Technical Assistance Consultant’s Report Project Number: 39321 June 2008 PRC: Preparing the Shaanxi-Qinling Mountains Integrated Ecosystem Management Project (Cofinanced by the Global Environment Facility) Prepared by: ANZDEC Limited Australia For Shaanxi Province Development and Reform Commission This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. FINAL REPORT SHAANXI QINLING BIODIVERSITY CONSERVATION AND DEMONSTRATION PROJECT PREPARED FOR Shaanxi Provincial Government And the Asian Development Bank ANZDEC LIMITED September 2007 CURRENCY EQUIVALENTS (as at 1 June 2007) Currency Unit – Chinese Yuan {CNY}1.00 = US $0.1308 $1.00 = CNY 7.64 ABBREVIATIONS ADB – Asian Development Bank BAP – Biodiversity Action Plan (of the PRC Government) CAS – Chinese Academy of Sciences CASS – Chinese Academy of Social Sciences CBD – Convention on Biological Diversity CBRC – China Bank Regulatory Commission CDA - Conservation Demonstration Area CNY – Chinese Yuan CO – company CPF – country programming framework CTF – Conservation Trust Fund EA – Executing Agency EFCAs – Ecosystem Function Conservation Areas EIRR – economic internal rate of return EPB – Environmental Protection Bureau EU – European Union FIRR – financial internal rate of return FDI – Foreign Direct Investment FYP – Five-Year Plan FS – Feasibility Study FSR – Feasibility Study Report GDP – Gross Domestic Product GEF – Global Environment Facility (of UNEP) GIS – Geographic Information System GMS – Greater Mekong Subregion IA – Implementing Agency IDA – International Development Association (part of the World Bank Group) IEM – Integrated Environmental Management IEE – Initial Environmental Examination IFAD – International Fund for Agricultural Development IFC – International Finance Corporation IPSA – Initial Poverty and Social Analysis IR – Inception Report IRR – internal rate of return LG – Leading Group LGFD – Louguanfudi Travel Development Company MDG – Millennium Development Goal MLR – Ministry of Land and Resources MOA – Ministry of Agriculture MOF – Ministry of Finance MOU – Memorandum of Understanding MTR – Mid-Term Report (of the PPTA Team) MWR – Ministry of Water Resources NDRC – National Development Reform Commission NGO – non-government organization NPO – non profit organization NPV – net present value NNR – national nature reserves (state level) NR – nature reserves NTFPs – non-timber forest products ODA – Overseas Development Assistance NTFP – non-timber forest products OECD – Organization for Economic Cooperation and Development OP – Operational Program (of GEF e.g. OP12 on Integrated Ecosystem Management (IEM)) PA – Protected Area PDF – Project Design Fund (of GEF) PPCP – public-private-community partnerships PPP – public-private partnerships PRC – Peoples Republic of China PDRC – Provincial Development Reform Commission PES – “Payment for Environmental Services” PIT – principal, interest and taxes PMO – Project Management Office PPTA – Project Preparatory Technical Assistance PRA – Participatory Rural Appraisal PRO – Poverty Reduction Office PRC – People’s Republic of China QBQ – Qinling Botanicalal Garden QM – Qinling Mountains QMEFCA – Qinling Mountains Ecosystem Function Conservation Area RCC – Rural Credit Cooperative REA – Rapid Environmental Assessment SALT – Steepland agricultural technologies SARC – Shaanxi Animal Rescue (Zoological) Center SQNBG - Shaanxi Qinling National Botanicalal Garden NDRC – State Development Planning Commission (now NDRC see above) SEIA – Summary Environmental Impact Assessment SEPA – State Environmental Protection Agency SFA – State Forestry Administration SIEE – Summary Initial Environmental Investigation SME – small and medium-sized enterprise SOE – state-owned enterprise SP – Shaanxi Province SPDRC – Shaanxi Provincial Development Reform Commission Spp – species SRP – Summary Resettlement Plan SSA – Summary Social Assessment SQBG – Shaanxi Qinling Botanical Garden Office TA – Technical Assistance TNC – The Nature Conservancy TOR – Terms of Reference TVE – township and village enterprises WDS – Western Development Strategy (of the PRC) WACC – weighted average cost of capital WWF – World Wide Fund for Nature/World Wildlife Federation UNDP – United Nations Development Program UNEP – United Nations Environmental Program UNWTO – World Tourism Organization of the United Nations VDP – village development plan WLSMA – whole landscape system management WTO – World Trade Organization WEIGHTS AND MEASURES 15 mu = 1 hectare CONTENTS Page I. THE PROPOSAL 14 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 15 A. Performance Indicators and Analysis 15 B. Analysis of Key Problems and Opportunities 