ࡱ > 5 7 , - . / 0 1 2 3 4 M . bjbj== !} W W 4 l f f f v t n 2 2 2 n T B F $ T T T T T T T $ X 3Z .T ] .T T R T T Z " <4 ٯљn IJ 2 <4 T 0 T Z Z <4 n n BULGARIA BULGARIA FOREST DEVELOPMENT PROJECT PROJECT BRIEF EUROPE AND CENTRAL ASIA ECSSD Date: February 4, 2004 Country Director: Anand K. Seth Sector Manger/Director: Marjory-Anne Bromhead Project ID: P033964 Lending Instrument: Specific Investment LoanTeam Leader: Gerhard Dieterle Sectors: Forestry (40%);General agriculture, fishing and forestry sector (40%);Central government administration (10%);General public administration sector (10%) Themes: Biodiversity (P);Environmental policies and institutions (P);Administrative and civil service reform (P);Participation and civic engagement (P);Land management (S) Environmental screening category: Full Assessment Safeguard screening category: Limited impact Global Supplemental ID: P080377 Lending Instrument: Specific Investment Loan Focal Area: B-Biodiversity Supplement Fully Blended?: YTeam Leader: Gerhard Dieterle Sectors: Forestry (40%);General agriculture, fishing and forestry sector (40%);Central government administrat Themes: Biodiversity (P);Environmental policies and institutions (P) Project Financing Data[X] Loan [ ] Credit [X] Grant [ ] Guarantee[ ] Other: For Loans/Credits/Others:Total Bank financing (US$m.): 37.99Proposed terms: VSLFinancing Plan (US$m)SourceLocalForeignTotalBORROWER/RECIPIENT8.730.008.73INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT10.9927.0037.99GLOBAL ENVIRONMENT FACILITY7.750.007.75Total:27.4727.0054.47Borrower:Ministry of Agriculture and Forestry 55, Hristo Botev blvd Sofia Bulgaria 1040 http://www.mzgar.government.bg/MZ_eng/Default.aspResponsible Agency:Project Preparation Unit 23 Graf Ignatiev Street Floor 2, Apt, 13 Sofia Bulgaria 1000 Tel: 359 2 986 6652 Fax: 359 2 986 0865 forestrybg@fdp-bg.org Estimated disbursements (Bank FY/US$m)FY567890000Annual9.438.459.907.542.670.000.000.000.00Cumulative9.4317.8827.7835.3237.9937.9937.9937.9937.99 GEF Estimated disbursements (Bank FY/US$m)FY567890000Annual2.621.791.431.150.750.000.000.000.00Cumulative2.624.415.846.997.747.747.747.747.74 Project implementation period: Start January 1, 2004 End: September 30, 2009 Expected effectiveness date: September 30, 2004 Expected closing date: March 31, 2010 Does the project depart from the CAS in content or other significant respects? Ref. Project Brief A.3[ ]Yes [X] NoDoes the project require any exceptions from Bank policies? Ref. Project Brief D.7 Have these been approved by Bank management? Is approval for any policy exception sought from the Board? [ ]Yes [X] No [ ]Yes [ ] No [ ]Yes [ ] NoDoes the project include any critical risks rated substantial or high? Ref. Project Brief C.5[ ]Yes [ ] NoDoes the project meet the Regional criteria for readiness for implementation? Ref. Project Brief D.7[ ]Yes [ ] No Project development objective Ref. Project Brief B.2 The Project Development Objective is to increase the contribution of forests to the national economy and to the benefit of rural populations through sustainable management of state, private and communal forests. Global Environment objective Ref. Project Brief B.2 The Global Development Objective is to improve conservation of forest ecosystems through mainstreaming biodiversity into forest management, and through improved conservation of critical ecosystems. Project description [one-sentence summary of each component] Ref. Project Brief B.3.a, Technical Annex 4 Component 1: Strengthen Public Forest Sector Management ($19.19 million total, $15.84 million IBRD, $0.61 million GEF) --The project will support capacity building of the forest administration by assisting in building and strengthening nationwide forest extension and inspection services. Component 2: Strengthening Capacity of Non-State Forest Owners (Total $2.46 million, IBRD $1.54 million, GEF $0.73 million)--The project will provide support to new private and municipal forest owners by helping to establish a national umbrella organization, the Bulgarian Association of Forest Owners, and support the establishment of owner associations in those regions without owner representation Component 3: Supporting State Forest Management Transition to Market Economy ($24.06 million total, $19.82 million IBRD, $0.55 million GEF)--The project will finance core investments to enhance and rehabilitate the functions of the forest resource base as well as strategic investments linked to the new National Forest Company to ensure sustainable management of forest and biodiversity resources, including the design and implementation of a GIS based forest information management system, supply chain analysis, business planning, business process re-engineering and human resource development. Component 4: Strengthening Protected Areas Managed By the Ministry of Agriculture and Forests ($6.49 million total, $4.40 million GEF)--The project will support (i) office and field equipment to improve the effectiveness of the Nature Parks, (ii) an independent annual assessment of the Nature Parks? management effectiveness as a whole, (iii) priority investments and conservation programs in Nature Parks, and (v) preparation of management plans for selected Nature Parks and Protected Sites. This component will also provide counterpart funding of about US$ 1.9 million for an endowment element in a Protected Areas Fund (PAF) that would provide long-term revenue to complement direct budgetary support for protected areas, including Nature Parks. Component 5: Project Management and Monitoring ($2.26 million total, $1.03 million IBRD, $1.03 million GEF)--The project will finance the establishment of a Project Management Unit (PMU) which will assist the MAF to implement the project. Which safeguard policies are triggered, if any? Ref. Project Brief D.6 Environmental Assessment Natural Habitats Forest Involuntary Resettlement Significant, non-standard conditions, if any, for: Ref. Project Brief C.7Board presentation: The borrower: shall establish, staff, equip and maintain PMU with resources, functions and responsibilities acceptable to the Bank and with staff, whose qualifications, experience and terms of reference shall be satisfactory to the Bank; The Council of Ministers shall adopt the Restructuring Plan for the National Forest Company, including a costed and phased Action