Strengthening the role of Vietnam forest protection and development fund in the enforcement of the policy on payment for forest environmental services

F VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY PHAN THI QUYNH HOA STRENGTHENING THE ROLE OF VIETNAM FOREST PROTECTION AND DEVELOPMENT FUND IN THE ENFORCEMENT OF THE PO

F

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

PHAN THI QUYNH HOA

STRENGTHENING THE ROLE OF VIETNAM FOREST PROTECTION AND

DEVELOPMENT FUND IN THE

ENFORCEMENT OF THE POLICY ON

PAYMENT FOR FOREST ENVIRONMENTAL SERVICES

MASTER'S THESIS PUBLIC POLICY

Hanoi, 2019

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

PHAN THI QUYNH HOA

STRENGTHENING THE ROLE OF VIETNAM FOREST PROTECTION AND

DEVELOPMENT FUND IN THE

ENFORCEMENT OF THE POLICY ON

PAYMENT FOR FOREST ENVIRONMENTAL SERVICES

MAJOR: PUBLIC POLICY

CODE: PILOT

RESEARCH SUPERVISOR:

Dr NGUYEN NGOC HUY

Hanoi, 2019

i

TABLE OF CONTENTS

ABBREVIATIONS ii

LIST OF TABLES AND FIGURES iv

LIST OF ANNEXES v

ABSTRACT vi

ACKNOWLEDGEMENT vii

INTRODUCTION 1

LITERATURE REVIEW 5

Review some models of PES implementation in the world 5

PES program in Costa Rica 5

Programs targeting watershed services in China 7

Payment for ecosystem services in Japan 9

Payment for Environmental Services program in Cambodia 14

PFES policy and VNFF in Vietnam 18

PFES policy in Vietnam 18

VNFF in implementation of PFES policy 24

Review some reports on VNFF and PFES 26

2.3.1 Report on 8 years of operations of forest protection and development funds and 5 years of implementation of the PFES policy 26

Report on reviewing 10 years of organization and operation of forest protection and development funds from 2008 – 2018 29

RESEARCH METHODOLOGY 34

Data collection method 34

Methods of data processing and analysis 35

RESEARCH FINDINGS 37

VNFF’s organization and operation 37

Implementation of PFES policy 40

Some specific results from interviews and surveys 42

General evaluation on VNFF 43

Stakeholders’ understanding about VNFF 44

DISCUSSION 47

Organization and human resource 48

Legal regulations and guidelines on PFES policy 49

PFES management and utilization 50

CONCLUSION AND RECOMMENDATIONS 52

Conclusion 52

Recommendations 52

References 55

ii

ABBREVIATIONS

CCICED China Council for International Cooperation on Environment

and Development CIFOR Center for International Forestry Research

CITES Convention on International Trade in Endangered Species

DARD Provincial Department of Agriculture and Rural Development

FONAFIFO Fondo de Financiamiento Forestal de Costa Rica (National

Forestry Financing Fund of Costa Rica) iPFES “Improving Payment for Forest Environmental Services”

project

PPSA Pago por Servicios Ambientales (payment for ecosystem

services program in Costa Rica)

iii

REDD+ Reducing emissions from deforestation and forest degradation,

conservation of existing forest carbon stocks, sustainable forest management and enhancement of forest carbon stocks

UNCCD United Nations Convention to Combat Desertification

UN-REDD

Programme

The United Nations Programme on Reducing Emissions from Deforestation and Forest Degradation

VNFF Vietnam Forest Protection and Development Fund

VNFOREST Vietnam Administration of Forestry

iv

LIST OF TABLES AND FIGURES

List of Tables

Table 2.1 River basins between Vietnam and China 7

Table 2.2 Payment level to partner producers 10

Table 2.3 Types of forest in Japan 11

Table 2.4 River basin between Vietnam and Cambodia 14

Table 2.5 Policies and strategies related to PES in Cambodia 14

Table 2.6 Total entrusted contracts as of Oct 2018 31

Table 2.7 The PFES collection as of Sep 2018 31

Table 4.1 Update changes in VNFF structure & operation 37

Table 4.2 PFES amount paid for forest owners in 2018 41

List of Figures Figure 2.1 FONAFIFO’s organization structure 6

Figure 2.2 Programs of Kanazawa’s Five-Year Action Plan 13

Figure 2.3 Community-based ecotourism program in Cambodia 17

Figure 2.4 Milestones of developing PFES policy 19

Figure 2.5 Payment level for FES users 21

Figure 2.6 PFES distribution mechanism 22

Figure 2.7 PFES stakeholders 23

Figure 2.8 VNFF’s Organizational structure 25

Figure 2.9 Development of PFPDF quantity as of 2015 28

Figure 2.10 Status of FPDFs from 2009 - 2018 30

Figure 3.1 Subjects of survey and interview 35

Figure 4.1 Statistics of general evaluation on VNFF 43

Figure 4.2 Satisfaction rate 44

Figure 4.3 Stakeholders’ understanding about VNFF 45

Figure 4.4 VNFF’s activities in implementing PFES policy 46

Figure 5.1 VNFF MU Human resources 48

v

LIST OF ANNEXES

Annex 1 List of legal documents related to implementation of PFES policy 58

Annex 2 List of handbooks on PFES policy implementation 62

Annex 3 List of provincial forest protection and development fund 64

Annex 4 Survey form for VNFF’s staff 66

Annex 5 Survey form for provincial forest protection and development fund 72

Annex 6 Survey form for VNFF’s users 77

Annex 7 Survey form for VNFF’s stakeholders 81

vi

ABSTRACT

In line with the international trend, the policy on payment for forest environmental services (PFES) in Vietnam has created a stable financial source for forest protection and development, increases the contribution of forestry sector in the national economy, improves livelihoods and helps to stabilize the life of forest workers More specifically, this policy has been applied throughout the territory of Vietnam, enhancing the role and responsibility of the entire society in forest management and protection activities To achieve that success, Vietnam forest protection and development fund (VNFF) plays a very important role in the implementation of the policy This report will analyse in detail of VNFF with the role of an entrusted fund

