Strengthening the role of vietnam forest protection and development fund in the enforcement of the policy on payment for forest environmental services002

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 O

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

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

i

Center for International Forestry ResearchConvention on International Trade in Endangered SpeciesCommunal People’s Committee

Provincial Department of Agriculture and Rural DevelopmentEnvironmental services

Eco-compensation for Watershed ServicesForest Carbon Partnership Facility

Forest Environmental ServicesFondo de Financiamiento Forestal de Costa Rica (NationalForestry Financing Fund of Costa Rica)

“Improving Payment for Forest Environmental Services”project

Ministry of Agriculture and Rural DevelopmentMonitoring and Evaluation

Ministry of FinanceMinistry of Planning and InvestmentManagement Unit

Non-Governmental OrganizationsOrganization for Economic Co-operation and DevelopmentPayment for environmental/ecosystem services

Payment for Forest Environmental ServicesProvincial Forest Protection and Development FundProvincial People’s Committee

Pago por Servicios Ambientales (payment for ecosystemservices program in Costa Rica)

Convention on Wetlands

ii

Sloping Land Conversion ProgramUnited Nations

United Nations Convention to Combat DesertificationUnited Nations Development Programme

The United Nations Programme on Reducing Emissions fromDeforestation and Forest Degradation

The Vietnam Forestry Development StrategyVietnam Forest Protection and Development FundVietnam Administration of Forestry

Wildlife Conservation Society

iii

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

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

v

In line with the international trend, the policy on payment for forest environmentalservices (PFES) in Vietnam has created a stable financial source for forest protectionand development, increases the contribution of forestry sector in the nationaleconomy, improves livelihoods and helps to stabilize the life of forest workers Morespecifically, this policy has been applied throughout the territory of Vietnam,enhancing the role and responsibility of the entire society in forest management andprotection activities To achieve that success, Vietnam forest protection anddevelopment fund (VNFF) plays a very important role in the implementation of thepolicy This report will analyse in detail of VNFF with the role of an entrusted fund tomobilize, receive and utilize social resources for forest management, protection anddevelopment Through studying legal documents in Vietnam, evaluation reports onVNFF and PFES as well as analysing data collected from surveys and interviewingstakeholders, many difficulties have been shown in the process of VNFF’sorganization and operation which affects the effectiveness of the PFES policyimplementation From these findings, the author would propose somerecommendations to strengthen the role of VNFF in the enforcement of the policy inthe coming time

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

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

First of all, I would like to express my deep gratitude to my supervisor, Dr NguyenNgoc 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 methroughout the process of researching and completing this report

In addition, I would like to sincerely thank the all professors and staff working inVietnam Japan University, especially in the public policy program who dedicated toconvey 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 alwaysencouraged me and provided me utmost support to complete all assignments in theprocess of studying as well as finalizing this topic

Although there are many attempts, but this research topic will not free ofshortcomings, 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

vii

In recent years, initiative of payment for environmental/ecosystem services (PES) hasbeen widely adopted in the world It is considered as one of effective tools to supportenvironmental protection and biodiversity conservation According to Wunder, PES isdefined as “a voluntary transaction where a well-defined environmental service (ES) isbeing “bought” by a (minimum one) ES buyer from a (minimum one) ES provider if andonly if the ES provider secures ES provision” (Wunder, 2005) After many years, thisdefinition is broadened by Tacconi "A PES scheme is a transparent system for theadditional provision of environmental services through conditional payments tovoluntary providers" (Tacconi, 2012) The payment is conducted based on a voluntaryagreement between providers of environmental services and users of these services.Some (PES) programs have the direct involvement of the providers and users but someothers, 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 environmentalservices such as hydropower companies, water supply, tourism business companies,industrial production facilities, etc They use natural resources for their production andbusiness 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 areasthat providing environmental services

