Scaling up the Payment for Forest Environmental Services Programme in Quang Nam Province: Final Report

Factsheet

ADB’s support to PFES in Quang Nam was intended to answer one main question: “can PFES be implemented quickly and efficiently across an entire province without a lot of external assistance?” The answer to this simple question is yes.

Payment for Forest Environmental Services (PFES) is a key policy of Viet Nam for the protection of forests and development of the livelihoods of communities living in and around forest areas. Decree 99/2010/ND-CP, passed in September 2010, is the legal basis for the implementation of the policy throughout the country.

There have been successful small-scale pilots in several places but the challenge is to speed up and scale up implementation through a system of provincial PFES planning that is replicable and sustainable. The cost and time taken to survey forest resources and issue individual household contracts were identified as the main barriers to spreading PFES.

The ADB has supported the provincial authorities in Quang Nam Province to develop a system for the rapid implementation of PFES based on two major innovations: (1) the formation of PFES household groups and (2) the use of satellite imagery and GIS methods for the assessment of forest resources.

The project built on an earlier pilot by Winrock International that provided proof that PFES can work but that needed adaption to be scaled up to a provincial level. The results even in the project period are clear:

The earlier pilot allocated 2,530 ha of forest to 111 households in two villages in Ma Cooih Commune in two years.

Under the present project, the piloting of a group approach led to the allocation of 6,882 ha of forest to 303 households formed into 25 PFES groups in the remaining five villages of Ma Cooih Commune in four months.

The extension of the approach to two communes, TaPo and ChaVal, in the Song Bung 4 watershed has resulted in 14,777 Ha of forests being allocated to 696 households in 48 PFES groups 10 villages in two months.

The speeding up was based on the formation of PFES groups, which consist of 10 or more households from the same village who are allocated a plot of forest to manage and receive funds from the Fund for Forest Protection and Development (FFPD) which they can use for group livelihood activities or have as individual household income.

The group approach has many advantages: (1) it is much quicker and cost efficient and puts less pressure on the administration; (2) it reflects cultural traditions of the communities; (3) it builds social capital and helps with contacts with outside organizations; (4) it is a basis for communal livelihood activities based on PFES funds.

The planning at provincial level is based on maps produced from satellite images. These can be produced quickly, cheaply and with greater accuracy than conventional inventory methods. The maps show the location and condition of the forests in PFES areas and, with the use of a GIS, can be used to calculate the K-coefficient. The maps provide the basis for calculating the PFES payments due to individual communes and large-scale commune maps can be used for planning the allocation of forest plots to PFES groups.

Acknowledgements

This report presents the lessons learnt and insights gained during the implementation of a programme of support from the Asian Development Bank to the scaling up of the payment for forest environmental services programme in Quang Nam Province, central Viet Nam. The report has been prepared by the ADB’s team of advisors to the project led by Professor John Soussan and including Dr. Nguyen Chi Thanh, Hoang Trung Thanh, Hoang Viet Anh and Lothar Linde but the report, and the success of the project would not have been possible if it were not for the active support and encouragement of a wide variety of people. Special thanks are due to the ADB project officer, Ms. Lauren Sorkin of the ADB Viet Nam Resident Mission and to the staff and leaders of the Quang Nam Department of Agriculture and Rural Development. In particular, Mr. Le Minh Hung acted as the project’s direct counterpart and gave guidance and support throughout the project. Mr. Vu Phuc Thinh of the A Vuong FMU provided insights and contacts that were essential for the development of the approach on the ground and many other officials and local stakeholders throughout Quang Nam contributed to the success, such as is it, of this project.

Contents

1. Background: Origins and Purpose of the Project 1

2. The Policy Setting: the Origins of PFES in Viet Nam 2

3. Lessons from the Pilots 4

4. Scaling-Up PFES in Quang Nam 5

5. The Group Approach 6 5.1. Piloting in Ma Cooih Commune 6 5.2. Rolling Out the Group Approach 7 5.3. Characteristics and Advantages of the Group Approach 9

6. Satellite Imagery for Forest Assessment 11

7. Guidelines for Planning PFES at the Provincial Level 16

7.1. The Overall Approach 16 7.2. Responsibilities for PFES implementation at Province, 21

District and Commune 7.3. Establishing and Implementing PFES at the Commune Level 23

8. PFES Policy Development 25

9. Valuation of Ecosystem Services in the PFES Area of Quang Nam 27

10. Development of a Monitoring and Evaluation System for PFES 32

Annexes available upon request

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1. Background: Origins and Purpose of the Project

This report sets out the main achievements from support by the Asian Development Bank to the provincial authorities of Quang Nam Province to scale up the implementation of the Payment for Forest Environmental Services (PFES) policy, building on an earlier successful pilot in two villages of Ma Cooih Commune to cover the entire province. The intention was that the Quang Nam experience would provide lessons for the implementation of PFES across the whole of Viet Nam. The project in particular sought to provide a template where the experiences of local level pilots and intentions of national legislation could be turned into a robust, affordable and sustainable process for PFES planning and implementation at the provincial level, the key planning level in Viet Nam.

Some earlier attempts to scale up PFES have been frustrated by several factors: the lack of knowledge and capacity in provincial planning and implementation systems, the need to issue thousands (up to 1.5 million nationally) of individual contracts to beneficiary households and, above all, the challenges in identifying household forest plots given the millions of hectares of forest potentially involved. The overall regulatory and institutional framework for PFES is in place, however, and considerable amounts of money are beginning to flow into Funds for Forest Protection and Development (FFPD) that have been established in many provinces (31 at the last count). The challenge for scaling up PFES is consequently not about how to get money in but is rather about how to disburse it to service providers in an affordable and sustainable manner.

This project has sought to address these issues through the introduction of innovations in forest resource assessment based on the use of satellite images and the implementation of PFES at the community level through the formation of household groups, along with a sustained capacity development programme for the provincial authorities. The approach evolved over time as lessons were learnt at each stage in the development of the project. The starting point was to introduce the PFES group approach in the remaining villages of Ma Cooih Commune and then, based on this experience, develop a system for extending PFES to the province as a whole. In the final phase of the project the lessons learnt through this process have been translated into generic guidelines for provincial planning and engagement with the national policy development process.

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2. The Policy Setting: the Origins of PFES in Viet Nam

Payment for Forest Environmental Services and indeed the wider approach of Payment for Ecosystem Services is a relatively new policy approach for Viet Nam, with the PFES pilots first starting in 2008 and national regulations passed as recently as 2012. The objectives of the policy are two-fold: to protect and restore degrading or threatened forests and to provide livelihood opportunities for poor communities in remote areas who are amongst the most persistent remaining pockets of sustained poverty in Viet Nam.

Prior to 2008, the Government of Viet Nam (GoV) had focused on a policy of forest closure and protection combined with a mass restoration approach through the ‘5 million hectares’ programme. Although this approach had some success, the reality was a continual decline of the forested area and deterioration of the quality of large tracts of the remaining forests in different parts of the country. At the same time, there was a recognition that many communities in mountainous areas, the majority of whom are from ethnic minorities, were failing to benefit from the rapid development that has characterized the country as a whole in recent decades. There was consequently widespread support at the policy level for the identification for new approaches to forest management and development in these areas.

An essential first legislative step was taken with the issuance of Decree 05 in January 2008 which established the Fund of Forest Protection and Development (FFPD), a state financial institution to be established at the province and central levels to mobilize, receive, manage all the budget sources of grant, financing, voluntary contribution, trust fund from organizations, individuals inside and outside country and the supported budget source of the State budget for the implementation of PFES. By September 2012, FFPDs were established in 22 provinces and province level PFES steering committees had been set up on a total of 35 provinces.

