РЕГИОНАЛЬНЫЙ ЭКОЛОГИЧЕСКИЙ ЦЕНТР ЦЕНТРАЛЬНОЙ АЗИИ THE REGIONAL ENVIRONMENTAL CENTRE FOR CENTRAL ASIA

Learning from Vietnam’s experience on Payment for Ecosystem Services (PES) and Reducing Emissions from Deforestation and forest Degradation (REDD+)

Study tour to the People Republic of Vietnam February 24th – March 2nd, 2012

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Contents ABBREVIATIONS ...................................................................................................................................... 2 A – General information .......................................................................................................................... 3 B – Description of the projects visited by the group ................................................................................. 7

ABBREVIATIONS ARBCP – Winrock International’s Asia Regional Biodiversity Conservation Program ES – Ecosystem Service FES – Forest Ecosystem Services FPF – Forest Protection Fund FPDF – Forest Protection and Development Fund ICRAF – World Agroforestry Center MARD – Ministry of Agriculture and Rural Development M&E – Monitoring and Evaluation NIAS – National Institute of Animal Sciences NP – National Park PES – Payment for Ecosystem Services PFES – Payment for Forest Ecosystem Services SAWACO – Sai Gon Water Company REDD+ – Reducing the Emissions from Deforestation and forest Degradation RUPES – Rewards for, Use of and shared investment in Pro-poor Environmental Services UN-REDD – United-Nations program for REDD+ development VNFOREST – Vietnam Forest, under the MARD, in charge of the REDD+ development in Vietnam

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A – General information 1 – Participants             

Simon Charré – PES/REDD+ project manager, CAREC branch in the Kyrgyz Republic; Yekaterina Strikeleva – Program manager, CAREC Head Office; Urmat Mambetaliev – PES/REDD+ Project coordinator, CAREC branch in the Kyrgyz Republic; Abdimalik Egemberdiev – Director of the Pasture Department under the Ministry of Agriculture of the Kyrgyz Republic; Valerii Sitchikhin – Vice governor of Issyk-Kul State administration; Askat Kysanov – Head of the Forestry Department in the State Agency of Environmental Protection and Forestry; Abakir Sadyrov – Head of pasture committee, Naryn region; Kadyrbek Mamatov – Head of pasture committee, Djalal-Abad region; Viktor Bratashov – Member of the Water Users Association Suu-Bashy, involved in CAREC’s PES project; Amantur Builashov – Head of the Pasture committee of Temirovka village, involved in CAREC’s PES project; Taalaibek Baltabaev – Chairman of Suusamyr local parliament; Bakyt Murataliev – Head of Kojomkul village administration; Duong Thi Giang – Russian/Vietnamese translator.

2 – Aim of the trip This trip was a unique opportunity to learn how other countries, such as Vietnam, address management of natural resources issues thanks to the Payment for Ecosystem Services (PES) and the Reduction of Emissions from Deforestation and forest Degradation (REDD+) tools. All participants in this trip were related to the PES tool, while some were also linked to the REDD+ tool. Some participants were related to the CAREC’s project implemented in the Chon-Aksuu watershed and which created the first Payment for Ecosystems Services scheme in Central Asia. In the frame of this project, CAREC is also looking at the opportunity to use the REDD+ tool. Some participants were related to UNDP which is thinking about using the PES tool in Suusamyr valley and is doing first assessments in this direction. Some participants were related to the pasture department which shows great interest toward the idea to consider pastures as an ecosystem providing services to different activities (husbandry, bee keeping, tourism, etc) PES is a new tool in Central Asia and REDD+ hasn’t been used so far. CAREC is setting up the first steps of these mechanisms and raises awareness about their great interest for the region. However, there is still a long way to go to make decision makers and local populations interested in PES and REDD+. Meanwhile, these tools are already used in several countries and Vietnam is a very good example with different projects on both PES and REDD+ taking place on its territory. PES mechanism is both implemented by NGOs and by the government itself (through the PFES – Payment for Forest Ecosystem Services program). The REDD+ tool is being implemented by a group of many organizations among

