procured in accordance with world bank and IDA Guidelines: Use of Consultants by the WorldBank as ExecutingAgency (August1981).

3.15 Consultant Services and Technical Assistance. All consultant services would be procured according to the guidelines, Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency (August, 1981). These services, which are estimated to aggregate to US$16.6 million, would be contracted using IDA-issued standard form of contracts. Technical assistance for the Fund for Upland Producers would be procured by clients under contracts with values between US$5,000 and US$15,000 on the basis of procurement and procedures as specified in Annex D.

3.16 All procurement aspects were confirmed during negotiations, in particular on the use of: (a) standard bidding documents for NCB procedures for the procurement of goods and civil works satisfactory to IDA; and (b) standard contract forms for consulting services issued by IDA for lump-sum contracts and complex, time-based consulting assignments. For prior review limits, see Table 3.

3.17 Provisions in Legal Documents. An assessment by the Bank of Honduras procurement procedures and regulations indicated that they are not fully compatible with Bank Group procurement guidelines and policy. To resolve inconsistencies between local legislation and Bank's procurement guidelines during negotiations, agreement was sought to include the following procurement provisions in the legal documents. (a) For goods and works to be procured under LCB, LIB and NCB procedures: (i) contracts would be awarded to the lowest - 24 - evaluated bidder; and (ii) foreign bidders would not be required to: a. be locally registered as a condition of participation in the selection process; b. give any participation to local consultants; and c. furnish any certificate issued by a local authority about their legal capacity or tax status. (b) For consultants' services, foreign consultants would not be required to: (i) be locally registered as a condition of participation in the selection process; (ii) give any participation to local consultants; and (iii) furnish any certificate issued by a local authority about their legal capacity or tax status

Table 3: Thresholdsfor ProcurementMethods and Prior Review (US$thousands)

.Ca Ctt Procurement Method Contracts Subject to Prior Review WORKS >US$150 NCB First 2 contractseach year US$100 LIB All office equipment

Other US$50 Consultant Guidelines All

-Individuals >US$20 All

3.18 Procurement Review. Prior review by IDA would be required for: (a) all contracts awarded through LIB and ICB; (b) the first two contracts for goods, and works awarded under NCB; and (c) all contracts for consulting services, with the exceptions noted below in Table 3. All other contracts would be subject to ex-post review by IDA during supervision. These arrangements would ensure prior review by IDA of about 60 percent of the value of all IDA- financed contracts. The PCU would maintain all procurement documentation for periodic supervision by IDA staff. The table below highlights the thresholds for each procurement method and for prior review. - 25 -

3.19 In addition to the IDA's ex-post review, post-review would also be carried out by the SAG. For this purpose, the SAG would recruit auditors, under terms of reference satisfactory to IDA, who would not only examine financial implementation, but also procurement procedures, physical implementation and impact on beneficiaries. These auditors would carry out annual audits on the basis of a sample not lower than 60 percent of the IDA financed investments categories in the first project year, 50 percent in the second project year and 40 percent in later years. For convenience and to avoid overlaps, the same auditors would carry out an ex-post review of the expenditures and investments financed by IDA.

3.20 Procurement Agent. The PCU may elect to retain the services of UNDP as procurement agent to assist in the procurement of goods and services.

D. DISBuRRSEMENT

3.21 Disbursements would occur over the project's five-year life. The Credit closing date would be January 31, 2003.

3.22 The Credit would be disbursed against eligible project expenditures at the rate of 85 percent for works under the land administration modernization component, 70 percent for works under the forest management subcomponent, 70 percent for works under the forest management plans, and 85 percent for other works; 100 percent for foreign costs for equipment and furniture and 80 percent for goods purchased locally; 100 percent for consultant services and training; 100 percent for upland fund sub-projects, and 90 percent, 50 percent and 20 percent, on a declining basis, for incremental recurrent costs. The projected eight-year schedule of IDA disbursements (see Annex F) reflects the historical Honduras disbursement profile (for all sectors), which spans eight years; the profile is adjusted to reflect the best estimate of expected IDA disbursements.

3.23 Special Account. The Borrower, GOH, would establish a Special Account for the project in the Central Bank, under conditions satisfactory to IDA, in US currency, with an authorized allocation of US US$2.0 million and an initial deposit of US$ 0.5 million, equal to about four months of estimated disbursements. SHCP would manage the Special Account under established procedures between IDA and the GOH. The SAG would access the Special Account through SHCP, and would request the account to be replenished monthly (no less frequently than every 3 months) or whenever one third of the authorized amount has been withdrawn, whichever occurs first. Withdrawal applications for replenishment of the Special Account would be fully documented, except for expenditures not subject to prior review by IDA. All replenishment applications should be accompanied by monthly bank statements of the Special Account, which have been reconciled by the Borrower. Withdrawal applications for payments to be made outside the Special Account would be accepted provided that the amount requested is equivalent to at least 10 percent of the amount advanced to the Special Account (US$50,000).

3.24 Documentation of Expenditures. Disbursements would be made on the basis of full documentation for all expenditures made under contracts requiring prior review by IDA and amendments to contracts for consultant services raising the value of such contracts above the prior review limits. Disbursements against contracts for goods, civil and mapping works under US$150,000, consultants firms under US$50,000 and individuals under US$20,000; subprojects, - 26 - training and incremental recurrent expenditures would be made on the basis of statements of expenditure (SOEs), with the exception of the first two contracts for goods and works.

E. PROJECTREPORTING, MONITORING AND EVALUATION

3.25 The SAG would be responsible for the overall project, and the PCU attached to the SAG would manage the project on a daily basis. Reporting, monitoring and evaluation on each individual component would be the responsibility of SAG and the AFE-COHDEFOR. In addition, all project agencies (PR, AFE-COHDEFOR, DICTA, DEC and INA) would submit a quarterly progress report to the PCU, which would collate reports and prepare an overall progress report for IDA within one month of the end of the quarter. The PCU would establish a management information system (MIS) to facilitate monitoring and evaluation (M&E). M&E would be in the form of quarterly reports prepared by the PCU for the SAG and IDA. M&E indicators are part of the MIS system. The PCU would complete the MIS design, which would include periodic reports on impact, and quarterly reports on financial, implementation, and legal indicators of project progress (based on indicators in Annex G). Financial indicators would monitor the financial health of the SAG as well as the counterpart funds availability for the project as per yearly budgeting process. Implementation indicators would monitor the project's progress and would include institutional strengthening, biodiversity, Upland Fund, a modern registry system and institutional and human resources capacity established to maintain the system. Monitoring formats were agreed at negotiations and detailed performance monitoring indicators have been included in the Project Implementation Letter. In addition, each quarterly report for the second quarter of each year should include an investment plan for the succeeding calendar year and summary of actions planned to improve implementation. For the last quarter report for the third year of the project, an evaluation of progress since project inception should be included.

F. SUPERVISIONBY IDA

3.26 The project requires close supervision during the first phase because of the number of pilot initiatives in the project. Major tools for supervision would be: (a) quarterly reports with M&E information generated by the MIS (Annex GI, including impact, financial, implementation, and legal indicators; (b) periodic independent studies; (c) an evaluation of the pilot phase of the project, expected to be in year 2 of the project; and (d) a mid-term review, expected to be in year 3 of the project. Timing and scope of the mid-term review and pilot phase review were agreed at negotiations.

3.27 Periodic Independent Studies. During negotiations, IDA would receive assurances that the Government would carry out periodic independent studies to review aspects of implementation. Studies would involve: (a) gender concerns; (b) indigenous issues; (c) representativeness of upland fund proposals; (d) impacts of management plans; (e) efficiency and equity of land adjudication process; (f) evaluation of maintenance system offolio real; and (g) forest policy and regulatory issues.

3.28 Mid-Term Review and Pilot Evaluation. During negotiations, IDA received assurances that the government would complete a review no later than January 31, 2000 and an evaluation of the pilot components no later than 14 months after credit effectiveness, as a pre-condition to expansion to non-pilot areas. In addition to the points normally covered in annual reviews, these - 27 - reviews would analyze the need to restructure or redesign any aspect of the project. The mid- term review would also review the following year's work plan, and if necessary, make appropriate changes to achieve project objectives more efficiently.

4. ECONOMIC ANALYSIS, BENEFITS AND RISKS

A. BENEFITS

4.1 The project would have a number of important economic, environmental and social benefits. First, the land component would enhance land security which, in turn, would contribute to increased agricultural investment and productivity, greater environmental management and improved land value. The component would also improve the cartographic base and judicial system which would permit the Government to properly manage important watershed, forested and wildlife areas that have environmental values for the nation and the international community. Second, through the Forest Management subcomponent and Upland Fund, the project would improve nutrition, food security and the income base of the rural poor by improving crop production, supporting vegetable production, and promoting new income streams through forestry. Third, the Natural Resources Management component would lead to improved forest conservation and management by strengthening the institutional capacity of AFE-COHDEFOR. This contrasts with donor-funded projects in Honduras that have typically established small independent executing bodies and avoided the difficult task of reforming bureaucratic structures. The component would also benefit local communities and residents in forest areas by giving them greater control over forest management and protection. Fourth, the Biodiversity Conservation would support self-financingsystems for protected areas which would allow these areas to attain greater financial independence and long-term sustainability.

B. ECONOMIC ANALYSIS

4.2 The economic analysis of the proposed project has focused only on the productive activities included in the Natural Resources Management Component, representing about 50 percent of total project costs, for which reasonable benefit calculations can be made. The other components (land administration modernization, forest management, institution building etc.) are not as easily susceptible to cost-benefit analysis. Clearly,however, they are important pre- conditions to ensuring longer-term investment and avoiding undesirable future social, economic and environmental costs.

4.3 Land Administration Modernization. Project design operated under a minimum cost and focused on comparing the financial costs of implementation alternatives. An analysis of the potential for financial sustainabilityof the modernized registry system to be put in place by the project was carried out (see project file: Korczowski, 1996. Sistema del Folio Real Nacionaly SostenibilidadFinanciera). This demonstrated the conditions (institutional and cost structure) under which the registry could be financiallysustainable, and that the project design aimed at ensuring those conditions were met. The resulting cost of approximately US$2.85 per ha for institutional development and for completing the legal land information base for 37 percent of Honduras' land area (including over 50 percent of the country's production forests) is extremely - 28 - low. This is possible because Honduras has significant experience and is relatively better endowed with existing information and infrastructure than its neighbors.

4.4 Enhancing the legal security of landholders would resolve long-standing tenure conflicts which have discouraged investment and good management. It would create a more transparent and efficient land market, and it would provide a mechanism to preserve the value of future investments in the cadastral and land adjudication processes. It may also in the long run provide potential lenders with the security necessary to provide credit to landholders engaged in market agriculture or forestry. A recent University of Maryland study involving a small sample of land reform beneficiarieswith and without legal title estimated that as a group the former enjoy on average a 5 percent increase in income (IRR 17 percent) as a function of holding legal title.

4.5 Forest Management. Honduras' forests are one of its most valuable economic assets. The forest management activities proposed in the project would lead to improved management of this resource (national, ejido and private forests) and, in particular, of the pine forests. The current status of these forests varies greatly, but in almost all cases, it can be improved through the application of simple forest management techniques. These forests, without management, are estimated to produce between 2 and 4 m3 of commercial wood per hectare per year. With a minimum of management and silviculturaltreatments, this could be doubled to between 4 and 8 r 3/ha/yr. A recent discussion paper (PRODEPAH, 1996) impliesthe potential for a ten- to eighteen-fold increase over 1994 state revenues from stumpage charges in the national forests dedicated to timber production. In addition, annual export earnings from well-managed industrial forests have the long-term potential to reach US$200 to US$400 million. Total forest export earmingsfrom 1990 to 1994 were US$103 million.

4.6 For the purpose of estimating economic benefits to the forest management activities, several representative forestry and farm models were developed in the economic analysis: one- hectare models and a 20-year project model. These are presented in detail in Annex HI. The one-hectare models were found to be both financiallyand economically viable -- in all cases because there exists standing timber which can be profitably exploited with relatively low per unit investments -- the absolute retums to improved management are quite marginal and sensitive to management costs. Project work would expand and strengthen the current forestry information and impact monitoring system to ensure that future decision-making is based on sounder economic criteria than at present.

4.7 In the case of the 20-year project model, the presence of immediately exploitable forests ensures that even marginally efficient operations can be both financiallyand economically attractive. A sensitivity analysis showed that results were very robust. Costs increases and stumpage value decreases in the order of 50 percent were required to undermine the viability of all of the scenarios. For the purpose of comparing incremental project costs and benefits, the "medium" scenario was chosen as the most likely outcome for the without-project comparator. The medium scenario assumes that the major focus would be on timber extraction from existing well-stocked forests with the minimum investment in overall forest management. Based on this comparison, the present value (using a 10 percent discount rate) of the sub-component's incremental benefits is US$17.6 million, based on an incremental timber production of 3.2 million cubic meters. The IRR is greater than 50 percent. - 29 -

4.8 The Upland Fund. This sub-component would provide technical assistance and training to 6,500 poor rural households for natural forest management, hill-slope agriculture and livestock. Actual activities under the project would vary considerably depending on community demands, the location and quality of the producers' land and the technical skills and initiative of the producers. A set of representative household models of the types of activities proposed, with estimated costs and returns over time, were prepared to determine financial and economic viability. The focus of the agricultural models were basic grains (corn, beans, and rice), but supplemental financial models for livestock (meat and milk) were also developed. A review of a series of case studies from Honduras provided the basis for estimations.

4.9 A global analysis of the impact of the upland fund was also carried out, based on basic grain crops and forestry. The main expected interventions from the fund would be:

(a) agriculture - increased planting density (corn crops), halting burning of fields, contour cultivation, crop residue management, "green mulch" and contour vegetative barriers of vetiver;

(b) forestry - silviculturaltreatments (thinning, assisted natural regeneration), pine forest management/harvesting, and forest protection (fire, encroachment).

4.10 Calculated benefits do not include potential off-site impacts of reduced soil erosion and un-off. The primary incentives for adoption would be on-site benefits (i.e., increased and more stable yields, lower inputs, etc.). For forestry, the same forest structure, yield impacts and incremental production were assumed as in the national forest models. Estimates of deforestation were developed based on national level data, and the assumed 60 percent reduction with project is based on Honduras PDBL/CIDA project data. A recent project review found reductions in deforestation rates of 85 to 90 percent resulting from the provision of forest usufruct instruments and extension services to community groups. Based on the crop activity models, three farm models were tested. All of the models were financiallyviable, suggesting that beneficiaries are likely to be interested in the adoption of the improved farming measures. The results of this economic analysis is presented in detail in Annex HI and summarized below in Table 5.

4.11 Biodiversity Protection - The protection of Honduras's national parks and reserves is essential to: (a) reduce encroachment of agricultural activities and impacts from fire and other activities; (b) increase visitation, particularly by eco-tourists, in order to increase foreign exchange income; and (c) improve the protection of the nation's ecology and biodiversity. It is not possible, with the information currently available in Honduras, to estimate the expected increases in direct income to the protected area system through construction and operation of modern visitors' centers and improved road access to the areas; nor the potential increases in tourist income from persons visiting the country. It is clear, however, from the example of neighboring Costa Rica and from the possible spill-over from joint (e.g., Central American) eco-tourism efforts, that these benefits could be substantial.

4.12 Estimates generated during project design suggest that with current practices and the state maintaining its traditional role, investments of about US$10 million would be required in equipment and infrastructure with recurrent annual costs of about US$5 million to operate the system adequately. Project interventions are expected to assist in lowering the State's costs by - 30 - assistingin rationalizingpriorities and roles of government(national and local), communities, private sectorand NGOs in protected area management.Preliminary estimates show the potential to reduce state recurrent costs to aroundUS$2.5 to US$3 millionper year while generating incomethrough tourismof betweenUS$1 millionand US$1.9 millionper year.

Table 4. Summaryof PotentialEconomic Benefits (US$ millions)

PresentValue Net (10% disc) Present Benefit-Cost Component Base Investmentand Value of Ratio Costs OperationCosts Benefits NaturalResources Management 23,086 25,513 n.a. n.a. ForestManagement 10,961 14,277 17,571 1.2 UplandProducers' Fund 6,761 6,876 n.a. n.a. Extension 4,221 4,950 9,533 1.9 Research/training 2,540 1,926 n.a. n.a. BiodiversityConservation 5,364 4,360 n.a. n.a. LandAdministration Modernization 11,785 9,047 n.a. n.a. ProjectCoordination Unit 3,211 2,434 n.a. n.a. Total 38,082 36,994 27,104 n.a.

4.13 Conclusion. As summarizedin the table above, 50 percentof projectinvestment funds going to directlyproductive investments would produce measurableeconomic returns necessary to justifyalmost 75 percent of the total proposedproject costs. The project as designedis a coherentwhole, however, and would result in substantiallonger-term benefits in land tenure and socialwell-being that have not been factored into the economicevaluation.

C. ENVIRONMENTALIMACT 4.14 The proposedproject has been assignedto EnvironmentalAssessmentCategory B. An environmentalanalysis, was carriedout during projectpreparation and is availableas AnnexH2 and in the PublicInformation Center (PIC). The analysisconcluded that the presentlegal and policyframework for the sectorof the AML is adequateto foster a balancednatural resources strategyfor the countryand projectareas. It identifiedthe followingrisks: (a) increasedor inducedpressures on commonand open forests;(b) potentiallynegative impacts from natural resourcesmanagement interventions; (c) the potentialthat biodiversityconservation and buffer zone activitiescould attract populationto the areas;and (d) undercapacityof AFE-COHDEFOR and the SAGto ensuretechnical soundness of planningand implementationand/or reduced institutionalcapacity to address pressuresoutside the project area. All these risks are addressed in the designof the project. 4.15 All four project componentsare designedto improvethe environmentalmanagement of forests and to rationalizeland use accordingto equityand efficiencycriteria. The Land AdministrationModernization component would register existingrights more systematicallyand reliablyand would not change existingownership or land use. More securetenure should improveincentives for resourcesmanagement, given that reformsin agriculturaland forestry policiesunder the AGSAChave removeddisincentives for forestrymanagement on landsof forest vocationrelative to livestockand agriculture. The Natural ResourcesManagement component - 31 - would improvemanagement of blocks of publicforests and surroundingareas, initiating conservationactivities in prioritywatersheds as well. Timberand non-timber(primarily resin) harvestingactivities in pineforests would be carriedout accordingto governmentguidelines for sustainableforest management,following the systemfor AFE-COHDEFORsupervision and auditingof activities. The Protected Areas sub-componentand proposedGEF projectwould includea consultativeprocess to rationalizethe SINAPHand encourageappropriate local managementof areas of biodiversityor environmentalvalue. Thiswould prevent harvesting activitiesfrom being carriedout in areas that shouldbe protected. Sub-projectsfinanced through the UplandFund may includeuse of pesticidesand fertilizers.The activitieswould be small-scale, however,and the technologicalpackages eligible for financingwould includesoil and water management,integrated and biologicalpest managementand other environmentallypositive technologies. The increasedsustainability of rural livelihoodsshould lead to improvedland and forest managementand reduce incentivesfor forest conversion. Assurancewas given at negotiationsthat there is no involuntaryresettlement of peoplefrom the Protected Areas envisioned,and that in any event,prior to any requiredresettlement, the Borrower would prepare a plan satisfactoryto IDA and onlyimplement such plan in accordancewith IDA guidelines. 4.16 All naturalresources interventions proposed under the projectare provenin Honduras. For managementof naturalforests, the Hondurasforestry sector has receivedvaluable support from bilateraldonors in the developmentof methodologies.In the period 1988 to 1997 a total of US$63.7 millionof grant fundswere programmedfor the Honduranforestry sector (AFE- COHDEFOR,12/95), mostly into pine forest managementand related activities(planning, etc.). Almostall aspects of forestry (policy,institutional, forest management,and research)have receivedand continueto receiveattention (in forest managementby CIDA,USAID, GTZ, the Dutch Governmentand FINNIDA;in protectedareas by CIDA,USAID, GTZ, the Netherlands and WWF;in socialforestry by CIDA,GTZ, Norway, and UNDP). From the "best practices" perspectivethe projectbegins with extremelysolid foundations. The weak areas relate to existing capacityfor executionof best practiceapproaches and to overallenvironmental planning in forest management.Relevant to the latter, the current approachesto such planningare focused on individualforest managementunits without consideringthem withina landscapeand aggregate impactsbetween management plans. Theseweaknesses are specificallydealt with in project designthrough training,regional forestry sector enviromnentalassessments and technical assistanceinputs

D. PARTICIPATIONAND SOCIALIMACTS

ParticipationPlan 4.17 A participationplan has been preparedfor this project, drawingupon a socialassessment (AnnexH3) which paid significantattention to gender and indigenouspeoples development.The socialassessment included an analysisof policiesand past programsin land administrationand forestryand the impactof these on the poor and vulnerablegroups, includingwomen and indigenouspeoples. The participationplan includesfive types of initiatives:(a) definitionof a process for incorporatinglocal populationsin the design and implementationmaster plans for the forestryand protected areas in the project; (b) on-goingM&E to shapethe process of participationin land adjudicationto be carriedout in the pilot areas; (c) trainingand orientationof projectstaff and beneficiarieson indigenousand gender aspects;(d) an IDF for indigenous - 32 - capacity building; and (e) design of the Upland Fund to provide access to poor producers and NGOs through a selection process with transparent criteria and procedures.

Population in the Upland Areas of Honduras and the Project Area

4.18 There are, according to the 1993 agricultural census, 237,863 farm families with less than 10 hectares covering 587,576 hectares of land and 227,642 farms of less than 5 hectares with 384,078 hectares in Honduras. Most of the farmers with less than 5 hectares are found in the marginal uplands. Families with less than 10 hectares farm 17.6% of all agricultural holdings in the country, and comprise 54.3% of the population. These small holders produce mainly white maize, beans, a creole variety sorghum (maicillo), and rice. Maize is produced by 75 % of small- scale farmers and beans by a third. Sorghum is produced by 52% of farmers in the south and is used primarily as cattle feed. There is little reliable data on the extent of cattle pasture, but it is extensive-- 1993 census figures are 1.5 million hectares under pasture while extrapolations from 1991 regional data estimate 2.6 million hectares under pasture. In comparison to other Central American countries, the cattle expansion phase began later and continued after political conflicts had checked expansion in neighboring countries.

4.19 Many of the upland farmers cultivate land classified as part of the public forest estate. As described in Annex B, Land Administration Modernization Component, farmers cultivating lands classified as public are eligiblefor title should the land be judged of agricultural vocation. All other lands are classified as forest vocation and can be cultivated through usufruct, but not titled. The main forested areas of the north and west are the agricultural frontier. Many of the upland farmers in this area migrated from poorer regions in the south and east or moved into the hilly areas after selling their plots to cattle ranchers. Since 1982, Honduras has had an active land titling program to give title to smallholders settled on agricultural lands within the public estate. Through this program, 77,000 titles have been given for about 660,000 hectares. In addition, some cooperatives were given titles, but by 1993 only 993 of these remained with 144,697 hectares, mostly in the valleys. Most of the former cooperative members are seeking individual titles from INA. The number of farm families still without title is estimated to be around 200,000 of which about one half would not qualify for title since their holding is less than 1 hectare or classified as urban areas. The first phase of the land administration pilot in 15 municipalitiesalone is predicted to identify 6,000 farms eligible for title.

4.20 The small-farmer population in the 14 public forest management field unit boundaries of the three Departments included in the project area--Yoro, Olancho and San Francisco Moraz6n-- is 14,775 families. These are the majority of families in the project area. While land holding figures are not available for the upland areas of these Departments, more than 95% of the families in the rapid rural appraisal communities were small-holderswith less than 2.5 has. and the majority had some land holdings in addition to their homesteads, however marginal. Most did not have title to their agricultural holdings. Apart from limited mid and larger sized farmers in the valleys and some uplands of the project Departments, therefore, the large majority of the upland farmers are small, subsistence farmers with marginal holdings, both in size and quality. The upland fund would provide support to landed farmers in agriculture and agro-forestry and to landless residents in municipal or social forestry initiatives on ejido and public lands. - 33 -

Indigenous Peoples

4.21 Three types of indigenous groups are found in the pilot and protected areas--the Pech, Xicaque, y Garifunas. The social assessment indicated that there are important traditional forms of government that should be taken into account in undertaking interventions under these components. The project would include promotional activities targeted to indigenous peoples in the project area and special studies to evaluate their special interests and needs prior to implementation of management plans. Also, recognizing the nascent development of indigenous political organizations and lack of a clear policy on indigenous peoples and resources management in public forests, project preparation has included the identification of an IDF grant for indigenous training and capacity building. The land administration modernization component would initially be carried out in departments with no indigenous populations. The pilot activities would include an evaluation of norms and procedures, and prior to expansion of the pilot to other areas, a special study to evaluate constraints to registration of indigenous land rights under the folio real. At present indigenous communitieshave the option of requesting individual or collective land tenure. One issue identified by indigenous groups is the need to obtain legal status for informal, first-tier indigenous organizations, for their formal participation in social forestry contracts with AFE-COHDEFOR and communal land titling.

Gender Issues

4.22 The social assessment identified a number of constraints for women's active participation in project activities. Forestry and agriculture programs have not reached women farmers and forest-users, and family income-earning opportunities have no necessarily improved the standard of living of women in these families. Constraints include the lack of appropriate channeling of information to women, the lack of avenues for consultation of women on forest management issues, the lack of appropriate technical packages, and the lack of gender training for the majority of extension staff in government and non-government agencies. Nonetheless there are trained personnel in country and some positive models in on-going upland projects that can be used in the project. While there is no legal constraint on the titling of women landholders, couples without legal marriage papers (the majority of rural households) are not eligible to apply for joint title. This issue would be studied by the land agencies and a solution recommended for implementation in the project.

E. RISKS

4.23 The major risks of the project relate to: (a) its complexity; (b) Government commitment; and (c) institutional capacity.

4.24 Complexity. The issues involved in reversing the destruction of Honduras' natural resources are inherently complex. There are no simple solutions. Furthermore, poverty, forest destruction, soil erosion and lack of tenure are closely interrelated and should be seen as part of the same problem. Recognizing that, the proposed project attempts to set in motion processes which will make an impact on all of these elements, but in each case, a very cautious approach must be taken. The Land Administration Modernization component would attempt to tackle the most fundamental problem, a lack of modem registry, before any further attempt was made to title land. It proposes a small pilot in one municipality,expanding to fifteen and then to several - 34 -

departments, and at each stage the process would be subjected to close review, open debate and possible redesign. Disbursements under the project would be subject at each stage to full implementation of agreed actions. The same pilot approach has been applied to the Forest Management and Biodiversity components. In the former, progress would only be made through careful participatory approaches involvinglocal planning, and priorities areas for intervention by the project have been set in accordance with already established COHDEFOR criteria. In the latter, a gradual approach to modifying the existing SINAPH has been chosen, intensive training has been included, and a minimum investment proposed for a first phase development of a financiallysustainable park system. The Upland Fund would also take a very cautious approach. A relatively small amount of money would be committed to it; its regulations and management would be subject to regular review and potential redesign in the light of experience; and close consultation would be retained with IDB, in order to maintain consistency with the fund being financed under the Agricultural Technology Project.

4.25 Government Commitment. There is no guarantee that a suitable fiscal environment will remain in place throughout the implementation period of the proposed project. Nevertheless, there are significant factors leading to confidence in the Government's commitment to the objectives of the project itself. Not least among these is the passage or advanced state of preparation of six key laws on which the principles of the proposed project are based. These are: the Municipal Law (1991); the AML (1992); the Property Registry Law (1987); the Environment Law (1993); the Forest Incentives Law (1993); and the General Law of Public Administration (still in draft);. Confidence in government commitment is also derived from the project preparation process itself, which was long and arduous. During that time, there were major shifts in government thinking, especially with regard to the decentralization of COHDEFOR, and the integration of the Supreme Court, PR, DEC and INA to make a common effort to modernize the registry system. These principles are now firmly embedded in the design of the project, and in undertaking the project the Government would be demonstrating its acceptance of a radically altered institutional environment than has existed hitherto. At the same time, each major component of the project carries with it a real prospect of financial sustainability. The built-in review processes also provide several major check points for modification or even suspension in the event of weakening commitment.

4.26 Institutional Capacity. The weakness of existing institutions is one of the prime factors underlying the design of the proposed project, in which a significant proportion of the resources would be devoted to institutional strengthening at national and local level, to introducing concepts of participatory planning and decision-making, to training, and to modernization of technical processes. Key factors leading to confidence in the institutional arrangements are: (a) reliance on existing institutions, combined with introduction of new processes, as for example in the decentralization of COHDEFOR and the strengthening of its field offices; (b) increased reliance on NGO's and the private sector, as would be the case in the management, promotion and execution of the Upland Fund; (c) creation of a simple PCU with authority derived directly from the Minister of Agriculture and Livestock and located inside the existing structure of the SAG (UPEG); (d) mechanisms which specificallyaim to unite disparate agencies currently involved in land administration; and (e) limitation of overall management and spending authority to two institutions, the PCU and COHDEFOR. - 35 -

F. SUSTAINABILITY

4.27 The project is intended to consolidate and sustain the institutional reforms that were initiated under the AGSAC and the AML. The activities identified are a part of the core work program of the SAG, the PR, and DEC. The land administration modernization strategy has the support of an inter-agency commission headed by the Supreme Court of Justice. The project would seek to create government capacity to implement the type of participatory, site-specific natural resources management interventions that until now have only successfully been carried out by recruited staff of donor-financed pilot projects. Based on a review of current experience in the country with decentralized mechanisms for channeling development resources, including the Honduras Social Investment Fund (FHIS, Cr. 2766), the project would also devolve substantial planning and implementation responsibility to municipal, non-government and farmer-based organizations, and foster joint management of public forested and protected areas. Promoting local responsibility in this way should help sustain project activities. The project coordination unit in the SAG would receive complementary financing for additional staff under the 1DB-financed project for DICTA so that the SAG would maintain one PCU for the two complementary operations.

5. SUMMARY OF AGREEMENTS, ASSURANCES AND RECOMMENDATION

A. AGREEMENTSAND ASSURANCES

5.1 Actions already taken.

(a) establishment of a PPF for the project (see para. 1.12);

(b) evidence received by IDA of compliance with the AGSAC condition concerning the decentralization of AFE-COHDEFOR (see para 2.14);

(c) elaboration of norms for the CONACTA and SNITTA and establishment of these entities (see para. 2.18);

(d) preparation of a biodiversity gap analysis as a basis for rationalizing a protected areas system (see para. 2.21); and

(e) progress towards establishing a management unit for the project in the SAG (see para. 3.1)

5.2 Agreement were reached during Negotiations on:

(a) the process for incorporating communities and forest population in forest and protected areas management plans (see para 2.14).

(b) regulations, working procedures and selection criteria for the Upland Fund (see para 3.6); and - 36 -

(c) monitoring indicators and formats for M&E (see para 3.24).

5.3 Assurances were received from the borrower during Negotiations that:

(a) GOH would ensure adequate budget for incremental protected areas expenses should the Protected Areas fund not generate the expected revenues (see para 2.25);

(b) the SAG would maintain adequate staff and/or engage consulting firms with qualifications and experience satisfactory to IDA to carry out the project (see para 3.2);

(c) a Participation Agreement would remain in place for the duration of the project as detailed in Annex A (see para 3.2);

(d) accounting and auditing arrangements would be as described in Chapter 3 (see para 3. 10);

(e) procu-ement arrangements would be as described in Chapter 3 (see paras. 3.11-3.20);

(f) copies of quarterly reports in an agreed format would be sent to IDA within 30 days of the end of the quarter (see para 3.25);.

(g) two reviews would be carried out during the life of the project, one evaluation of pilot components at completion of the first pilot municipality in the land administration modernization component and one mid-term review at the end of year three. The Borrower would implement recommendations and action plans emerging from these reviews and would be obliged to comply with these action plans in accordance with the terms of the DCA (see para 3.26); and

(h) no involuntary resettlement of people from Protected Areas is envisioned but if should such eventuality arise, resettlement would be planned and executed in accordance with a plan satisfactory to the IDA (see para 4.15).

5.4 Conditions of Effectiveness.

(a) the PCU will be formally established and staffed with the agreed specialists (para 3.2);

(b) the Participation Agreement has been signed (see para 3.2); and

(c) the Subsidiary Agreement has been signed between SAG and AFE-COHDEFOR (see para 3.4).

5.5 Conditions of Disbursement. Disbursements for the activities related to the expansion phase of the land administration modernization component would be conditioned on the satisfactory implementationby the Borrower of the recommendations of the evaluation of the pilot phase (see para 2. 11). - 37 -

B. RECOMMENDATION

5.6 The proposed project would constitute a suitable basis for an IDA Credit of SDR 23.5 million (US$34 million) to the Republic of Honduras.

ANNEXES

Annex A: Institutional Arrangements and Implementation Schedule

Annex B: Land Administration Modernization Component

Annex C: Natural Resources Management Component Institutional Strengthening Forest Management

Annex D: Fund for Upland Producers Sub-component

Annex E: Protected Areas Sub-component

Annex F: Cost Tables, Financing Plan and Disbursement Schedule

Annex G: Project Monitoring, Reporting, and Evaluation

Annex H: Project Analysis Economic Analysis Environmental Analysis Social Assessment and Participation

Annex I: Project Implementation Detailed Plan (PIP) Contents Project Brief IDB Agricultural Technology

Annex J: Documents in Project File HONDURAS

RURAL LAND MANAGEMENT PROJECT

PARTICIPATING INSTITUTIONS AND THEIR ROLES

Component Institution/Agency Functions Project Project Coordinating Work as liaisonbetween the Bank and the project Management Unit (PCU) executing agencies; coordinate preparation of progress reports on the project's components. * Facilitate World Bank supervisorymissions and follow up on their recommendations. * Advise the executing agencies on preparing terms of reference, bidding competitions,technical specifications, contracts and disbursements. * Provide overall project management. * Facilitate project monitoring and supervision;contract the independentauditors; follow up on impact and monitoring indicators and prepare the correspondingreports. * Convoke the meetings of the inter-institutionalcommittee to examineprogress and prepare the minutes of the meetings. * Prepare annual plans in conjunctionwith the executing agencies. * Manage the special project account and keep the project's accounts. * Composed of five contracted professionals: one program coordinator, one land specialist,one natural resource specialist,one social/communityspecialist, and one specialistin administration,accounting and finance. Executing Unit of the Coordinate and supervise field and office work. Land Administration Coordinate training for the operations staff. e Component Prepare progress reports for the component. Composed chiefly of DEC and INA personnel. *_____ Reports to the PCU and the Territorial Committee. HONDURAS e

RURAL LAND MANAGEMENT PROJECT wt

PARTICIPATING INSTITUTIONS AND THEIR ROLES (CONTINUED)

Component Institution/Agency Functions Coordinates the participatinginstitutions in each cadastral Land area. Administration Composed of INA (1), COHDEFOR (1), the (Continistratn municipalities(2), the DEC (1), the UPEG/UPSA (1) and (Continued) the supervisor of the executingunit. Territorial Committee Arbitrate disputes in the municipalities.

