AN ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT FOR …

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LAO PDRITHE WORLD BANK/GOVERNMENT OF FINLAND

AN ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENTFOR THE SUSTAINABLE FORESTRY AND RURAL DEVELOPMENT PROJECT

(FORDEV)

Prepared by

JOHN H. DICK, ENVIRONMENTAL ASSESSMENT SPECIALIST,VICTORIA, B.C., CANADA

andDR. PAULA J. WILLIAMS, SOCIAL ASSESSMENT SPECIALIST,

ANNAPOLIS, MARYLAND, USASeptember 19, 2002

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TABLE OF CONTENTSPage

1. INTRODUCTION AND BACKGROUND 6

2. METHODOLOGY 7

2.1 ESIA Terms of Reference 7

2.2 General Methodology 8

2.3 Community Consultation and Disclosure 11

3. THE LEGAL AND INSTITUTIONAL SETTING 12

3.1 Loa Peoples' Democratic Republic 12

3.1.1 Laws and Regulations3.1.2 Institutions: Roles and Responsibilities

3.2 The World Bank 173.2.1 Operational Policies and Directives3.2.2 Institutional Procedures for Project Preparation, Appraisal

and Supervision

4. ENVIRONMENTAL, SOCIAL AND RESOURCE MANAGEMENT 18SETTING

4.1 Environmental Conditions 18

4.2 Social Conditions 27

4.3 Land Use and Tenure 31

5. PROJECT DESIGN: SUSTAINABILITY, OPPORTUNITIES AND 34RISKS

5.1 Key Lessons Learned From Previous Donor Projects 34

5.2 Institutional Arrangements for Project Implementation 35

5.3 Support Services for Sustainable Forest Management Component 36

5.3.1 Project Design5.3.2 Project Alternatives5.3.2 Project Sustainability5.3.3 Project Opportunities and Benefits5.3.4 Environmental Risks and Management Strategies5.3.5 Social Risks and Management Strategies

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5.4 Participatory Forest Management and Village Development Component 40

5.4.1 Criteria for Selection of Project Areas 405.4.2 Sustainable Forest Management Sub-Component 41

5.4.2.1 Project Design5.4.2.2 Project Alternatives

5.4.3 Village Development Sub-component 475.2.3.1 Project Design5.2.3.2 Project Alternatives

5.4.4 Project Sustainability5.4.5 Project Opportunities and Benefits5.4.6 Environmental Risks and Management Strategies5.4.7 Social Risks and Management Strategies

5.5 Sectoral Monitoring and Control Component 57


5.6 Project Management Component 60


LIST OF INDIVIDUALS AND ORGANIZATIONS PARTICITATING INPREPARATION OF THIS ENVIRONMENTAL AND SOCIAL ASSESSMENT 63

REFERENCES 64

ANNEXS

Annex 1. Initial Environmental and Social Impact Identification Matrix.

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LIST OF ABREVIATIONS AND ACRONYMS

AOP Annual operation planADB Asian Development BankC&I Criteria and Indicators (for Sustainable Forest Management)CPSC Central Project Steering CommitteeCTA Chief Technical AdviserCTS Case Tracking SystemDAFES District Agriculture and Forestry Extension Service (or FSEW)DAFO District Agriculture and Forestry OfficeDCTA Deputy Chief Technical Adviser (leader of field implementation team)DDC District Development CommitteeDOF Department of ForestryDPD Deputy Project DirectorDSO District STEA OfficeESIA Environmental and Social Impact AssessmentETU Provincial Extension and Training Unit (also referred to as PAFES)FIPC Forest Inventory and Planning Center, NAFRI (formerly National Office of

Forest Inventory and Planning, NOFIP)FMA Forest Management AreaFMP Forest Management PlanFMTU Forest Management Technical Unit (or Forest Management Unit)FORDEV Sustainable Forestry and Rural Development ProjectFOMACOP Forest Management and Conservation ProjectFS2020 Forestry Strategy 2020GIS Geographical information systemGOF Government of FinlandGOL Government of Lao People's Democratic RepublicIUCN World Conservation UnionLNFC Lao National Front for ConstructionLWU Lao Women's UnionJFM Joint Forest ManagementLSFP Lao-Swedish Forestry ProgramMAF Ministry of Agriculture and ForestryMRC Mekong River CommissionNAFES National Agriculture and Forestry Extension ServiceNAFRI National Agriculture and Forestry Research InstituteNBCA National Biodiversity Conservation AreasNGO Non-governmental OrganizationNPFA National Production Forest AreaNTFP Non-Timber Forest ProductsOD Operational Directive (of the World Bank)OP Operational Policy (of the World Bank)PAFES Provincial Agriculture and Forestry Extension ServicePAFO Provincial Agriculture and Forestry OfficePFA Production forest areaPIP Project Implementation PlanPMO Prime Ministerial OrderPPT Project Preparation TeamPRA Participatory Rural Appraisal

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PSFM Participatory Sustainable Forest ManagementPSO Province STEA OfficePSP Permanent sample plotRRA Rapid Rural AssessmentSA Social AssessmentSC Steering CommitteeSFM Sustainable Forest ManagementSIDA Swedish International Development AgencySOE State-owned enterpriseSTEA Science and Technology AgencyUNDP United Nations Development ProgramUSD United States DollarVA Village AdministrationVFA Village Forestry AssociationVFC Village Forestry CommitteeWB World BankWCS Wildlife Conservation SocietyWWF World Wide Fund for Nature

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AN ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENTFOR THE SUSTAINABLE FORESTRY FOR RURAL DEVELOPMENT PROJECT

(FORDEV)

1. INTRODUCTION AND BACKGROUND

1. The Lao PDR Sustainable Forestry for Rural Development Program (FORDEV) was initiatedin March 2001, with a request by the Lao Government to the World Bank (WB) and theGovernment of Finland (GOF) for forest sector assistance. A WB/GOF Identification Mission inMay 2001 concluded that scope existed for forestry cooperation between the three parties in thefollowing areas: public sector production forest management; participatory management ofproduction forests involving villagers and Government; forest sector monitoring and control; andsupporting policy and regulatory reforms. The Lao Government formed a national SteeringComnmittee for the program in September 2001. In October a WB/GOF Mission met with theSteering Committee and jointly agreed that project preparation work could begin and would focuson the four areas described above.

2. FORDEV proposes to build on experience from past donor support to the forestry sector,including the previous W13/GOF-sponsored Forest Management and Conservation Project(FOMACOP) and the SIDA-sponsored Joint Forest Management program (JFM). The overallgoal of the project is to institute systematic forest management in natural production forestsnation-wide to alleviate rural poverty, protect biodiversity and enhance the contribution offorestry to the development of national and local economies in a sustainable manner. The projectwill focus on:

* reinforcing Government's commitment to participatory management of production forests;* introducing ecologically appropriate and effective management practices for Lao's major

commercial forest types;* significantly expanding the area under forest protection and sustainable management; and* enhancing the contribution of forests to village livelihoods and poverty alleviation.

3. The specific development objectives of FORDEV are to:

* improve the policy, legal and incentive framework enabling the expansion of sustainable,participatory forest management throughout the country;

* bring the Country's priority natural production forests under participatory, sustainable forestmanagement; and

* Improve villagers' prosperity and well-being through benefits from sustainable forestry,community development and the development of viable livelihood systems.

4. Field implementation will cover about 528,000 ha of natural forests in 18 districts inKhammouane, Savannakhet, Salavan and Champassak, including 270 000 ha of existingFOMACOP and JFM project sites. Project areas contain about 290 villages and an estimatedpopulation of between 100,000-105,000 villagers, many of whom will benefit either directly orindirectly from the project. A special attempt will be made to target the poor and villagedevelopment support may be adjusted for poverty. The majority of the project beneficiaries livein remote districts, where the percentage of the population rated as "poor" is higher than thenational average.

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5. The project will contribute to in situ biodiversity conservation. It will in some cases createbuffers around and connectivity between National Biodiversity Conservation Areas in projectprovinces. Sustainable management of production forest areas will entail management of allresources - including commercial timber, household wood, NTFPs, wildlife and otherbiodiversity values, and environmental services provided by the forest landscape. Appropriateforest management and control systems will be developed, piloted and implemented to allowselected areas to be certified under an internationally-recognized forest certification system (i.eForest Stewardship Council).

2. ESIA METHODOLOGY

2.1 ESIA Terms of Reference

6. The World Bank has determined FORDEV to be a Category A project, which means that itis a project deemed likely to have significant potential adverse environmental or social impactsthat are "sensitive, diverse or unprecedented". Category A designation has implications for thedepth of the Environmental and Social Impact Assessment (ESIA) required of the borrower, thelevels of necessary public consultation, and provisions for the public disclosure of the final ESIAreport. In particular, Operational Policy 4.01(see Section 3, below) for Category A designationrequires that:

* the ESIA examines the positive and negative environmental and social impacts of the project,compares them with feasible alternatives (including a "no project" option), and recommendsany measures needed to prevent, minimize, mitigate, or compensate for adverse impacts andto improve impact management performance;

* the borrower must consult project-affected people and local non-governmental organizations(where these exist) about the project's environmental and social aspects and must take theirviews into account; such consultation to take place at least twice, (a) shortly afterenvironmental screening and before the terms of reference for the ESIA are finalized, and (b)once the draft ESIA report is prepared; and

* in terms of project disclosure, the borrower must provide (a) for initial consultation, asummary of the project's objectives, description, and potential impacts and (b) after the ESIAreport is prepared, a summary of the ESIA's conclusions to be widely disseminated in theproject area, and a copy of the full ESIA placed in a location accessible to project affectedpeople (all disclosure materials must be provided in a form and language that isunderstandable by the people being consulted).

7. World Bank staff determined that the FORDEV environmental and social assessment wouldbe done best if fully integrated with the technical, financial, institutional and economic analyses.This would ensure that environment and social issues are given adequate weight in the siting anddesign decisions of the preparation team. This is fully consistent with the principle expressed inOP 4.01 and is not an exceptional approach. Thus both the Social Assessment Specialist and theEnvironmental Assessment Specialist, along with designated Laotian counterparts, contributed toprogram preparation and design, as well as being responsible for preparing the ESIA on behalf ofthe Laotian Government for submission to the World Bank. Program preparation/design was totake place between mid-January and the end of August 2002, and that the final ESIA was to beprepared for delivery and disclosure by mid-September 2002.

8. In particular, ESIA terms-of-reference prepared in February 2002 required the Social andEnvironmental Specialists to:

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* work with the program preparation team to ensure that all potentially significant social andenvironmental impacts are identified as early as possible in the design process (see Annex 1);

* collaborate with World Bank Environmental and Social Specialists to ensure that all pertinentsocial and environmental safeguard policies are fully considered during program preparation;

* work with the program preparation team to develop (i) impact avoidance and mitigationstrategies for all predicted impacts, and (ii) the environmental and social components of anoverall program monitoring plan;

* prepare the environmental and social impact assessment (ESIA) report on behalf of the LaoPDR for submission to the World bank for appraisal;

* advise the Lao PDR on an effective disclosure program as required for World Bank appraisal.

2.2 General Methodology

9. During the past two decades, serious questions have been raised in many countries aboutthe application of "traditional" ESIA processes to broad-scale renewable natural resourceplanning and management programs. Most of these ESIA processes have been designed to dealwith complex "construction" projects with relatively clearly defined and limited geographicallocations and some degree of certainty in impact prediction and quantification. The focus ofthese processes is on impact identification and analysis to influence operational project design,planning and implementation. Such processes have limited practical application to broad-scalenatural resource planning initiatives, such as FORDEV, for the following reasons.

* Sectoral programs like FORDEV usually have a broader scope than construction projects,including such things as: national policy and regulatory development; institutional and humanresource development; and natural forest resource management planning and implementationat a range of levels - national, regional, landscape and stand.

* Knowledge of the cause/effect relationship between human activities and changes in naturalecosystems is so poor that even impact prediction is difficult, let alone impact quantification.

* Natural resource planning and management activities are usually dispersed across broad,often complex, landscapes.

* Traditional ESIAs are conducted at a single point in time (feasibility design) whereas naturalresource management involves continuous planning over many decades.

* Many of the resources at risk in natural resource management operations (i.e. nativebiodiversity, wildlife and aquatic resources) must be managed, and impacts mitigated, at avariety of scales - regional, landscape and site levels.

* Most operational forestry activities, such as infrastructure development, harvesting,regeneration, and stand tending, are small-scale and repetitive, and thus more amenable tomanagement through sectoral assessments and management guidelines (or codes-of-best-practice) than by the traditional ESIA techniques designed for construction projects.

10. In light of the forgoing, environmental and social assessment in natural resource managementshould focus less on "scientific" impact analysis, and more on ensuring that program designavoids or minimizes environmental and social impacts by:

* setting clear and appropriate goals, objectives and principles for management activities;* ensuring that government policies, legislation, regulations and institutional organization

support and facilitate sound, sustainable natural resource management;* ensuring the management activities directed at natural ecosystems are as consistent as

possible with the ecological processes that create and maintain those systems;

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* ensuring that management activities directed at human-made ecosystems "mimic" naturalecological structures and processes so as to increase their stability and resilience;

* limiting site disturbance and soil degradation through good operational practices;* incorporating long-term community co-management, planning and development programs

into program design through constructive public consultation processes;* providing potential beneficiaries with the skills and information necessary to participate

effectively in the project; and* establishing well-conceived environmental and social monitoring programs.

11. The approach to deal with environmental and social issues in FORDEV was to make a cleardistinction between environmental and social assessment and an environmental and social impactassessment (ESIA). Environmental and social assessments are functions that, along withinstitutional, technical and financial assessments, are an integral and continuous part ofproject/program design. ESIA is a report, and a process to review that report, leading toproject/program appraisal and approval. Thus, design should be based on a set of integratedenvironmental, social, technical and financial principles and objectives. Likewise, theexamination of alternatives to avoid risks/impacts and the development of managementprescriptions to minimize adverse impacts and enhance positive benefits are both essentialcomponents of project design. The ESIA is an objective analysis of the effectiveness of projectdesign in avoiding or mitigating anticipated environmental and social impacts, and an honestevaluation of residual (unresolved) impacts and the manner in which the risk of those impactsmight be managed. In summary, environmental and social issues in FORDEV have beenaddressed in two steps: first, a social and environmental assessment at project preparation anddesign; and second, an objective environmental and social impact assessment (ESIA) based onthe completed design prepared for project appraisal.

PROGRAM PREPARATION AND DESIGN

12. The social and environmental assessment functions that have been undertaken during theproject preparation and design phase are:

Social Assessment and associated Public Consultation

* identify significant potential social and cultural impacts associated with the project asproposed (see Annex 1);

* identify the pertinent World Bank social safeguard policies applicable to the project anddetermine what must be done to satisfy safeguard requirements;

* identify government policy, legislative, institutional and management constraints to effectivecommunity participation and co-management in forest resource programs;

* identify key stakeholders and establish effective means for their participation in projectdesign and implementation;

* undertake an initial socio-economic survey sufficient for project preparation, and define thesocial surveys and appraisals necessary for detailed design and to establish a baseline againstwhich to measure project effectiveness;

* ensure that social and cultural needs are reflected in the overall project goals, objectives andprinciples;

* ensure that project objectives and activities are acceptable to beneficiaries and that gender,ethnic and other social differences are accommodated in project design;

* assess the social impacts of proposed activities and, where adverse impacts are identified,determine how they can be avoided or minimized;

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* assess the need for, and prepare if necessary, an E Development Plan (EGDP), re: OP 4.20;* identify activities necessary to develop the capacity, at the appropriate implementation level,

to increase participation, resolve conflicts, deliver services, and carry out recommendedmanagement activities;

* provide a vehicle for the ESIA disclosure required by World Bank; and* provide a firm basis for on-going community consultation and socio-economic monitoring in

the proposed participatory planning and management agreements during projectimplementation.

Environmental Assessment

* identify significant potential environmental impacts associated with the project as proposed(see Annex 1);

* identify the pertinent World Bank environmental safeguard policies applicable to the projectand determine what must be done to satisfy safeguard requirements;

* identify government policy, legislative, institutional and management constraints to credible,science-based, sustainable management of forest resources;

* identify critical environmental resources (landscapes, habitats, species, cultural andtraditional forest products) at risk in the program areas;

* summarize existing environmental information for project preparation, and define theecological inventories and surveys necessary for detailed design and to establish a baselineagainst which to measure program progress;

* define the potential environmental risks and impacts associated with the project to serve as aninitial basis for project design;

* ensure that environmental protection and conservation needs are reflected in the overallproject goals, objectives and principles;

* assess the environmental impacts of proposed project activities and, where adverse impactsare identified, determine how they can be avoided or minimized;

* identify activities (training and extension, best-practice-codes, local area resource planning,etc) necessary to enhance the appreciation and the conservation of environmental resources;

* define a practical and affordable environmental monitoring program, linked to theenvironmental baseline, to measure program effectiveness.

13. One of the most difficult judgements in a natural resource management program such asFORDEV is the level of information collection necessary for project preparation, design andappraisal. Clearly both the funding and the time available for the preparation/design phase of anyproject are limited. It would be completely impractical to expect the same intensity ofenvironmental and social information collection for:

* a construction project involving direct, adverse, measurable impacts on a few thousandhectares; and

* a resource management program dedicated to improving environmental and social conditionthrough strategic interventions at the national and provincial levels, and implementation at thelocal level over several hundred thousand hectares.

Thus for the purpose of FORDEV design, preparation and appraisal, it has been assumed that thelevel of data collection will be only that necessary to deterrnine:

* the range of expected environmental and social impacts and values at risk;

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* the range of community opinions about the project as proposed; and

* the social and environmental surveys and appraisals that will be necessary for detailed designand adequate baseline establishment, prior to full operational implementation.

ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT

14. The ESIA is based on the completed, feasibility-level project design (as contained in theProject Preparation Report, September 10th, 2002) and has comprised the following analyticalcomponents:

* critical review of the policy, legal and institutional environment for the project;* overall goals, objectives and principles of the project;* principles and criteria for the selection of project areas;* the social and environmental setting for the project with particular emphasis on social

sensitivities (particularly indigenous ethnic groups), environmental resources at risk, and theestablishment of an adequate social and environmental baseline in project areas;

* predicted risks/impacts and benefits of the project, as defined at the beginning of thepreparation process to guide project design (see Annex 1);

* the nature and the results of the public consultation process* options considered in program design and the reasons for selection (benefit enhancement) or

rejection (risk avoidance);* description of project activities as designed;* summary of the environmental/ social impact management and monitoring activities

incorporated in project design, with particular reference to World Bank environmental andsocial safeguard policies and directives; and

* an objective assessment of risks/impacts still inherent in the project and an indication of howthese will be dealt with during program implementation.

2.3 Commnunity Consultation and Disclosure

15. During project preparation and Environmental and Social Assessment, efforts have beenmade to consult with a wide range of stakeholders, particularly villagers of different ethnicgroups. Focus group discussions with villagers have been conducted in Khammaoune,Savannakhet, and Salavan Provinces. Between December 2001 and January 2002, consultationfield visits have been made to 49 villages, including 24 villages with prior experience withparticipatory forest management and 25 villages in new areas. In March-April 2002 the firstphase of ESIA consultations were conducted. Six group meetings were been held withrepresentatives of all 79 villages that had participated in previous FOMACOP Village Forestryand Joint Forest Management pilot projects. Twenty-six "new" villages in Khamaouane,Saravane, and Champasak Provinces were visited. These meetings with villagers have discussed:

* the villagers' general situation, use of the forest, development needs and developmentexperience;

* the concept of the new project;* how it would differ from the previous pilots;* possible social and environmental impacts; and* villagers' ideas, suggestions, questions, comments on the project as designed.

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16. In addition, the PPT visited forestry offices in Champassak province and concerned districtsin April 2002 and carried out fact-finding/scoping visits to all potential production forest areas inChampassak. Meetings have also been held with relevant officials and development partners inVientiane, including a three-day stakeholder workshop of national and provincial representativesconducted from 26 to 28 February 2002.

17. The final phase of ESIA consultation and disclosure will take place in September 2002. Thesame villages visited in the first phase will be visited again, as well as 8 additional "new" villagesto increase the coverage of non-Lao ethnic groups.