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which the United-Nations UN-REDD program and the Ministry of Agriculture and Rural Development of Vietnam play a leading role. Thus, the main objective of this trip was to visit different projects and to learn best practices from their experience in order to bring to Kyrgyzstan and Kazakhstan new ideas, a better understanding of the components of PES and REDD+, and solutions to use these tools the most efficiently in Central Asia. The participants chosen for this trip, both decision makers and local inhabitants, have been selected for their involvement in PES and REDD+. They had the important responsibility to bring back from Vietnam experiences and best practices for these tools, and to advocate at their own level (from local to national) for their implementation in Kyrgyzstan and Kazakhstan. Participants were expected to raise questions during the meetings and field trips, asking relevant questions to the specialists accompanying our group or to the population, and bringing their own experience in Central Asia when relevant. This trip was designed to improve the understanding of participants on PES and REDD+: these tools have several components that must be fully understood to have a clear idea about their positive and negative sides, and about their possible use in the Central Asian context. All these components were be addressed during the trip: who are the stakeholders involved, what are their role in the design and the implementation of the scheme. Who are buyers and sellers, what are their interest to be involved in the mechanisms. What is the kind of payment used. How is done the financial transaction. What are the intermediary organizations. How is the security of the payment ensured to avoid corruption. How is the mechanism monitored and by whom. How are the transaction costs funded. Which organizations designed the scheme, NGO or government based. 3 – Program The trip lasted in total 6 days on, the field. Within these 6 days, participants visited different project sites and participated to several meetings with local or regional authorities as well as NGOs, involved in the design and implementation of the PFES and the REDD+. More specifically, participants met with different specialists from the MARD, from ICRAF, from NIAS, from UN-REDD Vietnam and VNFOREST, from Ba Be National Park and from Lam Dong provincial administration. Participants will also meet with local authorities’ representatives and farmers involved in the PFES scheme. The activities took place in three different places (see the map). In Hanoi (1), in Bac Kan (2) province Northern part of the country where a PES project is implemented by RUPES project and ICRAF, and in Lam Dong province (3) where the national PFES mechanism as well as the REDD+ program, have pilot sites.

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More specifically, the information underneath show when and where the activities were conducted, and which organizations the group were met. 

February , 24th:

Trip from Kyrgyzstan to Hanoi, Vietnam 

February, 25th:

Field trip to Bac Kan National Park, North-East of Vietnam. Visit of the Payment for Ecosystem Services project led by RUPES project under ICRAF. This PES is related to forest conservation and water quality for hydroelectricity production, biodiversity, landscape beauty and carbon storage. Presentation done by RUPES and National Parks’ staff on the different components of the PES scheme, its positive and potentially negative aspects at the ecological and economical levels. Tour on the Ba Be Lake to understand the possible impacts of siltation on aquatic biodiversity. Stakeholders met: Deputy Director of the National Park, eight team members of the NP (specialists, rangers), Province staff members, RUPES project manager. 

February, 26th:

Field visit to a village within Ba Be National Park and meeting with the local inhabitants involved in the PES mechanism. After short presentation by RUPES staff, participants of the trip could ask questions to local people on how the scheme is implemented on the field, what are the problem faced for the implementation and the solutions chosen by the project team, what is their interest to be involved in the scheme: what they expect from the mechanism, what are their doubts and concerns. Stakeholders met: Village head and 10 village members, Province staff members, RUPES project manager. 

February, 27th:

Flight from Hanoi to Da Lat, Lam Dong Province, South of Vietnam. In Da Lat, meeting with the Forest Protection and Development Fund (FPDF), under the MARD. Presentation done by the FPDF’s director on the steps for the creation of the fund and how it is run. This presentation gave all details concerning the financial mechanism: how the money is transferred from buyers to sellers, what is the amount transferred, how are the transaction costs supported, etc. Stakeholders met: Director and deputy Director of the FPDF, two other staff members. 

February, 28th:

Morning: field trip to Xuan Truong commune. Meeting with a local Forestry Unit being involved in the implementation of the PFES mechanism, and with representatives of households groups being sellers of FES (Forest Ecosystem Services). Objective of the meeting: to understand how the PFES mechanism works on the field, which organizations are implementing it, who is doing the monitoring what is the feedback from the population.

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Stakeholders met: Director of the local Forestry Unit and 10 staff members (mostly rangers), head and members of one group of villagers involved in the PES. Afternoon: meeting with the REDD+ focal person in the Lam Dong. Presentation about the process of REDD+ designing: organizations involved, scientific assessments conducted, content and steps of the awareness raising campaign. Presentation mostly focused on the implementation at the Province level. Stakeholders met: Director of the REDD+ Provincial fund. 