17 III. THE PROPOSED PROJECT 27 A. Impact and Outcome 27 B. Outputs 28 C. GEF Financed Activities 35 D. Special Features 37 E. Project Investment Plan 38 F. Financing Plan 39 G. Implementation Arrangements 40 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 46 A. Financial and Economic Analysis 46 B. Social Dimensions 49 C. Environmental Impact 52 V. RECOMMENDED ASSURANCES AND CONDITIONS 53 A. Condition for Loan Negotiation 53 APPENDIXES (PRESENTED IN SEPARATE VOLUME) 1. Design and Monitoring Framework 2. List of Donor Projects 3. IPSA 4. Planning and Policy Priority Review 5. Biodiversity in the Qinling Mountains 6. Institutional Assessments – Mandates and Arrangements 7. Detailed Description of Components 8. Consulting Services 9.. Legal Reform Agenda 10. Project Costs 11. Project Implementation Schedule 12. Project Procurement Plan 13. Financial and Economic Analysis 14. Detailed Social Assessment 15. Initial Environmental Examination 16. Summary Resettlement Plan 17. GEF Submission Document 18. Problem Tree Analysis SUPPLEMENTARY APPENDIXES (AVAILABLE ON REQUEST) A. Sector Assessments and Review B. CDA - In-situ Strategy C. Legal Review D. Institutional Review E. Financial Management and Governance Assessment F. Ex-Situ Conservation Standards and Guidelines G. Endangered Species Recovery Management Plans H. Rural Livelihoods and Conservation I. Impact of Mini-Hydros and their proposed Removal J. Grain for Green Policy Assessment K. Tourism Marketing Guide L. Detailed Project Costs M. Detailed Financial and Economic Analysis iii LOAN AND PROJECT SUMMARY Borrower Peoples Republic of China Classification Targeting classification: General intervention Sector: Agriculture and Natural Resources Subsector: Environment and Biodiversity Themes: Sustainable economic growth and Environmental sustainability Environment Assessment Category B. An initial environmental examination was undertaken. The summary initial environmental examination assessment was circulated to the Board of Directors of the Asian Development Bank (ADB) and will be uploaded on the ADB website on **** 2007. Project Description The Project Area comprises of 458 sq km on the northern toe slope of the Qinling Mountains in an area adjacent and surrounding the Louguantai township within Zhouzhi county. The Qinling Mountains is an internationally important biodiversity hotspot and represents some 70% of Chinas biodiversity including an estimated 200 giant Panda. Ecologically the Qinling Mountains are central to soil and water management linked to both the Yangtze and Yellow rivers and also the capital of Shaanxi Xian. The Project Area is situated about 50km south west of Xian city and is currently under the management and control of the Louguantai Forest Farm and is identified as the home of the Daoist religion. The Project area is divided into a hill and mountainous area (in- situ zone) where the management objective is low impact development that supports the conservation of biodiversity and provides sustainable low impact livelihoods for the remaining 4,593 residents. The far smaller flat region to the north is currently a mix of agriculture and residential development that will be used for far more intensive development for which project funds will be used to develop commercial biodiversity based enterprises that will generate funds for the management and enhancement of the CDA zone. The commercial enterprises will involve wildlife breeding and research, wildlife tourism, a Botanical garden and a geothermal hot spring development. Linked to these will be additional tourism attractions such as walkways, exhibitions, Daoist religious sites, These commercial enterprises will address a major weakness of the many past biodiversity projects that while achieving significant progress the benefits of investment generally ceased immediately on completion of the Projects due to non-sustainable institutions and financing arrangements. Rationale The Project will diversify and further develop the economy of the Shaanxi Province by developing the tourism potential within an intensive use zone of the Project area including attractions linked to Daoist religious and temple sites, geothermal hot springs, an ex-situ wildlife management center that includes iconic species such as the giant Panda, Crested Ibis, Golden Monkey and Takin, and a newly developed Botanical garden for the plants of the Qinling Mountains. The Project will develop the Qinling Botanical Garden, Shaanxi Animal Rescue Center, and the Shaanxi Forest Bureau Hot Springs Joint Venture as commercial operations that will reinvest part of the profits into the larger conservation