Report No. PID8124
Project Name             Georgia-Forests Development Project (@)
Region                   Europe and Central Asia Region
Sector                   Forestry
Project ID               GEPE44800
Borrower(s)              GOVERNMENT OF GEORGIA
Implementing Agency
Address STATE FORESTRY DEPARTMENT
Georgian State Department of Forest
Management
Address: 9, Mindeli Street, Tbilisi,
Georgia
Contact Person: Mr. Merab Dvali,
Deputy Chairman
Tel: (+995-32) 53-72-36
Fax: (+995-32) 53-72-37
Email: kmetreveli@gol.ge
Environment Category     A
Date PID Prepared        April 8, 2002
Auth Appr/Negs Date      June 5, 2001
Bank Approval Date       June 13, 2002
1. Country and Sector Background
Georgia is a mountainous country covering 70,000 km2 with a population of
5.5 million people, 40t of whom are rural dwellers.    The economy
deteriorated after independence from the Soviet Union, and although the
reform agenda is quite advanced and the economy is growing, per capita GDP
(US$970) is still well below 1990 levels.Georgia's climate and topography
are varied, with annual rainfall between 600 and 4000 mm and elevations
rising to 5000 m.   Forests cover 409 of the country (2.75 million
hectares), largely in the Greater Caucasus Mountains (Georgia's northern
border), the Lesser Caucasus (its southern border), and in intervening
lowlands and foothills. An additional 24t is classified as pasture land,
11. as arable land and 5t horticulture and tree crops.    Over 80t of the
forest land (or 2.2 million hectares) is managed by the state. Of this
amount, only about 20t is further classified as production forest, with
the rest being conservation and recreation forests. Standing wood is
estimated at 434 million m3, or more than 80 m3 per person, three times
the European average. Although the total forest area has not decreased
after independence, unchecked logging of higher quality trees has
contributed to a notable degradation of composition and quality of many
Georgian forests. Georgian forests have a rich and varied ecology; they
are the habitat for over 4000 vascular plant species and 573 vertebrates.
Much of the forest land is located on the slopes of the Caucasus Mountains
(included in WWF's Global 200 priority ecoregions) and help prevent soil
and water erosion in these erosion-prone areas. Deciduous forest species
predominate, including beech (Fagus orientalis), which comprises nearly
half of the forest area, oak (mostly Quercus iberica), hornbeam (Carpinus
caucasica), alder (Alnus glutinosa) and chestnut (Castanea sativa).



Conifers include spruce (Picea orientalis), fir (Abies nordmanniana) and
pine (Pinus sosnowskyi). Main Sector IssuesWeak Legal, Institutional and
Financial Framework for Sustainable Forest ManagementThe State Forestry
Department (SFD) is responsible for forest policy and the management of
state forests. It is not involved in commercial forest harvesting. SFD is
composed of a central office in Tbilisi, 54 district offices, three parks
and three nurseries. It has a total staff of 2,637 people - most of whom
work in the district offices. In addition, there are nine specialized
forest entities that are responsible for different forest activities such
as forest inspection, seed selection and testing, forest inventory and
management planning, construction, and trade. They have full managerial
autonomy from SFD, but work as in-house contractors and are therefore
dependent on SFD for much of their financing. Since independence, the SFD
has suffered from declining budgets and real salaries for forest
management and protection, severely undermining its capacity to properly
enforce forest laws and regulations. The present financing system, under
which revenues ('stumpage' royalties) from forest harvesting are allocated
by the Treasury to local authorities rather than back to the SFD, does not
provide adequate incentives for the "public good" aspects of forest
management. Forest operators - most of whom are private - do not have a
long-term forest tenure or planning horizon and are only interested in
short-term monetary gains rather than in medium-term sustainability of
their forest operations (the system of forest taxes and sales is
cumbersome and non-transparent, favoring short-term behavior). Commitment
of local administrations to supporting sustainable forestry is also
insufficient (community participation in forest management is not
operationalized, and there are no extension services to support it).
