4-,I W-zl D D l 4

Document of

The World Bank

FOR OFFICIAL USE ONLY

MICROFICHE COPY Repon No. 8073-BX

ReEPort No. 8073-.B ?ype: (SAR)

%OIROLO, L/ X31820 f / LAIAG

STAFF APPRAISAL REPORT

BRAZIL

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

FEBRUARY 27, 1992

Agriculture Operations Division

Country Department I

Latin America and the Caribbean Region

This document has a reslticted disrbution ad may be used by recipkelt only in the perormance of

their offid duties. Its contents msy Ot othendse be disclosed wkbout Wox4 Bask muthoizalou.

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CURAENCY EOUIVALENTS(as of June 30, 1991)1/

Currency Unit = Cruzeiro (Cr$)Cr$306.69 = US$1.00Cr$1.00 US$0.0036Cr$l million US$3,260

WEIGHTS AND MEASURES

The metric system is used throughout the report.

FISCAL YEAR

State of Rond6nia = January 1 to December 31Project January 1 to December 31

1/ Post-appraisal mission.

FOR OMFCL USE ONLY

GOfSSARY OF ACRONYMS

BERON Banco do Estado de Rond8nia(State Bank of RondOniaj

DER-RO Departamento de Estradas de Rodagem de Rond8nia(RondOnia Highway Department)

CASRG Companhia de Aguas e Esgotos de Rond8nia(Water Supply and Sewerage Company of Rond8nia)

CAGERO Companhia de Armazens Gerais de Rond8nia(Rond8nia Storage Company)

CEPLAC Comisslo Executiva do Plano da Lavoura Cacaueira(Executive Committee for the Cocoa Development Plan)

CPAF/EMBRAPA Centro de Pesquisas Agro-Florestais da EMBRAPA(Agro-Forestry Research Center of EMBRAPA)

DPU Departamento do Patrim8nio da Uniao(Property Department of the Union of the Borrower)

DTN Departamento do Tesouro Nacional(Department of the National Treasury, Federal Ministry ofEconomy, Finance and Planning)

PI4ATER-RO Empresa de AssistAncia Tecnica e Extenslo Rural de Rondonia(Rond8nia State Technical Assistance a-id Rural Extensioncompany)

ENBRAPA Empresa Brasileira de Pesquisa Agropecu&ria(Brazilian Agricultural Research Enterprise)

ENARO Empresa de NavegagQo de Rond8nia(Rond8nia Water Transport Company)

EUNAI Fundaq&o Nacional do fndio(National Indian Foundation)

FUNDAGRO Fundo Agrario(Rond8nia State Agricultural Credit Fund)

IBAM Instituto Brasileiro do Meio Ambiente e dos Recursos NaturaisRenov&veis(Brazilian Institute for the Environment and Renewable NaturalResources)

ICB Licitaglo International(International Competitive Bidding)

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

INCRA Instituto Nacional de Coloniza,Ao e Reforma Agraria(National Institute for Colonization and Agrarian Reform)

ITERON Instituto de Terras de Rond8nia(Rond8nia State Land Institute)

LCB LicitagPo Local(Local Competitive Bidding)

NUAR NGcleo Urbano de Ap6io Rural(Rural Service Center)

PCU Unidade de CoordenaqAo do Projeto(Project Coordination Unit)

PLANAFLORO Plano Agropecuario e Florestal de Rond8nia(RordOnia State Agricultural and Forestry Plan)

PMF Policia Militar Florestal(Forest Military Police)

POLONOROESTE Programa Integrado de Desenvolvimento do Noroeste do Brasil(Integrated Development Program for Northwest Brazil)

SDR-PR Secretaria e Desenvolvimento Regional da Presidencia daRepdblica(Secretariat of Regional Development of the Borrower'sPresidency)

SEAGRI-RO Secretaria de Estado da Agricultura e Abastecimento(Rond6nia State Secretariat of Agriculture and Supply)

SEDAM-RO Secretaria de Estado de Desenvolvimento Ambiental(Rond8nia State Secretariat of Environmental Development)

SEDUC-RO Secretaria de Estado da EducaqAo(RondOnia State Secretariat of Education)

SZOSP Secretaria de Estado de Obras e Servigos PGblicos(Rond8nia State Secretariat of Works and Public Services)

SEPLAN-RO Secretaria de Estado de Plaaejamento e Coordenag&o Geral(RondOnia State Secretariat of Planning and Coordination)

SESAU-RO Secretaria de Estado da Sadde(Rond6nia State Secretariat of Health)

BRAZXL

ROND6NIA NATURAL RESOURCE MANAGEMENT PROJECT

Table of Contents

Page

I. LOAN ND PRBOJECT SUMMARY . . . . . . . . . . . . . . . . . . 1

II. THE AGRICULTURAL SECTOR AND THE STATE OF ROND6NIA . . . . . . . . . . 5

Agriculture in the National Economy . . . . . . . . . . . . . . . . 5Agricultural Development Policy . . . . . . . . . . . . . . . . . . 5Experience with Past Bank Lending . . . . . . . . . . . . . . . . . 6The State of Rond8nia ..................... . 7Location and Naturai Resources . . . . . . . . . . . . . . . . . . 7History of Stace Occupation ................... . 7Land Tenure and Agricultural Production . . . . . . . . . . . . . . 9The Northwest Program - POLONOROESTE . . . . . . . . . . . . . . . 9Main Lessons Learned under PCILONOROESTE . . . . . . . . . . . . . . 13

III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Origin and Rationale for Bank Involvement . . . . . . . . . . . . . 15Project Objectives . . . . . . . . . . . . . . . . . . . . . . . . 16Environmental Policy Reform Program . . . . . . . . . . . . . . . . 16Agro-ecological Zoning ..................... . 17Project Components . . . . . .............. . 18

A. Environmental Conservation. Manacement and Protection . . . . 'gLand Zoning, Mapping and Regularization . . . . . . . . . . . ;9Establishment and Management of Conservation Units . . . . . 20Environmental Protection . . . . . . . . . . . . . . . . . . 21Forest Management .s.t.a.n.g.n.t. . . . . . . ...... . . 21Extractive Reserves . . . . . . . . . . . . . . . . . . . . . 22Support to Amerindian Communities . . . . . . . . . . . . . . 23Institutional Strengthening, Studies and TechnicalAssistance .... . . . . . . . . . . . .... . . . . . 23

The project is based on the findings of a Bank appraieal mission which visitedBrazil from July 26 to August 23, 1989. The mission comprised Messrs.L. Coirolo (Mission Leader, Agricultural Economist), M. Dourojeanni(Forester/Environmentalist), J. McKenna (Resource Planning Spacialist),J. Barbosa (Land Titling Specialist), E. Los (Agriculturalist, Consultant),E. Velez-Koppel (Credit and Marketirg Specialist, Consultant), V. Bellia(Transport Specialist, Consultant), Silbene Almeida (Indigenist, Consultant),D. Gross (Anthropologist, Consultant), M. Leonel and Ms. B. Mindlin(Consultants from the Brazilian Institute of Anthropology and Environment-NGO), Mmes. S. GonzAlez-Flavell (Lawyer) and A. Breidenbach (Secretary).A post-appraisal mission took place from June 15 to July 7, 1991.

B. Bgro-Forestrv DeveloQment . . . . . .. . . . . 24Agro-Forestry Research . . . . . . . . . . . . . . . . . . . 25Rural Extension . . . . . . . . . . . . . . . . . . . . . . . 25Rural Credit . . . . . . . . . . . . . . . . . . . . . . . . 26Input Supply . . . . . . . . . . . . . . . . . . . . . . . 27

C. Socio-economic Infrastructure and Services . . . . . . . . . 27Health . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Education . . . . . . . . . . . . . . . . . . . . . . . .. 28Water Supply . ... * ... ... ... .. 28Road and River Transport . . . . . . . . . . . . . . . . . . 29

D. Proiect Administration ............ . . . . . . 29Project Organization and Implementation . . . . . . . . . . . 30

Institutional Strengthening . . . . . . . . . . . . . . . 30Coordination Arrangements . . ....... . 31Implementation Arrangements ................ . 32Annual Plans and Budgets . ... ..... 32Project Monitoring and Environmental Impact Assessment . . 32Accounts and Auditing ..... 34

Project Costs. .. ... 35Finan-ing Plan . . . . . . . . . . . . . . . . . . . . . . . 35Procurement . . . . . . . . . . . . . . . . . . . . . . . . . 36Disbursements and Special Account . . . . . . . . . . . . . . 37Project Benefits and Justification . . . . . . . . . . . . . 38

Economic and Financial Benefits . . . . . . . . . . . . . 38Fiscal Impact.. ... 39

Project Risks ..... 39

IV. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . 42

ANNEXES:

Annex l Environmental Policy Reforms and Agro-Ecological Zoning . . . . 46Table 1.1 Matrix of Main Environmental Policy Issues, Measures

and Actions .... . ...... . . . . . . . . . 51

Annex 2: En-ironmental Conservation and Forest Management . . . . . . . 53Table 2.1 LANDSAT Surveys of Forest Clearing in the Brazilian

Amazon . . . . . . . . . . . . . . . . . . . . . . . 57Table 2.2 Federal, State and Municipal Conservation Units . . . 58Table 2.3 National and State Forests and Extractive Reserves . 59

Annex 3: Valuation of Forest Destruction in Rond8nia . . . . . . . . . . 60

Annex*4: Forest Fallow Management Program . . . . . . . . . . . . . . . 64Table 4.1 Rate of Return Calculations of Fallow Enrichment . . 66

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Page

Anex 5_: Support to Amerindian Communities . . . . . . . . . . . . . . . 68Table 5.1. Indigenous Areas Already Demarcated and Identified

for Demarcation in Rond8nia . . . . . . . . . . . . 71Table 5.2 Indigenous Areas Under Investigation for Possible

Demarcation and Protection . . . . . . . . . . . . . 72

Annex £: Project Costs, Financing Plan and Disbursements . . . . . . . . 73Table 6.1 Annual Phasing of Project Costs by Component . . . . 73Table 6.2 Summary Accounts by Project Component Actions . . . . 74Table 6.3 Estimated Sch%iule of Disbursements . . . . . . . . . 75Table 6.4 Financing Plan . . . . . . . . . . . . . . . . . . . 76Table 6.5 Allocation of Loan Proceeds . . . . . . . . . . . . . 77

Annex 7: Project Implementation Arrangements . . . . . . . . . . . . . . 78Table 7.1 List of Executing and Collaborating Agencies . . . . 78Table 7.2 Project Physical Targets and Schedule of

Implementation . . . . . . . . . . . . . . . . . . 79Chart 7.1 Project Coordination and Management Chart . . . . . . 84

Annex 9: Working Papers and Other Documents Available in Project Files . 85

MAP: IBRD 21926R

BRAZIL

ROND8NIA NATURAL RESOURCE MANAGEMENT PROJECT

I. Loan and Proiect Summ.arv

Borrower: Federative Republic of Brazil

Executinq Secretariat of Regional Development, Presidency of theAgencv: Republic/Rond8nia State Secretariat of Planning

Amount: US$167.0 million equivalent

Terms: Repayable over 15 years, including 5 years of grace at theBank's standard variable interest rate.

Beneficiaries: Some 5,000 to 6,000 Amerindians, 2,400 families of rubbertappers and other forest dwellers, and 900 families offishermen and riverine inhabitants in Rond6nia wouldbenefit directly from the environmental conservation,management and protection component of the project. Afurther 52,000 low-income smallholder families, currentlyresiding in areas of the State which are suitable forsustainable development from an agro-ecologicalstandpoint, would benefit directly from the agro-forestrycomponent. Much of the rural community in those sameareas would also benefit from improved socio-econom.cinfrastructure and services. Finally, both current andfuture generations in Rond8nia would benefit from actionstaken now to arrest deforestation and degradation of theState's natural resource base and biogenetic diversity.

Proiect Objectives The principal objective of the proposed project would beand DescriDtiont to implement an improved approach to natural resource

management, conservation and development in the State ofRond8nia, which lies within the environmentally fragileAmazon Basin. The project would assist the Government tot(a) inst"itute a series of changes in policies,regulations, and investment programs, so as to provide acoherent incentive framework for the sustainabledevelopment of Rond8nia; (b) conserve the richbiodiversity of the State, while creating the basis forthe sustainable utilization of its renewable naturalresources for the direct economic benefit of the localpopulation; (c) protect and enforce the borders of allconservation units, Amerindian reserves, public forestsand extractive reserves, and control and prevent illegaldeforestation, wood transport and forest fires;(d) develop integrated farming systems in areas suitablefor permanent agriculture and agro-forestr-, and systemafor sustainable forest management and exttdction of non-wood forest products in other areas which should remain

under natural forest covers (e) support priorityinvestments in socio-economic infrastructure and servicesto implement the State5 s agro-ecological zoning; and(f) consolidate the technical operational capacity ofstate institutions, particularly those responsible foragriculture, forestry support services, and the protectionand management of forests and Amerindian reserves. Theproject, to b6 implemented over a five-year period, wouldsupport priority env5.ronmental conservation, managementand enforcement activities; an agro-forestry developmentprogram; socio-economic infrastructure and services; andproject administration, monitoring and evaluation, andtwchnical assistance. Consolidazion of agriculturaldevelopment activities and infrastructure investments willtake place only in areas already deforested. No newoettlements or new roads will be financed under theproject.

Proiect Benefits: The main impact of the project would be a significantreduction in the rate of destruction of Rond8nia'sremaining natural rain forest. Techniques for quantifyingenvironmental benefits are still quite rudimentary, but itis conservatively estimated that the present economicvalue of the foregone losses of wood (i.e., the value ofthe forest not destroyed) would be about US$420 millionover a ten-year period. In addition, two pilot schemes innatural forest management would generate net revenues forthe State, as would agro-forest-?y activities in areas withsustainable agricultural potential. Other importantproject benefits would include poverty alleviation andimproveŽment of the health and well-being of ruralbeneficiaries, protection of Araerindian lands, preventionof soil depletion and erosion, and preservation of naturalecosystems and biodiversity.

Project Risks: In the past, inadequate knowledge of the natural resourcecapabilities of Rcnd8nia resulted in the occupation oflands with little or no sustainable develrpment potential,accompanied by rapid deforestation and resource depletion.However, given current technical knowledge, particularlythe availability of agro-ecological zoning, the prospectsfor achieving sustainable agricultur,l and extractivedevelopment, and environmental preservation, are muchbetter today than in the past. The various environmentalpolicy and regulatory reforms which the Government hasalready undertaken in preparation for this project shouldalso help to improve the economic and financial incentivesframework which, in the past, often encouraged occupationand deforestation of unsuitable areas. Project activ'>iesdesigned to intensify land use in suitable areas and todevelop sustainable forrns of extractive production inareas which should remain under forest cover would also

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help to reduce the pressure on the forests by amall,shifting cultivators. In addition, the project wouldstrengthen the capacity of key State agencies to enforceState environmental policies and legislation and toprotect the borders of conservation units and reservee.

While the environmental reforms adopted as the outset ofthe project address the most important known causes ofnatural resource degradation ia Ronddnia, there is alwaysa risk that unforeseeable factors (e.g., weather orecor.omic problems in other parts of Brazil which mightprompt additional migration to Rond8nia), or delays,in theimplementation of crucial decisions and activities, couldundermine the project strategy. For that reason,intensive M&E efforts, with participation of NGOs, wouldbe put in place from the start of the project, to identifyproblems as they arise and recommend corrective action, asnecessary. Finally, although the project includessignificant technical assistance and trsinina to supportRond8nia's relattvely young institutions, the currentfiscal situation in Brazil could undermine the futuredevelopment of these entities. Therefore, duringnegotiations the Government presented satisfactory plansfor dealing with restrictions on staff recruitment andsalary levels, and the agreements reached would bemonitored closely.

ESTIMATED PROJECT COSTS AND FINANCING PLAN

Local Foreinn Total(Ulf Million)

Estimatfd Prolect CostsA. Environmental CMnservation,

61%nagement gnd Protection 41.2 ILI.t

Land Zoning, Napping & Regularization 9.4 7.3 16.7Cunservation Units 5.7 1.3 7.0Environmental Protection 9.8 2.7 12.5Forest Management 5.6 1.0 6.6Extractive Reserves 1.1 0.5 3.6Support to Amerindian Communities 2.9 0.6 3.5Inst. Strengthening, T.A. & Studies 4.7 2.7 7.4

S. Aero-forestry Ulevelopment 64.7 7.1 71I_

Agro-forestry Research 9.1 2.1 11.2Rural Extension 29.6 4.9 34.5Rural Credit 25.1 0.0 25.1Input Supply 0.9 0.1 1.0

C. Socio-economiC Infrastructure& Services 46t9 14.9 61.8

Health 5.4 1.8 7.2Education 3.9 0.8 4.7Road & River Transport 36.4 11.9 48.3Water Supply 1.2 0.4 1.6

D. ProJect Adcinistration. Monito.ingand Evaluation. Technical Assistance 5.4 4.6 1.

Total Baseline Costs 158.2 42.? 200.9

-Physical contingencies 3.8 1.3 5.1-Price contingencies 18.5 4.4 22.9

Total Protect Costs 180.5 48.4 228.9

FinancIng Plan

Rondonia State Goverrment 30.9 - 30.91/Federal Government 31.0 - 31.01/IBRD 118.6 48.4 167.0

Total 180.5 48.4 228.9

Estimated DisbursementsBank FY: 1992 1223 1994 1995 1996 1997

(in USS million)

Annual 11.0 Z/ 39.0 f 37.0 36.0 30.0 14.0Cumulative 1.0 50.0 87.0 123.0 153.0 167.0

Rate of Return: N.A.

ega: IBRO No. 21926R

I/ including USS5.7 million in local taxes.g/ Including initial deposit of US$11.0 million into the Speciat Account.3/ Including disbursements of US$15.0 million of retroactive financing.

It. THE AGRICULTURAL_SECTOR .AD THE STATE .QE RONONIA

iculture in the Nrtiona. EconomY

2.01 Throughout the postwar peziod, until the 1980s, the Brazilianeconomy grew at a high average annual rate of around 9%. The agriculturalsector also performed w: 1., achieving an average annual growth rate of about4% over the same period, although the output of both the industrial andservice sectors increased at much faster rates. As a result, agriculture'sshare of total GDP declined from about 25% in 1950 to 10% in 1980.

2.02 Agricultural development prior to 1980 was led by the growth ofnon-traditional exports (mainly soybeans and citrus). Production increasescame almost entirely from expansion into new lands as opposed to increases inyields. Growth was particularly dynamic in the expanding frontier stat3s ofthe Center-West (Goias and Mato Grosso do Sul) and parts of Minas Gerais.

2.03 In the early 1980s, the economy slowed down, reflecting decliningindustrial production and relative stagnation in agriculture and expansion ofthe agricultural frontier came to a virtual halt with the exce;tion of certainareas in the North. In the last few years, agricultural growth has fluctuatedas a result of agricultural policy changes, the macroeconomic conditions inthe country, and the weather. Agriculture grew at only 3% p.a. over the 1980s- about the same rate of growth as the entire economy - but its share of totalGDP fell to 9% by 1989. The sources of growth appear to be charnging. Withthe recent introduction cf new varieties, made possible by technologicaladvances in agricultural research and increased investment in irrigation insome areas, yields of traditional export crops (cotton, tobacco and coffee)and many food crops (rice, maize and wheat) have increased significantlyAlso, the introduction of soybeans as a crop in the 1970s has now resulted ina mature and major industry.

Agricultural Development Policy

2.04 Government policies have had a majic. impact on the performance ofthe agricultural sector. Brazil's decision in the postwar era to embark on animport substitution-led industrialization strategy was pursued through avariety of measures, including an overvalued currency, restrictive tradepolicies, and from time to time, outrignt bans and quotas on agriculturalexports. The effect was to implicitly tax agriculture. Partially tocompensate for this, subsidized rural credit was introduced, but this onlycreated further distortions and benefitted mainly larger producers. Recently,the Government has taken major measures to change many of these policies. TheBank has supported these reforms under the Credit and Marketing Reform Project(Loan 2727-BR). With respect to rural credit, the Government is now moving inthe direction of reducing the availability of official (subsidized) credit andrelving on private finance at market interest rates. A Bank loan for theAgricultural Credit Project (Loan 2971-BR) is aimed at assisting theGovernment to achieve this objective. In many other aspects, the Governmentis phasing out its intervention in agr_culture.

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2.05 While the Government policy agenda during the 1980s has beendominated by macroeconomic stabilization concerns, farmers, faced with theproblems of increasing production costs and falling commodity prices, havebegun to seek more cost-effective technologies and to intensify the use ofexisting farm land and rural infrastructure. This is already evident in thecountry's major agricultural areas in the South and Southeast. There isgrowing interest in irrigation, soil conservation, environmental protection,livestock disease control, more efficient marketing and storage, and morewidespread application of the results of agricultural research. Evidence alsoindicates that the supply of uncla'med agricultural land with good economicpotential is rapidly diminishing. This fact, coupled with the Governmentinitiatives to withdraw some of the various fiscal incentives that have helpedto fuel expansion into areas which are less suitable from an agro-ecologicalstandpoint, suggests that the growth of the land frontier may be coming to aclose. Instead, future agricultural development will come increasingly frommore land-intensive production methods.

Experience with Past Bank Lending

2.06 As of December 31, 1991, the Bank had made 56 loans, totallingUS$4,895.6 million (net of cancellations), for agricultural and ruraldevelopment in Brazil. These loans include: one agricultural credit andexport loan for US$303 million; one agricultural credit loan for US$300million; two supplemental loans for US$30.3 million under the 19F3 SpecialAction Program for Brazil; four loans for US$785.8 million for agro-industries; three for US$111.5 million for livestock, including an animaldisease control project of US$51 million; one for US$18.2 million for grainstorage; three for US$147.0 million for agricultural research; two for US$255million for agricultural extension; one for US$100 million for land tenureimprovements; one for US$495 million for credit and marketing reform; one forUS$48.5 million for forestry development; one for US$195 million for theirrigation subsector; and 35, totalling US$2,106.3 million, for varioussettlement, irrigation, land management and rural development projects in theNortheast, Minas Gerais (the Southeast), Paran& (the South), and the North andNorthwest.

2.07 With regard to the Northwest Region, the POLONOROESTE Program(paras. 2.18-2.26) was financed by five Bank loans, including three whichsupported primarily the agricultural, rural development and environmentalobjectives of the Program. The Agricultural Development and EnvironmentalProtection Project, known as Northwest I (Loan 2060-BR, of US$67.0 million,approved in 1981), was designed to upgrade existing agricultural settlementsin central Rond8nia. The Agricultural Development and EnvironmentalProtection Project-Northwest II (Loan 2116-BR, of US$26.4 million, approved in1982) financed similar activities in Mato Grosso. The New SettlementsProject-Northwest III (Loan 2353-BR, of US$65.2 million, approved in 1983)supported colonization of unoccupied lands in Rond8nia. In addition, aNorthwest Health Project (Loan 2061-BR, of US$13.0 million, approved in 1981)was designed to improve and maintain health conditions in the settlement areasof RondOnia and Nato Grosso, and a Northwest Highway Project (Loan 2062-BR, ofUS$240.0 million, approved in 1981) helped to finance the paving of Federalhighway BR-364 between Cuiabg and Porto Velho and the construction of feeder

roads to that highway. In 1983, under the Special Action Program (S.AP) forBrazil, the Bank also approved US$22.8 million of supplemental financing forthe Northwest I Project. Project Completion Report" have been prepared forall but the last agricultural project (Loan 2353-l , for which the loan willclose on March 31, 1992. Experience under the agrscultural operations inRond8nia is discussed in paras. 2.18 - 2.2o below.

The State of Rond8nia

2.08 Location and Natural Resourcoe. Rond8n'.a is located betweenlatitudes 80 and 130 South in the southeastern part of the Brazilian AmazonBasin (Map IBRD 21926R), covering about 5% of that region, or about 2.8% ofthe country. The climate is hot and humid, with temperatures averagingbetween 230 C and 260 C. Annual rainfrel of between 1,500 mm in the south to2,700 mm in the north of the State is concentrated between September andApril. Rond8nia has abundant water resources and includes parts of the basinsof several major tributaries to the Amazon River. The two most importantnavigable river systems are the Madeira and Mamor6-Guapor6, although most ofthe State is also crisscrossed by a series of smaller rivers which provide atleast partial access during most of the year.

2.09 The total land area of RondOnia is about 24.3 million ha, of which2.6 million ha (11%) are good eutrophic podsols that present no major barrierto annual or perennial crop production. Another 6.4 million ha (26%) aresoils of more moderate fertility, si'itable only for perennial cropping andagro-forestry. Almost all of these moderate to better soils are located incentral and southeastern Rond8nia, corresponding to most of Zones 1 and 2 ofthe State's agro-ecological zoning (para. 3.06 and Map IBRD 21926R). Theremaining 15.3 million ha (63%) are soils of extremely low fertility, whichare not suitable for any form of agriculture and should therefore bemaintained under permanent forest cover.

2.10 Satellite imagery for the Brazilian Amazon Basin shows that thetotal area of cleared forest increased from about 3 million ha in 1975 toalmost 60 million ha in 1988 (i.e., from less than 1% to nearly one-sixth ofthe tropical forest, Annex 2). Deforestation has been more heavilyconcentrated in some Amazonian States and territories than others. Rondonia,which is only the sixth largest (of nine such States) in terms of total landarea, has the highest percentage of deforested area. Reflecting the openingof the State's agricultural frontier, especially during the past decade (para.2.13), forest cover in Rond8nia has shrunk rapidly from over 99% of the totalState area in 1975 to about 76% in 1988. Of the approximately 5.8 million hawhich have been deforested, about half are estimated to have reverted toforest fallow/secondary growth.