DEC Carry out and standardize cadastral work in the project area. * Facilitate land awards and input the parcel base land information system. * Manage cadastral infonration for the property register. * Establish and disseminatetechnical standards on the national level. * Control the quality of the private companies providing services . National Agrarian Administerthe land titling program on the regional level. Institute (INA) Train the team promoters. * Carry out communitypromotion in the pilot areas. * Deal with the backlog of unresolved cases. * Prepare a proposal for treatment of smalllandholders. CSJ Advisory Team Ensure that the cadastral and registration processes comply with the legislation. * Conduct a study of the geographic coverage of the .______.register in the project area. HONDURAS

RURAL LAND MANAGEMENT PROJECT

PARTICIPATINGINSTITUTIONS AND THEIR ROLES (CONTINUED)

Component Institution/Agency Functions Prepare a new property registration law. * Advise on the design for an informationsystem to capture the registry survey data. Land UPSAIUPEG Follow up on the land administrationcomponent. Administration Coordinate the component'sexecuting agencies; hold (Continued) meetings with the executing agencies;and prepare progress reports. Property Register (will Reform the registry system by cleaningup the entries in become the future the registry, installingmaster file and upgrading the Directorate General of administrativecapacity of the registry system. Registries under the Establish the computer center. CSJ) Establish the informationsystem. * Coordinate personnel trainingin legal aspects on the local and national levels. AFE-COHDEFOR Assign usufruct rights to communitieslocated on public forested land. Municipalities Assign rigkts of usufruct and privatizationof municipal urban land. Natural Planning Department * Coordinate and execute project activitiesfor the Resources (Forestry Statistics following components - institutional,information systems, Component: Section), Standards and forest tenancy, and standards and control. v Forest Control Department, Coordinate the activities of the project with the PCU : Management Development and (planning). o Subcomponent Extension Department Prepare terms of reference, bidding competitions, % technical specifications, contracts and disbursements for HONDURAS e ;

RURAL LAND MANAGEMENTPROJECT

PARTICIPATINGINSTITUTIONS AND THEIR ROLES (CONTINUED)

Component Institution/Agency Functions the natural resources component. Prepare progress reports. Natural Executive Technical (COHDEFOR, DICTA, National Forest School) Prepare Resources Comrnittee terms of reference for forest managementresearch and Component: monitor execution of the studies. Forest Management Subcomponent (Continued) Regional Prepare forest inventoriesand coordinate the preparation Offices/Management of master plans, managementplans and operating plans, Units with participation by the local communities. * Prepare terms of reference, bidding competitions, technical specificationsand contracts and for the corresponding activities. * Prepare progress reports on the activities. Upland Fund AdministrativeCouncil Manage the fund. Subcomponent Review and approve packages of subprojects. * Authorize disbursements. PCU with DICTA Monitor Fund Manager and the Upland Committee. Contract the private auditors. Fund Manager Perform a technicalreview of fund proposals. Evaluate the private service providers and contracts with producers' groups or communities. HONDURAS

RURAL LAND MANAGEMENT PROJECT

PARTICIPATINGINSTITUTIONS AND THEIR ROLES (CONTINUED)

Component Institution/Agency Functions Prepare the financialreports of the Upland Committee. *l Supervise the contracts and report any problemsin complyingwith the agreementsto the Committee. Upland Fund Private Service Provide extension and applied research services. Subcomponent Providers (Continued) DICTA Promote the fund. l * Monitor execution of the activitiesfinanced by the fund. SNITTA Office Promote the fund. AFE-COHDEFOR Promote the fund through its regional staff. Biodiversity AFE-COHDEFOR- Coordinate the activitiesof the biodiversitycomponent Conservation Parks Directorate and coordinate with donors and financialinstitutions. Subcomponent Prepare a human resources plan and coordinate recruitment of the personnel necessary to establishthe national parks system. Prepare a training plan and coordinate the necessary training. * Prepare terms of reference, bidding documents, contracts and disbursementdocumentation. e * Prepare progress reports. I o >~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~cm

______2 Ž~~~~~~ d > HONDURAS PROJECT IMPLEMENTATION SCHEDULE

1997 1998 1999 2000 2001 2002 20 ID Task Name Start Q3Q41QIQ2lQ3tQ4QIQ2Q3Q41Q2Q3Q4QQ2Q3Q41Q2Q3Q4QIQ2mQIQ2 1 LAND ADMINISTRATION COMPONENT 1/20/97 2 ComipletePilot Project preparation 1/20/97 . 3 Conclude Agreemenltswiti lists. for Pilot Project I/20/97 4 Stage l: Pilot Project Villa de San Antonio 3/4/97 5 Cadastre and land adjudication 3/4/97 _ . - 6 Establish and maintain LIS 3/4/97 7 Establishitech. stands. for cadastre & mappi 3/4/97 8 Acquire aid install digital mappinigequipine 3/4/97 9 Prelimi. Training digital mapping staff 3/12/97 10 Consolide/conivertexisting land data 4/24/97 11 Update and maiitaini cadastral data 6/17/97 12 Cadastre and adjud. Villa de S. Antonio 4/16/97 13 Traininig for promoters and cadastral staff 4/16/97 14 Communiity Promotioni 6/17/97 15 Collect rural graphic and legal data 6/17/97 16 Collect urban graphic and legal data 6/17/97 17 EstablishiLand Commission Comayagua 6/17/97 18 Rural and urban land adjudication 7/1/97 I 19 Eval. cadastre and adjudication process 10/9/97 20 Registry sub-component Villa de San Antonio 3/4/97 21 Create/ operate CSJ group tbr Mod. Regist. 3/4/97 22 Establish Registry Database Iifo. System 3/4/97 23 Analysis of Registry legislation and regs. 3/4/97 24 Stage II: Conayagua 14 Municipalites 9/9/97 25 Cadastre/adjudication 14 munici. Comayagua 12/17/97 HONDURAS PROJECT IMPLEMENTATION SCHEDULE

1997 1998 1999 2000 2001 2002 20 ID Task Name Start QI|Q2lQ3lQ41QI|Q2|Q3lQ4lQl|Q2|Q3lQ4QI|Q2|Q3lQ41QI|Q2|Q3|Q41QIIQ2lQ3lQ4lQlIQ2 26 Velhicleacquisition and maintenance 12/17/97 27 Expandand MainitainiLIS 12/17/97

28 Train new personiel 12/17/97 29 Promotion, Cadastral survey and adjud. 1/5/98 30 Trng in land survey & community promotio 1/5/98 . 31 Conitilluiuitypromotioni 2/9/98 32 Collect rural graphic and legal data 1/5/98 33 Collect urban graphic and legal data 1/5/98 34 Adjudicate rural land 1/5/98 35 Adjudicate urbani land 1/5/98 36 Seminars for professionals in related fields 2/18/98 37 Modernize Registry 14 Munic. Comayagua 9/9/97 38 Operate Supreme Court Modern Registry team 1/26/98 39 Operate Registry in Comayagua start up 12/3/97 40 Establish info system 15 munici. Comayagua 2/9/98 41 Comilpiledatabase for Parcel base system 2/9/98 42 Maintainiparcel based system--start up 7/20/98 43 Traiiscribe data from Registry- Siguatepeque 5/4/98 44 Finalize Plan for Registry Inst. Structure 9/9/97 45 Comilpleteenactment of Registry law and regs 9/9/97

46 Stage Ill Land Administration Component 8/3/98 . v m 47 Stage Ill Cadastre/adjudication 8/3/98 *. 48 Cadastre/adjudication Siguatepeque 8/3/98 . 49 LIS operation and mainteniance 8/3/98 o ;. 50 Coinmuniiiypromotioni 10/5/98 - , . , ...... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t HONDURAS PROJECT IMPLEMENTATION SCHEDULE o0 N 1997 1998 1999 2000 2001 2002 2 _ ID Task Name Start QI|Q2lQ3lQ41QI|Q2|Q3lQ41QI|Q2lQ3|Q4|QIQ2|Q3|Q41QI|Q2|Q3Q41QIQ2lQ3Q4QQ2 A 51 Coliect rural graphicand legaldata 10/5/98

52 Collect urbanigraphic and legal data 1015/98 53 Form Land Commissioll Siguatepeque 10/5/98 54 Rural landadjudication 10/7/98

55 Urban lanid adjudication 10/7/98 56 Cadastre/adjudicationDept. of Olancho 6/25/99 57 Expanddigital mappinigcapacity 6/25/99 58 LIS operationand nainitewianice 6/28/99

59 Colmillmullity promotioni 8/9/99

60 Collect rural grapiic an_dlegal data 8/9/99

61 Collect urban grapihic and legal data 8/9/99

62 Form Lanid Comimiliission Olanicho 8/6/99

63 Lanid adjudicationi Olanicho 8/9/99

64 Rural landAdjudication 8/9/99 65 Urban land adjudication 8/9/99 - 66 Cadastre/adjudicationDept. of Cortes 8/24/00 67 LIS operationand mainiteniance 8/24/00 -

68 Comimiliuniity promotion 10/5/00

69 Collect rural graphic and legal data 10/5/00

70 Collect urban graphic and legal data 10/5/00 71 Form LandCommissioni Dept of Cortes 10/5/00 I 72 Rural landadjudication 10/13/00 73 Urbanland adjudication 10/13/00

74 Cadastreand land adjudication Dept of Y 11/22/00 . 75 Acquisitionsfor incrimienitaldigital mapp 11/22/00 ,-_ - HONDURAS PROJECT IMPLEMENTATION SCHEDULE

1997 L 1998 1999 2000 2001 2002 2 ID Task Name _ Start QIQ2|Q3Q4QQ2Q3Q4QQ2Q3Q41QQQ2Q3|Q41QI Q2lQ3lQ41Ql|Q2lQ3|Q41QIQ2 76 LIS operationi and mainteniance 11/22/00

77 Comimunity promiotioni 12/13/00

78 Collect rural graphic and legal data 11/22/00

79 Collect urban grapliic and rural data 11/22/00

80 Form Land Conunission Dept of Yoro 11/22/00

81 Rural land adjudication 11/30/00

82 Urban land adjudication 11/30/00

83 Stage III: Registry Modernization sub-compo 8/3/98 . -

84 Registry of SIGUATEPEQUE 8/3/98

85 Establish Registry in Siguatepeque 8/3/98

86 Operate registry in start up phase 8/4/98

87 Establish parcel based systemi in Siguate 8/4/98

88 Train Registry personniel 8/4/98

89 Comlpile parcel based system database 10/27/98

90 Maintain parcel based system during sta 5/3/99

91 Extract data from Registry in Olancho 9/29/98

92 Registry Dept. of OLANCHO [2 branches 6/25/99 . _

93 Establisli Registry in Olanciho [2 brancii 6/25/99

94 Establish parcel based systemi 6/25/99

95 Registry Unit I Olancho 6/25/99

96 Operate Registry Unit #1 in start-up 6/25/99

97 Traini persoruiel Registry Unit i 6/25/99

98 Compile parcel based system databa 9/17/99

99 Registry Unit 2 Olancho 6/25/99 . _ oM

100 Operate Registry Unit #2 in start-up 6/25/99 HONDURAS 5 PROJECTIMPLEMENTATION SCHEDULE °

_ _ __1997 1998 1999 2000 2001 2002 2 D

ID Task Name _Start Q|Q2|Q3l|Q41Q|Q2|Q3lQ4|QI Q2|Q3|Q4|QI |Q2|Q3|Q41Q- Q2IQ3|Q4 Q Q2|Q3 101 Train personinlelRegistry Unit 2 6/25/99

102 Compile parcel based systemii databa 9/17/99 103 MaiiitainiRegistry Units in Olancho 4/26/00 104 Extract Data from Registries in Cortes a 6/25/99 105 Registry Dept. of CORTES [2 branches] 8/24/00 _ 106 Establish Registry Units in San Pedro & 8/24/00 107 Establish parcel based system 8/24/00 108 Registry Unit San Pedro Sula 8/24/00 _ 109 Operate Registry Unit San Pedro Su 8/24/00 110 Train Registry persoiuiel San Pedro 8/24/00 111 Compile Registry database San Pedr 11/16/00 112 MainitainiRegistry Unit San Pedro S 11/22/01 113 Registry Unit Pto. Cortes 8/24/00 I 114 Operate Registry Unit Pto. Cortes(s 8/24/00 - 115 Train Registry Personunelin Pto. Co 8/24/00 116 Compile Registry database Pto. Cor 11/16/00 117 Maintain Registry Unit Pto. Cortes 4/12/01

118 Registry Dept. of YORO (2branches] 11/22/00 ' _ 119 EstablishiRegistry Units in Dept. Yoro [ 11/22/00 120 Establish parcel based systeni in Yoro 1/25/01 121 Registry Unit #1 Yoro 1/25/01 122 Operate Registry Unit I in Yoro sta 1/25/01 123 Train Registry personiel Registry U 1/25/01 124 Establish Registry Unit I Yoro 3/22/01 - 125 Registry Unit#2 Yoro 1/25/01 HONDURAS PROJECTIMPLEMENTATION SCHEDULE

1997 :1998 : 1999 2000 2001 2002 20 ID Task Name ______Start QIQ2|Q3|Q4|Q1jQ2jQ3jQ4QIlQ2Q3Q4QQ2lQ3|Q41QI|Q2|Q3|Q41QI|Q2|Q3|Q41QItQ2 126 Operate Registry Unit 2 in Yoro sta 1/25/01

127 Train Registry personiel Registry U 1/25/01

128 Establisih Registry Unit 2 Yoro 3/22/01

129 Maintain Registry Units 1,2 start up pha 10/11/01 130 Central Registry Administration 8/4/98 . I. . 131 Establishi Central Registry Administratio 8/4/98

132 Acquisitions 8/4/98 133 Establisli Board of Directors and Develo 8/4/98 _

134 Operate Central Registry Adniinistratio 8/4/98

135 Data Maintenance and TA services 10/27/98

136 Establish Registry-Cadastre Comput 10127/98

137 Operate Computinig Center 12/15/98

138 Training, supplies and Software Ma 12/15/98

139 Provide TA to all Registry Uniits 12/15/98 140 Plan expansioni of system to rest of territory 8/30/01 -

p 3 (Is HONDURAS PROJECTIMPLEMENTATION SCHEDULE 1996 I 199T 1998 1 1999 2000 2001 2002 ID Task Name Duration Q2103 Q4101 IQ2 Q3 Q410 IQ2 0Q3Q41 IQ2 Q3 Q4 01 0Q2 Q3 IQ4I01 Q21 03 la4 Qa 023Q4Q 1 NATURAL RESOURCES COMPONEN Id 2 AFE-COHDEFOR's Institutional Dev. 239d 3 Coordination and Logistical Support Id 4 Createand support coordination comp 108d s Equip Region/ManiagemiienitUnits 132d 6 UpgradeRegional Unit Bldngs. I lOd 7 Technical Assistance 1218d

8 Assist AFE-COHDEFOR in: 1131d .I 9 Decenitralizationi& Inst. Manage 740d 10 Promiiotionianid Exteimsioii 652d 11 Public participationi/consultation 498d 12 Regularizationiof Riglits 435d 13 EnviromimnenialEvaluationi 522d 14 Traininig 260d. 15 ForestryResearch 120d 16 ForestryInformatioin System 958d . . 17 ForestryManagemilent i 131d .- _- _-. 18 Legal 544d

19 Forestry Statistical System 390d 20 Catalogueof Public Forest Lands 390d 21 Inccntive'sProgram 305d 22 Forestrylitioriiatioim Systemil 545d 23 ForesiryStatistical System )1067d 24 Traininig 1205d . _-. 25 Natural ResourcesManagement Id _25 __------__ ... HONDURAS PROJECT IMPLEMENTATIONSCHEDULE 1996 1997 1 998 1 1999 1 2000 1 2001 2002 tD Task Name Duration Q| |4!11 |2|Q3|Q4 [Q1 0Q2 Q3 IQ4 I Q1 I2 Q3 | Q4 I Q1i Q21 Q3 I Q4 Q Q2 |Q3 Iq4 Q1 Q2 0Q3 0Q4 26 Master Plans 719d ._

27 Prepare socio-econonfic assessmncits 219d 28 Prepareregionial EIA 219d

29 Catalognationial forests 522d _ --. _ _ _ 30 Prepareoverall forestry invenitories 567d 31 Iniegratemiaster plans 393d 32 ManagementPlans 1193d 33 Delimllitn ationial forest areas 479d_-.-__- 34 Mark limits andidentify forestsand T 543d 35 Preparestand level inventories 100ld --- 36 Prepareprotectioii plans lOOOd 37 Preparesilvicultural treatmientplans IQOOOd .n.i n i, 38 Initegratemaniageimenit plans 1044d

39 Performimuniicipal consults 1193d 40 Performcomiiuniity consults 1187d ----. 41 Prepareenvironimiiental impact anialysi 369d 42 OperationalPlans 1131d 43 Inveintoryand marking 11IOd i ---- 44 Prepareprotectioni plans 1023d 45 Preparesilviculture treatmienitplans 1023d - - - - 48 Integrateoperational plans 1086d ------

47 ProdtictiveForest Management 1126d 48 Iniiplecinmmitand supervise protection pl i 126d

Imipilemilenitandi supervise silvicultural I 109d . |---3 so Iinipleikentaiid supervisetimber aucti 882d HONDURAS El E PROJECT IMPLEMENTATION SCHEDULE 1 > 1996 1997 1199 1999 ] 2000 2001 ] 2002 ID Task Name Duration Q203 Q4 1 02 03 04 | 01 0Q0 | Q3 | Q4 0 Q34 Q2 IQ1Q1 2 I Q304 01 Q 2 Q3 Q4 Q1 02 034Q3 - 51 Road reliabilitation 325d

52 Protectiont Forest Managemilenit 424d

53 Forest Managemiienit Research 1109d . - -

64 UPLAND PRODUCER'S FUND Id s5 Preparatory Activities 123d

56 Establishi Fund Advisory Committee 30d

57 Open Special Account 20d

59 Setup Fund Tecihical Secretariat 30d

59 Prepare Fund's Regulations/Manual 60d

60 Contract Fund 's adminiistrator 25d

61 Finialize Criteria for Proposals 20d

62 Proposal Financing 1196d V

63 Promnote Fund 1000d

64 Train service providers, DICTA, and 1021d

65 Evaluate and select proposals 991d

66 Monitor approved contracts 1122d . -

67 Update Fund criteria based oni moiiito 740d

68 PROTECTED AREAS COMPONENT Id

69 Strategy Design 230d

70 Study self finanicinig cost-benefit 45d

71 Design/agree strategy with CONAPH 43d

72 Prepare regulations for Parks' Fuiid 45d

73 Create Parks' Fund 145d 74 Design Fund's Counicil Id

75 Contr-act Fund Adminiistrator 15d HONDURAS PROJECTIMPLEMENTATION SCHEDULE 1996 1997 1998 1999 2000 2001 2002 ID TaskName Duration Q2 Q3 04 01 |Q2 03 04 01 Q2 03 04 01 2 0QQ304 | |2|Q3|Q4 |QI |Q2|Q31|4 01 0|2 03 4 76 Prepare intrastructure and fees plan 128d

77 Capitalization of funds 25d 78 Institutional Development of DAPVS 154d 79 Prepare personiielplaa 42d 80 Openi Regional Offices 22d

81 Mohilize persoiuhel region/parks 46d 82 Contiact personnel in regions/parks li ld

83 Park's Management Plans 370d 84 Prepare plans for the four areas 198d es Demiiarcateareas 261d 86 Create inlrastructure in 4 PAs 956d .

87 Build trails and visitor centers 696d . 98 Prepare advertizing materials 956d I 89 Advertising plan 956d _i i in 90 Traininig 847d

91 PROJECT COORDINATION 1430d _ 92 Establish PCU Id

93 Design mioniitorinigand evaluation syst 40d 94 Quarterly reporting 1000d ---- 9s Yearly Audits of componienits 1300d _ _ 96 Periodic evaluation 1043d 97 Contracting of inidepenidanitevaluationi 1043d

98 MIDTERM EVALUATION 302d CD. 99 First niid-teriomevlauation 14d . 100 Seconidniid-terimi evaluationi 20d :

. , ....,_ .______, CA.t Annex B Page 1 of 10

HONDURAS RURAL LAND MANAGEMENT PROJECT

LAND ADMNSTRATION COMPONENT

INTRODUCTION

1. This component is designed to improve the legal security of land and forest tenure and to begin the process of resolving tenure conflicts on forest lands. The objective is to increase productivity and improve management of the resources while at the same time increasing environmental protection. The primary means for realizing this objective would be through the implementation of a legal cadastre and initiation of land adjudication processes in four priority Departments. Implementation would include systematic development and application of methodologies, technical practices, institution building and legal/legislative assistance in support of the Property Registry (PR) Law of 1975 (which mandates that the personal PR be replaced by afolio real-based system). The component would provide legal security within all land tenure categories: private, collective, communal, national and ejido. In urban areas and small rural communities (aldeas and caserios) surveys and legal investigations would be conducted to provide the respective municipalitieswith the inputs needed to facilitate proper land adjudication under the Law of Municipalities.

2. Implementation would be in two phases, comprising five separate activities. Phase 1 (pilot) would finance: (a) the creation of a pilot land information base; and (b) background analysis and participatory field adjudication of property rights. Phase 2 (expansion) would finance: (c) improved registry services in decentralized registry offices; (d) training of the employees and consultant staff of the federal and municipal institutions involved; and (e) a catalogue of national and municipal forest areas entered into the PR.

BACKGROUNDAND JUSTIFICATION

3. Land administration is the responsibility of a number of institutions. The Property Registry (PR), an entity under the control of the Supreme Court, records deeds and transactions; and INA grants titles to farmers settled on lands legally described as "agricultural vocation" lands. The Department of Cadastre, an autonomous institute under the Ministry of the Presidency, sets standards for legal surveys. Municipalities are responsible for maintaininglegal cadastres within their boundaries in return for taxation authority. The National Geography Institute (IGN) sets mapping standards.

4. Honduras has been implementing a land titling program since 1982, having granted more than 77,000 titles to landholders (of which over 20 percent were female farmers) on formerly public lands. The land reform program, which reached its peak in the mid-1970s, has assigned land to some 2,555 campesino organizations, of which about 1,400 are still in existence. Data from 1995 shows that only 395 of the 1,400 hold definitive titles to their land. Demand for titles has risen sharply with the passage of the Agricultural Modernization Law of 1992 (AML) which Annex B Page 2 of 10 reduced the minimum holding size eligible for title to 1 hectare. from the previous 5 hectares; this minimum size criteria has recently been eliminated for land under coffee production. However, in the absence of a reliable, systematic registry and cadastral base, past and future titling efforts might be in vain, because the contribution of titling to overall land security can be rapidly eroded as use patterns and ownership change, thus negating any long-term benefits from the land titling programs.

5. The current registry system is based on maintaining indices of parties participating in real estate transactions. In effect it is a folio personal or registry of the grantors and the grantees in land transactions. Such an index has little practical value since it consists solely of lists of names, the lists being created solely as names are received on a daily basis. Subsequently, there is no maintenance or updating of the list. The PR Law of 1987 mandates that this folio personal be replaced by folio real. The folio real is a system based on indices of the land parcels themselves; which would be a vast improvement over the current system. Physical data related to the parcel would be registered and would be the base for accessing ownership data. The PR of 1987 is still to be implemented.

6. One of the obstacles to modernizing the registry is the poor quality and quantity of information available. The current system is notorious for its general lack of information and the unreliability of what does exist. They are three principle factors underlying this situation:

(a) Parcels are not commonly registered - given the informal nature of tenure, tenancy and the land market in rural areas, the majority of lands have never been registered, and any transactions affecting them have by their nature not made them susceptible to entry into the registry. In the case of national and ejido lands this is understandable, as it is not the land itself that is in the market, rather the "improvements" made by the occupant which are being sold.

(b) Costs of registration - the services of a notary needed to register a transaction can be a disproportionately large expense, particularly for small landholders in small transactions.

(c) Unreliable data - the registry information is actually of little use in many cases as it is not in any way linked to cadastral data (i.e., the actual size and location of the parcel). Thus conflicts between the registry's legal description and physical reality substantially weaken the system's utility. Additionally, the technical system for administering and maintaining the registry is antiquated and an unacceptable level of errors occur in the daily data entry.

7. A further impediment to the implementationof the PR Law of 1987 has been the lack of sufficientlyprecise cadastral and juridical information to permit the construction a parcel-based system. The situation is relatively better in urban areas (where a much lower degree of uncertainty exists over location and ownership), whereas in rural lands the necessary juridical and cadastral information simply do not exist. An estimated 75 percent of rural landholders do not hold dominio pleno (freehold title) to their lands. What census data exists indicates a very high degree of informal possession of lands, even among those with medium and large agricultural Annex B Page 3 of 10 holdings. In numerical terms (vs land area), the vast majority of untitled landholders represent poor households occupying small family or sub-family holdings in national or ejido lands.

8. In the past, most land surveys by the DEC had been conducted with the purpose of identifying landholders who would be eligible for titling by INA, i.e. individuals resident on public lands apt for agriculture use. For this reason, much of the landscape has been excluded from the type of analysis that would allow for clearly identifying claims to land in rural aldeas. The public forest land and so-called "sitiosprivados" have also been excluded, both of which include complex webs of informal property rights..

9. The DEC is presently under contract with AFE-COHDEFOR to carry out projects in areas that largely or completely overlap four departments (those included in the component). The DEC would update and verify the administrativelimits which define national lands (See Bonilla, Oct. 95, Actualizaci6n De Limites Administrativos y de Sitios en Areas Nacionales) in eight departments, three of which - Yoro, Cortes and Comayagua - would overlap the component area. Secondly, the DEC would identify and delimit forest land (tierras de vocaci6n forestal) in all 18 departments of the country. This work should be concluded in each of the four departments before the start of activities of the land administration component. Finally, there are two other titling and cadastral projects, to be funded by USAID and CIDA, respectively, slated to cover a total of seven municipalitiesin the Department of Olancho. Hence, the legal cadastre that would need to be conducted for the purposes of land adjudication and property registration in the framework of the present component would have a significant wealth of materials at its disposal.

PROJECT AREA

10. The Departments selected for project coverage are Comayagua, Cortes, Yoro and Olancho. Selection was based on occurrence of natural resources of economic and environmental significance and evidence of rural land tenure conflicts in urgent need of resolution, and the existence of a minimum information base. Cortes and Comayagua were selected as agricultural zones with as yet unrealized (high) potential for export crop production. Long-standing tenure problems in lands distributed under the Agrarian Reform in these departments have contributed to the disappointing performance of the agricultural sector and to a potentially volatile political situation involving the organized peasant population. Yoro and Olancho, both departments with extensive priority public forest areas fraught with tenure conflicts, were selected in order to provide support to the natural resource management component of the project. In total, the four departments cover 41,441 square kilometers, or about 37 percent of the total land area of the country. Olancho alone accounts for about 59 percent of the selected area.

PROJECT DESCRIPTION

11. Phase 1 (Pilot): Land Information Base. The methodology and institutional arrangements for developing a modem land information base would be tested in a single municipality in the Department of Comayagua. Following a brief evaluation, the program would expand to the rest of the pilot area, which comprises the 15 municipalitiesforming the property registry jurisdiction of Comayagua. The data base for the 15 municipalitieswould be generated by a multi-agency team working under the direction of a land commissionto be created under the Annex B Page 4 of 10 auspices of CODA. The cadastre and adjudication team would evaluate existing documentation of land rights and carry out a land survey for the purpose of defining the mosaic of parcels existing within the pilot area. A separate team, under the direction of the Supreme Court (CSJ), would specialize in activities required to carry out the initial phase of property registry reform. The system would seek to incorporate all land within the property registry jurisdiction, so that a comprehensive land informnationbase is generated containing all national, municipal, and private lands. The information would be availableto the municipal cadastral office for the purpose of urban planning and real estate taxation.

12. Phase 1 (Pilot): Legal Analysis of Information and Adjudication. This would be carried out in priority forest areas as a key to removing obstacles to forest management and protection. All interested parties (agencies and communities) would be present at adjudication to give community witness to the process and thereby reduce conflicts. INA would play a key role in the promotional campaign, given its installed capacity in this aspect of land administration. The process would involve: (a) analysis of existing land information in the property registry, cartographic and photo images and other documentation substantiating the legal claim to ownership (title deed, proof of purchase, inheritance transfer, etc.); (b) field adjudication of the parcels, whereby the implementation team (accompanied by all interested parties in the respective community) would check the situation in situ, arbitrate rights, delineate boundaries, and identify parcels eligible for titling under INA's rural titling program; (c) a parallel promotional campaign to allay fears of property occupants, inform residents about the process and temporarily establish a service to review and record documentation substantiating land claims or land rights, complementary to the adjudication team's activities.

13. Phase 2 (Expansion). At the end of the pilot phase, an evaluation would be carried out by IDA and the Government to measure results and to make recommendations on technical or institutional changes which would be needed before the program could be expanded. Compliance with these recommendations would be a condition for implementation of the second phase. The evaluation would also establish minimum implementation criteria, which would become the conditions for continuing disbursement in any given municipality. These criteria would include an agreement with the municipality on the formation of their implementation units, establishment of local territorial commissions, extent of community participation in land adjudication and maintenance of key technical standards. These criteria would be established during the pilot phase evaluation review. A MunicipalityAgreement would be signed between SAG and each municipality prior to initiating any activities in that municipality.

14. Improved PR System. Based on the pilot experience, an improved system of property registry would be designed and implemented. A "Direccion General de Registros" would be proposed, to take over responsibilityfrom the current PR and to enforce norms, provide technical assistance to all registry units, and centralize cadastral mapping functions. The desired modifications would be proposed and presented to Congress for approval before implementation of the expansion phase. To support the new system manuals would be prepared on: (a) procedures and formats for management of the land information base (folio real); (b) software prototypes for management of the forms and information base; and (c) management of the transition from the personal registers and the folio real information base. Annex B Page 5 of 10

15. The costs of compiling thefolio real, including surveying, adjudication and registration would be considered part of the project investment costs and born entirely by the project. In the initial compilation of PR records positive incentives would be given to landholders in rural and urban areas to participate. These incentives would be based on municipal land taxes and would be developed in detail by the project in concert with municipal governments. It would be the municipalitiesthemselves who would bear the initial burden of providing positive incentives in anticipation of improved future tax collections.

16. Training of Registry, Municipal, and Cadastral Staff. The managers and operational staff of DEC, PR, and INA would need training. Training would be focused on the pilot area to create a core group of people who would then be able to extend training to a wider group of technicians and professionals. DEC staff would be trained in management of the cadastral information being used by the PR, technical norms, and quality control, including development of guidelines and manuals for private providers of cadastral services. INA staff would be trained in administration of a simplifiedprocess of titling in areas with afolio real, adjudication and conflict resolution, and community promotion. PR staff at national and branch levels would be trained in new procedures and the use of new formats for the entry and updating of information regarding parcels. It is recognized that, given the low salaries in the public sector, it may not be possible to ensure continuity of personnel. The project would aim at periodic updating of skills, so that, even as personnel change, there would continue to be a well-trained core of trainers and other technicians to expand and maintain the system.

17. Catalogue of Public Forest Lands. In conjunction with AFE-COHDEFOR, PR would develop a registry of public forest lands and oversee their delimitation and boundary adjudication. By law, AFE-COHDEFOR is charged with setting up the catalogue, but so far has been unable to do so because of the confusion over land rights stemming from the lack of juridical and cadastral information. This process would not seek to modify existing settlement and usufruct of national forest lands, but to establish the legal boundaries of these blocks of ejido and national forest. Where communities are settled on national lands of "forest vocation" (not deemed apt for agricultural use), usufruct rights and management responsibilitieswould be negotiated within the context of GOH's policy for regularization of the traditional rights of forest occupants. Subsequently, those usufruct rights and these management responsibilitieswould be incorporated into forest management plans, under the natural resources management component (below).

INSTITUTIONALARRANGEMENTS

18. Overall, the PCU and the ad hoc Commission established by CODA (see Annex 1, Organizational Matrix) at the federal level would coordinate the land administration component. The component would involve the following entities: (a) an Executing Unit, consisting of staff from DEC and INA, and answering to the PCU, which would be responsible for carrying out cadastre and adjudication work at the field level; (b) a Territorial Commission, comprising representatives of INA, AFE-COHDEFOR, DEC, UPEG, the municipalitiesand the Executing Unit, which would be responsible for coordinating participating institutions and arbitrating conflicts that arise in the municipalities;(c) DEC, which would be responsible for managing cadastre information, technical quality control of private companies, and establishingtechnical norms for cadastre and adjudication; (d) INA, which would administer the titling program at the AnnexB Page 6 of 10 fieldlevel and be responsiblefor promotionalactivities at the communitylevel; (e) the CSJ AdvisoryTeam, whichwould ensure that cadastre and adjudicationare carriedout accordingto the laws of the country;(f) the PR, whichwould reformthe registrationprocess and establish informationand computersystems; and (g) UPEG,which would overseethe implementationof the component. The possibilityof creatinga GeneralDirectorate of Registrythat combinesthe functionsof physicaland legal propertyinformation and registrationwould be evaluatedduring project implementationand mightbe implementedduring the projectperiod. A conditionof effectivenessis the signingof a ParticipationAgreement between SAG and the other implementingagencies for this component.

FINANCING

19. Total base costs for the Pilot Phase activities (Land Information Base and Legal Analysis of Information and Adjudication) are US$2.06 million of which IDA would finance about 92 percent (US$1.89 million) and GOH about 8 percent (US$. 17 million). Total base costs for the Post-Pilot Phase are US$9.7 million of which IDA would finance about 78 percent (US$7.6 million) and GOH about 22 percent (US$2.1 million).

IMPLEMENTATIONPLAN

20. The cadastral areas used to define the scope of work would conform to the jurisdictions of the respective PR units. However, the first target area in the Pilot Phase of the component would be a single municipality, Villa de San Antonio, in the jurisdiction of Comayagua, Comayagua. There is a total of fifteen municipalitiesin this jurisdiction. This initial phase would be used to test and refine the technical proposal for the land survey and data management and the new institutional arrangements to be put into practice. Following an evaluation of activities in Villa de San Antonio in Project Year 1, the component would extend its coverage to the remaining fourteen municipalities.

21. The Pilot Phase would conclude with the evaluation of the need for new legislation or new regulations to the existing PR Law of 1987. based on the findings of a evaluation of the pilot phase to be carried out in Year 2 of the project. The advantage of a new law is that is would update out-dated technical standards in the existing law and legally validate the new parcel-based registry system, rendering obsolete the current system. Upon completion of the pilot evaluation, the component would expand beyond the first fifteen municipalitiesinto the six municipalitiesthat comprise the jurisdiction of Siguatepeque, Comayagua. Upon conclusion of these activities, the first department in the country would have been subject to a systematic legal cadastre and the two PR units in the Department of Comayagua would be providing the full range of services permitted under the law and its regulations.

22. Expansion of the component into new departments would be conditional on the implementation of the pilot evaluation, and subsequently, mid-term review recommendations, i.e. ensuring an adequate legal framework is in place. Work would begin in Olancho in Project Year 3 and Cort6s and Yoro in Project Year 4. Full implementation in Olancho would require 2.5 years and in Cortes and Yoro would require 2 years (assuming simultaneous implementation activities in the two departments). Annex B Page 7 of 10

23. Community Promotion. A key element in achieving the objectives set out would be the parallel implementation of community-level promotional campaigns designed to emphasize direct contact with the target populations. These would be started in advance of the arrival of field teams in each municipality. The campaign would give renewed emphasis to women's rights to receive title through INA. Before passage of the Agricultural Sector Modernization Law women faced clear discrimination in this regard. Given the historical practice during the Agrarian Reform and, through 1992, in the titling program, women had a much less than equal chance of obtaining title to land held by independent family farmers. Beginning with the pilot in Villa de San Antonio, it would become common practice for women to take part directly in the field work as promoters. Mechanisms would also be explored to encourage titling of holdings to couples, both of customary and formal marriages.

24. Juridical Cadastre. Unlike past efforts, no area or type of property would be excluded from the cadastre. The goal would be for all parcels defined on the cadastral map to have a corresponding entry in the PR. The results of the survey and legal investigation corresponding to each property would be systematicallyprepared in digital format for final approval by AFE- COHDEFOR, INA or the respective municipality;or would be used directly by the PR for the purpose of inscription in the new parcel-based system in the case that nothing more than the verification of previously adjudicated land was involved (for example, the case of a previously issued INA or municipal land title).

25. Land Adjudication. In many cases, the field teams would only have to verify the validity of legal data already on file and update the spatial data corresponding to the property. The records corresponding to landholders eligible for titling by INA would be separated from the data base generated during the field work and transmitted to the regional office of INA for final approval and authorization of title. The data bases maintained by INA would be updated during project implementation using the land information system. In urban areas, the cadastre would supply data in a similar fashion to the respective municipalities. A massive privatization program in the style of the rural land titling program is not contemplated. In cases where residents (vecinos) do not have documentary evidence of private ownership or rights of usufruct, the municipalitywould simply register the land in its favor and extend usufruct rights to the possessors. The documentary evidence attesting to one's rights over urban property may or may not be in the form of a deed and may or may not be registered. Apparently, the vast majority of residents in the small communities outside of the municipal center do not have a deed (escritura piTblica). They are much more likely to have a simple private document such as a receipt for payment for a transaction realized in the informal market This makes the participation of the assistant mayors (alcaldes auxiliares) important to the success of the project. In the case of national forest lands, information would be made availableto the AFE-COHDEFOR for subsequent negotiation of usufruct rights and management responsibilities within the context of GOH's policy for regularization of the traditional rights of forest occupants.

26. Territorial Commissions. The role of the Territorial Conmmissionsthat would be formed in each municipalitywhere the project would be implemented (see para. 18 (b) above) would be to help ensure that the population is adequately represented in the process of adjudication. The Commissionswould be informal bodies that could hold public hearings about the program, hear AnnexB Page 8 of 10 complaints, and help conflicting parties come to an extra-legal agreement on property claims and boundary issues.

27. Technical Aspects. The principal method for carrying out the cadastre would be a "medium-accuracy"GPS approach,although GPS units or other instrumentscapable of yielding more preciseresults wouldbe used in the principalurban areas (Comayagua,San Pedro Sula). In the past, the DEC and INA have employed a photogrammetric approach using orthophotomaps developed during the late 1970s and early 1980s. Graphical data identified in the orthophoto was then digitized into a mapping system dating from the early 1980s. This system is still being used along with the original orthophotomaps which are, of course, based on obsolete aerial photography (See Brooner, 1995, 1996).

28. Several factors relating to cost and institutional capacity affected the decision to avoid the use of digital orthophotos or photo-interpreted vector line maps such that it appears reasonable to use a more labor intensive and potentially time-consuming approach based on GPS and cadastral mapping software. The negative aspects of using GPS (without the aid of new aerial photography and digital orthophotomaps, as has been proposed elsewhere) are somewhat ameliorated by the existence of a significant store of cadastral maps generated over the past 15 years which would aid substantiallyin planning the field work. Secondly, since one of the principal goals is to facilitate adjudication in the very uncertain rural environment of Honduras, it would in any case be necessary for a field team to visit virtually every property. In this perspective, the time penalty of using GPS alone may not prove to be very substantial. Lastly, an approach based on GPS, digital mapping software, and standard relational data base technology stands a better chance of being well managed in the present institutional environment. This is especially true given the substantial reformsbeing contemplatedfor the DEC (started under the previousExecutive Director) and the PR. The technology required to produce digital orthophotomaps does not exist in Honduras and it would add an extra layer of complexity to attempt to acquire and maintain this capacity now. Nevertheless,an approachbased on digitalorthophotomaps should not be ruled out under more stable conditions or for limited purposes sub-contracted to the private sector, such as the eventual cadastral mapping of the Capital District.

MONITORINGAND EVALUATION

29. The receptivityof the intendedbeneficiaries of the project would be closelymonitored duringthe pilot phase. An analysiswould be madeof the real level of interest of small landholdersin acceptingtitle from INA (keepingin mind factors such as the lack of available credit and the perceived threat of higher taxes), the level of women's participation, and the real capacityof the municipalitiesto benefitfrom the inputs to be providedthem. 30. The complianceof each institutionwith the agreementsto be concludedbefore project implementationwould evaluatedfollowing the conclusionof activitiesin Villa de San Antonio, at least once duringthe next phase involvingthe other municipalitiesin the jurisdictionof Comayagua,and at the conclusionof the Pilot phase. Annex B Page 9 of 10

31. An evaluation of the technology (GPS/GIS) selected for the cadastral survey and information management requirements would be conducted immediately upon conclusion of activities in Villa de San Antonio.

32. The viability of the component depends on the legal validity of the proposed PR reform given that the PR is the principal mechanism to sustain long-term land information and legal property rights.

BENEFrISAND PROJECT SUSTAINABILITY

33. Benefits. The reform of the PR would provide a mechanism to preserve the value of the investment required to effect the cadastre and land adjudication process. In addition, several other benefits should be obtained over the long term: (a) fulfillment of the basic purpose of the PR (i.e. provision of legal security to landholders); (b) transparency in land markets; (c) provision of the basic inputs required by municipalitiesto carry out town planning and implement fiscal policy; (d) contribution to the efforts of AFE-COHDEFOR and the municipalitiesto control access to and use of public forest areas; (e) provision of physical security for the PR data base by using digital media and multiple back-ups; (f) provision of vastly improved services to the public, including the potential for remote access to the PR data base.

34. Project Sustainability. Failure to implementthefolio real throughout the country would result in two non-compatible systems (current and new) being in effect. To manage this risk, the project would assist in seeking new financing to complete the cadastre and the transition to a new PR in the rest of the country. The funds necessary to extend coverage nationally would be negotiated as early as possible so that the time during which two systems exist in parallel (though in distinct parts of the country) is minimized. A plan of action for three distinct zones would be drawn up: (a) Northern Region: Atlantida, Col6n and Gracias a Dios; (b) Central and Southern Region: Francisco. Morazan, Choluteca, Valle and El Paraiso; and (c) Western Region: La Paz, Intibuca, Lempira, Santa Barbara, Ocotepeque, and Copan.

35. Given the limits on the national budget likely to be in effect well into the future, the financial sustainabilityof the proposed parcel-based system is an issue. To overcome this problem, the PR would be given budgetary autonomy and permitted to set reasonable charges for services. Presently, for example, the charge for obtaining a "certificaci6n integra", which may take more than a full day to compile manually, is equal to US$0.20. Moreover, the rate of transactions captured by the system is very low. Statistics for the Department of Comayagua provided by the local Registrar and the Director of the Municipal Cadastre demonstrate this fact, as do previous studies conducted by USAID covering other registry units. For the PR to be able to cover its own costs, including system maintenance and equipment depreciation, several factors would come into play. First, the pool of users would vastly increase as a result of the cadastre and adjudication process. Secondly, the productivity of the PR would be improved dramatically on the basis of the folio real and the appropriate use of computer technology. Thirdly, the tariffs for registry services would be brought into line with real costs without being made so excessive as to discourage use of the system. The most widely used services could be made free of charge (consultations) or priced at a very low rate (certifications); while the formation of new properties, purchase-sale agreements, debts, and other transactions could be charged at a higher rate. The Annex B Page 10of 10 possibilityof allowing remote access and the provision of consolidated data, including cadastral maps to institutions and municipal governments would also offset costs of operation. A separate annex presents an illustrative example of the budgetary requirements and potential revenues of a typical registry unit. Under reasonable assumptions, it appears that even the minimum registry unit can be viable.

36. The major disincentive to the participation of rural landholders is that all public rural property eligible for titling must be mortgaged to the possessor at the so-called cadastral value. This practice is mandated by the Agrarian Reform Law. Although INA offers the possibility of an interest free 20-year term of payment, there would likely be a significant group of smaliholders who would reject participation for this reason. That is to say, there are many smallholders for whom any cash outlay, without immediately evident benefit, would appear irrational. In addition, INA has established the practice of charging administrative costs to landholders who participate in the titling program. (Presently, the rate is 75 lempiras - approximately US$7.00 - per hectare.) This practice is not mandated by law and would be abandoned in the framework of the present component. Annex C Page 1 of 15

HONDuRAS RURAL LAND MANAGEMENTPROJECT

FOREST MANAGEMENTSUB-COMPONENT

OBJECTIVES

1. The objectives of the Forest Management Sub-component would be to:

(a) place under management priority areas of national, ejido, and communal forests, including support to defining the legal limits of public forest lands;

(b) promote the participation of local governments and rural communities in the management and protection of the national and ejido forests;

(c) implement AFE-COHDEFOR's' decentralization plan (agreed with IDA under the AGSAC) and develop their operational capacity as a decentralized agency; and

(d) promote forest planning and management among private forest owners.

MAIN ACTMTIES

2. To achieve these objectives the sub-component would target resources to: (a) institutional development, especially strengthening the capacity of AFE-COHDEFOR at the local level to manage national forests and respond to community needs; and (b) sustainable forest resources management, especially building the capacity of local groups and municipalitiesto manage forest resources and supporting applied research in natural forest management. These activities would be executed in stages, and they would build on experiences of a number of pilot projects already carried out in Honduras (financed inter alia by CIDA, USAID, GTZ, FINNIDA, World Wildlife Fund, UJNDPand Norwegian aid) The proposed project would aim to cover eleven forest management blocks (unidades de gesti6n) and 22 priority micro-watersheds within the forest units. It is expected that the management activities in these forest areas would provide lessons on expanding the pilot experience to larger areas within the policy guidelines of the AML. The project experience should in turn influence other donor-assisted initiatives in adjacent forests and foster more consistency in AFE-COHDEFOR's overall program of decentralization.

3. Institutional Development. In accordance with agreements reached under AGSAC, the project would finance the decentralization of AFE-COHDEFOR functions to the regions and field units. This would include: (a) establishment of an in-house training program for AFE- COHDEFOR staff in natural forest management and administration; (b) logistical support to field units and regional offices in the form of standardized equipment packages; (c) information systems to allow for effective decision making and monitoring of natural resources; and

I - AgenciaForestal Del Estado- Corporadi6nHondurefio para el DesarrolloForestal Annex C Page 2 of 15

(d) technical assistance, related to project implementation and specific critical subjects related to natural forest management. Priority areas for technical assistance would include: upgrading administrative systems and procedures (e.g., personnel, budgeting, supervision, development of operational manuals); usufruct/tenure options and instruments for regularizing rights of forest occupants and operating a social forestry program; cost/benefit analysis and recommendations for modifyingforest charges and regulatory costs; development of technical norms and regulations; and implementing an improved environmental system of private and ejido forest regulation for bureaucratic efficiency and reasonable control.