February, 29th:

Flight from Da Lat to Hanoi and free time 

March, 1st:

Morning: meeting in MARD with VNFOREST, the national agency in charge of REDD+ implementation in Vietnam. Objective: To understand better what is the REDD+ mechanism about. The following issues were addressed: how did REDD+ start in Vietnam (what were the political decisions taken, how they were put into action, etc). In the current REDD+ scheme run in Vietnam, what is the exact role of each organization involved. What are the first results of the mechanism and further planned activities. Stakeholders met: Director of Vietnam REDD Office, Forestry Specialist from the Department of Science, technology and International Cooperation. Afternoon: Meeting with the National Institute of Animal Sciences (NIAS). Presentation was given by NIAS’s director on the fodder production of Vietnam, on how the small pasture areas are managed, on how animal genetic is improved. Participants involved in pasture management in Kyrgyzstan could ask questions on the types of animal grown in Vietnam, on the pasture use regulation and on the management of the relations between farmers and livestock breeders, sometimes source of conflicts. Stakeholders met: Director deputy director of the NIAS and 10 staff members (animal technicians, fodder growing specialists. 

March, 2nd:

Trip from Hanoi to Bishkek

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B – Description of the projects visited by the group 1 – Payment for Ecosystem Services in Bac Kan province, North-East of Vietnam The RUPES II project, launched by ICRAF, has been started 2 years ago in Bac Kan province – North-East part of Vietnam. The Province has been chosen for several reasons: (1) high level of poverty, (2) high percentage of natural forest coverage, (3) stakeholders at all level considering PES/REDD to be an important activity for the IFAD loan development program and (4) Ba Be (one district included in the Bac Kan province) being an ideal place for testing RES/PES mechanisms, as it has several well-defined environmental services with a potential for attracting ES buyers (ICRAF brief Vietnam N°1, February 2009). Another reason of using PES in this region and underlined by RUPES project manager was the end of a program aiming at protecting the forest: most of the area surrounding the lake follows the National Park’s rules, land uses are basically strictly controlled. Most of the hills are covered by natural forests and riversides are usually used for small farming crop growing activities. Specifically, the National Park gives lands Project implementation site in Ba Be National Park, Bac Kan to villagers for 3 years, each family receiving Province 100m² of arable land per family member, i.e. in average, each family receives 1000m² of agricultural lands. Until 2011, each family receiving agricultural land from the National Park had to protect 100ha of forest. Households were paid 9 USD/ha protected thus bringing significant incomes as the revenues from agriculture are in average 500 USD/household a year. These contracts were established in the frame of the National Reforestation Program which finished in 2011. Therefore, even if the National Park’s rules are strict for ecosystems protection, the forest is no longer protected by incentives to the local population and threats to the forest are increasing. The PES was built following the Integrated Watershed Management Approach which looks to be the most efficient achieve the triple goal of poverty alleviation, sustainable economic development and environmental protection in upland areas. Furthermore this approach is justified as the Bac Kan province is crossed by five different rivers. 7|Page

In each watershed, ES were identified and the relationship between upstream and downstream was mapped to define ES providers and beneficiaries. Intermediaries and their role in linking buyers and sellers were identified. Finally, in response to the low understanding of the PES mechanism, several appraisal methods on environmental services were used to enhance the capacity of potential intermediaries and relevant stakeholders involved in the scheme. Within the Bac Kan province, the visit was specifically held in the National Park of Ba Be, Ba Be District, where all the above mentioned activities has been completed given the good conditions of the Ba Be Lake basin: clearly identified ES, identified buyers and sellers, good involvement of locals. Although most of the mechanism has been designed and discussed, the payment has not started yet. There are still some details to be decided regarding the payment flow (the type of payment and the organization to pay) and the decisions will be taken according to local people’s expectations as well as the Decree 99 (signed in September 2010 by Vietnam’s Prime Minister) which includes most of the directions for PES implementation in Vietnam. The visit was therefore focusing on PES design rather than implementation and results.

Ecosystem Services included in the scheme The PES project in Bac Kan focuses on three different ecosystem services: watershed protection, carbon sequestration and landscape beauty. 

Carbon sequestration is very relevant in this region because of the large areas of natural forests. Keeping these forests in a good state and preventing their destruction by humans (timber cut, degradation) or because of natural disaster leads to carbon storage which is one of the first ways to flight climate change.

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Landscape beauty is the main reason of tourists’ attraction to the region. The large forests covering hills among the Lake form a scenic landscape that would be dramatically degraded by forest cut.

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Ba Be basin consists in three rivers flowing into the lake while one drains the water out of it. The entire Lake and parts of the river flow are included in the territory of Ba Be National Park. Watershed protection and specifically erosion control to reduce sedimentation is of great importance in the Ba Be Lake basin for (1) biodiversity and (2) economic reasons. 1) The Lake hosts a large number of animal species, in particular fishes. An increase in the sediment provision to the Lake would have negative impacts on these species by increasing water turbidity and more important, by enlarging river estuaries, thus reducing the Lake ecosystems. 2) Downstream from the Lake are situated Ta Leng (inside the Bac Kan province) and Na Hang (outside of Bac Kan province) hydropower plants. These two plants are suffering from sedimentation in their reservoirs and it is clear that the destruction of upstream forests would have a negative impact on their activities, increasing operational costs and reducing power production capacities.

