Intervention Summary
Title: Spatial Planning and Low Carbon Development in Papua
What support will the UK provide?
1. The UK will provide £10 million to support the Government of Papua to avoid large
scale deforestation and instead develop a low carbon green economy. This
support will be provided over 30 months to March 2015.
Why is UK support required?
2. Indonesia has the world’s third largest area of tropical forest (around 90 million
hectares), as well as extensive carbon-rich peat lands (around 20 million
hectares). The maintenance of this extensive forest cover is crucial to the world’s
efforts to control climate change.
3. Papua’s forests are largely intact and cover an area of 32 million hectares. But
there is growing pressure to convert Papua’s forest areas. Other provinces in
Indonesia have followed a high carbon development approach, driven by large
scale, capital intensive projects (plantations, industrial forestry and mining). Since
1950, over 50 million hectares of tropical rainforest have been lost through this
development path.
4. The Government of Papua has specifically asked the UK to work with it to deliver
an alternative development approach in Papua which retains Papua’s forest
resources, while providing opportunities for Papuans to benefit and an easier
business environment for low-carbon enterprise and investment.
5. In Indonesia each province is legally required to develop a Spatial Plan (i.e. a
land-use plan), which sets out what the land in the province can be used for. This
plan goes through a formal national approval process before becoming a legal
document. Land-use plans cover a 20 year period, but are reviewed every five
years. The provincial government in Papua is seeking to deliver a more low
carbon future for Papua through ensuring that the land-use plan supports this.
This plan is now awaiting approval at the national level.
6. UK support is needed to assist the government, communities and the private
sector to work together to deliver this alternative approach. Without support for a
different approach, it is very likely that Papua will follow the development paths
seen in other provinces such as Kalimantan and Sumatra.
7. The UK is in an excellent position to provide this support. Since 2009, the UK has
been building strong relationships with a large cross section of important
institutions and individuals in Papua. Specifically it has worked with the
Government of Papua to prepare its proposed Spatial Plan and with government
institutions and entrepreneurs to develop flagship green projects that demonstrate
that there are viable economic alternatives to plantations, industrial forestry and
mining.
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8.
9.
But much remains to be done. This programme will support:

Improvements in the spatial planning expertise in government from the
provincial level down to the sub-district level, enabling greater coherence
between plans and agreements between key stakeholders, greater buy-in to
the provincial spatial plan and reductions in deforestation.

The development of a green investment strategy for Papua, including the
creation of a Green Investment Facility, and the development of a pipeline of
projects. This will also include support for small and medium enterprises
(SMEs) at the district and community level.

Partnerships between civil society and the private sector on spatial
planning development and implementation. It is crucial that civil society and
the private sector understand and support the spatial plan and work closely
with government to ensure its successful implementation.

Increased understanding of the importance of environmental issues and
a low carbon pathway among Papua’s people and media.
This business case covers 2 interventions:

A programme of support to spatial planning and low carbon development in
Papua - £8.5m.

An Accountable Grant to The Borneo Initiative to support the certification to an
international sustainability standard (FSC) of up to 1.25m hectares of forest
concessions in Papua - £1.5m. Strategically, this is in line with the support to
the investment strategy part of the programme.
10. The majority of the programme will be implemented by Papua Province and the
administrations of five pilot districts, with assistance from the UK. Civil society
(especially in pilot districts) and the private sector are also expected to play
significant roles. It is in line with the International Climate Fund (ICF) purpose of
“supporting international poverty reduction by helping developing countries to
adapt to climate change, take up low-carbon growth, and tackle deforestation”.
11. The UK’s existing work and relationships supporting the provincial government in
spatial planning in Papua makes it well placed to deliver this programme.
What are the expected Results?
12. This programme will operate over a 30 month period, but will deliver results over
the entire period of Papua’s Spatial Plan (up to 2030). The primary result that will
be delivered over the life of the spatial plan will be:

a reduction in the rate of deforestation by 25% over what would have
happened without UK support. This will amount to a 1.87 million hectare
reduction in planned deforestation, reducing carbon emissions by 224 million
tonnes.
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13. By the time this programme ends in March 2015, it will have delivered:

Improved capability of the Provincial Government to plan, coordinate and
monitor land use, including alignment of other line ministries and mechanisms
for engagement with civil society and the private sector;

A system that will mean all land-use licenses issued at provincial and district
level are in line with provincial and district spatial plans;

At least 38 low carbon enterprises supported of which 18 will have secured
financing and will have started-up;

A green investment fund established and operational to channel international
and domestic finance to low carbon investment in Papua; and

1.25 million hectares of plantation working towards an international
sustainability standard.
14. This is a high risk programme, in a sensitive conflict-prone area, but with potentially
very high returns in terms of helping Indonesia meet its own climate change
commitments. Given the sensitivity of the situation in the province, it will also be
important that the programme is conflict-sensitive and the approaches adopted
serve to strengthen community / government relationships wherever possible.
Strategic Case
A. Context and need for this DFID intervention
1. Indonesia is a major emitter of greenhouse gases (GHG), and will be crucial to the
success of any global strategy to reduce such emissions and the risk of man-made
climate change. Almost 80%of Indonesia’s current GHG emissions stem from
deforestation and land use change. Indonesia has committed to supporting global
efforts to reduce GHGs, with a commitment to reducing its emissions by 26% below
business as usual projections by 2020 (or up to 41% with international assistance)1.
Unsustainable development in Papua will affect Indonesia’s ability to meet these
ambitious targets and in turn this will affect global efforts to tackle climate change.
2. Indonesia still has substantial intact forest areas and peat lands, the majority of
which are located in Papua. Sensible management of these landscapes could
improve the welfare of millions of rural Indonesians, whilst also setting the economy
– both provincially and nationally - on a path of higher productivity and more resilient
prosperity.
3. The rate of deforestation in Papua is historically low compared to that of Sumatra
and Kalimantan. However, threats particularly from logging, mining and oil palm are
emerging and pressures on Papuan forests are expected to grow in the near future.
Papua (and neighbouring province of West Papua), has large areas of high quality
1
For the Forestry and Peatlands sectors this equates to savings of: 0.672 Gigatonnes CO2e (26%) and 1.039
Gigatonnes CO2e (41%) by 2020.
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forest, and is highly vulnerable, unless the approach taken by the authorities to
development in the province changes.
4. In governance terms, Papua differs from most of the rest of Indonesia because it
operates under the 2001 Special Autonomy Law, which shifts the balance of
authority from the district to the province. However, many of the provisions of
Special Autonomy have yet to be implemented. In the absence of implementing
regulations, earlier laws still apply. This has created institutional tensions and
overlapping agencies and offices at local, provincial and national levels that now
regulate Papua’s forestry and natural resources.
5. Disputes over land and natural resource rights are a key aspect of the tensions in
Papua. If sensitively implemented, this programme has the potential to contribute to
reducing tensions. It will be important to support the provincial government to
engage more systematically with civil society and to establish credible and
transparent oversight mechanisms.
6. Papua also:






has the lowest population density in Indonesia – it covers 16% of the country’s land
mass, yet hosts just over 1% of the population. However, it has the highest
population growth rate of any province (5.46% per year, 2010 census2), fuelled
mostly by in-migration;
is the most polarised province in Indonesia, with rural poverty increasing
has the worst human development outcomes in Indonesia – and some indicators
such as literacy are falling (the Human Development Index is worse in some districts
than in parts of Africa);
struggles to draw private finance into the local economy. The province suffers net
capital losses of USD 2 billion a quarter – money that could otherwise support a lowcarbon transition. A bank deposit surplus of $1 billion (the difference between the
amount saved in local banks and the amount lent to local firms and individuals)
reflects the lack of investment opportunities in the province;
does not have systems in place which ensure the benefits from natural resource
extraction are shared equitably – for example, average compensation for loss of
access to forest is around $2 per hectare, compared to the direct use economic
value of up to $640 per hectare. The current approach is therefore likely to
exacerbate conflict;
is highly reliant on cash transfers from Jakarta – only 6% of the public sector budget
is raised through taxation and increasing budget reliance on the Special Autonomy
grant (Dana OTSUS) - particularly at the district level, but there is no plan for what
will happen when these payments cease in 2022.
7. Despite these challenges, Papua has an administration which is proactively seeking
to apply an alternative, greener development model. It envisages an alternative, LCD
pathway which is based on recognition of rights and development aspirations,
provides opportunities for Papuans to benefit from the use of their own resources,
and offers certainty for investment and industry based on transparent and socially
2 Hasil Sensus Penduduk 2010 (Data Agregat per Provinsi), Badan Pusat Statistik, Jakarta
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inclusive decision making processes. Papua therefore provides a significant
opportunity to support emissions reductions and a more low carbon development
approach over the long term, and to attract carbon finance.
8. In Indonesia each province is legally required to develop a spatial plan (a land-use
plan), setting out what the land in the province can be used for. This plan goes
through a formal national approvals process before becoming a legal document
which is intended to guide future land use allocations in the province. Land-use plans
cover a 20 year period, but are reviewed every five years. At present, links between
land-use planning at the provincial level, and land-use planning at the district level
are often weak, meaning even where land-use plans afford protection, this is often
not applied at the district level and below when land-use licenses are allocated.
9. The provincial government in Papua is trying to use the national land-use planning
system to help it deliver a more low carbon future for Papua. Over the last three
years, UK support has helped the provincial government to develop a revised landuse plan. This new plan reduces the area planned for deforestation by 25% by 2031,
amounting to a 1.87million hectare reduction in planned deforestation. This plan is
now awaiting approval at the national level.
10. Provincial land-use plans should reflect medium and long-term development plans,
and should themselves guide district plans, using ecological and social data to inform
planning choices. This would mean land allocations are clearly justified by technical
data. This is important because district level leaders have a significant amount of
power when it comes to land-use allocation decisions. Currently, district leaders can
issue licenses, but since many district plans are not in place, or do not relate to the
provincial plans, these license allocation decisions are largely determined by
financial and political motivations – licensing systems in Indonesia are notoriously
corrupt and un-transparent Additional licenses may be given out by national
ministries, or in line with national programmes which have not considered provincial
land-use plans. The result is many overlapping licenses, which do not relate to
provincial land-use plans, and which often do not take into consideration the
suitability of the land, the existence and welfare of local communities, and long-term
sustainability. Low Carbon Development has not been a feature of district level
land-use plans to date. The licensing issue is highly sensitive - resolving it will
require better land-use allocations going forward, as well as comprehensive reviews
of existing licenses.
11. A focus on increasing expertise of land-use planning functions and on low carbon
development in Papua could substantially help Indonesia to sustain reduced
emissions (compared to a Business as Usual scenario) beyond 2020. From an
economic development perspective, the Province still has the potential to change
course to a less carbon intensive trajectory - at less cost to existing economic activity
than may be the case in other regions.
12. The Provincial government cannot tackle planned and unplanned deforestation and
deliver the transition to a low carbon economy by itself. Beyond the planning phase,
it is the implementation of the agreed land-use plans which will ensure the longer
term sustainability of Papua’s natural resources and secure reductions in emissions
and deforestation over the long term. It is critical for the success of the transition
from planning to implementation that civil society and the private sector can engage,
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both in planning and in implementation. Ensuring transparency of decision-making
processes, and encouraging debate on the implications of adopting land-use
planning policies at provincial and district levels is also crucial.
Support to date, coherence with other International Climate Fund programmes
and donor coordination
13. This business case builds on three years’ prior support from the UK to the Papua
Provincial Planning Agency (Bappeda) by the FCO Strategic Programme Fund
(SPF), DFID Indonesia, and the UKCCU, complemented by support from The
Netherlands and USAID. Since April 2009, UK support has focused on the
development of a Sustainable Development Blueprint for Papua, as well as
supporting work on the draft Provincial Spatial Plan (2010 – 2030) and the
development of a green investment strategy.
14. As a result of this relationship, the provincial government of Papua has requested the
UK to provide longer term support on low carbon development, to help take forward
its vision for a greener future for Papua. The UKCCU has set in place interim
contracts providing support to Low Carbon Development and to Land-use Planning
to ensure continuity up to the point where an overarching contract can be procured
and put in place. This work has been cofounded by DFID and under the FCO
Prosperity Fund.
15. Work to date has focussed on supporting the provincial planning office (Bappeda),
and included the development of a core team of champions for low carbon
development, consisting of the heads of Bappeda’s divisions on development
planning, land-use planning, coordination, monitoring & evaluation, research and
information and also representatives from the Regional Investment Board, Public
Works and the Provincial Natural Resource Management and Environment Agency.
The support provided by the UK on land-use planning has already generated results,
enabling Bappeda to prepare a technical case to reduce the area allocated to the
Merauke Integrated Food Estate (MIFEE) from 2.5 million ha to an initial allocation of
208,000 ha which excludes primary forest and peat lands.
16. In addition to providing support on land-use planning, the UKCCU has been
supporting the Papua Low Carbon Development Task Force (PLCDTF), which was
formed in early February 2010 3. The task force, which reports directly to the
Governor, aims to act as a catalyst for action to harmonise policy and practice
between government agencies and institutions, NGOs, the private sector and
communities to support low-carbon development.
17. The UKCCU has also supported the Papua Green Entrepreneurs network, a
business group active in local private sector associations and community enterprise
initiatives which works with the PLCDTF. This network is now benefitting from
business development support through a current UKCCU consultancy4 to help it
deliver a pipeline of tangible low carbon projects. Three of the current projects may
be suitable for more evaluation and possibly funding:
3
4
Papua Governor's Decree No: 105/2010
Described under Business Support Services (BSS) to PLCDTF later in this document.
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
Community Logging and Timber Processing (Jayapura),

Smallholder Cacao Value-added Processing (Keerom) and

Waste Management and Power Generation (Jayapura).
18. The PLCDTF is also being supported by the Climate and Land Use Alliance (CLUA)5
through contributions to office costs, communications and staffing.
19. However, the task force is established on a governor’s decree – and with
gubernatorial elections upcoming in Papua, its future is uncertain. Future UK
assistance will therefore be embedded in the formal provincial government structure
(especially Bappeda) with PLCDTF – or another institution if required - as a partner.
20. A number of other UK-funded programmes forestry and land use programmes have
the potential to support the Papua programme indirectly. The UKCCU will regularly
bring together stakeholders from those programmes to ensure coherence and
maximise opportunities. The programmes are as follows.
21. The Transparency & Accountability in Land Use (SETAPAK) programme
implemented by The Asia Foundation aims to increase transparency, participation
and accountability in the implementation of land use and forestry policies. Papua will
be one of the programme’s four provinces. The SETAPAK programme has been
asked to develop a specific programme of activities in Papua which would support
the provincial government’s ambition to promote transparency and accountability.
22. The World Resources Institute’s (WRI’s) POTICO programme is supporting the
extension of previous work on identifying degraded land in West Kalimantan into
other parts of Kalimantan and Papua. The project is expected to be completed in
early 2013. Outputs for Papua will include maps of degraded land, determined from
recent remote sensing. These maps will be freely available to all stakeholders.
Previous work by WRI on the potential for land swaps using available degraded land
instead of allocated forests for oil palm plantations, will also benefit the land-use
planning process and may help identify potential LCD projects in Papua.
23. The Multi-Stakeholder Forestry Programme (MFP3) will be a continuation of
several years of DFID-funded support at a national level although the MFP
programme has not recently been operating in Papua. MFP3 is currently under
preparation and will focus on the implementation of a national timber licensing
system. This is important because enabling the timber industry in Papua to move
towards sustainable management and higher value exports will depend on its ability
also to meet a new legality standard for exports which comes into force in March
2013. This in turn will require an ability to demonstrate legal title to land, which at the
moment is frequently disputed. Since the provincial government is keen to undertake
a review of land licenses and to promote greener investments, their work and the
work of the MFP3 are complementary. For example, the proposed Accountable
5
The Climate and Land Use Alliance includes the David and Lucile Packard Foundation, Ford Foundation, Gordon
and Betty Moore Foundation and ClimateWorks Foundation. More details can be found at:
http://www.climateandlandusealliance.org/
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Grant to The Borneo Initiative to support timber certification to FSC standard of some
forest concessions in Papua would naturally follow on from the MFP work on timber
legality, as the timber legality license will be a legal pre-requisite for FSC certification.
24. Papua’s unique status as one of the last remaining major sources of natural
resources and tropical forest in Indonesia is attracting significant attention from other
donors, although the delivery environment continues to be very challenging. The
largest international donor project in Papua’s forestry sector is currently USAID’s
Indonesia Forestry and Climate Support Project (IFACS), which will run until 2014. It
aims to create and implement low carbon development plans in four districts to
demonstrate how improved forest management can contribute to low carbon
economic growth. The districts (Mamberamo Raya, Sarmi, Mimika and Asmat6) are
shown in Figure 1. There is no overlap with the proposed pilot districts for this
programme.
25. The Norwegian government and the EU are both supporting or planning to support
REDD+ schemes in Papua. Norway is funding some supporting workshops for the
preparation of the long and medium term district land-use plans in Papua. The EU
supported a project that developed national carbon accounting systems7 and
proposed design of carbon market mechanisms in five pilot areas, including in
Papua, and is rolling out a 5m EUR programme of support to civil society. Potential
further support on low-carbon development is still under discussion8.
26. The UKCCU is coordinating closely with the US, the EU and Norway in Jakarta to
ensure that efforts are coherent and compatible. This is particularly important given
the limited expertise available to work on low carbon development and investment in
the province.
B. Impact and outcomes that we expect to achieve
27. The UK Government’s current policy9 is to “support developing countries to take a
more integrated approach to their planning, moving away from a project-by-project
approach towards mainstreaming low carbon and climate resilience into national
plans and planning processes”. This proposal is fully in line with that policy.
28. Specifically, this programme will directly contribute to both the forestry and the low
carbon development objectives in HMG’s current Country Business Plan for
Indonesia and forthcoming DFID Operational Plan (2012/13 to 2014/15). It forms
part of the UK’s overall commitment to support forestry and low carbon development
under the ICF (2011 – 2015). A number of the indicators for this project have been
aligned with ICF indicators (Annex 2) so that they can be used to aggregate results
across global programmes.
6
USAID Indonesia Forestry and Climate Support Project (USAID IFACS) Site Selection Report. January 2011.
http://www.redd-alert.eu/news downloaded on April 26, 2012
8
A recent call for proposal “Support to Indonesia’s climate change response – Civil Society component” by
European Commission can be found at https://webgate.ec.europa.eu/europeaid/onlineservices/index.cfm?ADSSChck=1335345680546&do=publi.detPUB&searchtype=AS&aoet=36538%2C36539&ccnt=7
573876&debpub=13%2F03%2F2012&orderby=upd&orderbyad=Desc&nbPubliList=15&page=1&aoref=132778
downloaded April 26, 2012
9
UK Government’s Carbon Plan, December 2011, Chapter 11.
7
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Impact
29. By the end of the 3 year programme Papua will be on track to meet its goals for
sustainable, low carbon development (LCD) based on the Vision of an economic
model that delivers equitable growth, that takes into account the ecological limits to
growth and that improves the quality of life of ordinary Papuans.
30. This programme will operate over a 30 month period, but will deliver results over the
entire period of Papua’s Spatial Plan (up to 2030). The primary result that will be
delivered over the life of the land-use plan will be:

a reduction in the rate of deforestation by 25% over what would have
happened without UK support. This will amount to a 1.87 million hectare
reduction in planned deforestation, reducing carbon emissions by 224
million tonnes.
31. By the time this programme ends in March 2015, it will have delivered:

Improved capability of the Provincial Government to plan, coordinate and
monitor land use, including alignment of other line ministries and
mechanisms for engagement with civil society and the private sector;

A system that will mean all land-use licenses issued at provincial and
district level are in line with provincial and district land-use plans;

At least 38 low carbon enterprises supported of which 18 will have secured
financing and will have started-up;

A green investment fund established and operational to channel
international and domestic finance to low carbon investment in Papua; and

1.25 million hectares of plantation working towards an international
sustainability standard.
Outcome
32. The overall change that will result from this business case will be “The
Government of Papua has the expertise, resources and systems in place to
deliver its land-use plan and demonstrate that low carbon development is viable in
the province.”
Outputs
33. A logical framework for this business case is shown at Annex 1. The outputs of
this business case have been agreed following discussions with the Papua’s
Provincial planning agency (Bappeda).
ICF Indicators and attribution of results to UK funding.
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34. A number of indicators have been developed by the UK’s ICF to assess benefits
from climate programmes. In many cases the UKCCU will be able to demonstrate
that it has contributed to progress. However, demonstrating that the results are
attributable to UK support, or more specifically UK support from this programme
will be challenging given the complex donor environment and longer term
timeframe of the planning horizon in Papua, which extends far beyond the life of
this programme. Annex 2 provides more detail about how some of the most
suitable current ICF indicators might be applied to the Programme. At the four
month inception review, these indicators and suitable baselines will be
incorporated into the logframe. In addition, Papua is a sensitive environment and
claiming attribution is likely to be inappropriate given the Government of
Indonesia’s strong public ownership over climate change, land-use planning and
development.
Appraisal Case
A. What are the feasible options that address the need set out in the Strategic
case?
1. Delivering reductions in the rates of deforestation and increasing the sustainability of
approaches taken in Papua will require support in four key areas:

Land-use planning - Capacity building at the provincial and district level,
enabling government to successfully implement their land-use plan

Development of a green growth strategy for Papua

Increasing stakeholder engagement – especially with civil society and the
private sector – on planning and implementing land-use planning

Raising public awareness of environmental, sustainability, and low carbon
issues with the Papuan population and the media.
Development of land-use planning expertise at the provincial and district level
2. The negotiations for the Provincial Land-use Plan for Papua10 have been
completed, although it awaits sign off from the Ministry of Forestry in Jakarta. The
revised plan seeks a 25% (1.87 million ha) reduction in the area of planned
deforestation, as well as a halt to unplanned deforestation and better protection for
areas of high conservation value forest. It is also the first step in a longer 100year provincial vision to retain 90% of Papua’s natural landscapes.
3.
However, more work is needed to put in place:

Systems to align planning processes at provincial and district levels, and align
land-use and economic development plans.
10
Rencana Tata Ruang Wilayah Propinsi or Provincial Spatial Plan. It covers the period 2010 – 2030 with reviews
every 5 years. A RTRWK is a spatial plan for a Kabupaten (District).
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
Information systems allowing planners at provincial and district levels to work
together in assessing and making decisions and tackling deforestation in real
time

Monitoring and enforcement systems which allow better oversight of licensing
decisions and the performance of licensees

Partnerships with civil society and the private sector in planning and land
management to guarantee transparency and accountability.
4. This programme would support the provincial government to undertake work on
land-use planning in five pilot districts, covering 41% of the total Papua land area
(13.3 million hectares) and 23% of its people (658,000 persons). Pilot districts and
their selection criteria are presented in Table 1 below; a map of the pilot districts,
also showing the districts where USAID’s IFACS operates, is presented at Figure
1.
Table 1: Five districts recommended for intervention by Provincial
Government
No.
District
Area (km2)
1
Merauke
43,024
Pop
2010
176,466
2
Pegunungan
Bintang
16,044
98,234
3
Biak Numfor
1,966
111,224
4
Jayapura
14,351
101,128
5
Keerom
8,762
46,282
84,146
533,334
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Selection Criteria
Lowland. Ecologically sensitive zone with endemic dry
forest and fragile hydrology. Key mangrove (blue carbon)
resources. Peat land with potentially high GHG emissions.
Merauke Integrated Food and Energy Estate (MIFEE)
>280,000 hectares planned initial allocation for large-scale
agri-business development.
Highland. Likely to be impacted by future mining and
infrastructure development. Population vulnerable to
natural disasters including drought, landslides and
earthquakes. Potential for schemes for payment for
environmental services specific to mountainous situations.
Potential for eco-tourism.
Island with high rates of forest loss due to population
pressure. Potential for coastal disasters especially
tsunami, sea level rise, coastal abrasion. Potential for ecotourism pilot projects.
Urban and Rural ecosystems. Potential for major
infrastructure projects with province-wide links west and
south, and large scale agribusiness (oil palm). LCD
problem-prone urban areas (energy efficiency and fuel,
transportation, migrants, oil palm investment), deforestation
due to high rates of rural-urban migration. Potential for
schemes for payment for environmental services in
watersheds (e.g. the use of water from Lake Sentani for
domestic, industrial and eco-tourism).
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Figure 1. Location of Proposed districts for this programme and USAID’s
IFACS programme.
Map source: Provincial Spatial Plan
Papua.
Biak Numfor
Sarmi
Pop: 32,971
Area: 10,705
Mamberamo Raya
Pop:18,365
Area: 16,852)
Jayapura
Keerom
Location of Programme
Districts (proposed)
Mimika
Pop: 182,001
Area: 22,904
Pegunungan
Bintang
Asmat
Pop: 76,577
Area: 18,427
Location of IFACS Districts
(Population 2010/Area km2)
Merauke
5.
Work to support land-use planning would include:

Helping build expertise in the five pilot districts to enable them to work with the
province to produce district land-use plans which align with the provincial landuse plan.

Helping the provincial government to implement mapping and monitoring
systems which will enable to them to track how land use is changing – this is
likely to include capacity building and training of staff, and provision of
technical expertise and some equipment.
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
Helping the provincial government to implement systems which will ensure
future licenses issued are in line with the land-use plans, and consider how
best to implement a review of existing licenses.

Funding additional data collection and mapping work in the pilot districts and
specific communities as needed.

Providing technical assistance to help the provincial planning agency to
establish mechanisms to engage with civil society and the private sector
throughout the design and implementation of provincial and district land-use
plans.
Development of a Green investment strategy for Papua
6.
The Provincial Government has recognised the need to form a coherent green
investment strategy in order to:



7.
Unlock the value of its ecological assets to kick-start low carbon development,
while reducing the provinces dependence on unsustainable natural resources
extraction.
Access future sources of climate finance and manage it in ways that meet local
development needs.
Support the Provincial and District land-use planning process by promoting
improved land management and demonstrating economic alternatives to
deforestation.
Support to a green investment strategy through this programme will have three
pillars:
a) A Green Investment Strategy Unit which will bridge the province's development
planning and investment agencies. This will oversee the grant and investment decisions
made by the other two units proposed below. Members of the unit will support the
provincial government in shaping a longer-term Green Investment Strategy.
b) A Green Enterprise Support Facility which will build a pipeline of investable projects,
while supplying technical support where necessary and covering most of the transaction
and due diligence costs. It will allocate grants for enterprises to buy Business
Development Services from pre-screened providers. It will also work on projects that
improve the business case for investing in Papua. Many of these businesses will relate
to forest enterprises.
c) A Pilot Investment Facility which will invest in businesses in the form of debt or equity,
after they have been identified and developed by the Green Enterprise Support Facility.
This will be structured so that can accept funds from other interested donors, and scaled
up in future if required. Beneficiaries may include:



Community forestry enterprises
Micro-utilities managing green infrastructure, such as clusters of village hydro
schemes
Non-timber commodity processing and marketing, e.g. cocoa, coffee
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