Without adequate central funding, proper private sector incentives and
sufficient local 'ownership', efforts for monitoring and control of forest
harvesting alone are inadequate, creating significant opportunities for
further violation of the forest laws. In addition, the alignment of the
present 54 forest districts needs to be rationalized, and the reorganized
(enlarged) districts need to be staffed by adequately trained
professionals who are properly equipped to ensure the required management,
extension and monitoring functions. Forest management (including forest
assessment, inventory, protection, multiple-purpose use planning, and
extension) must be financed adequately if the Government wishes to
maximize the value of forests to Georgia's people and economy. Lack of
Comprehensive Forest Management PlanningPartly because most Georgian
forests were managed primarily for protection, the protected area network
is presently insufficient. Protected areas, which are managed by the
State Department of Protected Areas, Reserves and Hunting (DPA), comprise
only 2.7w of the land area, and have been managed primarily for research
purposes, rather than to assure sustainable conservation management.
Although there is general collaboration between DPA and SFD, the division
between protection and production functions hinders the adoption of modern
multiple use forest planning, management and conservation. According to
forest regulations, forest inventories and management plans are supposed
to be prepared according to a 10-year rolling program, but currently, only
0.5 million ha (17W) of the forest estate have updated forest management
plans. Consequently, SFD lacks sufficient up-to-date information on
forest resources, preventing it from making informed decisions and pricing
resources adequately. Forest management plans urgently need to be
updated. In addition, management planning needs to be more cost-effective
and explicitly incorporate landscape and ecosystem values, with detailed
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inventory undertaken only in areas which are managed for production
forestry (about 20-30w of the forested area). Areas that are identified
for their high biodiversity, recreational or aesthetic values should be
managed for conservation.Degradation of Forest Lands Due to Illegal and
Unsustainable Forest UtilizationDuring the Soviet era, Georgia obtained
low cost timber imported from remote areas of Russia (up to 3.5 million m3
annually), allowing its forests to be managed for protection (72%-) and
recreation (24%-). Since independence, the loss of cheap wood imports has
led timber processors to harvest Georgian forests. There is also a highly
visible trade in illegally harvested timber in the form of trucks with
unrecorded high-quality beech logs crossing the Turkish border, but it
accounts for only 6%- of total estimated harvested volume. The most
immediate threat to Georgian forests is the harvesting of fuelwood.
Declining GDP, rising poverty and the decline in energy subsidies for
fossil fuels has led to greatly increased use of fuelwood. At present,
nearly 60%- of the annual forest harvest (or about 720,000 m3) is
unrecorded fuelwood.Another factor leading to the degradation of Georgian
forests is outdated harvesting methods. Private harvesters often utilize
rudimentary and inefficient equipment, are wasteful of the resource,
seldom follow principles of biologically sustainable management and
regeneration, discourage development of competitive processing industries,
and contribute nothing to public revenues. With more adequate forest
management systems in place and better enforcement of improved forest
utilization standards and codes of practice, the level of unregulated
harvest would decrease substantially, providing more fuelwood to the
population at affordable prices and generating much higher value added
from commercial-grade timber.Government StrategyThe Government is now
confronted with the following pressing challenges related to forests: (i)
profound stagnation and demonetization of rural economies and livelihoods
with increased dependence on forest products for subsistence; (ii) serious
degradation of public sector capacity for adequate forest management;
(iii) acute need to realize economic potential of a rapidly developing
private sector; (iv) increased public awareness of forest environmental
issues; and (v) politically heated drive against corruption in general and
illegal activities in forestry in particular.In 1996-1997, the Government,
in consultation with the relevant stakeholders, prepared a Biodiversity
Strategy and Action Plan and a Forest Strategy, which emphasized the need
to manage the change from a forest management regime oriented towards
conservation to one which balances conservation and sustainable use. The
Government also prepared a National Environmental Action Plan that
includes improved forest management as a priority. The recently approved
GEF Protected Area Development Project (PADP) will support
multiple-purpose land use planning, combined with strengthening of the
country's protected area system.To enable proper contribution of the
forest sector to the national economy, Georgia has begun to move towards a
market-driven forest economy. At the same time, the need to maintain
environmental and social functions of forests continue to increase. The
Georgian authorities have, in collaboration with a range of stakeholders,
prepared and adopted a new Forest Code (1999). Its major innovations
include: (1) defining the principles of protection, sustainable
development, and management of the forests of Georgia on the basis of the
1992 Rio Declaration (i.e. proclaiming focus on multiple use of forests
and its environmental, economic, social, and cultural dimensions); and (2)
allowing for multiple forms of forest ownership (state,
municipal/community, church, and private). The Code also allows for
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long-term lease of forests and privatization of forest management
activities. Delineation of regulatory and oversight responsibilities
between the State Forestry Department and the Ministry of Environment has
been improved. However, further work is needed to make the Code
operational and transparent. Many of its important regulatory provisions
are not yet effectively applied (due to lack of implementing regulations
and the public finance crisis). The Government has periodically been
under pressure to reintroduce temporary bans on commercial forest
harvesting and on log exports (lifted with enactment of the Forest Code in