PES in Vietnam is linked to the payment for forest environmental services (PFES) Thisterm is clearly regulated in the Government Decree no.99/2010/ND-CP dated 24September 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 Thispolicy 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

the Decision 380/QD-TTg dated 10/4/2008 of the Prime Minister and then is applied atthe national level as the Decree 99 of Government and encouraged the participation ofall people to the forest protection The PFES policy has created a new, stable financialmechanism, 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 wasestablished by Government Decree No.05/2008/ND-CP dated 14 January 2008, in whichdefined 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 ofthis fund is set up from the central to the provinces that have forests and plays as theentrusted 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 ofAgriculture and Rural development (MARD) no 114/2008/QD-BNN, dated 28November 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 resultfrom surveys, some shortcomings and difficulties have been defined such as not allenvironmental services stated in the Government’s regulations are paid, pendingpayment of forest users, direct payment has not been applied, the limitation in PFESmonitoring and evaluation These shortcomings affected a lot the implementation of thePFES policy Decree 99 regulated five types of forest environmental services to be paidincludes: (i) Soil protection, restriction of erosion and sedimentation of reservoirs, (ii)Regulation and maintenance of water sources for production and social life, (iii) Forestcarbon 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

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 watersuppliers for the second type, some tourism business companies for the forth type Eventhough, some of these FES users still delay the payment, that affect the disbursement tothe forest providers The collection for the industrial companies and aquaculturefacilities is piloting, the service of carbon sequestration has not been implemented whichshow the gaps in the policy consultation and enforcement At present, only indirectpayment has been conducted through the FPDFs, FES users have not paid directly toFES providers and the PFES monitoring and evaluation is still limited which set higherrequirements for FPDFs, especially the VNFF.

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

of VNFF in the implementation of the PFES policy To achieve those objectives, thefollowing 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; reviewingsome 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 torelevant stakeholders Chapter 5 will discuss VNFF’s organization and human

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

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

LITERATURE REVIEW

In this chapter, some models of PES implementation from countries are reviewed toclarify the foundation of the PES schemes in the world and provide useful lessons forVietnam In addition, with the review of actual PFES programs and the performance ofVNFF in Vietnam in the past years, the PFES policy will be presented in detail, therebydetermining 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 internationalexperience of implementing PES schemes, especially focus on some cases such as: thePES program in Costa Rica; programs targeting watershed services China; payment forecosystem services in Japan; and payment for environmental services programs inCambodia

PES program in Costa Rica

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

PPSA is managed by Fondo de Financiamiento Forestal de Costa Rica (FONAFIFO), anational 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 governmentalinstitution that has instrumental legal status and supports for forest conservation byissuing Forest Conservation Certificates (CCB) that landowners can use to pay taxes andfees 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

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 andTelecommunications (MINAE) is the management agency that makes policy on forestrysector The FONAFIFO’s board of directors includes five members, of which threerepresentatives are from the public sector and two remaining members are from theprivate sector This is the administration agency to advise MINAE on forestry policy.Five subordinate divisions and departments with their functional units have the role tosupport the FONAFIFO’s General Directorate conduct activities approved by MINAE.The environmental services defined in PPSA include (i) mitigation of greenhouseemissions through emissions reduction and carbon fixation, capture, storage orabsorption; (ii) protection of water for urban, rural or hydroelectric use; (iii) biodiversityconservation for conservation, sustainable use, scientific investigation or geneticenhancement; and (iv) protection of ecosystems or scenic natural beauty for tourism orscience (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/

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

River basin Location in Basin area in Basin area Note

Vietnam Vietnam outside

Vietnam

Bang Giang – Ky Northwest 13,260 km2 1,980 km2 Share basin

Hong River Northeast 169,020 km2 82,340 km2 Share basin

with China

Cuu Long (River Cuu Long 761,417 km2 724,252 km2 Share basin

Quoc, Lao,

Thai Lan,Cambodia

Note: Data compiled from the Report on reviewing 3 years of PFES policy

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

Along with the rapid economic growth in China is the degradation of natural resourcesand the increase of environmental problems Factors related to this degradation alsoinclude rapid urbanization, expanding population and economic development demand.Moreover, integration into the international market has increased the competitivepressure that lead to the use of more and more natural resources The increase ofenvironmental protests and disputes require China's Leaders to have the movements inthe environment policies