2.11 History of State Occupation. Although official interest in theAmazon Basin dates from the colonial period, the regiun remained only sparselypopulated by native Amerindian tribes and was relatively insignificant ineconomic terms until the last quarter of the nineteenth century, when it begana 40-year period (roughly 1870-1912) of rapid economic growth based on a near-monopoly position in the world market for wild rubber. The very high profitsgenerated by this product, which was essential to the growing demands of North

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American and European industry, prompted the British to establish plantationsia their Asian colonies, where rubber could be produced at only cne-fourth thecoat incurred by Brazilian producers. When the Asian plantation-grown rubberstarted entering world markets in a major way in late 1910, the Amazon's turn-of-the-century rubber boom ended: by 1934, the region's share of the worldrubber market had fallen to 1%, and Amaz8nia entered into a long period ofeconomic and demographic stagnation.

2.12 After 1964, the Amazon once again gained public attention, as thenew Government firmly committed itself to development and occupation of theregion and integration of the Amazon with the rest of Brazil. Included amongthe plans were an ambitious road-building program, agricultural colonizationschemes, and fiscal incentives for attracting new industrial and agriculturalenterprises. A regional development agency and regional development bank werecreated to coordinate implementation. However, there was little detailedknowledge of the region's development potential upon which to base the designof an economic development strategy responsive to the unique natural and humanenvironments of Amazonia.

2.13 Despite a large amount of human and financial resources, theaccomplishments of the ensuing road-building and directed settlement programswere extremely mcdest. Nonetheless, as land became increasingly scarce in themore traditional areas of southern Brazil and prolonged droughts struck theNortheast, the trickle of migrants to Rondonia in the early 1970s soon reacheduncontrollable proportions. By 1977, the National Inrti' ce for Colonizationand Agrarian Reform (INCRA) had settled about 28,000 families in Rond8nia, butat least 30,000 additional families had joined the marginal population of thenewly created urban areas waiting for land. Others became sharecroppers onthe land of established colonists or staked out claims on the fringes ofofficial projects, on Indian reservations and in forest reserves. Thesituation in Rond8nia worsened in the late 1970s, as the ever-increasing flowof land-seeking migrants from other parts of Brazil and budgetary constraintsnearly paralyzed INCRA.

2.14 Accelerated migration to RondOnia caused the State's population togrow from 113,000 in 1970 to 491,000 inhabitants in 1980, and to 905,000 in1985 (i.e., average yearly rate increases of 16% and 13%, respectively, forthe 1970-80 and 1980-85 periods). By 1988, the State's population had reachedan estimated 1.4 million inhabitants. Most of the rural population isconcentrated in central Rond8nia, coinciding with the initial officialsettlement schemes and mainly in the areas of best soils. Urban growth inRond8nia has also been extremely rapid because of the limited capacity forsustained absorption of migrants looking for agricultural land, and thepresent population is now almost evenly divided between urban and rural areas.

2.15 The Amerindian population of Rondonia, which has declinedconsiderably since colonial times, is now officially estimated to includeabout 4,400 people in 12 reserves that have already been demarcated andanother 500 inhabitants of five reserves to be demarcated during the next fiveyeare (Annex 5). The aggregate area covered by these 17 reserves is about 5.2million ha. In addition, various other Indian groups have been identified,which are either uncontacted or which maintain only sporadic contact with

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government agencies. The total population of these uncontacted groups is notknown, but could range from 1,000 to 2,000.

2.16 Land Tenure and Aaricultural Production. The land tenuresituation in Rond8nia is complex and clearly reflects the increased migrationto the State over the last 15 to 20 years. In 1950, the land cadastreidentified around 500 farms occupying an aggregate of about 700,000 ha. By1970, this had grown to around 7,000 farms and 1.6 million ha. However,following the official colonization schemes which were launched in centralRond8nia during the 1970. and early 1980s, the number of farms increasedsharply to around 50,000 by 1980 and to 81,000 by 1985, representing a totaloccupied area of about 6 million ha. The remainder of the State(approximately 18 million ha) includes public lands; foreat, ecological orAmerindian reserves; areas set aside for future colonization schemes; andlands which have been precariously occupied by a small number of farmerswithout officially recognized titles or land rights.

2.17 Agriculture is the dominant productive sector in Rond8nia,accounting for about 30% of the State's GDP and employing 54% of the laborforce. Major products include crops, cattle and extractive products. Thearea planted to crops increased 47% from 1980 to 1988, reflecting thedemographic explosion caused by accelerated migration from other parts of thecountry. Yields of basic food crops in Rond8nia (rice, beans, corn andcassava) are comparable to, or somewhat higher than, the averages for Braziloverall, although for the most part these are not sustainable without highlevels of inputs or increased forest cutting. The area planted to perennials,especially coffee and cocoa, has increased rapidly during the 1980s,accounting for some 28% of crop land and 66% of crop income by 1988. Rond8niais now Brazil's fifth state in terms of coffee production, and the secondlargest producer of cocoa. Cattle production tripled from 1980 to 1986.Although cattle ranching has about the same annual value of production ascrops, it uses about ten times as much land per unit value generated andoccupies far lses labor, and the process of conversion of tropical forest topasture seriously degrades soil quality. Finally, native rubber, fish, nutsand other extractive products up until now contribute only marginally to theState's economy, but they could play a more significant role in the futurewith better processing technologies and marketing arrangements. This will becritical to Rond8nia's success in gradually reducing its dependence on lesssuitable crops and livestock and arresting the rate of deforestation.

2.18 The Northwest Program - POLONOROESTE. In 1980, in recognition ofthe growing socio-economic problems caused by accelerating migration(para. 2.13), the Brazilian Government launched a program of major investmentsin the Northwest agricultural frontier areas of Rondonia and Mato Grosso.1

The Integrated Development Program for Northwest Brazil (POLONOROESTE) aimedto absorb the human influx in an orderly and sustainable manner. Thecenterpiece of the program was the completion and asphalting of the mainFederal highway into the Northwest Region (BR-364) between Cuiabd (capital of

1 The following discussion in paras. 2.18 to 2.22 relates to the strategyand activities of the POLONOROESTE Program in Rondonia only.

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Mato Grosso) and Porto Velho (capital of Rond8nia), coupled with theconstruction of feeder road. to that highway. In contrast to earlierGovernment initiatives, environmental considerations did play an importantpart in the design of the Northwest Program. The strategy of POLONOROESTE wasto steer migrants away from the extensive areas which were ecologicallyfragile and/or occupied by Amerindians. Non-exploitative systems ofagricultural and forest production were tc be promoted, with a view toachieving permanent land occupation by the new settlers and reversing thetrend of felling the tropical forest and abandoning it to low-grade pasture orscrub after only a few seasons of food cropping. Centra'l to the technicalstrategy was the encouragement of small farmers to plant ecologicallyacceptable tree crops, and central to the social strategy was the support forpermanent settlement on farms of adequate size to generate reasonable annualincomes.

2.19 POLONOROESTE, financed by the Federal Government and the Bank(para. 2.07), was coordinated by the Federal Government and executed byFederal and State-level institutions. Implementation encountered manytechnical, ir.stitutional and financial difficulties, particularly in theinitial phase of POLONOROESTE. Only pavement of the BR-364 highway proceededon schedule, while agricultural and social support services, and environmentaland Amerindian protection fell behind. The program was widely criticized forhaving only a marginal effect in reversing the destructive developmentpatterns set in motion in the 1970s: the pace of occupation accelerated anddeforestation increased.

2.20 A mid-term review of POLONOROESTE in 1984 highlighted thedifferences between the assumptions under which the program was planned andthose under which it was being implemented, due mainly to circumstanceslargely beyond the planners' controls the inadequacy and late disbursement ofcounterpart funds because of the difficult fiscal situation in Brazil, thevirtual disappearance of investment credit needed to establish perennialcrops, overly centralized project management and ineffective integration ofparticipating agencies, and unexpectedly high migration of settlers, resultingin unchecked deforestation and continued encroachment into unsuitable areas ofmarginal soil fertility.

2.21 Also, many of the public policies, regulations and investmentprograms which weze introduced to foster development of the Amazon Basinduring the past two decades actually encouraged the rapid depletion of theregion's natural resource base. The massive road-building programs to open upthe region for human settlement; government-sponsored colonization schemesbased on limited knowledge of the natural resource base; the weakinstitutional capability of key Federal and State implementing agencies; landregistration and titling procedures which actively encouraged forest clearing;inappropriate forestry protection practices and regulations; special fiscalincentives and subsidized credit lines which encouraged unsustainablelivestock development; and inadequate technical and financial support f3rsmallholders to establish perennial crops and adopt sound environmentaltechniques, rather than rely on traditional slash and burn cultivationpractices -- all played a major role in the deforestation process. Theresulting policy framework was one in which there were enormous contrasts

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between the costs to the country of a non-sustainable form of development ofthe Amazon and the often high (albeit short-lived) financial gains to theprivate beneficiaries of these policies.

2.22 However, while POLONOROESTE certainly suffered from all of theproblems mentioned above, its well publicized weaknesses have frequentlymasked sc.a of its significant accomplishments on the institutional, technicaland environmental fronts. Many of these are now beginning to bear fruit, andin future years they will play a critical role in helping to preserve theAmazon Region's valuable natural resource base. When POLONOROESTE waslaunched, Rond8nia was still a Federal Territory, converting to Statehood onlyin end-1981. Consequently, the new state's institutional base was quite weak.Through POLONOROESTE, key institutions were created and/or strengthened (e.g.,state agricultural research and extension services, a state forestry instituteand forest military police, a state secretariat for the environment and, mostrecently, a state land institute).

2.23 Many of POLONOROESTE's physical targets have been met, includingsome of the more difficult activities like protection and assistance toAmerindian communities. In total, an estimated 11,000 Amerindians in bothMato Grosso and Rondonia have benefitted from POLONOROESTE (v. an originaltarget of 6,000)T 63 Amerindian posts were financed (v. 26 planned); 38infirmaries constructed and equipped (v. 28); 32 schools constructed andequipped (v. 15); and 1,000 ha of crops developed (v. 650). Some 9,300 kms ofAmerindian reserve borders have been demarcated (v. 3,940 originally planned)for the 11,000 Amerindian beneficiaries, covering about 10.3 million ha ofdemarcated reserves, an area nearly half the size of the former West Germany.Of this total, about 4.7 million ha, or 90% of all Indian lands identified byFUNAI in Rond8nia, have been demarcated for the benefit of about 4,400Amerindians, although some measures are still required to complete the processof legal registration of several areas. Also, under POLONOROESTE fourconservation units were established covering 1.6 million ha, and a further505,000 ha were set aside for two national forests, bringing conservationunits and forest reserves in RondBnia to 2.1 million ha (9% of the total areaof the State). Over the coming years, the State's capacity to enforce theborders and prevent periodic invasions of the Amerindian reserves,conservation units and forest reserves needs to be strengthened to bring theoverall level of protection to the desired standards.

2.24 The groundwork laid by the Northwest Program for major advances intechnical knowledge has been as important as its institutional andenvironmental accomplishments. As the first set of POLONOROESTE operationsneared completion, in 1986 the Federal and Rondonia State Governments beganpreparatory work on the proposed follow-up Rondonia Natural ResourceManagement Project, with assistance from FAO through a special technicalcooperation project (TCP) project and the FAO/World Bank Cooperative Program(FAO/CP). Efforts focussed on agro-ecological zoning, a tool which identifiesdifferent areas according to potential land use, distinguishing those whichare capable of sustainable development from those which are without any knownlong-term potential or which have special ecological (biological reserves) orsocial (Amerindian lands) significance and therefore need to be protected. BySeptember 1987, a preliminary version of an agro-ecological zoning was

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available at a scale of 1:1 million, with Rond8nia divided into six macro-zones, and a basic development strategy was articulated for each of the zones.The State then organized an International Seminar in Porto Velho to discussthe results of the zoning. The recommendations were included in a secondversion of the zoning that was then discussed in another InternationalSeminar, with participation of local NGOs, in Brasilia in May 1988. Later in1988, the State adopted a Decree law to use agro-ecological zoning officiallyin its development planning. The new State Government, which took office inMarch 1991, has recently converted the 1988 decree into a state law.

2.25 Finally, evento during the last few years in Brazil suggestencouraging changes in political awareness and a growing commitment toconfront environmental issues: (a) the new national Constitution adopted inOctober 1988 incorporates one of the world's most advanced chapters on theenvironment; (b) also in October 1988, the Government launched a specialprogram ("Nossa Natureza"), including emergency measures to protect the Amazonregion and other endangered ecosystems in the country; (c) the Governmentsuspended the special fiscal incentive programs which had directly promotedlivestock ranching and deforestation in the Amazon. In 1991, fiscalincentives were officially restored; however, Congress explicitly barredsubsidies for ranching in areas designated as ineligible on environmentalgrounds; (d) a new National Institute for the Environment (IBAMA) was createdin February 1989 to help coordinate environmental protection activities; and(e) an Environmental Secretariat headed by an internationally prominentenvironmentalist reporting directly to the President, was created in 1990.Over the last 18 months the Government and a groups of industrialized nationshave been collaborating on the planning of a comprehensive Pilot .rogram toConserve the Brazilian Rainforest; the pilot program, to be financed by theindustrialized nations and administered by the Bank, is expected to beginimplementation shortly. In addition, the Government has prepared severalmajor investment programs for Bank financing, including the NationalEnvironmental Project, now under implementation, tta proposed Rondonia NaturalResource Management Project, a natural resource management project for theState of Mato Grosso, and an industrial pollution control project, to nameonly a few. At the same time, the Government has launched an EmergencyEnvironmental Protection Program to provide immediate protection to the Amazonforest and to the most endangered national parks and conservation areas in thecountry. The Bank provided partial assistance to this Emergency Program underone of the Northwest operations (Loan 2060-BR). For the specific case ofRond8nia, both State and Federal authorities have already started to introducea package of important policy and related regulatory reforms to ensure thatfuture direct and indirect Government interventions and private sectoriniitiatives are channelled only into sustainable and environmentally soundeconomic activities, based on agro-ecological zoning (para. 3.06). A newRondOnia State Constitution in October 1989 includes agro-ecological zoning asone of the basic criteria for land occupation (i.e., land cannot be legallyoccupied unless it is in accordance with the zoning regulations), andcomplementary State legislation has also been approved (para. 2.24).

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Main Lessons Learned under POLONOROESTE

2.26 The following are the main lessons learned in the course ofimplementing the Bank-financed agricuisural projects under the POLONOROESTEProgram:

(a) Public investments in frontier areas characterized by fragilenatural resource conditions should be based on better technicalknowledge of the sustainable development potential than that whichwas available at the beginning of these projects. Agro-ecologicalzoning to guide public investment to sustainable locations shouldbe a condition sine qua non of future projects in such areas. Inaddition to public investments, the policy and regulatoryframework governing land occupation and development patterns inthe project area should be made consistent with therecommendations of the agro-ecological zoning (i.e., by increasingthe private costs of occupying the more fragile areas).Otherwise, direct investment to protect the environment may beundermined by stronger incentives to exploit it in anunsustainable manner.

(b) The scope and content of project interventions should besufficient to achieve project objectives. Past POLONOROESTEagricultural projects supported interventions only in parts of thestate, without addressing the movement of populations and generalstate occupation patterns.

(c) Excessively contralized decision-making at the federal level isdetrimental to efficient project implementation. Decentralizationin favor of the state and municipalities, including more controlover budgetary resources, would result in greater accountabilityof project management to the community and facilitates projectimplementation. Also, an increased role for NGOs in projectimplementation would enhance accountability to the ultimatebeneficiaries and improve the responsiveness of project agencies.

(d) When agricultural development requires long-term financing, acareful analysis should be made of the availability of credit forfarmer beneficiaries and of the suitability of the terms for thekind of cultivation planned (in this case, perennial tree cropswhich do not generate income during the development period). Ifsuitable sources of credit are not available, and where thefailure of the agricultural development strategy may result inenvironmental degradation (e.g., extensive deforestation), theBank should either make special provision for credit in theproject itself or should not support the project at all.

(e) Innovative projects with above-average risks need a monitoring andevaluation system oriented to generate early warnings aboutproject impact and implementation problems, and project designshould provide considerable flexibility to allow for the timelyintroduction of adequate corrective measures. In addition, a

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longer start-up period and less optimistic &ssumptions about thespeed of farm development should be made for projects to beimplemented in relatively unknown or difficult environments.

(f) The physical demarcation of environmental conservation units andAmerindian reserves is a necessary, but not sufficient, conditionfor their protection. Finencial disincentives, such as theabsence of public physical and social infrastructure in thesurrounding areas and strong enforcement capacity to prevent andpunish invasions are also required for ensuring the protection ofsuch areas.

2.27 The design of the proposed Rond8nia Natural Resource ManagementProject has taken these lessons into account. Most importantly, agro-ecological zoning was used as the starting point for project design, and anagreement has been reached with the Federal and State Governments to makeappropriate changes to the policy and regulatory framework which hasinfluenced the process of environmental degradation in Rond8nia and to modifypublic investme"t programs in accordance with the zoning recommendations. Astatewide perspective has been adopted, with specific project interventionsgeared to the kinds of land use and environmental protection activitiesidentified through agro-ecological zoning. Project organization andmanagement arrangements, monitoring and evaluation systems, and the ongoingand planned interaction with NGOs reflect the need for decentralized decision-making, rapid feedback and greater dialogue with and responsiveness to projectbeneficiaries. Without losing sight of the goal of simplicity, the projectdoes include the range of interventions which have been proven to be essentialto the avoidance of natural resource degradation and enhancement ofenvironmental protection in the Amazon Basin, including, inter alia, adequatecredit to assist farmers in making the transition from slash and burn to moresustainable agriculture. The project monitoring system has been designed toallow for early adaptation of project content and strategy, if necessary.Finally, Government assurances that no public physical or socialinfrastructure would be implemented in areas without sustainable developmentor conservation units, and the strong enforcement arrangements to beimplemented would help to ensure compliance with the project's environmentalobjectives.

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III. THE PROJECT

Orinin and Rationale for Bank Involvement

3.01 The Bank's lending program for Brazil is placing increasedemphasis on a wide spectrum of environmental issues, including soil erosion,depletion of renewable resources, and air and water pollution from industrialwaste. With regard to the Amazon Basin, despite the serious problemsencountered by the earlier POLONOROESTE projects, the Bank is in a much betterposition today than in the past to assist Brazil in fostering a more rationaldevelopment of the Northwest Region, because of the gradual strengthening ofessential institutions, improved technical knowledge and the growingcommitment within the country to sound environmental management. ContinuedBank assistance through the proposed project would play a crucial role inconsolidating sustainable development in Rondonia. A distinguishing featureof Bank involvement at this stage, largely missing from the earlier Northwestagricultural operations, would be the explicit effort to implement in Rondoniaadaptations to the policy and regulatory framework which governs occupationand investment patterns in the State, in order to make it more supportive ofthe long-term objectives of sustainable development and sound natural resourceconservation and management.

3.02 A Bank identification mission in November 1987 reviewedpreparation documents on Rondonia's agro-ecological zoning and the developmentstrategy proposed for each of the six zones in the State (para. 2.24). Themission also reached preliminary agreement with the Federal and StateGovernments on the simultaneous need to initiate work on the reform ofenvironmental policies and regulations. Under the leadership of the Ministerof Interior, a series of high-level meetings took place during January-March1988, among representatives of concerned Federal Ministries and the StateGovernment of Rond8nia. They identified and agreed on the principal elementsthat a new framework should have in order to promote movement from theprevailing extensive agricultural development scenario, towards greaterintensification of land use, in accordance with the State's agro-ecologicalzoning. The Government then proposed to the Bank a series of policy reformswhich it was prepared to undertake as conditions for Bank support of theproposed Rondonia Natural Resource Management Project.

3.03 Recognizing that a development strategy based on agro-ecologicalzoning would not succeed if it rested on fiat alone, the Government alsoprepared the Rondonia State Agricultural and Forestry Plan (PLANAFLORO), whichproposes an investment program for environmental conservation, management andenforcement in those areas of Rondonia that should remain under forest cover,and a complementary medium-term agro-forestry development program andsupporting infrastructure and services to encourage sustainable productiveactivities in those already deforested areas whire the population shouldremain concentrated. During the following year the Government refined thePLANAFLORO proposals and initiated implementation of the agro-ecologicalzoning. The project was appraised in July/August 1989. Due to changes ofFederal Government in 1990 and State Government in March 1991, loan processing

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was delayed. A post-appraisal misoion took place in June/July 1991 and lran

negotiations were completed in December 1991.

?Rolect Obiectives

3.04 The principal objective of the proposed project would be toimplement an improved approach -- shaped by difficult past experience -- tonatural resource management, conservation and development in one state(Rond8nia) of the environmentally fragile Amazon Basin. The project wouldassist the Government to:

(a) institute a series of changes in key policies, regulations andpublic investment programs i.n order to provide a coherentincentive framework for sustainable development in Rond8nia;

(b) conserve the rich biodiversity of the State, while creating thebasis for the sustainable utilization of its natural resources forthe direct economic benefit of the local population;

(c) protect and enforce the borders of all conservation units,Amerindian reserves, public forests and extractive reserves, andcontrol and prevent illegal deforestation, wood transport andforest fires;

(d) develop intensive and inteqrated farming systems in areas suitablefor pe'-manent agriculture and agro-forestry, and systems forsustainable forest management and extraction of non-wood forestproducts in other areas which should remain under natural forestcover;

(e) support priority investments in socio-economic infrastructure andservices needed to implement the State's agro-ecological zoning inalready occupied and deforested areas; and

(f) consolidate the technical and operational capacity of Stateinstitutions, particularly those responsible for agricultural andforestry support services, and the protection and .aanagement ofState and Federal conservation units and Amerindian reserves.

Environmental Policy Reform Prooram

3.05 The reform of environmental policies is essential to ensure thatfuture development of the State of Rond8nia is sustainable (para. 2.21).Almost all of the policy reforms center on the implementation of agro-ecolcgical zoning (paras. 2.24 and 3.06). The main features of the reform

program are summarized in Annex 1. The measures, most of which have alreadybeen undertaken by the Federal and State Governments, include:(a) institutionalization of the State's agro-ecological zoning; (b) the

elimination of deforestation as a criterion for obtaining land title, theadoption of suitable land regularization policies and practices, and theestablishment of a state laad institute to develop and administer land policyin accordance with 'lhe agro-ecological zoning; (c) elimination of economic and

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fiscal incentives which e..courage inefficient resource allocation, non-sustainable private investment and environmental degradation; (d) adoption ofsuitable policies concerning the interdiction, delimitation, demarcation andprotection of Amerindian areas, and provision of key services to theirindigenous inhabitants; and (e) reduction of the rate of spontaneous migrationto Rond8nia tnrough dissemination of information elsewhere in Brazil,particularly in those states from which the majority of migrants haveoriginated, explaining the agro-ecological zoning system and the state'spolicy on land occupation and planned enforcement mechanisms. The medium-termState and Federal investment programs for Rondonia have also been revised soas to better reflect land use capabilities and other environmentalconsiderations, and it has been agreed that agro-ecological zoning willdiscipline all future Government investment decisions in the State. Themonitoring and impact assessment system which has been developed for theproject, and which would be functional by the start-up of the project(para. 3.49), would include specific provisions for monitoring compliance withthe agro-ecological zoning plan. During negotiations, the Borrower and theState of RondOnia provided assurances that: (a) the agreed environmentalpolicy reforms would be implemented throughout the life of the project; and(b) the Federal and St&te investment programs for Rondonia, which now takeinto account land use capabilities, ecological and agro-ecological zoningconsiderations, would be maintained consistent with such considerations; andthat the State would submit for Bank review and comment, by Septem.er 30 ofeach year, any intended update of the investment program for the forthconiingyear (para. 4.02 (a)).

Acro-ecoloaical Zoning

3.06 The objective of agro-ecological zoning in Rondonia is torationalize the occupation of the state and to allow a better utilization ofits natural resources, according to the natural fertility of the soils andother socio-economic and ecological considerations. Zone 1 is the mostdensely populated part of central Rondonia, where officially sponsoredcolonization efforts have been concentrated. It contains a combination ofmost of the r.ate's better soils and areas of moderate fertility, which arecapable of suLporting some form of sustainable cultivation, mainly throughfarming systems based on intercropping of perennial treecrops and agro-forestry. The zone also includes small sections of quite poor soils where nofurther settlement should take place. Zone 2 is less densely settled andincludes areas of generally moderate to poorer soil fertility, in which somesmall communities have developed without the support of official colonizationschemes, interspersed with extensive livestock operations and areas of bothprimary and secondary forest. Zone 3 is located in the northern part ofRondonia along the seasonally flooded margins of the Mamor6, Madeira andMachado rivers, where very small sedentary populations make their livelihoodfrom sustainable agricultural systems which they have developed on alluvialsoils, fishing and rudimentary non-wood forest extraction activities. Zone 4includes areas which also have potential for sustainable extractive non-woodproduction derived from trees and plants (e.g., native rubber, Brazil nuts,palm nuts, gum, perfumes and pharmaceutical products), with forest covertotally maintained. Zone 5 has the potential, given proper Government supportand control, for sustainable forest management with selective logging and

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replacement/enrichment of exploited species. Zone 6 includes a wide varietyof the State's most fragile ecosystems without potential for any currentlyknown sustainable use, Amerindian and biological reserves, and nationalforests. in this zone, critical conservation units and .eserves need to bedemarcated and protected, and forest cover totally maintained (Map IBRD21926R).