1999) to protect the forests or local industries.In 2000, Georgia borrowed
an advance of US$0.99 million under the Bank's PPF (project preparation
facility) in order to accelerate development of the regulations to permit
implementation of the Forest Code, and develop concrete plans for forest
sector institutional reorganization and financial reforms. The PPF has
also financed elaboration of improved forest inventory methodologies,
promotion of public awareness in forest management, as well as project
preparation.    Last year, the Government of Georgia developed proposals
for furthering the forest sector reform agenda, which include adoption of
effective control of the origin of timber, move to market-based forest
resource pricing, introduction of competitive forms of resource sales
(auctions and tenders), reinvestment of part of forest revenues into
improved forest management (see details in the Letter of Forest Sector
Development Policy in Annex 13). In 2001, important initial steps were
already taken to elaborate this expanded reform agenda and start
addressing the root causes of illegal and corrupt activities in the
sector. A system of better wood origin control was instituted and
cooperation between the SFD and the Customs Department improved; reference
prices for timber were increased; a package of legal amendments to the
Forest, Tax and Budget Laws (developed by the Ministry of Economy,
Industry and Trade jointly with SFD) was approved by Government and
submitted for parliamentary approval to allow refinancing of part of
forest revenues back into forest sector. A comprehensive audit of the SFD
and its field operations was undertaken by the Chamber of Control. The
project as a whole, and Component 1 in particular, will provide targeted
support to these Government efforts in 'fine-tuning' and implementing the
reform program nationwide over a 4-5 year period.
2. Objectives
The objective of the project is to establish sound forest management
systems that maximize the contribution of Georgia's forests to economic
development and rural poverty reduction on an environmentally sustainable
basis.
3. Rationale for Bank's Involvement
The current situation in Georgia presents a rare window of opportunity to
address these sector-wide issues in a systemic, coherent manner. The
project would help the Government, communities and civil society to
jointly implement the proposed forest sector reforms. Particular project
focus would be on addressing the above main issues.Targeted project
efforts would be aimed at strengthening forest sector governance and
accountability through the legal, institutional and financial reforms for
sustainable forest management. In this area, key project emphasis will be
on: (i) finalizing, publicly discussing and harmonizing forest, tax and
budget laws and implementing regulations, including improvements in forest
financing; (ii) participatory development of a long-term National Forest
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Program, including national forest policy, strategy and standards; and
(iii) strengthening the institutional capacity (human resources and basic
office infrastructure) to plan, implement, monitor and regulate forest
operations at field level, while creating a more favorable environment for
private sector utilization, within a clear regulatory framework for
resource pricing and sales. Another key dimension of improved sector
governance is the increased civil society participation in forest
management and independent monitoring. Secondly, the project would assist
to develop capacity and implement comprehensive forest management
planning. This would include: (i) improving the accuracy,
cost-effectiveness, multiple-purpose and stakeholder orientation of forest
inventory and management planning systems; (ii) strengthening forest
operators' skills in compliance with improved forest management plans,
through demonstration of and training in relevant utilization techniques;
and (iii) establishing viable community forest management schemes for
increased supply of affordable fuelwood and fodder.Lastly, Georgia needs
timely support in arresting forest degradation. Critical project
interventions are required in: (i) strengthening the capacity of
government, local communities and civil society in joint protection from
illegal forest activities and independent forest inspection and
monitoring; (ii) establishing a viable system of controlling natural
forest hazards (pests, diseases and fires); and (iii) supporting the
transition to a self-sustaining system of afforestation and reforestation
works that would be financed by the public sector, supervised by
professional civil servants, and implemented by local contractors and
communities.The Government of Georgia has sought Bank assistance and
advice in the forest policy debate since 1996. In addition, the Bank has
provided assistance through IDF and GEF for preparation of the Forest
Strategy, the Biodiversity Strategy and Action Plan and National
Environmental Action Plan. The GEF-financed Coastal Zone Management
Project includes support for improved management of fragile lowland
forests, and the GEF-financed Protected Areas Development Project will
address conservation of forest ecosystems. The Bank has been able to
encourage and convene forest policy debates at both the technical and
political level. Forestry issues related to trade have been part of the
ongoing debate of economic reform. The Bank has also facilitated improved
coordination between the environmental and the forest management interests
in Georgia, balancing conservation and sustainable development. It has
been able to bring its experience with forest reform in other transition
economies (e.g. Croatia, Poland, Bosnia, Romania, Russia, Albania) to
assist with the debate in Georgia. The Bank-wide forest-policy review and
a number of new initiatives in forestry (e.g. the World Wildlife
Fund/World Bank Alliance for Forest Conservation and Sustainable Use, the
Prototype Carbon Fund) is also facilitating a transfer of experiences from
other countries. The World Bank is also in a unique position in its
ability to relate forest sector issues to IMF discussions with the
Government, the overall economic reform agenda, and other inter-sectoral
issues (e.g. energy, environment). Such integration is already taking
place through preparation of the Interim Poverty Reduction Strategy Paper
(I-PRSP) and the new Country Assistance Strategy (CAS). Issues of forest
exports have been a visible item on the IMF agenda in Georgia.