to mobilize, receive and utilize social resources for forest management, protection and development Through studying legal documents in Vietnam, evaluation reports

on VNFF and PFES as well as analysing data collected from surveys and interviewing stakeholders, many difficulties have been shown in the process of VNFF’s organization and operation which affects the effectiveness of the PFES policy implementation From these findings, the author would propose some recommendations to strengthen the role of VNFF in the enforcement of the policy in the coming time

vii

ACKNOWLEDGEMENT

I am really happy because I managed to finalize the thesis “strengthening the role of Vietnam Forest Protection and Development Fund in the enforcement of policy on payment for forest environmental services” within the timeframe assigned by the Vietnam Japan University, Vietnam National University, Hanoi This report cannot

be completed without the great supports and absolute trust of professors, relatives and colleagues

First of all, I would like to express my deep gratitude to my supervisor, Dr Nguyen Ngoc Huy, who directly guided and gave me valuable comments on my thesis Even

he is very busy, but he has always spent a lot of time and efforts to direct me throughout the process of researching and completing this report

In addition, I would like to sincerely thank the all professors and staff working in Vietnam Japan University, especially in the public policy program who dedicated to convey valuable knowledge and help me in the process of learning and researching Finally, I am also thankful to my family, friends and colleagues who have always encouraged me and provided me utmost support to complete all assignments in the process of studying as well as finalizing this topic

Although there are many attempts, but this research topic will not free of shortcomings, I look forward to receiving the comments of professors, experts, friends and colleagues so that my topic can be better completed

Hanoi, 31 May 2019

Phan Thi Quynh Hoa

1

INTRODUCTION

In recent years, initiative of payment for environmental/ecosystem services (PES) has been widely adopted in the world It is considered as one of effective tools to support environmental protection and biodiversity conservation According to Wunder, PES is defined as “a voluntary transaction where a well-defined environmental service (ES) is being “bought” by a (minimum one) ES buyer from a (minimum one) ES provider if and only if the ES provider secures ES provision” (Wunder, 2005) After many years, this definition is broadened by Tacconi "A PES scheme is a transparent system for the additional provision of environmental services through conditional payments to voluntary providers" (Tacconi, 2012) The payment is conducted based on a voluntary agreement between providers of environmental services and users of these services Some (PES) programs have the direct involvement of the providers and users but some others, they need the support from Government and intermediate organizations to work

as a bridge between the users and providers

Users of environmental services (FES user) are the beneficiaries of the environmental services such as hydropower companies, water supply, tourism business companies, industrial production facilities, etc They use natural resources for their production and business such as water, ecological system, forest environment therefore they are defined

to pay for the environmental services they use Providers of environmental services (FES provider) are those involving in protecting the environment and living in the areas that providing environmental services

PES in Vietnam is linked to the payment for forest environmental services (PFES) This term is clearly regulated in the Government Decree no.99/2010/ND-CP dated 24 September 2010 (Decree 99) It is understood as “a provision and payment relationship

in which users of forest environment services pay to providers of these services”1 This policy is firstly implemented in Lam Dong and Son La from 2008 to 2010 according to

1 Article 3, Decree no.99/2010/ND-CP dated 24 September 2010 of the Government on the policy on payment for forest environment services

2

the Decision 380/QD-TTg dated 10/4/2008 of the Prime Minister and then is applied at the national level as the Decree 99 of Government and encouraged the participation of all people to the forest protection The PFES policy has created a new, stable financial mechanism, contributing to better forest protection (VNFF, 2018)

Forest protection and development fund (FPDF) is an intermediate agency to receive the indirect payment of FES users to pay for FES providers in Vietnam, it was established by Government Decree No.05/2008/ND-CP dated 14 January 2008, in which defined as “a state financial institution, with legal entity, having specified seal, and able to open an account at a bank or State treasury according to statute law”2 The system of this fund is set up from the central to the provinces that have forests and plays

as the entrusted role to ensure the successful implementation of the PFES policy

Vietnam Forest protection and development fund (VNFF) is the central fund of forest

protection and development It was established by the Decision of Ministry of Agriculture and Rural development (MARD) no 114/2008/QD-BNN, dated 28 November 2008 This is considered as a lead agency to receive and coordinate the PFES

in Vietnam

The fact of implementing the policy during the pilot phase until now as well as the result from surveys, some shortcomings and difficulties have been defined such as not all environmental services stated in the Government’s regulations are paid, pending payment of forest users, direct payment has not been applied, the limitation in PFES monitoring and evaluation These shortcomings affected a lot the implementation of the PFES policy Decree 99 regulated five types of forest environmental services to be paid includes: (i) Soil protection, restriction of erosion and sedimentation of reservoirs, (ii) Regulation and maintenance of water sources for production and social life, (iii) Forest carbon sequestration and retention, (iv) Protection of natural landscape and conservation

of biodiversity, (v) Provision of spawning grounds, sources of feed and natural seeds,

2 Article 6, Decree No.05/2008/ND-CP dated 14 January 2008 of the Government on the forest protection and development Funds

3

use of water from forests for aquaculture3 Despite of clear regulations on types of FES, FPDFs only collected PFES from hydropower companies for the first type, clean water suppliers for the second type, some tourism business companies for the forth type Even though, some of these FES users still delay the payment, that affect the disbursement to the forest providers The collection for the industrial companies and aquaculture facilities is piloting, the service of carbon sequestration has not been implemented which show the gaps in the policy consultation and enforcement At present, only indirect payment has been conducted through the FPDFs, FES users have not paid directly to FES providers and the PFES monitoring and evaluation is still limited which set higher requirements for FPDFs, especially the VNFF

Based on the analysis and evaluation from legal documents of Vietnam, some PES models of other countries as well as the surveys for relevant stakeholders of VNFF and PFES in Vietnam, the author expects to provide a comprehensive information of VNFF’s position during the implementation of PFES policy Therefore, the aim of this report is to clarify the major causes of shortcomings and difficulties that VNFF encountered while operating, then propose some recommendations to strengthen the role

of VNFF in the implementation of the PFES policy To achieve those objectives, the following questions will be answered in the report including:

- What shortcomings and difficulties has VNFF encountered while operating and complying PFES policy?