Plan and a Human Resources Development Plan. Parliament shall enact the National Forest Company Law in line with Bank requirements for accountable, efficient and transparent organizations. Loan/credit effectiveness: None Disbursement Conditions for Loan Funds: Disbursement of loan and grant funds for goods and works under components C and D is contingent on the existence of an Implementation Agreement between MAF and NFC defining the terms and conditions for those parts of the project to be implemented by NFC. Disbursement of GEF funds into the Protected Areas Fund is contingent on (a) an Implementation Agreement between the MAF and the National Trust Eco-Fund, (b) prior transfer of Bulgarian counterpart funds on a 1:1 matching basis and (c) the adoption and implementation of an Operational Manual acceptable to the Bank. Disbursement of small grant to non-state forest owners is contingent on the existence of a Small Grants Manuals acceptable to the Bank. Other covenants: The PMU will prepare a mid-term report by March 31, 2007 highlighting both the progress and constraints in the project implementation at that date. The mid-term report will serve as a basis for a joint MAF and World Bank project mid-term review. The PMU shall prepare by not later than November 30 of each year a draft annual working plan including the budget and procurement plan, satisfactory to the Bank and the POC. The PMU will develop a terms of reference and short-list of auditors for the annual audit of the loan and GEF grant. The PMU shall make sure that all project accounts (SA for the loan funds, SA for the GEF grant funds and sub-account for the counterpart funds) are audited in accordance with International Standards on Auditing, by auditors acceptable to the Bank and audit reports submitted to the Bank within six months after the end of each fiscal year. The Advisory Council to the NFC shall be established not later than March 31, 2005 with representation and Terms of reference acceptable to the Bank. The PMU will maintain a financial management system acceptable to the Bank. The project financial statements, SOEs and Special Account will be audited by independent auditors acceptable to the Bank and on terms of reference acceptable to the Bank. The annual audited statements and audit report will be provided to the Bank within six months of the end of each fiscal year. The Charter of the NFC shall be in place not later than February 28, 2005 with terms and provisions acceptable to the Bank;CURRENCY EQUIVALENTS (Exchange Rate Effective January 9, 2004) Currency Unit=Bulgarian Leva BGNBGN 1.70117=US$1US$1.266=EUR 1 FISCAL YEAR January 1December 31 ABBREVIATIONS AND ACRONYMS BAFOBulgarian Association of Forest OwnersCASCountry Assistance StrategyCoMCouncil of MinistersERPEnterprise Resource PlanningEUEuropean UnionFAOFood and Agriculture Organization of the United NationsFMISForest Management Information SystemFSCForest Stewardship CouncilGDPGross Domestic ProductGEFGlobal Environmental FacilityGISGeographic Information SystemGOBGovernment of BulgariaGTZGesellschaft fur Technische ZusammmenarbeitICSIncident Control SystemMAF MOEWMinistry of Agriculture and Forests Ministry of Environment and WaterNARDPNational Agricultural Rural Development PlanNFBNational Forestry Board of the Ministry of Agriculture and ForestsNFCNational Forest CompanyNFPSNational Forest Policy and StrategyNGONon Governmental OrganizationNTEFNational Trust EcoFundNWGNational Working groupPAFProtected Areas (endowment) FundPMUProject Management UnitPOCProject Oversight CommitteePPUProject Preparation UnitRSRestructuring Study of the National Forestry BoardSASpecial AccountSAPARDSpecial Accession Program for Rural Development of the EUSFAState Forest AdministrationUNDPUnited Nations Development Program Vice President:Shigeo KatsuCountry Director:Anand K. SethSector Manager:Marjory-Anne BromheadTask Team Leader: DOCPROPERTY TeamLeaderName \* MERGEFORMAT Gerhard Dieterle DOCPROPERTY "Country" \* MERGEFORMAT Bulgaria DOCPROPERTY "ProjectName" \* MERGEFORMAT FOREST DEVELOPMENT PROJECT Contents Page TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1" HYPERLINK \l "_Toc63827898" A. STRATEGIC CONTEXT AND RATIONALE PAGEREF _Toc63827898 \h 8 HYPERLINK \l "_Toc63827899" 1. Country and sector issues PAGEREF _Toc63827899 \h 8 HYPERLINK \l "_Toc63827900" 2. Rationale for Bank involvement PAGEREF _Toc63827900 \h 11 HYPERLINK \l "_Toc63827901" 3. Higher level objectives to which the project contributes PAGEREF _Toc63827901 \h 12 HYPERLINK \l "_Toc63827902" B. PROJECT DESCRIPTION PAGEREF _Toc63827902 \h 12 HYPERLINK \l "_Toc63827903" 1. Lending instrument PAGEREF _Toc63827903 \h 12 HYPERLINK \l "_Toc63827904" 2. Project development objective and key indicators PAGEREF _Toc63827904 \h 12 HYPERLINK \l "_Toc63827905" 3. Project components PAGEREF _Toc63827905 \h 13 HYPERLINK \l "_Toc63827906" 4. Lessons learned and reflected in the project design PAGEREF _Toc63827906 \h 16 HYPERLINK \l "_Toc63827907" 5. Alternatives considered and reasons for rejection PAGEREF _Toc63827907 \h 17 HYPERLINK \l "_Toc63827908" C. IMPLEMENTATION PAGEREF _Toc63827908 \h 17 HYPERLINK \l "_Toc63827909" 1. Partnership arrangements PAGEREF _Toc63827909 \h 17 HYPERLINK \l "_Toc63827910" 2. Institutional and implementation arrangements PAGEREF _Toc63827910 \h 18 HYPERLINK \l "_Toc63827911" 3. Monitoring and evaluation of outcomes/results PAGEREF _Toc63827911 \h 19 HYPERLINK \l "_Toc63827912" 4. Sustainability PAGEREF _Toc63827912 \h 19 HYPERLINK \l "_Toc63827913" 5. Critical risks and possible controversial aspects PAGEREF _Toc63827913 \h 20 HYPERLINK \l "_Toc63827914" 6. Loan conditions and covenants PAGEREF _Toc63827914 \h 21 HYPERLINK \l "_Toc63827915" D. APPRAISAL SUMMARY PAGEREF _Toc63827915 \h 22 HYPERLINK \l "_Toc63827916" 1. Economic and financial analyses PAGEREF _Toc63827916 \h 22 HYPERLINK \l "_Toc63827917" 2. Technical PAGEREF _Toc63827917 \h 24 HYPERLINK \l "_Toc63827918" 3. Fiduciary PAGEREF _Toc63827918 \h 25 HYPERLINK \l "_Toc63827919" 4. Social PAGEREF _Toc63827919 \h 25 HYPERLINK \l "_Toc63827920" 5. Environment PAGEREF _Toc63827920 \h 26 HYPERLINK \l "_Toc63827921" 6. Safeguard policies PAGEREF _Toc63827921 \h 27 HYPERLINK \l "_Toc63827922" 7. Policy Exceptions and Readiness PAGEREF _Toc63827922 \h 29 HYPERLINK \l "_Toc63827923" Annex 1: Results