Liberia - Forestry Project

Documentof o The World Bank &10 FOR OFFICIAL USE ONLY k Report No. 1954-LBR LIBERIA FORESTRY PROJECT STAFF APPRAISAL REPORT June 27, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their offlicial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS The official monetary unit is the Liberian dollar, with a par value to the U.S. dollar. The U.S. dollar is legal tender in Liberia WEIGHTS AND MEASURES 1 ha - 2.47 acres I kmn - 0.62 mile 1 km' - 0.39 mile 13metric ton - 0.98 long ton m3 (r) - solid cubic meter of round wood m (s) - solid cubic meter of sawn wood ABBREVIATIONS GOL Government of Liberia FDA Forest Development Authority GDP Gross Domestic Product F.O.B. Free on Board FT' Forestry Training Institute ODM Overseas Development Ministry (U.K.) GTZ German Agency for Technical Cooperation (Ltd) LFC Liberia Forestry Corporation IDA International Development Association IBRD International Bank for Reconstruction and Developmert 4FD African Development Bank ICB International Competitive Bidding u.b. Under Bark B.D.U. Bone Dry Unit DBH Diameter Breast Height FISCAL YEAR July 1 - June 30  LIBERIA FORESTRY PROJECT FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT Table of Co,ntents Page No. I. BACKGROUND .............................................1 A. Project Background.. 1 B. General .. 1 C. Contribution to the Economy .. 2 D. Forestry Sector .. 3 E. Institutions.. 5 F. Objectives, Strategies and Policies . . 6 G. Bank Involvement in the Subsector .. 7 II. THE PROJECT AREA. 8 III. THE PROJECT ............................................ 9 A. General ............................................ 9 B. Project Description ..10 C. Implementation Schedule. 15 D. Costs and Financing Arrangements ..15 E. Procurement and Disbursement . .18 F. Budgets, Accounts and Audit ..18 IV. PROJECT IMPLEMENTATION AND ORGANIZATION .19 A. Organization .. 19 B. Staffing ..19 C. Operations ................................... 20 D. Training ..21 E. Monitoring and Evaluation .21 V. PRODUCTION, MARKETS AND PRICES .22 A. Production .22 B. Markets and Prices .23 VI. FINANCIAL ANALYSIS ..26 VII. BENEFITS AND JUSTIFICATION .27 A. Project Benefits .27 B. Economic Analysis - Industrial Trial Plantation 28 C. Risk and Sensitivity Analysis .29 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS . .30 This Staff Appraisal report is based on the findings of a Bank appraisal mission which visited Liberia in October/November 1977 composed of Messrs. van de Poll, Bolduc and Fishwick (Bank). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (continued) Table 1- 14 Annex 1 - Related Documents Available in Project File Chart No. I(a) Organization Chart of FDA I(b) Organization Chart of FDA (Technical Service Divisions) II World Bank 18759 - Industrial Plantation Development Organization Map No. IBRD 13427 - Project Area IBRD 13428 - Forestry Concessions List of Tables Table 1 Growth of Logging and Sawn Timber Industry 1970-1976 Table 2 Forestry's Revenues 1970-1976 Table 3 Summary - Project Costs Table 4 Project Costs - Forest Development Authority Table 5 Project Costs - Industrial Trial Plantation Table 6 Project Costs - Technical Assistance and Training Table 7 Estimated Schedule o"-Disbursements Table 8 Manpower and Staff Salaries (FDA Headquarters) Table 9 Manpower and Staff Salaries (FDA Regions) Table 10 Illustrative Government Cash Flow Table 11 Economic Internal Rate of Return - Forest Development Authority Table 12 Economic Internal Rate of Return - Plantation for Pulp Production Table 13 Economic Internal Rate of Return - Plantation for Sawlog and Chips Production Table 14 Economic Internal Rate of Return - Plantation for Chips Production  I. BACKGROUND A. Project Background 1/ 1.01 The project was identified in 1974 by the Government of Liberia (GOL). Over the next three years, several FAO/World Bank Cooperative Program missions visited Liberia and studies of the forestry sector were carried out in conjunction with the West German Aid Mission. A Cooperative Program pre- paration mission visited Liberia in March/April 1977 and submitted its report in July 1977. 1.02 In February 1977 an advance from the preparation facility of US$198,000 was approved, principally for the employment of two technical advisors to assist FDA (para. 4.04). 1.03 The project which would be the first Bank Group investment in the forestry sector in Liberia, is a first step to diversify and modernize Liberia's forestry base. Its principal components involve institution- building by strengthening the Forestry Development Authority (FDA), which was formed in 1976, and implementation of an industrial trial plantation of fast- growing species. It is expected that the project would: (a) enable FDA to control all forestry operations and direct future investment in the sector; (b) lead to the establishment of a large scale industrial plantation development program commencing in the early 1980's for pulp production and other industrial uses. B. General 1.04 Liberia has a total area of about 98,000 km and a population of 1.6 million, growing at 3.3% per annum, but with an urban growth rate of 7.9%. Average population density is about 14 per km . Average per capita GNP in 1976 was US$450. Although 4% of Liberians have average per capita income levels of US$3,000, the majority of the population (70%) is living at a near subsistence level with average per capita income of less than US$120 per annum. 1.05 The growth of the economy remains heavily dependent on the export- oriented iron ore, rubber and forestry enclave sectors. These, with iron ore by far the largest single activity, are the main source of export earnings, employment and Government revenue; forest product exports account for about 4% of foreign exchange earnings. By contrast, traditional agriculture supports the majority of the population. With growth continuing to be largely a function of enclave activities, the increase in real GDP, which averaged 6.4% per annum during 1967-1970 has slowed down considerably to an estimated 2.5% in 1976; and may have declined further during 1977. The decline in GDP's rate of growth is mainly a reflection of lower iron ore production. 1/ See Project File, Annex 3-I.  - 2 - 1.06 Liberia's climate is tropical, with a monsoon from May to October. The annual rainfall varies from 4,500 to 2,200 mm. The soils are mainly lateritic, very acid and lacking in nitrogen. In general, the soils of Liberia are more suited to growing timber and tree crops than intensive agriculture. 