Biomass for energy
Waste to energy.
8. We anticipate that this mechanism for identifying and supporting green enterprise
will become a recognised means of coordinating and processing of future green
investment opportunities.
9. As well as working with the SME sector, this programme will co-invest with Forest
Concession Owners in obtaining independent certification of sustainable forest
management. The programme would support the FSC certification of forest
concessions in Papua. This would be done through providing about 30% of the
funds required for certification in the form of technical expertise and capacity
building activities to help move concessions through the certification process.
Companies themselves would cover about 70% of overall certification costs – UK
support would be critical in incentivising companies to enter the certification
process initially.
10. The FSC proposal is still being finalised but the grant is expected to be around
£1.5m and aims to support around 1.25m hectares of concessions to enter the
certification process. This proposal will have its own logframe so separate
indicators have not been included in the overall logframe, although it will contribute
to Indicator 2.4 of the overall logframe, as one of the pipeline of green investment
opportunities and will be expected to fall under the green investment strategy
unit’s overall guidance.
11. FSC certification includes sustainability and governance criteria, above and
beyond legality, so the opportunity to certify large areas of Papua’s forest estate is
firmly in line with UKCCU and the Provinces’ ambitions to support a more low
carbon future for the province. DFID has supported FSC certification as a way to
improve the sustainability and governance of forest resources over a number of
years. The benefits of FSC certification to local communities and plantation
workers are clear because of the criteria requiring improved governance and more
effective resources management. The potential benefits in terms of emissions
avoided in FSC-certified areas are significant – harvest rates are lower,
operational areas are usually reduced, and there are associated reductions in
forest fires, forest degradation, and machine operating costs. In addition, as a
result of the above, licenses in FSC areas may be renewed, whereas after
conventional management the forest is often so degraded it is given out to
conversion, releasing even more carbon. Research is currently underway to
assess the carbon gains of FSC certified areas against conventionally managed
forest, which we may also support as part of the proposal.
Stakeholder engagement
12. This programme will support the provincial government to establish a clear system
and mechanism for consultation and on-going engagement with civil society and
the private sector. This is critical to a successful transition from planning to
implementation. It is the implementation of the agreed land-use plans which will
ensure the longer term sustainability of Papua’s natural resources and secure
reductions in emissions and deforestation over the long term
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Raising public awareness
13. The programme will also support the development of a wider communications and
public awareness strategy which will use a variety of media to explain and promote
the benefits of a low-carbon economy to Papuan society. Ensuring transparency of
decision-making processes, and encouraging debate on the implications of
adopting land-use planning policies at provincial and district levels will be a key part
of this.
Ensuring the programme is conflict-sensitive
14. The allocation of land and land use are sensitive areas as there is often tension
between different stakeholders. It is important that the implementation of this
programme does not exacerbate these tensions and is undertaken in a way that
brings stakeholders together in positive dialogue.
15. Competitive tendering will take place for the overall management of the majority of
this intervention. Bidders will be asked how they will ensure that they are operating
in a conflict-sensitive way, including ensuring that the selection of projects within
the Green Enterprise Support Facility and the Pilot Investment Facility for SMEs is
conflict-sensitive. Transparent selection processes and clear communications over
selection criteria will be critical.
Theory of change
16. Papua’s leadership has shown a strong commitment to pursuing green
development. Previous UK support to help the provincial government gather
information to inform the land-use plan helped the province to negotiate a 25%
reduction in planned deforestation. But although the provincial government has
clearly demonstrated high levels of commitment to delivering a more low carbon
land-use plan, key planning officials still need more information, expertise and
knowledge about how to implement this change of approach. This programme of
support will unlock the potential of officials; build their ability to deliver results, and
support key institutions to deliver real change on the ground. It will also support
better access, understanding and use of data which can be used to build the case
for taking a greener, long-term approach to development in the province.
17. Breaking out of high-carbon development is difficult because that is the only path
that has been pursued to date and there are few clear examples of alternatives,
even though the evidence shows that many of the necessary changes in the land
use sector yield more benefits than costs11. Working towards an overarching green
investment strategy for the province, including mechanisms to link the land-use
planning with the private sector development and investment mechanisms, will
support the creation of a number of clear examples of how investments can be both
economically viable and in line with the land-use plan.
18. The underpinning logic for the theory of change for this business case is that:
11
For instance see the 2011 FCO-funded report ‘Cost-Benefit Analysis of a Shift to a Low Carbon Economy in the
Land Use Sector in Indonesia’ (UK Embassy in Jakarta)
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Starting point

There are confused and conflicting mandates for many different government
institutions in relation to planning for economic development, land-use planning,
and reductions in greenhouse emissions – this situation is exacerbated in Papua
because of its special autonomous status which could affect how these different
planning frameworks relate to each other formally.

Papua’s leadership has a vision of a low carbon future but lacks the tools to
implement the land-use plan in practice, including data (absent or inaccessible)
and staff expertise.

The provincial line ministry for planning, Bappeda, is the key ministry in charge
of implementing the government’s vision of a low carbon future for Papua.

There is a lack of engagement from civil society and the private sector in the
design and implementation of the land-use plan

There are few examples of low carbon businesses in Papua which could serve
as a model for development.
Change needed

Much greater expertise to engage in the land-use planning process below the
provincial level is needed – but this needs to fit in with the planning processes
being undertaken at provincial level.

Delivering a genuinely green future for Papua that makes a real difference to
how economic development is conducted in the province will require
government, civil society and the private sector to work together.

Greater understanding of the importance of a low carbon approach to natural
resource exploitation in Papua and the implications of unsustainable use for the
Province’s future.

Examples of good, equitable, low-carbon enterprises in the province to show
how future investments should contribute positively to a low carbon future for the
province.
UKCCU inputs

Resources and technical assistance to the Provincial planning department to roll
out the land-use plan – this will include support for capacity building,
communications and public awareness, technical assistance, and for data
collection / processing / assimilation as needed.

Resources and technical assistance to support the development of a Green
Investment Strategy for the province, including support for a Green Investment
Strategy Unit and associated funds to support enterprises and investments at
community, district and provincial level
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
An Accountable Grant to The Borneo Initiative to support the certification of
Papua’s timber to the FSC sustainability standard.
Leading to change in the ability to implement the provincial government’s vision for a low
carbon future for Papua

Evidence-based decision making at the provincial level and below in the
provincial administration

Better dialogue between government, civil society and the private sector on the
future of Papua and the development of its natural resources

Strong ownership of the sustainability and conservation agenda within the
Provincial government

More coherent data systems in place to maintain, manage and share data within
government (provincial and national) and with other stakeholders

Stronger media and political awareness of the need to understand environmental
issues and plan with sustainability in mind.
Leading to change in Indonesia

Reductions in Indonesia’s emissions in the long term

Lessons learned on how to link land-use planning to economic development

Greater support for LCD both in Papua and elsewhere, encouraging favourable
international publicity, and attracting LCD investment into Papua.
19. The evidence to support this theory of change is found in:

Cost-benefit analysis of the shift to a low-carbon economy in the land-use sector in
Indonesia (2011). Report undertaken for FCO, Dominic Elson.

Tropical Forest Update (2011), 20 – 4. Special Edition on the International
Conference on Forest Tenure, Governance and Enterprise: Experience and
opportunities for Asia in a changing context

The political economy of land use, land use change and forestry at the local level
in Indonesia (2011). Unpublished study prepared for DFID by The Asia
Foundation.

Spatial Planning for Biodiversity Conservation in Papua – paper presented by Dr.
Alex Rumaseb, Head of Regional Planning Agency, Papua at the International
Biodiversity Conference in 2009.

Investing in a more sustainable Indonesia – Country Environmental Analysis
(2009). World Bank
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
Rencana Tata Ruang Wilayah Propinsi (The Provincial Spatial Plan for Papua ).
2010 – 2030
20. The key assumptions made in this theory of change are:

Provincial government commitment to implementing the land-use plan
continues.

Sufficient investment and low carbon opportunities can be found or created in
Papua to create viable demonstration effects and a pipeline of projects /
investments.

Private sector and civil society want to engage with provincial government to
support the deliver a greener land-use plan.

