Documentof The World Bank FOROFFICIAL USEONLY Report No: 27943-HN PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT INTHEAMOUNT OF SDR 13.4MILLION (US$20.0 MILLIONEQUIVALENT) TO THE REPUBLIC OF HONDURAS FOR A FORESTS AND RURALPRODUCTIVITY PROJECT May 24,2004 Environmentally and Socially SustainableDevelopment LatinAmerica andthe CaribbeanRegion Central America Country ManagementUnit This document has a restricteddistribution and maybe usedbyrecipients only inthe performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS (Exchange Rate Effective January 31,2004) Currency Unit = Lempira 17.81 = US$1 US$1.49313 = SDR 1 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AFE-COHDEFOR State Forestry Agency - Honduras Forestry Development Corporation AMHON Association o f Municipalities o f Honduras CAS Country Assistance Strategy CIDA Canadian International Development Agency CIEF Forest Information and Statistics Center COPECO Permanent Commission o f Contingencies DICTA Directorate for Agricultural Science and Technology DINADERS National Directorate for Sustainable Rural Development EU European Union FETRIPH Federation o f the Pech Tribes o f Honduras FETRIXY Federation o f the Xicaque Tribes o f Yoro FHIS HonduranSocial Investment Fund FMU Forest Management Unit GEF Global Environment Facility GOH Government o f Honduras GTZ German Technical Assistance ICR Implementation Completion Report IDA International Development Agency IDB Inter-American Development Bank INA National Agrarian Institute MIS Management and Information System PAAR Rural Areas Administration Project PACTA Land Access Pilot Project PATH Forests and RURALPRODUCTIVITYProgram PBPR Forests and Rural Productivity Project PCU Project Coordination Unit P M D N Natural DisastersMitigation Project PRONADERS National Program For Sustainable Rural Development PRONAFOR National Forestry Program PRONAGRO National Agriculture Program PRS Poverty Reduction Strategy PRSC Poverty Reduction Strategy Credit PRSP Poverty Reduction Strategy Paper PST Private Technical Service Provider SAG MinistryofAgriculture and Livestock FOROFFICIAL USEONLY SERNA Ministry ofNaturalResources andthe Environment SGJ Ministry of Governance and Justice SINAP National Property Administration System SINAPH Honduras National ProtectedAreas System SINIT National Territorial InformationSystem SINREC IntegratedRegistry Cadastre System SNITTA National System for Research and Technology Transfer SOE Statement of Expenditure SWAp Sector-Wide Approach SURE Unified Registries System UNDP United Nations Development Program USAID United States Agency for International Development Vice-president: David de Ferranti Country ManagedDirector: Jane Armitage Sector Manager: Mark Cackler Task Team Leader: James W. Smyle This documenthas arestricteddistribution andmaybe usedbyrecipients only inthe performance oftheir official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization. Thisdocument has a restricteddistributionandmay be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. HONDURAS Forests and RuralProductivity CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ........................................................................ 1 1. Country and sector issues.................................................................................................. 1 2. Rationale for Bank involvement ........................................................................................ 4 3. Higher level objectives to which the project contributes ...................................................... 5 B. PROJECT DESCRIPTION ........................................................................................................ 5 1. Lending instrument........................................................................................................... 5 2. Project development objective and key indicators............................................................... 5 3. Project components .......................................................................................................... 6 Table 1 ProjectCosts by Component and IDA Contribution . ........................................................ 7 4. Lessons learned and reflected inthe project design............................................................. 8 5. Alternatives considered and reasons for rejection................................................................ 9 C. IMPLEMENTATION ................................................................................................................. 9 1. Partnership arrangements (ifapplicable) ............................................................................ 9 2. Institutionaland implementation arrangements................................................................. 10 3. Monitoring and evaluation o f outcomes/results................................................................. 11 4. Sustainability ................................................................................................................. 11 5. Critical risks and possible controversial aspects................................................................ 12 6. Loadcredit conditions and covenants............................................................................... 13 D APPRAISAL SUMMARY . ........................................................................................................ 13 1. Economic and financial analyses ..................................................................................... 13 2. Technical ....................................................................................................................... 14 3. Fiduciary........................................................................................................................ . . 15 4. Social ............................................................................................................................ 15 5. Environment .................................................................................................................. 16 6. Safeguardpolicies .......................................................................................................... 16 7. Policy Exceptions and Readiness..................................................................................... 17 Annex 1:Country and Sector Background ...................................................................................... 18 Annex 2: Major RelatedProjects Financed by the Bank and/or other Agencies ......................... 22 Annex 3: Results Frameworkand Monitoring ................................................................................ 23 Annex 4: Detailed Project Description ............................................................................................. 29 Annex 5: Project Costs....................................................................................................................... 43 Annex 6: Implementation Arrangements ........................................................................................ 44 Annex 7: Financial Management and Disbursement Arrangements ............................................ 51 Annex 8: Procurement ....................................................................................................................... 57 Annex 9: Economic and Financial Analysis ..................................................................................... 63 Annex 10: Safeguard Policy Issues ................................................................................................... 75 Annex 11:Project Preparationand Supervision ............................................................................. 83 Annex 12: Documents inthe Project File ......................................................................................... 85 Annex 13: Statement of Loans and Credits ..................................................................................... 87 Annex 14: Country at a Glance ......................................................................................................... 89 M a p IBRD 26280 HONDURAS FORESTS AND RURALPRODUCTIVITY PROJECT PROJECT APPRAISAL DOCUMENT LATIN AMERICA AND CARIBBEAN LCSER Date: May 24,2004 Team Leader: James Smyle Country Director: Jane Armitage Sectors: General agriculture, fishing and Sector MangedDirector: John Redwood forestry sector (100%) Themes: Landmanagement(P); Ruralpolicies (P); Other environmental management (P); Natural disasters (S), Municipal governments (S) Project ID: PO64914 Environmental screening category: Partial Assessment LendingInstrument: Specific Investment Loan Safeguard screening category: Limited impact [ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total IDA financing (US$m.): 20.00 Prooosedterms: StandardCredit Term ASSOCIATION GLOBALENVIRONMENTALFUND' 5.4 0.6 6.0 BENEFICIARIES 0.7 0.7 Total: 29.4 3.3 32.7 Borrower: Republic of Honduras Responsible Agency: Ministryo fAgriculture and Livestock, through Unidad Coordinadora de Proyectos Edif.Educredito, 2a planta Colonia Florencia Norte Tegucigalpa Honduras Tel: 504-239-68 13 Fax: 504-239-7817 hmerriam@,ucp.hn ' See SectionC.1. and Annex 4. Expected closing date: January 31, 2010 Does the project depart from the CAS incontent or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Re$ PAD D.7 []Yes [XINO Have these been approved by Bank management? []Yes [IN0 I s approval for any poiicy exception sought from the Board? []Yes [IN0 Does the project include any critical risks rated "substantial" or "high"? Refi PAD C.5 [XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Re$ PAD B.2, TechnicalAnnex 3 The project's development objective is: To increase the economic benefits and environmental services derived from forest ecosystems inselected low income municipalities with highagro- forestry potential withinthe project area (see PAD Annex 4, Table 4) Project description [one-sentence summary of each component] Re$ PAD B.3.a, TechnicalAnnex 4 The project has four components: (i)Community Forestry; (ii) Management, Tenure and Forest Conservation; (iii) Local Government & Disaster Preparedness; and (iv) Project Coordination and Management. Which safeguard policies are triggered, if any? Re$ PAD 0.6, TechnicalAnnex 10 Yes, the project triggers Environmental Assessment (OP 4.0I), Habitats (OP 4.04), Pest Natural Management (OP 4.09), InvoluntaryResettlement (OPBP 4.12), Indigenous Peoples (OD 4.20), and Forests (OP4.36) Significant, non-standard conditions, if any, for: Re$ PAD C.6 Boardpresentation: None Loadcredit effectiveness: Inadditionto the standard conditions the following have been specified as additional conditions to the effectiveness o f the Development Credit Agreement within the meaning o f Section 12.01 (b) of the General Conditions: (a) that the Operational Manual, including an operating plan for the first year o f Project implementation and a detailed procurement plan satisfactory to the Association, has been issued and put into effect; (b) that the PCU has beenproperly staffed (including the selection of a procurement officer and a financial officer) as referred to in Section 3.05 (a) o f this Agreement; (c) that the financial management system referred to inSection 4.01 (a) o f this Agreement and a time-bound action plan therefor has been established and become operational; and (d) that the Procurement Agreement has beensigned by the Procurement Agent andthe Borrower and entered into effect. Covenants applicable to project implementation: A. STRATEGICCONTEXT AND RATIONALE 1. Country andsector issues InHonduras poverty is highlycorrelatedwith living ina ruralarea. In1999,75% o frural households were below the poverty line and 80% o f these were classified as living in extreme poverty. On a countrywide basis, 59% o f poor households and 65% o f the extreme poor are rural. For families livinginrural areas, issues relatedto accessto basic resources such as land and forests, as well as to factors supporting production and marketing, are identifiedas being amongthe principal determinants o f social inequalities and poverty. Poverty i s also linkedto other factors such as demographic pressure and its effects on natural resources; the low level o f democratic participation bythe poor; and the weakness o f local governments. Poverty ReductionStratew. The current GOHadministration entered office at the beginning o f 2002 having articulated its priorities and goals ina document entitled "My Commitment To You". This document identifiedsix critical development areas where the new administration would focus its attention. Soon thereafter, the new government affirmed its commitment and gave highpriority to the recently completed Poverty Reduction Strategy (PRS). These two strategies, which are highly compatible and complementary, are the basis for GOH's rural development policy. The PRS stresses the needto accelerate equitable and sustainable economic growth and identifies four sectors as having highproductive potential. The forest sector is one o f these. Concurrently, for the reduction ofpoverty inrural areasthe PRS stresses the needto: i)improve equity and security in access to land on behalfo f organized and independent small farmers and indigenous people, thus allowing income improvement and food security for rural families; ii)promote sustainable development inhigh-priority areas, under mechanismsthat guarantee participation o f local governments and communities; iii)improve the competitiveness o f the rural economy, inorder to increase production and improve the efficiency and competitiveness o f small rural producers, facilitating access to infrastructure and to support services in markets, technology and financing; and iv) improve social conditions inrural areas, strengthen social infrastructure and increase coverage o f poverty-reduction programs inrural areas that are most depressed and have the greatest incidence o f poverty. The strategy also recognizes the importance to long-term poverty reduction o f maintaining environmental quality and mitigatingdisasters, as the poor are more vulnerable to their consequences. Sector Policies. More than 80% o f Honduras' total land area i s legally classified as forest land2, with the majority o fthis beingpublic land. About 42% ofthe country's forest lands have been deforested and forest degradation processes affect a very significant percentage o f the remaining forest areas. Forest resources are being lost at a rate estimated to be greater than 800 km2per year (1.4% per annum). The bulk of the remaining forests are concentrated inHonduras' Central and Eastern zones where 44,750 km2o f forest, representing about 80% o f the country's existing forest resources are found. These two regions also contain 60% o f the country's deforested lands. The term "forest land" as usedinthis document refers to what in Hondurasis called "land of forestry vocation". This is defined basedon criteria, which include: i)land with slopes greater than or equalto 30%; or ii)land below 30% slopewith soils having a sandy-texture andlor a depth of less than 20 cm and/or more than 15% (by volume) stones with the presence of rocky outcrops, andlor soils subject to inundation by tidal fluxes, andlor with restricting layers in the subsoil or with impermeableparent material. 1 Percentage-wise, the western and southern regions o f the country are the most deforested. According to the PRS, deforestation i s consideredto be the environmental problem to which the highest priority attention should be given. Among the principal causes o f deforestation and forest degradationare: conversion for agriculture and livestock; unmanagedexploitation for domestic uses such as fuelwood; fire; and irrational logging. The problem i s magnified by the limited effectiveness o f the State Forest Administration (AFE-COHDEFOR). At the same time, highpriority i s given to promotingthe rational and sustainable use o f forest resources as a means o f contributing ina positive way to economic growth, employment generation and reduction o f poverty, especially inrural areas. The country has a sustainable forest-production capacity much higher than current production. Rivalingthe country's potential for sustainable forest-production are the real and potential environmental and economic benefits generated by the country's National ProtectedAreas System (SINAPH). The SINAPH, which comprises 2.7 million hectares (almost 25% o fthe national territory), suffers from a weak commitment by Government to its protection and management resulting in continued degradation o fprotectedareas (PAS), loss o f biodiversity, and loss o f future economic benefits from ecotourism and other environmental services o f PAS. These areas provide critical environmental services such as providing sources o f genetic material for agriculture, o f potable water, o f food, inreducingvulnerability to natural disasters, and as habitat for country's abundant plant and animal species. Also, as amply demonstrated by the Costa Rican example, the potential economic benefits from ecotourism inand around well-managed and protected parks are substantial. Tourism inHonduras i s now country's second most important foreign exchange earner. Despite the impacts o f September 11,2001 on tourism, in 2002 tourism inHonduras grew by 7.5% for a total o f 475,000 visitors that generated $260 million into the economy. The populationinforest lands i s overwhelmingly poor. The National Program For Sustainable Rural Development (2000) estimates that the poverty rate is 93% among this population. Between 250,000 and 350,000 households are estimatedto live in forest lands, representing from one-third to one-half o f Honduras' rural population. For the poor rural smallholders that constitute more than 70% o f all rural landholders, the GOH's policy vision differentiates between households with relatively more and better land (lowlands, valley soils) and households inmarginal areas (primarily forest lands). For the former, the focus i s on development o f their productive capacity, improving market links and competitiveness. For the latter, which constitute the majority o f the smallholders, the focus is on diversification o f the local economy, household food security and community forestry, agroforestry and agricultural options. Critical needs for achieving sustainable improvements insmallholder livelihoods include enhancing tenure and resource access security; access to land, resources, and services; and gender equity. Forestry inHonduras i s considered a subsector o f agriculture. Policy goals for the forest sector that most directly support the PRS include: (i) enhancing access to land and resources through the regularization o f the traditional rights o f populations inand near public forest lands; (ii)increasing employment and income o f rural poor through participation in public and private forestry activities; (iii)strengtheningofcommunityparticipation,especiallyintheprocessofregularizationofrightsin forest lands and through programs promoting and developing productive activities; (iv) sustainable forest management, including a renewed focus on forest fire prevention and control, technical- assistance and credit programs for primary-forest activities and their linksto secondary-forest activities and development o f "green seals" for forest management; (v) development o f local capacity o f municipal governments and communities to manage and conserve forest resources; and (vi) 2 establishment o f a Protected Areas Fundto finance the adequate management and protection o f the SINAPH. Constraints. To date, most GOHefforts at poverty reduction inforest lands have shown little result. Among the principalreasons for this have been: (i) the uncertain and conflictive nature o f land tenure inpublic forest lands; (ii)low priority given to the systematic provision o f support for production systems, such as infrastructure, technical assistance, irrigation, training and access to markets, and credit; (iii) an overly rigid, top-down command and control forest regulatory framework that encourages illegal behavior; (iv) undue discretionality and lack o f transparency inthe management o f public forest lands; (v) a diffuse and confusing legal framework antithetical to encouraging private investment; and (vi) public policies which have implicitly directed institutional attention toward generating income from timber extraction rather than toward forest and environmental management and forest-based poverty alleviation programs. Government's Response. Major legislative reforms are being sought on territorial planning (approved by Congress in October 2003)' property rights (beingdebated in Congress), and forestry (submitted to C~ngress)~.Institutional reforms o fthe State Forest Agency (AFE-COHDEFOR) are being implemented and the Ministry o f Agriculture and Livestock (SAG) i s finalizing its restructuring proposal to support national programs for agriculture, forestry and rural development. Among the programs are included those for the development o f agriculture, forestry and gender equity among poor smallholders (campesinos); these include the National Agriculture and Food Program (PRONAGRO), the Community Forestry Program (a component o f PRONAFOR), and the MinistryofAgriculture's National Sustainable RuralDevelopment Program (PRONADERS). Good progress has been achieved in reforming AFE-COHDEFOR. To date AFE-COHDEFOR' s Board has approved a new organizational structure and the implementation o f the new structure i s underway. The reform i s refocusingthe agency on the technical aspects o f its normative and regulatory role. To deal with corruption and illegal logging, a high level Commissionto audit the application o f forest managementplans has been formed inthe Department of Olancho (a center o f illegal logging). The Commission is headed by the Minister o f SAG and includes representatives o f the Attorney General's environmental enforcement unit, the Catholic Church, the police and local environmental organizations. Next generation reforms are under development, pendingthe ongoing reassessment o f the state's role inadministering and managingpublic forest lands. IDA through the Rural LandManagement Project (Credit 2940-HO) has been supporting the legal and institutional reforms processes for the last several years. More recently, IDA and the Inter-American Development Bank have been working together with GOH on the reforms. To attendto the fundamental problems stemming from tenure conflicts inpublic forest lands, GOH has put a highpriority on scaling up its pilot activities to provide the rural landless poor with access to productive lands and to formalize the traditional rights and usufruct o f populations inpublic forest lands. Duringthe last year substantial expansion was also achieved inproviding assistance and services to the rural poor. For example, PRONADERS reached 95,000 subsistence-level rural households (close to 600,000 people). While reform o f the current forestry legal framework offers clear advantages-particularly removing overlapping and outdated elements inthe current framework -most o f the major reforms needed to resolve structural constraints (see "Constraints") inthe subsector can be achieved under the current legal framework. 