3.07 Agro-ecological zoning was legally instituted by State of RondoniaDecree Law No. 3782 of June 14, 1988, and later converted into StateComplementary Law NO 52 of December 20, 1991. Written legal opinions from theFederal and State General Counsels concerning the enforceability of this lawwere reviewed by the Bank during loan negotiations and found to besatisfactory. After two years of application, agro-ecological zoning hasalready begun to demonstrate its usefulneos as a development tool in guidingpublic investments and discouraging undesired settlements and resourceexploitation in zones considered inappropriate for such purposes. Areasonable effort has been launched to make the public in Rond8nia andelsewhere in Brazil aware of the importance and benefits of, Lad the limitsimposed by, the zoning developed by the State. During negotiations, the Stateof RondOnia provided assurances that it would maintain throughout the life ofthe project, and revise annually, its media program to discourage spontaneousmigration to Rond8nia and to generate information concerning agro-ecologicalzoningq that the revised program and timetable for the following year would besent to the Bank for review and comment no later than November 15 of eachyear; and that the program would be implemented in accordance therewith(para. 4.01 (a)).

Prolect Comnonents

3.08 The project has been tailored to the agro-ecological conditionsand sustainable development potential of each of the major agro-ecologicalzones (para. 3.06). It would include four major componenttst

(a) Environmental Conservation. Manacement and Protection 128% oftotal baseline costs), including land zoning, mapping andregularization; establishment, management and protection ofconservation units and Amerindiar reserves; sustainable forestmanagement; extractive reserves; environmental protection; andinstitutional strengthening, technical assistance and studies;

(b) Aaro-forestry Develomment 136% of total baseline costs), includingagro-forestry research, rural extension, rural credit and inputsupply;

(C) Socio-economic Infrastructure and Services _31% of total baselinecote), including a two-year time slice of essential activities inhealth, education and water supply, and a five-year time slice ofroad and river transport activities; and

(d) Proiect Administration. Monitorina and Evaluation, and TechnicalAssistance (5% of total baseline costs), including, inter alia,the yearly contracting of an Independent Evaluation Committee,

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with participation of NG0 representatives, to evaluate projectprogrees and recommend any needed changes in strategy or content.

3.09 The distribution of project activities over the six agro-3colcgic&l

zones would be related to their sustainable development potential. For eachof the zones, the executing agencies would establish esparate sets ofappropriate policies and implementation guidelines. Agro-forestry research,

rural extension, credit and input supply would be concentrated in Zone 1,where the focus would be on intensification of farming systems based onrecuperation/enrichment of forest fallow and intercropping of perennialtreecrops and agrofocestry. In the areas of more moderate fertility withinZone 1, the focvs would be on consolidation without expansion of currentsettlements. Forest cover would be maintained on all steep slopes and poorersoils. Project activities in Zone 2 wo,ld be limited to assisting onlyestablished communities of small farmers, with the Government taking .'!necessary measures to halt any further expansion of extensive livestockranching. Forest management and improved extraction of non-wood forestproducts (extractive reserves) would be concentrated in Zones 3, 4 and 5, andmanagement and protection of conservation units and Amerindian reserves inZone 6. Project activities related to land regularization, zoning and mappingwould have statewide coverage.

A. Environmental Conservation, Management and Protection

3.10 The overall objective of this component is to help conserve thestate's biodiversity, while creating the basis for sustainable naturalresource management and utilization for the dir'ct economic benefit of thelocal population. It comprises seven subcomponents, described below.

3.11 Land Zonina. Mayning and Reoularization. The land tenurestructure in much of Rond6nia is uncertain, due to many overlapping laws andregulations (e.g., usufruct laws, squatters, rights, occupation licenses).Therefore, clarifying the present situation and developing appropriate legalmeasures and policies, and the capability to enforce them, are essential inorder for the Government to be able to direct the future occupation of theState in accordance with the agro-ecological zoning. Many land-relatedactivities in Brazil have been decentralized to the state level, and Rond8niahas established a State Land Institute (ITERON). The project would providesupport to ITERON in the form of physical facilities, equipment and materials,contractual services, studies and salaries. Presentation of a satisfactoryagreement between the State Government and INCRA concerning landregularization policies and practices to be observed in Rond8nia, consistentwith the objectives of sound forest management and protection, would be acondition of loan effectiveness (para. 4.03 (a)).

3.12 The available maps of R^nd8nia are at a scale of 1:1,000,000,except for a soil map of 1:500,000. While these have been adequate forgeneral planning purposes, smaller-scale maps are now needed for detailedplanning and implementation (e.g., for proper border control of zones andreserves; agro-forestry planning for specific areas within Zone 1 and 2). Theproject would finance the preparation and distribution by ITERON of statewideagro-ecological, climatological, soil and topographic maps- During

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negotiations, the State of Rondonia provided assurances that these statewidemaps, all satisfactory to the Bank, would be completed no later than December31, 1993 and subsequently distributed (para. 4.01 (b)). The project wouldalso assist ITERON in creating a data bank to register, update and control allland transactions in the State, and would provide for the permanent titling ofsome 500 sharecropper families working in areas of good soils in Zone 1.

3.13 The project would also support the cartographic work necessary forthe creation, management and protection of conservation units, public forests,extractive reserveo and Amerindian reserves, and the border demarcation ofapproximately 9,900 kms and re-demarcation of another 1,600 kms oft (a) Stateforest reserves (covering a total of 2.5 million ha); (b) State conservationunits (1.2 million ha); (c) Fedaral conservation units (1.6 million ha);(d) Amerindian reserves (about 5.0 million ha); and (e) extractive reserves(3.3 million ha). Demarcation of Amerindian reserves would be made underagreement with the National Indian Foundation (FUNAI), and the establishmentof extractive reserves under agreement with the National Institute forColonization and Agrarian Reform (INCRA) and the State Secretariat forEnvironmental Development (SEDAM-RO).

3.14 Establishment and Management of Conservation Units. Conservationunits are natural areas set aside for the preservation of sample ecosystemsand their biological diversity. In Brazil the main categories of conservationunits are national, state and municipal parks, which are relatively largeareas partially open for tourism and recreation; biological reserves orientedto the protection of natural cycles and endangered species; and ecologicalstations, which are the smallest in size and concentrate on comparativeresearch.

3.15 Vnder the project, SEDAM-RO would establish and maintain fiveState parks (Guajar&-Mirim, Serra dos Parecis, Candeias, Serra dos Reis, RioCorumbiara), two biological reserves (Ouro Preto, Tragadal), and one Stateecological station (Serra Tres Irmaos), covering an aggregate area of about1.1 million ha. In addition, five municipalities in Zones 1 and 2 (PortoVelho, Colorado d'Oeste, Rolim de Moura, Vilhena and Ji-Paran&) would eachestablish a municipal nature park ranging in size from 200-500 ha, withtechnical support from SEDAM-RO. Four existing Federal conservation units(Pacaas Novo0 National Park, the biological reserves of Guapor6 and Jaru, andthe Cuni& Ecological Station), which are in poor condition because of lack ofmaintenance, would be rehabilitated by IBAMA. State decrees establishing theState conservation units which are to be demarcated in the first year of theproject (the serra dos Tres Irmaos Ecological Station; Guajar&-Mirim, Candeiasand Rio Corumbiara State parks; and the Rio Ouro Preto and Tragadal biologicalreserve) were reviewed during loan negotiations and found to be satisfactoryand the State of Rond8nia provided assurances that it would maintain theseunits (para. 4.01 (c)). The State of Rond8nia also provided assurances atnegotiations that: (a) the draft State decrees for the establishment of allremaining State conservation units (the Serra dos Parecis and Serra dos ReisState parks) would be presented to the Bank for commrent no later than June 30,1993; and (b) by September 30, 1993 it would have established by decree andwould thereafter maintain, these same conservation units (para. 4.01 (d)).

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3.16 The costs of the border demarcation of these various conservationunits are included in the land zoning, mapping and regularization component(paras. 3.11-3.13). To ensure the effective maniagement of the conservationunits, the project would also finance lodging facilities and control posts,equipment, salaries and other incremental operating costs for SEDAM-RO andIBAMA. Facilities would be made of wood and their location selected on thebasis of initial surveys. A first version of a management plan would beprepared within one year after staff are in place at each unit, and noadditional works would be executed unless justified in the management plan.The focus cf management efforts during the first five years would be onfamiliarization with the environment of each unit, information gathering,preparation and implementation of the unit's management plan, and liaison withlocal inhabitants to make them aware of the purposes of the conservationunits.

3.17 Environmental Protection. This subcomponent would aim tostrengthen the institutional capabilities of: (a) SEDAM-RO and the StateForestry Police to protect and enforce the borders of all conservation units,Amerindian reserves, public forests and extractive reserves, and to controland prevent illegal deforestation, wood transport and forest fires; (b) IBAMAand SEDAM-RO to protect, supervise and promote fishing activities and toprotect endangered wildlife species in the State of Ror.donia. The projectwould finance equipment, construction of outposts for the State ForestryPolice and field offices for SEDAM-RO, equipment, materials, salaries andother incremental operating costs.

3.18 Contamination of rivers and fisheries resources in Rond-Snia, dueprimarily to the use of mercury in gold mining, and secondly, to exploitationof cassiterite, is now reaching proportions which could place at risk thehealth of the population in some areas. In addition, many other pollutingactivities (e.g., manufacturing, except for forest products; hospitals;thermoelectric power plants) go largely unregistered. The project wouldassist SEDAM-RO to reduce water pollution and register and control otherpotential polluting activities through: (a) establishment and operation of alaboratory for the analysis of water quality; (b) survey, cadastralregistration and licensing of critical pollution areas and activities(excluding forestry and agriculture, which are registered by other agencies);and (c) related educational campaigns and training activities. Licensing andcontrol in the interior of Rondonia would be carried out from existing and sixadditional field offices of SEDAM-RO to be constructed and equipped under theproject.

3.19 Forest Manaaement. In order to conserve the state's renewableforestry resources in areas of Zone 5, the project would support: (a) thedemarcation, establishment and protection of eight State forest reservescovering an aggregate area of about 1.8 million ha; (b) the development of apilot exercise in the Sao Domingos State forest reserve, including preparationof a forest inventory and management plan, to test the feasibility of limitedextractive operations and resource replenishment; (c) the development andimplemen'ation of management plans for 23 existing block reserves with anaggregate area of about 105,000 ha in the vicinity of the rural settlements ofUrupa, Machadinho and Cujubim; (d) the development of one Machadinho block

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reserve as a pilot project, including preparation of a management plan anddetailed action program, with farmer and rubber-tapper participation,supervision of extractive operations and resource replenishment; (e) thestrengthening and supervision of forest management throughout the State; and(f) forestry sector studies. State decrees establishing four (Rio S&oDomingos, Rio AbunA, Rio Roosevelt and Rio Madeira) of the eight forestreserves .,ere reviewed during loan negotiations and found to be satisfactory,and the State of Rond8nia provided assurances that it would maintain thesereserves (para. 4.01 (c)). The State of Rond8nia also provided assurances atnegotiations that: (a) the draft State decrees for the establishment of theremaining four forest reserves (Rio Guapor6, Rio Mequens, Rio Machado and RioVermelho) would be presented to the Bank for comment no later than June 30,1993; and (b) by September 30, 1993, it would have established, and wouldthereafter maintain, these same reserves (para. 4.01 (d)). SEDAM-RO would beresponsible for implementation of this sub-component, following landdemarcation by ITERON. Demarcation costs are included under the sub-componentfor land regularization, zoning and mapping (paras. 3.11-3.13). The projectwould finance civil works, including basic infrastructure for the reserves,equipment, salaries and other operating costs for SEDAM-RO.

3.20 Extractive Reserves. With the objective of establi-hing anddeveloping sustainable options for the economic utilizition of non-woodnatural forest products, and to improve the employment and incomes of thelocal forest inhabitants in Zones 3 and 4, the project would support: (a) thecreation, demarcation and protection of six extractive reserves with anaggregate area of about 3.5 million ha for sustained production of nativerubber, Brazil nuts and some 30 other products which are now collected on onlya very small scale (e.g. fruits for food and colorants, petiols and stems forfiber, bark for tannin, seeds for oil, and products having pharmaceutical/medical use); (b) provision of land use rights, technical assistance andmarketing support for native products, to some 2,400 rubber tappers andriverine inhabitants of the reserves; (c) development of the Ouro Pretoextractive reserve as a pilot project, including special research onregeneration, identification of new species of potential commercial interest,extraction technology and ecological impact; and (d) market development andlimited in-situ processing/packaging activities. During loan negotiations theState of Rondonia provided satisfactory evidence of the establishment of theRio Preto/JacundA extrective reserve, and provided assurances that thisreserve would be maintained (para. 4.01 (c)). The State of Rond6nia alsoprovided assurances at negotiations that: (a) the draft State decree- for theestablishment of the remaining five extractive reserves (Rio Pacaas Novos, RioNovo, Rio Cauteric, Sao Miguel/Pedras Negras, Jacy/Parana) would be presentedto the Bank for comment no later than June 30, 1993; and (b) by September 30,1993, it would have established, and would thereafter maintain, these samereserves (para. 4.01 (d)). ITERON would be responsible, in coordination withINCRA, for the demarcation and provision of land use rights to reserveoccupants, and would have general responsibility for coordination of otherinstitutions working in the reserves. SEDAM-RO would be responsible fortechnical assistance and for support of market development and productprocessing activities, and the Agro-Forestry Research Center of EMBRAPA(CPAF/EMBRAPA) for research. The project would include civil works, including

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infrastructure needed for the development and management of the reserves,equipment, materials, salaries and other incremental operating costs.

3.21 Support to Amerindian Communities. To help safeguard the areasoccupied by indigenous groups in the State of Rond8nia against illegalencroachment and use by outsiders, and to strengthen health services for thesegroups, the project would support: (a) the border demarcation of fiveAmerindian reserves with an aggregate area of about 500,000 ha; (b) renewal ofthe boundaries of some sections of 12 reserves which were previouslydemarcated, covering an area of about 4.7 million ha; (c) identification of,and establishment of contact with, up to 14 of the isolated Indian groups inthe State which have not yet been officially reached, and border demarcationof their areas where appropriate; (d) improved health services throughtraining of FUNAI's field health staff and strengthening of its mobile healthteams; construction, equipping and operation of four infirmaries attached toState hoapitals, to accommodate the special needs of indigenous patients;(e) external protection of Amerindian areas by the State Forest MilitaryPolice and internal vigilance by FUNAI staff; and (f) improved monitoring andstate participation in the resolution of Amerindian problems, through thecreation of a joint FUNAI/State team.

3.22 The joint FUNAI/State team would comprise two Amerindianspecialists seconded by FUNAI, two state professionals, a UNDP technicalspecialist in indigenous affairs (already hired), and consultant services tosupport the work of the team. FUNAI and IBAMA have already signed in 1991 anagreement with the State to authorize the latter to provide externalprotection to the Amerindian reserves and project monitoring. Demarcation ofthe Amerindian areas would be carried out under a separate agreement betweenFUNAI and ITERfON (para. 3.13). Agreement has also been reached with FUNAI forthe State Secretariat of Health (SESAU) to provide acute care health servicesto Amerindians in State hospitals (para. 3.35). All other activities would beexecuted directly by FUNAI. Management of the component would be the jointresponsibility of FUNAI and the State Secretariat of Planning. The projectwould include civil works, equipment, medicines, salaries and otherincremental operating costs.

3.23 During the process of project preparation and negotiations, theGovernment officially approved the demarcation of the Tubarao Latunde, ParqueIndigena Aripuana, Roosevelt and Uru-eu-wau-wau Indigenous Reserves, andcompleted the registration of the Parque Indigena Aripuana. Duringnegotiations, the Borrower provided assurances that: (a) by May 31, 1992 theywould complete the registration with the Deoartamento do Patrim8nio da Uniao(DPU) of the Pacaas Novos, Roosevelt, Tubar&o Latunde and Uru-eu-wau-wauAmerindian reserves, and take all necessary steps to register such reserveswith the appropriate local land registries in Rond8nia (para. 4.02 (b)).

3.24 Institutional Strenatheninq. Studies and Technical Assistance.State capacity t.o implement environmental conservation and protectionactivities is constrained since most of its institutions having to do with theenvironment are relatively young (none of them existed when the State wascreated at the end of 1981). To help overcome this limitation and develop the

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additional knowledge required to successfully implement the environmentalactivities and to increase public awareness of environmental issues, theproject would support an intensive program oZ training, technical assistance,studies, and environmental education campaigns. The project would finance:(a) 12 courses for SEDAM-RO staff in environmental protection, includingtopics such as administration of ecological stations and biological reserves,preparation and analysis of environmental impact reports, and environmentaldamage assessment and prevention, including, inter alia, pollution control,regeneration of deteriorated areas, and control of accelerated erosion;(b) the development of forestry specialization courses (1,600 hours/year) atthe agricultural secondary school of Ji-Parenf; (c) two, two-month trainingcourses for groups of 20 university-trained foresters/agronomists insustainable forest management, conservation units, agroforestry and managementof forest fallow; (d) six "Master of Science" degrees in sustainable forestmanagement, agro-forestry and management of protected areas; (e) six one-monthinternships in the areas of forest extraction methods, agro-forestry andadministration of national parks; (f) educational materials and teachertraining on environmental issues; (g) preparation of public informationmaterials and other support for the establishment of municipal councils toheighten public awareness on environmental issues; and (h) technicalassistance and consultant services to support project implementation, trainingand preparation of studies. The State Project Secretariat of Planning wouldbe responsible for coordination of this component. The Government is planningto enter into an agreement with UNDP to secure its assistance in facilitatingarrangements for training and contracting of studies and consultants. Theproject would finance civil works, laboratory facilities and salaries of sixforestry professors for the agriculture secondary school of Ji-Parana, traveland per-diems for training consultants and trainees, travel, consultalt fees,studies, training and publication materials.

B. Aaro-Forestrv Development

3.25 Agro-forestry development activities would be carried out inalready deforested areas in Zones 1 and 2 which have the better soils and arecapable of sustainable agriculture. In the past, much of this land wasbrought under cultivation through a combination of officially sponsoredsettlement schemes and private initiatives, applying low cost, extensive anditinerant production systems, which resulted in unnecessary deforestation andpasture burning. In broad terms, for every productive ha under annual crops,four ha of forests were cleared; for every ha of grazed pasture, two ha werecleared. Besides being environmentally destructive, such farming systems aresimply not sustainable. Instead, this project would foster the transformationto permanent, sustainable smallholder farming systems through a series ofinterventions designed to: (a) concentrate agricultural support services inthe most productive and fertile areas of Zones 1 and 2; (b) promote thecultivation of suitable perennial crops; (c) support recuperati.:n of croppingarea, predominantly on fallow land or abandoned pasture land, and initiate aprogram of enriched fallow and silvipastoral systems; (d) diversify theexisting crop mix by promoting viable new crops, including timber trees,developing mixed cropping systems and introducing crop rotation techniques;and (e) reinforce efforts to retain iorest reserves at the farm level, bydeveloping appropriate replanting and product extraction techniques. In

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synthesis, destructive agricultural exploitation would be reduced throughmaintenance of a stable forest area in the productive zones, for bothecological and economic reasons; reduction of the existing excessive fallowarea; improved fallow management in areas needed for the purposes of croprotation; and introduction of improved agro-forestry practices and new crops.

3.26 Aar-oForestry Research. The Bank is currently supporting a ThirdAgricultural Research Project for Brazil, which emphasizes basic research forthe Northeast and North regions, including the Amazon basin. The currentlyproposed project would finance complementary adaptive and applied researchwork for Rond8nia, in support of the agricultural strategy described in para.3.25. Research would be carried out by the Agro-Forestry Research Center ofEMBRAPA (CPAF/EMBRAPA); the Executive Committee for the Cocoa Development Plan(CEPLAC); and the State Secretariat for Environmental Development (SEDAM-RO).In the past these three agencies have acted independently and with little on-farm experimentation, which contributed to the disproportionate focus onmonocultivation and livestock raising. As a first step towards improvingtheir collaboration, the overall five-year research plan for the proposedproject and the detailed first year annual research program have beendeveloped jointly by the three institutions.

3.27 CPAF/EMBRAPA would focus on mixed cropping systems, improvedforest fallow management systems, agro-forestry and the preparation of sitespecific recommendations for priority areas. CEPLAC would address mainlydisease control, improvement of the genetic base, and diversification intoalternative tree crops on soils of lesser fertility. SEDAM-RO wouldconcentrate on the agronomy of suitable new tree species for intercropping andon research for natural forest management. Extension-research linkages wouldalso be strengthened through participation of the State Technical Assistanceand Rural Extension Company (EMATER-RO) in annual research programming andsupervision of on-farm experiments, and by the fact that research andextension staff would both be located at regional stations in Zones 1 and 2.The project would finance construction of staff houses, offices and fieldlaboratories, agricultural and laboratory equipment, special studies, salariesand other incremental operating costs.

3.28 Rural Extension. The State agricultural extension agency, EMATER-RO, expanded rapidly under the previous POLONOROESTE projects, in the processgaining valuable experience regarding smallholders, needs and perceptions.However, its effectiveness has been limited by inadequate research back-up,excessive administrative tasks, insufficient attention to field work,concentration on specific crops rather than on overall farm planning, and lackof rural credit to support its recommendations. CEPLAC and the former StateForestry Institute (now part of SEDAM-RO) have also provided independent ruralextension services in Rond8nia for cocoa and forestry, respectively.Recently, EMATER-RO, CEPLAC and SEDAM-RO have started to improve theircooperation, and the project would further integrate extension work throughjoint extension planning and staff training, establishment of combined on-farmdemonstration plots, and development of combined group extension work.Specifically, the project would include about 240 demonstration areas, thepromotion of about 40 farmers' associations, training of extension agents,development of radio and television programs and farmer training. Some 52,000

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farmers would be assisted on an individual or group basis, with EMATER-ROserving about 43,000 farmers and focusing on mixed cropping, farming systems,agro-forestry and forest fallow management; CEPLAC assisting about 6,000farmers, focusing on diversification out of cocoa and farming systems; andSEDAM-RO assisting 3,000 farmers on forest management and farming systems.

3.29 The ratio of farmers per extension agent would be substantiallyincreased through group extension techniques; the use of modern extensionmethodologies (audio-visual materials, radio, television); reduction ofadministrative tasks and better organization of time spent in the field;training of extension agents in integrated farming systems, management offorest fallow, agro-forestry, forest management and farm budget analysis; andpromotion of farmers' associations. The target would be to establish anextension network for EMATER-RO of 1 agent per 200 farmers by Year 4 of theproject period (compared to the current ratio of 1:70) and for CEPLAC of 1agent per 130 farmers (compared to the current ratio of 1:80). It is expectedthat in the long run a unified extension network would be developed. Theproject would fi:ance staff houses, offices, training facilities, equipment,salaries and other incremental operating costs. Funds also would be providedfor organization o;' farmers' meetings, legal establishment of farmerassociations and management training and technical assistance during theirinitial operating ?eriod.

3.30 Rural Credit. The lack of effective smallholder credit (causedboth by inadequate credit supply and restrictions on eligibility) under thefirst generation POLONOROESTE projects seriously slowed down the developmentof perennial crops in Rond8nia, thereby indirectly fostering slash and burnshifting cultivation and high settler turnover. Recognizing the urgency ofproviding credit services to stabilize settlement areas, the State Governmentintroduced a smallholder "credit in kind" system in 1985. Farmers havereceived inputs in kind and repaid the credit in products. The system hasbeen adminibtered temporarily by '-he Secretariat of Agriculture (SEAGRI),which also mar.vges input supply. The Rond8nia Storage Company (CAGERO) hasbeen in charge or receiving in-kind payments. The system has been wellaccepted by eligible farmers, and repayment levels have been good.

3.31 Over the medium-term, commercial banks should begin to lend tosmall iarmers in Rond8nia, but this is presently occurring only on anexceptional basis because of high traneaction costs, the absence of commercialbank agencies in the field and the large number of small farmers withoutdefinitive land titles. Access to credit is a critical requirement for thesuccess of the project's agricultural/environmental strategy; and theavailability of credit through the State's in-kind system has already begun tohelp reduce indiscriminate forest felling. However, as credit demand grows,management of the collection and storage of in-kind payments is imposingincreasing logistical problems and costs. The State has, therefore, decidedto convert the system into one which is denominated in kind, but based onfinancial transactions, a de facto indexing by product prices. Once creditproposals are approved, farmers would receive purchase orders in their names,which they could use to procure specified items from any public or privatesupplier; repayment would be in cash. The project would support the formallegal establishment of the new denominated in-kind credit system, known as the

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Rond8nia State Agricultural Credit Fund (FUNDAGRO), which would beadministered by the Rond8nia State Bank (BERON). FUNDAGRO would fint,nceinvestments and essential inputs (seeds; fertilizers, peat control chemicals)for diversification into perennial crops other than cocoa and coffee,enrichment of secondary growth/forest fallow with valuable wood species whichcan be used in rotation with annual subsistence crops, in lieu of newdeforestation and other investments such as on-farm storage facilities. Underthe operating conditions of FUNDAGRO, the loan principal would be adjusted bythe annual variation in product prices with interest charged in accordancewith the formula applied under the Agricultural Credit Project (Loan 2960-BR).Some 33,000 farmers would benefit from the project credit sub-component.

