draft indonesia forest investment plan

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REPUBLIC OF INDONESIA

FOREST INVESTMENT PROGRAMINDONESIA FOREST INVESTMENT PLAN

March 2012

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Executive SummaryFOREST INVESTMENT PROGRAM Summary of Country Investment Plan1. Country/Region: 2. FIP Funding Request (in USD

Indonesia Grant: $37.5 Million Loan: $32.5 Million

million)::3. National FIP Focal Point:

Dr. Hadi S. Pasaribu Senior Advisor Ministry of Forestry (MoFr) Indonesia hadispsaribu@yahoo.com Ministry of Forestry (MoFr) Directorate General of Forest Utilization Directorate General of Forestry Planning Directorate General of Watershed Management and Social Forestry Development Ministry of Home Affairs Local Governments

4. National Implementing Agency

(Coordination of Investment Plan):

5. Involved MDB 6. MDB FIP Focal Point and

ADB, World Bank, and IFC Headquarters-FIP Focal Points: Dr. David McCauley Advisor and Head, Climate Change Program Coordination Unit dmccauley@adb.org Ms. Joyita Mukherjee JMukherjee1@ifc.org Dr. Gerhard Dieterle Adviser gdieterle@worldbank.org TTLs: Dr. Ancha Srinivasan Principal Climate Change Specialist asrinivasan@adb.org Dr. Michael Brady Forest Program Manager mbrady1@ifc.org Mr. Werner Kornexl Senior Climate Change Specialist wkornexl@worldbank.org

Project/Program Task Team Leader (TTL):

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7. Description of Investment Plan:

(a) Key challenges related to REDD+ implementation - Land Use, Land Use Change and Forestry (LULUCF) and peatland sectors are the biggest contributors of GHG emissions in Indonesia. The main causes of deforestation and forest degradation have been identified as follows: (i) ineffective spatial planning; (ii) weak tenure; (iii) ineffective forest management; (iv) inadequate governance; and (v) poor legal framework and law enforcement. The eight broad challenges that were identified are as follows: Community Forestry: Investment in CBFM are required in a number of areas, including development of capacity of communities to engage in sustainable forestry activities on either state or private lands, institutional strengthening of both central and local governments in key provinces to improve their capacity to promote forest management practices in communities, and assistance to address land tenure and rights in relevant community forest areas. Land and Forest Tenure Reform: Uncertain land tenure has contributed to the problems of ineffective spatial planning and unsustainable and uncoordinated land use and development. Stakeholders in the FIP process have also noted that lack of secure land rights is a barrier to landbased investments, community livelihood, and conservation activities. Forest Law Enforcement and Illegal Logging: Effective enforcement of logging regulations will be critical for achieving REDD+ targets in Indonesia. Investments in improved capacity and upstream policies to improve enforcement would improve the ability to prevent, detect, and suppress activities that contribute to forest degradation. Forest Management Units (KPHs) and REDD+: Indonesias Forest Management Unit (Kesatuan Pengelolaan Hutan, or KPH) program is an important emerging institution for improving the management of Indonesias forests and implementation of its REDD+ framework. Ideally, KPHs would be responsible for developing, implementing, and/or overseeing site level forest governance and management; including preparing participatory plans, enforcing forest regulations such as forest fire control and other illegal practices, and negotiating with local communities on issues such as land use rights and forest access. Degraded Lands Development and REDD+ Approaches: Increasing global demand for pulp and paper, rubber and palm oil and a growing domestic demand in Indonesia for food crops is expected to result in conversion of an additional 21-28 million hectares of forest by 2030. An alternative scenario would see much of the expansion of agricultural land taking place on non-forested or highly degraded forest land. Ecosystem Restoration Concessions: In 2007, a government regulation opened up the possibility of allocating Production Forest areas as Ecosystem Restoration Concessions (ERCs), which have significant potential for becoming an important framework for REDD+ project implementation. However the ERC concept faces a number of bottlenecks, including burdensome and costly licensing processes, which targeted investment could help to address. Market-based REDD+ Preparedness and Incentives: Carbon markets offer an important opportunity for utilizing financial incentives to reshape land and forest management practices. There are opportunities to support market-based REDD+ activities, especially at the local levels. Sub-national REDD+ Pilots: Sub-national REDD+ development in pilot provinces or districts is widely recognized as one of the key pillars of REDD+ in Indonesia. Resources could be used to enhance readiness and to test and develop REDD+ systems and approaches in pilot provinces or demonstration locations.