3 2. Rationalefor Bankinvolvement IDA is uniquelypositionedto bothsupport the forestry sector reformprocess and to strengthenthe country's poverty reduction efforts inforest lands. Through the Rural Areas Administration Project (Credit 2940-H0), known inHonduras as "PAAR', IDA assisted GOHto successfully introduce and pilot new and more efficient administrative, technical, environmental and social models for the management and conservation o f national forest lands and protected areas, for provision o f privatized extension and training to ruralpoor, and for the regularization o f the traditional rightso f both indigenous and non-indigenous populations inpublic forest lands. GOH wishes IDA'Sassistance to capitalize on these successful experiences and replicate them within its national programs. They will extend and deepen the pilots in order to apply them: (i)outside o f public forest lands inmunicipal, communal and private forests; (ii)as a basis for forest sector institutional and policy reforms, and (iii)tosupportthedecentralizedmanagementofnaturalresources. Theprojectisanintegralpartof the SAG's national programs. It i s fully consistent with the PRS and the CAS (25873-HO o f May 29,2003), and complements existing and planned assistance from other development agencies for strengthening SAG's rural development, natural resources, forestry, and protected areas programs. The project also serves GOHto scale up the work initiated under other IDA-financed projects such as the: (i)Natural Disaster Mitigation Project (Credit 3361-HO) by providing assistance to municipal governments for disaster risk and vulnerability reduction; and (ii) Access to Land Pilot (Credit 3435- HO) by assistingto bringforest lands into the program and the ruralpoor to develop small forest enterprises through accessing commercial credit. The rural The Government explicitly requested IDAto include the project inthe Country Assistance Strategy as a highpriority (Le., as part ofthe base case). As part of SAG'Snational program, the project provides geographic coverage to priority poverty areas inpublic forests with higheconomic potential. Thematically it strengthens GOH's National Forestry Program (PRONAFOR) and National Agricultural Food Program (PRONAGRO) as well as contributing to overall rural development. GOH has also requestedIDA to be the lead donor on issues of forest land tenure and protected areas inthese programs. Also at GOH's request, IDA and the Inter-American Development Bank (IDB) will work inclose coordination on forestry sector technical, institutional, and policy issues with the IDB gradually taking the lead on these inthe forest sub-sector and IDA continuing to lead in land administration and protected areas. Other principal donors supporting forestry and protected areas include GTZ, CIDA, and USAID. Finally, the PAAR's Project's Coordination Unit has served GOHwell in achieving donor coordination on forestry issues such as legal reform, forest land tenure regularization, reform o f AFE-COHDEFOR's technical and administrative practices, incorporation o f local stakeholders into public forest management processes, and policy dialogue on protected areas reform. GOHplans to capitalize on this capacity by utilizingthe already establishedProject Coordination Unitto both coordinate implementation o f this and other IDA-financedprojects4and to take a lead role in systematizing and replicating the successful pilot experiences within the national programs and through other GOHprojects, such as the IDB-financedNatural-Resources Management in Watersheds Project (1077/SF-HO) and the Sustainable Forest Development Program (1506EF-HO). Includingthe ongoing Natural DisasterMitigation Project (Cr.336l-HO), Access to Land Pilot (Cr. 3435-HO) and the upcoming Land Administration Program (Cr. 27604-HO). 4 3. Higher level objectives to which the project contributes The Project directly contributes to three o fthe four pillars outlined inthe PRSP and the CAS: (i) Accelerating economic growth and increasing competitiveness by increasing the production, marketing and value-added o f agricultural and forest products and, together with the complementary Land Administration Project (P055991), enhancing landtenure and resource access security, increasing land values and productivity. (ii)Promotingsustainabilitvbyimprovingcommunitymanagementofnaturalresources. Itdoesso through strengthening co-management o f protected areas; providing incentives for municipalities and residents to take greater responsibility inthe management and conservation of forests and protectedareas; promotingnatural resource management-based rural enterprises and generating employment among the rural poor inand around forest areas; institutionalizing improved management, production systems and funding mechanisms as well as strengthening appropriate institutions in support o f local stakeholder participation inthe use and conservation o f natural resources. (iii)ImprovinggovernancebysupportingGOH'snaturalresourcemanagementdecentralization - strategies, institutional reforms and improved local implementation mechanisms. Increasing transparency and accountability inthe management o f natural resources are central precepts o f the project. B. PROJECTDESCRIPTION 1. Lendinginstrument The Government o f Honduras has requested IDA'Ssupport for this project be channeled through a Specific Investment Loan (SIL). GOH i s inthe process o f reformingthe forestry sector, including embarking on a long-term process o f reform o f tenure inpublic lands. IDA will provide long-term support to the latter through an APL (Land Administration Program, recently negotiated) and the PRSC (P074758, under preparation) which i s a vehicle that supports GOH inthe forestry, protected areas and land access policy and legal reforms being sought and medium-termsupport to the former through the proposedproject. As part o f the reform process, GOH i s seeking to consolidate the project-level experiences o f the PAAR and other projects to create an institutionally sustainable framework, capable o f supporting the implementation o f a long-term program. For the time being, the improved coordination and institutional arrangements that the Project will provide through the PCU give GOH the basis for the future program and scaling up. A S I L i s the appropriate instrument for IDA to support this kindo f reform and investment program. See also Section 5. "Alternatives considered and reasons for rejection" for a further discussion o f a SIL versus APL. 2. Project development objective and key indicators The objective o f the project i s to increase the economic benefits and environmental services derived from forest ecosystems in selected low income municipalities with highagro-forestry potential within the project area (see Annex 4, Table 4). Indoing so, the project outcomes include the generation o f income, policies and actions that will contribute to the reduction o f poverty and the sustainable management o f natural resources and reduction o f vulnerability in some 3,200 km2o f land. 5 The project's development indicators include: (i) least 60% o f project municipalities (22) at strengthened, with municipal development plans under execution and 100 YOo f project municipalities (36) with a completed Land Use and Vulnerability Reduction Plan formalized by Municipal decree; (ii) oflocalorganizationsstrengthenedtocarryoutplanning,administration, andmanagement 50% of their own productive and natural resources management activities; (iii) at least a 55% increase in the per capita income o f project participants; (iv) 25,000 households benefited and 40,000 jobs created from project investments (equivalent to about 220,800 local inhabitants or 35% o f the total project area population, including about 22,000 indigenous peoples and 65,000 women); (v) increasedparticipation by women (30% o f direct participants are women); (vi) 10%increase in number o f small-scale community enterprises; (vii) tenure o f at least 30% o f the occupants in national lands inthe project area regularizedthrough formal, long-term usufruct agreements or titles developed with the assistance o f the project; (ix) ProtectedAreas Fundinexecution by Year Two o f the project; (x) 1.40 millionhectares o f national, municipal, communal/private forests and protected areas incorporated into appropriate forest management programs for protection, conservation, and productive use; (xi) 30% o f the priority ProtectedAreas (5 Protected Areas) operating satisfactorily under participatory management schemes with minimumfinancing ensured for recurrent protection and management costs; and (xii) 70% reduction indeforestation rates inpriority protected areas. 3. Project components The project's area o f influence consists o f thirty-six municipalities that contain eleven protected areas and thirteen public Forest Management Units (FMUs). The total area and populationo f the thirty-six municipalities is 3,261 km2and 630,325 inhabitants (2001 Census). The project has four components: (i)Community Forestry; (ii)Forest Management, Tenure and Conservation; (iii)Local Government & Disaster Preparedness; and (iv) Project Coordination and Management. It i s integrally linked to a proposed GEF project, the Forests and Rural Productivity. This will be a bi-national GEF project for Honduras andNicaragua, the global objective o f which is to consolidate the management and protection o fNicaragua and Honduras' proposed Transfrontier Biosphere Reserve, the "Corazttn de Corredor Biolttgico Mesoamericano". Honduras and Nicaragua havejointly submitted a proposal to UNESCO to form the Corazttn Transfrontier Biosphere Reserve as an overarching strategic instrument to manage the area extending in Honduras from the Plhtano Biosphere Reserve through the Tawakha Indigenous Reserve and Patuca National Park to the Bosawas Reserve inNicaragua and includes adjacent areas o f natural habitat inthe Mosquitia. In Honduras, the two projects will functionjointly in community-level management o f natural resources, particularly forestry resources and in strengthening o f the SINAPH. The GEF proposal i s slated for approval in second quarter FY05. Project costs are summarized in Table 1. CommunityForestry costs US$8.6 million. Itbuildsuponthe pilot "Fund for Hillside Producers" establishedthrough the PAARto provide privatizedextension services, training and funding for applied research for rural poor living inmarginal areas. Through the PAAR the administrative framework and methodological approaches to be applied by this project were successfully established. Next generation refinements to the model are to be introduced and tested, including shifting service provision from groups to communities and strengthening the organization and role of local farmers and women's groups to ensure service provision i s community demand driven (CDD). Activities will include: (i)subprojects comprising extension, technical assistance, training, and investment to improve the standard o f livingo f the rural poor occupying forest lands; (ii)applied research subprojects to demonstrate the benefits o f improvedtechnologies and strengthen the National System for Researchand Technology Transfer (SNITTA); and (iii) a training programto 6 strengthen the capacity o f key local actors inthe implementationprocess o f subprojects, including municipalities, Technical Service Providers (PSTs), and farmer leaders (men and women). The component will finance community demand-driven subprojects (including seed capital for productive investmenthevolving funds), applied research, consultant services, training and operational expenses. An estimated 25,800 families, about 35% o fthe potential beneficiaries inthe project area, will be directly benefited. Table 1. ProjectCosts by Component and IDA Contribution Costl' %IDA GE#' %OfGEF Component (US$M) 4% Financing Financing Financing 1. Community Forestry 8.6 26% 75% 1.2 20% 2. ForestManagement, Tenure and Conservation 17.2 52% 50% 4.3 72% 3. Local Government & DisasterPreparedness 1.8 6% 80% ~ 4. Project Coordination & Management 5.2 16% 3.5 67% 0.5 8% Total 32.74 100% 20.00 61O h 6.0 18% ii-Includingcontingencies iz-The GEF financing is presentedhere for information purposes.The GEF and the IDA credit will be linked operations, however the proposedGEF project ("Forests and Rural Productivity") is being preparedseparately and is slated for approval insecondquarter FY05. The GEF funds will expandupon the work being carried out under this project at the national level as well as extendgeographiccoverage into new areas. While the two projects will functionjointly, the GEF funds are not co-financing for this project nor would the IDA investment's objectives or results be compromised should the GEF proposal not be approved. See SectionC.1 and Annex 4. ForestManagement,Tenure and Conservationcosts US$ 17.2 million and will support GOH's national program for sustainable management o f national, municipal, communal/private forests and protected areas. The component will assist to develop the economic potential and maintainthe environmental services providedby forest ecosystems inabout 1.4 million hectares o f forest and to institutionalize the new models o f public forest management developed under the PAAR. Support will be providedto: (i)forest managementplanningand forest protection innational, municipal, communal, and private lands and forest management innational lands; (ii)strengthen and expand the process o f regularization o f rights o f populations living innational lands; (iii)strengthenthe management o f priority protected areas and of the Honduras National Protected Areas System (SINAPH), including assistance to establish and implement a ProtectedAreas Fundto finance protection and management expenditures inpriority SINAPHProtected Areas; and (iv) develop and implement the policy and institutional reforms required to sustain these interventions. As a result, among others, pilot experiences initiated under the PAAR in local provision and marketingo f environmental services and inthe sustainable use and conservation o f biodiversitywill be replicated and expanded upon. There are three subcomponents: Forest Management, Regularization o f Forest Land Tenure, and ProtectedAreas Management. The component will finance goods, works, technical assistance, studies, training, workshops, community consultations, vehicles, and operational expenses. LocalGovernmentand DisasterPreparedness is a US$1.8 millioncomponent that supports all thirty-sixproject municipalities andthe five municipal associations (mancomunidades)to which they belong. This component provides the strategic links between all o f the projects components, providingthe assistance required in order for local priorities to be integrated into the Forest Management, Tenure and Conservation and the Community Forestry components. Outcomes from the this component will include: (i)local guidance to the Community Forestry activities regarding geographic and thematic priorities; and (ii) strengthening o f local participation inestablishing 7 priorities and o f linkages between the local development agenda and the public forest and protected areas' management activities. The component provides assistance to strengthen local organization and capacity to carry out participatory strategic planningat the municipal and regional (mancomunaZ) levels to generate and apply informationfor land use, zoning and vulnerability planning, to integrate outputs into the local development agenda, andto develop and channel proposals to implement priority actions to the relevant fundingsource or program. Vulnerability planningwill focus on reducing environmental risks and vulnerability to natural phenomena (hurricanes, flooding, landslides, etc.). There are two subcomponents: (i)Strengthening o f Local Institutions, providing capacity buildingassistance and (ii) Disaster Preparedness, supporting the development and application o f land use, zoning and vulnerability plans. The component will finance consultant services, goods, training and workshops, works, and operating costs. Project Coordination and Management costs US$5.2 millionand covers the administration costs o f the Project Coordination Unit and activities relatedto monitoring and evaluation, technical studies and training as required for project implementation, includingpreparation o f new investment proposals. The PCUwill be a critical instrument to ensure efficient administration o f the project and effective coordination and cooperation with other forestry, protected areas, and land-related projects inthe country. The component will finance consultant services, goods, vehicles, training and workshops, studies and operating costs. 