3. THE LEGAL AND INSTITUTIONAL SETTING FOR THE SUSTAINABLEFORESTRY FOR RURAL DEVELOPMENT (FORDEV) PROJECT

3.1. Lao Peoples' Democratic Republic

3.1.1. Laws, Regulations and Policies

18. The Government of Lao PDR (GOL) has no over-arching statement of forest policy. Whatpolicy exists is primarily implicit in separate pieces of legislation and various decisions made bythe Government, which are often inconsistent and sometimes conflicting. The Forest Law (1996)provides broad framework for sustainable forest management, including management planningand forest operations, but it inadequately addresses village forestry, forest plantations, sustainablenatural forest management practices, wood processing investment and the respectiveadministrative functions of GOL Ministries and Provincial/District authorities. Six years after theintroduction of the Forest Law there are still no comprehensive implementing regulations, whichwould provide a supporting, enabling framework for sustainable forest management.Furthermore, existing regulations such as PMO 15, which regulates timber harvest, does not evenrequire a management plan and estimation of an allowable cut, which are prerequisites forsustainable forest operations. Specifically, new regulations are needed to address:

* the requirement for a management plan, plan content and the process for plan preparation,approval, monitoring and control;

* environmentally-acceptable silvicultural systems, reduced-impact forest management andharvesting operations; and

* performance expectations, definitions of compliance, enforcement procedures and penaltiesfor non-compliance.

19. Taken together the Constitution and Forest and Land Laws provide at least a basicframework that would enable villages to participate in sustainable management of forests.Articles 7, 12, 13, 62, and 63 of the Forest Law allow allocation of any type of forest formanagement by individuals/villagers and (village) organizations. The Forest Law and VillageForestry Implementing regulations allow collection of non-timber forest products (NTFPs) forhousehold use to meet subsistence needs and also for some commercial purposes. The Land Law(1997) has provisions to decentralize and implement participatory natural resource management.Although the Forest Law is broad enough to allow different management arrangements, includingthose based on villager involvement, the overall policy and legal framework for PSFM stillrequires substantial improvement. New regulations need to clarify the respective roles ofgovernment, villagers and the private sector in forest management, log sales and benefit sharing.According to the legal assessment carried out by the Project Preparation Team (PPT), the recentorders (PMO 10, PMO 11, and PMO 15) interpret the Constitution and the Forestry and Land

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Laws narrowly as regards participation of various stakeholders in forest management. Theyrestrict the rights of villages to be involved in the management of production forests, andespecially in log sales and sharing of financial benefits. These orders imply that only the Statehas a role to play in forest management, harvesting, log sales and benefit sharing. To correctthese shortcomings, Prime Minister's Decree No 59 on The Sustainable Management ofProduction Forests was prepared, based on a set of principles for PSFM agreed to by GOL, GOFand the WB (Table 1), and passed on May 22, 2002. This Decree represents a markedimprovement in the existing regulatory framework; enabling the establishment of productionforest areas, requiring sustainable forest management plans before further exploitation, andproviding a firm legal context for the participation of villagers in planning, management andbenefit-sharing. The principle regulatory tasks remaining for the early phases of projectimplementation will be to draft and approve more detailed implementing regulations, codes,guidelines and prescriptions, and then take concrete steps to strengthen the capacity to implementthe entire range of regulatory and planning tools.

20. Pursuant to the Land Law, the GOL considers land to be national community property that isadministered by the State for use in generating livelihoods and as a vehicle for socio-economicdevelopment. Moreover, the Government recognises that effective land use planning depends onthe synthesis of macro-level planning based on national development goals and micro-levelplanning based on the needs for local area development.

21. A stated goal of the GOL is to increase forest cover to 70% and in order to achieve this it isundertaking efforts to rationalize agriculture in the upland and mountainous regions. Theseefforts also aim to improve food (rice) security and to reduce acute poverty in uplandcommunities. At the same time, these programmes are also expected to contribute to nationalobjectives of environmental protection and conservation of biological diversity. As outlined inthe GOL's agricultural sector strategy, the approach to upland agricultural improvement is multi-dimensional:

* sedentarization of agriculture in sloping land areas through farming systems diversificationand agro-forestry development;

* opening market access through feeder road development and market information delivery;* land use zoning based on slope and land capability;* rural savings mobilisation and credit extension; and* land allocation and land use occupancy entitlement.

22. In order to effect these improvements, Government has initiated a land and forest allocationprogramme, involving the allocation of land to villages and the demarcation of villageboundaries, and the allocation of land to individuals, villages and commercial organizations. Thisprogramme is undertaken with the aim of achieving a number of national goals; such as reducingdeforestation, restoring land productivity, improving land use efficiency, enhancing rurallivelihoods, diversifying agricultural production, and reducing or eliminating "shiftingcultivation".

23. Unfortunately, all of the other goals appear to have become secondary to the last, i.e. that ofimposing more sedentary agricultural practices on village farmers, without much qualification ofwhere that might be possible and desirable, especially in relation to soil productivity. As will bedescribed in more detail in Section 4.1 below, Laos appears to contain a considerable array of soil

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TABLE 1. Agreed-to Principles for Participatory Sustainable Forest Management.*

* Forest management areas (FMAs) will be delineated, and then sub-divided into sub-forestmanagement areas (SFMAs) with full participation by all stakeholders.

* Government forestry staff and villagers will be formally organized, so as to effectivelydeliver participatory sustainable forest management.

* Management roles, rights and responsibilities of government and village forestryorganizations will be established in a Forest Management Agreement for each sub-FMA thatwill constitute a legal contract which can be modified only by mutual consent.

* Village forestry organizations must be involved in all aspects of forest management planningand implementation and must be given the training necessary to be able to participate.

* Log sales must be fair, competitive and transparent with decisions taken by consensus of ajoint sales committee consisting of both government and village representatives.I

* Sharing of log sale revenue among participants shall be transparent and based on explicitprinciples and a formula that ensures both adequate return to the national government andsufficient incentives for participatory management at the district and village levels.

* Villages must be allowed to hold, manage and use their own share of log sale revenues toimplement an approved village development plan.

* From a document prepared by the PPT and agreed-to in principle by GOL, GOF and the WorldBank, February 2002.

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types including: acidic and infertile podzols and deep sandy soils; rich and fertile volcanic soils;brown forest soils of moderate fertility in drier upland areas; fertile alluvial soils; heavy clays;thin, fertile but droughty and erodible limestone soils; and even peat soils. These soils havevastly different inherent agricultural capability and capacity to respond to cultural inputs. Someare amenable to static agriculture while others are not. In particular, the dominant soils of thetropics, such as those derived from ancient, neutral to acidic sedimentary/ metamorphic rocks arenot capable of supporting static agriculture, and when sedentary agriculture is imposed, serious,long-term site degradation and loss of village food security are common consequences. Thesesoils have been farmed sustainably for centuries by traditional rotational agricultural systemsinvolving fallow period of 5 to 15 years. Such systems are both ecologically sound andtechnically sophisticated, involving a considerable traditional knowledge of inherent soil fertilityand a great diversity of crop species. The focus on such soils should be less on stoppingrotational cultivation and more on moderating the length of the fallow recovery periods (thusreducing the total amount of land required) by improved practice, and on low-intensity perennialcropping for food, fodder, NTFPs and cash crops on land under fallow.

3.1.2 Institutions: Roles and Responsibilities

Forest Management

24. GOL forest administration has historically been structured at three levels: the Ministry ofAgriculture and Forestry (MAFF) and Department of Forestry (DOF) at the national level; theProvincial Agricultural and Forestry Offices (PAFO) at the provincial level; and the DistrictAgricultural and Forestry Office (DAFO) at the district level. During recent years severalorganizational changes have taken place inside MAF which have led to improved forestmanagement and strengthened forest research and extension. However, the reality is that theorganizational arrangements at provincial and district levels do not yet support participatoryforest management. Forestry organizations are still more geared to regulating and controllingindustrial harvesting, than to providing services and supporting management of forests inpartnership with local communities. At present, there is no unit or section at district level with aresponsibility to help villagers in forest management. An institutional assessment carried out bythe Project Preparation Team during project design found that DOF, PAFOs and DAFOs do nothave adequate organizational arrangements, in terms of mandates, roles and responsibilities, andhuman resources, to deal adequately with regulatory functions. Independent monitoring ispresently the responsibility of provincial and district administrations in conjunction withvillagers, however, this function is not yet fully developed.

25. The recent establishment of the National Agriculture and Forestry Extension Service(NAFES) is likely to improve the situation. It has the responsibility for providing extension andtraining services at national, province, district and village levels. NAFES is a new institution andstill in the early stages of development. It is anticipated that it will have units at both theprovincial (PAFES) and district (DAFES) levels, however, during the period of projectpreparation, the nature of organization at those two level was still unknown. Clearly it will takesome years for NAFES to become fully effective. It will be important that FORDEV support thenew agency and help to build its institutional capacity.

26. Despite the past investments in human resource development, particularly those associatedwith LSFP and the strengthening of forestry education at Dong Dok University, one of the mainconstraints faced by the forest sector is a shortage of trained and experienced staff. Theinstitutional review carried out by the PPT found that the situation is best at the national levelwere qualified staff are increasingly available for sustainable forest management activities

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Constraints are more serious at province and especially at district level. Although PAFO andDAFO are the direct custodians and managers of the production forest resources, theirinstitutions, training, experience and resources are not adequate to undertake their responsibilities.The necessary knowledge, skills, and resources to formulate and implement forest managementplans, and provide necessary extension and training services to field staff and villagers need to besignificantly improved in provinces and districts.

27. The survey also found the qualified staff that do exist in the organization are very unevenlydistributed, seeming with little relation to priority activities or an overall human resources plan.In many cases, the staffing levels of different DAFO forestry sections appear disproportionate tothe respective forest areas and the level of management activity. This will be a major issue forFORDEV since the DAFO must provide staff to both the Forest Management Technical Unitsand the Farming Systems Extension Workers (FSEWs) to be created under the DistrictAgricultural and Forestry Extension Services (DAFES). Even at the national level the TechnicalDivision of DOF, which is responsible for regulatory development, technical guidelines andprescriptions, SFM support, and sector monitoring, has never been allocated adequate resourcesto fulfil its assigned responsibilities. The Science, Technology and Environment Agency (STEA)and its provincial offices (PSOs), which have a natural resource "oversight and monitoringfunction" and are responsible for the ESIA process, likewise have very limited resources tomonitor the forestry sector.

Rural Planning and Assistance To Village Administrations

28. The National Committee for Planning and Coordination (CPC) has overall responsibility forplanning. It is represented at lower levels with Provincial- and District-level planningdepartments. They have the responsibility for village, district, and provincial development plans.In theory, each village is supposed to develop its own village development plan, and then thedistrict is supposed to compile all the village plans, to serve as the basis for the districtdevelopment plan and budget. CPC's General Planning Department has recently receivedsupport from UNDP for a project that piloted two different approaches (participatory ruralappraisal [PRA] vs. rapid rural appraisal [RRA]) to decentralized planning, involving villageconsultations and preparation of district plans. The possibility of designing a follow-up projecthad been under consideration in late 2001. CPC has also had support from the ADB on otheraspects of decentralized planning.

29. Until recently, the Government's Central Leading Committee on Rural Development, locatedin the Prime Minister's Office, has been responsible for coordination of multi-sectoral ruraldevelopment initiatives. It was represented at lower levels by Provincial- and District-level RuralDevelopment Committees (PRDCs and DRDCs). These RDCs have been collaborating closelywith CPC staff in preparing development plans. However, as of July 2002, the GOL hasabolished rural development committees at all levels. Many of their responsibilities will now beassumed by NAFES, PAFES and DAFES.

30. CPC will be implementing the World Bank-assisted Poverty Reduction Fund Project (PRFP).The project design assessed the existing government capacity, and concluded that the institutionalcapabilities to implement such a project were weak. Therefore, for the PRFP, it has been agreedwith Government that an autonomous Board will be established and staffed by consultants(primarily nationally-hired). This option was preferred over the alternative, which would havebeen to try to build up an existing government program utilizing government resources. The staffwill include provincial technical assistance teams (community development, financial, andtechnical, e.g., civil engineering), district facilitators (2 per district, I of whom must be a woman)

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and village facilitators (3 per village, 1 of whom must be a woman). This autonomous structurediffers markedly from approaches used in other World Bank-assisted projects such as theAgriculture Development Project (ADP) and the District Upland Development and ConservationProject (DUDCP) which are working through established government structures, with minimaladditional national consultants hired as project staff.

Village Administration

31. Villages are the lowest level of government administration. A village consists of at least 100people or 20 households. It may comprise one or more nouay (neighbourhoods or hamlets). Thevillage chief is elected by the villagers from a list of candidates suggested by the villagers andapproved by the District Chief. The approved candidates are screened against criteria such asage, proficiency in Lao language, acceptance of the principles of "centralized democracy" andpersonal prestige and popularity. Once elected, Village Chiefs are confirmed by the ProvincialGovernor, based on recommendations from the District Chiefs. The Village Chief, in turn,proposes Deputy Village Chiefs whose appointments are confirmed by the District Chief. TheVillage Chief chairs the Village Administration, which comprises a number of committees(Development, Social and Cultural Affairs, Security and, now, Village Forestry). The village-level representatives of national organizations, such as the Lao Women's Union (LWU), the LaoYouth Union (LYU) and the National front for Construction (LNFC), are normally members ofthe Village Administration.

Non-governmental Organizations and National Associations

32. In the Lao PDR, the government allows those international non-governmental organizations(NGOs) that it considers to be "donors" to operate under a registration process which specifies thetype and location of activities that they may engage in. These NGOs embrace a range oforganizations working in development, environmental and educational sectors. They includeorganizations such as CARE International, the World Conservation Union (IUCN), theWorldwide Fund for Nature (WWF), the Wildlife Conservation Society (WCS) and GlobalAssociation for People and the Environment (GAPE). Most of these organizations employ amajority of Lao nationals in their operations.

33. While allowing selected international NGOs to operate in the country, the GOL deemsgrassroots mobilization of its citizens to be the responsibility of national organizations affiliatedwith the governing party (i.e. LWU, LYU and LNFC) and has thus not permitted theestablishment of independent national NGOs. Outside observers often consider that the LWUfunctions much like an NGO in rural development, particularly in its promotion of income-generating and micro-credit schemes to advance the economic status of rural women. However, itmust be kept in mind that at the national level LWU, LYU and LNFC have a rank equivalent togovernment ministries. At the local level, GOL allows the establishment of user and/or producersassociations, i.e. Water User Groups and the Village Forestry Associations to be formed underFORDEV.

3.2 The World Bank

3.2.1 Operational Policies and Directives

34. The normal practice in World Bank projects is to carry out an ESIA to meet the requirementsof both the Bank's operational policies, directives and procedures and the intent of the recipientcountry's domestic ESIA laws and regulations. The Lao PDR has drafted a Prime Ministerial

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Decree on Environmental Assessment pursuant to the Law on Environmental Protection of 1999.In discussions related to the development of the ESIA terms-of-reference, the Director General,Department of Environment (DOE), Science Technology and Environmental Agency (STEA)indicated that the Department's initial priorities for ESIA guidelines are industrial, power andinfrastructure sectors and that forestry guidelines are at least 3-5 years away. Thus for thisproject it was agreed that only World Bank requirements would apply. DOE requested particularattention be placed on social assessment and poverty alleviation, and asked for the opportunity toreview and comment on the ESIA disclosure plan. As a possible offshoot of the program, DOEexpressed a desire for some assistance in the development of ESIA guidelines for the forestsector.

35. Operational policies, directives and procedures of the World Bank that have been consideredin the development of this ESIA include:

Operational Policy 4.01. Environmental Assessment: specifically Sections 1-3 (definitions of theenvironment and environmental assessment), 4-6 (responsibilities for ESIA on World Bankprojects), 8 (environmental screening and project categories), 15 (public consultation), 16-19(ESIA disclosure), 20 (compliance with environmental prescriptions during implementation),Annex B (contents of an Environmental Assessment Report for a Category A Project) and AnnexC (Environmental Management Plan);

Operational Policy 4.04. Natural Habitats: specifically Sections 3-8 (project design andimplementation to avoid conversion of natural habitats);

Draft Operational Policy 4.11. Cultural Property: specifically Sections 1 (definition of culturalproperty), 2 (policy on preservation and protection of cultural property) and 3 (procedures forprotection of cultural property).

Operational Policy 4.12. Involuntary Resettlement: specifically Sections 3 (policy objectives forresettlement of people displaced by a project), and 4-22 (resettlement planning). (Note: This O.P.includes issues such as involuntary loss of assets, loss of access to common lands and resources,and loss of livelihood).

Operational Policy 4.20.The Gender Dimension of Development: specifically Sections 1(theBank's aim to reduce gender disparities and enhance women's participation in economicdevelopment), 2 a. (the design of gender-sensitive policies and programs), 2 b. (establishment oflegal and regulatory frameworks to improve women's access to assets and services), 2 c.(strengthening of national information systems in order to ensure that adequate gender-specificinformation is available to support regulatory, policy and program development).

Operational Policy 4.36. Forestrv: specifically Sections 1 a. (Bank may finance improvements inforest planning, monitoring and field control leading to sustainable management), b. (necessityfor a strategic approach to the sector to address policy and institutional issues), d.i (requirementof client country to adopt policies and a legal framework to ensure conservation and sustainablemanagement), and d.ii (clear definition of the roles and rights of government, the private sectorand local people).

Operational Directive 4.20. Indigenous Peoples: specifically Sections 1 (definition of indigenouspeoples), 6-9 (objectives and policy for dealing with indigenous peoples in project design andimplementation), and 14-15 (pre-requisites and contents of an indigenous peoples developmentplan).

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Bank Procedures 17.50. Disclosure of Operational Information: specifically Sections 11-14(disclosure of environment-related documents).

36. In addition to these established policies, directives and procedures, the ESIA has also takeninto consideration the Bank's expressed aims in poverty reduction. The World Bank joins theGOL and other development partners in focussing on poverty reduction as a principledevelopment priority, and in supporting GOL's effort to develop a national Poverty ReductionStrategy.

3.2.2 Institutional Procedures for Project Preparation, Appraisaland Supervision

37. For a project such as FORDEV, once the parties agree that project preparation work canbegin, the borrower forms a senior steering committee and assembles a project preparation team(PPT) of national and international experts, in consultation with the donors (in this case the VVBand GOF). Preparation proceeds, funded by grant or by an advance on loan moneys, withperiodic joint reviews of progress by government and donors. During the process of projectpreparation, the parties engage experts to ensure that social and environmental concerns areaccommodated in project design and, ultimately, to conduct an environmental and social impactassessment of the completed project preparation document (PPD) and project implementationplan (PIP). Once a draft feasibility-level PPD is completed there may be a technical pre-appraisalby the donors, who will then advise the steering committee and PPT of any necessary changes.The ESIA is then completed based on the final PPD and disclosed to project-affectedcommunities and individuals. The PPD, PIP and ESIA are presented to the World Bank by theborrower for project appraisal. At appraisal the World Bank may approve the project, approvethe project with conditions, or reject the project. If approved the borrower must establishfinancial management and procurement systems and procedures, and must conduct an openbidding process to select an implementing organization in consultation with the donors. Oncethese measures are in place the project is declared "effective" and implementation may proceed.During implementation, progress is monitored by the donors through half-yearly supervisionmissions and a comprehensive mid-term review.

4. ENVIRONMENTAL, SOCIAL AND RESOURCE MANAGEMENT SETTING

4.1 Environmental Conditions

Topography

38. The Lao PDR is located in a major geomorphological unit known as Sundaland (Bridges1990) which comprises the countries of Malaysia, Singapore, Brunei, Cambodia, Laos, Vietnam,and Thailand, plus western Indonesia and southern Burma (Myanmar). Sundaland forms a singleunit, despite considerable internal diversity, because it is underlain by a common, pre-Cambriancrystalline, basement complex. This complex is, for the most part, covered by youngersedimentary and volcanic rocks. Central and southern Laos contain four topographic units: theMekong River floodplain, rolling uplands, high plateaux, and the Annamite Mountains.

39. The Mekong River flows for 1700 km along the entire length of Laos, entering from theLaos-China-Burma border at about 250 m elevation and exiting to Cambodia at about 65 m. Inthe FORDEV project area it forms the western boundary of the provinces of Khammouane,

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Sanannakhet, and Salavan with Thailand. In the former two provinces the river flows on ameandering course through broad lowland valleys that include the lower reaches of several largetributaries - the Xe Bang Fai, Nam Kading, Nam Son, Nam Ngiap, Xe Bank Nouan and Xe BangHiang. Through Salavan the river narrows and flows through a series of rapids and rocky gorgesfor about 160 km to Pakse in Champasak where it is joined by the Xe Don. From Pakse south theMekong once again meanders through broad lowlands before spilling over the Khone Falls andpassing into Cambodia. The Mekong River floodplain consists of flat to gently undulatingtopography below 200m elevation, and with recent alluvial formations the dominant surficialmaterials.