The first PFES pilot was implemented starting in 2008 in two sites in Son La and Lam Dong Provinces with support from GIZ and Winrock International respectively, with these based on Decision 380 from April 2008, which instructed the PPCs of Son La and Lam Dong to establish the pilots. These pilots were considered to be extremely successful and attracted a high degree of interest at the central government level.

The Ministry of Agriculture and Rural Development (MARD) was assigned to be the responsible ministry and led the preparation of Decree 99/2010/ND-CP, which was passed in September 2010 and became the legal basis for the development of PFES throughout the country. The Decree contains many important articles, including the stipulation that PFES funds are not government revenues but are rather to be held in a trust fund (the provincial FFPDs) for disbursement to eligible communities deemed to be safeguarding the services for which payments are made.

A wide range of potential services for inclusion in PFES programmes are identified in Decree 99, including soil protection and the reduction of the sedimentation of reservoirs, the protection of water sources and water flows, carbon sequestration, landscape and biodiversity maintenance and others. To date, PFES has primarily focused on hydropower, with also some piloting of schemes to protect domestic water supplies and for tourism, but the legislative basis for including a much wider range of services exists. Key policy issues are consequently to identify the values of these services and establish the mechanisms through which service beneficiaries pay into PFES funds. The Decree also provides the mechanisms for identifying the recipients of PFES funds, basically communities living in and close to the forest areas who are contracted to undertake activities to protect the forest and ensure the concerned forest environmental services are maintained.

Decree 99 also stipulates that the level of PFES payments will be contingent upon the characteristics of the concerned forest areas, based on the calculation of the “K-coefficient”

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which takes into account four factors concerned with different aspects of the condition, provenance and management of the forests (see below).

Following the passing of Decree 99 in 2010, the Prime Minister issued Decision 2284 in December 2010 that required the preparation of a national PFES plan before the nationwide implementation of PFES was to start in January 2012. From this date it was anticipated that PFES would be implemented throughout the country but there were a wide range of detailed implementation and capacity issues that needed to be resolved before the general implementation of PFES could start. Circular 80, issued in November 2011, sought to address a number of these issues, including the method for calculating the K-coefficient and the determination of eligible PFES households, whilst a number of subsequent circulars (numbers 20, 60 and 62) issued in 2012 provided guidelines on the identification of forest areas in a river basin and the financial management of PFES funds.

In consequence, while the regulatory framework for PFES is not complete, the overall legislative basis for the national implementation of PFES is now firmly established and key elements of PFES such as the FFPDs are in place. The principle challenge to the widespread dissemination of PFES is the development of efficient and sustainable mechanisms for the implementation of the approach. One key aspect of these mechanisms is that they define clearly responsibilities for different levels of the administrative system and realistically reflect the resources and capabilities available to the responsible agencies at the provincial, district and commune levels.

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3. Lessons from the Pilots

The first pilots in Son La and Lam Dong provinces were fully launched in 2009. In Lam Dong, pilot schemes were established with support from Winrock International under a USAID programme in Da Tro and Da Hoa villages of Da Nhim commune. The intensive work undertaken in this area included the use of satellite imagery to provide accurate forest assessments and a detailed valuation exercise1 that provides essential data for the valuation of forest resources for PFES on a wider scale. The pilot worked intensively in the villages and with the provincial authorities to demonstrate the concept of PFES was relevant, achievable and of interest to local households who were willing to accept their responsibilities in forest management and protection in return for the receipt of PFES funds.

Similar experiences were found in Son La, where each household was allocated a surveyed plot and provided with an individual contract that stipulated their responsibilities in forest protection and management. These pilots were followed by a further pilot implemented by Winrock International in 2 villages in Ma Cooih Commune in Quang Nam province, where the same approach of detailed forest surveys and individual household contracts was adopted. As pilots focused at the community level and working in a small number of villages these projects were successful. They demonstrated a ‘proof of concept’ for PFES at local, provincial and national levels and were an important impetus behind the drafting and passing of the national regulatory framework for PFES. But as pilots, the levels of external support necessary to develop and demonstrate the utility of PFES was of course greatly in excess of anything that would be available under the normal operational conditions of provincial authorities who were responsible for the implementation of PFES on a large scale.

In Son La the provincial authorities established that 421,908 ha of forest should be included in PFES schemes and that 50,967 households were eligible to be beneficiaries of the programme but the approach at that time, with individual household contracts and the surveying on the ground of individual household forest plots was problematic because the province had neither the capacities nor the funds to undertake this activity. The approach would have required surveying over 50,000 plots with an average size of 8.3 ha, a daunting prospect under any circumstances. It also became clear that the base information available on forests, based on maps dating from 1999 and with a spatial resolution not adequate for demarking plots at the household level, was not adequate.

This conclusion was reached at the national conference on assessment of activities of the FFPD and implementation of the PFES policy held in Dac Nong province on 24 October 2012, where the low progress in surveying and allocation forest plots was identified as the main impediment to the implementation of Decree 99. The national scale of the challenge was identified, with over 10 million ha of forests and potentially 1.5 million eligible PFES recipient households that would have to be included in mechanisms for establishing PFES at the local level. The debate on PFES consequently moved on based on the successful pilot experiences: the key issue is no longer whether PFES is a suitable policy for Viet Nam, rather it is now what would be suitable mechanisms for the widespread implementation of PFES in an efficient and sustainable manner in the large number of provinces that have taken the first steps to establish PFES programmes.

4. Scaling-Up PFES in Quang Nam

According to VNForest, by September 2012 88 PFES contracts have been signed in 10 provinces and at the central level between PFES users (the payees into FFPD), of which 56 were hydropower companies, 11 were water production companies and 21 were tourism companies. At that date the equivalent of US$28.6 million had been collected from these

1 MARD (2008) Values of Forests on Water Conservation and Erosion Control, Da Nhim Watershed, Lam Dong Province MARD, Hanoi.

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PFES users. The identification of and establishment of mechanisms for disbursing funds to the recipients of these funds is not as advanced and is now identified as the main challenge to the widespread implementation of PFES throughout the country.

Following the successful pilot in two villages in Ma Cooih Commune, the Quang Nam PPC requested the ADB to provide support in scaling up PFES to the provincial level. During the initial discussions it became apparent that the approach in the pilots, which was successful but expensive and time-consuming, could not simply be replicated throughout the province. It would have to be adapted to a more cost-effective and sustainable approach that realistically reflected the resources and capacities available to the provincial authorities. The conclusions at this stage reflected the consensus established at the national level, that the main barriers to PFES development were the time taken and costs of surveying individual household plots and establishing and administering individual household contracts. The need for an overall PFES plan for the province was also established in the initial rounds of consultations and discussions. Two major enhancements to the PFES process have been developed to achieve these objectives:

1. The development of a group approach for PFES implementation where the operational unit and contracting body of PFES would not be individual households but would rather be a group of households within villages.

2. The use of satellite images and a GIS (geographical information system) for the identification of PFES-eligible forests and calculation of the K-coefficient.