Framework and Monitoring PAGEREF _Toc63827923 \h 30 HYPERLINK \l "_Toc63827924" Annex 1: Results Framework and Monitoring PAGEREF _Toc63827924 \h 30 HYPERLINK \l "_Toc63827925" Annex 2: Incremental Cost Analysis PAGEREF _Toc63827925 \h 33 HYPERLINK \l "_Toc63827926" Annex 3: STAP Review and Banks response PAGEREF _Toc63827926 \h 43 STRATEGIC CONTEXT AND RATIONALE Country and sector issues Country Background: The Bulgarian Government is committed to continue reforms to improve living standards and reduce poverty. The Government's program provides a good framework for achieving Bulgaria's main objectives of growth, poverty reduction and EU accession, and a sound basis for external assistance. In the past few years, the country has continued to make good progress in completing reforms and in the adoption of the EU acquis. The Bank's group assistance strategy (presented to the Board on May 5, 2002) was designed to support Bulgaria's reform program. The strategy was prepared in close cooperation with partners including the EU, UNDP, EBRD, EIB, IMF and a number of bilateral donors. The overall Bulgaria CAS objectives are poverty reduction and raising of living standards, and support for Bulgaria's efforts towards EU accession. The three main themes of the CAS are: a) promotion of competitive private sector-led growth; b) strengthening of public administration and anti-corruption initiatives; c) mitigation of the social impacts of restructuring and delivering social services more effectively. The Bank aims to support the country in implementing structural policies, institutions and investments for achieving sustained, competitive growth, improved living standards, EU integration and social inclusion. Forestry Sector: Bulgarias forest regime builds on traditional European principles of multi-functional management providing economic, environmental and social benefits on the same area. Bulgarian forests cover 3.91 million ha or circa 34 percent of the national territory. Ownership is 86 percent state, 8 percent private individuals, 5 percent municipalities with the remainder split between religious, schools, co-operatives etc. Approximately 80 percent of forests are in the mountain regions and 85 percent of streams and watercourses in the country originate in forest lands. Broadleaved forests account for 67 percent of forest area, and 56 percent of stand volume and conifers - 33 percent area and 44 percent of volume. Annual harvesting averages some 4.4 million m3 (about 84 percent of what is envisaged in the forest management plans), of which 73 percent is for the forest industry and 27 percent for the local population. Rehabilitation and increasing the cover of its formerly severely degraded forest resources have been key elements of Bulgarias forest policy till today. Bulgarias forest cover has been expanded considerably over the last century, especially between 1950 and 1990, mainly with pine plantations. However, in the last 11 years, Bulgarian forests have suffered extensive fires damage with 133,000 ha burnt mainly on previously afforested lands. Illegal activities in forests are significant and continue to cause widespread concern. There is a significant backlog in silvicultural activities and no sign of a turn-around, as financing gaps in the forestry administration continue to widen. Bulgaria is a net exporter of wooden furniture and exports exceed imports by a factor of 2.6 2.7. Forestry plays an important role in rural Bulgaria as a provider of employment, recreation, tourism, water and public purpose activities. Global significance of Bulgarias forest ecosystems: Bulgaria is located on the crossroads of three broad bio-climatic regions the mid-European continental, Eurasian steppe, and Mediterranean which create a diverse range of transitional climatic conditions. The complex topography of mountain ridges, foothills, lowlands, and plains provides a high degree of variation in habitats from alpine forest belts, lowland grasslands and river plains to the dune communities along the Black Sea coast. The combination of habitat types and biogeography results in a level of biodiversity that ranks among the highest in Europe, and includes a wide range of relict and endemic plant and animal species (especially in the high mountain forest zone) dating back to the Tertiary and Quaternary periods. Particularly important habitats include various types of dwarf pine forests, beech forests, chestnut forests and the euxine oak forests of the Strandja Mountains. These forest host large populations of large carnivores such as bears and wolves. Bulgaria operates a network of protected areas, which cover more than 556,303 ha, or 5 percent of the country and combines areas with different types of protective regime, including: (i) strict reserves (55 reserves, 76,978 ha) corresponding to WB/WWF ALLIANCE category 1 (ii) managed reserves (35 reserves, 4,452 ha) areas managed for protection purposes; (iii-iv) national parks (3 parks, 193,048 ha) and nature parks (10 parks, 236,973 ha) territories managed mostly for protection and recreation; (v) nature monuments (426 monuments, 23,153 ha) protected individual features of nature; and (vi) protected territories (103 territories, 21,700 ha) - areas managed in accordance with the case-specific conservation requirements. Institutional Arrangements: Management of state forests and the control of all forests is the responsibility of the National Forestry Board (NFB) in the Ministry of Agriculture and Forests (MAF). All key functions of forest management, supervision/control and forest extension are united in one and the same organization. The NFB has recently been restructured from an agency of MAF, with its own budget and resources, to a department of MAF dependent upon the state budget. This change has affected NFB's funding and assets. Revenues from sales of forest products are transferred to the treasury and cannot be directly used as working capital for forest operations. At the same time, annual allocation of state budget funds do not recognize the seasonal nature of forest activities and are not sufficient to carry out management functions adequately. Furthermore, with revenues transferred to the Treasury incentives for efficiency are low. MoEW and its National Nature Protection Service manage through the National Park Directorates