1.07 The 4.8 million hectares of forest (49% of the total land area) are distributed evenly over the whole country. The 2 million hectares of productive closed forest, which contain most of the valuable timber species, are located mainly in the southeast. In the west, the tropical forest is of poor quality. The remaining 2.3 million hectares of broken forest is disturbed by shifting agriculture and is progressively declining in area and value. It is estimated that about 30,000 ha of forest are destroyed annually by shifting cultivation. Permanent farming is confined to tree crops such as cocoa, coffee and oil palm, and the bush-fallow system is likely to continue. An estimated 0.5 million ha are commercially cultivated and the total actively being cultivated is 0.8 million ha, or 8% of the total land area. 1.08 The inadequate road system seriously hampers movement of logs and sawn timber. A number of secondary roads 2have been constructed by concessionaires. The road density is 0.03/km , which is the lowest in West Africa. The present railway system is owned and operated by iron ore mining concessions for transporting iron ore from the interior to Monrovia and Buchanan. The transport of logs or processed wood by rail has to be negotiated with the mining companies, and increasing quantities of timber are handled by the Nimba line to Buchanan. There are four major ports--Monrovia, Buchanan, Greenville and Harper. Ships calling at Robertsport, Marshall and River Cess have to have their cargoes handled with the help of surfboats. Up to 1969, all these ports were managed and operated by private companies. Since this date, they have been the responsibility of the National Port Authority (NPA) at Monrovia, and more recently, at Greenville and Harper. Buchanan is still operated by LAMCO, 1/ but there are plans to make the LPA responsible once the quays have been reorganized. There are plans to reorganize and expand Monrovia port if increased freight warrants it. The inadequacies of other ports used by log-export companies are a continual source of complaints. Logs are lost, deteriorate in value and orders cannot be met because of unsatisfactory con- ditions. Any significant increase in wood exports could only be achieved by improving port facilities. C. Contribution to the Economy 1.09 While the forestry subsector is relatively small in terms of con- tribution to GDP (about 2.5% to GDP in 1976), exports of forestry products are significant and rank as the fourth largest export commodity after iron 1/ Liberian-American-Swedish Minerals Company--largest iron ore producer in the country.  ore, rubber and diamonds. Exports in the period 1972-76 averaged US$13 million, and in current dollar values, exceeded US$45 million in 1976, or about 4% of tStal export value. The totai volume of logs removed inc5eased from 48,000 m in 1967 to about 605,000 m in 1976, of which 315,000 m , with a F.O.B. value of US$37 million, were exported. About 290,000 m of logs wers locally converted to sawn lumber, exports of which amounted to 49,000 m , valued at about US$8 million (Table 1). GOL derived about US$8 million revenue in 1976 from its forests through stumpage fees, land rentals and reforestation fees (Table 2). This should be compared with its expendi- ture in the forestry sector of about US$1 million. Direct employment provided by the sector is currently about 5,000 persons, of which, 5% are expatriates occupying principally the senior managerial positions. Contribution of forestry to countrywide employment is about 6%. D. The Forestry Sector 1.10 Resources and Industries. About half Liberia's land area is covered by forests. Some 2 million ha is closed tropical hardwood productive forest, all of which has been allocated to 46 concessionaires. The balance is described as open forest, which is subject to farming rights and shifting cultivation. Of the productive foresi, the estimated "sustainable" supply of commercial timber is 1.8 million m 3(r) 1/ per annum, compared with present annual removals of about 0.6 million m . This represents a vast resource as the current supply of tropical hardwood from other countries is becoming ex- hausted. 1.11 Work on a forest resources inventory has been mainly carried out by a German Aid forest mission. More than 235 species of trees have been identified, of which, 60 to 90 are considered to be potentially marketable. Presently, however, less than 15 species, accounting for about 20 percent of total standing volume, are well known on the world market. Exploitation of the concessions has therefore mainly been a "creaming" operation which results in over-cutting of the more valuable species. Increased research into the utilization and marketing promotion of lesser-known species could help to prevent over-exploitation of established species and would make more effective use of Liberia's forest resources. 1.12 The present exploitable forest is likely to diminish because con- cessionaires, who are less interested in long-term utilization than in short- * term exploitation of valuable species, rarely carry out improved forest management procedures (e.g., replanting). There are also competing land use claims, mainly from shifting agriculture; the 80% of productive forest declared as National Forest is still being encroached upon by shifting culti- vators who follow concessionaires' logging operations. An immediate priority is therefore to protect and efficiently exploit the full potential of a permanent forest estate by demarcation of permanent forest reserves and intensification of forest management. Improved forest management of natural tropical high forest could increase the mean annual incremental production 1/ (r) = roundwood (logs).  from 1 to 2 m /ha/year. Furthermore, plantations with fast growing species can produce up to five times more wood annually than slow-growing natural forests. Thus plantations can produce as much as natural forests but on a smaller area. This approach would reduce land needed for forestry and release fertile forest lands for agriculture. Conversion of part of the forest areas to rubber, cocoa, and oil palm could therefore be considered. 