4. Sustainable Forest Resources Management. The project would support AFE- COHDEFOR and local communities in forest tenure, regulation and forest management. The following main areas of assistance would be included: (a) forest tenure and usufruct (clarification of location and status of national forests and their occupants); (b) forest planning for protection and management; (c) forest inventory; (d) promotion, participation and public consultation; (e) forest management; and (f) forest research.

BACKGROUNDAND JUSTIFICATION

5. Forests and Deforestation. Estimates of forest cover in Honduras range between 48 percent and 58 percent 2 of the country's total area, making it roughly second (to Nicaragua) in terms of forest area and percentage forest cover in Central America. Almost 25 percent of the remaining forest cover of Central America is found in Honduras. Forest types are about evenly divided between broadleaf forests and coniferous forests. Broadleaf forests include a wide mix of forest types ranging from lowland tropical rain forests to montane wet forests. Of the broadleaf forests, lowland tropical forests are the most extensive, probably representing 50 percent of the total. Reliable estimates on the annual rates of deforestation do not exist; the figure most commonly quoted is 80.000 ha/yr (low estimate of 62,000 ha/yr) -- the overwhelming majority of which is occurring in the broadleaf forest zones. The main causes of the deforestation are thought to be the expansion of subsistence agriculture and cattle ranching in the lowland tropical forest zones. In the coniferous forests degradation, not deforestation, is the process of interest. Degradation of the pine forests is thought to be caused primarily by over-exploitation of timber, high incidence of forest fires, over-grazing of livestock and unmanaged firewood collection. No reliable estimates of the size of this latter problem exist.

6. Forest Sector Contribution to Economy. The relative contribution of the forest sector to the Honduran economy has declined steadily during the last 15 years. In absolute terms, however, the value of the production has remained almost unchanged. In the period between 1975 and 1992 the contribution of forestry to agricultural sector GNP shrank from 14.6 percent to 8.6 percent. During the same period the contribution of the forest industry to the industrial GNP

2 - The latest estimateis from 1990 (COBDEFORIGTZ)which concludedthat a total of 5.7 million has of forest existed;2.9 million ha of broadleafforest, 2.8 millionha of pine, and 0.052million ha of mangroves. Shoulddeforestation estimates be correctthat would imply a 1996forest area on the order of 5.2 million ha. Annex C Page 3 of 15 shrank from 10.9 percent to 5.8 percent. Between 1980 and 1993, the annual volume of round wood extracted by the forest industry was reduced by more than 60 percent to 0.9 million m3/yr.3

7. The potential, however, to increase the economic and employment contribution of the sector is considered significant. With the reforms under the Agricultural Modernization Law (AML, 1992), macro-conditions exist which increase the potential forestry sector growth. Among the most important reforms of the AML are: (a) changing the public sector role in national forest lands from direct intervention in the marketing and harvesting of timber to one of ensuring and promoting adequate forest management and providing oversight and regulation of forest management activities; (b) returning state ownership of timber on private and ejido lands to the legal landholders; and (c) requiring timber from public lands to be sold at auction. These actions have, inter alia, induced increases in timber prices, so that they are now close to international market prices.

8. The year the AML went into effect, the sector's contribution to the GNP increased by 5.6 percent. The following year (1993), there were no increases in GNP contribution due to a declining trend in wood supplied for industrial use. This downward trend continues, complicated by problems with the operation of the system of public timber auctions, by conflicts between forest industries and the AFE-COHDEFOR over access to forest resources, and between the AFE-COHDEFOR and local communities or groups over land tenure and the distribution of benefits from commercial harvesting. Nevertheless, sustainable production of raw materials (timber and non-timber), silviculturalactivities and forest products-based processing (industrial and artisanal) are considered to have significant potential for expansion. At the same time, it should be noted that the extent to which expansion might be possible within a framework of sustainable forest management 4 is not yet clear

9. Forest Management. Almost no Honduran forests can be said presently to be under management. Nor is it likely that significant areas of forest could be brought under management without the removal of several fundamental obstacles. The AGSAC has contributed to removing two such obstacles through support of the AMIL's (return of forest ownership in private and ejido lands to land owners and the municipalities;and policies which increased timber values to a level equivalent with world market prices). The main obstacles remaining are those related to: (a) tenure conflicts in public forests - lack of definition of the legal limits of national forest lands and of the rights of national forest land occupants; (b) a distribution of benefits from national forests which provides little or no incentive for adjacent communities' involvement in management and conservation of the resource; and (c) technical and institutional inadequacies making for ineffective promotion of conservation and rational management -- including the lack of

3 - The annual volumeof timber accountedfor by illegal loggingis not includedin this estimateas no acceptableestimates exist; however,based on anecdotalevidence, illegal loggingaccounts for a large percentageof all timber harvesting. An estimateof total volumeharvested which includedillegal volumescould be anywherefrom 30%to over 100 percenthigher. In addition,the apparentcontradiction between the value of productionremaining unchanged and diminishingvolume is explainedby rising timberprices. Between 1991 and 1996 pine timberprices rose in real terms by more than 300 percent.

4- Looselydefined as forest exploitationthat providesa regularyield of forest productswithout destroyingor radicaly altering the compositionand structure of the forest as a whole. Annex C Page 4 of 15 adequate control of illegal logging, forest fire, and expansion of agriculture and illegal settlements into national forests.

10. Several current activities under the implementationin the AGSAC are providing general support to improving the macro-conditions for forest management. These include: (a) land use capability classification to identify lands best suited for forest uses; (b) identification and establishment of forest management units in national forests; and (c) development of forest management plans in priority areas of national forests and protected areas. These initiatives are being carried out by the AFE-COHDEFOR with support from several bilateral donors. GOH receives significant technical and financial assistance in the forestry sector from bilateral and other donors. Almost all aspects of forestry (policy, institutional, forest management, and research) have received and continue receiving attention, i.e., in forest management by CIDA, USAID, GTZ, Holland and FINNIDA; in protected areas by CIDA, USAID, GTZ, the Netherlands, and World Wildlife Fund; in social forestry by CIDA, GTZ, Norway, and UNDP. During the period between 1988 and 1997 a total of US$63.7 million of grant funds were programmed for the Honduran forestry sector (AFE-COHDEFOR, 12/95).

11. The USAID-financed Proyecto de Desarrollo Forestal (PDF - 1988 to present), FINNIDA- financed Centro de Manejo, Aprovechamiento y Pequefia Industria Forestal (CEMAPIF - 1992 to present) and CIDA-financed Proyecto de Desarrollo del Bosque Latifoliado (PDBL - 1988 to present) provide the current technical and experiential basis for expanding forest management in Honduras. The projects are concerned with:

PDF - management planning and implementation, and sustained yield harvesting for large scale-pine forest management on public lands

CEMAPIF - development and implementation of a forest management planning methodology for smaller scale, more detailed operational planning in pine management units of any size up to about 10,000 hectares, and training courses for professional foresters in the use of the methodology. The CEMAPIF model is now the official AFE-COHDEFOR methodology for pine forests.

PDBL - focuses on community-scale management of tropical, moist broadleaf forests and the development of management planning and sustainable harvesting systems. The project, which is still in the development and verification stages, has and continues to make good progress.

12. All of these (and other donor) efforts provide an extremely solid base for advancing forest management in Honduras. While there are many gaps left to fill, they do provide sufficient experience, structure and direction to begin the long process of improving management of the nations forests. A number of donors continue to finance activities aimed at improving the current models for forest management (e.g., FINNIDA, GTZ). The current challenge for the AFE- COHDEFOR is to internalize the current level of understanding and begin replicating these experiences. Annex C Page 5 of 15

13. In the next few years the most important areas requiring attention will be: (a) ensuring an appropriate balance between timber harvesting and conservation on a landscape and forest management unit scale; (b) integrating the planning objectives and data collection activities (types, scales, sampling intensities) between the various planning levels 5 in order to avoid duplication and unnecessary waste of resources on overly detailed sampling and planning; (c) reducing unnecessary and unproductive administrative and regulatory costs which work as disincentives to public and private forest management; (d) implementing a timber auction system which provides a firm timber supply to industry while ensuring equitable access to raw materials to small-scale and artisanal producers; and (e) developing financiallyviable and environmentallyacceptable management options in tropical, moist broadleaf forests.

14. Institutional Aspects. Most donor initiatives have been implemented through independent project mechanisms which set them up as administratively and functionally separate activities from the AFE-COHDEFOR. Thus overall impact on the institution's capacity to sustain management activities has been minimized. Recently, as projects are been winding down (US AID), moving into new phases Canada, or as some new projects have begun (GTZ' s forest management program in Gualaco), there has been an increasing trend to attempt to integrate the projects into the workings of the AFE-COHDEFOR. Many of the key personnel and technicians from these donor-financed initiatives have also transferred back into the AFE-COHDEFOR.

15. As an institution in transition from its previous role as a state corporation for forest exploitation to a state institution for forest management, the AFE-COHDEFOR can be considered relatively new. During the last three years the agency has down-sized from over 1,200 staff to a about 760 and re-structured its staff from 60/40 percent administrative/technicalto 60/40 technical/administrative. At the same time, it has been defining itself operationally by establishing forest management units (FMU) and delegating annual planning and execution responsibilities to the forest region and FMU levels. Serious attempts have also been made to complete forest management plans in priority FMUs, to consult with municipal governments and involve community groups in forest management, and to change the bankrupt public image of the old COHDEFOR. The institution, however, still faces a number of major challenges. Among the more serious are:

(a) its over-large and unfocused institutional mandate - by law the AFE-COHDEFOR is charged with oversight, regulation and management of almost 90 percent of the nations land area, which includes forest and non-forest areas and public and private lands.

5- Currentmethodology includes 3 level of planning - master planningfor the FMU (longterm), managementplanning for the individualforest stands or blocksidentified in the master plan (mediumterm), and annual operationalplanning for executionof managementactivities within blocks (short terrn). Annex C Page 6 of 15

(b) budgetary process requiring the AFE-COHDEFOR to generate its own income to cover both overhead and operating expenses and which oblige the agency to focus on economic and regulatory 6 aspects of forestry to the detriment of broader resource management and protection roles;

(c) lack of internal transparency and accountability resulting in part from: (i) job descriptions and lines of authority being unclear; (ii) high turnover rates in managerial positions resulting in unstable work priorities and objectives; and (iii) a lack of a functioning personnel system to reward and punish performance diluting accountability;

(d) over-centralization of budgetary and decision-making functions resulting in extreme bureaucratic delays and loss of initiative at field level;

(e) low salaries making it difficult for good and motivated people to maintain themselves in the institution;

(f) lack of a functioning information system (collection, analysis, presentation, storage and retrieval) leaving uncertainty over: (i) location, extent and tenure of forests; (ii) forest resource trends and forest utilization; and (iii) disposition of institutional resources to respond to identified management needs.

PROJECT AREA

16. Implementation would be phased over three years within eleven priority forest management units (FMU) located in the Departments of Olancho, Francisco Morazan and Yoro (Table 1). These units make up a reasonably compact, contiguous zone of forest lands in the north-central area of the country. Due to the extensive forest resources remaining in them (for the most part pine forest, with some zones of broadleaf forest in and Culmi), these FMUs are of great importance to local peoples and economies. This is reflected by the number of campesino forestry groups that exist in the project departments. Based on a 1988 census of agro-forestry cooperatives in the country, 55 percent of the groups and 75 percent of total membership were in the projects departments. The extensive pine forests in the project areas are also of great interest and potential to the national economy.

17. The basic criteria for definition of FMUs is the extent and continuity of forest cover, tenure (public or private) and land area; FMUs are further sub-categorized (as Type 1, 2 or 3) depending on the extent and condition of the forests within the unit. Type 1 units are those with the greatest extensions of intact, contiguous national forest and constitute the top priority areas for forest management. The organizing and definition of the FMUs (which is still on-going) is consistent

6 In additionto stumpagefees, the AFE-COHDEFORhas put in place an admniistrative/servicecharges to defrayoverhead expenses. Under the currentlaws whichrequire all proceedsfrom sales of public goodsto be turned over to the Treasury,the handlingof these monies and levyingof chargesare of dubiouslegality. Theyalso raise the question of their creating disincentiveto forestmanagement.. .for which there is evidence. Annex C Page 7 of 15 with priorities developed under the AGSAC. A total of ten FMUs of Type 1 have been identified, five of which are receiving support from other donors. The project would begin, inter alia, implementing forest management plans in the remaining five priority FMUs in year 1 of the project (Phase I). Based on the pilot evaluation scheduled for Year 2 of the Project, implementation of forest management plans would begin in six priority Type 2 FMUs (Phase II). In the first two years of the project only support for management planning and training-related activities would be provided to these latter six units.

Table 1. Geographic Coverage.

FOREST FOREST AREA TOTALAREA MANAGEMENTUNIT DEPARTMENT (HA.) (HA.) PHASEI I San Esteban Olancho 239,121 Yoro Yoro 217,909 Agua Fria Yoro 82,900 Jocon Yoro 41,816 Olanchito Atlantida _ 205,220 PHASE Il Morazan2 Yoro 157,600 Catacamas Olancho 157,600 Culmi Olancho 157,600 Guaimaca Fco. Morazan 123,888 El Porvenir Fco. Morazan 105,000 Talanga Fco. Morazan 52,970 I TOTAL 546,7003 02

' The FMU "Olanchito" is in the Department of Atlantida, but administratively is attached to the Yoro Forestry Region.

2 As yet no useful (though several conflicting) estimates exist of the total areas of the Moraza.n, Catacamas, and Culmi FMUs; "project average" sizes were assigned for purposes of preparation. Somewhat reliable estimates of forest area are available only for San Esteban, Yoro, Agua Fria, Joc6n, Olanchito, and Talanga. Total forest area was estimated based on mean percentage forest cover from known areas.

18. From a biodiversity perspective the montane tropical, moist broadleaf forests in the project area are considered to be bio-regionally outstanding and of high conservation priority on a regional scale; the lowland tropical, moist broadleaf forests and the mixed pine-oak forests are considered to be bio-regionally outstanding and of moderate conservation priority on a regional Annex C Page 8 of 15 scale.7 Within the project area, the former types of forests are found primarily within the protected areas system (some remnants might exist outside of the system in private lands) and the latter types are found to a lesser extent both within and outside of the protected area system. In broadleaf forest (both tropical and upland) AFE-COHDEFOR management objectives are primarily conservation-related; where harvesting is permitted it is on a small-scale (non- industrial), selective cut basis.

19. As with most of the extensive areas of public forest lands which remain in Central America, the project area lies both near and within the most active zones of in-migration of poor families (in search of agricultural lands) and of the expansion of livestock. According to various sources, almost 75 percent of the deforestation between 1962 and 1990 took place within the region containing the project areas and, almost one-half (48 percent) of the new pasture areas opened between 1974 and 1993 were in one of the three project departments (Olancho). 8

PROJECTDESCRIPTION

20. The sub-component would finance: (a) institutional strengthening; and (b) sustainable forest management. Base costs would be US$10.96 million.

21. Institutional Strengthening The direct beneficiarywould be the AFE-COHDEFOR. The main activities would be:

(a) Training - focused on topics important to natural forest management and necessary skills for the execution of work programs. A total of 12.6 staff years of formal training would be provided to 82 persons (33 at FMUs, 24 at Regions, and 25 at HQ) in four subject areas: technical aspects of forest management (4.5 person years); administration and management (4.2 person years); communications and extension (3.1 person years); and forest research (0.8 person years). An additional 2.5 person years of advanced training for information system management and maintenance would be provided to six persons, and financial resources for one staff year of in- service training on-site at the FMUs, thirty national and regional-level workshops, attendance at fifteen regional and international seminars and workshops, and for training materials and publications.

(b) Logistic and Operational Support - providing the minimum requirement of vehicles and equipment to the project's eleven FMUs and three regional offices in order that staff might perform their duties in forest management. Provision of equipment and materials would be based on a standardized package of office equipment (furniture, computer, printer, photocopier), and field equipment (truck radios, mensuration

After Dinerstein et al 1995. A Conservation Assessment of the Terrestrial Ecoregions ofLatin America and the Caribbean. World Bank, Washington, DC s Deforestation figures from Honduras - Forest SectorAnalysis (GTZ, 1994); figures on new pasture from data in Sunderlin and Rodriguez. 1996. Ganaderia, bosques latifoliados y Ley de Modernizaci6n Agricola en Honduras (CIFOR). Annex C Page 9 of 15

equipment, forest fire fighting gear) to each of the FMUs and vehicles (4x4 double cab pickups and motorcycles) to the FMUs and Regional offices. A small budget for office rehabilitation would be provided to each FMU. At the central level a minimum package would be provided for project supervision and administration consisting of office supplies and three vehicles -- one each to the Depts. of Forest Management, Norms and Control, and Planning (the latter as the implementation coordinator). All costs for maintenance (vehicle, office and equipment), office supplies and per diems for FMU and regional personnel (fifteen days/pp/yr) and national personnel (100 days/department/yr for Forest Management, Extension, and Project Coordination and 265 days/year for supervision by Norms and Control) are included.

(c) Information Systems - this activity would support the development of information systems for monitoring forestry resources and the forest sector. Two information systems would be put in place: a forest information system (US$0.69 million) and forestry statistics information system (US$0.145 million). The forest information system would build on the existing system, AFE-COHDEFOR Geographic Information System (GIS) established in a German funded forest information project and develop it into a central data bank for the storage, analysis and presentation of basic forest resource and inventory data, monitoring data (e.g., forest fire), forest management plans and forest management activities. The investment would provide equipment and software, develop and institutionalize data collection and entry systems, and pilot conversion of management and inventory data into digital formats in the three involved regional offices. About one third of investment costs would be for purchase of aerial photography and image analysis. The investment in a forestry statistics system would provide a small amount of office equipment and software, with the majority of investment resources directed toward developing and institutionalizing data collection, entry and presentation (dissemination, publications). Costs for office supplies and maintenance of equipment are included in both information system investments.

(d) Technical Assistance- Table 2 provides a summary of the technical assistance to be provided. Priority areas for technical assistance are those related to: (i) upgrading administrative systems and procedures (e.g., personnel, budgeting, supervision, development of operational manuals); (ii) integration of environmental impact assessments and follow-up into regional and FMU forest management planning and implementation; (iii) operational alternatives and usufruct/ten instruments for the regularization of the rights of forest occupants and for the Social Forestry program; (iv) community participation and public consultation; (v) cost/benefit analysis and recommendation development for improving the current forest charges and regulatory costs framework to make forest management more competitive with alternative land uses (e.g., livestock); (vi) development and application of technical norms and regulations which provide adequate resource protection without creating disincentives to forest management; and (vii) refining and implementing an improved system of environmental forest regulation in private and ejido forests, which is both bureaucratically efficient and provides a reasonable level of control. Annex C Page 10 of 15

Table 2. Technical Assistance Requirements for Institutional Strengthening

CONSULTANTMONTHS CONSULTANCY NATIONAL INTERNATIONAL Administrativesystems and procedures 30 16 .....Forestr ...... information...... system ...... 40 ...... l ForForexte*~nsion et! ~ and communicationsy3xesinado0 1 c.t.ios...... 2...... l. Enviromnentalimpact assessmentand 9 3

...... l Biolo,gist...... 9I9...... l ...... I...... Communityparticipation and public 8 ...... Fo srestatitic.8 I...... 8l Public forest~~~~~~~~~~~~~~~~~~~~~~~~~~~...... lands catalogue 6 2l ...... Regu.atory.disincentives ...... 6I l Training.6 Legal 3 Total 181 31

22. Sustainable Forest Management. The direct beneficiaries of the sustainable management of forest resources activities would be the AFE-COHDEFOR and, in the project areas, the involved municipalities,rural communities,local groups (e.g. agro-forestry cooperatives), forest occupants and forest and timber industry. The objectives of the proposed activities are, in eleven priority FMUs, to: (a) identify and demarcate the legal limits of national forest lands; (b) initiate and support the process of regularization of traditional rights of forest occupants in national forest lands; (c) involve affected groups, communities, municipalitiesand private business in the management planning process and in the management of forests resources; (d) initiate the implementation of the forest management plans through a decentralized AFE-COHDEFOR in cooperation with relevant local actors; (e) increase the level of protection and productivity of the forests through implementation of silviculturalactivities (in production areas), control of forest fires and increased forest vigilance; (f) improve the quality of the life of poor occupants and users of public forests (national and ejido) by involving them in forest resource management activities and direct benefit sharing; and (g) establish a stable flow of forest products (primarily timber) from managed areas of pine production forest which is accessible by both small and large processors.

23. The main activities in this area would be:

(a) Forest Tenure and Usufruct. The objective would be to clarify the location and status (legal and customary usage) of national forest lands and their occupants. Annex C Page 11 of 15

Investments would consist of: (i) mounting and maintaining a permanent database (Catailogode Patrimonio Forestal Inalienable) of all legal information on the official limits of national forest lands, holdings and tenure status (forest and land); (ii) a census of national forests occupants (eleven FMUs) plus participatory rural diagnostics to verify census accuracy and identify length of occupancy, traditional uses and perceptions of rights held by forest occupants; (iii) regularization of the traditional rights of occupants of national forest lands, including mechanisms for negotiation and conflict resolution; and (iv) delimitation and demarcation of 1,400 km of national forest boundaries.

(b) Forest Planning. The project would finance planning for forest protection and management within the 11 project FMUs, including: (i) environmental impact assessments and protection plans for approximately 545,000 ha; and (ii) silvicultural treatment plans for approximately 120,000 ha.

(c) Forest Inventory. In production pine forests, the project would finance: (i) FMU- level forest inventories for approximately 300,000 ha; (ii) stand-level inventories for approximately 150,000 ha; and (iii) annual operating plan inventory and marking activities (for silviculturaltreatments and harvesting) for approximately 150,000 ha.

(d) Promotion, Participation, and Public Consultation. The project would aim for transparency in state decision-making regarding public forest lands. Investments for this purpose would consist of: (i) dissemination of information on public forest management objectives, plans and activities in public forests; (ii) public seminars (85 total) on topics of importance to communities, municipalities,industry and private forest owners regarding legal, environmental, social and technical aspects of forest resources management; (iii) public awareness campaigns on forest fire, illegal logging and private forest management options; (iv) municipal-levelpublic consultations (25 total) on forest management plans; and (v) community-level public consultations (60 total) on forest management plans and annual operating plans.

(e) Forest Management. The project would finance: (i) forest fire control (including a system of fire watch towers) for approximately 545,000 ha; (ii) forest vigilance for approximately 545,000 ha; (iii) silviculturaltreatments for approximately 120,000 ha; (iv) implementation of timber auction plans for approximately 30,000 ha; (v) implementation of protection plans in 7 protected areas; and (vi) forest road improvements/rehabilitation on 45 km of forest roads.

(f) Forest Research would include data collection, analysis and presentation of findings from permanent sample plots in support of upgrading technical prescriptions for sustainable harvesting of forest products. Annex C Page 12 of 15

INSTITUTIONALARRANGEMENTS

24. The Secretariat of Agriculture and Livestock (SAG), through the Project Coordinating Unit (PCU), would be responsible for ensuring that the implementation and expenditures under the sub-component were consistent with the IDA credit agreement. Details of the PCU and AFE- COHDEFOR responsibilities are contained in Project Operations Manual (Manual de Operaciones para la Ejecuci6n del Proyecto de Administracion de Areas Rurales) which can be found in the project files (Annex I). A Subsidiary Agreement would be signed prior to credit effectiveness between SAF and AFE-COHDEFOR regarding the respective roles and responsibilities of these two entities. A description of PCU responsibilities are contained in the main text (para. 3.2).

25. The AFE-COHDEFOR would be responsible for the following:

(a) Overall Implementation - The Manager of AFE-COHDEFOR would be responsible for all aspects of project implementation. The Department of Planning within AFE- COHDEFOR would be responsible for coordination of project activities and would act as the PCU counterpart. This Department would operate under similar terms of reference to those of the PCU (e.g., review budgetary plans, monitor budgetary resources, supervise disbursement, procurement of goods and services, and audits, etc.) in fulfillingIDA and credit agreement requirements.

(b) Training - the Department of Promotion and Extension (DP&E) is responsible for the institution's overall training program. DP&E would be responsible for developing terms of reference for technical assistance in finalizing the training program and for supervising it. DP&E would coordinate with the other concerned departments in identifying priorities and content of the training program. The Regional Offices would be responsible, in conjunction with DP&E, for scheduling training activities and ensuring the participation of regional personnel.

(c) Logistical and Operational Support - the Department of Planning (DP) would be responsible for procuring goods and services to be obtained through local competitive bidding or local shopping. DP would be responsible for ensuring that all procured goods were assigned to the units for which they were intended and properly maintained (including the keeping of trip logs for all project vehicles). DP would be responsible for assigning adequate budgetary resources for per diems, office supplies, equipment maintenance and forest management activities through the annual budgeting process. Regional offices would be responsible for ensuring the appropriate use and maintenance of all project procured vehicles and equipment.

(d) Information Systems - the final institutional location of the Information Systems in AFE-COHDEFOR is still in doubt. Until this issue is resolved, no disbursements would be made for the implementationof these systems. In the implementation plan no activities are scheduled until Year 2, other than upgrading the offices in which the system will be physically located (for which the DP would be responsible). The Department ultimately charged with responsibilityfor operating the system would also Annex C Page 13 of 15

be responsible for implementing the activities -- developing terms of reference, hiring of consultants, etc. All procurement of goods would be through the DP or the PCU (depending on procurement type and amounts). The Regional Offices would be responsible for integrating into the FMU and Regional work programs the required data collection activities. In addition, they would be responsible for quality control and supervision of data collection and ensuring its timely transmittal to the implementing Department.

(e) Technical Assistance - the DP would have overall responsibility for assigning the technical assistance budget and contracting consultants. In the case of individual consultants, the concerned Departments would develop terms of reference, participate with the DP in consultant selection and would supervise consultant work, and final acceptance of outputs. The DP would review terms of reference and ensure their consistency with legal agreements and project objectives. For technical assistance which deals with institution-wide issues and policies (i.e. administrative systems and procedures, forest tenure and usufruct, and community participation and public consultation), the DP would be responsible for coordinating and integrating the technical assistance outputs with all relevant departments.

(f) Forest Tenure and Usufruct - the office of the Catilogo de Patrimonio Forestal Inalienable (CDPFI - with the Legal Office, attached to the Office of the Manager of the AFE-COHDEFOR) would be responsible for seeing that all legal definition of national forest lands stemming from (DEC) national forest delimitation activities and the forest management planning process are entered into and accessible from the Infornation System. The CDPFI would also be responsible for ensuring legality and quality of delimitation activities; they would develop termnsof reference and agreements with the DEC over the actual implementation of delimitation activities. Subsequently, Regional Offices would be responsible for seeing that the legal boundaries are physically demarcated. All other activities related to contracting of the census of forest occupants, participatory diagnostics, and related technical assistance inputs (e.g., on forest tenure and usufruct) would be the responsibility of the DP in coordination with the Department of Norms and Control (DN&C). Supervision of the implementation of the consultancies and follow up would be through the DN&C, who would also ensure that the information generated was provided to the CDPFI for inclusion in the database. The Regional Office's social promoters would participate directly in all census and diagnostics and would be the counterparts of consultants working on forest tenure and usufruct issues.

(g) Forest Planning, Inventory, and Management - the Department of Forest Management (DFM) has overall responsibilityfor the implementation of all these activities. They would be responsible for reviewing and approving all annual work plans developed by the Regional Offices and supervising their implementation. The DN&C would be responsible for environmental impact assessment and for ensuring that its outputs were integrated into the forest management plans; they would also serve an independent audit function to monitor compliance with all relevant technical and Annex C Page 14 of 15

environmental norms as well as general compliance with the management planning framework. The Regional Offices would be responsible for overall quality control and supervision of implementation activities and contracts at the FMUs. They would: (i) develop the annual work plans and budgets for the region; (ii) be responsible for preparing terms of reference, contracting and implementing stand-level and annual operating plans and silvicultural treatment contracts up to a ceiling of US$20,000 9; (iii) implementation of forest fire protection, forest vigilance and timber auction plans; (iv) supervision and reporting; (v) development and approval of the FMU work programs; (vi) fulfilling all reporting requirements both for the functioning of the forestry information and statistics system as well as for meeting project supervision requirements; (vii) coordinating with the relevant central departments in developing terms of reference and supervising contracts for activities which exceed their budgetary ceiling; (viii) coordinating with the relevant central departments in implementing environmental assessments and forest master plans. The Forest Management Unit personnel would be responsible for developing annual work plans for submission to the Regional offices. FMU personnel would participate in and supervise all activities and contracts for forest management planning, implementation, and data collection. The FMU would also fulfill reporting requirements both for the functioning of the forestry information and statistics system as well as for meeting project supervision requirements.

(h) Participation, Promotion and Public Consultation - The DFM would be responsible for ensuring that overall implementation of these activities took place as an integral, and required, part of the Forest Management planning and implementation process. Implementation would be the responsibilityof the DP&E through the social promoters at the Regional Offices for participation/public consultation, and the central office for public information campaigns (e.g. forest management for private forest owners, forest fire, etc.). The Regional Offices would be responsible for organizing and implementing municipal and community-levelparticipation and consultation process in planning and implementation activities with the participation of central DP&E personnel.

(i) Research - the DFM, as the Department responsible for the permanent sample plot system, would be responsible for the implementation of these activities.

See Fund For Upland Producer's, Institutional Arrangements, Paras 20, 29ifor role of AFE- COHDEFOR in promotion and supervision of municipal and community forest resource management activities.

FINANcING

26. The World Bank would finance works, goods, consultant services, and training as specified in the Development Credit Agreement. The Secretariat of Agriculture and Livestock (SAG) and the

9 At mid-tennreview all assignedresponsibilities will be assessed and budgetaryceilings and responsibilitiesadjusted as necessary. Annex C Page 15 of 15

AFE-COHDEFOR will be responsible to maintain the budget for all recurrent and operating costs after the end of the project period.

IMPLEMENTATIONPLAN

27. The sub-component would be executed in two phases. In the first phase, investments in actual forest management activities would be excluded in the six Type 2 FMUs; forest management activities would only be financed in the five Type 1 FMUs. All other investment activities (e.g., institutional strengthening, forest inventory, planning, etc.) would be carried out in all 11 FMUs, 3 Regional Offices, and at the central level. Phase 2 of the project would begin after the pilot evaluation (Year 2). Conditioned on status of implementation in Phase 1, investment in forest management activities would be extended into the remaining six Type 2 FMUs. Progress would be again evaluated at the time of the mid-term review and continued disbursements against this sub-component conditioned on the implementation of the critical actions indicated in the joint action plan resulting from that review.

28. During Phase 1:

(a) first priority would be given to: (i) project coordination; (ii) developing terms of reference and initiating technical assistance in key thematic areas (administrative systems and procedures, environmental impact assessment and monitoring, forest tenure and usufruct, forestry extension and communications, training, and community participation and public consultation); (iii) training; (iv) census of forest occupants and participatory diagnostics; (v) establishment of the Catalogo de Patromonio Forestal in the first year of the project; (vi) public consultations and participatory planning; and (vii) procurement of vehicles and equipment for Regional Offices and FMUs;

(b) second priority would be given: (i) developing terms of reference and starting technical assistance in the remaining thematic areas; and (ii) forest inventories and planning;

(c) third priority would be given to: (i) executing forest management plans; (ii) research; and (iii) information systems.

29. In each FMU the logical sequence for forest management would consist of: (a) clarifying the situation on forest tenure, traditional rights of forest occupants and initial consultation with affected groups; (b) forest planning including participation and consultation with relevant local actors; and (c) forest management. Annex D Page 1 of 13

HONDURAS

RURAL LAND MANAGEMENT PROJECT

UPLAND PRODUCERS FUND

INTRODUCTION

I. The Upland Producers' Fund objectives would be: (a) to reduce the environmental degradation of forest and soil resources in upland areas; (b) to improve the incomes and well- being of poor, upland farming households; and (c) to establish a long-term financing mechanism through which GOH can channel resources for extension and training assistance to such households. To meet these objectives, it would finance: technical assistance and training for upland farmers and to Municipalities; applied research in support of agriculture, livestock and natural forest management for upland areas; and training of natural resources professionals who provide technical services to upland farmers.

2. The fund is justified because of the lack of GOH extension services to marginal upland farmers and forestry groups, particularly women; the inseparable links between poverty, hillside agriculture and forest degradation in upland areas; the overwhelming need to arrest soil degradation and stabilize food production to ensure basic food security for hillside farming households; and the continued environmental degradation caused by poor resource management practices which is manifested in deforestation, accelerated soil erosion and overgrazing. This annex describes the Upland Producers Fund, including: (a) activities to be financed; (b) clients of the fund; (c) institutional arrangements to implement the fund; and (d) gender strategy.

BACKGROUNDAND JUSTIFICATION

3 . According to the National Agricultural Census (1994), almost 250,000 of the nation's 320,000 farmers are subsistence producers, defined as producers with 5 ha or less of arable land who do not have salaried employment. This group, which comprises over 75 percent of the nation's farmers, occupies an average of 2.4 ha/household 1 and is for the most part occupying hillside state lands. In many instances these households' production systems are closely linked to forested areas, e.g. as a source of fuel, secondary food products, grazing/fodder, soil nutrients.

4. The 1992 Agricultural Modernization Law (AML) created a new legal framework for the state's provision of technology transfer and generation services. Under the new law these services are to be substantiallyprivatized with a "farmer pays" approach. As an exception to this, services to poor smallholderson marginal lands would be provided by state financing. The same

I - The averagefigure of 2.4 ha/householdgives an overlyoptimistic view of land distributionwithin this demographicgroup as definedin the AgriculturalCensus. Some 25 percentof Honduras' rural population(1995 estimateof 3.1 million)are reportedto reside in householdswith no land or less than 1 manzana(approx. 0.7 ha) of land. Annex D Page 2 of 13 law created the Directorate for Agricultural Science and Technology (DICTA) under the Secretariat of Agriculture and Livestock (SAG) with a mandate to design, direct, and execute agricultural research and extension programs based on a rational balance between state-provided services and services provided by existing private entities. The mandate also extended to the creation and operation of such private service provision entities.

5. The history of state technical services to poor smallholders on marginal lands is sparse. With the exception of the recent USAID-financed LUPE project, which operated in 8 departments and cooperated with 42 extension agencies, GOH has had little direct involvement in programs targeted to such farmers. Nor has GOH used its own resources to provide services to this sector. The overwhelming majority of state funding in agricultural services has been directed towards "farmers with potential", i.e. those on the best lands. By contrast, Honduras has had one of the most progressive and successful NGO-based experiences in service provision to poor smallholderson marginal lands, the most notable examples of which have been the works of World Neighbors, COSECHA, and the Loma Linda Training Center. During the last 25 years, Honduran NGOs working with smallholdershave developed effective extension methodologies and production techniques which show good potential for widespread application, replicability and adoption. Based on anecdotal evidence and a growing body of quantitative evidence from the LUPE project and other researchers, the production techniques appear to be quite promising from income and environmental perspectives. The LUPE project was an attempt to scale up the NGO experience and was successful in developing an excellent technical menu which is being adopted and adapted by other programs and which provides a solid basis for large-scale diffusionto hillside farmers.

6. The situation with forestry extension for poor smallholdershas been worse than that with agriculture. The main entity charged with providing extension services, the AFE-COHDEFOR, literally has no capacity or budget to do so. Some limited services have been provided to organized forestry groups and a few communitiesthrough producer cooperatives and federations, NGOs and bi-lateral programs. The numerous resin-tappers' cooperatives have received the bulk of state resources directed toward forestry activities. A number of forest management projects (some bi-laterally financed) have been working with communities in recent years in developing environmentallyacceptable, financially-viableforest management systems. In the pine forests these efforts are much more mature. The most notable experiences with forestry and forest management have been those developed through the PACO/CARE project (agro-forestry), the CIDA-financed Broadleaf Forest Management Project with both natural forest management and agricultural production assistance, and the GTZ and FINNIDA-financed community forest management initiatives in the pine forests. In Honduras there is no lack of professional foresters in the private sector who might provide services to communities in pine forest management. In the project departments alone there reside over 80 foresters registered with the College of Professional Foresters. For tropical broadleaf forests, on the other hand, there are few foresters with any experience of note. The only exception to this are those relatively few foresters who gained experience through the CIDA-financed project.

7. An overarching weakness both for provision of forestry and agricultural services to smallholders and poor communities is the lack of research capacity to backstop extension Annex D Page 3 of 13 activities. GOH, through the SAG, has no facilities to work on issues of resource management relevant to smallholders. The Pan-American School of Agriculture at Zamorano, a pre-eminent institution in Latin America for the education of agronomists, is not particularly strong in marginal land smallholder systems relative to their capacity in more conventional agriculture. In forestry, the main entities are CURLA and the National Forestry School (ESNACIFOR). The former is starved of resources, while the latter has relatively good access to resources and external assistance. Both CURLA and ESNACIFOR enjoy good reputations nationally, within the resources that they command. In addition, ESNACIFOR is an institution of regional importance as a trainer of forestry students. Currently, ESNACIFOR offers a "Dasonomia" as a terminal degree; roughly equivalent to an Associates degree, one step below a Bachelors degree. The major difference between the two is that a Dasonomo's studies have concentrated on technical aspects of forestry rather than a broader (and longer) Bachelor's curriculum. CURLA offers a University degree in forestry and ESNACIFOR is now developing that capacity. In the area of research in natural forest management both ESNACIFOR and CURLA are weak. ESNACIFOR's research capacity is as yet incipient and the bulk of what exists is not focused on natural forest management. CURLA has developed some research capacity in support of its teaching activities in broadleaf forest management.

PROJECT AREA

8. The fund would give priority coverage to those areas within the Forest Management Units (FMUs) supported by the Forest Management Sub-component (see Annex C.). These are located in the Departments of Francisco Morazan (Guaimaca, El Porvenir, and Talanga); Olancho (San Esteban, Catacamas, and Culmi); and Yoro (Agua Fria, Joc6n, Morazan, Olanchito, Yoro). In addition to these areas, on a secondary priority basis, financing would be extended to eligible communitiesin environmentally sensitive zones (i.e., protected area buffer zones, and critical upper watershed areas) in the neighboring FMUs of Gualaco, Olancho and of Bonito Oriental and Sabi in Atlantida. The justification for extending the coverage beyond areas directly supported by the Forest Management Sub-component is: (a) these FMUs are either within (Gualaco) or contiguous to (Bonito Oriental and Sabi) the project area and constitute high priority forest management areas; (b) administratively, they all fall under Regional Offices included in the project; (c) Gualaco contains two high priority protected areas (Pico Pijol y Vertiente Occidental); and (c) Bonito Oriental and Saba are zones of humid tropical forest where conversion pressures for agricultural usage are high and minor project investments in forest tenure-related activities and agricultural extension are proven (under the CIDA-financed PDBL) to be highly effective in significantlyreducing deforestation pressures.

PROJECT DESCRIPTION

9. The Upland Producers' Fund would have a base cost of US$7.04 million. It would provide financing the following: (a) technical assistance and training for upland farmers in sustainable forestry, agriculture and livestock practices and to municipalitiesin micro-watershed management; (b) continuing education opportunities to natural resources professionals who provide technical services to upland farmers; (c) applied research to generate improved Annex D Page 4 of 13 technologies in agriculture, livestock and natural forest management for upland areas; and (d) establishment and implementation of a fund mechanism for directing extension and training resources to upland farmers under GOH policy direction.

10. Fund Clients. Clients of the fund would be: (a) groups of smallholders on marginal lands (terreno de vocaci6n forestal) with a need to adopt sustainable production systems, with priority given to groups that have not achieved food security at the household level; (b) communities (indigenous tribes, aldeas, caserios, etc.) and local or grassroots organizations (e.g. agro-forestry cooperatives, formal/informal farmer groups, women's groups, etc.) with the need for assistance to manage areas of natural forest on national lands (under the Social Forestry program), ejido lands 2, or communal forest lands; (c) communitiesresponsible for managing designated micro- watersheds for potable water production; and (d) for research funds, members of SNITTA.

Table 1. Fund Clients

ACTivITY BENEFICLARIES/CLIENTS Technology transfer for smallholder 4,000 families would benefit directly; an production systems in marginal lands. estimated 10,000 additional families would indirectly benefit. Natural forest management. 2,500 families and 175 organizations would directly benefit; an estimated 4,000 additional families would benefit indirectly. Micro-watershed management 22 municipalitiesand about 60 communities would benefit directly. Applied research 40 public, private and non-governmental organizations that belong to the SNITTA network would benefit.