- What are key recommendations to strengthen the role of VNFF?

This report contains six Chapters with general introduction in Chapter 1; reviewing some typical PES models of other countries, legal regulations and some previous reports

on VNFF and PFES in Chapter 2; description of research methodology in Chapter 3 Chapter 4 provides some findings after literature review and conducting surveys to relevant stakeholders Chapter 5 will discuss VNFF’s organization and human

3Article 4, Decree no.99/2010/ND-CP dated 24 September 2010 of the Government on the policy on payment for forest environment services

4

resources, legal regulations and guidelines on PFES policy and PFES management and utilization Finally, Chapter 6 will conclude and propose some recommendations to strengthen the role of VNFF in the future

5

LITERATURE REVIEW

In this chapter, some models of PES implementation from countries are reviewed to clarify the foundation of the PES schemes in the world and provide useful lessons for Vietnam In addition, with the review of actual PFES programs and the performance of VNFF in Vietnam in the past years, the PFES policy will be presented in detail, thereby determining more clearly the factors affecting role of VNFF

Review some models of PES implementation in the world

The author will firstly review and inherit some results of researches on the international experience of implementing PES schemes, especially focus on some cases such as: the PES program in Costa Rica; programs targeting watershed services China; payment for ecosystem services in Japan; and payment for environmental services programs in Cambodia

PES program in Costa Rica

The payment for environmental service in Costa Rica is called Pago por Servicios Ambientales (PPSA) program This is a national program to conduct payment for the landscapes protection and biodiversity conservation, carbon storage and hydrological services with the purpose of reducing the rate of deforestation in Costa Rica

PPSA is managed by Fondo de Financiamiento Forestal de Costa Rica (FONAFIFO), a national forestry financing Fund, established under the Forestry Law no 7575 in 1996 The objective of the fund (i) promote, for the benefit of small and medium producers, forest management, reforestation, afforestation, plantations and agro-forestry; and (ii) collect funds for the payment of ecosystem services4 This is the governmental institution that has instrumental legal status and supports for forest conservation by issuing Forest Conservation Certificates (CCB) that landowners can use to pay taxes and fees to Government FONAFIFO uses this taxes and fees to fund for PPSA program According to the approval of the Ministry of Environment, Energy and

4 Article 46-51 of the Forestry Law no 7575 of Costa Rica dated 16 October 1996

6

Telecommunications (MINAE), the administrative structure of the FONAFIFO (FONAFIFO, 2008) is presented as below:

Figure 2.1 FONAFIFO’s organization structure5

As shown in the Figure 1, the Ministry of Environment, Energy and Telecommunications (MINAE) is the management agency that makes policy on forestry sector The FONAFIFO’s board of directors includes five members, of which three representatives are from the public sector and two remaining members are from the private sector This is the administration agency to advise MINAE on forestry policy Five subordinate divisions and departments with their functional units have the role to support the FONAFIFO’s General Directorate conduct activities approved by MINAE The environmental services defined in PPSA include (i) mitigation of greenhouse emissions through emissions reduction and carbon fixation, capture, storage or absorption; (ii) protection of water for urban, rural or hydroelectric use; (iii) biodiversity conservation for conservation, sustainable use, scientific investigation or genetic enhancement; and (iv) protection of ecosystems or scenic natural beauty for tourism or science (Forestry Law - Law No 7575, Republic of Costa Rica, 1996) PPSA program

5 Source: FONAFIFO’s website via link https://www.fonafifo.go.cr/en/conozcanos/organigrama/

7

of Costa Rica contributed a lot to increasing the forest coverage of this country from less than 30% in 1980s to 54% in 2015 (Juhern Kim, Roger Madrigal, Francisco Alpizar, and Silvia Rojas Fernandez, 2016) The PES model in Costa Rica shows the important role of the Government in establishing the state-authority to manage and implement the PES program

However, this model is also facing some challenges, for example, even FONAFIFO uses the payment from hydropower companies and water users to fund for PPSA, but no legal requirements on the payment level is identified and FONAFIFO negotiates with users and comes to agreements with them It seems that the payment by water users is good but there are some limitations in charging for biodiversity and carbon services In Costa Rica, the payment for biodiversity services is mainly come from the Global Environment Facility and the financing from local tourism industry is not recognized significantly The beneficiaries from carbon service are difficult to be defined

Programs targeting watershed services in China

China and Vietnam share a long border and have territories located in the Mekong basin Both countries have great potential of hydropower development through the below river basin (McElwee, P., Thanh, N.C., 2014)

