Green Growth Advisory Program for Lao PDR Partnerships and Opportunities for a New Green Forest Economy in Lao PDR: Sustaining Forest Landscapes and Livelihoods © 2019 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for non-commercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “Partnerships and Opportunities for a New Green Forest Economy in Lao PDR: Sustaining Forest Landscapes and Livelihoods. © World Bank.” All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. i Foreword The Lao People’s Democratic Republic (Lao PDR) is transitioning to a greener, more resilient economy as the government embarks on ambitious reforms in the forestry sector to achieve more sustainable, resilient, and inclusive economic and export growth. Given abundant natural resources, Lao PDR has the potential to become a major player in sustainable forest management (SFM) and downstream forest industries, but weak forest governance, combined with low levels of reputable, socially and environmentally sustainable private investment, have undermined the potential of the forestry sector to deliver exports, livelihoods and jobs, especially among the rural poor, and to propel broader economic development. In this context, the government’s emerging vision of a new green forest economy presents exciting opportunities. The implementation of SFM will help Lao PDR to achieve its target of 70 percent forest cover. Greater forest cover will help to provide food, medicine and building materials, as well as to support downstream industries such as reconstituted wood and fiber products and furniture production. Achieving this target would also enable the country to meet its Nationally Determined Contribution (NDC) to climate action by reducing climate risks such as flooding, landslides, and erosion that silts strategic reservoirs. Overall, greenhouse gas emissions would be reduced by 60-69 megatons of carbon dioxide equivalent (MtCO2-e). To support this transformational reform process and raise complementary public and private investment in forestry, the Government of Lao PDR (GoL) and World Bank Group (WBG) have collaborated on advisory services and analytics (ASA) to enhance understanding and implementation of SFM. This ASA reinforces the GoL’s forestry reform process, informing key new policies, regulations, and a new Forestry Law that is expected in 2019. This task has been carried out in close cooperation and partnership with GoL partners, including the Ministry of Agriculture and Forestry (MAF), Ministry of Industry and Commerce (MoIC), Ministry of Planning and Investment (MPI), development partners, and others active in the sector, including private actors and the WBG’s International Finance Corporation (IFC). A range of quantitative and qualitative assessments conducted under this task are synthesized in this report. This is a potentially historic moment: policymakers, citizens, and business leaders increasingly recognize the urgency of the threats facing Lao PDR’s forests and the lasting benefits achievable with concerted, coordinated policy and investment actions. This analytical work serves as an essential reference for the continued reform and development of the forestry sector to positively impact livelihoods and the environment, which are critical for poverty reduction, inclusive prosperity, and greener, more resilient economic growth based on Lao PDR’s most important comparative advantage – its natural capital. World Bank Ministry of Agriculture and International Finance Corporation Forestry of Lao PDR Karin Kemper Mr. Thongphat Vongmany Nena Stoiljkovic Global Director for the Environment, Vice Minister of Agriculture and Vice President, Asia & Pacific Natural Resources and Blue Forestry of Lao PDR Economy Global Practice ii CONTENTS Foreword i List of Abbreviations ii Acknowledgements iv Executive Summary ix 1 Introduction: Lao PDR and the New Green Forest Economy 1 1.1 Opportunities from Forest Sector Reforms 1 1.2 A Partnership on Forest Sector Development 3 1.3 Structure of this Report 4 2 Characteristics of the Forest Sector in Lao PDR 5 2.1 Trends in the Forest Sector in Lao PDR 5 2.1.1 Forest Cover Change 6 2.1.2 Production Trends 7 2.2. Contributions to the Economy and Livelihoods 9 2.2.1 Economic Contribution 9 2.2.2 Forests and Jobs 14 3 The Potential of Sustainable Forest Management in Lao PDR 17 3.1 Concept of Sustainable Forest Management 17 3.2. Building the Foundation for Sustainable Forest Management 18 3.2.1 Participatory Sustainable Forest Management 18 3.2.2 Timber Legality and Certification of Forest Management and Chain-of-Custody 20 3.2.3 The Role of Markets 25 3.2.4 Renaissance in Wood Use for Green Buildings 26 3.3. Support for Sustainable Forest Management through Partnerships 26 3.3.1 Partnerships in the Forest Sector 27 3.3.2 Transforming the forestry policy, legal, regulatory frameworks for PPPPs 31 3.4 The Economic Potential for Sustainable Forest Management 32 4 Conclusions and Recommendations for Building the New Green Forest Economy 34 Appendix A Characteristics, Designations and Definitions of Forests in Lao PDR 38 Appendix B Priority Actions 41 Appendix C Approach and Methodology 56 Appendix D Map of Land Use and Forest Types in Lao PDR (2015) 61 Appendix E Industry platforms, standards and principles for certified wood 62 Appendix F Elements for Building the Foundations for PSFM 64 Appendix G Scenarios for Production Forest Areas 65 Appendix H Key Elements of Successful Parnterships 68 References 69 iii TABLES Table 1: Environmental Services from Forests in Lao PDR 5 Table 2: Forest Loss from 2005 to 2015 7 Table 3: Type and Size of Wood Processing Industries in Lao PDR (2016) 12 Table 4: Jobs in Downstream Wood Processing Industries (2016) 13 Table 5: Summary of Strengths and Weaknesses of the Forestry Sector in Lao PDR 15 Table 6: Public, Private and People’s Interests in Forest Partnerships 32 Table 7: SFM Scenarios 33 FIGURES Figure 1: World Bank Lao PDR Office Building 3 Figure 2: Forest Cover Change in Lao PDR 2000-2015 6 Figure 3: Annual Plantation Establishment, 2000-2015 8 Figure 4: Area of Plantation Species and Target for 2020 8 Figure 5: Timber Royalties as a Share of the Total Tax Revenue (1993/94-2016/17) 10 Figure 6: Wood Export of Lao PDR by Importing Countries (2002-2017) 10 Figure 7: Wood Products Exported by Lao PDR (2002-2017) 11 Figure 8: Domestic and Foreign Investment in Wood Processing Industry Approved by MPI 13 Figure 9: Building Blocks to Certification 21 Figure 10: Former Process (pre-PSFM) Management in PFAs and Conversion Areas. 25 Figure 11: Potential Process for Certified PSFM in PFAs 25 Figure 12: Market Drivers for Certified, Legal Timber 26 Figure 13: Partnership for Fast Growing Industrial Plantations of Eucalyptus and Acacia 29 Figure 14: Partnership for Out-grower Fast-growing Industrial Plantation Forests 29 Figure 15: Independent Smallholder Plantations 30 iv List of Abbreviations 3FCs Three forest categories AWPD Aquatic and Wildlife Protection Division of DoF ADB Asian Development Bank ACIAR Australian Centre for International Agricultural Research AfCo Asian Forest Cooperation Organization APFRD Afforestation Promotion and Forests Rehabilitation Division ASA Advisory services and analytics ASEAN Association of South East Asian Nations ATIF Australian Timber Importers Federation BREEAM Building Research Establishment Environmental Assessment Method CCD United Nations Convention to Combat Desertification CD Customs Department CFA Conservation Forest Areas CITES Convention on International Trade in Endangered Species CLT Cross Laminated Timber CO2 Carbon Dioxide CoC Chain-of-Custody CoO Certificate of Origin CW Controlled Wood (under FSC Certification) DAFO District Agricultural and Forestry Office DERM Department of Enterprise Registration Management DNEP Department of Natural Resources and Environmental Policy of MONRE DIMEX Department of Import and Export DLH DLH International Company DoCC Department of Climate Change of MONRE DoF Department of Forestry DoFI Department of Forest Inspection DoIH Department of Industry and Handicraft DoM Department of Medicine of MoH DoP Department of Planning of MPI DoPL Department of Planning and Legislation of MAF DoT Department of Tax EcPD Economic Police Department EHS Environmental, Health and Safety Guidelines of IFC and World Bank Group ELS China’s Environmental Labelling Standard EPFI Equator Principle Financing Institutions ERN European Regional Network of the Green Building Council of Europe ESG Environmental and Social Governance ESIA Environmental and Social Impact Assessment ETTF European Timber Trade Federation EU European Union EU-FLEGT European Union-Forestry Law Enforcement Governance and Trade EUTR European Union Timber Regulation FAO Food and Agriculture Organization of the United Nations FFRDF Forest and Forest Resources Development Fund FIPD Forest Inventory and Planning Division v FINNIDA Finnish Bilateral Assistance FLEGT Forestry Law Enforcement Governance and Trade FM Forest Management FMA Forest Management Area as applied in Production Forest Areas FMU Forest Management Unit as applied in Production Forest Areas FOMACOP Forest Management and Conservation Project (1994-2001) FLTSD Forestry Legislation and Technical Standards Division FPIC Free Prior and Informed Consent FS2020 Forestry Strategy to 2020 FSC Forest Stewardship Council GDP Gross Domestic Product GG-DPO Green Growth Development Policy Operation GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GoL Government of Lao PDR GPP Green Procurement Policy IFC International Finance Corporation of the World Bank Group ISO International Organization for Standardization ITTO International Tropical Timber Organization IRR Internal Rate of Return JICA Japan International Cooperation Agency KfW Kreditanstalt für Wiederaufbau km Kilometers Lao PDR Lao People’s Democratic Republic LEED Leadership in Energy and Environmental Design of US Building Council LEV Land Expectation Value LFA Lao Furniture Association LFAP Land and Forest Allocation Policy LNCCI Lao National Chamber of Commerce and Industry LPTP Luang Prabang Teak Program MAF Ministry of Agriculture and Forestry MoF Ministry of Finance MoFA Ministry of Foreign Affairs MoH Ministry of Health MoHA Ministry of Home Affairs MoIC Ministry of Industry and Commerce MoITC Ministry of Information, Tourism and Communication MoJ Ministry of Justice MoNRE Ministry of Natural Resources and Environment MoPS Ministry of Public Security MPI Ministry of Planning and Investment MPWT Ministry of Public Works and Transport NA National Assembly NAFRI National Agriculture and Forestry Research Institute NAPA National Adaptation Program of Action NBSAP National Biodiversity Strategy and Action Plan (2016-2025) NDC Nationally Determined Contribution NGGS National Green Growth Strategy to 2030 NGO Non-Governmental Organization vi NPV Net Present Value NSEDP National Socio-Economic Development Plan NSEDP-8 Eighth National Socio-Economic Development Plan NTFP Non-Timber Forest Products NUoL National University of Lao PDR NWFA National Wood Flooring Association in the USA PAFO Provincial Agriculture and Forestry Office PEFC Programme for the Endorsement of Forest Certification PFA Production Forest Area PFMD Production Forest Management Division PFO Provincial Forestry Office PFS Provincial Forest Service PCD Planning and Cooperation Department PM Prime Minister PMO Prime Minister Order PoIC Provincial Office of Industry and Commerce PPP Public-Private Partnership PPPP Public-Private-People Partnership PRI United Nations Principles for Responsible Investment PROFOR Program on Forests PSFM Participatory Sustainable Forest Management PtFA Protection Forest Area REDD+ Reducing Emissions from Deforestation and Forest Degradation SDGs Sustainable Development Goals SFI Sustainable Forest Initiative in North America SFM Sustainable Forest Management SME Small and Medium Enterprises SUFORD Sustainable Forestry and Rural Development Project (2004-2008) SUFORD-AF Sustainable Forestry and Rural Development Project – Additional Financing (2009-2012) SUPSFM Scaling-up Participatory Sustainable Forest Management (2013-2019) (or commonly called SUFORD-Scaling Up or SUFORD-SU) TAFF Tropical Asia Forest Fund tCO2-e Tons of carbon dioxide equivalent TLAS Timber Legality Assurance System TLD Timber Legality Definition TTF Timber Trade Federation networks UK United Kingdom UN United Nations UNFCC United Nations Framework Convention on Climate Change UNFF United Nations Forum on Forests USD United States Dollar USA United States of America USGBC United States Green Building Council VFC Village Forestry Committee VPA Voluntary Partnership Agreement VUF Village Use Forest WBG World Bank Group WWF World Wide Fund for Nature PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS vii Acknowledgements The Advisory Services and Analytics (ASA) on the sustainability of Lao PDR’s forests was requested by the Government of Lao PDR in the context of its green growth initiative. This initiative involves an ambitious policy reform and investment mobilization effort to build and deploy Lao PDR’s natural and human capital sustainably for more resilient development outcomes, including sustainable forest management and the restoration of productive forests that in turn will help to create jobs, livelihoods and fuel economic growth. This ASA (P164376) falls under the World Bank’s Programmatic ASA on Green Growth (P162394). Sister ASAs address topics important for Lao PDR’s green growth agenda, such as nature-based tourism and the state of environment, including costs of environmental degradation. A World Bank Group (WBG) team, in cooperation with the Ministry of Agriculture and Forestry (MAF), carried out this task in consultation with and support provided by other government institutions, development partners, private sector actors, the World Bank Group’s IFC, nongovernmental organizations, and academia. The Bank team especially appreciates the close cooperation and engagement by the MAF team, Ministry of Industry and Commerce (MoIC), Ministry of Planning and Investment (MPI). It would like to thank, in particular, Dr. Phouang Parisak Pravongviengkham and Mr. Thongphat Vongmany, Vice Ministers of MAF, for their guidance and vision of a new green forest economy. The team also thanks Mr. Sousath Sayakoummane, Director General of MAF’s Department of Forestry, and his dedicated team for technical insights throughout the development of this ASA and the ongoing sector reforms. Funding for the forestry ASA has been provided by the Korean Green Growth Trust Fund, the World Bank’s Program on Forests (PROFOR), and the World Bank operating budget. World Bank management, including Christophe Crepin, Manager for Environment and Natural Resources for East Asia and Pacific, Nicola Pontara, Country Manager for Lao PDR, and Mark Austin, Program Leader for Sustainable Development, South East Asia, provided critical strategic guidance. The World Bank task team for the forestry ASA is led by Stephen Danyo and at the time of delivery includes: Jim Carle, Fred Cubbage, Andrew Gillespie, Werner Kornexl, Manoly Sisavanh, Hilary Smith, Alex Lotsch, Anolay Vongsouthi, Arturo Bolondi, and Anita Soukhaseum. Team members initiating this work included Robert Davis. The World Bank team is joined by a team from IFC led by Tuyen D. Nguyen and including Stephen Midgley and Dalaphone Sihanath. The joint WBG team appreciates the inputs provided throughout the life of the task from WBG colleagues including Michael Brady, Nina Doetinchem, Gabriel Feuillet-Palma, and Viengsamay Srithirath, as well as peer reviewers Timothy H. Brown, Andrew Michael Mitchell, and Ulrich Schmitt. This report is a synthesis of background reports and products led by various team members; each report includes inputs from various team members, government authorities and stakeholders. i.  Retrospective of the Forest Sector in Lao PDR (Lead authors: Anolay Vongsouthi and Manoly Sisavanh) ii. Sustainable Forest Management in Lao PDR (Lead author: Jim Carle) iii. Certified Forests and Wood Products in Lao PDR (Lead author: Jim Carle) Regulatory Framework and Policy Support for SFM, Certification, Timber Legality and Public-Private-People iv.   Partnerships (PPPPs)in Lao PDR (Lead author: Hilary Smith) v. Public-Private-People Partnerships for Forest Restoration in Lao PDR (Lead author: Jim Carle) vi. Economics of Sustainable Forest Management in Lao PDR (Lead author: Fred Cubbage) vii. Validation Workshop Report, May 17, 2018, World Bank Office, Vientiane, Lao PDR viii. Various short policy notes (5) ix Executive Summary Lao People’s Democratic Republic (Lao PDR) has a comparative advantage in natural capital, which has fueled economic growth averaging around 8 percent per annum since 2000. The natural resource endowment comprises half of the country’s wealth. Although forest cover declined 3.6 percent between 2005 and 2015, Lao PDR still has among the highest forest cover percentage of countries in the region, and the value of timber and non-timber forest products is US$10,740 per capita. Inefficiencies, including overuse, under-budgeting, and unsustainable and unscientific management, have led to a reduction in forest cover, natural wealth, and public revenues. Lao PDR’s recent policy reforms, institution-building and community engagement aim to build a new foundation to sustain the Lao forest estate and the people and sectors that depend on it, including for tourism, agriculture, energy, water, fisheries, and wood products. Lao PDR’s ambitious forest sector reforms aim to achieve financially and environmentally sustainable, resilient, and inclusive economic growth, especially through credible private sector investors. This reform agenda accompanies the Government of Lao PDR’s (GoL) plan to expand forest cover to 70 percent from the current 58 percent, which will help to reduce poverty, create green jobs and livelihoods, support local industry and expand participatory sustainable forest management (SFM) and forest restoration, as well as to meet Lao PDR’s Nationally Determined Contribution (NDC) to climate action. Auspiciously, credible private sector commercial plantation investors are also starting to scale up investment in the country’. These developments denote the emerging vision of a new green forest economy in Lao PDR that involves both providing forest-dependent communities with wood and non-timber forest products (NTFPs) and producing commercial wood for export. The poor are most vulnerable to natural resource degradation and climate risks such as flooding and landslides due to their reliance on ecosystem services from forests for livelihoods, nutrition, and as a buffer against disasters. The risks also threaten upstream forests and watersheds as well as downstream agriculture and infrastructure including strategic reservoirs, investments and assets, which impact economic development, food security, jobs and livelihoods. Key findings: Lao PDR’s advantages and disadvantages for building the new green forest economy Demand for verified legal and sustainable tropical forest products is increasing rapidly in markets that can afford to pay higher prices, and especially in industrialized economies. Lao PDR can access these growing market opportunities by transforming its forestry sector into a central pillar of a new green economy. Players in most major international markets such as the European Union and United States increasingly demand proof of legality and sustainability of imported wood products through certified forest management and chain-of-custody across the supply chain. There is also emerging interest in legal and certified wood within Asia as China, Vietnam, and Thailand are all establishing standards for legal, sustainable wood. Lao PDR has an opportunity to participate if it can meet these standards. x Executive Summary The sustainable business potential for Lao PDR’s forest asset is significant The changing market demand for “good wood” coincides with a global revolution in wood technology, the use of wood in modern new buildings, as well as increased adoption of green procurement policies that require proof of sustainability and legality. International experience suggests that the highest financial benefits can be achieved and maintained with forest governance that features a timber legality assurance system (TLAS), certification throughout the value chain and SFM. Lao PDR cannot yet reach these standards. To pursue these features, the GoL has imposed logging and timber export bans and reformed policies by, for example, committing to and advancing timber legality assurance, pursuing certification, and enhancing governance of state-owned Production Forest Areas (PFAs). Meeting the growing demand for “good wood” could be highly profitable for planted forests and natural forest management. Based on data from current investors, internal rates of return (IRRs) for Lao PDR’s main forest production models (smallholder teak, industrial and outgrower eucalyptus, participatory SFM) were between 6 and 24 percent, which is an internationally competitive range. The results, based on market costs and prices, indicate that the production models have strong economic returns based on land expectation value (LEV) and IRR, as noted by credible private investors consulted during this assessment. Growth and revenues from production forests depend on good governance Forestry in Lao PDR has contributed significantly to gross domestic product (GDP), and has the potential to drive Lao’s new green economy if facilitated by a policy regime characterized by good governance, policy coherence, sustainability, inclusivity and profitability. Between 1990 and 2000, timber represented 8 to 9 percent of Lao PDR’s annual GDP, but its contribution fell to 4 to 5 percent between 2001-2015, although it should be noted that the Lao Statistics Bureau considers these figures to be significant underestimates. This decline in contribution was due in part to high levels of illegal logging and forest products trade, and also to the increasing contribution of other sectors to the national economy. Including ecosystem services would greatly increase the contribution of forests to GDP. A well-functioning and diversified forestry sector contributes to the economy in several ways through multiplier effects, job and livelihood creation, the production of raw materials for construction and downstream wood processing, and enterprise development around wood and non-timber forest products (NTFPs). In 2010, NTFPs contributed 9 percent of GDP. About 67 percent of the Lao population is rural and depends on forests to support their livelihoods; over 39 percent of rural family income derives from NTFPs. The contribution of log royalties to government revenues decreased from almost 19 percent in fiscal year 2001-02 to 2 percent in 2016-17, although this reduction was partly due to the relative expansion of the manufacturing and services sectors. Preliminary data for 2018 shows an absolute reduction in forest revenues. Forestry royalties and fees were not often properly levied or collected, and illegal logging further reduced the potential contribution of this significant natural resource to government revenues. This fiscal impact motivated the strengthening of logging and timber export bans. Annual exports declined in 2016 to 11 percent of the 2015 level after the May 2016 ban on exports of round wood and semi-processed products. The timber industry also shrank from over 2,100 wood processing facilities in 2006 to less than 1,150 in 2018 in response to low wood supply and the large number of unregistered and illegal operators. The downstream processing capacity will remain a challenge the longer the logging and export bans are in place, since they dampen opportunities for product innovation, the proliferation of institutional knowledge and skills, and market penetration. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS xi The export of high-value wood products, such as furniture, has growth potential, but from a low base of 1 percent to 3 percent of total exports value in 2017. Wood product exports from Lao PDR have been dominated by unprocessed and semi-processed products. Barriers to higher value wood processing and exports include the decreasing supply of raw materials, limited access to finance, inadequate downstream processing, a largely unskilled workforce, lack of technology and product innovation, high transaction costs, slow approvals, and an unconducive regulatory regime. To capture high-end final markets, Lao PDR needs efficient log processing and sawmills. This manufacturing capacity is not currently available, although there are some bright spots that might be scaled up. Current timber supply from “conversion forests” provides unreliable quantities and a level of quality of mixed species, which does not incentivize investment in high-end processing. A predictable timber supply comes from either participatory SFM or forest plantations. Good governance for good wood The enforcement of logging and timber export bans is allowing major policy reforms to strengthen standards and compliance, and ultimately will revitalize the sector. However, the logging ban has also reduced the flow of benefits to village forest committees (VFCs) that support village livelihood development, restoration of forests after harvesting, and employment. Local communities have instead pursued alternative livelihoods including agroforestry, agriculture, as well as illegal timber extraction in some instances. Although the Government is reforming the forestry sector, weak forest governance continues to hinder productivity and sustainability. Weak governance is characterized by the lack of financial and human resources within responsible government agencies; unclear concession licensing and industry regulation for plantations; unsustainable forest management practices and forest conversion; poor timber sales and royalty management systems; inefficient revenue collection and management, which leads to evasion of fees, taxes and royalties; and insufficient enforcement of existing regulations and laws (with some exceptions). Other issues include insufficient intersectoral coordination on spatial planning resulting in violation of protected area boundaries; allocation of concessions to land otherwise legitimately occupied by local people; threats to the livelihoods of forest-dependent people and customary communities, misaligning industry development with resource availability; and stalling of legitimate investments by credible domestic and international forest enterprises that practice corporate social and environmental responsibility. Consistent and clear interpretation and application of policies, principles and practices from central, provincial, district and village levels remain challenges. Timber salvaged from conversion forests generally has not been subject to a forest inventory or sufficient accountability, and thus has been susceptible to abuse by the mixing of logs from unauthorized areas. Since the 2013 temporary ban on logging in PFAs (PMO31), timber salvaged from conversion areas, together with confiscated wood and pre-ban stockpiles, have been the only significant sources of native species timber for industry. Delays in providing legal, long-term access to large contiguous areas of suitable and available degraded and barren forest land, including within PFAs, and slow processing of land concession agreements, have constrained plantation investment, forest restoration, and forest industry development. Land access policy is rapidly evolving with proposed reforms to the Land Law and Forestry Law. The Prime Minister’s Order 9 in 2018 promotes investment in plantations of eucalyptus, acacia, teak, bamboo and other native species and permits private sector access to PFAs to invest in restoration and reforestation. Internationally reputable companies have raised funds to substantially expand their investments. The stage has been set for MAF Department of Forestry (DoF), Ministry of Industry and xii Executive Summary Commerce (MoIC), Ministry of Planning and Investment (MPI), and Ministry of Natural Resources and Environment (MoNRE) to work with private companies and local communities to prepare restoration and reforestation programs. Stronger cooperation and coordination between ministries will provide investment certainty by improving efficiency and enabling more consistent interpretation of regulations. How to earn up to US$2 billion: investment potential that can benefit local people Out of an estimated 11.2 million hectares (ha) of degraded or understocked forest land in Lao PDR, an estimated 650,000 ha of degraded and barren PFA lands (<6 percent) could be allocated to private sector industrial plantation investment. At least three internationally reputable companies are ready to invest in certified, rapidly growing, industrial plantations based on a hub of 50,000–60,000 ha, with technical support to create a further 10,000–20,000 ha of satellite smallholder outgrower plantations. An industrial plantation forest resource of 300,000 ha could account for 1.2 percent of Lao PDR’s land area of 23.7 million ha, attract in-country investment of US$5 billion, create 100,000 or more new jobs from plantations and expanded downstream wood processing, earn up to US$1.5-2 billion per year in export earnings, reduce poverty and contribute to climate action. As a commitment to corporate social and environmental responsibility, companies could agree to restore natural forests in up to 30 percent of their concessions. Regionally and in Lao PDR, smallholders are assuming a larger responsibility for the supply of commercial wood. However, the role of plantations in farmer livelihoods in Lao PDR has been poorly understood and policies and incentives have not promoted good management for quality wood production. Previous modest experiences with outgrower partnerships between companies and smallholders failed to spark interest in scaling up these schemes. Similarly, previous policies encouraged farmers to plant trees, but farmers’ insufficient technical knowledge, limited access to finance, and poor germplasm affected the areas planted and quality of wood produced, limiting market potential and financial returns. Overly complex and inhibitive regulations, procedures and interventions in smallholder plantation investments, management, harvesting and marketing have created perverse disincentives for smallholder investment in plantation forests while deterring good plantation management. Global experience shows that successful smallholder engagement requires clear and unequivocal ownership of trees by smallholders, reliable markets, enabling policies, and a robust technical package. Village forestry can play a substantive role in the new green forest economy. Since rural communities depend on forests for their livelihoods, they have a strong vested interest to manage them well. The current form of participatory SFM engages more with local villagers in all planning and implementation activities compared to earlier models and has led to pilot Village Forest Management Plans that are ready for scaling up. There is potential for villages to partner with the government and plantation operators in the production, conservation, and protection of village forests. Support by district authorities in participatory planning, practices and benefits in village forests for the production of wood and non-wood forest products for customary, household and public-benefit uses has been inconsistent due to weak policies. Regulations regarding the rights to and uses of village forests and village land for household, customary use and commercial production, including timber harvesting and plantation establishment, are unclear and therefore open to misinterpretation or abuse, with negative environmental and social consequences. Given the right and opportunity to participate in planning, implementation and benefit sharing, village forest committees can generate revenues for both communities and government. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS xiii Key recommendations for building the new green forest economy Lao PDR can harness the opportunity for green growth by strategically positioning itself as a global center of green production and by reinvesting in both natural capital (forest) and human capital (people). Good partnerships for good investments create good jobs from good wood Lao PDR can benefit from implementing participatory SFM for both planted and native forest. Participatory SFM encourages short- and long-term availability of timber and provides a long-term vision for credible domestic and international investors, smallholders and villages. It would also allow national and international forest enterprises to create jobs by investing in processing quality and capacity, workers’ skills and certification. The combination of SFM implementation, a TLAS, and certification of both forest management and chain-of-custody will help Lao PDR to meet international demand for legal timber from sustainably managed forests. To this end, Lao PDR can aim to facilitate and attract reputable private sector partners that can bring processing capacity to Lao PDR and guarantee chain-of-custody certification. The certification process can be widely promoted to attract investors as partners who share common sustainability standards. Given confidence that forest management certification is occurring, industry partners and the MOIC can drive chain-of-custody certification. Timber from salvage logging also needs to be appropriately licensed if Lao PDR wants to avoid perverse incentives from unsustainable competition with certified legal wood supply. Current certification systems for smallholders should be reformed because the systems tend to be costly, complex and can be discriminatory because they apply similar standards to larger-scale plantations, which are unattainable. Raising private sector investment requires effective public policies and planning to reduce financial, operational, compliance, sovereign, physical (including climate), and biological risks. Risk mitigation strategies need to be developed inclusively, with central and provincial agencies cooperating to better integrate and inform their decision-making processes. This can be achieved by aligning and sequencing public policies, sharing information on concessions and resources and by adopting best practice guidelines for compliance with operational and social and environmental standards. Ensure that local people are partners in production and receive economic benefits Revitalizing smallholder plantation development would diversify land use, improve socioeconomic conditions and provide environmental benefits. Smallholders need clear tree tenure, harvesting rights, reliable markets and a robust technical package, including access to quality germplasm and the provision of effective extension services. Further enhancements to the regulatory framework would simplify and clarify procedures and provide enabling legal and policy conditions for smallholder plantation investors, particularly those planting indigenous species. In PFAs, the potential for village forests can be realized by giving rights to the village to plant trees and harvest wood for commercial purposes, in addition to customary and household use and for NTFPs, under clearly defined requirements. Such requirements could include, among others, clear land use rights; an approved land use plan demarcating available area and forest quality to allow for viable commercial operation; and a village forest management plan and benefit distribution agreement coordinated through an established village forest committee (VFC) as the decision-making body working in close collaboration with district authorities. xiv Executive Summary Public-Private-People Partnerships (PPPPs) offer a viable approach for villages to participate in forestry via direct employment, production and outgrower schemes. This approach requires (i) concerted outreach; (ii) definition of criteria for private sector engagement with communities; (iii) standardized and robust consultation with interested communities; (iv) ‘honest ’brokers to facilitate and build trust and experience among parties; and (v) clear market and profit-making opportunities. PPPPs work well when enabled by clarification and formalization of land use rights and land access agreements, transparent decision making, robust and fair contracts and access for all parties to mediation, arbitration and dispute resolution processes. Carefully calibrate policy and incentives Lifting the timber harvesting and export bans for natural production forests could be carefully considered once SFM, appropriate licensing procedures, and strengthened government capacity for revenue management and distribution are firmly in place. Lifting bans could be implemented initially in pilot locations where there are agreements on instruments, criteria and processes, SFM and chain-of-custody certification, legality of salvage logging, and auction platforms. Measures by MoIC to enforce the ban on the export of round logs and semi-processed products, such as the list of acceptable manufactured products for export, have constrained product innovation and industry development. Ministries and industry should collaborate to revise the list and focus on prohibited products. Lifting prohibitions on plantation-sourced wood products would send a strong message to growers and reinvigorate the plantation sector. While participatory SFM and planted forests can be profitable and therefore incentivize farmers and enterprises to invest, appropriate and carefully considered fiscal measures are necessary to support future forest management. Royalties, fees, fines and taxes could be integrated into a regulatory environment that enables SFM and other activities that protect natural and human capital. However, given current knowledge and policy gaps, further assessment of the fiscal impacts of policy and regulatory reforms is required. Investing in research, development, and extension is a basic element of sector sustainability and growth. Global experience shows that research institutions, universities and technical colleges play a vital role in disseminating knowledge and developing a workforce necessary for native forest and plantation management, harvesting and haulage, product design, wood processing, downstream industries, conservation, tourism, etc. Tangible benefits accrue from sustaining allocation of resources to continuously build regulatory capacity at central and local levels. A wide array of fundamental institutional mandates exist to maintain, enhance, and effectively enforce regulatory capacity, such as environmental and social impact assessment, forest law enforcement, and concession and revenue management. A government-led, long-term, large-scale investment program to manage the full forest estate would convene sectors, stakeholders and partners, leverage diverse financing sources, and enhance information, institutions, and incentives. The World Bank Group and interested partners are ready to provide financing and non-financial services to build this platform, program and related public and private sector investments. 1 1 Introduction: Lao PDR and the New Green Forest Economy 1.1 Opportunities from Forest Sector Reforms 1 Lao People’s Democratic Republic (Lao PDR) has a comparative advantage in natural capital, which has fueled economic growth averaging around 8 percent per annum since 2000. Natural resource endowment comprises half of the country’s wealth.1 Although forest cover declined 3.6 percent between 2005 and 2015,2 Lao PDR still has among the highest forest cover percentage of countries in the region, and the value of timber and non-timber forest products is US$10,740 per capita. 2 Lao PDR has embarked on an ambitious reform agenda for the forestry sector to achieve more economic growth that is more sustainable, more resilient, and more inclusive than has been possible under business as usual. 3 An emerging vision of a new green forest economy presents numerous opportunities for Lao PDR to secure greener and more resilient growth, sustainable livelihoods and jobs, and ecosystem services by implementing sustainable forest management3 (SFM) and private sector solutions that will help expand forest cover to Lao PDR’s target of 70 percent. Achieving this target can help to provide food, medicines and building materials from forests, and to support downstream industries like furniture production and reconstituted and fiber products as well as nature tourism in forest landscapes.4 It would also help the country to meet its Nationally Determined Contribution (NDC) to climate action by reducing climate risks such as flooding, landslides, and erosion that silts strategic reservoirs, and by reducing greenhouse gas emissions of 60-69 MtCO2-e according to the NDC. 4 Lao PDR currently has 13.7 million hectares (ha) of forest cover (58 percent of land area) and the 8th National Socio-Economic Development Plan 2016-2020 (NSEDP-8) and National Green Growth Strategy 2019-2030 aim to raise forest cover from the current 58 percent to 70 percent. Forest is valuable, but deforestation rates are high, with about 80 percent of the country’s forests considered degraded or highly degraded. Deforestation is mainly due to the expansion of agriculture and clearing for hydropower projects, mining sites and other infrastructure development. Forest degradation stems 1 https://datacatalog.worldbank.org/dataset/wealth-accounting. 2  Ministry of Agriculture and Forestry (MAF) of Lao PDR, Forest Inventory and Planning Department (FIPD), 2018. 3  Chapter 3 contains an expanded definition of SFM. 4 The term “landscape” has permeated discussions regarding forest and conservation management during the past few decades, and climate change action more recently. A landscape is often defined as a geographical area that includes not only biophysical features but also its cultural and institutional attributes. A landscape is not necessarily defined by its size; rather, it is defined by an interacting mosaic of land cover and land-use types relevant to the processes or services being considered or managed. Examples of forest landscapes can range from large tracts of forests used for multiple purposes to mosaics of forests, protected areas, home gardens, rice terraces, villages, wetlands and waterbodies. Multiple uses and benefits accrue from landscapes including production, conservation, cultural, spiritual, recreational, environmental services, flood risk reduction, etc. 2 Introduction: Lao PDR and the New Green Forest Economy from poor or absent management, unsustainable wood and non-timber forest product (NTFP) harvesting and shifting cultivation. Illegal logging and cross-border trade have contributed to both deforestation and degradation and until recently were widespread. These losses undermine the economic promise of the sector to contribute jobs, livelihoods and environmental services. 5 Since May 2016, government efforts through Prime Minister’s Order No. 15 (PMO15) demonstrate a strong commitment to reversing these negative trends through stronger enforcement. Illegal logging and trade have significantly declined, and forest crimes and rent-seeking behavior are being prosecuted with greater frequency. Statistical evidence verifies the positive impact and effectiveness of PMO15 and associated regulations (To and Canby 2017). When assessed in 2017, wood imports (round logs and lumber) from Lao PDR dropped demonstrably in both China and Vietnam since the order’s inception. Anecdotal evidence from the field points to substantially improved governance in the sector as well as a more sustainable long-term vision for sustainable forestry. However, the ongoing impacts on the forest sector must continue to be monitored for impacts on actors including the most vulnerable and least resilient smallholder plantation owners and small and medium enterprises. 6 Despite recent progress, the past 10 years’ inventories of Lao PDR’s Production Forest Areas (PFAs) show dramatic reductions in commercial grade timber stocks, which is prompting three important changes in the way the GoL is now orienting its forest management approach. First, management regimes in many PFAs are now being focused on rehabilitating degraded stocks since viable commercial harvesting is no longer an option. Second, in areas where commercial harvesting is still viable, the government is committing to pursue participatory sustainable forest management (PSFM), including timber legality and third-party forest management and chain-of-custody certification. The GoL is developing a timber legality assurance system (TLAS) that will apply to all forests and forest products including infrastructure areas where forest management certification is not applicable. Proving sustainably managed and legally produced and traded wood from Lao forests and forest industries is one of the most important factors for ensuring that businesses can access both national and international markets and thrive. 7 Moreover, in the past decade, international markets have changed rapidly and significantly, creating opportunities for Lao PDR. Increasingly, governments, multinational companies and timber and construction foundations and associations representing a significant proportion of wood importers and users have introduced green procurement policies that require forest and wood certification by internationally recognized and credible certification authorities for proof of sustainability. International banks, lending agencies and donors require proof of sustainable management of forest resources as a condition of lending or granting funds. Additionally, planners, architects and engineers that are required to uphold green building standards around the globe are increasing their use of wood in innovative new construction designs, however, they require that the wood has proof of sustainability through an independently assessed, credible certification authority. 8 A major global deficit is anticipated in the supply of wood in the foreseeable future. At the same time, there is a global renaissance in the use of engineered wood, with campaigns such as “Wood is Good,” “Wood Works,” and green building ratings encouraging innovative ways to use wood for construction and other uses. Renowned architect Alex de Rijke noted that, “timber, despite being the world’s oldest construction material, is now the most modern” (Miles 2014). And Amy Frearson writes, “the 18th century was the peak of brick; the 19th century the era of iron; the 20th century the century of concrete and the 21st century is fast becoming the time for wood (Frearson 2017). Advanced timber technology has the potential to contribute substantially to reducing global greenhouse gas emissions compared to steel and concrete which have large carbon footprints. Figure 1 shows the use of high-quality, certified, legal timber. Lao PDR’s forest sector can play a strong role in this market if ongoing sector reforms continue. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 3 FIGURE 1: WORLD BANK LAO PDR OFFICE BUILDING 1.2 A Partnership on Forest Sector Development 9 To support this reform process and raise complementary public and credible private investment in forestry, the Government of Lao PDR (GoL) and World Bank Group (WBG) have together engaged in advisory work to enhance understanding and implementation of SFM. This engagement process involved meaningful dialogue among the government, WBG, private sector actors and other stakeholders to support ongoing forest policy, legal and regulatory reforms, to identify investment opportunities, and to strengthen partnerships, including PPPPs. Other development partners such as the Australian Centre for International Agricultural Research (ACIAR), the Food and Agriculture Organization of the United Nations (FAO), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and Japan International Cooperation Agency (JICA) and others have aligned in support of the government’s forest reforms. 10 The Ministry of Agriculture and Forestry (MAF) has been advancing three main measures for forest sector development and SFM in particular, including: (i) restoring deforested areas and highly degraded forests through reforestation, regeneration, and by adopting public-private partnerships; (ii) promoting certification throughout the supply chain including for SFM and chain-of-custody; and (iii) developing and applying a TLAS for verification of legality across the supply chain, including from Production Forest Areas (PFAs), planted forests and salvage logging from conversion forests. 11 To improve planning, policy and programs on these topics, MAF requested advisory services and analytics (ASA) from the World Bank to explore three key questions that anchor the policy and investment dialogue around SFM: >> What is the value to Lao PDR of forest certification and participatory SFM? >> How can Lao PDR best assure that all timber sources and markets are legal? >> How can Lao PDR invest in forest restoration using public-private-people partnerships? 4 Introduction: Lao PDR and the New Green Forest Economy 12 The WBG/GoL engagement has been addressing these questions and reinforcing the GoL’s forestry reform process by informing new policies, regulations, and the emerging new Forestry Law. This task has been carried out in close cooperation and partnership with GoL institutions, including MAF and its Department of Forest (DoF) in particular, the Ministry of Industry and Commerce (MoIC), Ministry of Planning and Investment (MPI), Ministry of Natural Resources and Environment (MoNRE), development partners including the WBG’s International Finance Corporation (IFC), and others active in the sector as well as private actors. A series of quantitative and qualitative assessments, technical background reports and policy dialogues conducted under this task are synthesized in this report. Appendix C details the approach and methodology taken in this task. The various assessments and other outputs are available separately and include the following: i. Retrospective of the Forest Sector in Lao PDR ii. Sustainable Forest Management in Lao PDR iii. Economics of Sustainable Forest Management in Lao PDR iv. Certified Forests and Wood Products in Lao PDR v.  egulatory Framework and Policy Support for SFM, Certification, Timber Legality and Public- R Private-People Partnerships in Lao PDR vi. Public-Private-People Partnerships for Forest Restoration in Lao PDR vii. Various policy notes 1.3 Structure of this Report 13 This report is structured into four chapters, starting with this introduction as Chapter 1. Chapter 2 presents a short history of the forest sector in Lao PDR and includes forest sector characteristics; important policy developments, and economic contributions to the economy, jobs and livelihoods. Chapter 3 assesses the potential for SFM in Lao PDR including (i) certification throughout the supply chain; (ii) legal timber assurance; (ii) forest restoration; (iii) access to new, growing, and often innovative markets for “good wood”; (iv) potential to build partnerships between people, public, and private sectors; and (v) economic and financial assessments for key SFM models with expansion potential. Chapter 3 concludes with a summary of key recommendations for building incentives (including policies and markets), institutions, information and investments that can help Lao PDR transform the sector. Recommended actions are described in detail in Appendix B. 5 2 Characteristics of the Forest Sector in Lao PDR 2.1 Trends in the forest sector in Lao PDR 14 About 67 percent of Lao PDR’s population is rural (GoL Population and Housing Census 2015) and depends on forests and forest products to support various needs; over 39 percent of rural family income derives from NTFPs (Foppes and Samontri 2010). In 2010, the total combined NTFP income for the rural population was estimated at US$510 million per year, representing approximately 9 percent of GDP that year (Foppes and Samontri 2010). The economic value of subsistence consumption of NTFPs to households has been estimated at US$489 per year and at US$204 per household per year for cash income. The poor are the most vulnerable to environmental change and particularly to forest loss due to ’reliance on forests’ provision of environmental services. 15 Lao forests are also important to mitigate risks from floods, fires, droughts, storm-related damage and erosion. These risks threaten upstream forests and watersheds and downstream infrastructure, investments and assets, which can further impact economic development, food security and livelihoods. Climate risks are amplifying these challenges. A preliminary financial risk assessment estimated annual economic losses for Lao PDR due to natural disasters as equivalent to 0.7 percent of GDP (ASEAN 2012). Lao PDR’s forests provide wood for domestic and export markets, subsistence and customary use for construction, fuelwood and NTFPs including for food and medicine, and significant ecosystem services including habitat for flora and fauna, eco-tourism services, carbon storage, soil and water protection, hydropower and other infrastructure investments, as well as spiritual places for indigenous people and religious groups (Table 1). TABLE 1: ENVIRONMENTAL SERVICES FROM FORESTS IN LAO PDR Natural Forests Planted Forests Trees Outside Forests Function Primary Modified Degraded Native Exotic Native & Exotic Biodiversity High Moderate Low Moderate Low High Soil and Water High Moderate Low Moderate Moderate Moderate Carbon and CO2-e High Moderate Low High High High Spiritual/Customary High Moderate Low Low Low Low Wood and Fiber Low Moderate Low High High High NTFPs Low Moderate Low Moderate Low High Sustainable Livelihoods Low Low Low High Moderate High Eco Tourism Low Low Low Low Low Low Climate and Disaster Risk Reduction High Moderate Low Moderate Moderate Moderate 6 Characteristics of the Forest Sector in Lao PDR 2.1.1 Forest Cover Trends 16 Among mainland Southeast Asian countries, Lao PDR has the highest proportion of land area in natural forest cover, which is an asset for driving green growth. The 13.7 million ha of natural forest in Lao PDR are composed mainly of mixed deciduous evergreen and dry dipterocarp types, plus an additional 6.3 million ha of bamboo and regenerating vegetation. The forests and their biodiversity have been threatened and degraded with unsustainable management and areas converted for infrastructure (i.e. “conversion forests”) being the largest source of timber, which has been enabled by conflicting, discretionary, or ambiguous regulations. Based on the GoL’s Fifth National Report to the UN Convention on Biological Diversity, deforestation has denuded large areas of Lao PDR since the 1940s, when forest covered over 70 percent of the country’s land area. By the 1990s, forest cover had shrunk to less than 40 percent (MoNRE, 2016). The GoL started its first national forest inventory in 1982 and continues on a 10-year basis. Since 2010, it has shifted to a five-year basis to measure the implementation results of the NSEDP, as well as providing a baseline for the next government planning cycle. Based on the inventories, ‘Current Forest’ cover in Lao PDR declined from 60.9 percent in 2000 to 60.2 percent in 2005, 59.3 percent in 2010, and 58 percent in 20155 (Figure 2). FIGURE 2: FOREST COVER CHANGE IN LAO PDR 2000-2015 70% 61% 60% 59% 58% 60% 50% 40% 30% 2000 2005 2010 2015 Source National Forest Inventory, MAF Forest Inventory and Planning Department (FIPD) 2018. 17 Forest losses during 2005 to 2015 primarily occurred in forests outside the three official Forest Categories (3FCs)6 in village forests. Due to lack of clear ownership and management systems, and their proximity to residential areas; these forests are subject to open access and clearance for expansion of crop production, road construction and logging.7 Across the 3FCs, Production Forest Areas (PFAs) have lost 4.2 percent of their forest cover, Protection Forest Areas (PtFAs) 3.3 percent, and Conservation Forest Areas (CFAs, also referred to as protected areas) 1.8 percent, for a total of 318,000 ha. On average, official Current Forest experienced a decline of -0.36 percent per year (Table 2). 5 Between 1982 and 2010, the national forest inventory was carried out four times using satellite imagery ALOS/AVNIR-2 in 52,000 sampling plots of 100x100 meters throughout the country. This method does not deliver high quality processing, so in the 2015 inventory, DoF used Rapid Eye, which delivered more detailed results that closely match the ground inventory (ground truth) resulting in 58 percent forest cover. 6  See appendix A for designations and definitions of forests in Lao PDR. 7  Forthcoming: National REDD+ Strategy, GoL 2019. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 7 Dense forest with a canopy cover of over 70 percent decreased from 29.1 to 8.3 percent of total forest area, while open forest (<40 percent canopy cover) increased from 16.3 to 28.9 percent. At the same time large neighboring forest areas (>1000 ha) decreased from 88 to 52 percent of the total forest area during 2010 to 2015. TABLE 2: FOREST LOSS FROM 2005 TO 2015 Forest loss Hectares of forest Hectares of forest Category cover in 2005 cover in 2015 Hectares Percent change Production Forest Areas 2,237,000 2,142,000 -95,000 -4.2% Protection Forests 4,779,000 4,619,000 -160,000 -3.3% Conservation Forests (protected areas) 3,532,000 3,470,000 -62,000 -1.8% Sub-total of the three forest categories 10,548,000 10,230,000 -318,000 -3.0% Other forests outside the 3FCs 3,328,000 3,139,000 -189,000 -5.7% Overall total 13,875,000 13,369,000 -506,000 -3.6% Source MAF Forest Inventory and Planning Department (FIPD), 2018 18 Forest quality has also deteriorated. Forest fragmentation has increased, with small forest parcels (less than 10 ha) rising from 0.9 to 6.7 percent of the total forest area between 1992 and 2005. Large forest parcels (larger than 1,000 ha) decreased in proportion from 88 percent in 1992 to 54 percent in 2015. An estimated 60 to 80 percent of the intact forests were already degraded by 2015. Regenerating vegetation, which consists of bamboo and fallow land for shifting cultivation, decreased by an average annual rate of 4,500 hectares between 2000 to 2015. 2.1.2 Production Trends 19 Trends in timber harvesting are variable but have come under increasing regulatory control. Commercial logging activities in natural forests have mostly been concentrated in central and southern areas and timber harvesting is based on a quota system for resource allocation. Conversion forests are harvested using a special quota system. Since 1991 there have been a series of Prime Minister Orders to regulate logging, most recently PMO31 (2013) temporarily banning logging in PFAs and PMO15 (2016) to strengthen inspection of timber harvesting, transport and business. 20 Since the 1990s, there have been several attempts to improve community forestry and participatory forest management with the aim of producing shared benefits. These continued until 2012 when along with harvesting in PFAs, participatory SFM ended, and the benefits derived from harvesting ceased to flow to villages. Consequently, villages sought alternative pathways to benefit sharing, which had become important for development. 21 Over 478,600 ha of plantations have been established in Lao PDR (figure 4); private enterprises on their own or with outgrowers own 67 percent, smallholders own almost 33 percent, and the state 0.3 percent (DoF 2018). Policies to promote plantations were introduced in the 1990s, resulting in quick uptake which accelerated planting in the mid-2000s, primarily of rubber. In 2012, the government placed a temporary ban on concessions for some new plantations (Prime Minister’s Order 13, PMO13), including rubber; in 2018, the ban was lifted for eucalyptus and acacia (Prime Minister’s Order 9, PMO9) and there is renewed vigor in these sub-sectors for both companies and smallholders. 