4. Lessons learned and reflected in the project design The proposed project assists GOHto replicate and builduponthe successful experiences o f the Rural Land Management Project (PAAR). Inparticular, the PAAR was instrumental indeveloping and piloting approaches for: (i) institutional strengthening and reform inthe administration o f public forest lands by the State; (ii)forest management which incorporates the rights and usufruct o f forest dwellers and communities, environmental impact assessment, development and validation o f criteria and indicators for sustainable management o f pine production forests, and implementation o f forest management plans through community participation and outsourcing o f technical and operational activities to community groups and the private sector; (iii)improvingbiodiversity conservation efforts, evaluatingandprioritizingthe Honduras National Protected Areas System (SINAPH) and developing a financing mechanism (National Parks Fund) to capture and channel resources from GOHand external sources for the management andprotection o fpriority protectedareas; (iv) privatizationo f extension services to the rural pool.; and (v) resolving forest landtenure conflicts through delimitation and demarcationo f forest lands, developmento f methodologies for recognition and regularization o f ancestral and traditional rights o f forest dwelling communities, and communal titling o f indigenous lands (Tolupanes). This latter experience was judged a best-case example inparticipatory demarcation in a recent Bank review, "LCSES Q A T Thematic Review, OD 4.20 inCentral American Land and Biodiversity Conservation Projects." A comprehensive (draft) Borrower ICR, detailingthe lessons learned under the PAAR, i s available inthe project files. The project also buildsonthe preliminary lessons learned from the "Drivers o f Growth Study" which point out that, to achieve poverty reduction, the rural poor must be providedwith multiple assets, in appropriate sequencing. It does so by strengthening local participatory planningprocesses inorder to develop consensus around needs and priorities, by enhancing access and access security to valuable natural resources, by provision o f training and services to value and generate income from those natural resources, and by facilitating access to other GOH programs (e.g., for rural infrastructure, rural development financing, etc.) inorder to provide access to critical assets which the project itself does not finance. 8 5. Alternativesconsideredand reasonsfor rejection There were two project design options considered duringthe preparation phase: (i)PAARPhase2,toincludebothapoverty-focusedprogramforareasofhighvalueproductive pine forests and a land administration program. This option was rejected for several reasons; chief among them was the difficulty o f efficiently institutionalizing and sustainingthe type o f complex, multi-sectoral and multi-institutional project that would have resulted. The decision was made to split out o f the Land Administration Component o f the PAAR as a separate but parallel and supportive project. This project, also prioritized inthe recent CAS, has recently completed negotiations. (ii)Therewasconsiderationofaphasedlong-termforestryprogram,tobesupportedbyan Adaptable Program Loan. Indiscussions with GOH, it was decided that the magnitude o f external financingrequired for the forest sector was beyond what IDA could provide from IDA resources. GOHrequested that over the short to medium-term that IDA and IDBtake complementing roles in support o f forest sector reform and over the longer-term that each institution then focus on separatepriority aspects. Under this agreement, IDA will assist GOHto capitalize on the IDA'Sexpertise inthe sector. Inthe short to medium-termthis translates to assistance in consolidating and mainstreaming the forestry sector lessons and experiences developed under the PAAR. Inthe longer term this focuses the IDA support on two critical areas for the Honduranforest sector and the environment: forest landtenure within the broader land administration context and protected areas management and conservation. IDA also has recognized expertise and comparative advantages inthese latter. The IDB,through the recently approved PROBOSQUE, will initiate assistance to the forest sector inthe areas o f improvements to the regulatory and institutional framework and forest sector competitiveness, management and monitoring o f forest lands (national, municipal and private), financing o f forest land regularization, and developing competitive mechanisms for commercial investment and to strengthen the forest-industry-market value chain. Over the coming years the IDBwill transition into a role o f principal financier for public sector forestry, duringwhich period there will be close collaboration and constructive engagement with IDA inthe sector, among others, through the proposedproject, the PRSC, and the PATH (for land administration and land tenure). Subsequent to these discussions with GOH, as a key sector, forestry was selected by government for the development and implementation o f a Sector Wide Approach (SWAP) inwhich the project functions to initiate activities with the context o f the SWAP and as a vehicle for dialogue between the Association and GOH as the SWAP develops. C. IMPLEMENTATION 1. Partnershiparrangements(ifapplicable) The project i s integrally linked to a proposed, bi-national Honduras and Nicaragua GEF project ("Forests and Rural Productivity", P085488) to consolidate the management and protectiono f Nicaragua and Honduras' transfrontier Biosphere Reserve, the "Corazbn de Corredor Biolbgico Mesoamericano". Inthe Honduras, the GEF and the IDA-funded projects will be linkedoperations, however the proposed GEF project is still under preparation and i s slated for approval in second quarter FY05. While the two projects will functionjointly, the GEF funds are not co-financing for this project nor would the IDA investment's objectives or results be compromised should the GEF proposal not be approved. 9 2. Institutionaland implementationarrangements Institutionaland implementation arrangements are similar to those successfully utilizedby the ongoing PAARproject. The overall implementing agency for this project i s the Ministryo f Agriculture and Livestock (SAG). The existingProject Coordination Unit (PCU)' will continue and, inaddition, will implement other IDA-financedprojects, includingthe ongoingNatural Disasters Mitigation Project (Cr. 3361-H0), Access to Land Pilot (Cr. 3435-HO), and the upcoming Land Administration Program (P055991). The PCU will coordinate the activities of several executing entities and be responsible for financial management. UNDP i s to be retained as a procurement agent, for which negotiations between GOHand UNDP are ongoing with a signing o f a Procurement Agreement, satisfactory to IDA, a conditiono f Credit effectiveness. Private firms will be subcontracted to evaluate, supervise and certify results o f the subprojects financed under the Community Forestry component (Private Certification Unit). The executing entities are: the State Forestry Agency (AFE-COHDEFOR), SAG'SDirectorate for Agricultural Science and Technology (DICTA), the Ministry o f Governance and Justice (SGJ) and the National Agrarian Institute (INA). The National Directorate for Sustainable Rural Development (DINADERS), the Ministry o fNational Resources and Environment (SERNA), and the Association of Municipalities (AMHON) are collaborating entities inthe implementation. Participation Agreements will be signed between SAG and the executing agencies to formalize the roles o f each. Similarly SAG will enter into "Municipality Agreements" with the respective municipalities where project activities will take place (see Annex 6). Memorandum o f Understanding will be signed duringimplementation with the collaborating agencies inorder to detail the areas of cooperation and to facilitate planning. For the Community Forestry subprojects, tripartite "subproject agreements" will be signed with the eligible beneficiaries and the Private Service Providers. The project will have a high-level Council o f Governors, chaired by the SAG, with representatives from the executing agencies and civil society. It will meet periodically and be responsible for providingpolicy direction; identifying legal, institutional, and regulatory reforms; and supervising compliance o f the project's key agreements such as Participation and Municipality Agreements. At the local level, the projectwill work through and with existing community (Patronatos) and Municipal-level organizations and Municipal authorities. Inthe case o f indigenous groups the project will work directly with traditional authorities at the community-level, incoordination with the indigenous Federations (FETRIXY and FETRIPH) on which the communities rely for assistance ina number of areas (e.g., land issues, legal rights, political representation, etc.). Credit funds will be disbursed to one Special Account (US dollar account for IDA funds). The Special Account will be opened by the Ministry o f Finance (SEFIN) and maintained inthe Central Bank o f Honduras. GOHwill allocate its counterpart funding into an operational project account, also at the Central Bank. Procedures for flow o f funds from the credit and the required counterpart contribution will be implemented with due regardto safeguarding project's resources and ensuring timely execution o f payments. Annual project financial statements will be audited inaccordance An agroforestry Sector-Wide Approach (SWAP) is currently being developed by the Borrower. As a result, the institutionalcontextand structure within which the PCU functions may change inthe nexttwo years requiring adjustments to the current PCU. Any such changes will be discussedand agreed with IDA. 10 with International Auditing Standards by an independentfirm and inaccordance withterms of reference, both acceptable to IDA (see Annex 7). Procurement will be carried out in accordance with IDA guidelinesand the provisions stipulated in the Development Credit Agreement. The proposedthresholds for prior review are based on the procurement capacity assessment of the PCU and summarized in Table B, Annex 8. UNDP will be contracted as a procurement agent to handle all procurement above the prior review threshold. The PCU will carry out all shopping procedures, all NCB, and all selection o f individual consultants under the thresholds. The Operational Manual for the project will specify the duties and responsibilities o f all the institutions involved inthe implementation o f the project. It will also include the procurement procedures, the Standard BiddingDocuments to be used for each procurement method, and model contracts for goods and works procured on the basis o f three quotations or shopping, respectively. 3. Monitoring and evaluation of outcomesfresults Buildingon the existing financial management andproject monitoringand evaluation systems put in place under the PAAR project, the PCU will have a monitoring and evaluation unit to collect (largely through subcontracting), consolidate and report on day-to-day project performance data as well as periodic information on intermediate project results and higher level outcomes or impacts. The primary sources o f data include: (i)field reports from the PCU's technical team, the Private CertificationUnit, AFE-COHEDFOR and DICTA field staff reports, evaluation reports from communities participating insubprojects, contractors, etc.; (ii)field reports and quarterly / annual financial statements and performance reports o f executing entities; and (iii) specially commissioned assessments, surveys, case studies, and participatory evaluations to be carried out annually and prior to elaboration o f the project ICR. These will include client satisfaction surveys; technical and environmental audits; and financial and economic analyses. All project-related informationwill be maintained inthe PCU's Management Information System and in other relevant databases in sectoral agencies (e.g., Forest Information and Statistics Center, National Property Administration System, Registry o f National Forest Lands). Combinedwith other non-project data such as municipal investments and poverty indicators, these will allow accurate geo-referenced data and reports on a broad range o f implementation and impact issues. 4. Sustainability The Government o f Honduras is fully committedto the project as demonstratedby its inclusion as a highpriority inthe Country Assistance Strategy (Le., base case). Other indicators o f GOH commitment to the proposed project are: (i)the strong commitment shown to the effective implementation o f PAAR, as reflected in solid and recognized achievements involving substantive strategic actions, especially to improve land security, expanded forest co-management and usufruct mechanisms, and delivery o f improvedagro-forestry technologies; (ii) active participation and leadership o f senior-level GOH officials and local communities inthe project's preparation and consultation process; and (iii) concrete steps taken to date by GOH for forestry sector reform, including utilizing the PRSC (P074758, under preparation) as a vehicle for the reforms sought, the recent submission o f the new Forestry Law to the Congress, and the substantive first phase institutional restructuring o f AFE-COHDEFORcompleted in 2003. 11 On the operational-level, the most important elements for sustainability o f project inputsand outcomes include GOH's and SAG'Scommitment to: (i)institutionalize, replicate and scale-up the project's activities; (ii)the resolution o f forest tenure conflicts through the regularization o f the traditional rights o f forest populations; (iii) the decentralization o f decision making to the municipal and community-levels and provision o f support to assume these responsibilities; (iv) the development o f environmental services payments and the ProtectedAreas Fundto finance basic operational costs for the protection andmanagement o f priority ProtectedAreas. Finally, compatible with SAG'S strategy for its national programs, the project designincludes an explicit exit strategy to ensure the transfer o f capacity, roles and responsibilitiesto the relevant institutional actors over the life of the project. 5. Critical risks and possiblecontroversial aspects RiskRating with Risks RiskMitigation Measures Mitigation T o project development objective Legal reforms to forest sector Focuson advances possiblewithin current legal framework. insufficient to resolve issues of Notwithstanding the pending legal reforms, existing forestry, overlapping and outdated legal environmental and municipal laws adequateto achieveproject Modest framework that inhibits sector objectives. PRSC includes forest sector legal reform. investment. Regulatory reforms within the forest Close monitoring, strong collaboration with IDB and key sector insufficient to resolve issues donors, and realistic assessmentsofmarkets and marketing limiting its potentially significant role opportunities (incl.Environmental servicesmarket) for Modest inpoverty reduction. communities, PRSC includes forest sector regulatory reform. Institutionalreforms within the State Focuson developing an agreed strategicvision to guide ForestAgency insufficient to resolve restructuring process, close monitoringand collaboration with issues leading to weak management IDBandother donors, promote strong ownership by highlevel and corruption. GOH officials, and effective implementation ofthe agreed Substantial action plan. Decentralization of roles and responsibilities. Longterm usufruct contracts with communities. PRSC includes institutional reform of State Forest Agency. Institutionalization o f appropriate Close monitoring and collaboration with IDBand other financing mechanismsto sustain donors, promote strong ownership by high-level GOH forest managementand Protected officials. PRSC includes appropriatefinancing mechanismsto Areas fails to remove incentive to sustain forest management and ProtectedAreas. Substantial focus on generationof stumpage fees from national forests at expense of broader mandate. GOH does not enforce land tenure Coordinate closely with PATH'Sintensive dissemination of laws and policies or implement informationand promotion campaigns. Focuson transparent regularization schemes for and credible process for strengtheningpolicy, strategy and Substantial populations innational forest lands. developmentof required instruments. Close monitoring, strong collaboration with IDB and key donors. - Other forest initiatives do not use Continuous coordination through PCU, Council o f Governors, compatible methodologies. and Technical SteeringCommittee. Low To component results Project complexity Design builds on improved project coordination mechanisms, follows adecentralizedapproach, and replicates and expands the experienceof PAAR and other relevant projects. Modest Forestlandtenure and regularization aspects are being addressedthrough a separate project. 12 1RiskRating with 1 Risks RiskMitigation Measures Mitigation Low institutionaland technical Project will develop intwo phases, allowing adjustments. A capacity by implementing actors significant percentageof resources dedicatedto capacity slows implementation and dilutes building, technical assistance, communication and promotion. impacts. Effective system for monitoring and evaluation of Modest implementation processes. AFE-COHDEFOR, DICTA and/or Use high-level Council ofGovernorsto ensure compliance municipalities fail to perform their with Participation Agreements; provide incentives to minimize functions. resistance. Substantial Overall Risk Rating Substantial 6. Loanlcredit conditions and covenants There are no significant, non-standardconditions for Boardpresentation. Credit effectiveness conditions are: 0 That the Operational Manual, includinga first-year operating plan (POA) and detailed procurement plan satisfactory to IDA, has been issued and put into effect; 0 That the PCU has been properly staffed includingthe selection o f a Procurement Officer and a FinancialOfficer satisfactory to IDA; 0 That financial management system, satisfactory to the IDA and inaccordance with the time- bound action plan, shall have been establishedby SAG and become operational; 0 That the Procurement Agreement has been signed by the Procurement Agent and the Borrower and entered into effect. D. APPRAISAL SUMMARY 1. Economic and financial analyses The project i s expected to generate a variety o f benefits, including building or strengthening social capital, increasingproductivity innatural resource use ina sustainable manner, promoting biodiversity conservation, strengthening institutions at the central and local level inthe agriculture and natural resource sectors, and contributing to the implementation o f the Poverty Reduction Strategy. Economic and financial analyses focused on the productive and natural resource management activities, which amount to 70% o f total project costs and 65% o f the IDA financing. The other components and activities (regularization o f forest land tenure, protected areas management, capacity building, local government and disaster preparedness) are regarded as necessary pre-conditions for avoiding undesirable social, economic and environmental costs, creating conditions for investment and sustaining outcomes. A substantial number o f positive environmental, largely nonmarketable, benefits will also be generated. As required under GEF financing guidelines, an Incremental Costs Analysis will be completed under the further preparation o f the associated GEF financing ("Corazon Transfrontier Reserve" project, P085488). The economic and financial benefits indicate that the project is a good investment for Honduras, Benefit cost analysis o f the PAAR project, upon which the productive and natural resource management activities o f this project are based, was estimated by the Borrower to be 1.7 when all project costs were charged against the productive and natural resource management activities. This 13 figure was calculated based on the actual project costs and the estimated project impacts on forest and agricultural production. Other analyses of the economic soundness o f the project demonstrate substantial benefits when compared to without project scenarios (see Annex 9). A detailed analysis o f forest managementsuggested strongly that the model o f institutional support and development proposed i s financially viable. Undervery conservative assumptions the benefit- cost ratio was estimated at 11.9 with potential changes due to project investment leading to a doubling o f the value o f national land and timber. Upto 18,000 full time jobs are expected to be created through implementing forest management plans in 600,000 ha of pine forests. The Community Forestry component is an extension ofthe FundFor Hillside Producers (FPL) established under the PAARproject to fund agriculture, forestry and livestock subprojects for households o f rural poor on marginal lands. Overall, the FPL had a positive internal rate o f return (IRR). At the household-level, significant improvementsto family income were achievedthrough introducingimprovedpractices to traditional production systems. A previous analysis o fthe FPL, reported inthe Borrower's draft Implementation Completion Report, estimated that on average households participating inthe FPL increasedtheir incomes by 57%, from $670 per year to $1,050 per year. Analysis carried out duringproject preparationfound that with reasonable expectations related to market price and rates o f adoption that benefitlcost ratios between 1.3 and 1.4 could be expected for households engaging in improved basic grain production with returnsto labor almost tripling (from L35 per day to L99 per day). As a pilotthe FPL providedimportant lessons as to what ,typeso f interventions resulted inpoverty alleviation impacts, improvednatural resources management and acceptable rates o f return. It also gave valuable informationon the types o f improvements required under the new project inorder to enhance impacts and increase overall rates o f return. Applyingthese lessons, the improvements being introduced under the new project include greater focus on micro-irrigation, agroforestry (forestry combined with crop production through inter-planting and other technologies), natural forest management for (pine) timber and non-timber products, marketingand commercialization linkages, and, where possible, value-added production. Special emphasis is placed on marketing, especially o f forest products where market linkages for communities are currently weak. Inaddition, activities such as tree planting, soil conservation and livestock will no longer be promoted separate from promotion o f improvements o f the overall farminglagroforestry systems. These activities, in isolation, make little economic sense; Le., improved conservation practices and livestock will be integrated into a more holistic household farmingllivelihood system approach. Giventhese changes (and based on assumptions o f differing mixes of activities) the IRRfor the component i s expected to be inthe range o f 20% to 25%. 