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Ecosystem Services providers The ecosystem services providers are forest owners/users situated in the upstream part of the watershed. They are:   

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Ba Be national Park Ba Be State forest enterprise Protection Forest Management Boards (group of citizens organized in an official association which contracts with the State Forest Enterprises or the National Parks, they are in charge of protecting and managing (including timber production, following sustainable forest management rules) some forest areas. Commune People’s committee Villages’ community (under the communes, like in Kyrgyzstan where villages are under the Aiyl Okmotu level) Other cooperative or groups of forest users Households Individuals

By protecting the forest, they can provide the three ES above mentioned: carbon sequestration, landscape beauty and watershed protection.

Village meeting, Ba Be National Park, Bac Kan Province

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Ecosystem Services buyers Different buyers benefit from one or several of the three ES provided thanks to forest protection. 

Carbon storage Global benefit that can be rewarded from local to international level. No specific buyers.

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Landscape protection

As tourism is the main activity positively impacted by landscape protection, buyers are related to tourists and visitors: 1) Ba Be National Park which collects fees at the entrance of the Park; 2) Boat cooperatives: they are private companies organizing boat trips on the Lake and on the river downstream. They benefit from landscape attractiveness for tourists; 3) Households with homestay businesses in the Bo Lu and Pac Ngoi villages surrounding the National Park. They also benefit from landscape attractiveness for their tourism activities. 

Watershed protection

As specified above, the main issue related to watershed protection is erosion control. Beneficiaries from low sedimentation in the rivers are: 1) Ba Be National Park for biodiversity and aquatic ecosystems conservation; 2) Na Hang and Ta Leng hydropower plant for control of sedimentation in the rivers and operation costs stabilization.

Type and amount of the payment The level of payment collected for Forest Environmental Services has been set in Vietnam in the Decree 99 as following:  

Hydropower plants have to pay 20 VND/kWh (≈0.00096 USD/kWh) on the power they sell to power purchasers according to power purchase contracts, for forest environmental services; For organizations and individuals conducting tourism business benefiting from forest environmental services (boat cooperatives, homestay businesses, etc), the amount of payment is 1-2% of the revenue generated in the payment period.

The level of payment received by sellers contracting for Forest Environmental Services provision is set in the Decree 99 as following: To take into account factors related to forest quality as well as difficulty of forest management, and thus to reach a fair payment adapted to each ES seller, this Decree introduces a coefficient called “K” which is determined on the following factors:    10 | P a g e

Forest owner (the capacity to generate forest ES); Type of forest (special use forest, production forest, protection forest); Origin of forest (natural forest, planted forest);

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The level of difficulty or easiness in forest management (social and geographic factors)

In the case of Bac Kan, only the Type of forest and Origin of forest were taken into account for the calculation of the “K” Coefficient. From this Coefficient, the amount of payment paid to a contractor for forest protection is calculated as follow: Average payment per 1 hectare of the type of forest under contract x number of hectare under the contract x Coefficient K For payees who are forest owners, Provincial People’s Committees decide the Coefficient K based on the particular local conditions. For payees who are households contracted for forest protection, the contractor and contractors calculate the Coefficient K based on the regulations of the competent agency and is expressed on the contract. For the project area and following these payment levels, the average payment per 1 hectare calculated in 2010 is: -

Na Hang hydropower plant: USD 8.8/ha/year Ta Leng hydropower plant: USD 4/ha/year Tourism business activities: USD 0.1/ha For the carbon voluntary market, estimations show a possible payment of USD 9-12/ha/year

Forest lands and agricultural activities, Ba Be National Park, Bac Kan Province 11 | P a g e