40. Rolling uplands between 200 and 600 m elevation form the transition between the Mekonglowlands and the higher mountains and plateaux in all four project provinces. These uplands aredissected by the Mekong tributaries (see above) flowing westward from the Annamite Mountains.Geologic formations are dominated by sandstones and siliceous mudstones and siltstones, withscattered areas of acidic metamorphic rocks (schists and gneisses) and calcareous limestones.

41. The Boloven Plateau of Champasak, Salavan and Attapeu provinces is an area of volcanichighlands ranging between 600 and 1300 m elevation. The youthful, basic volcanic soils of theplateau are very productive and support a wide range of agricultural crops. The steepescarpments of the plateau, particularly on the southwestern periphery are subject to very highrainfall.

42. The Annamite Ranges of central and southern Laos are generally much lower than those inthe northern part of the country, with few heights reaching 2000 m, most higher peaks between1000 and 1500 m, and about two thirds of the mountains and foothills ranging from 600 to 1000m. Geology of the Annamites is complex, comprising crystaline sandstones, karstic limestones,intrusive granitic rocks and a variety of acidic to neutral metamorphic formations (schists andgneisses). Rainfall is generally higher than in the lowlands as a result of moisture dropped as thesouthwest monsoon winds are forced to ascend the windward slopes. Extremely high rainfallareas occur where ranges or mountain passes are low enough to allow intrusion of moist easterlywinds flowing across Vietnam from the South China Sea.

Climate

43. Tropical monsoon climates generally occur between 100 and 220 of the equator and dominatelarge parts of Indochina, including all of Laos. The distinct seasonality of the climate is causedby moist, warm, tropical maritime air masses flowing on-shore at times when the sun is overhead,and dry continental tropical or sub-temperate air masses flowing off-shore at times of the yearwhen the sun is lower in the sky. The annual passage of the sun back and forth between theTropics of Capricorn and Cancer determines the timing of rainy and dry seasons. Thus in Laos,the maritime, southwest monsoon brings rain from mid-April to October and the continental,northeast monsoon brings dry conditions from November to March. Total annual rainfall in Laosvaries from over 3000 mm on windward slopes of the Boloven Plateau and Annamite Mountainsin the south to less than 1500 mm in the more arid lowlands of northern and central areas,depending on location, elevation, and mountain "rain-shadow" effects. Lowlands of the projectarea generally receive 2000-3000 mm annual rainfall with a 3-4 month dry season, while uplandsreceive 2500-4000 mm with a 2-3.5 month dry season. Temperatures at low elevation vary littlethroughout the project area with mean annual maximums between 30-320 C and mean annualminimum temperatures between 20-220 C. Upland and mountain are cooler, with meantemperatures decreasing with elevation by about 0.60 C per 100 m.

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44. All areas of Sundaland have been increasingly influenced over the last three decades by theEl Nino or Southern Oscillation phenomenon. A pool of warm water about 200 m deep oscillatesin an irregular manner between the South China Sea and the eastern Pacific off South America.The presence of this warm water near Southeast Asia triggers extended and accentuated dryseasons and droughts throughout the region. Historically.such events are estimated to haveoccurred about fourteen times a century [Enfield 1989], however, there have been eight since1970; in 1972, 1976, 1982-83, 1986-87, 1991, 1994 and 1997-98. Each of these has broughtwater shortages, failed agricultural harvests, widespread and destructive fires exacerbated by poorlogging and land clearing, choking air pollution, and subsequent serious soil erosion.

Soils

45. The following sections provide a simple and brief overview of the dominant soil orders andsome of the important sub-orders occurring in and around FORDEV project areas. For simplicityin the following discussion, soil orders are shown in bold, sub-orders are underlined and othersynonymous names are shown in (brackets).

1. Ancient, highly weathered, acid, infertile soils: Ultisols

46. Ultisols (acrisols, red-yellow podsols) are the dominant red-yellow soils of humid, tropicalAsia, generally derived from acidic or neutral sedimentary and metamorphic rocks, andcomprising the vast majority of soils currently remaining under lowland forest cover in theregion. Physical properties are generally good, but chemical properties are very poor and include:low pH; aluminum toxicity; deficiencies of phosphorus, potassium, calcium, magnesium, sulphur,zinc and many micro-nutrients; and low cation exchange capacity (which means they have a highleaching potential). They are deep, friable, well-drained soils with a marked increase in claycontent with depth and are extremely susceptible to erosion.

2. Youthful soils: Inceptisols and Entisols (Regosols)

(a) Inceptisols

47. Inceptisols are young soils of sufficient age to have developed distinct A, B and C horizonsthrough leaching. The three most important sub-orders of Inceptisols in Southeast Asia areAndepts, Aquepts and Tropepts. Andepts (Andosols, Volcanic Regosols) are derived fromvolcanic ash. They generally have excellent fertility (especially calc-alkaline volcanics) andphysical properties. Throughout the region they have been converted to permanent agriculture,on all but the steepest slopes. Aquepts (Gleysols) are characteristic of large alluvial floodplainsand freshwater swamps and are subject to varying periods of inundation and water-logging. Theyhave moderate to high fertility depending on upstream geology. These are the principal soilsconverted to rice production in the region, but they are also important in supporting freshwaterswamp forests that are critical rearing habitats for native freshwater fish. Tropepts (Cambisols,brown forest soils) are well-drained soils that usually occur either at higher elevations or in areaswith a distinct dry season, and thus have higher fertility because they have not been subject to thesame degree of leaching and nutrient loss as soils in hotter, perhumid climates. Many of thesesoils have been converted to agriculture wherever slopes are favourable: for subsistence, rain-fedproduction (upland rice, maize and millet); for intensive agriculture where irrigation is feasible;or for perennial tree-crops.

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(b) Entisols

48. Entisols are soils of such recent development, or continuing deposition, that they do notshow any significant vertical differentiation. The most important regional sub-orders of Entisolsare Fluvents and Orthents . Fluvents (Fluvisols) are well-drained, actively-accreting alluvial soilsnot subject to water-logging or prolonged inundation. They are the most highly productive soilsin the tropics along with Andepts, and are important both to agriculture and in supporting ripariangallery forests that are critical food sources for native stream and river fish. Orthents (Lithosols)are shallow colluvial soils on steep slopes derived from bedrock weathering. Depending on thenature of the underlying bedrock they can be quite fertile, however, their shallowness, steepness,erodibility and droughtiness constrain their productivity

3. Soils with high base status: Alfisols, Vertisols and Mollisols

49. These three orders contain soils of moderate to good fertility that are high in bases such ascalcium and magnesium. Alfisols (Luvisols, Eutric Nitosols, Altisols, Terra Roxa) are soilsderived from the long weathering of older, base-rich rocks. They are deep, well-drained, red-yellow soils that look much like Ultisols in appearance but, because of their high base-status, areneither acidic nor infertile. They often cannot be distinguished from Ultisols except by chemicalanalysis, but are known and valued by indigenous cultivators. Vertisols (Grumisols) are heavyclay soils (sometimes called "cracking, black clays") derived from calcarious parent materials,that shrink and swell with changes in moisture content. They commonly form in moistdepressions in areas with seasonally dry climates. They have good nutrient status except fornitrogen and phosphorus, however, poor physical properties limit agricultural use. Mollisols(Chernozems, Rendzinas) are fertile soils, similar to temperate grassland soils, that are usuallyassociated with limestone rock formations. Productivity is limited by shallowness, steepness anderodibility.

4. Organic soils: Histosols (Organisols)

50. Histosols are defined as soils that undergo >65% loss on ignition. They occur either as deeplowland (ombrogenic) peat bogs or as shallow montane (topogenic) organic soils in the cloudzone of higher mountains and plateaux.

5. Tropical podzolic soils: Spodosols (Giant tropical podzols, groundwater podzols)

51. Spodosols have developed over long periods through the weathering of coarse, crystallinematerials (sandstone and acidic rhyolitic or dacitic tuffs) that are excessively free-draining. Theyare extremely infertile and very susceptable to erosion and are best left undisturbed.

52. As has been already noted in Section 3.1.1 above, Laos has considerable soil variation,spanning an array of soil types that have vastly different inherent productivity and capacity torespond to cultural inputs. Some are amenable to static agriculture while others are not. Inparticular, the dominant soils of the tropics, such as those derived from ancient, neutral to acidicsedimentary/metamorphic rocks, are not capable of static agriculture without serious sitedegradation and disruption to indigenous food security. These soils have been farmed sustainablyfor centuries by traditional rotational agricultural systems, many of which are environmentallysound and ecologically appropriate. The focus of improved agriculture on such soils should notbe on stopping rotational cultivation. Rather the emphasis of land use planning, zoning andallocation should be on:

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* ensuring adequate land zonation for agriculture to allow safe, sustainable rotations (minimum7-10 years);

* incremental improvements to agricultural practice to moderate the length of the fallowrecovery period and improve residual fertility (thus reducing the total amount of landneeded); and

* low-intensity perennial cropping for food, fodder, NTFPs and cash crops on land underfallow.

Major Forest Zonation

53. WWF has designated the "Forests of the Lower Mekong Ecoregion Complex" (FLMEC) asecosystems of "outstanding (global) conservation significance" [Baltzer, 2001]. All FORDEVsites lie within this important area. Many of the project areas have high significance forterrestrial ecosystem conservation because they are mostly lowland forests. These are the mostthreatened forests in Laos (and most of Southeast Asia), due to their easy conversion topermanent agriculture, and their accessibility for logging, wildlife and NTFP extraction, androad-construction. FIPC land classification maps show that the project sites contain a mix oflowland semi-evergreen forest, mixed deciduous forest, dry dipterocarp forest, and wetlands.Three of these habitats are weakly represented in the Lao national protected area system: semi-evergreen, dry dipterocarp and wetlands [Berkmuller, 1995]. They are priorities for conservationand wise management where they occur in the FORDEV sites. The most important are the semi-evergreen forests and wetlands, with dry dipterocarp forest a lower priority.

54. There has been a notable lack of agreement and consistency in ecosystem classification inSoutheast Asia. Several country-specific classification systems exist, largely based on ecosystemcomposition and structure, and it is common across the region for several names to apply thesame formation; a fact that has prompted one reviewer to comment that there are almost as manyclassification systems as there are authors. This section presents a very brief and simpledescription of the major forest formations of the FORDEV areas based on nomenclatureemployed by Whitemore [1990] and Rundel [2001]. Major forest formations in central andsouthern Laos include lowland mixed rainforests, montane forests, mixed deciduous forests, dryDipterocarp forests, lowland pine savannas and freshwater swamp and gallery forests.

55. Lowland mixed rainforests occur primarily in southern Laos at elevations below 800 -1000 min the Mekong lowlands and uplands and on mountain slopes to windward of the wet monsoonwinds. Rainfall in such areas varies between 2000 and 3200 mm annually. Two lowlandrainforest communities exist in the project area: evergreen rainforest; and semi-evergreenrainforest.

56. The boundary between evergreen and semi-evergreen rainforest is difficult to delineate andthus most forest statistics lump the two, however, there are important ecological differences.Lowland evergreen rainforest is the most luxuriant and complex of all plant communities. Themain tree canopy regularly achieves a height of 45 m or more. These forests are characterized bytremendous species diversity, often containing as many as 10,000 plant species and 1500 genera.True evergreen rainforest in Laos is confined to escarpments of the Boloven Plateau andwindward slopes of the Annamite mountains; areas with over 2500 mm of precipitation annuallyand a 1-2 month dry season. These forests are dominated by the family Dipterocarpaceae, themost common genera of which are Shorea, Dipterocarpus, Anisoptera, Hopea, and Vatica. Semi-evergreen rainforest occurs as a transitional belt between evergreen rainforest and seasonal(monsoon) forests (see below). It occurs in areas of the Mekong lowlands and uplands withannual rainfall between 1400 and 2600 mm and a 2-5 month dry season. There is less species

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diversity, a slightly more open canopy and a somewhat smaller stand structure than in evergreenrain forests. In addition to the Dipterocarp genera noted above, deciduous trees such as Dialium,Chaetocarpus, Walsura Lagerstroemia, Irvingia and Koompassia may comprise up to one thirdof the upper canopy, and the lower canopy may contain genera normally characteristic of drierforest formations such as Albizia, Pterocarpus, Dalbergia, Diospyros, Sindora and Tetrameles.Semi-evergreen rainforest constitutes the richest lowland forests in the FORDEV project areas.

57. Highland forests are usually divided into the Lower Montane Forest and the Upper MontaneForest. The Lower Montane Forest is the zone of transition between tropical and sub-temperatevegetation, where lowland rainforest trees of families such as Dipterocarpaceae, Fabaceae,Meliaceae and Datiscaceae gradually give way to trees and shrubs of the families Fagaceae,Lauraceae, Myrtaceae, Magnoliacece and the order Coniferales. This transition occurs atelevations between 800 and 1000 m with annual rainfall of 2000 to 3000 mm. The LowerMontane Forest is characterized by large numbers of oaks of the genera Quercus andLithocarpus, chestnuts of the genus Castanopsis, laurels of the genera Litsea and Cinnamomum,the magnolia genus Michelia, the myrtle genera Syzygium and Tristania and the tea generaSchima and Anneslea. These broadleafed hardwoods are often found in association with tropicalconifers of the genera Keteleeria, Pinus, Podocarpus, Dacrycarpus and Fokienia. The ecotoneseparating the Lower Montane and Upper Montane Forests occurs at 1500 to 1600 m, dependingon aspect. Here conifers begin to dominate the tree canopy, with the understory commonly fromthe heather family (Ericaceae), especially the genera Rhododendron and Vaccinium, and themyrtle family (Myrtaceae). Trees in the Upper Montane Forest are low, crooked, gnarled andmoss-covered and, because of this peculiar stand appearance, this zone is often called "ElfinForest".

58. Seasonal forests, or monsoon forests as they are more commonly known in Asia, are more orless open-canopied formations growing in areas with a distinct dry season (usually more thanthree months with rainfall less than 60 mm) and generally at elevations below 800 to 1000 m.Distinct dry seasons may be the result of either macro-climatic air movements or topographywhere "rainshadows" occur in the lee of mountains. Different formations occupy habitats ofincreasing drought severity, but there is a complex interaction between local variations in rainfall,soil moisture and soil texture. This mosaic of ecosystems has been made even more complex bythe actions of human cultivation, livestock grazing and the use of fire. For purposes of thisdiscussion, monsoon forest will be considered to fall within three broad types: mixed deciduousforest, dry Dipterocarp forests, and savanna woodlands. These may be artificial differentiations,since there does not always seem to be well-recognized boundaries between the three types. Noris it often possible to separate climatic climax monsoon forest from fire-induced seral, edaphicclimax, or degraded forests. Mixed deciduous forest occurs in areas with fairly high rainfall (>1,500 mm annually) but with a strong dry season of 4-5 months. It is semi-closed forest, often ofgood height (30-40 m), in which the upper story is composed largely of deciduous species. Abamboo understory is common, mixed with evergreen shrubs and small trees, though understoriesare often depleted by repeated fire and grazing. The most characteristic tree genera occurring indeciduous forest include Acacia, Afzelia, Albizia, Caesalpinia, Cassia, Dalgergia, Diospyros,Irvingia, Lagerstroemia, Pterocarpus, Sindora, Terminalia, Xylia, and Dipterocarps such asShorea, Vatica and Dipterocarpus. Dry Dipterocarp forests are characteristic of lowland areaswith annual rainfall of <1500 mm., a 4-5 month dry season and shallow, rocky or sandy, nutrient-deficient soils. Stands are more orie1s spen with a grass/forb understory, and of low stature (5-10 m in height). Communities are often simple in composition and dominated, depending on soiltype, by the five Dipterocarp species - Dipterocarpus intricatus, D. obtusifolius, D. tuberculatus,Shorea obtusa and S. siamensis (the only deciduous species out of approximately 550 in thegenera) - and the combretum species Terminalia alata. Lowland pine savannas occur either in

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strongly seasonal rainfall regimes where the ratio of dry months to wet months exceeds 1:1 or onlocalized very coarse-textured sandy soils (Spodosols). Pine savanna is maintained by frequentground fires and is characterized by open-canopied forests of Pinus merkusii over eithergrasslands or communities of the bamboo genus Arundinaria. Dipterocarpus obtusifolius may belocally co-dominant where savanna communities arise from degraded mixed deciduous or dryDipterocarp forest.

59. Freshwater swamp and gallery forests are regularly- to occasionally-inundated with mineral-rich freshwater of fairly high pH (> 6.0). Water levels fluctuate sufficiently to allow periodic soildrying. They are common in the Mekong lowlands and the alluvial valleys of major tributaries.These areas are extremely heterogeneous environments and thus support very diverse plantcommunities, including open grass/sedge plains, shrublands, padan or palm swamps, stuntedswamp forests and gallery forests. In forested communities, large trees of the genera Crudia,Cynometra, Diospyros, Homalium and Terminalia can reach 20 m in height and 60 cm diameterand are interspersed with lower scrubby growth of trees such as Barringtonia, Coccoreas,Elaeocarpus, Eugenia, Hydnocarpus and Crataeva. Freshwater swamp and gallery forests areharvested for firewood, cut for both subsistence and commercial purposes, but are even moresignificant along river and stream systems in providing critical feeding and rearing habitat forimportant fish communities and critical dry season habitat for a vast array of terrestrial wildlifespecies.

Aquatic Systems

60. Common freshwater systems in Laos, ranked from the upper watershed to the lowerwatershed are torrents or hill streams; large rivers and floodplains; and freshwater swamps. Thephysical features of each of these systems are described in the following sections.

* Torrents or hill streams are upland, high-gradient streams with fast-flowing, highlyoxygenated, clear, and cool to cold water. They often have a well-developed 'pool and riffle'morphology with substrates stabilized by stones and boulders at higher elevations and coarsewoody debris at lower elevations. Higher elevation torrents may have little fringe vegetation,and a poor fauna composed mainly of aquatic insects. Lower elevation torrents have morediverse riparian vegetation and a much richer fauna including aquatic insects and fish.Stream flow in these systems varies from permanent to highly ephemeral depending onclimate and their order in the watershed.

* Large, lowland rivers are low gradient water bodies with highly turbid, deoxygenated water.They may have substantial variations in water depth, velocity and the extent of inundatedhabitat. In monsoon climates, such as Laos, stream-flow is subject to strong seasonalfluctuations. In the rainy season extensive low-lying areas are inundated and the direction ofriver flow in tributaries may reverse if water volume exceeds discharge capacity. In the dryseason, substrates of silt, sand and gravel are exposed as water levels recede and streamchannels and swamplands dry out. The mainstem Mekong arises in the Tibetan and ChineseHimalayas and thus a substantial dry season flow is maintained by glacier and snow melt.Most side tributaries shrink to a series of deep channels and pools fed by subsurface riverflows. These channels and pools, and surrounding gallery forests, are critically important dryseason habitat for fish, amphibians and terrestrial animals and extremely susceptible tosedimentation from poor upland forestry, agriculture and infrastructure developmentactivities. Clearing of gallery forest vegetation removes cover, shade and sources of foodfrom these habitats, thus reducing productivity.

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* Freshwater swamps are most often associated with large river floodplains and include oxbowlakes, seasonally-innundated floodplains, ponds, marshes and seasonally-flooded grasslands.They are low gradient areas with low velocity flows and considerable variation in the area,frequency and period of inundation. Flood-waters are generally of fairly high pH (>6) andcarry nutrient-rich sediments and organic matter. The nutrient turn-over resulting from thealternating flooding and drying of these swamps makes them amongst the most biologicallyproductive of all tropical freshwater ecosystems. Cutting of swamp forest vegetation andconversion to rice paddy constitute the greatest threats to the productivity of these systems.

Terrestrial Faunal Diversity

61. As might be expected of an area of such landscape and vegetative diversity, Laos has a richfauna that includes several species of international conservation significance. The list of speciesincludes an estimated 227 mammals, over 700 birds, 57 amphibians, and 109 reptiles. Mammalsinclude: 87 species of bats; 17 species of primates (loris, macaque, langur and gibbon); 40carnivors/omnivors (tiger, leopard, clouded leopard, small cats, bear, wild dog, hog/ferretbadgers, otter, civet, mongoose, weasles, binturong); 16 large herbivores (elephant, wild pig,deer, sambar, banteng, guar, kouprey, and serow); and one large aquatic mammal (dolphin).Birds include sunbirds, hornbills, woodpeckers, pheasant, partridge, quail, junglefowl, flowerpeckers, raptors, kingfishers, babblers, warblers, thrushes, bulbuls, pittas, weavers, parakeets anda host of waterfowl including geese, ducks, heron, bittern, storks and adjutants.