and Regional Inspectorates for Environment and Water administer strict reserves, managed reserves, and national parks. MAF through its Division for Protected Areas and Biodiversity manages nature parks, protected territories, and nature monuments. Governments strategy for forest management: A National Forest Policy and Strategy (NFPS) has been developed over the past months through an open and participatory process and has been approved by the Council of Ministers in October 2003. This sets out the broad development framework for the sector including the role of the state. The strategic vision is -The Bulgarian forest is a national asset. The resources of the forest ecosystems retain their ecological, social and economic functions for improving the quality of life of people. Forests are professionally managed in a stable forest sector with broad public support and mutual respect and integration of the interests of all stakeholders. Strategic goals and actions have been identified to address the issues facing sustainable development of the sector (see summary in Annex 1, section 3). Key strategic actions are (i) reform of the National Forestry Board (NFB) with the separation of ownership and supervisory functions, (ii) investment in forest stability and health through silvicultural works tending of young stands, reforestation, (iii) preserving the biodiversity value of forests, (iv) improving roading infrastructure, (v) increasing the level of sustainable harvesting while addressing illegal activities, (vi) ensuring the delivery of multi-function forestry and (vii) enhancing the contribution to environment and rural development. Innovative approaches form part of the NFPS. Forest certification is defined as a strategic tool to improve national forest management standards and to help to integrate the Bulgarian forest sector into environmentally sensitive Western European markets for timber and timber products. Also, the NFPS identifies the tremendous potential Bulgarian forest can play in securing benefits from marketing of carbon assets in the context of the Kyoto Joint Implementation Scheme and by making use of Green Investment Schemes. Currently, a costed and phased strategic action plan to implement the NFPS is being prepared and will be finalized by July 2004. Building on this, a restructuring study funded by the Government of Bulgaria and a World Bank - administered PHRD grant has identified and developed a model for the future development of the state forest sector. Building on European good practice examples, the basic approach foresees the separation of management and supervisory functions to improve efficiency, transparency and accountability of all institutions involved. Choosing from a number of alternatives which included continuation within an improved State forest administration and the introduction of forest concessions, the Government of Bulgaria has decided to break up the NFB into a new state forest company (NFC) with an essentially commercial mandate and a state forest administration (SFA) with control and supervisory functions as well with an extension service to assist new private and municipal forest owners. The National Forest Company still would have to assure important public good management functions such as the management of Nature Parks, providing recreational services and assisting poor rural populations with fuel wood. However, such functions would be provided in a clear and transparent manner based on contractual arrangement and remunerated from the State budget (see summary in Annex 1, section 4). A restructuring plan, including a costed and phased action plan and a human resources management plan, have been prepared and the legal framework for the implementation of this reform is expected to be finalized by May 2004. This holistic approach to forest sector development is being implemented through the Forest Development Project funded by the World Bank and GEF and completed by EU SAPARD and bilateral Swiss and German donors assistance. The Government of Bulgaria demonstrates strong commitment to preserving global biodiversity values. Bulgaria is a Party to key relevant international conventions and to a number of important regional conservation agreements including the Convention on Biological Diversity ratified on April 17, 1996. The National Biodiversity Conservation Action Plan adopted by the Government in 2000, which follows the National Biodiversity Conservation Strategy developed in 1994 and approved by the Government in 1998, is under implementation to address conservation and restoration of key ecosystems, habitats, species and their genetic resources, and provide grounds for the sustainable use of biological resources in the country. Rationale for Bank involvement The Government of Bulgaria has requested Bank support to improve forest management and to protect Bulgarias global biodiversity values. The forestry sector is facing challenges related to the transition to market economy, restitution and EU Accession. There have been huge losses from forest fires; the sector is unable to finance management activities thus reducing national and global public good functions. A forestry project addressing institutional reform, private owners, forest fires and incorporating biodiversity conservation in forest management was considered most needed and timely and assessed to have the best chance of success. The Forest Development Project profits from a unique opportunity to build on a thorough participatory reform process and detailed action plans developed during project preparation. The implementation of these reforms over the coming years can be closely monitored and directly assisted by the project thus increasing tremendously chances for their success and sustainability. The forestry project would complement and interface with the EU PHARE Twinning program for strengthening the institutional capacity of the SFA and the management and business skills of the NFC. The project would also complement the Forestry Measure under the EU SAPARD program targeted at the private forestry sector and facilitate its realignment to identified needs and the maximum draw-down of funds. The Bank's experience and capacity to (i) raise grants, (ii) bring together donors and stakeholders, (iii) take a broader perspective than other donors, (iv) adapt key