Type of payment In the contract, Signatories have to decide how they want to receive the payment: cash or in-kind, or both. After discussions led by project designers, it seems that local people are more interested in receiving in-kind payments, partly concerning the material/equipment they need to protect the forest to fulfill the conditionality: provision of tree/grass seeds, of seedlings, etc. Therefore, the payment is tailored to the expectations of each signatory. It is expected that given the expectations of ES providers, payment will consist in most of the cases in both cash and in-kind for one ES seller, the share of each being slightly different depending on signatories’ wishes. More specifically, meetings with households have highlighted that depending on the activity to carry in the frame of the contract’ conditionality, people’s expectations vary on the type of payment. Households’ preferences have been classified as following: Cash payment is considered to be more interesting for:  Compensation for the income obtained from growing maize, soy bean on forest land  Payment for the labour force for forest protection  Micro-credit schemes for improved agriculture; forest plantations In-Kind payment is considered to be more interesting for:  Seedlings and training and collaborate in development plans for various trees such as persimmon, Chukrasia tabularis A. Juss, tea and Mangletia Conifera  Promote and support Mangletia plantations in order to generate fuel wood and timber for house construction  Support and promote alternative sources of fuel wood and timber such as, improved cook stoves to use during the dry season combined with traditional cook stoves for winter periods  Promote cassava on degraded land or intercropped for pig fodder, food security or cash; and improve irrigation systems  Promote alternative fodder for buffalo: rice straw, cassava, vegetable, banana trunks; and Provide fertilizers Payment type establishment will be realized for each contract depending on the expectations of the signatories.

Conditionality All the households contracting for the PES also sign a Forest Protection Plan. This plan is prepared by RUPES/ICRAF staff and includes indications for the activities to carry every year in the forest in order to protect the ecosystem and to ensure ES provision. These indications are related to where to plant/sow trees in the forest, where and how to protect the forest, what kind of material/equipment is needed to complete the plan, how much money is needed to purchase this material/equipment, and what kind of alternative resources signatories could develop (for fuel, timber for house construction, etc) to avoid forest resources overuse. This plan is the conditionality of the payment, non-compliance with its conditions lead to decrease or end the payment.

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Intermediary organization In the present scheme, the payment will be transferred through a long mechanism consisting in several steps and intermediaries. To collect the money among buyers, two organizations are involved: the Bac Kan Province’s Forest Protection Fund (FPF) and the National FPF. It is necessary to have two funds because of the Na Hang hydropower plant situated outside of the Bac Kan province. The Bac Kan FPF can indeed only collect money only on the territory of the province. Therefore the National FPF collects the money from Na Hang hydropower plant and then transfer it to the Bac Kan FPF (the national FPF keeps 0.5% of the total amount for management costs). The money is collected as following: - The National FPF collects money from Na Hang hydropower plant. After collection, this money is transferred to the Bac Kan Provincial FPF; - The Bac Kan Provincial FPF collects money from: o Ba Be National Park o Boat cooperatives o Households with homestay businesses in the Bo Lu and Pac Ngoi villages surrounding the National Park. From the overall money collected, the Bac Kan FPF keeps 10% for management and administrative costs, and 5% for unexpected costs. The redistribution follows the following steps: 

Step 1

From the Bac Kan FPF, the money is transferred to four different types of organizations: Ba Be National Park, the communes and the forest management boards situated in the project area, and the Ba Be forest enterprise. As the Bac Kan FPF takes in total 15% of the total amount collected, these four types of organizations receive 85% of the money paid by buyers. 

Step 2

The above mentioned four types of organizations sign contracts with smaller ES sellers. The National Park can contract with: - Households - Villages’ community - Communes - Other cooperative or groups of forest users The Communes and forest management boards can contract with: 1. Households 2. Villages’ community 13 | P a g e

Household’s garden, Ba Be NP

3. Other cooperatives or groups of forest users The Ba Be forest enterprise can contract with: 4. Forest management boards 5. Households member of the management board 6. Villages’ community 7. Other cooperatives or groups of forest users Each of these four groups receiving money from the Bac Kan FPF and redistributing to smaller stakeholders keep 10% of the transferred amount for administrative and management costs. After consultations, it appears that most of the population prefers the payment to be completed through the communes rather than through the other organizations (especially they prefer to work with the commune than with the National Park). The reason of this choice is that people feel closer and trust more the commune level than others. Furthermore, they prefer the 10% management costs to be kept by local administration than by a larger organization. Given these expectations, it is likely that the when contracts will be established, priority will be given to the transfer from the Bac Kan FPF to the communes. Important: it is planned that in the near future, a new type of organization will be created and will substitute the National Park for transferring the payment. This new stakeholder will be the Watershed Management Board and will gather all upstream and downstream stakeholders conducting activities in the watershed. This organization has not been created yet and its exact missions, members and goals have to be defined. For this reason, for the first years, the payment will potentially be transferred through the National Park as specified above. When the Water Management Board will be working, it will take this responsibility and be one of the main stakeholders transferring the payment from the Bac Kan provincial fund to the sellers. The above description of the payment transfer shows that the contracts are negotiated and signed both at the individual and collective levels. If the contract is signed at the collective level, the payment is received by the collectivity (village, communes or other groups) as a whole. Then, the collectivity shares the amount among its members, following the conditions of the contract they signed. The following diagram (next page) summarizes the payment and contracting mechanism designed in the Bac Kan province. Some interesting points to consider in the diagram are:  The management fee used by different intermediaries to cover administrative expenditures, supervision, monitoring, etc.;  The contingent fee set aside for contingency to support households, individuals, and village communities contracted for long-term forest protection in case of drought and disaster;  The important number or contracts linking very different stakeholders;