Table 2.1 River basins between Vietnam and China

Vietnam

Basin area in Vietnam

outside Vietnam

The term of “eco-compensation” was firstly mentioned by China Council for International Cooperation on Environment and Development (CCICED) in a research project to advance ecological protection The eco-compensation scheme is tested with both upstream and downstream populations of China to protect river sources Chinese Government conducted Eco-compensation for Watershed Services (EWS) with providing incentives for the local governments in watershed for to ensure the ecological security in this area and better water quality management This program is implemented through the direct payment from the government to individual and community suppliers

of ecosystem service It also focuses on the institutional and political aspects of payment (Zhen, L., & Zhang, H, 2011) EWS is considered as a tool to regulate the relationships between agencies at different administrative levels, and this encourages the government

to create more positive environmental policies and to take more measures by offering economic incentives (Wang, H., Dong, Z., Xu, Y., & Ge, C, 2016) The principles of PES implementation are defined according to the responsibilities and role of stakeholders involving in ecological conservation programs As of 2016, the eco-compensation has been legally mandated in the amended Environmental Protection Law, however, the eco-compensation still lacks a sufficiently strong regulatory foundation (ADB, 2016), thus, it is needed to have government regulations in line with market-based economic tools, and mechanisms for ecosystems management to ensure the sustainability of provided services

9

Another program in China is Sloping Land Conversion Program (SLCP) with the purpose of reducing soil erosion and desertification and increasing forest coverage This program covers 25 provinces of China Bare hills and agricultural slopes are converted

to afforestation The farmers who involve in this program will be compensated For the converted sloping area, the farmers will receive compensation in cash or annual in-kind

of grain or free saplings for the plantation period Both grain and cash subsidies are compensated for 8 years if ecological forests are planted and for 5 years if economic forests are planted (Zhen, L., & Zhang, H, 2011) This is the first national PES program

in China that encouraged the participation of households based on voluntary basic for land management, thus integrated the environmental protection objectives In order to implement the program, many agencies were involved, include the State Forestry Administration, Ministries of Land and Resources, Agriculture, and Water Resources, departments from forestry and grain supply, etc Each agency has specific tasks and role

in compensation delivery, land contract management, dealing with disputes, measuring land area for conversion, distributing saplings, monitoring results of conversion, etc (Kolinjivadi, V K., and T Sunderland, 2012) Some challenges of the program are recorded include the sloping area may be converted to agriculture production right after the completion of the scheme, in some areas, the farmers have no choice because their neighbours and village selected to participate in the program This requires the solutions from the policy – makers to achieve the sustainable conservation objectives

It can be said that the local governments are lead agencies in developing and implementing PES schemes in China The role of Government and market is very important to establish the compensation schemes However, the centralization government system should be established with the close collaboration among agencies The central level should also provide more specific guidance, legal and financial basis for the local to develop the PES schemes

Payment for ecosystem services in Japan

Japan frequently suffers natural disasters like floods, earthquakes or typhoons therefore this country recognizes clearly the important role of natural ecosystem A lot of PES schemes have been developed for many years, focusing on the ecosystem services of forest and water resources The subjects involving in these programs including urban

10

residents, local government, consumers or companies who pay for the natural resources

or ecosystem services In Japan, there are three types of payment schemes include: (i) direct negotiation between the ecosystem services suppliers and the beneficiaries (or providers); (ii) governmental intervention by environmental taxes and (iii) trading schemes of ecosystem services (Hayashi, K., & Nishimiya, H., 2010) The third type of payment scheme on ecosystem services trading is not mentioned much in the materials that the author can access, therefore this report only reviews some PES models related

to the type one and type two as stated above

One good example of payment according to the direct negotiation is implemented in Kumamoto prefecture, Kyushu island In this area, the groundwater is very important, that provides freshwater for all residents Thus, they pay a lot of attention on groundwater recharge The recharge capacities of Shirakawa river basin is known as 5 times or more than that of other areas (Hayashi, K., & Nishimiya, H., 2010) To avoid the decrease of groundwater, the companies which have production activities in this region negotiate directly with farmers to flood their paddies in the summer Under the government policy on groundwater protection, Sony Semiconductor Kyushu Corporation conducted the started project of groundwater recharge in 2003 with the close participation of the local agricultural cooperative, farmers and Kumamoto City

To operate its semiconductor plants, the company uses groundwater extracted from the ground According to the project of groundwater recharge, the company called for the volunteer from the local producers to flood their rice paddies after harvesting, then water will be drawn from Shirakawa river to permeate back to the ground (Conserving water

by recharging ground water in Kumamoto, 2010) Therefore, the groundwater in this area is recovered The payment is defined as below:

Table 2.2 Payment level to partner producers

Days of flooding Payment amount (Yen/1,000 m 2 )

Regarding the payment agreement with the governmental intervention, the forest environmental taxes have been applied for many prefectures in Japan Forests plays important role in mitigating climate change, preventing floods and landslides, absorbing CO2, providing habitats for various living species, etc Types of forest in Japan as follow:

Table 2.3 Types of forest in Japan

Unit: Thousand hectares

Types of forest National forest Non-national forest Total

Note: Source: Forestry Agency, survey on status of forest resources (31 March 2007)

The non-national forest mentioned in the Table 2 is around 70% of total forest area, includes forest area under private management or local governments Most of this area

is managed under the willingness of forest owner With the area of plantation forest, it requires the management of human To protect and manage non-national forest, the local government uses the environment tax revenue collected from beneficiaries of forest ecosystem services This revenue is commonly reserved in a fund to pay directly for

12

forest owner for their management, especially for key watershed area Toyota City collects conservation fee for the use of tap water and keeps in its tap water conservation fund This fund has been used for the conservation purpose including tree thinning and forest measuring (Hayashi, K., & Nishimiya, H., 2010) Kochi Prefecture is another example of around 30 prefectures uses this environment tax program to implement activities on forest protection This prefecture collect tax per person and uses for activities like tree thinning, converting unmanaged forest area into natural mixed forest The case of Kanagawa Prefecture is very interesting They call for the involvement of citizens to discuss on how to conserve and restore forests and water source in the area This is a very effective way to gain the awareness and agreement of residents for the local policies on this issue Therefore, general actions and implementation programs are developed in the Basic Policies and Five-year action plans for Conservation and Restoration of Water Source Environment (Forest environment tax in Kanagawa Prefecture, 2007) The figure below will describe the specific programs conducted by Kanagawa prefecture