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5. The Group Approach

5.1. Piloting in Ma Cooih Commune

The approach was developed based on the experiences of the pilot in five villages in Ma Cooih Commune to further develop the formation of PFES Groups at the community level. These groups are the basic unit for contracting and managing PFES activities in the communes, including the disbursement of PFES funds. After discussions with stakeholders at provincial and commune level, group meetings were held with the residents of the five Ma Cooih villages where PFES was yet to be implemented. The advantage was that these communities were familiar with the character and objectives of PFES as they had observed the earlier pilots in two Ma Cooih villages. There was a positive response from the local communities, who said that this reflected their traditional ways of working. Indeed, although PFES was implemented through individual household contracts and forest plots in the earlier two village pilot, people there had already organized themselves into informal groups for organizing PFES activities, stating that they found it easier and safer to work together rather than as individual households.

Follow up visits to the five villages led to the formation of PFES groups, 25 groups containing 303 households. Large-scale maps of the commune were prepared from satellite images and the eligible forest areas (6,882 ha in total) were assigned to the groups based on discussions between them and the FMU. The groups were asked to prepare outline plans for managing the forest areas assigned to them and for the use and distribution of the PFES funds that they would receive, including the use of a start-up grant of 40 million VND per village provided by the ADB. A key element of this was the agreement that a minimum of 30% of the PFES funds should be used for group livelihoods development activities and the groups prepared plans for the activities that they would undertake. Once this was done contracts were signed between the groups and the FMU and the PFES process started based on the formation of household groups. The whole process, which was very much a learning exercise for all concerned, was completed in a four month period in late 2012.

Return visits to Ma Cooih in 2013 showed that the groups have become fully established and are functioning effectively. The local people and FMU staff reported that this has already led to a marked reduction in the deterioration of the forests in the commune and the groups are active in patrolling and protecting the forest. The PFES groups have also started a number of livelihood activities using the funds from the programme. This includes a communal as well as individual pig breeding investments, cow breeding, the planting of acacia plots and the re-seeding of rattan in forest areas where it had largely disappeared. All of the groups reported that they intend to extend their livelihood investments in the future as the flow of PFES funds increases. This includes the prospect of a rolling micro-credit facility whereby households can get funds for small investments from within the PFES group and repay on an agreed schedule.

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5.2. Rolling Out the Group Approach

There has been widespread support for the adoption of the group approach at all levels: the provincial level as expressed through the PPC, the FFPD and DARD, the district and commune level where there is appreciation of the greatly reduced administrative burden, at the community level where there it is seen to be in line with local culture and traditions and at the national policy level where it is appreciated as a crucial step in the rapid implementation of PFES across the country.

The successful piloting of the group approach in Ma Cooih commune provided proof of concept. The next step was to ensure that there was a legal framework for the extension of the approach across the province and this was achieved with the preparation, with project support, by the People’s Committee of Quang Nam of a Decision on the mechanisms for using remote sensing and PFES implementation and payment procedure to household groups (Annex 1). This Decision sets the framework for the implementation of the PFES group approach across the whole province.

This was followed by actions to further refine the implementation modalities of PFES at the commune and community level through further pilots in two new communes in the Song Bung 4 Catchment: Tapo and Chaval communes in Nam Giang District. The initial discussions at both district and commune level demonstrated a low level of knowledge about PFES in an area where there had been no previous implementation of the policy. It was consequently agreed that there was a need for a publicity and capacity building programme, to familiarize both officials and local people with the basic approach to PFES. This was achieved through the production of a leaflet (Annex 2) for each of the communes that set out the main features of PFES and through meetings at district, commune and village levels. Commune maps were prepared for each of the communes from the satellite images (Figure 1) and the location and condition of the forests were verified by meetings with local communities and commune officials.

There has been a rapid response to the introduction of PFES in these two new communes and a greater confidence that the approach is the most effective mechanism for developing PFES on a wide scale. The two new communes were implemented with the minimum level of external support and yet have resulted in 14,777 Ha of forests being allocated to 696 households in 48 PFES groups covering all 10 villages in the two communes in a two month period. This extension of the group approach pilot shows that it can be introduced quickly and efficiently and has been used by the Quang Nam DARD as the basis for extending PFES across the whole province in the coming period.

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Figure 1: Land Cover Map of Cha Val Commune

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5.3. Characteristics and Advantages of the Group Approach

The development of the PFES group approach has consequently provided the basis for the rapid scaling up of the implementation of PFES in Quang Nam province. This innovation was very new in relation to PFES but there are established community forestry programmes in Viet Nam and many other Asian countries that did provide a basis for the development of this new approach. During the piloting of the group approach lessons were learnt on the detailed characteristics of the group formation and operation processes that are appropriate for the policy setting and the traditions and culture of the area in which the PFES groups are being developed. After the pilots, the main characteristics of PFES Groups were identified to be the following:

1. They consist of households who will be actively involved in the PFES process. 2. All households in a group will come from one village. 3. The groups should have a minimum of 10 members and a maximum of all the households

in a village. 4. The groups are self-selecting: they consist of households who trust each other and chose

to form a group together. 5. The groups will elect a group head and a deputy head who represent the group in relation

to commune and other authorities. 6. The groups will prepare a PFES management plan, with support from the FMU and

commune authorities where necessary, that will contain details of the group’s activities to patrol and protect the forest, the management of the forest (specifying the types and quantities of materials that group members can extract from the area they are protecting) and the use of PFES funds, including group development and livelihood activities.

7. The groups will sign a contract with the FMU or other authority as designated by the PPC based on an agreement on the implementation of PFES activities and the disbursement and management of PFES funds.

8. The groups will hold regular (at least monthly) meetings of all members to discuss group activities and resolve any problems. More regular and special meetings can be held where the group agrees they are needed.

9. The group head will prepare a report on the group meetings which will be agreed by all members and sent to the commune head for reference.

10. The group will hold quarterly meetings with the FMU and commune authorities to review progress and make any necessary adjustments to the management plan.

11. A proportion (minimum of 30%) of PFES funds will be reserved for livelihood development activities selected and organized by the groups with support from commune and district extension services and other agencies such as NGOs where appropriate.

The advantages of a group approach have been established. The approach is far more efficient and cost-effective, requiring only a small percentage (10% or less) of the number of contracts to be signed, forest plots to be surveyed and fund disbursements to be administered that the earlier approach of individual households required. This in turn will greatly speed up the administrative process and reduce administrative overheads, meaning a higher proportion of PFES funds are available for distribution to local communities and less staff hours are required by the provincial government to set-up and monitor PFES contracts. The group approach, combined with the provincial-level use of satellite imagery, consequently overcomes the main barriers to the widespread implementation of PFES that have been identified at the national level.

At the community level the group approach makes the forest protection and management activities more efficient and less time-consuming as group members can share activities and work in teams. The approach is in line with local traditions, as the communities living in PFES areas have long traditions of communal work and organization, especially in relation to common property resources such as forests. It provides greater security, as people can work

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together to confront any transgressors in the forest area under their protection and there is greater transparency in the disbursement and management of PFES funds.

The group approach provides a basis for the use of funds for livelihood activities where group members can work together to make investments not just for consumption but for long-term development of their livelihoods. The provision of external support to livelihood activities is also much easier to provide when people are organized into groups. Finally, the development of groups creates social capital at the community level, strengthening community relations and providing an institutional vehicle that can be used for other purposes such as accessing other government programmes, accessing markets and productive inputs or obtaining credit. The introduction of the group approach is consequently an extremely important innovation for the development of PFES which has the potential for the rapid and sustainable implementation on a widespread basis.