11. Gender Strategy. The fund would provide opportunities to men and women farmers in the project area by: (a) marketing the project to both men and women through appropriate communications materials and channels; (b) selecting TA providers who have the capacity and experience to reach both male and female farmers based on their priorities and needs; (c) providing gender analysis training when necessary for TA providers; (d) establishing gender- related performance indicators; and (e) ensuring that a male and female representative of farmer groups is present in the Uplands Fund Committee. The project would support all types of organizations, but the general strategy would be to integrate men and women wherever possible. In situations where cultural conditions do not permit mixed groups, the project would support segregated activities.

2 _For managementof ejido forest lands it would be possiblefor projectfunds to be utilized to pay the salary of a Municipal Forester under the conditionthat the groupseligible for assistanceagree amongstthemselves and with the municipalityto work in that maimer. Annex D Page 5 of 13

12. Technical Assistance and Training. Total investment (base costs) would be US$3.75 million. This activity would support initiatives in agriculture, natural forest management and micro-watershed management. Eligible activities for financing would include: (a) technical assistance and extension services by professionals (technicians and para-technicians); (b) farmer training; (c) extension materials; (d) some agriculture and forestry inputs for communal/municipal nurseries and the initial introduction of plant germplasm for conservation and soil fertility management activities (seed, vegetative material, germplasm, simple agricultural tools, and agro- chemicals); (e) communal and municipal nurseries; (f) operational expenses for extension workers (such as per diems, fuel and transportation costs); and (g) costs of specific legal procedures (such as assisting organizations to obtain legal status and usufruct contracts). Financing would be in the form of grants to private technical assistance providers, based on technical assistance contracts established between these entities and farmers, or communities and municipalitiesin the upland areas. The project would not finance: labor (except for some activities in micro-watershed management); credit; purchase of land; or other activities not described in the Fund Operational Manual. Guidelines for preparing eligible fund initiatives are included as an attachment.

13. More specifically, activities to be financed would include:

(a) for agricultural and livestock - annually updated extension and training plans, as well as extension services and training as agreed to by participating farmers: (i) to manage soil, water and fertility; and (ii) to increase agricultural and livestock productivity. The types of technology that would be transferred include: green mulch; live barriers; physical conservation works in concentrated flow areas; contour cultivation; minimum tillage; improved crop spacings; windbreaks; composting/natural fertilizers; alternatives to burning; artisanal seed selection; improved seed varieties; micro- irrigation; appropriate use of chemical fertilizers; inter-cropping; pasture management; live fencing; integrated pest control; and improved stoves. The project would finance 100 percent of costs of technical assistance and training for a maximum of four years per group of farmers and an equivalent of US$600 per family.

(b) for forestry - annually updated extension and training plans and as well as extension services and training, as agreed to by participating farmers for: (i) technical assistance and training to develop and implement forest management plans (based on a Finished technology project3 methodology) and market products from pine forests; (ii) technical assistance and training in broad-leafed forests to prepare usufruct contracts, transfer agro-forestry, forestry and agro-silvo-pastoral technology and reduce negative environmental effects of traditional forest use; (iii) marketing plans of forest products; and (iv) legal assistance to consolidate organizations and obtain usufruct contracts. The project would finance 100 percent of technical assistance and training for the first management plan and the first two years annual operating plans, 85 percent of the costs of the third annual operating plan, 65 percent of the of the costs of the fourth

- The methodologywas developedover the last five yearsin Hondurasby a FINNIDA-fmancedprogram in CentralAmerica; it is a forest managementplanning tool for pine forestmanagement. Annex D Page 6 of 13

annual operating plan, and 50 percent of the fifth annual operating plan. The maximum length of an assistance program financed by the project would be five years. In cases where forest nurseries are called for under the forest management plan, the project would finance a maximum of $1,000 per nursery for each management plan over the life of the project.

(c) for micro-watershed management: (i) assistance (legal or administrative) to municipalitiesto enter into contracts with AFE-COHDEFOR for transfer of management responsibilities to the municipal government; (ii) environmental educational campaigns to promote and sensitize local communities in watershed conservation; (iii) technical assistance and training to prepare and implement watershed protection plans (fire management and control); and (iv) technical assistance and training to assist municipalitiesto generate and administer funds for fire protection, and to strengthen local organizational capacity. The project would cover 90 percent of the costs of environmental education campaigns and promotional materials; 75 percent of inputs for nurseries and management plans; and 50 percent of fire prevention and protection programs. Micro-watershed projects may last a maximum of four years, and the maximum financing would be $15,000 per micro- watershed.

14. Applied Research. Total investment (base cost) would be US$1.35 million. The project would finance applied research to generate and disseminate technologies appropriate to upland areas according to local needs and priorities. This activity could potentially finance research in the following: (a) small-scale (community) natural forest management, including harvesting, processing and marketing of timber and non-timber products; (b) non-traditional species utilization; (c) hillsloped agriculture technology, particularly soil and moisture conservation and soil fertility management; (d) improved small-scale livestock management, including practices to reduce burning; and (e) integrated pest management. Institutions and entities who are members of the National Research and Technology Transfer System (SNITTA) would be eligible to receive research financing. Priorities would be set through a series of consultations in which the national research policy entity (CONACTA) would participate.

15. Training Of Natural Resources Professionals. Total investment (base cost) would be US$0.45 million. The project would finance the development of: (a) training courses and materials; (b) training of trainers; (c) seminars and workshops; (d) administrative and overhead costs of training courses; and (e) a portion of the course attendees' costs. The training would be focused on technical aspects of natural resources management (hillsloped production systems and natural forest management) and on methodological aspects of extension and participatory diagnostics, planning and evaluation.

16. Fund Mechanism. Total investment (base cost) would be US$1.49 million. The project would finance the completion of detailed design, establishment and implementation of the Upland Producers' Fund. The activities to be financed would include: (a) completion of the procedures manual, including preliminary testing of design and adjustments; (b) set-up of database of pre- qualified consultants and management information system; (c) research and training prioritization Annex D Page 7 of 13

exercise (i.e., series of consultations and workshops with clients and end-users); (d) honoraria and per diems for Fund Committee members; (e) establishment and operating costs of Fund Secretariat; and (f) contract of Fund Manager.

INSTITUTIONAL ARRANGEMENTS

17. IDA and IDB jointly negotiated the structure of the funding mechanism with the Government. IDB will be financing a parallel technology transfer and generation project targeted at large, medium and small producers with potential (i.e. in terreno de vocacion agricola). It has been agreed that the two Banks would use (if possible) the same finding mechanisms in order to support the establishment of a GOH mechanism for channeling funds nationally. The long term mechanism proposed by SAG/DICTA for channeling and administering funds is through the creation of a foundation or trust. The IDB-funded project would have as a goal over its five-year life the creation of this entity. As this would require a legislative act to constitute (which would require several years to obtain) the project would begin implementation through an interim mechanism. From IDA's perspective this simply means the SAG, as the entity legally responsible for project implementation, would establish a committee (Upland Fund Committee) to approve finding proposals. If a legally-constituted foundation or trust were set up in later years, the Upland Committee would transfer to that mechanism.

18. The SAG would have direct responsibility for implementing the Upland Producers' Fund and for ensuring that the activities financed were consistent with eligibilitycriteria and with the IDA Credit Agreement. For the SAG, this responsibilitywould be assumed by the Project Coordinating Unit (PCU), which would review all proposals for compliance with the pre- established eligibilitycriteria and the Credit Agreement. Following review by the PCU, proposals would pass directly to the Fund for approval. The ultimate creation of the foundation or trust as the administering and approving body would have no effect on the PCU's role to pre-verify proposal eligibility.

19. The SAG would vest authority to approve funding proposals in a joint private/public sector committee called the Upland Fund Committee (UFC). Establishment of this Committee and completion of regulations and procedures, including creation of a service provider roster, are prior conditions for disbursement against this sub-component. The Committee would consist of three sub-committees, each responsible for approval of: (a) agriculture/livestock proposals; (b) forestry proposals; and (c) research proposals. There would be substantial overlap in sub- committee membership. The UFC would have a technical secretariat consisting of a Fund Administrator, two mid-level rural development/natural resources specialists, an accountant and a part-time lawyer. The Secretariat would be charged with day-to-day oversight of the Fund's workings, complying with GOH and IDA reporting requirements, and the approval of proposals based on Fund policy, funding and an office-based review of technical content and viability, and overall feasibility. Some sub-set of projects would be field-checked by the specialists.

20. The Agriculture/Livestock Sub-committee would comprise 8 persons, one representative from each of the following organizations: DICTA, Hacienda, SNITTA, AFE- Annex D Page 8 of 13

COHDEFOR, Forestry Sub-committee, College of Agronomists, and two representatives from farmer's groups (one male and one female). The Forestry Sub-committee would comprise eight persons, one representative from each of the following organizations: DICTA, Hacienda, SNITTA, AFE-COHDEFOR, Agriculture/Livestock Sub-committee, College of Foresters, and two representatives from forestry groups. Both the sub-committees would meet every month (on consecutive days) to review financing requests. The Research Sub-committee would comprise nine persons, one representative from each of the following organizations: DICTA, Hacienda, AFE-COHDEFOR, Agriculture/Livestock Sub-committee, Forestry Sub-committee, farmer groups, forestry groups and two representatives of SNITTA. The Research Sub-committee would meet every quarter to review financing requests. Review in all cases would be of packages rather than individual projects per se and the purpose of the review would be to ensure compliance with Fund policies.

21. A qualified Fund Manager would be selected by competitive bidding. Eligible entities would include nationally-based entities such as private firms, NGOs, or universities. The Fund Manager would be selected based on capacity and experience to work with subsistence farmers in agriculture, forestry and natural resources projects and with intermediary organizations such as NGOs. Final selection would be with IDA approval. The Fund Manager would be established in Tegucigalpa. Nationally, the Fund Manager would consist of a Director/Administrator and a four-person technical unit of comprised of project specialists (i.e. generalists with rural development, natural resources management and forestry/agriculture experience) with at least five years' experience. The Fund Manager would be responsible for promoting the fund; determining the eligibility of private TA providers; screening technical proposals; identifying training needs of private TA providers; supervising activities supported by the Fund and approving disbursement requests; and maintaining administrative, management and monitoring systems. The contract for the Fund Manager would be renewable yearly, based on performance.

22. Funds would be maintained in an account in a private bank. The bank would disburse resources to the TA providers following direction from the Fund Manager. The Bank would provide those financial, accounting and administrative services which would normally be provided to a major depositor.

23. Private sector TA providers, such as NGOs, would provide the actual services to eligible groups. A number of capable NGOs are already operating in the region and could potentially participate in the project as TA providers, such as World Neighbors, CIDICCO, COSECHA, and FAMA. These organizations have been successful in developing and transferring innovative agricultural technologies to upland farmers in Honduras. To be eligible to serve as a TA provider, organizations must: (a) have experience working with upland farmers (or other marginal farmers) in the area in agriculture and natural resources activities; (b) have a presence in the Upland Area; (c) demonstrate the use of suitable participatory methods; (d) have a signed contract for services with the beneficiary farmers; (e) comply with GOH legal requirements for government contractors, and (f) demonstrate administrative and technical capacity to implement a Fund contract. Eligible TA providers could include: NGOs, private companies, independent extension agents, and member producer organizations (such as indigenous federations and cooperatives). Annex D Page 9 of 13

Disbursements to service providers would be authorized by the client group based on satisfaction with services provided.

24. The Fund would emphasize information systems as a strategy for achieving internal and external credibility. The Fund Manager would create a micro-computer management information system that would contain: basic financial and administrative information on Fund activities; a data base of unit costs for standard investments; quality indicators; and supervision data. Information on clientele would be desegregated by gender to generate information on the needs and behaviors of different groups by gender.

FINANCING

25. Of the total project base cost of US$7.04 million, IDA would finance 93 percent and GOH 7 percent.

table 2. Financing Ceilings

ITEM FINANCING CEILINGS TechnicalAssistance consultants,$60/day; ingeniero, $750/month; dasonomo, $600/month; technician,$450/month; para-technician, $325/month Training(off site) $40/day/person,maximum $800/person ExtensionMaterials $25/person CommunalNurseries $3,000/municipality;$1,500/community or producergroup OperationalCosts Per diems, Governmentrates; total not to exceed25 percentof total cost. _ dministrativecosts, maximum13 percentof total cost. Costs of LegalProcedures Maximuum$500 l - Para-technician does not refer to a member of a client group chosen to receive advanced training. A para-technician is a professional extensionist with experiential credentials only, rather than both academic and experiential credentials.

IMPLEMENTATION PLAN

26. At project startup, the PCU would let a contract to a private consulting firms to finalize the draft Fund Procedures Manual. This would necessarily include consultations with potential service providers and client groups over adequacy, flexibility and responsiveness of the Fund procedures. At the same time, DICTA, in cooperation with the PCU, would activate the Fund Manager contract, establish the Fund Secretariat, and with the support of the SAG and CONACTA, constitute the Upland Fund Committee and begin to implement the Fund regulations. The Fund Secretariat's first priority would be to prioritize research and training.

27. Upon contracting, the Fund Manager's priority activities would be those associated with setting up the database of pre-qualified consultants, the management information system, and Annex D Page 10 of 13 initiating the promotion of the fund. The development and financing of individual proposals would follow the following scheme:

(a) The Fund Manager, DICTA regional personnel and AFE-COHDEFOR regional and forestry personnel promote access to the Fund by local groups.

(b) Client and service provider jointly develop proposal.

(c) Proposals are passed directly to the Fund Manager for review. Review based on funding and eligibilitycriteria, and field-based review of technical content and viability, implementation capacity, and overall feasibility.

(d) Projects for IDA financing are passed to PCU for approval based on consistency with project legal agreement.

(e) PCU passes eligible projects to the Technical Secretariat for approval based on consistency with Fund policy, funding and eligibilitycriteria, and office-based review of technical content and viability, and overall feasibility. Some sub-set of projects to be field-checked.

(f) On a monthly basis, packages of projects are passed to the Fund Committee for approval based on Fund policy. Technical questions can be raised requiring further clarification by Fund Manager or client/service provider.

(g) Approval for project financing is given to Fund Manager. Financing approval authority is based on disbursements against advances in approved annual work program.

(h) Fund Manager authorizes bank disbursement of first tranche to service providers account.

(i) Subsequent disbursements would be authorized by Fund Manager against advances in annual work plan. These disbursements to the service provider would, however, be conditioned on the client group's satisfaction with the quality of the services provided (i.e. the client group must approve the disbursement). With forestry projects involving forest management plans, disbursement to the service provider would first be conditioned on the management plan's approval by AFE-COHDEFOR.

27. criteria for client eligibilitywould include:

(a) geographical eligibility- for the life of the project, residents of the following Forest Management areas would be eligible: Olanchito, Yoro; Yoro, Yoro; Agua Fria, Yoro; Joc6n, Yoro; and San Esteban, Olancho. For Years 2.5-5 of the project, residents of the following Forest Management Areas would be eligible: Gualaco, Olancho; Bonito Oriental, Atlantida; Sabi, Atlantida; Morazan, Yoro; Catacamas, Olancho; Culmi, Annex D Page 11 of 13

Olancho; Guaimaca, Fco. Morazan; El Porvenir, Fco. Morazan and; Talanga, Fco. Morazan.

(b) Clients must be located in areas deemed "forest vocation".

(c) Clients must not be eligible for financing from other technology transfer services.

(d) Clients must not be involved in other projects or programs with actions and activities similar to those financed by this Sub-component.

(e) Clients must be organized in a group.

(f) For financing under micro-watershed management activities, areas must be "declared watersheds" (i.e., designated as protected areas because of their importance for potable water production).

(g) All proposals must include: (i) a signed agreement between the service provider and the group; (ii) the results of a preliminary, participatory diagnostic and priority setting; (iii) a list and CV of all persons to be paid under the contract; (iv) a list of the clients; and (v) details of activities, goals, costs, impacts/benefits expected, and an general multi-year plan with a detailed first-year plan with activities and costs by month.

(h) For agricultural/livestock proposals, there would be a maximum of 25 families per group with a maximum of 20 groups or 500 families per proposal.

(i) For forestry proposals involving forest management, the unit would be the area of the forest management plan.

29. Based on the outcome of the priority setting exercises, carried out under contract to and supervised by the Fund Secretariat, competitive bidding would be carried out to let contracts for development of curricula and implementation of field-oriented training courses for: (a) participatory diagnostics and project preparation; (b) technical and methodological aspects of hillside and forestry management systems; and (c) participatory project monitoring and evaluation. It is expected that contract sizes would be highly variable and range from programmatic (from institutions, e.g. ESNACIFOR, Zamorano, Loma Linda Training Center) to topic specific (by NGOs).

BENEFITSAND RISKS

30. Substantial benefits are expected to accrue to the projects direct and indirect beneficiaries. Experience in Honduras with World Neighbor, COSECHA and LUPE projects have demonstrated average project yield increases of 300 percent in basic grain production within three years of adopting the basic elements of the extension menu. According to a review of LUPE and World Neighbors, both have successfully increased maize production on hillside farms on average AnnexD Page 12 of 13 from 700 kg/ha to 2,000 kg/ha (Mausolffand Farber, 1995)with minimalincreases in labor and cashinputs. As over 50 percentof Hondurasbasic grain production(maize and frijol)is producedon hillsidefarms, the potentialeconomic impacts are also substantial. 31. Sustainablyincreasing basic grain productionand securingfood supplyat the farm level would also be expectedto have large secondaryimpacts. First, stabilizingbasic grain production in hillsidefarming systems is, generallyspeaking, a pre-requisiteto makingany other improvementsin the farmingsystem; i.e. it will open space,both in terms of labor and landfor the householdto dedicateto other enterprises. 32. The technologiesadopted to increaseyield have significantimpacts on soil loss. LUPE project data has shownthat with the adoptionof vetiverhedgerows, green mulch,contour cultivation,and minimumtillage that basic grainproduction can be sustainedon slopesup to 60 percent (upper limit of data collection). One elementof this was a reductionof averagesoil losses to less than 15 t/ha/yr..

33. Risks. The mainrisks are those associatedwith: (a) inadequatecapacity at the national levelto administerand implementthe fund and at the locallevel to provideservices; and (b) politicalinterference resulting in funds being directedaway fromthe intendedbeneficiaries. Risks associatedwith capacityat the nationallevel are managedthrough reliance on an open contracting processto selectthe Fund Manager,who is the most criticalentity in the implementation.It is assumedthat capableentities exist in Hondurasto complywith the Fund ManagerTOR on the observationthat there are a numberof other funds currentlyfunctioning using local capacity. The Inter-AmericanFoundation's Fund Manageris one exampleof a local firm successfullymanaging what is essentiallythe same set of activitiesproposed here. The issue of local capacityis managed throughinclusion of trainingspecifically for this purposeand maintainingthe option after the first six monthsof implementationto contract serviceproviders as an interimmechanism. The risk of politicalinterference is managedto the extent possibleby creatingan UplandFund Committee whichrepresents more diverseinterests and placingoutside of a line agency,by developmentof the managementinformation system which will allowproject clientele, geographic location and activitiesto be monitoredand supervised. Annex D Page 13 of 13

Table 3. Guidelines For Preparing Fund Activities

AGRICULTURE/LIVESTOCK NATURALFOREST MICRO-WATERSHED I______MANAGEMENT MANAGEMENT Proposalbased on groupsof 25 families Proposalbased on forest Proposalbased on participatory maximum. One proposalcould cover managementplans. One diagnosticwith municipalitiesand severalgroups up to a maximumof 20 proposal couldinclude up to 10 affectedcommunities, and groups or 500 families. plans. discussionswith local government leadershipand representativesof Proposalbased on participatory Participatinggroups will be the pertinentgovernment agencies (like diagnosiswith focal group and oneswith real interestand forest AFE-COHDEFOR,National Water discussionswith municipalities,and managementcapacity. Agency). AFE-COHDEFQOR Groupsare locatedin an area Simpleproposal focused on a Simpleproposal focused on a limited where it is possibleto guarantee limited amount of priority activities. amount of priority activities. that there is no usurpationof group or individualstraditional Developmentof activitiesthat are Highestpriority in places where there is rights . mostlybased on low cost local no stablebasic foodproduction and availableresources..."Low cost" food supply. Nationalforest proposals definedby the municipalityand coherentwith Forests Social groups involved. Technologyuse basedmostly on low System'. cost local resourcesavailability. "Low Use of training to motivatelocal cost"meant from the producer Proposalbased on participatory groups who will participatewith the perspective. diagnosisthrough focus groups municipalityin long term and discussionswith conservationof the basin. Useof extensiontechnologies that focus municipalities,and AFE- on producersmotivation and COHDEFOR. Use of training to educate knowledgeto test, verifyand adoptnew communitypromoters so that they technologyon a small scale in their Simpleproposal focused on a may continueto foster conservation own plot. limitedamount of priority activities. activities. Use of technologythat can yield quick Over the mediumterm, the success,easily identifiable,instead of Technologyuse based on low objectiveof the awarenesscampaign incentivesor artificialsubsidies. cost localresources availability. is to fomentpayment by waterusers "Low cost" meant from the for fire protectionand watershed Educatelocal leaders as liaison producerperspective. surveillance. producersand support them while they train other producers. Use of extensionmethodology that focuseson groupformation and motivationto creategroups with a high degreeof initiative in managementto minimize forester supervision.

4 TheForest Social System objectives and policies have not been outlined, neither its organization,priorities or eligibility criteria.In the meantime,the WorldBank could finance (through the InstitutionalDevelopment Fund) support to groups in nationalforests with contractsfor areas where criteriaare clearer. These are in: (a) broad leaf forest; (b) with cooperativesand resin groups;(c) non-timberproducts; and (d) bufferzones. Annex E Page 1 of 11

HONDURAS

RURAL LAND MANAGEMENT PROJECT

BIODIVERS1TY CONSERVATION SUB-COMPONENT

INTRODUCTION

1. The Biodiversity Conservation sub-component would finance activities designed to assist the Government of Honduras to bring priority areas of the country's protected area system (Sistema Nacional de Areas Protegidas de Honduras; SINAPH) under effective conservation and management regimes. In this context "priority" is based on biological values. The general objectives of the sub-component are to assist in developing an effective, functioning protected areas system which: (a) is capable of generating a significant portion of the income required to sustain management efforts, and (b) prioritizes federal resource allocation to those sites with national and international significance for biodiversity

BACKGROUND AND JUSTIFICATION

2. IDA involvement in the environmental sector in Honduras began in 1992 with the Agricultural Sector Adjustment Credit (AGSAC; Cr. 2540-HO) and with the Environmental Development Project (Cr. 2693-HO) and continues with the proposed Natural Resources Management and Land Administration project. This biodiversity sub-component complements initiatives in these earlier projects and of bilateral donors such as USAID and GTZ to strengthen the national system of protected areas and help develop a realistic Biodiversity Strategy. Under the AGSAC, 15 operational plans were prepared for key protected areas with USAID assistance

3. While reliable information on deforestation in Honduras does not exist (rate, location, underlying causes), it is known that rates of forest loss are significant (best estimates are between 62,000 ha and 80.000 ha/yr) and represent an annual loss in the order of 1 percent to 1.5 percent of total forest cover. In biodiversity terms, however, "percentage loss of total forest cover" does not present the entire picture. Apparently, the majority of deforestation in Honduras is occurring in broadleaf forest zones and, more specifically,in lowland tropical forests. Expansion of subsistence agriculture and cattle ranching have been reported as the primary agents. This implies that the annual percentage loss within broadleaf forest communities -- which are of greater significance from a biodiversity perspective than the coniferous forests -- is much higher than the average national rate and is conceivably twice or more than the national figure.

4. Biodiversity Values in Honduras. While biodiversity in Honduras is among the least inventoried in Central America, the few available figures illustrate that there should be no doubt as Annex E Page 2 of 11 to its significancenor to the degree of threat it faces. The numberof speciesof vascularplants has been estimatedat 5,000, of which 148 are either endemicor whose range is restrictedto northernCentral America. The conservationstatus of 35 of these latter speciesis consideredas "threatened". The bird list for the countryincludes 710 species,59 of which are threatenedon a nationallevel and 5 are in dangerof extinction. The mammallist counts 195 species,including 19 threatenedspecies and 8 in danger of extinction. Some 170 speciesof reptilesare listedfor the country, 15 of which are threatenedand 4 in dangerof extinction. The amphibianslist includes75 specieswith 12 threatenedspecies. The specieslists of vertebratesfor the country, while somewhatshorter than those for Costa Rica, are neverthelessconsiderable. If one considersthat Costa Rica is now the best inventoriedcountry in CentralAmerica, the less favorablecomparison (in numericterms) with Hondurasmay onlybe an artifact of lack of data. The coral reefs surroundingthe three Bay Islands and the numerouscays (keys)off the Atlanticcost are also of highbiological significance.

5. The tropicalmoist broadleafforests of the Honduranmontane zones are considered endangered,bio-regionally outstanding, and of high priorityfor conservationat the regional-scale. The tropicalmoist broadleafforests of the Atlanticand the pine-oakmontane are considered vulnerable,bio-regionally outstanding, and of moderatepriority for conservationat the regional scale. The formertype of forest is foundprimarily within the protected areas systemand the latter types are found both withinand outside of the protectedareas systems,though in the case of pine/oakforest its conservationstatus is less clear. All are of key importanceto the Central AmericanRegion as part of the Meso-AmericanBiological Corridor concept, and have been prioritizedby the CentralAmerican presidents for conservationefforts. The GOHhas requested complementaryGEF financingfor preparationof a joint UNDP/WBexecuted investment project to focus on sitesof highpriority for conservationwithin the corridor and to complementthis sub- component'sfocus on sites of high economicpotential to generateresources for maintaining minimumadministrative infrastructure. The preparationof this and the GEF projecthave been a vehiclefor advancinga coordinateddialogue on the best approachfor implementingthe National BiodiversityStrategy.

6. ProtectedArea System. Currentlythere are 107areas listedas beingwithin SINAPH, which is a systemlegally established within the Ley Generaldel Ambiente,Decreto 104-93. Only about a half of the areaswhich comprisethe SINAPHhave a legal declarationproviding a solid basis for their protection. In total, the SINAPHcovers some 1.6 millionha or about 14 percent of the country'sland area. There are 8 managementcategories or administrativedesignations withintne protected area system.

7. Thereis fairlysubstantial agreement that the current definitionof the SINAPHleaves somethingto be desired. However,there has been little accomplishedto date whichmight lead to achievingagreement on what shouldconstitute a "rationalized"or "minimumadequate" protected areas system. The current systemcontains significant areas which,from a nationalor international perspective,no longercontain the biologicalvalues for which they were initiallyincluded as Annex E Page 3 of 11

protected areas. In addition, many areas have been designated, not primarily for their biological values, but for other objectives of national or local interest (e.g., all forest above 1,800 m for their watershed protection functions). Also, the SINAPH does not fully represent the entire range of biodiversity and landscape values that would be desirable (e.g. deciduous dry forest and mangroves are substantially under-represented). It must be noted that while there exists little rationale from the national or international biodiversity perspectives to maintain some current areas in the SINAPH, for many such areas there are likely to be compelling local or broader natural resource conservation arguments for maintainingtheir status as "protected".

8. Many of the remaining high value areas in the SINAPH are located in zones which are sparsely populated relative to the rest of the country (i.e. the Departments of Colon, Gracias a Dios, and Olancho) and are the homes of a significant percentage of the countries indigenous peoples (i.e. the Garifunas, Misquitos, Sumos, and Payas). These areas are now thought to be under heavy pressure from encroachment by poor and landless peoples from other parts of the country. Given that population is growing at 3 percent per annum (with 40 percent of the population below the age of 14) and mobility is increasing, current rates of encroachment and forest clearing can be expected to at least remain the same, if not increase, over the medium term.

9. Institutionally, the SINAPH's management and protection is the responsibility of the Department of Protected Areas and Wildlife (DAPVS) in the National Forest Agency (AFE- COHDEFOR). The total staff of the DAPVS is about 60 persons -- which includes all staff in the protected areas themselves, the regional AFE-COHDEFOR offices and at headquarters. Only very few protected areas have any permanent field staff. Three of the protected areas are administered by skeleton field staff of NGOs and one area is administered by the Municipal Water Utility of San Pedro Sula. Very few of the protected areas could be considered as being under a DAPVS management regime which provides a minimum adequate control.

PROJECTAREA

10. In the absence of national consensus upon what might constitute a redefined or rationalized SINAPH, it was agreed with GOH that the IDA project would focus investments on areas which retain significant portions of their natural habitats which are of outstanding value for economic reasons (income generation potential) to complement the GEF project's focus on high biodiversity priorities. There is a high degree of certainty that in any future, rationalized SINAPH these "core areas" would still maintain a top priority status. To identify these areas reconnaissance flights and field inspections were carried out that covered almost all 105 protected areas. Areas with more than 90 percent unaltered vegetation in their core areas and with little or no permanent habitations were considered to qualify as core areas. Areas with less than 75 percent natural vegetation and considerable human presence in their core areas were considered to qualify as areas of regional biodiversity potential for their biodiversity value. These latter would also have additional values for other management objectives, such as multiple use, watershed management, Annex E Page 4 of 11 or forestry programs. Five areas which fell in between these categories need further investigation. Based on this analysis, 16 areas or clusters of areas were identified that could constitute the core management units of largely pristine habitat. Additionally, two caves sites were included as natural monuments for their visitation potential and some few beach sites in the Gulf of Fonseca to protect marine turtle nesting sites. The selected areas are listed in Table 1.

PROJECTDESCRIPTION

11. The specific objectives of the Biodiversity Conservation Sub-component are:

(a) within the SINAPH, to focus central government's management resources on a small number of high-priority core protected areas under management by the national forestry agency's (AFE-COHDEFOR) protected areas department (DAPVS);

(b) to strengthen the DAPVS to fulfill its tasks under a tight mandate and strict budgetary discipline and increase its ability to work with other partners including NGOs and local government and communities;

(c) to establish a financial management mechanism for capturing significant ecotourism income and generating a stream of revenues by building tourism infrastructure in a selected set of priority biodiversity areas within the SINAPH; and

(d) to finance buffer zone activities that help sustain conservation and management in the selected protected areas and which generate local employment and revenues through protected areas-linked ecotourism

12. Priority setting of SINAPH. As a basis for determining priorities, a map of Honduran ecosystems is being elaborated with PPF and additional project funds to build on the preliminary analysis described above and detemine "representativity" of the existing SINAPH through a gap- analysis (i.e. identification of ecosystems under-represented or absent in the national protected areas system). Once this map of Honduran ecosystems is completed in 1997, SAG and SERNA would host a series of consultations to evaluate the findings and build a national consensus for a rationalized SINAPH. This dialogue will include the municipalitieswithin whose jurisdiction the concemed sites are located as key stakeholders. It is not anticipated that during the life of the project any current SINAPH areas would be de-gazetted or suffer a change in legal protection status. Nor is this an objective of the exercise. The basic objectives are: (a) to create an adequately defined protected area system which fully incorporates a complete representation of biodiversity and landscape values; and (b) to promote transparent, rational decisions for the allocation of limited resources to protected area management. Annex E Page 5 of 11

Table 1. Protected areas with significant portions of natural habitat

EST. CORE MANAGEMENT UNIT COMPOSITION AREA (HA) National Parks La Mosquitia Caratasca, Kruta, Warunta, Rus Rus, Cayos 100,000 _Misquitos Capiro y Calentura- 10,000 Celaque 5,000 Cusuco 26,000 Estero del Golfo Bahia de Chismuyo, Jicarito 20,000 Guaimoreto La Muralla 26,000 La Tigra 7,500 Marino de la Bahia Sites and cays of Utila, Roatan, Guanaja and C. 15,000 Zapotillos Merendon 10,000 MontafnaVerde 1,500 Patuca-Tawahka Patuca and Tawahka 200,000 Pico Bonito-Texiguat Pico Bonito and Texiguat 50,000 Rio Platano 210,000 Santa Barbara 1,000 Sierra Rio Tinto- Rio Tinto and Sierra Agalta 100,000 Agalta Tela Punta Sal-Izopo, Lancetilla, Cuero y Salado 40,000 Natural Monuments and Wildlife Refuges Cuevas de Talgua 150 Cuevas de Taulabe 150 Isla Iguanas/ Various turtle beaches in the Golf of Fonseca 500 P.Condega Areas In Need of Further Analysis Arenal 2,500 Cerro Azul 2,500 Cerro Azul Meambar 2,500 El Chile 2,500 Montafia de la Flor 2,500 TOTAL 835,300 1 "Composition" refers to the make up of the management unit, in that the management units might comprise portions of one or more current SINAPH areas. Annex E Page 6 of 11

13. Strengthening of the DAPVS and Partner Organizations. Recognizing the weakness of the Department of Protected Areas (DAPVS), the sub-component contemplates increasing the number of staff managing the priority areas. Projections of staff needs are based on the understanding the NGOs currently sub-contracted for protected areas management activities would continue at their current levels of involvement or increase the scope and number of activities in protected areas within their areas of influence. MICOSYSsoftware, a program developed for protected areas management planning, was used to make preliminary estimates of staffing and financing needs for the core protected areas. The program calculates a total need of 440 staff for the selected 16 management units. Assuming a stringent mandate, efficient input of staff and some degree of cooperation with NGOs and sub-contracting of certain tasks, a protected areas entity of about 400 staff could effectively manage the 16 core protected management units.

14. During the first year of the project, equipment and staff would be increased to provide initial strengthening of the system. In this year, the project would finance acquisition of 10 vehicles, 5 motorcycles and 10 horses; and costs of increasing DAPVS (AFE-COHDEFOR) protected areas staff from 60 to 120. As described under the Parks Fund activity, these new staff and equipment are expected to become self-sustainingwith revenues from parks entrance fees. Further strengthening of the DAPVS will be planned based on the capacity of partner organizations and the park management personnel needs identified, as plans are prepared for priority areas in this sub-component and the GEF. The project would finance new personnel for the first two years, and by the third year, the self-financingFund should absorb annual costs of these expenditures.

15. Training Activities. Another institutional strengthening activity would be training of DAPVS staff to manage the protected areas infrastructure being created, to implement the self- financing mechanism, and to work with visitors and local communities. Some training would also be provided to NGOs and local communities, but apart from the 7 parks being developed under this component, most such training would be financed through the complementary GEF project through the UNDP training sub-component.

16. Investments in Protected Areas. The project would create a Parks Fund based on a self-financingmechanism. Income from entrance fees in a core set of high potential eco-tourism protected areas would be deposited in a Parks Fund to be created under the project. The income from the Fund would be used to finance the annual recurrent costs of operating the SINAPH, in accordance with the annual operating plan of DAPVS. In order to establish a financial base to generate eco-tourism revenues from park entrance fees, infrastructure and equipment would be developed to create visitor centers of international standing in 2-4 high interest protected areas (PAs). Infrastructure would include interpretation programs and nature trails. Financing would also be provided to up-grade 7 existing areas with duty stations and basic administrative centers for management staff and rangers, trails or access roads to duty stations, vehicles, motorcycles, horses, and radios for communications to and within protected areas. Annex E Page 7 of 11

17. Self-financing Mechanism and Fund. A fund (fideicomiso) would be managed by a commercial bank to handle entry fees and make all payments to the PAs that qualify under a pre- established set of rules. Salaries and maintenance of equipment and infrastructure would be paid from the fund. Assuming continuing government funding of the SINAPH at current levels, it is expected that the fund would be self-supporting for the core areas by the third year of the project.

LONG-TERM FINANCING OF THE PROTECTED AREAS SYSTEM

18. The total investment needs in buildings and equipment for all 16 core management units, as estimated by the MICOSYS program, would amount to US$6,800,000. Not all these funds would be provided by the combined Natural Resources Management and GEF projects, as several other donors are planning to provide significant financing for some of these core areas (GTZ for Rio Platano and the IDB for the Bay Islands). The IDA loan (Table 3) would provide financing for 7 protected areas, of which $2.9 million would finance infrastructure and equipment and $0.4 millionwould finance planning and demarcation.

19. Demarcation of the core areas will be a costly long-term process. If done gradually, in consultation with the local population, the process will be far less costly and achieve better consensus. The combined Natural Resources Management and GEF projects would earmark about $600,000 for the most urgent locations. It is assumed that other projects (GTZ, etc.) would contribute additional funds toward the long-term goal of complete demarcation. Preparation of protected area management plans, executed under local contracts, would cost an estimated $650,000 for all 16 core management units. The combined Natural Resources Management and GEF projects would earmark the funds for planning for those areas which so far are not considered to be financed by other donors.

20. Annual operational Costs of the 16 core management units. The MICOSYS software has calculated the annual costs for administering and managing the 16 core management units. The program assumes inclusion of costs for: (a) write-off and maintenance of buildings and equipment; (b) all the staff costs; and (c) all office costs, including those of headquarters. It does not include capital costs of investments and land. It only generates an estimate of the minimum payments required to run the system. For the 16 core management units plus headquarters costs, the program estimates the annual costs at about $2.6 to $3.0 million.

21. Recurrent costs of the project. The project would finance recurrent costs until the self- financing fund mechanism takes over in the course of the third year. The project would finance new personnel to ensure that the management unit would grow to the required size of 400 staff. While the project's share in wages would decrease in the third year, the fund mechanism would start taking over until the full required strength has been reached. Equally, for operation and Annex E Page 8 of 11 maintenance of vehicles, the project would finance recurrent costs until the fund takes over in the third year.

22. Income from tourism. At present, the main tourism attractions of Honduras are scuba- diving at the Bay Islands (25,000 foreign visitors/year), the Ruins of Copan (80,000 visitors/year) and the beaches of Tela and La Ceiba. La Muralla attracts about 60,000 visitors per year, the majority of whom are nationals, with a high percentage of students. All told, Honduras has about 440,000 entries per year. Tourism from North America and Europe is estimated at 120,000/year. It is expected that if the national parks system were to offer 5 visitor centers of international quality, 80 percent of the North American and European tourists would visit at least 1 national park, 50 percent would visit 2 national parks and 30 percent would visit 3 national parks. At an entry fee of $10 per area, this would generate $1,920,000 per year. Based on estimates of the current level of visitation to various areas, national visitors would pay $ 100,000 per year if they were to pay one dollar per entry per person.

23. A growth of the tourism market of 7 percent per year does not seem unrealistic, given the fact that the Bay Islands are considerably upgrading the quality of their tourism infrastructure, Copan is about to finish a good quality visitor center, and given the construction of the visitation infrastructure proposed under this project. This would lead to a doubling of the national parks income in 10 years, an important ingredient in the recipe for self sufficiency.

24. Self sufficiency for the 16 core management units. In 1995, GOH financing of protected areas was at a level of about $600.000, not including about $200,000 for staff costs and office costs. If all the entry fees are administered through the fund to be redistributed among the 16 selected management units, this would generate about $2.0 million per year. If the GOH continued to pay $0.8 million per year into the fund, the total annual budget for administration and management would allow for $2.8 million for the 16 selected management units and the headquarters. Assuming a stringent mandate and a balanced budget discipline, the system could be effectivelyself-sufficient. 3

INSTITUTIONAL ARRANGEMENTS

25. The Department of Protected Areas and Wildlife (DAPVS) of the state forestry agency (AFE-COHDEFOR) would be responsible for the implementation of the sub-component.

26. GEF Biodiversity Conservation Project. The GEF Biodiversity Conservation Project, currently under formulation, is expected to be fully integrated with the Biodiversity Conservation sub-component under the IDA loan. Major components would include: (a) institutional

3 Administeringall entryfees under one fund does not necessarilyimply that all revenuesmust go intothe fund itself. As an incentiveto providequality service and activefee collection,the feasibilityof allowinga percentage of the collectedfees to be left in the area wouldbe explored. Annex E Page 9 of 11

strengthening; (b) financing for infrastructure and elaboration of management plans for priority protected areas in the Meso-American Biological Corridor, including one visitor center; (c) buffer zone investments; and (d) monitoring.

IMPLEMENTATIONPLAN

27. The first year of the project would be devoted to developing an agreed structure and working procedures for the Parks Funds and contracting the design of the infrastructure for the protected areas included in the sub-component. During the second year, the project would enter its construction phase. It would finance the construction of 20 ranger stations, 3 visitor centers, trails, the production of all visitor center and interpretation trail exhibition material, as one or two turn-key contracts. Furthermore, it would finance 5 vehicles, 10 motor cycles 15 horses and the communication equipment and building inventories for the buildings to be constructed. Another master plan would be developed and demarcation would take place in critical areas. The staff would be raised with another 60 persons and a training component would be financed. The fund would finance the management fee of the fund and recurrent costs for vehicle maintenance.

28. The third year would mark the beginning of the self-financingphase. It would be the first year of operation of the visitor centers. The self-financingfund would start receiving revenues from entry fees. The project would finance the construction of 10 ranger stations, trails, the acquisition 5 motorcycles and of the communication equipment and building inventories for the ranger stations to be built and the demarcation of critical zones. The project would still finance a good share of the personnel costs, but during this year the fund would start contributing as well. In the fourth year the project would continue to finance training, and some contribution to staff costs, but the major share would come from the fund. The project would finance 5 motorcycles and the construction of trails. The fifth year would see the consolidation of the new administration. The project would still finance training, the construction of some trails and the purchase of 5 motorcycles.