elements of solutions implemented elsewhere to local situation(s), (v) network best practice and emerging initiatives, (vi) access carbon finance (Biocarbon Fund) and, (vii) support far-reaching sector reforms affecting institutional structures is a major asset in facilitating the implementation of this project. The Bank is assisting with forest reform processes in several other ECA countries and is bale to bring in an international perspective Higher level objectives to which the project contributes The project would contribute to the Governments commitment to environmentally sustainable development and the National Agriculture and Rural Development Plan (NARDP) through reform of the state forestry sector, mainstreaming of biodiversity and environmental values in forest management, investment in silvicultural and fire prevention activities, placing of state forestry on a self-funding basis, support for private forest owners and facilitating the development of the wood industry sector. The project objectives directly respond to the objectives of the CAS in seeking to strengthen public administration and to promote the private sector to allow sustainable management of the forest sector to contribute more to the national economy. The project will strengthen public forest management, strengthen the capacities of private and communal forest owners, and adapt state forest management to a market economy as well as promote biodiversity conservation. The outcomes of the project lead directly to achieving the goals and objectives of the CAS. The proposed project design is fully consistent with the provisions of the Convention on Biodiversity, with the GEF Operational Strategy and specifically with its Operational Programs 3 (Forest Ecosystems). Indeed, it will support the conservation of rich biological diversity in forest ecosystems of global significance and addresses the Programs objectives of (i) promoting conservation and protection of primary and old growth and ecologically mature secondary forest ecosystems in areas at risk, and (ii) ensuring the sustainable use of biodiversity by combining production, socio-economic and biodiversity goals. PROJECT DESCRIPTION Lending instrument The sector investment project will be financed by a Specific Investment Loan for the equivalent of 38.0 million US Dollars blended with the GEF grant for of 7.75 million US Dollars. Project development objective and key indicators The Project Development Objective is to increase the contribution of forests to the national economy and to the benefit of rural populations through sustainable management of state, private and communal forests. The Global Development Objective is to improve conservation of forest ecosystems through mainstreaming biodiversity into forest management, and through improved conservation of critical ecosystems. Project performance indicators include: (a) increased contribution of forests and forest industries to GDP, (b) reduction in forest fires and fire response times, (c) increased area of non-state forests covered by adapted forest management plans, (d) transparent, results-based management systems in place for SFA and NFC, (e) reduction in illegal forest related activities, (f) area of high conservation value forests and functionally related habitats in productive landscape for which actual boundaries have been identified and status has been assessed and (g) management effectiveness of forest nature parks improved to a level of at least 70 percent using WB/WWF Alliance criteria. Project components Component 1: Strengthen Public Forest Sector Management ($19.19 million total, $15.84 million IBRD, $0.61 million GEF) The project will support capacity building of the forest administration by assisting in building and strengthening nationwide forest extension and inspection services. In line with the National Fire Strategy, the project will support various activities aiming at improving the forest fire prevention and management capacities. The forest administration will be equipped with a modern national database and information system providing the basis for strategic decision making as well as for monitoring and control of forest management by all actors in the forest sector. Capacities of forest professional schools will be upgraded and their training capacities strengthened. The project will address illegal logging and engage all stakeholders in a strategic dialogue to improve forest governance. It will also help to finalize the draft national forest certification standard prepared by a National Working Group. As an innovative tool for improving forest financing the project will help to create the capacity within MAF to leverage sustainable financing from Joint Implementation (JI) and Green Investment Schemes. Concrete investment proposals for submission to potential donors would result from this activity. This component will be mainly financed by IBRD funds but GEF will provide incremental funding under the various activities to enhance biodiversity conservation in forest management planning and forest management. Of special importance will be the identification and mapping of high conservation value forests and habitats without special protection status. Component 2: Strengthening Capacity of Non-State Forest Owners (Total $2.46 million, IBRD $1.54 million, GEF $0.73 million) The project will provide support to new private and municipal forest owners by helping to establish a national umbrella organization, the Bulgarian Association of Forest Owners. It will also support the establishment of owner associations in those regions without owner representation. This support will include the development of guidelines for forest management / business plans for municipal and private owners. This component will be mainly be financed by IBRD funds but GEF will provide incremental funds to address conservation and biodiversity management plans in critical habitats and watershed protection areas. This will also include assistance to new forest owners in accessing EU SAPARD funds (EU pre-accession funds). A combined IBRD/GEF funded small grants program implemented through the State Forest Extension Service and the Nature Park Directorates will help strengthen public participation in forest biodiversity conservation and restoration of habitats especially in areas adjacent to