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6. Satellite Imagery for Forest Assessment

The second area where major innovations were introduced was in the methods and data sources used for the assessment of forest resources and identification of forest plots for assignment to PFES groups. The earlier pilots found the cost and difficulty of conducting forest surveys for PFES to be the most significant barrier to the adoption of the policy. The adoption of a group approach will greatly reduce the number of plots that have to be demarked but there still remains a need for a significant number of forest surveys at three key points in the PFES process: 1. To identify the forest areas and condition in each watershed that is involved in PFES

activities, for example, the watershed above a hydropower dam. 2. To categorize the forest areas according to the K-coefficient criteria. 3. At the commune level, to identify the forests within the commune that fall into individual

watersheds and demark the forest plots that will be the responsibility of different PFES groups.

The traditional approach to such surveys, based in intensive ground surveys, would still be prohibitively expensive and time consuming even with the adoption of a group approach so a methodology based primarily on the use of satellite imagery and a GIS with limited ground verification has been developed. The main elements of this approach are outlined here and explained in more detail in Annex 3. It was decided that, so as to ensure the sustainability and replicability of the method, it should meet the following criteria:

Results within 2-3 months.

Accurate enough to support commune-level PFES allocation.

Robust against changing data conditions and low data quality.

Replicable every 1-2 years if required.

Easy to learn for existing DARD staff.

Cost efficient for province level government budgets.

Suitable satellite images were acquired (in this case SPOT 5 but other sources such as the recently launched Landsat 8 are also likely to be suitable and may be more cost efficient) and a sequence of analytical steps were followed. The first step was to demark the PFES area in Quang Nam. At the present stage, PFES in limited to hydropower as a category of service users and so the catchments of the major hydropower schemes in the province (10 in total) were determined as a GIS layer. A further layer was added that showed commune boundaries, to determine which communities and which parts of individual communes would be involved in the PFES programme. The result of this first stage is Figure -, which shows the catchments and the commune boundaries.

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Figure 2: the PFES Catchments and Communes in Quang Nam

The second step was to produce a land cover and forest condition map (see Figure 3) through the automated classification of the satellite images. The categorization needed for the PFES process, including the calculation of the K-coefficient, necessitated three categories of forest to be determined: rich, medium and poor forest: this is specified in Degree 99 as the basis for forest condition classification. In addition, three other major classes of land cover were identified: shrub and grasslands, agricultural land and water bodies (mainly hydropower reservoirs in this area). The total PFES study area was determined to be 441,324 ha, including land from 58 communes, though in many cases only part of the commune was in the PFES area (see Figure 2). The map shows that the area is still largely covered in forest, with the three classes of forest covering 78% of the total area. Shrub and grasslands, which can mostly be assumed to be degraded forests, cover a further 17% of the area and agricultural land is less than 5% of the area, reflecting the low levels of settlement and lack of good quality land for farming in many parts of the study area. A reasonable high proportion (38% of the total area) is covered in good quality forest: a much higher figure than would be found in many parts of Viet Nam where forest deterioration has been extensive. The forests of Quang Nam consequently have a high intrinsic value: an issue discussed in further detail below.

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Figure 3: Land Cover Categorization for the PFES Area of Quang Nam

The good quality of the forest area is also reflected in the fact that over 190,000 ha (43%) of the total study area is categorized as Special Use Forests by the government (where conservation is the primary purpose of management) and/or as Key Biodiversity Areas in the authoritative classification by Birdlife International. As such, large parts of the forests in the PFES area in Quang Nam are of high ecological value.

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Figure 4: K-Coefficient Categorization for PFES Areas in Quang Nam

The third step in the analytical process was the calculation of the K-coefficient. Decree 99 stipulates that the PFES forests should be categorized into different levels of eligibility for payment based on the K-coefficient which includes four criteria: (a) forest condition (rich forest, medium and poor forest); (b) forest functions (special-use, protection and production forest); (c) origin of the forest (natural forest and plantations); (d) ease of access to the forest. The GIS demonstrated its analytical power here as four independent layers, one for each criterion, were prepared and then overlaid on each other to produce the overall map of the K-coefficient categorization for PFES in Quang Nam (Figure 4). The method for calculating the K-coefficient is relatively simple and can be operated with minimal training by the provincial staff of DARD. This demonstrated that the K-coefficient makes sense technically and is easy to calculate. There were other issues about the use of the K-coefficient in relation to the implications in terms of differences in the levels of PFES payments that different groups would receive that emerged during the project. These issues are discussed more fully below.

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These first three analytical steps together provide the information needed for the provincial-level planning of PFES, permitting the PFES planners to do the following:

1. Identify the areas involved in PFES, including the extent of each hydropower scheme watershed and the communes (including parts of communes) that lie within each watershed. This in turn allows the PFES-eligible communities to be identified.

2. Identify the PFES eligible forests, including their categorization into different forest quality classes as required under Decree 99.

3. Calculate the K-coefficient for different forest areas, which as stipulated in Decree 99 is necessary in order to determine the levels of PFES funding that should be provided to individual communes.

4. When this analysis is combined with data on the payments to PFES from each individual hydropower scheme (which is determined by the electricity output at the rate of 20VND/kWh as stipulated in Decree 99), the planners can calculate the levels of PFES payments to individual communes, reflecting the forest area in each watershed and the K-coefficient values of those forest areas.

5. The central authorities can then use the GIS to prepare PFES maps for each individual commune, showing the location and extent of the forests in the commune that are eligible for PFES from different hydropower schemes (some communes have land in more than one watershed) and the categorization of the forests in the commune based on the K-coefficient.

These stages are the key planning stages at the provincial level and will be central elements in the preparation of a Provincial PFES Plan (see below). The PFES Plan itself will be linked to the overall Forest Master Plan of the province through identifying the areas of forest and communities eligible for inclusion in PFES, the environmental services that will be part of PFES in the initial stages, the payees into the FFPD and the mechanism through which funds are disbursed to the beneficiary communities.

The next steps in PFES involve the devolution of decision-making down to the commune and community level, where a more intimate knowledge of the characteristics of different areas exists and where PFES becomes an operational reality. There is consequently an important distinction between the level of detail necessary for provincial-level planning and that for the operationalization of PFES at the commune level. One of the guiding principles in the future development of PFES is to devolve decision-making authority to the commune and community level as far as is possible, thereby empowering the local level based on agreed principles for local development and environmental protection. The approach set out in the support to scaling up PFES in Quang Nam makes this possible.

A key point in the approach that must be noted here is that the province-level analysis determines the eligibility of communes and communities for inclusion in PFES and the total PFES payment that each commune will receive. The distribution of that total within the commune is then determined at the commune level, based around the formation of PFES groups, the allocation of forests to individual groups and the preparation of PFES management plans by the groups with support from the commune authorities.

7. Guidelines for Planning PFES at the Provincial Level

7.1. The Overall Approach

The lessons learnt during the scaling up of PFES in Quang Nam Province are consolidated here into a set of guidelines for the planning of PFES at the provincial level. These guidelines are intended to be generic and adaptable for any province in Viet Nam and provide a mechanism for turning the intentions of the PFES policy into an operational reality. The principle challenge to the widespread dissemination of PFES is the development of efficient and sustainable mechanisms for the implementation of the approach, mechanisms that

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realistically reflect the resources and capabilities available to the responsible agencies at the provincial, district and commune levels.

The guidelines described in this document are a contribution to this process. They reflect the experiences gained in the scaling up of PFES to the provincial level in Quang Nam province, with support from the Asian Development Bank in the period May 2012 to August 2013. The Guidelines for PFES Provincial Planning will build on the experiences gained in Quang Nam but will be generic in character and applicable to all provinces in the country, based on the establishment of appropriate procedures and implementation capacities in the province at different levels of the administration.