4. Description
The project would support implementation of national regulatory, financial
and institutional reforms in the forest sector; strengthening of public
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institutions involved in forest management and monitoring; development of
sustainable forest planning and management techniques in demonstration
areas that would serve for replication; and improvements in forest
protection and reforestation in selected priority areas.l. Improve Forest
Sector Governance through National Regulatory, Financial and Institutional
Reforms (US $4.13 million): The project would complete the institutional
and regulatory reforms initiated with PPF financing to:(a) Improve Legal,
Regulatory and Policy Framework. This would include: (i) finalizing
subsidiary laws and implementing regulations under the 1999 Forest Code,
comprising preparation of a draft law on privatization of state forests
and development of regulations on local (community) forests, independently
verifiable forest sector monitoring (including wood flow control and
forest audits), and harmonizing forest legal acts with other branches of
law, such as environmental, land, tax, budget laws and regulations; (ii)
implementing changes in the financial and economic regulations related to
the forest sector, especially with regard to market-based mechanisms for
proper valuation, pricing and sales of forest resources and guaranteed
refinancing of public forest management costs; (iii) developing a
methodology for total economic valuation (TEV) of forest resources; and
(iv) developing a new system of forest auctions, featuring market-based
pricing above the minimum cost of forest resource management ("floor
price") and separation of timber sales requirements from those for forest
harvesting by duly certified operators. Since the sustainability of
project investments will depend on long-term availability of public
financing for forest management, the project will require that not later
than 12 months after credit effectiveness the government must decide on an
acceptable financial mechanism for guaranteed reinvestment of forest
revenues into forest management. To this end, the credit agreement will
stipulate a disbursement condition for the largest pubic investment
subcomponent - reforestation in priority areas.(b) Develop National Forest
Program, Standards and Certification. The new National Forest Program
(NFP) will be a high-level political document that will set up the
country's medium- and long-term goals regarding its forests. Development
of the NFP will comply with the latest recommendations of the United
Nations Forum on Forests (UNFF) and follow a broad participatory process
engaging key stakeholders. As a key tool in implementation of the NFP,
the project will support participatory development of national standards
in forest management and utilization, as well as procedures for
monitoring, verification/certification and auditing of compliance with
these standards. The work on the national forest standards and
verification/certification procedures is consistent with one of the target
priorities of the World Bank-WWF Global Alliance for Forest Conservation
and Sustainable Use and, as such, will receive support from the Alliance
and be carried out in close cooperation with the WWF (through its Georgian
office) and other interested organizations.(c) Strengthen Institutions
and Human Resources for Improved Forest Management and Monitoring. The
project will support development and implementation of a detailed program
to strengthen the financial and institutional capacity of the Georgian
forest sector. International and local technical assistance will be
provided to develop specific recommendations regarding realignment of
functional responsibilities within the SFD and identification of
corresponding human resource requirements in its central and field
offices; streamlining coordination between SFD and other government
agencies and private companies dealing with forest sector; establishing
systems of independently verifiable forest sector monitoring;
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rationalization of SFD territorial network of field offices; and overall
improvement of cost-effectiveness and efficiency of public forest
management operations. Subsequent to completion of this institutional
rationalization plan, the project will support implementation of its key
elements, including a comprehensive program of human resources
development. This program will address immediate needs of professional
development and retraining of existing forest management staff in SFD and
other governmental agencies, as identified by the rationalization plan
mentioned above. It will also redesign and launch an improved system of
graduate forest education to facilitate influx of younger, well educated
personnel into forest management and utilization. The project will also
support basic rehabilitation of and logistical support to forest
management facilities in the SFD central office and in the reorganized
forest districts to ensure their minimum adequate operational and
monitoring capacity.(d) Build Public Support for Sustainable Forest
Management. The project will develop and implement a strategic action
plan to increase public support for sustainable forest management. This
will include strengthening the capacity of forest managers at the center
and in the field offices in working effectively with local communities,
schools, nongovernmental organizations and the media to promote knowledge
of sustainable forest management. Efforts will be targeted at the local
level, through school programs and activities with community "friends of