62. Of the bird, mammal and reptile species, 158 are considered globally threatened or near-threatened, broken down as follows [Duckworth et all999]:

Faunal Group GNT GT-VU GT-CR_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ G T -E N_ _ _ _ _ _

Reptiles 4 6 1 1Birds 49 24 3 1Mammals 33 21 12 3GNT = Globally near-threatened. GT-VU = Globally threatened - vulnerableGT-EN = Globally threatened - endangered. GT-CR = Globally threatened - critical

Aquatic Faunal Diversity

63. Despite limited survey work, 87 families of fish are known from Indochina. By comparison,only 74 are known in all of Africa, and just 60 in South America [Kottelat 1989]. The fishdiversity per unit area of the Mekong basin is three times that of the Amazon, and much higherthan even that estimated for coral reefs [Coates 2001]. Fish diversity in the entire Mekong Riverbasin is highly speculative with estimates ranging from 400-1200 species [Kottelat & Whitten1996]. A recent identification guide to fish in Laos [Kottelat 2001b] lists 481species. Given thegreat diversity of freshwater habitats in Laos, a disproportionate amount of Indochina's aquaticdiversity is concentrated here. For example, fish diversity is known to be much higher in thestreams and basins on the west (or Lao) side of the Annamite drainage than on the east (Vietnam)side [Kottelat, 2001]. While largely unsurveyed, the diversity of other aquatic vertebrates (frogsand reptiles) and aquatic invertebrates (such as mollusks and arthropods) is also known orpredicted to be high [Coates 2001].

64. Kottelat [2001] has identified "small streams in lowlands and foothills and swamp forests" asaquatic habitats that harbor distinctive communities and are therefore of high conservationpriority. These occur in all of the FORDEV sites. In particular, streams draining lowlands (>250

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m elevation) are relatively rare in the Lao protected area system, but they are common in theFORDEV sites. Fish distribution in Laos is patchy and localized, with high endemism(sometimes to a single stream). The national protected area system, which was designed tocapture a representation of forest diversity in Laos, has probably left unprotected a major share ofthe country's aquatic diversity (even if the diversity of the Mekong River which is not protected atall in the NPA system is excluded from consideration). Consequently, FORDEV could play asignificant role in the conservation of aquatic diversity in Laos providing sufficient attention isgiven to these systems in management prescriptions.

Use of Biodiversity

65. Traditional forest dwellers in Laos rely on the forest directly for a great array of services: toreplenish the nutrients on land farmed under rotational agriculture; for plant foods and medicines;for livestock fodder; for fuel; for building, tool and artisanal materials; for traditional handicrafts(fibres and dyes); and for income generation from activities such as rattan collection and resintapping. In addition to these direct "forest" products, many traditional communities rely onnatural forest ecosystems for a large part of their annual protein consumption; either as terrestrialmammals, birds, reptiles and insects, or as aquatic amphibians, reptiles, fish and arthropods. Inparticular reference to aquatic systems, Lao rural communities, like many others in the region,derive a higher proportion of their annual protein intake from freshwater sources (fin-fish,crayfish, frogs, and turtles) than in any other part of the world. Healthy natural forests play avital role in sustaining the terrestrial and freshwater systems that produce these important foodresources.

66. Each day, most rural Lao families eat something they have harvested wild from the localenvironment. For the poorest families, wild foods form the majority of their non-rice diet[Asian Development Bank, 20011. Major components are terrestrial and aquatic vertebrates,bamboo shoots, greens, wild tubers, and invertebrates such as insect larvae and aquatic snails,mollusks and arthropods. Many rural poor report that virtually all of their protein comes fromwild sources. Domestic animals are generally saved for ceremonial purposes and asrepositories of wealth, though many villagers have said in consultations that they prefer thetaste of wild game and fish. The dependence on wild protein is greatest among people insouthern Laos, where the FORDEV sites are concentrated [J. Chamberlain, pers. comm.quoted in WCS 2002]. Furthermore, since few rural households have surplus rice, vegetablesor livestock to sell, much of their annual cash/trade income is derived from the sale of naturalresources found in the forest [Asian Development Bank, 2001].

67. The value of non-timber forest products (NTFPs) consumed annually by the average ruralLao family has been estimated at US$280 (in a country where the annual salary of a mid-levelcivil servant is US$240). This represents $224 million nationwide per year or 20% of GNP[Foppes and Ketphanh 2000]. The figure would be far higher if the trade value of wildlife andbotanical NTFPs was considered. It is important to note that the $280 annual figure is anaverage for all rural families, including those living in areas where little forest remains. Thefigure for residents of villages in or near forest blocks, such as those of the FORDEV projectsites, must be far higher [J. Foppes, IUCN/NAFRI NTFP Project, pers. comm. quoted in WCS2002].

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Threats to Biodiversity

68. The most significant direct threats to biodiversity in the project sites are habitat degradationand fragmentation from unsustainable forest harvesting and clearance, and unsustainable harvestof terrestrial and aquatic wildlife and botanical NTFPs.

69. Many sites visited during field visits and the Wildlife Conservation Society field surveysshowed signs of recent intensive logging, as well as conversion of land to agriculture. Forestdegradation is presently by far the most serious threat to freshwater fishes and the habitats theyoccupy throughout Southeast Asia [Kottelat et al 1993]. In general terms, the impacts of forestharvesting are similar in nature to those in temperate systems, but they are exacerbated by highprecipitation (both total and intensity) and by the deeply weathered, highly erodible nature of thedominant soil types. The most serious effects of vegetation loss and site disturbance are direct orindirect loss of food resources and habitat, higher temperatures and lower oxygen levels due todecreased shading, altered stream flow and suspended sediment levels, and stream channeldestabilization.

70. Wildlife species in several FORDEV sites have been lost in recent decades to overhunting(by the residents' own admission). Key species used as food in rural Laos include muntjac,sambar, wild pig, bats, squirrels, civets, chevrotains, monitors, junglefowl, monitor lizards,pangolins, primates, snakes, and turtles. Many other species are probably declining because ofcommercial wildlife trade. Wildlife trade has been increasing in recent years due to improvementof road networks, increasing wealth in provincial towns, and the expansion of trade networks toVietnam and China. The principle species that are targeted for commercial trade, and are thusparticularly vulnerable to over-harvest, include most turtles (especially soft shell turtles),monitors, snakes (especially pythons and King Cobra) pangolins, macaques, bears, otters, civets,mousedeer, muntjacs and all flying squirrels. The only significant trade species that is probablyrelatively secure is Eurasian Wild Pig. It should be noted here that many of the species undergreatest hunting pressure are ecological "keystones" with important contributions to long-termforest health. These species include pollinators ( bats, primates, and birds), seed-dispersers ( bats,birds, squirrels, civets, pangolins, mongooses, primates, elephants and pigs) and preditors thatlimit herbivour populations (cats, wild dog, raptors, hog/ferret badgers, civet, mongoose,weasles, binturong).

71. Official fish capture statistics are relatively low for Laos [FAO 1999]. However, the volumeof freshwater fish caught is severely underestimated as much of the fishery is subsistence only,and thus landings are unrecorded. For example, Department of Livestock and Fishery recordedcaptures of less than 30,000 metric tonnes per year during the period 1984-1997. A recent,detailed survey of freshwater fisheries has estimated that total production for fish and aquaticanimals in the whole country is closer to 205,000 metric tonnes per year - more than 6 times theofficial statistics [Sjorslev 2000]. In most parts of Laos even official catches of freshwater fishesincreased significantly over the period 1984-1997. No reliable estimates of aquatic productivityare available, however, it is probable that the fishery is approaching levels that are unsustainable.Fish catches are dominated by carps, loaches, and catfishes, although other species may be locallyimportant such as snakeheads and featherbacks. Other aquatic animals harvested include frogs,turtles and crayfish.

72. Other threats to biodiversity are wildfire fire, livestock grazing, and the harvest of someNTFPs for trade. Several commercial botanical NTFPs are currently harvested in Laos, however,there appears to be little control over, or even recording of, harvest and little knowledge of whatsustainable levels of use might be. These products include: spices (cardamom); aromatic

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products (Aloewood, sa pan, bong bark, benzoin); foodstuffs (sugar palm, bitter bamboo shoots,malva nuts); fibre and handicraft products (paper mulberry, pandanus leaves, ratan, tiger grass);oils and resins (Cassia bark, damar, yang oil); medicines (catrumba root, iane dome, fern roots,yaa hua tubers, strychnine tree); and horticultural products (orchids). Assistance in qualitycontrol and simple value-added processing could make significant improvements to sale pricesand returns to local villagers for these products [Lamxay 2001], thus possibly reducing theamount needed to be harvested for an acceptable economic return.

4.2 Social Conditions

Ethnicity.

73. In general, throughout Lao PDR, villages are organized along ethnic lines, i.e. typically allthe village members belong to one ethnic group and speak their own ethnic language. In somecases, larger villages may be comprised of two or more ethnic groups, who then usually inhabitdifferent hamlets or neighborhoods (nouay) of the village.

74. In southern and central Lao PDR, the population belongs primarily to two ethno-linguisticfamilies: Tai-Kadai (including Lao) and Mon-Khmer (or Austroasiatic). In Khammaoune,Savannakhet and Salavan Provinces, the non-Lao ethnic groups comprise 40 percent or more ofthe population, while in Champassak they comprise only 15 percent. Project Districts where theMon-Khmer (Austroasiatic) ethnic groups outnumber the Tai-Kadai ethnic groups include:Boualapha, Mahaxai, Phine, Ta Oi, Toomlarn, Salavan, and Lao Ngam. The major challenges forthe project in working in these areas will relate to lower levels of development, higher levels ofpoverty, and language and communication issues, as non-Lao ethnic groups have significantlylower rates of fluency in both spoken and written Lao. This situation will need to be addressedthrough the Project's extension strategies and training programs.

75. Many Mon-Khmer ethnic groups continue to practice swidden or rotational cultivation. In TaOi and Lao Ngam Districts, swidden cultivation comprises the majority (81.9 percent or more) ofall rice cultivation. In Bachiangchaleunsom and Mahaxai, swidden is the dominant ricecultivation system (58.0 - 80.0 percent). In addition to swidden cultivation and other farmingpractices, ethnic groups vary in their use of the forest, gender issues, and other cultural practicesthat shape their overall lifestyle. Unfortunately, however, relatively little has been documentedabout this cultural diversity. At the same time, it should be remembered that these differentethnic groups are not practicing wholely traditional lifestyles and living in isolation in the forest.Rather, their societies are dynamic, responding to changes in their overall environment, whetherbrought on by logging operations or government programs. FORDEV should work with suchvillagers, providing them the opportunities to decide about their involvement in participatoryforest management activities, and the use of timber revenues for development according to villagepriorities.

76. The implications of this multi-ethnic situation for project design include:

* communication/language issues (i.e. the constraints to communication between villagers notfluent in Lao and government and project staff not fluent in ethnic languages), with respect toproject design, implementation, and training;

* the need to establish a framework/process for important ethnic issues to be adequatelyconsidered in working with each village;

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* examining the implications, if any, of the delineation and management of production foreston existing swidden agriculture systems;

* determining, through consultation, what types of village development activities would bemost suitable for different ethnic groups; and

* determining which ethnic groups may have difficulty participating in FORDEV, the reasonsbehind those difficulties and possible solutions to achieve fuller participation.

Gender.

77. The relative roles and situation for women varies from one ethnic group to another. But ingeneral, women are disadvantaged in comparison with men with respect to access to developmentbenefits, education, health conditions, and poverty.

78. Through the project area, women make use of the forest, particularly for farming land(upland rice cultivation), non-timber forest products, and grazing for their livestock. Despite this,and the efforts of the previous pilot projects to encourage women's participation, to dateparticipatory forest management activities have been primarily undertaken by men. Furthermore,most government officials - whether village chiefs or agriculture, livestock, and forestry staffworking at the provincial and district levels - are men. Therefore, FORDEV must developprograms to work specifically with women on their particular development problems. The projectshould consolidate existing gender guidelines prepared by FOMACOP and the DOF Gender Unit.The guidelines aim at full integration of gender issues into project planning, implementation,monitoring and reporting. All participation and key impact data for project activities should bedis-aggregated by gender. Where appropriate, the project should collaborate with the LaoWomen's Union in addressing village women's needs in development activities on the projectsites such as food security, income-generating activities, micro-credit and revolving funds.

Poverty.

79. The poverty situation for the four potential project provinces is shown below in Table 1. In1997-98, Khammaoune and Salavan had poverty rates slightly higher than the national average,whereas Savannakhet and Champassak have slightly lower rates. Between 1992-93 and 1997-98,most provinces have decreased poverty rates, but Salavan experienced increasing poverty.

Table 2 Population Poverty Rates

Province 1992-93 1997-98 Annual rate of change(% population) (% population) in poverty

Khammaoune 43.7 41.6 -1.0Savannakhet 45.7 37.1 -4.2Salavan 1 36.7 39.6 +1.5Champassak 43.6 35.6 -4.1Lao PRD 45.0 38.6 -3.1

80. Poor households are those with the inability to produce enough food for household needs,and the insufficient savings (in the form of livestock). In Ta Oi District, for example, poorhouseholds only produce enough rice to cover 3-4 months of consumption, and in many villagesall households are classified as poor. Poor villages lack adequate rural infrastructure, such asschools, health clinics, and year-round road access, and lack adequate government services, suchas teachers, health care workers, and extension agents. The two poorest project districts are Ta Oi

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and Toomlarn (Salavan Province), which are ranked amongst the 23 poorest districts in thecountry according to 3 different classifications. The next poorest project districts, ranked as poordistricts according to 2 out of 3 classifications, are Xaybaythong and Boualapha (Khammaoune)and Phine (Savannakhet).

81. The project must focus its village development efforts on assisting villagers to reducepoverty. The proposed strategy for FORDEV includes efforts to improve household-level foodsecurity, rural livelihoods, and income generation, as well as to improve village-levelinfrastructure. This strategy is discussed further under village development needs.

Literacy.

82. Throughout Lao PDR, education and literacy rates (in the Lao language) are higher amongthe urban than rural population, among men as compared with women, and among ethnic Lao, ascompared with other ethnic groups. Although members of non-Lao ethnic groups are often able tospeak and understand spoken Lao, the incidence of written fluency is generally much lower. Infour of the project districts (Ta Oi, Toomlarn, Xaybaythong, and Boualapha), the level of literacyis extremely low, with two-thirds or more of the population lacking primary education. In thesedistricts, the literacy level for men ranges from 35.4 to 52.9 percent, and for women, from 0 to19.9 percent. Among many ethnic minority villages, it may be possible to find some villagers,primarily men, who can speak and understand spoken Lao, whereas the women may not be ableto communicate at all in the Lao language.

83. This situation poses enormous challenges for rural development in general, as well as forextension work and training in the project. The project can address this issue through twoapproaches. First, the project will make greater use of audio-visual extension materials and more"learning-by-doing" demonstration training in the village or forest, as opposed to the classroom.Second, where appropriate, the project will work with non-formal adult education programs tooffer functional literacy and numeracy training to villagers and to prepare simple extensionmaterials that can serve the dual purpose of providing extension information and supportingliteracy training.

Household and village development needs.

84. In the project provinces, more than one-third of the total population is classified as poor. Riceyields are on average low. Not more than twelve percent have access to irrigated land. Manyvillagers have difficulty in earning enough cash to cover basic needs, such as food to supplementthat which they can produce, medicine, and schooling costs for their children. As elsewhere inLao PDR, villagers in the project area rely upon use of forest resources, such as non-timber forestproducts, to provide supplemental income.

85. In terms of social infrastructure, many villages have inadequate access to safe drinking water,sanitation, health facilities, primary schools, or markets. Almost two-thirds of the population inKhammaoune and Salavan do not have access to safe drinking water. The vast majority in all fourprovinces lacks access to basic sanitation. These poor environmental health conditions, coupledwith poor nutrition, give rise to high levels of malnutrition and disease, especially among womenand children. While most villages in Khammaoune, Savannakhet, and Salavan are accessible byroad during the dry season, 43 to 57 percent are inaccessible during the rainy season. InKhammaoune and Savannakhet, one-third of the villages have access to electricity, whereas oneone-quarter of those in Champassak do, and less than one-sixth in Salavan.

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86. Improving livelihoods and food security and reducing household poverty will require acombination of three basic strategies:

* villagers need to improve overall food security and rural livelihoods through improving theproductivity of agricultural and livestock production, and promoting alternative income-generating activities, such as sustainable management and/or domestication and small-scaleprocessing of non-timber forest products, or support to weaving and other handicrafts;

* villages need improvements in their basic infrastructure - such as building or renovatingvillage water systems, schools, health clinics, and roads; and

* government and donors need to provide villagers with the training and support necessary toassess their own priorities and needs, so that they can better plan for their own futures, andhave access to the means to carry out their plans.

Some development assistance in support of these strategies has already been provided by GOL,various projects, and NGOs, but further support is needed. In addition, villagers also needassistance with organizational development and financial management, so that they can moreeffectively operate village-level organizations to meet their objectives.

4.3 Land Use and Tenure

87. Livelihood and land use systems in Laos have been described by Raintree and Soydara[2002]. They stress that most rural households in Laos practice "multi-livelihood" strategies thatinvolve a mixture of subsistence and income-earning activities. Recent studies indicate that ruralvillages engage in no fewer than 8 and sometimes as many as 15 distinct activities; combininghunting and gathering with agriculture, horticulture, animal husbandry and forestry to achieve ameasure of livelihood security. The principle elements of livelihood security are farmingsystems, dependency on the forest and, as has already been highlighted in Section 4.1 above, theharvest of wild animal and plant NTFPs.

88. There are basically three main systems of agricultural cultivation in south and central Laos:lowland rice paddies (both irrigated and rain-fed, though there is very little irrigation in theFORDEV project areas); upland rotational (swidden or shifting) cultivation; and plateauplantation agriculture. Raintree and Soydara [2002] stress that these three systems are actuallypoints on a continuum of practices that most often grade into one another. Any one of thesesystems is almost never practiced to the exclusion of the others, particularly at the points oftransition from lowland to upland and upland to highland. The characteristics of these threesystems are described as follows.

* Lowland rain-fed systems involve one annual cropping of traditional paddy rice varieties (2-4) with yields between 1 and 3 tonnes/ha. Buffalo and cattle are used as draft animals, forcash income and sometimes for meat. They are free-ranging during the dry season andconfined by tethering, often in adjacent forest areas, during the wet season. Domestic pigs,poultry (chickens, ducks and turkeys) and aquatic/terrestrial NTFPs are important for foodand cash. One to four month rice shortages are common and household incomes are generallylow.

.k,

* Upland rain-fed systems involve rotational swidden cultivation of rice (yields of +/- 1.5tonnes/ha), inter-cropped with cucumber, chillis, taro and sesame with fallow periods of 3-10years. Maize for sale and animal fodder is the second most important crop, but sweet potato,

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ginger, cassava, groundnuts, soybean, sugarcane, papaya, coconut, mango, bananas and citrusare also important. Melons and watermelons may be important dry season crops. There is avery high dependence on animal and plant NTFPs both for subsistence and for cash income topurchase rice. Adoption of rain-fed paddy is common wherever topography (a seriouslimitation) allows. Three to four month rice shortages are characteristic of thesecommunities, along with very low income, poor health, high infant mortality, low lifeexpectancy, and lack of access to services (roads, safe water, communications, education,medical care and social assistance).

* Plateau farminz systems in the project area are principally situated on rich volcanic soils (i.e.Bolaven Plateau) that allow commercial cropping of coffee, tea, and cardamom,supplemented by tree fruits and vegetables in home gardens. Financial returns are limited bypoor product quality and yields due to poor management including: inappropriate cropvarieties and poor cultural practices (lack of shade, fertilization and weeding, and poorharvesting/ processing techniques). These communities have adopted a commercialagricultural strategy (probably because of the high native soil productivity) and have noproblems with food security. Household income is moderate, but is capable of significantimprovement with better agricultural practices and harvesting/ processing techniques.

89. As noted in Section 3.1.1, land allocation programs were originally conceived as a way ofcurtailing illegal activities by giving local villages control of forest resources through a process ofparticipatory management. Somewhere along the way this original laudable vision has becomesubservient to an indiscriminate preoccupation with reducing shifting cultivation and promotingthe "focal site" approach to rural development, which involved bringing villages to services(through village relocation and consolidation) rather than bringing services to villages. Swiddenor rotational cultivation utilizing long-term (+/- 10 year) rotational cycles is a sustainable andenvironmentally appropriate agricultural strategy in many areas. Thus, it can only be assumedthat the original targets of the land allocation strategy were "pioneer" shifting cultivators. Thesepeoples convert primary or advanced secondary forests to croplands and farm them to exhaustion,leaving depleted, degraded, and eroded lands invaded by Imperata (alang-alang) grasslands. Infact what has happened is that all forms of rotational agriculture have been stigmatized by thedestructive practices of relatively few groups.