3.32 Legal documents establishing FUNDAGRO and the FUNDAGRO draftoperational manual were reviewed by the Bank during negotiations.Presentation of the final satisfactory operating manual for FUNDAGRO would bea condition of disbursement of the credit category of the loan(para. 4.04 (a)). During negotiations, the State of Rond8nia providedassurances thats (a) the operating manual for FUNDAGRO would be satisfactorilyimplemented and the provisions of the manual would not be changed withoutprior Bank approval; and (b) the performance of FUNDAGRO would be jointlyevaluated each year by the State Project Coordination Unit (PCU) and theinter-institutional FUNDAGRO credit group referred to in the FUNDAGROoperating Manual, SDR-PR and MEFP, with the annual evaluation sent to the Bankfor review by March 31 each year (para. 4.01 (e)).

3.33 Input SuvDlv. With the increased occupation of the State, privatemarketing activities have advanced in Zones 1 and 2. However, although moreareas now have reasonable access to private suppliers, there are still somelocations where seeds, and particularly seedlings, are not available forfarmers to purchase. The project would support the establishment by the StateSecretariat of Agriculture (SEAGRI) of four small nurseries 'n such locations,for clonal gardens and special planting materials (citrus, grafts, Brazilnuts, etc.), over a two-year period. It would finance seeds, seedlings,fertilizers, pesticides, construction of the nurseries and staff and otherincremental operating costs. The seeds and seedlings produced would be soldcommercially by the Rondonia Storage Company (CAGERO) with the profitsgenerated by the end of the second project year used to fully support theoperations of the nurseries thereafter.

C. Socio-economic Infrastructure and Services

3.34 The project strategy calls for concentration of population inthose areas which have the potential ft-r permanent agriculture, to reduceenc.oachment into other areas which, on agro-ecological grounds, should remainunder forest cover. In the short-term, this approach calls for relativelymore investment than would a strategy based on disorderly and predatoryoccupation. Adequate and well-maintained transport infrastructure, watersupply and basic social services are important incentives for retainingsmallholders in Zones 1 and 2. Conversely, the State's commitment not toprovide such infrastructure and services elsewhere should serve as a strongdisincentive to encroachment into forested areas in Zones 3-6. The projectwould therefore finance a two-year time slice of essential activities in

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health, education and water supply and a five-year time slice of road andriver transport activlties.

3.35 Health. Under the previous POLONOROESTE projects, the statedeveloped relatively good physical health infrastructure, in terms ofhospitals, health centers and health posts, but the quality of servicesprovided has been constrained by the lack of well-trained staff, equipmentpermanent materials and medicines, and inadequate supervision. Thc newproject would support the consolidation of the existing health system in Zone1 through: (a) training of rural health agents, nurses and doctors;(b) strengthening of supervision at State, municipal and field levels;(c) provision of equipment and permanent materials; and (d) health assistancefor acute care of Amerindian populations. The State Secretariat of Health(SESAU) would be responsible for implementation of the subcomponent. Thsproject would finance the per diem, travel and other expenditures for trainingof about 770 health staff; equipment, permanent materials and medicines forhealth centers and health posts, consultant services for improvement ofmanagement, training and health services delivery in the State; andincremental operating costs. The project would also support the constructionof four infirmaries and related operating expenses to serve the special needsof the Amerindian population; the costs associated with these infirmaries areincludLd under the subcomponent for a %o:9 to Amerindian communities (paras.3.21-3.22). During negotiations the bwri- 'er provided assurances that thehealth staff needed to provide efficient Amerindian health care would beassigned, allocated or transferred to this task by June 30, 1992(para. 4.02 (g)).

3.36 Education. Although only 40% of children between the ages of 7-14years have access to education in the rural areas, the physical infrastructurein terms of number of schools and classrooms in the rural area (2,600) isrelatively good, taking into consideration that Rond8nia is a new State towhich a very large number of migrants have moved during the past 10-15 years.However, dropout and repeater rates are high (35% of students are regularlyretained for longer periods than normal), because of the relatively poorquality of the education offered. Some of the main problems are the poorqualifications of the majority of rural teachers, inadequate supervision, andlack of equipment and educational materials. The project would support theconsolidation of the rural education system through: (a) rural teachertraining; (b) improvements in the supervision system at the State, municipaland field levels; and (c) provision of equipment and materials. Specifically,the project would finance training activities for 2,000 teachers, equipment,travel and per-diems for improved supervision services, rehabilitation of some200 rural schools, educational and other permanent materials, and incrementaloperating expenditures.

3.37 Water SuRRlv. The previous POLONOROESTE projects developed ruralservice centers for settlers, known as NUARs (nGicleos urbanos de ap6iorural). Although these NUARs are now in place, water supply and watertreatment facilities were never completed due to lack of resources. Theproject would finance the completion of some 23 NUAR water aupply and watertreatment systems, which would be implemented by the Water Supply and SewerageCompany of RondOnia (CAERG) over a two-year period and would provide

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immediately noticeable results in terms of reducing hlealth problems caused bywater transmitted diseases. operation and maintenance of the systems wouldcontinue on the present basis, with the NUAR users' associations carrying outroutine operation and maintenance and CAERG responsible for supervision andmajor repairs.

3.38 Road and River Transnort. Under the previous POLONOROESTEprojects there was a very rapid expansion of the agricultural road network inRond8nia, with some 12,000 km of different types and qualities of roadsconstructed. Although the State's financial ability to maintain thisinfrastructure is developing, it is not yet commensurate with the task athand. Adequate road rehabilitation is critical for the success of theproposed project, to ensure input supply and marketing channels in Zone 1 and2 areas. The project would support: (a) rehabilitation of some 3,900 kms ofState and municipal feeder roads; (b) pavement of 81 km of state feeder roadsin the most densely populated parts of Zone 1; (c) training; and(d) completion of a State Road Master Plan. The Rond8nia Highway Department(DER/RO) would, under contract with an acceptable project management firm,administer the subcomponent, which would be executed by private contractors.

3.39 To avoid pressure to construct additional roads in areas whereforest cover should be maintained, and to facilitate the marketing ofextractive products (wild rubber, Brazil nuts, plants with pharmaceutical use,etc.) from Zones 3 and 4, the project would assist in improving rivertransportation. The objective would be to help provide low-cost and reliableriver transport services on the Madeira-Machado and Mamore-Guapore riversystems, as an incentive to the development of the extractive activities inthese areas. The Rond8nia Water T:ansport Company (ENARO) would provide therequired transport services, either directly or under concessionaryarrangements with private transport fitms. The project would help finance therequired improvements to river transport facilities, including theconstruction or repair of small local port facilities and the dredging orclearing of navigation channels, which will be contracted out by the Rond8niaState Secretariat of Civil Works and Public Services (SEOPS), and theconstruction or rehabilitatioa of freight and passenger boats. As a conditionof disbursement for this component, the State Government would prepare asatisfactory plan for the development of water transport in these rivers, inaccordance with terms of reference agreed upon at negotiations(para. 4.04 (b)).

D. Project Administration

3.40 The project would help to strengthen the institutionalcapabilities of the State and Federal Project Coordination Units (paras. 3.41-3.44), with particular emphasis on improving their monitoring and evaluationcapability through training, technical assistance and consultancies.Specifically, the project would finance: (a) the installation costs of theState Project Coordination Unit, including administrative offices, equipmentand operating costs; (b) the operating costs of the Federal NationalCoordination Unit in the Coordination for the Center-West of the Secretariatof Regional Development of the Borrower's Presidency (SDR-PR); (c) training,technical assistance, consultants and studies; (d) processing facilities and

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related expenditures for implementation of a monitoring system based onsatellite imagery, for the immediate detection of illegal deforestation andinvasion of protected areas, as an aid to project enforcement activities(paras. 3.17-3.18): and (e) the yearly contracting of an IndependentEvaluation Committee, with participation of NGO representatives, to evaluatethe annual progress of the project and recommend any needed correctiveactions.

Protect Organizat ion and Implementation

3.41 Institutional Strengthening. The proposed institutional andadministrative arrangements for the project are based on detailed analyses ofthe lessons learned during implementation of the previous POLONOROESTEprojects. In the process, an effort was made to distinguish problemsattributable to lack of institutional capacity Per se, from those which weredue to inadequate or untimely release of counterpart funds. This is importantbecause funding proble.ns have been chronic throughout most of the period sincePOLONOROESTE was established; when the situation improved during the lateryears of the Program, implementation aleo accelerated and the State-levelagencies managed to execute almost 1JQ% of their physical targets.

3.42 The principal institutional problems of the earlier POLONOROESTEprojects have included: (a) overcentralization of decision-making andimplementation responsibility at the Federal level; (b) inexperienced Stateinstitutions since Rond8nia was conferred Statehood only in end-1981;(c) inadequate technical assistance and training, especially for some of themore innovative activities in environmental protection, conservation and agro-forestry development; and (d) the absence of adequate personnel policies toallow key project agencies to hire and retain suitably qualified staff. Foreach of the main project agencies a review was made of its organizationalstructure, staffing, operating practices and budget. Taking into account thestage of development of each agency, on the one hand, and the futureactivities to be implemented on the other, provision has been made under theproject for institutional strengthening of the main agencies through increasedstaffing, training, technical assistance and consultancies; and forredefinition of lines of responsibility for project implementation between theFederal and State Governments and among some executing agencies. The mainproposals for institutional strengthening under the project include:

(a) major decentralization of responsibility and accountability forthe execution of most project activities from the Federal to theState Government level;

(b) primary reliance on the contracting out of project works, asopposed to direct execution by public agencies;

(c) reliance on existing tUovernment structures, rather than thecreation of special entities to serve the project;

(d) extensive training, technical support and consultancy services,particularly in fields requiring greater innovation or in areas inwhich a major impact is expected in a short period of time;

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(e) improvements in personnel policies to enable executing agencies torecruit and retain qualified staff; and

(f) participation of NGOe in different aspects of project planning(including the preparation of Annual operating Plans) andimp 'ementation.

3.43 Coordination Arranaements (Chart 7.1). Federal responsibility forprogram coordination has been entrusted to the Secretariat of RegionalDevelopment of the Presidency of the Republic (SDR-PR). Inter-ministerialresolutions describe in general terms the way in which the Federal Ministriesand State Governments would collaborate, as well as the various programming,budgeting and funding procedures to be used. In addition, presentation of asatisfactory agreement between the Borrower (through the SDR-PR) and Rond8nia,defining their respective obligations for project implementation, would be acondition of loan effectiveness (para. 4.03 (c)).

3.44 In Rond8nia a State Council, presided by the Governor, would beresponsible for overall guidance and policy direction for the project, as wellas for approval of annual project budgefts. The Council would compriserepresentatives of SDR-PR, the Secretariat of Planning of Rond8nia (SEPLAN-RO), State implementing agencies, FUNAI, the State offices of INCRA and IBAMA,the Municipal Mayors' Association, and NGO representatives. SEPLAN-RO wouldfunction as the Executive Secretariat of the Council. It would be assisted ona day-to-day basis by a Project Coordination Unit (PCU), which would be formedby a Director, three Deputy Directors (in charge of the Technical, FinancialControl, and Monitoring and Evaluation Units), 13 section chiefs, and about 40technicians and related support staff. The Technical Unit would beresponsible for the technical review and consolidation of the work programs ofthe executing agencies, with separate sections in charge of environmentalcontrol, forest development, agro-forestry, credit and marketing, Amerindiansupport, and socio-economic infrastructure and services. Technical staffwould spend a minimum of one week per month on field supervision, in order toensure close contact with field staff and project beneficiaries and effectiveresponse to local problems. The Financial Control Unit would handlebudgeting, disbursements and accounting matters. The M&E Unit would assistSEPLAN-RO and SDR-PR in project monitoring and evaluation, with particularattention to the detection of deforestation and other forms of encroachmentinto conservation units, Amerindian reserves and other protected areas.Documents concerning the establishment and satisfactory staffing of theProject Coordination Unit in the State Secretariat of Planning, together withregulations governing the operating procedures and allocation ofresponsibilities for project management and coordination, were discussed andagreed at negotiations. Formal establishment of a satisfactory PCU would be acondition of loan effectiveness (eara. 4.03 (d)). The State of Rond8niaprovided assurances that it would maintain the PCU, within the StateSecretariat aZ Planning, with structure, functions and staffing -- under themanagement of a Project Director assisted by competent staff -- all as agreedwith the Bank (para. 4.01 (f)). IL

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3.45 Implementation Arranoements. The principal implementing agencieswould include those for land regularLzation (ITERON, INCRA); environmentalconservation, protection, forest management and support to Amerindiancommunities (SEDAM-RO, IBAMA, FUNAI and the Forest Military Police), agro-forestry research (CPAF/EMBRAPA, CEPLAC, SEDAM-RO), rural extension (EMATER-RO, CEPLAC, SEDAM-RO), rural credit (BERON), input supply (SEAGRI, CAGERO),road transport (DER-RO), rIver transport (ENARO, SEOSP), health (SESAU),education (SEDUC) and wate-: supply (CAERG). These agencies would be directlyresponsible for the budgeting and implementation of annual operating plans(para. 3.46), and they would be accountable for the application of funds andresults obtained. During the previous POLONOROESTE projects the lack ofresponsiveness to project beneficiaries' needs and weak inter-agencycoordination were major shortcomings. Therefore, the agencies would locatemore staff in the field, and maintain fully authorized representatives in thevarious zones, as appropriate. Funds would be provided by the project topresent and explain the new project to the field staff and the local andmunicipal authorities. The various agencies would formalize the arrangementsgoverning their form of cooperation, clearly identifying the distribution oftasks, and they would maintain an updated organization chart with jobdescriptions of all key field personnel financed by the project. Drafts ofthe agreements (convanios) for each component between the State ProjectCoordinating Unit and the involved executing agencies were reviewed duringnegotiations, and the presentation of satisfactory signed agreements would bea condition of loan effectiveness (para. 4.03 (b),.

3.46 Annual Plans and Budgets. Comprehensive updated annual planningwould adjust, detail and cost initially agreed targets and activities. Theseplans uauld be tased on the multi-annual targets of the project, correctedaccording to experience obtained in previous years, and would be completed inpreliminary form by June 30 of each year for submission to SEPLAN-RO andSUDECO. By July 31 SDR-PR would consolidate the budgets with those of otherFederal agencies involved in Rond8nia, ensuring their internal consistency.During negotiations, the Borrower provided assurances that the annual budgetproposal for the project for future years would be made available to the Bankfor comment by August 1S of each year; that the Draft Annual Operating Plans(POAs), including the physical targets, budget, staffing, training andprocurement programs for each executing agency, would be made available to theBank by November 15 each year for review and comment; that the Bank wouldreceive a copy of the final plan and budget as soon as they have beenapproved; and that the Borrower would take all measures to ensure that theproject is implemented in accordance with the POA& (para. 4.02 (c)).Presentation of evidence that the State of Rond6nia and the Borrower haveincluded in their respective 1992 budgets, the amount of US$3.5 millionequivalent each, for expenditures required in 1992, would be a condition ofloan effectiveness (para. 4.03 (e)).

3.47 Proiect Monitorina and Environmental Im2act Assessment. Asdetailed below, physical and financial monitoring of project implementation,and ongoing assessment of project impact, would be carried out by: (a) each ofthe project executing agencies, on a routine basis; (b) the State Secretariatof Planning through its PCU/M&E Unit and the Federal Government through SDR-PR; (c) an Annual Independent Evaluation Committee, with the participation of

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relevant NGOU and MEFP; (d) routine Bank supervision, supplemented by a jointGovernment-Bank annual review of implementation; (e) a mid-term evaluationreview; and a final assessment of the project at the time of completion (PCR).Project coordination and M&E activities would be supported by substantialtechnical assistance and training, including a full-time UNDP team. Finally,since the main measure of success of the various project interventions wouldbe their effectiveness in reducing the rate of deforestation in Rond8nia, theproject would provide for the establishment of a forest cover monitoring unitwithin SEPLAN-RO, supported by image analysis equipment for aerial photographyand satellite imagery, to use SPOT panchromatic and Landsat imagery, whichwould be available on a bi-weekly/monthly basis.

3.48 Monitoring would be, in the first instance, the responsibility ofthe participating execating agencies. These entities would regularly collectand analyze data on key project indicators to assess progress, compare resultsobtained with initially expected target levels, and identify possibleproblems. The State agencies would submit quarterly progress reports to theM&E Unit of the PCU/SEPLAN-RO, which would conduct a technical review andconsolidate them for presentation to the State Project Council. The Federalagencies involved would submit their reports to SDR-PR, which would make themavailable to the State Council. During negotiations, the State of Rond6niaprovided assurances that copies of the semi-annual and annual progress reportswould be sent to the Bank through the SDR-PR no later than three months afterthe end of each semester during the fiscal year (para. 4.01 (g)). Theseprogress reports would be based on the regular agency reports, the StateCouncil proceedings, and ad hoc reports on specific subjects carried outduring project implementation. They would: (a) describe the progress, or thelack of progress, in project execution and the degree of success inimplementing agro-ecological policy; and (b) identify possible implementationproblems and describe plans to resolve them. These reports would be analyzedby the Bank's routine supervision missions, and would serve as inputs coannual joint Gove-.nment-Bank project implementation reviews (para. 3...0j.

3.49 In the past, monitoring activities have placed an excessiveadministrative burden on field staff, in particular through the use ofmultiple repetitive questionnaires and frequent visits of variousinstitutions. Under the project, information requirements would bestreamlined, and requests for statistical information on project progress anddevelopments in the field would be channelled through the management staff ofthe participating agencies and the PCU. During negotiations the State ofRond8nia provided assurances that it would: (a) revise and simplify allproject performance indicators and all operating procedures of the M&E unit,and make the new system function, in a manner which is satisfactory to theBank, no later than June 30, 1992; (b) complete a baseline study of socio-economic and environmental indicators of at least three municipalitiesrepresentative of the project area, not later than December 31, 1992; and(c) complete, in a manner which is satisfactory to the Bank, a mid-term reviewof the project and a final assessment of the impact and effect of agro-ecological zoning on the State's economic and social development, and submitit to tha Bank for review and comment no later than December 31, 1994(para. 4.01 (h)).

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3.50 Impact assessment would focus on the success of the project indecreasing the rate of tropical deforestation in Rond8nia, improvingenvironmental preservation and Amerindian protection, encouraging the economicutilization of designated areas, preventing all forms of non-sustainableagricultural activity throughout the State, and generally discouraging andreducing the rate of spontaneous migration to Rond8nia. In addition toregular monitoring (para. 3.48), continuous environmental assessment would becarried out undor a project-financed evaluation system, supported by the useof weekly satellite imagery. In this regard, the Goverrment will enter intoan agreement with UNDP to field a team of specialists to provide technicalassistance to the Program, particularly by assisting Federal and Stateauthorities in developing and implementing the environmental monitoring andevaluation system. During negotiations, the State of Rond8nia providedassurances that each year it would invite an Independent Evaluation Committeeto monitor, with the participation of MEFP, the implementation of theenvironmental policy and regulatory reforms undertaken in connection with theproject, and the compatibility of annual Fideral and State investment programsin Rond8nia with the recommendations of the agro-ecological zoning; and theperformance achieved in respect of each of the various project components.The composition of the Committee would include representatives of relevantlocal Brazilian Non-Governmental Organizations (NGOe) and the Government wouldmake available to the Bank the findings of the Committee by June 30 of eachyear, starting in 1992 (para. 4.01 (i)).

3.51 Accounts and Auditing. Each of the Federal and State implementingagencies would maintain separate accounts for project expenditures, whichwould be audited annually by independent private or public auditors acceptableto the Bank. Copies of the audit reports on the various participatingagencies would be provided to the Bank through SDR-PR within six months of theend of each fiscal year. The audit reports would also convey the auditor'sopinion and comment as necessary on the methodology employed in thecompilation of the Statements of Expenditures, their accuracy, the relevanceof supporting documents, eligibility for financing in terms of the project'slegal agreements and standards of record keeping and internal controls relatedto the foregoing. The Special Account to be opened for the project would beaudited by independent auditore satisfactory to the Bank. The Federal andState Governments provided assurances during negotiations that: (a) theSpecial Account and the project accounts would be established, maintained andaudited annually in accordance with appropriate auditing principlesconsistently applied, by independent auditors acceptable to the Bank; (b) withrespect to withdrawals on the basis of Statements of Expenditures (SOEs), thatsuch audits would contain a separate opinion as to whether the SOEs, togetherwith the procedures involved in their preparation, support the relatedwithdrawals; and (c) certified copies of the audited accounts and of theauditors' reports would be submitted to the Bar'c within six months of theclose of e,ach fiscal year (para. 4.02 (d)).

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Project Costs

3.52 Total project costs including taxes are estimated at US$228.9million, with a foreign exchange component of US$48.4 million, or ab...ut 21% oftotal costs (Loan and Project Summary and Annex 6). Project base line costsamount to US$200.9 million, including US$5.7 million equivalent in localtaxes. Physical contingencies of US$5.1 million, or about 3% of totalbaseline costs, have been estimated at 10% for civil works and 5% forequipment and furniture. Price contingencies of US$22.9 million or 11% ofbaseline cost were included and are based on estimated international inflationrates of 3.7% p.a. through 1996. It was assumed that periodic currencyadjustments, estimated on a purchasing power parity basis, would compensatefor differences between the rates of US dollar and local inflation. Recentexperience indicates that this assumption may not be valid in some cases;increases in local currency costs for civil construction during some of thepast years have exceeded the rate of devaluation of the local currency.Therefore, project costs would be carefully monitored throughout the projectimplementation period. In the event that this trend continues, it wouldbecome necessary for the Government to finance these cost overruns, and theBank, if needed, would reduce its disbursement percentages to maintainparticipation through project completion.

Financina Plan

3.53 The proposed Bank loan of US$167.0 million would finance 75% oftotal project costs net of taxes, or 73% of costs including taxes (Annex 6,Table 6.4). The share of Bank financing is justified because of the strongenvironmental focus of this operation. Significant policy actions havealready been undertaken in preparation for the project, to which commitment ishigh at both Federal and State levels. However, the fiscal situation in thecountry makes it difficult at this point in time to carry out the kinds ofenvironmental initiatives planned under the project because the benefits,although substantial in economic terms, would materialize only in the long-term and largely in the form of foregone losses (paras. 3.62-3.63). Theproposed share of Bank financing would also help to reduce implementationrisks caused by inadequate or untimely counterpart funding. Counterpart fundswould be provrided by the Federal Government (US$31.0 million or 13.5% of costsincluding taxes) and the State Government (US$30.9 million or 13.5% of costsincluding taxes). The Bank loan would finance 100% of foreign exchange costsand 66% of local costs. It would be repayable over 15 years, including afive-year grace period. The Federative Republic of Brazil would be theBorrower of the loan. To enable the early start-up of project activities,retroactive financing would be provided up to a maximum of US$15.0 million inrespect of eligible project expenditures incurred before loan signing, butafter July 1, 1991, when the project was post-appraised.

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Procurement

3.54 Procurement arrangements are summarized in the following table:

Procurement Arranoementa(USs million)

Procurement MethodCategory ICB LCB OTHER TOTAL COST

Civil Works - 48.6 f.0 54.6(44.5) (2-4)1/ (46.9)

Equipment, Furnitureand Materials 2.3 7.5 2.5 12.3

(2.3) (6.3) (2.2) (10.8)Technical Assistance,Training, Studies & - - 34.8 34.8Contractual Services (34.5) (34.5)

Investment Credit - 24.3 24.3(21.9) (21.9)

Salaries and Benefits - - 41.9 41.9(8.5) (8.5)

Other operating Costs - 6.0 55.0 61.0(3.0) (41.4) (44.4)

Total 2.3 62.1 164.5 228.9(2.3) (53.8) (110.9) (167.0)

Note: Figures in parenthesis are the respective amounts (includingcontingencies) expected to be financed by the Bank.1./ Includes only materials for small civil works to be executed under forceaccount.

3.55 Civil works would include buildings, road paving andrehabilitation, and land improvement. Because of the dispersed nature andrelatively small size of most of these works, for which the largest singlecontract is not expected to exceed US$5.0 million, it is unlikely that foreigncontractors would be interested. Accordingly, Local Competitive Bidding (LCB)procedures would be used for civil works construction, although interestedforeign bidders would be allowed to participate. For all components otherthan road and river transport, force account would be permitted for very smallworks which cannot be grouped into contracts of at least US$150,000, providedthe aggregate value of such works does not exceed US$6.0 million. For theseworks, the Bank would finance only the cost of materials, which would beprocured on the basis of evaluation of price quotations invited from at leastthree suppliers, in accordance with procedures satisfactory to the Bank.Total civil works procurement under the project would amount to about US$54.6million, of which US$48.6 million would be procured through LCB.