forest" associations, to build civil society involvement in sustainable
forest management and will include establishing public information rooms
in the districts and 'hotlines' (mailboxes etc.) for facilitating feedback
from rural areas. These activities will be coordinated with other
donor-supported partnerships, such as the Forest Integrity Network, that
aim to promote independent forest monitoring capacity within the Georgian
civil society.2. Improve Forest Planning and Management in Central
Caucasus Pilot Area (US $6.05 million) The main objective of this
component is to develop an integrated framework of new, economically sound
and environmentally sustainable approaches to forest management and
operations and test its implementation in the Central Caucasus Pilot Area,
which comprises 16% of the country's forests.   The project will:(a)
Develop Ecosystems-Based Landscape Planning and Forest Inventory using
sustainable forest management principles. Activities would be undertaken
jointly with the GEF-financed Protected Areas Development Project and
would include development of (i) Landscape-Ecological Composition (LEC)
plans, which are based on analyzing layers of geological, geodynamic,
biodiversity and forestry information in a GIS system, and (ii)
ecosystem-based inventory involving multiple stakeholders.(b) Develop a
Forest Management Information System (FMIS) to improve forest management
planning and monitoring. The FMIS will be crucial in providing decision
makers and SFD staff a tool for making effective use of the information
gathered during the forest resources inventory and will help managers
formulate management plans and follow-up operations. It will also form a
critical basis for monitoring and independent auditing of compliance of
forest operators with forest management plans and national forest
standards. The project will also fund international and local technical
assistance to develop and launch forest management planning guidelines and
assist in management planning. Special emphasis will be given to
incorporating non-wood forest products (NWFP) into management planning and
considering SFD's role in hunting and sustainable tourism. Funding is
available to ensure public participation in the planning process.(c)
Demonstrate Environmental Forest Harvesting and Road Operations. An
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improved planning process will not have a strong impact if forest
operations are not improved simultaneously. Consequently, the project
will support establishment of demonstration units for low impact
harvesting and transport systems; these units will be operated by the SFD
to train public and private forest operators in application of improved
harvesting techniques. The project will also invest in a limited scope of
restoration and construction of main forest roads and light roads for
fuelwood access. The extent of the road program, to be competitively
contracted to qualified private operators, will depend on the outcome of
the FMIS planning in each district, but funding for a minimum requirement
(100 km of rehabilitation and 75 km of construction of main forest roads;
20 km of rehabilitation and 40 km of construction of light roads) has been
reserved in the project budget (about $1.98 million). This would
facilitate compliance of forest operators and contractors with new
national standards, which will be developed under the project (see
Component 1). A site-specific Environmental Impact Assessment (EIA) will
be carried out for each sub-project. (d) Develop and Implement Pilot
Community Forestry Programs. In conjunction with technical assistance to
draft the regulations on community forestry (funded under Component 1),
the project will support piloting practical arrangements for
community-based forest activities for their further replication across the
country. A community fuelwood supply program will be tested in 2002-2003
in two districts (Oni and Ambrolauri). Furthermore, a broader community
forest management program will assist self-selected communes in the
Central Caucasus Pilot Area in preparation and implementation of
participatory communal forest/range/NWFP management plans, whose primary
objective will be to ensure sustainable and affordable supply of fuelwood,
fodder and other products to the local population.    This program will be
coordinated with other donor-financed projects (e.g. KfW project in
Kharagauli) and build on their lessons. In addition, the project will
support development of necessary extension services and training in local
forest, range and NWFP management. 3. Forest Protection and
Reforestation in Selected Priority Areas (US$8.84 million)    This component
will strengthen forest inspection and monitoring programs, forest
protection, seed improvement and nursery systems, and establish
afforestation and reforestation demonstration sites based on economic,
social and environmentally sustainable principles. (a) Strengthen Forest
Protection and Inspection services. Project activities under this
sub-component include: (i) establishing a mobile inspectorate unit to
audit forest operations at district level; (ii) strengthening enforcement
in the Central Caucasus and other selected priority areas through
logistical support and equipment for forest guards; and (iii) supporting
integrated forest hazard management, including providing grants for
applied research in forest protection, refurbishing the forest protection
laboratory, undertaking pest and fire monitoring, and providing forest
hazard protection equipment. These activities will be complemented and
strengthened by independent monitoring efforts by various nongovernmental
organizations. (b) Development of Seed and Nursery Facilities.