District governments can be persuaded to align their land-use plans with the
provincial land-use plan and, with support, implement them on the ground.
21. An expected results chain is shown in Figure 2 below.
Figure 2: Theory of Change
Spatial Planning & LCD Programme in Papua
Capacity building &
improvements in data quantity,
quality and availability for key
stakeholders on spatial
planning and LCD
Green investment
strategy for Papua
developed and
demonstration projects
underway
Opportunities for
increased private
sector and civil
society engagement
in spatial planning
Better understanding of concepts e.g. Low Carbon (Green)
Economy, GHG, Long Term Development. Increased awareness
& opportunities for individuals/society to participate / benefit.
Improved quality district
spatial plans and other
strategies/systems to support
low carbon economy
Increased awareness to
work together & contribute to
achieve shared LCD vision
Strengthened
media and
public
awareness
Other Donor, Private Sector
& Government related LCD
initiatives/funds
Commitment to community
welfare & investment in local
human/natural resources
A shared and widely supported plan of action developed to support long term goals/Vision.
Increase in resources made available to support Vision in the community and within government.
22. Five options are considered in this Business Case:
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1 - Do Nothing;
2 - Direct funding to Entrepreneurs;
3 - Direct Funding to Government;
4 - Funding through/with current existing large-fund initiatives; and
5 - Multi-stakeholder – RECOMMENDED
23. Options were considered against the critical success criteria in Table 3 below.
Table 3: The Critical Success Criteria (CSC) of the Intervention
CSC
1
2
3
4
Description
Maintenance of strong institutional commitment for, and
improved capability to implement Spatial Planning and Low
Carbon Development
Effective coordination between Province, selected Districts,
selected communities, green enterprises, and civil society
Successful establishment of demonstration projects for low
carbon development at the community level
Development of capacity in the private sector and NGOs to
process and efficiently utilise project funding for LCD
opportunities
Weighting (1-5),
least important to
most important
5
Evidence rating
4
Medium
4
Medium
4
Medium
Medium
24. Government, private sector and civil society stakeholders need to work together to
change successfully how land is allocated and utilised in Indonesia. Programmes
focussed on only one stakeholder are often constrained in their ability to deliver
lasting change and in fragile environments may increase tensions. These success
criteria were selected to ensure that the approach taken for this programme not only
supported the implementation of appropriate land use allocations within a legal
framework (i.e. the land-use plan) but also strengthened stakeholder engagement in
implementing a greener future for Papua province.
25. Option 1 (do nothing) in the context of the UK’s work in Papua would mean ceasing
all support directly to the provincial planning and business development sectors in
Papua at the end of the current contracts (December 2012). Other donors are
working in Papua on low carbon development, and on land-use planning at the
district level. However, they are unlikely to be well placed to pull the two issues
together at a provincial level.
26. Since Papua’s forests are the most significant in Indonesia, it is the most desirable
programme location to deliver the UKCCU’s objective of helping Indonesia meet its
climate change commitments. Other donors are unlikely to be able to fill the space if
the UK does not provide support. Doing nothing has therefore been rejected.
27. Under Option 2, funding would only be available to entrepreneurs for Low Carbon
Development. At present, there are limited opportunities for investment, particularly
at the small and medium level. This approach would seek to change that through
supporting the private sector to demonstrate successful low carbon investments
which would then attract other green investors to the province, and persuade existing
investors to change their approach.
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28. Demonstrating that green investment can work in Papua will be important in helping
to change how development is currently undertaken in the province. However,
access to finance is not the only constraint to green investment. Weaknesses in
governance and institutions are also a major constraint to inclusive economic
growth12. We therefore judge that support for enterprise will be more effective if it is
matched by support to the provincial government to help address some of the
associated governance issues which are also a constraint.
29. Option 3 would focus on spending through government partners and on addressing
staff weaknesses on land-use planning in government systems. Civil society might
receive some support in key districts through other UKCCU programmes such as the
UK’s SETAPAK programme, but this support would not be an integrated and
coherent part of the programme with government.
30. An Asia Foundation study of land use, land use change and forestry at the local level
in Indonesia identified land-use planning and permit processes as issues central to
environmental governance in Indonesia13. Working with government to help build
expertise to make informed decisions about land-use planning for the medium and
long term future is critical, and has been the basis of UK support in Papua in recent
years. However, turning the planning process into effective implementation which
delivers real emissions reductions on the ground will be challenging and is likely to
be much more effective and long term if efforts are made to work with civil society
and the private sector as well.
31. Another option considered was whether UK support could be effectively channelled
through one of the other donors working in Papua (Option 4). This would be
relatively simple from an administrative and financial perspective. This approach
would enable the UK to reduce costs and avoid being involved too deeply in complex
coordination and funding mechanisms in Papua. However, Papua is a sensitive
environment and it would necessarily involve losing some degree of control over the
spending of UK funds. The only other programme large enough for the UK to work
through is USAID’s IFACS programme, which is not currently set up to accept
funding from other donors.
32. Although this approach might be attractive in terms of reducing programme
overheads, it was concluded that support to land-use planning is needed at the
provincial level as well as the district level, whilst the IFACS programme is currently
focussed at the district level only. In addition, the provincial government have
requested a focus on different districts than those selected in the IFACS programme.
33. An effective multi-stakeholder programme rooted in the provincial structures could be
highly complementary to the IFACs programme, and help the provincial government
bring a degree of coherence to planning in Papua which could not be achieved from
the district level alone. Buy-in to developing a green approach to planning and
investment in Papua has been driven by the provincial leadership, so this is the level
that should determine the UK’s starting point for engagement. This is reinforced by
the special autonomy status of Papua which gives a stronger legal basis to provincial
12
Asian Development Bank (2010). Indonesia Critical Development Constraints. Asian Development Bank.
The political economy of land use, land use change and forestry at the local level in Indonesia (2011).
Unpublished study prepared for DFID by The Asia Foundation
13
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administrative systems than is found in most other provinces in Indonesia. However,
it can be anticipated that by taking a multi-stakeholder approach the UK can support
the design of green investment instruments which could accept funding from other
donors in the future.
34. The final option considered (Option 5) was a single overarching approach which
actively seeks to bring together three key stakeholders – civil society, the private
sector, the provincial government (Options 2 and 3 combined with an explicit focus
on drawing civil society into the programme). This will be significantly more complex
to implement. However, it will enable efforts to reduce planned and unplanned
deforestation to be rooted within the legally mandated land-use planning framework.
At the same time, drawing in the private sector and the civil society is more likely to
ensure effective implementation and a genuine shift to a long term approach that
goes beyond planning into changing perceptions and expectations of key
stakeholders.
35. Table 4 scores the options against the Critical Success Criteria (CSCs) for this
programme. The preferred option, Option 5, scores most highly for three of the four
CSCs, and overall. This option provides the highest likelihood that UK support will
contribute to significant reductions in planned and unplanned deforestation and the
development of a lower carbon future for Papua.
Table 4: Comparison of Critical Success Criteria among Options
Critical Success
Criteria
1. Strong institutional
commitment to
improved Spatial
Planning & LCD
2. Effective coordination
between Province,
selected districts,
selected communities
and Society
3. Selected community
enterprises receive
funding for LCD
projects
4. Capacity exists in
private sector/NGOs
to process and
efficiently utilise
project funding for
LCD opportunities
TOTALS
Option 1.
Do nothing
Weight
(1-5) Score Weight
(1-5)
Score
5
3
15
Option 2
Entrepreneurs
Score Weight
(1-5)
Score
3
15
Option 3
Government
Score Weight
(1-5)
Score
5
25
Option 4
IFACS
Score Weight
(1-5)
Score
4
20
Option 5
Multi-stake
Score Weight
(1-5)
Score
5
25
4
3
12
3
12
4
16
3
12
5
20
4
1
4
3
12
2
8
4
16
4
16
4
1
4
3
12
2
8
4
16
3
12
35
51
57
64
73
B. Assessing the strength of the evidence base for each feasible option
36. The options presented have all been considered in relation to the Papua situation
specifically, given that it is such a challenging delivery environment. There are
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programmes working in all three sectors (government, civil society and the private
sector) to strengthen effective land management processes in the province.
However, few of those options explicitly try to bring all three stakeholders together,
and none of them brings all three stakeholders together while focussing on work with
the provincial government as a primary partner. The evidence base is therefore
assessed as medium in every case.
37. The likely risks and opportunities of each option on climate change and environment
are presented in Table 5.
Table 5: Assessment of climate change and environment risk, impacts and
opportunities of the intervention
Option
1 Do Nothing
2 Direct to Entrepreneurs
3 Direct to Government
4 With or through IFACS
5 Multi-stakeholder
Climate change and environment
risks and impacts (A, B, C, D)
A Strong
B Medium
B Medium
B Medium
B Medium
Climate change and environment
opportunities (A, B, C, D)
C Low / No opportunity
B Medium
B Medium
D Medium
B Medium
C. What are the costs and benefits of each feasible option
38. This section presents an economic appraisal of the selected option – Option 5.
There are three principal benefit streams arising from Option 5:

reductions in the rate of deforestation arising from the support to land-use
planning that reduce future emissions from Indonesia;

the certification of forest areas which will lead to reductions in emissions; and

investment in low carbon alternatives to deforestation arising from direct provision
of business development services to SMEs and from the creation of an
investment facility (see above).
39. There are a number of challenges to calculating the economic returns on the low
carbon investment facility and support. However there is a clear end impact, related
to reducing deforestation that can be measured and valued. The reduced rate of
deforestation stemming from the programme is therefore used as the primary
variable in estimating the economic justification for Option 5. The appraisal will show
that the benefits from reduced rates of deforestation provide a very strong return to
the proposed investment even when the benefits from the investment support are not
estimated.
The Appraisal
40. The standard method for valuing the benefit from reduced deforestation is to assign a
value to the carbon emissions that are saved as a result of the reduced
deforestation. Values can also be assigned to the “environmental services” (e.g.
watershed impacts) and “biodiversity”, but for the purposes of this analysis no values
are attached to these benefits.
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41. The value of carbon assigned to a hectare (ha) of tropical forest requires a scientific
calculation of the stock of carbon per hectare. There are various estimates of this
ranging from highs of 250 tonnes per hectare14 to lower figures of 100 tonnes per
hectare. For the purposes of this analysis we of have used a figure for primary forest
/ peatland mix that would result in the release of 120t of CO2e per hectare. 15 This is
at the conservative end of figures for Papua found in a recent study which ranged
between 100 and 200 t CO2e per hectare for virtually the entire province16.
42. The rate of reduced deforestation is determined using a realistic assessment of
impact based on:

the combined impact of the programme activities;

the level of existing forest cover in the districts targeted under the programme;

the overall rate of deforestation in Papua; and

research from a recent UK-funded study on the scope for reducing
deforestation in Indonesia.17
Data
43. Key data and assumptions used in the economic appraisal are shown in Table 6.
Table 6. Assumptions used in the economic appraisal
Variable
Standing stock of primary forest in
in Papua
Standing stock of primary forest and
peatland in the five districts to be
targeted under the programme.
Annual rate of deforestation in
Indonesia (2000-2009)
Current rate of annual deforestation
in Papua
Planned conversion of forest before
land-use plan in place
Planned conversion of forest with
land-use plan in place and UK
support for its implementation.
Projected
reduced
rate
of
deforestation per year under Option
5.
The Borneo Initiative FSC certified
target
Data
25m ha
10.6m ha
Source/comment/appraisal assumption
Presentation by Bappeda (Papua) at British Embassy 27
April 2012
Estimate from the Ministry of Forestry
1.5m ha
Forest Watch Indonesia18
98,500ha
Strategic Environmental Assessment (2012)
250,000ha
Planned conversion was equal to 7.4m ha over next 30
years.
Full implementation of land-use plans and low carbon
support expected to reduce rates by 25.3% reduction in
planned deforestation.
In the economic appraisal it is assumed that this rate is
achieved after 10 years, the starting rate is 10,000 ha in
2014.
Not estimated in this analysis. But the assumption is that the
potential benefits in terms of emissions avoided in FSCcertified areas are significant – harvest rates are lower,
operational areas are usually reduced, and there are
185,000ha
65,000ha
1.25m ha
14
“Estimation of Tropical Forest Biomass for assessment of Carbon Sequestration using regression models in remote sensing in
Berau, East Kalimantan, Indonesia” by Irvin K. Samalca, Alfred de Gier and Yousif Ali Hussin, of the Department of Natural
Resources at The International Institute for Geoinformation Science and Earth Observation
15Cost Benefit Analysis prepared for DFID BAR Bid 2010, using data from McKinsey “Abatement Costs Curve for
Indonesia” 2009.
16
Saatchi et al (2011). Benchmark map of forest Carbon stocks in tropical regions across three continents –
Proceedings of National Academy of Sciences, June 3 2011.
17
18
“Cost-Benefit Analysis of a Shift to a Low Carbon Economy in the Land Use Sector in Indonesia”, Dominic Elson, 2011.
See: http://fwi.or.id/english/?p=170
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associated reductions in forest fires, forest degradation, and
machine operating costs. In addition, as a result of the
above, licenses in FSC areas may be renewed, whereas
after conventional management the forest is often so
degraded it is given out to conversion, releasing even more
carbon.
44. Using the above data, it is estimated that the combined activities of this programme could
reduce deforestation as illustrated in Table 7:
Table 7. Potential reductions in deforestation resulting from the programme
Annual reduction in deforestation in future years (Ha)
Yr1
- Yr
2
Ha
of
deforestatio
n avoided
Carbon
tonnes
of
emissions
reduced
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
0
10,000
15,000
20,000
25,000
30,000
40,000
50,000
65,000
0
1,200,00
0
1,800,00
0
2,400,00
0
3,000,00
0
3,600,00
0
4,800,00
0
6,000,00
0
7,800,00
0
45. Table 7 implies a cumulative reduction in deforestation over ten years of 255,000 ha.
Price of carbon
46. The UK Government uses a price of £25 per tonne of CO2 in public sector appraisals. This
price reflects the full external cost of the release of CO2. In UK appraisals this price is
uprated each year by 2 per cent reflecting the Stern Review’s assessment of the rising
incremental damage of each unit of carbon as temperatures rise.19
47. The idea of using a shadow price for carbon in appraisals is sound, but the use of the UK
shadow price, although it is based on the impact on the global environment, is not used in
this appraisal. Instead, for the purposes of appraisal the market price for carbon of £3.20 per
tonne is used. This price best reflects the values used in bilateral government agreements
and in voluntary carbon markets. While it is important to recognise the importance of using
the shadow price (since it reflects wider environmental and social impacts), it was not
possible to calculate this accurately for Indonesia.
Results
48. In Indonesia the discount rate used by the Government of Indonesia for public sector
appraisals is 8%. When discounted over a ten-year period, the above assumptions produce
a benefit:cost ratio of 15.71. This would represent very good value to DFID from a high risk
(see below) project. It should be stressed that this result does not incorporate benefits from:



biodiversity that is saved and environmental services associated with areas which are not
deforested; and
alternative low carbon economic activities which would likely generate returns beyond the
price of carbon.
any of the benefits stemming from the low carbon support elements.
See “The Social Cost Of Carbon And The Shadow Price Of Carbon: What They Are, And How To Use Them In
Economic Appraisal In The UK” (DEFRA 2007).
19
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49. Put another way, the results show that the programme requires only a very modest reduction
in deforestation to generate an acceptable return.
Sensitivity analysis
50. The section examines the robustness of the assumptions used to generate data for the
economic appraisal. A number of the variables are within the control of the programme,
others are not. The factors considered in the sensitivity analysis were:


Within the control of the programme: programme costs, amount of deforestation avoided
as a result of the programme, when benefits start to accrue
Outside the control of the programme: price of carbon, amount of carbon emissions
released from deforestation
51. Table 8 examines the impact on the benefit cost ratio of negative movements in each of the
sensitivity factors.
Table 8. Sensitivity Analysis
Sensitivity variable
Resulting
benefit
ratio
15.71
Base case
Within the control of the programme
10% increase in cost of investment
10% reduction in assumed rate of deforestation
avoided
Delay in start of deforestation avoided from year
3 to year 5
Outside the control of the programme
Price of carbon 10% lower
10% reduction in estimated carbon released from
1 ha of deforestation
cost
Percentage impact
on benefit cost
ratio
14.28
14.14
-9%
-10%
13.72
-12%
14.14
14.14
-10%
-10%
52. Table 8 shows that the programme is most sensitive to a delay in the start of the benefit
stream. Reductions in either the price of carbon, amount of carbon within the tropical forest
and the assumed rate of deforestation avoided have a similar impact on the benefit : cost
ratio. The least sensitive factor is the initial investment costs – an increase of which has a
less than proportional impact on the benefit : cost ratio.
53. The sensitivity analysis also examined the degree to which benefits would have to
fall to generate a break even benefit: cost ratio. The results were that:



the assumed rate of deforestation avoided would have to fall to only 2,000 ha per
year; or
the carbon price would have to fall to £0.23. This is well below observed prices in
international transactions; or
the stock of carbon contained in the tropical forest would have to be only 8 tonnes
per ha. This is well below measured levels, carbon/ha in tropical forests is
typically above 100t CO2e.
54. All of the above suggests that there would have to be substantial reductions in
assumed benefits for the project to no longer break even. This shows that, provided
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the assumptions hold, the economic return to this programme is robust. When the
benefits that have not been quantified are added (especially environmental services
and biodiversity and those from low carbon investments), the returns to DFID’s
investment look sound.
55. As part of the inception phase of the programme, baseline data will be collected on
impacts and outcomes so that the actual impact of the programme can be robustly
measured and reported upon. Targets at the Impact level of the logical framework
will be devised in the inception phase of this programme.
D. What measures can be used to assess Value for Money for this intervention
Commercial strategy
56. The UK will use a competitive process in the award of the £8.5m contract for support
to land-use planning and low carbon development. The management of funds will be
a key function under this contract and service providers will need to demonstrate
strong experience and expertise in this area.
57. An Accountable Grant will be used for the £1.5 component with the Borneo Initiative.
The Accountable Grant will be agreed on the basis of actual costs and fees from
existing funding arrangements with other donors to ensure that the UK avoids any
overpayment for services. The UKCCU will engage in proactive management of the
Accountable Grant to ensure that value for money is secured on all expenditures.
Overall value for money
58. The overall Value for Money (VFM) for this business case depends on whether
programme costs are reasonable and whether the support to the Provincial and
selected district Governments and civil society, and the LCD funding at provincial,
district and community level is an effective use of resources.
59. For support to the Provincial Government, the main indicators of success will be
progress by the Papuan government in their planning process and resulting outputs,
coordination of land-use planning with economic policies / projects and increased
coordination with and understanding of district planning objectives. In particular, this
support will need to translate into approved forest zonings which are in line with the
Government’s vision for a more low carbon future for Papua, which reflect reality on
the ground and which can be agreed with the selected district. The review of Remote
Sensing imagery throughout the programme will indicate whether deforestation
reflects land-use planning zonings.
60. For support to the selected District Governments, the indicators of success will be
progress in outputs resulting from their planning processes, liaison with the Province
in planning issues and their funding of appraised micro-scale LCD projects to
identified communities. In particular, the programme will need to show that land-use
planning expertise has been built within the districts and that district land-use plans
are well aligned with the provincial land-use plan.
61. In terms of VFM for the Green Investment Strategy, this will be evaluated in three
areas: (a) the ratio of grants to number of enterprises that then are verified as
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suitable for investment; (b) the performance of the investment facility measured in
terms of financial criteria such as non-performing loan (NPL) rate, return on equity,
consolidated balance sheet etc.; and finally (c) the progress made in setting up a
long term Provincial SME Green Investment Facility. In respect of item (b), it should
be noted that the anticipated financial returns may not emerge within the timescale of
this project, so the VFM is likely to be based on business plan projections.
62. Supporting LCD projects managed by community enterprises is intended not only to
provide villages with concrete assistance to improve their livelihoods but also to help
initiate dialogue to assess needs and opportunities with relation to natural resource
management, economic and social development in the context of LCD. The VFM
needs to be assessed not only on the sustainability of the implemented projects (both
financially and environmentally), but also on the degree to which the project
addresses the economic and social development aspirations expressed by the
community.
63. The VFM for LCD projects should be assessed by comparing the amount spent on
actual projects (as either grants or investments) compared to that for the technical
assistance. However, the danger is that the due diligence process for evaluating
individual projects is circumvented or weakened, to enable rapid disbursement of
funds. Conversely, too rigid a due diligence procedure, based on anxiety that the
investments carry to much risk, will stultify the fund, and money will remain uninvested. In order to balance risk and prudence, it is proposed the fund is split into
two distinct entities (the grant facility and the investment facility), separating the VFM
for the grants from the VFM for the investments. As this is a pilot project, designed
to demonstrate the potential for investment in the low carbon economy in Papua, the
VFM test should be with reference to the planned diversity of business sectors, risk
profile, asset type and enterprise type.
E. Summary Value for Money Statement for the preferred option
64. The preferred option represents value for money for DFID because it both promotes
reduced deforestation and emissions and viable alternatives to plantations, industrial
forestry and mining. Without alternative low carbon development, the land-use plan
would only partially address the requirement for Papua to move onto a low carbon
pathway.
65. Beyond the planning phase, it is the implementation of the agreed land-use plans
which will ensure the longer term sustainability of Papua’s natural resources and
secure reductions in emissions and deforestation over the long term. It is critical for
the success of the transition from planning to implementation that civil society and
the private sector can engage, both in planning and in implementation.
66. Costs will be controlled and managed because of competitive tendering.
67. Appraisal concluded that the even with very modest reductions in deforestation, the
programme would deliver excellent value for money for DFID.
68. If the programme is able to provide the foundation to support the full implementation
of the land-use plan between 2013 and 2030, it will reduce business as usual
deforestation by 1.87million hectares. That would equate to an emissions saving of
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nearly 224 million tonnes over that period. For a £10m investment that would
represent exceptional value for money to the UK.
Commercial Case
Direct procurement
A. Clearly state the procurement/commercial requirements for intervention
1. The majority of this intervention will be advertised through the Forestry Framework
Agreement to attract consulting groups with the full range of skills and expertise
needed. In addition, an Accountable Grant of up to £1.5m will be issued to the
Borneo Initiative to support the FSC certification of up to 1.25 million hectares of
Papua’s forest estate.
2. Within the Forestry Framework agreement, bids will be assessed on a competitive
basis for their technical and commercial responses. A tender team will be formed
which will also include a representative from the Provincial Government in Papua.
B. How does the intervention design use competition to drive commercial
advantage for DFID?
3. There will be a competition within the Forestry Framework for the majority of this
proposal (£8.5m). Up to £1.5m has been allocated for an Accountable Grant to The
Borneo Foundation, who have submitted a draft proposal for work on sustainable
timber certification. Since this work is in line with the green investment part of this
programme, and will be monitored by the Green Investment mechanisms developed
under the programme, it has been included in this business case. The final proposal
has not yet been completed.
4. The Terms of Reference will encourage bidders to propose their approach, inputs
and costs within the overall guidance and direction provided. This will ensure that
innovation and price competition are achieved. The ToR will also specify that some
positions must be located full-time in Papua. For other key and undesignated
positions (both local and expatriate) the bidder will be expected to design a cost
efficient programme which makes effective use of their inputs, especially when
logistics require travel to remote districts and communities. An assessment of the
financial proposal will be a part of how the winning bid is selected.
C. How do we expect the market place will respond to this opportunity?
5. Local experience indicates that although the pool is limited, there are sufficient firms
and individuals with relevant expertise and experience to undertake the services
required. It is reasonable to expect that there will be an adequate response to
invitations to submit bids or proposals for these.
6. It is unlikely that any single consultancy will possess all the required skills in-house.
The programme demands both the provision of a range of sectoral expertise, and the
ability to work effectively at the provincial and national level, to the community level,
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ensuring coherence throughout. This will be challenging for any one firm to provide.
Consultants wishing to bid will therefore be encouraged to form consortia with other
international and local companies and individuals experienced in Indonesia and
Papua. However, a clear lead with clear responsibility for the overall programme
must be identified, and the chain of command and assigned duties and
responsibilities must be clearly specified in such proposals.
D. What are the key cost elements that affect the overall price? How is value
added and how will we measure and improve this?
7. The key cost drivers for this proposed action are:

The grant and investment facilities created to support the green investment
strategy – expected to be around £2.6m or 26%; this rises to £4.1m or 41% if
the intended Accountable Grant for timber certification is included. .

Technical inputs to the green investment facility and to the land-use planning
aspects of the programme - expected to be around 24%, or £2.45m in total