8 Characteristics of the Forest Sector in Lao PDR 22 Plantation investment by companies faces technical and institutional constraints, particularly the GoL’s inability to administer requests, regulate activities, and identify suitable land. Competition for land with high-value agricultural crops remains an issue. After initially rapid uptake, the expansion of smallholder plantations has stagnated, and productivity and quality have been limited. FIGURE 3: ANNUAL PLANTATION ESTABLISHMENT, 2000-2015 40,000 30,000 h ct r s 20,000 10,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source DoF 2015 23 In 2005, the government issued the Forestry Strategy to Year 2020, which set a target of 500,000 ha of plantations established by 2020 which has almost been achieved (Figure 4). An area of 650,000 ha of severely degraded, treeless lands within PFAs has recently been identified as potentially suitable for forest plantation investment. The GoL has recognized that Public-Private-People Partnerships (PPPPs) offer a potential solution for reforestation and restoration of this large contiguous area. FIGURE 4: AREA OF PLANTATION SPECIES AND TARGET FOR 2020 Rubber 54% Teak 10% Eucalyptus and Acacia 13% Other species 9% Agarwood 3% New plantation required to meet 2020 target 11% Source Smith et al. 2017 PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 9 24 Certification of legal and sustainable harvesting and trade has been limited mostly to externally funded, voluntary efforts in PFAs, although some private companies and smallholder groups investing in forest plantations have certified small areas for forest management and chain-of- custody. Certification has not been successful among smallholders in Lao PDR, and the experience in other countries has been mixed. Certification of smallholder plantation forests for SFM through the Forest Stewardship Council (FSC) has been effective in central Vietnam where the World Bank-financed Forest Sector Development Project funded a certification process that improved smallholder plantation forest management and product differentiation and resulted in premiums ranging from 10 percent to 30 percent for certified wood (above the base case non-certified). This led to better financial returns to smallholders (Frey et al. 2018). Another study of smallholder plantation forests in central Vietnam showed that while net returns from both certified and non-certified timber products were positive, they were higher for certified than for non-certified timber production; however, when the full costs of certification were included, the benefits to smallholder growers were reduced or negative unless they were spread over a group of smallholder growers. Under current models, the viability of certification seems to be constrained by dependence on international agencies and donor support. Additionally, in recent years the price difference between the certified and non-certified wood has been narrowing, possibly discouraging farmers from pursuing certification (Maraseni et al. 2017). Sustaining group certification can be challenging (Ling et al. 2018) especially when the minimum group size required to make certification cost effective can be large; in Lao PDR, the estimated minimum group size is 3,000 members (Midgley 2016). 2.2 Contributions to the Economy and Livelihoods 2.2.1 Economic Contribution 25 Forestry revenues have historically contributed significantly to GDP. Between 1990 and 2000, the forestry sector contributed 8 percent to 9 percent of Lao PDR’s annual GDP—a figure that has been consistently underestimated. However, the sector’s contribution fell to an estimated 4 percent to 5 percent of annual GDP from 2001 to 2015 (World Bank 2017). This decline was due in part to high levels of illegal logging and forest products trade and the increasing contribution of manufacturing, mining, hydropower, and tourism to the economy. Forestry has the potential to once again be a larger part of the economy, under the emerging new policy regime characterized by good governance, policy coherence, sustainability, inclusivity and profitability. Official data shows that the share of timber royalties to total tax revenue decreased from over 19 percent in fiscal year 2001/02 to only 2 percent in 2016/17 (Figure 5). Preliminary data from MOF show revenues fell in 2018 in absolute terms. 26 A well-functioning and diversified forestry sector contributes to the economy through multiplier effects, job creation, raw materials for construction and downstream wood-processing, the provision of subsistence wood and NTFPs for customary use, and the provision of ecosystem services, which make the actual GDP contribution larger than from timber sales only. China (63 percent) and Vietnam (33 percent) were responsible for consumption of 96 percent of Lao PDR’s wood products exports in 2014 and the value (legal and illegal) was estimated at US$1.7 billion (World Wildlife Fund (WWF) 2015). The contribution could have been much greater if forestry royalties and fees were properly levied or collected. Illegal logging reduced the potential contribution of this significant natural resource even further. Recent figures show a total wood export volume of 659,000 cubic meters (m3) 10 Characteristics of the Forest Sector in Lao PDR FIGURE 5: TIMBER ROYALTIES AS A SHARE OF THE TOTAL TAX REVENUE (1993/94-2016/17) 20.0% 15.0% 10.0% 5.0% 0.0% 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 Fisc l r Source Bank of Lao PDR, Annual Economic Report 2017 FIGURE 6: LAO PDR WOOD EXPORTS BY IMPORTING COUNTRIES (2002-2017) 100.0% 75.0% Vietnam China Thailand 50.0% Others 25.0% 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source Food and Agriculture Organization (FAO), 2018 PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 11 in 2015 (International Tropical Timber Organization (ITTO) 2016). Annual exports declined in 2016 to 11 percent of the 2015 levels after the PMO15 ban on the export of round-wood and semi-processed products. Although this order has been strongly enforced, forests continue to be converted for other land uses. In 2017, the main destinations for export included China (68 percent) followed by Vietnam (13 percent), Japan (6 percent) and India (5 percent). China has become the main importing country over the past fifteen years (Figure 6). 27 Wood product exports from Lao PDR have historically been dominated by unprocessed and semi- processed products (Figure 7). The export of higher value wood products such as high-quality furniture has room to grow and create jobs in the process. These exports only accounted for between 1 and 3 percent of the total value in 2017. Factors obstructing higher value wood processing and exports include the decreasing supply of raw materials, limited access to finance, inadequate downstream processing, poorly skilled workers, and lack of modern technology. Many attempts have been made to regulate and develop the wood processing sector. Downsizing of the sector has been occurring since 2005 in response to reduced wood supply following logging bans introduced by the GoL, and industry assessments by MoIC which developed a set of standards for the sector in 2007. In addition, forest-based industries shrank from over 2,100 facilities in 2006 to less than 1,150 in 2018, largely in response to low wood supply and the large number of unregistered and illegal operators being closed. At the end of 2016, there were around 1,300 wood processing facilities, directly employing more than 25,000 people in Lao PDR8 (Table 3). The wood processing sector remains dominated by furniture manufacturing (51 percent) and wood processing facilities (44 percent), with fewer veneer producers (2 percent) and sawmills (3 percent). It is envisaged that new investment, technological upgrading, upskilling staff and redesigning forest products will result in more efficient processing, improved recovery rates and a transition to higher value end products. FIGURE 7: WOOD PRODUCTS EXPORTED BY LAO PDR (2002-2017) 100.00% 75.00% Sawn wood 50.00% Squared wood 25.00% 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source Food and Agriculture Organization 2018 8  2018. Forest Sector Indicator Survey (FSIS) 12 Characteristics of the Forest Sector in Lao PDR 28 Current wood industry operating capacity is difficult to estimate due to unreliable and inconsistently reported data. In 2009 annual wood processing capacity was estimated at 3 million to 3.4 million m3 per year, with industry recovery rates estimated at 40 to 50 percent on average from logs to sawn timber (European Forest Institute 2012) which is about 10% lower than other countries. Recovery rates from sawn timber to finished goods were estimated to be 70 to 85 percent, resulting in an average 40 percent recovery from raw material to finished goods. Recoveries could be improved with modern equipment and properly trained operators. 29 The forest industry remains dominated by individuals and micro-, small- and medium-sized enterprises (MSMEs). While they are an important source of employment, these entities contribution to the sector remains poorly understood since they largely operate outside the formal sector despite some initiatives aimed at improving and formalizing these businesses. Recent policies focus on large export- oriented manufacturers. TABLE 3: TYPE AND SIZE OF WOOD PROCESSING INDUSTRIES IN LAO PDR (2016) Type of industries Large Middle Small Total Saw mills 28 11 - 39 Wood processing factories 264 201 114 579 Veneer 19 9 1 29 Furniture 18 170 490 678 Total 329 391 589 1325 Source FSIS 2018 30 In the agriculture and forestry sector, commercial industrial plantation forests and wood processing are the largest areas for foreign investment and have increased significantly in recent decades (Tong 2009). Increased investment in the wood and wood products industries and better integration into regional and global markets are seen as ways to increase technical and managerial capacity in Lao PDR through technology and knowledge transfer.9 However, lack of investment by existing operators or new entrants remains an issue in the secondary wood manufacturing industry (Figure 8). 31 Wood supply is an ongoing constraint and has been unpredictable since the ban on timber harvesting in PFAs (PMO31). Most sawmills and factories survive on unsustainable sources of wood salvaged from conversion forests or the auction of confiscated illegal logs. The contribution of plantations has been limited, although it is expected to increase in the future as resources mature. The current logging and export bans are providing an opportunity to evaluate the raw material supply and value chains and to revise policies and encourage private investors. 9  In July 2018, Sun Paper Holding Lao PDR completed the construction of the first pulp factory in Lao PDR at an estimated cost of US$43 million. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 13 DOMESTIC AND FOREIGN INVESTMENT IN WOOD PROCESSING INDUSTRY FIGURE 8:  APPROVED BY MPI 500,000 400,000 Thous nds USD 300,000 100,000 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1998 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014 Y r Source FSIS 2018 32 Intensively managed, fast-growing and short rotation industrial plantation forests, particularly if associated with agroforestry systems, can provide excellent opportunities for employment in wood production, processing, and manufacturing (FAO 2018). The forest sector provides a variety of jobs including in the government sector in administration, management, research and enforcement; in the primary sector in nurseries, tree planting, harvesting, log extraction, trading, transportation and processing, with rural people the main beneficiaries; and in the manufacturing sector in wood processing industry, product manufacture, wholesale and retail. According to the 2015 Population and Housing Census, there are 2.5 million people employed in agriculture, forestry and fishing industry, of which 5,253 are employed in forestry and logging industries. In 2016, an estimated 25,000 people were employed in the wood manufacturing sector (Table 4), up from 22,000 in 2005. With continual growth, the forest sector could fuel sustainable social and economic development and employment generation, especially in rural areas. It is possible that a renewed forest sector, supported with stronger and facilitated private investment in plantations, could generate approximately 7,500 full-time direct jobs per 100,000 ha. (The global average for developing economies is one job per 10 ha). An additional 100,000 or more jobs could be supported throughout the value chain. TABLE 4: JOBS IN DOWNSTREAM WOOD PROCESSING INDUSTRIES (2016) Region Sawmills Wood processing Veneer Furniture Total Northern 454 3,104 269 1,059 4,886 Central 207 10,860 1,062 4,243 16,372 Southern 136 2,574 416 885 4,011 Total 797 16,538 1,747 6,187 25,269 Source FSIS 2018 and data provided by Department of Industry and Handicraft, MOIC as of June 2016. 14 Characteristics of the Forest Sector in Lao PDR 2.2.3 Forest and Livelihoods 33 Since about 73 percent of rural Lao people depend on forests and agriculture for livelihoods, optimal utilization and management of forest resources are important to help eradicate poverty. The prevailing strengths and weaknesses of the forestry sector are listed in Table 5. NTFPs are a main source of food, income, medicine, and other subsistence items for those living within and close to forest areas (Sophathilath 2009). Wild animals and plant species such as mushrooms, bamboo shoots, wild fruits, vegetables, herbs, spices, and honey, for instance, provide a wide range of products for consumption and harvesting occurs in controlled use zones. Commercial harvesting of NTFPs is also permitted in PFAs based on annual quotas. NTFP traders play an important role in providing access to markets and trading is regulated from harvesting to the point of consumption or export (Chokkalingam and Phanvilay 2014). 34 In 2010, the total combined NTFP income for the rural population was estimated at US$510 million, representing approximately 9 percent of GDP that year. The economic value of subsistence consumption of NTFPs to households has been estimated at US$489 per year and at US$204 per household per year for cash income. Compared to other sources of household income such as livestock sales, crop sales and labor, NTFPs contribute on average 39 percent of the total average household income. Forest degradation could reduce total cash income from NTFPs by as much as 3 percent per year (Foppes and Samontri 2010). 35 Forests are also an important source of household energy for both rural and urban populations; fuelwood accounts for an estimated 80 percent of total energy consumption in Lao PDR. Fuelwood and charcoal are often produced in rural areas and sold for urban consumption, providing another source of income. Consumption by urban dwellers has been estimated at more than 280,000 m3 per year, with a value equivalent to more than US$45 million. Efforts to enforce sustainable management of forest resources should consider the significant value of fuelwood (Sophathilath 2009). The role of forests in protecting the watersheds of strategic reservoirs and waterways important for hydropower generation undoubtedly is also critical. Lao PDR has long recognized this vital ecosystem service from forested watersheds through the designation of Protection Forests throughout the country. 36 Participation of local communities and their forest use rights are recognized as necessary for improved forest management and protection. Local people have important use rights in forests for household use and consumption, some limited commercial opportunities, as well as for important public services, such as the use of timber for schools and village facilities. Customary rights that allow for the use of non-prohibited species of plants and animals are also recognized. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 15 TABLE 5: SUMMARY OF STRENGTHS AND WEAKNESSES OF THE FORESTRY SECTOR IN LAO PDR Strengths Weaknesses Lao PDR has the highest proportion of its land area in natural Prior focus on the harvesting of the most valuable species and forest cover among the countries in mainland Southeast Asia. larger sized trees from PFAs has reduced standing volumes and resulted in future production being increasingly dependent on lesser known species and smaller log sizes and grades. This presents issues for wood processing, end-use potential, and realizing market value. Forests have not been fully valued. Salvage logging was not subject to a forest inventory or sufficient accountability which led to clear-cut logs from unauthorized areas. Significant sustainable business potential for Lao PDR’s forest. Delays in providing legal, long-term access to large contiguous High land expectation value (LEV) and internal rate of return areas of severely degraded forest land within and associated land (IRR) for planted forest and natural forest are potentially among concession agreements have been serious constraints to emerging the highest in the world if best management practices are used forest restoration and reforestation efforts, and to attract and scale and timber prices remain high. up plantation investment. Significant contribution of the forestry sector to GDP (through Limited extension support and investment in research and export) and rural livelihoods (food, energy, employment and development (R&D), training in forest restoration in different forest domestic use). Historic interest in wood products processing that types, indigenous forest silviculture, improved germplasm for could be reinvigorated with the right mechanisms. planted forest species and monitoring growth and yield. Opportunity for green growth, jobs, livelihoods, climate change Unclear concession licensing and industry regulation. Low-skilled benefits, based on ’investment in natural capital (the forest) and labor outdated and inefficient equipment, poor designs and a lack related human capital. of investment in forest industries processing and manufacturing plants have resulted in low volume recovery and poor-quality forest products more suited to the domestic market than international markets. Product export lists constrain industry innovation. TLAS plus on-going certification of both forest management There is low availability of legal wood. There are no organizations and chain-of-custody will allow Lao PDR to meet international with chain-of-custody (CoC) certification for natural timber in Lao demand for sustainable, legal timber. PDR and certification of sustainable forest management is limited to very few plantation companies. Challenges remain in developing and maintaining the institutional capacity and resources to develop and implement a TLAS across the whole forest industry sector and promoting the benefits of sector wide certification. Progress in reforming the forestry sector. Enforcement of the A significant body of legislation needs to be reviewed, revised, logging and timber export bans provides space for major policy implemented and enforced to bring reforms into effect. Forestry reforms to continue to be developed in order to revitalize the royalties and fees are not properly levied or collected. forestry sector. Inefficient revenue management leads to evasion of fees, taxes and royalties Large areas of degraded or understocked forest land (around Insufficient inter-sectoral coordination on spatial planning and 650,000 ha) that could be allocated to private sector plantation associated violation of production, protection and conservation investment, with potentially high rates of return. forest area boundaries. Village forestry can play a substantive role in achieving As a consequence of the logging ban, there have been fewer government objectives. Current form of participatory SFM benefits to VCFs that support village livelihood development, engages more with local villagers in all planning and restoration of forests after harvesting, and the provision of implementation activities, leading to village forest management employment. plans 17 3 The Potential of Sustainable Forest Management in Lao PDR 37 The GoL’s emerging vision of a new green forest economy presents numerous opportunities for Lao PDR to secure greener and more resilient growth, sustainable livelihoods and jobs, and secure ecosystem services through the implementation of SFM. SFM places forests in the wider context of sustainable landscapes, people and their livelihoods. Partners including the WBG have aligned their support behind the concept of SFM.10 SFM builds on the foundation of (i) Lao PDR’s new and emerging legal, policy, regulatory and institutional frameworks and instruments; (ii) good forest governance; (iii) knowledge, extension, R&D; (iv) social and environmental sciences; (v) market intelligence; (vi) participatory forestry, and ideally (vii) legal timber certified throughout the supply chain. 3.1 Concept of Sustainable Forest Management 38 The concept of SFM applies across all forests and all forest categories, and across landscapes in all geographic and climatic regions and ecological zones in Lao PDR. The social, cultural, environmental services, and economic sustainability effects should be considered through the participatory process for SFM. 39 SFM can be defined as a holistic approach to using and conserving forests to maintain and enhance multiple forest values through human interventions. SFM is a dynamic and evolving concept that aims to maintain and enhance the economic, social and environmental values of all types of forests for the benefit of present and future generations. The economic dimension refers to the generation of socioeconomic benefits through economically viable forest utilization and management; the social dimension acknowledges that forest utilization, protection and management should equitably and inclusively benefit local populations and contribute to local development; the environmental dimension recognizes that forests provide a range of functions and benefits when they are utilized and managed holistically. To achieve SFM, economic, social, and environmental objectives need to be pursued through an integrated approach that encourages participation by local communities and key stakeholder groups and that considers and balances each dimension. 10 The World Bank, with support from the International Development Association and Forest Investment Program, is financing the GoL’s Scaling-Up Participatory Sustainable Forest Management project, which supports 41 of 51 PFAs nationwide, covering 2.3 million ha. 18 The Potential of Sustainable Forest Management in Lao PDR 40 SFM also requires a legislative and institutional framework for transparent and accountable governance to supports its implementation. At the national level, strategic planning documents provide the framework for priorities for investment in SFM and forest landscapes, including: the NSEDP; the localization of Sustainable Development Goals (SDGs); the 2030 National Green Growth Strategy; Forestry Strategy to 2020; the National REDD+ Strategy 2025 (being finalized in 2019); the NDC (2015) and National Adaptation Program of Action for the UNFCCC; and the National Biodiversity Strategy and Action Plan (NBSAP). These strategic documents provide key objectives and priorities that are increasingly being reflected in new policies and laws in Lao PDR. 3.2 Building the Foundation for Sustainable Forest Management 3.2.1 Participatory Sustainable Forest Management Village Forest Management and FOMACOP 41 Various models of participatory forest management have been implemented in PFAs since 1995. The concept was tested by MAF’s Forest Management and Conservation Project (FOMACOP 1996- 2001).11 Under this model, villagers were given extensive rights to manage State forests within their village territory under forest management plans prepared by the village in collaboration with district and provincial authorities. Responsibilities in resource inventory, management planning, implementation, monitoring and evaluation were delegated by the State to a group of villagers that organized themselves into Village Forest Associations (VFA). The VFA signed an agreement with the Provincial Agriculture and Forestry Office (PAFO) to manage the production forests within proximity of their village. Revenues from forest management activities, after payment of government royalties and taxes and business costs, went to the VFA for village development activities. Net benefits were accrued by the VFA on behalf of the village. Logs were sold on a standing stumpage basis and were marketed to local wood industries and sold by Provincial authorities. 42 After a few years of implementation, the GoL reconsidered giving rights to villagers to legally sell timber from “national production forests.” In 2002-2003 the government firmed up its policy for turning the national production forests into PFAs and decided that PFAs were to be managed by local forestry offices with village participation and oversight from DoF. Transitioning to Participatory SFM 43 The Sustainable Forestry for Rural Development Project (SUFORD 2004-2012) financed government support for participatory SFM, which continues today through a subsequent series of investment operations. The legislative framework for participatory SFM included specific details concerning the roles and responsibilities of all stakeholders at all administrative levels and laid out a clear percentage- based breakdown for the sharing of net revenues from timber sales (Presidential Decree No. 001, 2012). Forest management plans were developed with participation of local villagers, with the expectation of sharing benefits from timber revenues. Timber harvesting continued until 2011. 11  Supported by the World Bank and Finland. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 19 Implications of the Logging Ban 44 The 2013 introduction of the temporary logging ban (PMO31) in PFAs has hampered the ability to implement participatory forest management plans, except forest restoration work. These plans created expectations regarding benefit sharing that have not been realized. The economic viability of SFM helps maintain incentives to continue to implement SFM and avoid illegal felling. 45 After the 2013 introduction of the logging ban in PFAs (PMO31), local communities lost control over forest management and found alternative activities to generate livelihood benefits from forests. These activities included a return to arrangements with local companies to turn the degraded forests into commercial plantations and also the illegal extraction of resources from national CFAs and PtFAs. Although the logging ban continued into 2019, illegal activities have been curtailed. However, successive logging for valuable hardwood species from PFAs and the lack of post-harvest forest management (assisted natural regeneration, silviculture, and protection) have resulted in poor regeneration. The residual forest stands now comprise mostly lesser known species (LKS) and smaller trees for which there is lower demand and weak domestic technical capacity to process. 46 The relatively effective implementation of the logging ban in PFAs also diminished opportunities for villagers to participate in forest management, except for in the revision of forest management plans (required for the lifting of the ban), forest restoration through paid work for assisted natural regeneration, certification training in selected areas, and forest protection. Potential revenue streams have been deferred and villagers’ incentives for PSFM have been reduced, at least for the time being. The resulting lack of ongoing forest management activities also caused a loss of institutional knowledge, capacity and experience, and a decline in motivation through lost revenue among relevant government agencies. Nevertheless, a significant body of information exists and can be used to revive economically viable participatory SFM in Lao PDR if and when conditions are acceptable for a partial lift of the ban in areas that are ready, possibly including villages trained and ready to implement participatory SFM. Strategic Planning and Regulatory Framework for Village Forest Management 47 The National Forestry Strategy to the Year 2020 highlights the need to enhance “village-based natural resource management for poverty eradication” as a key policy direction. Achieving this goal, according to the strategy, requires the establishment of “a clear legal framework covering village land and forest resources that enable effective community based natural resource management including participatory land use planning at village level reflecting actual land and forest use.” 48 Community forestry is a key aspect of the country’s rural development strategy, driven by the idea that securing local management and user rights over local forests facilitates long-term poverty reduction and environmental conservation. However, this vision has not yet been realized. Various projects have trialed village development plans, village land use plans, and village forest management plans with mixed results. Recently, new models have been proposed, and an expected change in the pending (as of April 2019) Forestry Law is anticipated to give the go-ahead for village forest management to proceed. An April 2019 draft includes a clause that for the first time allows village forestry for commercial use. Successful village forest management will also require secure, clear and well understood land use rights for villages. 20 The Potential of Sustainable Forest Management in Lao PDR Timber Legality and Certification of Forest Management and 3.2.2  Chain-of-Custody Timber Legality 49 Lao PDR has developed an extensive legal framework for forest management and timber supply chains, with strengths and weaknesses. One strength is the ongoing shift to legal timber and certified supply chains that will help boost sustainability and sector performance. The framework is extensive but also complex and sometimes inconsistent, and it incorporates substantial regulatory costs and fees. Compliance is not comprehensive, and enforcement has been limited due to weak capacity and resources. 50 Increasingly, legislative measures such as laws detailing the standards, licensing and reporting of legality for wood imports exist in many timber-consuming countries, such as the European Union (EU), United States (U.S.), Australia and Switzerland, and approaches are emerging in other countries including China and Vietnam. The GoL is currently negotiating a voluntary partnership agreement (VPA) with the EU. VPAs are legally binding, bilateral trade agreements that aim to address illegal logging by improving forest governance and promoting legal trade in timber. A VPA is underpinned by a TLAS, a country-specific system based on the existing regulatory control mechanisms and legislative framework of the partner country. The TLAS aims to identify, monitor and license legally produced timber to ensure that only legal timber is exported. Lao PDR has decided that its VPA will cover all sources of timber including PFAs, plantation timber, timber salvaged from conversion areas and imported timber, all exports and the domestic market. The Forestry Law Enforcement Governance and Trade (FLEGT)- VPA negotiating process is actively contributing to the dynamic policy environment for forests and forest products and driving the development of the TLAS. The extensive scope of the negotiations related to the EU-Lao PDR VPA suggests that the VPA will intersect with reforms across many sectors, thereby providing synergistic opportunities for collaboration and support. Under the advisory services in this report, a roadmap to support the development of a TLAS was developed and a Ministerial Instruction committing the government to this process was issued. 