Document of

The World Bank

FOR OFFICIAL USE ONLY

;,MICROFICHE COPYReport No. 10011-IN

Report No. l0011-IN Type: (SAR)CLARK, A. / X80296 / E10007/ AS4AG

STAFF APPRAISAL REPORT

INDIA

WEST BENGAL FORESTRY PROJECT

FEBRUARY 25, 1992

Agriculture Operations DivisionCountry Department IISouth Asia Regional Office

This document has a restricted distibution and may be used by recipients only in the perfonnance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CflRUNCX RO1JTVAtENTS

(as of July 1, 1991)

Currency Unit - Rupees (Rs.)US$ 1 - Rs. 26.0

WEIGHTS AWn MEASR"ES

The metric system is used throughout the report

AA~RRVJATIONS ANM ACRONYMS

FPC - Forest Protection CommitteeGOI - Government of IndiaGOWB - Government of West BengalLCB - Local Competitive BiddingNGO - Non Government OrganizationNWFP - Non-Wood Forest Products

FISCAL YEaa

GOI, GOWB - April 1 to March 31

FOR OFFICIAL USE ONLY

WEST BENGAL FORESTRY PROJECT

Table of Contents

CREDIT AND PBOJECT SUM ,RY

1. THE FORESTRX SECTOR. . 1

Forestry in the in the National Economy. 1Forestry Development in West Bengal State. 2Lessons from Past Bank Lending. 5

II. THE PROECT ........................................... 6Rationale for Bank Involvement and Origin ................... 6Project Area .......................................... 6Objectives and Strategy ................................. 6Project Components ..................................... 7Project Costs and Financing .............................. 9Procurement .......................................... 10

Disbursement ......................................... 12Accounts and Audit .................................... 13

III. PROJECT TMPLEMENTATIO ................................... 13Organization and Management ............................. 13Pricing and Marketing .................................. 16Project Benefits and Justification ....................... 17Project Risks ........................................ 19

IV. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION ............... 19

ANNEXES

Annex 1 Project Cost TablesAnnex 2 Financial and Economic AnalysisAnnex 3 Schedule of Estimated Disbursements

Annex 4 Supervision PlanAnnex 5 Contents of Implementation VolumeAnnex 6 Documents Available in Project File

MAPS IBRD Nos. 23248-9

The report is based on the findings of a Bank Appraisal Mission which visitedIndia in June/July 1991. The mission consisted of Messrs./Mmes. A. Clark(Task Manager), S. Ahmed, P. Guhathakurta, T. Estoque, N. Raman, V. Kumar,(Bank), and K. Gould (consultant). Additional contributions were made byMessrs. J.G. Campbell and M.S.S. Varadan. The report is endorsed by Mr. H.Vergin (Director) and Mr. J. Wijnand (Division Chief). Assistance was alsoprovided by peer reviewers Messrs. 0. Baykal (Forestry), W. Beattie(Forestry), and R. Slade (Economics).

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

INDIA

WEST BENGAL FORESTRY PROJECT

STAF ARPPA L REPORT

Credit and Project Summary

Borrower: India, Acting by its President

-areUting Agencies: The Forest Department (FD) and Animal Resources

Development Department (ARDD) of the Government ofWest Bengal (GOWB).

Amnount: IDA Credit of SDR 24.4 million (US$34.0 millionequivalent).

la=s: Standard, with 35 years maturity.

On-lenaing Terma: From GOI to GOWB as part of central assistance to thestate for development projects on terms and conditionsapplicable at the time. GOI will assume the foreignexchange risk.

Ben>eficiaries: About 400,000 households of fringe forest dwellers andsmall farmers.

roQject Description: This project would finance a 5-year program tosupport: (a) forestry works on about 290,000 ha. Thiswould consist of regenerating or afforesting degradedforest areas over 169,000 ha with multi-tier coverageunder joint management arrangements with localpopulations; plantation forestry on 7,000 ha; stripplantations on 5,000 ha; and expanding farm forestcoverage by about 109,000 ha. Provisions are also madefor some ongoing forestry development works; b)supporting works including survey and demarcation offorest land, roads, small earthern dams, ponds, andwells; c) special action programs geared to: improve

forestry research and plant propagation, train allforestry staff, support the joint management processthrough training and funding to NGOs, improvewildlife and protected areas management, and afforest

or rehabilitate about 28,000 ha of mangrove areas; d)buildings, vehicles, equipment, incremental staff andoperating costs for the FD; and e) fodder developmentin forest and non-forest areas with the FD and theARDD.

Risk,g: The main project risks would be the long termsustainability of the joint management model forsouthwest Bengal, and failure to attract localparticipation under the models for north Bengal and

the Sundarbans.

- - - - US$ Million - - -

Forestry PlantationRehab. Degraded Forests 10.7 0.5 11.2Production Forestry 1.7 0.1 1.8Farm Forestry & Strips 6.1 0.3 6.4

Supporting Works 3.6 0.2 3.8

Special Action ProgramsResearch & Plant Prop. 1.1 0.2 1.3Training 0.6 0.2 0.8Joint Management 0.9 0.1 1.0Wildlife & Frot. Areas 0.9 0.1 1.0Mangroves 1.5 0.1 1.6

FD Service Support 2.4 0.1 2.5

Fodder Development 1.1 0.1 .2~

Base Cost 30.6 2.0 32.6

Physical Contingencies 2.0 0.1 2.1Price Contingencies 4.0 0.3 4.3

Total Project Costl 36.6 2.4 39.0

Firnancing Plan: - - US$ Million - -Local goreiom To-11

Government 5.0 - 5.0IDA 31.6 2.4 34.0TOTAL 36.6 2.4 39.0

Estimatgd Di.sbursenentR:(US$ million)

EY EM. FY94 V m9 A ES96 FX97 Em

Annual 2.0 4.4 5.5 6.8 6.4 6.5 2.4Cumulative 2.0 6.4 11.9 18.7 25.1 31.6 34.0

onomirC RatU of RpetUn: 20%

MaH: 1BRD Nos. '324823249

1 Including taxes and duties equivalent to US$ 1.2 million.

I. THE FORESTRY SECTOR

ForeAtry in the National Economy

1.1 Forestry is very important for village economies and pressure on forestlands is high. India's forest resources cover 64 million ha or about 19% ofthe country's land area. Due to their considerable geographical extension andthe lar¢ number of people depending on them, forest resources play animportant role in the conservation of environmental quality, the welfare ofthe rural poor and the productivity of agricultural lands. Forests are themain source of household energy in India and by far the main depositories ofgenetic diversity. Forest resources protect water and soils and provide anumber of industrial materials. Although the contribution of the forestrysector to GNP often has been estimated at less than 2 percent, this figuredoes not take into account its numerous non-market and external benefits orthe vast amounts of fuelwood and timber that are harvested illegally and aretherefore unrecorded. The country's forest resources consist of tropicalmoist and dry deciduous forests. Only about one half of the forests have acrown density of over 40%. The average growing stock is about 65 m3/ha and theannual production of wood 0.5 m3/ha, compared to world averages of 110 m3/haand 2.1 m3/ha, respectively.

1.2 While India's forests are relatively rich in flora and fauna, theseresources are rapidly declining due to pressure from local populations, cattleand theft. Deforestation is believed to be in excess of one million ha/year.Wood demand was 264 million m3 in 1988, of which 90% was for fuelwood (46% ofIndia's household energy). Between 1980-88 forest product exports decreasedfrom US$ 26 to 16 million, while imports increased from US$ 204 to 300million. Forests are also a main source of fodder and non-wood forestproducts (NWFP), such as oils, medicinal plants, silk, resins, dyes, fibersand leaves. About 75% of India's population live in rural areas, and manyparticularly women are employed in forestry or collection of NWFP.Deforestation and degradation is a subject of growing concern, with far-reaching environmental, social and economic consequences. Less than 1% oftotal public sector Plan outlay during 1951-90 was for forestry development.

1.3 The Government is addressing deforestation through legal means andafforestation. The Forest Conservation Act of 1980 controls diversion offorest land for non-forestry purposes. During the 1980s country-widewasteland afforestation and social forestry programs were launched coveringabout 1.5 million ha/year (40-50% farm forestry). The National Forest Policywas revised in 1988 to improve environmental stability and maintenance ofecological balance. The Policy advocates increasing the forest or tree cover(to 33% of the land area) and allows use of forest areas to meet requirementsof rural and tribal populations for fuelwood, fodder, and NWFP, whileindustries as far as possible are to arrange for raw materials from farmforestry. In an attempt to force forest departments to pay attention tosocial concerns, the policy focusses heavily on such issues. The unfortunateresult has been that commercial and economic considerations have not beenrealistically integrated with social goals. The draft Eighth Five Year Plan(1992-97) emphasizes in-estments for rehabilitation of degraded forests (10million ha), including farm forestry and the promotion of NWFP, fuelwood andfodder. It also supports forest and wildlife management, research, extensionand training.

1.4 GOI and state governments are facing some major issues in the sector.The issues vary by state depending on their particular agro-ecological andsocio-economic conditions. The West Bengal government has recognized that

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major changes in the forest! sector administration are needed to meet thesechallenges. Some general forestry issues in India are mentioned in thisparagraph while the state specific situation is discussed below. Existingforestry departments can no longer protect public forests in the traditionalauthoritarian way. Instead they must ercourage local participation in forestmanagement (joint management). Forest departments also need to improve theirefficiency, develop more specialized manpower streams, and allow the privatesector, NGOs and user groups to move soon in forest development. Bettertechnology is needed for soil and moisture conservation, seed production,nursery development and better extension to raise India's low level of growingstock and fodder production. Some legal restrictions and rights governingaccess to forest land and handling of produce need to be revised to promoteforestry development. Benefit sharing arrangements need to be formulated forjoint management with local populations.

Eorestry Developnment in West Benffal State

1.5 Eoest Resources. Many types of forests are found in West Bengal andmost suffer from degradation. The recorded forest area is 11,879 km2 (13.4% ofthe total land area), which translates to a per capita forest area of only0.02 ha compared with a national average of 0.12 ha. All forest lands areowned by GOWB. The state can be divided in five agro-ecological zones: theDarjeeling Himalayas; the sub-himalayan West Bengal; the central alluvialtract; the south-west lateritic tract; and the coastal saline zone. All areasexcept the central alluvial tract have important forest resources. NorthBengal with about 25% of state forest lands, contains the most productiveforests. The southwest has 38% of state forest lands, mostly comprisingrelatively small and widely scattered blocks of degraded sal interspersed withfarmland. The mangrove forests of the coastal saline zone which account for36% of state forest lands - although around 40% is made up of numerous riversand creeks that cut into the area. Only 70% of the designated forest areascontain actual forest cover and over one-third are open forests with a crowndensity of less than 40%. Nearly two-thirds of the forest area in thesouthwest consists of rooted wastes and scrub, and severe losses have occurredin the last two decades in the good forests of north Bengal and in themangrove forests.

1.6 Wildlife and Protected Areas. Wildlife conservation requires thereversal of forest degradation and further study to formulate action plans.About 30% of West Bengal forests have been set aside as national parks,wildlife sanctuaries or protected areas, and most are under the direct controlof the Chief Wildlife Warden. Species conservation mostly depends onsuccessful habitat conservation which in turn requires remedies to severalproblems that threaten the survival of all forest areas. Many of the wildlifeconcerns need further study before effective action programs can be defined.People-elephant confrontations (82 deaths last year) and tiger attacks in theSundarbans area, have become a major preoccupation of forestry staff.

1.7 Role of Forgst Sector in the Pconomy. Forestry plays an important rolein village economies but a more limited one in the state. Since 1986/87 theforest sector has contributed about 0.4% of state GDP annually. Earlier, whenlarger tracts of forests were harvested, forestry made up about 0.75% of GDP.Political unrest in north Bengal and the new GOI Forest Policy, has greatlyreduced the harvesting of natural forests. In 1989/90 about 6.5 millionmandays of employment in planting, maintenance and harvesting were generatedfrom FD schemes. Processing timber, collection, marketing and processing ofNWFP and private forestry creates many additional jobs. The larger wood based

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industries in West Bengal mainly saw timber and manufacture veneer andplywood, prefabricated door and window frames, and paper and pulp.