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3.56 Contracts for goods, equipment, materials and other servicesexpected to cost between US$25,000 and US$500,000, and not exceeding anaggregate amount of US$13.5 million, and helicopter services estimated to costless than the equivalent of US$2.0 million, would be procured under LCBprocedures satisfactory to the Bank. Office equipment, furniture and othersimilar goods required by several of the executing agencies over the projectimplementation period, estimated to cost less than US$25,000 per contract,would be awarded on the basis of evaluation of price quotations invited fromat least three suppliers in accordance with procedures acceptable to the Bank,provided they do not exceed an aggregate of US$2.5 million, or about 20% oftotal procurernent of goods and equipment.

3.57 Contracts for goods exceeding US$500,000 for a cumulative total ofUS$2.3 million, would be awarded through International Competitive Bidding(ICE) following Bank procurement guidelines. Computers and electronicequipment manufactured in Brazil and required by the project, as reservedprocurement items, would not be financed under the proposed loan. Duringnegotiations, the State of Rond8nia and the Borrower provided assurances thatthose items would be procured and made available to the project in a timelymanner (para. 4.02 (e)). With regard to the credit sub-component, since themajority of operations are expected to average less than US$1,000-2,000, andno individual operation would exceed about US$50,000, normal commercialprocurement practices would be followed.

3.58 Civil works contracts over US$3.0 million and contracts for goodsand equipment over US$300,000 would be subject to prior Bank review of biddingdocuments, bid evaluations, award proposals and final contracts. However, thefirst two LCB procurements for works and the first two for goods, bothirrespective of the size of their contracts, would be subject to prior reviewby the Bank of bid documents, bid evaluation, award proposals and finalcontracts. In total, Bank prior review would cover about 60% of the value ofcontracts financed under the project. Consultant services, would be procuredin accordance with the Bank's Guidelines for the Use of Consultants. Duringnegotiations, assurances were provided by the State of Rond8nia and the Borrowerthat the above procurement arrangements would be followed (para. 4.02 (f)).

Disbursements and Special Account

3.59 The proceeds of the proposed loan would be disbursed againsteligible project expenditures at the rates of: (a) 100% for all environmentalsubcomponents, except land zoning, mapping and regularization; (b) 80% forcredit, input supply and land zoning, mapping and regulerization; (c) 65%until aggregate disbursed amounts reach US$13.0 million for agriculturalextension, and US$4.5 million for agricultural research; thereafter 40% untilaggregate disbursed amounts reach US$17.0 million and US$5.5 million,respectively, for these same subcomponents; and 15% for tne remaining fundsfor these subcomponents; and (d) 75% for all other project sub-components(Annex 6, Table 6.5). Disbursements for civil works not exceeding US$3.0million, contracts for goods and equipment below US$250,000, works carried outby force account and operating expenses would be made against Statement ofExpenditures prepared by the various executing agencies and the PCU andcertified by SDR-PR. All other expenditures would be fully documented.

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Conditions of disbursement would be: (a) for the credit category of the loan,the presentation of a satisfactory FUNDAGRO operating manual (paras. 3.32 and4.04 (a)); and (b) for the river transport component of the project,preparation by the State Government of a satisfactory plan for the developmentof water transport in the Madeira/Machado and Mamore-Guapor6 river systems(paras. 3.39 and 4.04 (b)).

3.60 To facilitate Bank disbursements and reduce Governmentprefinancing requirements for local currency expenditures, a Special Accountwould be opened in the Central Bank with an initial deposit of US$11.0million. The Central Bank would act as the channel for Bank loandisbursements. Withdrawals from the Special Account would be supported by therequired documentation or Statements of Expenditures. Loan disbursements areexpected to occur over about 5-1/2 years (Loan and Project Summary and Annex6, Table 6.3). The Bank standard disbursement profile for this type ofproject is about seven years, although the first POLONOROESTE agriculturaloperation in Rond8nia (Loan 2060/2060-1-BR) took slightly longer to implement.However, the State has now acquired extensive experience in implementing thekinds of activities to be supported under the proposed project, reflected inthe fact that during 1990/1991 it has fully met annual physical executiontargets for Loan 2353-BR. Finally, Bank financial participation of 75% wouldhelp to minimize counterpart funding shortages and delays which have played alarge role in past implementation delays. Consequently, the proposed 5-1/2year disbursement period is feasible.

Protect Benefits and Justification

3.61 Some 5,000 to 6,000 Amerindians, 2,400 families of rubber tappersand other forest dwellers, and 900 families of fishermen and riverineinhabitants in Rondonia would benefit directly from the environmentalconservation, management and protection component of the project. A further52,000 low-income smallholder families, currently residing in those areas ofthe state which are suitable for sustainable development from an agro-ecological standpoint, would benefit directly from the agro-forestrycomponent. Much of the rural community in those same areas would also benefitfrom improved socio-economic infrastructure and services. Finally, futuregenerations in RondOnia would benefit from actions taken now to arrestdeforestation and degradation of the state's natural resource base andbiogenetic diversity.

3.62 Economic and Financial Benefits. The main impact of the projectwould be a significant reduction in the rate of destruction of RondOnia'sremaining natural rain forest. Techniques for accounting and quantificationof environmental benefits are still at a very rudimentary stage ofdevelopment, and this project does not lend itself to conventional economicrate of return analysis. Although some activities would generate benefits inthe form of incremental income to beneficiaries over the life of the project,most project investments would yield benefits in the form of foregone economiclosses (mainly from arresting the rate of deforestation, soil degradation,etc.), protection of Amerindian groups and preservation of biogeneticdiversity.

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3.63 Although an economic rate of return has not been calculated, someindicative estimates have been made of: (a) the value of the rain forestwhich, ae a result of the project, would not be lost; (b) the value of thenon-wood products which might be obtained from sustainable extractivereserves; and (c) the benefits which could accrue to project farmers as aresult of investments in the enrichment of secondary growth/forest fallowunder the agro-forestry component of the project. Using conservativeassumptions, the estimated present value of wood not lost to deforestation andburning as a result of project activities amounts to US$420 million over aten-year period (Annex 3). For the non-wood extractive reserve component,recent valuation in a similar area of the Amazon Basin in Peru estimatedannual revenues from fruits and latex at $420/ha/year. Although such figureswould not be applicable to all of the 3.5 million ha of extractive reserves inRond8nia, they do illustrate the potentially high profitability of thesereserves (Annex 2). Finally, the project would support an intensive programof enrichment of secondary growth/forest fallow with timber species in anaggregate area of about 90,000 has. Using limited data available fromRondonia, an IRR of 35% has been estimated to investments made by farmersparticipating in this subcomponent (Annex 4, Table 4.2).

3.64 Fiscal Impact. While the long-term fiscal impact of the projectwould be positive, this is not likely to be the case during the yearsimmediately following project completion. Total recurrent costs in projectyear S (i.e., the final year of project implementation) would be about US$18.0million, equivalent to approximately 5% of the total 1990 State budget. Byfull development (project years 12-15), selected project activities shouldprovide the State with annual incremental tax revenues at least sufficient tocover that amount. These revenues would derive from the federal tax on thecirculation of goods (ICM) that would apply to the incremental marketableproduction, and that would be retained by the State Treasury andmunicipalities. However, in the first years after project completion, therewould probably be a negative gap, and the State may therefore requirecontinued budgetary support from the Federal Government for several years. Toa certain extent, such support would be justified given that most of thedeforestation anid other natural resource degradation in Rondonia over the last10-15 years has been caused by heavy migration from other parts of Brazil.

Proiect Risks

3.65 Inadequate knowledge of the natural resource capabilities of theState has resulted in the occupation of lands with little or no sustainabledeveiopment potential, accompanied by rapid deforestation and resourcedepletion. However, given current technical knowledge, particularly theavailability of agro-ecological zoning, and improved Government commitment,the prospects for achieving sustainable agricultural and extractivedevelopment, and environmental preservation, in Rondonia are much better todaythan in the past. Agro-ecological zoning provides a rational basis fordevelopment planning and administration, and is already leading to theestablishment of critical conservation units and additional forest andAmerindian reserves. The Government's commitment to comply with the zoningrecommendations in its investment programming would reduce the risk ofcontinued occupation of areas without sustainable potential.

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3.66 The legal establishment of most of the critical conservation unitshas already taken place during project preparation, and the project wouldprovide substantial support for the border demarcation of these units andvarious new forest and Amerindian reserves. However, such measures would not,by themselves, be sufficient to prevent illegal encroachment and deforestationof these areas. Protection of environmentally fragile areas in Rondonia hasbeen weak in the past, both because of the economic and financial incentivesframework which often encouraged invasion, and because of the State's limitedenforcement capacity and inadequate knowledge of the situation in the field.The various environmental policy and regulatory reforms which the Governmenthas undertaken in preparation for this project should help to redress thebasic incentives/disincentives problems. Those project activities designed tointensify land use in suitable areas and to develop sustainable forms of non-wood extractive production in areas which should remain under forest coverwould also help to reduce pressure on the forests by small, shiftingcultivators. Finally, the environmental protection subcomponent of theproject would strengthen the institutional capacity of key agencies to enforcethe State's environmental policies and legislation and to protect the bordersof its conservation units and reserves. The field information system wouldalso be strengthened and supplemented by the use of satellite imagery,permitting immediate detection of forest burning and other forms of invasion.However, given the extensive areas to be protected, it must be recognized thateven these measures may prove inadequate to eliminate all illegaldeforestation during the project period.

3.67 The environmental policy reforms (Annex 1) instituted before thestart-up of the project, and to be maintained throughout the implementationperiod, would address the most important known causes of environmentaldegradation in Rond8nia, but there is always a risk that unforeseeable factorscould undermine the impact of these reforms. For instance, unexpected weatheror economic problems in other parts of Brazil could once again acceleratespontaneous migration to the Northwest Region, unanticipated disease problemscould undermine the viability of some of the planned agricultural and qgro-forestry activities. To mitigate these risks, appropriate monitoring andevaluation devices are being put into place at project start-up; and anIndependent Evaluation Committee, including NGO representatives, would conveneannually to review progress and recommend corrective actions or refinements toproject strategy as necessary. NGOs would also participate in the preparationof the project Annual Operating Plans and in the implementation of someproject activities.

3.68 Another possible risk stems from the fact that fiscal difficultiesin Brazil could lead the State Government to place severe restrictions onstaff recruitment and compensation, and this in turn could undermine thenecessary strengthening of Rondonia's relatively young environmental, land andagro-forestry intt 4 tutions. This would be particularly serious, as thoseinstitutions must bear the main burden of project implementation. Duringnegotiations the State of Rondonia presented an acceptable strategy to ensurethat project executing agencies would be able to recruit and retain qualifiedtechnical and managerial staff, and the agreements reached (e.g., acceptablepersonnel plans, providing for recruitment, career development and adequateremuneration of essential staff) would be closely monitored. The project also

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Includes considerable technical assistance and staff training to support thedevelopment of key institutions. Bank and Federal Government supervision ofthe project would be intensive throughout the project period.

3.69 Although the potential problems mentioned above should not beminimized, the alternative of inaction would pose far greater risks.Accelerated migration to Rond8nia did not start with POLONOROESTE. Rather,the Program was established in 1980 to try to cope with a process which wasalready underway: during the 1970s, the population of Rond8nia more thanquadrupled, socio-economic problems increased, deforestation was uncontrolled,and the security and well-being of the State's indigenous inhabitants werebeing threatened. POLONOROESTE did not succeed in reversing these trendsduring the first few years, but its accomplishments have been significant, andthe Government is far better poised today to confront the enormous challengesof reducing the inflow of migrants to the State and channelling them intosustainable economic activities. Without active intervention, the continueduncontrolled spread of low-cost, extensive and itinerant agriculturalproduction systems would eventually destroy the remaining three-fourths ofRondOnia's natural forests. The project represents a major new initiative onthe part of both the Government and the Bank to reverse this trend.

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IV. SUMMARY aF AGREEMENTS REACHED AND RECOMMENDATIONS

4.01 During neaotiations. the State of RondOnia nrovided asourances

(a) it would maintain throughout the life of the project, and reviseannually, its media program to discourage migration to Rond8niaand generate information concerning agro-ecological zoning; thatthe revised program and timetable for the following year would besent to the Bank for review and comment by November 15 of eachyear, and that the program would be implemented in accordancetherewith (para. 3.07);

(b) Statewide agro-ecological, climatological, soil and topographicmaps of Rond8nia, all satisfactory to the Bank (at a scale of1:50,000 for Zone 1 (1.1), 1:100,000 for Zone 1 (1.2), 1:250,000for Zone 1 (1.3 and 1.4), 2, and 3 and 1:500,000 for Zones 4, 5and 6) would be completed no later than December 31, 1993 andsubsequently distributed (para. 3.12)s

(c) it would maintain the following State Conservation Units andreserves: state ecological station Serra dos TrOs Irmaos; StateParks of GuajarA-Mirim, Candeias and Rio Corumbiara; Statebiological reserves of Rio Ouro Preto and Tragadal; State forestreserves of Rio So Domingos, Rio Abuni, Rio Roosevelt and RioMadeira; and the extractive !eserve of Rio EPreto/Jacunda (paras.3.15, 3.19 and 3.20);

(d) (i) by June 30, 1993, it would present to the Bank for comment thedraft State Decrees establishing the following State ConservationUnits and reserves: State Parks of Serra dos Parecis and Serra dosReis; Extractive Reserves of Rio Pacaas Novos, Rio Novo, SaoMiguel/Pedras Negras, Jacy ParanA and Rio Cautario; and StateForests of the Guapor6, Mequens, Machado and Vermelho Rivers; and(ii) by no later than September 30, 1993, it would haveestablished by decree, and would thereafter maintain these sameconservation units and reserves (paras. 3.19 and 3.20);

(e) (i) the operating manual of FUNDAGRO would be satisfactorilyimplemented and the provisions of the manual would not be changedwithout prior Bank approval; and (ii) the performance of FUNDAGROwould be jointly evaluated each year by the State ProjectCoordinating Unit (PCU) and the interinstitutional FUNDAGRO CreditGroup, referred to in the FUNDAGRO operating manual, SDR-PR andMEPP, with the annual evaluation sent to the Bank for review byMarch 31 each year (para. 3.32);

(f) it would maintain within the State Secretariat of Planning theProject Coordinating Unit, with structure, functions and

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staffing - under the management of a qualified Project Directorassisted by competent staff - agreed to by the Bank (para. 3.44);

(g) semi-annual/annual progress reports would be sent to the Bank notlater than three months after the end of each semester during thefiscal year (para. 3.48);

(h) it would: (i) revise and simplify all project performanceindicators and all operating procedures of the M & E unit, andmake the new system function in a manner which is satisfactory tothe Bank, by June 30, 1992; (ii) complete a baseline study ofsocio-economic and environmental indicators of at least threemunicipalities representative of the project area by not laterthan December 31, 1992; and (iii) carry out, in a manner which issatisfactory to the Bank, a mid-term review of the project and afinal assessment of the impact and effect of agro-ecologicalzoning on the State's economic and social development, and submitit to the Bank for review and comment no later than December 31,1994 (para. 3.49); and

(i) it would invite each year an Independent Evaluation Committee tomonitor, with the participation of NEFP, the implementation of theenvironmental policy and regulatory reforms undertaken inconnection with the project, the compatibility of annual Federaland State investment programs in Rond8nia with the recommendationsof the agro-ecological zoning, and the performance of the variousproject components. The composition of the Committee will includethe representatives of relevant local Brazilian Non-GovernmentalOrganizations (NGOs), and the Government will make available tothe Bank the findings of the Committee by June 30 of each year,starting in 1992 (para. 3.50).

4.02 Durina negotiations. the Borrower and the State of Rond8nia2rovided assurances that:

(a) (i) agreed environmental policy reforms would be implementedthroughout the life of the project; and (ii) the Federal and Stateinvestment programs for Rond8nia which now take into account landuse capabilities, and ecological and agro-ecological zoningconsiderations would be maintained consistent with suchconsiderations; and that the State would submit for Bank reviewand comment by September 30 of each year, any intended update ofthe investment program for the forthcoming year (para. 3.05);

(b) (i) the registration with the DPU of the Pacaas Novos, Roosevelt,Tubarao Latunde and Uru-eu-wau-wau Amerindian reserves would becompleted by May 31, 1992; and (ii) all necessary steps toregister such reserves with the appropriate local land registriesin Rond8nia would be taken (para. 3.23);

(c) the annual budget proposal for the project for the next year wouldbe made available to the Bank for comment by August 15 of each

- 44 -

year; the Draft Annual Operating Plans (POAs), including thephysical targets, budget, staffing, training and procurementprograms for each executing agency, would be made aiailable to theBank by November of each preceding year, for review and comment;the Bank would receive a copy of the final plan and budget as soonas they have been approved, and the Government would take allnecessary measures to ensure that the project is implemented ineach year in accordance with the POAs (para. 3.46);

(d) (i) the Special Account and the project accounts would bemaintained and audited annually according to standards andprocedures satisfactory to the Bank; (ii) terms of reference forthe auditors would include, integ alia, detailed procedures forthe examination and verLfication of the Statements of Expendituresfor the project account.; and (iii) copies of the audit reportswould be submitted to the Bank within six months of the close ofeach fiscal year (para. 3.51);

(e) all computers and electronic equipment necessary for projectimplementation would be procured and made available to the protsctin a timely manner (para. 3.57);

(f) procurement procedures would be as specified in paras 3.55-3.58;and

(g) health staff needed to provide efficient Amerindian health carewould be transferred, assigned or allocated to the project by June30, 1992 (para. 3.35).

4.03 Conditions of loan effectivenegs would be:

(a) presentation of a satisfactory agreement between the StateGovernment and INCRA concerning land regularization policies andpractices to be observed in Rondonia, consistent with theobjectives of sound forest protection and management (para. 3.11);

(b) presentation of satisfactory Operating Agreements (convAnios)between SEPLAN-RO and each Executing Entity involved in thelmplementation of the project (para. 3.45);

(c) presentation of a satisfactory agreement between the Borrower(through the SDR-PR) and Rond8nia, defining their respectiveobligations for project implemerntation (para. 3.43);

(d) formal establishment of a satisfactory State Project CoordinationUnit (para. 3.44); and

(e) presentation of evidence that the State of Rond8nia and theBorrower have included in their respective 1992 budgets, theamount of US$3.5 million equivalent each, for expendituresrequired in 1992 (para. 3.46).

- 45 -

4.04 Conditione of loan disbursement would bes

(a) for the credit category of the loan the presentation ofsatisfactory FUNDAGRO operating manual (para. 3.32); and

(b) for the river transport component of the project, preparation bythe State Government of a satisfactory plan for the development ofwater transport in the Madeira/Machado and Mamor6/Guapor6 riversystems, on the basis of terms of reference agreed at negotiations(para. 3.39).

4.05 Subject to the above agreements and conditions, the proposedproject would be suitable for a Bank loan of US$167.0 million equivalent witha term of 15 years, including a 5-year grace period.

February 27, 1992

-46-

ANNEX IPage 1 of 5

BRAZIL

RQNDONIA NATURAL RESOURCE MANAGEMENT PROJECT

Environmental Policy and Regulatory Reforms and Aaro-Ecoloqical 2oninq

1. The following environmental reform measures, most of which theGovernment has already initiated, and which it would continue to implementthroughout the life of the project, are essential to ensure that futuredevelopment of the State of Rond8nia is sustainable. The policies andregulations which have thus far been identified to address the principalcauses of accelerating deforestation in Rond8nia,i' include:(a) institutionalization of agro-ecological zoning, which identifies anddistinguishes areas capable of sustainable development from those withoutlong-term development potential, defining acceptable activities by zone;(b) reformulation of the medium-lerm State and Federal investment programs forRond8nia to better reflect land use capabilities, ecological and agro-ecological zoning considerations; (c) the elimination of deforestation as acriterion for obtaining land title, the adoption of suitable landregularization policies and practices, and the strengthening of a State landinstitute to develop and administer land policy, in accordance with the agro-ecological zoning; (d) elimination of economic and fiscal incentives whichencourage inefficient resource allocation, non-sustainable private investmentand environmental degradation; (e) adoption of suitable policies concerningthe interdiction, delimitation, demarcation and protection of Amerindianareas, and provision of key services to their indigenous inhabitants; and(f) reduction of the rate of spontaneous migration to RondOnia throughdissemination of information elsewhere in Brazil, particularly in those statesfrom which the majority of migrants have originated, explaining the agro-ecological zoning system and State policies on land occupation and plannedenforcement mechanisms.

2. Aaro-Ecoloaical Zonino. Almost all of the policy and regulatoryreforms center on the implementation of agro-ecological zoning. The agro-ecological zoning of Rond8nia has been developed as a basic planning tool tohelp improve the management of the State's natural resources. Through DecreeLaw NO 3.782 of June 14, 1988 (recently converted into Complementary State Law

I/ FAO/CP, Technical Review of Northwest I, II and III Projects, March1987; FAO.TCP/BRA 6755 Technical Assistance to AgriculturalIntensification Project in RondOnia Working Papers, November 1987;D. Mahar, "Government Policies and Deforestation in Brazil AmazonRegion," June 1988; R. Norgaard, "The Valuation of Environmental PolicyBenefits," September 1988; and H. Binswanger, "Brazilian Policies thatEncourage Deforestation in the Amazon," December 1988.

-47-

ANNEXL IPage 2 of 5

No. 52 of December 20, 1991), tb" State Government has officially determinedthat the agro-ecological zoning ould regulate all future settlement and/orother use of the territory of Rond8nia. Six basic zones are defined,according to their natural resource base and pattern of occupation to date.The legislation also foresees a further refinement of the zoning, especiallyin those areas of highest potential for permanent agriculture, as discassedbelow. Private firms would be contracted to execute the surveys necessary forthe more detailed zoning work.

3. Rond8nia's agro-ecological zoning is based primarily on radarimagery. This imagery is derived from side-looking airborne radar, or SLAR, apassive microwave sensor which can penetrate the dense cloud cover over theAmazon Basin. The radar imagery has served as the basis for studies of soils,vegetation, geomorphology, agricultural potential, etc. The resultingexploratory survey maps (1:1 million scale) have been good enough for basicplanning purposes, but more detailed mapping and zoning work is now needed,and this would be supported under the project.

4. Initially, a computer search would be conducted through INPE, theBrazilian Space Agency, to determine the most recent cloud-free satelliteimagery available for Rond8nia. Landsat Thematic Mapper (TM) imagery would beacquired in a digital format and processed to emphasize vegetation andvegetation change. Palse color computer-enhanced images at a scale of1:250,000 would be used for visual interpretation and field work. Theseimages would be used to construct a 1:250,000 scale mosaic which would bemounted in the situation room of the Forest Military Police, with an overlayto facilitate location of areas of illegal timber logging or burning.

5. SPOT panchromatic scenes would be used as base data for semi-detailed land capability studies in Zone 1. The Bank has already requestedSPOT Image, Toulouse France to program the SPOT satellite to systematicallyacquire SPOT panchromatic coverage of Zone 1 for soils investigations. TheSPOT panchromatic data would be &cquired in digital format and re-sampled intoa 5 m x 5 m pixel format, with paper prints produced at a scale of 1:25,000for field work in conjunction with semi-detailed land capability studies.They would be supplemented, wherever available, by existing aerialphotography, with the size of mapping units ranging from 10 to 1,000 ha andincorporating association. of phases of soil series. When small areas ofdifferent soil types are identified within larger uniform areas of similarsoil characteristics, they would be covered with a sampling density of onesample per 15-50 ha to provide representativ-e coverage. Observations would besited on a flexible grid and representative areas sampled following thestandards and norms established in USDA Handbook 18, Soil Survey Manual. Thefina± land capability maps would be prepared by December 31, 1993 at a scaleof 1:50,000 for those parts of Zone 1 which are most suitable for agriculture;at a scale of 1:100,000 for somewhat less suitable areas in Zone 1; at1:250,000 for the poorer quality soils in Zone 1 and all of Zones 2 and 3; and1:500,000 for Zones 4-6.

- 48 -

ANNEX 1Page 3 of 5

6. The existing agro-ecological zoning, supplemented by the moredetailed studies described above, would discipline all future Federal andState investment programs for Rond8nia. The new Constitution for Rond8niaincludes specific reference to the agro-ecological zoning in the chapter onthe organization of the State. Over the past two years the State has alreadybegun to implement this zoning, without serious difficulty, and has undertakena major publicity campaign nationwide to explain its objectives. During loannegotiations, the General Counsels of the Federal and Rondonia StateGovernments provided legal opinions concerning the agro-ecological zoning andits enforceability, to satisfy the Bank that no additional legal measures areneeded.

7. State and Federal Investment Programs for Rond8nia. Theavailability of cheap and abundant land has been the main factor in attractinglarge numbers of migrants from Southern and Northeast Brazil to Rond8nia, butpublic investments in social and economic infrastructure have also served asimportant incentives (or, in their absence, disincentives) in determiningoccupation patterns. Therefore, the appraisal and post-appraisal missionsreviewed with the State Secretariat of Planning a revised public investmentprogram, in which all state investments have been made consistent with landuse capability, ecological and agro-ecological zoning considerations. Inparticular, plans for roads, facilities improvements and agricultural supportservices have been eliminated in those areas where sustainable agriculture isnot possible; support for extractive reserve communities and the developmentof river transportation systems have been given increased consideration; andinvestments in land regularization and forest management have been augmented.Overall, the bulk of investments would be concentrated in those areas mostsuitable for sustainable development (i.e., parts of Zones 1 and 2), and whereforest cover has already been almost totally cleared. This redirection ofState investments constitutes an essential step towards changing the futurepattern of development. During negotiations, the State Government providedassurances that its investment program would be maintained consistent withland use capability, ecological and agro-ecological zoning considerations; andthat it would submit for Bank review and comment, by September 30 of eachyear, any intended update of the investment program for the forthcoming year.