protected areas. Component 3: Supporting State Forest Management Transition to Market Economy ($24.06 million total, $19.82 million IBRD, $0.55 million GEF) The project will finance core investments to enhance and rehabilitate the functions of the forest resource base as well as strategic investments linked to the new National Forest Company to ensure sustainable management of forest and biodiversity resources. This will include the design and implementation of a GIS based forest information management system, supply chain analysis, business planning, business process re-engineering and human resource development. Support will be provided for the development of senior management capacity and specialist training for HQ and Region staff. The project will support the cost of an international Co-chief executive for the first three years to ensure access of international best practice approaches and swift implementation of reform agenda. Insufficient investments into the forest road network in recent years have led to negative effects, such as increased extraction costs and environmental damage through partial over-exploitation, driving with heavy tractors inside forest stands, non-accessibility in case of forest fires etc. Targeted investments by the project would support the (i) development of a national forest road master plan which incorporates environmental and biodiversity aspects (ii) development of a Code of Best Practice for the design, construction and maintenance of forest roads and (iii) upgrading (about 120 km) and construction of forest roads (about 30 km) in pilot areas identified under the master plan including the cost of environmental assessment (see Map 3). The project will support the thinning of some 10,000 ha in the priority regions (see Map 2). The project will also finance reforestation of 600 ha (see Map 1). Under the condition that carbon credits can be obtained the area of reforestation and rehabilitation of burned and degraded land could be significantly enlarged to up to 10,000 ha by attracting investors under Green Investment Schemes by selling AAUs form the national carbon budget. Both, thinning and reforestation will generate significant employment opportunities in poor and underdeveloped regions. The project would also assist the NFC in testing and establishing a pilot certification project in State forests. Component 4: Strengthening Protected Areas Managed By the Ministry of Agriculture and Forests ($6.49 million total, $4.40 million GEF) This component will assist, mainly with GEF funding, the strengthening of the system of Nature Parks. The project will support (i) office and field equipment to improve the effectiveness of the Nature Parks, (ii) an independent annual assessment of the Nature Parks management effectiveness as a whole, (iii) priority investments and conservation programs in Nature Parks, and (v) preparation of management plans for selected Nature Parks and Protected Sites. This component will also provide counterpart funding of about US$ 2.0 million for an endowment element in a Protected Areas Fund (PAF) that would provide long-term revenue to complement direct budgetary support for protected areas, including Nature Parks. The project will assist the establishment of the PAF thus stimulating its expansion and revenues with additional resources coming from (i) domestic and international private sector organizations, (ii) Government of Bulgaria (matching contribution up to USD 6 million), and (iii) international multi- and bilateral donors. Through the PAF, the project would support activities in) biodiversity protection, restoration, and monitoring in protected areas. The targeted capitalization of the Protected Area Endowment Fund (PAF) is USD 8 mln equivalent by the end of the third year of implementation and USD 12 mln equivalent - by project completion. Disbursement of GEF grant funds to will be done on a 1:1 basis upon notification of the Governments payment of the counterpart fund into the PAF account. The Government contribution to the fund should overall exceed GEF contribution at least by a factor of three. Component 5: Project Management, Monitoring and Inter-sectoral Training Program ($2.26 million total, $1.03 million IBRD, $1.03 million GEF) To provide project oversight and policy guidance during implementation, a Project Oversight Committee (POC) will be established at the level of the Ministry of Agriculture and Forestry in collaboration with the Ministry of Finance, Ministry of the Environment and the State Forest Administration and National Forest Company. The project will finance the establishment of a Project Management Unit (PMU) which will assist the MAF to implement the project. The PMU will be staffed by a small number project consultants which will assist the MAF PMU director in day to day management of the Project, especially with procurement and financial management. The PMU will ensure continuity and sustainability of project operation in times of institutional reforms and establishing of new structures in the SFA and the NFC. The PMU will monitor the progress of the project with support of stakeholders, provide quarterly implementation reports and activity plans and will be responsible for dissemination of project results. The GEF will finance incremental costs for the implementation of the project to ensure coordination of the biodiversity conservation activities under the project. An Integrated Inter-Sectoral Training Program will be implemented to broaden and deepen the biodiversity capacity of forest managers in the public and private sector. Project Costs * ComponentIndicative Cost(US$ million)% of TotalBankFinancing(US$ million)% of BankFinancingGEFFinancing(US$ million)% of GEFFinancing1 Strengthen Public Forest Sector Management $19.1935.2%$15.8442%$0.618%2 Strengthening of Capacities of Non-State forest owners $2.464.5%$1.544%$0.739%3 Supporting State Forest Management Transition to Market Economy$24.0644.2%$19.8252%$0.557%4Strengthening Protected Areas Managed By the Ministry of Agriculture and Forests $6.4911.9%$4.4057%5Project Management and Monitoring $2.264.1%$0.782%$1.3918% Total Project Costs$54.46100.0%$37.98100%$7.68100% Front End Fee$0.38$0.38 Total Financing Required$54.84$38.36* Approved environmental activities are VAT exempt (also see Section 6). Lessons learned and