1.8 4od Pama3nd anid Supply. Supply of forest produce is much less thandemand. In 1984, the FD commissioned a wood balance study which providedestimates of consumption and supply of wood in the state. It revealed thattotal supply amounted to little more than 20% of consumption, the absolutedeficit being about 15 million m3 annually. Fuelwood accounted for nearly 90%of total consumption. It is likely that the supply is underestimated sincethe deficit exceeds the amount that could be explained by unauthorizedextraction. However, survey investigation of the sources from which fuelwoodis obtained suggest that 49% is collected from non-forest areas, 13% fromforest areas and 38% is purchased. A large part of the industrial timbercomes from neighboring Meghalaya and Nagaland, and imports.

1.9 Institutions. The public forest estate is managed by a forestadministration, consisting of two main units: the Forest Department (FD) andthe West Bengal Forest Development Corporation (FDC). The FD is responsiblefor the protection, conservation, management and development of the forestestate, including the national parks and wildlife sanctuaries in the state,and for social forestry activities on non-forest lands. The FD has four mainwings: territorial, soil conservation, social forestry and wildlife. The FDis also concerned with extraction and sale of timber and other forest produce.While the number of staff in the FD is generally adequate, it lacks a welldeveloped manpower policy, and there is little specialization. Forestryresearch which also falls under the FD is very weak and is not coordinatedwith the Indian Council of Forestry Research and Education, the agriculturaluniversities and other research programs. In the coastal saline zone forestryactivities are also carried out by the Sundarbans Development Board and theSundarbans Biosphere Reserve. The FDC was established in 1974 to convertmixed natural forest of low economic value in hitherto inaccessible hilltracts of north Bengal into valuable plantations. With the new forest policythe FDC's timber extraction/planting has declined from 900 to 200 ha annually.The FDC operates some woodbased industrial undertakings.

1.10 Forestry activities are also undertaken by other departments and localinstitutions. The Rural Development Department has been providing a largevolume of funds for forestry development on non-forest lands, mainly stripplantations and common lands through its rural employment programs. Funds forforestry related activities are also provided through the AgricultureDepartment for the GOI's National Watershed Development Program. There are anumber of NGOs involved in tree planting and associated activities in thestate. While the majority of the NGOs are very small, some of them have aclear edge in motivation and extension activities, particularly regardingformation and planning at the local level (microplanning) for village forestprotection committees which are discussed in para. 1.19.

1.11 Tachnology. Significant improvements are needed in forestry researchand nursery management. Lack of attention to productivity in West Bengalforests is evident throughout the growth cycle. The most fundamentaldeficiencies are in research support and nursery management with the resultthat sub-standard planting material is widely used. Restrictions on cost perplant have encouraged nurseries to produce mainly species which are cheap toraise and retain stock that should have been culled. Genetic recession iswidely observable. These problems have proved difficult to correct due to thelow status and priority attached to research. Another importart factor is therotat.ional system of staff transfers and promotions.

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1.12 Past Dev tlomnt Strategie2. Traditional foreat stratecy includes afocus on plantations to maximize timber production and enforf: dd forestprotection coupled with supply of forest products at subsidized rates throughpublic market depots. These have approachea failed to control unauthorizedexploitation and relationships between local people and forestry personnelbecame inoreasingly strained. The majority of the fringe population are unableto pay for fuelwood and continued to collect for their own use and sale. Otherpoor rural dwellers obtain their fuel from twigs, leaves, agriculturalresidues and cow dung off private lands and dwindling commons.

1.13 Social Foregt=y. To increase the supply of fuelwood GOWB promotedsocial forestry on non-forest lands. The IDA-supported West Bengal SocialForestry Credit (Cr.1178-IN), was appro-jed in 1981 for US$29 millionequivalent and closed in March 1991. The project supported village woodlotsand strip plantations, and established over 150,000 ha of farm forastry(notional area based on seedling distribution). By cap.talising on the stateprogram for distribution of wastelands to landless households, the FDdeveloped an innovative group farm forestry approach which involved poorhouseholds in tree planting to a far greater extent than was achieved in otherstates. Social forestry fostere& the development of a more positiverelationship between forestry personnel and rural households. The projectalso supported efforts to regenerate sal coppice forests (para. 1.13). Somelessons are: (a) that ,nore attention needs to be given to research and plantpropagation, training, extension, operational direction, monitoring, and localparticipation in planning and management of plantations; (b) benefit sharingarrangements should be worked out in advance; (c) more species should beincluded in plantations in the southwest; and (d) that attempts to involvepeople in protection of plantations through the local government did not work.

1.14 VillagAe ore_t Prot-etion Comm ittees (PCl. An innovative andexperimental approach to the problem of people and cattle pressure in naturalforests was started in the Arabari range in Midnapore District in 1972. Thisinvolved local villages in protecting public sal coppice forests through theformation of FPCs in return for free usufruct of all NWFP, first preferencefor employment, and a promise of 25% share in the net cash benefits from saleof short rotation sal poles. Initial success led to a gradual spread toneighboring areas and increased support from the FD and NGOs. So far 1,726FPCs have been formed covering 237,000 ha in the southwest. State governmentorders have provided administrative legitimacy to the benefit sharingarrangements and specified norms for committee membership and registration.With support from the Ford Foundation (still on-going), two regional NGOs (theIndian Institute of Biosocial Research and Development and the Rama KrishnaMission) have worked with the FD to conduct studies and develop staff trainingand micro-planning procedures.

1.15 The FPC model has proved effective in further improving the relationshipbetween forestry staff and local people and in increasing sal forestregeneration and economic returns both to FPC participants and GOWB. The keyfactors that have motivated villagers are regular incomes and explicit benefitsharing arrangements with identified user-groups. The supply of NWFP increasesin protected forests which is particularly important, both as an income sourceand as a way to bridge the gap until longer gestation products mature. Whilethe degree of protection varies by FPC, the amount of sal poles now coming tofinal harvest has increased substantially. Even after deducting the FPCs 25%share, the financial returns to Government have increased. The increasedcanopy closure also provides improved soil protection, although soil erosionand poor moisture conservation remain as major problems.

1.16 Euture Rtratggy. Forest strategy in Viest Bengal should focus onprotection through joint management. West Bengal forest and waste lands donot have the capacity to match demand for forest products. This problemextends beyond the forest sector and the immediate aim should be to replacepurchased fuelwood. Unless protection of forest areas is firmly in place,degradation is likely to continue unabated despite improvements in alternativeenergy supply. Since unauthorized extraction presently provides an importantincome source for forest fringe dwellers they need to be rmiade target ofemployment and income generation schemes if the protection strategy is to beeffective. There is no simple solution to the problem of overgrazing.However, progress can be made. Improved cattle are mostly stall-fed andexperience shows that one crossbred replaces three unimproved animals.Together with the FPC movement towards joint management of forest lands thiswould provide a positive environment for sustainable improvements in forageproductivity and for managing the movement of cattle in forest areas.

LesaQns from Past Bank Lending

1.17 Forestry has accounted for US$ 350 million of the total US$ 9.9 billionof Bank lending for agriculture development in India. In all eight projectshave been supported including one project for social forestry in West Bengal(para. 1.13). The Bank has taken stock of experience gained through PCRs andspecial reviews including a recent OED review of Bank experience in forestrydevelopment. Problems of a general nature include: delays in projectmobilization; institutional weaknesses; and inadequate local funding. Themajor lesson from forestry projects in India is that it is time to move to amore comprehensive approach to the sector, based on in-depth country and sitespecific sector analysis. Other important lessons include a need for:improved seed and extension services, more emphasis on the planning,erviron.ental and management dimensions of plantations and existing naturalforests; solutions to deal with the problems of common property rights througha better local participatory process;-and inter-agency coordination in theexecution of the various project components. Experience under the West BengalSocial Forestry Project was discussed in para. 1.13. In addition, acomprehensive analysis of the forestry sector in West Bengal was undertaken aspart of project preparation. The above lessons have been taken into accountin the design of the proposed project which covers the entire forestry sector(management of public forests, farm forestry, forestry research and plantingmaterials, training, wildlife and protected areas, fodder, institutionalarrangements, policies and regulations, etc.).

II. THE PROJECT

Bationale for Dank Invmolvzement,-and Origin

2.1 The strategy for Bank assistance to the agricultural sector in India isto support policies and investments that promote economic growth and socialdevelopment in the context of macroeconomic restructuring. The emphasis is oneffioient resource allocation, increased efficiency in the public sector andappropriate targeting and delivery of support systems to the poor. Theproposed project fits well within this framework. It also fits well with theobjectives of the Bank's new forest policy, and the Asia Region's strategy forforestry lending which emphasizes an ongoing policy dialogue with borrowersconcerning key forestry issues, coupled with investment in afforestation. Asforestry development must be coordinated at the local leval asid needs vary byregion, a state-by-state approach is advocated for India. This parallelscurrent strategy for statewide agricultural and irrigation developmentprojects. The project follows India's forest policy (para. 1.3) and addressesforestry issues in West Bengal including: (a) protection and afforestation ofdegraded lands; (b) clear benefit shazing arrangements for FPCs all over thestate; (c) improved forest technologies and extension; (d) streamlining andstrengthening the forest administration; and (e) reirised policies on seedlingpricing and transit passes. The proposed project was identified in June 1990,and its objectives and design are based on an April 1991 Final ProjectPreparation Report, and an appraisal mission in June!July 1991.

Project Area

2.2 The project would cover all of West Bengal State, which has an area of88,752 km2 and a population of about 68 million. Nearly half of the people inWest Bengal live below the poverty line compared to an all-India average ofabout 40%. Scheduled castes and tribes account for al;nost 30% of the totalpopulation. Agriculture accounts for 35% of state income and 60% ofemployment. About 80% of farms are smaller than 2 ha. The state's forestresources were discussed in para.1.4.

ObjeCtives and Stratgy

2.3 The main objective of the project is to support GOWB's forestrydevelopment program. The key in West Bengal, as in most of India, is toprevent continuing degradation of forest lands since all other forestry policyobjectives ultimately depend on this. The project aims to install asustainable protection system in all regions of the state, to enhance forestproductivity and conserve biodiversity.

2.4 The main strategy is to protect forest areas by working with localcommunities based on the FPC experience in the southwest which would beadapted (paras. 1.14-15). The successful group approach would be followed forfarm forestry where contiguous areas are involved (para. 1.13). The seriousovergrazing problem would begin to be addressed in a fodder developmentprogram. Project design emphasizes improving the organizational efficiency ofthe FD and improving research and technologies to improve the quality ofplanting material and silvicultural management. The vulnerable boundaries ofthe Wildlife Protected Areas would also be protected through joint managementarrangements with local communities.

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2.5 The main oomponents of the project are: forest regeneration andafforestation; supporting works (roads, watershed works): special actionprograms in areas of particular concern (research, training, joint management,wildlifea, and .';ngroves); service support for the FD; and fodder development.

2.6 genfieratin and afforestation. This component (US$ 19.4 million; 59.5%of base costs) would support forest regeneration and plantation on 208,000 haof new areas plus an additional 82,000 ha of lands which the FD has started todevelop. Project costs for forestry field works are based on a total of 16forestry models (Implementation Volume Annex 10), that reflect the wide rangeof agro-ecological conditions in the state and include soil and moistureconservation measures. The models fall into three broad categories:

a) Bohabilitation of Degraded Forest Lands - 108,000 ha new and 61,000 haongoing areas constitutes 58% of the land covered under the project. Allareas would involve develDpment under joint management arrangements withFPCs. Nearly two-thirds of the target area concerns regeneration throughprotention of degraded sal areas with viable roots in southwest Bengalbtc also includes 1,500 ha of similar topology in north Bengal.Enrichment plantings totalling 2,000 ha would be undertaken in severelyde raded pockets within these areas. The balance of the area coverstreatment of larger severely degraded forest areas (<20% canopydensity), and includes 27,000 ha in southwest and north Bengal. Theseareas would be covered under multi-tier reforestation (a mixture oftrees, shrubs and grasses), fuelwood plantations, and a small provisionfor reforestation with tasar (wild silk-worm) host plants which would bespecifically targeted at women FPC members. The rehabilitation of about28,000 ha of mangrove forests is discussed in para. 2.9 (e).

b) Production Forestry on Forest Lands - 5,000 ha new and 2,J00 ha ongoingworks are planned covering 3% of the total area. These treatments aremainly oonfined to replanting of mature government plantations that willbe felled during the project period, but include some severely degradedareas. Plantations would produxce timber. Sal, teak, riverain timber,miscellaneous and hill timber plantations would incorporate mixtures ofassociate species.

c) Forestry-Development on Non-Forest Lands - 95,000 ha new and 19,000 haongoing works are planned covering 39% of the total area. For the mostpart this would be farm forestry directed towards small farmers andwould include promotion of boundary plantings and agro-forestry systemson private lands. The balance of the area would go to strip plantationson public lands. Other sources of funds are available for this type ofdevelopment, thus the coverage (5,000 ha) under the project is modest.