13

Figure 2.2 Programs of Kanazawa’s Five-Year Action Plan These programs encourage the participation of many citizen, experts, organizations in the conservation and restoration of forest protection and water source

Japan has a lot of PES schemes at the local level The implementation methods and models depend on the characteristics of each region as well as lifestyle habits but mostly focused on forest management, water source conservation and agriculture ecosystem services Even there are many successful models, but some challenges are also defined such as the environment tax policy is mostly conducted by prefectures and applied for their residents, therefore the other beneficiaries of ecosystem services are less paid

14

attention The PES schemes are implemented separately in different regions thus its lack

of connectivity and systematic in the implementation

Payment for Environmental Services program in Cambodia

Cambodia has common border with Vietnam, so it has an important strategic position

on economy, politics, society, national security and defence in the region Both countries are in the lower Mekong Basin with great potential for hydropower generation The river basins shared with Vietnam as below table (McElwee, P., Thanh, N.C., 2014):

Table 2.4 River basin between Vietnam and Cambodia

Vietnam

Basin area in Vietnam

outside Vietnam

Note: Information collected from report on reviewing 3 years of PFES policy

implementation in Vietnam (2011-2014) conducted by McElwee, P., Thanh, N.C

At present, a legal framework has not been developed for applying PES nationally, however, Royal Government of Cambodia approved some important policies and strategies that mention this scheme

Table 2.5 Policies and strategies related to PES in Cambodia

1993 Manage and implement the preservation of

biological resources and sustainable use of natural resources

1996 Provide regulations to address environmental

protection, management of natural resources and public consultation

communities in forest management

jurisdiction of the Ministry of Agriculture, Forestry and Fisheries (MAFF)

2010 Develop REDD+ planning during the readiness

phase, the UN-REDD Programme National Document, and Readiness Preparation Proposal (R-PP) of the Forest Carbon Partnership Facility

National Forestry

Programme for

2010-2029

2010 Develop six programs, include: (i) forest

demarcation, classification and registration; (ii) conservation and development of forest resources and biodiversity; (iii) forest law enforcement and governance; (iv) community

National Policy and

Strategic Plan for

Green Growth 2013–

2030

2013 Promote green economy, green finance and

green investment to balance between economic and social development, and the environment

National Strategic

(NSDP) for 2014–

2018

2013 Regulate the importance of natural resources

protection and sustainable development

National biodiversity

strategy and action

plan

2016 Provide a comprehensive strategic document

for biodiversity conservation and management

in Cambodia and represent an important milestone for the future

Note: information compiled by author

In Cambodia, the implementation of PES schemes has come mostly from the international donors and multilateral agencies Conducted PES schemes focus on biodiversity and watershed conservation, recreation/landscape beauty, and carbon sequestration and storage (Naret, H., & Sopheak, K., 2016) Subjects involve in the implementation of PES schemes include the Kingdom of Cambodia, government agencies like Ministry of Environment and Ministry of Agriculture, Forestry and Fisheries (MAFF), local authorities at provincial, district and communal levels, international organizations, local NGOs and households

One example of PES implementation with the support of Wildlife Conservation Society (WCS) is the biodiversity conservation through bird nest protection and community – based ecotourism in the Northern plains including Kulen Promtep Wildlife Sanctuary

17

(Donal, 2016) The bird nest protection program was established in 2002 to prevent the collection of bird nests for eggs and chicks According to this program, the villagers living in Kulen Promtep Wildlife Sanctuary will come to individual contracts to protect bird nests and they will receive $2/day for the protection

The activity of community – based ecotourism was designed in 2004 in the village of Tmatboey in Kulen Promtep Wildlife Sanctuary as below figure:

Figure 2.3 Community-based ecotourism program in Cambodia6

The purpose of this program is to protect endangered wildlife through local tourism contracts between local people or contracted community wildlife rangers and the Sam Veasna Center (SVC) SVC is working with WCS on this project with the role of managing bird viewing tours, supervising nest protectors and conducting direct conservation payment for them This program is highly appreciated and is can be considered as a good model for the PES implementation in the field of biodiversity conservation

PES is considered as an important financial tool to provide incentives for the natural resource management, biodiversity conservation and sustainable utilization This scheme is expected to apply throughout the country by 2020 (Kingdom of Cambodia,

6 Source: Reprinted from Payments for Ecosystem Services Programs in Cambodia, by WCS, 09 Mar 2016,

18

2016) To achieve this target, some activities need to be implemented such as awareness raising on PES, institutional strengthening, developing options for payments, PES agreement and contracts, monitoring and evaluation as well as draw lessons learnt Despite of some success in PES implementation, this scheme in Cambodia is still facing

up with challenges such as the dependency on the international support which create the less positiveness and the cease of PES when the support completed; the lack of legislation document specialized on PES at national scale; the limited knowledge on PES and gap between the rich and the poor also lead to the damage activities to the environment

PFES policy and VNFF in Vietnam

In this part, the author will review context of formulating and implementing of PFES policy in Vietnam and overview the establishment and structure of VNFF

PFES policy in Vietnam

Vietnam has joined in many international commitments and conventions related to forestry (CITES, RAMSAR, CBD, UNCCD, etc ) that opened more favourable conditions for agriculture and forest enterprises With the total of forest land area is nearly 14.5 million hectares7, forests play an important role in the economy and social life of Vietnam In addition, many Vietnamese people are currently living in or near forests, most of them are ethnic minorities whose living depends on forests including foods, culture, habits, customs, beliefs Fuelwood, bamboo shoots, rattan, wildlife and herbs are the forest products widely harvested by local people The Government has a lot of policies to protect and develop forests as well as to ensure the life of people in the mountainous areas in which the ethnic minorities is considered as the core factor of forest protection However, state budget to support the forestry sector is limited, cannot satisfy increasing demand for the development of mountainous people and forestry sector Experience from many countries in the world show that the implementation of payments for environment services especially for forest environmental services bring huge revenues to compensate for the budget shortage Thus, the development of PFES