BENEFITS AND RISKS

29. The benefits of concentrating available resources on a core conservation system are:

(a) The project would open up the most attractive national parks of the country to the people of Honduras, who could then visit them at a very low cost. Those parks would stimulate visitation by students from elementary schools, high schools, and universities and generate a demand for biodiversity conservation.

(b) Near the parks with visitor centers, tourism activities would gradually generate new employment opportunities for local populations. Annex E Page 10 of 11

(c) Adding quality tourism destinations to the country would benefit the entire tourism sector, thus contributing to the growth of an economic activity with high labor demand.

(d) In combination with the associated GEF project, the investments would provide major benefits to the inhabitants of buffer zone areas and the biological corridor, including indigenous peoples.

(e) The investment would help put a viable protected areas service into place, largely supported through a self-financingmechanism.

30. The risks of concentrating available resources on a core conservation system are:

(a) Too broad a mandate being thrust upon the protected areas unit (which would include buffer zone management activities) may lead to budgetary problems and to inadequate management and control in the core areas. Degradation as a result of poor visitor management, fire management, and increasing deforestation of the core areas could result. The management of this risk would include using the Upland Producer's Fund mechanism of the project for buffer zone activity promotion of strategic alliances with NGOs, municipal governments and other local interest groups for activities which do not fall directly under the competency of the protected areas unit.

(b) The income generated by a restricted number of highly attractive national parks would have to be redistributed in accordance with biodiversity protection needs as well as visitor management needs, taking into account the needs of the core conservation system as a whole. If this were not done consistently, only the visitation hot-spots will receive adequate financing, while areas of high biodiversity but limited or no visitor potential (such as Rio Platano) may be left under-financed and poorly protected. This risk would be managed through creation of a funding mechanism independent of the government and capable of capturing financial resources from other sources (e.g. bi-lateral assistance).

(c) Additional visitor infrastructure beyond the 5 visitor centers would raise management costs, but not the total number of visitors to national parks, thus jeopardizing the self-sufficiencystrategy. No additional visitor center should be added until the total system has reached a visitation level of 400,000 entries by foreign visitors, after which each additional 100,000 foreign visitors would allow for, but certainly not require, the construction of an additional visitor center. The addition of any visitor center would thus need to be based on a cost-benefit analysis, to ensure maximum returns for the benefit of the core conservation system. Annex E Page 11 of 11

(d) If the tourismand park visitationprojections are not met, the systemwould not become self-sufficientover time. Nevertheless,only a very pessimisticscenario would create a situationworse than that which currentlyprevails. Were visitations50 percent lowerthan projected,the generatedincome plus the continuationof the current governmentbudget would still be enoughto pay for the personnelcosts and runningexpenses (fuel and maintenancefor vehicles)during the projectlife. HONDURAS RURAL LAND MANAGEMENT PROJECT

ComponentsProject Cost Summary

(Lempira '000) (USS'000) Y / Total * % Totbi Foreign Base Foreign Ban Local Foreign Total Exchange Costs Local Foreign Total Exchange Costs A. Land AdministrationModernization I Pilot Phase 15,581.1 11,105.3 26,686.3 42 5 1,205.6 859.3 2,064.9 42 5 2. PostPilot Phase 116,959.1 8,659.2 125,618.2 7 26 9,049.8 670.0 9,719.8 7 26 SubtotalLand Administration Modernization 132,540.1 19,764.4 152,304.6 13 31 10,255.4 1,529.3 11,784.7 13 31 B. NaturalResource Management 1. ImprovedNatural Resource Management 64,600.4 77,055.6 141,656.0 54 29 4,998.5 5,962.2 10,960.7 54 29 2. Fund for UplandProducers 87,383.4 - 87,383.4 - 18 6,761.3 - 6,761.3 - 18 3.BiodiversityConservation 53,600.2 15,723.0 69,323.3 23 14 4,147.3 1,216.6 5,363.9 23 14 SubtotalNatural ResourceManagement 205,584.1 92,778.7 298,362.7 31 61 15,907.2 7,178.8 23,086.0 31 61 C. ProjectAdministration 40,470.8 1,033.0 41,503.8 2 8 3,131.5 79.9 3,211.4 2 8 Total BASELINE COSTS 378,595.1 113,576.0 492,171.1 23 100 29,294.0 8,788.0 38,082.0 23 100 PhysicalContingencies 12,812.3 5,678.8 18,491.1 31 4 991.4 439.4 1,430.8 31 4 PriceContingencies 108,495.0 23,189.2 131,684.2 18 27 1,906.1 414.0 2,320.1 18 6 Total PROJECTCOSTS 499,902.3 142,444.0 642,346.4 22 131 32,191.5 9,641.4 41,832.9 23 110 HONDURAS RURAL LAND MANAGEMENT PROJECT ,' ,

Expenditure AccountsProject Cost Summary

(Lempir '000) (USS '000) % % Total % % Total Foreign Bae Foreign Bae Local Foreign Total Exchainge Costs Local Foreign Total Exchange Costs

L Investment Costs A. Works . Civil Works 37,181.6 - 37,181.6 - 8 2,876.9 - 2,976.9 - 8 2. Mapping works 2,760.7 - 2,760.7 - 1 213.6 - 213.6 - Subtotal Works 39,942.3 39,942.3 - 8 3,090.6 - 3,090.6 - 8 B. Goods 1. Vehicles 789.0 17,907.6 18,696.6 96 4 61.0 1,385.6 1,446.7 96 4 2. Computers 1,077.1 21,382.8 22,459.9 95 5 83.3 1,654.5 1,737.8 95 5 3. Office equipment and fimniture 691.5 691.5 1,383.0 50 - 53.5 53.5 107.0 50 4. Field cquiprnent 1,002.1 13,843.8 14,845.9 93 3 77.5 1,071.2 1,148.7 93 3 Subtotal Goods 3,559.6 53,825.7 57,385.4 94 12 275.4 4,164.8 4,440.2 94 12 C. Consultants I. Intemational Consultants - 57,623.1 57,623.1 100 12 - 4,458.6 4,458.6 100 12 2. Local Consultants 139,170.6 - 139,170.6 - 28 10,768.4 - 10,768.4 - 28 3. Infoiation Campaign 4,556.7 - 4,556.7 - 1 352.6 * 352.6 - I Subtotal Consultants 143,727.3 57,623.1 201,350.3 29 41 11,121.0 4,458.6 15,579.6 29 41 D. Tainirg 29,073.8 2,127.2 31,201.0 7 6 2,249.6 164.6 2,414.2 7 6 E. Fund for Upland Producers 87,383.4 - 87,383.4 - 18 6,761.3 - 6,761.3 - IS Total Investment Cost 303,686.4 113,576.0 417,262.4 27 85 23,497.9 8,788.0 32,285.9 27 85 IL Recurrent Coats A. Incremental recunent costs 1. Salaries 23,503.1 - 23,503.1 - 5 1,818.6 - 1,818.6 - 5 2. Operatingcosts 36,959.5 - 36,959.5 - 8 2,859.8 2,859.8 - 8 3. Maintenace of equipment andvehicles 13,065.1 - 13,065.1 - 3 1,010.9 - 1,010.9 - 3 Subtotal Incremental recurrent costs 73,527.6 - 73,527.6 - 15 5,689.2 - 5,689.2 - 15 B. OperntingcostsforCOHDEFOR 1,381.0 1,381.0 - - 106.9 - 106.9 - - Total Recurrent Cost 74,908.7 - 74,908.7 - 15 5,796.1 - 5,796.1 - 15 Tot BASELINE COSTS 378,595.1 113,576.0 492,171.1 23 100 29,294.0 8,788.0 38,0g2.0 23 100 Physical Ctingencies 12,812.3 5,678.8 18,491.1 31 4 991.4 439.4 1,430.8 31 4 PriceContingencies 108,495.0 23,189.2 131,684.2 18 27 1,906.1 414.0 2,320.1 -18 6 Totl PROJECT COSTS 499,902.3 142,444.0 642,346.4 22 131 32,191.5 9,641.4 41,832.9 23 110 HONDURAS RURAL LAND MANAGEMENT PROJECT

ProjectComponents by Year-- Base Costs (US$ '000)

Base Cost 1997 1998 1999 2000 2001 Total

A. Land Administration Modernization 1. Pilot Phase 1,544.0 514.3 6.6 - - 2,064.9 2. Post Pilot Phase 1,142.4 1,274.1 3,060.1 3,021.8 1,221.5 9,719.8 Subtotal Land Administration Modernization 2,686.4 1,788.4 3,066.6 3,021.8 1,221.5 11,784.7 B. Natural Resource Management 1. ImprovedNatural Resource Management 3,430.0 2,483.2 2,470.9 1,446.1 1,130.4 10,960.7 2. Fund for Upland Producers 1,270.2 1,372.8 1,372.S 1,372.8 1,372.8 6,761.3 3. Biodivcrsity Conservation 966.0 2,921.0 998.8 323.7 154.4 5,363.9 Subtotal Natural Resource Management 5,666.1 6,777.1 4,842.5 3,142.6 2,657.6 23,086.0 C. Project Administration 646.4 615.6 666.9 641.3 641.3 3,211.4 Total BASELINE COSTS 8,998.9 9,181.1 8,576.0 6,805.6 4,520.4 38,082.0 Physical Contingencies 349.3 405.7 330.9 214.8 130.1 1,430.8 Price Contingencies Inflation Local 296.9 1,153.0 2,053.7 2,633.0 2,236.9 8,373.6 Foreign 47.1 96.7 111.5 70.6 88.1 414.0 Subtotal Inflation 344.0 1,249.7 2,165.2 2,703.7 2,325.0 8,787.6 Devaluation -222.5 -872.6 -1,574.1 -2,043.2 -1,755.2 -6,467.5 Subtotal Price Contingencies 121.5 377.1 591.1 660.5 569.8 2,320.1 Total PROJECT COSTS 9,469.7 9,963.9 9,498.0 7,681.0 5,220.3 41,832.9

Taxes 301.5 382.7 273.9 185.6 172.9 1,316.6 Foreign Exchange 3,667.2 2,554.1 1,791.5 821.5 807.0 9,641.4 1 HONDURAS RURAL LAND MANAGEMENT PROJECT

Project Componentsby Year -- Investment/RecurrentCosts (US$ '000)

Totals Including Contingencies 1997 199i 1999 2000 2001 Total

A. Land Administration Modernization 1. Pilot Phase - 1,866.7 Investment Costs 1,336.2 530.4 - - RecurrentCosts 291.4 34.0 7.0 - - 332.4 Subtotal Pilot Phase 1,627.7 564.4 7.0 - 2,199.1 2. PostPilot Phase InvestmentCosts 808.6 910.1 2,520.1 2,176.6 940.6 7,356.1 RecurrentCosts 392.5 457.4 866.8 1,240.9 478.2 3,435.7 Subtotal PostPilot Phase 1,201.1 1,367.5 3,386.9 3,417.5 1,418.8 10,791.8 Subtotal Land Administration Modernization 2,828.8 1,932.0 3,393.9 3,417.5 1,418.8 12,990.9 B. Natural ResourceManagement 1. Improved Natural ResourceManagement InvestnentCosts 3,520.2 2,555.0 2,623.1 1,498.2 1,154.2 11,350.7 RecrTent Costs 132.9 157.1 161.2 165.4 169.7 786.2 Subtotallmproved Natural ResourceManagement 3,653.1 2,712.1 2,784.3 1,663.6 1,323.9 12,137.0 2. Fund for Upland Producers InvestmentCosts 1,286.7 1,426.8 1,463.9 1,501.9 1,541.0 7.220.3 3. Biodiversity Conservation InvestmentCosts 752.9 2,680.7 833.6 179.6 184.3 4,631.1 RecurrentCosts 264.0 543.8 279.0 185.2 - 1,272.0 Subtotal ltodiversity Conservation 1,016.9 3,224.5 1,112.6 364.9 184.3 5,903.1 Subtotal Natural ResourceManagement 5,956.7 7,363.4 5,360.8 3,530.4 3,049.2 25,260.4 C. ProjectAdministration InvestmentCosts 619.9 602.4 675.5 663.6 680.8 3,242.2 RecurrentCosts 64.4 66.1 67.8 69.6 71.4 339.4 Subtotal Project Administration 684.3 668.5 743.3 733.2 752.2 3,581.6 Total PROJECT COSTS 9,469.7 9,963.9 9,498.0 7,681.0 5,220.3 41,832.9 Total InvestmentCosts 8,324.6 8,705.4 8,116.2 6,019.9 4,501.0 35,667.1 Total RecurrentCosts 1,145.2 1,258.4 1,381.8 1,661.1 719.3 6,165.8 HONDURAS RURAL LAND MANAGEMENT PROJECT

Project Componentsby Year -- Totals Including Contingencies (US$ '000)

Totals Including Contingendes 1997 1998 1999 2000 2001 Total

A. Land Administration Modernization

1. Pilot Phase 1,627.7 564.4 7.0 - - 2,199.1 2. Post Pilot Phase 1,201.1 1,367.5 3,386.9 3,417.5 1,418.8 10,791.8

Subtotal LAnd Administration Modernization 2,828.8 1,932.0 3,393.9 3,417.5 1,418.8 12,990.9

B. Natural Resoume Management

1. improved Natural Resource Management 3,653.1 2,712.1 2,784.3 1,663.6 1,323.9 12,137.0 2. Fund for Upland Producers 1,286.7 1,426.8 1,463.9 1,501.9 1,541.0 7,220.3 3. Biodiversity Conservation 1,016.9 3,224.5 1,112.6 364.9 184.3 5,903.1

Subtotal Natural Resource Management 5,956.7 7,363.4 5,360.8 3,530.4 3,049.2 25,260.4

C. Project Administration 684.3 668.5 743.3 733.2 752.2 3,581.6

Total PROJECT COSTS 9,469.7 9,963.9 9,498.0 7,681.0 5,220.3 41,832.9

t0 HONDURAS

RURAL LAND MANAGEMENT PROJECT . Expenditure Accountsby Years -- Base Costs (USS '000) 0

Base Cost Foreign Exchange 1997 1998 1999 2000 2001 Total % Amount

L InvestmentCosts A. Works 1. Civil Works 388.1 1,515.9 495.9 382.4 94.6 2,876.9 - - 2. Mapping works - - 213.6 - - 213.6 Subtotal Works 388.1 1,515.9 709.6 382.4 94.6 3,090.6 - B. Goods 1. Vehicles 1,186.6 124.1 100.0 18.0 18.0 1,446.7 95.8 1,385.6 2. Computers 907.9 711.9 107.7 10.3 - 1,737.8 95.2 1,654.5 3. Office equipment and furniture 34.4 32.3 13.4 13.4 13.4 107.0 50.0 53.5 4. Field equipment 277.8 559.2 311.7 - - 1,148.7 93.3 1,071.2 Subtotal Goods 2,406.7 1,427.6 532.9 41.7 31.4 4,440.2 93.8 4,164.8 C. Consultants 1. Intemational Consultants 1,161.4 930.3 1,062.5 657.3 647.1 4,458.6 100.0 4,458.6 2. Local Consultants 1,987.3 1,830.8 3,073.2 2,421.1 1,456.0 10,768.4 - - 3. InformationCampaign 50.3 231.6 27.0 21.9 21.9 352.6 - - Subtotal Consultants 3,199.0 2,992.8 4,162.7 3,100.3 2,124.9 15,579.6 28.6 4,458.6 D. Tramiing 604.4 661.2 502.3 390.3 256.0 2,414.2 6.8 164.6 E. Fund for Upland Producers 1,270.2 1,372.8 1,372.8 1,372.8 1,372.8 6,761.3 - - Total Investment Costa 7,868.4 7,970.3 7,280.2 5,287.4 3,879.6 32,285.9 27.2 8,788.0 IL Recurrent Costs A. Incremental recurrent costs 1. Salaries 496.0 601.0 369.5 295.0 56.9 1,818.6 2. Operating costs 385.8 433.2 705.6 883.9 451.2 2,859.8 3. Maintenace of equipment andvehicles 228.5 154.9 199.0 317.6 110.9 1,010.9 Subtotal Incremental recurrent costs 1,110.3 1,189.1 1,274.1 1,496.6 619.1 5,689.2 B. Operating costs for COHDEFOR 20.1 21.7 21.7 21.7 21.7 106.9 Total Recurrent Costs 1,130.5 1,210.8 1,295.8 1,518.3 640.7 5,796.1 - Total BASELINE COSTS 8,998.9 9,181.1 8,576.0 6,805.6 4,520.4 38,082.0 23.1 8,788.0 Physical Contingencies 349.3 405.7 330.9 214.8 130.1 1,430.8 30.7 439.4 Price Contingencies Inflation Local 296.9 1,153.0 2,053.7 2,633.0 2,236.9 8,373.6 - - Foreign 47.1 96.7 111.5 70.6 88.1 414.0 100.0 414.0 Subtotal Inflation 344.0 1,249.7 2,165.2 2,703.7 2,325.0 8,787.6 4.7 414.0 Devaluation -222.5 -872.6 -1,574.1 -2,043.2 -1,755.2 -6,467.5 Subtotal Price Contingencies 121.5 377.1 591.1 660.5 569.8 2,320.1 17.8 414.0 Total PROJECT COSTS 9,469.7 9,963.9 9,498.0 7,681.0 5,220.3 41,832.9 23.0 9,641.4

Taxes 301.5 382.7 273.9 185.6 172.9 1,316.6 Foreign Exchange 3,667.2 2,554.1 1,791.5 821.5 807.0 9,641.4 HONDURAS RURAL LAND MANAGEMENT PROJECT

Components by Financiers (US$'000)

Locl GOH ]DA Beneicdaries Total (Exd. Dudes& Amount % Amount % Amount % Amount % For. Exchb Taxes) Taxes A. Land AdminsbtrationModernization 1. PilotPhase 157.1 7.1 2,042.0 92.9 - - 2,199.1 5.3 919.3 1,279.8 - 2. Post Pilot Phase 2,557.1 23.7 8,234.7 76.3 - - 10,791.8 25.8 724.8 10,041.1 25.9 Subtotal Land Adminbtraton Modernization 2,714.1 20.9 10,276.7 79.1 - - 12,990.9 31.1 1,644.1 11,320.8 25.9 B. Natural ResourceManagement I. ImprovedNatural ResourceManagement 1,547.9 12.8 10,589.1 87.2 - - 12,137.0 29.0 6,574.2 5,230.4 332.3 2. Fund for Upland Producers 505.4 7.0 5,271.2 73.0 1,443.7 20.0 7,220.3 17.3 - 6,714.9 505.4 3. BiodiversityConservation 1,230.0 20.8 4,673.1 79.2 - - 5,903.1 14.1 1,335.2 4,277.6 290.4 Subtotal Natural ResourceManagement 3,283.4 13.0 20,533.4 81.3 1,443.7 5.7 25,260.4 60.4 7,909.4 16,222.9 1,128.1 C. Project Administration 375.7 10.5 3,205.9 89.5 - - 3,581.6 8.6 87.9 3,331.1 162.6 Total Disbursement 6,373.2 15.2 34,016.0 81.3 1,443.7 3.5 41,8329 100.0 9,641.4 30,874.9 1,316.6

O1 N HONDURAS RURAL LAND MANAGEMENT PROJECT

SuggestedAllocation of Proceeds (US$ thousands)

Loan Amount Disbursement

(1) Works (a) Works - Real Estate Registry 50.00 85 (b) Works - Natural Resource 250.00 70 (c) Works for Forest Management Plans 75.00 70 (d) Other Works 2,100.00 85

(2) Goods and Vehicles (a) Goods - Real Estate Registry 600.0 100%.FE, 80% LE (b) Other Goods 2 300.0 100%.FE, 80% LE

(3) Consultant Services and Studies (a) Consultants -Real Estate Registry 450.0 100 (b) Consultants - Management Plans 1,200.0 100 (c) Other Consultants 14,000.0 100

(4) Training (a) Training - Real Estate Registry 90.0 100 (b) Other TraIning 2,200.0 100

(5) Subprojects for Upland Producers Fund 5,200.0 100

(6) PPF 2000.0 100

(6) Incremental Recurrent Costs (a) IRC - Real Estate Registry 800.0 90/ first two years, 50% next two, 20% thereafter (b) Other IRC 1,300.0 909 first two years, 50% next two, 20% tereafter

(8) Unallocated 1-385.0 0

TOTAL 34,000.0 HONDURAS RURAL LAND MANAGEMENT PROJECT

Estimated Disbursements (US$ '000)

Standard DisbursedDuring Semester Cumulative Disbursement PrefUe bt [BRD Fiscal Year Semester Ending Amount %of Total Amount % of Total % ofTotal

1997 Jun-97 - 0% 0 0% 0

1998 Dec-97 4,000.0 121% 4,000 12% 10 Jun-98 4,000.0 12% 8,000 24% IS

1999 Dec-98 3,900.0 11% 11,900 35% 26 Jun-99 3,900.0 11% 15,800 46% 38

2000 Dec-99 3,950.0 12% 19,750 58% 54 Jun-00 3,950.0 12% 23,700 70% 70

2001 Dec-00 3,000.0 9%/, 26,700 79%/, 82 lur.-O 3,000.0 9Yo 29,700 87%/ 90

2002 Dec-01 2,150.0 6% 31,850 94% 98 Jun-02 2,150.0 6% 34,000 100%/6 100 av The Loan assumedto become effective during the last quarterof 1997. Totals may not add due to rounding Includes price and physical contingencies. b/ Standard Disbursement Profile for agriculturesector in Honduras(June 1995).

ED Annex G Page 1 of 6

HONDURAS

RURAL LAND MANAGEMENT PROJECT

PROJECT MONITORING, REPORTING AND EVALUATION

1. MONITORING

1. The establishment of an efficient project monitoring system is instrumental to assure the consistency of project activities. A set of monitoring indicators, based on the project's logical framework analysis, is shown in Table A. The project's monitoring system will be elaborated separately for the land administration component, the upland fund subcomponent, and the forest management and biodiversity subcomponents. The first two components will be focused on the PCU in the Secretariat of Agriculture and Livestock (SAG) and the last two components will be focused on AFE-COHDEFOR. The project monitoring system will be based on a Management Information System (MIS) with database which organizes pertinent physical and financial information.

A. LANDADMINISTRATION COMPONENT

2. This component involves coordination of actions among a number of participating institutions at federal and field operations level. A detailed schedule of activities, costs, and timetable have been developed in Project Management software in close collaboration with all the implementing institutions. This schedule will provide the basis for monitoring financial flows. The MIS will provide information regarding the progress in the pilot and subsequent expansion sites, and financial parameters will be adjusted for the expansion phase, based on the experience gained in the implementation of the pilot phase. Each territorial area for which information is being acquired and registered will be treated as a subproject. Approval of initiating activities in each area will be determined on the basis of compliance with minimum criteria for implementation (formation of territorial commissions, signing agreements with the municipality and other agencies, recruiting an implementing field team, training relevant staff and consultants in procedures, and initiating promotional activities). A decentralized database will be developed, so that field implementing units have access to needed information and can generate information to be aggregated by the PCU.

B. UPLANDFUND SUBCOMPONENT

3. This subcomponent involves setting up of an independent financial and approval mechanism for selecting and funding technical assistance and research projects in the upland areas of the project, and possibly the buffer zones areas of the complementary GEF project under preparation. Monitoring of the overall setup and management of the fund will be carried out under the IDB-assisted Agricultural Technology Project. The PCU will have access to this monitoring database and will develop a register of selected projects. Annex G Page 2 of 6

C. FOREST MANAGEMENTAND BIODIVERSITY SUBCOMPONENTS

4. These subcomponents would both be implemented by AFE-COHDEFOR through the normal operating procedures of this institution. AFE-COHDEFOR would monitor activities through a database maintained in its administrative offices, based on an MIS system that will be developed in the initial implementation of the project by the same consulting team developing the MIS for the other components. The MIS system would be linked to the monitoring information base in AFE-COHDEFOR and the Department of Protected Areas (DAPVS), that will also be in charge of monitoring activities in the proposed GEF Biodiversity Project.

5. Technical assistance in monitoring and evaluation would be provided to all the monitoring agencies during the first year of the Project. While some working experience exists in these areas, it is essential for a period of time that the units responsible for planning, monitoring and evaluation receive assistance from a qualified consultant, in order to assist in the design and operation of the system. TORs for such a consultant are included in the Project Implementation Plan.

2. REPORTING

6. To the extent possible, reporting procedures within each component would follow existing institutional reporting systems, in order to avoid duplication of effort. The complete project reporting system would produce different types of reports, depending on the user level involved. The PCU would compile monitoring reports and a single report will be received on the progress with the two main components and their subcomponents.

7. The PCU will prepare and submit quarterly reports to IDA (March 31, June 3 0, September 30, and December 31). The quarterly reports would contain the current update of the MIS, with all data provided in a compatible data format. The PCU and AFE-COHDEFOR administrative offices as a minimumwould acquire an internet connection to allow easy transfer of reporting information to the IDA Task Team supervising the project. In addition, for the Upland Funds subcomponent, monthly reports would be prepared by the PCU on the status of the proposals selected in the Upland Fund register. The private financial institution managing the Upland funds would maintain financial monitoring of the status of payments of selected projects.

8. Quarterly reports would contain information on (a) status of project implementation; (b) identification of problems and recommended solutions; (c) progress on monitorable indicators; and (d) status of legal covenants. For the final year's report, in addition to the above information, the PCU will provide a complete picture of the project's development over the year. The June 30 report of each year would serve as a point of discussion of the planned activities for the next year's annual workprogram (POA), since a draft of the POAs will need to be submitted to the Finance Ministry before September 30 of a given year. Tables of indicators would be designed to facilitate comparison of the current year's data with that of previous years. Annex G Page 3 of 6

9. Auditing would be contracted by the PCU for all components. This would be in addition to the regular audit requirements of the various agencies receiving funds directly from the national budget as part of the counterpart funding. A multi-year audit contract would be sought with consultants. The Government would hire independent auditing services satisfactory to IDA to prepare annual audits at the end of each Honduran fiscal year, starting January 1996. The audit reports would include separate opinions on the use of SOEs and the special account. The PCU would submit the audit reports to IDA within six months of the close of each fiscal year. International consultants would conduct technical audits of the land administration and natural resources component at the end of year 2 and year 4. These would be critical given the newness of the folio real approach in Honduras and the lack of experience in AFE-COHDEFOR with decentralized procedures

3. EVALUATION

10. The project would develop and implement a range of evaluation studies to measure the impact of the subcomponent investments and to provide appropriate feedback to improve project methodology and implementation. In addition, a pilot evaluation will be carried out in Year 2 of the first phase of activities in the forest management sub-component and of the pilot phase activities in the land administration component. A joint action plan will be prepared by GOH and IDA identifying the critical actions which need to be implemented prior to execution of the expansion phases of the land administration component and the forest management subcomponent. These reviews will also evaluate progress in the Upland Fund and identify critical actions, if deemed necessary, for further implementation of activities in this sub-component. The PCU would be in charge of drafting Terms of Reference (TORs) in consultation with IDA and for contracting the consulting services for the following: HONDURAS

RURAL LAND MANAGEMENT PROJECT

Performance Monitoring Indicators

I L is0

Strengthenthe technical * IDA loan ($ 34 million). * Equippedfield (3) and Willingnessto * Staff technicallycapable of and administrative * Counterpartfunds. regionaloffices (11). decentralize carrying out their capacityof AFE- * Vehicles,offices. . Decentralizedauthority administrativeauthority. responsibilities COHDEFORat the * Training and consultant structureof field offices. Abilityto procure good * MIS of forest estate that central, regionaland services. . Trainednational and and services in a timely allows monitoringof resource local levels,to plan, regional staff and private manner. * Environmentaland social executeand supervise forest managers. concernsincorporated into forestrymanagement. . Catalogueof national forest procedures estate.

Bring significantareas . Contractsfor plans and . Masterplans for 344,000 Inabilityto involve * Increasedarea of forestunder of national forestunder studies. has. of publicforest land) communitiesin planning sustainablemanagement with sustainable * Surveyequipment. and productionplans for process. public involvement. managementand * GIS computerdatabase 110,00has. Technicallimitations on * Increasedincome stream to increaseoutputs and on managementplans * ElAs and 60 public developmentof adequate local peoplefrom forestsand environmentalfunctions at field level. consultationson plans. plans. increasedforest product of the forestresource * ElAs contracted. * Prioritywatershed plans output. base. * Communitydialogue for six areas. * Conservationof priority and plan for * Auctionsfor 30,000has. of watershedsand environmental involvementof nationalforest areas. forestrypracticed. populations. HONDURAS

RURAL LAND MANAGEMENT PROJECT

Performance Monitoring Indicators

0&JECT11TFS NPINIS Ol'l-PtIS RISKS AND)CRITICAL 01" TAIES AD) 1IJ1PACTS (Resources pwrovi(le(llor Goo(ds and, eri icesp)ro(uIced( ASSI'.\ IPTIONS (ol pro.ject acti it ies) I)roject activities) b! tile pro.ject)

Strengthenthe . Visitorscenters and . 4 Parks with eco-tourism Willingnessto pay * Increasedincome from protectedareas system interpretivetrails for attractions. entrance fees. protectedareas. in Honduraswith eco-tourism. . 10 protectedareas under Administrativeability to * Freezingof invasionsand improvedinfrastructure, . Creationof self- improvedmanagement. manageand allocate fund. encroachmentin protected self-financing financing fund. * Implementationof self- areas as result of clear mechanisms,clear * Demarcationof financingfund. demarcationand improved demarcationof area protectedareas. protection. boundariesand * Training of currentand * Improvedadministrative improvedtraining for new staff. capacity to managepriority staff. biodiversity.

Channel technical . Create an UplandFund . 120Proposals for upland Selectionprocess is too . Increasedproductivity of assistanceand research for rural producers. for technical assistance controlledor politicized. agricultureand forestry. funds to upland * Finance demand-driven funded. Not enoughproducers can * Improvementof researchand producersand NGOs researchand extension. . Strengthenedservices of 40 organize to find service extensionservices available and produceror * Evaluateexperience for NGOsand producer providers and prepare to upland farmer. community expansionto other organizations. proposals. * Improvedorganization of organizationswith upland areas. * Focusedresearch on upland 6500 upland producers. experiencein agricultureand forestry * Creationof successfulmodels innovativetechnology management. for communityforestry. transfer programs. E

o m

0% HONDURAS 0%

RURAL LAND MANAGEMENT PROJECT

Performance Monitoring Indicators

Pilot and evaluate a . Pilot a system of folio * Folio Real established in Lossof politicalwill. * Improved tenure security as viable system for land real in Comayagua. four Departments of Complexity of system incentive for investmnentin administrationbased on . Land adjudicationand Honduras. cannot be maintained. four Departnents of an integratedfolio real titling withinpilot . Modernizedinstitution for Incentivesto maintain Honduras. legal and physical areas. PropertyRegistry. system are not adequate. * Greatertenure securityfor the informationbase. * Basedon pilot approve * Increasednumber of rural poor. a new registrylegal landholderwith clear title. * Reducedforest conversionin framework. * Clear definitionof land frontier areas of Yoro and * Establisha new and forestrytenure in Olanchoand reducedforest institutionfor Property projectarea. degradationelsewhere. Registry. * Coordinatedworkprogram * Modernland administration. * Createa systemfor among DEC, NPR, INA, maintainingfolio real. and municipal cadastre. Annex Hl Page 1 of 7 HONDURAS

RURAL LAND MANAGEMENT PROJECT

ECONOMIC ANALYSIS

1. The economicanalysis of the proposed projecthas focusedonly on the economic impactof the productiveactivities under the Natural ResourceManagement Component, representingabout 50 percent of project investmentcosts, for whichreasonable benefit calculationscan be made. The other componentsOand administration, increasing governmentand communityknowledge on soil and forest management,institution building etc.) are regardedas necessarypre-conditions for avoidingundesirable social, economic and environmentalcosts. The expectedbenefits of enhancingthe legal securityof landholders,for example,would derivefrom: (a) resolvinglong-standing tenure conflicts whichhave deniedgovernment and privatelandholders the abilityto manageforests for their own benefits;(b) creating a more transparentand efficientland market;and (c) providinga mechanismto preservethe value of future investmentsin the cadastraland land adjudicationprocesses. The impact of increasinggovernment and community knowledgeon managingforests and soils wouldbe to increaseresponsibility of governmentand communitiesfor the managementof their naturalresources and enable themto makemore efficientchoices in land managementand better implementtheir managementactivities.

2. Land Administration Modernization. This component does not lend itself to a cost/benefitanalysis, since many of the benefitscannot be meaningfullyquantified. Benefitsinclude: (a) fulfillmentof the basic purposeof the registry (i.e. provisionof legal securityto landholders);(b) transparencyin land markets;(c) provisionof the basic inputs requiredby municipalitiesto carry out town planningand implementfiscal policy; (d) contributionto governmentand local efforts to control accessto and use of public forest areas; (e) physicalsecurity for the PublicRegistry (PR) data base; and (f) an improvedservice to the public,including a potentialfor remote access. There is some relevantresearch on Hondurasthat calculatesthe potentialreturns from (a) and (b) (i.e. providingcommercial lenders with the securitynecessary to providecredit to landholders engagedin marketagriculture or forestry).A recent Universityof Marylandstudy rigorouslycompared a smallsample of Honduranland reformbeneficiaries with and without legal title and concludedthat the titled group achievedon averagea 5 percent increasein income(IRR 2 17 percent)attributable to holdinglegal title.

3. A least-costanalysis was carriedout duringproject designto evaluatethe financial costs of implementationalternatives. The resultingcost (approximatelyUS$2.85/ha for institutionaldevelopment and completingthe legal land informationbase for 37 percentof Honduras' land area, includingover 50 percentof the country'sproduction forests) is extremelylow. Thisis possiblebecause Honduras has significantexperience through its twenty-yearland titling program and is relativelybetter off withinthe regionin terms of the existinginformation and data infrastructure.An additionalanalysis of the potentialfor Annex Hl Page 2 of 7 financial sustainabilityof the modernized registry system to be put in place by the project was carried out (see project file: Korczowski, 1996. Sistema del Folio Real Nacional y SostenibilidadFinanciera), drawing upon the experience elsewhere in Latin America.

4. Natural Resource Management (NRM). Honduras' forests are one of its most valuable economic assets. The forest management activities proposed in the project would lead to improved management of the forests (national, ejido and private) and, in particular, the pine forests. The current status of these forests varies greatly, but in almost all cases it can be improved through the application of simple forest management techniques. These forests, without management, are estimated to produce between 2 and 4 m3 of commercial wood per hectare per year. With a minimum of management and silvicultural treatments, this could easily be doubled to between 4 and 8 m3/ha/yr. A recent discussion paper (Agricultural Development Program of Honduras, 1996) implies the potential for a ten- to eighteen-fold increase over 1994 state revenues from stumpage charges in national forests dedicated to timber production -- from US$4.8 million (current dollars) to US$47 to US$87 million. Additionally, annual export earnings from well-managed industrial forests have the long-term potential to reach US$200 to US$400 million. Export earnings from 1990 to 1994 totaled U$103.6 million.

5. For the purpose of estimating economic benefits to the forest management activities, several representative forestry and farm models were developed The present and projected values for the main economic variables were considered, using market prices for the financial analysis and economic prices for the estimation of overall impact. For the latter, a standard conversion factor of 0.85 was considered and a conversion factor of 0.7 was used to obtain an approximation of the opportunity cost of labor. Forest management costs include forest inventory, demarcation of parcels, road network design, environmental and social assessments and operational planning and supervision. The models developed include:

(a) One hectare models: (i) a 20-year-old, well-stocked stand of Pinus Caribea, with reasonable access harvested at age 40; (ii) a moderately accessible 65-year-old, poorly-stocked stand to be converted in year 1, naturally regenerated and harvested in year 42; and (iii) a 65-year-old, well- stocked stand with reasonable access, to be converted in year 1, naturally regenerated and harvested in year 42.

(b) A project model for the entire 545,000 hectares project area, of which 53 percent is production forest. The model compares the with-project scenario with three possible without-project scenarios: (i) a "low" scenario -- expansion of forest management activities on national lands marginally increases over the current pace (1994-96); (ii) a "medium" scenario -- a 50 percent increase in the rate of expansion of forest management activities, with attention and priority placed on commercial management of well- stocked pine forests with minimal attention to other forest areas; and (iii) a Annex Hl Page 3 of 7

"high" scenario, similarto "medium" except that a more balanced focus (industrial, rehabilitation, conservation) is given to forest management.

6. In all cases, extremely conservative increases in productivity were assumed to result from management activities. As noted above, management inputs could be expected to double forest productivity. In this case, for the one-hectare models, productivity increases of around 33 percent were assumed. For the 20-year project model, overall productivity increases of 13 percent, 7 percent and 4 percent were assumed with project against without-project low, medium, and high scenarios, respectively. These estimates were based on the assumption that productivity gains only accrue from treatment of stands less than 25 years of age. While the operations are both financiallyand economically viable -- in all cases because there exists standing timber which can be profitably exploited with relatively low per unit investments -- the absolute retums to improved management are quite marginal and sensitive to management costs. Project work would include the expansion and strengthening of the current forestry information system and treatment impact monitoring to assist in future decision making using sounder economic criteria.

Table 1. Summary of One-Hectare Forestry Models

NPV Inc. NPV a-Net Invest. & NPV Activity Production Income Increase Operation Inc. B/C Model (m3) (U $) _ (%) Costs Benefits Ratio

______=_____ w/o with w/o with Yield Income (US$) (US$) 20 year old P. caribea 72 97 225 284 35 26 26 86 3.3 65 year old P. l caribea, poorly-stocked 145 192 921 921 32 20 145 7.3 65 year old P. caribea, well- stocked 215 262 2,71 2,71 22 18 145 8.1

/ - all NPVs at 10 percent discount rate

7. The project model (Table 2 below) operates over 20 years (1997 to 2016). Extremely conservative assumptions were made regarding timber yields, timber prices and impacts of silviculturaltreatments on productivity. Productivity increases were assumed to result from improved forest protection, reduced deforestation/degradation and forest fire, in addition to silviculturaltreatments. Initial merchantable volumes were assumed to be 80 and 30 m3/ha for well- and poorly-stocked stands, respectively. No harvesting was assumed for any stand less than 40 years of age. Stumpage values of US$23 and US$11 per cubic meter were assigned to well-stocked and poorly-stocked stands, respectively, under the assumption that the lower volume stands would have higher costs associated Annex H1 Page 4 of 7

their harvests. Rates of harvest were constrained to reflect management objectives of bringing all production forest into a 40-year rotation schedule with even-age management in individual management compartments. The rate of conversion from present age structure to a regular rotation was 65 years, based on a parallel objective to maintain regular harvests during the conversion period while maintaining the presence of mature/over-mature stands (for habitat purposes) during the first 40 years. A 10 percent unit increase was assumed in costs for the "low" scenario to adjust overhead upward to reflect current (estimated) overheads in national forest and to create a penalty for lack of investment in training, information systems, etc. No "institutional efficiency penalties" were assessed in the "medium" and "high" scenario models only to avoid overly-biasing the outcomes. In reality, there would undoubtedly be some costs associated with these scenarios' significantlylower investments in training of personnel.

8. As with the one-hectare forestry models, the results indicate that the presence of immediately exploitable forests ensures that even marginally efficient operations can be both financially and economically attractive. A sensitivity analysis showed that results were very robust. Costs increases and stumpage value decreases in the order of 50 percent were required to undermine the viability of all of the scenarios.

Table 2. Summary of Project Area Forestry Model (1997 - 2016)

Forest Area Pine Pro- Fire, Direct Under duction Area Local Total Effective Forest, Volume Deforesta- Affected Employ- Activity Area Mgmt. Treatments Harvested tion Yearly ment Model (ha) (ha) (ha) (000 m3) (ha/20 yr.) (ha) (yrs.) Without Project Low 545,000 180,000 41,951 1,840 180,000 10,300 2,525 Medium 203,500 71,900 3,460 135,000 8,200 3,670 High 380,000 91,700 3,970 110,000 7,200 5,320

With 545,000 545,000 130,800 6,640 75,000 5,400 7,300 Project

9. For purposes of comparing incremental project costs and benefits, the "medium"f scenario was chosen as the most likely outcome for the without-project comparator. The medium scenario assumes that the major focus would be on timber extraction from existing well-stocked forests with the minimum investment in overall forest management. Based on this comparison, the present value (10 percent discount rate)of the sub- component's incremental benefits are US$17.6 million based on an incremental timber production of 3.2 million cubic meters. The IRR is greater than 50 percent. AnnexHI Page 5 of 7 Table3. Summaryof TimberEarnings (US$'000) from ProjectArea Model

NPV Incremental NPV Activity NPV L NPV With-Project Incremental Model Costs Benefits B/C Costs Benefits B/C Without Project Low 4,819 11,450 2.4 9,458 29,624 3.1 Medium 6,829 23,503 3.4 7,448 17,571 2.4 High 10,018 26,135 2.6 4,260 14,940 2.5

With 14,277 41,076 2.9 Project

/1 - All NPVs are at 10 percent

10. Fund for UplandProducers. Thissub-component would providetechnical assistanceand trainingto 6,500 poor rural householdsfor naturalforest management, hilislopeagriculture, and livestock. Actualactivities under the projectwould vary considerablydepending on communitydemands, the locationand qualityof the producer's land and the technicalskills and initiativeof that producer. A set of representative householdmodels of the types of activitiesproposed, with estimatedcosts and returns over time,were preparedto determinefinancial and economicviability. The focus of the agriculturalmodels were basic grains(corn, beans, and rice), but supplementalfinancial modelsfor livestock(meat and milk)were also developed. A reviewof a seriesof case studiesfrom Honduras provided the basis for estimations.