2.7 Supporting Works (roads. watersheds. etc.). This component (US$ 3.8million; 11.5% of base costs) would support necessary works not accommodatedin the plantation models. Forest lands in southwest Bengal are still not fullysurveyed and mapped, and approximately 1,000 km of boundaries require demar-cation and live fencing. A similar length in north Bengal also requiresinstallation of concrete demarcation pillars. Internal survey and demarcationof FPC areas will be needed over a length of approximately 5,000 km.Provision is included for maintenance and improvement of 150 km of forestroads Jn the southwest, 150 km in the north Bengal plains and 15 km in thehill areas.

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2.8 Many watershed sites in the degraded forest area will require small damsfor purposes of soil conservation and groundwater recharge. In addition, thesefacilities will serve as social amenLties and can generate income through fishraising, etc. Better access to water can also be an important incentive formobilizing community effort. Hence drinking water supplies, pond excavationand related works are also provided for areas that do not require soilconservation works.

2.9 Spcial Action Programs. This component (USS 5.7 million: 17.5% of basecosts) includes several key activities that have been identified forstrengthening under the project: research and plant propagation, training,joint management, wildlife and protected areas, and mangrove rehabilitation.

a) Research and Plant Propagation. This program (US$ 1.3 million; 4% ofbase costs) would address deficiencies in forestry research andsilviculture management, seed sources and handling and plantpropagation. Infrastructure would be provided for seed storage, handlingand testing, as well as a specific budget for research work. Researchstaff strengthening is also envisaged, including provision for contractstaff in the specialized fields of tree genetics and tree physiology,backed up by technical assistance from local and international sources.

b) Trainingr This program (USS 0.8 million; 2.5% of base costs) wouldsupport appropriate in-service training in technical, managerial/humanresources and extension subjects to all forestry staff. Support wouldalso cover training centers, preparation of training materials,publications & journals, audiovisual equipment, and a publicity van.Specialized training abroad would be provided for two people per yearand participation in international conferences for one person per year.International study tours are included for mangroves, seed and treebreeding/cloning. Provisions are also made for inter- and intra-statestudy tours and regional workshops.

c) aoint Management. This program (US$ 1.0 million; 3% of base costs)Includes a package of measures for transforming the problem of bioticinterference into cooperative government-people partnerships. Trainingfor FPC leaders and FD staff in microplanning and group organization,production management, and processing and marketing would be supported.Various multi-disciplinary research-needs are accommodated, particularlyin NWEP processing and in methods of reducing fuelwood consumption.Theae are coupled with funding provisions for pilot action plans basedon the findings of the studies. Support is included for NGOs to assistthe ED in joint management activities (training/workshops, technicalsupport, institutional development, information/networking, andtransport support). Provision is also included for and publicity fortree growing and back-up support to other (non-FD) institutions engagedin tree planting programs. An NGO Coordinating Committee would guide andoversee implementation of the activities.

d) Wildlife anei Rndlterassf. This program (US$ 1.0 million; 3% of basecosts) would provide assistance to the state's conservation program inaddition to the improvement in forest habitats provided through the21ore3try treatments. Project funding includes studies (some would becontracted to specialized institutions) and action plans based on thesttdies. Elephants create the biggest challenge and consequentlyconstitute the largest single study-cum-action plan component of the

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project. Other studies-cum-action plans include those for rhino,leopard, and wetlands. A new wildlife research unit to be based in northBengal is proposed and would be supplied with staff, buildings,equipment and vehicles.

e) Mangrove Rehabilitation. This program (US$ 1.6 million; 5% of basecosts) would support afforestation of embankments with mangrove species(3,300 ha) and protection of degraded mangrove forest lands (25,000 ha)through FPCs. The latter would be provided with rented patrol boats.The project would also create 100 fish/shrimp ponds (.25 ha) to provideinccme to poor families who have lost family members to tigers, andprovide some 1,500 beehives to demonstrate domestic apiculture as aviable alternative to wild honey collection, 5,000 smokeless chullas and50 solar lights to keep tigers away. The project allows for a smalllaboratory, mangrove field trials and studies, and a small number ofincremental staff, vehicles and boats.

2.10 Service Support. This component (US$ 2.5 million; 7.5% of base costs)covers about 100 staff quarters, 24 divisional and range offices, 4 seedstores, rehabilitation of existing buildings, vehicles, equipment, incre.nentalstaff and operating costs of the FD which have not been included under othercomponents. Among other things this component would improve the MIS system,extension work, monitoring and evaluation, and publicity.

2.11 Fodder Development. This component (US$ 1.2 million; 4% of base costs)would support fodder research and fodder development programs by the AnimalResources Development Department in collaboration with the FD in forestfringes. FPC members would grow forages on forest lands that they protect andtheir own lands. Funding would be provided for research on forages (to becontracted out), seed multiplication, extension, training, and monitoring andevaluation for the program. Also included are seed godowns, seedstore/laboratory, training centers, offices/staff quarters, vehicles,equipment, imported seed, extension materials, and incremental staff andoperating costs.

Project Costs and Financing

2.12 Total project cost is estimated at US$39.0 million, including physicaland price contingencies, of which US$ 1.2 million is local taxes. The directand indirect foreign exchange is estimated at US$ 2.4 million, or 6.2% ofproject costs. Base costs have been calculated using unit prices prevailingin June 1991. Physical contingencies of 6.5% have been allowed for plantationworks, and 10% for civil works, goods (except vehicles) and incrementaloperating costs. Price contingencies of 3.9% per year were added for theforeign exchange component. For local costs, price contingencies were addedat 7% for 1992, and for the following four years are 6.5%, 6.0%, 5.5%, and5.5%, respectively. A summary of project costs is provided below. Moredetails on project costs by components and summary accounts are in Annex 1.

2.13 Financing. The proposed IDA Credit of US$34.0 million equivalent wouldfinance 90% of total project costs, net of taxes, or 87.2% of total costsincluding taxes. The Credit would finance 100% of the direct and indirectforeign exchange costs and 86.3% of local costs. The Credit would be to theGovernment of India, which would carry the foreign exchange risk. The Creditwould be on standard terms with 35 years' maturity. At negotiationsasurances were obtained that GOI/GOWB would promptly make available to itsimplementing entities all funds required for project expenditures.

10

- - - - US$ Million - - - -

Lnal orin TtalForestry PlantationRehab. Degraded Forests 10.7 0.5 11.2Production Forestry 1.7 0.1 1.8Farm Forestry & Strips 6.1 0.3 6.4

Supporting Works 3.6 0.2 3.8

Special Action ProgramsResearch & Plant Prop. 1.1 0.2 1.3Training 0.6 0.2 0.8Joint Management 0.9 0.1 1.0Wildlife & Prot. Areas 0.9 0.1 1.0Mangroves 1.5 0.1 1.6

FD Service Support 2.4 0.1 2.5

Fodder Development a.1 .Ll

Base Cost 30.6 2.0 32.6

Physical Contingencies 2.0 0.1 2.1Price Contingencies A.0 0.3 A.2

Total Project Costl 36.6 2.4 39.0

proncurment.

2.14 The project supports forestry plantation valued at US$ 25.7 millionand civil works valued at US$ 5.6 million. Such plantation would not besuitable for competitive bidding because of the need for communityparticipation. Furthermore, the works would be taken up in small areas, allover the state, over the five year project period. Civil works compriseroads, buildings, land development and survey/demarkation works. As the worksare small, scattered and spread throughout the project period they would notattract foreign bidders. Works would be procured following local competitivebidding (LCB) or force account procedures as follows:

(a) LS would include civil works for upgrading/constructing rural roads,office/residential buildings, seed stores/godowns, laboratories,training centers, etc. The works would be grouped into convenientpackages for bidding and necessary land would be acquired prior tobidding. All works contracts would be let using a standard LCBdocument and following procedures, satisfactory to the Association.

(b) Xogep.A c-ount would include all plantation, and all small civil workslocated in remote areas valued at US$ 10,000 equivalent ox less, up toan aggregate amount not exceeding US$ 3.5 million and would beundertaken by the line agencies. These civil works are not suitablefor competitive bidding due to the small amounts and remoteness oflocation.

1 Including taxes and duties equivalent to US$ 1.2 million.

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Suimmagy of Prgpomagi prg!ur1MQent, Arrangamnnts

(US$ million equivalent)

Procurement Method TotalProject Element LCB Other Cost

1. Plantation Costs 25.7 25.7

(23.1) (23.1)2. Civil Works

2.1 Buildings lncl. Rehabilitation 1.3 0.1 1.4(1.2) (0.1) (1.3)

2.2 Roads 0.8 0.1 0.9(0.7) (0.1) (0.8)

2.3 Other Works 3.3 3.3(3.0) (3.0)

3. Goods3.1 Equipment and Vehicles 0.1 1.3 1.4

(0.1) (1.1) (1.2)

3.2 Construction Materials 0.4 0.4(0.3) (0.3)

3.3 Seeds, fertilizer, supplies 0.4 0.4(0.3) (0.3)

4. Consultancies4.1 Technical Assistance 0.3 0.3

(0.3) (0.3)

4.2 Studies 0.5 0.5(0.5) (0.5)

4.3 Contract Research 0.4 0.4

(0.4) (0.4)5. Miscellaneous

5.1 Training 0.8 0.8

(0.8) (0.8)

5.2 NGO Services 0.5 0.5(0.5) (0.5)

5.3 Incr. Salaries & Operating Costs 3.0 3.0(1.5) (1.5)

Total 2.2 36.8 39.0(2.0) (32.0) (34.0)

Note: Figures in parenthesis are the respective amounts financed by the IDA Credit."Other" methods include force account and local and international shopping.

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2.15 The project would require about 206 vehicles including 167motorcycles and 5 boats valued at US$ 0.5 million. The vehicles are to beused in rural areas where ready availability of spare parts and maintenancefacilities are a necessity. For operational efficiency it would be necessaryto procure the vehicles in installments of types that can be easily maintainedand serviced locally. Similarly, equipment, seeds, ferti 'zer, field supplies,etc. would be procured in small lots by different implementation agencies,over the five year project period. Individual contracts are not expected toexceed US$20,000 and as such will be procured following local shoppingprocedures satisfactory to IDA, up to an aggregate amount of US$1,500,000.Computers valued at US$150,000 would be procured following LCB procedures.Construction materials for force account works valued in aggregate atUS$350,000 would be procured following local shopping procedures. Importedseeds and equipment, valued at US$200,000 in aggregate, would be procuredfollowing international shopping procedures acceptable to IDA.

2.16 Consultancy services estimated at US$1.2 million (overseas USS110,000) would be contracted on terms and conditions in accordance with theBank's Guidelines for Use of Consultants. Civil work contracts valued at US$100,000 and above, consultant's contracts valued at US$10,000 and above, allcomputer contracts and the first five goods and works contracts would besubject to prior IDA review. All other contracts would be subject to postreview in the field by visiting missions. Although this will result in onlyabout 6% of project procurement being subject to prior review, the nature ofthe project, which consists mostly of plantation works is such that a higherlevel of IDA review would not have a significant impact on procurementquality. The implementing agency is experienced in IDA procurement.

Disbursements

2.17 The proceeds of the Credit would be disbursed against:

a) 90% of expenditures on plantation costs;b) 90% of expenditures on civil works;c) 100% of foreign expenditures, 100% of local ex-factory costs or 80%

of other local costs of equipment, vehicles, construction materials,seeds, fertilizer and field supplies;

d) 100% of expenditures on consultants' services, training, NGOs'services, and studies; and

e) 50% of expenditures on increment4l salaries and allowances for staffof FD and ARDD operation and maintenance of offices and vehicles,boat rental, laboratory services, and report preparation andpublication, on a declining basis as follows: 60% until March 31,1994, 50% until March 31, 1996 and 40% thereafter.