Monitoring and Evaluation Every year, 10% of the forests included in the mechanism are randomly checked in the frame of the M&E. The monitoring is implemented by rangers belonging to local forest administration units. Local people involved in the mechanism as sellers are also invited to make regular monitoring of their forest to prevent illegal logging or degradation, and forest fires. From this monitoring, they make a report to the commune administration that can, if needed, take adequate decisions to cease a threat to the

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forest. The monitoring by rangers consists in checking that the forest area didn’t decrease or was degraded from one year to the other.

PES contracts As specified, contracts are signed at the individual or collective levels according to signatories’ wish. Contracts are signed for 5 years. As the level of payment is higher in case of direct payment (no money withdrawn by intermediaries), ES sellers who own limited areas of forest have better interest in signing a direct contract with the FPF. Attached to the PES contract itself, each contractor has to sign a Forest Protection Plan which contains the information described above.

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Legend :  - ≤ 10% = management fee  - ≤ 5% = contingency fund  100% = total left from buyers’ payment  = contracted relation  = uncontracted relation  = future expected relation

Na Hang hydropower plant VND 20/Kwh

Ta Leng hydropower plant

 Ba Be National Park  Boat cooperative  Households with homestay businesses in Bo Lu and Pac Ngoi16villages |Page

Indirect Payment

Ba Be National Park - ≤ 10%

National FPF - 0.5%

 Whole Village

Ba Be Forest Enterprise - ≤ 10%

 Community

Forest Management Board - ≤ 10%

 Households  Individuals

Commune People’s Committee - ≤ 10%

VND 20/Kwh

Bac Kan FPF 1-2% of revenues

≥ 90 %

Considered as 100% %

- ≤ 10% - ≤ 5%

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Group of Households

Watershed management boards - ≤ 10%

Direct Payment

≥ 85 %

 Households  Individuals

2 – Payment for Forest Ecosystem Services in Lam Dong province, South-East of Vietnam The pilot program on PFES implemented in the Lam Dong Province has been supported and led by Winrock International’s Asia Regional Biodiversity Conservation Program (ARBCP) since 2006 until 2009. In the frame of this project, 32,000 rural poor received incentives to protect forest lands while biodiversity conservation in Lam Dong Province and across Vietnam was promoted. This pilot project also helped to inform the design and subsequent signing of a national PFES Decree, a regionally significant milestone. Lam Dong Province’s territory is 977,000ha among which 601,000ha are covered by forest. Forest owners are households, forest management boards, National Parks and forestry companies. Non-forest owner households are also forest users as they often receive forests for rent trough contracts with the above mentioned owners. The activities forest users can carry are specified in the contract. Around 10% of the total number of households in the Province is involved in the PFES mechanism. More people were eager to be involved but it was not possible to include them as the payment would have been too low to protect forest efficiently with a higher number of households being FES sellers. The selection followed several criteria such as households’ poverty and physical ability of household members to conduct conditionality related activities. In Lam Dong, two visits were conducted by the group, one in the FPDF Head Quarter and the other one in a local forestry unit (under rayon administration) being involved in the PFES implementation and monitoring. The following information concerns the Provincial PFES scheme. When relevant, information into boxes are related to the local forestry unit activities. It gives a more accurate idea of PFES ground implementation in Lam Dong province.

One visit was held on the ground in a local forestry unit. This unit is in charge of monitoring the implementation of the mechanism in 2 villages. The total area of these 2 villages is 8200ha among which 6700ha are covered by forests. 4500ha or these forest lands are included in the PES scheme, the 2200ha left being used for commercial forestry and coffee growing.

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Ecosystem Services included in the scheme Lam Dong PFES mechanism includes three different ecosystem services: watershed protection (so called “Water Regulation and Soil Conservation”), carbon sequestration and landscape beauty. 

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Watershed protection: researches led by Winrock International shown that more sediment is carried into a stream running through agriculture land than a similar stream running through intact forest. This impacts downstream activities relying on water of good quality, such as hydropower plants or drinking water companies. Carbon sequestration is very relevant in this region given the large areas of natural forests. Landscape beauty brings important incomes thanks to tourism activities and forests are the main feature of Lam Dong’s landscape specificity.