90. Land allocation programs are predicated on the lowland belief that only permanentagriculture, consisting of paddy, gardens, orchards and plantations, is appropriate and acceptable.This agricultural paradigm has become a dogma of dominant ethnic groups all over southeastAsia who farm highly-productive soils either in alluvial floodplains or those derived from base-rich volcanic or calcarious geological formations. These people (whether Javan, Thai, Lao,lowland Vietnamese or Bumiputra Malaysians) consider those who farm poorer soils byrotational methods as "backward and primitive". In fact, just the opposite is true and peasantrotational farmers have evolved highly sophisticated and sustainable practices to deal with thereality of their environments. Clearings are small and irregular with high retention of usefultrees, stumps and roots, which minimizes soil erosion and promotes rapid re-growth when the siteis returned to fallow. Cropping is characterized by complexity and diversity; often involving asmany as 20-25 varieties of exotic and native plants. These peasant farmers carry in their heads asignificant fund of sound knowledge about plant species and soil capability, referred to byRichards (1985) as "the single largest knowledge resource not yet mobilized in the agriculturaldevelopment enterprise".

91. Because of biases against swidden cultivation, the land allocation program currently favoursstatic agriculture, which is given automatic, permanent tenure by local authorities, and

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discriminates against rotational agriculturists, who are given temporary land certificates only ifthey meet certain "sedentary" criteria. The end result of the land allocation process is that inmany upland areas, households have been allocated only three parcels for cultivation amongstwhich they can rotate. Thus, the fallow period is now reduced to 3-4 years, which is simply notadequate to restore fertility. Also, in many instances, the total amount of land given is less that isnecessary to meet household needs regardless of the number of "rotational parcels". Sometimesthis is due to the land allocation procedures of local authorities but in other cases villagersthemselves fail to ask for the land they require because they are taxed for all land allocated on thebasis that it is continuously in full production. The inevitable result of the land allocationprogram on poorer soils will be soil degradation and a significant loss of agricultural livelihoodand food security. The recent Participatory Poverty Assessment found that many villagersbelieve that their livelihoods have recently declined because of reduced agricultural productivityand that they attribute an important part of this decline to the land allocation program.

92. Second to rice self-sufficiency, the major indicator of village well-being is livestock.Domestic animals function as a savings mechanism in times of need. Livestock are seldomconsumed directly as food, but are sold to buy rice, pay for school or health-care fees, and usedfor ceremonial purposes. Thus one of the major concerns of villagers is livestock disease and theinadequate provision of veterinary services, since the loss of an animal "is every bit as traumaticas the collapse of a bank in which all of ones savings are held" [ADB et al 2001].

5. PROJECT DESIGN: SUSTAINABILITY, OPPORTUNITIES AND RISKS

5.1 Key Lessons Learned From Previous Donor Projects

93. The project follows extensive Bank experience in the sector and a recently completed project,FOMACOP. The FOMACOP project provides many useful lessons that have been incorporatedinto FORDEV project design. These lessons are:

* Project design needs to set realistic targets and timelines, and provide effective integrationbetween the various project components and sub-components.

* It is absolutely essential to ensure that Government regulations and policy provide anadequate enabling context for project activities, especially village participation in forestmanagement.

* Villagers must be involved in decision-making in all significant issues that relate to their ownlivelihood and their participating in the project. Such issues will include organization ofvillage labour, collaboration with neighbouring villages, and direct involvement in forestmanagement planning, timber sales, benefit-sharing and village development planning.

* Participatory forest management must be seen to benefit, not only rural communities, but alsothe government, through more efficient collection of royalties and taxes, improved forestprotection and sustainable management, and enhanced economic development.

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* There must be full understanding by all parties of the nature of approved forest managementplans and forest management agreements. These documents must be seen to have legalstanding; specifying the rights, roles, responsibilities, and obligations of all participants.These plans and agreements may only be changed by negotiated consensus.

* Compliance monitoring programs must be established that can neutrally evaluate theperformance of all participants - government, villagers and contractors - and can lead to theenforcement of compliance with plans and agreements by all participants.

* Equitable, fair and transparent conflict resolution mechanisms must be established to dealwith complaints and grievances from all participants, and must incorporate the legal authorityto halt any disputed activity while the issue is being resolved.

* Villagers must be represented by at least two members of the Village Forestry Associationwho have full decision-making powers in a timber sales process based on full consensus byall participants.

* Benefit-sharing arrangements must be negotiated and agreed to by all participants, andelevated for neutral conflict resolution in the case of disagreements.

* Training and technical support must be provided to villagers for participatory planning,monitoring, and periodic updating of village development plans. Village development plansneed to be based upon clear priorities and strategies for addressing poverty reduction andvillage development established by the villagers themselves. Plans must be prepared by theVillagers themselves, with the support of provincial or district staff.

* Village Development Commnittees must be responsible for village development funds butappropriate and transparent systems must be in place for fund administration, accounting andauditing.

5.2 Institutional Arrangements for Project Implementation

94. Consistent with the Government policy, project implementation will be largely decentralized,although the project will be coordinated centrally. At the National Level, an inter-ministerialCentral Project Steering Committee (CPSC) is recommended to be established at MAF to provideoverall policy and implementation guidance, and periodically review implementationperformance. A National Project Management Office (NPMO) will be established atNAFES/MAF to be in charge of overall project coordination and management, centralizedprocurement, financial management, and monitoring and reporting. NPMO will also beresponsible for implementation of national level project activities including policy and legalissues, establishment of NPFAs, and forest sector monitoring. The project should have aNational Project Coordinator (NPC) based at NAFES/MAF. The NPC would administer theentire project and oversee the implementation of policy and legal matters, sectoral support, andcontrol and monitoring activities. A long-term Chief Technical Adviser (CTA) would support theNPD in his/her work.

95. The institutional arrangements proposed for the project rely on the existing structure ofnational, provincial and district departments, sections and/or units. MAF/DOF will look afterpolicy and legal aspects of the project. DOF/FIPC will look after the NPFA system and linkswith PAFOs in identifying and mapping the NPFAs. DOF/Planning Division will coordinate

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with DOF/FIPC in formulating a strategic plan and program for establishing sustainablemanagement on NPFAs. DOF/Technical Division will link with DOF/FlPC in draftingimplementing guidelines and the Code of Practice for Sustainable Forest Management, as well asundertaking sectoral control and reporting functions. STEA and DOF/MAF will implement theremote sensing-based forest monitoring and forest law enforcement reporting.

96. Most of the project activities will take place in the field. Field implementation will be adirect responsibility of each province. A Provincial Coordination Unit (PCU) will be establishedin each of the Project Provinces under PAFO and headed by a Provincial Project Coordinator(PCD). The PCU would be responsible for coordinating implementation of the componentdealing with participatory sustainable forest management and village development, includingcoordination of field implementation of sub-components and activities related to NPFAdemarcation, monitoring and control as well financial management of provincial project funds.The project would have a Deputy Project Coordinator (DPC) based in Savannakhet PAFES, thatwould carry out major in-service training program covering all the project provinces. Aninternational Deputy CTA (DCTA) will provide support to the DPC in province levelimplementation. The DPC and DCTA will together lead the field implementation and beresponsible for the planning, management, coordination, monitoring and reporting of fieldoperations in the participating provinces.

97. NAFES will run the regional training center for PSFM in Savannakhet. The four provincialtraining stations should be run by their respective PAFES. Province and district forest sections,including FMTUs, together with organized villagers will be responsible for implementingsustainable forest management in project forest areas. Village development related activitieswould be coordinated and implemented under PAFES and DAFES offices in respective provincesand districts, in consultation with Provincial and District Departments of Planning and designatedPAFO/DAFO staff. At the district level, the DAFES will be organized into new integratedextension teams (also known as Farming System Extension Workers).

5.3 Project Component 1. Support Services for Sustainable Forest Management

5.3.1 Project Design

98. The National-level Sustainable Forest Management Support Services Component willprovide support for regulatory and policy formulation, establishment of permanent productionforests, forest management codes-of- best-practice, and institutional and human resourcedevelopment. The component aims to establish conditions and financial incentives for effectiveand equitable participatory forest management, limit rates of unplanned deforestation, andprovide a firm basis for credible, science-based, long-term sustainable forest management.Provisions are made in the project to develop appropriate silvicultural systems and harvestingconstraints for forest formations such as mixed deciduous, dry Dipterocarp and pine savannas thathave not been the principal focus of harvesting in the past, but which are likely to come underincreasing pressure as wood supply from semi-evergreen forests and salvage from developmentprojects decreases.

99. This component will consist of four sub-components, each with a specific set of proposedactivities:

Sub-component 1. Sectoral Policy and Regulatory Reform.

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* establishment of a legal and policy context for sustainable forest management, including thedevelopment of enabling regulations under PM Decree No. 59 for effective and equitableparticipatory forest management and benefit-sharing, and for dispute resolution;

* definition of the legal roles and responsibilities of all participants in SFM at the national,provincial, district and village levels;

* establishment of a market-oriented and competitive log pricing and log sales system, withsupporting information management;

* development and implementation of a policy that will encourage the down-sizing andconsolidation of the wood processing industry to balance capacity with long-term sustainableforest yields and promote optimum value added; and

* identification and analysis of future regulatory and policy requirements for SFM.

Sub-component 2. Establishment of the National Production Forest Area System.

* development of methods, criteria and procedures for the selection, establishment anddelineation of production forest areas nation-wide;

* training FIPD and provincial staff;* preparation of an implementation plan for NFPA selection;* mapping and ground demarcation of NFPAs in the four project provinces;* mapping of NPFAs in non-project provinces in three broad phases and disclosure of their

locations to stakeholders and the public; and I* preparation of a phased schedule to bring established NPFAs under SFM.

Sub-component 3. Forest management Guidelines and Procedures.

* consolidation of various existing guidelines, procedures and associated training manuals onkey aspects of PSFM;

* development of a Laos Code-of-Best-Forest-Practice, including forest resource mapping,inventory, and research, forest planning, calculation of sustainable yield for different foresttypes, silvicultural systems and cut constraints, forest harvesting, forest engineering andaccess, biodiversity conservation, riparian and stream protection, social and cultural resourceconservation, NTFP management, and wildlife management;

* piloting and monitoring the application of national SFM criteria and indicators in projectareas; and

* promotion of forest certification including programs to enhance awareness of therequirements and benefits of certification and development of an implementation plan.

Sub-component 4. Strengthening of PSFM Capacity

* development of a long-term training strategy and an in-service training program with amodular curriculum for PSFM;

* establishment of a regional training centre and four provincial training stations for PSFM;* delivery of substantial in-service training to DOF, NAFES/PAFES, PAFO and DAFO staff

in sustainable forest management; and* provision of research support to NAFRI, FIPD and the National University of Laos in forest

growth and yield, natural regeneration, forest rehabilitation, the impacts of harvesting onaquatic and terrestrial biodiversity, and the cultivation of selected NTFPs.

5.3.2 Proj!ect Alternatives

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100. The most obvious project alternative for this component is the "no-project" option, whichwould simply perpetuate the status quo. The current situation relating to forest management andforest ecosystem health in Lao PDR is described in the following paragraphs.

101. A recent World Bank/SIDA/Government of Finland Sector Review and forest cover changestudies carried out by Forest Inventory and Planning Center (FIPC), indicates that forestmanagement in Laos is on an unsustainable path. The capacity of forests to provide sustainablebenefits and services has been reduced by wasteful, uncontrolled logging practices andconversion of forests to other land uses. In 1940 the country's forest cover was about 70%.Current forest cover estimates range between 40 and 47%, depending on the forest classificationcriteria used. The annual deforestation rate has been estimated at 0.8 - 1.2 percent a yearthroughout the 1990s. A large proportion of the remaining forest area is depleted. There is alsoincreasing evidence that wildlife and botanical NTFP resources, on which rural people depend forfood security and livelihoods, are declining because of:

* forest habitat fragmentation and degradation;* unsustainable levels of use;* lack of alternative livelihood opportunities; and* increased commercial demand which is often associated with illegal trade.

102. A wide range of influences contribute to deforestation and forest degradation. Direct causesare uncontrolled commercial logging, pioneer shifting cultivation, land conversion for agricultureand infrastructure, and overexploitation of NTFPs. Underlying causes include population growth,absence of effective regulations, insufficient technical and management capacity, and poor forestland tenure arrangements.

103. Most of the sanctioned logging is not based on systematic management planning and carefulinventories. Quotas are often determined by revenue requirements rather than by scientifically-calculated sustainable annual allowable cuts. Codes-of-practice for forestry operations, that wouldprotect forest resources and environmental health, do not currently exist. National criteria andindicators (C&I) for sustainable forest management were developed in 1999-2000, making LaoPDR one of the forerunners in this respect in South East Asia, but have yet to be formallyadopted. What is lacking to meet these criteria and indicators are:

* reliable inventory and growth and yield information to support sound forest managementplanning and to determine a long-term sustainable yield and an annual allowable cut;

* a credible code of forest management practice;* a regulatory system establishing expected levels of forest planning and operational forest

harvesting performance;* effective forest condition and compliance monitoring systems; and* an enforcement regime to ensure regulatory compliance.

104. The current silvicultural system in Laos is based on a variation of the Malaysian UniformCutting System (MUS). MUS is very ecologically intrusive and is more properly described as aforest conversion system than a silvicultural system. It allows heavy canopy openings, utilizingdiameter limits as low as 40 cm, over large areas to favour light-demanding, pioneer trees overslower-growing climax species. The felling-cycle is 60 to 70 years to allow the releasedregeneration to attain marketable size. The MUS was first employed in the 1950s in PeninsularMalaysia and subsequently introduced in the early 1960s to Sabah and Sarawak. The mainlimitation of MUS is that it requires established seedling regeneration before harvesting is

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allowed. Adequate seed years in tropical forests are generally infrequent and unpredictable. Theheavy capitalization of large-scale mechanized logging means that equipment can't sit idlewaiting for a good seed year, and considerations other than regeneration have begun to dictate thetiming of harvest [Collins et al 1991]. Governments have rapidly lost control over the harvestingsystem with the result that many logged areas never achieved adequate stand re-stocking.Additional problems with MUS, associated with the large volumes removed and large canopyopenings, are significant residual stand and regeneration damage, increasing fire proneness due toincreased undergrowth, and significant soil disturbance due to high road and skid trail densities.MUS has now been abandoned in Peninsular Malaysia and Sarawak, where harvesting has movedincreasingly into steeper uplands where the heavy logging intensity proved too destructive, and isused now only in a highly-modified form in Sabah. It is clear in retrospect that the MWS has littlesilvicultural justification, and the principle rationale behind its adoption was economic pressureby government and industry to remove more wood from the forest [Aiken and Leigh 1992].There is no evidence to justify the application of MUS to semi-evergreen forests in Laos. Indeed,there are intuitive reasons to suspect that it is not an appropriate harvesting system for suchforests in a monsoonal climate where they exist in part because they create their own micro-climate. The heavy canopy openings associated with MlWJS will increase fire-proneness and arelikely to result in degradation of semi-evergreen forest to mixed deciduous or dry Diperocarpforest types.

105. The existing royalty/tax system and related benefit sharing arrangements do not fullyrecognize province, district and village level stakeholders. Almost all the financial benefits fromforest management go to the central government, which does not channel enough money back toprovinces and districts to finance sustainable forest management operations. Governmentofficials make all decisions regarding harvesting and sales, and the influence of localcommunities on forest management is limited. GOL is not maximizing its revenue fromsustainable forest management. Forestry royalties as share of GOL revenues have decreased from20% in the mid-1990s to 6% of tax revenues and 5% of all revenues in 2000-2001. Collectionrates are low, around 50%. Over the last five years, the Treasury has realized only about onethird of the estimated market value of the timber harvested. The royalty system is based onadministrative price setting and does not adequately follow the market trends. Consequentlyprices do not move in unison with international forest product prices although more than 90% ofthe production is exported. The stumpage fee (royalty) does not reflect the value of the finalproduct but forestry assets are often either undervalued or overvalued depending on the speciesand market situation. In both cases, the Government incurs revenue losses. MOC also applies adual pricing system by having higher royalty rates for exports than for domestically consumedwood. The objective is to promote value-added processing in the country but the dual pricingsystem distorts timber markets and indirectly contributes to inefficiency in domestic processing.

106. Log sales are not competitive but individual sawmills procure logs under a quota systemthat is neither transparent nor implemented uniformly either from year to year or betweenprovinces. The quota system distorts the market and industry structure, creates incentives forcorruption and results in economic losses through inefficient production and sub-optimal pricing.The administrative quota setting system provides every mill the same opportunity to secure logsirrespective of mill productivity and record of royalty payments. It is apparent that the sector mustbecome more competitive and transparent in roundwood procurement and more active in value-added processing. This would be greatly facilitated by forcing the industry to compete for its rawmaterial and introducing a market-based log pricing system.

107. In summary, the natural forests are among the few potential sources of sustainableeconomic growth in Lao PDR. They can contribute to national economic development, alleviate

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rural poverty and improve the livelihoods and quality of life of rural people through provision ofa range of timber and non-timber forest products and environmental services. At present, not onlyis this potential not being achieved, but the very resource base on which that potential depends isbeing steadily eroded.

5.3.3 Project Sustainability

108. The sustainability of this component will depend in large part on the effective dedication ofhuman resources by DOF, NAFES, PAFES, PAFO, FIPC and NAFRI. A human resource planwill be prepared early in project implementation to ensure that sufficient numbers of properly-trained staff are available to implement these strategic-level policy and technical initiativesthrough the life of the project and beyond.

5.3.4 Project Opportunities and Benefits

109. This component should provide the strategic context for significant changes in the directionof forest management in Laos. In particular, the project should lead to:

* effective participation in sustainable forest management by national, provincial and district,and village level organizations and a fair, equitable and transparent sharing of the financialreturns from the forest;

* a reduction in unplanned, unpermitted, forest conversion,* levels of forest harvest based on real inventory and growth and yield information that will

ensure the long-term sustainability of the forest resource;* operational forest harvesting practices that will conserve forest resources and protect and

maintain environmental services;* an efficient forest processing industry with a capacity consistent with long-term sustainable

yield, thus reducing unsustainable commercial pressures on the forest resource; and* provision of the human and institutional resources at all levels - national, provincial, district

and village - to implement sustainable forest management.

5.3.5 Environmental Risks and Management Strategies

110. No negative environmental impacts or risks are anticipated.

5.3.6 Social Risks and Management Strategies

111. Demands by FORDEV on the human and corporate resources of DOF, NAFES, PAFES,PAFO, DAFO, FIPC and NAFRI must be balanced and reasonable to ensure that the capacity toperform other responsibilities is not compromised. This will require effective program planningand a rational allocation of staff resources.

112. The program to delineate national forest production areas (NFPAs) as a basis forparticipatory forest management must not be seen as an opportunity for the forest sector toincrease the land under its control. NFPAs must be treated as a mosaic of forest lands andresources, the management of which will embrace all of the elements important to villagelivelihoods and food security, including revenues from forest harvesting, lands necessary fortraditional agriculture, NTFP collection, wildlife management and cultural/ spiritual resources.

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5.4 Project Component 2. Participatory Sustainable Forest Management andVillage Development

113. This project component will provide support to GOL's dual forest policy goals ofinstituting sustainable forest management on priority natural production forests and of improvingthe livelihood of forest-dependent communities. Thus the component comprises two closelyrelated themes: participatory forest management and village development. Though these twothemes will be carefully integrated during field implementation, the activities they entail aresufficiently different that they are presented in project design as separate sub-components.

5.4.1 Criteria for Selection of Project Areas

114. Project areas were selected using the following criteria:

* Area. Larger natural production forests were preferred for efficiency and greater impact onthe goal of putting large areas under management.

* Forest resources. Natural forests with rich forest resources were preferred as they are underheavier pressure.

* Accessibility. Heavy pressure for logging would be exerted on natural production forests thatare accessible; hence, they should have priority for management.

* Landscape features. PSFM models are already well developed and extensively tested forlowland natural production forests. Lowland forests are easier and cheaper to log and wouldbe under heavier pressure than upland forests. Hence, lowland forests should have priority forselection. Among upland forests only those where suitable models could be piloted under theproject should be selected.