8. Similarly, the appraisal and post-appraisal missions reviewed withFederal agencies their development plans for Rond8nia, to make sure they areconsistent with the agro-ecological zoning, in particular those that effectland occupation and deforesuation in the State. The National Institute forColonization and Agrarian Reform (INCRA) would suspend plans for newcolonization projects in unsuitable zones; would ensure that its agrarianreform program within Zone 1 favors ownership patterns appropriate forsustainable agriculture; and would support the State in the establishment ofextractive communities and other critical land-related activities. TheBrazilian Institute for the Environment (IBAMA) would rationalize forestreserves within Zone 1; help to implement plans for sustainable forestmanagement in Zones 4 and 5; and work closely with the Forest Military Police

-49-

ANNEX IPage 4 of 5

to ensure forest protection. The Federal Government also provided assuranceduring negotiations that future Federal investments in Rond8nia would beconsistent with the recommendations of the agro-ecological zoning.

9. Land Reaularization Policies. Forest clearing has long beenpracticed as an essential step towards acquiring title to land in the AmazonBasin. Migrants in either official settlements or in invaded areas obtainedrights of possession simply by clearing the forest. Both good and poorquality land have been deforested indiscriminately, and settlers engaging inenvironmentally benign extractive activities which do not disturb the forest(e.g., rubber tapping or gathering of Brazil nuts) are at a disadvantage.Therefore, INCRA has adopted a new policy and supporting regulations, to the,effect that tree clearing would no longer be acceptable evidence of landoccupation and development for the purpose of establishing claims to lance orentitlement to other Government benefits.

10. Establishment of a Rgnd8nia State Land Institute. The current landtenure situation in RondBnia is extremely diverse, reflecting officiallysponsored land settlement, uncontrolled occupation, land auctioning, landspeculation and numerous irregular transactions. Rationalization of land useis inhibited by overlapping laws and regulations, and therefore requires aparallel effort in land regularization/titling and the development of coherentland use policies. A recently established Rond8nia State Land Institute wouldwork with INCRA, assisting in the documentation of existing tenure status inthe various zones, developing agrarian reform proposals, and demarcatingconservation units and other reserves. Administrative rules and implementingregulations under which the State Land Institute would operate have beenreviewed and found satisfactory by the appraisal mission. Presentation of asatisfactory agreement between the State Goverr4uent and INCRA concerning landregularization policies and practices to be observed in Rondonia, consistentwith the objectives of sound forest management and protection, is a conditionof effectiveness of the loan for the proposed project.

11. Official Credit and Fiscal Incentives. Various steps are necessaryto alter private incentives so as to encourage sustainable activities, and toincrease significantly the private costs of any schemes which deplete theState's natural resource base, including adoption of regulations to ensurethat applivaLion of official credit and fiscal incentives is consistent withagi.-ecological zoning. Fiscal incentives for cattle ranching anddeforestation have already been suspended under the Brazilian Government'senvironmental program "Nossa Natureza". Subsidized credit from the FederalGovernment has, for all practical purposes, ceased at the State level, due tothe poor fiscal situation. Such limited official credit as exists would beused in accordance with land use capabilities. Both the Federal and StateGovernments have committed themselves to maintaining the suspension of fiscalincentives for cattle ranching and deforestation in the State of Rond8nia.They have also agreed that credit would be available only for these activitieswhich are consistent with the agro-ecological zoning.

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Page S of 5

12. Indioenous Policy. The Federal and State Governments havecommitted themselves to improve both protection and support to the Amerindiancommunities in Rond8nia. Details are provided separately in Annex S.

13. Discouraging Soontaneous Migration. By the end of the 1970c theflow of spontaneous migration to Rond8nia had already become unmanageable, andthe problem worsened appreciably by the mid-1980s. Throughout this period,much of the official propaganda which was dieseminated, coupled withenthusiastic reports from many settlers to their home communities in otherstates, encouraged ever-increasing numbers of land-seeking migrants to come toRond8nia each year. The State's population grew at an average annual rate ofnearly 14% during the 1980's. In an effort to actively discourage and reducethe rate of migration, the State Government has launched a media campaign(using local and national radio, television and newspapers) during the lasttwo years to explain the agro-ecological zoning, the State's policies on landoccupation and the enforcement mechanisms which it is adopting. Duringnegotiations, the State provided assurances that it would maintain throughoutthe life of the project, and revise annually, its media program to discouragemigration to Rond8nia and to generate information concerning agro-ecologicalzoning; that the revised program and timetable for the following year would besent to the Bank for review and comment no later than November 15 of eachyear; and that the program would be implemented in accordance therewith.

BRAZIL

RONDONA NATURAL RESOURC MANAGEMBENT PROWLS

Matrx of Main Eiom_enI PoLicy bes Meas and Actions

Problems Reswonsmble fo Aco Taken Siuce Fa entificaton Actions to be Taken MonitorableActionsmntl -iMansdDion (Novebe 1927

1. Inappropriate exploitation of aea Development and State adoption of Farther detailing of zoning and soil Completion of more deted taps atdue to absnc of zoning and land use agro-ecological zoning which identfies maps scale 1:50,000 in Zone 1 (1.1), agreed scales by December 31, 1993.controls. lands suitable for arstinable 1:100,000 Zone 1 (1.2), 1:250,000develomen from tos which do not Zos 1(1.3 and 1.4), 2, and 3 and Continmuos mitoring of compliancehave dat potenial or wbich have special 1:500,000 Zones 4, 5 and 6. wh zoning by cting agaecies byecologial or social Indigenous Enforcemet of zning. me of satelite ime8ery to detectresev) significance and sed to be ilegal deforestation and en_rnchintprotected. Rondfia Stat Decre 37of June 14, 1988 and State Law N 52 Cotimuous enfiorement of zoning byof Dcember 20, 1991. State Forest PolLcAYERON.

Yearly independen rview ofcompfiane wih zoning, wth resubavilable to Bank by Jue 30 each yea.

2. Weak capobility at St Creation of State of a Land Ititute to Development of land legibltion and No nw s_lments, or ttling of land inlevel withb repect to development and develop land policy, ovemee the eglons toegher with INCRA ase that do not ha sutinbleenforcent of land poliy and contA evohltio and enfobemem ofagro- (eent presend at negotiations) deveopment potal as identified byof al occation. ecological zoning by Law 203 of to ensur that ell land activities in oning. To be monitorod continualy.Jun 20, 1938, MIRAD Reglation the Stae are consiste with agro-NO 069 of June 29, 19U derminivg ecological zoning.M D/INCRA complim wbh

Decree 4147 of Apuil 21, 1989 onFublic Lands, Stat Decree 4246 ofuly 7, 1989 on Land Temur.

3. Govemanent investments, Fne-year investment pagmra for Sate Fedeal and State investme progams Yeary satellit imagry monioringparclaly roads, attracting settlers to rvised to be consstent with agro- for Rond6dia to be maintained statewide deforesaion, mew rads andreas wihout ssaimble development ecological zoning. Road investment con nt with land us capability, newly popultatd ateas.pot nal. only in appropte pats of Zon I and ecologcal and d State's agro-2. ecologl zomg considerations; and

mbmision by the Stats for Bank eview to,3and comment, by September30 of each 00year, of any intene update of the

__

investme progam for the fo_h oming 0year. O .

ANNEX 1Table 1. 1Page 2 of 2

jig?i Ig il I

i~~~~~~L4 1Ii I*U

o *1t S I . 3 8 -

Oft~~~~~~~

P * .i

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-53-

ANNEX 2Page I of 4

BRAZIL

ROND6NIA NATURAL RESOURCE MANAGEMENT PROJECT

Environmenta1 Conservation and Forest Management

Background

1. When POLONOROESTE started in 1981, there were no specializedinstitutions in Rond8nia (then still a Federal Territory) related to

environment or natural resource management. The progress achieved by theState over the intervening ten years has been impressive, and environment and

natural resource concerns are now being reflected in the new StateConstitution and several important laws and regulations. A State Secretariatfor the Environment (SEDAM-RO) has been established, as well as a StateForestry Institute (now also part of SEDAM-RO), a Forest Military iPolice and,more recently, a State Institute of Land (ITERON). The State Government hasalso achieved some notable successes in raising public awareness, improvingforest tax collection, controlling encroachment into Amerindian reserves andconservation units, and reducing mercury emissions in gold mining activities.

2. During this same period, to conserve critical ecosystems andbiodiversity, the Federal Government established four important conservationunits covering about 1.7 million ha. Although these areas have not been wellmaintained, because of their isolation and the efforts of the Forest MilitaryPolice there has been relatively little intrusion. These conservation unitsare not adequate, however, to ensure conservation of samples of every majorecosystem or the biodiversity of the entire state. With regard to goldmining, while miners are being encouraged to recuperate the mercury ir.stead ofreleasing it into the open by burning, the problem is still far from beingsolved. River pollution is also increasing because of the exploitation ofcassiterite. Fishing in Rond8nia directly employs some 1,600 families. About30 species are of commercial importance, but many of these are threatened byexcessive capture, fishing in closed seasons or closed areas, deforestationand river pollution. Wildlife is becoming rare in Zones 1 and 2, and the

State has thus far been able to do very little to protect or manage itswildlife resources.

3. Forestry is an important economic activity in Rond8nia, with some1,600 wood industries providing direct employment to about 50,000 workers.The installed capacity of these industries is estimated at 5 million m3/year,but efficiency is very low. Forest exploitation is selective, and, untilrecently, was based essentially on only two high-value species (mahogany andcereleira). Currently around 50 species are being utilized, which constitutesan important step towards the rationalization of forest exploitation and thepossibility of making its management more profitable. Although forestexploitation is theoretically carried out under contract with IBAKA and/orSEDAM-RO, in practice there is little effective control and management plansare not being regularly applied. There is virtually no reforestation orresource reposition, other than through natural regeneration.

-54- !

ANNX 2Page 2 of 4

4. Natural rubber is exported from the State almost withouttransformation (production of about 10,600 MT/year as of 1985). Some othernon-wood forest products (e.g., Brazil nuts) are also exported. For some timescientists have claimed that sustained exploitation of the non-wood productsof natural humid tropical forests could provide a comparatively highereconomic return to the local population than either logging or traditionalagricultural and ranching activities, aid this concept is now also beingaccepted by important sectors of organized local groups. As a consequence,Brazil has developed the legal framework for extractive reserves; the firsttwo were established in Acre and a third (Rio Preto/Rio Jacund&) wasestablished in Rond8nia in 1989.

Subcomponent Objectives and Scove

S. The environmental conservation and forest management activities ofthe project would be a logical follow-up to previous Bank involvement inRondOnia, and would complement other project components. Activities would bedevelcped mainly in Zones 4, 5 and 6, which are currently covered by naturalforests and which should remain that way, given their soil characteristics andgeneral ecological fragility. The component would: (a) guarantee theconservation of the natural ecosystems and biodiversity of the State throughthe establishment and development of an integrated system of Federal, Stateand municipal conservation units; (b) help reduce the levels of waterpollution by mining and industry; (c) test the feasibility of sustainableoptions for the economic utilization of natural forests; (d) conservefisheries and wildlife resources; and (e) strengthen the State's institutionalcapacity to plan, execute and evaluate environmental and natural resourcemanagement activities.

6. The specific subcomponents would include:" (a) Conservation Unitasestablishment and implementation of 13 State and Municipal Conservation Unitscovering about 1,133,000 ha and rehabilitation of four existing FederalConservation Units covering 1,633,000 ha (Table 2.2); (b) EnyirornmentalProtection: (i) strengthening the border enforcement of all ConservationUnits, Forest and Extractive Reserves, and Amerindian Reserves in Rond8nial(ii) water pollution monitoring, iricluding the construction and operation of awater quality control laboratory; (iii) registration, licensing and control ofkey polluting activities; and (iv) promotion and aupervision of fishingactivities and wildlife conservation; (c) Extractive Reserves: establishmentand implementation of 6 Extractive Reserves covering 3,400,000 ha, includingthe development of one pilot project (Table 2.3); (d) Forest Management:(i) establishment and protection of eight State Forests covering 1,826,000 ha,and the development of a pilot scheme to test the feasibility of sustainableoperations in the So Domingos State Forest; (ii) consolidation of twoexisting National Forests covering 505,000 ha; (iii) protection anddevelopment of 23 Block Reserves in settlement areas and development of apilot project in the Machadinho Block Reserve (Table 2.3); (lv) promotion andsupervision of forest activities; and (v) a study of the long-term supply ofwood in Zones 1 and 2, and preparation of a medium- and long-term State Forest

1/ The suboomponent for Support to Amerindian communiies in discussed separately in Annex S.

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ANNEX 2Page 3 of 4

Development Plan; (e) Trainina and Dissemination of Public Informations (i) 12short courses in environmental protection; (ii) establishment of a forestryspecialization at the Ji-Paran& Technical School of Agriculture; (iii) twointensive courses for university-trained staff in Forest and Conservation UnitManagement and Agro-Forestry; (iv) six Master of Science fellowships and sixinternships; and (v) environmental education and social awareness campaigns.Because of its innovative nature, the planned establishment of extractivereserves for non-wood products is discussed in more detail below.

7. Sustainable Forest Management of Non-Wood Products (ExtractiveReserves. ITERON would demarcate the reserves and extend use rights to theapproximately 2,400 families of extractivists and riverine inhabitants ofthese areas. Each reserve would have the physical facilities and staff forland registration and technical assistance activities and the operation ofseedling nurseries for species enrichment.

8. Several species of plants and trees do have demand in the local,regional, national and, occasionally, international markets. Around 30products are being collected for commercial sale, including rubber latex,fruits for food and colorants, petioles and stems for fiber, barks fwrtanning, seeds for oil, roots for poisons, resin for medicine, etc. Eachrubber tapper currently obtains between 2,000 and 4,000 kg of rubber per year,working on 300 to 500 ha. For exploitation of rubber trees alone, theextractive reserves could support twice the number of families living in thearea. Clearly, improved input supply, processing and marketing would furtherenhance the prc..itability of operations. In addition, extractivists maymanage fisheries resources in their areas. In the medium term, otheropportunities would be considered among the many that exist (orchids,ornamental plants, medicinal plants, insects for museums and collectors,etc.).

9. One of the six extractive reserves would be developed as a pilotproject. In addition to the infrastructure and staff needed for all thereserves, this one would have a special research program in the areas ofsustainable production (regeneration, forest inventories, new species ofcommercial interest, models for management and extraction), ecology(ecological impact of operations), social conditions (load capacity, educationand health care needs), and economic issues (markets and prices, processing,credit alternatives). Extractive workers would be organized by SEDAM-RO andNGOs into associations for production, processing and marketing of theirproducts. Partial studies already exist for the development of this pilotproject.

Benefits

10. Several of the environmental components are difficult to value ineconomic terms and/or do not result in moretary flows that can be directlytapped. For example, the strict protection of almost 2.8 million ha oftropical forests, located mostly in the upper and mid-watersheds of the State,is clearly essential for the current and future supply of water for energy andfor industry, as well as for urban consumption. The Conservation Units wouldensure the grality and regularity of water flows. They would not, however,

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Page 4 of 4

generate revenues directly, unless one were to apply a percentage of the urbanwater or energy tariff to the volume of water produced yearly in the protectedarea. Conservation units would also produce other goods and benefits, such asgenetic resources for agriculture and forestry, scientific information, soilconservation, recycling of atmospheric gases affecting global climate,biomedical resources and other phytochemicals, opportunities for tourismdevelopment and recreational activities, etc. Finally, the valuation ofConservation Units wnuld involve ethical considerations concerning therelative importance which should be assigned to the conservation of samples ofthe unique natural heritage of Brazil.

11. For extractive reserves, valuation is also difficult due to thelack of information and experience. In 1980, the officially recorded value ofnon-wood vegetable products from the States of Acre, Rond8nia and Amapa,totalled US$48 million. These statistics capture only part of the productionof a few goods exported to other regions or countries (mainly rubber andBrazil nuts), since most of the present extractive production is consumedlocally. A valuation?/ of an extractive area near Iquitos, Peru, showedyearly fruit production of US$650/ha and annual rubber yields of aboutUS$50/ha. After deducting costs associated with collection and transport, netannual revenues were about US$422. The authors estimated the net presentvalue at US$6,330/ha over a 15-year period. Of course, such results would notbe applicable to the entire 3.5 million ha of extractive reserves to beestablished in Rond8nia, but they are indicative of the potentially higheconomic profitability of the extractive reserves.

12. The component would benefit directly the following segments of thepopulation of Rondonia; (a) 2,400 families of extractivists, currently livingin poor and insecure conditions; (b) 900 families engaged in fishing as a mainsource of income, on which they make their living; and (c) 5,000 - 6,000Amerindians, whose lands would be better protected from encroachment becauseof the conservation units, national and state forests and extractive reserves,which would act as buffer zones for the Amerindian reserves.

13. More generally, the entire population of the State would benefitdirectly or indirectlv from a significant improvement of the quality of life,inctud!.ng the assurance of a future supply of clean water, forest goods andservices, clean air, adequate fish and wildlife, sites appropriate forrecreation, sports and tourism development. The rich biodiversity of theState and its very important genetic resources would also be preserved.

ai Peters, C.M., A.H. Gentry and R.O. Mendelsohn, 1989. Valuation of an Amazonian Rainforest. Nature 339:655-656 (1989).

BRAZIL

OOIA NAIU?AL OSSOURCE MANACEMET PROJECT

LUNSAT Surveys of Forest Clearin2-In the Brattllan ALsion

- -. _ _ _ _ _ _ _ _ - - _ _ _ _ _ - -

Poreont of Stat. or TerrItoryArea Cleared (l*2) Clase) led as Clear

State or Area of State or --Territory Torrltory (K2) By 1976 By 1979 By 1ow By 1983 By 1976 By 1978 or 98 By 198

Amapa 146,278 162.3 1".$ 193.7 571.3 O.i .1 e.1 6.4Para 1,240,642 9,654.0 22,446.3 33,913., 120,6".6 O.? 0.8 2.7 9.6Rereles 230,104 65.6 14368 278.1 8,276.9 O.t 6.1 0.1 1.4Maranhao 267,461 2,940.8 7,334.0 10,871.1 60,679.6 1.1 2.8 4.1 19.7Coles 286,793 3,667.8 10,283.6 11,469.6 38,126.6 1.2 3.6 4.9 11.6Acre 162,680 1,165.6 2,484.6 4,828.8 19,569.0 e.g 1.e a.e 12.8

Rondonla 243,044 1,210.6 4,184.5 7,579.3 68,08 0 6.3 1.7 8.1 23.7Mate reaoses 98l,01 10,124.8 28,355.0 53,299.3 209,66.9 1.1 3.2 0.1 23.8Amazonas 1,567,126 779.6 1,706.6 3,192.2 lim,790.0 0.1 0.1 0.2 6.8

Logal Amaon 6,696,426 2",69S.8 77,171.8 126,17.9 69",021.6 6.6 1.6 2.S 12.60

Souwres Farnldo (I986) afd8 I0 ettimates

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Table 2.2

ROND8NHA ATURALRSOU MANAEMENT PROJECT

PaderAl. Statt and MUniginlR Conservation Units

UNIT MUNICIPALITIES PERIMETER (km) AREA (ha)

A.FEDERAL CONSERVATION UNITS )j 1.632.725national ParkePacaas Novoe Guajar&-Mirim 515 664,575

BLoloical RteervegGuapor6 Costa Marques and

Alta Floresta 410 600,000

Jaru Ji-Parana 245 268,150

Ecological Stationcunia Porto Velho 185 100,000

B. STATE CONSERVATION UNXTS 1.132.500Stat2 ParkyGuajarL-Mirim 2.1 Guajar&-Mirim 310 220,000Serra dos Parecis L Alta Floresta 70 28,000Candeias 2J Porto Velho 40 16,000Serra doe Reis 1/ Costa Marques 70 8,000Rio Corumb,ara 2/ Cerejeira 500 62,600

State Hiolo2ical ReservesOuro Preto Guajar4-Mirim 160 76,000Tracadal Guajar&-Mirim 50 22,500

State Ecolocaical ReserveSerra TrOe Irm5os 2/ Porto Velho 181 13,600

C. MUNICIPAL CONSERVATION UNITS4uniciioal Nature Pak s 600 - 2,400

Porto Velho Porto Velho 400Colorado d'Oeste ColoradoRolim de Moura Rolim de MouraVilhena VilhonaJi-Parana Ji-Paran&

/ Federal Conservation Units already created and implanted. Only the Cuni& unithas not yet been formally established.

3] State conservation units which have been created and will be demarcated duringthe first year of the project

3] To be established by September 30, 1993.gJ Only the Porto Velho Municipal Nature Park has been defined. The others will

cover from 50 to 500 hectares.

-59-

Table 2.3

RONDO9NA -NTUR --RE.SOQRCE MANAGENENT PROJECT

Natlonal and State Forests and Extractive Reserves

LOCATION MUNICIPALITIES SIZE (ha)

NATIONAL FOREST J/ SOAOOO

Jamari Porto Velho 225,000Bom Futuro Porto Velho 280,000

STATE FORESTS (FOR SUSTAINED YIELD) 1,826.000

Rio 81o Domingos 2/ Sao Miguel do Guapor6and Costa Marques 285,000

Rio Guapor& 3/ Costa Marques 283,000Rio Mequens 3/ Alta Floresta d'Oeste 435,000

and CerejeirasRio Roosevelt 2/ Espigbo d'Oeste 59,000Rio Machado 3/ Ji-Parana 217,000Rio Madeira 2/ Porto Velho 224,000Rio Vermelho 3/ Porto Velho 234,000Rio Abufia 2/ Porto Velho 89,000

BLOCK RESERVES A/ 104,703

Urupa Settlement Project Ouro Preto d'Oeste 21,557(two areas)

Machadinho Settlement Project Ariquemes and Jaru 68,448(17 area.)

Cujubim Settlement Project Ariquemes 14,698(four areas)

EXTRACTIVE RESERVES 3.382.00Q

Rio Pacaas NovoB and Rio Novo 380,000Rio Cautario / 198,000Rio S&o Miguel/Pedras Negras 3/ 198,000Rio Jacy Paran&/Mutum Paran& J/ 1,493,000Rio Preto/Jacund& 2.1 1,038,000

J1/ Created, one settled and demarcated.2/ Created and to be demarcated during first year of the project._/ To be established by September 30, 1993.4/ Created and demarcated, not implanted.

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ANNX 3Page 1 of 4

BRAZIL

ROND8NIA NATURAL RESOURCE MANAQEMENT PROJECT

Valuation of Forest Destruction in Rond8nial

1. An exact estimate of the cost of the destruction of Rond8nia'snatural rain forest is not possible. An exercise has been carried out whichattempts to derive a minimum value and then to demonstrate that even thatminimum value is still clearly so high that substantial expenditures forforest conservation would be economically justifiable.

Assumptions

2. Items Included and Excluded in Valuation. The only value which isspecifically taken into account is the value of the trees which are lostthrough "rational highgrading", a process whereby only the most commerciallyvaluable trees are removed from the forest. Due to the large number of treespecies in the Amazon, distances between trees of the same species are usuallygreat. The deliberate removal of a few particular species, therefore, makesit difficult for them to regenerate naturally.

3. This valuation does not include any of the values of: (a) theremaining wood in the highgraded forest; (b) the long-term potential for woodproduction through sustainable timber management; (c) the soils saved thatcould, in future, support plantation forests or other forms of permanentagriculture; (d) the other extractive products (e.g., fruita, nuts, game,etc.) lost when forests are destroyed; (e) the reduction of downstreamsiltation and its impact on fisheries and on flooding of developed land;(f) the maintenance of biological diversity; or (g) possible reductions inglobal climate change.

4. Rate of Deforestation. There is considerable debate as to theactual rate of deforestation in Rond8nia, which complicates the task ofcalculating the value of the losses. World Bank estimatas (Annex 2,Table 2.1) suggest that the average annual rate over the past five years hasbeen about 887,000 ha. A study by the Brazilian Institute of ForestryDevelopment (IBDF), based on satellite records of actual fires, indicates thatthe figure may be even higher. The study estimates that 18.7% of Rond8nia's24.3 million ha burned in 1987 and that 40% of this area, or about 1.8 millionha, was natural forest. For the purpose of this analysis, however, a veryconservative deforestation rate of only 500,000 ha p.a. is used.

i/ Based on working paper by Mr. Richard B. Norgaard (consultant), "TheValuation of Environmental Policy Benefits", October 1988.

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ANEX 3Page 2 of 4

5. Present Extent of Deforestation. There is also considerabledisagreement as to the extent of deforestation which has already taken placein Rond8nia. The World Bank estimate indicates that 24% of the State'sforested areas had been cleared by 1988, while many in Rond8nia place thefigure at between 16% and 20%. The problem stems from the fact that it isoften difficult to distinguish old secondary growth (caDoeira) from naturalforests, and because the various sources classify already highgraded forestsand naturally unforested areas (e.g., natural pasture, marshlands, etc.)differently. Nevertheless, deforestation clearly has an upper limit. If, forexample, Rondonia were already 90% deforested, the annual rate of newdeforestation would necessarily have to decrease rapidly. For the purposes ofthis valuation, it is therefore assumed that this upper limit phenomenon isalready taking place. Thus, the volume of deforestation is assumed to bedecreasing by 50,000 ha, per year (i.e., deforestation in Year 1 would be500,000 ha; 450,000 ha in Year 2; 400,000 in Year 3; etc.).

