February 02, 1989

Excellency,

I have the honor to refer to the recent discussions held between representatives of the Government of New Zealand and of the Government of the Philippines concerning the Bukidnon Industrial Tree Plantation Project (hereinafter referred to as "the Project") , and to propose on behalf of the Government of New Zealand the following arrangements:

1. The Government of the Philippines, in order to protect its forest resources at the same time to provide means of livelihood to local communities, has decided to undertake a Project in Bukidnon to establish a commercially sustainable forest plantation that would offer an alternative wood resource to the rapidly depleting indigenous timber supply and create long term income earning opportunities for local inhabitants. The Philippine Government recalls the series of missions dispatched by the Government of New Zealand to explore possible areas of assistance in the reforestation of the Philippine countryside which resulted in the completion of an appraisal report and an offer to help finance the implementation of the Project.

2. The objective of the Project is to establish a commercially sustainable forest plantation in Bukidnon that will provide an alternative wood resource to the rapidly depleting indigenous timber supply and create long term income earning opportunities for the local inhabitants. The project would operate in accordance with the July 1987 Appraisal Report on the Bukidnon Industrial Plantation Project.

3. The activities designed to achieve the aims of the Project would be: (a) The establishment, management and use of commercial forests on the following land areas:

(b) The management and development of the Malaybalay Reforestation Project;

(c) The encouragement of local participation in the Project with the end in view of making them major recipients of project opportunities and benefits;

(d) The provision of extension services to establish Tree farmer Wood Lots in the Bukidnon Province totalling approximately 2,500 hectares;

(e) The development of commercial forests on other land areas in the Bukidnon Province, provided that the Project Management Committee (PMC) considers the Project to have the technical and financial capacity to undertake such development.

4. The Project is located at Malaybalay, Bukidnon Central Mindanao in the Republic of the Philippines where an area of approximately 14,000 hectares, owned by the Government of the Philippines and administered by the Department of Environment and Natural Resources, has been designated as the site, for the Bukidnon Industrial Tree Plantation Project. The existing Malaybalay reforestation project which is adjacent to the proposed site would form part of the Project.

5. It is envisaged that the Project would continue up to 31 March 1993 but may be extended if mutually agreed by the Government of the Philippines and the Government of New Zealand.

6. The Project would be organized along the following lines:

a. The Department of Environment and Natural Resources (DENR) of the Government of the Republic of the Philippines would be responsible for the implementation, monitoring, information dissemination and evaluation of the Project. The Ministry of External Relations and Trade (NZMERT) of the Government of New Zealand would be the implementing agency for New Zealand.

b. DENR would appoint its corporate agent, the Natural Resources Development Corporation CNRDC) under a separate agreement, to administer the Project on its behalf.

7. A policy determining body known as the Project Management Committee (PMC) would be formed to determine and advise on project direction and operations. Its composition and functions are detailed and provided for in Annex A. All policies, guidelines, and recommendations of the PMC in respect of all project matters would be implemented by NRDC.

8. NRDC would implement the project. DENR would monitor and evaluate the project and provide a copy of its reports relevant to the Project Management Committee. The Project Management Staff would prepare reports for the PMC on issues arising directly from project implementation. The Project Management Staff would be responsible for undertaking the approved work programmes and implementing the project in the field.

9. The Government of New Zealand has offered to provide financial assistance to the Project in the form of annual grants. It is envisaged that the New Zealand grant would cover the period beginning from the date on which this exchange of notes is concluded until 31 March 1993. The New Zealand grants which would be up to ONE MILLION NEW ZEALAND DOLLARS (NZ$1,000,000.00) per year would be made available each year subject to the New Zealand Government being satisfied that the project is achieving its objectives and proceeding in accordance with the guidelines set by the PMC.

10. The Government of New Zealand has offered to provide the services of the following officers to assist in the implementation of the Project:

a. One senior Forestry Adviser

b. One Systems Management Adviser

c. One Nursery Specialist d. One Protection Planning Specialist

e. One Utilisation Expert

f. One Forestry Training Specialist

g. One Forest Research Specialist

h. One Community Liaison group/office

i. One Agronomist

It is envisaged that appointees a and b would reside in Malaybalay and that appointees c, d, e, f and g would be employed on short term consultancies as required. Appointees h and i would be Filipinos and would be approved by both governments.

11. DENR has offered to ensure that access to the land is secured for the project and to take all necessary steps to ensure that all land in the project area shall be free from any legal and physical encumbrance that may conflict with its proposed use and to ensure that it is reserved solely for the project. DENR would relocate or cancel the leases which have been identified, and any others which may be subsequently identified in the project area.

12. Government of the Philippines through DENR has offered to provide financial contributions to the Project. Its contributions are to be reserved, allocated and sourced from the Asian Development Bank Forestry Programme Loan to the DENR, These contributions are estimated at THIRTY FIVE MILLION PESOS (P 35,000,000.00) for the project period. Project disbursements would be based on the yearly work/financial plan approved by PMC and endorsed to the Department of Budget Management by DENR for final authorization.

13. It is understood that all equipment, vehicles, supplies, and similar materials needed for the implementation of the Project would be procured from sources in the Philippines whenever available.

14. A breakdown of the proposed budget of the Project is attached as Annex E.

I have further the honor to propose that the present Note, with the Annexes to this Note, and Your Excellency's Note in reply confirming on behalf of the Government of the Philippines that the foregoing arrangements are acceptable would be regarded as constituting an understanding between the two Governments which would come into effect on the date of Your Excellency's reply.

I avail myself of the opportunity to extend to Your Excellency the assurance of my highest consideration.

(Sgd.)  ALISON STOKES
  Ambassador Extraordinary and Plenipotentiary
  of New Zealand to the Republic of the Philippines

His Excellency
Raul S. Manglapus
Secretary of Foreign Affairs
Manila, Philippines