11. A globalanalysis of the impactof the uplandfund was also carriedout, based on basic grain crops and forestry. The main expectedinterventions from the fund would be:

(a) agriculture- increasedplanting density (corn crops), haltingburning of fields,contour cultivation,crop residuemanagement, "green mulch"and contour vegetativebarriers of vetiver;

(b) forestry- silviculturaltreatments (thinning, assisted natural regeneration), pine forest management/harvesting,and forest protection(fire, encroachment).

12. Calculatedbenefits do not includepotential off-site impacts of reduced soil erosion and run-off. The primaryincentives for adoptionwould be on-sitebenefits (i.e. increased and more stableyields, lower inputs). Yield increasesassumed were conservative(50 AnnexHi Page 6 of 7 percent) relativeto yield increasesreported in case studies(100 percent- 200 percent) and well withinthe technicallyfeasible potential. Economicprices were based on commodity prices (1994/96)reported by the United StatesDepartment of Agriculture,Foreign AgriculturalServices, for salesof US grains in Mexico and CentralAmerica and local marketprices. Over 20 years it was assumedthat an averageof 2.5 other households would adopt the agriculturaltechnologies extended, increasing the economicbenefits across an additional10,000 households. For forestry,the same forest structure,yield impactsand incrementalproduction were assumedas in the nationalforest models. Estimatesof deforestationwere developedbased on nationallevel data, and the assumed "with project" 60 percentreduction is based on HondurasCIDA projectdata. A recent project reviewfound reductions in deforestationrates of 85 to 90 percent resultingfrom the provisionof forest usufruct instrumentsand extensionservices to communitygroups. 13. Based on the crop activitymodels, three farm modelswere tested. All of the modelswere financiallyviable, suggesting that beneficiariesare likelyto be interestedin the adoptionof the improvedfarming measures. The three models are:

(a) Subsistencefarm - 1.05 ha withbeans and corn. NPV (10 percent) = $1,197;IRR > 50 percent.

(b) Subsistencefarm with livestock- 1.05 ha farm with 1 dual purposecow. NPV (10 percent)= $1,507;IRR > 50 percent.

(c) Subsistencefarm with rice - 1.17 ha farm with .12 ha of rice. NPV (10 percent)= $1,362:IR > 50 percent.

Assumingthat the project subsidizesextension and the initialgermplasm introductions (i.e., for cover crops and vegetativebarriers) and that adoptionof technologiesacross the farm are phasedin over 4 years (i.e., the farmersexperiment with and adopt the technologiesat their own pace),there is no declinein familyincome in the first years of adoption.

Table 4. Summaryof EconomicBenefits From Upland Producers' Fund

NPV , Incremental NPV, Incremental (US 000) Benefit Activity Benefit Cost B/C US$'000 Agriculture 11,134 3,497 2.9 Forest management 3,349 1,453 5.2 Total 20,548 4,950 4.2 9,533

All NPVs at 10 percent Annex Hi Page 7 of 7

14. Biodiversity Protection. The protection of Honduras's national parks and reserves is essential to: (a) reduce or eliminate encroachment of agricultural activities and impacts from fire and other activities; (b) increase visitation, particularly by eco-tourists in order to increase foreign exchange income; and (c) improve the protection of the nation's ecology and biodiversity. It is not possible, with the information currently available in Honduras, to estimate the expected increases in direct income to the protected area system through, say, construction and operation of modem visitors' centers and improved road access to the areas; nor the potential increases in tourist income from persons visiting the country entirely or partially because of the improvements in the protected areas system. It is clear, however, from the example of neighboring Costa Rica, and the possible spill-over from joint (e.g., Central American) ecotourism efforts, that these benefits could be substantial.

15. Estimates generated during project design suggest that with current practices and the state maintaining its traditional role, investments of about US$10 million would be required in equipment and infrastructure, with recurrent annual costs of about US$5 million, to operate the system in an adequate fashion. Project interventions are expected to assist in lowering the state's costs by assisting in rationalizing priorities and roles of government (national and local), communities, private sector and NGOs in protected area management. Preliminary estimates show the potential to reduce state recurrent costs to around US$2.5 to US$3.0 million per year while generating income through tourism of between US$1 and US$1.9 million per year.

16. Conclusion. As summarized in Table 5 below, 50 percent of project investment ftundsgoing to directly productive investments would produce measurable economic returns necessary to justify almost 75 percent of the total proposed project costs. The project as designed is a coherent whole, however, and would result in substantial longer- term benefits in land tenure and social well-being that have not been factored into the economic evaluation.

Table 5. Summaryof PotentialEconomic Benefits (US$millions)

PresentValue Net (10% disc) Present Benefit-Cost Component Base Investmentand Value of Ratio Costs Operation Costs Benefits NaturalResources Management 23,086 25,513 n.a. n.a. ForestManagement 10,961 14,277 17,571 1.2 UplandProducers' Fund 6,761 6,876 n.a. n.a. Extension 4,221 4,950 9,533 1.9 Research/training 2,540 1,926 n.a. n.a. BiodiversityConservation 5,364 4,360 n.a. n.a. Land AdministrationModernization 11,785 9,047 n.a. n.a. Project CoordinationUnit 3,211 2,434 n.a. n.a. Total 38,082 36,994 27,104 n.a. Annex H2 Page 1 of 27

HONDURAS RURAL LAND MANAGEMENT PROJECT

ENVIRONMENTAL ANALYSIS AND MANAGEMENT PLAN

INTRODUCTION

1. The proposed project is a pilot which would provide financing to: (a) modernize the system of rural land titling and rural land registration; (b) strengthen Government's forest administration agency, the Administraci6n Forestal del Estado-Corporaci6n Hondurenla de Desarrollo Forestal (AFE), while incorporating surrounding populations in forest and protected areas management and wise use; (c) establish a decentralized fund for support to upland producers for agricultural, livestock and forest technology generation and transfer; and (d) assist in prioritization of protected areas and protected area's investments, providing infrastructure and participatory management for some key parks and reserves, while promoting self-financingof the system. Among the project's central goals is to increase the participation of municipalities,communities, and small farmers, extending successful pilot experiences with locally financed and managed programs to Secretariat of Agriculture and Livestock (SAG) agencies. The project has been assigned to Environmental Assessment Category B.

PROJECTOBJECTIVES

2. The overall objective of the project is to increase the productivity and environmentalvalue of the forest and agricultural resource base. The project continues support of the natural resource management and land administration activities initiated in the AGSAC, and expands its support to include modernization of the land registry system, improve forest management, and technology generation and transfer to upland farmers through actions in priority areas.

PROJECT DESCRIPTION

3. The project would have two complementary components:

4. Land Administration - under this component the project would finance equipment for mapping, surveying, and management information systems, staff and operating costs; consultant services; technical assistance and training for:

(a) pilot implementation of a modern land registry system at municipal level based on a folio real;

(b) cadastral activities; Annex H2 Page 2 of 27

(c) land adjudication and titling in priority natural resource management areas; and

(d) support for conflict resolution.

5. These four subcomponents aim to gradually transform the traditional, personal registry system to a parcel-based system, while supporting cadastral and titling activities in priority areas through the National Agrarian Institute (INA) and the national cadastre (DEC). The component would also support the delimitation and rationalization of land and forest rights on public and community lands within the project areas. Particular support would be given to the regularization of three type of farmers: small-scale farmers without title who settled on national lands before the passage of the AML in 1992; indigenous peoples; and groups of farmers interested in social forestry and conservation activities on public forest lands in their vicinity. A pilot land registry modernization program would be undertaken in 16 municipalitiesof the department of Comayagua to test the methodology and institutional working arrangements.

6. Natural Resource Management - under this component the project would finance staff and operating costs; consultant services; equipment for computers, mapping, and survey activities; vehicles; technical assistance and training, and infrastructure for:

(a) Forest management. Integrated forest management planning and plan implementation in eleven public forest management units (unidades de gesti6n) in three administrative forest regions, totaling about 5,450 kmi, and institutional strengthening including:

(i) forest land tenure - establishing a database/registry of public forest lands; delimiting and marking public forest boundaries; carrying out a census of occupants of public forest lands along with diagnostics and analyses of traditional rights and uses of public forest lands by occupants; initiating the process of formalizing traditional rights and uses of occupants of public forest lands; and entering into legal agreements (contratos de usufructo) with communities and groups over their participation in the responsibilities and benefits of forest management;

(ii) public forest management - carrying out three regional, forest sector environmental assessments; developing or revising eleven forest management master plans; formalizing the master plans through a process of public consultation; inventorying 298,500 hectares of forest; developing detailed management plans for 146,500 hectares of pine production forest; formalizing the detailed management plans through a process of environmental assessment and consultation with affected groups; implementation of management in 146,500 hectares of pine production forest plans Annex H2 Page 3 of 27

(silvicultural treatments - 116,500 hectares and timber auctions - 30,000 hectares); implementing a forest protection program in 545,000 hectares of forest; rehabilitating 45 km of forest roads and; developing and implementing 6 Protected Area plans in locally important protected areas not covered by the Biodiversity component;

(iii) forest regulation and control - decentralizing administrative, budgetary and monitoring functions for forest management to the regional levels; assisting to improve agility and coverage of the Department of Norms and Control as the entity responsible for technical and environmental standards and compliance. See Box 1;

(iv) applied forestry research - strengthening of AFE's permanent sample plot program for monitoring distribution, growth, and regenerative capacity of the commercial forest; and

(v) institutional strengthening of AFE-COHDEFOR - providing support to national and field level offices, upgrading of professional skills of staff, improving systems of forest information and monitoring, and technical assistance in developing new, more detailed operational standards and guidelines for forest technical and environmental aspects of forest management and regulations, through logistic support (vehicles, office and field equipment, rehabilitation of forest management unit offices, operational expenses), training (in key areas for forest management and administration), information systems (in order to systematize, organize, provide access to biophysical and forestry sector information necessary for planning and monitoring of forest resources) and, technical assistance (in support of implementation activities associated with forest land tenure, environmental assessment, institutional decentralization and administration, information systems, training, forest management, forestry research, promotion and extension, forest regulatory policy, community participation and public consultation, and legal advice).

(b) Upland Producers Fund. To finance proposals from producer organizations, NGOs, and municipal governments including staff and operating costs, consultant services, research, technical assistance, and training for the generation and transfer of agriculture, livestock, and forest technologies appropriate to upland areas. The Fund would provide a grant window, independent of SAG, for channeling research and extension activities to upland farmers and forest producers which include: Annex H2 Page 4 of 27

(i) agriculture and forestry extension - providing financing for extension, technical assistance and training to community groups (6,500 households) in sustainable production systems for hillside agriculture, livestock and natural forest management, and to municipalitiesfor management of ejido forests and of 22 municipal microwatersheds;

(ii) agriculture and forestry research - providing financing for applied research in priority topic areas for sustainable hillside agriculture and natural forest management;

(iii) training - of professionals and university students in applied research and application and extension of appropriate natural resource management systems for uplands and natural forest; and

(iv) technical assistance - in support of the institutional and technical aspects of the funds implementation (monitoring, supervision, and technical quality).

(c) Biodiversity Conservation. To finance staff and operating costs, vehicles, infrastructure, research equipment, consultant services, workshops, and training materials for:

(i) management and protection of protected areas - within selected forest blocks of national priority, including development of a Parks' Guard system; delimitation of protected areas; infrastructure development; management planning; and support to community activities in buffer zones (to be financed by GEF through the Upland Producers' Fund) which are compatible with biodiversity conservation objectives.

(ii) studies - of the traditional land uses within the protected areas and the biodiversity values.

(iii) development of mechanisms for self-financing - for the protected areas system, and consultation on these mechanisms with the National Committee on Biodiversity, the Natural Resources and Environment Secretariat (SERNA), SAG, NGOs, and the private sector.

(iv) development of an improved biodiversity information base - as part of the geographic information system being developed for use by AFE as a tool of national resource management. Annex H2 Page 5 of 27

PROJECT AREA

7. Natural resource management activities would be concentrated on important forested areas in the Departments of Yoro, Olancho, Francisco Morazan and a small portion of Atlantida (Olanchito, located administratively in the Yoro region), including the adjacent uplands and priority watersheds, and additional areas of key biodiversity as included under the Biodiversity Conservation subcomponent (to be determined). Land administration modernization would be initiated in the Department of Comayagua, and later extended to Cortes, San Francisco Morazan, Olancho, and Yoro.

TABLE 1. FORESTS IN PROJECT REGIONS | FOREST FOREST AREA REGION HOLDRIDGE LIFE ZONES FOREST TYPE (BY TYPE) Francisco * Humid Sub-tropical Moist Forest * Pine * 332,500 ha Morazan * Sub-humid Sub-tropical Dry * Broadleaf * 67,300 ha Forest * Mixed Pine/Broadleaf * 80,600 ha * Humid Lower Montane Moist Forest Olancho * Sub-humid Tropical Dry Forest * Pine * 480,300 ha * Humid Sub-tropical Moist Forest * Broadleaf 187,500 ha * Per-humid Lower Montane Wet * Mixed Pine/Broadleaf 390,000 ha Forest * Humid Tropical Moist Forest Yoro * Humid Tropical Moist Forest - Pine 129,300 ha * Sub-humid Tropical Dry Forest * Broadleaf 167,800 ha * Humid Sub-tropical Moist Forest * Mixed Pine/Broadleaf 49,500 ha * Per-humid Lower Montane Wet i ______Forest

8. The project area is characterized by climates ranging from sub-humid sub-tropical (.-1,000 mm rain yr- ) to per-humid tropical (>>1,600mm yf 1) and mean annual temperatures ranging from 160 (montane zones) to 240 C (lowlands). The principal general soil groupings in the area include the udults, udalfs, and tropaquepts; the predominate parent materials are limestones and metamorphic rocks of diverse composition. In the specific project areas, all lands are classified (at 1:250,000) as Land Use Capability Class IV (very severe limitations for cultivation requiring careful selection of crop plants and application of soil conservation and management) and classes V (unsuited to cultivation, suitable for improved pasture) to VII (unsuited to cultivation, use restricted to range, wildlife or forest); though such classification should be taken as indicative only given both the scale and the classification's being primarily developed for temperate, mechanized agriculture. Pine forests predominate and the project units comprise areas which are among the major timber production zones in the country; there are some 1.5 million hectares of production forest with an estimated standing volume of (very loose estimate) 93.6 million m3 of timber. Annex H2 Page 6 of 27

9. In biodiversity terms, the value of the project area is reflected in its quantity of protected areas (17 area, both declared and proposed). While "quantities of protected areas" is obviously a rather poor proxy for defining biodiversity values, in fact there is surprisingly little information on the genetic and species resources of the area. Within the more than 5,000km2 of existing and proposed protected areas within the project area, the most important from a national perspective are those in the Departments of Olancho and Yoro.

10. Based on recent work carried out by World Wildlife Fund and the World Bank (Dinerstein, et al. 1995. A Conservation Assessment of the Terrestrial Ecoregions of Latin America and the Caribbean), the project areas coincides with the following forest types and ecoregions of interest.

TABLE2. SoiLs ANDLAND USE iN PROJECTAREA Forest L Soil Utilization (%) 1 Forest (%) Intensi Pastur

______ye e Mgmt. Unit Over Normal Sub Pine Broadleaf Mixed Ag. (%)

San Esteban 60 33 33 40 15 10 15 20 Agua Fria 40 40 20 60 10 20 10 Jocon 34 33 33 60 10 10 20 Yoro 20 60 20 30 10 40 20 Olanchito 60 20 20 15 15 20 25 25 Culni 25 50 25 10 60 5 15 10 Catacamas 30 50 20 5 50 5 20 20 Guaimaca 15 75 10 60 5 5 10 15 El Porvenir 30 60 10 30 10 40 20 Talanga 40 40 20 50 10 20 20 Morazan 45 45 10 45 5 30 20

Source: AFE Department of Forest Management, based on maps of 1:250,000. Map data represents a series of sources, data reflective ofperiod 1990-93. " - "Forest management units" are administrative delineations which include all lands, i.e. they are not strictly comprised of public lands or forest lands, rather their definition encompasses both urban and rural zones and all lands public, private, ejido and communal. "-soil utilization" is a production-oriented concept, for purposes of environmental analysis its utility derives from its definition of "over utilization" and "normal utilization" as indicators of areas of degrading vs. potentially sustainable land uses and "sub utilization" as a crude indicator of natural areas which may or may not be under extensive uses (e.g., forest grazing, fuelwood collection, etc.). Annex 112 Page 7 of 27

(a) Tropical Moist Broadleaf Forest, Central American montane forests - these forests are considered endangered, bioregionally outstanding, and of high priority for conservation at the regional-scale. Within the project area, these types of forests are found primarily within the protected areas system; some remnants might exist outside of the system in private lands. In 198?, all remaining areas of forest above 1,800 meters elevation were gazetted into the protected areas system; thus incoiporating the remainingareas of this type (tropical moist broadleaf montane forests) into the system. Table 3 details the main protected areas of interest in the project area. This forest type would correspond with the "Per-humid Lower Montane Wet Forest" and "Broadleaf Cloud Forest" in the table.

TABLE 3. PROTEcTED AREASOF HIGHESTNATIONAL IMPORTANCEIN PROJECT AREA Forestry Project Forest Area Dominant Forest Type Protected Area Region Mgmt. Unit a (after Holdridge)

Montafia de Yoro, Yoro Yoro 180 Per-humid Lower Montane Wet Forest National Park (Broadleaf Cloud Forest & Mixed Pine/Broadleaf) Tawahka, Olancho Culmi 400 Humid Tropical Moist Forest Biological Reserve Rio Platano Olancho Culmi, 1,000 Humid Tropical Moist Forest

Biosphere Reserve Catacamas _ Patuca, National Olancho Catacamas 600 Humid Tropical Moist Forest

P ark ______Sierra de Agalta, Olancho Sn Esteban, 624 Per-humid Lower Montane Wet Forest National Park Culmi, (Broadleaf Cloud Forest & Mixed Catacamas Pine/Broadleaf) Pico Bonito, Olancho, Olanchito 1,125 Humid Tropical Moist Forest & Humid Sub- National Park Atlantida .. tropical Moist Forest (Pine) Pico Pijol, National Yoro Morazan 155 Per-humid Lower Montane Wet Forest Park (of mod. (Broadleaf Cloud Forest & Mixed inport. ) Pine/Broadleaf) a - The figures given here represent the total areas of the individual protected areas. Most of these, however, lie within more than one forest management unit. Of the 4,084 km2 reported here, plus the more than 1,000 km2 of other protected areas not reported here (being of low priority), only about 20% or 1,000 km2 actually is within the project area.

(b) Tropical Moist Broadleaf Forest, Central American Atlantic moist forests - these lowland forests are considered vulnerable, bioregionally outstanding, and of moderate priority for conservation at the regional- scale. Within the project area such forest types are found both within and Annex H2 Page 8 of 27

outside of the protected areas system. The forest management units containing such forest types are Olanchito, Culmi and Catacamas. In the latter two, the remaining areas of these forest types are almost wholly contained within the protected areas system (Rio Platano Biosphere Reserve and Patuca National Park). In Olanchito, such forests exist both within and outside the protected areas system. They are found in the majority in public lands.

Conifer/Temperate Broadleaf Forests, Central American pine-oak forests - these forests are considered vulnerable, bioregionally outstanding, and of moderate priority for conservation at the regional-scale. These forest types are found within almost all of the project's forest management units; though they represent only a small (usually less than 10%) percentage of the total forest cover-types. The extent to which these exist within and outside of the protected area system remains to be determined when more detailed work is carried out during the forest master planning exercises during project implementation.

Box 1. TECHNCAL ANDENVIRONMENTAL NORMS FOR FOREST MANAGEMENTPLANNING AND HARVESTING IN CONIFEROUS FORESTS

:lhis project has a EnvironmemtalAssesnent Category B-ranking, requiring an environmentalanalysis, but not a full environmentaL i assessment1 Oveall project design is concerned with Box 1. TFCEcHINc.AND EVRO?4NMxTAL NORMS FOR FOREST M.NAGCINL-r PLAmrmC ANDHARvESTiNG LN CoNImoUS FoREssI: Current Regulations (Source: !ormas T&-nicasy Reglamentacionpam la Elaboraci6nde Planes derMarnjo en Coniferas; AFE- COHDEFOR, 16/01193) Legal Basis: Ley De Modenizacion Agricola - Articulos 73.74,75. 78; Ley Forestal - Articles 1,2,3.6,9,10,11,12.24.64,69,81,84,91,99.104,117-137; Decreto 103 - Articles 2.8;;Deweto 31-92 - Article 75; Decseto 85 Land Use * No land, public or private, under forest may be converted to other land uses. * Grazing of tbrest lands only permitted wher grazing compatible with maintenance of forest cover. * All commercial exploitation of forests nust maintain forest cover and, preferably, the existing naturn speciesmix * All public forest lands to be managed under a multiple use concept • In production forests (public or private), the mnaximumallowable cut to be defined by mean amual increment (MAI) sustained vield concept. Forest Management Plans * All commercial forest exploitations (timber and non-timber) require a forest management plan. * Non-commercial exploitations in private and ejido lands are unregulaed a Non-commercial exploitations in nalional forest lands require a forest management plan. a All management plans must be drawn up by professional foresters. * All management plans to include environmntal impact and mitigation form (AFE-DIA. aceeBox 2). * All management plans to include site regeneamtionplan. * All management plans to include forest protection plan (grazing fire, peg and diseases). * All management plans to layout skid trails, roads. logging deck and define water source and waterway protectionzones. * All protected areas (inciudes"declared watersheds" for potable water production) nmst be marked on maps in management plans; no conanercial exploitationsallowed in protected areas. * Professional foresters are those registred with the College of Foresters;professional standing of foresters to be suspendedwhere evidence of incompetenceor ofrruptionresults in request of suspension from AFE-COHDEFOR.

- see project file documents: 1) ESA Consultores, 11 de marzode 1996, Componente de Recursos Naturales, Anexo B, Evaluaci6n Ambiental; 2) UTN Proyecto RUTA IIL octubre 1995, Diagn6stico Rural Partcipatiivo de Comunidades en Unidades de Gestidn Seleccionadas; 3) UIN Proyecto RUTA IILjunio 199 5,Evaluacion de Tecnologias oModelosAgroforestalesyForestales enHondurar, 4) Comisi6n de AuditoriaTecnica-OperacionaL noviembre 1994,Auditona Tecnica-OperacionalDeLa CorporaciOnHondurellaDe Desarrollo Forestal. Annex H12 Page 9 of 27

* All forest maagem plans to be approved by AFE-COHDEFOR prior to their execution. * Approvi of pls based on denonstration of legal rigbts to the land (includes tlg review of presence of protected aremsin plan). and adwerenceto mannt plamiingtechnial and enviomenal norms (based on plan rview and site visit).

Tecnical Elements Of Foresl Masement Plans (anolicable on oublic and ixivatelands) * Maxumwnallowable anna cut basd on Totation age and MAI * Natural regeneration: seed tree c - acceptable up to 60% slope seed tree cut - minim 15 seed treeslha (bet quality. uniformly distributed) minimumacceptable - 1,200 seedling/ha (if less must cany out enrichmet planting) * On slopes6>o60% selective cutting only with overhead cable eraction (in practice, no commecial logging above 60% slope is . approved, except fot smalckale, seective cuts by community gmups). * Mixed ctandsto be havested under seectiwve tsyst m * Seleive cuts notto exceed 50% of oover withminimum 5 year reenry time into stand. * Reain harvesting only on trees with >30 an dbh. * Road. .nminm li% slope (greater qires specific pemitting) .wmusalow fre pasage of ater (al necesary drais drain li, culverts, bridges) kept ckar during dry seon to serve as firebxeaks * Directionalfelling to avod danage to seedtrees and regeneration

• SkiddinW pre.planned layouts to minimize skid d&ance, soil disturbance and to avoid regeneration tree must be topped and limbed prior to skidding one end oftree must be lifted during skidding * Logging decks: siting to mnmie soil and vegdtation disturbance siting away from.water sources, live watercourses, and ephemeral channels earthen loading ramps to be reveetatd * Logging slash tnanaged so as to. avoid creation of fire hazards and spred of disAs. * Controlled burn as required to reduce fuel loading, * Disead and insec attacked stands to be treated (silvicutural controls) * Wildlife: no felling of nest or den trees(snags) no humting (captr or collection)

No gmngm forestar whereregenen isu ssdn 2 metersi heght

11. The environmentaland socialaspects of the project were undertakenby local consultants,an assessmentof biodiversityconservation priorities (ongoing) and the status of protected areas, and a detailedreview of the environmentalcriteria included in forest managementplans. The naturalresource management component seeks to foster communityforestry on municipaland nationalforest lands, and various assessmentswould be made as a part of projectdesign to determinethe appropriatestrategies and institutionalarrangements for communityforestry activities.A full socialassessment has been completedand whichincluded consultations with stakeholdersand an evaluationof the potentialimpacts on indigenouspeoples; a separate IndigenousPeoples Development Plan is not requiredfor this project. A more complete treatmentof socialissues is provided in Annex H3, SocialAssessment.

12. The projectis designedto support a program of institutionalstrengthening, natural resourcemanagement planning, and community-based/participatorynatural resource managementactivities. Resultingly, preparation activities are restrictedto identificationof needs and opportunitiesand the detailingof processes and mechanismsfor project implementation.Detailed information on specificinterventions and activitiesin forest and uplandareas is not, therefore,available for review at project appraisal. The Annex H2 Page 10 of 27

EnvironmentalAnalysis (see Table 4) of the project, therefore,is based on: (a) the specifictypes of investmentactivities that would be financedunder the project;and (b) identificationof environmentalrisks associatedwith such activities. The EnvironmentalManagement Plan subsequentlyproposes the mechanisms,activities and financingnecessary within the implementationprocess in order to complywith environmentalrequirements of GOH and IDA.

13. The main environmentalrisks associatedwith the project are:

(a) Land adjudicationand forest land tenure:increased and/or induced pressureson commonand open resources. (b) Natural resourcemanagement:

(i) Forest road rehabilitation- increasederosion and sedimentation; improvedaccess facilitating encroachment and illegalharvesting of forest products (incl.Wildlife).

(ii) Silviculturaltreatments & forest harvesting- loss of biodiversity; overharvesting;loss or degradationof wildlifehabitat; water quality impacts(turbidity, sediment, BOD, DO, temperature);genetic erosion;alterations in catchmenthydrology (increased peak flows, reducedbase flows, decreasedgroundwater recharge); soil degradation(fertility loss, erosion, reducedproductivity, etc.); increasedforest access(hunting, colonization, social conflicts). (iii) Agricultural& forestryextension and technicalassistance - land use conversion;increased soil loss and degradation(physical/chemical/ biological);non-point source pollution;overgrazing; increased pasture burning;forest conversion;water qualityimpacts.

(iv) BiodiversityConservation - shiftof protected areas prioritiesand protectionresources decreasing protection capabilityin other areas; increasedor inducedpressures on protected areas from enhanced "attractiveness"of near-protectedarea zones as a result of investmentsin communityeconomic and qualityof life investments.

14. It should be noted that the project would not financeany loggingactivities per se, it would financeactivities which would lead up to commerciallogging in someareas of pine forests and communitylogging (small-scale, manual) in some areas of pine and broadleaf(potentially including humid tropical moist forest). It would also finance silviculturalactivities (primarily thinnings), which in somenumber of caseswould be commercialthinnings. Annex H2 Page 11 of 27

FRAMEWORK FOR IPLEMENTATION OF THE ENVIRONNMENTALMANAGEMENT PLAN (see Table 5)

15. Land Adjudication and Forest Land Tenure: The primary responses to the potential for increased and/or induced pressures on common and open resources are the project's support for activities which would clarify land occupancy and legal status in national forest lands, assist in providing tenure security over the resource, and enhance institutional presence and enforcernent;of national forest land boundaries.

16. The framework for provision of enhanced tenure security resides in the "Regularization of Forest-Occupants Rights"-initiative of GOH and the Agricultural Sector Modernization Law of 1992. Honduran law prohibits the titling of land that is defined as "Terreno De Vocaci6n Forestal" TVF) or Land of Forestry Vocation 2 Only such TVF which currently is titled as "Dominio Pleno" is recognized as non-public land; by some definitions Dominio Pleno derives only from the original Spanish Land Grants. All other titles (Dominio Util) or claims are not recognized as valid in terms of land ownership (though the occupant can sell the "mejoras" to the land and with it pass on their occupancy claim to another) and for purposes of receiving a government license for certain activities (e.g., forest harvesting). In forested areas these later constitute the vast majority of land claims. In theory, only those with land claims prior to the passage of the Agricultural Sector Modernization Law in 1992 are recognized as having valid claim to regularization. The exact meaning of "regularization" is currently part of IDA's policy dialogue with GOH. During project implementation an explicit regularization policy and its reglamento are expected to be defined. In practice, GOH has no policy (or intention) to resettle persons who settled in TVF after 1992. Rather the intention is that such persons would be incorporated into the overall rights of communities in TVF and be allowed to participate in livelihood activities as defined within GOH forest management plans. By definition, TVF covers some 75% to 80% of the country, and almost 100% of the project area. In what is currently considered TVF, the project would only promote private titling in what would be the minimal number cases where closer inspection found that the TVF classification was incorrect (current definition is on 1:100,000 and smaller scales). Priority activities are those related to clarifying forest occupant rights (census of occupants, diagnostics of occupant land uses and perceptions of rights, conflict resolution mechanisms), and assisting in the development of alternative tenure instruments for treatment of traditional rights of communities and individuals.

17. The Department of Cadastre (DEC) would be financed to carry out parcel-level cadastres in each of the project forest management units. This would be part of a larger process within which DEC would complete a rural cadastre of the entire Departments of n2 TVF is defined based on criteria, which include: i) land with slopes greater than or equal to 30%; or ii) land below 30% slope with soils having a sandy-texture and/or a depth of less than 20 cm and/or more than 15% (by volume) stones with the presence of rocky outcrops, and/or soils subject to inundation by tidal fluxes, and/or with restricting layers in the subsoil or with impermeable parent material. Annex H2 Page 12 of 27

Yoro, Olancho and Francisco Morazain. The project areas would be given the highest priority in terms of where the cadastre begins. The outputs from the parcel-level surveys would also better identify local stakeholders (and interests), among whom AFE would promote usufruct contracts for forest management and protection. It is assumed that such arrangements would assist in reducing pressures from migrants and agricultural conversion. This is borne out by recent studies (1996) by CIDA within their community- based broadleaf forest management project in Atlantida. Over a five year period forest conversion rates were reduced by more than 75% in areas where usufruct contracts were given.

18. Complementing the work by DEC and AFE's granting of usufruct rights, the Upland Producer's Fund would finance the community-level processes for establishing legal identity and obtaining usufruct rights. In addition, more than 4% of total project costs will go directly to forest protection activities to be carried out under forest management plans.

Box 2. ENVIRONMENTALASSESSMENT AND MrrIGATION FORM (AFE-IDA)

Undercurrent regulations,each forestmanagement plan must includea sectionon potentialimpacts and mnitigationmeasures. The inforiation requiredin the form is presentedbelow. Currently,in conjunction with SERNA(under the IDA-financedEnvironmental Development Project (IDA Cr. 2693-HO)and severalother donor-supportedinitiatives ongoing in the AFE-COHDEFOR,an enviromnentalassessment manualfor forest managementis beingdeveloped to replacethe current form. The draft mamn will be availablein late 1996. The manualis to address the weakaessesin the current focus of EA.

Informationrequired:.

For the followingitems and specifictopics an estimate of potentialimpacts, rated as: "Not significant", "Small", "Large" or "Permanent/Irreversible",is to be determinedin the field by the forester.conpleting the managementplan. The specificmitigatorv measures to be taken in the managementplan's execution are identifiedand describedfor each itemand topic. The mitigatorymeasured must be integratedinto the overallplan and budget

Topography And Soil: Slopestability; Stability of road cuts; Stabilityof streamand gullybanks; Erosion; Sedimentation;

Hydrology: Runoff;Water quality

Climate: Micro-climate;Smoke

Vegetation: Partial Removal;Species loss; Regeneration;Logging slash; Fire; Scrub formation;Opening to grazng

Wildlife: Threatenedor protectedspecies; Nesting sites and snags; Illegalhunting; Feedig/breeding sites Annex H2 Page 13 of 27

19. Natural Resource Management. The project proposes a series of responses (see Table 5) ranging from inputs during the forest management planning stages; investments in institutional capacity building; investments in training, technical assistance, extension, and applied research; monitoring and supervision inputs; and agreed financing criteria. These include:

(a) Forest regional forestry sector environmental assessment. Under the IDA- financed HONDURAS - Environmental Development Project (Cr. 26934HO) SERNA and AFE would contract sectoral environmental assessments in the three project regions. These would be carried out during the first six months of project implementation and have the objectives of strengthening subsequent forest management planning and implementation through providing analysis of potential cumulative effects of forest management activities between forest management units and establishing a broader, environmental planning framework to be respected in the subsequent individual forest management plans developed at the management unit-level.

(b) Forest management planning. The project would support forest management planning at the institutional-level (AFE) for management of public forest lands, to municipalitiesfor management of ejido forest lands, and to communities (including local groups, cooperatives, etc.) for management of public (under usufruct contracts) or communal forest lands. The management planning process and the resulting management plans provide, in the first instance, the focus for exercising environmental safeguards. On public forest lands, planning would be carried out in a three-step process:

(i) forest master planning - to develop macro-plans for each forest management unit. The outputs from the process would include: a) delimitation of public forest lands; b) a rapid inventory of the existing forest resources; c) a census of forest occupants and participatory diagnostics of their land uses; d) a sub-division of the management unit into planning blocks based on zoning (protected areas, critical microwatersheds, multiple-use areas, production forest, etc.) and for pine production forest a further sub-division based on density, age, and volume; e) design of road network; f) environmental impact assessment; g) forest protection plan; and h) public consultations to finalize plan.

(ii) forest management planning - to develop detailed management plans for each of the management sub-divisions. In the case of production forest this entails stand-level inventories, development of silvicultural treatment plans, and of long-term harvesting and regeneration plans. In the case of critical microwatersheds this involves promoting formal agreements between AFE and the concerned municipality for development and implementationof a management and protection plan (to be financed by the Upland Producer's Fund). In the case of protected areas, the Biodiversity Conservation sub- Annex H2 Page 14 of 27

component would finance management planning in high, national priority areas. In multiple-use areas, this involves promoting formal agreements between AFE and the concerned communities or groups for planning and management (community portion to be financed by the Upland Producer's Fund). Required elements from the regional and master planning environmental assessments would be incorporated into the forest management plan, and included in an environmental control and supervision plan section.

(iii) annual operating plans - to develop an annual plan of work and budget for implementation of activities called for under the management plan. This includes activities such as a stand-level analysis to mark seed trees to be left; plan silvicultural treatments; and complete stand maps. Required, elements from the forest management plan's environmental control and supervision plan would be incorporated into the annual operating plan and budget.

On ejido and communal lands, and in the case of usufruct contracts on public lands, the Upland Producer's Fund would finance the services of a professional forester to assist the community in developing and executing a forest management plan. Management planning would follow the so-called "simplified forest planning model"; the model has been developed and tested during the last 5 years as a part of the FlNNIDA-financed Programa Centro Americano Forestal. The model provides a more than adequate basis for planning forest operations on a small-scale (<10,000 ha).

(c) Institutional capacity building. The project would provide significantlevels of institutional support (>10% of total project cost) to the AFE to assist it to decentralize along forest management lines, establish an effective field presence, upgrade the skills of its forestry professionals, have access to the information necessary to prioritize interventions and make decisions, to integrate social and environmental concems into management planning and implementation, and to carry out intemal monitoring of performance and compliance.

(d) training, technical assistance, and extension. The Upland Producer's Fund is designed to provide access to appropriate natural resource management approaches and technologies for municipalities, communities, and community groups. The operating of the Fund is also assumed to place extemal pressure on the AFE to carry out its role of involving communities in forest management and exercising technical and environmental oversight on public lands. The Fund also supports training of natural resource professionals who would provide services to municipalities and groups, a priority theme of which would be management of environmental risks in forestry and agricultural systems. An independent private sector firm or NGO would be contracted to administer, manage, promote, and supervise the Upland Producer's Fund. The fund manager would be responsible Annex H12 Page 15 of 27

for the technicaladequacy of the proposals funded and assuringthe qualityof their implementation.

(d) Monitoringand supervisioninputs:

(i) ProjectCoordinating Unit (PCU), located in the Ministryof Natural Resources,would have overallresponsibility for monitoringand supervisionof the project. The main instrumentswhich they would have to ensure projectcompliance with IDA and GOH environmentalstandards are: a. annualtechnical audits - which, inter alia, would provide an independent review the environmental aspects of project implementation; b. project mid-term review - as a pilot project which will require close supervision of implementation experience in order to allow appropriate adjustments to be made during project life, two mid-term reviews would be scheduled (and financed) within which the major focus would be on environmentalaspects of forest management planning and execution; and c. annual implementation reports and work programs from the implementinginstitutions, indicators relevant to forest protection and management would be reported upon in the implementation reports.

(ii) DEC would have responsibility for all elements related to the legal definition of lands and land boundaries, both in terms of delineation of public forest lands, as well as definition of traditional holdings within public forest lands and their legal disposition.

(iii) AFE's Departmentof Norms and Controlwould be chargedwith ensuringthe completionand qualityof all environmentalassessment work and that the AFE's forest management plans complied with technical and environmental standards 1' (see Box 3) and incorporated outputs from both the regionaland managementunit-level EAs. Theywould also supervise Regional offices' approvals of municipal and community-levelmanagement plans. Where commercial logging is to carried out, the department would have ultimate responsibilityfor approving release of the performance bonds deposited by the logging outfit to ensure compliance with environmental and technical norns. Throughout the process the Department would be charged with coordinating with SERNA and acquiring all approvals required by law, including assuring that required "Licencia Ambiental " are obtained for all activities which require one.

- With the assistance of the IDA-financed EnvironmnentalDevelopment Project, USAID's Forestry Development Project, the FINNTDAproject, and several other forestry sector donors, the AFE is still in the process of formalizing its operational technical and environmental norms for environment; a manual for environmental assessment in forest management planning is also under development. Prior to negotiation of the project, IDA would need to review the latest draft to identify any gaps or conflicts with IDA guidelines. Annex H2 Page 16 of 27

(iv) AFE's Regionaloffices would be responsibleto reviewthe forest managementunits' (unidadesde gesti6n) annualoperating plans to ensure that they complywith forest managementplans and technicaland environmentalstandards. They would be responsibleto reviewthe municipaland community-levelmanagement plans and their implementation.The paymentof professionalforesters' services by the UplandProducer's Fund would be conditionedon the regionaloffices approvals.

(v) SERNAwould be responsiblefor the financing, supervisionand approval of the regionalforestry sector environmentalassessment and the review and In addition,they would participatewith the AFE in all decisions relatedto the prioritizationof lands, activitiesand investmentswithin the, protectedareas system. SERNA'srole in the environmentalreview and approvalof individualforest managementplans would includecoordinating with AFE's Departmentof Norms and Control and assuringthat it complieswith all legalrequirements related to environmentalassessments and approvals.

(vi) UplandProducer's Fund Managerwould be responsiblefor assuring that all financedproposals (both in the planningand the implementation stages)are in compliancewith financingcriteria. Financingcriteria include those relatedto appropriatetechnical content and quality,as well as broader environmentalconcerns. They would also be responsibleto coordinatewith the PCU and AFE to assure that financingfor key activities (e.g., establishmentof legal identityand obtainingusufruct contracts, technicalservices for forest management,etc.) is availablein a timely fashionin the locationsrequired by the project.