51 Timber legality is also the first and mandatory step toward forest management and chain-of-custody certification (Figure 9). The Forest Stewardship Council (FSC) and Program for the Endorsement of Forest Certification (PEFC) have revised their legality standards to ensure harmonization with the EU Timber Regulation, the U.S. Lacey Act, the Australian Illegal Prohibition Act, and the EU-FLEGT Action Plan. Certification 52 In addition to timber legality, major international markets such as the EU, the U.S. and other countries with green policies increasingly demand proof of sustainability of the wood products that they import by way of forest management and chain-of-custody certification across the supply chain. These combined international markets total over three times China’s annual wood imports, although this could change going forward: there is emerging interest in certified wood within Asia as China, Vietnam, and Thailand establish national standards for SFM to meet import requirements of their trading partners for legal and sustainable wood. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 21 FIGURE 9: BUILDING BLOCKS TO CERTIFICATION Ch in of Custod C rtific tion For st M n m nt C rtific tion Timb r L lit Assur nc 53 Forest certification is a market-based mechanism that aims to promote and support SFM through preferential purchasing. In broad terms, forest certification is a system for verifying the sustainability of managed forests and branding products from these forests for markets. Products from forests certified as sustainably managed can, through chain-of-custody certification, move into production streams with labelling that allows consumers to know that the product they are purchasing came from a certified sustainably managed forest. 54 Third-party forest management certification is generally based on field evaluation of forest management practices conducted by an accredited organization applying internationally developed principles and criteria with locally developed and approved standards. Certification of the chain-of-custody is a process undertaken to ensure accurate tracking of products from the forest to the consumer. Voluntary, third-party forest management and chain-of-custody certification and legality verification and monitoring are effective as tools to prove sustainability and legality in forest management, forest products processing and manufacturing, and forest products trade internationally, including in Association of Southeast Asian Nations (ASEAN) countries. 55 Two certification standards currently dominate the market—Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC), although other standards are emerging: >>  orest management certification is a tool to demonstrate sustainable, or at least responsible, F forest management, mitigation of environmental impacts and demonstration of social accountability. >>  hain-of-custody certification is a tool to monitor compliance with supply laws, regulations and C standards as proof of legality and to separate legal wood from non-certified and non-controlled forest products production and trade. >>  ontrolled wood or controlled source certification is granted based on a risk assessment that C demonstrates that the supply of wood is from acceptable sources. 22 The Potential of Sustainable Forest Management in Lao PDR 56 In the transition from exploitative and unsustainable forest management toward more integrated and sustainable management of PFAs, the GoL is working with stakeholder groups to reformulate policy, legal and regulatory frameworks, and to implement principles, standards, criteria and indicators with the aim of attaining and maintaining SFM. Forest management and chain-of-custody certification and legality verification are nascent in Lao PDR as the Government builds an enabling policy, legal, and regulatory framework and identifies technical, administrative and cost barriers to be alleviated, particularly for smallholders. Experience in Lao PDR with certification Forest Management and Controlled Wood Certification 57 Lao PDR is making steady progress on forest management, reaching nearly 110,000 ha, which has created a strong foundation for scaling up certification. In January 2019, a certification process was undertaken (FSC FM 85,000 ha; FSC CW 90,000 ha) in four PFAs supported by SUFORD-Scaling Up (SUFORD-SU) through a compliance audit by Nature Economy and People Connected (NEPCon, formerly Rainforest Alliance). This resulted in 39,925 ha certified for forest management, which brought the area certified for forest management to 50,874 ha, including the already certified area of 10,949 ha in 2018.12 Adding the 57,534 ha for controlled wood, a grand total of 108,408 ha has been certified as of January 2019. Going forward, it will be easier for the GoL to expand the area certified.13 14 58 MAF is preparing a policy to establish an effective and transparent third-party certification procedure for PFAs that includes group certification. It is anticipated that the revised Forestry Law also will have an article to encourage PFA managers and forest industries to use FM and CoC certification for proof of sustainability. The DoF Group Certificate expired at the end of 2015 and re-assessment was conducted in May 2016 and again in October 2018 and January 2019. 59 MAF/DoF, the private sector and donors have demonstrated interest to develop a national certification system, independent national accreditation body, independent engagement of local stakeholders and tailored to the national context. This results in national ownership of SFM and the capacity to monitor and improve forest products trade. If the system is proven robust and is recognized by PEFC, international market recognition and acceptance can be achieved. Vietnam is well advanced in establishing a new national certification system which presents potential lessons for Lao PDR. 60 Plantation companies are generally supportive of forest management certification because it allows them to both meet their priority of sustaining a return on investment and meeting commitments to shareholders to demonstrate corporate social and environmental responsibility. There have been three private corporate plantation certification initiatives in Lao PDR, and over 7,000 ha of planted forest has been certified. 12 Certified in Jan 2018 for another five years: 10,949 ha for rattan in two villages in Bolikhan District, Bolikhamxay. Note that the FM and CW certificates of 108,408 ha are both Group Certificates, so DoF can add other FMUs and their forest areas to the FSC certified 13  group, as much as DoF can handle without putting the certificate at risk, i.e. by including unqualified FMUs. In Lao PDR, certification in PFAs commenced in 2004 with the formation of two provincial forest management groups which obtained FSC certificates in 14  2004 and 2005. The two provincial Group Certificates were combined into a single Department of Forestry (DoF) Group Certificate in 2007 (until 2010). The total area initially covered in the scope of FSC certification was 50,788 ha. The DoF Group of Forest Management Units (FMUs) was re-assessed in 2010, resulting in an extension of its FSC certificate to 2015. During the certification period an FMU and six Village Forestry FMUs were included. The total area covered was 132,162 ha. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 23 61 There are no certified smallholder plantations in Lao PDR. Lao PDR farmers have primarily planted teak in the north with support from government programs, and out-grower eucalyptus in central provinces supported by third-party investment. Despite previous donor-driven pilot projects, there are currently no certified independent farmer-owned or smallholder timber plantations in Lao PDR. The Luang Prabang Teak Plantation (LPTP) obtained FSC certification but let it lapse because the expense, technical standards, administrative complexity and lack of a premium market price did not warrant the extra cost of retaining the certification. 62 There have been some efforts to establish group certification to improve the supply of certified wood from smallholder plantation forests. Group certification in Lao PDR has been trialed for teak plantations with the support of the Forest Trust and the LPTP, and more recently for bamboo and rattan with the support of WWF. Group certification is intended to ameliorate significant barriers to certification by individuals, such as (i) the limited financial income of small forest owners, (ii) periodicity of management activities and cashflow, and (iii) limited access to information and knowledge. 63 Under the system of group certification, a group entity represents the individual forest owners, with the overall responsibility for ensuring conformity of forest management in the certified area. Individual forest owners who join the group on a voluntary basis are in turn required to comply with all requirements, to provide full cooperation and assistance in the implementation of forest certification, and to implement relevant corrective and preventive actions established by the group entity. Efforts for group certification have had limited success due to farmers being unwilling to commit to membership while other cheaper and easier avenues for wood sales were available (Ling 2014; Smith, Ling and Boer 2017; Ling et al. 2018). Certification for smallholders has been costly, complex and discriminatory against smaller growers (Midgley 2016). Chain-of-Custody Certification 64 To maximize the benefits of certification, both forests and wood industries should be certified. Partnerships between managers and owners of certified forests and certified business can result in shared value and sustainability of business. While there is currently no legal timber harvesting in PFAs, the government aims to strengthen the implementation of relevant regulations for forest management, timber businesses, harvesting, and processing since SFM will create opportunities to recommence harvesting from the areas. Together with forest management certification, chain-of-custody certification will better enable these products to be exported. Additionally, there is a need to address the supply chain control of wood products from harvesting in conversion areas and from stockpiles of wood held by individual mills, as well as from a national stockpile of primarily confiscated timber. Additionally, natural wood continues to flow from timber in conversion forest areas and this overwhelmingly constitutes the highest wood production in Lao PDR, including in the 2017/18 logging quotas. There is some wood harvested from privately owned native trees. At present, there are no organizations with chain-of-custody certification for natural timber in Lao PDR, but the GoL is developing guidelines on chain-of-custody and processes for timber sales through auctions. 24 The Potential of Sustainable Forest Management in Lao PDR 65 The plantation wood industry has advanced chain-of-custody (CoC) certification through company-driven efforts. This process has been most successful for companies with integrated plantation processing businesses that source wood from their own plantations. There are currently two private corporate plantation companies with FSC CoC certification. However, in some cases private corporate plantation companies may also source wood from smallholder outgrowers, smallholder organizations (groups) or individuals which typically have limited supply chain control. Where there is a direct relationship between grower and purchaser such as grower to local sawmill to manufacturer, CoC could be encouraged through improved value chains and benefits distribution. However, smallholders continue to face barriers in SFM certification, which in turn limits their ability to achieve CoC certification unless specific provisions are made for them. 66 Smallholder plantations are a major source of wood for timber supply chains in Lao PDR and involve a potentially extensive network of actors in harvesting, transport, processing and trade. Many micro, small, medium and large timber enterprises utilize teak and, in some cases, smallholder- grown eucalyptus. One company includes teak in their listed species for CoC certification. To enable this, it has a small area of farmer-grown teak under its FM certification. Otherwise, there are no areas of independent smallholder plantation that are FM certified and able to supply CoC certified supply chains. The Role of Timber Legality Assurance in Certification 67 Laws and regulations for timber legality, forest management and chain-of-custody are a basic requirement for certification. On its own, compliance with legislation may not achieve SFM. Certification provides both a supporting framework for SFM and potentially opens market opportunities for industry. However, timber legality, forest management certification, or CoC certification on their own are not enough; they are complementary and mutually supporting. 68 Lao PDR is now working toward institutionalizing and implementing the TLAS, which will form the essential basis for certification. Existing processes and experiences with forest management and CoC certification are being reinvigorated to develop a new and more supportive framework. Industry partners with current experience on attaining and maintaining certification can share lessons, including through the support of donor partners. To be useful in the long term, however, certification will need to be self-supporting, with partnerships that can share the costs and benefits (e.g. forest industry and grower partnerships). 69 The certification process could be widely promoted at the outset as a means to attract investors that share common sustainability standards and goals. Value addition will not occur, and international market opportunities will be missed unless certification occurs throughout the supply chain. If they have confidence that forest management certification is occurring, industry partners can drive chain- of-custody. Timber from salvage logging of conversion forests is not from sustainable management of a forest resources, so it is ineligible for FM or CoC certification (Figure 10). However, if salvage logging of conversion forests is authorized and managed in a responsible manner and monitored for compliance with best practices (forest inventory, demarcation of boundaries and harvesting, transporting and marketing), then this timber would comply with legality criteria and be eligible for a TLAS license. 70 Effective partnerships for certification require the development or refinement of new procedures. For example, best-practice models for tendering contracts and making agreements for wood supply include a requirement for companies to demonstrate their credentials with respect to certification and market access (Figure 11). PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 25 FIGURE 10: FORMER PROCESS (PRE-PSFM) MANAGEMENT IN PFAS AND CONVERSION AREAS PFA — no p rticip tion, Gov rnm nt Auction An proc ssors All m rk ts nor c rtific tion Lo L ndin 2 – No p rticip tion – No wood suppl s curit – Low inv stm nt – Disp rs d m rk ts – Poor for st m n m nt to comp ni s – Low qu lit products – Low pric – Unsust in bl h rv stin – Unpr dict bl r v nu – Low m rk t cc ss – Poor r put tion of L o wood – No b n fits to vill to Gov rnm nt – Vuln r bl to misus FIGURE 11: POTENTIAL PROCESS FOR CERTIFIED PSFM IN PFAS T nd r for PFA — PSFM with For st p rtn rship with R put bl proc ssors Hi h v lu m rk ts M n m nt C rtific tion lon t rm wood suppl with Ch in of Custod r m nt – P rticip tion – Wood suppl s curit – Hi h inv stm nt – Conc ntr t d m rk ts – Sust in bl for st to comp ni s – Hi h qu lit products – Hi h low pric m n m nt – Allows for lon t rm pl nnin – Stron m rk t cc ss – Good r put tion of L o wood – Pr dict bl b n fits – Pr dict bl r v nu to to vill Gov rnm nt – Supports For st D v lopm nt Fund 3.2.3 The Role of Markets15 71 Discerning importing countries, companies, financial and funding institutions, federations and associations increasingly require producers and forest products traders to prove legality and sustainability for forest product market access. In addition, evidence suggests that Chinese wood industry alliances, such as the Solid Wood Flooring Alliance and Sustainable Paper Alliance, are requiring proof of sustainability and legality of import or domestic wood supplies. Many governments are also increasingly promulgating green public procurement policies. Local governments, engineers, and architects are increasingly establishing green building standards and companies are increasingly adopting green purchasing policies to demonstrate corporate social and environmental responsibility (including in China). Lastly, development and multinational commercial banks require proof of compliance with social and environmental safeguards such as IFC Performance Standards and the Equator Principles. As these standards become increasingly common, import buyers and consumers may be less willing to pay a premium for proof of legality and sustainability. These developments present both opportunities and challenges for Lao PDR forestry sector, which needs export revenue to support SFM, including smallholders. 15  For details on the industry’s platforms, standards and principles see appendix E 26 The Potential of Sustainable Forest Management in Lao PDR 3.2.4 Renaissance in Wood Use for Green Buildings 72 Another factor driving global demand for certified, legal wood is a renaissance in the use of wood for construction. Studies by independent organizations have demonstrated that wood has outperformed steel and concrete in terms of energy use, greenhouse gases, air pollution, solid waste and ecological resource impact and that wooden buildings offer clear environmental advantages. In 2012 the World Resources Institute and the World Business Council for Sustainable Development launched a “Wood for Good” campaign that applied to all wood derived products from sustainably harvested forests. The scope included compliance with standards for traceability, legality and specific requirements for sustainable forest management. Forest management and chain-of-custody certification by the FSC and PEFC were recognized and promoted. The 2008 “WoodWorks” initiative of the Wood Products Council, which includes all major North American Wood Associations, highlights that wood can achieve sustainability objectives whether used in designing a structure to achieve green building certification, adherence to new energy or climate change legislation, or simply to set construction apart as aesthetically superior. FIGURE 12: MARKET DRIVERS FOR CERTIFIED, LEGAL TIMBER Green Public Consumers Procurement Green Building End use Standards Legality companies Financing Private Standards Procurement Support for Sustainable Forest Management through 3.3  Partnerships 73 Historically, forest management and the provision of forest products and ecosystem services in Lao PDR has relied heavily on government budgets and institutions and has been supported by external development financing. The GoL recognizes that unacceptable levels of deforestation, forest degradation and illegal harvesting and forest products trade have occurred that insufficient investment has been directed to forest restoration, reforestation and afforestation, and that forest resources were managed in ways that threatened long-term supply of forest products, ecosystem services, and associated jobs, livelihoods and economic growth. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 27 74 Successive NSEDPs have identified the private sector as the main engine of growth and the GoL has committed to fostering a transition to a private sector-led market economy with recent policy reforms to facilitate this transition. In line with this approach, the GoL has pursued an increased role of Public-Private Partnerships (PPPs) for infrastructure and rural development programs and improved performance of public services in the country. 75 The private sector can be a strong agent of change and development, particularly in emerging economies. PPPs can be used as a way for private and public sector (usually state) actors to share benefits, risks and responsibilities. A PPP is a contract between a public agency and a private sector entity (usually of medium- or long-term duration), typically awarded through competition, where the private partner performs a public function (e.g. provides infrastructure, a service to the public, or both) and is allowed to develop a propriety way to provide the infrastructure or service but also carries the risk that if it does not perform well, its payments will be affected. PPPs have typically been used for infrastructure development and service delivery. 76 Acknowledging that public and private investment are both equally important to the socioeconomic development of Lao PDR, the GoL emphasizes the importance of PPPs as a tool in the delivery of public goods, infrastructure, and services, ensuring social benefits with sustainability, transparency and accountability principles (Ministry of Planning and Investment 2018). The GoL, led by the Investment Promotion Department (IPD) of the Ministry of Planning and Investment (MPI), is developing a decree on PPPs. The initiative focuses on three main areas: (i) institutional capacity building, (ii) policy and legislation framework development, and (iii) pilots in education and healthcare. 77 However, a draft decree on PPPs, still under preparation in April 2019, has not sufficiently defined the role of people as active participants or direct beneficiaries. Rather, the draft decree views people as stakeholders for consultation to obtain consent or minimize opposition. There is, however, growing recognition of the role of people as active and necessary participants in PPPs. 78 Creating a framework for PPPPs depends on the recognition of people as legitimate partners and private companies as commercial enterprises with shareholders who expect a return on their investment, within responsible social and environmental covenants. PPPP agreements need to recognize that companies need to make profits to be able to provide benefits to their shareholders, the public sector, or to the people involved. 3.3.1 Partnerships in the Forest Sector 79 Lao PDR has developed and implemented few successful PPP projects in the forest sector. This is due to a number of compounding factors, including the absence of clear policy and strategic planning, insubstantial supporting legal and institutional frameworks, agencies’ weak capacity, and a lack of dedicated funding mechanisms to fund project development. Complex processes and cumbersome procedures implemented inconsistently across the administrative hierarchy have exacerbated the problem. 28 The Potential of Sustainable Forest Management in Lao PDR 80 In 2006, the Lao Plantation Authority was proposed to identify land suitable and available for forest plantation development in central and southern provinces to facilitate large company investment in forest plantations; provide technical, financial, and marketing support for medium-sized plantations; and to support the development of associated small- and medium-sized enterprises, such as charcoal and furniture manufacturers. Forest plantation development was identified as an effective way to reduce poverty, create jobs and assets, and provide an additional and alternative source of income for poor households. However, due to the lack of enabling legal and policy frameworks, ineffective extension service, inefficient disbursement of grant financing through the Agricultural Promotion Bank, and a lack of marketing intelligence, the initiative was not pursued by external financiers (Phimmavong et al. 2010). 81 Recently, there has been some progress on PPPs in the forestry sector PMO9 (2018), which lifts the ban on concessions for plantations of eucalyptus, acacia, teak, bamboo and native species, and has initiated access to PFA lands for private industrial plantation forests. An assessment of severely degraded forest lands in PFAs suitable for industrial plantation forests has been completed under the Government’s SUFORD-SU project. 82 Although not formally known as PPPs, there are examples of public-private, public-people and private-people partnerships in Lao PDR’s forest plantations. These models include (i) fast growing industrial plantation forests; (ii) out-grower fast-growing industrial plantation forests; and (iii) smallholder plantation forests. Where viable, these partnerships might be expanded. Fast Growing Industrial Plantations of Eucalyptus and Acacia 83 A partnership between the government and companies (figure 13) to grow eucalyptus and acacia provides opportunities for large-scale fast-growing plantations. Under this model the GoL provides the policy, legal and regulatory framework, a negotiated land concession agreement stipulating the terms of the public-private company partnership. The agreement would typically include allocation of land, the scale and scheduling of the investment and development, the land-use and crop ownership rights, social and environmental safeguards, and harvesting, wood processing and marketing rights. The company provides investment funds, technical expertise (particularly the germplasm, seedling production, tending and silviculture); new technology for harvesting and wood processing of the crop; protection or restoration of riparian reserves; and pays the GoL for use of the land. In turn, where appropriate, the company enters into agreements with local communities that live in or near the proposed plantation to provide social services, livelihood activities, employment, and in certain instances, markets for smallholder-grown wood or access for farmers to grow their agricultural crops within the plantation using agroforestry systems. Outgrower Fast-Growing Industrial Plantation Forest 84 Outgrower partnerships expand on models for government-company partnerships to increase the participation of local communities (figure 14). Under the model the GoL provides the policy, legal and regulatory framework for the formalization of smallholder land-use and crop ownership and harvesting rights, and wood processing; and monitors compliance with legal, policy and regulatory frameworks. Smallholder plantation out-growers may provide one or all of land (with secure land use rights) in close proximity to the large hubs of company plantations or near their forest industries factories, labor for the tending and silviculture, the crop/wood production, and the harvesting and transporting to the factory gate. The private company provides the germplasm and seedling production, technical support/advice in PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 29 FIGURE 13: PARTNERSHIP FOR FAST GROWING INDUSTRIAL PLANTATIONS OF EUCALYPTUS AND ACACIA – Inv stm nt funds – Emplo s/work rs – T chnic l xp rtis – Corpor t Soci l R sponsibilit – Wood proc ssin t chnolo opportuniti s – M rk t cc ss – Environm nt nd soci l s rvic s – R v nu (t x s nd f s) Multiple Local Government Company Agreements Local Communities Umbrella Partnership Agreement – L nd conc ssion – Soci l s rvic s – L nd r – Liv lihood d v lopm nt – L nd-us nd crop own rship ri hts – Emplo m nt opportuniti s – H rv stin wood proc ssin – Acc ss to pl nt tion l nd for nd m rk tin ri hts ricultur l crops (wh r ppropri t ) FIGURE 14: PARTNERSHIP FOR OUT-GROWER FAST-GROWING INDUSTRIAL PLANTATION FORESTS – Environm nt s rvic s – Revenue (taxes and fees) – Wood proc ssin t chnolo – L nd – M rk t d v lopm nt – L bour – R v nu (t x s nd f s) – Corpor t Soci l R sponsibilit opportuniti s Multiple Local Government Company Agreements Smallholders Umbrella Partnership Agreement – T chnic l nd dvic – Proc ssin nd m rk tin ri hts – Wood purch s r m nts – Emplo m nt nd incom – L nd-us , crop own rship nd h rv stin ri hts 30 The Potential of Sustainable Forest Management in Lao PDR site preparation, planting, tending, silviculture and harvesting; provision of fertilizer and other inputs; and an undertaking to purchase the wood at the going market prices on maturity. The government benefits through the receipt of revenue through taxes and fees and contributions to targets for forest cover, poverty reduction and socio-economic development. More detailed analyses of smallholder concepts, opportunities, challenges and recommended actions are included in an IFC diagnostic assessment of outgrower schemes (IFC 2017). Independent Smallholder Plantation Forests 85 Where smallholder plantation owners act independently (Figure 15), the GoL provides the policy, legal and regulatory framework for formalization of land-use and tree-ownership rights and technical advice on silviculture, harvesting and marketing. In return plantation expansion contributes to national goals for forest cover and socio-economic development through poverty reduction. The smallholder accesses the land-use right and undertakes all the preparation, planting, tending, silviculture, protection, as well as harvesting. Marketing is done by the smallholder primarily through traders. The land remains owned by the State but is made available to the smallholder through a legally recognized, consistent, and long-term land-use right. The tree crop is owned by the smallholder who benefits from the sale of wood products and production of any agroforestry crops produced in earlier years. While few formal partnerships exist with independent smallholders, companies benefit from wood supply and provide growers with income through sales, and in some cases support for administration associated with navigating complex regulations, although this may incur a price reduction to the grower. Nationally the government benefits from the company’s activities through industry development, job creation, livelihood opportunities, environmental services and market access, as well as from the receipt of taxes and fees. FIGURE 15: PARTNERSHIP FOR INDEPENDENT SMALLHOLDER PLANTATION FORESTS – Wood proc ssin t chnolo – M rk t d v lopm nt – Revenue (taxes and fees) – Environm nt nd soci l s rvic s – Incom – R v nu (t x s nd f s) – Administr tion support – M rk t cc ss Government Smallholders Company – Wood Suppl – L nd-us nd crop own rship ri hts – Inputs nd t chnic l dvic – Wood proc ssin nd m rk t ri hts PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 31 Transforming the forestry policy, legal, regulatory frameworks 3.3.2  for PPPPs 86 The GoL recognizes that substantial reforms are needed to achieve sustainable forest management.16 At this stage, the GoL does not have a specific enabling policy or strategy in place for PPPPs in the forest sector nor a strong supporting regulatory framework. However, features of existing forest and investment policies could be broadened, and amendments to existing legislation or new legislation could be made to incorporate forest sector PPPPs. An effective institutional framework for PPPPs needs to clearly specify the roles and responsibilities of all partners (public, private and people), and to encourage communication and stakeholder engagement strategies at all levels (national, provincial, district, village) to ensure transparency and consideration for the concerns of gender and ethnic groups. 