Updated: February 2014
Support for the National Roll Out of Payment for Forest Environmental Services (PFES)
and Benefit Sharing Mechanisms in VietNam
A Project of ADB’s Poverty and Environment Program (PEP)
A. Basics
Total project cost: $369,605
PEP funding: $344,605
Approval date: July 2011
Implementation period: October 2011 – October 2013
Main project partner: Quang Nam Department of Agriculture and Rural Development
Project officer: Lauren Sorkin, ADB VietNam Resident Mission
Type of intervention: Pilot intervention
Focal area: Natural resources and sustainable livelihoods
B. Background
Viet Nam is one of the 10 most biologically diverse
countries in the world, possessing natural ecosystems
from tropical jungles to dry forests, mountains,
wetlands, and marine ecosystems. Recognizing that
these ecosystems are essential to human life, the
government advanced a policy framework to assign
values to ecosystem services and to enable payments
for forest environmental services (PFES) to be
collected and disbursed to resource managers.
PFES is a market based system under which people
receive compensation if they provide forest protection services. The Safeguards benefit-sharing
mechanisms (BSM) approach undertaken in previous ADB activities are mandatory. People get
paid whether they provide an environmental service or not. The challenge is to combine both sets
of payments. Under the PFES decree, payment mechanisms are more flexible. In Lam Dong,
households Forest Management Boards, and the DARD got together and worked out a system of
payments and service provision over a period of about 3-4 months of discussions and finalization
of the mechanism.
ADB had been working with the Electricity and Regulatory Authority of VietNam (ERAV) since
2006 to design BSMs to provide social safeguards through support for environmentally
sustainable livelihood activities for affected peoples in areas of hydropower investments. This
work, which has been undertaken to support the 210-megawatt A Vuong hydropower project in
Quang Nam province, helped pilot successful approaches to sharing the financial compensation
payments provided to affected peoples as a result of the project.
Viet Nam’s Decree 99/2010, issued in January 2010, mandates nationwide application of PFES
schemes for the following services: (i) soil conservation, reduction of erosion, protection against
sedimentation of reservoirs and river beds, (ii) regulation and maintenance of water supply for
production and social life, (iii) absorption and storage of carbon, (iv) protection of the natural
landscape of forest ecological systems for tourism purposes, and (v) provision of breeding
grounds, food supply, and water resources necessary for aquaculture.
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The types of safeguards payments made under the A Vuong BSM agreements differ from PFES
payments. BSM payments are made to compensate households that have been physically
displaced or whose economic activities have been disrupted by a hydropower investment.
Payment for ecosystem services mechanisms are paid to households providing forest protection
services. Forest protection services are provided in expectation of an increased profit to a
hydropower facility through reduced plant and operating costs via avoided siltation. Under the
PFES Decree 99/2010, a larger group of individuals in Quang Nam Province is entitled to receive
payments from ecosystems services provided to the hydropower investment, as stipulated by the
PFES Decree. A combination of compensation payments through BSM mechanisms and forest
protection contracts under Vietnam’s PFES decree represents strong potential to strengthen
ADBs safeguards approach, improve livelihoods of displaced and/or economically disrupted
families, and improve returns to hydropower investments.
Under Decree 99, MARD successfully assigned values for the first three services outlined in the
decree and began to collect revenues. However, capacity at the provincial scale, the basic level
at which Decree 99 intends the PFES to be carried out, is lacking. Key challenges to the scaling-
up and widespread implementation of the PFES identified by authorities include lack of reliable
forest information, and lack of financial resources and capabilities. Provincial authorities
particularly point to the cost and time required to survey forest resources and issue individual
household contracts as a major constraint.