Informative poster on the PFES mechanism, FPDF Headquarter, Lam Dong Province Ecosystem Services providers For the three considered forest ecosystem services, the providers are:    

National Parks Forest management boards Forestry companies Households

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Households are often gathered in groups to make their work easier in term of forest protection, forest patrol organization. The contract is in that case established at the level of the group. Furthermore, being as a group and having a group head eases the contacts with the forest administration in charge of the monitoring and thus save transaction costs.

Ecosystem Services buyers 18 Hydropower plants, 10 drinking water companies, 17 tourism companies were in total identified. For the pilot project, only 2 watersheds were selected within the Province, including in total 4 buyers: the Da Nhim and Dai Ninh hydropower plants, the Sai Gon Water Company (SAWACO) and tourism operators/companies (several small companies therefore considered as a group of buyers).

Type and amount of the payment 1. Amount paid by the buyers: As for the pilot project in Bac Kan, the level of payment collected for Forest Environmental Services has been set in Vietnam in the Decree 99, with the difference that Lam Dong project also includes companies providing drinking water, as buyers:   

Hydropower plants have to pay 20 VND/kWh (≈0.00096 USD/kWh) on the power they sell to power purchasers according to power purchase contracts, for forest environmental services; Drinking water companies have to pay 40 VND/m3 (≈0.0019 USD/m3) on the water they sell to households and industries, for forest environmental services For organizations and individuals conducting tourism business benefiting from forest environmental services (boat cooperatives, homestay businesses, etc), the amount of payment is 1-2% of the revenue generated in the payment period.

The payment is collected among buyers every 3 months. In 2 years, the FPDF collected VND 107.205 billion (≈USD 5.1 million) shared as following between the different buyers: -

Da Nhim hydropower plant: 48.483 billion Dai Ninh hydropower plant: 47.779 billion SAWACO: 10.943 billion Tourism companies: 0.605 billion

In total for the 2 villages visited, 150 households are involved in the mechanism. They form 15 groups and each of them has an allocated land plot to protect and monitor. The names of group members are compiled in a special document. They must be local inhabitants and be registered in the local administration.

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2. Amount received by the sellers: In the case of direct payment (to date, no cases reported): In case of direct payment, the FES buyers pay directly the suppliers. This kind of payment is only possible if the FES buyers are able and have sufficient conditions to realize the direct payment without using an external intermediary organization. The level of payment is voluntarily negotiated between parties and formalized in an agreement following the regulations of the Decree 99. The amount paid in the case of direct payment cannot be lower than the level regulated by the Government for the same forest environmental services (level paid in the frame of the indirect payment).

Meeting in MARD with VNFOREST

In the case of indirect payment In the case of indirect payment, FES buyers pay to the intermediary organization which redistributes to sellers. Thus FES sellers receive the payment in cash from the FPDF. The payment is delivered at the scale of the watershed, thus it can differ from one watershed to the other depending on the amount of money collected among buyers. For instance in the Da Nhim watershed, the payment was VND 290,000/ha/year (≈USD14) and in Dai Ninh watershed VND 270,000/ha/year (≈USD13) in 2009. In 2010, the payment rose respectively to VND 400,000/ha/year (≈USD19.2) and VND 350,000/ha/year (≈USD17). Households contracting at the individual level are rare and most of the time, contracts are established at the village level, i.e. groups of 10/15 households. The money received by the groups is then redistributed among households. In the Province for 2010, the average amount received by household groups was USD 500/month/group, and the average income for households was USD 417/year/household. So far, the K coefficient doesn’t impact the level of payment. Indeed, to avoid confusion among the population, it has been decided that the K coefficient would first be fixed as K = 1. It means that all forest land receive the same payment for one hectare. This has been a source of conflicts as some households managing remote areas felt that their work was not well considered. For this reason, it is expected that the K coefficient will be fully implemented next year. The above payment is received only by contracting households/organizations. However, to increase forest protection efficiency and to prevent conflicts between involved and non-involved households, other rewards are integrated in the mechanism: every person who notices ongoing forest destruction such as people cutting trees illegally, livestock degrading the forest, forest fire, etc. and who warns the 20 | P a g e

forestry unit can receives an award in-cash. Therefore, even households that are not included in the PFES mechanism are encouraged to protect the forest and receive financial incentives for that.