87 Expanding public-private partnerships to include communities will be challenging in the current regulatory environment in Lao PDR. Some findings and key considerations are outlined below: >> The more degraded the landscape, the higher the cost of restoration and the investment risk. Understanding the productivity potential (restorability) of degraded landscapes will be important for aligning these with potential investors. >> Forest related definitions are used inconsistently. People often mean different things when discussing the terms “forest,” “plantations,” “degraded forests,” “degraded forestlands,” “rights,” “finance,” “investment,” “value,” “benefit” or “restoration.” >> Companies need to be profitable to scale their investments and attract capital, which will consequently enable environmental protection and restoration and the provision of jobs. >> Matching opportunities to investors requires careful consideration since investors have varying needs and requirements, including the size and type of investments, the duration of funding, and risk sharing requirements. >> Local conditions and requirements also vary. Concrete and realistic data on the characteristics of local stakeholders (including communities), markets, productivity, volumes, qualities, costs and prices, capacities and rules are essential for evaluating the viability of business models. >> Smallholder farmers and SMEs are key stakeholders, but few businesses and investors are tapping into these groups because policy messages are unclear, and their value is not well-understood. >> Local financial systems and enabling environments are not sufficiently strong and resilient to accommodate a variety of investment and funding models. 16 Includes revision of the policy, legal and regulatory frameworks; implementing guidelines; clear and consistent contractual agreements; well-defined and consistently implemented procedures; introduction of new knowledge and technologies for forest restoration, reforestation; harvesting and utilization of wood products; putting a priority on unlocking private sector investment (company and smallholder) in forest restoration and reforestation; clarifying the land-use, crop ownership, harvesting, transporting and marketing rights for smallholders and companies; strengthening the social and environmental safeguards; providing incentives to encourage investment; clarifying procedures to access land, particularly in severely degraded lands in PFAs; and encouraging investors to provide social services and livelihoods options to communities. 32 The Potential of Sustainable Forest Management in Lao PDR >> Existing concession systems can work in ensuring environmental and social impact assessment (ESIA) and Corporate Social and Environmental Responsibility (CSER) requirements if implemented properly. The problem lies not with the concession model per se, but rather in how it is approved, the conditions it includes, and how these are implemented, monitored and enforced. >> Clear rules all along the process (contract) and monitoring (measures) are important and must be enforced, ideally through objective institutional oversight. 88 In short, Lao PDR’s faces some challenges to maximizing the use of PPPPs. Key areas to work on include (i) consistency in governance; (ii) collaboration and coordination toward a common goal; (iii) timely decision making; (iv) relevant skills sets; (v) pertinent research, extension and education; (vi) contracting and concessions management; (vii) social inclusion; and (viii) risk management and grievance mechanisms. See Appendix H for details of these key elements of successful partnerships. 89 To face these challenges, it is useful to understand the complex set of key interests among stakeholders, which are summarized in Table 6. TABLE 6: PUBLIC, PRIVATE AND PEOPLE’S INTERESTS IN FOREST PARTNERSHIPS Public Private People Company on behalf of shareholder Government on behalf of Lao People: Community on behalf of local people: investors: >>Sustainable wood and NTFP supply for >>Return on investments >>Reduced poverty, increased food economic development of forests and >>Green investments in wood, NTFPs, security, sustainable livelihoods forest industries sectors ecosystem services >>Increased resilience to climate change, >>Sustainable provision of ecosystem >>Stable long-term investment policies, markets fluctuations services (forest cover, carbon sinks, laws, regulations >>Access to community development funds biodiversity soil and water, recreation) to maintain roads and social services >>Development and maintenance of assets >>Sustainable socioeconomic development >>Access to stable jobs and income; >>Sustainable growth and long-term return (reducing poverty, increasing food on investments (profits) for >>Participation in planning and security, employment) shareholders development of communal lands >>Sustainable capture of forest and forest >>Maintaining company corporate social and >>New business opportunities industry-based rentals and funds environmental responsibility >>Risks mainly related to land access and >>Meeting of international commitments >>Risks, mainly policy, technical, financial livelihoods >>Political, institutional, and financial risks and reputational 3.4 The Economic Potential for Sustainable Forest Management 90 Meeting the growing demand for “good wood” through SFM would be highly profitable for planted forests and natural forest management. Based on data from current investors, internal rates of return for Lao PDR’s main forest production models (smallholder teak, industrial and outgrower eucalyptus, participatory SFM) were 6-24 percent, which is internationally competitive. The results based on market costs and prices indicate that all of them have large economic returns based on land expectation value (LEV) and internal rate of return (IRR), indicating that forestry opportunities in Lao PDR are promising— among the best in the world, which is a perspective backed up by credible private investors consulted during this assessment. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 33 91 The approach of SFM applies across all forests and forest categories and across landscapes in all geographic and climatic regions and ecological zones in Lao PDR. At the same time, the social and cultural, environmental and ecosystem services and economic sustainability needs to be considered in the SFM scope. This report focuses on the production purposes of SFM, which primarily involve modified or degraded natural forests in PFAs, plantation forests and trees outside forests. These forests produce wood, fiber, fuel, non-wood forest products, and provide a wide range of ecosystem services. 92 Financial and economic analyses provide useful information about prospective returns to forest owners from four production forest models: eucalyptus industrial plantation (company); eucalyptus outgrower plantation; smallholder teak plantation; and participatory SFM in native forests. Using an assumed 8 percent discount rate for the capital budgeting criteria, the results (Table 7) suggest that forest investment returns for all four types of forest management can be quite attractive; the estimates are similar to returns calculated in China and Vietnam (Cubbage et al. 2018, Frey et al. 2018), and greater than most other regions in world (Cubbage et al. 2014, 2018). However, realizing this potential will take dedicated, conscientious and persistent efforts by all actors in the forest products value chains, from the forest to the mill and export point to global markets. It also will require good in-country processing or export to higher value-added markets. Developing practical and successful field skills and broader institutional capacity will be a challenge for Lao PDR. More details are provided in Appendix F for the elements to build PSFM and Appendix G for scenarios for Production Forest Areas. TABLE 7: SFM SCENARIOS, IN U.S. DOLLARS Eucalyptus Industrial Eucalyptus Outgrower Smallholder Teak Participatory SFM Scenario Plantation Plantation Plantation LEV IRR LEV IRR LEV IRR LEV IRR Base Case $6,282 22% $5,801 61% $2,383 13% $603 14% Potential Situation $2,500 15% -$563 6% $5,000 18% $2440 24% Base Case + Carbon $6703 22.9% $6192 69% $3225 16% $1645 33% ($5/tCO2-e) 93 Payments for carbon storage can be a viable add-on for improving afforestation, management and retention of Lao PDR’s forests and cutover lands. At price of US$5 per tCO2-e, the added carbon payment returns were found to increase LEVs from about US$500 to US$1000 per ha for the four different management regimes. 34 4 Conclusions and Recommendations for Building the New Green Forest Economy 94 Lao PDR’s main opportunity for sustainable, green economic growth and improved livelihoods from the forest sector is to strategically position itself as a global center of green production by investing in the primary source of Lao PDR’s wealth: its natural capital (the forest) and human capital (the people). Key recommendations below center on strengthening conducive institutions, incentives (policies and markets), and information that will drive investment across a variety of instruments including private and public models for both native and planted forests. Good partnerships for good investments create good jobs from good wood 95 Planted and native forest management can be pursued in parallel to support job creation, inclusive benefits sharing, poverty reduction, and environmental sustainability. This approach would allow short- and long-term availability of timber, while providing a long-term vision for investment from international and domestic industrial plantation owners, smallholder plantation owners, as well as village forestry. It would also allow national and international forest enterprises to invest in processing capacity, workers’ skills, and certification. Most SFM production models in Lao PDR are calculated to be profitable with solid returns on investment if the enabling environment is conducive to credible, responsible business operations. 96 Raising private sector investment requires reducing risk to investors. GoL can help develop mitigation strategies for each major risk category. DoF, Department of Forest Inspection (DoFI), MoIC, MoNRE and provincial agencies would need to work together to address the key risks including financial risk (Will the investment be safe?); operational risks (Is the labor market sufficient? Are villages and government ready to participate?); compliance risk (Is it possible to comply with all regulations and still be profitable?); sovereign risk (Would the investment be exposed to serious public policy changes?); physical risk (such as floods, fire, landslides, and storms, all amplified by climate risk); and biological risks (pests and diseases). 97 PPPPs are a viable instrument for investment in planted forests as well as for participatory SFM in native forests. While a thorough assessment of options for instruments to engage the private sector in participatory SFM is lacking, PPPPs seems to be highly applicable. In this context, a thorough assessment of the auction platform needs to take place to determine its ongoing applicability and whether there are more appropriate alternatives. To move toward a greener, more integrated and prosperous forest economy, timber from salvage logging needs to be appropriately licensed to avoid perverse incentives from unsustainable competition with certified legal wood supply from production forest. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 35 98 Timber legality and certification of both forest management and chain-of-custody are key management tools that Lao PDR can employ to meet demand for sustainable, legal timber. The benefits of forest management certification will not be realized unless there is a combined forest management and chain-of-custody certification across the whole value chain from the producer to the wood processor to the buyer. Lao PDR should aim to attract private sector partners that can bring processing capacity and guarantee chain-of-custody certification. Lao PDR should also widely promote the certification process to attract investors that share common sustainability standards and sustainability goals. With confidence that forest management certification is occurring, industry partners can drive chain-of-custody and help Lao PDR to harness market opportunities. Serious international companies seek reliable long-term supply of certified and legal timber and a predictable, consistent legal framework. PPPPs seem to a viable instrument to build on the timber asset and attract processing capacity. Under these partnership arrangements, forest management certification for smallholders and outgrowers can become viable. Ensure that local people are partners in production and receive economic benefits 99 Revitalization of smallholder plantation development can diversify land use, improve socioeconomic conditions and provide environmental benefits. Regionally, smallholders are assuming a larger responsibility for the supply of commercial wood. Further enhancements to the regulatory framework are needed to simplify and clarify procedures and remove perverse disincentives for smallholder plantation investors, particularly planting indigenous species. Additionally, access to quality germplasm and the provision of effective extension services to improve site-species matching and silviculture are necessary. It would be useful to support smallholder plantations as household assets through which the typically small plantation becomes an asset against which a family might borrow money in times of need, which is an opportunity for concessional finance. PPPPs offer viable benefits for villages, including direct employment and production as well as outgrower schemes, depending on specific locations. To harness these benefits requires (i) concerted outreach, (ii) definition of criteria for private sector engagement with communities, (iii) standardized and robust consultation with interested communities, and (iv) “honest brokers” to facilitate and build trust and experience among parties. 100 Consider granting rights to villages to plant trees and harvest wood for commercial purposes, in addition to subsistence use and for NTFPs, under clearly defined requirements. Such requirements could include, among others, available area and forest quality which will allow for viable commercial operation, an approved land-use plan, village forest management plan, and an established VFC as the collective decision-making body working in close collaboration with district authorities, and management of a bank account to share benefits with the village. In addition, the role of communities in logging operations in PFAs can be included in assessments of possible instruments to engage in and license timber extraction in designated PFAs. 101 To ensure that forests deliver balanced socioeconomic and environmental benefits, it is useful to base SFM on the lessons learned and international best practices proven in similar contexts. The ITTO Voluntary Principles and Guidelines for the Sustainable Management of Natural Tropical Forests, the FAO Voluntary Guidelines for Making Forest Concessions in the Tropics Work to Achieve the 2030 Agenda for Sustainable Development Voluntary Guidelines and the Criteria and Indicators (C&I) processes provide the framework for implementation and monitoring SFM. This framework informs policymakers, forest managers, international organizations, investors, local communities, environment and development inter- and nongovernmental organizations, and research and academic institutions and could support Lao PDR’s opportunity to increase the productivity and sustainability of production forests. 36 Conclusions and Recommendations for Building the New Green Forest Economy Carefully calibrate policy and incentives 102 Lifting the logging and timber export bans (PMO31 and PMO15) and processing high quality timber into low-quality products would be unwise without an agreement on licensing procedures and strengthening the government capacity on managing partnerships with licensed companies and partners. The ban could be lifted under certain conditions and in certain locations when there is agreement on relevant instruments for processing, forest management and chain-of-custody certification, legality of salvage logging, and the auction platform, as relevant. The lifting of the bans could also take place progressively, building on lessons learned and pilot operations that could, if carefully managed, help maintain financial incentives for implementing SFM among local actors. 103 Fiscal instruments for both participatory SFM and planted forests need to be further assessed. Appropriate fiscal instruments are necessary to support future forest management. These instruments would be implemented within an overall regulatory environment that promotes SFM and discourages degradation of natural and human capital. 104 Strengthening research and extension is critical to improve and maintain sector performance. Experiences of other countries shows that research institutions, universities and technical colleges play a vital role in providing scientific results and developing a body of skilled professionals and technicians necessary for indigenous forest and plantation management and restoration, improved germplasm, nursery practices and silviculture, harvesting and haulage, wood processing, downstream industries, conservation and eco-tourism, forest protection (abiotic and biotic agents), people-centered approaches, social and environmental monitoring and other topics. There is a need for suitably trained and skilled Lao specialists to operate and manage sawmills, veneer/plywood mills and pulp mills and to understand the wide range of new-generation wood products and manufacturing processes. This might be achieved through strengthening the existing facilities at the National University of Lao PDR (NUoL) and Pakpasak Technical College. In addition, MoIC could routinely provide “market updates” for smallholders and SMEs that do not have the resources to conduct their own market studies. 105 Sustained allocation of resources is necessary to strengthen capacity of regulatory agencies at central and local levels to undertake compliance monitoring and law enforcement duties more effectively. These agencies and duties include, among others (i) DoFI to oversee TLAS implementation across value chains; (ii) DoF to oversee certification; (iii) MoIC support to chain-of-custody certification, regulation and monitoring of compliance of processing and export; (iv) MoNRE Department of Natural Resources and Environmental Policy to oversee implementation of the new ESIA regulations following the new Prime Ministerial Decree (2019), that includes public participation and disclosure. Consider reinforcing collaboration between MoIC, MPI, MAF, MoNRE to ensure policy and investment consistency. 106 Move toward strategic new investment in forest landscapes and livelihoods. A GoL-led long-term, large-scale investment program to achieve resilient landscape management can (i) convene multiple sectors, stakeholders and partners, (ii) leverage multiple financing sources, and (iii) enhance information, institutions, and incentives. The WBG is ready to provide financing and non-financial services to build this platform, program, and contributing projects, and the Government and WBG have been discussing these issues with other interested parties. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 37 >> A strategic investment program can leverage existing and new investments, partners, projects, and private actors to contribute to the shared goals and benefits of sustainably managed landscapes, all of which contribute to sustainable livelihoods. Actions, projects, partners, sectors, and stakeholders would converge in spatially explicit landscapes to achieve larger impacts at scale. >> Lao PDR recognizes the need to develop and maintain necessary biological connectivity among the natural assets and conservation systems of the landscape, which can be thought of as the backbone of Lao’s resilient green infrastructure. Supporting this infrastructure can help de-risk investment and growth. For example, the famous forested Annamites mountain range that forms the Lao-Vietnam border serves as a green wall against destructive cyclones from the east that cause landslides and floods. Continued progress on institutional and policy performance, and adoption of a landscape approach to forestry affords opportunities to increase the productivity and sustainability of Lao PDR’s production forest and support the 67 percent of the population that is dependent on it. 107 More detailed suggestions for enhancing incentives (policies and markets), institutions, information and investments are provided in Appendix B. 38 APPENDIX A: Characteristics, Designations and Definitions of Forests in Lao PDR The GoL’s official designations and definitions provide the basis for managing the resource, including planning, conserving, monitoring, and reporting. Lao PDR designates three main forest categories (3FCs) owned by the State and under MAF’s mandate. These designated lands account for 70 percent of the country’s total land area and are: Production Forest Areas (PFAs), Conservation Forest Areas (CFAs, also known generally as protected areas), and Protection Forest Areas (PtFAs’):17 >> Production Forest Areas (PFAs) are managed primarily for production of wood, fiber, fuel and non- timber forest products (NTFPs) in 51 national PFAs (105 FMAs in 17 provinces) that total over 3.1 million ha, of which 2.2 million ha (70.8 percent) are forested. Forty of 51 PFAs have been formally delineated. >> Protection Forest Areas (PtFAs) are managed primarily for soil, water and natural disaster protection, such as for strategic reservoirs, and a total 8 million ha of national, provincial and district PtFAs, of which 4.8 million ha (59.8 percent), are forested. Most have not been formally delineated. >> Conservation Forest Areas (CFAs), also known generally as protected areas, are managed primarily for biodiversity conservation in two national parks, 22 national protected areas, 66 provincial and 143 district protected areas or CFAs, with a total area of 4.8 million ha, of which 3.5 million ha (73.4 percent) are forested. Many have not been formally delineated. In addition to the three main forest categories, the following designations are often used: >> Forests outside the three forest categories are managed or used by families and communities under customary rights to meet subsistence needs such as housing, fuel, food, and medicines, and total about 3.2 million ha. This land use overlaps with designated village forest as described below. >> Designated Village Forests are within or outside PFAs, CFAs, or PtFAs and are managed according to the land and forest plan (LFAP) and in some places, village forest management plans (VFMPs). Official designations of village forest are at an early stage with only a handful of pilots having been completed; the process is ongoing. DoF aims to support 1,500 villages to prepare VFMPs through participatory processes. Authorized timber from village forests is intended to be used for local use. Harvesting timber in village forests for commercial purposes is being considered for inclusion in the new forestry law currently under advanced preparation. >> Planted or plantation forests are included in the forest areas inside and outside PFAs, CFAs, or PtFAs, and according to DoF the cumulative planted area is 478,000 ha. 17 See figure 2 and appendix A for details. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 39 The different types of forest land in Lao PDR are also divided into natural forests, plantation forests and trees outside forests, all with varying characteristics and fulfilling different functions. >> Natural Forests are forests where trees and NTFP species have occurred and developed in nature without human assistance. They are mainly found in 3FCs and can be primary, modified or degraded forests. —— Primary Forests are forests of indigenous species with little or no human activity in which the ecology is undisturbed. Often primary forests remain un-modified because of accessibility issues. —— Modified Forests are forests altered by visible human activity or disturbances, and where natural regeneration of indigenous species is occurring. —— Degraded Forests are natural forests that are severely disturbed by human activities and where natural regeneration may not occur due to such factors as shifting cultivation, encroachment, competing weed species, pests, or possibly intermittent wildfire. >> Plantation Forests are intensively managed planted forests which are mainly owned by the private sector, including private companies (67 percent), smallholders (33 percent) and the government (0.3 percent), and can include native or exotic species. —— Native species plantation forests contain a majority of indigenous species, planted as a single species or a mixture of several species, in rows or clusters. Native species can be grown in longer rotations for production of valuable hardwoods (e.g. teak, agarwood) or fast-growing, short-rotation wood (e.g. mai tiew for white charcoal production). —— Exotic species plantation forests are planted with primarily exotic species, with a single species or a few different species, generally planted in lines or blocks and are even aged. Exotic species can be grown in longer rotations for production of valuable hardwoods (e.g. mahogany in some ASEAN countries) or more commonly in fast, shorter rotations for the production of veneer, plywood, sawn timber, cross laminated timber (CLT) and pulp (e.g. eucalypts, acacia, casuarina). >> Trees Outside Forests are considered “non-forest” and are grown in a diverse range of natural or planted forest species or fruit trees, mainly owned by smallholders in agroforestry systems, urban plantings, roadside plantings, around agricultural lands (e.g. rice paddy borders) and home gardens. Non-forest is not considered forest for reporting purposes, although they are critical to local livelihoods, nutrition, and provide environmental services such as shade for livestock and villages and erosion prevention. These plantings also are an important component of regional flows of industrial wood despite regulations that control harvest, transport and marketing, particularly if indigenous species. >> Conversion Forests refer to the change of a forestland type to another land use type (i.e. clearing forests for roads, mining, agriculture, hydropower, and residential land). 40 APPENDIX A: Characteristics, Designations and Definitions of Forests in Lao PDR GoL’s forest definitions are compatible with the following definitions commonly used internationally: >> Current Forest includes natural forests with an area of land larger than 0.5 ha with a crown density of more than 20 percent and minimum tree trunk diameter of 10 centimeters (cm) at breast height (DBH); and plantation forests with an area of land larger than 0.5 ha regardless of the crown density and DBH. “Current Forest” includes evergreen, mixed deciduous, dry dipterocarp, coniferous, mixed coniferous and broad leaved, and Plantation Forests.18 >> Potential Forest is a preexisting forest area where the crown density has been reduced below 20 percent for any reason. It includes bamboo and “regenerating vegetation” which is a subset that refers to a specific area left to regrow undisturbed to one day become Current Forest again. >> Natural Forest refers to forests where trees and NTFP species have occurred and developed in nature without human assistance (GoL Forestry Law 2007). They are mainly found in 3FCs and can be primary, modified or degraded forests. >> Plantation Forest includes all planted forests, including one or mixed species with the same age, same height and same tree spacing. Their crown density can be less than 20 percent and DBH can be less than 10 cm. Rubber plantations and fruit trees are also classified as Plantation Forest. However, coffee, tea and shade-providing trees for coffee and tea are not classified as Plantation Forest. Other useful definitions according to the Forestry Law 2007 include the following: >> Degraded Forest refers to forest areas that have been heavily damaged such as land without forest or barren forestland, which are allocated for tree planting, agriculture, tree products, permanent animal husbandry areas or using land for other purposes in accordance with the socioeconomic development plan. >> Degraded Forestland identifies areas where forests have been heavily and continually damaged and degraded, causing the loss of balance in organic matter. These areas may not be able to regenerate naturally or become rich again. Typical species of plants and trees growing in this area are: alang alang (Imperata cylindrica), mai tiew (Cratoxylon sp.), small bamboo, broom grass (Thysanolaena maxima) or other various species. 