1. Assessing options for the design of an effective, efficient and equitable fund management system for REDD+ finance in Nepal Rajesh Rai

2. Outline  Background,  Objectives,  Scope,  Methodology,  Framework,  Key issues,  Preliminary findings,

3. Background  REDD+ is in piloting phase,  Volume of REDD+ finance increases in future when the program comes into the implementation phase,  A country may receive funds from various sources – market and non-market,  Effective, efficient & equitable distribution of REDD+ funds contributes to harmonize benefits distribution, addressing drivers of forest resource depletion and creating country ownership,

4. Objectives  To identify and assess the potential options for REDD+ financing mechanism in Nepal,  Suggest potential options for REDD+ financing considering possible fluctuations in the carbon price,

5. Scope of the study Market (complian ce & voluntary) Private (Foundations / Charitable, Corporate social responsibility ) Public (Bilateral initiatives, Global Fund, National Fund) Nation al Level (Fund Manageme nt) Local Actors Drivers of Deforestation / Forest degradation Fund flow

6. Methodology  Review of public fund flow mechanisms,  National level development and conservation programs,  REDD+ piloting in Nepal,  REDD+ international practices,  Key person consultations (tax, fiscal policies, natural resources management and REDD+),  Local level interactions and Focus group discussions,

7. Review of some national financing schemes  Local Governance and Community Development Program (LGCDP),  Poverty Alleviation Fund (PAF),  The Nepal Peace Funds (NPF),  The School Sector Reform Program (SSRP),  The Alternative Energy Promotion Center (AEPC),  Nepal Disaster Risk Reduction Consortium (NRRC),  National Trust for Nature Conservation (NTNC),  Buffer Zone Management Fund (BZMF),

8. Framework  UN-REDD+ Corruption Risk Assessment Methodology,  Effective, Efficient and Equitable fund flow mechanism,  Avoidance of misrepresentation and misappropriation of financial flows

9. Key issues  Basis of rewarding the forest managers  Output/result base (carbon stock, biodiversity conservation)  Input (labour, financial resources)  Opportunity costs (changing livelihood activities),  Monitoring cost,

10. Key issues (contd….)  Institutional Modality  Project based,  Separate trust funds,  Funds managed by the government,  Budgetary support, On budget /Off budget  The size of REDD+ fund,

11. Framework for assessing the REDD+ financing modalities Adopted from Angelsen et al. 2009, and Vetn and Vedeld 2011 CriteriaProject basedTrust fundsSeparate funds managed under the government Budgetary support Effecti veness (+) attract private funding (-) leakage, additionality, permanence and coordination (+) attract public funding (+) Fairly strong on leakage (+) Fairly good on permanence (-) additionality (-) weak coordination (+) leakage and permanence issues can be addressed (+) Fairly good on sector coordination (-) Attraction of private funding depends on international regime (-) Issues on additionality (+) Rather strong on leakage (+) Strong on sector coordination (+) Permanence can be gained with high state commitment (-) difficult to attract private funding (-) Additionality Efficie ncy (+) Cost-efficient REDD+ investment (-) High transaction costs (+) Fairly good capacity to keep transaction costs down (+) Low transaction costs Issues concerning most low cost REDD+ options (+) Good potential to keep transaction costs down Equity (-)Intermediaries capture REDD+ rents (-) Elite capture at local level (-) Elite capture(+) Equity can be gained by strong state commitment (-) funds used for other purposes than REDD+ (-)Elite capture at all levels

12. Preliminary findings from review of national development and conservation initiatives  MOE adopts (SSRP)“one door only” policy for development partner interaction ensures sufficient fund and equitable distribution across the districts.  GoN and donors have developed a Joint Financing Arrangement (JFA),  Governance and Accountability Action plan of PAF & SSRP identifies corporate governance, coordination and cooperation between program and government agencies.  Minister of Environment chairs AEPC governing board and representatives from other line ministries, industry and NGOs, which is a good practice of multi stakeholder approach.

13. Findings cont…..  Performance based grant disbursement modality adopted by LGCDP helps to encourage implementing agents and also facilitates equitable distribution of funds.  SSRP manages direct funding and technical assistance, which is not a part of the Red Book program, through Joint Steering Committee.  PAF practices outcome based reporting system and also carries out project impact assessment, and manages management information system,  Social auditing system practices by LGCDP, PAF and SSRP enhances public ownership, transparency and involvement of beneficiaries.

14.  Thank you