reflected in the project design The ICRs of successfully completed projects in Poland, Croatia and Bosnia and Herzegovina illustrate that support for sector reforms have helped to improve forest management and to build consensus for innovative and participative approaches. The project builds on the NFPS process, on the recommendations of the RS and on the extensive consultation during project preparation. Key lessons have been drawn from experience in other countries, including EU member countries, and include: (a) significant benefits can accrue to society, to forest resources and to the economy through the separation of forest ownership/management and supervisory functions, (b) political interference can negate the process of change and endanger the viability of newly formed forest organizations, (c) implementation of restructuring requires extensive consultation and a bottom up approach, (d) forestry is as much about people and relationships as it is about trees, (e) new private forest owners require support to (i) enable them to collaborate, (ii) manage their forests in a sustainable manner and (iii) be aware of their responsibilities, (f) early and continued involvement of stakeholders in project design improves ownership and support, (g) a balanced approach across the sector is more likely to provide sustainability, (h) society places significant value on forestrys ability to deliver non timber products and services and (i) as long as biodiversity is treated as something separate it will never be integrated into normal forest planning and management. Alternatives considered and reasons for rejection A without project alternative was rejected in view of the urgent need to address the issues in the sector. Failure to take action through a comprehensive project would result in unsustainable forest management practices, continued degradation of forest and loss of forest and environmental values, both for employment generation in rural areas, biodiversity conservation and watershed protection. A project focused solely on the state administration and state ownership and strengthening of structures was rejected as this approach was considered too narrow and placed at risk the emerging and vulnerable private owners. In most other forestry projects, assistance has been provided with reforms during implementation. This allows for more time to build consensus but often too little time for implementation. In the Bulgaria case the reform process was initiated in parallel to project preparation as there was political support and momentum. The project will help to assist the implementation of the reform over the period of project implementation and will help to ensure transparency and accountability of decision making processes. An implementation calendar for the first six months (see annex 4) and an action plan covering a period of four years have been developed by the Government. A project without investment into the forest roads network was considered and rejected, as without the support from the project, road design and construction practices are unlikely to improve or allow for stakeholder input thus placing at risk environmental values. A project focusing on forestry to the exclusion of the GEF biodiversity component was considered and rejected as unlikely to succeed in the mainstreaming of biodiversity into normal forest planning and management and likely to facilitate non-integrated approaches to protected areas and nature parks. IMPLEMENTATION Partnership arrangements The project will be implemented in collaboration with a number of directly related and supporting projects. The EU PHARE Twinning will support institutional and capacity building of middle and lower management in the SFA and NFC during 2004. The projects capacity building will be implemented with an initial focus on those areas outside of PHARE Twining and thereafter building on the joint outcome during the first year. The PMU will co-ordinate capacity enhancement measures with the PHARE implementing agency. The project aims to increase the effectiveness and draw down of EU SAPARD funding under the forestry measure, working closely with the SAPARD agency and the SFA. The WWF will support the finalization and endorsement of the national standard through public awareness and funding of participatory processes, while UNDP will support the pilot certification of state forests through training and awareness raising. In developing an action plan for critically endangered habitats in production forests, the project will integrate with the Natura 2000 system. The project design includes complementarities with the FAO project to strengthen capacity for fire prevention and a joint implementation committee consisting of representatives from PMU, state forest administration and national forest company will be formed to co-ordinate activities. The German agency GTZ will continue to target private owners and will support the establishment of the national representative body and regional based associations through the provision of technical assistance. Institutional and implementation arrangements A Project Oversight Committee (POC) will be responsible for providing oversight and assistance in resolving issues associated with project implementation. The Deputy Minister for Forestry in MAF will chair the committee which will be composed of representatives from the MAF/SFA, the NFC, MOEW, Ministry of the Interior non-State forest owners and NGOs. The POC will establish close links with relevant stakeholders and invite their input on a regular basis. The MAF will have overall responsibility for the project, including procurement, disbursement, maintenance of project accounts and coordination of implementation. The annual work plan and procurement plan will be adopted by the POC. A Project Management Unit (PMU), to be located within the offices of the MAF and separate from the National Forestry Board or its descendents, will manage implementation of the project on behalf of MAF. The current project preparation unit (PPU) will transfer to the PMU. The results of two assessments of PPU capacity have been incorporated into the training plan and support measures for the future PMU but are reliant on the current staff transferring. Through the PMU, the SFA within MAF and the NFC will be responsible for carrying out project