Activities under this sub-component will strengthen seed collection,
processing, certification and storage capacity to respond to sustainable
national seed requirements, protect valuable genetic resources and restore
market confidence in seed quality and supply. Furthermore, this
sub-component aims to increase the seedling production capacity of
Sartichala nursery to meet future afforestation and reforestation needs;
create a center of excellence for seedling production; and demonstrate
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best practice for forest nurseries and seed processing throughout Georgia.
This will be achieved through: (i) construction of a new seed processing,
nursery and administrative buildings at Sartichala nursery; (ii)
introduction of seed processing, collection and stand improvement
equipment; (iii) provision of an irrigation system, nursery equipment and
machinery; (iv) restoration of existing natural windbreaks, fencing and
frost protection facilities in Sartichala and use of containerized
seedlings; and (v) training of SFD staff in improving seed stands,
certification of seed quality and in modern systems and technologies
quality seedlings production.(c) Afforestation and Reforestation in
Priority Areas. This sub-component targets an area of approximately 8,700
ha of sloping and degraded land in nine districts around Tbilisi. Illegal
fuelwood cutting, over-grazing and lack of maintenance has resulted in
partial and complete deforestation in these areas together with decreased
agricultural production, erosion and sedimentation of waterways and
reservoirs and decrease in biodiversity. In addition, social and
recreational benefits have been reduced significantly in areas adjacent to
community and urban areas. The project will finance up to 3,100 ha of
afforestation and 5,600 ha of reforestation on state-owned and eligible
private and community owned lands in the Priority Areas, based on
screening against identified criteria and where it can be shown that the
benefits clearly outweigh the investment costs. Criteria for eligibility
of afforestation projects for carbon credits will be considered. In
addition, the sites will demonstrate modern techniques for forest
establishment and the important role of public consultation and community
participation. After project completion, with the adoption of the new
forest management financing scheme (see Component la), the Government
shall be able to finance priority afforestation/reforestation works
throughout the country.4. Project Management and Monitoring (US$2.34
million)   The Forest Sector Development Center (FSDC) has been
established by the Presidential Decree as the project management unit. It
reports to SFD on technical matters and is housed within this department
to ensure project ownership by the implementing agency. However, on
financial management and disbursement matters, FSDC is reporting directly
to the Ministry of Finance which oversees fiduciary aspects of the project
implementation. FSDC is already administering the PPF and will be
responsible for day-to-day project management and monitoring.
Specifically, this will include contracting the delivery of goods, works,
and consultant services to implement the project, managing project
accounts and finances, assisting SFD to prepare annual work programs and
monitoring project progress against agreed deliverables. FSDC works under
the direction of an interagency Supervisory Board and includes a project
director, technical manager, accountant, financial manager, procurement
officer, secretary/interpreter and operational assistant. The project will
provide staff, office refurbishment and equipment, training, technical
assistance in procurement, and operating expenses for the FSDC. The cost
of this component also includes the Government contribution for taxes
(estimated at US$0.89 million) that FSDC will have to pay to the Treasury
in connection with all international consulting services contracts under
the project.