(e) Financingcriteria. A series of financingcriteria were agreed at project negotiationsboth for the project as a whole,as well as for subsequentfinancing of activitiesunder the UplandProducer's Fund. Other than those agreementsover specificproject activities (summarized, above, in this annexdetailed in the Project ImplementationDocument) and GOH's commitmentto their implementation,the main agreementsreached include:

(i) Projectwide:

a. completionof sectoral forestryenvironmental assessments to identifysensitive areas and environmentalassessments completed for all forest managementplans prior to financingof management activities;

b. annualtechnical audits and mid-termreview; AnnexH2 Page 17 of 27

c. no financingof new roads, rehabilitationonly of existing;

d. no financingof commerciallogging or loggingequipment in primarytropical moist forest; e. no financingof activitieswithin forest managementplans that would result in significantconversion or degradationof critical naturalhabitats, such habitatsto be specificallyidentified through the sectoralforestry environmentalassessments; f all harvestingactivities (commercial and community)to be within the context of approvedforest managementplans; management plans that includecommercial logging to have prior environmental assessments;

g. allforest managementactivities to complywith pre-established environmentaland technicalnorms; and

h. all forest managementplans to includea formal process of public consultationwith affected municipalities,communities, and groups.

(b) UplandProducer's Fund:

(i) no financingof proposalswith activitieswhich would increasethe efficiencyof natural resourceexploitation or exploitationpressures except withinthe contextof an adequatemanagement plan;

(ii) no financingof proposalsthat would result in the conversionof forested areas to other land uses;

(iii) pre-financinginspection of all proposals;

(iv) no financingof agrochemicalsat farm-level;

(v) financingof assistanceto community-scaleforest managementonly, no industrialforest managementassistance;

(vi) all extractiveactivities in forest areas within contextof forest management plans and annualoperating plans;

(vii) all forest managementplans and annualoperating plans in state forestland reviewedand approvedby AFE-COHDEFOR,and

(viii) all proposalsto includeparticipatory diagnostic which, inter alia,would serveas a land use planningframework. Annex H2 Page 18 of 27

Box 3. AFE-COHDEFOR's TECHNCALAND ENVIRONMENTAL STANDARDSIN CONIFEROUSFORESTS

Thefollowing should be read bearing in mind that the current trend to control and manage logging is extremelypositive and asyet, an incipient effort Vile improvementsare necesa inhtheflrst Istance, sinply bring theforests under some type of management and reducing uncontrolled land conversions and "cut out and get out" logging practices will be the most stgnifcant long tenn contrbutonl The observations below are intended to point out areas where inprovements might be targeted over the medluw-terna

A reviewof the current environmentaland technicalstandards which fornt the basis for GOH's reviewand approvalof firest management plans, and subsequent enforcementof compliancereached the followingconclusions:

TechnicalAdequacy In the aggregatethe current norms are reasonablein so far as they intend to address the site specific objectivesof maintainingforest cover over the longterm, minimizingscondary disturbances,and assuring adequate regeneration. They are weak as regards minimizingoff-site impacts, loggingin steep areas, selectiveFelling norns, and avoidingsoil disturbancescaused bv loggingoperations during periods of high soil moisture. Avoidanceof off-site impacts; specificallyas regards water quality(sedimentation,. stream temperature,and BOD), requires developmentof more specificstandards in two areas in particular: * Roads - road standards regardingfree passage of water are reasonable, howeverthere is no provisionfor longer tenr stabiization of road cuts and fills, maintenanceof drainage structures (the "broad-baseddip" utilized in the southern United States wouldbe an appropriate addition to road standards to address this problem),road approaches to streams, stream crossings,and road closingsand. recIamation(where this would be desirableand how it sbould be done). • Protectionof water sources and streams - the standards intend to afford this type of protectionbut fail to provideany clear guidelines. No guidanceis provided on: i) stream setbacks and harvestingin near-stream zones; ii) disposal of loggingslash, iii) activitiesin and around permanentand seasonal wetlands;and iv) sitingof roads, skid paths, and loggingdecks relativeto water sourcesand streams. Settingof such standards is unavoidablyarbitrary but is nonetheless necessary. Standards must be simpleand directedat maintainingnatural shading of live stream courses,keeping loggingslash out of the natural drainage patterns, maintainingbuffer zones amund springs and strearn courses sources,and avoidinglogging activitiesin wetland areas. * Size and location of harvestingoperations - no mention is made on upper limitsto harvest areas and the proximityof harvest areas fromone year to the next. Guidelinesshould be developedto be applied on the basis of watersheds of thirdorder streams or larger to avoid overcutting and aggregate downstreameffects on quickflows and sedimentout of upland productionforests. In reference to the other points: * As to logging in steep areas, the norms requireselective felling and use of cable ways. Undercurrentmarket, technil capacitvand resource conditionssuch loggingis not a viable option. Rather, in practice, loggingof such areas is artesanal and will tend to cause the developmentof permanent scars from uncontrolleddownslope skidding. There is no easy solutionto this problem;but neither is it, as yet. a priority issue. * No norms exist regardingavoidance of high-gradingsites through selectivelogging. * No norms exist as to keepingheavy equipmentout of the forest, road building,or skidding during periods of high soil moistureto avoid destructionof soil structure. In all cases there is a need to arrive at more specific,operational guidelines for achievingdesired objectives. Environmental Nonrs The current norms are weak and requireimprovement across the board.; however,their currentlv exists little informationupon which to base improvements. Resolutionof this problem is larger than simply a forestry sectorissue. Attemptsare made in the current norms to speak to conservationof habitat and wildlife,but there is no context withinwhich this might be done. As a result the norms are reducedto referring to nesting and breeding sites(snags). Additionally,no attempt is made to look at aggregate impacts of forest management activities. Each managementplan is developedand evaluatedas totally independent unit. Broader landscape-scalenorms relatedto habitat species and aggregateimpacts in given ecoregionsand river basins should be the goal toward which effortsare directed. Working toward this goal could. in the medium-term,provide a basis for more specificEA guidelines on the scale of the individualmanagement plan. Capacity To Apply and Enforce Technical and EnvirornenhtlNorms Given that vcry little experienceas yet exists withforest management (planning, application.supervision, and enforcement)it must logicallyfollow (and does) that littlecapacity exists to make the system work. The professional foresteris identifiedas being responsible for all aspects of management includingthe initialenvironmental assessments. Unavoidably,there will be errors from mistakes, ignorance.and incompetence.This can only be managedthrough having modest goals and training coupledwith on-the-ob experience and adequate supervision. Annei H2 Page 19 of 27

20. Land Acquisitionand Resettlement.The project would financeneither land acquisition nor activitieswhich requiredresettlement. An assurancewas obtainedat negotiationsto this effect. 21. Legal Framework. Based on the Ley General del Ambiente(Decree N'. 104-93),the ReglamentoGeneral de la Ley del Ambiente(Agreement N'. 109-93)and the Reglamentodel SistemaNacional de Evaluaci6nde Impacto Ambiental(Agreement NQ. 109-93) Honduras has put into effect an legalframework for environmentalprotection that has been reviewedby and fouuMacceptable to IDA. The implementingmechanisms for these laws and regulationsare currentlythe focus of an ongoingIDA-financed project (EnvironmentalDevelopment Project, Cr. 2693-HO). A technicalmanual for the NationalEnvironmental Assessment System has been developedby SERNAand would providethe initialbasis for the project's environmental assessmentactions. Thiswould laterbe complementedand/or supersededby the environmental, assessmentmanual being developedby the AFE-COHDEFORin cooperationwith SERNA. IV > TABLE 4. MATRIX OF POTENTIALNEGATIVE IMPACTS AND PROJECr RESPONSE, BY PROJECT COMPONENT AcrIVrrY POTENTIALNEGATIVE IMPACTS MANAGEMENTOR MITIGATIONMEASURE COMPONENT 1. LAND ADMINISTRATION 1. Implementation of No negative impacts anticipated. Land Registry (Folio Real) 2. Land Adjudication. 1. Social, rural and forest zones - See Annex H3, Social Assessment for additional detail. tenure conflicts, loss of access to key 1. Regularization & Conflict Resolution Activities: resources for subsistence, income, and i) parcel-level cadastre & census of forest occupants in all project units; quality of life. ii) participatory diagnostic of traditional usage and rights in all project units; 2. Enviromnental, rural and forest iii) technical assistance in development & piloting of a wider range of usufruct zones - increased and/or induced pressures instruments for communal and individual tenure; on common and/or open resources. iv) technical assistance in development & implementation of conflict resolution mechanisms; v) inclusion of a trained social promoter in each cadastral team to assist with legal aspects and resolve conflicts; vi) promotion of adjudication at community-level with local authorities, other relevant local actors, DEC, INA, AFE; vii)direct support to communities for: a) legal assistance in tenure adjudication, b) establishing legal identity and obtaining usufruct rights; c) formalized participation and public consultation processes with municipalities and affected local populations in state forest management planning and implementation; 2. Forest Management Planning and Implementation Process: i) formalized participation and public consultation processes; ii) sectoral forestry environmental assessments to identify sensitive areas, outputs integrated into regional forest management planning and implementation norms; iii) increased institutional presence and effectiveness in project areas; iv) forest protection programs in each forest management unit; v) incorporation of local communities into forest management activities and sharing of economic benefits; vi) project monitoring - annual technical audits; mid-term review.

COMPONENT 2. NATURAL RESOURCE MANAGEMENT Subcomponent 2.1 Forest Management Forest land tenure: I1. Social -tenure conflicts, reduced See Component 1. Land Administration, Land Adjudication (above) i) delimitation of state access to resources, reduced forest lands; income/quality of life; ii) regularization of the 2. Environmental - increased or land rights of forest induced pressures on common and/or open TABLE 4. MATRIX OF POTENTIAL NEGATrVE IMPACrS AND PROJECT R ESPONSE, By PROJECT COMPONENT AcTrvrrY POTENTiAL NEGATIVE IMPACTS MANAGEMENT OR MITIGATION MEASURE occupants. resources. 2. forestmanagement: 1. Forestroad rehabilitation - 1. Roadrehabilitation: i) rehabilitationof i) increasederosion and i) no newroads, rehabilitation only of existing; forestroads; sedimentation ii) completionof roadrehabilitation & maintenanceplans (including organization ii) silvicultural ii) improvedaccess facilitating and financing)which include drainage structure and sedimentcontrol designs; treatments& forest encroachment, iii) roadrehabilitation plan includedin environmentalassessment of forest harvesting. iii) illegalharvesting of forestproducts managementplan; (incl.wildlife) iv) financingof vegetative stabilization and roaddrainage systems; 2. Silviculturaltreatments & forest v) increasedinstitutional presence and effectivenessin projectareas; harvesting- vi) forestprotection programs in eachforest management unit. iv) lossof biodiversity, 2. Forestharvesting: v) overharvesting i) no harvestingin humidtropical forest; all harvestingplans leading to timber vi) lossor degradationof wildlife auctionswill be in Pinusspp. forests only (see Upland Producers Fund, below); habitat, ii) no harvestingin protectedareas (incl. "declared" watersheds, see Upland vii)waterquality impacts (turbidity, ProducersFund, below); sediment,BOD, DO, temperature), iii) gap analysisof Protected Area System, biodiversity monitoring, strengthening of viii)geneticerosion, protectedareas system and otheractivities under "Biodiversity Conservation' ix) alterationsin catchmenthydrology component(see Annex E, BiodiversityConservation Component); (increasedpeak flows, reduced base iv) sectoralforestry environmental assessments, outputs integrated into regional flows,decreased groundwater forestmanagement planning and implementationnorms; recharge, v) all harvestingactivities within context of forestmanagement plans; x) soil degradation(fertility loss, vi) environmentalassessments of individualforest management plans; technical erosion,reduced productivity, etc.); assistanceto improveenvironmental and technicalnorms. xi) increasedforest access - hunting, vii)applicationof pre-established environmental technical norms (see Box 3 above, colonization; Enviromnentaland TechnicalStandards) and EA recommendationsin harvesting xii)socialconflicts. plan and implementation; viii)performancebond retrieval conditioned on compliancewith environmental norms; ix) monitoringof harvestingplans and implementation(by AFE-COHDEFOR and throughannual technical audits, and mid-termreview); x) re: socialconflicts, see "1. ForestLand Tenure (above). 3. Regulationand controlof No negativeimpacts anticipated. Activitieswould contribute to monitoringof compliancewith technical and forestharvesting environmentalnorms. 4. Forestryresearch. No negativeimpacts anticipated. Activitieswould contribute to improvedunderstanding of productivityand natural regenerationin productionpine forests. Subcomponent2.2 UplandProducers Fund ZkV 1. Agricultural& 1. Intensificationof Agricultural 1. Intensificationof AgriculturalProduction: forestryextension and Production: i) focuson existingcrop lands only of hillside-farminghouseholds and o ,, technicalassistance i) land useconversion; _ inclusionof conservationmeasures introduction systems; TABLE 4. MATRIX OF POTENTIALNEGATIVE IMPACTS AND PROJECT RE PONSE, BY PROJECT COMPONENT e D AcrivrrY POTENTIALNEGATIVE IMPACTS MANAGEMENTOR MITIGATIONMEASURE I g ii) increased soil loss and degradation ii) proposals require participatorydiagnostic which, inter alia, will serve N (physical/chemical/biological); as a land use planning framework; iii) non-point source pollution iii) pre-financinginspection; w 2. Increased Usage of iv) financing of training and extension in soil & moisture conservationand fertility Agrochemicals: managementpractices; i) human health; v) project monitoring (annual technical audits, and mid-term review). ii) surface and groundwater 2. IncreasedUsage of Agrochemicals: contamination; i) no financing of agrochemicalsat farm-level (only in tree nurseries); iii) increased resistanceof pests/disease ii) promotion of proven 1PMpractices through extensionprogram; 3. Management of natural forest iii) nursery-workertraining to include appropriatehandling, storage and disposalof (incl. humid tropical forest): see "Forest agrochemicals. Management, Forest Harvesting" (above) 3. Managementof Natural Forest (incl. humid tropical forest): Agroforestry& reforestation i) community-scaleonly, no industrial forest management; i) degradation of germplasm; ii) financing of technical assistance,extension, and training for communitygroups ii) introduction of aggressivespecies and municipalitiesfor completion and implementation of forest management 5. Microwatershedmanagement - plans; social conflicts (resourceuse). iii) all extractiveactivities in forest areas within context of forest managementplan 6. Intensificationof livestock and annual operating plan; production: iv) all managementplans and annual operating plans in state forest land reviewed i) overgrazing; and approvedby AFE-COHDEFOR,based on technical and environmental ii) increased soil loss and degradation; norms; iii) reduced groundwaterrecharge; v) provisionof tenure instruments (contratos de usufructo)in state forest land as iv) increased pasture burning; incentive to appropriate management; v) forest conversion; vi) tenure instruments conditionedon compliancewith environmental and technical vi) water quality impacts. norms. 4. AGROFORESTRY& REFORESTATION: i) training and technical assistance in nursery production; ii) introductionof improvednursery practices and culling programs; iii) introductionsonly of tested species. 5. MicrowatershedManagement: i) see "Forest Land Tenure" ii) financing of technical assistance for participatoryplanning in microwatershed management.; iii) signing of managementagreements with municipal governmentgiving role and responsibilitiesfor protectionwith local groupsthat rely on microwatershedsfor potable water supply. 6. Intensificationof LivestockProduction: i) small-scale only (household-level); ii) existing pasture lands only; TABLE4. MATRX OF POTENTIALNEGATIVE IMPACrS AND PROJECT RESPONSE, BY PROJECrCOMPONENT ACrIvrTy POTENTIALNEGATIVE IMPACTS MANAGEMENTOR MITIGATIONMEASURE iii) proposals require participatorydiagnostic which, inter alia, will serveas a land use planning framework; iv) pre-financing inspection; v) promotion and extension of production systemsthat include improved pasture, fertility management ______vi) pasture management. practices to reduce or control burning. 2. Agricultural & No negative impacts anticipated. Activities would contribute to improvedunderstanding and management of forests and forestry research upland production systems. 3. Training (agriculture No negative impacts anticipated. Activities would contributeto improvedtechnical capacity for forestryand hilislope & forestryresearch and production system's research and appropriate managementof natural resources. extension) Subcomponent2.3 Biodiversity Conservation 1. Redefinition of 1. Shift of protected areas priorities 1. Legal status of all ProtectedAreas would remain unchanged; financial-viability Protected Areas System decreasingprotection capabilityin other and budgetary resources of entire systemto improveunder project;project to increase areas; AFE's overall institutionalpresence and protectioncapacity in national lands; where 2. Increasedpressures on protected relevant Upland Fund would finance extensionand technical assistance for improved areas a result of investmentsin community community natural resourcemanagement; project target's highest value areas economic and quality of life investments. 2. Buffer zone investmentcriteria would prohibit increasingaccess, "pull" factor investments (e.g., schools);financing only of small-scale,group investments consistent with biodiversity conservation and protected area's management.. 2. Protected area 3. Infrastructuredevelopment: 3. Infrastructure development: management: i) road construction- loss of i) environmentalimpact assessmentswill be carried out on a park-by-parkbasis for i) infrastructure biodiversity,see "ForestRoad the design and siting of infrastructure developments; development; Rehabilitation" ii) enforcement of ii) building construction - loss of protectedarea boundaries. biodiversity, ii) project will finance all mitigatory measuresspecified in EA; iii) inappropriate siting, induced pressures on key resources. iii) financing conditionedon institutionalpresence in place to ensure protection. 4. Enforcement of protectedarea boundaries - see "Land Adjudication"and 4. Enforcementof protectedarea boundaries - see "Land Adjudication"and "Forest "Forest Land Tenure". Land Tenure".

3. Buffer zone management See "Forest Land Tenure", and "Upland See "Forest Land Tenure", and "Upland Producer's fund. e Producer's fund. __ Annex H2 Page 24 of 27

TABLE S. INSTITONAL ARRANGEnMENTS FOR IMPLEMENTATION OF ENVIRONmMENTAL fANAGEMENT PLAN INTERVENTIONS MANAGEMENT OR . MITIGATION MEASURE ACTrIITY [ MGA__NM_U_ IMPLEM£ENTATION RESPONSIBILITY CoMPoNENT 1. LAND ADMISTRATION 1. Land Adjudication. 1. Regularization & I. Regularization & Conflict Resolution Activities: conflict resolution A. - parcel-level cadastre; inclusion of a trained social promoter, promotion of adjudication at community-level; direct support to communities for legal assistance. 2. Forest management B. AFE-COHDEFOR - participatory diagnostic; technical assistance; promotion of planning and establishing legal identity and obtaining usufruct rights; granting of usufruct rights; implementa- lion formalized participation and public consultation in stale forest management planning and implementation. C. Uvland Producer's Fund - financing of process for establishing legal identity and obtaining usufruct rights. D. Proiect Coordination Unit - project monitoring (annual technical audits; mid-term review). II. Forest Management Planning and Implementation Process: A AFE-COHDEFOR - formalized participation and public consultation processes; sectoral forestry environmental assessments (with SERNA); increased institutional presence and effectiveness in project areas; forest protection programs in each forest management unit; incorporation of local communities; internal monitoring of compliance. B. Upland Producer's Fund - financing of training and technical services for community participation under usufruct contracts. C. SERNA - financing and supervision of sectoral forestry environmental assessments. D. Proiect Coordination Unit - project monitoring (annual technical audits; mid-term review).

COMPONENT2. NATURALRESOURCE MANAGEMENT SUBCOMPONENT2.1 FOREST MANAGEMENT ____ Forest land tenure. See Component 1. Land See Component 1. Land Administration (above). | Administration (above). _ 2. Forest management I. Road rehabilitation. 1. Road rehabilitation: A AFE-COHDEFOR - completion and compliance with agreed norms (no new roads), 2. Forest harvesting. planning, design and construction (road rehabilitation & maintenance plans, inclusion in environmental assessment of forest management plan; vegetative stabilization and road drainage systems); area protection; internal monitoring. B. Project Coordination Unit - monitoring (annual technical audits; mid-term review).

II. Forest harvesting: A AFE-COHDEFOR - completion and compliance with agreed norms (no harvesting in humid tropical forest or protected areas); planning, design and implementation (gap analysis of Protected Area System, biodiversity monitoring, strengthening of protected areas system; sectoral forestry environmental assessments integrated into regional forest management planning and implementation norms; environmental assessments of individual forest mnanagementplans; application of pre-established environmental/technical norms and EA recommendations in harvesting plan and implementation); internal monitoring (all harvesting activities within context offorest management plans; performance bond retrieval conditioned on compliance with environmental nomis; monitoring of harvesting plans and implementation). B. Proiect Coordination Unit - project monitoring (annual technical audits; mnid-term review).

SIBCOMPONENT 2.2 UPLANDPRODUCERS FuND 1. Agricultural & I. Intensification of 1. Intensification of agricultural production, increased usage of agrochemicals; management forestry extsion and technical Agricultural of natural forest; agroforestry & reforestation; microwatershed management; intensification of assistance. Production, livestock production: A Upland Producer's Fund Manaser (NGO or private firm) - completion of and 2. Increased Usage of compliance with agreed norms (existing crop and pasture lands only, no fmancing of Agrochemicals. agrochemicals at farm-level; pre-requisites of participatory diagnostics; forest management and annual operating plans in state forest land reviewed and approved by AFE- 3. Management of COHDEFOR; forest management only at community-scale, no industrial forest Natual Forest (incl. management; livestock on small-scale only), technical quality and content of proposals in humid tropical forest): training, extension and technical assistance (conservation measures in production systems; promotion of 1PM; forest management planning & implementation; trainmg on 4. AGROFORESrRY& agrochemicals; improved nursery production practices; species introductions; participatory .______RFORESTA770AN microwatershedplanming, improved pasture & fertility management;pasture management Annex H2 Page 25 of 27

TABLE 5. INSTiTTiiONAL ARRANGEMES FOR IMPLEMENTATION OF ENVIRONMENTAL MANAGEMENT PLAN iNTERVENINONS MANAGEMENT OR MITIGATION MEASURE ACTIVrrY IMPLEMENTATIONRESPONSISILrTY to reduceor controlburning); monitoring and supervision(pre-fmnancing inspection; quality 5. Microwatershed of technicalservices; performance of contract). Management B. AFE-COHDEFOR- monitoringand supervision(review and approval forestand micro-watershedmanagement plans; compliancewith technicaland environmentalnonns; 6. Intensificationof area protection);provision oftenure instruments(contratos de usufructo)in state forest land LivestockProduction. as incentiveto appropriatemanagement; promotion and signingof micro-watershed managementagreements with municipalgovernments. C. ProiectCoordination Unit - projectmonitoring (annual technicalaudits; mid-term review);supervision of UplandProducer's Fund Manager.

SuBCOMPONENT 2.3 BiODiViSITY CONSERVATION 1. Prioritizationof Reducedprotection for I. Lossof protectionfor areas with biologicaland/or environmentalservice values: ProtectedAreas System areas withbiological A. AFE-COHDEFOR- applicationof complementary,alternative administrative and/orenvironmental instrumentswithin Protected Areas System(e.g., "declared watershed"); coverage of servicevalues of local ProtectedAreas within regional forest management plans, and forestmanagemnent unit- and/orregional (vs. basedEA; inclusionof ProtectedAreas in regional,sectoral environmental assessments; national)importance. involvementof local communitiesin managementas appropriate(e.g., declared watersheds). B. SERNA-participation and agreementon ProtectedAreas prioritization scheme. C. UplandProducer's Fund - whererelevant, finance extensionand technicalassistance for appropriatenatural resource management D. ProiectCoordination Unit -projectmonitoring (annual technicalaudits; mid-term review);supervision of UplandProducer's Fund Manager.

2. Protectedarea L. Infiastructure 1. Infrastructuredevelopment: management development A. AFE-COHDEFOR- environmentalimpact assessments(on a park-by-parkbasis) for the design and sitingof infiastructuredevelopments; inclusion of eia recommendations 2. Enforcementof in design,construction financing; supervision of complance. protectedarea B. ProiectCoordination Unit -projectmonitoring (annual technicalaudits; mid-tenm boundariss review);supervision of UplandProducer's Fund Manager. H. Enforcementof protectedarea boundaries: A. AFE-COHDEFOR- enforcementof protectedarea boundaries- see "Land Adjudication"and "ForestLand Tenure". B. ProjectCoordination Unit - projectmonitoring (annual technical audits;mid-term review);supervision of Upland Producer'sFund Manager.

3. Bufferzone management See "ForestLand See "ForestLand Tenure",and "Upland Producer'sfund. Tenure", and "Upland Producer's fund. Annex H2 Page 26 of 27

1 TABLE 6. DIRECT COSTS & FINANCINGFOR ltnLEMENTATION OF ENVIRONMENTAL.ACIVITrES TOTAL BASE COST % FINANCING ACMTITY USS '000 IDA GOH Other AUComponents * projectmonitoring (annual technical audits;mid-term review). 250 * internalmonitoring and compliancewith environmental and technicalnorms (by AFE- NA,t COHDEFOR). Subtotal 250 ReffuarizaHton& conflict resolution & Forest Land Tenure: * parcel-levelcadastre. 3,000 * inclusionof a trainedsocial promoter. 110 * promotionof adjudicationat community-level. 110 * directsupport to communitiesfor legal assistance. 40 * technicalassistance for regularization& conflictresolution. S6 90°/0 10% * financingof processfor establishinglegal identity and obtainingusufruct rights. 92 100%

Subtotal 3,438

Forest manasement planentn and Inmlementatlon: * participatorysocio-economic diagnostics (will also providebaseline data for Regularization and ForestLand Tenure). 99 90% 10% * fornalized participationand public consultationin state forestmanagement planning and implementation. 73.5 90% 10% financedby * sectoralforestry environimentalassessments (with SERNA). 200 100% IDA Cr 2693 * improvingenvironmental assessment and technicalaspects offorest management 80% 20% - Project * environmentalassessments of individualforest management plans. 126 900% 10% * forestprotection programs in each forestmanagement unit. 88 60% 40% * financingoftraining and technicalservices for conumutityparticipation under usufruct contracts. 1,417.6 80% 20% * gap analysisof ProtectedArea System. i,000 * biodivetsitymonitoring iso 100 Forest harvesting * applicationofpre-established environmentaltechnical norms and EA recommendationsin harvestingplan and implementation. NA3

I Someenvironmental management costs are impliedin the functioningof the project-- forexample, "increased institutional presence and effectiveness in project areas", "incorporation of local communities",project conditions (e.g., no newroads, no harvestingin protectedareas, no harvestingin humidtropical forests, etc.), "perfornance bonds", "application of complementary,alternative administrativeinstruments within ProtectedAreasSystem. ", etc. - and are not includedhere. These"costs" are implicitin projectwork program financing and are supportedthrough training, technical assistance and operationalsupport (i.e., vehicles,per diems,materials, extension programs) and the UplandProducer's Fund.

2 Costsfor activitiesrelated to monitoringand compliancewith environmental and technicalnorms are, as in the above footnote,implicit costs and cannot be meaningfullyseparated out as distinct.The AFE's Department of Normsand Controlis chargedwith supervisionand compliance(both environmental and technical).Project financing of vehicles, communicationsequipment, training, forestry information systems, operational expenses, technical assistance, upgrading of administration,etc. has directobjectives of assuringthat the Dept.of Normsand Controlscarries out its role. 3 Theproject is financing,aside from institutional strengthening and environmentalassessment inputs, US$1.13 million of varying scale (monitorable)forest management planning to ensure that, inter alia, all forest harvesting on national forest landsis carried out only in areas suitable (environmentallyand technically)for commerciallogging. An additional US$1.46million will be investedin silviculturaltreatments to optimizeproductivity and ensureregeneration in commaercial loggingareas. As the actualharvesting activities would be carriedout by privatesector loggers, the costsof meeting norms are not projectcosts. Rather,these costs would be borneby the loggerand wouldbe reflectedin the timberbid price. Annex H2 Page 27 of 27

1 TABLE 6. DIRECT COSTS & FINANCING FOR IMPLEMENTATIoN OF ENVmRONMENTAL. ACTIVriTES TOTAL BASE COST % FINANCING ACTIVITY USS '000 IDA GOH Other Road rehabilitation * vegetative stabilization and road drainage systems

Subtotal 90,000 80% 20%

93,284.1 Upland Producers Fund * pre-requisites of participatory diagnostics. 227.5 25% 75% * forest management planning & implementation. * forest management and annual operating plans in state forest land reviewed and approved by AFE-COHDEFOR. NA' * monitoring and supervision by AFE-COHDEFOR (review and approval forest and micro- 1 watershed management plans). NA * monitoring and supervision of compliance by Fund manager (content of proposals, pre- financing inspection, implementation.). 432 100% * promotion and extension of appropriate natural resource management practices (e.g., IPM; 2,400 100% soil and moisture conservation; soil fertility management, etc.). * promotion, extension, technical assistance, and training for participatory microwatershed 350 100% planning and management 1 * promotion and signing of micro-watershed management agreements with municipal NA governments by AFE-COHDEFOR 300 90% 10% * training to inprove technical capacity for appropriate natural resource management.

Subtotal

3,709.5 Blodiversitys * application of complementary, alternative administrative instnmments within Proteded Areas 1 System. NA * SERNA participation and agreement on protected areas prioritization scheme. NAX * enforcement of protected area boundaries. 200 Infrastructure development (in Protected Areas) * environmental impact assessments (on a park-by-park basis) for the design and siting of infrastructure developments. * inclusion of eia recommendations in design, construction financing. 30

Subtotal 60

290

TOTAL 100.971.6

Compliancewould be assured through the existing performance bond requirements,with the Dept. of Norms and Control approving release of the bond.

4 US$1.0 million for forest managementplanning & implementation, accountedfor under "Forest management planning and implementation,financing of training and technical servicesfor communityparticipation under usufruct contracts".

5 Includes gap analysis of ProtectedArea Systemand biodiversitymonitoring, accountedfor under "Forest management planning and implementation". Annex H3 Page 1 of 14

HONDURAS

RURAL LAND MANAGEMENT PROJECT

SOCIALASSESSMENT AND PARTICIPATION PLAN

OBJECTIVES

1. A social assessment was carried out as part of project preparation with the following objectives: (a) to evaluate existing patterns of resource ownership, management and use among different groups and institutions in the project area; (b) to identify stake-holders who should be involved in preparation and implementation and to obtain their inputs on project scope and design; (c) to identify potentially negative impacts of proposed activities on vulnerable groups in the population, including women and indigenous groups, and design measures to prevent or mitigate these impacts; and (d) to identify opportunities to build local capacity of NGOs, producer and traditional organizations and local government to plan and carry out project activities. A Participation Action Plan was prepared as one product of that social assessment. This annex summarizes the findings of the social assessment and the recommendations that have been included in the Participation Action Plan. This includes findings and recommendations on indigenous peoples and gender concerns and a matrix extracting costs of activities related to participation and incorporation of special interest groups from the overall cost tables.

SOCIAL ASSESSMENT PROCESS

2. The social assessment included: (a) analysis of the stake-holders in the land administration and natural resources sector; (b) a participatory rural appraisal of representative communities in the Natural Resources Management component area by a multi-disciplinaryteam; (c) analysis of an extensive secondary literature on social impacts of the land titling program; (d) meetings with NGOs working with upland farmers and forest producers throughout the country; (e) meetings with members of the national indigenous federation and with traditional leaders, including indigenous leaders, in the project area; and (f) a workshop with women's organizations to elicit their views on project design. An international gender specialist and two international indigenous/social specialists participated in preparation to oversee in-country work on these aspects of project design. Because there would not be significant potentially negative impacts on indigenous groups, no separate Indigenous Peoples Development Plan was prepared, but instead the activities related to indigenous peoples development have been described within the overall plan of participation. Annex H3 Page 2 of 14 PROFILEOF PROJECT BENEFICIARIES AND LOCALORGANIZATIONS

POPULATION IN THE UPLANDS AND THE PROJECT AREA

3. There are, according to the 1993 agricultural census, 237,863 farm families with less than 10 hectare covering 587,576 hectares of land and 227,642 farms of less than 5 hectares with 384,078 hectares in Honduras. Most of the farmers with less than 5 hectares are found in the marginal uplands. Families with less than 10 hectares farm 17.6% of all agricultural holdings in the country, and comprise 54.3% of the population. These small holders produce mainlywhite maize, beans, a creole variety sorghum (maicillo), and rice. Maize is produced by 75 % of small-scale farmers and beans by a third. Sorghum is produced by 52% of farmers in the south and is used primarily as cattle feed. There is little reliable data on the extent of cattle pasture, but it is extensive-- 1993 census figures are 1.5 million hectares under pasture while extrapolations from 1991 region-1 data estimate 2.6 million hectares under pasture. In comparison to other Central American countries, the cattle expansion phase began later and continued after political conflicts had checked expansion in neighboring countries.

4. Many of the upland farmers cultivate land classified as part of the public forest estate. As described in Annex B, Land Administration Component, farmers cultivating lands classified as public are eligible for title should the land be judged of agricultural vocation. All other lands are classified as forest vocation and can be cultivated through usufruct, but not titled. The main forested areas of the north and west are the agricultural frontier. Many of the upland farmers in this area migrated from poorer regions in the south and east or moved into the hilly areas after sellingtheir plots to cattle ranchers. Since 1982, Honduras has had an active land titling program to give title to smallholders settled on agricultural lands within the public estate. Through this program, 77,000 titles have been given for about 660,000 hectares. In addition, some cooperatives were given titles, but by 1993 only 993 of these remained with 144,697 hectares, mostly in the valleys. Most of the former cooperative members are seeking individual titles from INA. The number of farm families still without title is estimated to be around 200,000 of which about one half would not qualify for title since their holding is less than 1 hectare or classified as urban areas. The first phase of the land administration pilot in 15 municipalitiesalone is predicted to identify 6,000 farms eligible for title.

5. The small-farmer population in the 14 public forest management field unit boundaries of the three Departments included in the project area--Yoro, Olancho and San Francisco Morazon--is 14,775 families. These are the majority of families in the project area. While land holding figures are not available for the upland areas of these Departments, more than 95% of the families in the rapid rural appraisal communities were small-holderswith less than 2.5 has. and the majority had some land holdings in addition to their homesteads, however marginal. Most did not have title to their agricultural holdings. Apart from limited mid and larger sized farmers in the valleys and some uplands of the project Departments, therefore, the large majority of the upland farmers are small, subsistence farmers with marginal holdings, both in size and quality. The upland fund would provide support to landed farmers in agriculture and agro- Annex H3 Page 3 of 14 forestry and to landless residents in municipal or social forestry initiatives on ejido and public lands.

INDIGENOUS PEOPLE

6. In Honduras, the indigenous population (including black Caribbean communities) is organized in eight separate indigenous groups, numbering about 293,000 inhabitants and comprising 12.8 percent of the total population (1988 Census). Membership to a specific group is determined by language affiliation. The eight groups and their location are the following:

* Lenca in the La Paz; Intibuca; Lempira and Santa Barbara Departments, with 100,000 inhabitants

* Xicaques or Tolupanes, with 28 tribes distributed in 6 municipalitiesof Yoro Department; and 19,300 people in Orica and Marales of Francisco Morazan Department.

- Garifuna or "caribes negros" in Cortez; Atlantida; Col6n; Gracias a Dios and Islas de la Bahia, with a estimated population of 98,000 inhabitants, distributed in 38 communities

- Miskitos, in Gracias a Dios Department with about 49,000 inhabitants, distributed in 107 communities

- Pech or Paya, distributed in the Dulce, Nombre de Culmi and San Esteban municipalitiesin the ; and Brus Laguna in the Gracias a Dios Department with 2,600 inhabitants

* Tawahka or Sumus, with 900 inhabitants in 7 communities along the Rio Patuca River

* Chorti, in Copan and Ocotepeque Departments with about 4,200 inhabitants.

* Islefios or Black Population with a distinct language found in the Litoral Atlantico in the Ceiba, Tela, Puerto Cortez and the Islas de la Bahia with about 20,000 inhabitants

7. In the area of influence of the natural resources component there are 16,800 indigenous people, making up 21 percent of the total population of the area. In addition, the protected areas component would strengthen staffing in the Mosquitia Region to complement the proposed GEF project under preparation. The protected area in this region includes a significant portion of the 49,000 Miskitos and Tawahkas distributed in 107 communities. While there are no indigenous populations in the pilot areas of the land Annex H3 Page 4 of 14 administration component of Comayagua and Siguatepeque, Olancho--programmed for year 2 of the project--includes Tawahka, Pech, and Garifuna.

INDIGENOUSORGANIZATIONS

8. Indigenous organizations in general combine elements of their traditional culture with those of the non-indigenous society, including economic strategies, politico- administrative aspects and religious factors. The levels of organizations go from the community (village, township) to tribal and regional ethnic organizations. Particularly in recent times, the lower level organizations have formed federations at the ethnic level. Nevertheless, these organizations are still fairly weak and vulnerable to outside factors. The relative weakness affects the federations' capacity to carry out effective actions in favor of their members and this in turn makes them more susceptible to criticism.

* The Lenca people are represented by the Organizaci6n Indigena Lenca de Honduras (ONILH), formed by the Consejos Indigenas Locales (Indigenous Councils at the municipal level) and the Consejo Indigena Departmental (Indigenous Council at the departmental level). This organization is still in process of formation and has only 4,000 members, belonging to 36 communities.

* The Tolupanes are represented by the Federaci6n de Tribus Xicaques de Yoro (FETRIXY), whose first-tier organizations are the Asambleas de Tribus (Tribes Assemblies), Congreso de Tribus (Tribal Congress), Consejo Directivo (Board of Directors) and Comite Ejecutivo (Executive Committee).

* The Pech have organized at national level in the Federaci6n de Tribus Pech de Honduras (FETRIPH), following the Tolupanes model.

* The Misquitos are represented by the Mosquitia-Asla Takanka - Unidad de la Mosquitia (MASTA). This in turn is formed by seven federations. In reality, the organization of the Misquitos is very loose. Alliances are not permanent, usually involving geographic or commercial interests under the leadership of a Zuqia or Tribal Chief.

* The Chorti are not organized at the national level. This is one specific case of a population who have been heavily acculturated and largely become campesinos.

* The Garifunas are represented by the Organizaci6n Fraternal Negra Hondurefia (OFRANEH), although its degree of representation is weak.

* The Tawahka have organized the Federaci6n Indigena Tawahka of Honduras (FITH), but it is also in the process of consolidation. Annex H3 Page 5 of 14 9. Since 1992, all of the above indigenous organizations and peoples, except for the Chorti and Islefios, are members of a national level organization, the Coordinadora Nacional de Pueblos Autoctonos de Honduras (CONPAH).

NON-INDIGENOUSPOPULATION

10. In the area of influence of the Natural Resources Management component, non- indigenous groups represent 66,200 inhabitants, or 79 percent of the total population. The relevant forms of organization are based on productive activities and upon geographical coverage and include: (a) Productive Cooperatives at the first-tier level of organization, in general based at community level; (b) Patronatos; with local level community base organization and no juridical recognition; (c) Municipalities; at the municipal or lowest level of formal government organization; (d) Agro-forestry Federations as second-tier productive organizations; and (e) Confederations or third-tier organizations. Coffee is an important cash crop in the uplands and farmers' cooperatives are strongly linked to the Honduran Coffee Institute's prograrn of research and extension. The first- and second-tier organizations in Honduras are beginning to mature as strong, independent entities, rather than serving as in the past as a relatively weak entity within stronger top-down federations.

11. There is also a number of NGOs which work in the project area with upland farmers and forestry organizations providing rural development assistance and capacity building, which are described in Annex D. Some of the more national NGOs have begun to work with first and second-tier organizations to develop their capacity to deliver development assistance. The unique feature of the more successful NGOs is the use of a farmer-to-farmer extension methodology, whereby interested farmers are trained in the basic principles of a new practice and encouraged to experiment in adapting the practice to their own farm and in transferring the knowledge of basic principles to other interested farmers. The system of information transfer which results is self-sustaining and usually leads to adoption of practices which are appropriate to the farmers' needs and resources. The large majority of farmers in the uplands are not linked to formal credit institutions and, even in the informal sector, the main source of capital is household savings. A few NGOs, such as FINCA-Honduras or World Relief, have established savings mobilization programs to organize farmers' groups for informal credit networks. There is a considerable potential for such mobilization, particularly with rural women.

12. For the Land Administration Modernization component the estimated population is 1,679,042 inhabitants spread over 46,640.9 km2 in the Departments of Comayagua, Cortes, Yoro and Olancho.