Figure 5 shows diagrammatically the steps involved in the preparation of a provincial PFES plan. These steps represent a logical sequence that builds on the innovations described above and reflects the existing planning systems and capacities found at the provincial level. In most provinces there will need to be some capacity building undertaken, especially in the field of remote sensing and the use of GIS, but the Quang Nam experience shows that this can be achieved relatively quickly and without high costs.

Step 1 is the identification of the environmental services that will be included in the PFES plan (in Quang Nam it is to date only hydropower but there are discussions on including other services) and the parts of the province (e.g. watersheds for individual hydropower schemes) that will be part of the plan. When preparing a plan it is essential that a clear decision on the areas and services to be included is made at the beginning of the process.

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Figure 5: Steps in the Preparation of a Provincial PFES Plan

Step 1: identify environmental services and areas to be included in

the PFES plan

Step 2: map the PFES eligible forests and identify forest owners for the forest areas

Step 3: calculate the K-coefficient for the different forest areas

Step 4: identify the service receivers & calculate their payments into the FFPD

Step 5: identify the service providers – the communities eligible to receive PFES funds

Step 6: calculate the payments due to individual communes in the PFES area

Step 7: prepare maps for individual communes

Step 8: initiate awareness and capacity development programme at district and commune levels

Step 9: initiate group formation process in target communes

Step 10: authorize signing of PFES contracts and establish payment mechanisms for the PFES groups

Step 11: introduce the provincial PFES monitoring and evaluation system

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Step 2 is to map the PFES eligible forests, including the categorization of their condition as specified in Decree 99, and identify the forest owners for the forest areas. Where they are state forests (the majority) then the PPC needs to give clarity over which government organization will be the designated forest owner. Quang Nam is addressing this issue through the formation of Forest Management Units (FMUs) in each watershed but other provinces may find an alternative solution to this issue. This mapping is done by the use of satellite images at the provincial level and should be as up to date as possible.

Step 3 is to calculate the K-coefficient based on the criteria specified in Decree 99 and using the GIS methodology described above and in Annex -. The Quang Nam work has shown that this can be done quickly and efficiently on a technical level through the use of four GIS layers, the data for which are readily available. The K-coefficient reflects the differences in the levels of service provided by different forest areas and the difficulties involved in their management, differences that are reflected in adjusted payment levels.

This in turn does raise issues over the equity of PFES payments between different groups and the provincial authorities need to take clear decisions on how the K-coefficient will be used to adjust payment levels. Further national guidance on this issue would be useful.

Step 4 is the identification of the service receivers who will pay into the FFPD, in the case of Quang Nam these were the hydropower schemes as shown on the map. The levels of payments for each service receiver can then also be calculated (e.g. for hydropower it is at present 20 VND/kWh) and agreement reached with the service receivers on setting up their payment schedules for the coming years.

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Step 5 is to identify the service providers, the communities and communes that will be eligible to receive PFES funds in return for participation in forest protection and management activities. The map shows the location of villages in Ta Po and Cha Val Communes in Quang Nam as an example of the type of maps and analysis that needs to be done for all PFES areas in a province.

It is essential that there is clarity on this issue at this stage in the plan preparation and there can be challenges: for example in Quang Nam some communes were only partly in PFES areas but also had lands (and forests) outside the hydropower watersheds. Clear eligibility criteria for including (or excluding) communities need to be established during the plan preparation, criteria that reflect the real

situation on the ground in the PFES areas.

Step 6 is for the provincial planners to calculate the total PFES payment levels that are due to each commune in the PFES area. The equation for doing this is shown in the box, based on the criteria as set out in Decree 99. This is again a relatively straightforward step technically and can be easily done through the GIS system.

There are important implications of this that do need to be resolved, not least of which is that different communes will receive different levels of payment per household. Some communes have a lot more forest and lower populations than others and the condition

and ease of access of forest areas can be very different. This means that communes with more forest and less people (the two tend to go together) will get more per household but also that the PFES groups will have to do a lot more work to adequately protect and manage the forests assigned to them. The preparation of the plan will have to give clear criteria on how the issue of equity of payments versus equity of work is resolved in the payments made to individual communes.

Calculating PFES Payments

VND = A x P x K

Where VND = the total payment per commune A = the forest area in each commune P = the payment levels per hectare of forests for that watershed K = the K-coefficient adjustment for that commune

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Step 7 is to prepare maps for individual communes showing the forest areas and conditions and, in a separate map, the calculation of the K-coefficient for each commune. These maps, along with the calculation of the payments to each commune, are the key information from the province level to initiate the PFES process on the ground in the different communes.

These commune maps should use the latest available data but, given the

rapid changes found in many places, there is likely to be some variation from the actual situation on the ground. The maps are a starting point and should be verified at the commune level with local officials and community members (see below).

Step 8 is to initiate an awareness and capacity building programme in the districts and communes where PFES is to be implemented. The Quang Nam pilots illustrated the importance of doing this as there was little knowledge about PFES at each level. The use of leaflets, such as the one shown here (but in Vietnamese of course), can greatly facilitate such a programme.

During this process, the officials at district and

commune levels need to be given clear instructions on their responsibilities for the implementation of PFES (see below) and are given the necessary skills and guidance for the execution of their duties. They also need to be informed of the relevant legislation at national and provincial levels.

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Step 9 is to initiate the group formation process in target communes. This includes the prioritization of certain areas as it is not possible to start everywhere at the same time. The provincial PFES plan should include a clear schedule for rolling out PFES across the province. The steps for commune-level implementation are discussed below and should as far as possible be managed at the commune level with support and guidance from the district and the provincial level where needed.

Step 10 is for the provincial authorities to authorize the signing of the PFES contracts between the designated forest owners and the newly-formed PFES groups. This should be based on the outcomes of the commune-level implementation process described below but is a necessary check to ensure the system is working effectively before payments from the provincial FFPD (which follow the contracts) are made to the new groups. Step 11 is the final stage in the provincial level PFES planning process, the establishment of the PFES monitoring and evaluation system, discussed in more depth below. The M&E system is an essential element of the PFES planning and implementation process. It allows the authorities to track the implementation of the programme and is the basis for the next cycle of PFES planning at the provincial level, planning which should reflect the effectiveness of the implementation in the earlier phase.

7.2. Responsibilities for PFES implementation at Province, District and Commune

The Quang Nam pilots have illustrated the need for clarity on the division of responsibilities for PFES implementation within a province between the different tiers of the administrative system. There are at present no guidelines and little experience on this as most PFES implementation have been focused on local-level pilots and not worked through the overall administrative process. The scaling up of PFES to cover whole provinces will need very clear instructions on the responsibilities of the different administrative levels within a province. The points raised here are intended to contribute to the development of such instructions.

Province: the province level is of course where primary responsibility for the implementation of PFES lies. The provincial authorities will need to undertake the following specific activities to ensure that the PFES programme is implemented across their province:

Define the overall policy for PFES in the province, including the environmental services that will be included within the programme.

Establish and ensure the adequate functioning of the Fund for Forest Protection and Development, including ensuring that payments are received from the designated service recipients such as hydropower companies and tourism operators and that effective mechanisms are put in place for disbursing the PFES funds to the service providers (and payment recipients) in a cost-efficient and timely manner.