C. Summary of PEP assistance
The objective of the project was to pilot a new benefit sharing mechanism under the PFES Decree,
testing and expanding the model developed in Quang Nam province with a new type of revenue
stream. The project expanded the existing benefit sharing mechanisms (BSM) to distribute
payments for forest ecosystem services (PFES) in the forested watershed catchments upstream
from two hydropower projects – A Vuong and Song
Bung 4 – in Quang Nam province. In five villages, the
project tested an adapted PFES approach based on
PFES Groups rather than individual households,
providing a model that is less resource-intensive and
consequently more realistic for scaling up at a
provincial level. Finally, the project assisted the project
preparation committee in developing a provincial plan
for PFES implementation, with this plan integrated into
the overall provincial plan for forest protection and
development that is currently being prepared.
As stated in the original proposal, the TA had four main planned outputs:
Output 1: Economic evaluation of environmental services standardized at the provincial
level. The TA will analyze the valuation and pricing of environmental services in VietNam
compared to other developing countries in the region (India, People’s Republic of China)
and outside the region (Costa Rica, Ecuador, Kenya) through a desk study. The TA will
then carry out pilot projects to collect PFES for aquaculture and forest carbon. Building on
this work, the TA will produce a roadmap for integration of potential additional values in
national and provincial socioeconomic development planning, including the use of
decision support tools. To support provincial level implementation, the TA will also develop
an assessment of management options for provincial level socioeconomic development
planning and sector master planning.
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Output 2: Mechanisms for PFES valuation, management, and distribution piloted and
institutionalized. The TA will produce a gender-sensitive streamlined regulatory framework
for forest patrolling and PFES management, including guidelines for (a) integration of
ecosystem service values into provincial level planning and budgeting cycles, (b)
transparent accounting of PFES collection and benefit distribution, and (c) monitoring and
evaluation of PFES implementation using geographic information systems for integration
with existing forest inventory and land use planning efforts.
Output 3: National and provincial policymakers provided the capacity to value ecosystem
services and integrate them into economic development planning. A gender-sensitive
impact assessment of PFES pilot schemes and an institutional mapping exercise and
baseline survey of the capacity needs of target policy makers and stakeholders will be
carried out so as to build support for implementation of the improved PFES approach.
Results of the mapping and capacity assessment will be used to develop a female-friendly
capacity action plan, and a PFES “champions network” will be set up.
Output 4: Best practices and lessons captured and shared. VietNam is a leader in PFES
implementation. To enable it to continue to build national and regional capacity, a
communications and knowledge management plan will be developed.
The project is expected to continue to collaborate closely with other related national level
initiatives. By supporting outputs 3 and 4, the project aimed to build more lasting capacity for
continued improvement in PFES implementation.
To support the achievement of these four outputs, ADB recruited a team of consultants consisting
of the following: Team Leader / Benefit Sharing Specialist; Benefit Sharing Specialist; GIS
Resource Person; GIS Specialist; and Environment / Livelihoods Specialist.
The pilot intervention consisted of the following activities:
Economic evaluation of PFES in the areas of the A. Vuong and Song Bung IV
hydropower projects to determine appropriate levels of PFES payments.
Capacity Development workshops for Department of Agriculture and Rural Development
(DARD), provincial-level Departments of Natural Resources and Environment
(DoNREs), Department of Industry and Trade (DOIT) and utilities on valuation of
services and monitoring and evaluation.
Monitoring stations set up to establish a baseline and monitor PFES in project areas.
For each of the two hydropower projects (A Vuong and Song Bung IV), a plan to collect
revenue from the hydropower stations and distribute revenue to households in
communes within the watershed.
For each of the projects, contracts between buyers and sellers of the PFES to implement
the plan over a set period of time associated with investment and operation of the
infrastructure project.
A final report disseminated in English and Vietnamese.
Using the project investment of $344,605, the project was able to establish contracts with 1,051
households in 15 villages through PFES groups and advance 3 provincial decisions supporting
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PFES implementation. With the same budget, a previous project established PFES contracts in
only 2 villages.