1.13 Apart from Government's intention to provide continuous timber pro- duction from the indigenous forest through natural regeneration by controlled cutting cycles and sustained yield management, Liberia is also embarking on a modest reforestation program. Although the concessionaires are required to undertake reforestation, in practice, very few have complied. In an attempt to ensure that concessionaires carry out reforestation, GOL, in conjunction with German Technical Aid, initiated a program in 1974, financed by a Refores- tation Fund. This is funded by fees levied from concessionaires on logs harvested. By the end of 1976, about 4,500 ha had been reforested under this program. 1/ Since the country is ecologically and climatically well- suited for fast-growing species for manufacturing timber, woodpulp and wood- based panel products, GOL intends to embark on large scale industrial forest plantations, provided they can be economically justified. At present, little is known of the performance on a commercial scale of fast-growing indigenous or exotic trees in plantations, or of the techniques and cost of establishment. A period of intensive commercial scale trials is therefore needed before a major program can be undertaken. 1.14 Forest exploitation grew in importance only from 1968 after a pre- liminary countrywide forest inventory was completed. Following this, more concessions were granted, covering most accessible forest areas. Because of lack of capital and technical knowhow, most concessionaires are foreign entrepreneurs with European marketing outlets. Although the Liberian timber industry,is still based on log expsrts, wood locally processed rose from 77,000 m (r) in 1970 to 290,000 m (r) in 1976 (i.e., about 48% of total log production). Local processing -which accelerated partly from the introduction of legislation in 1973 and aimed at 100% local processing of logs by 1977- is mainly concentrated on saw milling and simple furniture production. With few exceptions, however, local processing is unplanned and unregulated. The larger expatriate-controlled logging companies have made little effort to develop local manufacturing capacity and many sawmills are small, poorly equipped, under-financed, inefficient and poorly managed. Government regards development of the mechanical wood processing industry as important since this will significantly increase the value added from the sector, and contri- bute to employment and industrialization opportunities. The immediate need is to establish the political climate necessary to attract foreign capital and technology and to encourage greater Liberian participation in the owner- ship and management of forest companies by introducing small-scale wood processing industries. 1/ Mainly confined to "enrichment" planting of natural species and Teak. The area planted with tropical pines is still extremely small.  -5- E. Institutions 1.15 The Forest Development Authority (FDA). Following the recommenda- tions of a US Economic Mission in 1949, an Act for Conservation of the Forests of the Republic of Liberia was passed in 1953, the primary objective of which was the protection of forest resources. The Bureau of Forestry was then established in the Department of Agriculture and Commerce. Initially, it concentrated mainly on forest inventories and concession allocations; but it was then realized that it had neither the flexibility, nor the financial freedom to function efficiently. As a result, following an organizational study prepared by FAO/World Bank cooperative program, FDA was established as a corporate body under the Forest Act in early 1976. FDA, which is financed through GOL's budgetary appropriations is responsible for the administration, conservation and control of national forest areas; formulation of forest policies (including land use); investment proposals; forest inventory planning and control of concession licenses 1/; monitoring of private sector logging and sawmill operations, including marketing; collection of revenues, carrying out of forestry management programs; and research and forestry training. The Concession Secretariat 1.16 The Secretariat is the executing body of the Concession and Invest- ment Commission, which oversees all concession agreements and formulates general policies and rules relating to exploitation of Liberia's natural resources. One of its tasks is to introduce uniformity among concession agreements, particularly investment incentives and taxes. In 1973 the Secre- tariat introduced a standard agreement for forestry concessionaires, and agreements made before 1973 will have to be renegotiated. New applications for and renegotiations of existing concessions are processed in close liaison with FDA. Training and Research Institutions 1.17 The College of Agriculture and Forestry in the University of Liberia, which was assisted under the Bank's First Education project, is the sole institution for graduate training in forestry. Existing training facilities are adequate for supplying Liberian professional foresters. However, by emphasizing and introducing new forestry concepts in Liberia, such as industrial plantation management, tropical High Forest inventory, mechanical wood processing and tropical hard wood marketing, which presently are inadequately taught in Liberia, specialization in these fields would have to be obtained overseas. 1.18 Technical forestry staff training, formerly carried out by the Agricultural Extension Service, will be carried out by the Forestry Training Institute (FTI) in Bomi Hills. The FTI is partly financed under the Bank's 1/ Carried out in conjunction with the Concession Secretariat of the Ministry of Finance.  -6- Third Education project and staffed by United Kingdom ODM Technical Assistance. The Training and Research Board of the Mano River Union, 1/ established in April 1976, would have overall responsibility for FTI on behalf of GOL and Sierra Leone. FTI's operations, with an annual output of 20 Liberian and 5 Sierra Leonean forest rangers, and about 80 forest workers, would be financed out of the Mano River Union training and research budget provided by GOL, Sierra Leone and the private sector. The training of forest industries workers (logging, sawmilling, etc.) would be carried out by a logging and timber processing training center at Bomi Hills, financed under West German Bilateral Aid (para. 3.01). In addition, the industrial trial plantation would provide opportunity for FTI to acquire practical experience in modern silvicultural practices. 1.19 Present silvicultural research is limited to small scale trials in enrichment planting of degraded high forest using indigenous species with useful timber properties and some exotic hardwoods. Under a German Technical Aid Program, introductory trials with tropical pines and some eucalyptus are being carried out, with a similar program also being carried out by the Liberia Forestry Corporation (LFC), but under quite different climatic and edaphic conditions. 