6. Marketable Wood. One hectare of forest in Rond8nia hasapproximately 80 m3 of wood of a size suitable for milling, when all ofseveral hundred species are considered. Up to 30 r? of select woods, such asmahogany, are sometimes found in a single hectare. The market for tropicalhardwoods from Latin America is expected to develop during the coming decade,as Southeast Asian forests become depleted and the capital and technologiesused there are brought to Latin America. By way of illustration, the firmwhich logged commercial timber from the area of the Samuel hydroelectricproject in northeastern Rond8nia harvested 31 species for export to Asia, butextracted only 3 m3/ha on average because it operated under great timepressure and therefore selected only the largest trees in one pass. Given theexpected increase in tropical hardwood prices, it is reasonably conservativeto assume that 4 m3 could be highgraded the first year an area is exploited,and that an additional 2i m3 could be extracted from that same area afte a 10year interval. At an 8% discount rate, the present quantity equivalent is 5m3.

7. Stumpaae Value of Wood. Sawmills in Rondonia pay only aboutUS$10/m3 for a few select species. On the other hand, the firm with theSamuel contract (para. 6) received US$120/m3 after the trees have beenidentified, cut, hauled to the roadside, brought to the river, floated toitacoatiare (Amazonas) and loaded onto a freighter. Cutting and initialhauAing costs are reportedly about US$20/m3; river transport, US$17/m3;identification, road hauling, ship loading and administration, US$23/m3 -- ora total of US$60/m3, which leaves a stumpage value of US$60/m3. Although thisis likely to increase significantly over the cominy decade, for the purposesof this valuation a stumpage value of only US$50/m is used.

8. Existing Salvaae Levels. At this time, approximately 1.5 million m3of wood are transformed each year into lumber in Rond8nia, with most of thelogs coming from land which is going (at least temporarily) into agriculturalproduction. This suggests that those who are clearing the land are alreadysalvaging perhaps 1 m /ha, or 20% of what would be possible from "rational

-62-

ANNEX 3Page 3 of 4

highgrading". Again, to be conservative, salvage is estimated at 25% in thisanalysis.

9. Discount Rate. It is arguable that positive discount rates andsustainability are incompatible concepts. If preservation of Rond8nia'snatural rain forest is an objective, then it makes little sense to ses adiscount rate. On the other hand, if one assumes that Rond8nia could consideralternatives to preservation (i.e., theoretically the State might have theoption of marketing its timber, investing the proceeds in some industrialactivity, and competing successfully in world markets), the coets and benefitsof the various options should be discounted to obtain their net present value.For the purposes of this exercise, a discount rate of 8 is assumed.

Results

10. The value of the "highgradable" wood lost in the first year ofdeforestation would be:

500,000 ha x 5m3 x US$50/m3 x 0.75 = US$93.75 million

If the deforested acreage were reduced by 50,000 annually, and applying an 8%discount rate to each year's value, the net Dresent value of the wood lostthrough deforestation in Rond8nia over a ten-year period would be about USS417million.

InterRretation

11. The above estimate is very conservative in all respects. Yet it iscertainly high enough to justify spending considerably more cn environmentalpolicy changes and forest protection, as well as on additional efforts todevelop sustainable economic opportunities in the already deforested areas ofgood soils in Rond8nia (as well as in Southern Brazil and elsewhere in thecountry), in order . keep settlers from clearing trees from land which isinappropriate for agriculture.

12. At the same time, the above estimate is so conservative that it isalso appropriate to ponder how low it might really be. The multipliers in thetable on the next page, which are each associated with specific factors, couldbe applied to increase the valuation results. Whether or not one would applyall of the multipliers together, or leave several of them at the lower levelsused ia this valuation, would be a matter of judgment, depending on thecircumstances prevailing at any given time.

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ANNEX 3Page 4 of 4

Multipliers for Adiustina the ConservativeEstimate to Different Assumptions

Factors Adiustment MultiplierModerate

1. Both the rate of deforestation (para. 4) and thedecline in the rate used (para. 5) are so lowthat only an additional 2.5 million ha, or 10%of the State, are presumed to be deforested infuture, whereas approximately 75%-80% of theState is stIll forested. The followingadjustments might be considered:

(a) Let the ini"ial rate be 1.5 million ha p.a.,and let the annual decline rate equal100,000 ha, resulting in an additional7.5 million of deforestation. 4

Or, alternatively:

(b) Let the initial rate be 1.0 million hap.a., for 15 years, resulting in anadditional 15 million ha of deforestation. 8

2. If no discount factor were used. 1.5 2

3. New technologies could result in an increasein the number of species harvested and, hence,in cubic meters of extraction per hectare. 2 5

4. A doubling (reasonable) or tripling (high) ofmarket prices would increase the stumpage valuemore than proportionately, since it is aresidual. 2.5 5

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ANNEX 4Page 1 of 2

BRAZ IL

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

Forest Fallow Management Proaram

1. The following discussion focuses on the innovative fallowenrichment program which would be implemented under the agro-forestrydevelopment component of the project.

2. The main objectives of the program would be to recuperate the vastarea currently under fallow I/ in Zones 1 and 2, through a productiveexploitation system; provide farmers with an effective and practical optionfor diversification; redace the pressure on forest clearing; and train farmersin better soil and fallow management. The fallow enrichment program wouldcomprise two basic lines of action: (a) enrichment of forest fallow with' soilimproving crops in order to reduce the fallow period, maintain/recuperate soilfertility and facilitate land preparation for replanting in fallow area; and(b) planting of trees In the fallow area for timber and for soil recuperation.

3. The total forest fallow area of Zones 1 and 2 is about 2.5 millionha (approximately equal to more than half the area of the Netherlands).SEDAM-RO is already carrying out limited fallow enrichment activities in somemunicipalities, on the basis of persuasion and without any credit financing.Under the project, SEDAM-Ru would train about 230 EMATER-RO extensionists infallow enrichment techniques. Together with about 50 SEDAM-RO agents, theseextensionists would eventually handle some 600 ha each. Currently someenterprises are interested in, or are already planting, tree plantations,mostly with bandarra for plywood, but also with cedro and other species. Manysmall farmers also plant or interplant their principal crops with freiiobecause it is suitable for honey production, which can be quite remunerative.It is expected that, due to the project, the fallow enrichment program woulde:zpand at a yearly rate of about 150-200,000 ha, over a 10-15 year period.

4. Improved management and enrichment of fallow would help incontrolling regrowth after harvesting. It would be achieved by: (a) fosteringthe use of leguminous cover crops which recuperate fertility and achievefallow clearance without burning; and (b) planting tree species whichrecuperate soil fertility, produce organic material and suppress unwantedsecondary growth. Cover crops now in use include Pueraria, Desmodium,Canavallia in most soils and Glericidium and Leucaena in good soils. Project-financed research would support further testing of other tree crops such asInoa (common in the project area and planted before harvest in cutting and incutting and in hedges after harvest) and arbustive legume crops for fertilityrecuperation and mulching, such as Theophosia and Flemingia.

./ Fallow is defined as the total area left unused after deforestation andannual cropping, as well as pasture which has been abandoned due tomismanagement.

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ANNEX 4Page 2 of 2

The tree species to be planted for timber and soil fertilityrecuperation include:

Local Name Scientific Name Primary Use

Cerejeira (Torresia) timberMogno (Sivietania) high-quality timber (mahogany)Cedro (Cedrela) timberFreijo (Cordia) timber, honey productionBandarra (Schizolobium) plywoodCaroba (Jacaranda) timberIpes (Tabebuya) mainly fence postsCastanha (Bertholetta) timber and nuts

6. By use of appropriate fallow management and enrichment techniques(i.e., proper cLopping mix, soil enriching shadow trees, and properinterplanting of shadow and timber trees), it would be less expensive for thefarmers to clear forest fallow land than to clear natural forest, while stillmaintaining good soil fertility. Additional incentives to the small farmer touse fallow rather than natural forest land would include the possibility ofpreparing the land for animal traction, which is very important for the smallfarmer, and the timely interplanting of trees and planting of hedges formulching. Lack of adequate technical assistance and credit have prevented thedissemination of these practices, which could improve crop yields and aresustainable over time (in contrast to deforestation of new land, where soilfertility decreases after only a few years).

7. The costs and revenues from fallow enrichment are detailed in Table4.1. The estimated financial internal rate of return for the average proxycrop would be about 35%. For moono (mahogany) the rate of return would bemuch higher. The calculations are based on the field experience of SEDAN-RO'sforestry technicians. Even if costs were 50% higher and yields 22% lower, thefinancial IRR would remain at 12%.

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ANNEX 4Table 4.1Page 1 of 2

BRAZIL

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

Rate of Return Calculations of Fallow Enrichment

I. COST ESTIMATES 1/Y ESA R S

Unit 1 2 3 4 1Sj2/ 16

Opening penetration paths lbd 1 - - - -

Preparation of plantingmaterial 3/ n 1 - _ _ Planting, including holing " 2 - - - - -

Maintenance control paths " 6 6 4 2 - -

Pruning - 1 1 1 - -

Replanting - 1 - - - -

Control pests & diseases n 1 - - - - -

Felling/cutting 4/ n _ _ _ 10 10Transport to farmgate n _ _ - 6 6Unforeseen 1 1 - - - -

Total labor days lbd 12 9 5 3 16 16Total labor costs US$ 36 27 15 9 48 48

Costs of planting bags 5/ US$ 8 - - - - -Costs of chemicalsmaterials equipment(a) planting n 30 10 - - - _(b) harvesting £/ n - - - - 600 450Costs of hired services V/ " - - - - 500 500

TOTAL COSTS US$ 74 37 15 9 1148 998

1/ Costs based on an average population of 100/ha.2/ Harvest estimated to start after 15 years and carried out in two years.3/ To be carried out on-farm by farmer.4/ Prepared as logs for transport by truck._/ Polybags.6/ Chainsaws, chains, axes, etc.7/ Hired tractor costs or animal traction for hauling of logs to farmgate.

The labor day costs are estimated at US$3/day, being mostly family labor.

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ANNEX 4Table 4. 1Page 2 of 2

II. REVENUES

The underlying data for revenue calculation are given belows

Period Required for Production: Prices/m3/NCz6Optimal Earliest After 15 years Farm City City

Production Production p/tree p/ha Gate Gross Net 21Species Years Years m3 o3

Cerejeira 20-30 15 2.02 140 40-60 240 200Mogno 25-35 15 2.02 140 40-60 550 500Cedro 25-35 15 2.02 140 40-60 240 200Freijo 15-25 10 2.90 290 40-60 240 200Bandarra 15-25 15 4.40 440 20 80 40Caroba 15-25 15 4.40 440 20 80 40Ipes 1/ 30-35 15 5 1000 1.5 _ -

posts posts posts

I/ For fence posts in posts/tree.2/ The price to the farmer if he organizes his own transport to the city

estimated at US$50/m3.

The revenues will differ for each species. For broad calculations, it isassumed that the revenues will be US$200/m3 for a harvest of 140 m3., andreceived as NCr$14,000.- in Years 15 and 16. The conversion in US$ is made ata rate of 2.65 NCr$l./USS, the existing rate at appraisal, as are the saleprices as of August 189.

III. RATE OF RETURN

N P VYEAR EXPENSES REVENUES BhANCE AT 35%

USS

1 74 - -743 -S52 31 - -37 -203 15 - -15 -6

4 9 - -9 -25-14 5 - 0

15 1,148 5,280 -4,312 +4616 998 5,280 +4,282 +35

TOTAL 2,281 10,560 - -2

The IRR is 35.29%. Its timber prices or yields would crop 22% or costs wouldrise by 50% the IRR would be 12%.

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ANl¢X 5Page 1 of 3

BRAZIL

ROND8NIA NATURAL RESOURCE MANAGEMENT PROJECT

Support to Amerindian Communities

Background

1. The indigenous population of Rond8nia and adjacent Amazonian statesis highly vulnerable in the face of the expansion of the Brazilian frontier.Organized on a tribal basis, and with no centralized political institutions,they subsist by slash-and-burn cultivation, hunting, fishing and gathering.Many were contacted only very recently, and some have yet to enter intopermanent contact. A majority of the Amerindians of Rond8nia speak little orno Portuguese, possess neither literacy nor numeracy, and have very littlefamiliarity with official Brazilian institutions. In addition, they are athigh risk to introduced disease, especially influenza, the common cold,measles, tuberculosis and malaria. Although some Amerindians have ties to theregional economy as rubber tappers, or through the sale of handicrafts, ingeneral their social, economic and medical traditions do not prepare them forclose interaction with Brazilian society.

2. As a result of earlier special projects, in particularPOLONOROESTE, 12 Amerindian reservations covering a total of 4.5 million hahave been demarcated in Rondonia (including three which straddle the borderwith Mato Grosso, but are administered from Rondonia), equal to 92% of thetotal area which the National Indian Foundation (FUNAI) has identified asbeing Amerindian land (Table 5.1). In terms of population, about 90% of theknown Amerindian population of the State lives in these reservations. Most ofthe Amerindian reservations have administrative posts, health posts,residences for PUNA! employees, vehicles, boats and farm implements acquiredthrough the special project funding.

3. Despite the rapid occupation of Rondonia, FUNAI has also identifiedseveral Indian groups which have not yet been officially contacted or maintainonly sporadic contact. The FUNAI unit for uncontacted Amerindians hasevidence concerning 14 such groups, although there may be more (Table 5.2).

4. Over the past two decades, the most serious problem for theAmerindian population of Rond8nia has been the speed with which the State hasbeen occupied or invaded by settlers. FUNAI has constitutional and statutoryresponsibility for Indian affairs in Brazil. Although FUNAI has many highlydedicated staff, as a whole the agency has not been effective in dealing withthe threats to land security and health in the Amerindian areas. FUNAI'sbudget has been reduced in real terms and it has undergone many changes inleadership. Nonetheless, the agency traditionally resisted acceptingassistance from other government entities and was reluctant to implement itsown 1986 decentralization plan, which delegated more authority to the regionallevel.

!-69-

ANNEX SPage 2 of 3

Support to Amerindian Communities Subcomponent

5. In a major departure from past positions, FUNAI has agreed to

cooperate with and accept assistance from other agencies, and the Brazilian

Government has requested Bank financing for a special Amerindian subcomponent

under the proposed RondOnia Natural Resource Management Project. FUNAI's

Second Regional Superintendence (SUER), based in Cuiab&, was given the task of

designing the proposal for the subcomponent.

6. The objective of the Amerindian subcomponent would be to helpprotect the indigenous population of Rond8nia from the effects of rapid

migration to the State. It would be carried out by FUNAI, the State of

Rond8nia and other agencies, and would include four broad categories of

activities: (a) demarcation of Amerindian lands and renewal of sections of the

boundaries of some existing reservatior.s; (b) support for special FUNAI teams

seeking to locate and identify isolated Amerindian groups in the State; (c)upgrading of the protection of Amerindian areas; and (d) improvements in the

health programs serving the Amerindian population.

7. Since FUNAI's SUER is headquartered more than 1,200 kms away in

Cuiaba, a small management team would be based in Porto Velho to administer

the subcomponent. The team would consist of a specialist in indigenous

affairs from the UNDP Technical Assistance Program, two indigenists seconded

by FUNAI, and two specialists from the State of Rondonia, supported by

specialized consultants as necessary. The management team would travel

extensively and engage in a dialogue with the Amerindians in each community,in order to form a plan for development and improvement which reflects the

long-term interests and concerns of the community. The team would play a

catalytic role, mobilizing and coordinating the resources of FUNAI and other

agencies to assist the Amerindian communities; the specific tasks may exceed

the scope of this project, with financing secured from other sources.

8. Demar, tion. Most of the Amerindian areas in Rond8nia have already

been legally deiaarcated, although some of these are still awaiting

registration with the appropriate local land registry and the Federal Property

Registry (Servigo do Patrim8nio da Uni&o. SPU). Highest priority would be

given to the demarcation of four areas which have been identified and are

awaiting further action (Table 5.1). The project would also provide for the

demarcation of up to five additional areas inhabited by uncontactedAmerindians who have yet to be formally identified by FUNAI (para. 9).

Finally, where it is necessary to clarify the location of some boundaries

which have already been demarcated, to eliminate any pretext for invasion of

the reseivations, topographic markers wold be located and forest cleared to a

width of six meters. Bamboo or other perennial species would be planted in

these swaths to prevent forest regrowth from obliterating them.

9. Uncontacted Indians. Two additional FUNAI teams would be

established to work on contacting the remaining, isolated Amerindian groups in

Rond8nia. After locating the groups, the teamz would endeavor to provide

basic eervices for their protection (mainly vaccination, other medical care

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ANNEX 5Page 3 of 3

and determination of territorial limits). It is expected that, for up to foursuch Amerindian areas, the full process of identification, delimitation,anthropological survey, presentation to the Interministerial Group (GTI94.945/87) and demarcation would be completed.

10. Monitoring and Protection. Most of the Amerindian areas of theState have been subject to invasion and illegal poaching, in varying degrees.As part of the agro-ecological zoning of the State, the Amerindian reserveswould be integrated into a unified system of protection which also includesnational, State and municipal parks, biological reserves and ecologicalstations, national and State forests and forest block reserves, and extractivereserves. In this context, the State of Rond8nia and the National Institutefor the Environment and Renewable Natural Resources (IBAMA) have signed anagreement with FUNAI to exchange information and coordinate their monitoringand enforcement activities. For the first time, the State Forest MilitaryPolice would be authorized to police Amerindian areas, to suppress illegalactivities and apprehend timber poachers, and resources would be providedunder the project to support them in this work. FUNAI would also receiveassistance, including construction of advance guard posts in high risk areason the reservations, and the establishment of mobile monitoring teams.Finally, under the education subcomponent of the project (para. 3.35 of themain text), information would be prepared and disseminated on indigenouslegislation and the protection of Amerindian reservations.

11. Health Services. Health conditions in many Amerindian areas havedeteriorated due to increased exposure to disease vectors and theineffectiveness of FUNAI health services. FUNAI'a regional health facilitieshave been strained to the limits by Indians seeking treatment for diseaseswhich could have been treated more effectively in their villages; medicalrecord-keeping and control over supplies is poor; and many FUNAI staff havebeen unable to go to the field for lack of vehicles and budget.

12. To remedy this situation, the project would support activities to:(a) strengthen FUNAI's regional mobile health teams (EVS); (b) construct andoperate four specialized infirmaries annexed to the existing State hospitalsto provide acute care for Amerindian patients; and (c) support for medicalconsultations and tests on a referral basis by the EVS, and medical suppliesneeded by or for use in the residential facility (casa do £ndio) for extendedambulatory care. Finally, a specialized consulting team with experience inindigenous medicine w"uld design and supervise the implementation of astreamlined health system in the Amerindian reservations in Rond8nia,including a computerized medical record system and a standardized pharmacywith effective control over medications and other supplies.

BRAZIL

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

Indigenous Areas Alreadv Demarcated andIdentified for Demarcation in Rondbnia

INDIGENOUS AREAS IM RONDONIA, ALREADY DENARCATED

INDIGENOUS AREA ETHNIC GROUP PoP LAND AREA fPlR nL DEL GRP OMC HXL CRI SPU

ARIPUAKA(PARQUE INDIG.)' CINTA LARGA 104 938200 800 99 78 0 85 89 87 87IGARAPE LAGE PAKAA-NOVA(ORO-UAR1) 252 107321 152 76 99 99 77 99 99 81IGARAPE LOURDES GAVIAO, ARARAS 450 185534 271 76 99 99 77 85 85 99IGARAPE RIBEIRAO PAKAA NOVA(ORO-UAR1) 110 47863 96 76 99 99 77 99 0 81KARITIANA KARITIANA 129 89862 125 79 86 84 80 86 0 0PACAA NOVAS PAKAA-NOVA(ORO-UARI) 491 279906 304 75 99 84 76 91 0 0RIO BRANCO KACURAP,TUPARI,ARUA, 206 236147 200 82 82 86 84 86 0 0RIO NEGRO-OCAIA PAKAA NOVACORO-UARI) 272 1040M 181 75 99 99 76 81 99 81ROOSEVELT' CINTA LARGA, SURIJI 288 230826 322 75 74 99 86 0 0 0SETE DE SETENBRO1 SURUI 395 247870 205 76 99 99 85 85 85 85TUBARAO LATUNDE NAMBIKUARA/AIKANA 153 116613 177 82 82 85 84 91 0 0URUEU-YAU-UAU URUEU-WAU-UAU 700 1867117 865 0 0 a 86 91 0 0

TOTALS 3550 4451323 3698

INDIGENOUS AREAS IN RONDONIA TO BE DEMARCATED UNDER PLANAFLORO

INDIGENMouS AREA ETHNIC GROUP POP LAND AREA PER IDD DEL GMP DMC HML jRI jP_U

KARIPUNA (PANORAMA) KARIPUNA 20 195000 200 77 0 0 0 0 0 0RIO GUAPORE PABOTI,NACURAP,CANOE 238 128196 215 86 0 85 0 0 0 0RIO NEWUENS MAKURAP, SAKIRABI 51 105250 135 85 85 86 0 0 0 0SAGARANA PAKAA NOVA 135 8400 42 85 0 0 0 0 0 0

TOTALS 444 436846 592

Area straddles border between Rondonia and Hato Grosso.

CODES: POP=population; PMR=permfmeter; IDD=identif ed; DEL=delimited; GRP=Interministerial Group Approval;DMC=demarcated; H1L=confirmed by decree; CKI=local land registry; SPU=federal registry; 99=actioncompleted, date unknown.

I(D X

u1 J1

BRAZIL

RONDONIA NATURAL RESOURCE HANAGEMENT PRO.JECT

Indigenous Areas under Investigation forPossible Demarcation and Protection

2111DIAit ANA PDliC car0) PIP Om (U) RD ISO mm IN L SW on I. cmRI LuSS STAtIUS WCIFIC EInt

13ICIN(Cl8Cl.fO USIIV*tS03 MUDO. , , , oltedtal SedimismmN I tL(AI1061*RO l) mm -D-titng 6&ntlflcatton Isolated arpmm II (C.PNULO SAoANNAM MI.*usl tl IdmtIlQcttlm Ioltexld or"A1 III (LEf1NE11O AtDD mm -ltlg idmitd 9sic tlI soleted alaI*oAKpt CiDDEiE alUBMA(Xill.Im@e .t .. .. . .. onetwlsem a en W I :0ted

JASOSI (RSEINAL WISDIlA) JMSI- to0 -Livi-g e Al , lil-wlo gOro* aWtlad Oren eweglns lteatim

UAUIP6AM 10 F aw .Isolated uidianm. ientected

50u30 1Q10 (RIOCCQ ) MD" t7) 217. solated craw. tmcnested

NIASSAC (EWMAPA) NASS-... totated vroW. umstacted

NIlUWLIOS (410 2.11SEL. Uni - -Isolated Vsu. ucntctedPASIut1IUII ImiUtUIi. Liv1 Ih hI te Vlbeo 6ap expalted flm mrlglas l oatlen

PAAEULCNIMS -UNOW Isolated, Idaft. pigd 1991P0tO FISCAL PACWU-P Isolated tItions510 CAUDEIAS CAIIIANA. Isolotedt Irdism

RIO Maui 0619. -- t1smtected IndIosmSIRRA 00 IARAL t ..... ..... .. .. .. .. .. Uncentectd Inian

IUWI AWANe a t-- - Unc.ntected India

1U29 UAKAIIP9IAfS0S *EIN... tmtected indias

a I

BRAZIL

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

Annual Phasing of Project Costs by Component

(US $ millions)

Totals Including Contingencies lbtals Including Contingencies

US$ US$

'92 '93 '94 '95 '96 Total '92 '93 '94 '95 '96 Total

A. ENVIROIRENTAL PUtAIIGEN{T1. LAND IONING,HAPPING.ETC. 4.6 4.4 5.S 2.7 1.5 18.7 4.6 4.4 5.5 2.7 1.5 18.72. ENVIRoL. CONSERVATION 1.4 1.8 1.6 1.7 1.5 8.1 1.4 1.8 1.6 1.7 1.5 8.13. EVVIR(O. PROTECTION 4.5 2.1 2.9 2.1 2.5 14.3 4.5 2.1 2.9 2.1 2.5 14.34. FOREST KANAGEMENT 2.2 2.4 2.5 2.3 2.3 11.7 2.2 2.4 2.5 2.3 2.3 11.75 AHERIIIGIAN SUPPORT 1.7 0.6 0.5 0.5 0.6 3.9 1.7 0.6 0.5 0.5 0.6 3.96. IRAICN.,TECH.ASSY & SIUD. 2.9 2.0 1.2 1.1 1.0 8.1 2.9 2.0 1.2 l.1 1.O 8.1

SthrTotatl 17.3 13.4 14.1 10.4 9.4 ".D 17.3 13.4 14.1 10.4 9.4 64.8

S. ACRO-FORESTRY1. RESEARCH 2.9 2.9 2.5 2.2 2.2 12.7 2.9 2.9 2.5 2.2 2.2 12.72. EXTENSION 7.5 8.1 7.6 7.8 8.1 39.1 7.5 8.1 7.6 7.8 8.1 39.13. CREDIT 3.2 s.3 7.0 8.1 4.9 28.5 3.2 S.3 7.0 8.1 4.9 28.54. HARKETOG,IPUTS.SUPPLIES 0.4 0.2 0.2 0.2 0.2 1.1 0.4 0.2 0.2 0.2 0.2 ',.1

.......................................................................................