5. Financing
Total ( US$m)
BORROWER $5.69
IBRD
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IDA $15.67
Total Project Cost $21.36
6. Implementation
The project's implementation arrangements have been approved by
Presidential Decree, dated October 29, 2000. The project's main
implementing agency is the State Forestry Department. Its staff at
central and district levels are responsible for technical and policy
issues of project implementation. The Ministry of Finance (MoF) is
responsible for oversight of project finances. The project is supervised
by an inter-agency Supervisory Board, which is chaired by a member of
Parliament and comprised of representatives from key
ministries/departments (Economy, Finance, Environment, Agriculture,
Forestry, Land Management, Protected Areas), the presidential
administration, academia and the NGO community. The Supervisory Board
meets at least every 3 months to approve annual reports, work plans and
budgets and resolve inter-agency issues. In order to assure coordination
with the Protected Areas Development Project (PADP), its membership is
substantially the same as that of the PADP Project Steering Committee.The
project management unit is the Forest Sector Development Center of Georgia
(FSDC) - founded by Presidential Decree as a 'legal body of civil law'
with overall responsibility for managing implementation of project
components, procurement, financial management, administration, reporting
and monitoring. FSDC reports to SFD on technical matters and to MoF on
financial matters. FSDC has a core staff of seven, including a project
director, technical manager, financial manager, accountant, procurement
specialist, operational assistant, and secretary-interpreter. Additional
consultants (national coordinators) support SFD managers and FSDC to
organize and plan project activities under specific sub-components. FSDC
is currently administering implementation of on-going activities under
the PPF.FSDC would monitor project progress and outputs through simple
project reports produced every 6 months. FSDC would also be responsible
for preparing annual progress reports, which would provide more detail on
the technical details of project implementation and guide preparation of
the next year's annual work plan. The annual progress reports would
highlight both implementation problems and emerging design problems and
permit adjustment of project elements as required. Funds would be
provided for independent review of particular activities if required. The
format of both the semi-annual and annual reports would be agreed upon
during negotiations. Annual progress reports would be reviewed and agreed
upon annually by the World Bank. In addition, the World Bank would carry
out a mid-term review at the end of year 3, to review project progress and
allow for adjustment in project design, if necessary.Project Financial
ManagementImplementing Entity. FSDC will be responsible for financial
management of the project, including managing the project's Special
Account, maintaining all financial documentation and producing financial
information. Audit Arrangements.    Annual audits will be conducted by
independent private auditors acceptable to the Association and procured by
the FSDC through the Least-Cost Selection process. Audited project
financial statements will be provided to the Association within six months
of the end of each fiscal year and also at the closing of the project.
The cost of the audit will be financed from the proceeds of the credit.
7. Sustainability
The project does not involve significantly increased recurrent cost
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financing and does not involve new staff recruitment. Incremental
recurrent costs are estimated at US$0.62 million over the project period
(or on average about US$103,000 per annum). These compare with the
present annual budget allocation to SFD of US$1 million per annum. As
indicated above the project should generate substantially increased
revenues for the Treasury by improving tax collection from forest
management activities. The project would be implemented by existing
institutions with management support from FSDC. Capacity building of SFD
during implementation would ensure that project activities will continue
after Bank support ends. Forest district offices would also be
strengthened with the assistance of project activities. Social
sustainability should be assured by the involvement of a range of
stakeholders and local communities in project implementation.
8. Lessons learned from past operations in the country/sector
Experience with project implementation in Georgia has indicated that
strong ownership of key stakeholders, at a political, technical and
community level, is key to project success. Adequate donor coordination
is also important. Project preparation has included an extended period of
consensus building at political, technical and local level to improve
approaches to forest management. There have and will continue to be
extensive consultations with the donor and NGO community, with which
relations in the forest sector are good.Implementation issues have
included difficulties with counterpart funding and lack of clarity
regarding procedures for payment of VAT, social charges and taxes, and
difficulties with financial management. These issues are now being
addressed at a country level with additional support and oversight being
provided from the World Bank Tbilisi Office. The project management unit,
in developing its operational manual, has taken account of the lessons
learned. Project implementation in the region more generally has also
illustrated the importance of involving all stakeholders in the planning
of policy and institutional changes. When this is done well, the overall
environment, at the community, political and technical level, is generally
very positive towards improved forest management. Forestry in ECA has
also benefited from an OED review of ECA forest operations completed in
2000 in the context of a review of the 1991 Forest Strategy. The review
emphasizes the importance of stakeholder participation, but also
recommends expanded support for "stand-alone" forest projects as they can
best tackle forest policy and management issues, and greater integration
of forestry issues into the country assistance dialogue.