2.18 Disbursements against civil works and equipment, seeds, fertilizer,construction materials and supplies' contracts exceeding US$100,000 equivalentwould be fully documented, as would disbursements for all vehicles,consultants, and overseas training/conferences/study tours. Disbursements forother expenditures would be made against Statements of Expenditures (SOEs).Supporting documentation for SOEs would be retained by GOI and GOW3 and bemade available to Association staff during supervision. Plantation costsinclude: (i) cost of nurseries, land preparation including labor inputs fortree planting, maintenance and protection; and (ii) direct supervision costrelated thereto not exceeding 7% of the total costs under Ci). The actualsupervision costs have been estimated at a higher level. Expendituresincurred from July 1, 1991 to the date of Credit signing for project

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activities would be eligible for retroactive financing up to a maximum of SDR2.4 million (US$3.4 million equivalent). All contracts and items to befinanced retroactively will have been procured in a manner consistent withabove arrangements and acceptable to the Association. To facilitatedisbursements a Special Account in US dollars would be established in theReserve Bank of India with an authorized allocation of up to US$2.0 million,which is equal to the estimated four monthly average disbursement. Adisbursement schedule is in Annex 3. At negotiations an assurange wasobtained that GOI would release about three months anticipated projectexpenditures in advance to GOWB throughout the life of the project. Promptlyafter such release, GOWB would make similar advances for project expendituresto the project departments in accordance with its normal procedures forfinancing state expenditures. Availability of these advances would tend tospeed up otherwise slow disbursements in forestry projects. The implementingagency is familiar with IDA disbursement procedures from the previous project.The Closing Date of the Credit is September 30, 1997.

Accounts and Audit

2.19 The participating entities would establish separate accounts for theproject. These accounts, together with supporting documentation, includingcontributions from the GOWB, and the Credit, would provide a comprehensiverecord of project financing and expenditures. At negotiations assurances wereobtained that: these accounts including the special account would bemaintained and audited annually in accordance with appropriate auditingprinciples consistently applied by independent auditors acceptable to IDA;certified copies of the SOEs, together with the auditor's report, which wouldinclude a separate statement on the SOEs, would be submitted to IDA not laterthan nine months after the close of each fiscal year.

III. PROJECT IMPLEMENTATION

Organization and Management

3.1 The project would be under the overall control of the Principal ChiefConservator of Forests, GOWB. The Chief Conservator of Forests (Development)would be the Project Coordinator and field level implementation would bechannelled through the established networks of the Territorial, SocialForestry and Wildlife Wings of the FD. The fodder component to be implementedby ARDD would be under the control of the Director of Animal Resources with asenior officer appointed as Project Coordinator. Since the project, with theexception of wildlife development, constitutes a major part of the developmentwork that will be undertaken by the FD over the next five years, it is neithernecessary nor desirable to create separate project management structures.

3.2 FD Organizational Structure. The current organization is based on theconcept of functional specialization. The overlapping of the functions in anarea has led to role conflicts, increases in resource requirements, anddiverse approaches to the same beneficiary groups. With the growth of the FPCinstitutions the workload of territorial forestry has increased manifold andthe conventional demarcation between territorial and social forestry isbecoming increasingly blurred. There is also a marked lack of uniformity inthe temporal and geographical workloads of existing staff.

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3.3 A restructuring of the service organization is proposed to ensureoptimal use of manpower. Instead of having separate staff for the territorialsoil conservation and social forestry functions, the field staff at and belowdistrict level would be integrated into one service which would be sub-dividedon geographical lines as determined by the workloads in each area. It wouldtake place in Purulia and Kurseong districts first and gradually be spreadthroughout the state. A government order to implement the reorganization inthe pilot districts has been issued and a revised action plan for the firstthree years of the reorganization would be reviewed by IDA at the projectstart-up workshop. The action plan should also identify potential actions inthe areas of career development and specialities within the forestadministration for such tasks as research, wildlife management, and monitoringand evaluation. At negotiations assurances were obtained that the FD wouldpromptly implement the reorganization as per the Government Order datedNovember 20, 1991 and a timebound action plan satisfactory to IDA to beadopted by June 30, 1992; and that FD no later than January 31, 1994 wouldadopt and implement a time bound action plan satisfactory to IDA to extendsuch reorganization to additional districts. As more districts are coveredchanges in the organization above the district level would also be required toobtain full benefit of increased coordination and support field activitiesefficiently (Implementation Volume Annex 5). These changes would be expectedto be incorporated in time for the next triennial review of Indian forestservice staff.

3.4 2ePsgarxh. The project would strengthen forestry research. There arecurrently two research divisions: Silviculture (North) and Silviculture(South). A third division would be created for research on agro-forestry.Additional staff and back up technical assistance, in the form of contractstaff (genetics, plant physiology and agrostology) and consultancy inputs, isprovided under the project. A small research unit has been included for thewildlife wing. A separate Chief Conservator post has been created forservices support (research, planning, training, monitoring & evaluation, andmarket information) and a Conservator of Forests would head the research wing.

3.5 The FD is reviewing results from existing research (to be completed byJanuary 1992) and identifying research topics to be contracted out touniversities and other institutions. The review mechanism for researchproposals would be strengthened as well as the process for reviewing progressand results. Minimum qualifications for personnel (preferably a bachelor'sdegree of science) engaged in research need to be established. ALneggtiations assurances were obtained that: consultants to assist in thedesign of the research program (five year and perspective plans includingstaff and fund requirements)and seed handling be contracted by June 30, 1992,the resulting programs including the timetable be discussed with IDA byDecember 31, 1992, and taking into account IDA's comments promptly implementsuch programs; and research staff remain in post for at least five years todevelop and contribute their expertise.

3.6 Trainin2. Training needs were identified through a workshop with staffat all levels. Each officer would have at least a week of training per year.Two weeks would be devoted to external training and three to in-house trainingin technical, managerial and extension related subjects. Internal workshopsof 1-2 days duration with invited expert faculty were felt to be the mostuseful format for the training programs. The workshops would coincide withthe regular quarterly reviews at the state, circle and district levels. Asenior level officer would be heading the training effort. An assurance wasobtained at negotiatinsj that staff selected for specialized training overseaswould have at least five years to retirement, and would be posted upon

- 15 -

completion of such training for at least three years in areas in which suchtraining has been received.

3.7 ore2js;ry Treatments. It is important that appropriate forestry modelsand improved nursery practices be followed. At negotiations assurances wereobtained that: the FD would follow forestry models satisfactory to IDA asdetailed in the Implementation Volume Annex 10 including basic soil andmoisture conservation treatments and fodder species; and (ii) the FD wouldfollow improved nursery practices satisfactory to IDA as outlined in theImplementation Volume Annex 4. All forestry operations to be supported underthe project should be included in the working plans which govern the FDactivities in managing the forest estate. A number of these plans haveelapsed and the FD is updating and extending them - a process which will becompleted shortly. The provisions for limited felling to facilitatereplanting of degraded natural forest areas will be considered by GOl in atimely manner so as not to hold up project implementation. Use of a limitedrange of intercrops has been approved by GOI. At negotiations assurances werealAo obtained that: (i) GOWB would obtain all clearances and approvals as maybe required from GOI to carry out its actions under the project; (ii) GOWBwould adopt all appropriate means as may be required to promote farm forestryin the state; and (iii) extension services necessary to implement the projectwould be provided.

3.8 Joint Management. User adapted forestry models and NGO services wouldgreatly strengthen community participation in forest protection. Basiccriteria for achieving effective joint management arrangements were stated inpara. 1.15, and further refinements would depend on social science researchand experience gained during project implementation. The forestry models aredesigned to foster multi-tier canopy cover and multi-product outputs to meetthe needs of diverse user groups. The FD would provide technical and economicguidance on a range of treatment options from which user groups would choose.The FD will assign NGO nodal officers in each district and GOWB has agreed toprovide advances to NGOs where necessary. Satisfactory benefit sharingarrangements for north Bengal and the Sundarbans, as well as guidelines forbenefit sharing in buffer zones of protected areas, have been issued; thegovernment order has been amended to enable women to be joint members (withtheir husbands) for south-west Bengal FPCs; and an NGO Coordinating Committeehas been established. An aasurance was obtained at negotiations that thebenefit sharing arrangemeiits would be maintained and not changed without priorIDA approval.

3.9 The FD has worked extensively with FPCs in the southwest but there arestill many practical problems to resolve. Some important aspects to beaddressed in FPC formation and the microplanning exercise are: (a) organizinggroups in as small homogenous units as possible taking account of traditionalforest-use patterns and fair boundary adjudication; (b) presenting FPCs withgenuine treatment alternatives advising FPC members on their implications; (c)incorporating social control for protection and harvesting; (d) ensuring thatall members (eg. women, landless, tribals) are adequately heard; (e) preparingmechanisms for distribution of produce and revenues from sales; and (f)arranging harvesting on an annual or biennial basis to help smooth the flow ofincome.

3.10 EQfii. Fodder development requires research, seed multiplication andextension. Research would be contracted to the State Agriculture University,NGOs, and other interested organizations; and would cover the southwest, thecentral plains, and north Bengal hills and plains. Basic seed multiplicationwould be undertaken by the Animal Resources Development Department (ARDD) at

- 16 -

two sites (Salboni in the southwest and Siliguri or Jalpaiguri in the north).For production seed the ARDD would rely primarily on contracts with privatefarmers. Self-employed animal husbandry technicians (who provide extension andservices to farmers) would be trained in fodder development.

3.11 Collaborative fodder developrment programs involve both the FD and theARDD. Activities would be taken up where the FPC system is well establishedand ARDD infrastructure and field services for cross-breeding are fullyoperational. The objective would be to balance fodder supply and demand forlivestock owners and herders who utilize the forest lands protected by theFPC. It is anticipated that 10-20% of the FPCs in the southwest would becovered. Progress would be slower in the north since the FPC program has onlyrecently started there. The FD would also include fodder species in its menuof available treatments for other FPCs and the ARDD would promote fodderdevelopment on non-forest lands funded from its on-going programs. AResolution for project activities has been issued between the ARDD and the FD,and a revised three-year action plan will be prepared by ARDD for IDA reviewat the project start-up workshop.

3.12 Studies and Mid-Term Review. At negotiations assurances were obtainedthat draft terms of reference for project studies under the wildlife and jointmanagement components would be submitted to IDA for its comments by June 30,1992 and that the studies be completed before July 31, 1994. A mid-termreview would be carried out to evaluate project experiences, particularly withrespect to joint management arrangements in new areas of the state, theworking of the reorganized FD, the new plantation models, and the wildlifestudies. Assurances were obtained at negotiations that a mid-term reviewwould be undertaken by September 30, 1994 and that the resultingrecommendations, agreed with IDA, would be promptly implemented during thebalance of the project.

3.13 Monitoring and Reporting. The responsibility for project monitoringrests with the Conservator of Forests (Monitoring) in the FD and the SpecialOfficer (Monitoring) in the ARDD. Effective monitoring requires a wellfunctioning management information system. The FDs current managementinformation system is rather weak and requires computerization to ensure atimely information flow. This would also relieve staff of tediousrecord-keeping and enable them to devote their time to field activities. Theproject would provide support for hiring consultants to assist the FD indeveloping a suitable management information system. Both the FD and the ARDDwould maintain records of the project's progress regarding implementation ofphysical and financial targets to be used both by project management tomonitor progress and to meet IDA reporting requirements. An assurance waAobtained at ne-otiations that semi-annual progress reports would be submittedby FD and ARDD to IDA by June and December each year starting December 1992.The reports would draw on information from the monitoring and evaluation celland elaborate on the constraints and how problems are being solved. Detailedreporting requirements would be finalized during the project start-upworkshop. A project completion report would be prepared by the FD and theARDD on the basis of IDA guidelines within six months of the closing date ofthe Credit.