2. Technical The proposed operation i s technically sound, buildingas it does on successful experiences o f the Rural Land Management Project (PAAR), as well as other relevant Honduras natural resource management (NRM) projects. Given the opportunity and access to reliable technical support, the rural poor have the capacity to identify their most pressing needs and develop innovative responses. Project preparation studies have confirmed the availability o f local resource management innovations that are financially viable and technically feasible (see Annex 9). A substantial number o f valuable lessons were learned under the previous project and incorporated inproject design. As the project assigns a significant implementation role to municipal governments, most o f which are not adequately preparedand equipped to promote and facilitate local development, substantial capacity- 14 buildingsupport to the municipalities is anticipated inplanning, project preparation, implementation and supervision. Technical support will be drawn from private sector service providers. 3. Fiduciary The PCU has appointed a qualified accountant and budget officer to oversee all aspects o f financial management for the project. The PCU maintains and manages an integratedmanagement information system that was developed under the PAAR project and has an adequate financial management system. The Management Information System (MIS), combining the financial inputs, physical outputs, and results indicators, will be fully operational by Credit effectiveness. The project accounting system meets IDA'Sfiduciary requirements and produces the financial statements required for achieving satisfactory project management. GOH has agreed to appoint auditors for both the annual and special audits under a multi-year contract. The overall projectrisk for financial management and disbursements i s considered low. An assessment o fthe capacity of PCUto implement the procurement actions under the post review threshold for the project has been carried out and was approved by the Regional Procurement Advisor on December 8,2003. The existing structure, considering the additional procurement officer to be hired for the project, i s considered satisfactory. The Procurement Agreement will include a mechanism to assure quality control o f all procurement activities carried out by UNDP. IDA will reevaluate UNDP's performance after the first six months o f project implementation and if it i s found not satisfactory new arrangements for procurement administration would be sought. This understanding will be reflected inthe Procurement Agreement. GOHhas developed a procurement plan for project implementation. The overall project risk for procurement i s considered average. 4. Social As part o fthe preparation of the project a detailed social evaluation inthe area o f proposed influence of the project was carried out. The evaluation: (i)identified and characterized potential project beneficiaries; (ii)identifiedgeneral needs for self-management o f natural resources; (iii) evaluated local use and management o f forest resources; (iv) evaluated the legal status o f the common types o f local organizations; (v) identifiedthe potential for negative impacts that mightresult from the proposed activities, including for any possibility o ftriggering OP4.12 on Involuntary Resettlement; (vi) identifiedopportunities and obstacles to implement project activities; (vii) developed the Indigenous Peoples Development Plan (IPDP); and (viii) developed a participation plan for beneficiary involvement in design, execution and evaluation, with special emphasis on marginalized groups. The main conclusions and project design considerations generated by the social evaluation are: 0 Priority project beneficiaries constitute the landless rural poor who sell their labor to subsist, households with very small land holdings that rely greatly on selling their labor to subsist, households with small land holdings that seasonally sell their labor as a compliment to their subsistence, and the Tolupan and Pech indigenous communities. 0 Organizational structures at the community-level that will be supported are those that represent broadly felt needs, e.g., informal savings and credit groups, product marketing groups, supply o f materials and inputs; development o f agriculture/forestry micro-businesses, etc. 0 Governance mechanisms at the community-level that will be strengthened and supported are the patronatos and municipal corporations. 15 e Support should be provided to register forest exploitation activities, inventories o f lands and forests, and inventories o f priority microwatershed includingtheir respective boundaries, zones and register o f occupants and their land uses. 0 Delegating responsibility for management o f small amounts o f financial resources should be attempted wherever conditions allow in order to buildcapacity. e Promotion, dissemination and communication are indispensable inorder to make potential beneficiaries and their communities aware o f the project and the legal framework regulating the management, use and protection o f natural resources. e The best practice approaches developed under the PAAR for incorporation o f gender will continue to be implemented boththrough training and monitoring o f the private technical service providers and o f the processes and outcomes at the community-level. 5. Environment The EA concluded that the environmental impacts o f the proposedproject should be highlypositive. The project promotes the conservationo f forests and naturalhabitats through strengtheningo f management and conservation o f protectedareas and national forests, of improving communities' management o ftheir natural resources, and strengthening local processesfor the reduction o f risk and vulnerability to natural phenomena. Indirectly, through demarcation and regularization o ftenure in productive andprotection areas, some positive changes are also expected inlanduse practices by forest occupants. Potentially negative impacts to the environment were identified as: (i) possibly greater migration pressures on the national forests resulting from the process o f regularization o f the occupancy o f forest lands; (ii) timber harvesting operations inpine forests; and (iii) introduction o f certain technologies under the Community Forestry subprojects. The project's environmental management plan defines mitigating measures with budget and institutional responsibilities for implementation and monitoring o f the plan. 6. Safeguardpolicies SafeguardPolicies Triggeredby the Project Yes No Environmental Assessment (OPIBPIGP 4.01) [XI [I Natural Habitats (OPBP 4.04) [XI [I Pest Management(OP 4.09) [XI [I Cultural Property (OPN 11.03, being revisedas OP 4.1 1) [I [XI Involuntary Resettlement(OP/BP 4.12) [XI 11 Indigenous Peoples (OD 4.20, beingrevisedas OP 4.10) [XI [I Forests (OPIBP 4.36) [XI 11 Safety of Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60) [I [XI Projectson International Waterways (OPBPIGP 7.50) [I [XI The safeguard screening category o f the project is S2. The project i s classified as Category B, requiring some type o f Environmental Analysis but not a full-scale Environmental Assessment study. Inaccordance with OP 4.01, an Environmental Analysis (EA) was conductedby a Honduran consultant, and dated November 19,2003. While not required, an environmental management plan was developed for the project. Important findings and useful recommendations from the EA are integrated into project design (see Annex 10). The project triggers: 16 OP 4.04, Natural Habitat as it will be working inforests and protected areas. Among others, to comply with OP4.04 no harvesting o f forest products will be permitted or supported inside declared protected areas nor will any investments with the potential for inducing migration into such areas be supported. Appropriate deed and usufruct restrictions will be developed for the regularization o f the traditional rights o f populations living innational forest and appropriate park buffer zone management standards will be implemented. OP 4.09, Pest Management as it will support technology transfer services (extension services) and training to small producers. The project will not finance pesticides, but focus on the transfer o f cultural practices and biological controls. OP 4.12, InvoluntaryResettlement. IDA and GOHhave agreed that no involuntaryphysical displacement will take place under this project. However as project activities include the demarcation o f protected areas and land use zoning, a Process Framework for mitigating potential livelihood impacts has been prepared by GOH. O D 4.20, Indigenous Peoples as it will be working with communities o f Tolupan and Pech. An Indigenous Peoples Development Plan (IPDP) has been prepared by GOH. OP 4.36, Forestry as it will provide support to forest managementplanning andthe implementation o f those plans inpine production forests and promotes the productive use o f timber and non-timber forest resources. The policies and forest strategies that GOH wishes to support through the project are consistent with OP 4.36. Inaddition, it has beenagreed betweenIDA and GOHthat before entering into any forest management contracts or agreements affecting national lands locatedwithin the Project Area with individuals, groups, communities, municipalities, or private firms and investors (stakeholders), that GOHwill adopt and/or cause said stakeholders to adopt, the forest policy requirements and comply and/or cause compliance with the environmental and social safeguards that are set forth inthe Operational Manual, as appropriate. Inaccordance withthe IDA'SInformationDisclosure Policy (BP 17.50), copies ofthe Environmental Analysis report in Spanish, the Indigenous Peoples Development Plan, and the Resettlement Process Framework are available for public view at the PAAR PCU office inTegucigalpa (Edif. Educredito, 2a planta, Colonia Florencia Norte). 7. Policy Exceptions and Readiness The project meets the regional criteria for readiness for implementation. The fiduciary arrangements are inplace. All key project staff and consultants, with the exception o f a senior procurement specialist to work with UNDP, have been mobilized. Adequate monitoring and evaluation capacity i s already in place. The Environmental Analysis, Indigenous Peoples Development Plan, and Resettlement Process Framework were disclosed inthe country inworkshops on 13 and 18 November 2003 and are available at the Bank's Infoshop. 17 Annex 1: Countryand Sector Background HONDURAS: Forestsand RuralProductivity Countryand sector issues InHonduras poverty is highly correlatedwith living ina rural area. In 1999,75% ofrural households were below the poverty line and 80% o f these were classified as living in extreme poverty. On a countrywide basis, 59% o f poor households and 65% o f the extreme poor are rural. For families living in rural areas, issues relatedto access to basic resources such as land and forests, as well as to factors supporting production and marketing, are identifiedas being among the principal determinants o f social inequalities and poverty. Poverty i s also linkedto other factors such as demographic pressure and its effects on natural resources; the low level o f democratic participation by the poor; and the weakness of local governments. Povertv Reduction Stratem. The current GOH administration entered office at the beginning o f 2002 having articulated its priorities and goals ina document entitled "My Commitment To You". This document identifiedsix critical development areaswhere the new administrationwould focus its attention. Soon thereafter, the new government affirmed its commitment and gave highpriority to the recently completed Poverty Reduction Strategy (PRS). These two strategies, which are highly compatible and complementary, are the basis for GOH's rural development policy. The Poverty Reduction Strategy (PRS), on which the IDA'Srecent CAS is based, has six pillars: (i) accelerating equitable and sustainable growth; (ii) reducing rural and (iii)urban poverty; (iv) enhancing investment inhumancapital; (v) strengthening social protection for vulnerable groups; and (vi) ensuring sustainability through governance/institutional reforms and enhanced environmental sustainability. The PRS stressesthe needto accelerate equitable and sustainable economic growth and identifies four sectors as having highproductive potential. The forest sector is one o f these. Concurrently, for the reduction o f poverty in rural areas the PRS stressesthe needto: i)improve equity and security in access to land on behalf o f organized and independent small farmers (campesinos) and indigenous people, thus allowing income improvement and food security for rural families; ii)promote sustainable development inhigh-priority areas, under mechanisms that guarantee participation o f local governments and communities; iii)improve the competitiveness o f the rural economy, inorder to increase productionand improve the efficiency and competitiveness o f small rural producers, facilitatingaccess to infrastructure and to support services inmarkets, technology and financing; and iv) improve social conditions inrural areas, strengthensocial infrastructure and increase coverage o f poverty-reduction programs in rural areas that are most depressed and have the greatest incidence o f poverty. The strategy also recognizes the importance to long-term poverty reduction o f maintaining environmental quality and mitigatingdisasters as the poor are more vulnerable to the consequences of environmental degradation and natural disasters. Addressing deforestation and encouraging sustainable development inthe forestry sector are identifiedas priority responses to these issues Sector Policies. Morethan 80% of Honduras' total land area i s legally classified as forest land, with the majority o fthis beingpublic forest land. About 42% o fthe country's forest lands have been deforested and forest degradationprocesses affect a very significant percentage o fthe remaining forest areas. Forest resources are beinglost at a rate estimated to be greater than 800 km2per year. The bulko fthe remaining forests are concentrated inHonduras' Central and Eastern zones where 18 44,750 km2o f forest, representingabout 80% o fthe country's existing forest resources are found. These two regions also contain 60% o f the country's deforested lands. Percentage-wise, the western and southern regions o f the country are the most deforested. Deforestation i s consideredto be the environmental problemto which the highest priority attention should be given. Among the principal causes o f deforestation and forest degradation are: conversion for agriculture and livestock; unmanaged exploitation for domestic uses such as fuelwood; fire; and irrational logging. The problem i s magnified by the limited effectiveness o f the State Forest Administration (AFE- COHDEFOR). At the same time, highpriority is given to promotingthe rational and sustainable use o f forest resources as a means o f contributing ina positive way to economic growth, employment generation and reduction o f poverty, especially in rural areas. The country has a sustainable forest- productioncapacity much higherthan current production. Table 1. Forest Lands and Forest Resources inHonduras of Country's O hof Forest O h Forested Deforested Forest Lands Lands Remaining Deforested Forest Region Area (km') Area (km') (km2) ' Deforested Forest Lands Lands Central 20,536 16,730 37,266 45% 36% 40% 38% Eastern 24,215 7,578 31,793 24% 43% 18% 32% Western 5,582 8,875 14,457 61% 10% 21% 15% Atlantic 4,102 4,979 9,081 55% 7yo 12% 9% Southern 2,370 3,752 6,122 61% 4% 9% 6% Total 56,805 41,914 98,719 42% 100% 100% 100% - Landsthat are classified as best suited for forestry use. The populationinforest lands i s overwhelmingly poor. PRONADERS (2000) estimates that the poverty rate i s 93% among this population. Between 250,000 and 350,000 households are estimated to live in forest lands, representing from one-third to one-half o f Honduras' rural population. For the poor rural smallholders that constitute more than 70% o f all rural landholders, the GOH's policy vision differentiates betweenhouseholds with relatively more and better land (lowlands, valley soils) and households in marginal areas (primarily forest lands). For the former, the focus i s on development o f their productive capacity, improving market links and competitiveness. For the latter, which constitute the majority o f the smallholders, the focus i s on diversification o f the local economy, household food security and community forestry, agroforestry, and agricultural options. Critical needs for achieving sustainable improvements insmallholder livelihoods include enhancing tenure and resource access security; access to land, resources, and services; and gender equity. Forestry inHonduras is considered a subsector o f agriculture. Policies goals for the forest sector that most directly support the PRS include: (i) poverty reduction -through regularization o fthe traditional rights o f populations inand near public forest lands, increasing employment and income of rural poor from participation inpublic and private forestry activities, increasing productive opportunities and investments,and development o fpayment o f environmental services schemes; (ii) community participation - indecision making, inthe process of regularization o f the traditional rightso fpopulations inforest lands, and through Community Forestryprograms aimed at promoting and developing productive activities that can significantly contribute to individual and community welfare; (iii)sustainable forest management-based on forest and environmental management planning and implementation and an ecosystems focus to guide investment such that benefits from 19 productive activities can be sustained while protecting critical areas and ecosystem services; (iv) forest fire control - by mainstreaming forest fire prevention