9. Program of Targeted Intervention (PTI)     N
10. Environment Aspects (including any public consultation)
Issues     :  The project's environmental assessment (EA) and
management plan (EMP) were commissioned in the form of a Sectoral
Environmental Assessment, as the project is designed to have a sectoral
impact. Stakeholders were consulted at the screening and draft TOR phase
(a public meeting was held in Tbilisi on May 5, 2000). Public review and
discussion of the final draft report was carried out through dissemination
of the report and a series of public meetings in Tbilisi and in the
Central Caucasus Pilot Area (Oni, Ambrolauri). The consulted groups
included: Parliamentary Committee on Environment and Natural Resources,
Georgia Greens-Friends of Earth, Green Alternative, NACRES, Georgia
Protected Areas Programme, WWF-Georgia, Transparency
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International-Georgia, Anticorruption Bureau of Georgia, Georgian Academy
of Sciences, Georgian Agricultural Academy, Tbilisi State University,
district authorities and the local population in the Central Caucasus (Oni
and Ambrolauri Districts).The main findings and recommendations of the EA
were taken into consideration during project design and are reflected in
the project components. The final EA report was submitted by the Borrower
to the Bank upon completion of public consultations in the project areas
in the Central Caucasus and in Tbilisi (May-June 2001). Written comments
subsequently received from the public are attached to the final report,
which was submitted to the World Bank's InfoShop on July 11, 2001.The EA
concludes that the proposed project will improve overall environmental
management of Georgia's forests by: (a) introducing the right incentives
for long term investment and sustainable use of forest resources and
reducing illegal felling and smuggling of timber; (b) developing
technically sound and participatory methods of forest management planning
based on a technically up-to-date and reliable information base, deploying
Forest Management Information Systems and GIS technology; (c)
demonstrating advanced and environmentally less damaging equipment for
harvesting, including skyline cable lines designed for mountain terrain;
(d) rehabilitating and constructing forest roads in a selected zone of the
Central Caucasus for maximizing economic benefits and reducing
environmental damage caused by long skidding distances, which create
erosion channels; and (e) testing and promulgating environmentally sound
construction practices and technologies. Other environmental benefits of
the project would include reduced erosion and improved hydrological
regimes of reforested areas and an increase in atmospheric carbon
sequestration resulting from afforestation activities of degraded
slopes.No serious negative impacts of the project were identified. Minor
potential impacts might include damage from misuse of harvesting and
transportation equipment at demonstration and training sites. This risk
would be addressed by proper design and selection of sites for
demonstration activities which will be based on the completed forest
management plans and subject to a site-specific environmental review and
permit. A similar minor risk is associated with erosion caused by misuse
of equipment during limited forest road rehabilitation and construction.
This risk would be addressed by limiting road activities only to
appropriate areas delineated by the overall landscape-based forest
management plan. Additionally, road contractors would have to comply with
improved road standards. Selection of road sites would also be subject to
site-specific environmental review and permit. The EMP (which is made a
legally binding part of the Project Implementation Plan) provides for a
phased screening and mitigation of these project risks. All project
activities were categorized according to expected environmental impact.
Those activities that bear even small potential risks (such as the ones
listed above) will be subject to site-specific EAs with proper public
consultations in accordance with the Bank's safeguards policies.
Accordingly, these activities will also be subject to the state ecological
review (expertise) and environmental permits pursuant to Georgian national
legislation. The Ministry of Environment of Georgia has endorsed this
proposed phased approach to site-specific EAs. Guidelines have been
prepared for the different project activities. Implementation at central
and district level would be monitored and enforced by the Ministry of
Environment, and mandatory provisions to that effect are reflected in the
Credit Agreement. Risks to cultural property are not anticipated, since
production forests are not generally located in or near cultural heritage
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sites. If there any such sites are identified during the forest landscape
planning process (chance finds), they would be assessed and in accordance
with OPN 11.03, appropriate measures would be designed and implemented to
ensure that there is no damage to cultural property.
11. Contact Point:
Task Team Leader
Andrey V. Kushlin
The World Bank
1818 H Street, NW
Washington D.C. 20433
Telephone:   (+1-202) 458-7268
Fax:   (+1-202) 614-0005
12. For information on other project related documents contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-5454
Fax:        (202) 522-1500
Web: http:// www.worldbank.org/infoshop
Note: This is information on an evolving project. Certain components may
not be necessarily included in the final project.
This PID was processed by the InfoShop during the week ending
April 12, 2002.
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