Pricing and Marketing

3.14 Forest products from the project would be marketed through the followingcurrent arrangements: Produce from government forests would be harvested bythe FD or the FDC (except in the Sundarbans), and most would be auctioned inthe producing areas. (About 30-40% of the timber is currently sold directly

- 17 -

to allottees, mostly forest industries including those owned by the FDC, atprices equal to 50-60% of auction rates). Farm forestry produce would be soldas poles or fuelwood mainly to private timber merchants or their agents. Mostnon-wood forest products would be used by FPC members or sold to privatetraders or tribal cooperatives (kendu leaves and sal seeds).

3.15 Segdling P-ricing. Most seedlings in West Bengal are given to farmers.All growers should be charged for seedlings, even if full cost recovery is notachieved. This promotes better care of plants, responsible species selection(less wastage), quality incentives (noone would buy weak seedlings), greateraccountability in the FD, and opportunities for private nurseries to competedwith public ones. GOWB has recently approved a new pricing policy in whichthe price of general purpose seedlings would be Rs. 0.1 each for target groups(<2ha) and Rs. 0.7 (full cost) to other farmers and institutions. Graftedplants and other more expensive plants such as coconut, bamboo, etc. would besold at full cost to everyone. At negotiations an assurange was obtained thatseedlings would not be distributed free of charge and that the prices would beincreased each year to reach full cost recovery by March 31, 1997.

3.16 Transit Paseas. The current system for issuing transit passes for allforest products entails high transaction costs in marketing farm forestryproduce. The system may act as a deterrent to future private plantations, andhas put a large and increasing administrative burden on divisional levelforest officers. The FD has proposed a simplified system through whichgrowers would obtain transit passes from 'beat' officers. A government orderhas been issued to institute the simplified transit pass system. Theperformance of the revised system would be monitored during the course ofproject supervision.

3.17 Marketing Information. The development of farm forestry calls formarketing support. Farmers need information on prices of different produce inlocal and more distant markets, and advice on spacing, species choice,rotation length, and other treatments for maximum profit. New producers wouldalso need education in assessing the true value of their crops and the besttime to sell. Linking farm forestry producers with industries and formingcooperatives or informal groups for collective bargaining, which has beensuccessfully demonstrated in other states, would be tried. A Conservator ofForests would be put in charge of market information and would also coordinateextension to farmers. Market information experts would identify demandsources and prices, and a develop an appropriate information system.

kraiect Benefits and JustifiCationa

3.18 Beefits. The project would bring about 290,000 ha of degraded forestand uncultivated land under sustainable management. Approximately 400,000households should receive direct benefits from the project. The annual valueof benefits to FPC members is expected to average between 10-30% of annualhousehold income (a sample survey in southwest Bengal found mean returns ofRs. 2,815 per household). Women would be the principal beneficiaries andscheduled castes and tribes would constitute over 30% of beneficiaries. About33.8 million person days of employment would be generated in plantationestablishment, a benefit which is almost wholly captured by the poorest andlandless households. Processors and marketers of wood and NWFPs would benefitthrough increased supply of raw material.

3.19 Financial Analysis. Most treatment models yield FRRs of between 12 and25%, and returns from sal coppice regeneration exceed 50%. The NWFP have amajor influence on the overall net benefit stream. The models which yield

- 18 -

relatively lower FRRs are those in which NWFP cannot be realisticallyaccommodated, and all of the high FRRs are largely attributable to annual NWFPbenefits arising in what is otherwise a long term treatment. This confirmsthe prevailing view that NWFP are major contributors to net benefits fromforest lands and serve as a key incentive for local participation. Details ofthe analysis are given in Annex 2. Individual treatment models are in theImplementation Volume Annex 10. Although benefit sharing reduces theproportion of revenue accruing to the exchequer, a significant enhancement inabsolute terms is expected since local protection prevents degradation.

3.20 Economig and Sensitivity Analysis. The economic rate of return for theproject as a whole is estimated at 20% over 30 years. Due to the long-termnature of the benefit streams, the ERR is only moderately sensitive tostandard variations in the cost and benefit streams. If all benefits woulddecrease by 30% and costs simultaneously increase by 20% the ERR woulddecrease to 12%. If all benefits were lagged by 5 years (very unlikely sinceNWFP benefits are annual in nature) the ERR would decrease to 12%. Details ofthe analysis are given in Annex 2.

3.21 Environment4l Impact. The project would be very beneficial for theenvironment. The orientation of the project is heavily weighted towardsenvironmental improvement through community-based protection of forest areas.The project has a separate component for afforestation/rehabilitation of theenvironmentally important mangrove areas in the Sundarbans. Specificproposals for wildlife and oiodiversity and fodder development are alsoincluded. The project investments would not cause any resettlement. Forestrymanagement and works practices in West Bengal have been reviewed and found tofollow environmentally sound principles. The protection of any forest landwill depend much more on a contented fringe population than on legal prescrip-tions. The forestry models are therefore designed to accommodate factors thatwould foster a strong community stake in forest protection. The main featuresof the models which enhance the environment are:

<------- Beneficial Impacts from Alternative Standpoints -------- >

Silvi- Soclo- Soil/Moisture Livestock Wildlife &KEY TREATMENT SPECIFICATIONS culture E£conmic Coservaion & Eodder B1oiversity

Recommended spacing between planted Less More NWFP More ground More fodder Improvedseedlings has been increased competitionLower Cost vegetation habitats

Greater variety of species, multi- Better use More NWFP More ground More fodder Improvedtier mixtures of tree, shrub and of light and Lower Cost vegetation habitatsground story vegetation nutrients

Contour cultivation with installa- Better growth Fuelwood t Reduced soil Fodder from Improvedtion of vegetative contour bunds from moisture NWFP from erosion, low vetiver and habitats

conservation shrub lines maintenance browse plants

3.22 Institutional Impact. The project would foster a major change in forestpolicy from enforced protection to cooperation with local communities. Thestate is strongly committed to this change which is based on experience fromthe southwest that has attracted a lot of interest. The project would provideimportant lessons for forest departments in other states in working with NGOsand the FPC concept would be replicable both within and outside India. Movestowards a restructuring of the FD organization to respond to the challengesahead are already underway. An added institutional feature is the start of acoordinated fodder program involving the FD and the ARDD, with high long-termpotential for expansion and spin-off.

19 -

3.23 Tmgast Qn women. Women are the predominant collectors of fodder,fuelwiood and NWFPa and would benefit considerably from the project. Theforeatry models and felling regimes proposed would significantly enhanceavailability of the forest products which women collect to provide householdsubsistence and secondary income. One forestry treatment, Arjun planting fortasar silk cultivation, has been set aside for women. Effective participationof women in joint management of forests would be critical to reduce illicitremovals. NGOs would be responsible for ensuring that the efforts to mobilizewomen have effective suppqrt in the initial years. The provisions forhousehold membership in FPCs would be revised to include women as full membersand women's subcommittees would be established for managing NWFPs. Theefforts to incorporate women in all aspects of the project would be supportedby a new FD hiring policy to encourage recruitment of women as forest guards,foresters, and range officers - currently staffed 100% by men.

xnj;t, sks

3.24 Technical risks are not high although marketing risks remain an area ofconcern. A significant downturn in market prices could discourage farmhouseholds from replanting and FPCs f;om providing adequate protection. Sincethis could only occur as a consequence of otherwise sur3cessful development, itmust be judged in that context. The proposed restructuring of the FDorganization is important for efficient project implementation. It will bekey that the initial momentum in rationalizing and reorganizing use ofmanpower resources be maintained. Progress in this respect would be reviewedduring supervision missions with the assistance of expert consultants. Theprincipal risks are that FPC joint management in the southwest provesunsuccessful in the longer term, and that effective modes of joint managementcannot be installed in other areas of the state. The without project scenariowould almost certainly lead to continuous deforestation and land degradation.Conversely, the potential of the FPC joint management approach has beendemonstrated in southwest Bengal. More complicated scenarios would beencountered in other areas. The north, in particular, has a broader range ofcompeting interests due to its immensely more valuable timber reserves, richerbiodiversity, and the added problems of teagarden laborers and forestvillagers. However, the expansion of the FPC concepts into new areas has theadvantage of being based on experience.

IV. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION

4.1 At negotiations, assurances were obtained that:

a) GOI/GOWB would promptly make available to implementing entities allfunds required for project expenditures para. 2.13);

b) (i) project accounts including the special account would bemaintained and audited annually in accordance with sound auditingstandards consistently applied by independent and qualified auditorsacceptable to IDA; and (ii) certified copies of the SOEs, togetherwith the auditor's report, which would include a separate statementon the SOEs, would be submitted to IDA not later than nine monthsafter the close of each fiscal year (para. 2.19);

c) the FD would implement the reorganization: (i) as per the GovernmentOrder dated November 20, 1991 and a timebound action plan

- 20 -

satisfactory to IDA to be adopted by June 30, 1992; and (ii) no laterthan January 31, 1994, adopt and implement a timebound action plansatisfaotory to IDA to extend such reorganization of FD to additionaldistricts (para. 3.3);

d) li) consultants to assist in the design of the research program (fiveyear and perspective plans including staff and fund requirements) andseed handling be contracted by June 30, 1992; (ii) the resultingprograms including the timetable be discussed with IDA by December31, 1992, and taking into account IDA's comments promptly implementsuch programs; and (iii) researoh staff remain in post for at leastfive years (para. 3.5);

e) staff selected for specialized training overseas would have at leastfive years to retirement, and would be posted upon completion of suchtraining for at least three years in areas in which such training hasbeen received (para. 3.6);

f) (i) the FD would follow forestry models satisfactory to IDAincluding basic soil and moisture conservation treatments andincorporation of fodder and legume species; (ii) the FD would followimproved nursery practices satisfactory to IDA; (iii) GOWB wouldobtain all clearances and approvals as may be required from GOI tocarry out its actions under the project; (iv) GOWB would adopt allappropriate means as may be required to promote farm forestry in thestate; and (v) extension services necessary to implement the projectwould be provided (para. 3.7);

g) the benefit sharing arrangements would be maintained and not changedwithout prior IDA approval (para. 3.8);

h) (i) draft terms of reference for project studies under the wildlifeand joint management components would be submitted to IDA for itscomments by June 30, 1992, and that the studies be completed beforeJuly 31, 1994; and (ii) a mid-term review would be undertaken bySeptember 30, 1994 and that the resulting recommendations, agreedwith IDA, would be promptly implemented during the balance of theproject period (para. 3.12);

i) semi-annual progress reports would be submitted by the FD and theARDD to IDA by June 30th and December 31st each year. (para. 3.13);

j) seedlings would not be distributed free of charge throughout the yearand that the prices be increased each year to reach full costrecovery by March 31, 1997 (para. 3.15).

4.2 With the above assurances, the proposed project would be suitable for anIDA Credit of SDR 24.4 million (US$34.0 million equivalent) on standard IDAterms with 35 years maturity.