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(b) Areas of Intervention - The main purposes of the Indonesia FI-Plan are to provide up-front bridge financing for readiness reform of public and private investments identified through national REDD readiness and to overcome barriers that have hindered past efforts in fostering transformative change in forest management and conservation and achieving the promise of REDD+. The FI-Plan has identified and developed several key interventions to be financed. These interventions have been designed based on consultations undertaken in 2010-2011 with GOI and national and local stakeholders who attended the Joint Missions, national workshop and individual consultations. The three groups of FIP interventions will enhance readiness and build national and local capacity in the near term, and will also contribute to the successful implementation and achievement of Indonesias longer-term REDD+ and climate change goals. The Forest Investment Plan (FI-Plan) for Indonesia will support three groups of interventions: 1. Testing and developing a set of sub-national REDD+ measures, by supporting the REDD+ action plan of West Kalimantan Province; 2. Promoting sustainable community-based natural resource management and institutional development; and 3. Strengthening the role of the private sector to respond to REDD+ incentives, especially small forest enterprises, by strengthening sustainable forest management schemes with forest carbon revenue streams. The first group of interventions (supported by the ADB) is aimed at exploring the interface between development and diffusion of improved models for community-focused forest management and the ability to tap REDD+ financing. Working in West Kalimantan, investments will be made at the provincial level to develop a comprehensive REDD+ plan, to include capacity building, development of policies to address key drivers such as illegal logging, and land tenure reform. This will be accompanied by efforts at the district level to prepare more detailed spatial and land-use plans for select districts and to develop community-focused pilots; the latter will include alternative activities that utilize degraded lands. This work will build upon and be linked with the ongoing Heart of Borneo Initiative. The second group of interventions (supported by the World Bank) will promote sustainable community-based natural resource management and institutional development for KPHs. The investments will support the following activities, depending on local needs and ownership: support for KPH REDD+ capacity building; support for village-level land use planning; support for community livelihoods development and natural resource management; and development of institutional and technical arrangements for REDD+. The third group of interventions (supported by the IFC) is aimed at leveraging private sector investments to strengthen the productive capacities and business skills of forest enterprises, including smallholder and community small businesses and cooperatives as well as medium and large forest firms. FIP investments will focus on the development of innovative and viable forest business models, and will include organizational and business capacity building, application of sustainable forest management, development and valuation of multiple revenue sources such as ecosystem services and NTFPs, and improved access to existing financial support mechanisms and design of new incentives. Investments and projects undertaken by the FIP in all three areas will involve extensive involvement of a broad range of stakeholders at the community, district, provincial and national levels at all stages of design and implementation. Particular attention will be given to indigenous peoples as well as addressing gender issues, and to the utilization of local knowledge and techniques, where appropriate. Projects will be developed and implemented with adherence to MDB and national social and environmental safeguard standards.

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(c) Expected Outcomes from the Implementation of the Investment Plan - Reduced deforestation and forest and peatland degradation and enhanced conservation through improved landscape management and systems for natural resources utilization across Indonesias islands, provinces and districts. Indicators include changes in hectares of natural forest cover and changes in hectares of natural forest that are degraded. Increased local, site-level, cross-sectoral and cross-regional management of forest resources. Indicators include evidence of strengthened coordination within and between key stakeholders groups (government ministries, local communities, private, and development partners) for management of forest resources. Improved enabling environment for REDD+ and sustainable management of forests and non-forest areas for protection, production and conservation. Indicators include: i) change in the extent

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