7 Decision 911/QD-BNN-TCLN dated 19 Mar 2019 of MARD on announcing National Forest Status in 2018

Figure 2.4 Milestones of developing PFES policy

The development of Vietnam Forestry Development Strategy (VFDS) for period 2006 – 2020 (promulgated and enclosed with the Decision No 18/2007/QD-TTg, dated 5 February 2007, by the Prime Minister) is the foundation to enable Vietnam to become a modernized industrial country by 2020 Of which, piloting payment mechanisms for forest environmental services to reinvest for forest protection and management is one of development priories VFDS also defined that the Program on the biodiversity protection and conservation and the development of FES is one of the priorities of Vietnam in the period 2006-2020 This program requires to study the FES valuation, set

up payment mechanism for FES of forestry sector This is the first legal document mentions on the PFES organization and implementation in Vietnam At the same period,

a model of Trust fund for forests (TFF) was established through a memorandum of understanding between the Government of Vietnam and Governments of Finland, Netherlands, Sweden and Switzerland to support the implementation of VFDS TFF worked as a financial mechanism to mobilize funding from international donors to deal with priorities of forestry sector related to the pro-poor support and sustainable forest management Purpose of operating TFF is to pilot the model of an entrusted fund and draw lessons learnt to establish the forest protection and development fund As the result, the Government issued Decree 05/2008/ND-CP in 2008 on forest protection and

20

development funds (FPDFs) This Decree regulates the establishment, management and utilization of FPDFs from the central to the local levels These funds operate under the entrusted regime for non-profit purposes to (i) mobilize resources of the society for forest development and protection, (ii) raise awareness about, and responsibilities for, forest development and protection for those benefiting from forests or involved in activities that have direct impacts on forests and (iii) increase forest owners’ capacity and efficiency in forest protection, use and management, contributing to implementing the forestry development strategy

At the same year, PFES scheme was being piloted in Lam Dong in the Central Highlands and Son La in the North for two years under the Prime Minister’s Decision no 380/QD-TTg dated 10/4/2008 During this pilot phase in Lam Dong, Vietnam received the important support from United States Agency for International Development (USAID) through the project on “Dong Nai River Basin Conservation” conducted by Winrock International organization This project was a part of Asia Regional Biodiversity Conservation Program (ARBCP) that supported Vietnam in successful implementation

of pilot program of PFES, improved livelihood of the rural poor while promoting biodiversity conservation in Lam Dong Province (Nguyen, T B T., et al., 2011) The pilot phase in Son La received support from the German Agency for International Cooperation (GIZ) through researches under the program on management for natural resources These agencies provided financial and technical supports to complete the pilot phase and created a basis for the formulation of a legal framework on the PFES policy applicable nationwide The most important legal document to mark the full application of PFES policy at the national scale is the Decree 99 in 2010 and the Decision no 147 in 2016 revising some Articles related to the payment level of Decree

no 99 These decisions provide important regulations that created a payment mechanism between forest environmental service users and suppliers Accordingly, the payment for forest environment services is understood as a provision and payment relationship in which users of forest environment services pay to providers of these services8 It can be

8 Article 3, Decree 99/2010/ND-CP on PFES policy

is the latest legal document on PFES implementation in Vietnam

The figures below will show clearly the major changes of these legal documents

Figure 2.5 Payment level for FES usersThe most important change is the payment level applied to each subject group of FES

If the industrial production and aquaculture facilities have not regulated specifically in the Decree 99 and Decree 147 but they are mentioned in the Decree 156 with the payment level of 1% revenue for aquaculture service and VND 50/kwh for the use of water for industrial production The payment level for the traditional FES users including hydropower companies, clean water suppliers has been increased from VND

22

20/kwh in Decree 99 to VND36/kwh in Decree 156 and from VND 40/m3 in Decree 99

to VND52/m3 in Decree 156 There is still policy gap in regulations related to carbon sequestration services Despite of various studies on this issue but it seems very difficult

to develop policy on this service

Beside the legal regulations of Governments and Ministries, the professional agencies like VNFF and provincial FPDFs also provided technical guidelines for not only FES users but also FES providers to implement PFES activities A lot of handbooks and manuals were developed as the useful tools that specified the guidelines and instructions

to support the smooth performance of the policy List of these handbooks stated in the Annex 2

Even there are some changes in rate of payment as mentioned above, the PFES distribution mechanism is still regulated the same as follow:

Figure 2.6 PFES distribution mechanism9

The figure describes the way PFES money comes from the FES users to the FES providers As regulation, forest protection and development funds will collect money from FES users through signing entrusted contracts After deducting administration fee and contingencies for provincial funds, remaining amount will be transferred to FES

9 Source: Graph of PFES distribution mechanism Reprinted from Leaflet Vietnam and PFES, by VNFF, 2017,

retrieved from http://vnff.vn/communication/publications

23

providers (or FES delivers) If FES providers are households, individuals or communities, they will receive 100% amount of PFES In the case that FES providers (forest owners) are organizations, they are deducted 10% for administration fee, the remaining will be transferred to households, individuals or communities which contracted to forest protection The organizations also keep a part of PFES for their self-protection of forests According to this payment mechanism, the stakeholders related to PFES implementation are defined as below:

Figure 2.7 PFES stakeholders10

In this model, PFES policy in Vietnam regulates close relationship among relevant stakeholders They are forest owners who are households, communities, forest management boards, state forest enterprises, organizations or individuals contracted to

10 Source: Graph of PFES stakeholders Reprinted from VNFF’s profile – Vietnam’s green future, by VNFF, 2017,

retrieved from http://vnff.vn/communication/publications

24

forest protection and management FES users such as hydropower companies, clean water suppliers, tourism companies, industrial production facilities, aquaculture facilities or any subjects which use ecosystem services for their production and business

In principle, FES users are responsible to pay for the forest environment services they used, and the forest owners are FES providers who protect the forest area providing those environment services Certainly, the system of FPDFs and forest management agencies from the central to the local are also included in this model In the PFES implementation process, FPDF plays as intermediate agency to sign entrusted contract with FES users to collect PFES money and disburse to forest owners The forest management agencies are responsible for monitoring and controlling the whole process

of PFES policy implementation The nature of this model is to regulate the relationship between users and suppliers, or in other words is the relationship between buyers and sellers in the field of forest environmental services

VNFF in implementation of PFES policy

According to the Decree 99, the system of Forest Protection and Development Funds (FPDFs) from the central to the local is the focal agency to collect PFES money from FES users through the entrusted contracts of PFES and pay for the forest owners according to their forest area providing these services VNFF in the role of the central fund is in charge of collecting, coordinating and monitoring payment to FES users which locates from two or more provinces and supports the operations of the provincial FPDFs The Organizational structure of VNFF is shown as below:

25

Figure 2.8 VNFF’s Organizational structure11VNFF is established under the Decision no 114 of the Ministry of agriculture and rural development (MARD) in 2008, accordingly, VNFF is a state financial institution, operates under the management of MARD The structure of the fund includes the Board

of Director, control board and the management unit The BoD includes nine members who are leaders of MARD, representatives of MPI, MoF, departments under MARD such as planning; finance; international cooperation; science, technology & environment; forest protection; Vietnam administration of forestry BoD is in charge of approving the annual work and financial plan of the VNFF, issuing regulations to serve the VNFF’s operation, organizing the receipt, management and utilization the finance

of the VNFF in an effective manner Two BoD meetings are organized every year to listen reports on VNFF’s performance and endorse the plan as well as the big issues of VNFF within the year The control board of the fund includes three members from MARD departments, supports BoD to monitor and supervises the implementation of VNFF under the approved regulations, timely defines and reports BoD the violations of the VNFF during its operation The members of Control Board are able to join in the BoD meetings but do not have the right of voting The VNFF management unit (VNFF

11 Source: Vnff.vn

26

MU) consists of the Director, 01 Deputy Director, Chief Accountant and functional units Director of the VNFF MU is appointed and dismissed by the Minister of MARD according to the request of the BoD At present, members of BoD, control board and Director of VNFF MU are government officers and do part-time work Deputy Director, Chief accountant and some key staff of VNFF MU are seconded from government and

do full time work The remaining officers are not government officers and work full time as signed contracts The organization structure of VNFF also includes funding windows with REDD+ fund and others, however, until now, the REDD+ fund has not been established and others are not recorded

According to the PFES distribution mechanism, VNFF signs entrusted contracts with the big companies, which locate from two provinces It will keep 0.5% of collected PFES for administration fee and remaining will be transferred to the provincial FPDFs Provincial funds will disburse this PFES to forest owners after deduction of 10% admin fee and 5% contingency This means only indirect payment is conducted through the FPDF system and VNFF will not pay directly to forest owners Therefore, in the process

of PFES implementation, VNFF only works directly with provincial FPDFs, big FES users and the forest management authorities With a lot of benefits created, this policy

is considered as a good policy to support the development of forestry sector in Vietnam and VNFF plays a very important role in the whole process of implementing the policy

Review some reports on VNFF and PFES

From 2008 until now there are many studies on the system of forest protection and development funds and PFES, however, two typical reports are usually mentioned including: Reports on 8 years of operation of forest protection and development funds issued in 2016 and after that is the report on reviewing 10 years of operating these funds issued in 2018 This part will focus on these studies to see the VNFF’s achievements, and shortcomings during its operation

2.3.1 Report on 8 years of operations of forest protection and development funds and 5 years of implementation of the PFES policy

This report is conducted by Dr Nguyen Chi Thanh & Prof Dr Vuong Van Quynh in

2016 with funding from ADB’s project namely IPFES to assess 8 years of FPDF system

2008 – 2015 & PFES implementation 2011 – 2015

27

Context of conducting this report firstly come from the requirements of MARD under the Decision No 485/QD-BNN-TCLN dated 18 February 2016 issuing the plan of reviewing 8 years of organizing and operating forest protection and development funds from 2008 to 2015 and 5 years of implementing the PFES policy This decision stated clearly the objectives, contents, the roadmap of the evaluation The scope of this evaluation covers across the country for the whole system of FPDFs from the central to the local The necessity of implementing this national evaluation due to the process of implementing regulations and policies has revealed some shortcomings and limitations, namely: The organization and management model of the FPDF has not been clearly defined in the system of legal documents; The PFES debt situation is still popular; disbursement progress of PFES is still slow; payment level in some places is still low, there is a big difference in average unit price per hectare among river basins

In addition, this is an independent review with the financial and technical support from the Technical Assistance project “Improving Payment for Forest Environmental Services” which is funded by the Poverty Reduction Fund of Japan via ADB Therefore, this review mission is separate one as the need of Vietnam Administration of Forestry (VNFOREST) and VNFF with the aim at providing inputs for the review plan of MARD through the Decision 485 By the profound knowledge, professional evaluation skills and methodology in associated with the close cooperation and support of staff and agencies at all levels, two experienced experts namely Dr Nguyen Chi Thanh and Prof