activities at the national level. An implementation agreement between the MAF and the NFC will be established defining terms and conditions for all project activities to be implemented under the responsibility of NFC. The NFC will through its regional representations will be responsible for silvicultural activities and retain its high level of forestry technical knowledge necessary for implementation of forest investments. The internationally recruited Co-chief executive will ensure access to international best practice approaches and transparency in following up on the reform agenda. An Advisory Council to the NFC, composed of important stakeholders involved in its activities, will be established and meet at least every six months for providing strategic guidance to the management of the NFC. Support to non-State forest owners will be provided on the basis of individual contracts with the emerging extension services in the SFA and with the emerging National Forest Owner Association. The two small GEF funded small grants programs for the promotion of biodiversity in forest management and in protected areas will be established on the basis of a feasibility study to be finalized at the end of year one of project implementation. Given its inter-sectoral character, the project will be implemented in close collaboration with the Ministry of the Interior (National Service for Fire and Emergency Safety), the Ministry of Energy and Energy Resources (Executive Agency for Energy Efficiency), the Ministry of the Environment (Directorate for Protected Areas) and other national institutions as required. An implementation agreement between the MAF and the National Trust Eco-Fund will be established, defining terms and conditions for the establishment and operation of the Protected Areas Fund.. The project will establish close collaboration and coordination with the forestry and biodiversity donor community and will work closely with UNDP in the field of biodiversity conservation Monitoring and evaluation of outcomes/results The PMU has already established project monitoring and evaluation procedures acceptable to the Bank, and will furnish the Bank with biannual project progress reports, together with work programs inclusive of detailed monitoring indicators for the following six-month period. Monitoring and evaluation will make use of existing data sources, supplemented by data collection within the project and contracted inspection survey assessments. It will include assessment of forest works, of processes supporting the functioning of the two new organizations, and of project processes used to address biodiversity issues. The evaluation of outcomes will make use of baseline measurements from project preparation, the social assessment, environmental assessment and updated data at mid-term and project completion from the project monitoring system. Where appropriate, realignment of project activities would follow the mid-term evaluation. Lessons learned from implementation of project activities will be recorded in a report prepared by the borrower with the assistance of the PMU. The internationally recruited Co-chief executive will provide progress reports on six-month intervals. Sustainability The commitment to overall reform and long-term development of the sector is evidenced by the adoption of the NFPS by the Council of Ministers (CoM) in October 2003. The decision by the CoM to pursue a restructuring option consistent with good practice in several EU member/accession countries like Austria, Ireland, Latvia, Germany (division of the NFB into a SFA with a supervisory and regulatory role and a NFC with a commercial mandate) shows a willingness to undertake the institutional reform that forms an essential element of the project. This approach is expected to have fiscal benefits (see section D) after 3-5 years and lead to a financially stable and independent National Forest Company. The society would benefit from increased tax revenues and from dividends paid from sales of forest products. The Interdepartmental Coordination Council, recommended in the National Forest Fire Strategy and necessary for the forest fire support, has been established. The Ministry of Finance and core government ministries have expressed their full support and have agreed to retroactive financing for a series of activities in 2004. The forestry sector were involved in the design of the project and in the RS. The implementation of the findings of the RS and collaboration with the PHARE Twinning capacity building support will address concerns relating to institutional sustainability. Long-term sustainability is also dependent on the Governments commitment to provide adequate funding to the SFA to which it is committed to. The project approach will provide the Bulgarian forestry sector with a competitive position and access to environmentally sensitive markets in Western Europe. Critical risks and possible controversial aspects RisksRisk Mitigation MeasureRisk Rating with MitigationTo project development objectivePrivate owners may adopt unsustainable forest management practices(a) Establishment of private owners directorate within the SFA. (b) Strengthening of extension services. (c) Support for the establishment of private owner associationsMPolitical interference in the running of the NFC(a) Appointment of international Co-chief executive. (b) External recruitment for senior management team. (c) Commercial auditing and accounting (d) Operating, reporting and control procedures in new company. SBecause of broader budget constraints, GoB fails to finance public good functions of forestry adequately.Improved forest management should generate increased fiscal revenue over timeSTo component resultsResistance to change in SFA and NFC(a) Participatory approach in restructuring study. (b) No compulsory job losses. (c) Training and capacity enhancementMLand owners/users may not accept new restrictions and procedural requirements related to biodiversity conservation and sustainable forest management. The project will support public environmental education and activities to increase public awareness on sustainable use of forest biological resources. The project will also finance programs, targeted at new forest owners, to support conservation of these stakeholders. MRisk Rating H (High, p>75%), S (Substantial, 50