2/ F. Objectives, Strategies and Policies 1.20 The role played by the forestry sector in the Liberian economy is still comparatively small but has considerable untapped potential. Thus, in view of the decline of the mining industry which hitherto led Liberian economic growth, and the desirability of moving away from over-dependence on non-renewable resources such as iron ore, GOL is anxious to encourage expansion of timber exploitation and to promote timber processing industries. In view of the favorable demand prospects for forest products, forest re- sources, which are renewable, could contribute to strengthen Liberia's per- manent resource base. 1.21 Liberia's long-term forestry development strategy would therefore be directed toward the building up of forest inventories; intensification of forest management and marketing intelligence; promotion of viable indus- trial development (mechanical wood processing, industrial plantations) with greater Liberian equity participation; developing the present transport infra- structure, including port handling facilities; introducing forest legislation and enforcement; and integrating forestry with rural development. I/ In 1973 the Mano River Union was established between Liberia and Sierra Leone. The expressed objective of the Customs Union is active collabora- tion and mutual assistance in matters of common interest (e.g., joint effort in the training of middle-level forestry staff and lower level forestry workers). 2/ LFC is a Swedish-owned private company, which in 1970, commenced imple- mentation of a pulpwood plantation program in the Bong County to produce woodchips for export to 3 Swedish pulp companies.  1.22 Under Liberia's two-stage socio-economic development plan (1976-1984) GOL is seeking to: (a) receive an appropriate share of the revenues from Liberia's forest exploitation which is mainly carried out by fore,gn private companies under concession arrangements; (b) increase output by developing efficient plantations, logging and mechanical wood processing facilities; (c) obtain better intelligence information to improve forest management, planning and policy formulation. 1.23 Compared with the West African timber-producing countries, Liberia's forest exploitation is a relatively new industry and accordingly Liberia's forestry service is of recent origin and weak due to lack of experience, restricted funds and inadequate training programs. The Government recognizes that these objectives can only be attained through efficient Government forestry institutions. Therefore, the strengthening of the FDA and training of Liberians in the forestry sector is an important element of Liberia's strategy for forest development. 1.24 The strengthening of FDA will enable GOL to meet the objectives of the development plan needing urgent attention (see paras. 1.10-1.14) including: (a) increased research into utilization and marketing promotion of lesser known species; (b) pLoduction of forests and improvement in forest management and planning; (c) introduction of industrial trial plantations with fast growing species; and (d) introduction of exploitation and fiscal policies to attract foreign capital and technology for development of forest industries and increased Liberian participation. G. Bank Involvement in the Sub-Sector 1.25 This project, which would be the first Bank Group investment in the Forestry sector in Liberia, is fully in line with the recent Bank Group Forestry Sector policy Paper. 1/ The Policy Paper stresses that the weakness of forest institutions has proved to be the single, most important obstacle to Bank forestry activity, and places emphasis on the development of industrial forestry projects. Through the strengthening of FDA and the trial plantation leading to an industrial forestry program, the proposed project meets both these objectives. 1/ Report No. 1778, September 15, 1977.  - 8 - II. THE PROJECT AREA Location 2.01 Forest reserves and concessions exist throughout the country. FDA, which has jurisdiction over all of them, has its headquarters in Monrovia and administrative headquarters located in the western, central and eastern districts. Therefore, the institutional building aspects of the project will take place throughout the country. However, the industrial trial plantation will have a specific location, in the recently declared national forest area in the Grand Cape Mount County, (Maps IBRD 13427/8). Proposed Industrial Plantation Program 2.02 The western forestry district (with Bomi Hills as administrative headquarters) includes 130,000 ha which was declared a National Forest in August 1977 specifically for future industrial plantation development. The trial plantation is in this area, as would be the proposed industrial plantation development in the early 1980's. The 130,000 ha is located in two separate blocks north and south of the Bie Mountains in the Grand Cape Mount County of Western Liberia. The quality of the forest to be cleared is low and contains very few commercial species and the few suitable logs removed in clearing operations will be utilized by GOL for construction purposes. The monsoon climate, undisturbed forest soils and the proximity to large perennial rivers and the port of Monrovia make it a natural choice for development of an industrial export-oriented plantation for producing either pulp, sawn timber or both. The transport infrastructure and port facilities at Monrovia would have to be improved to handle the additional exports which would be generated if a major plantation program is developed in the region. 2.03 Since the closing down of the iron ore mines at Bomi Hills, the largest township adjacent to the project area, the problem of employment in this region has become acute. A large scale forestry program and associated logging and processing industries could, in time, provide permanent employment for up to 2,500 people. The 1974 population census gives the total population of Grand Cape Mount County as 56,600. The population residing around the project area totals 16,500, of which, 5,500 are considered to be working population. 