SubrTota1 14.1 16.5 17.3 18.1 15.4 81.4 14.1 16.5 17.3 18.1 15.4 81.4

C. soCIo-EcoIoNtC1. HEALTH 4.6 3.2 0.0 0.0 0.0 7.7 4.6 3.2 0.0 0.0 0.0 7.72. EDUCATION 1.8 3.2 0.0 C.0 0.0 5.0 1.8 3.2 0.0 0.0 0.0 S..03. MATER SUPPLY 1.2 0.7 0.0 0.0 0.0 1.9 1.2 0.7 0.0 0.0 0.0 1.94. TRANSPORT ACtIVITIES 14.3 13.7 17.8 7.2 3.8 56.9 14.3 13.7 17.8 7.2 3.8 56.9

................... ........................ . ....... ....... ............. .... ...... ........ ............. . ...... ....... ...............

Sti*TotaI 21.9 20.8 17.8 7.2 3.6 71.5 21.9 20.8 17.8 7.2 3.6 71.5

0. PROJECT ADH1NISTRA710N 2.6 2.8 .1.8 1.9 2.0 11.2 2.6 2.a .a8 1.9 2.0 11.2.. ................. ........................ . ...... .. .. ... ..... .. ..... ........ .. .... .... ... ... ...... ................. .

Total PIROJECTS COSTS 55.9 53.6 51.1 37.7 30.6 228.9 S5.9 53.6 S1.1 37.7 30.6 228.9

ZD 4UU2~~UUflSUS3U3U33USUUZB2EUUaEUU*~~UU85UUUflUa o

!!h. [L

RONDONIA NATURAL RLSOURgE HAUAGEMENT IPROJECT

Sumary Account b? Protect Compotent(US$ millione)

It s Q ; £ " | ^ ~~~~~~~~~~~~~~OMn "t ;e wn u ltd PI._

,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~V " _9A.*. notme co

Ft s-w " ".t e@. ew es *s eta 0415 0,.n 3ein glb.gmIaeoui agusb.

|-5"..... . . . .. . ::-. -̂ -. . . .. . . . . .. ......

S. Cioil mass 0.0 0.ss.. a i e . 4llin. I l JE S ... I .... .s g me 0u mr 19i CS ii. . 4.

IC 110 5 01 gONE, 815 016*50 8 mit kOKOSI mats a gOfti gg Bliss tameS S ~~~~~~~8.0 .5 1. G.S .1 .

5l. WOIUE NE

a. tools ~~~,a. e.s i.e i.s e.9 *.v 0.5 LI ~~~~~~.a e.g e.g e.g e.g 1.1 58.? *., 45.2 eo.e 4.1 u.s 4.0 9.9 5.a.a.C £B . 0 0 * * 6.5 . . .g 8.1a 8.4 .0. 0.?6 .0. 1.0 1.0 O*1 V.A 0.86. gg~~~..i~.*eI..Cm*e.6m 60.1 0.1 0~~~~.5 1.1 0.1 LI2 0.. .4 08 00 01 11 . . ..44 g41.e .....0.. .8 ......0. smgS £t*0Ie. e.g e.g 0.0 g.* 0.0 0.0 °.8 e.° 84.4 . 0.0 0.e 0.0 O.s 3.e aui e.e e.g us a .0

a. g..t e.g e. e. e.g g.e e. j0.,e o.e e.g o. 00 0 .0 0.0 i.e e'O i.i, 0.6 0. i.u u.et s ........ : : * *~~~~~~~~~~~~~~I t 35

sma th SIUU mnEt 14 16 . IJ? 4.1 5.4 1.4 18.6 0.3 Li 1.5 J 31.1 4.6 to 4* . e. .*s. siam.' ist

0 10.0 0. -0 8.4 0.0 0.0 0.0 0.1 8.5 51.0 8*0 8.0 6.8. 4.8a. SharI.. 0 MId~~~~~~~~~~~~~~~~~ 5.1 1.8 80 00~~~~~~':'0. 8 068 54 g11 .e . 4. .C. *,.men a s. I.... 6. . . . . . . ..0 0 8 o * . - ..O' 6.. 8.4,.. .. a.sm.ssm.T~~Costs60 . 6.8 .6 6. 6.1 .0 0.0 g.g 8.5 *. . .i 04 5.

~~ 50*351 0110 5.5 4.1~~~~~~~~~~ 1.5 1.0 1.8 3.0 VA 5. .6 0l A ..1 4.0 6.4 0.0 U.S 1.9 01.1 6.0 g.e U. a1.(mel 8*6,150131 U.? ~~~~ ~~~~~1.0 18.1 to10. 1.4 1Is a 5.6 11.1O e.g 1.8 4.18 1.1 0.5 10. MI.9 8.5 . 1. U0,

0.8 0.9 0.4 6.4 6.8~~~~~~1-1 0.8 0. 6.3 8.0 0.5 0.1 .0. . 513 65 ecIeq.i~~~~ aa~~~a.~~ 0.0 u.S 5.8 5.0 8.? 8~~~~~~~~~.9 . . 0.0 0. 6.8.09.........1..48.4......

1:1 G G , $3 ....... *.S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~bIl6:4, 1:3 ... :! ..... ~~-! ......

*~~~~~~~~~~~~~~................. t...1.... ................. ......

-75-mNNEX

Table 6.3

fiRAZIL

ROND6NIA NATURAL RESOURCE MANAGEMENT PROJECT

Estimated schedute of Dank DisbursementsCUS miLlion)

Bank Quarter Disbursement Cumulative Disbursement alatnceFiscat Year Ending During Quarter Amount Z Total of Loan

1992 March 31, 1992 -- -- --June 30, 1992 11.01/ 11.0 6.6 156.0

1993 Sept. 30, 1992 12.0 I/ 23.0 13.4 137.0Dec. 31, 1992 13.0 i/ 36.0 21.6 131.0March 31, 1993 6.0 42.0 25.1 125.0June 30, 1993 8.0 50.0 29.9 117.0

1994 Sept. 30, 1993 8.0 58.0 34.7 109.0Dec. 31, 1993 9.0 6 .0 40.1 100.0March 31, 1994 9.0 76.0 45.5 91.0June 30, 1994 11.0 87.0 52.1 80.0

1995 Sept. 30, 1994 10.0 97.0 58.1 70.0Dec. 31, 1994 9.0 106.0 63.5 61.0March 31, 1995 9.0 115.0 68.9 52.0June 30, 1995 8.0 123.0 73.7 44.0

1996 Sept. 30, 1995 8.0 131.0 78.4 36.0Dec. 31, 1995 8.0 139.0 83.2 28.0March 31, 1996 7.0 146.0 87.4 21.0June 30, 1996 7.0 153.0 91.6 14.0

1997 Sept. 30, 1996 7.0 160.0 95.8 7.0Dec. 31, 1996 7.0 167.0 100.0 0.0

1/ Including initial deposit of USS11.0 million into the Special Account.?f Including disbursements of US$15.0 miltion of retroactive financing.

-76-

ANNEX 6Table 6.4

BRAZIL

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

Financina Plan(US$ million)

Amounts to be Financed byState Federal

C OM P O N E N T IBRD Govt. Govt. Total

A. ENVIRONMENTAL MANAGEMENT 59.4 2.7 2,7 64.8

Land Regularization, Zoningand Mapping 14.8 1.9 1.9 18.7

Environmental Conservation 7.8 0.2 0.2 8.1Environmental Protection 13.9 0.2 0.2 14.3Forest Management 1/ 11.3 0.2 0.2 11.7Amerindian Support 3.7 0.1 0.1 3.9Institutional Strengthening,Technical Assistance, Studies 7.9 0.8 0.1 8.1

S. AGRO-FORESTRY 49.8 15.8 15.8 81.4

Research 6.5 3.1 3.1 12.7Extension 19.8 9.7 9.6 39.1Credit 22.7 2.9 2.9 28.5Markets, Input Supply 0.8 0.1 0.2 1.1

C. SOCIO-ECONOMIC INFRASTRUCTURE 49.5 11.0 11.0 71.5

Health 5.3 1.2 1.2 7.7Education 3.6 0.7 0.7 5.0Water Supply 1.4 0.2 0.2 1.8Transport 32.6 6.2 6.2 45.0Feeder Road Maintenance 6.6 2.6 2.7 12.0

D. PROJECT ADMINISTRATION 8.3 1.4 1.5 11.2

TOTAL 167.0 30.9 31.0 228.9 2/

j/ Including extractive reserves.2./ Includ'.-g about US$5.7 million of taxes and duties not financed by IBRD.

-77-AWryX- 6

Table 6.5

RONDONIA NATURAL RESURC, MANAGEMENT PROJECT

Allocation of Loan Proceede

TOTALCATEGORY XTEM AND % OF EXPENDITURES AMOUNT

(USS million)

I Environmental Management, inc:luding environmentalconservation, environmental protection, forestmanagement and Amerindian support100% of expenditures: 34.6

II Land Regularization, zoning and mapping80% of expenditures: 13.5

III Institutional Strengthening, Technical Asositance,Consultants and Studies100% of expenditures: 7.0

IV Agro-forestry Research6S% of expenditures up to an aggregate disbursementunder this category of US$4.5 million; 40% thereafteruntil aggregate reaches US$5.5 million; and 15%thereafter: 6.6

v Rural Extension65% of expenditures up to an aggregate disbursementunder this category of US$13.0 million; 40%

thereafter until aggregate reaches US$17.0 million;and 15% thereafter: 20.6

VI Rural Credit80% of expenditures: 21.2

VII Input Supply80% of expenditures: 0.8

VIII Health, Education and Water Supply75% of expenditures: 9.2

XX Transport75% river transport, feeder road pavement andrehabilitation expenditures: 29.565% of feeder road maintenance expenditures up toan aggregate disbursement of USS4.5 million; 40%thereafter until the aggregate reaches US$5.7million; and 15 thereafter:

X Project Administration75% of expenditures: 8.0

XI Unallocated 16.0

TOTAL ~~~~~~~~~~~~167-0

-78-

ANNEX 7Table 7.1

BRAZIL

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

List of Executing and Collaborating Agencies

Pr3ject Activity Main Executing Main CollaboratingAgency Agencies

- Land Regularization ITERON INCRA, FUNAIZoning and Mapping

- Environmental SEDAM-RO, IBAMA MunicipalitiesConservation

- Environmental SEDAM-RO, IBAMA, SEDUC

Protection Forestry Police

- Forest Management SEDAM-RO Forestry Police

-Amerindian Support FUNAI SEPLAN-Rt', ITERON,INCRA,Forest -y Police

- Training, Technical SEPLAN-RO, ITERON, SEDUC-RO, SDR-PR, UNDPAssistance and Studies

- Agro-Forestry Research CPAF/EMBRAPA, CEPLAC,SEDAM-RO

- Rural Extension EMATER-RO, SEDAM-RO,CEPLAC

- Credit BERON

- Input Supply SEAGRI

- Health SEASU

- Education SEDUC

- Transport ENARO, DER-RO

- Water Supply CAERG

- Project Administration SEPLAN-RO, SDR-RO UNDP

-79-. ANNEX Table 7.2Page 1 of 5

8RAZIL

RONDOUIA NATURAL RESOURCE MANAGEMENT PROJECT

ProLoWt Physfcel Taroets and Schedule of Imelementation

TotalProlect Comonentuts Year I _L9 2 Year 3 Year 4 Year 5 Incrementat

LAND ZONING, KUAPING & REGULARIZATIONDemarcation of Extractive Raserves ha 1,038,000 380,000 471,000 118,000 1,493,000 3,500,000

families 850 250 450 200 850 2,400

Demarcation of Forest Reserves andConservation Units km 1,589 2,541 2,228 2,128 - 8,488

Oemarcation of Amerindian Reserves km 743 96 333 252 -- 1,424

Renewal of Demarcation of AmerIndianReserves km 1,043 595 -- 1,638

Second Approximation -Agro-ecological Zoning ha 3,100,000 3,100,000 1,800,000 9,050,000 7,250,000 24,300,000

CONSERVATION UNITS(EstabLishment/Management/RehabiLitation/Protection)

State Parks Name Guajard- Serra dos Continued Maintenance FiveMirim Parecis

ha 220,000 28,000 -- -- - 902,000

Name Candeias Serra dos -- --

Reisha 16,000 8,000 --

Name RioCorumblara -- -

ha 630,000

Federal Units Name Pacaas Jaru -- -- -- FourNovos/ CunidGuapord

ha 1,260,000 370,000 -- -- 1,630,000

State BiologicaL Reserve Name Rio Ouro - -- -- TwoPreto

ha 76,000 -- -- -- - 98,000

Name Traqadal -t - --

ha 22,000

State Ecological Station Name Serra Tres -- OneIrmaos

ha 140,000 -- -- - -- 140,000

Municipal Parks Name Porto Velho Rollm de Colorado Vithena FiveMoura Ji-Parand

ENVIRONMENTAL PROTECTION(Enforcement)Routine Operations No 420 670 1,010 1,010 1,010 4,120Dire:ted Operations No 1,500 2,400 3,600 3,600 3,600 14,700Aerale Recognition NO 100 100 100 100 100 500Special Inspection 25 25 25 25 25 35 125

-80- Table 7.2Page 2 of 5

TotalProQect Components YkUitrI Year 2 Year g3 ar 4 Year S Ince_reMola

FOREST MANAGEMENT(Establishment/Protection/Managemwnt)

Pilot Operations Name S. olamingos Nachadinho TwoTotal he 285,000 68,000 353,000

Test Area (ha) (9,500) (2.500) (12,000) (12,Oc) (12,000) (57,500)

Other Forest ReservesFederal Name - Jamari -T -- -- Two

Sam Futuroha -e 505,000 -- -- -- 505,000

state Name Roosevelt Rio Gumpord - - -- Seven 1/Abuia NequensNadeira Rio Vermelho -

Machado -- - -ha 372,000 1,169,000 -- -- 1,548,000

Block Name -- Cujubim Nachadinho Urupaha -- -- (4 areas) (17 areas) (2 areas) 36,000

EXTRACTIVE RESERVES(Establishment/Management) Name Rio Preto/ Rio PaceasRios Cantario Rio Jacy

Jacundk Novas/Novo Sao Miguel Parani Sixha 1,038,000 380,000 471,000 118,000 1,493,000 3,382,000

SUPPORT TO AMERINDIAN COMMUNITIES(Demarcatiun/Protection Amerindian Name Rios Gua- - K Karipune Bahia dos -- FiveAreas) pord/Mequens Sagarana Onras

ha 220,996 *- 123,050 Est.155,000 499,048

CSpecific Complete EnforcementTours of Indian Reserves)

(In addition to other enforcementabove)AOR Cacoal No 16 16 16 16 16 80ADR GuaJard-Mirim me 28 28 28 28 28 140AOR Porto Velho Nd 20 20 20 20 20 100AOR Vilhena 20 20 20 20 20 20 100

(Contact and Assistance Person/day S00 800 800 80O 800 3,000Isolated Groups) In Field Reports 4 4 4 4 4 20

(Mobile Health TeamFleld Visits) Days/Field

AOR Cacoal Nedical Per. 800 800 800 800 800 4,000ADR Guajert-Mirim 700 700 700 700 700 3,500ADR Porto Velho a 900 900 900 900 900 4,500ADR Vilhena " 960 960 960 960 960 4,800

(Availability of SpeciaLHospital Annexes)

AOR Cacoal Patient days 900 900 V 900 900 900 4,500AOR Gusaerd-Nirim 850 850 y 850 850 850 4,250ADR Porto Velho " 820 820 g/ 820 820 820 3,100AOR " 550 550 V 550 550 550 2,750

I/ Excluding the Sao Daningos reserve listed under ptlot eperatitms.J First 2 yesrs provided by proJect. Afterwards by State.

-81- h ZANNEXTable 7.2Page 3 of 5

T3talProiect Comeonents Unit Year 1 YeaUr !Year 3 Year 4 Year 5 Increnta.

(Construction (a) and Operation (b)of Miniposts)AOR Cacoal Ca) N 1 - -

(b) Staff/post 2 2 2 2 2 2ADR GuaJar4-Mirim (a) No 1 I- - 1

(b) Staff/post 2 2 2 2 2 2ADR Porto Velbo (a) No 4 - - - 4

(b) SIdff/post 2 2 2 2 2 2ADR Vithena (a) No 1 - - - - I

(b) Staff/post 2 2 2 2 2 2Isolated Indians (a) No - 2 - - 2

(b) Team - 2 2 2 2 2

AGRO-FORESTRY ReSEARCHUEPAE-RO

New Laboratory CPV) unit 1 - - - 1FieLd Laboratories unit 1 2 1 - 4Field Offices unit 3 4 - - - 7Trials on mixed cropping system unit 5 5 4 4 4 22Trials on agro-forestry systems unit 3 3 4 4 - 14Trials on forest fallow enrichment unit 4 3 3 2 - 12Trials on crop diversification unit 5 s 6 4 1 21On-farm trials 6 4 6 6 4 26

CEPLACLaboratory unit - 1 - - - 1Field Office unit 4 2 2 - - 8Nurseries unit - 2 - - 2Trials diversification out of cocoa unit 5 3 2 10Trials on new genetic materials unit 4 5 4 4 4 21

iEFTrials on forest management unit 5 5 5 5 4 24Trials on enrichment ofextractive reserves unit 3 4 4 4 - 16

Trials on rubber tapping, collectionof germoplasm unit 2 2 3 2 - 9

Trials of foresty species unit 3 - - 3 - 6observation sites of farmers,initiatives unit 10 15 20 20 20 85

RURAL EXTENSIONE4ATER-RO

Regional offices unit 1 - - - 1Field offices unit 3 3 2 * - 8Training center unit 1 - - 1Farmers attended

new unit 5,200 7,800 10.000 10,000 10,000 43,000cwmutative unit 5,200 13,000 23,000 33.000 43,000 43,000

Ratio farmer/extensioniat 75:1 130-1 150:1 200:1 Z00:1Demons.ration plots(assisted by research) unit 5 5 5 5 5 25

-82-Tablo 7.2Page 4 of 5

TotalProlect Cmonents Year 1Year 3 Yger 4sear 5 Incrementa

CEPLACField Offices unit I - - - IFarmers attended

new unit 1,000 1.000 1.000 1,500 1,500 8,000cunulative unit 1.000 2,000 3,000 4,S00 6.000 6.000

Ratio farmer/extensionist 80:1 80:1 100:1 130:1 130:1Oemonstration plots(assisted by research) unit 5 S 5 5 S 25

IEFStaff house unit 2 2 2 1 1 8Farmars attendednew unit SOO 500 1.000 1,000 3.000cumuletive unit SOO 1,000 2,000 3,000 3.000 3,000

Ratio farmer/extensionist 50:1 50:1 50:1 75:1 75:1Oemnstration plots(assisted by research) unit 7 7 7 7 7 35

RURAL CREDITN' of farmers

new unit 4,000 6.000 7,000 8,000 8,000 33,000cumulative unit 4,000 10,000 17,000 25,000 33,000 33,000 r

CropsPerennials (other thancocoa & coffee) ha 3,500 5,900 8,800 11,000 11,500 40,400Annuals ha 120,000 103,000 87,000 71,000 59,000 120,000Fallow enrichment ha 4,800 12,000 19,200 27,000 27,000 90,000

Smalt on-farm storage unit 750 950 1,000 1,500 1,300 5,500Farmers' Association storage unit 5 10 10 10 10 45

INPUT SUPPLYNurseries (Prod. seed & seedlings) unit 1 1 - - 2

HEALTHImprovement of health units unit 3 4 - 7Staff trained unit 300 470 - - 770Supervision visits day./field 700 80 ., 1,500

EDUCATtONlmprovement classroems unit 30 SO 80Teachers traIned unit 800 1,400 - - - 2,200Supervision visits days/field 1.000 1.500 - - 2,500

WATER SUPPLYCompletion of systems unit 11 12 - - 23

ROAD AND RIVER TRANSPORTRoad eonp. studies unit 3 1 - - 4State and municipal

road rehabiLitation km 780 780 780 780 780 3,900Maintenance feeder roads km 1,000 1,000 750 750 500 2503,500Pavement state feeder roads kn 40 41 - - - 81River transport study unit I - - - - I

Small ports construction unit - 2 2 2 - 6Freight/passenger boat/dredgers unit - S 5 6 6 22

-83- ANNEX?Table 7.2page 5 of 5

TotalUrLYLE3XE5 mUni Year I Year 2 Year; 3ear 6 Year t Jncremental

ADMINISTRATION, MONITORING,EDUCATIONMonitoring (IndepondentCammittee Report) unit 1 1 1 1 1 5EvaLuation (mid-torm - ex-post) unit - - - 1 2

TECHNICAL ASSISTANCE CONSULTAMCY (a)TECHNICAL ASSISTANCE TRAINING (b)

Land Zoning, Mapping &Resutarizatfon(a) man/year 5 5 5 3 2 20(b) unit 8 10 10 5 5 38

Extractive ReservesConservation units, EnvirornentaLProtection, Forest Management(a) man/year 10 10 10 5 3 38(b) unit 15 20 25 10 5 75

Support to Amerindian Communftfes(a) man/year 5 5 4 3 3 20(b) 12 9 8 4 4 37

Agro Forestry Research(a) man/year 5 5 3 3 1 17(b) unit 8 8 7 7 4 34

Ravrt Extension(a) man/year 3 3 1 1 1 9(b) unit 10 10 8 8 2 48

Health, Education, Water Supply(a) man/yar 3 3 - - 8(b) unit 25 25 - - 50

Road an River Transport(a) Man/year 5 S 3 2 2 17(b) unit 5 5 3 2 1 16

Administration, Monitoring,EvaLuation(a) man/year 18 18 la S 3 62(b) unit 15 10 10 5 5 45

RONDONIA

RONDONIA NATURAL RESOURCE MANAGEMENT PROJECT

Proiect Organizational Chart

SDR-PR FederalNational Coordinatior - - - - - - - - - - - - - Executing

Unit Agencies

StateGovernor

D rec SPLAN- ;State RepresentationCoucilRO…--------------- Federal Executing

Agencies

State ProjectCoordination

Administration Technical Programming, Trainingand Unit Monitoring and Unit

Finance Unit Evaluation Unit

State ExecutingProject Authority Line Agencies

- - - Project Functional Line

7-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

-85-

ANNEX 8

BRAZIL

ROND6NIA NATURAL RESOURCE WiNAGEMENT PROJECT

Documents Available in Pvoitct File

A. March 1987. Technical Review by FAO/CP of the Northwest I, II and IIIAgricultural Projects.

B. November 1987. FAO Technical Assistance (TCP/8RA/6755) to thepreparation of agricultural intensification project in Rond8nia,including working papers on:

- In-kind denominated credit- Markets, Marketing and Prices for Perennial Crops- Analysis of Agricultural Production Alternatives- Rural Extension- Research- Legal Aspects related to the Northwest Programs- Land Occupation and Tenure.

C. November 1988. State of Rond8nia. Agricultural and Forestry Plan forRond8nia (Planafloro)t

- Vol. I. The Project Proposal- Vol. II. Production Models.

D. June 1989. State of Rond8nia. Final Version of the Agricultural andForestry Plan for Rond6nia (Planafloro):

- Vol. I. The Project Proposal- Vol. II. Production Models (Detailed)- Vol. III. Production Model (Aggregate)- Vole. IV and V. Detailed Investment Program by Project Component.

Workina Papers

I. Technical Proposal for the Sustainable Development of the DifferentAgro-ecological Zones in RondBnia (Jean Dubois)

II. The Valuation of Environmental Policy Benefits (Richard S.Norgaard)

III. Environmental Conservation and Forest Management (Mark Dourojeanni)IV. Amerindian Component (Daniel R. Gross)V. Agro-ecological Zoning 'John R. McKenna)

VI. Land Regularization (Jo&o Barbosa)VII. Research and Extension (Eimert Los)VIII. Rural Credit (Ernesto Velez-Koppel)IX. Road and River Transport (Victor Bellia)

MAP SECTION

pr.

-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

IBRD 2192G

/ ~~~~~~B R A Z I L

STATE OF RONDONIAK a <t AGRO-ECOLOGICAL. ZONES

AMAZO NAS NATURAL RESOURCES MANAGEMENT PROJECT

ZONE_1INTENSIVE AGRICULTURE (SOILS):

Va Lt2 0 t ^ < CGood Natural Fertility

R- 4 ~~~~~~~~~~~~~~Moderate and Low NaturAl Fertility] .... ..,..,. 0, ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Zone IBoundrieSMALL PRODUCERS IN COMMUNITIES

1l,1 ntaeoe°n^o OIVIA GOS

XTRACTIVE FOREST RESERVES

SUS-TAINABL FOREST MANAGEMENT

- SELECTED ROADS NERNINNTOA LTC ONSERATIONA OSEATEMAIN TOWNS AREAS UNITS UNITS

INTERNATIeONALI,. BOUNDARIESBOL VI

oort.rifo,y ~~~~~~~~~~~~~~~~~~~~~~~~ any~Pinnlt

.ndo,.om.rto,occ.eIono. of ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~R-.vd, boordori.o.

B RA Z I L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ERtAY19