Preparing and ensuring the implementation of the Provincial Plan for PFES Implementation along the lines discussed above, including ensuring this plan is properly integrated into the overall provincial planning system for forests and for social and economic development. One key element of the plan, as outlined above, is to calculate the PFES payments that individual communes will receive and prepare maps

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showing the forest areas, conditions and K-coefficient calculations for the individual communes where PFES will be implemented.

Providing necessary rules and regulations, including Decisions such as that presented in Annex 1. It is essential that the province authorities ensure that there is a proper legal and regulatory framework for PFES and that the rights, responsibilities and legal integrity of the different organizations involved, including the PFES groups, has a proper legislative basis.

Acquiring, analyzing and preparing maps and other materials from satellite images and ensuring that the provincial GIS facility is adequately staffed and resourced. This includes the province level assessment of the forest resources, including an appraisal of the value of their environmental resources, and ensuring that there is a clear definition of the forest owners for different areas of forest involved in the implementation of PFES.

Preparing and implementing awareness and capacity building activities at all levels in the province so as to ensure that there are adequate human and institutional resources for the effective implementation of PFES.

District: the district level has essential functions to support the implementation of PFES at the commune and PFES group level. This includes the following functions:

Extension support to the formation and operation of PFES groups and, most importantly, to the start-up and operation of livelihood development activities. This should include areas such as forestry, agriculture, market development and other areas where potential for livelihoods improvement exists.

Awareness and capacity development at the commune and community level, to ensure that the aims and procedures of PFES are fully understood.

Supervision of the procedures at the commune level, including the verification of PFES plans and ensuring the correct contractual and financial procedures are in place during the group formation process.

Monitoring and evaluation of the implementation of PFES, based on the overall provincial M&E system.

Commune: the commune level is where PFES is actually implemented and the approach set out in this report seeks to devolve as much decision-making to the commune level as possible. This reflects overall decentralization policies of Viet Nam and is an essential part of reaching the potential of PFES to be a means to empower and develop local communities in remote areas of the country. It is also the most efficient and sustainable model of implementation as it is at the commune level where the distinctive characteristics of different locations can best be taken into account. The activities to be implemented at the commune and community level are:

PFES group formation, based on the characteristics and procedures for PFES groups as set out elsewhere in this report.

Forest plot allocation: based on centrally-provided commune maps which are verified locally, forest plots are allocated to PFES groups for their protection and management as defined in the group PFES plan.

PFES fund distribution: the central plan will determine the total PFES Funds to be allocated to individual communes. The distribution of these funds within the commune will be decided locally based on centrally-defined rules.

PFES plan preparation, with each PFES group preparing a plan for the management of their forest plot, including the specification of rules for the use of forest resources, and the allocation of PFES funds for both individual households and for group livelihood activities. These plans to be approved at the commune level and verified by the district.

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Contract signing between the PFES groups and the designated forest owners as determined at the provincial level.

Livelihood development activities based on PFES funds, which are defined and implemented at the group level with extension support where necessary from the commune and district.

7.3. Establishing and Implementing PFES at the Commune Level

The heart of the PFES process outlined in this report is what happens at the commune level where groups are formed, forests are managed and livelihoods are developed. This section sets out in more detail the approach to PFES development at this level, identifying the key steps in the process that builds on the experiences of the pilots in Quang Nam. The rationale for this approach is discussed above. Here the approach is presented as a series of steps that can be followed to ensure PFES is implemented at the commune level in an efficient and sustainable manner. The steps are:

Initial meetings at the commune level where the objectives, procedures and responsibilities of commune-level officials are explained to commune officials and village heads.

Information campaign, including village-level meetings and the distribution of materials such as leaflets and posters to inform community members of the main features and steps in the development of PFES groups.

Group formation in each village, based on the group characteristics outlined above. The composition of individual groups is decided locally and verified at the commune level.

Map verification, where the centrally-provided map is reviewed and amended where necessary through discussion amongst knowledgeable local residents and officials.

Forest plot allocation to individual groups based on the amended map and through agreement between the groups (represented by their heads and deputies), village leaders and commune officials in village-level meetings.

PFES Plan preparation by each PFES group, with the plans containing both the approach to protect and manage their allocated forest plot and the use of PFES funds for both livelihoods development and income support.

Plan verification by village heads and commune officials to make sure it contains the correct information and is a feasible and sustainable plan for the group to follow.

Contract signing: once individual group plans have been approved then the group will sign a contract with the designated forest owners, with this organized and verified by the commune officials with district support should this be necessary.

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8. PFES Policy Development

The experiences gained in Quang Nam, combined with a review of the overall national experience of PFES implementation, have important implications for the overall development of PFES policy in Viet Nam. In particular, it was possible to identify six key issues concerned with the implementation process of PFES policy that need to be resolved at both provincial and national scales. These issues have been discussed in full in a separate discussion paper prepared by the project (Annex -), with this discussion summarized here.

Issue 1: How to speed up the process of identification and determination of the characteristics of forest plots that should provide forest environmental services for the implementation of PFES?

The cost of and time taken to surveying and assessment of forest resources has so far proved to be one of the main barriers to the widespread implementation of PFES. This reflects the challenges with surveying individual household plots but also reflects the lack of accurate and up-to-date data on forest resources and the limited capacities of many provincial departments responsible for this issue. The use of satellite images and GIS systems described above is an important step in addressing this but then itself raises issues about capacities and the acquisition of data. A sustained effort to ensure consistent and effective actions in these areas is needed.

Issue 2: What is the most effective method to implement payment for local households, including both households that are forest owner and contracted households?

The basis for the financial mechanisms to operate PFES, the FFPDs, is stipulated in national legislation and is in place but this needs to be complemented by effective actions to ensure that the monies received reach the beneficiaries in a timely and cost-efficient manner. The group approach, which reduces the number of contracts and disbursements by at least 90%, is a huge step forward here but there are still aspects of the financial mechanisms that need to be clarified to ensure transparency and prevent the misuse of funds. There is also the need for national regulations to legitimize the PFES groups as the recipients of PFES funds in all provinces of the country.

Issue 3: How to make the national policy on the payment for mangrove forest and coastal ecosystem services as a guiding document which is signed by the Prime Minister?

The country’s mangrove forests and coastal ecosystems provide many essential services and underpin the livelihoods of local communities but these forests are under tremendous pressure and the extension of PFES to cover them is an essential step in their conservation. This in turn will depend on a sustained effort to study and monitor their value and the benefits they provide to local people and the wider community. The inter-connected nature of mangroves, associated wetlands and other parts of the coastal ecosystem also means that the forests cannot be treated in isolation but should rather be seen as part of the full ecological functioning of these areas.

Issue 4: What factors should be included in a PFES monitoring and evaluation system? And what is a sustainable mechanism for implementation and financing of monitoring activities?

Effective monitoring and evaluation (M&E) is essential both for understanding the impacts of PFES and for the future planning and operation of the programme: payments to PFES groups are contingent upon the quality and area of forest they are managing and changes to this over time need to be tracked. The legal basis for M&E is not yet clear and needs to be specified through a Circular prepared by MARD. The division of responsibilities between different

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agencies and administrative levels in the PFES process also need clarification, as does the source of the funds to support the M&E system.

Issue 5: How to maintain or upgrade the existing payment level per ha per year or improve livelihood of local PFES households?

PFES will work where the communities who are assigned forest areas to manage and protect find the benefits they receive make it worth doing. Although existing payment levels, at an average of around 3-4 million VND/household/year are not adequate as a basis for the household’s livelihood alone but this was never intended and they are a source of cash where few others exist. Nevertheless there is scope for increasing average PFES incomes through adjusting the existing rates for services such as hydropower and through extending PFES to include other environmental services. Local livelihoods can also be improved by using PFES income as a source of investment in new livelihood activities that will generate long-term incomes.