and control among the many local and regional actors and public agencies inorder to more effectively tackle this large and complex problem; and (v) development of local capacity - among municipal governments and communities to exercise their rightsand meet their responsibilities. The approach for achieving these policy goals i s based on developing territorial-specific, multiphase programs. Publicly supported programs inthis context would be those oriented toward resolving tenure conflicts; promoting conservation andrational use o f water, soils, and forests; integratedwatershed management; strengthening of the system o f protected areas; and establishment o f "zones o f sustainable forest development" for commercial forestry purposes. In all cases, generationo f direct livelihood benefits for communities locatedinnational forests and protectedareas is to be a fundamental goal o f these programs. There i s also great interest in developing andimplementing next generation mechanisms and incentives (e. g., payment o f environmental services and environmental services markets) inorder to create incentives for forest conservation and management and reforestation. Constraints. To date, most GOH efforts at poverty reduction inforest lands have shown little result. Among the principal reasons for this have been: (i) the uncertain and conflictive nature o f land tenure inpublic forest lands preventing effective public and private investment and forest management; (ii)low priority givento the systematic provision o f support for production systems, such as infrastructure, technical assistance, irrigation, training and access to markets, and credit; (iii) an overly rigid, top-down command and control forest regulatory framework that, while seeking to ensure appropriate management, has hadthe opposite effect by creating disincentives and encouraging illegal behavior; (iv) undue discretionality and lack of transparency inthe management o f public forest leading to forest governance problems and limitingprivate investment; (v) a diffuse and confusing legal framework antithetical to encouraging private investment; and (vi) public policies which have implicitly directed the State Forest Agency's (AFE-COHDEFOR) attention toward generating income from timber extraction rather than towards needed forest and environmental management and forest-based poverty alleviation programs. Government's Response. Major legislative reforms are being sought on territorial planning (approved by Congress in October), property rights (being debated in Congress), and forestry (submitted to Congress). Institutional reforms o f the State Forest Agency (AFE-COHDEFOR) are being implemented and the Secretary o f Agriculture i s finalizing its restructuring proposal to support national programs for agriculture, forestry and rural development. GOH's policies for the agricultural sector are focused on achieving two overarching goals: poverty reduction and enhancing competitiveness. The overall sectoral strategy (currently being finalized through public consultations) proposes eight priority themes: 1. Finance, investment and riskmanagement; 2. Trade; 3. Innovationand technology; 4. Sustainable natural resources management; 5. Access to land; 6. Rural infrastructure and irrigation; 7. Education andtraining for development o f rural and agricultural enterprises; and 8. Sanitation and innocuousness o f agricultural products. 20 Among the programs being developed to implement sectoral strategy are included those for the development o f agriculture, forestry and gender equity among poor smallholders (campesinos): the National Agriculture and FoodProgram (PRONAGRO), the Community Forestry Program (a component o f PRONAFOR), and the National Sustainable Rural Development Program (PRONADERS). GOHhas been inthe process for some three years o f attempting to reform the Forest Law and, since the last nine months, to restructure and reformthe state forest agency. The process to reform the legal framework via a new Forestry law has beentortuous. The three year history o f the reform process has seen unprecedented levels and intensity of public consultation; development o f competing versions o f new laws by different stakeholder groups; unwieldy and internally inconsistent consensus versions o f the proposed law; marginally successful attempts by government to simplify and improve the consensus versions; decisions to forego the new law altogether and focus on reform o f key sections o f the existing laws; and finally, most recently, a new attempt by government to bringa consensus version o f the Forestry Law to the Congress. The difficulties this process has faced reflect the strong and competing political, economic and social interests around the forestry sector. While reform o f the current framework offers clear advantages -particularly as regards resolving problems from the overlapping and outdated elements inthe current framework that inhibitsector investment -most o f the major changes required to overcome the sector's constraints can be achieved underthe current legal framework. Greater progress has been achieved inreforming AFE-COHDEFOR. Among the real achievements to date have been: (i) the development and approval by AFE-COHDEFOR's Board o f a new organizational structure; (ii)a refocusing o f the agency on the technical aspects o f its normative and regulatory role, including a substantial downsizing inagency staffto adjust the ratio o f technical to administrative staff and field staff to headquarters staff; and (iii) ongoing development o f the next generation reforms, includingthe reassessment o f the state's role inadministering and managing public forest lands and development o f incentives frameworks to reduce the state's land administration burden infavor o f appropriate involvement o f community, private, and municipal entities. Also, to deal with corruption and illegal logging, a highlevel Commission to audit the application o f forest managementplans has been formed inthe Department o f Olancho (a center of illegal logging). The Commission i s headed by the Minister o f SAG and includes representatives o f the Attorney General's environmental enforcement unit, the Catholic Church, the police and local environmental organizations. IDA and the Inter-American Development Bank have been working with GOHand AFE-COHDEFOR on the reforms. To attendto the fundamental problems stemming from landtenure inpublic forest lands, G O Hhas put a highpriority on enlarging existing landregularizationprograms for recognizing traditional rightsand usufruct on public lands and on developingprograms to provide the rural landless poor with accessto productive lands. To promote sustainable development inpriority rural areas, the Honduran Secretary o f Agriculture's National Sustainable Rural Development Program (PRONADERS) was createdwhich, with its supporting services, coordinates some 18 participatory projects targeted to smallholders to increase productivity via improved natural resource management, crop diversification, quality improvements and productionand marketingsupport services. During the last year, PRONADERS expanded substantially, reaching nearly 95,000 rural households (close to 600,000 people). This initiative, combined with favorable weather and passage o f the Solidarity with the FarmingSector Law, appears to have achieved good outcomes thus far. Agricultural outputs have increased significantly between 2001and 2002, especially inthe basic grains on which the rural poor rely. 21 Annex 2: Major RelatedProjectsFinancedby IDA and/or other Agencies HONDURAS: Forests and Rural Productivity Project Name Amount Financier IP/DO Sector Issue Ratings Rural Land Management US$ 34.0 M IDA IP-s Policy Reform, landtitling, forest (Credit 2940-HO) DO-S and protectedareas' management, improvement o fnatural resource managementpractices. Access to Land Pilot - US$ 8.0 M IDA IP-u Landtenure security, sustainable PACTA (Credit 3435- DO -S farm enterprises. HO) Biodiversity US$ 7.0 M GEF IP-s Conservation and sustainableuse Conservation DO-S of biodiversity, improved (TF-28367-HO) institutional capacity for parks management. EmergencyDisaster US$ 10.8 M IDA IP-u Disastervulnerability reduction. Management (Credit DO-S 3361-HO) SustainableCoastal US$ 5.0 M IDA IP-s Development and managementof Tourism DO-S tourism along Atlantic coast, Bay (Credit 35581-HO) Islands; participatory approaches; municipalgovernance. Regional Development US$ 8.8 M IDA IP-s Sustainabletourism basedon of Copan Valley (Credit DO-S cultural and natural patrimony in 37640-HO) Copan Valley. Other Agencies Multiphase Sustainable IUS$17.5 M IDB Sustainabledevelopmentof forested land, ForestDevelopment improvementsinthe sector's competitiveness, Program business productivity. Management of Natural US$25.0 M IDB Promotewatershed management,sustainable Resourcesin Priority rural development, strengthening ofthe Basins (MARENA) management ofthe natural resources. Rural Development US$12.3 M IFAD Local organization strengthening; productive Project inthe Central developmentsupport; financial services; and EasternRegion establishmento f a develomnent investment fund. Strengthening O fLocal EU Watershedmanagement, local institutions ManagementO fNatural strengthening. ResourcesInThe Rios Patuca, Choluteca and Negro Watersheds 22 Annex 3: Results Framework and Monitoring HONDURAS: Forests and RuralProductivity Results Framework PDO Outcome Indicators Use of Outcome Information ~~ ~ Increasethe contribution of 1. At least60% ofproject PY1: Ensurethat requiredtraining, sustainablenatural resources municipalities (22) strengthened, organization and orientation of field staff, managementto the incomes institutional partners, andprivate sector and quality of life ofthe rural with municipal developmentplans service providers is adequateto achieve poor in selectedlow-income under execution. project objectives. municipalities with highagro- 2. 100 YOof project municipalities (36) forestry potential. with a completedLand Use and PY1-PY5: Ensure quality of Vulnerability Reduction Plan implementation and implementation impact. formalized by Municipal decree. 3 . 50% of local organizations PY3: Ensurethat processof capacity strengthenedto carry out planning, building, decentralization and administration, and managementof institutionalization is advancingto allow , their own productive and natural full transfer ofresponsibilities androlesto resources management activities. project actors prior to closing. Review 4. At leasta 55% increase inthe per evidence for economic, environmental, capita incomeof project participants. social and institutional impacts at each level 5. Number of householdsbenefited and of project and revalidate project orientation jobs createdfrom project and instrumentsand prospectsto achieve expectedresults. Otherwise, re-orient investments. project to devote more resourcesand 6. Increasedparticipation by women political leverageto higher impact activities (30% of direct participants are and strengthenperformance ofkey national women). and local actors inthese aspects. 7. 10% increase in number of small- scale community enterprises. PY4: Systematizeproject experiences, 8. Tenure of at least 30% ofthe review needs and make adjustmentsas occupantsinnational lands inthe required to strengthencapacity building for project arearegularizedthrough full transfer of responsibilities and roles to formal, long-term usufruct project actors prior to closing. Identify continue weaknesses and final agreements or titles developedwith reorientations to overcome. the assistanceofthe project. 9. ProtectedAreas Fund in full PY5: Ensurefull transfer of responsibilities execution by Year Two ofthe and roles to project actors prior to closing. project. Monitor implementation and provide 10.30% ofthe priority ProtectedAreas additional support and political leverage (5 ProtectedAreas) with minimum where required achieve institutionalization financing ensuredfor recurrent objectives. Implementation Completion protection andmanagementcosts. Report. 11.Percentage reduction in deforestation rates in priority protectedareas. IntermediateResults ResultsIndicators for Each Use of ResultsMonitoring One per Component Component ComponentOne: ComponentOne : Component One: Community Forestry Across 50% ofproject target 1. 25,000 families (men and women) PY1: Use lessons and systematized 23 1 IntermediateResults ResultsIndicatorsfor Each Useof ResultsMonitoring One per Component Component communities: Significant participating inCommunity Forestry :xperiences from Fund For Hillslope advances in strengtheningthe with 80% ofthe indigenousfamilies Producerspilot to significantly advance the organization and role of local inproject areaparticipating in ,nstitutionalizationofthe mechanismand farmers andwomen's groupsto processesto improve livelihood and xpproach in SAG'Snational program for ensure that the service quality of life. :ethnical services inagriculture and forestry provision is community 2. 50% reduction in land use change in For the rural poor. demand driven (CDD), and project area forests initial experiencespilotedand 3. At least 100 productive subprojects PY2-PY3: Close monitoringofthe evaluatedofpromoting successfullyfacilitating access to technical quality and livelihood impacts o f municipal (or micro-regional) marketsand commercialization subprojects, further developmentof CDD level organization of producer services. xientation, and continued and community organizations institutionalization of mechanismin SAG to develop consensus on lines and DICTA and relationship with o f assistanceto benefit larger PRONADERS. Ifpositive continue to numbers of households and :xpand. Ifnot, concentrate on overcoming achievegreater efficiencies Jbstacles. through economies of scale in provisionof strategic services, PY4-PY5: Evaluate quality and impact. such as marketing, Reassignresourcesas neededto achieve commercialization, and CDD, efficiency, quality, institutional, and forestry. impact objectives. ComponentTwo: Forest ComponentTwo: ComponentTwo: Management,Tenure and Conservation 1. 1.40 millionha of national, PY1-PY2: Ensureconsolidation of Forest sector public entities organization, provisionof appropriate and intersectoral partners, municipal, communal, private capacity building to provide for suitable municipal authorities, private forests, andprotectedareas orientation and quality ofwork from outset, service providers, and 50% of incorporated into appropriateforest andthat corrective actions taken as project target communities managementprograms for required. have the orientation, training, protection, conservation, with 0.6 and meansto have million ha ofpine forest under PY3-PY4: Expansion into new substantially advancedin sustainablemanagementregime. municipalities, communities, and activities 2. 150,000 haof national public forest inFMUs. Closemonitoringofthetechnical lands and protected areas with a quality, environmental managementand cadastre, tenure conflicts resolved financial impacts of activities, and and traditional rights of the continued institutionalization o f approaches occupantsformalized. within SAG and AFE-COHDEFOR. If 3. ProtectedAreas Fundsuccessfully positive continue to expand. Ifnot, functioning to finance protection and concentrateon overcoming obstacles. managementexpendituressuchthat Y4-PY5: Evaluate quality and impact. at least60% ofthe priority protected Reassignresourcesas neededto achieve areas of the SINAPH operating efficiency, quality, and institutional satisfactorily under participatory objectives. managementschemes. ComponentThree: Local ComponentThree: Component Three: GovernmentandDisaster Preparedness At least 20 municipalities have 1. A methodology has been designed, PY1-PY2: Ensureconsolidation of completed a participatory applied, validated and adoptedfor organization, provision of appropriate process to agree on a municipal land use planning and natural capacity buildingto provide for suitable development agenda resources zoning in all 36 orientation and quality o fwork from outset, ("Vision") that includes both municioalities with at least 50% of and that corrective actions taken as 24 IntermediateResults Results Indicators for Each Use of ResultsMonitoring One per Component Component urban and rural land use them promulgating decreesto limit required. Ensure practicality and utility of planning and zoning priorities. use highrisk and vulnerable areas. approach. Inter-institutional coordination 2. In all municipalities zones ofhigh with national-level institutions involved in risk, vulnerability, and principal land use planning and disasterprevention to sources of contamination havebeen buy-in and support. identified. 3. All municipalities have established PY3-PY4:Expand into new municipalities. the institutional relationships required Close monitoring ofthe application, utility to implementthe priority activities and impact o f planning and capacity identified and at least 50% ofthem building processes. Ifpositive continue to have successfullyobtained financing expand.Ifnot, concentrateon overcoming and satisfactorily completeda priority obstacles. project. 4. 80% ofthe nationalinstitutionsinthe PY4- PY5:Evaluate quality and impact. projectareaworking inlanduse Reassignresourcesas neededto achieve planninganddisastermitigation usethe efficiency, quality, institutional, and impact local, municipaland intermunicipal objectives. participationstructuresstrengthenedby the project ComponentFour: Project ComponentFour: Component Four: Coordination & Management Inter-institutional and inter- 1. Process for preparing Annual PY1:Is UNDP performinginprocurement project coordination function Operating, training, and procurement role? Ifnot. seek alternatives. ofthe PCUfacilitating plans for following year begin 3 adoption and months before due date. PY2: Ifneeded, hirenew FMI procurement institutionalization ofproject 2. Financial audits, post-procurement agent. Ensuretimely execution of MTR products and preparation of reviews and financial management surveys. annualmanagementplans and supervision missions uniformly processesin atimely fashion. conclude that PCU is doing a good FY3: Ensuretimely preparation of MTR job. inputs. 3. Technical excellenceof PCU recognizedand respectedby PY4-PY5: Ensurefull transfer of relevant institutional counterparts. responsibilities and roles to project actors prior to closing. 25 .