Dr Vuong Van Quynh completed the report with high appreciations from relevant stakeholders The report showed the policy gaps with shortcomings and proposed adjustments, supplementations related to revising existing legal documents on FPDFs and PFES At the time of implementing this report in 2016, 40 provincial FPDFs were established with 37 of them had the management units (Thanh, N.C., Quynh, V.V., 2016), 9 provincial PFPDFs were managed by Provincial People’s Committee (PPC),

28 remaining PFPDFs were managed by Department of Agriculture and Rural Development (DARD)

28

Figure 2.9 Development of PFPDF quantity as of 201512Experts showed the difference in legal position of provincial FPDFs and proposed to adjust regulations in the Decree 05 on this issue The authors also pointed out the different regulations on the self-control and self-financing mechanism among provinces which cause the difficulties in defining legal status of some FPDFs as well as the obstacles during their operation The structure of VNFF at that time not only takes over the tasks of PFES implementation but also includes other funds like REDD+ Fund, TFF, etc that may be integrated or established and work as child fund under the VNFF Regarding the implementation of PFES policy, the difficulties and challenges in PFES collection were presented clearly According to the VNFF’s report on PFES implementation in 2015, many hydropower companies delayed the payment with the big amount of debt Even VNFF had a lot of measures but the situation has not been solved This is caused by the climate change when the dry season last longer and the less rainfall

in rainy season which did not provide enough water for hydropower production Therefore, these companies cannot operate and stay in debt Meanwhile the PFES revenue at present is mostly come from the payment of hydropower companies

12 Graph of PFPDF quantity as of 2015 Reprinted from Report “8 years of operations of the Forest protection

Quynh, V.V., 2016

29

These are some examples on the difficulties and challenges in the 8 years reports The experts provided their analysis on these issues as well as propose recommendations for each content It can be said that this evaluation report provided very fruitful information and inputs VNFF also used information to propose higher level with the adjustment and supplement some legal document After this assessment mission, the Decree no 147/2016/ND-CP dated 02 November of the Government on revising, supplementing some articles of Decree No 99 Most of the recommendations of the experts are related

to the Decree 05 on the establishment of FPDFs and some guiding Circular Some of them was used by VNFF in developing another report on March 2017 to review FPDF organization and operation for the period 2008 – 2016 and Implementation of PFES policy for the period 2011 – 2016

Both two reports above provided deep analysis & extremely helpful recommendations

to for the better operation of the FPDF system and implementation of PFES policy

Report on reviewing 10 years of organization and operation of forest protection

and development funds from 2008 – 2018

This report is conducted according to the requirements of Ministry of Agriculture and Rural development on reviewing 10 years of organization and operation of forest protection and development funds Purpose of this report is to summarize all achievements, obstacles and challenges that impact the organization and operation of FPDFs system from the central to the local in the period 2008 – 2018, then draw the lessons learnt to revise and supplement current legal documents and mechanism for better operation of FPDF system in the future During the preparation of the report, there have been technical contribution and inputs of experts from Institute for forest ecology and environment The final report was finalized and presented by VNFF management unit at the workshop on review 10 years of operating FPDF system organized in Hanoi

30

16/2017/QH14 on forestry, Circular 04/2018/TT-BTC on guiding the management and utilization of PFES money and some other relevant documents These are key regulations which have a major impact on policy enforcement as well as fund operations The new regulation of the Decree 147 is the increase of payment level for some environmental services such as hydropower generation, clean water supply, and provide regulation for using water from forest for industrial production and aquaculture as mentioned in the previous part The Decree 41 revised some Articles of Decree 157/2013/ND-CP provided specific regulations in Article 3 on the violation activities, sanctions forms and level, measures for violations, etc in the field of forest management, development and protection, and forestry product management Circular

04 in 2018 also regulates in the Article 4 that the VNFF and provincial FPDFs manage and use PFES money in accordance with the financial autonomy mechanism for Public Administrative Units This is recommendation stated in many studies and reports The issuance of new law on forestry in 2017 and the Circular 04 in 2018 consolidated the legal framework on the PFES implementation and FPDF operation

As of 2018, there have been 44/60 forested provinces established FPDFs The number

of FPDFs is initially 4 provincial funds in 2009 up to 44 provincial funds in 2018 After pilot phase of implementing the PFES policy in Lam Dong and Son La from 2008 –

2010, entrusted model of forest protection and development fund has been highly appreciated and applied quickly at the national scale

The following data is printed from VNFF report in 2018:

Figure 2.10 Status of FPDFs from 2009 - 2018

31

As recorded by VNFF in 2018, 11 PFPDFs are under management of PPC and 33 PFPDFs are under management of DARD Depend on the scale of each fund, the structure of provincial FPDF management unit may be divided into different functional divisions Only Son La province has the system of FPDF at district level and under the management of provincial fund Detail list of provincial FPDFs is described in the annex After 10 years of operation, through the updates of legal documents, the position of FPDFs system become important in implementing PFES policy, especially in the context of increasing PFES revenues by adjustment of unit price for current environmental services and the piloting more services of industrial water and aquaculture According to the VNFF’s report, total contracts have been signed until Oct

2018 as below:

Table 2.6 Total entrusted contracts as of Oct 2018

Types of FES VNFF Provincial

FPDFs

Total contract via services

Note: Data from VNFF, 2018

As above table, the VNFF and provincial FPDFs have signed 613 entrusted contracts,

of which 92 contracts from VNFF and 521 contracts from provincial FPDFs However, VNFF has not signed any contract with tourism companies The result of PFES collection as of Sep 2018 is indicated in the below table:

Table 2.7 The PFES collection as of Sep 2018

Unit: bil VND

VNFF Provincial FPDFs Total amount