The term of “eco-compensation” was firstly mentioned by China Council forInternational Cooperation on Environment and Development (CCICED) in a researchproject to advance ecological protection The eco-compensation scheme is tested withboth upstream and downstream populations of China to protect river sources ChineseGovernment conducted Eco-compensation for Watershed Services (EWS) withproviding incentives for the local governments in watershed for to ensure the ecologicalsecurity in this area and better water quality management This program is implementedthrough 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 relationshipsbetween agencies at different administrative levels, and this encourages the government

to create more positive environmental policies and to take more measures by offeringeconomic incentives (Wang, H., Dong, Z., Xu, Y., & Ge, C, 2016) The principles ofPES implementation are defined according to the responsibilities and role ofstakeholders 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 thesustainability of provided services

Another program in China is Sloping Land Conversion Program (SLCP) with thepurpose of reducing soil erosion and desertification and increasing forest coverage Thisprogram 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 theconverted 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 arecompensated for 8 years if ecological forests are planted and for 5 years if economicforests 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 forland management, thus integrated the environmental protection objectives In order toimplement the program, many agencies were involved, include the State ForestryAdministration, 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, measuringland area for conversion, distributing saplings, monitoring results of conversion, etc.(Kolinjivadi, V K., and T Sunderland, 2012) Some challenges of the program arerecorded include the sloping area may be converted to agriculture production right afterthe completion of the scheme, in some areas, the farmers have no choice because theirneighbours and village selected to participate in the program This requires the solutionsfrom the policy – makers to achieve the sustainable conservation objectives

It can be said that the local governments are lead agencies in developing andimplementing PES schemes in China The role of Government and market is veryimportant to establish the compensation schemes However, the centralizationgovernment system should be established with the close collaboration among agencies.The central level should also provide more specific guidance, legal and financial basisfor the local to develop the PES schemes

Payment for ecosystem services in Japan

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

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 (orproviders); (ii) governmental intervention by environmental taxes and (iii) tradingschemes of ecosystem services (Hayashi, K., & Nishimiya, H., 2010) The third type ofpayment scheme on ecosystem services trading is not mentioned much in the materialsthat the author can access, therefore this report only reviews some PES models related tothe type one and type two as stated above

One good example of payment according to the direct negotiation is implemented inKumamoto prefecture, Kyushu island In this area, the groundwater is very important,that provides freshwater for all residents Thus, they pay a lot of attention ongroundwater recharge The recharge capacities of Shirakawa river basin is known as 5times or more than that of other areas (Hayashi, K., & Nishimiya, H., 2010) To avoidthe decrease of groundwater, the companies which have production activities in thisregion negotiate directly with farmers to flood their paddies in the summer Under thegovernment policy on groundwater protection, Sony Semiconductor KyushuCorporation conducted the started project of groundwater recharge in 2003 with theclose participation of the local agricultural cooperative, farmers and Kumamoto City Tooperate its semiconductor plants, the company uses groundwater extracted from theground According to the project of groundwater recharge, the company called for thevolunteer from the local producers to flood their rice paddies after harvesting, then waterwill be drawn from Shirakawa river to permeate back to the ground (Conserving water

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

Table 2.2 Payment level to partner producers

Regarding the payment agreement with the governmental intervention, the forestenvironmental taxes have been applied for many prefectures in Japan Forests playsimportant role in mitigating climate change, preventing floods and landslides, absorbingCO2, providing habitats for various living species, etc Types of forest in Japan asfollow:

Table 2.3 Types of forest in Japan

Unit: Thousand hectares

Types of forest National forest Non-national forest Total

Plantation forest 2,370 7,980 10,350

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 ismanaged under the willingness of forest owner With the area of plantation forest, itrequires the management of human To protect and manage non-national forest, the localgovernment uses the environment tax revenue collected from beneficiaries of forestecosystem services This revenue is commonly reserved in a fund to pay directly for

forest owner for their management, especially for key watershed area Toyota Citycollects conservation fee for the use of tap water and keeps in its tap water conservationfund This fund has been used for the conservation purpose including tree thinning andforest measuring (Hayashi, K., & Nishimiya, H., 2010) Kochi Prefecture is anotherexample of around 30 prefectures uses this environment tax program to implementactivities on forest protection This prefecture collect tax per person and uses foractivities like tree thinning, converting unmanaged forest area into natural mixed forest.The case of Kanagawa Prefecture is very interesting They call for the involvement ofcitizens 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 thelocal policies on this issue Therefore, general actions and implementation programs aredeveloped in the Basic Policies and Five-year action plans for Conservation andRestoration of Water Source Environment (Forest environment tax in KanagawaPrefecture, 2007) The figure below will describe the specific programs conducted byKanagawa prefecture.

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

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

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

River basin Location in Basin area in Basin area Note

Vietnam Vietnam outside

Vietnam

Sai Gon - Dong South East 40,294 km2 6,700 km2 Share basin

Cuu Long (River Cuu Long 761,417 km2 724,252 km2 Share basin

Cambodia,Trung Quoc,Lao, Thai Lan

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

Policy/strategy Year of Brief content

Resource

Management

(environment law)

Law on community 2002 Provide basic framework for the rural

communities in forest management

Forestry law 2002 Regulate the forest management under

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

National Green 2009 Regulate the green growth implementationGrowth Roadmap

REDD+ Readiness 2010 Develop REDD+ planning during the readinessRoadmap phase, the UN-REDD Programme National

Document, and Readiness Preparation Proposal(R-PP) of the Forest Carbon PartnershipFacility

National Forestry 2010 Develop six programs, include: (i) forestProgramme for 2010- demarcation, classification and registration; (ii)

2029 conservation and development of forest

resources and biodiversity; (iii) forest lawenforcement and governance; (iv) community

Policy/strategy Year of Brief content

National Strategic 2013 Regulate the importance of natural resourcesDevelopment Plan protection and sustainable development

(NSDP) for 2014–

2018

National biodiversity 2016 Provide a comprehensive strategic documentstrategy and action for biodiversity conservation and managementplan 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 theinternational donors and multilateral agencies Conducted PES schemes focus onbiodiversity and watershed conservation, recreation/landscape beauty, and carbonsequestration and storage (Naret, H., & Sopheak, K., 2016) Subjects involve in theimplementation of PES schemes include the Kingdom of Cambodia, governmentagencies like Ministry of Environment and Ministry of Agriculture, Forestry andFisheries (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

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

The activity of community – based ecotourism was designed in 2004 in the village ofTmatboey 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 tourismcontracts between local people or contracted community wildlife rangers and the SamVeasna Center (SVC) SVC is working with WCS on this project with the role ofmanaging bird viewing tours, supervising nest protectors and conducting directconservation payment for them This program is highly appreciated and is can beconsidered as a good model for the PES implementation in the field of biodiversityconservation

PES is considered as an important financial tool to provide incentives for the naturalresource management, biodiversity conservation and sustainable utilization Thisscheme 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,

2016) To achieve this target, some activities need to be implemented such as awarenessraising on PES, institutional strengthening, developing options for payments, PESagreement 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 theless positiveness and the cease of PES when the support completed; the lack oflegislation document specialized on PES at national scale; the limited knowledge onPES and gap between the rich and the poor also lead to the damage activities to theenvironment

PFES policy and VNFF in Vietnam

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

PFES policy in Vietnam

Vietnam has joined in many international commitments and conventions related toforestry (CITES, RAMSAR, CBD, UNCCD, etc ) that opened more favourableconditions for agriculture and forest enterprises With the total of forest land area isnearly 14.5 million hectares7, forests play an important role in the economy and sociallife of Vietnam In addition, many Vietnamese people are currently living in or nearforests, most of them are ethnic minorities whose living depends on forests includingfoods, culture, habits, customs, beliefs Fuelwood, bamboo shoots, rattan, wildlife andherbs are the forest products widely harvested by local people The Government has alot of policies to protect and develop forests as well as to ensure the life of people in themountainous areas in which the ethnic minorities is considered as the core factor offorest protection However, state budget to support the forestry sector is limited, cannotsatisfy increasing demand for the development of mountainous people and forestrysector Experience from many countries in the world show that the implementation ofpayments for environment services especially for forest environmental services bringhuge 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

policy will create a stable mechanism to mobilize social resources to support the forest protection and provide more income for local people.