-M C L $ O 0 S $ $ s c, 0 0 I-- .I IC) 2 % -R E 0 E 9 s g 0 sr-- N 2 -m m e L c, v1 i E a3 M 2E C o sN 0 % 0 2a E 3 E 3 3 c i oca1 Coordinateswith territorial information systems (SINIT, SINIMUN) jovernment and lisaster SERNA Norms for management of the water resources and watersheds 'reparedness Approves EIA's AMHON Defines and applies strategies for its member (municipalities) Facilitates municipal proposal development and access to GOH programs Facilitates access to information Participates in evaluation Community Organizes and participates inland use planning and zoning Develops and executes community's Land Use and Vulnerability Plan FHIS At request of municipality, financespriority infrastructure projects identifiec through Land Use and Vulnerability Plan of infrastructure AFE Strengthens Municipal Environment Uniting UMA Forest management land use planning Declaresprotected watersheds for potable water production PMDN Analysis of risks, territorial Land Use and Vulnerability ReductionPlan maps, disasters preventionnorms, vulnerability studies COPECO Coordinatespreventionand responseto disasters Collaborate with the communities and municipalities inprojects NGOs Project Coordinating Coordinates participating institutions and agencies. Unit Facilitates IDA supervisions missions of supervision and follows up on agreements and recommendations. Project Requests disbursementsfrom IDA. Coordination Maintains monitoring and evaluation and MISdatabase and Manages the project SpecialAccount Management Documents and disseminates experiences Approves proposals andprojects for Land Use Planning andZoning Revises Operational Manuals and obtains IDA'Sapproval on changes. Develops TORSin collaborationwith executing agencies 48 Institution Component Agency Functions Makes purchases (shopping), contracts and makes contract payments Administers the project Monitors and evaluates Prepares audits andreports. Prepares annualplans andprocurement plans UNDP Procurementagent Private Certification Unit Evaluates, supervises and certifies Community Forestry subprojects. Carries out environmental screeningand evaluation of Community Forestry subprojects. Alternative conflict resolution mechanisms to expedite land regularization will be established by the PATH project at the local level. These "Regularization Tables" will provide free technical and legal advice to beneficiaries to resolve disputes, and will rely on the existing Inter-ethnic Tables in indigenous areas. At higher levels, it will take advantage o f the National Conflict Resolution Table, the National Indigenous Table, andthe recently created (by the TerritorialPlanningLaw) Department Council. Credit funds will be disbursed to one Special Account (US dollar account for IDA funds), and this account will be utilized for the purposes o fthe implementation arrangements agreed. As i s the current practice inHonduras, the Special Account will be opened by the Ministry o f Finance (SEFIN) and maintained inthe Central Bank o fHonduras. The GOHwill allocate its counterpart funding into an operational project account, also at the Central Bank, based on budget estimates submitted by the PCUBAG. Given the level o f financing under the project, 30-day's o f estimated expenditures will be transferred from the Special Account to the project account, from which checks or transfers (in local currency) will be issued to the providers o f goods and services. The project will reconcile (monthly) both the project account as well as the Special Account, and submitthe documentation regarding both accounts, to IDA under each withdrawal application (Statement o f Expenditure) and will include such reconciliationinthe quarterly Financial Monitoring Report (FMR). UNDP had managedthe Special Account for the PCU under the PAAR project. The PCU maintains all records, and it has establisheda 30-day cycle for disbursements and cash flow programming. At the time o f the assessment, it was clear that due to the experience and management quality o f the PCU, it is no longer necessary that UNDP function as an agent for financial management operations. Procedures for flow of funds from the credit and the required counterpart contributionwill be implemented with due regard to safeguarding project's resources and ensuringtimely execution o f payments. Annual project financial statements will be audited in accordance with International Auditing Standards by an independentfirm and inaccordance with terms o freference, both acceptable to IDA. Procurement will be carried out inaccordance with IDA guidelines and the provisions stipulated in the Development Credit Agreement. The proposedthresholds for prior review are based on the 49 procurement capacity assessmentof the PCU and summarized inTable B, Annex 8. As the intended Procurement Agent, UNDP will be incharge o f preparing all biddingdocuments, carryingout bid openings and selecting and contracting consultant services for all contracts above prior review threshold. The PCUwill carry out all shopping procedures, all NCBs, all selection of individual consultants and o f consulting firms under US$lOO,OOO. The technical staff o f the PCU will be responsible for the quality of technical documents and products delivered by consultants, or physical inputsfinanced under the project, as a result of any contracting done by UNDPon its behalf. The Operational Manual for the project will specify the duties and responsibilities o f all the institutions involved inthe implementationof the project. Itwill also include the procurement procedures, the Standard BiddingDocuments to be used for each procurement method, and model contracts for goods and works procured on the basis o f three quotations or shopping, respectively. 50 Annex 7: FinancialManagementand DisbursementArrangements HONDURAS: Forests andRural Productivity ImplementingEntities The Ministryo f Agriculture and Livestock (SAG) will be the overall implementingentity and a Project Coordination Unit (PCU) has been establishedwithin the Ministryto coordinate all activities under this program. This PCU will also manage the IDA-financed project being implemented by the Ministry o f Governance and Justice (Land Administrationproject), as well as two other ongoing projects, Access to Land Pilot and Natural Disaster Mitigation Project, due to the experience this PCUhas gained as well as under an effort to consolidate and harmonize various project unitswithin the Government o f Honduras. Regarding the financial management arrangements, the PCU has appointed a qualified accountant and budget officer (who are currently working inthe IDA financed projects implemented by the same PCU), to oversee all aspects o f financial management for the project. The PCUhas successfully managedthe IDA financed Rural Land Management Project (PAAR), and it is expected that the project management arrangement assessedfor the proposedproject will continue. FundsFlow Procedures for flow o f funds from the credit and the required counterpart contributionwill be implemented with due regardto safeguarding project's resources and ensuring timely execution of payments. Credit funds will be disbursedto one Special Account (US dollar account for IDA funds), and this account will be utilizedfor the purposes o f the implementation arrangements agreed. As is the current practice in Honduras, the Special Account will be opened by the Ministry o f Finance (SEFIN) and maintained inthe Central Bank o f Honduras. The GOHwill allocate its counterpart funding into an operational project account, also at the Central Bank, based on budget estimates submitted by the PCU/SAG. Giventhe level o f financing under the project, 30-day's o f estimated expenditures will be transferred from the Special Account to the project account, from which checks or transfers (in local currency) will be issued to the providers o f goods and services. The project will reconcile (monthly) both the project account as well as the Special Account, and submit the documentation regarding both accounts, to IDA under each withdrawal application (Statement of Expenditure) and will include such reconciliation inthe quarterly FinancialMonitoring Report (FMR). UNDP hadmanagedthe Special Account for the PCU under the PAAR project. The PCUmaintains all records, and it has established a 30-day cycle for disbursements and cash flow programming. At the time o f the assessment, it was clear that due to the experience and management quality o f the PCU, it is no longer necessary that UNDP function as an agent for financial management operations. Paymentsand operationof bankaccounts. Beforepayments for acquisition o f goods and services can be processed, a purchase order or contract mustexist. On the basis o f these documents, appropriation warrants are issued, providedthat there's available budget. The Bank account 51 reconciliation will be prepared on a monthly basis by the Accountant and will be available within 8 days after the end o f the month. This i s the current practice o f the PCU and these arrangements have been found to be acceptable to IDA. UNDP had managed an account for the PCU under the PAAR project. However, at negotiations, the agreement reached with the GOH i s that the PCU will open a Special Account and administer IDA funds, maintainingall records and establishinga 30-day cycle for disbursementsand cash flow programming, and the Special Account will be managed by the PCU. No additional advance will be made by IDA to the Procurement Agent under this project. Any contracts that may be managed/administered by the Agent, the PCUwill advance funds from the Special Account to the Agent for payment execution, so that all funds are reconciled to a single account. The GOHwill allocate its counterpart funding into an operational project account at the Central Bank, based on budgetestimates submitted by the PCU/SAG. The operational project account will be under the management and responsibility o fthe PCU. Bank account reconciliation will be preparedon a monthly basis by the Accountant and will be available within 8 days after the end o f the month. This is the current practice o f the PCU and these arrangements have been found to tie acceptable to IDA. Under this project, there will be several other co-implementing agencies, however there will be no transfer o f funds to these agencies. All payments will be executed directly by the PCU. These agencies will be required to enter into a participation agreement with the PCU. Disbursements will be transaction-based and will be made on the basis o f Statements o f Expenditures (SOEs), and the preparation o f SOEs will be the responsibility o fthe PCUwith clearance o f SEFIN. Accounting Policiesand Procedures Administrative procedures will be inplace to ensure that financial transactions are made with consideration to safeguarding project assets and ensuringproper entry inthe accounting/monitoring systems. The project already has a working draft o fthe operations manual, which is inthe process o f beingfinalized. The project accounting system has the capacity to record assets, liabilities and financial transactions o f the project, and produce financial statements useful to project management and meeting IDA'Sfiduciary requirements. The accounting system is designed to be able to capture all financial informationand allocate among both categories (the IDA'Slegal/disbursement categories and GOH Budget categories/expenditure object) and project activity. The project will also submit detailed monthly statements of expenditures to the office o f Finance and Accounts and to SEFIN's Directorate o f Public Credit inorder that the project's expenditures are recorded on the Ministry's accounts. Segregation of duties. The PCUhas a clear organizational structure and procedures established under the PAAR project. Said procedures support an adequate segregation o fprocurement, budgeting, payment and recording activities, and this was observed within the PCU duringthe appraisal mission. All detailed procedures are contained inthe operational manual for the project. Budgeting. The Credit agreement and project cost tables will be the main inputsfor the project budgets and counterpart (GOH) fundingestimates. The PCU will follow prescribed IDA disbursement category and governmental budgetary heads, and the PCU/SAG will prepare at least: 52 the annual work plan classified by work lines, with goals/objectives, physicaland financial programs; 0 the budget proposal specifying the sources o f funds, the summarized and detailed expenditures by major areas, accounts, and specific objects; 0 the budget execution program broken down monthly, and the quarterly document o f budgetary commitment authorization; 0 the monthly report on budgetary execution to be issued within 15 days after the end o f each month; and 0 the quarterly report on evaluation of budgetary executionto be issuedwithin 15 days after the end o fthe quarter. Bank account reconciliation will be prepared on a monthly basis by the Accountant and will be available within 8 days after the end o fthe month. Accounting.Accounting and budgetary records will be maintained in accordance with the GOHs procedures, which i s satisfactory to IDA. However, for IDA monitoringpurposes the PCU will report on detailed informationut theproject level, specifically the deposits to the special account and the expenditures classified by activity/ subcomponent and disbursement category. The PCU maintains and manages an integrated management information system that was developed under the PAAR project. This system i s predicated on the project and procurement plans and these are linked (and updated) to the budget of the project. There are elaborate levels o f controls to approve budget transfers/allocations for execution under the procurement plan. These controls include a 3-person Committee to review all transfer/allocation proposals. The accounting records are maintained electronically, and are reconciled with budget and procurement reports on a monthly basis. Expenditure reports are further analyzed by project component and cash flow analyses are conducted both on an ex-post basis (analyzing weekly spending for the prior month) as well as on a forecast basis for the upcoming month. Safeguardover assets.Assets acquiredby the project will be inthe custody o f the respective institutional departments o f the SAG. For the proposedproject, the PCU will keep detailed subsidiary records o fplant and equipment acquired. The amounts inthis register will be reconciled monthly against the respective accounting balances. At least one annual physical inspection will be undertaken by PCU staff, preferably with the participation o f staff from the external auditors. Audit arrangements. Annual project financial statements will be audited inaccordance with the International Standards on Auditing, by an independent firm and inaccordance with terms o freference (TORS)both acceptable to IDA. In addition to the audit opinions on project financial statements, Special Accounts and FMRs, special purpose reports will deal specifically with the observance o fthe procurement and consultants services provisions of the Credit Agreement. The memorandum on internal controls ("management letter") will be issued annually. The PCU agreed to appoint the auditors (for both the annual and special audits) under a multi-year contract. The audit would then follow the provisions o f Section 4.01 (b) (ii)o f the Credit Agreement 53 (January 1st through December 31st of each year), with the audit report due no later than 4 months after the end o f the fiscal year. The PCU will prepare, ifneeded, an action plan to address any issues and recommendations contained inthe audit reports. The action plan and follow-up activities would be communicated to IDA. Under the new IDA Audit Policy, it i s recommendedthat the audit TOR be drafted in such manner that it would include all the IDA projects (the proposedproject and the ongoing PATH, NDNMand PACTA) that are expected to be managed by the same PCU, o f which control structure and base o f information would be used to produce financial reports, and would be subjected to the same independent review. The new Audit policy explicitly allows for a consolidation o f reports, and with specific annexes (financial statement and special account schedule) for each project, a single management letter and audit report would meet IDA'Saudit requirements. Reporting and Monitoring On a monthly basis (at least), the PCUwill preparethe project's Statement of Expenditure, a matrix classifying receipts by financing source and expenditures by financing source and disbursement category. The expenditures would be compared to the projected figures per the quarterly budgets prepared as indicated inthe Budgeting section above. This report is submitted to the SAG and the SEFNs Directorate o f Public Credit. Inaddition to the FMRs, the monthly financial reports will include the Special Account Reconciliation Statements. Any difference inthe amount o f expenditures reported under the two financial statements must be clearly explained. The project financial statements, along with the physical progress and procurement sections o f the FMRs, will be submitted to IDA on a quarterly basis, and will be submitted no later than forty-five (45) days after the end o f each quarter. The contents o f the FMRs have been discussed, and the formats o f the reports will be finalized by Credit negotiations. Funds Flow: counterpart funds commencemen 54 ~~ Risk RiskRating RiskIssuesIMeasures Staffing Low Staffcontracts previously were with UNDP, which assistedto maintain continuity, staff retention may be affected by PCU's formalization within the GOH. Requires monitoring. Accounting policies and Negligible procedures External Audit Negligible Appointment of auditors before effectiveness through extensionof existing contract. Reportingand Monitoring Negligible IDA support to generationo f flexible draft FMRs prior to effectiveness. Strengths andWeaknesses The PCU inthe SAGhas an adequate financial management system. However, its contributions to the project's implementation and monitoring will be in effect when the updated procedures, controls and systems are under the organizational arrangements described previously are finalized, and arrangements for producing certain informationrelevant to IDA are inplace. The Action Plan (below) aims at addressing these issues. FinancialManagementAction Plan Action Responsible Entity CompletionDate 1. Finalize financial management PCU Appraisal (completed) sectionof the Operational Manual 2. Appoint the external auditors PCU 15 April 2004 - Extension of contract 3. Submit draft Project Monitoring PCU Appraisal (completed) ~~ Reports(FMRs) 4. Submit first FMRs PCU 45 days after the end ofthe quarter inwhich effectivenesstakes dace 55 Allocation of Credit Proceeds Expenditure Category Amount in US$ million Financing Percentage 1. Works 0.6 88% 2. Goods 0.4 100%foreign expenditures/ 88% local expenditures 3. Consultant Services (excluding 8.4 98% ProcurementAgent's fees) 4. Non-consultant technical 1.1 services 5. Paymentsmade to Eligible 5.6 100% Beneficiaries and Technical ServiceProviders by SAG for Subprojects 6. Training/Workshops 1.1 7. Refunding o fProject 2.0 100% PreparationAdvance 8. Unallocated 0.8 Total Project Costs 20.0 Interest during construction Front-end Fee 56 Annex 8: Procurement HONDURAS: ForestsandRuralProductivity A) Procurement Arrangements Procurement for the proposed project will be carried out inaccordance with IDA "Guidelines: Procurement Under IBRD Loans and IDA Credits",published inJanuary 1995 (revised January/August 1996, September 1997 and January 1999); and "Guidelines: Selection and Employment of Consultants by WorldBank Borrowers" published inJanuary 1997 (revised in September 1999, January 1999 and May 2002), and the provisions stipulated inthe Development Credit Agreement. 