The World Bank LA-Scaling-Up Participatory Sustainable Forest Management (P130222) REPORT NO.: RES35998 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF LA-SCALING-UP PARTICIPATORY SUSTAINABLE FOREST MANAGEMENT APPROVED ON MAY 31, 2013 TO LAO PEOPLE'S DEMOCRATIC REPUBLIC ENVIRONMENT & NATURAL RESOURCES EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Ellen A. Goldstein Senior Global Practice Director: Karin Erika Kemper Practice Manager/Manager: Christophe Crepin Task Team Leader: Stephen Danyo The World Bank LA-Scaling-Up Participatory Sustainable Forest Management (P130222) I. BASIC DATA Product Information Project ID Financing Instrument P130222 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 31-May-2013 30-Aug-2019 Organizations Borrower Responsible Agency Lao People's Democratic Republic Ministry of Agriculture and Forestry Project Development Objective (PDO) Original PDO To execute REDD+ activities through participatory sustainable forest management in priority areas and to pilot forest landscape management in four provinces Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-H8520 31-May-2013 08-Aug-2013 30-Aug-2013 30-Aug-2019 19.00 17.96 0 TF-15286 08-Aug-2013 08-Aug-2013 08-Aug-2013 30-Aug-2019 12.83 12.49 .34 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank LA-Scaling-Up Participatory Sustainable Forest Management (P130222) Introduction: 1. The Government (GoL) of the Lao People’s Democratic Republic (Lao PDR) continues to show strong commitment and leadership to implementation of its Participatory Sustainable Forest Management Program led by the Ministry of Agriculture and Forestry (MAF). The World Bank is supporting the GoL’s Program with the Scaling-Up Participatory Sustainable Forest Management Project (SUFORD-SU), financed by International Development Agency (IDA) and the Forest Investment Program (FIP) through the Climate Investment Fund (CIF). SUFORD-SU was declared effective on August 30, 2013 and to date has disbursed 100% of the total IDA grant and 97.3% of the FIP grant (as of April 30, 2019). 2. Progress towards achievement of the project development objective (PDO) is rated satisfactory, while overall implementation progress is rated moderately satisfactory. 3. SUFORD-SU covers 13 provinces containing 41 of the country’s 51 production forest areas (PFAs), comprising 2.3 million hectares and an estimated 1,090 villages. These areas are designated to maintain a supply of forest products for development and poverty reduction benefits. SUFORD-SU is piloting a planning approach to forest landscape management (FLM) in four provinces, and village forestry in 30 villages within this area. The project also supports forest and wildlife law enforcement activities in all 18 provinces, as well as key relevant policy, legislative, and regulatory issues. The project includes activities and arrangements aimed at improving the participation of women, ethnic groups, and vulnerable people in project activities. The project social and environmental safeguards are interwoven into the project’s Community Engagement Framework (CEF), its operating procedures, and are being monitored. 4. The project was restructured in May 2018 to (a) extend the project closing date by one year (to August 30, 2019) to enable full implementation of field activities, and (b) revise the results framework to improve consistency and clarity in reporting of project achievements while taking into account project context on the ground. Project Status: 5. The latest implementation support mission in November 2018, conducted jointly by the GoL and the World Bank, concluded that the Project has made satisfactory progress with continued improvement in project implementation, which justified increasing some key performance ratings including progress toward PDO (Satisfactory), project management (Satisfactory), and the legal/policy component (Highly Satisfactory). Project activities have progressed as planned and all PDO level indicator targets have been met (or exceeded) according to reporting from GoL, which now provides an opportunity to leverage the positive results of the project by strengthening and extending some activities to support and speed up a more strategic and programmatic convergence in the forest landscape. SUFORD-SU’s achievements are as follows: (i) Forest management plans are available for all 41 Production Forest Areas (PFAs) supported by SUFORD- SU; (ii) Over 110,000 hectares of PFAs have been certified for Sustainable Forest Management by a third party, with re-certification pending in 2019; (iii) Village Livelihood Development grants have been fully distributed to 666 target villages and are being implemented; (iv) Forest Restoration Grants have been largely disbursed (70%) with implementation ongoing and providing casual jobs for villagers. The capacity for forest law enforcement has been substantially strengthened, and the policy and legal environment has improved substantially, which is attracting credible private sector investment interest that needs to be facilitated by, regulated by, and coordinated with a strong and active government program. The World Bank LA-Scaling-Up Participatory Sustainable Forest Management (P130222) Context for restructuring: 6. All SUFORD-SU activities are contributing to the country’s REDD+ objectives, as noted in the reduced rate of deforestation tentatively recorded in the revised SUFORD-SU results framework. Through SUFORD-SU, linkages are developed with the REDD+ Readiness process including on aspects related to livelihoods of forest dependent communities, access to natural resources, land tenure, customary rights, benefit sharing, conflict resolution mechanisms, and law enforcement. Collaboration includes analytical work, capacity building, and strengthening the policy and regulatory framework for participatory sustainable forest management. SUFORD-SU is also linked to a parallel Green Growth Development Policy Financing series (P166839) that is supporting key forest sector policy reforms including timber legality and forest certification. 