KEY ISSUESFOR PARTICIPATION AND ACTION PLANS

13. The social assessment has identified a number of key issues which have been addressed in project design, as described below: Annex H3 Page 6 of 14 (a) Land and Forest Tenure. For indigenous populations, there are constraints to registration of indigenous land and forest rights under the folio real, due to the lack of legal identify of most of the first-tier indigenous community organizations that comprise ethnic federations and to the overlapping of traditional indigenous areas of influence and private land holdings established during the colonial and post-colonial period by hispanic families. Currently, under the Land Reform Law and the Agricultural Modernization Law, indigenous groups can elect either to receive individual or communal title to lands within traditional, indigenous territories. As in other countries of Latin America, Honduran indigenous groups are increasingly electing the communal title option to help preserve tenure to traditional territories. Communal title also has implications for forest tenure as indigenous populations are more likely to legitimate title to forest areas within their territories when their entire domain is titled communally. Otherwise such areas are considered national forests owned by the State.

Recommended Action: There are several ways in which the Land Administration component would address indigenous tenure issues. The initial land adjudication in Comayagua does not affect indigenous populations, but the land and forest tenure issues would be explored by indigenous groups under the IDF grant currently being processed. It is expected that concrete recommendations would emerge from the IDF- funded activities which can be used to modify the pilot approach, as needed. As the adjudication process is extended to Olancho and Yoro, both with indigenous populations, the system would be modified to address these issues. Teams of INA promoters involved in the adjudication process would also receive special orientation and training. If requested, indigenous groups can also be provided legal assistance and training to establish the legal identify of first-tier organizations seeking separate forest rights or communal tenure at a more appropriate level. The associated GEF project would have more specific actions on the demarcation of protected areas and adjudication of indigenous rights to forest areas within protected areas and surrounding buffer zones.

(b) Role of Traditional Organizations and Farmers' Groups. The role of indigenous traditional organizations and of productive organizations has not been effectively analyzed in SAG programs in the past, with the result that participation has often been focused on leaders of federations who do not represent the first-tier organizations adequately. Nor is there a transparent process for consultation of these organizations by the municipal authorities in local development initiatives.

Recommended Action: This issue has been explored in project design and productive organizations have been consulted at various stages in the design of the natural resources and upland fund components by DICTA, Annex H3 Page 7 of 14 AFE-COHDEFOR, and UPEG. Training and orientation activities coordinated by the PCU are planned for the implementation of these two components on indigenous political organization and opportunities for broader participation and on consultation with farmers' groups interested in preparing proposals or seeking assistance from appropriate NGOs. NGOs are also eligible to include requests in their proposals for technical assistance funds to build capacity of first- and second-tier organizations to develop their own research and extension packages. In the development of management strategies for ejido forests under municipaljurisdiction, AFE-COHDEFOR extension staff and consultants would ensure the consultation process explores the potential role of a wide range of local organizations. To ensure wider participation in the Upland Fund, criteria and procedures have been designed to be transparent and relatively simple. These criteria would be evaluated at mid-term and adjusted based on this evaluation.

(c) Forest Management and Use. Except for the pilot initiatives in smaller blocks of forest, such as those implemented with Canadian and Finnish assistance, there has not been a systematic process of determining the relative rights and interests of communities residing in and around forest areas or for allocating use rights for traditional or new products. Nor have these populations benefited from economic analysis of the relative returns from different management strategies, whether management of small blocks by cooperative groups or management on a more commercial scale to attract larger, private harvesting and processing enterprises and local employment.

Recommended Action: The Natural Resources Management component defines a process for incorporating local populations in the design and implementation of forest master plans for the forestry and protected areas included in the project. This process would be refined, based on overall criteria agreed during preparation, through a work program under the general direction of the PCU and involvingthe extension wing of AFE- COHDEFOR and the parks department. The Upland Fund would finance proposals for support to municipalities and cooperative groups seeking to develop forest management and forest enterprise capacity, as well as provide technical assistance and training to upland residents seeking wider employment in forestry enterprises, both formal and informal. A system of consultation would be built into forest management plans to ensure updating of management plans through a participatory process involving relevant stake-holders.

(d) Participation in Decision-Making and Implementation. The participatory rural appraisal identified a number of constraints to participation the design of government programs and their implementation, including the lack of knowledge of government activities Annex H3 Page 8 of 14 by more remote uplanidpopulations, the lack of formal property rights of upland inhabitants which excluded them from many programs, and the lack of institutional and financial capacity of municipal offices to design and implement long-term development programs.

Recommended Action: The project would include a system of participatory monitoring and evaluation that includes the project beneficiaries and their local organizations in the periodic evaluation of the success of project activities and would include orientation and training of beneficiaries in the design of M&E indicators and tools that enable them to express their opinions about the progress of the project. In particular, the consultant firm (Fund Manager) eliciting and evaluating proposals for the Upland Fund would train beneficiaries or work with participating NGOs to train beneficiariesin these methods and channel conclusions to the Advisory Committee. Forest master plans would also be monitored by local communities and municipal authorities.

(e) Project Management Capacity to Implement Participation Plan. There is little social science or participatory planning and implementation expertise in UPEG or the various departments within AFE-COHDEFOR or DICTA that would ensure a comprehensive vision for implementing the Participation Plan or provide guidance to implementing staff of other disciplines. While INA has considerable experience with field adjudication of land tenure rights, there is no central office responsible for indigenous policy, apart from some attention to the issues by one of the legal specialists. Nor is there a clear responsibility for gender or indigenous issues within SAG for longer-term sustainability of activities.

Recommended Action. SAG would contract a specialist in social and participation issues for the PCU who would oversee incorporation of these issues into the project components, implementation of the elements of the participation plan, and supervision of consultants contracted to undertake special studies or specific participation or consultation activities. This specialist would also work with UPEG/UPEG, advising the unit on how best to coordinate attention to these issues within SAG and suggesting staffing needs. AFE-COHDEFOR plans to strengthen the capacity of the Promotion and Extension Department and to work with the newly created Center for Training and Research on Environment and SustainableForestry Development in Lapaterique on training of indigenous organizations. The Division of Legal Services in INA plans to develop a strategy for addressing indigenous tenure issues in the land adjudication process, which would be discussed with indigenous organizations.

(f) Gender Considerations. The difference in access to land and agricultural and forestry production support services between men and women, has a Annex H3 Page 9 of 14 relevant impact on the economy of rural households and reduces rural development opportunities. Though women represent an important group among rural producers, they have received minimum benefits from the land titling program or from agriculture or forestry services. While more women are receiving land titles since the Agricultural Modernization Law recognized their land rights, many women in the project area reside in areas of forest vocation that cannot be titled. There is also little titling of couples, especially since common law marriages are not recognized as a basis for joint land titling in the absence of onerous documentation.

Recommended Action: To address the overall lack of a gender orientation in the activities of the SAG agencies involved in the project, a program of gender training would be designed and implemented. This training program would be targeted to all professional and technical personnel of the public institutions responsible for the coordination and implementation of the components, to private development organizations and NGOs providing services in the rural areas, especially through the Upland Producers' Fund. Both PDOs and NGOs would need to receive training as a condition to be eligible to provide services, the cost of training would be their responsibility. The program would be under the PCU and would be implemented by the Pan-American Agricultural School -- El Zamorano -- where a permanent information network would be set up for service training providers at national and Central American levels. Training would be aimed to address specific detected needs of each component. The criteria for selection of proposals for the Upland Fund would also include preference for technical assistance targeted explicitlyto women farmers and forest managers. INA and CSJ have agreed to evaluate the restrictions on joint titling of common law couples and to present an action plan for increasing women's access to land. Project performance indicators have also been included to measure progress on the incorporation of gender concerns.

LDFFOR STRENGTHENINGOF INDIGENOUSINSTITUTIONS

14. The IDF which has been identified for indigenous strengthening would provide resources for capacity-building in a number of areas related to natural resources management and land tenure. Indigenous groups seek training in local planning and design of development initiatives, technical and business management tools to evaluate their capacity to undertake forestry-based enterprises, tools for community forestry management, including sites in and around protected areas, and training in legal aspects of individual and communal land tenure systems to enable members to make more educated decisions about the type of land tenure which would most benefit themselves and their families. The outputs of the IDF would include building capacity of indigenous groups to make proposals to the Upland Fund and to participate more pro-actively in forest management and protected areas activities. TABLE 1: ESTIMATED COSTS OF PARTICIPATION PLAN a > (extracted from global cost tables)

COMPONENT/SUB PARTICIPATIONACTIVITY BY BENEFICIARIES ESTIMATEDBUDGET SAR (USDOLLARS) -COMPONENT THEMATIC AREA _ GOV'T INDIGENOUS YEAR YEAR YEAR YEAR YEAR Total AGENCY ORG. 1 2 3 4 5 ProjectCoordination Superviseand executethe participation Genderactivity women's 75000 75000 75000 75000 75000 375000 Unit plan, gender activitiesand the indigenous PCU, UPSA, organization, a) Social developmentplan INA, AFE- first and participation COHDEFOR secondtier 24000 24000 Specialist organizations

b) Consultancy Specificsocial studies,Project supervision Govermment 96000 96000 Fund agenciesand PCU c) IDF Indigenous Institutionalstrengthening of direct: 90 153830 153830 Training organizational,technical and management rep's. of the capacitiesof the indigenousorganization indigenous orgs. indirect: 8 ethnic groups

Managementof Promotionand Extension,technical 6400 6400 6400 6400 6400 32000 Natural Resources training, research,administration, and Institutional informationsystem Strengthening COMPONENT/SUB PARTICIPATIONACTIVITY BY BENEFICIARIES ESTIMATED BUDGET SAR (US DOLLARS) -COMPONENT THEMATIC AREA GOV'T INDIGENOUS YEAR [YEAR YEAR YEAR YEAR Total AGENCY ORG. 1 12 3 4 5 Upland production sustainable developmentof basic foods, Technicians, 48000 48000 48000 48000 48000 240000 fund, transfer of sustainable management of natural forest, agricultural and management of micro watersheds and students direct: 800 60000 60000 60000 60000 60000 300000 forestry technology, fanilies, technology indirect: 2000 generation, training indigenous for generation and families transfer Biodiversity Forest management Forest rangers, Indigenous 5000 5000 5000 5000 5000 25000 planning, Management plans Technical forest orgs., management of rangers indigenous protected areas, Administration and human resources Administrative NGOs, first traditional use and personnel and second tier sustainable of traditional management, and authorities monitoring

l 3. COMPONENT/SUB PARTICIPATIONACTIVITY BY BENEFICIARIES ESTIMATED BUDGET SAR (US DOLLARS) -COMPONENT THEMATIC AREA_____ GOV'T INDIGENOUS YEAR YEAR YEAR YEAR YEAR Total a AGENCY ORG. 1 2 3 4 5 Land administration Rural and urban promotion Technical first and 13300 13300 Phase I: Pilot GPS promoters, second tier project Villa San Territorial information system technicians/ organizations Antonio administrators, Cadastre and professionals Administration Register: (Folio Register Registrars, first and 5700 5700 Real) Technique of Folio Real operators, second tier Temporary index system professional organizations operators Phase II: 14 Territorial information system Technicians 9200 9200 municipalities, Comayagua Cadastre and Adjudication Register (Folio Real) Register System admin., 9000 9000 registrars, operators, users Folio Real First and 16000 16000 second tier org. Phase III: Community participation Promoters First and 5100 5100 Siguatepeque Other second tier org. 11300 11300 cadastre and adjudication Register (Folio Real) Administration of the system System First and 26200 26200 Folio Real administrators, second tier org. users Phase IV: Community participation Promoters First and 10300 10300 Departamento of Other second tier org. 11300 11300 Cortes cadastre and adjudication Register Register SPS, administration of the system, I_ _f_7800_System 7800 COMPONENT/SUB PARTICIPATIONACTIVITY BY BENEFICIARIES ESTIMATED BUDGET SAR (US DOLLARS) -COMPONENT THEMATIC AREA GOV'T INDIGENOUS YEAR YEAR YEAR YEAR YEAR Total AGENCY ORG. 1 2 3 4 5 Folio Real administrators, users Register of the Department of Cortes, System administration of the system, Folio Real administrators, users Department of Community participation, Promoters First and 10300 10300 Olancho cadastre second tier org. 11300 11300 and adjudication Other Register (Folio Real) Register number 1: Administration of the System 4900 4900 system, Folio Real administrators, operators Register number 2: Administration of the System system,, Folio Real administrators, operators Department of Yoro Community participation Promoters First and 10300 10300 cadastre and second tier org. 11300 11300 adjudication Other Register (Folio Real) Register number 1: Administration of the System 6400 3200 9600 system, Folio Real administrators, operators Register number 2: Administration of the System system (Folio Real) administrator, operators Total _ 528630 363600 306300 272200 207200 1677930

Ro Annex H3 Page 14 of 14

LAND HOLDINGSIN THE DEPARTMENTSINCLUDED IN THE PROJECTAREA

FARM SIZE l

DEPARTAMENTO/MUNICIPIO <1 1<3 3<5 Total Farms Total Area FRANCISCOMORAZAN 5,928 9751 2890 23828 215028.7

OLANCHO 3148 8519 3639 27947 544540.4

YORO 4218 7438 2261 19974 272653.5

COLON 3513 3534 976 11910 181081.5

Numberof Farms

DEPARTAMENTO/MUNICIPIO FRANCISCO MORAZAN No. of Farms Area l Guaimaca 1205 30516.8 El Porvenir 1367 12967.1 Talanga 1234 15762.9

OLANCHO . San Esteban Catacamas 4598 118264.8 Culmi 1859 53005.7 Gualaco 1405 27986.4 .

YORO Agua Fria Jocon 404 8393.1 Morazan 2821 21861.2 Olanchito 2710 76603.7 . . Yoro 4449 61585

COLON Saba 966 8018.6 Bonito Oriental 1310 22336

Rural Population DEPARTAMENTO/MUNICIPIO Male Female Total Total FRANCISCOMORAZAN 107482 104192 211674 315866

OLANCHO 111703 104887 216590 321477

YORO 111860 105247 217107 322354

COLON 54726 51899 106625 1585241 Annex I1

HONDURAS RURALLAND MANAGEMENT PROJECT

Project ImplementationDetailed Plan Contents

Introduction

I: The Project A. Rationale B. Project Objectives C. Outputs D. Project Description Land AdministrationComponent Natural Resource Management Component Fund for Upland Producers Component BiodiversityConservation Component E. ParticipationAction Plan F. EnvironmentalAction Plan G. Project Costs and FinancingPlan

11: InstitutionalArrangements A. Withinthe Ministryof Natural Resources B. Between the Ministryof Natural Resources and other Participant Institutions C. Matrix: ParticipantInstitutions and their roles mII: MonitoringProgram A. Performanceand Impact Indicators B. Monitoring System

IV: ImplementationProcess A. SupervisionProgram B. Audits C. Conditionalities

V: CriticalAspects A. Risks

Annexes Annex 12 Page 1 of 10

SECRETARiA DE RECURSOS NATURALES DIRECCION DE CIENCIA Y TECNOLOGiA AGROPECUARIA CONSEJO NACIONAL DE CILENCTAY TECNOLOGiA AGROPECUARIA

FONDO COMPETITIVO PARA EL FINANCIAMIENTO DE PROYECTOS DE GENERACION Y TRANSFERENCIA DE TECNOLOGIA AGROPECUARIA

REGLAMENTO OPERATWVO

OBJETIVOS DEL FONDO

El Fondo para el Financiamiento de Proyectos de Generacion y Transferencia de Tecnologia Agropecuaria (FONDO) tiene por objeto apoyar las actividades de investigaci6n, transferencia y capacitaci6n de t6cnicos en el sector agricola, a traves del estimulo al desarrollo del mercado de servicios tecnicos de apoyo al sector, con el fin de mejorar la productividad de los factores productivos, mejorar la competitividad de los productos agricolas nacionales, y proteger los recursos naturales.

El FONDO financiara proyectos en las siguientes cinco areas estrategicas: promoci6n de exportaciones agricolas no tradicionales; mejoramiento de la productividad de granos basicos; diversificaci6nhacia cultivos de alto valor; mejoramiento de la utilizaci6n del suelo; y, protecci6n del suelo y los recursos naturales.

DEFJNICIONES

Proyectos de Generaci6n de Tecnologia Agropecuaria. Se refiere a una serie de actividades coordinadas para producir mejores procesos de combinar factores (tierra, mano de obra, agua, capital) e insumos (semillas, agroquimicos) para producir un cultivo en forma mas eficiente. Se incluye el mejoramiento de las propiedades de cualquiera de los factores o insumos conducentes a mejorar la eficiencia de la producci6n, tales como, desarrollo de semillas mejoradas, disefio de mejores practicas de cultivo, disefio de equipo mas eficiente, mejor utilizaci6n de fertilizantes, disefio de tecnicas y metodos de control de malezas y plagas.

Proyectos de Transferencia de Tecnologia. Se refiere a las actividades por medio de las cuales los agricultores con el apoyo de los proveedores de servicios obtienen el conocimiento y la capacidad para utilizar tecnologias disponibles y mejorar la eficiencia de su producci6n o para introducir nuevos cultivos; incluye la transferencia de conocimiento y pricticas empresariales y de mercadeo.

Proyectos de Capacitaci6n de Tecnicos. Son cursos, seminarios o eventos cuya finalidad es transferir o actualizar conocimientos aplicables sobre aspectos especificos a tecnicos Annex 12 Page 2 of 10 investigadores o extensionistas para ser utilizados en sus labores en el sector. Esta capacitaci6n debe reflejar las necesidades especificas de las actividades de transferencia.

ACTIVIDADES ELEGIBLES Y PRIORIDADES

Seran elegibles para financiamiento con recursos del FONDO los proyectos de generaci6n y transferencia de tecnologia agropecuaria (GTTA), de acuerdo con las areas estrategicas establecidas en el numeral 1.2, bajo las siguientes modalidades: 1. Generaci6n de tecnologia, con enfasis en procesos de validaci6n y adaptaci6n; 2. Transferencia de tecnologia a grupos prioritarios; y, 3. Capacitaci6n de tecnicos en areas especificas requeridas por las actividades de investigaci6n y de transferencia de tecnologia.

Seran elegibles para financiamiento con recursos del FONDO los proyectos en los siguientes subsectores: agricultura, ganaderia, forestal, acuicultura y pesca, avicultura y apicultura, de acuerdo con las prioridades establecidas en cada modalidad.

Prioridades. Los proyectos de generaci6n de tecnologia a ser financiados por el FONDO deberan orientarse principalmente a los rubros definidos en el Apendice A, los cuales podran ser modificados de acuerdo con los resultados del Plan Nacional de GTTA. Los proyectos de transferencia de tecnologia estaran dirigidos a grupos de pequenlosy medianos agricultores con potencial comercial y explotaciones financieramenteviables. Los proyectos de capacitaci6n de tecnicos estaran orientados principalmente a las areas requeridas por los proyectos de generaci6n de transferencia de tecnologia.

El FONDO financiara: honorarios de profesionales, salarios de personal de apoyo, viAticos,servicios de transporte, materiales para uso demostrativo (semillas, agroquimicos), equipo (costo de uso), servicios de laboratorio, y otros rubros para uso exclusivo del proyecto.

El FONDO no financiara: inversiones a nivel de finca, a menos que sean para uso exclusivo del proyecto y los grupos participantes; compra o arriendo de tierras; compra de vehiculos. Las parcelas que se requieran para uso demostrativo o experimental debera ser aportadas por los beneficiarios (individuos o instituciones).

BENEFICIARIOS

Los beneficiarios de los recursos del FONDO puede ser personas naturales o juridicas, individuales o asociadas, proveedores de servicios, grupos de agricultores elegibles, asociaciones gremiales, o instituciones puiblicas.

En el caso de proyectos de generaci6n de tecnologia, los beneficiarios directos seran las instituciones o investigadores debidamente calificados en el Registro de Proveedores de Servicios de GTTA de la DICTA. Sin embargo, todo proyecto de generaci6n debera demostrar que tiene beneficios potenciales viables a corto y mediano plazo a nivel de los beneficiarios. Annex 12 Page 3 of 10

Los beneficiarios de los recursos del FONDO para financiamiento de proyectos de transferencia de tecnologia seran los agricultores, organizados en grupos, que demuestren tener potencial para absorber los cambios tecnol6gicos propuestos y mejorar su participaci6n en el mercado. En particular, los agricultores beneficiarios deberan:

(a) ser productores con potencial para aumentar en forma significativa su producci6n para el mercado;

(b) tener tierras aptas para la agricultura ya sea en propiedad, arriendo, prestamo u otra forma de tenencia siempre y cuando garantice su utilizaci6n apropiada; los grupos de agricultores deberan tener como minimo un total de 100 hectareas de tierra cultivable, apta para la agricultura;

(c) trabajar de tiempo completo en la agricultura;

(d) demostrar interes en introducir nuevas tecnologias, nuevos cultivos, o mejores practicas agricolas, para lo cual deberan entrar en un contrato con los proveedores de servicios y con el FONDO como condici6n para el financiamiento.

(e) ser pequefios o medianos agricultores con explotaciones no mayores de 25 hectareas.

Las solicitudes de financiamiento de proyectos de transferencia de tecnologia deberan incluir una caracterizaci6n de los beneficiarios acorde con estos criterios.

En el caso de proyectos de capacitaci6n de tecnicos, los beneficiarios directos seran los t6cnicos capacitados, quienes deberan estar asociados directamente con labores de generaci6n y/o transferencia de tecnologia o asistencia tecnica. La entidad capacitante, como parte de la solicitud debera presentar los criterios de selecci6n de los participantes de acuerdo con las Guias emitidas por el FONDO.

PROVEEDORES DE SERVICIOS

Los proveedores de servicios de GTAA deberan ser personas naturales o juridicas, individuales o asociadas, que cumplan con los siguientes criterios:

(a) Tener la capacidad tecnica demostrada para prestar el servicio para el cual se solicita financiamiento.

(b) Tener la capacidad logistica (transporte, equipo, personal de apoyo) para ejecutar eficientemente las acciones que el proyecto demande.

(c) Tener la capacidad financiera que le permita operar independientemente de los desembolsos del FONDO. Para esto debera demostrar que tiene un flujo de caja suficiente para cubrir tres meses de operaci6n del proyecto. Annex 12 Page 4 of 10

(d) Estar inscrito y debidamente calificado en el Registro de Proveedores de Servicios de GTTA de la DICTA.

(e) Haber entrado en un acuerdo con los beneficiarios, en el caso de proyectos de transferencia de tecnologia, que estipule las responsabilidades de cada uno durante la ejecuci6n del proyecto.

(f) Para los proyectos de investigaci6n y capacitaci6n, un proveedor individual deberi estar debidamente apoyado por una instituci6n reconocida con la infraestructura tecnica necesaria para ejecutar el proyecto y con los servicios de apoyo administrativo y contable para facilitar el-cumplimiento de los compromisos contractuales con el FONDO.

CONDICIONES DE COFINANCIAMIENTO

Uno de los objetivos fundamentales del FONDO es el desarrollo del mercado de servicios agropecuarios, por lo cual se requiere la participaci6n efectiva de los beneficiarios en el financiamiento de los proyectos, de acuerdo con las normas que se estipulan en este capitulo. Estas normas podran ser modificadas por el Consejo de Administraci6n en consulta con el Banco, segun lo estipulado en el capitulo XIV.

Proyectos de generaci6n de tecnologia. Se financiarin proyectos con un costo maximo de US$100,000 por proyecto, con periodos de ejecuci6n hasta de 3 anios,renovables anualmente. La elegibilidad de financiamiento para el segundo y tercer afnose determinari con base en el cumplimiento de las metas establecidas para el anioanterior y los recursos disponibles del FONDO. El FONDO podra financiar hasta el 70% del costo total del proyecto, y dara preferencia a los proyectos que incluyan mejores aportes de otras fuentes a traves de las instituciones beneficiarias de acuerdo con los criterios establecidos en el Apendice A. Los recursos provenientes de estos aportes deberan ser exclusivamente asignados al proyecto.

Proyectos de Transferencia de Tecnologia. Se financiarin proyectos con un costo maximo de US$ 100,000, con periodos de ejecuci6n hasta de 5 afios, renovables anualmente; esta renovaci6n estari sujeta al cumplimiento de las metas fijadas para el anioanterior. Los pequenos productores aportaran el 10% del costo del proyecto durante el primer afio, el 20% durante el segundo afio, el 30% durante el tercero, el 40% durante el cuarto y el 50% durante el quinto afio. Para el caso de los productores medianos, esta escala sera de 20, 40, 60, 80 y 100% respectivamente. Estos aportes deberan ser depositados a favor del FONDO en un plazo de tres meses despues de la aprobaci6n del financiamiento.

Proyectos de capacitaci6n de tecnicos. Se financiaran cursos especificos de capacitaci6n de tecnicos en areas prioritarias presentados por instituciones con capacidad y experiencia comprobadas en las areas propuestas. Las entidades solicitantes deberan aportar las instalaciones fisicas y justificar claramente la demanda por el curso propuesto. Los beneficiarios o Annex 12 Page 5 of 10 las institucionespatrocinadoras aportaran el 30% durante el primer antodel proyecto, el 40% durante el segundo,el 50% durante el terceroy el 600%odurante los anios4 y 5.

El FONDO podri financiarcursos o eventos de capacitaci6nsolicitados por grupos de agricultoreso asociacionesgremiales para lo cual se contratari en forma competitivaal proveedor.Las propuestaspresentadas por los proveedoresseran evaluadas por la UAP de acuerdocon los criteriosestipulados en el CapituloIX. Toda solicituddebera presentarun presupuestode costos de acuerdocon las Guias emitidaspor el FONDO,el cual seri sujeto de evaluaci6ny revisi6npor parte de la UAP.

ADMIMSTRACION DEL FONDO

La maximaautoridad del FONDO sera el Consejode Administraci6ncompuesto por 7 miembros:

(a) el DirectorEjecutivo de la DICTA, quien lo presidira,

(b) un representantedel Ministeriode Hacienda,

(c) un representantedel sectorforestal nombradopor COHDEFOR,

(d) un representantede los ColegiosProfesionales Agropecuarios,

(e) un representantede los proveedoresde serviciosnombrado por CONACTA,

(f) dos representantesde los productoresnombrados por CONACTA.

El Consejode Administraci6nse reuniratrimestralmente; si el volumende solicitudesa considerarlo requiere,podri tener reunionesextraordinarias.

Las funcionesdel Consejode Administraci6ndel FONDO son:

(a) Administrarlos recursosdel FONDO segunlos criteriosestablecidos en este Reglamento.

(b) Aprobarlas solicitudesde financiamientode proyectos.

(c) Procurar el mantenimientodel FONDO de acuerdocon las necesidadesde financiamientode las actividadesde GTTA en el pais.

(d) Revisary definiranualmente los parametrosde cofinanciamientode acuerdocon los objetivosdel FONDOy los requerimientosy estrategiasdel sectory el desempentode los proyectos. Annex 12 Page 6 of 10

Las operacionesdel FONDOestarin a cargo del Administradordel FONDO quien sera nombradopor el Consejo,dependeri directamentedel Consejo,tendra a su cargo la supervisi6n de las unidadesde apoyotecnico y administrativoy actuari como Secretariodel Consejode Administraci6ndel FONDO.En ausenciadel establecimientoformal del FONDOcomo una entidadindependiente, estas funcionesseran ejecutadas por la "Secretariadel FONDO",una unidada ser establecidaen DICTA.

Las funcionesdel Administradordel FONDO son:

(a) Supervisarla UnidadTecnica y la UnidadAdministrativa del FONDO.

(b) Manejar,de acuerdocon las normasy procedimientosestablecidos en este Reglamento y las orientacionesdel Consejode Administraci6n,los recursos del FONDO.

(c) Ejecutarlas instruccionesdel Consejode Administraci6n.

(d) Manteneractualizados los manualesde funciones,politicas y procedimientosdel FONDOy las Guiaspara la Presentaci6nde Solicitudesde Financiamiento.

(e) Prepararla agendapara las reunionesmensuales del Consejode Administraci6n.

(f) Coordinarcon la UAP el flujo adecuadode solicitudesde financiamientoy las actividadesde supervisi6n.

La DICTA contratari a una empresaprivada para operar la UnidadAdministradora de Proyectosdel FONDO(UAP). El operadorde esta unidad sera una empresaprivada, nacional o intemacional,debidamente calificada. Sus funcionesprincipales seran:

(a) evaluar,de acuerdo con las normasy criteriosestablecidos en este Reglamentoy con las instruccionesdel Consejode Administraci6ndel FONDO,las solicitudesde financiamientode proyectosque presentenlos solicitanteselegibles.

(b) supervisarlos proyectosen ejecuci6ny aprobar, de acuerdocon las condiciones establecidasen los contratos, los desembolsosa los proveedoresde servicios.

(c) preparar informestrimestrales de su gesti6nde acuerdocon los instructivosdel Consejode Administraci6n.

La compensaci6npor los serviciosde la UAP estari compuestapor: (a) serviciosde evaluaci6nde solicitudes;y, (b) supervisi6nde proyectos.Esta compensaci6nestara definidaen el contrato que la empresaoperadora de la UAP suscribacon DICTA. La UAP no podra cobrar cargos ni comisionesde ningunaclase fuera de los estipuladosen ese contrato.La empresa operadora de la UAP no podra participaren ningunaactividad adicional relacionada directa o indirectamentecon el programade financiamientode proyectosdel FONDO. Annex 12 Page 7 of 10

El FONDO estableceri y mantendra una cuenta en un banco comercial, con los recursos asignados por el Gobiemo. Estos recursos seran utilizados exclusivamente para: (a) el financiamiento de proyectos aprobados por el Consejo de Administraci6n; (b) los gastos opera- tivos del FONDO; y (c) financiar el costo de las actividades de evaluaci6n ejecutadas por la Unidad Administradora de Proyectos. Los costos de supervisi6n seran incluidos en el presupuesto de cada proyecto. Anualmente el Consejo de Administraci6n debera presentar el presupuesto de gastos para el siguiente afnofiscal de acuerdo con las categorias estipuladas en el numeral 7.10. Anualmente, el Consejo de Administraci6n programara los recursos a ser asignados trimes- tralmente al financiamiento de proyectos.

PRESENTACION DE SOLICITUDES

Las solicitudes de financiamiento seran preparadas de acuerdo con las Gutaspara la Presentaci6n de Solicitudes de Financiamiento suministradas por el FONDO. Las solicitudes deberan ser presentadas al Administrador del FONDO para el Financiamiento de Proyectos de GTTA. La UAP establecera los mecanismos apropiados para facilitar la entrega de solicitudes en las regiones. Las solicitudes de financiamiento deberan describir en forma detallada los objetivos especificos del proyecto en trnminos de su impacto sobre la productividad y eficiencia a nivel de finca. Las solicitudes deberan establecer metas cuantificables y verificables, relacionadas directamente con los objetivos propuestos, cuyo cumplimiento sera condici6n para continuar el financiamiento despues del primer afio. El Administrador del FONDO registrara las solicitudes presentadas y las enviara a la UAP para su evaluaci6n, a mas tardar dos dias habiles despues de su presentaci6n.

EVALUACION DE SOLICITUDES

La evaluaci6n de las solicitudes de financiamiento de proyectos de GTTA estarAa cargo de la UAP. La UAP debera informar al solicitante, a mas tardar 5 dias habiles despues de recibida la solicitud si esta no es aceptable o elegible para evaluaci6n detallando las razones o la informaci6n faltante segun el caso.

Criterios de elegibildad. Para que una solicitud sea sujeto de evaluacion fornal por parte de la UAP debera cumplir con las siguientes condiciones: (a) presentar la documentaci6n completa requerida por la Guias para la Presentaci6n de Solicitudes; y (b) cumplir con los criterios establecidos en los Capitulos I, H, m, IV y V.

Una vez aceptadas las solicitudes elegibles para evaluaci6n, la UCP tendra un plazo de 30 dias para presentar un dictamen al Administrador del FONDO. Este dictamen concluira con una recomendaci6n para financiar, rechazar o reformular la solicitud, junto con un resumen de las razones que ameritan su recomendacion de aprobaci6n, rechazo o reformulaci6n. Las solicitudes de financiamiento seran evaluadas por un comite evaluador asignado por la UAP, compuesto por tres personas quienes podran obtener opiniones de expertos especializados en los temas especificos del proyecto propuesto segun el caso. Cada solicitud sera evaluada con relaci6n a los criterios y puntajes establecidos en el numeral 9.5. Annex 12 Page 8 of 10

Criterios de evaluaci6n. La UAP, en la evaluaci6n de las solicitudes de financiamiento, aplicara los siguientes criterios:

Viabilidad tecnica Viabilidad ambiental Viabilidad econ6mica Institucional (Capacidad del proveedor: tecnica, logistica y financiera) Prioridades del Programa

Estos criterios seran aplicados de acuerdo con los puntajes definidos en el Apendice A. Los metodos y procedimientos para operacionalizar estos criterios seran presentados en las Guias para la Preparaci6n de Solicitudes de Financiamiento. La UAP se responsabilizara por la calidad tecnica de la evaluaci6n y la integridad del proceso. El dictamen de la UAP seri revisado por la Secretaria del FONDO con el fin de verificar que se hayan cumplido los procedimientosy criterios de evaluaci6n. La Secretaria debera dar su aprobaci6n o rechazo al dictamen a mas tardar 3 dias habiles despues de su presentaci6n.

APROBACION DE SOLICITUDES

El dictamen presentado por la UAP recomendando la aprobaci6n de una solicitud, revisado por la Secretaria del FONDO, debera ser entregado al Administrador del FONDO para su inclusi6n en la proxima reuni6n del Consejo de Administraci6n. El dictamen presentado al Consejo de Administraci6n incluira el proyecto de contrato entre el solicitante como proveedor de servicios, el FONDO y el beneficiario, segun el caso. Este incluira el cronograma de desembolsos los cuales se haran efectivos de acuerdo con los procedimientos estipulados en el Capitulo XI.

Criterios de selecci6n. El Consejo de Administraci6n del FONDO podra rechazar o posponer la aprobaci6n de solicitudes recomendadas por la UAP cuando no exista disponibilidad de fondos en una vigencia trimestral para financiar todos los proyectos recomendados. Los proyectos aprobados se seleccionaran de acuerdo con el puntaje respectivo definido en el numeral 9.5 y Apendice B. El Consejo de Administraci6n podra incorporar criterios geograficos en el proceso de selecci6n cuando lo considere esencial para complementar otras acciones especificas en areas determinadas.

DESEMBOLSOS

El FONDO, segun las estipulaciones de cada contrato, dara un anticipo de acuerdo con los requerimientos financieros del proyecto correspondiente. Para los demas desembolsos se requerira un informe de supervisi6n emitido por la UAP, segun lineamientos emitidos por el FONDO. Este informe debera incluir la certificaci6n, opiniones y recomendaciones de los productores beneficiarios en el caso de proyectos de transferencia de tecnologia, de los tecnicos capacitados en el caso de los proyectos de capacitaci6n y del panel supervisor en el caso de los proyectos de generaci6n de tecnologia. Annex 12 Page 9 of 10

Por autorizaci6n del Consejo de Administraci6n, los desembolsos serin firmados conjuntamente por el Administrador del FONDO y el Contador Pblico del FONDO. Los desembolsos seran autorizados por el Consejo de Administraci6n para el periodo de financiamiento del proyecto (1 anlo). El Administrador del FONDO sera responsable por la ejecuci6n apropiada de estos.

EJECUCION

Durante la ejecuci6n, el beneficiario presentara a la UAP los informes mensuales de progreso acordados en el contrato, y colaborara con dicha unidad en el proceso de supervisi6n de acuerdo con lo estipulado en el Capitulo XIII. La UAP, a su vez, coordinarA con la DICTA los asuntos relacionados con el seguimiento del programa.

SUPERVISION

La supervisi6n de los proyectos sera responsabilidad de la Unidad Administradora de Proyectos del FONDO (UAP). El contrato con el beneficario y proveedor debera hacer explicita la forma de supervisi6n y la obligaci6n de cooperar con la UAP en dicha supervisi6n. La UAP presentara al Consejo de Administraci6n del FONDO y a la DICTA un informe semestral de progreso de los proyectos en ejecuci6n.

La UAP realizara visitas de campo peri6dicas para verificar los informes mensuales presentados por el beneficiario. Los informes mensuales deberan ser breves pero sustantivos e incluiran, en lo posible, indicadores de alcance de los objetivos finales del proyecto en relaci6n con el nivel de esfuerzo asignado. Para los proyectos de capacitaci6n de tecnicos se requerira una evaluaci6n de los beneficiarios al final del curso respectivo. Esta evaluaci6n sera ejecutada por la UAP durante la filtima sesi6n de cada curso o evento y formara parte de la supervisi6n formal de los proyectos de capacitaci6n. Para proyectos de generaci6n de tecnologia se requerira la opini6n de un panel de expertos en el tema quienes revisaran y daran su opini6n sobre los informes acordados. Representantes de la DICTA, el FONDO y el BID podran realizar visitas especiales de inspecci6n a cualquier proyecto o actividad financiado con recursos del FONDO para lo cual la UAP y el beneficiario prestaran la cooperaci6n requerida. Los costos de supervisi6n seran incluidos en el presupuesto de cada proyecto individualmente y no seran mayores del 5% del costo total del proyecto.

EVALUACION DEL FONDO Y MODIFICACION DEL REGLAMENTO

Anualmente, el Consejo de Administraci6n presentara un informe de progreso a la Secretaria de Recursos Naturales, al Ministerio de Hacienda, al SNITTA a traves del Consejo Nacional de Ciencia y Tecnologia Agropecuaria (CONACTA) y al BID sobre los logros y problemas del programa, y las modificaciones recomendadas a este Reglamento. Las prioridades para el financiamiento de proyectos de generaci6n y transferencia seran ajustadas de acuerdo con los resultados y recomendaciones del Plan Nacional de Generaci6n y Transferencia de Tecnologia que debera ser aprobado por el CONACTA. Annex 12 Page 10 of 10

El Consejo de Administraci6n del FONDO, anualmente, podra modificar los parametros de cofinanciamientocon base en los siguientes elementos: recomendaciones del Plan Nacional de GTTA, cambios en la demanda de servicios de GTTA, disponibilidad de recursos, resultados de los proyectos financiados. Cualquier modificaci6n de este reglamento debera contar con la aprobaci6n de la DICTA, la SRN y el BID de acuerdo con las clausulas respectivas del contrato de prestamo entre el Gobiemo de Honduras y el BID. Annex J

HONDURAS RURAL LANDMANAGEMENT PROJECT

DOCUMENTSIN PROJECT FILES

1. Legal Framework: (a) Agricultural Modernization Law, Decree 31-92 and Regulations to Forestry Aspects of the Law, Acuerdo 1039-93; (b) Municipal Laws, Decree 134-90 and Decree 48-91; (c) General Environmental Law, Decree 104-93 and its regulations, Acuerdo 109-93; (d) Forestry Law, Decree 83 of November 18, 1971, the Law for the Honduran Forest Development Corporation (COHDEFOR), Decree 103-74, and the General Forestry Regulations, Acuerdo 634-84; (e) the Law for Incentives for Reforestation, Afforestation, and Forest Protection, Decree 163-93; (f) the Regulation of Article 39 of the Agrarian Reform Law, Acuerdo 322-92, and the Registry Law, Decree 171-75; and (g) the Agricultural Plan for Rural Development, Acuerdo 2- 95 (PROAGRO) and the Regulation of DICTA for the Agricultural Modernization Law, Acuerdo 2064-93.

2. Annex containing the Plan Agricolapara el Desarrollo del Campo (PROAGRO) and the Functions of DICTA, CONACTA, and SNITTA.

3. Project Brief, IDB, for proposed Agricultural Technology Project and Component Summary for DICTA Component for Agriculture Technology Generation and Transfer, Working Papers for preparation of Agriculture Technology Component to be financed by IDB as a complement to World Bank project (both in Spanish).

4. Plan de Acci6n: Programa Nacional de Descentralization y Desarrollo Municipal, Comisi6n Ejecutivapara la Descentralizaci6n del Estado, Unidad Tecnica, Tegucigalpa.

5. Working document of DICTA regulating agricultural extension and research system.

6. Tom Korczowski, Modernization of the Land Administration and Registry System, Background Working Paper prepared for project preparation (in Spanish).

7. Biodiversity Conservation Project (GE-44343-HO) Project Brief

8. Report in Spanish of Comisi6n Interinstitucional on the Land Administration Component

9. PRODEPAH Project summary of forestry development prospects prepared for MAG.

10. Detailed Economic and Financial Analysis;Farm Models

11. PIP (in Spanish).

12. Operational Manual (in Spanish). 18RD28163

BELIZEB HONDURAS LAND USEAND

-! LA BAHIA PROJECTAREA BOUNDARY

16 0 2 0 75 10 6.1- C"" 0 25 5D 75WI.

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PROJECTAREA BOUNDARY MEXIC_~ CBELIZE JAMAIC PROTECTEDAREAS GUATEMALA MCrA

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INTERNATIONALBOUNDARIES PANAMA

' go. R3 M~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~go.~~~~~~~~~~~2COLOMBIA OCTOER 1996

I IMAGING

ReportNo.: 15917 HO Type: SAR

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