INDIAREST 8ENGAL FORESTRY PROJECT

Project CoMDonants by Year

lotals Including Contingencies Totals Including ContingenciesIRS. '000) (US$ '000)

92/93 93/94 94/95 95/96 96/97 total 92/93 93/94 94/95 95/96 96/97 lotal

A. FORESIRY IORKS

1. REHABIIITAIION OF OEGRADED FORESTS 48,907.3 79,878.9 86.826.6 88,964.8 93,639.9 398,217.5 1,811.4 2,832.6 2,953.3 2,916.9 2,963.3 13,477.42. PRODUCTION FORESTRY 9,320.9 11.626. 1 13,638.8 15,111.1 16.056.5 65,753.3 345.2 412.3 463.9 495.4 508.1 2.225.03. FARM FORESTRY AND S1RIP PLANTATIONS 37,935.2 42,051.9 45.648.4 48,318.3 51,030.7 224,984.5 1,405.0 1,491.2 1.552.? 1,584.2 1,614.9 7.648.0

Sub-Total fORESTRY WORKS 96. 63.4 133,556.9 146 113.8 152,394.2 160.727.1 686.955.3 3.561.6 4.736. 1 4.969.9 4,996.5 5,086.3 23.350.48. SUPPORTING WORKS 15. 703.3 27,274.1 31,270.6 32,085.8 31, 182.9 137,516.8 581.6 967.2 1,063.6 1,052.0 986.8 4,651.2C. SPECIAL ACTION PROGRAMS

1. RESEARCH AIID SEEDS 8,990.4 9.971.3 8,619.7 8,003.3 7,829.9 43,414.5 333.0 353.6 293.2 262.4 247.8 1,489.92. TRAINING 4, 813. 7 5 560.0 5.226.8 4 937.4 5. 237.0 25. 776.8 178. 3 197.2 177.8 161.9 265.7 880.9 ,3. JOINT MANAGEMENT SUPPORT 3,825.1 6,162.5 6,877.8 7,286.9 7,802.5 31,954.8 141.7 218.5 233.9 238.9 246.9 1.080.04. MANGROVES 9,916.3 10,988.5 11,826.8 11,591.3 12,646.6 56,969.6 367.3 389.7 402.3 380.0 400.2 1.939.5 15. IIILDLIFE AND BIODIVERSITY 7,380.7 6,479.7 6,245.4 6,681.4 7,055.4 33,842.6 273.4 229.8 212.4 219.1 223.3 1,157.9

Sib-Total SPECIAL ACTION PROGRAMS 34.926.1 39.162.0 38.798.6 38.500.2 40.571.4 191.958.4 1.293.6 1.368.7 1,319.7 1,262.3 1.283.9 6.548.20. SERVICE SUPPORT 15,649.5 21.077.3 21.661. 4 14. 100.8 12.831.6 85 320.6 579.6 747.4 736.8 462.3 406.1 2,932.2E. AROD FORAGE DEVELOPIENT

1. RESEARCH 3, 222. 5 2,699.8 1. 151. 3 1,227.0 1. 295. 4 9,596.0 119.4 95.7 39.2 40.2 41.0 335.52. STATE AND FARMER PROGRAMS 7. 581. 1 9. 336 7 5,485.6 5. 458. 6 5 751. 8 33,613.8 280.8 331. 1 186.6 179.0 182.0 1. 259. 4

Sub-Total ARDO FORAGE DEVELOPMENT 10. 803. 6 12,036. 5 6, 636.9 6.685.6 7.047. 2 43, 209. 8 400. 1 426.8 225.7 219.2 223.0 1,494.9

Total PROJECT COSTS 173,246.0 233 106.a 244,481.3 243,766.6 252,360.2 1. 146. 960. 9 6, 416. 5 8, 266. 2 8,315.7 7,992.3 7. 986. 1 38,976.8=z==-= = ==m==.=== ===== === ==:z =-----===== ====== ====== ===2==.= =_==== ======= == --- -------- =

December t3. 199t 11:32

mxIP6

INDIANEST BENGAL FORESTRY PROJECT

Sunnary Accounts by Year

Totals Inciuding Contingencies Totals Including ContingenciesIRS. '0001 CUSS '0001

92/93 93/94 94/95 95/96 96/97 Total 92/93 93/94 94t95 95/96 96/97 Total

1. INVESTMENT COSTS

A. CIVIL NiORES 28, 293. 1 40,953.9 40,617.5 33,787.8 33, 136. 7 176, 789.1 1,047.9 1. 452. 3 1 381.5 1. 107.8 1.048.6 6 038. 18. PLANTATION ESTABLISHMENT 103,861.2 144.089.7 163,234.3 169.545.3 178,973.4 759,703.8 3,846.7 5 109.6 5,552.2 5558.9 5,663.7 25. 731.0C. EQUIPMENT AND GOODS 9,535.5 7,621.6 3.821.7 2. 779.5 2, 4A2. 4 26.170.6 353.2 270.3 130.0 91. 1 76.3 920.90. VEHICLES 4,732.4 8 769.5 2,316.5 1,682.9 - 15.501.3 175.3 240. 1 78.8 55.2 - 549.3E. TRAINING AND TECHNICAL ASSISTAKCE

1. LOCAL 11,091.7 13,701.9 12,313.0 13.056.1 13. 793.2 63,955.9 410.8 485.9 418.8 428.1 436.5 2,180.12. OVERSEAS 2,575.4 2.829.0 2,693.1 1,824.8 1,783.0 11,705.3 95.4 100.3 91.6 59.8 56.4 403.6

Stb-Total TRAINiNG AND TECHNICAL ASSISTANCE 13,667. 1 16,530.9 15.006. 1 14.880.8 15,576.3 75.661.2 506.2 586.2 510.4 487.9 492.9 2,583.6 15 t.~~~~~~~~~~~~~~~~~~~~~~~~~)Total INVESTHENT COSTS 160,08S.2 215. 965.7 224. 996. 1 222,676. 2 230,098.8 1. 053. 826. 0 5.929.2 7,658.4 7, 652. 9 7.300.9 7,281.6 35.823.0

II. RECURRENT COSTS

A. INCREMENTAL SALARIES AND ALLOWIANCES 7.890 9 9.544.6 10.858.3 11.508.7 12,141.7 51,944.2 292.3 338.5 369.3 377.3 384.2 1,761.68. INCR. OPER. COSTS 5.265.9 7,596.4 8,626.9 9,582.6 10, 119.7 41.190.6 195.0 269.4 293.4 314.2 320.2 1,392.2

total RECURRENT COSTS 13. 156.8 17, 141. I19,485.2 21,090.4 22,261.4 93, 134.8 487.3 607.8 662.8 6CI.5 704.5 3. 153.9Total PROJECT COSTS 173,246.0 233. 106.8 244.481.3 243 76. 6 252, 360.2 1 146,960.9 6,416.5 8,266.2 8.315.7 7,992.3 7.986. 1 38, 976.8

December 13. 1991 11:32

03Cl

- 23 - Annex 2

Page 1 of 6

INDIWEST BENGAL FORESTRY PROJECT

FINNCIAL ANQ ECONOMIC ANALYSIS

1. Finannial Analysis. Financial returns have been estimated for eachrepresentative forestry treatment model using local prices for inputs andoutputs (Table 1). An overview of the returns from the different models is inTable 2. The returns on most models range between 12-25%. Returns fromregeneration of sal forests exceed 50%. The distribution of benefits betweenthe Government and joint management beneficiaries is also shown in Table 2.

2. Economic Analysis. The economic rate of return for the project has beenestimated at 20.0% over 30 years. Costs and benefits were expressed ineconomic prices in constant 1991 rupees. Costs and benefits for forestrydevelopment were derived from the treatment models and adjusted to eliminatetaxes and price contingencies. Costs for all other project components weretaken from the project cost tables. The results are summarized in Table 3,with sensitivity atialysis in Table 4. Cost and benefit flows by year areshown in Table 5.

3. Costs include all project costs and incremental recurrent costs forservices that would continue after project completion. The standardconversion factor of 0.8 was used for all costs and benefits. Costs alsoinclude physical contingencies. Benefits include incremental production oftimber, poles, fuelwood, and a number of important non-wood forest products521ch as kendu leaf, sal leaves and seeds, mahua flowers, mushrooms, etc. Mostbenefits from forest produce are not tradable (poles and fuelwood have nointernational markets). All incremental production from the project isexpected to be consumed domestically.

Produeiilt- Unit Production('000)

Timber M3 2,860Poles No. 146,765Poles/Pulp MT 10,295Bamboo No. 2,500Fuelwood MT 12,418NWFP:Edible prod. Kg 24,773Sal leaves Bundle 16,772Sal seeds Kg 23,440Medicinal prod. Kg 3,410

4. Benefits which could not be quantified but which add significantly tothe value of the project include: increased production from existing and newfarm forestry plantations as a result of improved technology emanating fromdemonstrations and on-farm trials; increased production of agriculture cropsattributable to reduced soil erosion; incremental employment generated frominfrastructure development under the project; reduction in fuelwood use fromimproved stoves; and benefits from the new and improved roads beyond thoserelated to incremental production of forest produce.

24 - Annex 2

Page 2 of 6

5. A standard with-without approach was used for the analysis and resultswire calculated in terms of Net Present Values (NPV) and internal rates ofreturn (IRR). Analysis was done from four accounting perspectives to attemptto capture the incentives for participation afforded to different groups bythe various treatment models. The perspectives are (three are financial):

- an overall perspective that includes all benefits and costs atfinancial prices;

- the perspective of GOWB that considers only costs and benefits asborne or received by GOWB;

- the perspective of forest users; and

- an overall economic analysis conducted using economic prices aftersubtracting the estimated without project costs and benefits.

6. Prgiect Costg and Benefits. The project supports investments inforestry treatments and supporting works, research and training, strengtheningthe joint management institution, wildlife and protected areas, FD servicesupport and fodder development. All project costs are set against benefitsfrom forestry treatments for the economic analysis since the other componentsdo not generate easily quantifiable benefits. While the forestry works to besupported will vary slightly with site conditions, 16 basic treatments havebeen identified and pro forma one hectare models have been prepared and costed(Implementation Volume Annex 10).

7. Supporting works consist of survey and demarcation of forestry treatmentareas, maintenance and upgrading of forest roads including a minor componentof new roads, and ponds and wells for participating FPC villages. Some incomegenerating schemes such as shrimp-culture ponds and beehives are also includedfor mangrove areas. Quantified benefits have not been estimated for thesecomponents.

8. Improvements in technology through research, improved genetic plantingmaterials, seed collection and handling, and nursery practices will yieldsignificant benefits over the longer term for all forestry and agro-forestryplantations in West Bengal. Genetic material available internationally yieldsconsiderably more than locally available seeds, and improved managementpractices in nurseries and plantations also increases yields andprofitability. These benefits are difficult or impossible to quantify.However, the costs of these investments have been included in the overalleconomic analysis.

9. The fodder development component is largely experimental at this stage.Like the research/technology component it is expected to generate significantbenefits in the longer term but it is difficult to quantify them. All costsfor the component have however been included in the economic analysis of theproject. Similarly, the costs for improvements in wildlife and protectedareas management have been included in project cost. Benefits from investmentsin wildlife and protected areas are difficult or impossible to quantify and noattempt has been made to estimate them. The costs of strengthening the jointmanagement institution and FD service support including recurrent staff andvehicle operating costs continuing after the project have also been includedin the economic analysis.

- 25 - annex 2

Page 3 of 6

10. External environmental costs or benefits could not be quantified. Weedgrowth in north Bengal is prolific and should provide a reasonably completeground cover and thus protect soil from erosion. The project does not includeany major infrastructure investments. Although all treatment models includebasic soil and moisture conservation measures no external benefits areattributed to the project since reliable estimates for reduction in siltationlevels and/or improved productivity in the project watersheds due to reducedsoil erosion are not available.

11. Prl;es. Prices used in the financial analysis are estimated marketprices for inputs and outputs. The government norms for wages (Rs. 25/day)were used where FD pays for labor. Labor costs for protection of forests andfor farm forestry operations were also valued at Rs. 25 per day since most ofthe operations are performed during the agricultural planting season. Rapidrural appraisals conducted in different project areas revealed a labor rate ofRs. 20-22 plus food (worth Rs. 5) during the high season.

12. The project will produce additional poles, fuelwood and timber andreplace some supplies from other lands and states. In this case it isappropriate to utilizo market prices for the products. Prices for the varioustimber species and other products and inputs based on GOWB auction data andmission estimates are shown in Table 1. All timber prices have been convertedto stumpage prices by subtracting GOWB estimates of felling, transport andother depot costs (Rs. 350/M3). Timber prices are distorted by governmentpolicy -- 30-40% of production from GOWB forests is allocated to certain endusers at prices that are 50-60% of the auction rates. Timber prices wouldlikely rise if these concessional arrangements were phased out but probablynot by much. Therefore, the auction prices were used as the best currentproxy of free market prices. Given the large supply-demand imbalance it islikely over the long run that forest produce prices will increase in realterms. This would be exacerbated by rises in international price levels, asthe long-run trend worldwide may be to reduce timber exports.

13. Without Project S*enarios. The treatments will mainly be applied todegraded or severely degraded land. Four types and qualities of land weredistinguished: (i) Moderately Degraded Sal Forest; (ii) Severely Degraded SalForest; (iii) Degraded Other Forest; and Degraded Mangrove Forests. Each typeof land provides some flow of benefits in the without project case which isdiscussed below. These scenarios are best estimates based on judgments by FDstaff and mission members.