Issue 6: How to extend the implementation of PFES to include other environmental services cited in Decree 99, including both carbon sequestration and biodiversity as well as other aspects of water management?

The scope of PFES implementation has to date been primarily restricted to the protection of hydropower watersheds, with some small-scale pilots that have also considered water supply and tourism. There is scope for the considerable extension of the PFES programme to include other environmental services that forests provide; indeed a number of other services are specifically referred to in Decree 99 including both carbon sequestration and biodiversity conservation. This will need clarity, based on further studies, on the value of these services, who will pay for them (especially where they are global environmental goods) and who the service providers (and hence PFES beneficiaries) are.

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9. Valuation of Ecosystem Services in the PFES Area of Quang Nam

One of the key policy challenges for the overall development of PFES was identified as the extension of the policy to cover a wider range of ecosystem services, including ones such as biodiversity and carbon sequestration where the calculation of values and identification of service receivers is far from straightforward. A more complete ecosystem services valuation is also needed as a baseline against which the full economic impacts of PFES can be measured over time: focusing only on the direct benefits to the functioning of hydropower schemes or other directly involved services will miss many benefits that the conservation and improvement of the forests of Viet Nam bring. The valuation of the ecosystem services (ES) in the PFES area of Quang Nam reflects the policy setting: the area covered was determined by the boundaries of the watersheds that are currently included in the PFES programme and the land cover categorization, with 6 classes (including 3 forest classes) reflects the focus of PFES. The ES valued are also to an extent determined by the scope of the PFES policy, but data availability was also significant in this. Decree 99 refers to major forest environmental services that can be considered in PFES, including watershed functions, biodiversity and carbon sequestration. As such, every effort was made to provide the most accurate valuation of these services that is possible. Provisioning services were also added to these ES because they are such an important set of service values and because their valuation is relatively straightforward given the range of secondary data available. The results of this analysis are summarized here and presented in detail, including the valuation methodology and data sources, in Annex -. Table – presents the ecosystem services values calculated for the study area, categorized into four main service functions (provisioning services, watershed functions, biodiversity and carbon sequestration) and where possible presented for each of the watersheds in the PFES area so that the changes to individual watersheds can be monitored over time. Table -: Ecosystem Service Values in Quang Nam PFES Watersheds

Catchment Area (ha)

Provisioning Services

($/yr)

Watershed Functions

($/yr)

Biodiversity ($/yr)

Carbon Sequestration (S total stock

value)

Song Con 2 24,004 16,491,118 1,813,635 20,793,066

Song A Vuong

68,347 44,092,604 5,068,535 56,398,380

Song Bung 5

19,836 13,001,980 1,565,680 18,503,862

Song Bung 3

62,889 44,850,215 4,525,260 50,477,979

Song Bung 4

82,564 51,219,921 6,097.965 67,347,459

Song Giang 41,445 30,352,693 3,364,525 41,902,009

Dak Mi 4 34,216 23,779,532 2,596,655 30,580,300

Dak Mi 1 2,217 1,601,179 192,030 2,470,355

Song Tranh 2

59,963 42,419,827 4,534,450 53,815,449

Dak Di 4 45,843 31,969,251 3,008,285 31,234,831

Totals 441,324 299,778,320 32,767,020 124,358,999* 373,523,690

*total figure based on there being 191,320 ha of KBA & SUF in the PFES area

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The provisioning service values of the study area show high potential value flows of close to $300 million a year. Of this total, a little over $63 million a year comes from the limited areas of agricultural land and has been calculated in a way that will reflect actual production values from the farming of the local communities in the study area. There is some potential for increasing production from the existing farming area, including through secure year-round irrigation which is typically not found at present. But the overall level of increase would be fairly marginal and the scope for much greater levels of provisioning values from farming would be contingent upon more farmland being available. This in turn would only happen in most areas through forest clearance, an issue which is inevitably problematic given the characteristics and protected status of most forest in the study area. The remaining $237 million a year is the estimated total potential of provisioning services from the extensive forest areas, including both timber and non-timber forest products (NTFP), based on an assumption of a sustainable harvesting regime covering the full area. Of course this is not the case: whilst both timber and NTFP are widely exploited, the actual level of values extraction will in reality be only a small fraction of this theoretical maximum sustainable potential. It should be noted that the extensive tracts of shrub and grasslands in the study area have not been assigned provisioning services values. These areas are mostly remote from any settlements and are hardly exploited for any activities. This includes grazing: the local communities do not keep large numbers of cattle or other livestock that could graze on these grasslands and those that are kept are fed on materials from other sources. As such, there is no evidence that the shrub and grasslands have any significant provisioning service values in the prevailing conditions in the study area. Much of the forest exploitation is either by local communities for their subsistence needs and consequently does not enter markets or is illegal exploitation (both logging and wildlife trading) and is not recorded. In both cases there is no reliable source of data to understand the actual levels of provisioning service values extracted from the forests of the study area. What is clear is that provisioning services from the forests are a major area of ecosystem services values, both actual and theoretical, in the study area. The many tracts of rich forest can generate high levels of goods that can be sustainable exploited and access to these resources underpins the traditional livelihoods of many ethnic minority communities. The potential for much higher levels of provisioning service values is consequently clear but the mechanisms through which this could be done on a sustainable basis and without compromising the ecological integrity of the many important biodiversity areas of forest in Quang Nam would need to be carefully devised. The higher levels of extraction will depend on the great commercialization of these goods which in turn leads to dangers of over-exploitation and an even greater influx of outside illegal loggers and poachers. In consequence caution should be exercised before there is a large-scale effort to increase the levels of provisioning ecosystem services extraction from the forests of the study area. Watershed function values are an important characteristic of the study area and have been estimated with a good level of accuracy in relation to the protection of the operation of the 10 large hydropower schemes in the area. It must be noted that other water regulation values, including for water supply, flood control, protecting downstream irrigation and other functions, have not been valued so the figures presented here are extremely conservative but are also non-contentious. With an estimated annual benefits flow worth nearly $32.8 million, these values are considerable even given that they are spread over the watersheds of 10 different hydropower schemes. The majority of these benefits are estimated to reflect the role of the forests in reducing soil erosion and reservoir sedimentation, reflecting the fact that a well-protected greatly reduces maintenance costs and can extend the life of a hydropower facility by decades.

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Biodiversity values in the study area are, as has been noted, extremely high, with a proportion of the forests having high ecological value that far exceeds that found in most parts of Viet Nam. This is reflected in the designation of large areas of the forests as either Special Use Forests and/or Key Biodiversity Areas (see Figure 4). The values calculated for the biodiversity of the study area, at close to $125 million a year for the 191,320 ha of KBA & SUF that have been included in the valuation, a figure that at first appearance is extremely high but one that reflects the characteristics of the study area. Overall, the uplands landscape of this part of Viet Nam has been classed as “critically important” for biodiversity conservation2 and there are a large number of endemic species, some of which have only been identified in recent years. Some of these areas are of exceptional importance: for example, Ngoc Linh is a key biodiversity area of international significance. This area contains large areas of intact evergreen forests of great value and is the habitat of tigers, deer, muntjacs and rare endemic birds. These high ecological values are reflected in the official designation of large areas of Special Use Forests and the majority of the remaining forest as Protection Forest (see Figure -), designations that place severe restrictions on the levels and types of exploitation that are officially allowed. In many cases this has not prevented the degradation of the forests and the extensive illegal wildlife trade that has threatened the continued existence of many endangered species. There are concerns that the high values of many of the areas of high ecological importance in the study area could be lost unless sustained and effective actions to prevent the illegal exploitation of these areas are introduced. The biodiversity value calculations presented here, at close to $125 million a year, provide a basis for advocating such actions, including perhaps the extension of PFES to include biodiversity conservation. There is also significant potential for the more systematic exploitation of the tourism potential of these ecological resources but investments in infrastructure and facilities are needed to achieve this and great care would have to be taken to ensure that the improvements of access necessary for tourism did not in itself result in greater levels of illegal exploitation and degradation. There is also a strong case for a more comprehensive valuation of the biodiversity value of this area to reflect the specific of local conditions. The data presented here consequently provides the starting point for discussions on these issues and will help the participants in these discussions to understand the high value of these resources but further research and analysis is needed to further verify and improve these valuation estimates.