2.04 Within the 130,000 ha, there are 72,000 ha without traditional farming rights. There are 50,000 ha of plantable land, the balance being steep hills or otherwise protected forest. It is considered that a total plantable area of about 70,000 ha could be made available for a large ssale industrial plantation. This could produce annually, either 1 million m of pine wood suitable for a pulp industry of about 180,000 tons per year capa- city, or a combined pine/gmelina plantation producing sufficient long and short fiber material for a pulp industry with 250,000 ton per year capacity. If further studies, included as part of the project, indicate that sawn timber production would be a more viable alternative than pulp production, the same  - 9 - area could produce up to 252,000 m (s) 1/ a year of sawn timber plus about 400,000 m waste material for chips. The same area of pine planSation, pro- ducing only chips for the export market, would produce 975,000 m (r) per annum, from which 375,000 Bone Dry Units (B.D.U.) 2/ could be processed. Details of investment models for these possible plantation development alter- natives are given in para. 7.07. III. THE PROJECT A. General 3.01 The project which has high priority in the Government's development plan and is in line with Bank Group forestry policy (para. 1.25) will be a first step to diversify and modernize Liberia's forestry sector. The three principal elements of this first project would be: forestry institution building, the establishment of industrial trial plantations and the execu- tion of studies and surveys which are of crucial importance for the ultimate development of the sector. The project would complement the commercial log- ging and sawmill training project now being prepared by the German Agency for Technical Corporation (GTZ) and the Third Education Project (Cr. 1417-LBR) under which a forestry training institute is to be constructed at Bomi Hills (para. 1.18). 3.02 The project is expected to lead to the establishment of a large scale industrial plantation development program commencing in 1982/83. The trial plantation (para. 3.07) would form the nucleus of the first phase of a proposed 70,000 ha program, which would be implemented over a 15-year period. The results of the trial, in conjunction with the various studies proposed under the project, would provide the basis for proceeding. One of the most important studies is the pre-industrial plantation survey which will consider industrial timber end uses, either for pulp or sawlogs integrated with chips. The outcome of the ongoing LFC trials (para. 1.19) will also be taken into account. Investment models have been prepared (para 7.07), which indicate that both forms of investment would be viable. By 1982, FDA will be fully equipped to implement the first phase of the large scale industrial plantation program following increased staffing and training provided under the project. This would provide essential continuity of FDA production operations. 3.03 FDA would also consider local wood processing investment possibi- lities, although these are expected to be small and are likely to be financed by private foreign entrepreneurs. 1/ m (s) - the volume of planks measured after converting logs (r) in a sawmill. Approximately 50% of logs is converted in planks. 2/ B.D.U. - 2,400 lbs weight over drywood (e.g. pines have about 2.6 m (r) 1 B.D.U.).  - 10 - B. Project Description 3.04 Summary Project Description. The project, which would be imple- mented over the five-year period 1979 through 1983, would involve: (a) strengthening the Forest Development Authority and providing housing, offices, vehicles and equipment; (b) establishing a 1,600 ha commercial scale industrial trial plantation of fast-growing exotic and in- digenous species in Grand Cape Mount County; (c) training of Liberians, particularly in industrial forest management, market intelligence and mechanical wood processing; and (d) technical assistance in the form of consultancy services to carry out high priority studies and surveys. Detailed Features 3.05 Forest Development Authority. 1/ Assistance would be provided to FDA to introduce forest management practices, and to improve the present inefficient forest revenue collection system. FDA would be responsible for the industrial trial plantation (para. 3.07) and would be staffed and equipped to control all forestry sector operations and to plan and direct future forestry development, including implementation of Government- controlled projects. 3.06 To achieve this, FDA administrative headquarters would be built in Monrovia and regional headquarters would be constructed at Bomi Hills, Sanniquellie and Zwedru. Staff housing, workshops and guest houses would be provided in the three regions together with vehicles and other equipment. During the five-year development period, local staff would be substantially increased from 300 presently to an estimated 424, including some additional staff (91) recruited for revenue assessment mostly in the regions (para. 4.05). The remaining total (33) would be project related staff of which approximately half (18) would be employed in Monrovia and the remainder in the regions. The cost of hiring the additional assessment staff has not been included in proj- ect costs since their employment is not considered to be directly project related and could be incurred whether or not the project takes place. In addition to the above staff, two internationally recruited advisors, who are already in post and financed by the Bank's Project Preparation Facility (para. 4.04), will provide technical assistance in general forestry and administra- tive matters, for a total of 78 man months. To assist FDA in reviewing and 1/ See Project File, Annex 3/III.  - 11 - preparing forest policies and improving forest management techniques, three additional specialists, also to be recruited internationally, would provide expertise, each for five years, in tropical hardwood marketing and promotion, mechanized wood processing and forest management (the latter with emphasis on land use planning using aerial photo interpretation techniques). 