14. Moderately Degraded Sal Forests produce fuelwood of various qualities,fodder, edible products, sal leaves and seeds, kendu leaves and variousmedicinal products. In the absence of intervention the forests willdeteriorate further from over-exploitation. The volume and value of theproducts that can be gathered from them is assumed to decline linearly over aten year period. In the case of fuelwood, output is assumed to fall from 300Kg/ha/yr to zero over the period, and shrub fuelwood (small diameter and lowervalue from 1,000 Kg/ha/yr to 700 Kg/ha/yr. Fodder yield, will similarly fallfrom 2000 Kg/ha/yr to 1000 Kg/ha/yr (some unaccounted quality decline wouldalso be expected). After ten years without intervention output is assumed tohave fallen to a level comparable to that of severely degraded sal forests,after which no further declines are assumed to occur. On degraded otherforest land it is assumed that shrub fuelwood yields fall from 1,500 Kg/ha/yrto 1,000 Kg/ha/yr over ten years and fodder yields are constant at 1,000

- 26 -

Page 4 of 6

Kg/ha/year. On degraded mangrove forests the yield of poles, fuelwood andshrub fuelwood is estimated at 2,6, and 7 MT, respectively, every 15 years.

15. Regeneration of sal forests from viable rootstocks will take place onmoderately degraded sal forests, and reforestation on severely degraded salforests in South Bengal and degraded forest/waste lands in North Bengal.Production forestry will take place on lands assumed to have an alternativeoutput similar to degraded forest lands, this also applies to farm forestryand strip plantations. About 75% of the farm forestry plantations in southBengal are expected to take place on previously fallow land and most farmforestry in central and north Bengal would be established on farm boundaries.

Results of Analysis

16. Trgatment Models. Results of the financial and economic analysis of thetreatmlent models are detailed in Table 2. The results are favorable foressentially all treatment models from all relevant accounting perspectives.The financial returns for most models range from 12-25%. Returns fromregeneration of sal forests through protection are very high - exceeding 50%.This is due both to the low investment cost per ha for the treatments and to awide range of natural associates producing NWFP which accompany sal coppiceregeneration.

17. The general pattern of benefit-sharing arrangements planned for theproject correspond to the type of treatment and the degree of overlappingtenure and joint management involved. The treatment models specify thedistribution of cost and benefit shares to the Government and local people(either FPC or individual farmers) for each of the inputs and outputs. Theresulting rates of IRRs and NPVs to the two groups are included in Table 2.The financial rates of return to each group should be high enough to justifytheir individual investments. Given the high transaction costs and greaterrisk of coordinated community action in FPC models, the returns in thesemodels must be higher than that required by the Government, where individualrisk is extremely low and individual returns are not directly related to theinvestment. Depending on the discount factor applied most models would beacceptable from both Government and beneficiary point of view. However, themangrove and strip plantation models give very low returns to Government at4%, and 3%, respectively. Returns to mangrove plantations would be higher ifspecified planting densities were reduced. Although the multi-tierreforestation models in north Bengal (R5 and R6) have good overall returns thebenefit shares to Government do not allow it to recover all expenditures.

18. One complexity in the analysis is the intercropping activities inseveral plantation and reforestation treatments where weed control isessential to the production of timber crop. The FD's practice is to allow(encourage) cultivation of crops between trees as a means of improving thequality of weed control and to reduce costs. The models involvingintercropping show very high returns. If the technical parameters underlyingthese calculations are reasonably accurate, the returns suggest that the landwould more profitably be shifted out of forestry into sustained agriculturalproduction. This, of course is administratively infeasible, even if true.Average returns to users are high, but this is because of the generally lowinitial investment by users. The results have been specified with and withoutintercropping to allow comparison. GOI has tightened its ban on agricultureintercropping in forest areas since the time of appraisal. Only grasses andlegumes (including grasses for rope making and essential oils) legumes andindigenous medicinal herbs would be allowed. If no intercropping were

- 27 - 2

Page 5 of 6

undertaken financial returns on the models concerned would decrease by about50% but the economic returns would still be acceptable.

19. The treatment specification for sal regeneration from viable rootstocksassumes a 10 year coppice cycle. Data from West Bengal trials show that anincrease in the rotation length from 10 to 15 years increased the averagediameter of the poles by 1.4 inches. Since the price is strongly related toincreasing diameter a longer rotation crop would produce a better return. Mostpoles in the 10 year rotation would be about 3-4" in diameter. Sal poles of3" diameter bring about Rs.15, 4" poles Rs.50, 5" poles Rs.110, 6" polesRs.150, and 7" poles Rs.180. The price difference is likely to widen in thefuture since the large volumes of poles which are expected from FPC areas andfarm forestry plantations will tend to depress prices particularly for smallerdWmension poles. Assuming a conservative increase of 1 inch with a rotationlength of 15 years the financial NPV/ha of the model at a 12% discount ratewould increase from Rs.17,810 to Rs.20,110. The rotation lengths couldsimilarly be lengthened for other short rotation coppice models such as R4,R5, Si and Fl.

20. A theoretical farm forestry model (Fl) was constructed which includescoppicing pole/fuelwood species (major part) as well as fruit trees, coconutand bamboo to mirror the expected plantings. The returns to this model with aspacing of trees at 4xlm on a 10 year coppice cycle is estimated at 21percent. In a purer coppice model the returns would be about 17 percent(compare R4 without intercropping). This compares with a 12 percent returnfrom the current practice (F2) of planting eucalyptus at 2xlm and harvestingon a 5-year cycle.

21. Project. The economic return of the project as a whole is estimated at20 percent. The results of the analysis are summarized in Table 3 withsensitivity analysis in Table 4, and yearly cost and benefit flows in Table 5.The return is quite stable to changes in area for the largest projectcomponents and to changes in cost and benefit streams. If the areas to beregenerated under sal coppice or farm forestry where to decrease by 30% thereturn would be 18.8 and 20.2 percent, respectively. Similarly, even ifvillagers would not be willing to take up intercropping specified for northBengal models the return on the project as a whole would decrease by onepercent only. If all costs would increase by 20% &nd the benefits decrease by30% the return on the project would decrease to 12.1 percent. The return onthe project is more sensitive to lags in benefits streams than to changes inmagnitude. If all benefits would lag five years the return on the projectwould decrease to 11.8 percent. However, this is not likely for a large partof the benefits consist of NWFP which are collected on an annual basis.

22. In addition to the forest areas to be regenerated/established under theproject period the project provides support to complete areas planted/taken upfor regeneration during the last few years. This refers mainly to regenerationof sal forests from viable rootstocks. A very conservative view would be toinclude the project costs for these areas but no benefits in which case theERR for the project would decrease by 3%. Taking both costs and benefits forthese areas into account would increase returns to the project significantlysince expenditures to date on those areas could be regarded as sunk costs forthe purpose of overall economic analysis.

- 28 - Aan 2

Page 6 of 6

Other Benefit5

23. EMIg=ent. The project would finance 22.8 million persondays of laborin establishment/regeneration of forests on public lands, another 10 millionpersondays would be generated in establishment of farm forestry plantations,and an unquantified amount for protection and harvest of the forest produce.Project works (roads, spoil conservation dams, ponds, and construction ofquarters and training centers) would also generate employment.

24. Halting and reversing forest degradation will also bring many otherbenefits. Local people depend heavily on forest products for their farm andhousehold economy as do forest based industries and the State Exchequer. Thehigh levels of soil erosion which accompany forest degradation, particularlyin the southwest, have been undermining the basis for future investments aswell as continuing to reduce biodiversity. The loss of productive forestlands in tribal areas is hastening potentially disruptive cultural changesamong these groups. The mounting scarcity of subsistence fuel and fodder hasalso increased the work burden of women, who are the predominant collectors.

-29 - Ann&X 2

Table 1

4INANCIAL PRICE

Inputs/Outputs Unit Unit Price(Rupees)

Fence/shrub Lines Kg 20Vetiver slips 1000 No. 12Gen Purpose Seedlings No. 0,7Direct Seeding No. 0.2Labor Md 25

Non-Wood Forest Products:Fodder MT 120Edible Products MT 2000Sal Leaves Bundle 1.5Sal/Mahua Seeds Kg 4Kendu Leaves Kg 2Medicinal products MT 2000

Wood Products:Poles No. 10-30Pulp MT 650Fuelwood MT 250-350Shrub fuelwood MT 150

Timber:Sal MT 5550Teak MT 6650Riverain Species MT 3700Misc. Species MT 1350Hill Species MT 1200

- 30 - AneTable 2

BESULTS OT FTINANCIAL AND !CONOMIC AMALYAIS OF :CB NT MgpELS12 3

Model FINANCIAL RESTURNS (l and Rs/ha) ECONOMICbAdQLx&, Overall GOWO Users Overa11

IRR NVP IMR NPV IRR NPV IRR NPV

Rl Regeneration Sal Forests >50 17,810 30 6,940 - 10,906 50 11,80915-year cyal* >50 21,111 26 8,023 - 12,083 44 13,319

R2 RPgsneration by Enrichment 28 7,585 26 5,907 39 1,478 22 3,983

R3 Reforestation Tassar Host 13 3,886 - -19,099 45 22,9a5 13 3,588

R4 Multi-tier Plantations Si4 21 7,441 13 524 - 6,917 20 5,548

w/o intercropping 17 3,943 14 1,247 39 2,696 16 2,749

R5 Multi-tier Plantations Plains 21 4,794 - -6,949 - 11,742 30 6,592

w/o intercropping 9 -1,452 - -6,137 - 4,684 16 1,595

R6 Multi-tier Plantations Hills 12 9 - -8,232 - 8,241 19 2,641

w/o interoropping 7 -3,439 - -7,509 - 4,070 12 -118

R7 Fuclwood Plantations Plains 14 2,130 10 -1,464 >50 3,593 19 4,828

Pl Sal Plantations 20 6,780 - - - - 27 8,032

w/o intercropping 9 -5,997 9 -5,997 - - 11 -2,189

P2 Teak Pl.ntations 22 9,986 - - - - 30 10,563

w/o interoropping 11 -2,791 11 -2,791 - - 12 341

P3 Riveraine Plantations 11 -3,194 11 -3,194 - - 12 15

P4 Misc. Plantations 25 12,083 - - - - 31 12,220

w/o intercropping 12 -570 12 -570 - - 14 2,098

PS Hill Timber Plantations 10 -1,849 - - - - 12 929

w/o intercropping 8 -5,593 8 -5,593 - - 10 -2,066

S1 Strip Plantations 9 -2,732 3 -5,664 - 2,932 11 -846

MI Mangrove Plantation 6 -5,086 4 -5,942 23 855 12 278

M2 Mangrove Protection 22 2,490 25 2,359 13 131 24 2,078

Fl Farm Forestry 21 7,697 - - - - 18 4,680

F2 Farm Forestry 12 31 - - - - 9 -1,261

1 NPVs are calculated using a 12% discount rate.

2 Due to the structure of the benefit as,d cost flows, for some models and

accounting perspectives IRRs were either multiple or undefined.