Recognizing the above context, Government of Vietnam conducted important steps to formulate the PFES policy The key milestones were summarized as below:

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 5February 2007, by the Prime Minister) is the foundation to enable Vietnam to become amodernized industrial country by 2020 Of which, piloting payment mechanisms forforest environmental services to reinvest for forest protection and management is one ofdevelopment priories VFDS also defined that the Program on the biodiversityprotection and conservation and the development of FES is one of the priorities ofVietnam 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 documentmentions 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 ofunderstanding between the Government of Vietnam and Governments of Finland,Netherlands, Sweden and Switzerland to support the implementation of VFDS TFFworked as a financial mechanism to mobilize funding from international donors to dealwith priorities of forestry sector related to the pro-poor support and sustainable forestmanagement Purpose of operating TFF is to pilot the model of an entrusted fund anddraw lessons learnt to establish the forest protection and development fund As theresult, the Government issued Decree 05/2008/ND-CP in 2008 on forest protection and

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

At the same year, PFES scheme was being piloted in Lam Dong in the Central Highlandsand Son La in the North for two years under the Prime Minister’s Decision no 380/QD-TTgdated 10/4/2008 During this pilot phase in Lam Dong, Vietnam received the importantsupport from United States Agency for International Development (USAID) through theproject on “Dong Nai River Basin Conservation” conducted by Winrock Internationalorganization 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 LamDong Province (Nguyen, T B T., et al., 2011) The pilot phase in Son La received supportfrom the German Agency for International Cooperation (GIZ) through researches under theprogram on management for natural resources These agencies provided financial andtechnical supports to complete the pilot phase and created a basis for the formulation of alegal framework on the PFES policy applicable nationwide The most important legaldocument 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 paymentlevel of Decree no 99 These decisions provide important regulations that created a paymentmechanism between forest environmental service users and suppliers Accordingly, thepayment for forest environment services is understood as a provision and paymentrelationship in which users of forest environment services pay to providers of theseservices8 It can be

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

said that the Vietnamese Government has a set of specific legal framework and essentialpilot process to disseminate the implementation of PFES throughout Vietnam.

Following the issuance of the Decree 99, a range of guiding documents have beendeveloped and come to life List of these legal documents is shown in the Annex 1

In the new context with many changes of forest status as well as the factors related to thePFES such as the inflation, high demand on income increase, consumption price for theFES changes and there are more and more FES users involve in national economy TheGovernment therefore updated and supplemented regulations on PFES activities TheLaw on Forestry no 16/2017/QH14 dated 15 November 2017 is the highest legaldocument that regulates provisions on PFES and FPDFs The Decree 156 of theGovernment dated 16 November 2018 guiding the enforcement of the Law on Forestry

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

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 carbonsequestration 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 agencieslike VNFF and provincial FPDFs also provided technical guidelines for not only FESusers but also FES providers to implement PFES activities A lot of handbooks andmanuals 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 theAnnex 2

Even there are some changes in rate of payment as mentioned above, the PFESdistribution 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 FESproviders As regulation, forest protection and development funds will collect moneyfrom FES users through signing entrusted contracts After deducting administration feeand 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

providers (or FES delivers) If FES providers are households, individuals orcommunities, they will receive 100% amount of PFES In the case that FES providers(forest owners) are organizations, they are deducted 10% for administration fee, theremaining will be transferred to households, individuals or communities whichcontracted 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 toPFES implementation are defined as below:

Figure 2.7 PFES stakeholders10

In this model, PFES policy in Vietnam regulates close relationship among relevantstakeholders They are forest owners who are households, communities, forestmanagement 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

forest protection and management FES users such as hydropower companies, cleanwater suppliers, tourism companies, industrial production facilities, aquaculture facilities

or any subjects which use ecosystem services for their production and business Inprinciple, 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 thoseenvironment services Certainly, the system of FPDFs and forest management agenciesfrom the central to the local are also included in this model In the PFES implementationprocess, FPDF plays as intermediate agency to sign entrusted contract with FES users tocollect PFES money and disburse to forest owners The forest management agencies areresponsible for monitoring and controlling the whole process of PFES policyimplementation The nature of this model is to regulate the relationship between usersand suppliers, or in other words is the relationship between buyers and sellers in thefield 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 fromFES users through the entrusted contracts of PFES and pay for the forest ownersaccording to their forest area providing these services VNFF in the role of the centralfund is in charge of collecting, coordinating and monitoring payment to FES userswhich locates from two or more provinces and supports the operations of the provincialFPDFs The Organizational structure of VNFF is shown as below:

Figure 2.8 VNFF’s Organizational structure11VNFF is established under the Decision no 114 of the Ministry of agriculture and ruraldevelopment (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 memberswho are leaders of MARD, representatives of MPI, MoF, departments under MARDsuch as planning; finance; international cooperation; science, technology &environment; forest protection; Vietnam administration of forestry BoD is in charge ofapproving the annual work and financial plan of the VNFF, issuing regulations to servethe VNFF’s operation, organizing the receipt, management and utilization the finance ofthe VNFF in an effective manner Two BoD meetings are organized every year to listenreports on VNFF’s performance and endorse the plan as well as the big issues of VNFFwithin the year The control board of the fund includes three members from MARDdepartments, supports BoD to monitor and supervises the implementation of VNFFunder the approved regulations, timely defines and reports BoD the violations of theVNFF during its operation The members of Control Board are able to join in the BoDmeetings but do not have the right of voting The VNFF management unit (VNFF

11 Source: Vnff.vn

MU) consists of the Director, 01 Deputy Director, Chief Accountant and functionalunits Director of the VNFF MU is appointed and dismissed by the Minister of MARDaccording to the request of the BoD At present, members of BoD, control board andDirector 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 fulltime as signed contracts The organization structure of VNFF also includes fundingwindows with REDD+ fund and others, however, until now, the REDD+ fund has notbeen established and others are not recorded

According to the PFES distribution mechanism, VNFF signs entrusted contracts with thebig companies, which locate from two provinces It will keep 0.5% of collected PFESfor administration fee and remaining will be transferred to the provincial FPDFs.Provincial funds will disburse this PFES to forest owners after deduction of 10% adminfee and 5% contingency This means only indirect payment is conducted through theFPDF 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 FESusers and the forest management authorities With a lot of benefits created, this policy isconsidered as a good policy to support the development of forestry sector in Vietnamand 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 anddevelopment funds and PFES, however, two typical reports are usually mentionedincluding: Reports on 8 years of operation of forest protection and development fundsissued in 2016 and after that is the report on reviewing 10 years of operating these fundsissued 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

Context of conducting this report firstly come from the requirements of MARD underthe Decision No 485/QD-BNN-TCLN dated 18 February 2016 issuing the plan ofreviewing 8 years of organizing and operating forest protection and development fundsfrom 2008 to 2015 and 5 years of implementing the PFES policy This decision statedclearly the objectives, contents, the roadmap of the evaluation The scope of thisevaluation covers across the country for the whole system of FPDFs from the central tothe local The necessity of implementing this national evaluation due to the process ofimplementing regulations and policies has revealed some shortcomings and limitations,namely: The organization and management model of the FPDF has not been clearlydefined 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 fromthe Technical Assistance project “Improving Payment for Forest EnvironmentalServices” 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 MARDthrough the Decision 485 By the profound knowledge, professional evaluation skillsand methodology in associated with the close cooperation and support of staff andagencies at all levels, two experienced experts namely Dr Nguyen Chi Thanh and Prof

Dr Vuong Van Quynh completed the report with high appreciations from relevantstakeholders The report showed the policy gaps with shortcomings and proposedadjustments, supplementations related to revising existing legal documents on FPDFsand PFES At the time of implementing this report in 2016, 40 provincial FPDFs wereestablished 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), 28remaining PFPDFs were managed by Department of Agriculture and RuralDevelopment (DARD)