1/ Further details in Chapter IV and Tables 6, 8 and 9. Industrial Trial Plantation 2/ 3.07 An industrial trial plantation of 1,600 ha would be established over the five-year development period in the national forest reserve near Bomi Hills. This is expected to lead to the establishment of a large scale industrial plantation development program commencing in the early 1980's. The industrial trial plantation component will include: (a) mechanical clearing of 1,600 ha of low-value tropical high forest; (b) establishing a nursery to produce 2.6 million high- quality fast-growing pines and gmelina seedlings; (c) land preparation and planting; (d) construction and maintenance of 50-60 km all season and dry season access and plantation roads; (e) semi-permanent accommodation for plantation management and staff, together with vehicle and equipment maintenance facilities; and (f) conducting research trials, in-service training and special studies to evaluate results from the trial plantation. To achieve this, two specialists in industrial plantation management and forest clearing and road construction would be required, together with twelve lower level professional and technical staff for the trial plantation. 3.08 The most important aspect of the industrial trial plantation will be evaluation of the results to enable large scale industrial plantation development to commence in the early 1980's. This will include: (a) determining the most cost effective method for removing high forest, land preparation, and planting and main- taining fast-growing species for industrial purposes; and 1/ For Terms of Reference see Project File, Annex 3/V. 2/ See Project File, Annex 3/III.  - 12 - (b) determining the most productive species and provenances for the region including yield and growth studies. By the early 1980's yield and growth data from species/provenance planting trials will be available from the proposed 1,600 ha plantation project (4/5 years old), LFC trial plantation (7/8 years) and from a small area of trial plantings carried out by German Aid (6/7 years). In addition, results from pulping tests of 15 year old pines, planted by the College of Forestry, will also be available. Details of a possible Phase II Project are given in paras. 3.02 and 7.07. Training 1/ 3.09 Because of limited possibilities for training and obtaining practical experience in forestry in Liberia, selected staff will be awarded fellowships for overseas training. The project will provide, over a five-year period, US$212,000 for approximately 212 manmonths of fellowships as follows: (a) 30 manmonths for training forestry graduates and engineers in industrial plantation techniques, silviculture, nursery, mechanical land clearing and heavy equipment maintenance; (b) 92 manmonths for forest officers to be trained in forest management, forest engineering, forest socio- economics, planning, and mechanical wood processing; (c) 30 manmonths for training in hardwood timber marketing, analysis and promotional techniques; (d) 24 manmonths for training in land use planning and aerial photo interpretation; (e) 24 manmonths for post-graduate training in national parks and wildlife conservation; and (f) 12 manmonths for training of a forestry librarian. 3.10 Forest ranger training will be carried out by the FTI, and for forestry industrial workers, by the proposed commercial logging and timber processing training center to be financed under West German Bilateral Aid. The internationally recruited staff would provide in-service training of project staff in methods of establishing large scale industrial plantations, forest management and in project monitoring and evaluation. Training will mainly take place during the first three years. GOL has already earmarked a number of candidates for further training. 1/ See Project File, Annex 3/IV.  - 13 - Consultancy Services and Studies and Surveys 1/ 3.11 Consultancy Services. The project includes 25 manmonths of con- sultant services, estimated at US$138,000, to establish an effective market intelligence system (12 man-months), to strengthen FDA accounting and finan- cial operations (6) and to assist plantation management with the evaluation of plantation trial results (7). The unit cost for consultants to provide services and studies (para 3.12) is calculated at about US$6,000 per manmonth-. 3.12 Studies. A further 55 manmonths of specialist consultant services costing about US$351,000 would also be included to investigate future forest industry projects as follows: (a) Charcoal The viability of transforming cleared forest at the industrial trial plantation site into charcoal for use in the pig-iron smelting industries or export to Europe. (b) Pre-industrial Plantation Survey Wood produced in 15 or 25 year rotations by tropical pines and exotic hardwoods has a number of end uses. The consul- tants would conduct a pre-industrial survey for a pulpmill, including export facilities and will compare the benefits of exporting pulp with these obtainable from sawn wood and chips. The study will also carefully evaluate growth rate performance of the various trial plantations, including those obtained by LFC (para. 1.19). At the same time this socio-economic impact of the industrial plantation on the total environment should be studied. Assurances were obtained that on the basis of the results of the consultant's study, GOL would prepare, not later than June 30, 1982, in consultation with the Association, investment proposals for expanding the trial into a full industrial plantation development program. For further details, see paras. 3.02 and 7.0%. (c) Forest Policy Proposals FDA, as a matter of priority, will have to formulate forest, fiscal, management, exploitation and reforestation policy. Some of these are already under review, with technical assis- tance provided by GTZ. Assisted by specialist staff provided under the project, together with four manmonths of consultancy services, FDA would be able to complete these policy proposals. In view of its importance for the planning and development of the forest industry, an assurance was obtained that FDA would 1/ See Project File, Annex 3/V, including terms of reference.  - 14 - prepare and submit to the Association before June 30, 1979, for review and consultation, proposals regarding the framework and implementation of Liberia's forest exploitation and fiscal policies based on studies by FDA, German Aid and other agencies. (d) Sustained Yield Study A study would be carried out to assess conflicting data regarding the maximum amount of natural forest which can be cut annually while maintaining sustained yield. The existing 1.8 million m3 of sustained yield is based on the premise that about 70 hardwood species are marketable. This is probably over-optimistic (para. 5.02) and requires a realistic assess- ment of the marketing potential of all species, including those grown on industrial plantations. (e) Port Handling Facilities Since the present log and log-based goods port handling facilities are inadequate to cope with present and projected log and processed timber exports a study will be carried out to assess the port handling requirements together with an improvement plan and cost estimates. (f) Aerial Photography Interpretation: see para 3.13. Surveys 3.13 The project includes US$1,000,000 for obtaining improved photography and landsat imagery for two-thirds of Liberia; this photography and imagery would complete the land use classification exercises of the Mano River Union land resources survey. With completion of the land use classification, Liberia would have a much needed tool for national and regional agricultural planning. Use of landsat imagery will make it possible to determine those forest areas which should be demarcated permanent forest reserves, scheduled for management as natural forests or proposed for intensive industrial planta- tion development. The survey includes aerial infrared photo production to make more precise demarcations and definitons of species which can be used for specific projects developed by FDA. Under the project, FDA will develop a Forest Management/Planning Section, which, with the help of landsat imagery and aerial infrared photographs, will be able to improve planning and control of the concessions and permit better reforestation planning. 3.14 Assurances were obtained during negotiations that consultants em- ployed under the project for services, studies and surveys would be appointed on terms and conditions, and with qualifications and experience acceptable to the Association.  - 15 - C. Implementation Schedule 3.15 Selection of staff is already underway. FDA headquarters staff appointments will be mainly required during the first year, whereas appoint- ments in the regions will be spread over four years. Overseas training requirements have been agreed in principle with FDA and suitable candidates are being selected. Training will mainly take place during the first three years. Consultancy services and studies will be required during the first three years. Construction of houses and other buildings would be spread over the first two years of the project. Procurement of equipment for plantation development would be completed in Year One, and equipment and vehicles for FDA in the first and fourth year. Pre-project activities for the plantation component, including road construction, temporary housing and nursery prepara- tions, have nearly been completed (para. 3.20). Planting of the industrial trial plantation is scheduled as follows: PROJECT YEAR 1979 1980 1981 1982 1983 Total Planting (ha) 200 250 300 400 450 1,600 D. Cost and Financing Arrangements 3.16 Cost Estimates. Total project costs over the five-year development period (1979-1983) are estimated at US$17.5 million, of which, US$10.9 million or 62% would be foreign costs. Project cost estimates include an estimated US$0.3 million of identifiable indirect taxes, but excludes all other identi- fiable import taxes on items imported for the project. The latter reflects the Government's present policy to exempt from duties and taxes all goods imported, especially for projects of this nature. Base cost estimates are based on prices and quotes obtained during appraisal at the end of 1977 and include physical contingencies amounting to 5% of base cost estimates. The expected price increases applied as shown below are in accordance with Bank's general guidelines. 1978 1979 1980/1983 Vehicles, Equipment 7 6.5 6 Salaries, Technical Assistance 7 6.5 6 Buildings 8 7.5 7 Contingencies total US$3.2 million, 18% of total costs, or 22% of baseline cost. Estimated project costs are summarized below and detailed in Tables 3-6.  - 16 - SUMMARY OF PROJECT COSTS x Foreign % of Total Exchange of Local Foreign Total Costs Total Cost -----US$ Million------- Forest Development Authority Buildings 1.6 1.6 3.2 Vehicles and Equipment 0.4 1.1 1.5 Incremental Staff Salaries 0.8 - 0.8 Incremental Operating and Maintenance Costs 0.6 1.0 1.6 Subtotal 3.4 3.7 7.1 41 21 Industrial Trial Plantation Pre-project Road Construction 0.3 - 0.3 Road and Plantation Development 0.6 0.3 0.9 Buildings 0.1 0.3 0.4 Vehicles and Equipment 0.2 0.6 0.8 Staff Salaries 0.4 - 0.4 Operating and Maintenance Costs 0.4 0.1 0.5 _ _ Subtotal 2.0 1.3 3.3 19 7 Technical Assistance and Training - 3.9 3.9 22 22 TOTAL BASELINE COSTS 5.4 8.9 14.3 82 51 Contingencies Physical 0.3 0.4 0.7 4 2 Price 0.9 1.6 2.5 14 9 TOTAL PROJECT COSTS 6.6 10.9 17.5 100 62 Percentage 38 62 100 Proposed Financing 3.17 The project would be financed by three co-financiers, IDA, GTZ and the African Development Bank (ADB). Of the total project costs of US$17.5 million, IDA would contribute US$6.0 million, GTZ US$1.8 million and ADB US$5.0 million.  - 17 - Summary of Proposed Financing (including contingencies) Total IDA ADB GTZ GOL -------------- US$ Million ------------- Forest Development Authority Foreign Exchange 4.9 2.2 2.7 - - Local 4.2 1.5 - - 2.7 Industrial Trial Plantation Foreign Exchange 1.6 0.3 1.3 - - Local 2.4 0.4 - - 2.0 Technical Assistance and Training Foreign Exchange 4.4 1.6 1.0 1.8 - Local _ _ _ _ _ Total Costs 17.5 6.0 5.0 1.8 4.7 Percentage 100 34 29 10 27 3.18 The three co-financiers would finance a total of US$12.8 million or 73% of total project costs, which would cover all project foreign exchange costs of US$10.9 million and US$1.9 million of local costs. The IDA credit would finance US$6.0 million on standard terms to cover US$4.1 million or 38% of foreign exchange costs and US$1.9 millioil or 29% of local costs. The IDA credit would be applied to cover building costs, pre-project road con- struction costs, and technical assistance costs (see para 3.22 for details). The Deutsche Gesellschaft fur Technische Zusammenarbeit GMBH (GTZ) would contribute US$1.8 million equal to 16% of foreign exchange, or 10% of total project costs as a grant to cover certain technical assistance costs. ADB would contribute US$5.0 million, equal to 46% of foreign exchange and 29% of total project costs. The ADB loan would be for 20 years including 5 years of grace on reimbursement of principal, with interest at 8%. ADB contribution would finance the foreign exchange cost of project vehicles, the foreign exchange component of the project's incremental operating costs including fuels, lubricants, maintenance supplies, planting materials, etc. It would also cover the total production cost of the project's aerial photo- graphy component. GOL would finance the remaining US$4.7 million or 71% of local project costs or 27% of total project costs. 