* Forest industries. Production forests close to processing facilities would be under heavypressure and should have priority for management.

* Socio-economic conditions. With due consideration given to the other criteria mentionedabove, forests whose management would make the greatest impact on poverty alleviationshould be given priority.

* Biodiversity. Areas with high biodiversity value should have priority for management.

5.4.2 Sub-Component 1. Participatory Sustainable ForestManagement.

5.4.2.1 Project Design

115. The goal of this sub-component will be to implement, at the field level, the policies,guidelines and codes of management practices developed in the national component through theintroduction of participatory sustainable management in production forest areas of four Centraland Southern provinces. Participatory sustainable forest management (PSFM) will encompass anarray of management objectives, including sustainable use of all forest resources - land, timber,wildlife and NTFPs - for subsistence and commercial use, conservation and protection.

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116. This sub-component will comprise the following principle activities.

Institutional organization for PSFM including: land use zoning and planning at the FMA, sub-FMA and village levels; establishing district FMTUs; establishing VFCs (which may evolve intoVFAs); developing annual planning, budgeting, reporting and accounting systems; and legally-binding (signed) Forest Management Agreements between FMTUs and VFC/VFAs.

Training of district staff and villagers in the preparation of Forest Management Plans and AnnualOperating Plans, and the organization and administration of VFC/VFAs.

Preparation and Implementation of Forest Management Plans and Annual Operating Plansincluding: timber and NTFP inventories; biodiversity assessments; preparation of plans (strategicand operational); carrying out planned forest management activities (pre-harvest inventory,annual operations plans, tree marking, low-impact harvesting, etc.); monitoring and reporting ofPSFM activities (outputs and outcomes); competitive and transparent log sales; and certificationof FMAs.

117. To implement the programs of this sub-component, Forest Management Technical Units(FMTU) will be organized in each district that includes one or more FMAs. FMTU staff willreceive training from PAFES trainers, who will in turn be trained by project teams with supportfrom NAFES and DOF/FIPC.

118. Village Administrations (VA) of participating villages will first organize Village ForestryCommittees (VFCs), which will in time develop into Village Forestry Associations (VFAs) as theresponsibilities and administrative capabilities of the villagers grow. VFCsNVFAs will beorganized in every village participating in the management of a sub-FMA. Management of eachsub-FMA would be undertaken by the FMTU with the participation of VFC/VFA. The functions,rights, and responsibilities of FMTU, VFC/VFA and other primary stakeholders, such as PAFO,in the management of a sub-FMA will be defined, agreed to, and secured in a Forest ManagementAgreement. The agreements, which cannot be changed except by consensus of all parties, willalso specify the mechanisms for resolving any conflicts that may occur in the course of forestmanagement operations. The FMTU and VFCs/VFAs belonging to a sub-FMA will manage thedesignated area together based on the roles described in the Forest Management Agreement andin accordance with an approved Forest Management Plan (FMP). Villagers will be activelyinvolved in forest management (boundary demarcation, land-use mapping and planning, forestresource inventory, management planning, and harvesting), recognizing that the degree of theirinvolvement and decision-making power will depend on the task and scope of work in relation totheir capabilities.

119. Forest management in FORDEV will be multi-purpose/multi-use, incorporating zoningguided by clear, agreed-to management objectives and principles as a means to ensure the bestuse of forest lands to meet the needs of all partners. In commercial production forest zones, themanagement system will combine an economically viable level of wood production with highretention of trees and tree species to conserve biodiversity and the value of forests as resourcebase for wildlife, NTFPs and cultural amenities important to forest-dependent communities. Low-impact/low-intensity forest management system mimicking natural ecological processes andstructures will be adopted building on the past implementation experiences in Savannakhet andKhammouane. The system is characterized by short cutting cycles (5-10 years) that allow aspreading of the annual harvest over a large area, resulting in a high retention of large trees.Regenerating and degraded forests should be identified for rehabilitation relying mainly onassisted natural regeneration and on management of grazing and fire as means to recover their

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species composition and stand structure. Artificial regeneration will be used only where it isecologically appropriate and technically and financially feasible.

120. All operations in production forests will be conducted in accordance with a Code ofSustainable Forest Management Practice that would be formulated as part of the Component 1 ofthe project. Guidelines for rehabilitation of natural forests will be developed. Regulatinginstitutions (DOF/PAFO) will monitor and control operations and their compliance with the Codeand the existing National Criteria and Indicators (C&I) for sustainable forest management. Theproject will also support the piloting of forest certification in order to assess the merits of such aprocess in Lao PDR. Forest certification will not only confirm that the management issilviculturally, environmentally and socially sustainable, but will also help to secure markets andhigher prices for certified products. In addition, external certification assessors will provide anadditional level of performance auditing which should lead to additional control over forestrypractices.

121. Log sales will be competitive, market-oriented, and transparent using a method thatmaximizes revenue generation. Sales decisions will be based on a transparent decision-makingprocess amongst members of the sales committee, which will include VFC/VFA representatives.The mechanism and regulatory framework for competitive log sales and involving villagersactively in log sales will be developed before project implementation. Log sales revenue will beused to pay royalties and taxes, costs of logging and transport to the place of sale, and benefits toparticipants according to a "price-sensitive" benefit-sharing formula, which would include aguaranteed minimum return to villagers that will ensure their continued participation.

122. Villages participating directly in forest management and timber harvesting activities, mustreceive a level of benefit that will provide adequate incentive for their efforts. The benefit-sharingformula has to be agreed amongst all partners prior to project implementation. Based upon recentexperience, the villagers consider that they need to receive at least USD 15/m 3 of timberharvested. It is recommended that any government policies, legislation, and regulations specify aminimum floor price that villagers will obtain for their work, i.e., USD 15/m 3 (adjusted forinflation) or 40 percent of the net benefit, whichever is higher. Based on past experiences, itappears possible that a village could get an average USD 2 000 each year for village developmentfrom SFM after all the government taxes and forest management costs have been paid. Villageswill be paid separately for their labour from the FMTU share of revenue benefits.

123. For villages participating in forest protection and conservation of biological diversity, thepayment must be significant enough that villagers have a real incentive to contribute toconservation, and that they have enough village development funds to actually undertake aproject. It will also be important for the conditions for such payments to be clearly agreed, withspecification of any penalties or sanctions for failing to meet the terms of the conservationagreement. The GOL and project management, therefore, will develop guidelines for such termsand conditions.

124. This sub-component aims to:

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* build on and improve on-going sustainable forest management activities in the former pilotproject (FOMACOP and JFM) areas of Sanannakhet Province (Dong Sithouane and DongKapho) and Khammouane Province (Dong Phousoi); and

* introduce sustainable participatory forest management to six new areas; Dong Kathing inKhammouane Province, Xilivang, Lao Ngam and Phou Thatlava in Salavan Province andPhatumphong and (possibly) Dong Khantung in Champasak Province.

Together, the area of commercial lowland production forests to be put under sustainableparticipatory management in these four provinces will cover about three-quarters of the country'slowland production forests with commercial potential.

125. PAFO trainers from Khammouane, Salavan, and Champassak will be trained in the PSFMregional training center in Savannakhet, after which they will return to their respective provincesand organize the training of district staff under the guidance of national advisers. Trained districtstaff will in turn be formed into fourteen 2-3-person extension teams, with each team responsiblefor 5 villages.

126. All of the project areas except Phou Thatlava will implement the lowland semi-evergreenforest silvicultural and harvesting practices already established by the previous pilot projects. InPhou Thatlava and the adjacent Thong Lave pine forest the project will look to piloting theadaptation of the PSFM Systems to an upland production forest with both broadleaf and pineforest types. The SFPM system, designed for lowland production forests, is generally applicableto upland production forests, however, modifications will be necessary in the following areas:

Access and extraction technologies. Extraction using logging trucks alone will not work onadverse slopes above 20%. Logging studies will compare different options to extract logs to afirst landing, with truck transport of logs from the first landing to a second landing. Studies willbe undertaken to compare the economic costs and environmental impacts of cable-yarding andground skidding systems for primary extraction under differing site conditions.

Silvicultural and harvesting systems. Compared to lowland forests, logging cost will be higher inupland forests because of the higher cost of road building and log extraction. Forest areas will bezoned to exclude lands that are too steep, unstable or ecologically fragile to be harvested safely.For the remaining areas deemed operable, the project will develop environmentally-appropriateand cost-efficient harvesting systems that will still have lower cutting intensities and higherretention of large trees than is common elsewhere in the region.

These modifications will result in a somewhat different silvicultural system for upland broadleafforests. A very different silvicultural system will have to be designed for pine forests, which areless shade-tolerant and more disturbance-prone than broadleaf forest communities. Whileextensive clear-cutting of pine stands will be avoided, small-patch clear-cutting or seed treesystems may be employed, with adjacent stands left uncut to seed and buffer the logged openings.The extent of these modifications and innovations (at least in a Southeast Asian context) proposedfor upland sites dictates that the system should be piloted first before it is applied extensively inupland production forests elsewhere in the country.

5.4.2.1 Project Alternatives

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127. Two alternative forest management schemes, to the participatory sustainable forestmanagement approach proposed by FORDEV, are possible: a continuation of the currentcommercial harvesting regime (the "no-project" alternative); or adoption of the concessionmanagement system used elsewhere in the region.

The Current Commercial Harvesting Regime in Laos

128. The current commercial harvesting regime in Laos has been described by Carle [2001]. Heconcludes that no production forests in Lao PDR are currently managed sustainably except forthose where the FOMACOP and JFM projects were located. Annual quotas and harvest levelsare set to respond to demands from wood industry and other market players for raw materials onthe one hand, and the needs of the GOL for budget revenue on the other. There is no strategy tomanage a region, province or district on an agreed-to sustainable annual allowable cut (AAC)basis. Production forest management is not based on sustainable forest management principlesbut on ad hoc, short-term administrative allocation of forest resources to those that can lobby andleverage the strongest. There is little or no understanding of sustainable forest managementprinciples to avoid over-exploitation of forest resources in either the government or industrysectors. Medium-term management objectives and planning to achieve the goals of the ForestPolicy and National Strategic Vision do not generally exist. The planning philosophies andhorizons are generally short-term, with little or no consideration for medium to long-termmanagement of forest resources. This leads to over-allocation of annual cuts and inequitableaccess to forest resources based upon the immediate exploitation needs of the industry and forestproduct market demands. Under the severe constraints imposed by the Asian financial crisis,there is a short-term GOL need for revenues from the forestry sector through royalty and feepayments. There is little understanding that the production forest resource is not inexhaustible,but is being deforested and degraded at alarming rates.

129. Low-impact, sustainable forest management strategies are not practiced. There are no codesof harvesting practice providing standards or guidelines for access development, landinglocations, felling or extraction. Each area to be logged is simply identified (often by the loggingcompany), accessed, and logged before moving to another area. Most forest industry companiesemploy harvesting contractors or managers to conduct their road construction, landing andlogging operations. There is no concept of forest management but rather of a harvestingexploitation to extract logs at minimum cost to the forest industry investor, whose principalinvestment is in a wood processing plant. There are no standard long-term logging agreements orguidelines detailing the terms and conditions of management to achieve sustainable forestmanagement. Instead, there are basic short-term agreements with operational guidelines forfelling, roading, and landings. The high-intensity harvesting system employed is lax, wastefuland fraught with abuses by company contractors, field officers, and officials. Historically, highintensity logging has been based upon the harvest of 25-40 m3/ha or more, with a prescribed cutevery 50 years. But since most concessionaires do not practice post-harvest management toensure that the residual growing stock is nurtured and protected between cycles, forests becomeprogressively degraded and yield species and volumes of less quality and lower value. There areno incentives for efficient and effective harvesting operations nor supervisory or monitoringprocedures to ensure compliance with regulations and specifications. Access, harvesting andextraction operations are conducted during the dry season only (November to April/May). Roadsare generally dry weather only, and access to spur roads and extraction is generally with ex-armyy6x6, self-loading trucks. Poor harvesting and roading practices severely degrade the forests, anfcause environmental damage to soils and water by reducing the protective functions of the forest.High-intensity logging as currently practiced in Laos has not proven environmentally,economically, or socially sustainable.

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130. Harvesting waste in the forest is excessive as volumes and grades of logs are not assessed orrecorded until delivery of logs to the second landing. Scaling, species identification and gradingabuses on second landings are common practice in order to deliberately underestimate the volumeand value of the logs actually harvested. Transfer pricing for transportation and tradedocumentation is common. Such harvesting and landing malpractices deprive the GOL ofsubstantial forest revenues and undermine the efficiency of the wood industries sector throughhidden subsidies.

131. Local villagers, who bear the brunt of the negative impacts of the current system, receivelittle in the way of direct benefits. A few villagers are hired for casual labour, to locate trees andslash roads and trails, for which they may be payed wages based, alternatively, on 700 kip/m3 oftimber extracted, or a daily fee ranging from 2,000 to 13,000 kip, or a "tree-finder's fee of 10,000kip per day. In any given year an individual villager might earn somewhere between 20,000 and50,000 kip. In addition, some (but not all) villages may receive funds variously reported at 2000to 3000 kip/m3 or 50,000 kip per tree, paid into the village development account. Thus, thevillagers' economic benefits under the current system are meager, and vary widely depending onnegotiations between the villagers' and the loggers. From a social perspective a "no-projectoption" would result in villagers having fewer incentives to contribute to sustainable managementand conservation of natural forests.

The Concession Management System

132. All of the present timber-producing countries in Southeast Asia, with the exceptions of Laosand Burma, have opted for a system of private industrial forest concessions as the maininstrument of commercial forest management. The reasons for adopting such a system areusually given as:

* government development funding is limited, and long-term forest harvesting tenures have thepotential to attract significant foreign private sector investment capital;

* technical capacity in the country is limited and the delegation of responsibility to a privatesector company capable of recruiting international forest management expertise could bothreduce the administrative burden on government and enhance the overall level of foreststewardship; and

* this type of tenure system offers the possibility of a clear separation between regulation andmanagement, with government setting standards and monitoring and enforcing performance,and the concessionaire responsible for planning, sustainable management, harvesting,processing and marketing.

133. Few of these potential benefits of an industrial concession system have been realizedanywhere in the region. Ill-conceived investment policies by many governments have createdprocessing capacity greatly in excess of sustainable yield. Increasing demands for wood have ledto reduced harvesting cycles, premature and multiple re-entries of felling coupes, and a steadyerosion of cut-constraints and retention standards - all of which have resulted in significant forestdepletion. Where even these measure are not sufficient to feed the mills, many concessionairesresort to buying (or even colluding in the cutting of) illegal wood. There is not a single countryin the region employing the forest concession model, with the possible exception of Cambodia,that has not experienced very significant rates of deforestation since its implementation (e.g. thePhilippines, Thailand, Malaysia and Indonesia). Even in Cambodia the concession system has

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resulted in significant commercial depletion in less than ten years. There are few examples ofadequate attention by concessionaires to the needs and welfare of local communities, who oftenreceive little benefit from timber exploitation and are left in a substantially poorer condition bythe destruction of forest resources on which they depend. Indeed, in reviewing the experience ofthe past few decades, some forest analysts are beginning to question whether the industrialconcession model, at least as applied in Southeast Asia, is even appropriate for tropical forests[Marchak 1995, Aiken and Leigh 1995]. They argue that because of high mechanization and highcapitalization, it may be incapable operating economically and still fulfilling its obligations tosustainable forestry, environmental protection and the welfare of local communities. Some ofthese countries, such as Indonesia and the Philippines, are now looking at more-appropriate,community-based alternatives to industrial concessions that look very similar to FORDEV.

134. In short, neither of these two alternatives have shown themselves capable of implementingsustainable forest management, and both have been carried out to the detriment of indigenousforest-dwelling communities. FORDEV is considerably superior in all its aspects - silvicultural,environmental and social/cultural - to either of these industrial forestry alternatives.

5.4.3 Sub-Component 2. Village Development

5.4.3.1 Project Design

135. The Village Development Sub-component will provide support to villagers in strengtheningtheir capacity to plan, implement. monitor and evaluate their own development projects. Villagedevelopment projects will be financed initially through project funding and later from forestrevenues. The sub-component has the following principle objectives:

136. The Village Development Sub-component will comprise the following specific activities:

Development of guidelines and procedures.

137. Early in project implementation a set of development guidelines and procedures will beprepared, building upon past work. These guidelines and procedures will cover:

* village development planning systems using participatory rural appraisal and planningtechniques;

* fair, transparent and effective benefit-sharing in use of village forestry revenues; and* financial management, i.e., bookkeeping, a village bank account for forestry revenues, the

creation and control of revolving funds created, and periodic auditing and reporting of villageaccounts.

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Training in village organizing and village development.

138. The project will place major emphasis on training in village organizing and villagedevelopment issues, to build the capacity of both villagers and field staff. Specific areas oftraining will include:

* village organization and administration;* development planning, implementation, monitoring and evaluation;* procedures for handling village development grants;* financial management; and* forest-related enterprises (small-scale NTFP and wood processing).

139. The aim will be to institutionalize the training programs, so that they can be continued in thefuture. Where participating villages consist of non-Lao ethnic groups who have a relatively lowdegree of fluency in the Lao language, especially written Lao, the training strategies will focusless on classroom training and more on learning-by-doing training in the village (or forest).Where relevant, training in functional literacy and numeracy may also be provided. The trainingprogram will make greater use of audio-visual extension materials, to increase comprehensionamong non-literate villagers. The training program will also ensure that village women receive atleast 30 percent of all villager training-days related to village development topics and that thistraining is adapted to their specific development needs. In villages with relatively few inhabitantswho speak Lao, the project will use government staff or staff of collaborating organizations withthe relevant ethnic language skills.

140. The project will promote additional forestry-related development opportunities, in terms ofthe promotion of non-timber forest products and small-scale village-based processing of forestproducts. This support may involve assistance to villagers to establish village-based enterprisesbased on NTFPs or processing of forest products. The promotion of sustainable use andmanagement of NTFPs will build upon the pilot project undertaken by the World ConservationUnion (IUCN). The project will support participatory research on existing use and availability ofNTFPs, market studies on domestic and export markets for unprocessed and processed NTFPs,and on-farm trials for domestication of selected NTFPs.

Enhancing village organization.

141. The principle aim of this activity would be the:

* Creation or strengthening of a village committee to be responsible for overseeing aparticipatory process for village development planning.

In many villages economic affairs or development committees already exists and could be usedfor this purpose.

Village Development Planning.

142. The planning activity will include support to villagers in:

* preparing or updating a simple village development plan; and* establishing a participatory process for annual review of progress on, and necessary revisions

to, the village development plan.

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143. Village development planning will build upon any work that may have already been done inthe village, either through the GOL efforts to implement PMO No. 1, or through other projectsand programs. The planning work will be done in close cooperation with district authorities,under the guidance of the District Planning Department. To develop an intersectoral village plan,the District may need to provide an interdisciplinary team to work with the villagers, to facilitatethe planning process.

144. Village development will involve using participatory appraisal (PRA) techniques to identifyvillagers' development needs, and then participatory planning methods to enable villagers toprepare their own development plans. This approach will build upon existing models piloted inLao PDR and elsewhere. The villagers will be assisted to prepare and write plans prescribing theuse of village resources, projected forest revenues, and other sources of funding. The plan willcontain specific actions or projects identified to address key priorities. The action plan willidentify who will be responsible for undertaking which activities, what inputs are required,including training and extension support, and the projected time when the activity or project willbe undertaken. The village development plans must be kept simple, so that the villagers canunderstand and use these plans; and that the district staff can analyze and summarize the villageplans, as input into the district-level development planning process.

145. FORDEV will fund investments in village development, tentatively budgeted at USD 8000per village, which are to be complemented by villagers' inputs mainly in kind (labor, materials).These investments will serve four main purposes. First, they provide communities a chance tolearn how to manage funds before they begin to receive revenues from forestry. Second, theyprovide an additional incentive to participate during the time that they are waiting for their ownrevenues. Third, these interventions can be used in complementing other development activitiesto be funded through other sources. Fourth, they help directly in meeting villagers' developmentneeds and thus contribute to food security and poverty reduction. Many of the villagers' prioritydevelopment needs cannot be financed immediately from sustainable forest management becauseof the high costs. Direct investment support is needed to make a meaningful contribution tovillage development during the project life.

146. Selection criteria for choosing village development projects to be funded through projectfunds will include the following:

* projects should benefit the entire village community and majority of the households, but withparticular attention to the participation of, and benefits to, poorer households;

* first priority projects will be those that enhance food security at the household level;* second priority projects will be those that enhance livelihood security and/or promote

income-generation at the household level; and* third priority projects will be rural (social) infrastructure projects, such as drinking water and

sanitation systems, schools, clinics, roads etc.