Figure -: Forest Function Categorizations in the Study Area

2 Baltzer, M.C., Nguyen Thi Dao & Shore, R. (eds) 2001 Towards a vision for biodiversity conservation in the

Forests of the Lower Mekong Ecoregion Complex - technical annex WWF Indochina, Hanoi, Viet Nam.

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The final set of values calculated for the study area are those associated with carbon sequestration, with in this cases the values calculated (estimated to total $373,523,690) being a total stock value rather than an annual flow of benefits. This reflects the nature of sequestration, the purpose of which is to maintain or increase the carbon stocks of a given area. The total stock value calculated is high and reflects the benefits to Viet Nam and the global community as a whole of the storage of carbon in the forests of the study area in Quang Nam. The good quality of many of the forests in the study area, which are much better than in most parts of Viet Nan, means that these values are relatively high given the area of forest under consideration. The figures would be even higher if it was possible to calculate the levels of carbon stored in the soils of these forests but there is not a reliable data source to permit this. They have also been calculated at a time when carbon values on international markets are low and would obviously have been significantly higher if the calculations had been made a few years ago when carbon trading prices were much higher. It is worth noting, in consequence, that the carbon storage values presented here, which run into hundreds of millions of dollars, are nevertheless an underestimate. There is also the potential to increase these values through the improvement of the condition of the forest areas that are classified as medium or poor. Only 169,763 ha, or around half, of the total forest area of 342,632 ha is classified as rich and there is clear evidence of the degradation of the quality of many forest areas in Quang Nam. The levels of carbon storage would be much higher if this was reversed and forest restoration took place on a widespread basis in the study area. It was noted above that Decree 99 specifically includes carbon

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sequestration as a potential area of service benefits that can be included in the PFES process. The valuation figures presented here show that the potential flows of benefits from this to local communities for their commitment to maintain and increase carbon storage levels could be extremely significant but again the challenge is determining who should be the payees and what levels of service payments are appropriate.

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10. Development of a Monitoring and Evaluation System for PFES

The scaling up of PFES for implementation province-wide in Quang Nam and other provinces raises the need for an effective monitoring and evaluation (M&E) system that is sustainable by provincial authorities and that will provide appropriate information to help understand the impact of and direct future decisions on the PFES programme. To do this the M&E system must collect appropriate data for defined indicators periodically and do so in a way that does not depend on data collection that is expensive and beyond the capacity of provincial authorities to collect.

The purpose of the M&E system must be remembered: it exists to guide future decisions on the implementation of the PFES programme, including determining which aspects of implementation are on track and which may need to be modified to reflect poorer than expected results or unanticipated factors that are affecting the programme’s implementation. The M&E system will consequently need to give an overall understanding of the effectiveness and impacts of the implementation of PFES at the province level. It should also allow the planners to identify places where there are concerns with implementation that will need to be further investigated and addressed. In particular, it is necessary to be able to identify locations where the forest condition is deteriorating to an unacceptable level and to identify PFES groups where the anticipated benefits to local livelihoods and economic development are not being realized.

A good M&E system will be based on a small number (10 or less) of key indicators that give a good understanding of the overall system. This is far more effective than an exhaustive system of data collection which might appear to be important but which is ultimately self-defeating because the time and cost of collecting the data is unsustainable and the results come too late to inform decisions on the future planning of the programme. The indicators for PFES should relate to:

Forest Condition: the condition of the different areas of forest in the PFES programme, paying particular attention to whether the forest areas have either seen improvement to their condition or experienced any decline in forest quality. The basis for this should be the forest condition classification prepared as a baseline from the remote sensing images as these reflect the forest condition categories as defined in Decree 99.

Beneficiary Livelihoods: the development of the livelihoods and economy of the communities in the PFES area who are the recipients of PFES payments. This should examine their overall standard of living and the development of new enterprises and types of economic activity that are the results of investments made with PFES income.

It should be noted that the M&E system described here is for the overall monitoring of the impacts and effectiveness over time of the PFES programme, not the day-to-day administrative monitoring of implementation that tracks the PFES programme in relation to the extent to which progress is made and procedures are followed. The indicators presented below reflect this overall purpose of the M&E system.

PFES Programme M&E Indicators:

Forest Condition: for the province as a whole and for each commune where PFES is implemented:

1. Change to total area and % of forest in Rich Forest category 2. Change to total area and % of forest in Medium Forest category

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3. Change to total area and % of forest in Poor Forest category 4. Total area and % of total forest area deforested: that is lands that were previously

forested but which are now no longer categorized as forest 5. Total area and % of total forest area recovered forest: that is lands that are now

categorized as forest which were not previously forested

Beneficiary Livelihoods:

6. For each PFES Group: total PFES income and income per household for each year of the monitoring period

7. For each PFES Group: number and type of livelihood activities in which investments were made with PFES funds

8. For each PFES Group: total PFES funds and percentage of overall PFES funds invested in livelihoods activities for each year of the monitoring income

9. For each PFES Group: percentage and total number of households categorized as having an income below the official poverty line

10. For each PFES Group: changes to and effectiveness of implementation of the PFES Management Plans prepared during the formation of the group. These changes and the implementation progress should be recorded at the commune level in the minutes of the quarterly meetings between each group and the CPC.

Sources of Data for the M&E System

Forest Condition: the data to derive the forest condition indicators can be easily obtained through the use of the remote sensing/GIS system. It is recommended that a new set of up-to-date images are obtained every two or three years (one long-term possibility if for this to be done nationally and then the images made freely available to provinces on demand) and then the land cover categorization is repeated for the whole PFES area. From this, commune level maps can subsequently be obtained. The categorization of the new images can then be compared in the GIS to the categorization from the earlier images and areas of changed category easily identified. Where necessary, significant changes can be verified at the commune level through ground-truthing fieldwork and discussion with local officials and community members.

The capacity for undertaking this repeat analysis has been developed in DARD in Quang Nam through the training programme and collaboration with the ADB GIS experts. The assessment of change to forest conditions and calculation of the indicators listed above can consequently be done quickly and within the resources and capabilities available to the provincial authorities.

Beneficiary Livelihoods: a large part of the data needed for the indicators listed above can be obtained through the records of the PFES meetings and the data available in the commune office where PFES funds are distributed. The remaining data can be collected by the commune and communicated to the provincial M&E system through a simple pro-forma questionnaire. It is recommended that a matrix with the indicators and necessary data listed is distributed to all communes involved in PFES at the appropriate time and then returned to the province level to make sure the measurement and analysis of the indicators can be undertaken in time for the M&E system’s regular reporting.

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