3 The F2 model is for comparison only - not a project treatment.

- 31 - Annex 2

Table 3

SET DENEEIS

Present Value at 12%(Rs. Million)

Benefits from:

Regeneration Sal Forests 585.1Regeneration Other Forests 375.3Production Forestry 59.6Mangroves 85.4Farm Forestry & Strips 694.0

Total Be~nefits 1799.4

Costs for:

Regeneration Sal Forests 97.6Regeneration Other Forests 206.7Production Forestry 57.6Mangroves 43.2Farm Forestry & Strips 408.4Supporting Works 59.6Special Action Programs 69.4FD Service Support 39.4Fodder Development 21.0Recurrent Costs after Project 40.8

Total Costs 1043.7

Net Benefits 755.7

Base Case ERR 20.0%

-32 Ane--32-Table 4

SZNSITTIVTX ANALYSIS

Overall proieot FER

Base case 20.0%

aansiti3Zity Analysia_

sal regeneration area -30% 18.8%farm forestry area -30% 20.2%

total benefits -20% and costs +10% 15.1%total benefits -30% and costs +10% 13.2%total benefits -30% and costs +20% 12.1%

forestry benefits lag 5 years 11.8%

Switching Values Appraisal Switching Percentage(Rs. Million) value* value* change

BanAfita:

Regeneration Sal Forests 585.1 -170.5 -129Regeneration Other Forests 375.3 -380.3 -201Production Forestry 59.6 -696.1 -1268Mangroves 85.4 -670.3 -885Farm Forestry & Strips 694.0 -61.7 -109

Coate:Regeneration Sal Forests 97.6 853.2 775Regeneration Other Forests 206.7 962.3 366Production Forestry 57.6 813.3 1312Mangroves 43.27 789.9 1749Farm Forestry & Strips 408.4 1164.1 185Supporting Works 59.6 815.3 1267Special Action Programs 69.4 825.2 1088FD Service Support 39.4 795.1 1917Fodder Development 21.0 776.7 3604Recurrent Costs after Project 40.8 796.5 1852

Total Benefits 1799.4 1043.7 -42Total Costs 1043.7 1799.4 72

*In present value terms at 12% discount rate

INDIa

14tSI gllGit FORESIRT PEOJICI

YE I 9ENE I IS

Rs (0005

1992 5993 1994 1995 1996 1997 t9ga 1999 2000 2001 2002 2003 2004 2005 2006 2007 2001 2009 2010 2011 2012

SENEf MS

REGENERAT ION SAL SORESIS 7217 4863 2676 8553 6062 5308 60584 46545 33281 16070 502871 352s40 256367 101112 25777 14096 61771 52185 37515 U35 s5s4215REGEr4ERA7tON 011eER FOSISs 542 10991 21518 30599 36838 59976 59864 54155 55625 54256 54859 53667 53786 53655 53644 10721 103764 112526 111202 111248 4C6CPRONCIION 1fORESIFY -132 1783 3882 5445 6526 9260 8125 6815 6044 5757 7417 7438 7450 7460 7467 52287 12287 12287 i2287 1227- YtISHASIGROVES - - 132 132 132 2332 2332 2200 2200 2200 3850 3850 3850 3850 3850 97250 97250 97250 91352 9732 . 32FARNIFoRESRY AND STRIPS -5251 -2857 -936 4270 9335 19258 2t477 24547 24251 23998 396970 406161 415013 423946 432517 68612 68128 67584 67040 61496 2399TOTA 5ENEFIIS 2375 14780 27273 45098 55894 96094 1523831 134262 121401 102281 965568i 853657 736465 590027 523715 300025 349200 341835 325426 306245 1978,S

COSTS

3EGfNER*IION SAt fONES5 11589 18613 16772 20665 14260 10226 15849 12317 5860 690S 7825 5446 1544 6463 5693 5454 542s 5429 5429 5429 lCS1REGENEAI110N Ot31( ORESIS 5141 31156 43035 51283 56110 53737 29608 19615 13254 10313 9557 s597 9597 10002 11718 12038 12248 12300 11895 10179 95WPROCUIION 10fORESIRY SS 5418 7684 9275 10455 10394 s835 3845 2528 3678 1376 1376 1176 1376 1376 3376 37076 37076 37076 37015mN!CROVES 2121 5282 6548 7398 8249 6978 4668 4253 4253 4253 4253 4253 4253 4253 4253 4253 5523 7133 8249 3249 249 (ARM FOREslRY MD SIRIPS 20480 67370 82569 92975 s88u 84312 43332 3374t 29544 29544 29544 2ss44 29544 28687 27830 26972 26115 25258 25258 2525s 22221 W£51130ED UORS 11032 17936 19337 18745 17249 - - - - - - - - - - - - - -SPECIAt ACTION PSOGCR415 20564 21168 19106 17321 16987 - - - - - - - - - - - - - -10 SERVICE SUPPORI 50911 13740 13317 6193 7112 - - - - - - - - - - - - - - - -1D0I0 DEVEIOPIENI 7836 8641 4114 3364 3562 - - - - - - - - - - - - - -tECOIIEIENI COSS lfTIED PROJECI - - - - - 5700 9700 5700 9200 9700 5700 9700 s 700 9700 9700 7800 7800 7800 7800 780 78------ -- -- -- - - - - - . . . . .. ... . .. . . .. . . ...... ..... -- - - - - - - - - - - - - - - - - - - - - - - - - - - - -

101*1 COSTS 90259 589323 212781 229219 232863 175347 508992 83470 69538 62346 62295 62915 62014 60480 60569 57892 S4190 95695 95707 93990 n2818::=::=~~ ~~ ==:=:= ==== =:= =S= ====::===::=:====- -==:: :::::: =:=:=_= ===5:: :====== ==:=== ==::=: ===:=S ====: ==== ==== =

NET 5fN3EFIS -57583 -174544 -585505 -150121 -173969 -79253 43390 50792 52263 39934 903673 790742 674453 529547 453346 242133 255050 246540 229739 212258 74

70 r

0t- .

INDI A

NESI Bf GAt fORESIRT PROJtEC I

hiEI BENEFITIS.. .... ..... .

RS 90009

2013 2014 2015 2016 2017 2018 2019 20 2021 2022-2056'

8E14EfI IS

REGENERAIWI1 SAL fORESIS 383044 256480 10122 25777 14096 67771 52188 37515 18835 $m1RfEGENRAIION OI1ER fORESTS 46462 37711 33561 37786 28908 33076 35547 34631 29538 11064PR0OWC10tN fORESIRY 6815 6815 6815 6815 597S 5975 5975 5975 25175 43478NUAGROWES 2332 2332 2200 2200 2200 3850 3850 3850 3850 3164fARNFORESIRM AND SIRIPS 239998 239998 239998 239998 66496 86496 66496 68496 689 0137--.. .. .-..---- -- - - -- - - - - -- - - -- -- - -- -- - - -- - - . .. ..

101U1 8ElEFITS 678651 543336 383695 312575 117675 177168 164056 148467 143893 342334COSTS

----- ~~~~~~~~~~~~~~~~~~~~~~~~~~4335.RLEGNERATION SAL fCRESIS 8446 7544 6463 5693 5454 5429 5429 5429 5429 1784REGENERAI9ON OIHER fORESIS 9650 9597 9s7 9597 9431 9431 9262 8809 8355 PRODUCIION fORESIR7 1376 1376 5376 1376 1416 1416 9416 1416 1416MANGROVES 6978 4668 4253 4253 4253 4253 4253 4253 4253FAR91 fORESIRY tND SIRIPS 22227 22227 22227 22227 2S258 25258 25258 25258 25258AL1E0 WORKS - - -SPECIAL AC1101 PROR1R5 - - - - -

JED SfRVICE SUPPORI - - - - - - - - -fODER DEVELOPIE-NIRECURRENI COSIS A1f[IR PROJECI 7800 7800 7800 7800 7800 7800 7800 7800 7800

-- - - -- - - -- - - -- - - --- -- -- - - -- - - --- -- -- - - ... .... ..

TOTA COSIS 51476 53212 51715 50945 53691 53586 53417 52964 5210 2036

zz==zz=====: zz- - =- 2-----z -- ====-== :-===:: .:::::: .. ::::....':-=:::., _NET BElEfITS 622175 490124 331980 261631 64063 123582 110I40 95504 91383 322025

PSMm vae . i ru 6 far lam bI pu ph k m W"li d VMS 31_44.

rlb 10IQa 5(D t-3

0N)3

- 35 - Annex 3

1NDTA

WEST BENGAL FORESTRY PROJECT

SCHSnUtgL OF ESTTMATED DISBURSEMENTS

FY/Semester Disbursement Cumulative % of Total

Disbursement Credit(US$ million) (US$ million)

FY92 - III 2.0 2.0 6

FY93 - I 1.7 3.7 11II 2.7 6.4 19

FY94 - I 2.8 9.2 27- II 2.7 11.9 35

FY95 - I 3.4 15.3 45- II 3.4 18.7 55

FY96 - I 3.4 22.1 65

- II 3.0 25.1 74

FY97 - I 3.3 28.4 84

- II 3.2 31.6 93

FY98 - I 2.4 34.0 100

- 36 -

Annex 4Page 1 of 2

INDIAWEST BENGAL FORESTRY PROJECT

SUPERVISION PLAN

1. Bank Supervision Input into Key Activities. The staff input indicated inthe table below is in addition to regular supervision needs for the review ofprogress reports, procu:ement actions, correspondence, etc. (estimated for thisproject to require three staff weeks during the first year and two staff weeksper year thereafter). Detailed comments on each treatment model and somesuggestions for supervision prepared by the forester on the appraisal team areavailable in the Project Implementation Volume Annex 10.

2. Borrower's Contribution to Supervision. Progress reports are to besubmitted as follows: a) in a form to be agreed during the project launchworkshop; b) at the end of April and October each year; c) by the West BengalForest Directorate (FD) which will incorporate the information provided by theDirectorate of Animal Resources (DAR) into a consolidated project report.

3. Project monitoring and evaluation will be the responsibility of the ChiefConservator of Forests (Development) and the Conservator (Monitoring), FD andthe Special Officer (Monitoring) of DAR. Review meetings with the participationof both project agencies will be held normally in early May and October of eachyear. The meetings will be chaired by the Secretary Forests and Environment(GOWB).

4. The Chief Conservator of Forests (Development) will be responsible forcoordinatin, arrangements for bank Supervision missions, and for providinginformation required by missions.

5. Mission briefing meetings with GOI will normally be chaired by the JointSecretary, Ministry of Environment and Forests (GOI) with the participation ofthe Undersecretary, in the Ministry of Finance, and representatives of theproject agencies.

-37 - Annex 4

Page 2 of 2

BANK SUPERVISION INPUT INTO KEY ACTIVITIES

ApproximateDates Expected Skill Staff Input

(FY/semester) Activity Requirements (staff-weeks)

92-II Supervision Mission Economics/Finance 5(Project Launch Workshop) Forestry

ProcurementDisbursementMIS Specialist

93-I Supervision Mission Forestry 9Research/GeneticsSociology/NGOsFodder Spec.Organization

93- II Supervision Mission Forestry 8SociologyMicroplannerOrganization/Training

94-I Supervision Mission Forestry 8Research/GeneticsSociology/WomenAlt. Energy

94-Il Supervision Mission Forestry 5SociologyWildlife

95-I Mid-Term Review Economics/Finance 15(All aspects of project Forestryesp. treatments R3,5,6,7 Sociologyand M1,2) Organization/MIS

Wildlife

95-II Supervision Mission Forestry 7SociologyFodderOrganization

96-I Supervision Mission Forestry/Research 6Sociology/WomenAlt. Energy

96-II Supervision Mission Forestry 4Sociology

97-I Supervision Mission Economics/Finance 6(Initiate PCR work) Forestry

Sociology

- 38 -

Annex 5

INDIA

WEST BENGAL FORESTRY PROaECT

CONTENTS OF PROJECT IMPLEMENTATION VOLUME

Annex 1 Forestry in West BengalAnnex 2 Marketing of Forest ProductsAnnex 3 Forest Policies and LegislationAnnex 4 Research and Planting MaterialsAnnex 5 Institutional Aspects and Training ProgramAnnex 6 Sociological Issues and Joint ManagementAnnex 7 Forestry and Allied WorksAnnex 8 Wildlife and Protected AreasAnnex 9 Fodder DevelopmentAnnex 10 Treatment Models incl. Cost/Benefit SharingAnnex 11 Species for Treatment ModelsAnnex 12 Project Accounts and MonitoringAnnex 13 Detailed Project Cost Tables

- 39 -

WEST BENGAL FORESTRY PROJECT

DQCUMENTS AVAILABLE IN PROJECT FILE

Project Implementation Volume

Final Preparation Report Apr-91

appraisal MissiQn Working DocuMentsReport on Aspects on Forestry Technology

Assumptions for Financial and Economic Analysis

ereparation Mission Working Documents

Forestry Technology

Soil Conservation and Land UseReview of Forest Information SystemsLivestock and Fodder DevelopmentReconnaissance Survey and Energy Options

Wildlife ComponentPilot Mangrove Management ComponentLocal Inst., Tribes, Scheduled Castes, Women and NWFP

Forest Legislation ReviewInstitutional Aspects:

Interim I+I1, Workshop Brief, Final Note

Training Needs AssessmentMarketing of Major and Minor Forest Produce

Collection and Sale of Minor Forest Produce

Forest Industries

Other

GOWB - Wood Balance Study 1987

GOWB - State Report on West Bengal Forests 1989-90GOWB - Background Papers on Forestry Oct -90

I

MAP SECTION

IBRD 23246

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