18 Based on National Forest Inventory Definition 41 APPENDIX B: Priority Actions Key: immediate (Bold text); near term (< 1 year); medium (< 2 years); continuous Key Findings Key Recommendations Priority Actions Institution Timeline Forestry Sector Governance Update Forestry Law and MAF/DoF Wildlife and Aquatic Law MAF/ DoFI with an article specifying MAF/Department Immediate commitments to international of Policy and The GoL’s commitments to obligations. Legislation (DPL) international conventions, Incorporate relevant Update the Land Law instruments and agreements concepts, objectives, with an article specifying MoNRE/Department and the key concepts and Immediate issues and key actions from commitments to international of Land (DoL) definitions, objectives, issues international conventions, obligations. and actions have been instruments and agreements MoF-Customs insufficiently incorporated into into national strategic Department national strategic documents Update the Customs Law, planning documents and the MoIC- DoIH and impacting forestry, including the Enterprise Law, the Law Forestry Law and other laws DIMEX the new Land Law and on Industrial Processing, the where relevant. Forestry Law and other laws Law on Tourism, the Law on Ministry of Near term where relevant. Medicine, and the Law on Information, Culture Food with articles specifying and Tourism (MoICT) commitments to international Ministry of Health obligations. (MoH) - Department of Medicine Review and strengthen MAF – DoF Near term mechanism to generate MAF/FFRDF Revise the Decree on the resources to support SFM FFRDF to include royalties such as timber auctions, the from the sale of timber from collections of fees, charges, Insufficient resource allocation taxes, fines, and levies. conversion areas. for technical support and Consider the development Reform the Forest and Forest monitoring of production of a forest loss tax for forest Resources Development Fund MoF/Department of forest activities (PSFM and conversion for development Near term (FFRDF). Tax (DoT) plantation forests). activities. Once in place, sustain Review budget mechanisms resource allocation to to increase allocation to forest strengthen capacity of DoF management activities. and DoFI to undertake compliance monitoring 40 of 51 PFAs have Review the categorization of management plans and are forestland and the demarcation Gazette (issue decrees) that demarcated. However, most of boundaries, including clearly define (both maps and MAF/DoF Near Term of CFAs and PtFAs have not through appropriate spatial words) the boundaries. been demarcated, inventoried, analysis and mapping. have no management plan. 42 APPENDIX B: Priority Actions Key Findings Key Recommendations Priority Actions Institution Timeline Develop and implement compliance checklists for forest MAF/DoFI Near Term Strengthen monitoring, management and TLAS. evaluation and follow-up Develop and implement Policies, procedures and actions regarding compliance compliance checklists for MoNRE/DNEP Near Term practices are inconsistently with policies, operations ESIAs and ESIA monitoring. understood and applied, manuals, ESIAs, management Develop and implement particularly at provincial and plans, TLAS, forest and land compliance checklists for the MoIC/Department of Near Term district levels. concession agreements and wood auctions, transport and Inspection other key forestry governance wood processing sector. guidelines. Undertake joint (inter- departmental) training in TLAS MAF/DoFI lead Near Term compliance monitoring. Benefits in the use of satellite Use new satellite Obtain recent satellite MAF /DoF/Forest imagery supported by assessment in PFAs to imagery and works with Planning and ground-based forest inventory identify suitable areas for companies and partner Immediate Inventory Division (pre- and post-harvest) and plantation investments and projects to build capacity in (FIPD) geographic information system participatory planning. imagery interpretation. (GIS) database to consolidate Establish a GIS database to Establish and maintain GIS forest information are not fully consolidate information on database to consolidate realized for monitoring the PFAs, concessions, company information on PFAs, MAF /DoF/FIPD Near Term status of forests, forest area and smallholder plantations. concessions, company and change, and forest uses and Collate existing information smallholder plantations. users (legal and illegal). from relevant projects. Lack of knowledge of the MAF/DoF/Production Review or develop operations potential role that a mosaic of Forest Management manuals and management natural (production, protection Division (PFMD), Strengthen knowledge of plans for integration of planning and conservation forests) Protection Forest Near Term different dimensions of SFM and management of PFAs, and plantation forest land use Management and complementary roles that Protection Forest, Conservation can contribute to the social, Division, PAMD, and natural and plantation forests Forest and Plantation Forests. environmental and economic APFRD play in contributing positively landscapes and weak land Strengthen capacity and to social, environmental and use planning for SFM; natural consistency in understanding of MAF/DoF, economic landscapes. and planted forests can integrated approaches to SFM MAF/PAFO and Near Term complement and supplement in the forest landscape at all DAFOs, VFCs each other. levels of governance. Proactively engage with Ministry of Energy and Mining (MEM), MPI, Ministry of Public Works and Transport (MPWT), The influence of the forestry Encourage proactive forestry MoIC, and MAF’s Department sector in the inter-sectoral participation and voice in inter- MAF/DoF/DPC of Agriculture for proposed planning of national strategic sectoral planning for projects MAF—Department of infrastructure investments Continuous developments that require and developments impacting Planning and Finance (dams, reservoirs, transmission forest conversions has been forest resources and causing (DPF) lines, land concessions, overshadowed. forest conversion. road), major wood processing, manufacturing, and agriculture investments impacting forest resources. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 43 Key Findings Key Recommendations Priority Actions Institution Timeline Strengthen SFM in PFAs and The policy, legal and plantations through simple, MAF/DoF/Forest Review the policies, laws, regulatory frameworks related consistent and clear enabling Legislation and regulations, guidelines and Continuous to production forestry (PFAs policies, laws, regulations, Technical Standards operational practices for SFM. and plantation forests) are guidelines and operational Division (FLTSD) complex, inconsistent and practices. unclear and not consistently Encourage consistent Develop and undertake regular interpreted (central-provincial- interpretation and application training on the application of MAF/DoF/FLTSD Continuous district-village). of policy, legal and regulatory policy, legal and regulatory frameworks at all levels. frameworks at all levels. Undertake research in social MAF/National sciences, poverty alleviation, Agriculture and food security, environmental Forestry Research and social safeguards and Institute (NAFRI) alternative livelihoods. Continuous MAF/Agriculture and Strengthen knowledge, Incorporate research results Forestry Colleges/ information and capacity to and lessons learned into Universities support livelihoods of forest education curricula and training dependent people. resources, and into Technical Colleges Incorporate research results MAF/DoF, Forestry and lessons learned into Training Centre extension resources to transfer Continuous MAF/PAFO and knowledge to communities, DAFOs smallholder farmers. Undertake research in improved genetic planting stock, nursery practices, Insufficient knowledge, silviculture, regeneration, information and capacity growth and yield agroforestry MAF/NAFRI within GoL to support families systems, harvesting, supply Regional research and communities to assert chain management, permanent institutions customary rights to meet sampling plots (PSPs), subsistence needs without Forest Industry sustaining productivity, CO2 Continuous over-exploitation for housing, MAF/Agriculture and sequestration and sinks, fuel, food and medicine from Strengthen knowledge, Forestry Colleges market intelligence, wood forests outside state forest information and capacity to processing. Universities areas. achieve SFM in all types of Incorporate research results Technical Colleges production forests (PSFM and lessons learned into in natural forests, plantation production forestry education forest and agroforestry) to curricula and training enhance the productivity and resources. sustainability of the forest Enhance capacity to sustain resources and the wood extension services for MAF/DoF industries sectors. PSFM, plantation forests and MAF/PAFO and Continuous agroforestry at provincial, DAFOs district and village levels. Review and consolidate Ministry of Education support to the forest industries sector to upgrade and Universities/colleges modernize equipment, upskill MoIC/DoIH Continuous workers, review wood products Timber Industry design and adopt CoC Associations certification. 44 APPENDIX B: Priority Actions Key Findings Key Recommendations Priority Actions Institution Timeline Draw on empirical research to strengthen understanding of the role of smallholder, MAF/NAFRI outgrowers and agroforestry MAF/DoF/APFRD Continuous producers in the forestry sector and revise policy and Universities regulatory frameworks to enhance their participation. The role and contribution of Draw on empirical research plantation smallholders and Strengthen the understanding to strengthen understanding micro- and small-medium and inclusion of the role of of MSMEs’ role in the forest Medium- enterprises (MSMEs) in smallholder plantation and industry, and revise policy term the forest industry is poorly micro and SME investors in the and regulatory frameworks to understood and not well forestry sector in policy, legal MoIC/DIMEX enhance their participation. represented in policy or and regulatory frameworks. Promote participation of MoIC/Department regulatory frameworks. smallholders and SMEs in of Trade Promotion existing industry and trade (DTP) initiatives such as “One District LNCCI One Product” (ODOP) and Continuous PLaoSME.com platform for trade in products produced by registered and verified Lao SMEs. Explore opportunities to MoIC/DoIH encourage SMEs, traders and MoIC/Enterprise service providers to comply Registration Immediate with regulations through Management reduced fees. (DERM) Reform revenue management: enhance fiduciary management MoF/Department of capacity of the FFRDF to be Immediate Fiscal Policy able to mobilize and provide Insufficient transparency and technical support to SFM in understanding of the fiscal and Improve fiscal instruments, all forest types. financial management aspects management and Explore credit options for MoF/Bank of Lao of the supply chain and the Immediate transparency along the plantation forests. PDR current and potential financial supply/value chain. Apply financial penalties (forest contribution of forestry to the Lao economy. loss tax, offsets) to investment projects permanently MoF and MAF Near Term converting natural forests, based on long-term sustainable timber valuation. Explore the use of digital tools within the forest sector such as for the payment of fees and MoF Near Term registration. This may enhance compliance in more-remote areas. The scale of the wood Strengthen the understanding Undertake market R&D renaissance driving demand of the scale of the global wood communication materials for sustainable and legal renaissance by enhancing the and promote international MoIC/DoIH wood and wood products for Near Term research capacity of MoIC and ‘’expositions or conferences Timber Industry innovative uses is not well improving connections with that display innovative wood understood by GoL or private industry. products. sector. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 45 Key Findings Key Recommendations Priority Actions Institution Timeline Conduct producer and industry fora to highlight green procurement policies by countries, industry MoIC/DoIH Near Term The strong global movement associations, multi-national Timber Industry toward greener private and Strengthen awareness of companies, financing public procurement and opportunities for greener institutions, engineers, local construction policies and procurement and construction authorities. increasingly innovative uses policies that require proof of Pursue international markets; of wood that require proof of sustainability and verification China and Vietnam have sustainability and legality are of legality. insatiable wood demand not well understood. including for legal and MoIC/DIMEX Near Term sustainable wood and could Timber Industry provide opportunities in addition to industrialized countries. Provide information materials (documents, videos, radio Weak understanding of programs, social media), ‘regulated markets’ and Strengthen knowledge of field days, training days for the impact that mandatory wood producers and wood the forest, forest industries MAF/DoFI/FLEGT laws and regulations from processors on the EU Timber and wood manufacturers to Office consumer countries and the Regulation, VPA, Timber improve understanding of Forest and Wood Near Term VPA will have on tightening the Legality Assurance System the role that mandatory laws Industry supply chain procedures and (TLAS) and implications on and regulations and the VPA NUOL-Faculty of standards and increasing the supply chain management and will have on tightening the Forestry confidence of importers and procedures. supply chain procedures and end-users in legal sources. standards as well as improving market access for their products. Participatory SFM in Production Forest Areas Establish prerequisite criteria for lifting the logging ban (e.g. sufficient resource Lifting the timber harvesting within an operational work The logging ban has set and timber export bans circle, completed recent back PSFM planning, skills (PMO31 and PMO15) could forest inventory, approved and practices as there has be carefully considered revised management plans, Prime Minister’s been no opportunity to apply once SFM, appropriate approved harvesting quota, Office Immediate international best practices. licensing procedures, and FM or CW certification, MAF It has also reduced the flow strengthened GoL capacity compliance with social and of benefits to VFCs that for revenue management environmental safeguards, support village livelihood and distribution are firmly functional village forest development, restoration in place. The ban lift could committees, integrated SFM of forests undertaken after begin in pilot locations approaches, alternative harvesting and the provision where there are agreements livelihoods). of employment. Local on instruments, criteria and communities have pursued Define the evaluation, Prime Minister’s process, SFM and chain- alternative livelihoods and monitoring and approval Office Near Term of-custody certification, income sources, including in process for lifting the ban. MAF/DoF legality of salvage logging, some instances illegal forest Evaluate conformity of and the auction platform, as use. PFAs, FMAs, SFMAs with relevant. the prerequisite criteria and MAF/DoF/PFMD Near Term recommend for approval of a logging quota. 46 APPENDIX B: Priority Actions Key Findings Key Recommendations Priority Actions Institution Timeline Simplify the harvesting, transport and delivery to Log MAF/DoF Immediate Landing II. Simplify and clarify the procedures for the auction process at Log Landing II, the supply chain to and MoIC/DoIH Immediate through the forest mill to Institutional and procedural the end user in Lao PDR or Simplify, clarify and make arrangements for log tracking export border. transparent the supply across the supply chain from chain procedures from the Simplify and clarify the the forest to auctions, the mill MoIC/DoIH forest to the mill, including procedures for payment of and export, are excessively MOF/Department of Immediate the auction system at Log fees and charges at Log complex, unclear and Treasury landing II. Landing II. inconsistently enforced. Simplify and clarify the procedures for payment of MOF/Department of Immediate taxes at Log Landing II and at Treasury export borders. Simplify and clarify the procedures for payment of MoF/Customs Immediate fees and charges at export Department (CD) borders. Industrial Plantation Forests and Public-Private-People Partnership (Forest Production and Wood Industries Processing) Expand macro-level planning to identify PFA areas with large contiguous MAF/DoF Immediate barren landbank suitable for industrial plantation investment. Pilot plantation investment A lack of available and inside selected PFAs accessible contiguous areas Continue to pursue through a bidding of land has constrained partnerships with the process, and micro-level scaling up plantation forest corporate private sector for participatory planning with investments by credible industrial plantation forest communities, including MAF/DoF companies within a group of development on degraded tenure arrangements, MoNRE/DNEP proposed wood processing forest and forestlands within ESIA, technical and plants or major potential PFAs. Forest Industry financial feasibility, and a Immediate markets. compensation mechanism MPI/Department to ensure that the of Investment establishment of plantations Promotion (DIP) does not shift deforestation to another site due to displacement of local people or deterioration of local livelihoods. MAF/DoF/FLTSD MAF/DoF/ Revise and strengthen Afforestation Unclear and inconsistent Develop, promote and enforce Decree 96 on Plantation Immediate Promotion and policies and legal and consistent policies that provide Investment Promotion. Forests Rehabilitation regulatory environment for clarity for GoL, a stable Division (APFRD) large scale investment in wood investment climate for private production or wood processing sector and greater certainty for Develop a clear supporting in Lao PDR local people. regulation for the Land Law that MoNRE/Department articulates all arrangements Near term of Land (DoL) for accessing and making land available for plantations. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 47 Key Findings Key Recommendations Priority Actions Institution Timeline Promote credible private investment in industrial No robust screening plantation forests in PFAs Ministries (MPI, procedures to identify under forest concession MAF, MoIC, MoF, reputable companies Develop a set of standard agreements with PPP MONRE) with proven social and screening criteria for principles, ESIAs, GoL/ Immediate environmental responsibilities plantation investment Forest and Wood company agreements, or partnership checklist of project. Industry company/community procedures to negotiate and Communities agreements and clearly finalize agreements. articulate commitments, risks and benefits. Further research suitable No arrangements, Expand the research beyond PPP agreements and MAF/DoF agreements, guidelines and the case studies on PPPs in guidelines used around the MPI Immediate procedures for PPPPs in place forest restoration and forest world that are suitable for Ministry of Justice in Lao PDR. management. Lao forest restoration and (MoJ) reforestation context. Strengthen environmental Criticisms of the regulatory capacity needed appropriateness, monitoring, commensurate with the In appropriate regulations, enforcement and reporting scale of investment, clarify the scale at under the environmental MoNRE/DNEP type and location of land which different types of Immediate compliance certificate (ECC) MAF/DoF/APFRD involved (e.g. Environmental assessment are required for or ESIAs for large-scale compliance certificate plantations. investments in plantation (ECC) or ESIA for industrial forests. plantations). Inconsistency in the Consistently implement interpretation and application Revise Decree 96 on regulations that support of governance from central- Plantation Investment MAF/DoF/APFRD investment in industrial provincial-district-village Promotion to clarify MAF/PAFOs and Immediate plantation forests, including levels, particularly for the policy on industrial DAFOs the use of fast-growing investments in industrial plantations of exotic species. exotic species. plantations. Since the PPPP concept is Strengthen the new Forestry new, there are no supporting Law and supporting Revise a decree on forest MAF/DoF/FLTSD regulations to encourage regulations to encourage Near Term restoration and reforestation. MAF/DoF/APFRD investments in forest investments in restoration and restoration and reforestation. reforestation. No experience with sharing Develop new benefit Develop new benefit MAF/DoF risks, investments and distribution models for the distribution models for the MoF/Department of Near Term benefits between partners in range of possible partnership range of possible partnership Fiscal policy the forestry sector. products and beneficiaries. products and beneficiaries. Develop and make available accurate land information Limited land, socioeconomic Update land tenure mapping (tenure, planning, site and site-specific data to (especially of Forest suitability, socio-economic MoNRE/DoL identify the most suitable categories/types). Near Term setting) to ensure the right MAF/DoF/FIPD sites and communities for Update land suitability investment is made in the right restoration and reforestation. mapping. place at the right time for the right reasons. 48 APPENDIX B: Priority Actions Key Findings Key Recommendations Priority Actions Institution Timeline Strengthen existing forest/ land concession agreements used with plantation companies for land use MPI and crop-ownership rights, Immediate MAF social and environmental Develop appropriate safeguards, new ESIA regulations for contracts, procedures, sharing of risks Model PPP procedures, agreements, ownership, and benefits, etc. agreements, guidelines and sales and marketing rights terms and conditions do not Develop appropriate and benefit sharing models yet exist in Lao PDR. regulations for contracts and and dispute resolution and MPI Near Term agreements, including model mediation. contracts. Develop benefit sharing MPI Near Term models. Develop and communicate dispute resolution and MoJ Near Term mediation mechanisms. Develop clear and practical guidelines to standardize and strengthen monitoring MAF/DoFI and evaluation and follow- Near Term up regarding compliance management plans and forest/ Develop clear and practical land concession agreements. The monitoring and evaluation guidelines to standardize capacity of MAF and Develop clear and practical and strengthen monitoring MoNRE have been weak guidelines to standardize and evaluation and follow-up for compliance with ESIAs, and strengthen monitoring regarding compliance with MoNRE/DNEP Near Term management plans, legality, and evaluation and follow-up PPPP agreements, ESIAs, forest and land concession regarding compliance with management plans and forest/ agreements. ESIAs land concession agreements. Develop clear and practical guidelines to standardize and strengthen monitoring MPI Near Term and evaluation and follow-up regarding compliance with PPPP agreements. Develop and communicate appropriate regulations and Procedures for investors to procedures that allow investor MAF/DoF/FLTSD Define new procedures in access degraded and barren to access PFAs for plantation MAF/DoF/PFMD Near Term policy. PFA land do not yet exist. and forest restoration activities. MAF/DoF/APFRD These must include social and environmental safeguards. Revise the Decree on State MPI Land Lease or Concession to Near Term Improve key regulations and MoNRE Forest concession agreements clarify the procedures. develop new regulations. are inconsistently made, Build on PMO9 by developing Publicly disclose concession managed and monitored. a regulation to improve locations and characteristics Transparent information about governance in the granting to help resolve overlaps and MAF/DoF/FLTSD Near Term concessions is lacking. of concessions for industrial promote accountability. plantation and planting other crops PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 49 Key Findings Key Recommendations Priority Actions Institution Timeline Undertake research into and There have been few communicate the value of successful partnerships Continue to undertake value timber supply chains for all between growers (particularly chain studies and disseminate MAF/NAFRI products; develop effective smallholders), wood industries research findings with NUOL/Faculty of Near Term strategies and regulations to processors and/or importers to recommendations for policy Forest Sciences develop and support them share the costs and benefits of and regulatory change. (e.g. for timber, NTFPs, PES, certification (FM and CoC). carbon etc.). Encourage smallholders to invest in valuable indigenous Review and revise the policies Demand for timber from hardwood species and to seek that promote the planting of native species remains high partnerships with reputable native species (e.g. Decree 96) but investment has been MAF/DoF/APFRD Near Term forest industries investors to and the relevant regulations limited due to an unsupportive share risks, obtain FM and to ensure they are mutually regulatory environment. CoC certification and access to supportive. markets. Continue to review regulations and procedures MAF/DoF/APFRD There are perverse for plantation registration, Immediate Review regulations and MAF/DoF/FLTSD disincentives causing harvesting and sales policies to clarify and uncertainty, increased costs procedures. strengthen the tree and and decision delays for Continue to assess the wood ownership, harvesting smallholder plantation owners, potential use of remote and sales right for these particularly those growing sensing, apps and digital trees. MAF/DoF/APFRD Continuous indigenous species. tools to make administrative processes more accessible, cost effective and faster. There is limited GoL Strengthen knowledge of understanding of the private potential roles, scope and sector’s role and the level of productivity that industrial investments, scale of land plantations can contribute to Produce information briefs Forest and Wood Medium required, and employees major scaled wood industries based on appropriate case Industry Term needed to establish an and manufacturing sectors, studies. industrial plantations and foreign investment and foreign associated wood industries earning, plus added value to processing capacity. the Lao economy. Past modest experiences Continue to support new Revise Decree 96 on with outgrower partnerships generation outgrower pilots Plantation Investment MAF/DoF/APFRD Immediate between companies and to encourage smallholder Promotion to specifically MAF/DoF/FLTSD smallholders did not instill investments in fast growing include outgrower models. confidence for scaling plantation forests to Continue to expand pilots MAF/DoF up outgrower schemes. complement and support and encourage smallholder Companies Pilots supported by IFC on industrial forest plantation outgrower plantations and Continuous outgrower have only recently and forest industries tailor partnership agreements Farmers and occurred. expansion. accordingly. Communities Update extension materials MAF/DoF/APFRD Near Term Draw on current research to based on new research MAF/NAFRI There is weak extension improve technical knowledge Undertake training of provincial, and transfer of knowledge MAF/PAFOs, DAFOs and extension support district and village staff in new Near Term and technology to support and VFCs to smallholder plantation approaches and techniques. smallholder plantations. investments. Establish a plantation and Medium MAF/NAFRI agroforestry knowledge portal. Term 50 APPENDIX B: Priority Actions Key Findings Key Recommendations Priority Actions Institution Timeline Low-skilled workers, outdated MoIC/DoIH Continue to work with partners and inefficient equipment, and industry to develop training NUOL/Faculty of poor designs (due to weak Support investment in forest Forestry centers, such as the wood Near Term market linkages) and a lack industries and manufacturing processing training facility at Industry Associations of investment funds in forest for new technology and NUOL. processing and manufacturing knowledge, enhance labor Research Partners plants have resulted in low skillsets, improve designs, to Increase exposure to new volume recovery and poor- meet international standards products designs by promoting quality forest products more and market access. MoIC/DTP Annually the Lao Wood Fair to suited to the domestic market international companies. than international markets. Support nature-based tourism Support nature-based tourism There has been little past in conservation and production in conservation and production nature-based tourism landscapes by improving landscapes by improving practiced within PFAs and licensing for tourism operators, licensing for tourism operators, within designated conservation MoICT/Department of Medium concession management concession management in and protection forests within Tourism Term in forests, and respond to forests, and respond to market PFAs. See sister assessment market demand. See sister demand. where this topic is assessed assessment where this topic is See sister assessment where in detail. assessed in detail. this topic is assessed in detail. Smallholder and Outgrower Plantation Forests Continue to encourage industrial plantation investment by corporate MAF/DoF/APFRD Immediate private sector investors Forest Industry and tailor partnership agreements accordingly. Promote plantation Provide credit and other expansion through incentives to private sector MPI/DIP The role of plantations in Immediate smallholder, outgrower, investors to invest in BOL farmer livelihoods has been agroforestry, industrial industrial plantation forests. poorly understood and policies models and supporting Continue to expand pilots MAF/DoF/APFRD and incentives have not been scale-appropriate and encourage smallholder sufficient to promote good Forest Industry partnership mechanisms and outgrower plantations Immediate management/quality wood Farmers and and species of different and tailor partnership production. Communities rotation lengths and agreements accordingly. products. Continue to encourage smallholder plantation in indigenous valuable MAF/DoF/APFRD hardwood species by Immediate MAF/DoF/FLTSD removing barriers and provide technical/extension support services. Undertake research in social sciences, and environmental and social safeguards for Near Term Insufficient R&D and technical smallholder plantation investors knowledge, land and funds; as Pursue action research sector. MAF-NAFRI, well as poor germplasm have partnerships across GoL, Undertake research in Universities constrained the area planted universities and the private improved genetic planting and the quality of smallholder sector to undertake research stock, nursery practices, Regional and plantation forests (e.g. teak) in key technical and social silviculture, harvesting, international research which limits market potential/ sciences areas. Permanent Sampling Plots institutions and NGOs Near Term financial return to growers. (PSPs), sustaining productivity, market intelligence, resistance to insects, pests and diseases for the forest production sector. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 51 Key Findings Key Recommendations Priority Actions Institution Timeline Overly complex and inhibitive Continue to simplify Continue to simplify regulations regulations, procedures and regulations for plantations for on land use rights, approvals MAF/DoF/APFRD interventions in smallholder private sector investment and for silviculture, harvesting, Near Term MAF/DoF/FLTSD plantation investments, smallholder plantation grown transporting, marketing management, harvesting wood. indigenous plantation species. and marketing have provided Carefully consider potential Continue to simplify policies, perverse disincentives for conflicts between policies regulations and procedures that MAF/DoF/APFRD smallholder investment in that promote the planting of handicap the flow of indigenous new plantations and threaten indigenous species and those MAF/DoF/FLTSD Near Term plantation species along the re-planting of existing that control the harvesting and MoIC/DoIH supply chain, and along the plantations. They also deter trade of these species to avoid wood processing supply chain. good plantation management. perverse outcomes. Village Forests There are unclear regulations Continue to clarify the role MAF/DoF, village regarding the uses of village Clarify the role of village of VFs and right of villagers forests and NTFPs forests and village land for forests and strengthen the to use these in the new management Immediate household, customary use, legal and regulatory base for Forestry Law and supporting divisions (VF&NMD) public benefit and commercial village forests, including for regulations. VFCs production, including timber commercial and subsistence Agree upon management plan MAF/DoF/VF&NMD harvesting and plantation use of wood and NTFPs. approval procedures and VFC Near Term establishment. VFCs mechanisms. Support by district authorities in participatory planning, practices and benefits Undertake capacity building Simplify, clarify and make in village forests for the training to transfer knowledge governance roles consistent in MAF/DoF/VF&NMD production of wood and consistently through all levels support of village forests from MAF/PAFOs, DAFOs, Near Term non-wood forest products for of governance on the roles and central, provincial, district to VFCs customary uses has been rights of VFs under the new village levels. inconsistent, particularly Forestry Law. regarding opportunities for VFs. Conversion Forests In the new Forestry Law, strengthen the procedures allowing for conversion Salvage logging of conversion of forestland to other has not been subject land uses. In supporting Review the Forestry Law to a forest inventory to procedures, specify the to strengthen the articles determine species, tree/log need to adopt best practices related to the conversion of sizes, volumes and other (designate and demarcate forestland for other uses. specifications; it has been the area, conduct forest With consultation, develop MAF/DoF Immediate subject to a low level of inventory, conform with supporting regulations and accountability, and susceptible social and environmental procedures that specify pre- to abuse by the mixing standards and adopt third conversion and restoration harvesting from salvage party independent legality requirements. logging with logs harvested verification across the from unauthorized areas. supply chain) for salvage logging in Conversion Forest areas. 52 APPENDIX B: Priority Actions Key Findings Key Recommendations Priority Actions Institution Timeline Carefully consider the logging Since the ban on logging in ban on sustainable flow of PFAs timber salvaged from Prime Minister’s wood and benefits from PFAs, conversion areas (together Revisit the strategy for long- Office Near Term and gradually lift in a controlled with confiscated wood and term wood supply from Lao MAF manner when/where key pre-ban stockpiles) have forests to attain and maintain criteria are met. been the only sources of an increasing proportion from MAF/DoF/Planning native species timber. This sustainable sources from PFAs and Cooperation has resulted in some areas and less from unsustainably Proactively participate in Department (PCD) being converted without managed Conversion Forests. strategic planning where forest Continuous the subsequent (approved) National Assembly/ conversion is planned. development. Provincial People’s Assemblies Analyze forest inventory data MAF/DoF/FIPD Immediate to identify LKS. Monitor LKS, volumes, specifications through the MAF/PAFOs Continuous Pilot lesser known species supply chain process to the Log MoIC/POICs Auction processes are not Landing II. from Conversion Forests supported by information for to test specifications, Progressively collect data on MoIC/POICs/Auction valuing lesser known species Continuous properties, end use potential LKS auction prices. committee (LKS). and value. Collect data on LKS end-use MoIC/DoIH Continuous from conversion forest areas. Analyze export trade data on LKS volumes, values, end-use MoIC/DIMEX Continuous and specifications. Timber Legality (TLAS) and Certification Develop an accessible legal database for all laws and regulations associated with forests, forest use and forest Seek partner support to There is a need to strengthen MAF industry (similar to The Lao establish a legal database on capacity within agencies for MoIC Near Term Trade Portal). forests, forest use and forest systematic regulatory review, MoJ Incorporate within the database industry. for succession planning and to a mechanism that triggers foster interest and knowledge the review of regulations after in good regulation for forest specified intervals. management and timber supply chains. Develop and promote curricula within the universities (Law and Universities Work with education partner to Medium Forestry Schools) for natural MoJ develop curricula. Term resources law, governance and Lao Bar Association policy. Allocate and sustain resources to strengthen capacity of DoFI/POFIs to undertake compliance Despite recent progress, monitoring and law MAF/DoFI Immediate significant challenges Strengthen support and enforcement duties more remain in developing and capacity building to develop, effectively, including in maintaining institutional implement and monitor implementation of the TLAS capacity and resources to compliance with the VPA and across supply chains. develop, implement and TLAS across the forests and Develop capacity through monitor compliance of TLAS forest industries sectors. provision of technical and across the whole forest assistance to all administrative industry sector. MAF/DoFI/FLEGT and management agencies, to Near Term Office DoFI and to forest producers and industries on the VPA and TLAS. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 53 Key Findings Key Recommendations Priority Actions Institution Timeline Strengthen the draft Forestry Law, supporting regulations and governance to: (i) integrate and implement TLAS Ministerial Instruction, Revise the Forestry Law to (ii) encourage FM and CoC ensure consistency with the MAF/DoF/FLTSD Immediate certification as proof of SFM TLAS Ministerial Instruction. While the TLAS will be based through PSFM in PFAs and on the existing laws and plantation supply chains, sub-laws, there are areas (iii) clarify forestland access that require further reforms. rights, and (iv) promote PPP A dynamic and responsive in the forest sector. regulatory environment is Strengthen the Industrial needed. Processing Law and supporting regulations and Review the Industrial governance to: (i) require Processing Law and supporting compliance with TLAS; (ii) regulations to require CoC MoIC/DoIH Near Term review regulations to support certification. CoC are fully connected and supportive; and (iii) encourage CoC certification. Further consideration is needed with respect to orders, decisions and instructions issued by provincial, district Clearly specify in the timber or municipal governors, and Clearly specify in the TLD of legality definition (TLD) of village regulations the TLAS, the TLAS and annexes of the the TLAS and annexes of the MAF/DoFI/FLEGT and how guidelines and other VPA how the hierarchy of laws Near Term VPA how the hierarchy of laws Office instructional documents that (set out in the Law on Making (set out in the Law on Making are not legal instruments Legislation) applies. Legislation) applies. per se, but which should be complied with as a matter of policy, can be incorporated in it. Update the Forest Legality Regarding supply chain Compendium to consider MAF - DoFI, FLEGT control, many departments Clarify roles, administration, Near Term department restructures and Office have roles in the issuance monitoring, compliance and functions. of approvals along the enforcement responsibilities for Review all relevant supply chain and this makes all agencies along the supply Departmental mandates to MAF - DoFI, FLEGT verification complex and chain. Near Term ensure all relevant supply chain Office challenging. steps are clearly described. Revise the Forestry Law with FM and CoC as proof of SFM. Despite piloting for more Revise Decree No 96 on MAF/ DoF/FLTSD Immediate than a decade, uptake of In the new Forestry Plantation Investment certification is slow. As a Law, encourage forest Promotion to encourage result, there are insufficient management and chain- certification. incentives to support of-custody certification as Include certification in commitments to FM and CoC proof of SFM. criteria for concessions in MPI Immediate certification. PFAs Recognize CoC certification in MAF/DoFI/FLEGT Near Term TLAS for fast-track licensing. Office 54 APPENDIX B: Priority Actions Key Findings Key Recommendations Priority Actions Institution Timeline FM certification costs are not equitably distributed Encourage reputable forest among beneficiaries. There industries investors to form is a reluctance of GoL and partnerships with smallholder MAF/ DoF, APFRD plantations to bear full Promote Lao wood (indigenous (family or farmer) plantation certification costs while and plantation grown) as MoIC/ DoIH forest investors to share risks Near Term benefits accrue to producers, sustainable once appropriate Forest and Wood and costs of compliance and wood industries, buyers, and measures are in place. Industry certification, support FM and end users who do not share in CoC certification and provide the additional costs and do not market access. pay a premium for sustainable, legal forest products. Encourage wood producers, Markets do not clearly processors and manufacturers encourage managers of to access international markets Assist wood producers, MoIC/DoIH PFAs or plantations to pursue that respect sustainability and wood processors and wood Near Term FM and CoC certification legality of wood and potentially MoIC/DIMEX traders to better understand and for wood industries and pay higher prices than buyers advantages to access wood manufacturing processors from China, Vietnam and markets that require proof of to adopt CoC or legality Thailand. sustainability and/or legality. verification across the supply Encourage wood processors to MoIC/DoIH chain. distribute higher prices down Near Term Industry Associations the supply chain to growers. Harmonize policies and procedures to support the Measures to develop a more MAF/DoF/APFRD establishment of plantation coordinated management Revise policies among grower groups and MSMEs. MAF/PAFOs/DAFOs approach, such as through MAF and MoIC to ensure Near Term Support close collaboration MoIC/DoIH the development of grower consistency. and cooperation between groups or cooperatives MoIC/POICs MoIC and plus consultation of selling into markets for legal smallholders and SMEs. or certified wood, have had limited success because Revise the MAF Strategy markets for Lao wood have To facilitate the development on Developing Farmer not paid a premium for of smallholder plantation Cooperatives and Associations. certified products to justify the groups, develop specific Review the Decree on MAF/DPF Near Term costs of certification. There regulations and guidelines with Cooperatives No 136/PM to are social and cultural barriers appropriate incentives (such make it easier for smallholders to collaborative approaches. as tax exemptions). Establish to establish small enterprises. While GoL has policies and simple low-cost procedures for Develop extension and regulations to support group establishing, registering and information services to assist in MAF/DoF, Forestry formation, they have been managing groups. Near Term groups start-up and for ongoing Training Centre largely unsuccessful for long- advice. rotation plantation production Promote development Review policies for household systems; they are more of household and SME and SME processors and effective for short-rotation processors with simplified introduce regulations measures MoIC/DoIH Near Term plantations and crops. operating standards for CoC into the decree on SMEs that via improved regulations. incentivize compliance. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 55 Key Findings Key Recommendations Priority Actions Institution Timeline Many regulations are not Draw on current research appropriate to smallholder to identify regulations Revise the regulation on plantations, and regulations that adversely impact plantation registration and MAF - DoF, APRFD Immediate or guidelines on forest smallholders and, where approvals for harvesting and management for smallholder possible revise and simplify sale of plantation timber. plantations are absent. Even these. minimum legal requirements for plantation registration are unattainable for most individuals and households. Provide evidence to certifying Explore mechanisms Smallholder plantations are bodies of the areas in MAF/DoF/FLTSD to simplify FM and CoC therefore mostly ‘’informal, which standards are not Medium certification standards for Development partners which curtails their ability currently appropriate, have Term smallholder plantation forest Certifying bodies to comply with laws, the unnecessarily adverse impacts producers. first principle of certification or are excessively costly. standards. They therefore risk being non-compliant and excluded from these markets. Encourage partnerships Continued heavy dependence between smallholder on international technical groups and reputable wood support and funds for piloting Review the Decree on processing industries or certification in PFAs and Cooperatives No 136/PM to MoIC/DoIH importing companies to share Near Term smallholder/group certification make it easier for smallholders MoIC/DERM in the costs and benefits of in smallholder plantations has to establish small enterprises. FM and CoC certification obscured costs and benefits of through simplified and efficient the market mechanism. processes. Provide technical support and The low level of forest capacity building to the forest MoIC/DoIH management certification Strengthen the understanding industries and manufacturing to prove sustainability and for and the advantages of MAF/DoF/FLTSD sub-sectors to understand Medium legality is a disincentive to the having both FM and CoC Forest and wood the need for chain-of-custody Term uptake of chain-of-custody certification across the supply industry certification to access certification across the supply chain. international markets, and how NUoL chain. to implement. 56 APPENDIX C: Approach and Methodology 1. Approach The ASA on “Sustainability in Lao PDR Forests” supported the government, private sector (corporate and smallholder), nongovernmental organizations (NGOs), industry and other stakeholders in collaboration with other donors and international agencies, to strengthen knowledge and understanding in PSFM, restoration and reforestation in production forests (PFAs and plantation forests). The team undertook preliminary desk research to identify facts, figures, case studies, best practices, practical manuals, policies and lessons learned in similar contexts in other countries in the region that could potentially apply to strengthening PSFM, restoration and reforestation in Lao PDR. An Inception Report was prepared in July 2017 to detail the approach and the proposed methodology. The participatory process adopted engaged with key stakeholders and adopted a partnership approach to facilitate the assimilation of ideas and knowledge on a continuous basis. This process included the following actions: Meetings with technical specialists to ascertain the current status of their work, their understanding, challenges and priorities for action, as well as to exchange ideas about best practices, case studies and lessons learned from other countries. Field visits to view sites and meet key people involved with PSFM and restoration of PFAs and village forest management areas, industrial and smallholder plantation sites (including communities), forest industries’ primary and secondary processing plants and visits to ascertain forest products markets in Vietnam. Meetings with stakeholder representative bodies including Lao Furniture Industries Group (Cluster), Lao Wood Processing Industry Association, Lao National Chamber of Commerce and Industry (LNCCI), Luang Prabang Teak Plantation Owners, Wood Fibre Industry Association, the National University of Lao PDR and the Lao Planted Forest Products (LPFP) Working Group. Meetings at all levels of governance, from central (MAF, Department of Forestry (DoF), Department of Forest Inspection (DoFI), Ministry of Industry and Commerce (MoIC), Department of Import-Export (DIMEX), Department of Industry and Handicraft (DoIH), and Ministry of Planning and Investment (MPI)); provincial (Provincial Agriculture and Forestry Office (PAFO), Provincial Forestry Section (PFS), Provincial Forest Inspection (POFI), Provincial Industry and Commerce Office (PoIC); District Agriculture and Forestry Office (DAFO), and commune and village forest committee levels to understand the different perspectives, priorities and unique institutional settings. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 57 Collaboration through technical support and interaction with technical and review teams of other World Bank-supported projects in Lao PDR, including the Scaling-Up of Participatory Sustainable Forest Management Project (SUFORD-SU/SUPSFM), the REDD+19 Project, the Forest Carbon Partnership Facility (FCPF) processes to develop a sound national REDD+ Strategy and Emissions Reduction Program, and the Second Programmatic Green Growth Development Policy Operation series. Meetings with collaborating partners that included International Finance Corporation (IFC), Australian Bilateral Aid Assistance (AusAID) and Australian Centre for International Agricultural Research (ACIAR) in planted forests and forest industries; and European Union and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) in the EU-Forestry Law Enforcement, Governance and Trade (FLEGT) process to prepare a voluntary partnership agreement (VPA) and a timber legality assurance system (TLAS). Participation in forest management-related events, workshops, seminars and conferences hosted by FIP/FCPF, AusAID, ACIAR, GIZ, Prime Minister’s Office, MAF, DoF, MoIC, DIMEX, Pro-FLEGT, REDD+, SUFORD-SU, GG-DPO, IFC, Lao Furniture Industries Group, Lao Plantation Group, National University of Lao PDR, and Wood Fibre Industry Association. Preparation of production forest models jointly with key stakeholders that represented the main mechanisms for PSFM, restoration and reforestation in Lao PDR. These included: i. Participatory SFM based on the actual Kathong Neua Sub-Forest Management Area (SFMA)within the Thapangthong Forest Management Area (FMA), Dongsithuan PFA, Savannakhet Province ii. Industrial eucalyptus plantations as practiced by corporate investors in the central region of Lao PDR iii. Smallholder eucalyptus outgrowers as practiced by smallholder investors in association with corporate investors in the central regions of Lao PDR iv. Smallholder teak plantations (current) as practiced by smallholders in the northern provinces of Lao PDR, specifically Luang Prabang Teak Plantation Owners (LPTP) v. Smallholder teak plantations (potential) based upon prescribed silviculture, rotations and harvesting, but generally not practiced Financial and economic analyses were conducted on each production forest model to ascertain net present value (NPV), land expectation value (LEVs), internal rate of return (IRRs) benefit/cost ratios and carbon balances. Hosting of a validation workshop on May 17, 2018 in collaboration with MAF/DoF and key stakeholder groups to present and discuss preliminary findings of the draft six technical background reports that were reflected in the Validation Workshop Report, May 17, 2018. Submission of six technical background reports as mentioned above. REDD+ stands for countries’ efforts to reduce emissions from deforestation and forest degradation, and foster conservation, sustainable management 19  of forests, and enhancement of forest carbon stocks. 58 APPENDIX C: Approach and Methodology A draft synthesis report to summarize the key findings and recommended actions from the six technical background reports was prepared, presented and discussed at a learning workshop with participants from MAF/DoF, MOIC, MPI, and World Bank Group on November 20, 2018. This synthesis report (for decision review meeting) incorporates the key findings and recommended actions from the six technical background reports, the validation and learning workshops, and peer review feedback from the World Bank Quality Enhancement Review (QER) held on December 14, 2018. 2. Methodology Retrospective of the forest sector in Lao PDR. Desk research of existing documentation and close collaboration with MAF/DoF informed the technical background report to better understand the drivers of deforestation and degradation. This report included an examination of the role of PSFM, conversion and salvage logging, corporate and smallholder plantation forests and wood products trade impacts on the economy; and the involvement of communities and the role of villagers in PFA management. Technical background report on sustainable forest management in Lao PDR. The technical background report captured a combination of best practices and case studies from other countries and forest management practices in Lao PDR to better understand the various advantages, options for different approaches to SFM in Lao PDR under different production models, including PSFM including forest restoration and livelihoods development; industrial eucalyptus plantations; smallholder outgrower eucalyptus plantations; and smallholder teak plantations. For each production model, the actual work norms, costs, productivities, yields, annual allowable cuts and stumpage prices were collected using actual operations in Lao PDR. The challenges facing SFM and the recommended policy and technical actions were outlined for consideration. The role of forest management and chain-of-custody certification and TLAS legality verification and the international market pressures for proof of sustainability and legality were synthesized in the technical background report. Technical background report on certified forest and wood products in Lao PDR. The technical background report was prepared partly from desk research from Lao PDR, the Southeast Asian region and globally; meetings with the government and the private sector (both corporate and smallholder) producers and wood processors; and a survey of Lao forest products marketing in Vietnam. The role of forest management and chain-of-custody certification and legality verification were reviewed and the trends in international markets for proof of sustainability and legality recorded. In the absence of significant forest certification (forest management or chain-of-custody), it was not possible to analyze with/without certification with any hard data. Studies from Vietnam were indicative of results that could be expected in Lao PDR. A national market survey, chain-of-custody analysis and timber industry study were proposed for the technical background report, but specialists within these fields were not available to conduct these studies within the tight time frame of the ASA. Technical background report on the regulatory framework and policy support for SFM, certification, timber legality and PPPPs in Lao PDR. The technical background report was prepared by a regulatory and policy specialist who worked with, and in close collaboration with other projects (AusAID, ACIAR, GIZ, ProFLEGT, GG-DPO, IFC) complementing the ASA work. An analysis of the existing legal and regulatory framework was undertaken to identify gaps, shortcomings and areas to strengthen certification of sustainable forest management and chain-of-custody, as well as for promoting the use of legal wood through a timber legality assurance system. In close collaboration with the government, the study drafted recommended policy and other instruments to support PSFM, certification and TLAS and PPPPs. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 59 Technical background report on Public-Private-People Partnerships for forest restoration in Lao PDR. The technical background report was prepared in close collaboration with the Ministry of Planning and Investment (MPI), the institution coordinating the PPP initiatives on behalf of the government. Desk research identified case studies and PPP agreements and checklists of background use for Lao PDR. The report captured the spirit of cooperation and identified key areas of ongoing work required by the government and the private sector (both corporate and smallholder) as a foundation for various types of partnerships: government-company, company-community and company-outgrower. Additionally, the prerequisite corporate social and environmental responsibility track record of companies was highlighted as a foundation for any stable PPP. Technical background report on economics of certified sustainable forest management. The study was based on the production models representing natural and planted forests with input costs and productivities and output yields and prices provided from data collected in the field. Economic and financial analyses of alternative forest management model options were undertaken (with and without carbon payments). Discounted cash flow analyses and capital budgeting procedures developed with the World Bank previously in Mexico and Vietnam were used to determine net present value (NPV), land expectation value (LEV), annual equivalent value (AEV), internal rate of return (IRR), benefit/cost ratios and carbon balances. Variance analyses were done using variations in wood and carbon prices, yields and other parameters. The Lao PDR model building and external comparisons with other countries helped to ascertain the practicality and reasonableness of the assumptions in the models for Lao PDR and were used to iteratively revisit some of the input production activities, costs, and prices to ensure accuracy of the results. Synthesis report. The synthesis report was prepared to summarize the key issues, findings and recommended actions emanating from the six technical background report reports, packaged for senior decision-makers. The draft synthesis report was presented at a learning and feedback workshop for GoL officials in November 2018, for feedback which was received positively, and was subjected to a Quality Enhancement Review by the World Bank Group in December 2018 and finally a Decision Review with World Bank and IFC management in March 2019. 3. Engagement, Dissemination and Communication Engagement, dissemination and communication plan. An Engagement, Dissemination and Communication Plan was prepared. The objectives of the plan were to strengthen the engagement with the government and key stakeholder groups; and build knowledge and awareness of the content in this ASA. Meaningful dialogue. The ASA process has helped to maintain meaningful dialogue between the World Bank and the government to support approved and ongoing forest policy, legal and regulatory reforms and identification of future investment and strengthening partnerships between the public, private and people institutions. 60 APPENDIX C: Approach and Methodology Significant reforms during the ASA process. The ASA process has engaged with the government, other international agencies and a wide range of stakeholders through their forestry reform process since June 2017. The following are some key reforms achieved during this period: i. MAF Ministerial Instruction on Development of the TLAS ii.  n-going inputs to new Forestry Law (TLAS implementation; FM and CoC certification; PSFM; O Plantation forestry in PFAs; Promoting and streamlining smallholder plantation forestry; and promoting private industrial plantation forestry). iii. MoIC draft Decision on the use of CoC certification in the supply/value chain.  iv. MoIC draft Regulation of Sale and Purchase of Timber in Log Landing 2. v.  MO9 on use of PFA lands for private industrial plantation forests and the support in MAF instruction P on implementation. PMO2 on the ease of doing business and the supporting MAF/MoIC instruction for implementation. vi.   UFORD-SU satellite assessment of severely degraded forest lands in PFAs suitable for industrial vii. S plantation forests (completed). viii. Draft Decree 96 on promotion of commercial plantation forests. Process for enabling private sector for reforestation & restoration in PFAs commenced. ix.  x. C  ertification process ongoing (FSC FM certification on 85,000 ha; FSC Controlled Wood on 90,000 ha) supported by SUFORD-SU. Forestry policy notes. Very short policy notes were prepared in English and Lao to assist the government and other stakeholders to formulate forestry policies and incorporate recommendations into strategic planning. ASA contribution to strategic planning. The recommended actions from the ASA process are and can continue to provide a sound basis for including forestry in the new Forest Law; NSEDP-9; Forestry Strategy 2030; National Green Growth Strategy and the Nationally Determined Contribution (NDC) and National Adaptation Program (NAP) for the UN Framework Convention on Climate Change (UNFCCC) in Lao PDR, and Strategic Plan for Disaster Risk Management. ASA contribution to new public and private investment. Additionally, the dialogue during the ASA preparatory process has helped shape potential investment opportunities and strengthen partnerships between private and public institutions. 61 APPENDIX D: Map of Land Use and Forest Types in Lao PDR (2015) Source MAF Forest Inventory and Planning Department (FIPD) 2018. 