Village development financial management.

147. The principle elements of this activity will be:

* implementation of effective bookkeeping, financial management and financial auditing;* establishment of a village forest revenue fund and a bank account for each village or village

cluster in a FMA or sub-FMA; and* proper, transparent management of revolving credit funds.

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148. In line with GOL's overall policies for decentralization, the villagers will be responsible formanaging their own forest revenues for development. Procedures and guidelines will also beclearly established for financial management, i.e., bookkeeping, a village bank account forforestry revenues, any revolving funds created, etc. Each village will have its own bank accountfor its forestry revenues, which will be obtained from the benefit sharing of the net revenues fromthe timber sales. Villages may have separate (general) village development funds, or other bankaccounts, but the forestry revenues will be handled separately, to simplify bookkeeping,accountability and transparency, and auditing. The project will provide training in basic financialmanagement, bookkeeping and operating village revolving funds. It will assist villagers toestablish financial mechanisms for village development, such as opening bank accounts andestablishing revolving funds.

149. If villagers decide to use part of their forest revenues to establish revolving funds, the aimwill be to establish funds that provide small short-term loans to many households in thecommunity, rather than longer, larger loans to a limited few. The village revolving funds, then,will be seen as a pilot trial, working towards larger development of micro-credit programs andmobilization of local resources and savings for development. The project will collaborate withthe Lao Women's Union on establishing such revolving funds.

Implementing and monitoring village development plans and projects.

150. The main elements of this activity will be:

* supporting effective implementation of priority projects in the village development plan;* establishing pilot village revenue-generating enterprises based on sustainable and

environmentally and socially appropriate activities; and* participatory monitoring and evaluation of plan and project implementation.

151. The project will develop participatory monitoring approaches, with villagers fully involvedin monitoring progress towards project objectives. Each village will be assisted to have an annualreview of progress with the project activities, and an annual assessment of implementation, andwhere needed, updating, of the village development plan. FAO's Community Forestry Unit andFOMACOP in Lao PDR have already done considerable work on developing appropriatemethodologies for participatory monitoring and evaluation (PAME) in forestry.

152. To adequately assess potential impacts of the project on village development and povertyreduction, it will be important to undertake a pre-project baseline socio-economic study, as wellas an impact study to be conducted during the final year of the project. Details for the baselinestudy and monitoring will be developed during the initial stages of project implementation. Amajor issue to be addressed is one of transparency and accountability regarding the use of thevillage funds, both among villagers and between villages and Government. Therefore, the projectwill develop auditing systems and procedures whereby village funds will be subject to an annualexternal audit by provincial authorities. The results of each village's audit will be shared with allvillagers at an annual meeting.

5.4.3.2 Project Alternatives

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153. Poverty in Lao PDR has dimensions at various levels - individual, household, village,district and provincial levels. In assessing the ways in which village development could best besupported, with the primary focus of promoting poverty reduction, the Project Preparation Teamconsidered a range of alternatives. It was decided that efforts to promote village development andpoverty reduction needed to focus on two levels: household- and village-level poverty. Projectalternatives considered were related to funding mechanisms for household-level activities and thedegree of control over village-level project selection.

Funding mechanisms for household-level activities.

154. In order to reduce household-level poverty, the most urgent priorities are to improvelivelihoods, through more productive agriculture, rearing of livestock, and other income-generating activities, such as sustainable management and harvesting of non-timber forestproducts and small-scale processing of forest products. To improve livelihoods, then, will requiresupport for improving the effectiveness of extension activities, and assisting villagers to obtainneeded inputs to invest in more productive alternatives. There are two primary alternatives forproviding financial assistance - grants or some type of micro-credit system.

155. Both the government and villagers are quite interested in the possibility of establishingrevolving funds that could be used for obtaining inputs to increase the productivity of rurallivelihoods and improve household-level poverty. The argument is that by establishing suchfunds, as opposed to one-time grants, a permanent, ongoing source of financing could beestablished. On the other hand effective development of micro-credit schemes requires a majoramount of technical assistance. Currently an overall review of the rural financing system isongoing, with assistance from the Asian Development Bank and it may be premature at present toconsider micro-credit schemes. Furthermore, many donors (such as the European Union and theGovernment of Finland) have adopted policies whereby they believe that micro-credit programsshould be supported through independent projects, not as components within technical assistanceprojects, such as forestry.

156. Consequently, it was decided that rather than use project funds to establish revolving funds,the project should have a more modest target. Insofar as villagers themselves may decide to usetheir forest revenues to establish revolving funds, then they should be provided with training andguidance to set up funds that will operate effectively. It is particularly important to ensure thatsuch funds provide support (smaller loans) to many of the poorer households in the village, andnot just a few large loans to better-off families. The project design team decided that FORDEVshould provide training and support, and that such support might best be provided incollaboration with the Lao Women's Union.

Village-level project selection.

157. Whereas provision of most types of village-level rural infrastructure, such as schools orroads, is important in the medium- to long-term, it will not necessarily lead to a significant short-term reduction in household-level poverty. Some types of rural infrastructure, such as drinkingwater and sanitation systems, however, can have an immediate impact on health and well-being,and thereby contribute to improved standards of living, increased productivity, and thus reducedpoverty. As health issues are a major problem for many villagers, who may spend a considerableportion of their limited cash income on medicine, the reduction of water-borne diseases wouldhave a significant impact.

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158. Therefore, one option that was considered in designing the village development activitieswas the consideration that a portion of the project investments could be devoted specifically torural water and sanitation systems. This option was considered because of its general importanceto rural health and well-being. Furthermore, the option would be relatively easy to administer, inthat the project could work with provincial and district authorities on procurement. This option,for example, is currently being followed in the recently-launched Agricultural DevelopmentProject (ADP), which will be operating in some of the same provinces as FORDEV.

159. In further consideration and deliberation among the team, however, it was agreed that manyvillages do not perceive water and sanitation systems to be priorities for village development.Some villages that were pilots under FOMACOP or JFM have already improved their watersystems, i.e., through provision of wells. Also, some villages in the project areas may alreadyhave received assistance in improving their drinking water supply systems from government orother donors. Furthermore, if the aim of the project is to promote truly participatory bottom-updevelopment, then the villagers should freely choose their own priorities (with adequatefacilitation in the planning process, support from government in assessing technical feasibility,etc.).

160. The resulting design options chosen for the village development, thus, consist of providingsupport to villagers to choose their own development priorities, with a focus first on foodsecurity, second on improving household incomes and livelihoods, and third on communityinfrastructure. If the villagers choose to establish a revolving fund, then they will be providedwith training and guidance. As the project is focusing on forestry activities, it will also supportefforts to manage non-timber forest products and promote small-scale, village-based processingof forest products, and other promising enterprises as income-generating activities.


161. Two main factors will influence the long-term sustainability of this project component; first,adequate human and corporate resources in Government institutions to cope with the verysubstantial training, extension and monitoring demands of the project and second, theestablishment of a benefit-sharing arrangement that will ensure continued village participation.

162. Project sustainability will depend in large part on the effective dedication of humanresources by PAFO/PAFES, DAFO/FMTU/DAFES/FSEW and other agencies responsible forrural development at the provincial and district levels. A human resource plan should be preparedearly in project implementation to ensure that sufficient numbers of properly-trained staff areavailable and dedicated to implement the participatory forest management and villagedevelopment activities through the life of the project and beyond.

163. If the project is to be sustainable over the long-term, it will need to develop and implementfair, equitable and transparent benefit-sharing arrangements that will provide the financialincentives necessary for effective participation by villages, DAFO/FMTUs and other stakeholdersin sustainable forest management. Earlier suggestions on benefit sharing proposed 10% to DOF,10% to PAFO, 40% to DAFO and 40% to village development funds AFTER deductions fortaxes, royalties and the reforestation fund. All costs, including contract logging and wages tovillage labour, are paid by DAFO. This system, where government takes its royalties and taxes"off the top" regardless of selling price is clearly inequitable. Likewise, it is unclear why aprogram that is designed to enhance and rely on natural regeneration should have to pay into thereforestation fund. It is recommended that Government develop a "price-sensitive" benefit-sharing formula, which would include a guaranteed minimum return to villagers (i.e. USD 15/m3,

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adjusted for inflation) that will ensure their continued participation. This fomula should beprepared for consideration at project appraisal. In addition, there must be a firm commitment tofull participation by Village Forestry Associations in log sales and there should be an independentappeal and auditing mechanism available to maintain transparency and the appearance fairness inbenefit sharing.


164. The Participatory Forest Management and Village Development Component should lead toa very substantial improvement in the lives of rural forest-dependent communities and in thecondition and extent of natural forests through enhanced forest protection, rehabilitation andsustainable management practices. Local communities will be given a significant incentive toprotect and sustain forest resources through their direct involvement in management and asubstantial share of benefits. The participatory planning process envisaged for the sub-component has great potential to: 1) resolve land use conflicts; 2) clarify land tenures andresource use rights; and 3) ensure greater consultation, fairness and consistency in the applicationof land allocation programs and forest regulations and policies. Access to communitydevelopment services, training and improved village revenues may, over the longer term, reducevillage dependence, and thus the pressures, on natural forest resources (wildlife and NTFPs).

165. The Participatory Sustainable Forest Management Sub-component will includedevelopment of Forest Management Agreements that will take the form of contracts betweenvillagers and government, and Forest Management Plans that provide a "blueprint" forparticipatory management implementation. Harvesting controls involve very light cuttingintensities (1-2 trees/ha, < 12 m 3/ha per felling cycle), and very high retention standards. Evengiven this light disturbance, the more frequent re-entry (+/- 10 years is a cause for concern and itseffect on wildlife in particular will require careful monitoring. Log extraction utilizes existingvillage roads wherever possible and lightly-slashed, lightly-used temporary "skid" trails. Thelight "ecological footprint" of village participatory forestry provides the potential for:

* significant in situ biodiversity conservation of low elevation evergreen/semi-evergreen anddry deciduous forests, all of which are poorly represented in NBCAs;

* the creation of buffers around, and connectivity between, existing NBCAs in some areas;* the incremental introduction of sustainable management and use of NTFPs and wildlife (a

priority expressed by villagers to both the mission and WCS surveyors);* zoning to protect wetlands, gallery forests, mineral licks, perennial river pools and channels

and other critical habitats;* the protection of snags, wildlife trees, coarse woody debris, fruit and nut species, pollinators

and seed dispersers and other ecological keystones;* the recovery of depleted forests ecosystems; and* the protection of important social and cultural values such as spirit trees, sacred forests and

other cultural assets through villager participation in tree selection.

166. A major positive enviromental benefit of the project is that it will replace the currentMalaysian Uniform System with the Single -Tree Selection System, which is seen as a moreecologically appropriate method of harvesting moist tropical forests by almost all countries in theregion. It will implement single tree selection to prescribed diameter limits, generally 50 to 60cm depending on species, with very high retention standards and short felling cycles. Harvestingwill be on small, discrete, annual coupes, with the number of coupes on a management unit equalto the number of years in the felling cycle. Additional "cut-constraints" to maintain stand

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structure and composition may include a limit to the number of commercial stems that can beremoved in a harvesting pass and a minimum distance between trees to be felled to reduce gapsize. Thus regeneration and recruitment is derived from many seed years, and consists ofseedlings, saplings, poles, and trees just below the exploitable size. There is one provision,however, and that is that, before harvesting, a stand must be shown to have an adequate stock ofpole-sized and larger trees capable of forming the next harvest, and that these survive the currentharvest undamaged. If this provision is ignored, selection harvesting becomes mere "creaming"and the forest will be significantly depleted. For this reason selection harvesting regulations muststipulate a 100% pre-harvest inventory on an annual coupe of all stems over 20 cm in diameter,which serves as the basis for determining tree selection, and a post-harvesting assessment of standcondition.

167. In a report to the project [WCS 2002] the Wildlife Conservation Society has highlighted thepotential contribution of FORDEV to national biodiversity conservation through supplementingand supporting the National Biodiversity Conservation Area (NBCAs) system. As alluded to inparagraph 165, this contribution comes both from native biodiversity within production forestareas and through buffering and connectivity functions between NBCAs (and in the case of DongKhanthung, a national park in adjacent Thailand). WCS rates the nine possible project areas froma biodiversity perspective as follows:

Table 3. Biodiversity values of project national production forests [from WCS 2000].

Production Internal Biodiversity Values External Biodiversity FunctionsForest I I

Aquatic Terrestrial Terrestrial NBCA NBCA lFlora Fauna Buffering Connectivity

Dong Phousai * ** ** ** **

Dong Khating ***

Dong Kapho * * * ** *

Dong Sithouane * * *

Phou Tatlava * *

Lao Ngam * * * * *Xilivang * * ** *

Phatumphon *** ** **

Dong **** **** ****Khanthung

* Extreme Significance *** = High significance.** = Moderate significance * Low significance

At present the inclusion of Dong Khanthung in FORDEV is uncertain. In view of the extremelysignificant biodiversity values in this production forest, its inclusion is strongly recommended. Ifit is not included, the World Bank should exact a commitment from GOL that no furthercommercial harvesting will take place there until a management plan, equivalent in all respects tothose prepared under FORDEV, is prepared and approved in consultation with the World Bank.

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168. The Village Development Sub-component strengthens village institutional organization andthe capacity for village development. It builds villagers' capacity for self-development and self-reliance and strengthens the definition of roles, responsibilities and accountabilities ofparticipants and stakeholders. Village development planning and project implementation willbuild capacity through self-management of village development funds and projectimplementation. Increased village prosperity may reduce dependence on forest resources, thoughis must be kept in mind that much of this use is cultural as well as essential.

169. Although the GOL is undertaking efforts to reduce rural poverty, develop rural areas, andpromote decentralization, its ability to do so is limited. Given that 40 percent of the entirenational population lives below the poverty line, and 90 percent of the poor live in rural areas,this presents an enormous financial and institutional challenge. Many rural villages in Lao PDRhave limited road access, low levels of village infrastructure and government services, such asextension, health and education. The productivity of agriculture, livestock, and income-generating activities are limited. The project, then, is likely to have a significant positive impacton the security and livelihood of participating villages. Without the project, much less would beachieved in the project areas, in terms of householder and village development, promotion ofparticipatory village-level planning, and encouragement of villagers' self-help capabilities.


170. The major outstanding potentially negative environmental risks associated with the projectas designed relate to the upland forestry pilot project, the shortened felling cycles in lowlandforest management, the management of wildlife and botanical NTFPs, and possible minorenvironmental impacts arising from village development projects.

171. The extension of logging operations into steeper, more environmentally-sensitive uplandsmust be undertaken with considerable care. The major value of this part of the project will be thepotential to introduce the concept of economic and environmental operability under different siteconditions and different harvesting systems. Part of an operability assessment will be to zone-outlands that are too steep, unstable or fragile to log safely. It will then be necessary to determinethrough an economic analysis if what is left justifies the costs of access and extraction. A greaterharvest intensity should not be considered solely in order to make this economic analysis morefavourable, given the inevitable higher access and extraction costs. In other countries of theregion, diameter limits on steeper (limited production) areas are 60 cm, in contrast to the 45-50cm diameter limits imposed on lowland forests, with the expressed intent of limiting harvestintensity. Greater harvesting intensity usually means more site disturbance and residual standdamage, and a greater density of skid trails and extraction roads (unless cable-yarding systems areemployed), all of which are environmentally damaging in steeper lands

172. The project design calls for a felling cycle of 5-10 years to ensure a steady, manageablerevenue stream to villages, rather than the 25-30 years common in moist tropical forests. TheWCS biodiversity report [WCS 2002] raises the concern of increased disturbance, especially towildlife, of this frequent forest re-entry. However, the very light cutting intensity, high retentionstandards and short duration of harvest (1-2 weeks) mean that the intensity of disturbance in anyone felling pass is much lower that in contemporary industrial operations. Likewise, skid trailsare lightly slashed, narrow and lightly traveled, and thus tend to re-green quickly afterabandonment. Add to all of this the fact that, judging by the number of well-established foottrails through forest areas, there already appears to be considerable human disturbance fromhunting and NTFP collection, and it is probable that the incremental increase in disturbance dueto harvesting will not be as significant as WCS fears. One objective of the monitoring program

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on areas of high wildlife biodiversity (Dong Khating, Dong Sithouane, Phou Tatlava, Xilivang,Phatumphon, and Dong Khanthung) will be to determine whether this is the case and to stimulatechanges to felling cycles if it isn't.

173. Given the considerable evidence of declining wildlife and botanical NTFP populations andthe considerable role these forest resources play in forest health and village food security andlivelihood activities, there needs to be greater emphasis on improved management of theseresources in the project design. Some villagers interviewed during field visits and during theWCS field survey expressed the hope that the project would assist in village NTFP and wildlifemanagement planning aimed at promoting more sustainable levels of use. Other villagers saidthat in their areas the wildlife was virtually gone and it is already too late. Wildlife and NTFPplans should be participatory in nature and build on traditional mechanisms to control andmanage these resources. Some consideration should be given in relation to botanical NTFPs, tohorticultural assistance so that harvesting can be shifted from the forest to areas of NTFPcultivation, with the forest a source only of materials for genetic improvement and initialpropagation materials. Wildlife and NTFP programs should be expanded and continuethroughout the life of the program.

174. The possibility exists of minor environmental impacts arising from village developmentprojects. These will be dealt with by a simple screening process and simple impact managementguidelines for the different types of projects that may be contemplated.


175. The participatory and voluntary nature of FORDEV activities should mean that the risk ofserious social impacts will be minimized, and probably more than offset by potential projectopportunities. Potential social risks exist, however, in the following areas:

* the possible impact of village forest management plans on traditional rotational cultivation;* the apparent resistance of many government staff to villagers' administration of their own

development funds and to village participation in log sales;* the uncertain capacity of some more remote non-Lao ethnic group villages to participate

effectively in the project;* the burden of project participation by villagers and the impact on other activities;* possible loss of livelihood and access to traditional resources; and* the effectiveness of proposed complaints/appeals and dispute resolution mechanisms.

176. Land allocation programs and village forest management plans in the FORDEV projectmust not be used as a mechanism to limit traditional rotational cultivation. Land use planningand allocation must shift from a preoccupation with distributing individual parcels of land to landuse zoning based on a real appreciation of soil capability. Local farmers must be allowed toemploy their traditional rotational farming methods on those lands that are zoned for agriculturalproduction. Care must be taken during village forest planning to ensure that sufficient land isavailable to allow appropriate fallow periods, which will probably be in the neighbourhood of 7-12 years rather than the unsustainable present periods of 3-4 years.

177. Consultations with provincial and government officials and the government stakeholderworkshops in February indicate a significant resistance on the part of some provincial and districtstaff to villagers controlling and administering their own development funds and to villageparticipation in log sales. Both of these issues are fundamental precepts of FORDEV, and their

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implementation must not be frustrated by uncooperative government officials. It will be theresponsibility of senior government officials, World Bank supervision missions and ongoingoperational social monitoring to ensure that this does not happen. If problems do arise, complaintand conflict resolution mechanisms will be available to assist the villagers.

178. Many ethnic groups in more remote villages with low formal education, low incidence ofspoken and written Lao and a high incidence of disease and malnutrition, may lack the capacity toparticipate in FORDEV without additional, focussed assistance. Upcoming ESIA disclosureconsultations and baseline socio-econonic studies to be conducted early in projectimplementation will be used to identify these ethnic groups on a village-by-village basis. It is afundamental principle of project design that project activities in these villages, including thepreparation of forest management and village development plans, will be appropriately adapted tosuit the needs of individual village and ethnic circumstances. This process of adaptation is alsorequired by the project's Ethnic Group Development Plan, prepared to meet the requirements ofthe World Bank's Operational Directive 4.20 on Indigenous Peoples (contained in Volume II,Section J of the Project Implementation Plan).

179. Even though participation is voluntary, time spent on FORDEV forestry work may impacton the time villagers have available for other important livelihood activities. This should beclosely monitored to ensure that difficulties do not arise. One potential problem area is the abilityof villagers, especially those with low food-security, to participate in initial managementactivities, such as planning and inventories, to be undertaken before forest revenues begin toflow. In the previous pilot projects, villagers were paid for work after the forest revenues weredistributed, which meant that they did not get paid during the initial year or two of activity, butlater were paid retroactively for the work done. They did receive "food-for-work" for theirparticipation in training activities. For very poor villagers, however, having to wait one or moreyears to be paid for work may mean that they will be unable to participate. Therefore, it will benecessary to find means whereby they can receive payment as they do the work, either in cash orperhaps in food-for-work. No explicit provisions appear to have been made to provide FMTUswith the funding to pay villagers, either in cash or in food, for participation in these initialactivities. It is strongly recommended that the project incorporate such funding.