7. The World Bank’s long-term engagement in the forestry sector in Lao PDR is now at a critical time when the new Forestry Law is under development, a series of policy actions was approved and others are under preparation, reputable private investors are considering large-scale investments, and the Government of Lao PDR is maintaining a green growth focus during the second part of the implementation of the current five-year plan and for the preparation of the next National Social Economic Development Plan. In this context, dialogue is also advancing on options for continuation (or selected lifting) of the temporary logging ban that has been in effect since 2013. While the logging ban has allowed the GoL to put in place important and necessary reforms, with support of SUFORD-SU, to transform the forest sector toward more sustainable, inclusive and resilient growth, the ban has also limited the opportunities for villagers’ access to livelihoods and benefit-sharing from participatory sustainable forest management over the past years. More work needs to be done to continue to anchor the forest sector dialogue into actions and implementation, and with this, further advance the policy and regulatory environment to transform the sector into a modern productive industry with local benefits. 8. In this context of continuation of forest sector reform, the Government has signaled strong interest in the Bank’s assistance to prepare for a new set of strategic public investments in forest landscapes and livelihoods that could mobilize a programmatic set of financing instruments, including the blending of IDA 19 and Global Environment Facility (GEF) grants that could be effective in early 2021 (e.g. on January 14th, 2019, the GoL’s GEF Focal Point formally endorsed the use of the full GEF-7 “STAR” allocation through the proposed new World Bank operation). 9. In the interim, the Government has requested Additional Financing of $5 million IDA-18 to extend SUFOR-SU until March 2021 to: (i) continue critical forest management activities including forest certification (which is also a direct contribution to the targets of the Green Growth DPL) and ensure that momentum is not lost on the ground and among provincial agencies for implementing the country’s strategic forest sector program, (ii) carry out dialogue and preparation work with provinces, partners, projects, and private entities on initiating a landscape platform nationwide to consolidate actions, (iii) support the preparation of a potential Landscapes and Livelihoods Project (IDA+GEF), and (iv) fill the financing gap created by foreign exchange loss under SUFORD-SU: the actual budget has decreased from US$31.8 million to US$30.5 million. 10. Until the Additional Financing is effective, the GoL has further requested a short-term no-cost extension of SUFORD-SU to follow up on activities in the field, allow full disbursement of grant resources, assess project impact thus far to feed into design of successive investments, and to allow sufficient time to process the Additional Financing. The World Bank LA-Scaling-Up Participatory Sustainable Forest Management (P130222) Rationale for short-term no-cost restructuring: 11. The World Bank received a request from Ministry of Finance on May 13, 2019 to restructure the Project with (i) a consolidation of remaining proceeds of the IDA and FIP grants into one new combined category to simplify full disbursement of both grants, and (ii) a 7-month extension of the closing date from 30 August 2019 to 30 March 2020. 12. The proposed extension of the project closing date by seven (7) months, from August 30, 2019, to March 30, 2020 will be the second extension of the project and will allow time for: (i) full disbursement and expenditure of the two grants, (ii) follow-up on activities in the field and completion of remaining agreed upon actions (e.g. full implementation of VLG and forest restoration grants), (iii) identification of pilot activities to improve collaboration with the private sector, and (vi) sufficient time to process Additional Financing of $5 million IDA that has been requested by and discussed with the Government (see further details on context described above). 13. The proposed reallocation/consolidation of remaining grant proceeds from current disbursement categories 1 through 4 into a new combined category 5 would simplify disbursement of grant proceeds against current commitments and planned expenditures. The project’s November 2018 supervision mission noted that Category 1 has been overdrawn for both IDA and FIP grants and the Bank recommended that the project should restructure to reallocate funds across disbursement categories as soon as possible. As part of the reallocation/consolidation of grant proceeds across disbursement categories the cost sharing arrangements between the IDA and TF grants would further be rebalanced to 100% TF (FIP grants) once the IDA grant has been fully disbursed. 14. The project’s audit reports have been submitted on time and are satisfactory and the project does not have any outstanding audit reports. II. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-H8520 Effective 31-Aug-2018 30-Aug-2019 30-Mar-2020 30-Jul-2020 TF-15286 Effective 31-Aug-2018 30-Aug-2019 30-Mar-2020 30-Jul-2020 The World Bank LA-Scaling-Up Participatory Sustainable Forest Management (P130222) REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed IDA-H8520- GD WK NONCS 4,820,000.00 5,537,608.57 5,538,000.00 60.00 60.00 001 CS TR & WSHOP Currency: VILLAGE XDR LIVELIHOOD 2,410,000.00 2,337,152.05 2,338,000.00 60.00 60.00 GRANTS IOC 5,160,000.00 4,391,430.84 4,392,000.00 60.00 60.00 UNALLOCATED 310,000.00 0.00 0.00 60 GD WK NONCS CS TR & WSHOP VILLAGE 0.00 0.00 432,000.00 60 LIVELIHOOD GRANTS IOC Total 12,700,000.00 12,266,191.46 12,700,000.00 TF-15286- GD WK NONCS 4,808,356.00 5,181,918.87 5,182,000.00 40.00 40.00 001 CS TR & WSHOP Currency: VILLAGE USD LIVELIHOOD 2,400,000.00 2,196,867.00 2,197,000.00 40.00 40.00 GRANTS IOC 5,156,102.00 4,111,184.50 4,112,000.00 40.00 40.00 UNALLOCATED 465,542.00 0.00 0.00 40 GD WK NONCS CS TR & WSHOP VILLAGE 0.00 0.00 1,339,000.00 40 LIVELIHOOD GRANTS IOC Total 12,830,000.00 11,489,970.37 12,830,000.00 The World Bank LA-Scaling-Up Participatory Sustainable Forest Management (P130222)