1) Procurement methods: The methods to be used for the procurement are described below, and the estimated amounts for each method, are summarized in Table A. The threshold contract values for the use o f each method are fixed inTable B. Procurement o f Works Works procured under this project would include rehabilitation o f rural trails, paths and roads, remodeling o f research centers and offices, aerial photographs, and some small infrastructure, totaling US$1.7 millionequivalent. Eventhough no single contract will be o f big enough amount to call for International Competitive Bidding (ICB) procedures, some o f these contracts will be procured following ICB because the services may not be available nationally. IDA-issued Standard BiddingDocumentswill be used. Other contracts estimatedto cost less than US$1.5 million equivalent per contract, up to an aggregate amount o f US$682,000, may be procured usingNational Competitive Bidding (NCB) procedures, using standard biddingdocuments agreed.inadvance with IDA. Small works, estimatedto cost less than US$150,000 equivalent per contract, upto an aggregate amount o f US$871,000 may be procured on the basis o f at least three quotations received by qualified domestic contractors inresponseto a written invitation, which will include a detailed description o fthe works, including basic specifications, the required completion date, a basic form o f agreement acceptable to IDA, and relevant drawings, where applicable. Procurement o f Goods Goods procured under this project would include vehicles, satellite images, computer and office equipment, software, office furniture and publications totaling US$1.O million equivalent. To the extent possible, contracts for these goods will be grouped into biddingpackages o f more than $150,000 equivalent and procured following ICB procedures, usingIDA-issued standard bidding documents. Contracts with estimated values below this threshold per contract and up to an aggregate amount of US$108,200 may be procured usingNCB procedures and standard bidding documents agreed with IDA. Contracts for goods which cannot be grouped into larger biddingpackages and estimated to cost less than US$50,000 per contract, up to an aggregate amount o f US$186,700 may be procured usingshopping (National /International) procedures based on a model request for quotations satisfactory to IDA. 57 Direct Contracting Goods and works which should be procured as an extension of an existing contract, must be purchased from the original supplier to be compatible with existing equipment, or are of a proprietary nature and costing $253,000 equivalent or less in the aggregate, may, with the Association's prior agreement, be procuredinaccordancewith the provisionso f paragraph 3.7 of the Guidelines. Community Forestry Subprojects Under the PAAR project IDA has financed agricultural, forestry and microwatersheds management, training and research demand-driven subprojects through the UplandProducers Fund. Under the proposedproject these subprojects will continue to be financed. Subprojects could consist o f consultant services, non-consultant training expenses, goods, very small works, and seed capital for revolving funds. The average size o f a subproject i s expectedto be on the order o f $40,000. The beneficiaries will follow to the extent possible local shopping procedures. The Operational Manual would include evaluation criteria for selection o f subprojects, and will contain contract forms and procurement procedures to be followed by the beneficiaries. Procurement of Technical Services Technical services procured under this project would include cadastral surveys, land demarcation and land regularization totaling US$1.47 millionequivalent. Contracts with estimated values below this threshold per contract and up to an aggregate amount o f US$l,183,000 may be procured usingNCB procedures and standard biddingdocuments agreed with IDA. Contracts for technical services which cannot be grouped into larger biddingpackages and estimated to cost less than US$150,000 per contract, up to an aggregate amount o f US$286,750 may be procured usingshopping (National /International) procedures based on a model request for quotations satisfactory to IDA. Selection o f Consultants Consulting services will be contractedunder this project for technical assistance, studies and capacity buildingto develop the capacity o fproject actors (personnel o f government executing agencies, municipal government, communities, private service providers, PCU staff). These services are estimated to cost US$14.7 million equivalent and would be procured usingIDA Standard Request for Proposals. Firms All contracts for firms would be procuredusingQCBS except for small and simple assignments that can be precisely defined and are o f a standard or routine nature (such as auditing) and contracts estimated to cost US$200,000 equivalent or less which would be procured usingLeast Cost selection upto an aggregate amount o f US$200,000 or whenthe assignment is very small for which the need for preparing and evaluating competitive proposals is notjustified and contracts are estimated to cost US$lOO,OOO or less they would be procured based on Consultants' Qualifications. Individuals Specializedadvisory services would be providedby individual consultants selected by comparison o f qualifications o f three candidates and hired inaccordance with the provisions o f paragraphs 5.1 58 through 5.3 o f the Consultant Guidelines, up to an aggregate amount o f US$8.2 million. The project will renew existing contracts with technical and administrative staffcurrently working in coordination o f the components and administration for the PAARproject. The majority o f this staff was hired following competitive selection procedures based on short-lists and evaluation o f qualifications. See Part 3 o f Section I1o f 3 to Development Credit Agreement. Schedule Contracts will be renewedfor one year and further renewals would be subject to submission o fperformance reviews reports that will require IDA'Sno-objection. Operational Costs: N o operational costs would be financed with credit proceeds, except for those that are financed under PPF-Q-3750. Training would consist o f workshops, seminars, and consultation meetings, study tours for staff o f participating agencies working inproject activities. IDA would finance travel, subsistence and per diem to trainer andtrainees, registration fees, logistic expenses for organization o f training events, and training materials. 2) Prior review thresholds: The proposedthresholds for prior review are based on the procurement capacity assessment o f the project implementing unit and are summarized in Table B. Inadditionto this prior review of individualprocurement actions, the planand budget for the PCUOperating Costs will be reviewedand approved by IDA annually. B) Assessment of the agency's capacityto implementprocurement An assessment o fthe capacity o fPCUto implement the procurement actions under the post review threshold for the project has been carried out and was approved by the Regional Procurement Advisor on December 8,2003. The project will be coordinatedby a small PCU within the Ministryo f Agriculture. This PCU was previously established to coordinate project activities under the first, ongoing Rural Land Management project and it counted with the support o f UNDP for procurement and financial management. A reducedarrangement will be continued under the new project with UNDP providing assistance only inthe area o f procurement. More specifically, UNDP will provide services as a procurement agent for larger, more complex procurement (see below). The PCU will also coordinate implementation o f other IDA-financed projects includingthe upcomingLand Administration project, the Natural Disasters Management project, and Access to Land Pilot Project. UNDP will be contractedas a Procurement Agent to prepare all biddingdocuments, carryingout bid openings and selecting and contracting consultant services for all contracts above prior review threshold. The PCU will carry out all shopping procedures, all NCBs (except the first two), all selection o f individual consultants under US$50,000 and selection o f consulting firms under US$lOO,OOO. Since the PCU has had extensive experience on carrying out shopping procedures, the threshold for shopping has been raisedto US$50,000. The PCU has one procurement officer and one assistant. Due to the bigger workload with administration o f one other project, the PCU will hire another experienced, senior procurement officer with a strong technical background. The technical staff o f the PCU will be responsible for the quality o f technical documents and products delivered by consultants, or physical inputs financed under the project, as a result o f any contracting done by UNDP on its behalf. The existing structure, considering the additional procurement officer to be hired for the project, is considered satisfactory. 59 The Operations Manual for the project will clearly specify all duties and responsibilities o f all institutions involved inthe implementation of the project and will include, in additionto the procurement procedures, the Standard BiddingDocuments to be used for each procurement method, model contracts for goods procured on the basis o f three quotations or shopping, as well as the biddingdocuments for technical services prepared by IDA. The risk identified inthe assessment i s that UNDP's performance has not been entirely satisfactory duringimplementation o fthe PAARproject. Biddingdocuments hadto be sent back often for corrections which represents delays inthe implementation o fthe project. To mitigate this risk, the Borrower will prepare a "Procurement Agent Agreement that will include a mechanism to assure quality control o f all procurement activities carried out by UNDP. IDA will reevaluate UNDP's performance after the first six months of project implementation and if it i s found not satisfactory new arrangements for procurement administration will be sought, inwhich either the Ministry finds another procurement agent or concentrates efforts to strengthen the capacity at the PCU. The Association will carry out a full assessmento f any new proposed administrative agent before such hiringis concluded. The overall project risk for procurement i s considered AVERAGE. C) ProcurementPlan The Borrower has developed a procurement plan for project implementationthat providedthe basis for the aggregate amounts for the procurement methods (per Table A). This plan was approved by the RPA and i s inthe project files. At the beginning o f each calendar year, the Borrower will update the Procurement Planwith a detailed procurement schedule for the coming year. D) FrequencyofProcurementSupervision Inadditionto the prior review supervision to be carried out from IDA offices, the capacity assessment o f the PCU has recommended one full supervision missionto visit the field to carry out post review o f procurement actions. Based on the overall risk assessment (AVERAGE)the post- review field analysis should cover a sample o f not less than 1 in 10 contracts signed. Table A: ProjectCosts by ProcurementArrangements (0.6) (0.2) (0.1) (0.9) 2. Goods 0.8 0.1 0.2 bl 1.1 (0.4) (0.1) (0.1) (0.6) 3. ConsultantServices 14.7ci 14.7 (10.0) (10.0) 4. CommunityForestry Subprojects I 7.7 7.7 60 Expenditure Category Procurement Method Total Cost ICB SCB , Other , 3.B.F 5. Technical Services I - I 1.3 I 0.3 d/ I - I 1.5 I 6. ProtectedAreas Fund 1.4 1.4 7. Training 1.1el 1.1dl (1.0) (1.O) 8. OperatingCosts 3.7 f/ 3.7 (0.5) (0.5) Total 1.5 1.6 28.2 1.4 32.7 (0.9) (1.2) (17.7) (20.0) Note: N.B.F.=Not Bank-financed. Figures inparenthesisare the amounts to be financed by IDA credit ai Three quotations (Le., small works procured under lump-sum, fixed-price contracts awarded on the basis o f quotations obtained from three (3) qualified domestic contractors in response to a written invitation. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resourcesto complete the contract successhlly). b/ Shopping (National and International) c/ Individual consultants and firms d/ Include landdemarcation, rural cadastre and regularization services. e/ Logistics, travel expenses, per-diems, registration fees, materials f/ No operating costs arefinanced under the credit exceptfor those financed under PPF-Q-3750 Table Al: Consultant Selection Arrangements (inUS$ millionequivalent) Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines) N.B.F.=Not Bank-financed. Figures inparenthesis are the amounts to be financed by IDA credit. 61 Table B: Thresholdsfor ProcurementMethodsand Prior Review Contract Value Procurement I (Threshold) Method US $ thousands 1. Works >1,500 ICB 411 >150 < 1.500 NCB First 2 contracts 150 ICB 411 >50 < 150 NCB First 2 contracts loo QCBS All 50 See Section V o f All (TOR, contract, CV) Guidelines >30< 50 See SectionV o f Review of TOR only None (Post Review) I 5. Non-consultant technical services > 150 NCB First 2 contracts 50% o f the population are poor. Estimates form the social evaluation are that 22 municipalities have on average 65% o f their populationbelow the poverty line, o f which 72% are living in conditions o f extreme poverty. Of all the poor inthe project area, in 25 municipalities an average of 80% o f the population is in conditions o f extreme poverty, while inthe remaining 7 municipalities the percentage o f extreme poor i s between 63% and 67%. Project Beneficiaries. The target population for the project comprises: rural households with 1-3 ha o f land and who migrate to sell their labor during some seasons o f the year (55%); rural households with 5 1 ha o f land, highly dependant on selling their labor (28%); and the remainder, representing rural households with plots o f 3 to 5 has (17%). The majority o f these lack any formal tenure security (through freehold or usufruct titles). According to the data from the PAAR, landless households represented about 13% o f those benefiting from extension, technical assistance and training activities. The majority o f households develops their activities individually and do not rely on organized structures to handle their productive activities in a collective form. Inthe communities a wide variety o f groups exist representing diverse interests, these groups or community organizations do not individually represent the interests o f their communities. Of the 32 project municipalities, 11have indigenous populations living within them: a The Tolupanes, better known as Jicaques or Xicaques, are an indigenous group numbering about 25,000 (2001 estimate, Source: Honduras Indigenous Profiles) and are located within the municipalities o fYorito, ElNegrito, Morazany Olanchito inthe Department o f Yoro and inOrica andMarale inFco. Morazan. All ofthese municipalities are inthe project area. The principal livelihood activities o fthe Tolupanes are agricultural. Corn and beans are the main subsistence crop. Tobacco i s cultivated on a small scale and nowadays other cultivations such as the coffee, banana, sugar caner, ayote, iiame, orange, avocado, papaya, rice, sorghum, pataste, chiberro, yuca, camote, malanga, chili, onion, cabbage and cucumber are found. Raising o f domestic livestock, including cattle and hogs, i s increasingly common. The entire family practices agricultural activities; women and the children participate inthe clearing and preparation o f the land, cultivation and harvest. Commercialization o f the products is through intermediaries (coyotes) that come to the communities to buy their crops of beans, corn and coffee. It is estimated that more than the 80% of the Tolupanes work as laborers on estates located inside and out o ftheir tribal areas. a The Pechare located inthe northeastern and eastern part o fHonduras, specifically inthe departments o f Olancho, Colon and Gracias a Dios. Their traditional organization is tribal. They number some 3,200 persons, the majority o f them located in near the municipality o f Dulce Nombre de Culmi and the lower basin o f the river Plhtano, inthe department o f Olancho. The remainder are indispersed settlements inthe Department o f Colon. The Pech primary livelihood activities are based on agriculture, huntingand fishing. Their agricultural system is slash-and-burn. Supplemental activities include: raising domestic livestock, extracting the resin o f liquidambar tree, panning for gold and production o f crafts. The women participate inthis latter and also are healers, counselors and priestesses. The women contribute to the agricultural activities and fish. 78 Organizational Aspects. As regards forest managementand use, there tends to be no vision at the community-level o f the potential benefits that forests might provide them. Financialbenefits from forestry activities accrue to groups that represent small segments o f the communities. Access to become a part o f these groups i s restricted generally to the extended family. Community management is lacking, primarily due to absence o f financing and by limited ability o f local authorities and communities to articulate priorities for forestry activities at the community and municipal-levels. Organizational levels are extremely weak and require support that will permit them to evolve and consolidate their organizational structure over time. At the community-level, the common interests around which representative groups tend to organize are drinkingwater and the protection o f the microwatershed that is its source; electrification, and construction and maintenance o f roads and schools. The majority o f the existingorganizations are informal and have no legal identity. The Tolupanes have the following organizational structures. 0 Tribal Council: Ineach community there is a functioning tribal council comprising 8 members chosen in general assembly. They meet every three months inordinary session. In most cases it i s the president o f the tribal council who takes decisions on forest harvesting and the negotiation forest management plans. 0 Patronatos: Inmost of the communities the figure o f the patronatos does not exist, with the exception o f the Ojo de Agua tribe where there exists an association of 20 patronatos that gather monthly. 0 The tribal chief (cacique) i s chosen each two years, the cacique is an advisor to the Tribal Council's Executive Council and to the Community Assembly. The figure o f the cacique has lost power to the Tribal Councils. 0 The communities are members o f a larger organization, the Federation o f the Xicaque Tribes o f Yoro (FETRIXY). The Federation has legal identity and a has developed a general norm for its members to regulate the use o f land and forest. Internalconflicts over the use o f land and forest are referredto the Tribal Councils and FETRIXY. FETRIXYreceives 15% o f the profits from forest exploitation. The Pechprimary political organization i s the Confederacy o f Pech Tribes o f Honduras (FETRIPH), established in 1985 for the purpose o f defending their land rights and the conservation o f their customs and culture. Representatives are chosen in assembly every 2 years. FETRIPHi s the point o f coordination for institutions that desire to work with the communities. They maintain offices in the city o f Juticalpa and another in Tegucigalpa. The Presidents o f the Pech Tribal Councils have indicated that they are satisfied with the work o f FETRIPH, and with the present leaders. FETRIPH takes charge o f the representation and political work o f the Pech communities. The Pech social organization rests on the extended family. Inaddition, the Pech organizational structure includes: 0 Tribal Councils ineach community comprising 9 members chosen in general assembly in which all the community participates. They have established statutes and regulations that are enforced. The Councils take the decisions on forest harvesting, negotiate the execution o f the forest management plans and the execution o f projects. Each settlement (caserio) has a representative namedto speak inthe Council. 0 Patronatos: these function in all the communities and their members are chosen for 2 years. Their function is to work with GOHprojects and programs and with the municipal governments. Inthe majority o f the cases, their relationship with the municipality is not favorable. They tend to see themselves as marginalized by the municipal governments. 