180. With any development planning process, however participatory, there exists the possibilitythat collective decisions may disadvantage individuals, and that those individuals should have aright to seek compensation. These disadvantages usually involve an involuntary loss oflivelihood, personal assets or access to traditional resources. World Bank Operational Directive4. 30 on Involuntary Resettlement covers such problems and requires equitable and transparentprocedures for dealing with losses and arriving at fair compensation. The project's requirementsfor dealing with loss of livelihood, assets and access to resources are detailed Volume II, SectionJ of the project Implementation Plan.

181. Participatory processes, however well designed, seldom function perfectly, and there isalways the possibility of dispute and disagreement. Disputes may arise between villagers,between villages, and between villages and government. Certain issues, such as compliance withregulations and formal agreements, will be addressed through legal mechanisms. Article 15 ofPrime Ministerial Decree No. 59 makes provision for resolution of disputes, and specificmechanisms and procedures will be defined in implementation regulations currently beingprepared. In the case of disputes that fall on less-certain legal ground, administrative disputeresolution procedures will be the first avenue of access. The project design and social safeguardsdocuments outline the following existing dispute mechanisms:

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* disputes at the village level (between villagers) will be resolved by the village administration,in particular, the village chief;

* disputes between villagers and the village administration will be resolved by the districtadministration;

* disputes between villages will be resolved by the district administration; and* disputes between villages and the DAFO/FMTU will be resolved by the provincial

administration.

In each case, in the event of disagreement, there will be a right of appeal to the next highest level.In the event that disputes between villagers and the DAFO/FMTU cannot be resolved at theprovincial level, the parties have the right to mediation by the provincial court. The effectivenessof the appeal to the provincial court may be constrained by the lack of village resources andcapacity to prepare the village case. Consideration should be given to providing some training tovillage administrations in this regard.

182. Within the purview of the project itself, complaints will be handled as follows:

* Stage 1. Affected parties will present their grievances to provincial project staff and advisorswho must provide a response to the parties within 15 days. Reports on each complaint andthe measures taken will be sent to the Provincial Village Development Advisor, with regular(monthly or quarterly) summaries of complaints sent to the National Project ManagementOffice.

* Stage 2. Where complaints cannot be resolved at the provincial level, they will be raised tothe National Project Management Office (NPMO) in Vientiane. The NPMO shall offer aresolution to the complaintant within 15 days, and shall maintain a record of complaints andactions taken.

While it is desirable and necessary for FORDEV to have an internal dispute resolutionmechanism, over the longer-term, if the project is to have a sustainable influence, disputeresolution must be effectively institutionalized in GOL's PSFM programs.

5.5 Component 3. Sectoral Monitoring and Control


183. Sectoral Monitoring and Control will have four sub-components, to be closely coordinatedand integrated during implementation, each of which will have a number of discrete activities:

Sub-component 1: Strengthening Forest Compliance Monitoring and Control

184. This sub-component's principle focus is the development of the capacity to monitorcompliance with regulations, standards, management plans, and approved permits and contracts.The principle activities to be undertaken are:

* institutional organization (roles and responsibilities) for forest compliance monitoring at thenational, provincial, district and forest management unit levels;

* development of techniques and procedures for forest compliance monitoring;* development of information management systems relating to monitoring and reporting on

compliance;

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* training staff of DOF, PAFO and DAFO in compliance monitoring procedures andtechniques; and

* implementing forest compliance monitoring; first in project provinces, and then,incrementally, nation-wide.

Sub-component 2: Forest Law Enforcement Reporting

185. This sub-component's principle focus is to introduce the systematic recording, analysis andreporting of illegal or unauthorized forestry activities. The principle activities to be undertakenare:

* design of a forest law enforcement reporting system (LERS) and preparation of relatedguidelines, procedures and training manuals;

* development of a computer-assisted case tracking system (CTS);* training of national, provincial and district staff in the operation and maintenance of

LERS/CTS;* implementation of LERS/CTS, including procurement of equipment, establishment of

facilities and provision of technical support;* reporting and dissemination of information to relevant authorities and the project M&E

system.

Sub-component 3: Forest Cover Monitoring

186. This sub-component deals with the development of a national forest cover monitoringsystem (FCMS) to detect broad-scale, unauthorized changes in forest cover. The system will bebased on a combination of satellite image analysis, and aerial and ground surveillance by mobilefield inspection units established under STEA. Three such STEA units will be established,covering the northern, central and southern regions of the country. To prevent misunderstanding,it should be stressed that this sub-component does NOT involve forest cover mapping as amonitoring tool. The principle activities to be undertaken are:

* establishment of institutional arrangements, including the procurement and sharing of satelliteimagery, and roles, responsibilities and procedures for inter-agency cooperation, informationdissemination and formal reporting;

* development of the FCMS system with guidelines procedure and training manuals;* training of relevant national, provincial and district staff in FCMS;* implementation of FMCS, including procurement of equipment and imagery, establishment

of facilities and provision of technical support;* establishment of mobile field surveillance units in STEA with adequate support and

resources; and* reporting and disseminating information to relevant authorities and the project M&E system.

Sub-component 4: Forest Management Auditing

187. This component will provide support for the development of the capacity to undertakecomprehensive independent audits to assess forest management performance. Initially, audits arelikely to be undertaken on contract to government by international organizations or companies,but over time there should develop an increasing capacity for independent national organizationsto undertake this important function. As FMAs become certified under an international SFM

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system (i.e. Forest Stewardship Council), the auditing function will become an integral part of theon-going certification process. The principle activities to be undertaken are:

* strengthening the auditing and certification support service capacity of the Monitoring Unit inDOF;

* preparation of audit guidelines and procedures based on approved criteria and indicators ofsustainable forest management;

* training of forest management auditors;* financing and facilitating independent forest management audits of FORDEV operations; and* promoting forest certification and chain of custody operations through workshops, training,

increased awareness of the benefits of certification, and support for applications forcertification by FMTUs and Villages.

5.5.2 Project Alternatives

188. The sub-components and associated activities of this project component are all importantparts of rational forest management regimes implemented elsewhere in the world. The only realproject alternative is the "no-project (or do-nothing) option". As will be discussed further in thefollowing section, these high-cost monitoring operations are likely to achieve positive results onlyif there is a firm commitment on the part of the GOL to rigorously enforce regulatory compliancein the forest sector. If there is no such commitment, the "No-Project" option should beconsidered because this expensive project component is unlikely to be sustainable.


189. While this project component is entitled "Sectoral Monitoring and Control", its primaryfocus is on tools of compliance monitoring and it does not deal in any substantial way with thesectoral enforcement (or control) function. Efforts to detect and document suspected infractionsand illegal acts are important but they are unlikely to be sustainable (given the significant costsinvolved) or achieve any real benefits unless they are linked to disciplined enforcement action.Enforcement is a complex and highly-technical function involving a number of elements that arecritical to its effectiveness:

* a regulatory regime that provides clear legal definitions of non-compliance;* enabling legislation supporting search of property and seizure of assets in cases of suspected

illegal acts;* enforcement staff trained in techniques of legal investigation and rules of evidence;* a close and constructive relationship between enforcement investigators and legal

prosecutors;* a law-based set of flexible enforcement actions spanning a range consistent with the severity

of the offense (i.e. administrative sanctions, stop-work and remediation orders, monetarypenalties (by "ticketing"), and court prosecution resulting in fines and/or imprisonment); and

* a fair and transparent court system.

These elements clearly represent an "ideal" that can be achieved only incrementally, however,there must at least be an intent to introduce them if the enforcement function is to have a chanceat effectiveness, and comprehensive compliance monitoring is to be considered. Given thesilence of the Project Preparation Document on enforcement in general, and only vaguereferences to "enforcement authorities", it might be assumed that a functioning enforcementsystem already exists in Laos. If so, some discussion of the nature of that system would serve to

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give context to this project component. If not, then some focused assistance should be providedby the project to enhance enforcement capacity, or this project component should be modified tomake it feasible and applicable to the existing control regime. Around the world, the singlebiggest constraint to the effectiveness of compliance monitoring systems, and the moral anddedication of the staff who run them, is the political will to enforce the law and its regulations. Inthe absence of that political will, such systems quickly become unsustainable.


190. Despite the reservations expressed in the last section, compliance monitoring systemsshould lead to improved enforcement of regulatory compliance, better forest practices andenhanced revenue collection. Standardized reporting, recording and analysis will allow lawenforcement authorities to track the status of investigations of unauthorized or illegal activities,and thus to conduct better structured, more systematic, and more efficient enforcement actions.Enhanced recording systems will enable timely and meaningful compilation of reports oncompliance and enforcement for political decision-makers and the public. This, in turn, mayresult in greater transparency and awareness of compliance with forest law and, ultimately, instronger political and public support for forest law enforcement.

191. This component will also promote forest certification, with associated "chain-of-custody"and independent performance auditing requirements. Certification should lead to achievement ofinternationally-accepted standards of sustainable forest management and to substantially higherprices and market shares for logs and wood products. Since certification will be based onregulatory compliance and on independent auditing (paid out of management funds and higherproduct prices) it should result in a decreased regulatory and administrative burden togovernment.


192. None anticipated.



5.6 Component 4. Project Management


194. The principle focus of this project component, to be implemented by the National ProjectManagement Office (NPMO) in NAFES, is efficient project implementation, management,administration and coordination. In addition, the NPMO is responsible for ensuring coordinationand cooperation between FORDEV and other relevant project, donors and international NGOs.While most of the activities in this component will relate to administrative functions, projectmanagement will have four responsibilities that are directly related to environmental and socialimpact management:

* carrying out a,gender analysis, preparing gender guidelines for FORDEV, and incorporatinggender provisions, particularly as they relate to supporting greater participation by women inall aspects of FORDEV and PSFM;

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* ensuring implementation of the Ethnic Group Development Plan, and coordinating the socio-economic baseline studies proposed to be carried out early in project implementation;

* ensuring implementation of the framework for loss of assets, livelihoods and access toresources, and providing oversight and monitoring of the complaints and conflict resolutionmechanism; and

* developing and implementing a comprehensive project monitoring and evaluation (M&E)program.

The first three activities have been dealt with elsewhere in this document. Thus the followingdiscussion will focus on the project monitoring and evaluation (M&E) program.According to the project preparation document, a detailed M&E system, with a comprehensivelist of measurable key indicators, will be designed early in project implementation to monitorFORDEV progress against project goals.

196. The fundamental goals of FORDEV are to:

* improve the quality and extent of natural forests through enhanced management andprotection;

* improve the prosperity, welfare and food security of forest-dependent communities; and* improve environmental quality in project areas.

Within this broad intent of FORDEV, three general types of monitoring are relevant to theproposed M&E system:

Implementation monitoring (a.k.a. program monitoring) determines the progress in programimplementation against established "benchmarks" and timelines (i.e. number of activitiesundertaken, number of plans completed, number of clients served, number of people trained, costof delivery, etc). Implementation monitoring measures program "OUTPUTS".

Compliance monitoring measures performance against environmental standards, regulations,permit conditions and plan commitments. Monitoring results may be used to impose aconsequence on the parties, either as a reward or recognition for good performance or a sanctionfor poor performance.

Condition monitoring (a.k.a. trend/change or effectiveness monitoring) measures environmentalor social condition in relation to long-term management goals/objectives and when measured in"time-series" determines trends in condition. This type of monitoring usually involves theselection of relevant "indicators", the establishment of a baseline, and periodic measurements,assessed against the baseline and a desired future condition, to determine if management practicesare effective in achieving project goals and objectives. Effectiveness monitoring measuresprogram "OUTCOMES".

197. These monitoring activities are somewhat fragmented in project design. Compliancemonitoring is the most fully developed activity, and forms the basis of Project Component 3(Sectoral Monitoring and Control). Implementation monitoring is probably the most easilydeveloped and will be used by the NPMO and the donors in project supervision and evaluationover the life of FORDEV, and, hopefully, by MAF/DOF for program evaluation and developmentin the future. Condition monitoring is currently the least defined in the project, and yet it is theonly form of monitoring that can demonstrate that programs as implemented and complied-withhave been effective in achieving goals and objectives. Condition monitoring is often neglected in

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sectoral natural resource programs because OUTCOMES are often long-term in nature, extendingbeyond the program's life span. This cannot be used as an excuse for not including conditionmonitoring as an important project activity, since condition monitoring provides the essentialinformation necessary to refine and improve management practice over time. FORDEV mustdevelop condition monitoring programs that are broad enough to include all importantenvironmental and social issues but simple enough that they can be implemented and built-onincrementally. WCS, WWF and IUCN have developed many simple rapid ecological evaluationtechniques, and a number of social agencies and NGOs have developed rapid social appraisalmethods; all of which can be adapted to participatory condition monitoring programs.198. Table 4 provides a set of example indicators, by monitoring type for each projectcomponent. Many of these are reflected in the FORDEV Logical Framework (Annex la of theProject Preparation Report).

5.6.2 Project Alternatives

199. Housing the M&E system in the National Program Management Office may offeradvantages in terms of coordination, but it has the disadvantage of giving the appearance thatM&E is something required by the project and thus has little relevance to normal governmentoperations. M&E is arguably one of the most multi-disciplinary activities in FORDEV and animportant management tool that must be incorporated and institutionalized into all the agencies ofMAF/DOF/PAFO/DAFO. It will involve, particularly in condition monitoring, highly technicalskills and knowledge that lie outside the purview of NPMO and NAFES. Furthermore, on thesocial side, many other agencies (i.e. National Statistics Centre) are developing monitoringindicators and programs focusing on prosperity, poverty and community welfare. It is stronglyrecommended, for reasons of technical capacity and interagency consistency, that monitoringprograms be developed by inter-disciplinary working groups drawing on appropriate staff fromacross MAFF/DOF and other relevant Ministries of Government.


200. For any monitoring program to be sustainable, it must adhere to the following set ofprinciples:

* monitoring must have a clear focus or context (i.e. priority issues, predicted impacts,management objectives, management plans, environmental and social standards, etc) andMUST incorporate "thresholds" that, if exceeded, dictate a management or an enforcementresponse;

* monitoring must be formalized and statistically replicable, with standards for sampling andreporting, defined responsibilities and firm schedules;

* monitoring should focus on trends and change rather than on comprehensive description,linking the present condition to the past and a desired future state;

* monitoring programs must be both feasible and affordable; and* wherever possible, monitoring indicators should provide a linkage between the environment

and socio-economic community development.


201. A comprehensive M&E system will generate the reliable information needed to evaluateand modify management practices for technical, financial, social and environmental reasons.Program monitoring provides the basic information that every institution needs for program

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planning, development, budgeting, and accounting. Compliance monitoring should lead toimproved enforcement of regulatory compliance, better forest practices and enhanced revenuecollection. Participatory condition monitoring of forest ecosystem health and village prosperityand welfare will provide:

* a basis for regular program evaluation and modification;* reinforced awareness of the benefits of sustainable forest management;* a vehicle for tapping the substantial traditional knowledge of local communities in

sustainable management and forest resource conservation; and* the ultimate assessment of program effectiveness.

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Table 4. Possible Monitoring Indicators for FORDEV

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LIST OF INDIVIDUALS AND ORGANIZATIONS PARTICITATING INPREPARATION OF THIS ENVIRONMENTAL AND SOCIAL ASSESSMENT

Mr. John Dick B.Sc., M.Sc (Forestry), Registered Professional Biologist. Specialist inEnvironmental and Social Impact Assessment, Victoria, British Columbia, Canada.

Dr. Paula Williams. Specialist in Social Forestry and Natural Resource Sociology, Annapolis,Maryland, USA.

Mr. Vannalack Sengsavanh. Forestry Consultant, Vientiane, Lao PDR.

Mr. Bouaphet Philaket. Forestry Consultant, Vientiane, Lao PDR.

Mr. Viloune Soydara, Rural Development Consultant, Vientiane, Lao PDR.

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Clendon, K. (2001). The Role of Forest Food Resources In Village Livelihood Systems. AStudy of Three Villages in Salavan province, Lao PDR. NAFRI/IUCN NTFP Project. Vientiane,August 2001.

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Government of Laos. (2001). Participatory Poverty Assessment, Lao PDR. ADB/State PlanningCommittee/National Statistics Centre. Vientiane. June 2001.

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Williams, Paula J. (1999). Forest Management and Conservation Project in Lao PDR: Currentand Future Prospects. Consultancy Report (17 April - 23 May). Report to the Finnish Ministryfor Foreign Affairs, Helsinki.

. (2000). Village Forestry. Annex B, to World Bank FOMACOPImplementation Completion Report. Report prepared as a consultant to the FAO InvestmentCentre, Rome, on behalf of the World Bank.

Williams, Paula J. and Heinonen, Petri. (1998). Developing Participatory Systems for ForestManagement and Conservation in Lao PDR: Progress and Future Directions. Mid-term Reviewof FOMACOP. Report submitted to the Finnish Ministry for Foreign Affairs. Metsahallitus,Vantaa, Finland.

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In addition to the references listed above, the authors wish to acknowledge information fromvarious documents and files for the following projects in Lao PDR:

* Agriculture Development Project, World Bank.* District Upland Development and Conservation Project, World Bank.* Forest Management and Conservation Project, World Bank/Government of Finland/GEF.* Joint Forest Management Pilot, Lao-Swedish International Development Programme.* Nam Ngum Watershed Management and Conservation Project (NAWACOP), GTZ.* Non-Timber Forest Products Project, World Conservation Union.* Poverty Reduction Fund Project, World Bank.* Rural Development Project, UNDP.

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ANNEXS

Annex 1. INITIAL ENVIRONMENTAL AND SOCIAL IMPACT PREDICTIONMATRIX

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Table 4. Possible Monitoring Indicators for FORDEV

MONITORING National Sectoral Participatory Village Development Monitoring andTYPE | Support Sustainable Forest Control

_ _ _ _ _ _ _ _ _ _ _ _ _ Management

IMPLEMENTATION Implementing No. of village forest No. of village Forest cover monitoringregulations on PMO 59 agreements approved. development plans system established anddeveloped and approved. approved. functioning.

No. of village forestIncreased understanding management plans Number of village Forest law enforcementof policy and regulations completed. development projects reporting systemby stakeholders. implemented. established and

No. of villagers trained functioningNational production in sustainable forestforest areas delineated management. Effective forestand established in xxx? compliance monitoringprovinces. and control system in

place at national,Forest management provincial and districtpractices, guidelines and levels.procedures developedand adopted as a Laos Standards, methods andCode of Forest data management systemManagement Practice. established for forest and

ecological conditionForest certification pilot monitoringprogram established.

Standards, methods andNo. of NAFES/PAFES, data management systemDOF, PAFO, DAFO established for socialstaff trained in condition monitoring ofSustainable Forest village forest

I Management. communities.COMPLIANCE Not Applicable Compliance with Compliance with Incidents of illegal

approved forest approved village activities (illegal timber

management plans. development plans. cutting and transport,illegal wildlife hunting

Compliance with land Compliance with and trade, forestzoning and resource use financial accounting encroachment etc).restrictions. standards for village

development funds Number of charges laid.

Compliance with Enforcement actionsenvironmental and social taken.guidelines for villagedevelopment projects. No. of wood industry

licenses issued andcompliance withconditions.

Changes in woodindustry processingcapacity over time.

SOCIAL Not applicable. Participation rates. Participation rates. Changes in theCONDITION livelihood and welfare of

Participant satisfaction. Participant satisfaction. village forestrycommunities

Frequency of complaints Frequency of complaints summarized by districtand appeals. and appeals. and province.

Flow of forest revenues Simple livelihoodto village development monitoring (ricefunds. sufficiency and livestock

numbers).

Changes in householdwelfare determunedthrough case studies.

ENVIRONMENTAL Not applicable. Land use/forest cover Changes in the quality Changes in forest coverCONDITION change and quantity of over time summarized at

agricultural land. district, province andForest type change. national levels.

Changes in theStand characteristics as distribution and Changes in forestdetermined through abundance of subsistence ecosystem healthforest inventories. and economic NTFPs (structure and

and wildlife resources. composition) over timeForest regeneration as on harvesting operations.determined by pre- andpost-harvestingsilvicultural surveys.

Forest ecosystem health(species composition,stand structure andspatial structure) asdetermined by periodicbiodiversity surveys

Timber harvested vscalculated sustainableyield.

Monitoring of intensityand distribution ofbotanical NTFP andwildlife harvest.

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