Costs of data collection / processing – expected to be around £2m or 20%

Programme running costs including travel - expected to be around 11%, or
£1.1m.
8. Value is added overall because by operating as one programme through one primary
contractor, the programme will avoid duplicating operational costs, and technical
expertise can more efficiently cross over between the low carbon and land-use
planning components of the programme. For the proposed Accountable Grant to
The Borneo Initiative (TBI), this is efficient because TBI have already done some
work on timber certification in Indonesia and Papua, and have already undertaken a
scoping mission to inform the programme.
9. Performance delivery will be improved and monitored by working closely alongside
other donors such as USAID to maximise shared information and the benefits of our
technical inputs and data. In the long term the programme will seek to establish a
more formal mechanism which could handle much larger volumes of funding, which
would make the level of TA required to undertake the work increasingly more efficient
over time. By designing the grant and investment facilities to enable them to handle
funds from other donors, the TA required will have a leverage beyond the UK
funding.
10. Early programme deliverables focus on establishing suitable management
mechanisms for the investment funding, and there will be an overall evaluation and
lessons learned exercise after the first year. This can take on board any further
recommendations to strengthen the leverage of UK-funded work.
E. What is the intended Procurement Process to support the contract award?
11. DFID’s central Procurement Group will follow DFID procurement procedures to
award the contract to implement the majority of this programme and an Accountable
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Grant will be issued by the UKCCU to TBI. The Forestry framework agreement will
be used for the contract to speed up the procurement process.
12. A team comprising the Head of the UKCCU (Jenny Yates), Advisers (Mark George,
Lorna Hall), Programme Management (Farah Sofa) and a representative from the
Papua Provincial Government will form a tender board. Independent assessments
will be conducted on each bid and an overall winner selected.
13. We expect the tasks related to engaging the supplier to be completed by the end of
December 2012.
F. How will contract & supplier performance be managed through the life of the
intervention?
14. Contract and supplier performance will be managed through on-going in-house
monitoring of both the Accountable Grant to The Borneo Initiative and the full
contract for the rest of the Papua programme. An external evaluation will be planned
for the mid-point of the programme. The management of the programme will be led
by a Steering Group in which the UKCCU and the Provincial government,
represented by Bappenas, will lead and is expected to meet 2 – 3 times per year. An
advisory group will be established, which will include stakeholders from civil society
and will also provide inputs and comment on the programme, and will also meet 2 –
3 times a year. This system should allow for on-going monitoring and feedback.
15. During the inception phase, the contractor will be expected to design mechanisms for
management of the green investment funding which will include clear monitoring and
evaluation mechanisms, as well as guidance on handling of non-compliance.
Financial Case
A. What are the costs, how are they profiled, and how will you ensure accurate
forecasting?
1. The total cost is expected to be £10 million. An indicative budget is presented in
Table 5 below. The expected distribution, and precise breakdown will be agreed
with the contractors, but annual spend is expected to be approximately FY 12 / 13 £500k; FY 13/14 - £4.75m; FY 14/15 - £4.75m.
2. The programme management costs are relatively high as travel to Papua is
expensive and time-consuming (it is an 8 hour flight from Jakarta), and
accommodation in Jayapura is also relatively expensive.
Table 5: Indicative Budget
Component
Programme
Management
Spatial Planning
Cost (£)
Notes
1,150,000 11.5% Inc. all operational and travel costs in and out of Papua
1,354,000 13.5% Inc. Capacity building, procurement (imagery), database, field
surveys
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Component
Decision Support
Low Carbon
Development Investment in
SME’s and
community
development
Green investment
strategy - Green
enterprise support
facility
Green investment
strategy – TBI
Accountable Grant
Green investment
strategy - TA
Communication
Cost (£)
Notes
2,000,000
20%
1,300,000
13%
Support for primary data measuring eco-system services and
benefits (livelihoods, watersheds, biodiversity, carbon, ecotourism), its analysis & modelling; database & publication;
mapping.
For investment in SME’s at community and district level
1,300,000
13%
Grants to green investments and enterprises
1,500,000
15%
Accountable Grant to The Borneo Initiative to support timber
certification to FSC standard in 1.4 million hectares of plantation
in Papua
1,092,000 10.9% Investment management of the grant and investment Facilities,
Technical assistance (some highly specialised), travel in and
out of Papua and Indonesia; establishment of clear
mechanisms for engagement of civil society and private sector
in land-use planning and delivery
300,000
3%
Awareness Raising & Public Participation
10,000,000
3. It is considered advisable not to allocate too much funding for green investments in
Papua at present given the challenging business environment and likely long lead
times of working up some investments compared with the life of this programme.
However, given the agreed interest in promoting green investment in Papua, if
investment opportunities are fully identified and scoped as suitable for funding within
the lifetime of this programme, and insufficient funding is available, the need for a
costed extension to the programme could be considered at the annual review.
B. How it will be funded
4. The funds will come from ICF resources, allocated for the UKCCU in Indonesia. No
third-party funding will be used.
C. How funds will be paid out
5. Payments will be made in arrears on proof of expenditure and approval of scheduled
deliverables such as technical progress reports.
D. What is the assessment of financial risk and fraud?
6. Low – the highest risk of fraud is in the misallocation of the Low Carbon
Development aspects of the programme, to projects which do not meet the criteria.
However, the design of the investment facility will specifically seek to mitigate for the
risk of fraud or misuse of funds. The criteria will need to be clear, and firmly applied,
and the approvals process will need to be rigorous without being overly burdensome.
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E. How expenditure will be monitored, reported, and accounted for
7. Details of all expenditure under the Contractor’s contract will be reported on a
monthly basis. Payments will be made on delivery of outputs as determined in the
payment schedule, or on proof of expenditure. All funds transferred in advance for
the Low Carbon Development work will be accounted for before further payments are
released. The contractor will submit annual audited statements to the UKCCU and
will be in regular contact with UKCCU staff to forecast and monitor expenditure on a
monthly basis.
8. For the Green Investment Facility, the operational details will be specified in the
design phase and set out in Standard Operating Procedures (SOP). A key stage in
the SOP will be the conflict of interest audit to ensure that no committee member or
related party has a material interest in the proposed investment. The SOPs should
be guided by the standards set out in the Equator Principles20, including the AntiMoney Laundering (AML) provisions, but adapted to the local context in Papua.
Management Case
A. What are the management arrangements for implementing this intervention
1. The UKCCU Sustainable Development Adviser will be the lead advisor for this
overall programme. The Programme Manager will be responsible for programme
management and for management of the Accountable Grant to TBI which is also
being approved under this Business Case.
2. Papua is a complex environment and the Sustainable Development Adviser will need
to work closely with the Provincial Government. The Provincial Government,
represented by Bappeda, and the UKCCU will jointly lead an Steering Group which
will meet 2 – 3 times a year. Bappeda and the UKCCU will use this to approve
forward workplans.
3. In addition to the management committee, an advisory group comprising key
stakeholders will be formed. This could also meet 2 – 3 times a year and will be able
to comment on the programme. It is expected that other donors working in this policy
area may also wish to engage with the advisory group.
4. Decisions on financial support to LCD enterprises in the form of both grant funding
and investment will be subject to a separate process, which will be designed in the
first few months of the programme and presented in the 3-month report for approval.
The process should ensure confidentiality for investors and retain UKCCU control
over the budget for use on LCD projects which support overall programme aims. It is
expected that a mechanism for promoting, evaluating and monitoring potential SME
LCD projects will be established by the Green Investment Strategy Unit early in the
programme. The mechanism will need to include both technical and financial parts to
ensure that projects are evaluated and funded effectively. It will be structured so that
it can to accept funds from other interested donors, and scaled up in future if
required.
20
http://www.equator-principles.com/resources/equator-principles.pdf
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5. Given the size of the contract, which represents a significant scale-up from current
arrangements, the primary contractor will be expected to locate some staff in Papua.
We expect that they will be allocated office space within the provincial planning
department (Bappeda) in order to enable the closest possible working relationships.
If this is possible, we do not expect them to have a standalone office. The
programme will also require short term inputs from expert consultants. These will
work closely with staff located in Jayapura to ensure that they have the appropriate
level of engagement with provincial government staff. Short visits should have clear
objectives and a short "Back to Office Report" will be expected, for the UKCCU and
the Government of Indonesia.
B. What are the risks and how will these be managed?
6. The most significant overall risk to successful delivery is that the political situation in
Papua worsens. This could result in disruption or suspension of the programme if the
situation deteriorated badly and there was potential danger to programme personnel.
The programme will be undertaken in conjunction with the government which will
confer a high level of protection in the event of minor public disturbances. However,
the underlying reasons for this risk are likely to remain during the timeline of the
programme. Disturbances in Papua are often unpredictable and may flare up for little
apparent reason. The programme staff will need to be aware of this at all times and
act in ways which do not themselves cause potential offence or encourage excessive
public debate.
7. Specific programme risks and their mitigation are presented in Table 6 below.
Table 6. Programme risks and mitigation
Risk
Violence in Papua affects the ability of
programme staff to work or even to stay in
the province.
Changes to political/administrative
personnel (and possibly of approaches to
LCD and land-use planning) at high levels
in provincial government
Pilot districts (which were all proposed by
the Province) may not wish to be involved
in the programme or do not have sufficient
staff and capability to implement the
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Mitigation
The programme is intended to be low key
and will not have a standalone office. The
majority of the staff are expected to be
Indonesian, or at least speak fluent
Bahasa Indonesian, and will be embedded
within the provincial government which
should confer some degree of protection.
The interim support work at the moment is
currently delivered through consultants
based outside the province. In the event of
serious security problems, we could revert
to such an arrangement, although this
would affect spend rates.
Build strong and wide relationships with a
range of key current and potential decision
makers
Ensure selection process in two phases so
that the second phase of proposed
candidates will be monitored prior to
selection. Alternative districts could be
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program
Insufficient LCD projects and/or
entrepreneurs can be identified for support
given the relatively small population and
level of economic development
Low carbon task force is not supported by
the new administration after the Papuan
elections.
Selected communities may not wish to
participate in the programme
Too many donors attempting to work on
land-use planning and support for low
carbon development in a situation where
there is limited capacity to absorb funding
and limited numbers of skilled persons to
support projects and programmes.
selected if needed
Assistance split into tranches to ensure
there is not an early expectation to invest
unrealistic amounts. In addition, the
UKCCU has supported the generation of a
pool of early potential projects for initial
funding through a concurrent consultancy.
Focus on ensuring buy in for the principle
of supporting low carbon development in
Papua, and the importance of a vehicle to
do so, whether that is the PLCTF or
another body.
This programme includes work to
strengthen community to district links and
small enterprises at the community level,
which may help persuade communities to
engage.
No other programme is currently seeking
to provide support to the province to
implement their land-use plan, although
several programmes are complementary.
But supporting the province to establish
clear donor coordination mechanisms will
be a priority for this programme. We also
hope the establishment of a steering group
will bring greater coherence to the donor
effort. UKCCU also working closely with
key donors (USAID, Norway and EU) in
Jakarta to ensure coherence.
C. What conditions apply (for financial aid only)?
n/a
D. How will progress and results be monitored, measured and evaluated?
1. Progress will be measured against the Logframe attached at Annex 1 (currently in
draft). The logframe is expected to amended following negotiations with the
contractor and based on a proposal from the contractor at the 4-month Inception
Review on how the indicators should be revised in particular. Further reports from
the contractor will be due at 12 months, 18 months and at contract end. These
reports will be presented and discussed with The UKCCU before being signed off
and the release of payments for technical work will be dependent on these reports
being satisfactory and agreed by UKCCU.
2. The four-month inception review will cover:

Progress to date
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
Suggested amendments to the logframe

A detailed assessment of how the programme can report against the ICF
indicators (Annex 2)

The need for any new baseline data to be established in order to report
against the logframe and the ICF indicators, and associated costing, set in the
context of a draft Monitoring and Evaluation Strategy.

An initial assessment of whether it would be feasible to expand the
programme in certain areas

A detailed assessment of the specific opportunities for collaboration with
programmes funded by the UKCCU or other donors and a detailed plan on
how this will be taken forward.
3. In addition, an external evaluation of the programme will be undertaken after 1 year
or at the midpoint of the programme (expected to be around January 2014). This
evaluation will be based on consultation with all key partners, other donors, and other
relevant ICF funded programmes, and will be an opportunity to review the logframe
in general, learn lessons, and specifically consider how the ICF indicators are being
applied in practice and whether more can be done to ensure that progress is being
appropriately measured. If appropriate it could also consider opportunities for further
support. The findings will be presented to both the Steering Group (comprising the
Provincial Government and UKCCU) and to the Advisory Group (comprising
representatives from a range of stakeholders).
Logframe
Quest No of logframe for this intervention: 3618959
Note that whilst this logframe has been negotiated and with the provincial government in
Papua, it is still in draft. It is also expected that any contractor will wish to revisit it,
particularly at the activity and indicator level, and we expect to revise it at the Inception
Review after 4 months.
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