Figure 2.9 Development of PFPDF quantity as of 201512Experts showed the difference in legal position of provincial FPDFs and proposed toadjust regulations in the Decree 05 on this issue The authors also pointed out thedifferent regulations on the self-control and self-financing mechanism among provinceswhich cause the difficulties in defining legal status of some FPDFs as well as theobstacles during their operation The structure of VNFF at that time not only takes overthe 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 PFEScollection were presented clearly According to the VNFF’s report on PFESimplementation in 2015, many hydropower companies delayed the payment with the bigamount 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 PFESrevenue 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 and

development fund (2008-2015) and 5 years of implementation of the PFES policy (2011-2015)”, Thanh, N.C.,

Quynh, V.V., 2016

These are some examples on the difficulties and challenges in the 8 years reports Theexperts provided their analysis on these issues as well as propose recommendations foreach content It can be said that this evaluation report provided very fruitful informationand inputs VNFF also used information to propose higher level with the adjustment andsupplement some legal document After this assessment mission, the Decree no.147/2016/ND-CP dated 02 November of the Government on revising, supplementingsome 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 ofthem was used by VNFF in developing another report on March 2017 to review FPDForganization and operation for the period 2008 – 2016 and Implementation of PFESpolicy for the period 2011 – 2016

Both two reports above provided deep analysis & extremely helpful recommendations tofor 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 andRural development on reviewing 10 years of organization and operation of forestprotection and development funds Purpose of this report is to summarize allachievements, obstacles and challenges that impact the organization and operation ofFPDFs system from the central to the local in the period 2008 – 2018, then draw thelessons learnt to revise and supplement current legal documents and mechanism forbetter operation of FPDF system in the future During the preparation of the report, therehave been technical contribution and inputs of experts from Institute for forest ecologyand environment The final report was finalized and presented by VNFF managementunit at the workshop on review 10 years of operating FPDF system organized in Hanoi

on 19 October 2018

The necessity of this review comes from the new context of implementing the PFESpolicy A wide range of important legal documents have been revised and issued such asthe Decree 147/2016/ND-CP to revise some Articles of Decree 99 in 2010, Decree41/2017/ND-CP on administrative sanctions for violations in the field of forestmanagement, development and protection, and forestry product management, Law no

16/2017/QH14 on forestry, Circular 04/2018/TT-BTC on guiding the management andutilization of PFES money and some other relevant documents These are keyregulations which have a major impact on policy enforcement as well as fundoperations The new regulation of the Decree 147 is the increase of payment level forsome environmental services such as hydropower generation, clean water supply, andprovide regulation for using water from forest for industrial production and aquaculture

as mentioned in the previous part The Decree 41 revised some Articles of Decree157/2013/ND-CP provided specific regulations in Article 3 on the violation activities,sanctions forms and level, measures for violations, etc in the field of forestmanagement, development and protection, and forestry product management Circular

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

As of 2018, there have been 44/60 forested provinces established FPDFs The number ofFPDFs is initially 4 provincial funds in 2009 up to 44 provincial funds in 2018 Afterpilot 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 highlyappreciated 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

As recorded by VNFF in 2018, 11 PFPDFs are under management of PPC and 33PFPDFs are under management of DARD Depend on the scale of each fund, thestructure of provincial FPDF management unit may be divided into different functionaldivisions Only Son La province has the system of FPDF at district level and under themanagement 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 ofFPDFs system become important in implementing PFES policy, especially in thecontext of increasing PFES revenues by adjustment of unit price for currentenvironmental services and the piloting more services of industrial water andaquaculture 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

Note: Data from VNFF, 2018

As above table, the VNFF and provincial FPDFs have signed 613 entrusted contracts, ofwhich 92 contracts from VNFF and 521 contracts from provincial FPDFs However,VNFF has not signed any contract with tourism companies The result of PFEScollection as of Sep 2018 is indicated in the below table:

Table 2.7 The PFES collection as of Sep 2018

Unit: bil VND