79 The caciques' functions are primarily inthe assignment o f land for cultivation and as an advisor to the Tribal Council. Institutionalpresence. There exists a wide range o f institutions working inthe project area, taking equally diverse approaches to working with local authorities and communities. This greatly complicates the localprocesses o f organization, planningand implementation. Inaddition, principal institutional weaknesses comprise: (i) limited capacity to promote a scaling up o f multiple use o f forests by communities and municipalities; and (ii)a general ignorance o f the laws and programs that govern and promote the use and management of natural resources, impedingthe different actors from taking proactive roles inthis area. Among the Tolupanes there i s little institutional presence o f government. Project/program technical staff consider it very difficult to work with them given the lack o f access and facilities inthe communities and the history o f distrust from previous unsatisfactory experiences with external projects and programs. At present the FHIS has beenthe main institution, promoting establishment o f informal savings and credit mechanisms. AFE-COHDEFOR's reputation i s not good as they are seen as being present only when timber i s sold. Through the PAAR's Fundfor Hillside Producers, in recent years 12 groups of Tolupanes consisting of 234 families (1,358 persons) have received assistance. Among the Pech the FHIShas beenpromoting the same agenda o f informal savings and credit mechanisms as well as group purchase o f inputsand consumables and production o f beans. AFE- COHDEFOR supervises the Pech' forest management plans of management and one community i s collaborating on an ecotourism project with PRONADERS and the Ministry o f Culture. Through the PAAR's Fundfor Hillside Producers, in recent years 16 groups o f Pech consisting o f 350 families (1,815 persons or 53% o f the Pech population) have received assistance. Indigenous Rights. The constitution o f the Republic o f Honduras decreed January 11, 1982, (Article 346): I t is the duty of the State to dictate measures toprotect the rights and interests of the nation's indigenous communities, especially in the lands andforests where they have been living. On February 8, 1941 the National Congress ratified the VI11International Conference o f Lima, Peru (1938), and the Indigenous Congress o f Patzcuaro, Mexico (1940), which createdthe Pan-American Indigenous Institute and its national counterparts. On March 20, 1995 the Government o f Honduras ratified Convention No.169 on Indigenous Communities and Tribe in Independent Countries, adopted by the General Conference o f the International Labor Organization inJune o f 1989. Convention 169 establishes the rightso f indigenous communities to participate inthe utilization, administration and conservation o ftheir natural resources. Main ConclusionsandProjectDesign Considerations Organizational Structures and Social Inclusion. The priority project beneficiaries constitute the landless rural poor who sell their labor to subsist, households with very small land holdings that rely greatly on sellingtheir labor to subsist, households with small land holdings that seasonally sell their labor as a compliment to their subsistence, and the Tolupan and Pech indigenous communities (see the IPDP, below). Each o fthese has differing organizational and management capacity. Organizational structures at the community-level that will be supported are those that represent broadly felt needs, e.g., informal savings and credit groups, product marketinggroups, supply of 80 materials and inputs; development o f agriculture/forestry micro-businesses, etc. Inmost cases the project will need to support the initial phases o f promotion and organization within a structured approachto capacity building and provisiono ftechnical assistance. Governance mechanisms at the community-level that will be strengthened and supported are the patronatos and municipal corporations. At the municipal-level, support will be directed at achieving an efficient internal management so that they will be capable o f delegating and distributing responsibilities among committees as per the .specific needs presented, e.g., health, potable water, education, and natural resources committees. At thepatronato-level, support will also be directed at achieving capacity to delegate, distribute and rotate responsibilities. Regarding the management of technical aspects, support should be providedto register forest exploitation activities, inventories o f lands and forests, and inventories o f priority microwatershed includingtheir respective boundaries, zones and register o f occupants and their land uses. FinancialAspects. Delegatingresponsibility for management o f small amounts o f financial resources should be attempted wherever conditions allow in order to build capacity. Inthese cases, very simply structured, basic systems for administration must be applied. These must include first the establishment of internal controls and social audits of the use o fthe resources. Appropriate cases for such delegation include: through the appropriatepatronatos inthe delimitation and protection o f potable water sources (microwatersheds) shared between a group o f communities or the administration o f water resources ingeneral; for municipal technical assistance and training for the management o f technical aspects (e.g., to register forest exploitation, land and forests and microwatershed inventories, etc.) and for the subsequent development and implementation o f investment proposals. Inthe latter case, supports to the municipality to establishment simple accounting and administration systems will be required. At minimum,this will include building capacity to know the results and general balances duringthe budgetary periods, development o f procedures manuals, and above all the application o f social audits with disclosure o f the results. Community Promotion and Organizational Strengthening. Promotion, dissemination and communication are indispensable in order to make potential beneficiaries and their communities aware o f the project and the legal framework regulatingthe management, use and protectiono f natural resources. To do so, it i s important to assist local organizations to obtain legal identities and the security that would legitimizetheir activities inthe perception o f government and other sources o f assistance. Patronatos and municipal governments, as the direct counterparts for community management o f natural resources, will be the focus o f promotion and organizational strengthening. An essential topic for communication to the communities at large will be to promote development o f a vision o f the multiple uses and benefits o f the forest. Subsequently, the technical assistance offering will need to be oriented in order to support the development and implementation o fthat vision. The best practice approaches developed under the PAAR for incorporation o f gender will continue to be implemented boththrough training and monitoring of the private technical service providers (PSTs) and o f the processes and outcomes at the community-level. Itis important to mentionthat inthe proposedarea ofthe project some communities that have received support from the PAAR, with the assistance o f the PSTs, are initiatingactions to participate inthe IDA-financedAccess to Land Project (PACTA, P073035) inorder to acquire land. Under the proposedproject, promotion and facilitation o f access to this program will be continued. 81 Indigenous Peoples Development Plan. A very detailed IPDP and Participation Planfor the Tolupan and Pech is available (in Spanish) inthe project files and for public review and comment in the offices o f the PAARand published on its website. The main elements o f the plan include: Component Activitv cost (US$) Observations Community Agroforestry - Elaboration and/or updating of E1,500,000 'riority attention to 4 communities of each o f participatory diagnosticsby tribe - Micro-planningplanning processeswith he 13 tribes Tolupaneswhere PAAR upported land cadastre and communal titling. gender focus - Training of local facilitators in :or the Pechto the 8 communities inthe zone ire included of SantaMaria del Carbon and diagnostics for the community hlce Nombre de Culmi. managementof natural resources - Training ininternal organization - Training :he approach will be both community and inmanagementofalternative amily-based, in accordancewith the activities financing for productive activities of Ifinterestandthetypology ofthe families. generation o f incomesfor both menand issistance to be provided to develop vision women. or overall developmentandto coordinate the - Subprojects lifferent institutional offerings. rraining in administration of funds and xojects is a central theme. Forest - Management, conservationand The support through this component is mainly Management, protection of microwatersheds $750,000 o develop the local capacities inthe Tenure and - ForestManagement(planning, nanagement of natural resourcesand Conservation execution and administration ofplans) - Production, )artkipation and learning inthe processo f transformation and Jrotection and forest harvesting. commercialization of forest products Local - Identification, typology and assistance Government to resolve land and resourceconflicts $400,000 and Disaster - Land Use Planning Preparedness - Strengtheningtribal institutions - Legal assistance for land conflicts Special - Pilot development ofexperiences $200,000 :or the development of productive alternatives program nwhich there is little experienceandthat .equire some structured learning prior to :xoansion. Total $2,850,000. nn 82 Annex 11:Project Preparation and Supervision HONDURAS: Forests and RuralProductivity Planned Actual PCN review 07/30/2003 08/20/2003 Initial PID to PIC 09/03/2003 Initial ISDS to PIC 09/03/2003 Appraisal 01/07/2004 01/15/2004 Negotiations 01/21/2004 0211112004and 0511112004 BoardIRVP approval 0311812004 0311812004 Planned date o f effectiveness 0510112004 Planned date o f mid-term review 11/2006 Planned closing date 01131I2010 Key institutions responsible for preparation o f the project: The Project Coordination Unit o f the Proyecto de Administracibn de Areas Rurales (PAAR), under the leadership o f Arq. Henry Merriam, preparedthe projectwith inputsfrom several o f PAAR's co- executing agencies and specialized consultancies. World Bank staff and consultants who worked on the project included: James Smyle Task Team Leader, Sr. Natural ResourcesManagementSpecialist LCSER Francisco Pichon Sr. Natural ResourcesManagementSpecialist LCSER JorgeA. Muiioz Sr. Land Administration Specialist LCSER TeresaRoncal OperationsAnalyst LCSER Takako Mochizuki Consultant, Gender & OperationsAnalyst LCSER MartinRaine LC2 ESSD Sector Leader LCSES Ann Jeannette Glauber Consultant, Environmental Specialist LCSEN Douglas Graham Sr. Biodiversity Specialist LCSEN GeorgeLedec Lead Ecologist LCSEN MariaNikolov Project Assistant LCSEN Robert Ragland Davis Sr. Forestry Specialist / Peer Reviewer LCSEN Augusta Molnar Sr. Social Scientist / Peer Reviewer LCSEO Juan Martinez Sr. Social Scientist LCSEO Marquez Martinez Consultant, Indigenous PeoplesSpecialist LCSEO Rajeev Swami Financial Management Specialist LCOAA Irani Escolano Procurement Specialist LCOPR LuisTineo Sr. Procurement Specialist LCOPR Pilar Gonzalez Counsel LEGLA Reynaldo Pastor Counsel LEGLA Jon Barton Finance Officer LOAG3 James J. Douglas Lead Operations Officer, Forestry ARD Juan Morelli Consultant, Economist FAO, CP Gary Alex Agricultural Extension / Peer Reviewer Gerard Schreuder Consultant, ForestEconomics Jim Hanson Consultant, Extension Richard Anson Consultant, Institutions Tom Korcowski Consultant, Land Regularization 83 World Bank funds expendedto date on project preparation: 1. World Bank resources: $153,000 2. Trust funds: $567,747 3. Total: $720,747 Estimated Approval and Supervision costs: I.Remainingcoststoapproval: $15,000 2. Estimated annual supervision cost: $105,000 84 Annex 12: Documents in the Project File HONDURAS: Forests and RuralProductivity 1. Government's project document 2. Detailedproject cost tables 3. Procurement Plan 4. EnvironmentalAnalysis 5. Participatory Social Analysis 6. Economic Analysis 7. Indigenous Peoples Development Plan 8. Resettlement ProcessFramework 9. Informe Final De Implementacih Proyecto De Administracih D e Areas Rurales 10. Economic Analysis o f Forest Management Activities. Francis E. Greulich and Gerard F. Schreuder, University o f Washington, Seattle, Washington 11. Economic Evaluationof the Fondo ParaProductores de Ladera inHonduras. Jim Hanson. Universityof Maryland, College Park, Maryland. 12. Caracterizacih Agroecol6gica y Socioecon6mica del area de influencia del Fondo para Productores de Ladera (FPPL), 1999. 13. Sistema de Seguimiento y Evaluacihdel Fondo para Productores de Ladera, 2000. 14. Estudio Econ6mico del Fondo para Productores de Ladera, 2000. 15. Estudio de la situacibn actual de 10s sistemas de extensih utilizados por las Empresas Proveedoras de Servicios TCcnicos del fondo para Productores de Ladera (FPPL), 2000. 16. Ayuda Memoria Primer Encuentro Nacional del Fondo para Productores de Ladera (FPPL), 2000. 17. Determinacihde las Prioridades de Investigacih en Agricultura Sostenible en Laderas (ASEL), 2001. 18. Estudio de Adopcih de Tecnologias del Fondo para Productores de Ladera (FPPL), 2001, 19. Determinacidn de la Situacibn Actual de las Plantas no Maderables utilizadas por 10s indigenas Pechy Tolupan en la elaboracihn de medicinas y productos artesanales, en 10s departamentos de Olancho y Yoro, 2002. 20. Ayudas Memorias de eventos de capacitacih en Diagnbstico Rural Participativo y GCnero en Desarrollo. 21. Racionalizacih del SistemaNacional de Areas Protegidas de Honduras, financiado por PROBAP/Banco Mundial/PNUD/GEF, preparado por el World Institutefor Conservation and Environment (WICE); Ir.Daan VreugdenhilX., Dr.Paul R. Hause, MSc. Carlos A. Cerrato, Lic. Ricardo A. Martinez, Dra. Ana Cristina Pereira. Septiembre, 2002. 22. Manual de Procedimientos para la Elaboracih de Planesde Manejo para Areas Protegidas. DAPVS/AFE-COHDEFOR. Julio, 2000. 23. Lineamientos para el Procesode Delimitacion y Demarcacih de Areas Protegidas. DAPVWAFE-COHDEFOR. Octubre, 2000. 24. Estudio y Manual para el Establecimiento del Fondo de Areas Protegidas. Financiado por el PAAR, preparado por Estudios, Disefios y Administracidn de Inversiones, S.A. de C.V. (EDISA).Febrero, 2002. 25. Estrategia para el Manejo de Zonas de Amortiguamiento del SistemaNacional de Areas Protegidas de Honduras. Financiado por PROBAP, PAAR, AFE-COHDEFOR, preparado por Aleckcey Chuprine. Diciembre, 2002. 26. Plan de Manejo Reserva BiolbgicaEl Chile. Financiado por el PAAR, preparado por Ecologia y Servicios, S.A. (ECOSERVISA). Febrero, 2003. 85 27. Plan de Manejo ParqueNacional Pic0 Pijol. Financiado por PAAR, preparado por Ecologia y Servicios, S.A. (ESOSERVISA). Marzo, 2003. 28. Plan de Manejo ParqueNacional Montaiia de Yoro. Financiado por PAAR, preparado por Consultoria Hondureiia en Ecodesarrollo (COHECO). Febrero, 2003. 29. Plan de Manejo Refugio de Vida Silvestre L aMuralla. Financiado por PAAR, preparado por Consultores en Gestidn Ambiental, S.A. (CONGESA). Septiembre,2002. 30. Plan de Manejo ParqueNacional Sierra de Asalta. Financiado por PAAR, preparado por Asesores Nacionales Especializados en Desarrollo (ANED-Consultores). Mayo, 2002. 3 1. Criterios e Indicadores de Manejo Sostenible de la UGF de Agua Fria en Yoro. 32. Estrategia de la AFE-COHDEFOR y el PAAR parael manejo del fuego en 10spinares de la Regi6n Forestal de Yoro. 33. Metodologia para el levantamiento del catastro y censo en las Unidades de Gesti6n Forestal de Yoro. 34. Estudio socioecon6mico de la UGFde Guaimaca. 35. Plan de Ordenacidn de la UGF de Guaitnaca. 36. Estudio de impacto ambiental de la UGF de Guaimaca. 37. Base de datos geogrhfica de la UGF de Guaimaca. 38. Caracterizacidn de las microcuencas del municipio de Guayapey Mangulile, en Olancho. 39. Plan de Ordenacidn de la UGFde ElPorvenir. 40. Politicas de Gobierno y de manejo de recursosnaturales en Honduras. 41. Metodologia para la regularizacidn de las poblaciones asentadasen 10s bosques nacionales 42. NormastCcnicaspara 10s proyectos priorizados en Yoro. 43. Estudio de cas0 de Criterios e Indicadores. 86 Annex 13: Statement of Loansand Credits HONDURAS: Forestsand RuralProductivity Difference between expectedand actual Original Amount in US$ Millions disbursements Project FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. ID Rev'd PO40177 2003 HNFinancial Sector Technical 0.00 9.90 0.00 0.00 0.00 10.09 0.47 0.00 Assistance PO81172 2003 HNRegionalDev inthe Copan 0.00 12.00 0.00 0.00 0.00 12.10 0.00 0.00 Valley PO57859 2002HNSUST COASTAL 0.00 5.00 0.00 0.00 0.00 4.17 1.45 2.11 TOURISM PROJECT (LIL) PO53575 2002 HN-HEALTHSYSTEM 0.00 27.10 0.00 0.00 0.00 28.48 -1.52 0.00 REFORMPROJECT PO60785 2001 HNECONOMIC& 0.00 19.00 0.00 0.00 0.00 12.69 14.53 0.00 FIN.MANAGEMENT PROJECT PO07397 2001 HNCOMMUNITY-BASED 0.00 41.50 0.00 0.00 0.00 37.38 16.63 0.00 EDUCATION PROJECT PO64895 2001 HNFIFTH SOCIAL 0.00 60.00 0.00 0.00 0.00 22.18 -1.97 0.00 INVESTMENT FUND PROJECT PO73035 2001 HNAccess to LandPilot 0.00 8.00 0.00 0.00 0.00 6.45 3.67 0.00 (PACTA) PO57538 2001 HNROAD 0.00 66.50 0.00 0.00 0.00 42.18 4.83 0.00 RECONSTRUCTION AND IMPROVEMENT PO64913 2000 HNEMERGDISASTER 0.00 10.82 0.00 0.00 0.00 7.18 1.38 0.00 MGMT (TAL) PO57350 1999 HNPROFUTURO 0.00 8.30 0.00 0.00 0.00 3.78 -0.49 3.46 PO44343 1998 GEF HN-BIODIVERSITY 0.00 0.00 0.00 7.00 0.00 2.47 7.00 0.00 CONSERVATION PO07398 1997 HNRURAL LAND MGMT 0.00 34.00 0.00 0.00 0.00 0.74 -5.43 -5.42 Total: 0.00 0.00 7.00 0.00 189.89 40.55 0.15 302.12 87 HONDURAS STATEMENT OF IFC's Heldand DisbursedPortfolio In Millionsof US Dollars Committed Disbursed IFC IFC FY Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. Approval 1998 Camino Real Plaz 7.07 0.00 0.00 0.00 7.07 0.00 0.00 0.00 Elcosa 0.00 0.63 0.00 0.00 0.00 0.63 0.00 0.00 0195 1986/99 Granjas Marinas 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 Total portfolio: 11.57 0.63 0.00 0.00 11.57 0.63 0.00 0.00 88 Annex 14: Country at a Glance HONDURAS: Forestsand RuralProductivity Latin Lower- POVERTY and SOCIAL America middle- Honduras & Carib. income Development diamond* 2002 Population,mid-year (millions) 6.8 527 2,411 Lifeexpectancy GNIpercapita (Atlas method, US$) 920 3,280 1,390 GNI (Atlas method, US$ billions) 6.2 1,727 3,352 Average annual growth, 1996-02 Population(%) 2.6 1.5 1.0 Laborforce (%) 3.7 2.2 1.2 Gross + primaiy M o s t recent estimate (latest year available, 1996-02) enrollment Poverty (%of populationbelownationalpovertyline) Urbanpopulation (%of totalpopulation) 55 76 49 Life expectancyat birth (years) 66 71 69 Infant mortality(per /0001ive births) 31 27 30 Chiid malnutrition (%of childrenunder5) T7 9 11 i Access to improvedwatersource Access to an improved watersource(%ofpopulation) 88 86 81 llliteracy(%of populationage a+) 24 11 t3 Gross primatyenrollment (%of school-age population) M6 230 111 -Honduras Male 105 t31 I11 I - Lomer-middle-income group Female 0 7 126 19 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios* GDP (US$ billions) 2.9 3.4 6.4 6.6 Gross domestic investmenNGDP 14.1 26.0 30.5 Exports of goods and ServiceslGDP 25.9 29.6 38.2 Trade Gross domestic savings/GDP l2.0 19.0 13.9 Gross nationalsavingslGDP 5.9 15.8 20.2 Current account balance/GDP -7.9 -7.5 -5.1 interest paymentslGDP 3.8 4.7 1.2 1.4 Total debt/GDP 63.5 10.8 78.9 81.8 Total debt service/exports 31.0 30.9 11.1 8.7 Present value of debt/GDP 49.3 Present value of debt/exports M2.0 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) GDP 3.4 2.8 3.3 2.o 4.5 -Honduras GDP percapita 0.3 0.1 0.7 -0.6 1.9 ~ Lower-middle-income a m u ~ STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%of GDP) ( O h ) Agriculture 21.6 20.4 t3.7 in - 10 I industry 24.4 29.6 31.5 5 Manufacturing 14.7 5'8 20.3 0 Services 53.9 50.0 54.8 -5 Privateconsumption 75.0 89.4 72.3 10 - Generalgovemment consumption t3.1 11.5 t3.6 imports of goods and sewices 28.1 36.8 54.9 1982-92 1992-02 2001 2002 (average annualgrowth) Growth of exports and imports ( O h ) Agriculture 3.5 1.5 -0.9 I.In - 10 II Industry 3.5 3.2 1.6 Manufacturing 4.1 4.1 5.2 Services 3.0 3.6 4.5 2 Private consumption 3.O 2.9 3.8 Generalgovemment consumption 2.4 4.6 11.3 Gross domestic investment 9.0 3.9 -3.9 Imports of goods and services 4.1 3.3 3.6 89 PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 1 __ Inflation (%) Domestic prices I (%change) Consumerprices 8.8 9.7 8.1 implicit GDP deflator 4.4 9.1 8.6 7.3 Government finance (%of GDP, includes current grants) 1 0 4 Current revenue 0.5 n.7 18.2 19.7 97 98 99 00 01 Current budget balance -1.5 1.6 -0.4 0.3 1 Overall surplus/deficit -13.1 -3.8 -8.1 -7.0 ----GDPdeflator -CPI TRADE 1982 1992 2001 2002 (US$ millions) 'Export and import levels (US$ mill.) 1 Total exports (fob) 677 833 1,379 1,435 5288 Bananas 218 256 204 ~ Coffee 153 147 161 Manufactures ~ Total imports (cif) 739 1,086 2,997 2,979 645 Food 134 134 480 Fueland energy 167 161 402 I Capital goods 115 201 667 904 I o Export price index(895=7JO) 81 90 89 1 96 97 98 99 00 01 import price index(1995=1)0) 79 113 $39 Exports 3 Imports Terms of trade (895=WO) 133 82 82 O2 B A L A N C E o f P A Y M E N T S 1982 1992 2001 2002 (US$ millions) Current account balance to GDP (%) I Exports of goods end services 767 1,002 2,447 2,564 Imports of goods end services 823 1,234 3,58 3,821 Resource balance -56 -232 -1,064 -1,037 Net income -202 -169 -tll -129 Net current transfers I7 63 550 603 Current account balance -226 -258 -325 Financing items (net) 144 299 405 Changes in net reserves 84 -41 -60 -60 -9 - Memo: Reserves includinggold (US$ millions) 299 1,386 l,02 Conversion rate (DEC, local/US$) 2.o 5.5 15.5 16.4 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) :omposition o f 2002 debt (US$ mill. Total debt outstanding and disbursed 1.844 3,893 5,050 5,395 IBRD 2l7 489 128 135 IDA 79 182 901 1,014 G:524 A'135 Totaldebt service 244 377 343 413 IBRD 21 89 18 33 IDA 1 2 $3 t3 Composition of net resourcefiows Official grants 34 162 197 Official credit0 rs 163 221 209 69 Private creditors 1 -16 -69 -43 Foreign direct investment 14 48 195 Portfolio equity 0 0 0 World Bank program Commitments 30 54 201 27 - IBRD Disbursements 51 63 96 51 t E- Biiatersl I-IDA 0 -Otherirultilaterai F Private - Principalrepayments 7 47 9 28 :-IMF G- Short-ter 90