62 APPENDIX E: Industry platforms, standards and  principles for certified wood Green Procurement Policies Green Procurement Policies (GPPs) that require proof of sustainability have been adopted by the EU and other countries, helping drive the demand for certified wood. For example, a “Buying Green” handbook helps public authorities to plan and implement GPPs in the EU (European Commission 2016). Japan and New Zealand have national GPPs, while the U.S., China, Mexico and Brazil have introduced GPPs at city, regional or national levels. Those countries with GPPs accept FSC and PEFC and their associated certification systems as proof of sustainability. Green Building Standards Increasing adoption of green building standards is also driving demand for certified wood. For example, the U.S. Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED), 24 national and regional Green Building Councils in the European Regional Network (ERN), and the Green Building Standard of Australia have all recognized internationally reputable voluntary forest certification standards such as FSC and PEFC and their associated certification systems as credible proof of sustainability. Global Principles and Standards in Forestry Sector Financing The IFC and ’World Bank Environmental and Social Framework reflects the evolution in good practice for better development outcomes, risk mitigation and transparency. IFC and the WBG require their clients to comply with globally, regionally or nationally recognized standards for primary production and to implement SFM practices such as those compliant with appropriate, independent, accredited certification bodies. The Equator Principles, which were derived from the IFC and World Bank safeguards frameworks, offer a risk management approach that has been adopted by international commercial financial institutions for determining, assessing and managing environmental and social risks in project finance. They are primarily intended to provide minimum standards for due diligence to support responsible decision making. International financing institutions that have adopted the Equator Principles will not provide project finance where their client does not comply with their principles. Financing institutions using Equator Principles are encouraged to consider using independent, third-party forest certification systems. Other useful standards have also been developed, such as China’s 2007 “Guide on Sustainable Overseas Forests Management and Utilization by Chinese Enterprises” (China Forestry Network 2007).20 20  “Guidelines for the Sustainable Use of Forests by Chinese Enterprises.” PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 63 The UN Principles for Responsible Investment (PRIs) provide a global standard for responsible investing as it relates to Environmental, Social and Corporate Governance (ESG) factors to better manage risk and generate sustainable, long-term returns. Financial institutional signatories to the PRIs undertake to implement the ESGs to positively impact the performance of investment portfolios. If signatories do not report on progress toward achieving the PRIs, they are removed from the responsible investors list. Third-party certification from a reputable certification system is considered an effective means of demonstrating and reporting compliance with legality and sustainability standards and practices for PRI purposes. The target markets for forest products trade from Lao PDR may have major clients that are signatories to the PRIs that will require legality verification and/or certification for proof of legality and sustainability of forest products. Private Sector Procurement Responses Timber trading associations or federations play an important role in defining and disseminating general policies and standards for selected market areas and enhancing further development of procedures and guidelines. Some timber trade federations and wood products associations require that members comply with legality and sustainability standards when importing timber products. Companies join these federations and associations to subscribe to the codes of conduct or codes of ethics and to commit to the third-party verified or certified forest products. This is desirable for various reasons, such as to meet national public procurement requirements, maintain market share, ensure corporate social responsibility, improve supply chain efficiency, or with a view to proactive marketing of the positive uses of renewable wood products in construction and building. The following are some examples of these types of associations: >> The Timber Trade Federation (TTF), whose members account for about 70 percent of forest products trade in the UK. >> The European Timber Trade Federation (ETTF), which represents sixteen key importing trade federations from thirteen countries across Europe. >> The National Wood Flooring Association (NWFA) in the US. >> The China Solid Wood Flooring Alliance, which represents 19 leading companies and the China Pulp and Paper Alliance, which represents most of China’s pulp and paper producers. End-Use Companies Increased public awareness of environmental issues in industrialized countries can be seen in end-user company wood procurement policies. In general, the EU and U.S. markets require major operators to demonstrate responsibility to authorities and shareholders in securing the legality of wood origin as well as the sustainability of production. Most major companies have consequently developed wood procurement policies, usually built on stepwise improvements and strict minimum requirements for their timber suppliers. 64 APPENDIX F: Elements for Building the Foundation for PSFM Building Natural Forests Plantations Blocks PFA Village use Other Sources Industrial Out-grower Smallholder Timely decisions Timely Timely Timely decisions Timely decisions Timely decisions on land allocation decisions on decisions on on land allocation on land allocation on land Allocation for Public- land allocation land allocation for Public- for Public- for Public-Private- Private-People for Public- for Public- Private-People Private-People People Partnerships Partnerships Private-People Private-People Partnerships Partnerships Partnerships Partnerships >>Land use >>Concessions >>Concessions >>Leases certificates >>Concessions >>Wood supply >>Leases and >>Inputs (company, >>Tree registration >>Wood supply >>Land use Plan agreements duration smallholder) >>Inputs (GoL, Procedures agreements >>Village Forest >>Local >>Environmental >>Wood supply company, >>Local Management participation and social impact agreements smallholder participation Plan >>Compensation assessment >>Benefit >>Smallholder >>Benefit >>Village Forest >>Benefit >>Benefit distribution distribution grower groups distribution Management distribution >>Wood supply >>Local >>Wood supply >>Restoration Agreements >>Restoration agreements participation agreements >>Wood supply >>Local participation >>Enterprise agreements >>Benefit distribution registration >>Restoration Fiscal incentives; Village FFRDF; Village Market-based Secured land use Forest and Development Village Development Fund prices at time of rights; Forest Resources Fund; Development (payment for social sale Inputs and Fiscal Development Auction Fund services) extension; Instruments Funds (FFRDF); procedures Auction Prevailing market Auction procedures prices procedures Free prior and Free prior Free prior Free prior and Benefit distribution Access and tenure informed consent; and informed and informed informed Consent; models; to land and tree Benefit distribution consent; consent; Benefit distribution Access and crops models; Benefit Benefit models; tenure; Access and distribution distribution Access and tenure; Employment; Community tenure; models; models; Employment; Free prior Grievance Access and Compensation; FPIC; Grievance informed; consent; procedures tenure; Grievance procedures Grievance Grievance procedures procedures procedures Planning; Planning; Planning; Planning; Planning; Information, Management Plan; Management Information; Information; Information; extension & training; Information; Plan; Supervision; Supervision; Supervision; Certification Supervision; Information; TLAS; Certification Certification (voluntary); Certification; Supervision; Enforcement; (voluntary); (voluntary); TLAS TLAS; Certification; Education and TLAS; TLAS; R&D (land, crop, R&D (LKS, PSPs, TLAS; training R&D (improved R&D (improved harvest & market yield, silviculture, R&D (land, R&D (inventory, germplasm, germplasm, rights, social & Governance harvest, VFAs & crop, harvest LKS, social, nursery, site spp. Match, environmental village livelihoods) & market environmental silviculture, social silviculture, science) Enforcement; rights, social & & economic & environmental harvest & market); Education and environmental impacts of science, markets); Education, training science) conversion) Education and extension and Enforcement; training training Education, extension, training 65 APPENDIX G: Scenarios for Production Forest Areas Industrial Eucalyptus Plantations Investments in existing eucalyptus industrial tree plantations have been based on forecasts of good financial returns driven by high estimated growth rates and competitive pricing. Modelling undertaken by this ASA shows that an internal rate of return (IRR) of 22 percent and a land expectation value (LEV) of more than US$6,000 at the 8 percent discount rate are possible from plantations managed on seven-year rotations with a stumpage price of US$35 per cubic meter. While assumptions are based on information provided by existing investors, there are some areas worthy of consideration to ensure this approach is compatible with SFM: attaining access to land with the potential to achieve the modelled growth rates is a significant issue, and lower growth rates are likely to be the reality in some areas; the reported growth rate for eucalyptus appears optimistic and would be the highest of any country in Asia despite the country’s relatively low levels of technological development. Vietnam, for example, has much lower growth rates for eucalyptus (Harwood and Nambiar 2014a, b), so achieving such high productivity across all land in Lao PDR is likely to be difficult, although it is promising to note that it has been accomplished in some areas. Returns based on lower growth rates of 26 m3/ha/year but with the same input costs were modelled, and this made a large difference in the returns. The LEV decreased to around US$2,500 per ha, and the IRR fell to 15 percent. On areas of lower site quality, management and monitoring will be essential to enhance plantation productivity. Outgrower Eucalyptus Plantations Outgrower eucalyptus plantations were found to be extremely profitable from a financial standpoint for prospective outgrowers, based on available information and as long as their labor costs and the contributed inputs from a partner forestry firm were not included as costs. With lower growth rates (18m3/ha/year), shorter rotations (five years) and the same stumpage price of US$35/m3 as the industrial model, the resultant LEV for outgrowers was US$5,801 per ha at the 8 percent discount rate. However, since planting costs were lower, the outgrower model had a much higher base IRR of 61 percent compared to 22 percent under the industrial model. Despite the apparent advantage from a financial analysis viewpoint, the exclusion of imputed costs for labor, company-provided inputs, and lower growth rates are significant. Including the cost of labor reduced the LEV to US$2,955 per ha; a lower growth rate reduced LEV to US$4,239; and when combined (labor cost plus low growth rates), LEV was as little as US$563 per ha. These added costs reduced the IRR from 61 percent to 6 percent. 66 APPENDIx G: Scenarios for Production Forest Areas Outgrower plantations can have excellent financial returns for smallholders if their input costs, technical services and access to market at competitive market prices are subsidized by a forestry firm or by the government, and if they contribute their own labor to manage the plantation. High returns are likely to be realized only if new planned forestry investments and good timber markets occur and scale up in Lao PDR. Smallholder Teak Plantations Smallholder teak plantations are currently much less productive than their potential. Due to poor site selection, low quality germplasm, and inadequate management, they have relatively low growth rates of 9m3/ha/year. While typically grown on long rotations, the reality is that most plantations are rarely managed on a rotational basis; harvesting is irregular and product quality and size are highly variable. By applying a hypothetical 24-year rotation and a stumpage price of US$91, a LEV of US$2,383 per ha and IRR at 13 percent are possible. Improved early management could increase growth rates and consequently piece size, and the quality of wood could be improved through thinning, pruning and competition control. Modelling with more intensive management, higher growth rates of 14m3/ha/year and shorter rotations from 24 to 18 years improves returns to perhaps as much as a LEV of about US$5,000 per ha, and an IRR of 18 percent. While achieving the necessary management level for new teak plantations may be possible, it will increase costs. Improved information, training and capacity building as well as better germplasm and land use planning are needed. For existing plantations, however, many plantations are past the age at which silvicultural interventions are likely to have a significant impact on growth or quality, and adoption of new techniques has been limited ACIAR 2017). Other interventions are required to address grower attitudes to plantation management and realize the full potential of these forests. While good teak management is possible, it is not common practice in Lao PDR since plantations are established more to secure land tenure and to fund emergency needs rather than for commercial timber production (Newby et al. 2014; Smith et al. 2018). Teak plantations are rarely clear-felled – the norm is to selectively harvest the best trees in times of need (Ling et al. 2018). On the other hand, there are reasonable regional and domestic markets for teak, and these could be increased through improved processing and manufacturing practices and a reduction in regulatory processes and costs that both limit returns to growers and inhibit their ability to attain and demonstrate legality. Participatory SFM Model Timber harvesting in natural forests in Lao PDR has occurred at unsustainable levels and has exceeded known growth rates by about 1m3/yr. Harvesting has historically been on a 15-year, periodic rotation, and growth rates have been low, at 3.19 m3/ha/yr. With a stumpage price of US$57.50/m3 this has provided a low LEV of US$603 per ha at the 8 percent discount rate and an IRR of 13.8 percent. However, if forest rights holders are capable of managing existing stands carefully and sustainably and harvest a range of useful timber products with good access to markets and reasonable prices, the potential is much greater. With a stumpage price of US$150/m3, a LEV of US$2,440 per ha and an IRR of 24.2 percent are possible. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 67 A challenge for PSFM is that good quality, well-managed, high volume natural stands are scarce in Lao PDR and remaining stands tend to have decreasing volumes of commercially desirable species in current markets and poor-quality regeneration. This is correctable through the application of good silviculture and by providing for forest restoration through adequate capital and technical knowledge. Higher stumpage prices, if realized, could have a very positive impact on PSFM in PFAs. The current ban on logging in PFAs and the export of unprocessed wood is a constraint. To capture the higher prices offered by high-end final markets, good domestic log processing is required; this capacity is not currently available. Instead, the structural adjustment of the processing sector associated with the implementation of PMO15 has resulted in a reduction in overall processing capacity. Even if good native hardwoods are valuable in theory, it may not be possible to realize this value within the country given current laws and infrastructure. Furthermore, informal costs and unofficial processes, which have been a persistent feature of hardwood supply chains in Lao PDR, are difficult to model to determine the potential gains for the SFM model. 68 APPENDIX H: Key Elements of Successful Partnerships Principles What is needed? >> Consistent application of the policy, legal and regulatory frameworks at central, provincial, district and village Consistency in levels. Inconsistency causes strained relationships, undermines confidence, adds a significant investment risk Governance and constrains expansion of investments. Working together >> PPPPs require all partners to earn and embrace mutual trust and respect and to exercise transparency and clear for a common communication across institutions. Partnership objectives should be clearly articulated and well understood. goal >> Delays in decision making, such as providing access to large contiguous areas of land or in making concession Timely Decisions agreements, can create serious constraints to achieving the objectives and targets for PPPs. >> Past action reflected was strongly oriented toward “harvesting concessions” rather than “forest management” concessions. As a result, there was a heavy emphasis in expertise and experience with inventory, management planning and surveys related to harvesting of forests, with limited focus on holistic forest management required New Skillsets of SFM. >> New skills should focus on sustainable forest management including post-harvest silviculture, regeneration, forest protection and productivity are needed. The realization of opportunities to undertake forest restoration and expand reforestation to increase forest cover have led to the potential to upscale and strengthen PPPPs. >> The policy/legal/regulatory priorities are changing and institutions at all levels need to adapt, including giving greater focus to forest research/education/extension/training. >> More focused research and education is required on forest restoration in different forest types, indigenous New Research, forest silviculture, improved germplasm for planted forest species, resistance to insects, pests and diseases, Extension and monitoring growth and yield and market intelligence. More people-centered approaches, together with provision Education of technical and extension services and new social skillsets are needed to facilitate free, prior and informed consent, social and environmental monitoring and a better understanding of the business functioning of companies, communities and smallholders. >> Partnerships can be strengthened through transparent contracts/agreements, strong supporting regulations and accessible mediation and grievance resolution systems. >> Generic laws supporting contracting and dispute resolution exist but could be strengthened to ensure that the rights, duties and benefits for each party involved in forest partnerships are clearly established, defensible and grievance mechanisms are accessible to all. Contracting >> Template agreements are available and could be adapted to the specific circumstances of Lao forest PPPPs and Grievance such as i) the Report on Recommended PPP Contractual Provisions (World Bank Group, 2015, revised Mechanisms in 2017), which sets out language for a selection of typically encountered provisions in any public-private partnership; ii) an Information and Communication Technology Sample Contract and Schedules (Australian Bilateral Aid and the Philippines-Australia Partnership for Economic Governance Reforms); and iii) a Standard on Public-Private Partnerships in Renewable Energy (United Nations Economic and Social Council 2018). >> Customary and informal dispute resolution and mediation mechanisms can be included in PPPP agreements. >> Numerous partners support Lao PDR’s development of an effective investment environment for forest partnerships. >> IFC has been supporting private companies to pilot and demonstrate partnerships with smallholders in reforestation, through outgrower mechanisms. International >> The WB, IFC, Australian Bilateral Aid Assistance (AusAID), ACIAR, GIZ and others have been working with the Support GoL, companies and other stakeholders to identify opportunities for upscaling restoration and reforestation in PFAs and neighboring land and providing technical advice on reforms necessary in the policy, legal, regulatory and institutional frames. The GoL wishes to upscale restoration and reforestation immediately, so awaiting set up of a PPP framework and mechanism is not the most viable route forward. PARTNERSHIPS AND OPPORTUNITIES FOR A NEW GREEN FOREST ECONOMY IN LAO PDR: SUSTAINING FOREST LANDSCAPES AND LIVELIHOODS 69 References ACIAR 2017. “Smallholder Teak Woodlots and Agroforestry System in Lao PDR: Enhancing the efficiency and sustainability of the planted forest industries in Lao PDR.” ACIAR Policy Brief. Australia Agency for International Development (AusAID). “Philippines – Australia Partnership for Economic Governance Reforms (PEGR) Sample Contract and Schedules.” June 2009. Accessed March 15, 2019. http://www.neda.gov.ph/wp-content/uploads/2014/01/ICT- Sample_.pdfTo, P. X and K. Canby. 2017. Braeutigam, D. 2003. Community Based Forest Management in Cambodia and Lao PDR: Frame Conditions, Selected Examples and Implications. Mekong River Commission Cooperation Programme’s Agriculture, Irrigation and Forest Programme. China Forestry Network. “Guidelines for the Sustainable Use of Forests by Chinese Enterprises.” Guidelines for the Sustainable Use of Forests by Chinese Enterprises:_China Forestry Network. Accessed March 15, 2019: http://www.forestry.gov.cn/portal/main/s/224/ content-401396.html. Chokkalingam U. and K. Phanvilay. 2014. “Forest Governance Assessment for REDD+ in Lao PDR, Part I.” Background Paper. Department of Forestry, Lao PDR. Cubbage, F.W., R. Rubilar, A. Bussoni and V. Morales. 2018. “Global Timber Investments Returns.” Paper presented at International Forest Business Investment Conference. Gdansk, Poland, June 6-8, 2018. Cubbage, F., MacDonagh, P., Balmelli, G., Olmos, V. M., Bussoni, A., Rubilar, R., de la Torre, R., Lord, R., Huang, J., Hoeflich, V. A., Murara, M., Kaniski, B., Hall, P., Yao, R., Adams, P., Kotze, H., Monges, E., Perez, C. H., Wikle, J., Abt, R., Gonzalez, R. and O. Carrerro. 2014. “Global Timber Investments and Trends, 2005-2011.” New Zealand Journal of Forestry Science 44 (Suppl 1):57. Accessed at: http:// www.nzforestryscience.com/content/4451/s7. December 5, 2014. Department of Forestry, Lao PDR (DoF). 2015. Unpublished Plantation Statistics. DoF, Lao PDR. Department of Forestry. 2018. Presentation at the National Forest Restoration and Rehabilitation Seminar. DoF, Lao PDR. March 2018. European Commission. “Buying Green! A Handbook on Green Public Procurement.” European Union – European Commission. 2016. Accessed March 15, 2019. http://ec.europa.eu/environment/gpp/buying_handbook_en.htm. European Union (EU) Forest Law Enforcement, Governance and Trade (FLEGT) Facility. 2012. “Study for Understanding Timber Flows and Control in Lao PDR.” Foppes, J. and D. Samontri. 2010. Assessment of the Values of Non-Timber Forest Products (NTFP) in Lao PDR. Technical Report. Sustainable Forestry and Rural Development (SUFORD) Project, MAF/DoF. Frearson, A. 2019 “Architects Embrace “the Beginning of the Timber Age”.” Dezeen. November 13, 2017. Accessed March 06, 2019. https://www.dezeen.com/2015/11/09/cross-laminated-timber-construction-architecture-timber-age. Frey, G.E., F.W. Cubbage, T.T.T. Ha, R.R. Davis, J.B. Carle, V.X. Thon, and N.V. Dzung. 2018. “Financial Analysis and Comparison of Smallholder Forest and State Forest Enterprise Plantations in Central Vietnam.” International Forestry Review 20, no. 2 (2018): 181-98. doi:10.1505/146554818823767582. Forest Sector Indicator Survey (FSIS) 2018. Basic Study for Updating the Forestry Strategy 2020 -- Forestry Sector Indicator Survey 2018. Sustainable Forest Management and REDD+ Support Project (F-REDD). Government of Lao PDR Ministry of Planning and Investment. “Development of Public-Private-Partnerships in the Lao PDR.” Accessed March 15, 2019. http://www.investlaos.gov.la/index.php/start-up/public-private-partnership. Government of LaoPDR National Forest Inventory. 2015. Department of Forestry’s Forest Inventory and Planning Division. Government of Lao PDR. National REDD+ Strategy. 2019 (Forthcoming). World Bank “Guidance on PPP Contractual Provisions, 2017 Edition.” . Accessed March 15, 2019. https://ppp.worldbank.org/public- private-partnership/library/guidance-on-ppp-contractual-provisions-2017-edition. Hamrick, K. and M. Grant. 2017. “Unlocking Potential State of the Voluntary Carbon Markets.” Forest Trends, Ecosystem Marketplace. Washington, D.C. Harwood, C. E., and E. K. S. Nambiar. 2014a. “Productivity of Acacia and Eucalypt Plantations in Southeast Asia. 2. Trends and Variations.” International Forestry Review 16(2): 249-260. Harwood, C. E., and E. K. S. Nambiar. 2014b. “Sustainable Plantation Forestry in Southeast Asia.” Australian Centre for International Agricultural Research (ACIAR) Technical Report No. 84. Canberra, Australia: Australian Centre for International Agricultural Research. International Finance Corporation (IFC). 2017. Diagnostic Assessment of Outgrower Schemes and Demonstration Pilots: Lao Agro- Forestry Project No: 594367. 70 International Tropical Timber Organization (ITTO). 2016. Biennial Review and Assessment of the World Timber Situation 2015-2016. Division of Trade and Industry. “Laos Log and Sawnwood Export Ban: Impacts on the Vietnam–Lao Timber Trade.” Forest Trends, March 2017. https://www.forest-trends. org/wp-content/uploads/imported/Vietnam%20Laos%20Log%20and%20Sawnwood%20v12%20March%201%202017.pdf Ling S. 2014. The Rationale for, and Feasible Approaches to, the Development of Growers Groups. Report completed as a component of the Australian Centre for International Agricultural Research (ACIAR) funded Project FST/2010/012 Enhancing Key Elements of the Value Chains for Plantation Grown Wood in Lao PDR. Ling, S., Smith, H. F., Xaysavongsa, L. and R. Laity. 2018. The Evolution of Certified Teak Grower Groups in Luang Prabang, Lao PDR: An Action Research Approach.” Small-Scale Forestry. https://doi.org/10.1007/s11842-018-9391-8 Maraseni, T. N. , Son, H. L, Cockfield, G. Duy, H. V and T. D. Nghia. 2017. “The Financial Benefits of Forest Certification: Case Studies of Acacia Growers and a Furniture Company in Central Vietnam.” Land Use Policy 69 (2017): 56-63. doi:10.1016/j.landusepol.2017.09.011. Midgley, S. J. 2016. “The Promise and Reality of Certification: Help or Hindrance to Smallholders.” ACIAR Teak Agroforestry and Smallholder Workshop. November 14-17, 2016. Luang Prabang, Lao PDR. Miles, P. 2014 “Why Architects Are Now Using Wood to Construct Big Buildings.” Financial Times, September 26, 2014. Accessed March 06, 2019. https://www.ft.com/content/408ef4c8-3f30-11e4-984b-00144feabdc0. Ministry of Agriculture and Forestry (MAF) Lao PDR. 2005. Forestry Strategy to the Year 2020 of the Lao PDR. Lao PDR. Ministry of Natural Resources and Environment Lao PDR. 2016. Fifth National Report to the United Nations Convention on Biological Diversity. Muller, Eva U., Andrey V. Kushlin, Thais Linhares-Juvenal, Douglas Muchoney, Shelia Wertz-Kanounnikoff, and David Henderson-Howat. 2018. “The State of the World’s Forests 2018: Forest Pathways to Sustainable Development.” Rome: Food and Agriculture Organization of the United Nations. Newby, J., Cramb R. A. and S. Sakanphet. 2014. “Looking Beyond the Woodlot: A Livelihoods Perspective of Smallholder Teak Expansion in Northern Lao PDR.” https://latarp.wordpress.com/publications/ Nordhaus, W. D. 2017 “Revisiting the Social Cost of Carbon.” Proceedings of the National Academy of Sciences 114, No. 7: 1518-523. doi:10.1073/pnas.1609244114. Phimmavong, S., B. Ozarska, S. Midgley, and R. Keenan 2009. “Forest and Plantation Development in Laos: History, Development and Impact for Rural Communities.” International Forestry Review 11, No. 4: 501-13. doi:10.1505/ifor.11.4.501. PPP Knowledge Lab. “Designing PPP Contracts.” PPP Reference Guide. Accessed March 15, 2019. https://pppknowledgelab.org/guide/ sections/61-designing-ppp-contracts#table-18. “SCS Global Services.” SCS Global Services | Setting the Standard for Sustainability. Accessed March 06, 2019. https://www. scsglobalservices.com/files/standards/fm_stn_scs_interimstandard_laopdr_v2-1_030416.pdf Smith, H.F., Ling, S., Barney. K. and P. Kanowski. 2018. “Value Chain Assessment: Interim Summary Report - Teak plantations in Northern Lao PDR.” ACIAR Project FST/2016/151 Advancing Enhanced Wood Manufacturing Industries in Lao PDR and Australia. Smith, H.F., Ling., S. and K. Boer. 2017. “Teak plantation Smallholders in Lao PDR: What Influences Compliance with Plantation Regulations?” Australian Forestry, 80:3, 178-187, DOI:10.1080/00049158.2017.1321520 Smith, H.F., Barney, K., Byron, N., Van der Meer Simo, A., Phimmavong, S., Keenan, R, and Vongkhamsao, V. 2017. “Tree Plantations in Lao PDR: Policy Framework and Review. Working Paper 3.” ACIAR Project ADP/2014/047: Improving Policies for Forest Plantations to Balance Smallholder, Industry and Environmental needs. Sophathilath, P. 2009. Assessment of the Contribution of Forestry to Poverty Alleviation in LPDR. Lao PDR Forestry Outlook Task. Tong, P.S. 2009. “Lao PDR Forestry Outlook Task.” Working Paper No. APFSOS II/WP/2009/17. FAO. United Nations Economic Commission for Europe. Forest Product Conversion Factors for the UNECE Region. 2010. Geneva: United Nations Economic Commission for Europe, Timber Section. United States Environmental Protection Agency (EPA).”The Social Cost of Carbon.” 2017. January 09, 2017. Accessed March 15, 2019. https://19january2017snapshot.epa.gov/climatechange/social-cost-carbon_.html. World Bank. 2017. Systematic Country Diagnostic, Lao PDR. Washington, D.C. World Bank. World Bank. 2012. “Advancing Disaster Risk Financing and Insurance in ASEAN Member States: Framework and Options for Implementation.” Washington, D.C. World Bank. http://documents.worldbank.org/curated/en/265831468205180872/Main-report World Wildlife Fund (WWF). 2015. “Assessment of the Scope of Illegal Logging in Lao PDR and Associated Trans-Boundary Timber Trade.” Working Paper. 72 Elements for Building the Foundation for PSFM The World Bank Group Lao PDR Country Office, East Asia and Pacific Region Xieng Ngeun Village, Chao Fa Ngum Road, Chantabouly District, Vientiane, Lao PDR worldbank.org/lao This publication is printed on a mix of FSC-certified and recycled paper.