Our group met the head of one contracting group. This group brings together 15 families of one hamlet. They are in charge of managing 400ha of forest (each group choose the location and area of the territory they manage). For forest monitoring and protection, this group decided to organize forest patrols consisting in 3 group members going to the forest every morning from 7:30 to 11:30am. Every day different members make the patrol and cover part of the territory so that after some days, the whole territory is covered and all group members are involved. Every week, the group writes a report in which is precised the activities carried out during the week, the problems they noticed related to forest protection, and relevant comments. Forest rangers from the local forestry unit help in the writing of this report. In addition, every 3 months, all villagers are gathered for a general meeting to discuss the activities and problems in the forest that occurred. This is an open discussion for comments from villagers and potential improvement of forest protection. Conditionality FES sellers have to comply with some conditions to get the payment. For instance, they have to plan trees where the forestry unit asks them to do so. Seedlings are grown in governmental tree nurseries and are provided by the forestry unit, but the work related to planting in the existing forest or on bare lands is carried out by FES sellers. Furthermore, signatories have to prevent forest degradation by illegal cutting or fires by organizing forest patrols covering the whole territory they have contracted for. If they notice any human or natural degradation, they must immediately inform the forestry unit which takes appropriate measures. Very often, contracts are not signed individually but at the village level. Thus, households involved can share the tasks for protecting and monitoring the forest.

Intermediary organization In Lam Dong province, the payment is collected by the Forest Protection and Development Fund, created in the frame of the PFES mechanism. The FPDF is a public fund under the MARD. It consists in 16 staff members among which 9 belong to the provincial administration staff and 7 to the FPDF itself. The Fund is divided in two departments, technical and financial. The FPDF signs agreements or trust contracts with FES buyers. The FPDF also signs contracts with sellers who are forest owners, but only if they are organizations (forestry enterprise for instance). For other sellers (households, households groups), the contract is not direct with the FPDF but there is an intermediary contract with the Commune level (Aiyl Okmotu) or with forest owners having a contract with the FPDF as specified above.

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Tree plantation in Xuan Truong commune

Monitoring and Evaluation The monitoring of the compliance with contract conditionality – forest protection – is done by forest rangers from the local forestry unit. Although they are usually paid from the government budget, they receive their salary from the FPDF budget when they work specifically for monitoring the PFES mechanism. For the whole Province, USD 6000/month is provided to forest rangers for monitoring. As there are 10 districts, USD 600/month is provided for each district for monitoring. The monitoring consists in: -

Going regularly on the field to check that contracting groups are implemented forest protection related activities Helping contracting groups to write their weekly report and discussing with them about potential problems in forest protection. Making once a year a general assessment of the contracted forest territories prior to the payment: a baseline assessment on existing forest resources and on who rents the forest, which area, etc., has been created. At the end of each year, the rangers conduct an assessment and check for each sellers if the forest area they manage reduced or not. If it reduced, a report

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(written on an official form provided by an interministerial circular) is done and specify how many hectares of forest were lost and for which reason. From this report, the ES provider receives only the payment related to the area of forest left. For example, if at the beginning of the year, a household manages 100ha of forest and only 90ha left in the end of the year Meeting with local Forestry Unit (because of tree cutting, fire, because of degradation by cattle, etc.), this household only receives the payment for 90ha, i.e. 90% of the PFES. Water quality is also monitored to follow the impact of forest protection related activities on water quality. Gauging stations have been created and the monitoring has been established on a 5 years basis. Therefore first results will be released in 2 years.

PES contracts As for the Bac Kan case, PES contracts are signed at the individual or collective level. Although organizations can sign contracts on their own, households sig n collectively in most of the case, as the activities to undertake for forest protection are often too time consuming for a single family. Furthermore, contracting at the collective level reduces transaction costs.

Impact of the mechanism and payment Results from a survey conducted in one village of Lam Dong Province and discussions with stakeholders showed that the PES helped to significantly increase people’s awareness of forest and forest environmental services. Income from forest management of the contracted households increased 3-4 times compared to before the scheme. Violations of forest protection tended to decrease compared with before the scheme. PFES brought a new financial source (State budget alternative) for socialization of forest development.

Additional comments As explained above, the Lam Dong PFES mechanism was designed and implemented in the frame of a pilot project led by several international organizations. Another Province, Son La, was also included in this pilot project. Thanks to the significant efforts of key decision-makers within the MARD, a pilot policy

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for PFES in Vietnam was signed under Prime Minister’s Decision 380/QD-TTg² to run activities in the two pilot Provinces from April 2008 to December 2010. In 2010, as the activities in Lam Dong and Son La showed their efficiency, the government decided to extend the PFES mechanism at the national level through the Decree 99 signed by the Prime Minister. Consequently, Vietnam has now a legal national framework for the implementation of the PFES mechanism, stating rights and duties of FES buyers and sellers, explaining the financial mechanism and monitoring of the scheme, giving responsibilities to Provincial and local authorities for the implementation and management of the mechanism.

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