Obtaining government buy-in was a challenge at the outset because the project represented a
departure from previous organizations support to PFES in Quang Nam. However, once project
activities began (in May 2012), the DARD’s establishment of PFES contracts with local
communities were able to speed up by 90 percent.
D. Long-term impacts, sustainability, and lessons learned
The impact of the pilot intervention is increased capacity to apply PFES schemes in Viet Nam.
The outcome is an investment approach the Government of VietNam will mobilize to combine
payments from social safeguards mechanisms with PFES mechanisms to improve livelihoods
and increase returns to hydropower investments. The project set out to benefit local communities
in the immediate areas of ADB’s ongoing hydropower investment and demonstrate that provincial
authorities—in partnership with communities and other stakeholders—can scale up PFES largely
on their own. The lessons from the project can spur more local actions and intensify PFES
implementation across Viet Nam.
Through the Provincial Decision on PFES in Quang Nam,
a new investment approach was piloted for distribution of
PFES to household groups. Under the Decision, PFES
payments are made to groups every 3 months. Of this
payment, 20% to 40% of the total PFES funds received are
set aside for investment in productive activities. Household
groups agree on which investments are made in productive
activities, the amount of the deposit, the labor assignment,
purchases and distribution of benefits from revenues.
Given successful implementation across 3 impoverished
communes in Quang Nam, Government of VietNam can mobilize the same approach to combine
payments from social safeguards mechanisms with PFES mechanisms to improve livelihoods
and increase returns to hydropower investments.
The experience is instructive of the options that may be taken to speed and scale up PFES
implementation at a provincial level throughout Viet Nam. A group approach to PFES has many
advantages. Under the approach, 10 or more households from the same village are grouped
together to perform forest protection and maintenance services, in exchange for which they
receive payments from the Fund for Forest Protection and Development. Specifically, the group
approach: is much quicker, more cost-efficient, and puts less pressure on the administration, as
compared to the approach of individual household contracts; fosters social cohesion and
enhances the culture and traditions particularly of ethnic minorities; builds social capital and helps
with contacts with outside organizations; and facilitates the establishment of communal livelihood
activities. The PFES beneficiaries can use these payments for group livelihood activities or as
individual household incomes.
GIS is a much-quicker and more accurate method for generating forest inventories than detailed
ground surveys. These inventories, captured in maps showing the location and condition of the
forests, are essential to calculating the K-coefficients and PFES payments due to individual
communes. They also hasten the allocation of forest plots to PFES groups.
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The process for establishing the PFES contracts and monitoring systems as applied in the project
and described in the final report is highly replicable across Viet Nam. In addition, this type of
project could, with the appropriate legal framework be applied in Lao PDR. The project will be
upscaled in 2014 with a follow – on grant from the Japan Fund for Poverty Reduction. The results
are also shared with the GMS Environment Operations Center in Bangkok for their dissemination
to relevant projects in the region.
Moving beyond provincial implementation issues, a deeper understanding of payments for
environmental services is required in order to mainstream resource accounting in development
planning. This will necessitate a broader range of ecosystem services and, as indicated in Decree
99, a shared methodology and approach to the integration of ecosystem services in provincial
and national economic planning. In particular, it is critical that MARD and the Ministry of Natural
Resources and Environment (MONRE) cooperate to synchronize land use planning and forest
master planning, including ecosystem services accounting.
Improvements in provincial implementation require greater accountability at the village, provincial,
and national levels. To address these issues, a follow on assistance to the project is planned by
ADB in 2014. That TA will support analytical studies, pilot demonstrations of payment and
accounting systems, policy development, knowledge management, and capacity building.
. Services (PFES)
and Benefit Sharing Mechanisms in Viet Nam
A Project of ADB’s Poverty and Environment Program (PEP)
A. Basics
Total project. October 2013
Main project partner: Quang Nam Department of Agriculture and Rural Development
Project officer: Lauren Sorkin, ADB Viet Nam Resident Mission