3.19 It would be a condition of effectiveness that the ADB loan of US$5.0 million and GTZ's grant of US$1.8 million had been formally signed by ADB, the Government of the Federal Republic of Germany and GOL. 3.20 In addition to the proposed contribution of US$4.7 million, GOL would be required to contribute the necessary funds estimated at US$0.9 million during the project period for FDA non-incremental staff engaged in revenue assessment (see Tables 8 and 9). Assurances were obtained that all such additional funds needed by FDA for this purpose would be provided by GOL. To enable planting to begin in 1979, pre-project startup activities  - 18 - have nearly been completed (para 3.15). Retroactive financing of up to US$250,000 would be provided to cover expenditures incurred after January 1, 1978, to carry out such activities. E. Procurement and Disbursement 3.21 Procurement. Civil works contracts for buildings and houses would not be suitable for international competitive bidding since they would be large in number and widely dispersed in location covering 22 forest districts throughout the country. Such contracts, valued at US$4.1 million, would be awarded on the basis of competitive bidding advertised locally in accordance with procedures satisfactory to IDA. Simple structures such as huts, small workshops and storage facilities would be constructed through FDA's force account up to an aggregate amount of US$600,000. Contracts for items to be financed by ADB (i.e. vehicles, equipment, operation and maintenance and aerial photography) would be awarded in accordance with procedures satisfac- tory to ADB. International staff and consultants would be employed on terms and conditions and with qualifications and experience acceptable to IDA. 3.22 Disbursement. The IDA Credit would be disbursed during 1979-1983 as follows, and details are in Table 7. Amount % of Expenditure Category Allocated to be financed (US$ million) I. Civil Works for FDA and Plantation 4.1 90% of total expenditures. II. Technical Assistance Studies 1.3 100% of foreign expenditures. and Training III. Unallocated 0.6 6.0 3.23 Disbursement would be fully documented. F. Budgets, Accounts and Audit 3.24 Budgets. FDA would prepare its own annual budget for approval by FDA Board of Directors and the Bureau of Budgets prior to incorporation in the budget of the Ministry of Agriculture. FDA budgets would be based on appraisal program and objectives, amended as required to reflect current costs and policy changes. FDA would submit to the Board for approval, quarterly cash flow statements and projections, including revenues, in accordance with these budgets. The Ministry of Finance would deposit advances to the FDA bank account on the basis of these cash flows at least one month prior to commencement of the quarter. Approved annual budgets and long-term develop- ment programs would be sent to the Association for review. Assurances to this effect were obtained from GOL.  - 19 - 3.25 Accounts and Audit. FDA would maintain accounts in accordance with acceptable accounting practices to reflect the operations and financial posi- tion of the project a-ad to provide evaluation data. The accounts of FDA would be audited annually by independent auditors acceptable to IDA, and annual audited financial statements, together with short and long form re- ports, including a statement as to whether or not Association funds had been used for their intended purpose, would be submitted to IDA within four months after the end of the financial year. Assurances to this effect were obtained at negotiations. IV. PROJECT IMPLEMENTATION AND ORGANIZATION 1/ A. Organization 4.01 The FAO/IBRD Cooperative Program assisted Government to form FDA, whose functions and responsibilities were enacted in December 1976. Pres- ently, FDA has a Board of Directors and a total staff of about 300, most of whom transferred from the former Bureau of Forestry. FDA Board of Directors of nine members comprises: The Minister of Agriculture (Chairman) and rep- resentatives of the Ministers of Finance, Local Government, Planning and Economic Affairs, Commerce Industry and Transportation, the President of the Liberian Bank for Development and Investment, two members to be appointed by the President; and the Managing Director, gho is also the Chief Executive. 4.02 Under the project FDA will be reorganized (Charts I(a), I(b)). The FDA headquarters will be reorganized into five divisions: (a) a Planning and Research Division which would be responsible for formulating and monitoring all forest policies including the forest taxation and forest management policies; (b) two Technical Services Divisions which would be responsible for enforcement and control (management) of forest exploitation and fiscal policies as well as forest protection, reforestation, plantations and train- ing, and for monitoring processing (utilization) of forest resources; and (c) Administration and Controller's divisions which would be responsible for administrative and financial matters of FDA. In the three regions, covering 22 forest districts, the headquarters will be upgraded and reorganized. B. Staffing 4.03 Under the project all key posts would be filled by persons with qualifications and experience acceptable to the Assocition: the Managing Director, the Assistant Managing Director and the five Divisional Heads of FDA. In addition, five professional staff would be appointed: three special- ists in tropical hardwood marketing; mechanical wood processing with back- ground in data processing; forestry management planning, the Industrial Trial 1/ See Project File, Annex 3-II/III.  - 20 - Plantation manager and the mechanical engineer. In the event that persons with acceptable qualifications and experience are unavailable in the country, they would be recruited internationally. These posts would also be filled by persons with qualifications and experience and on terms and conditions acceptable to the Association. Assurances to this effect were obtained at negotiations. 4.04 Two technical advisers, financed under the Project Preparation Facility, are assisting in forest management, legal and administrative matters. The advance under the facility was for 30 manmonths; the forest management advisor will stay until the end of the project period, and the other advisor should have completed his work in two years. In addition, FDA will receive 18 manmonths of consultant services in marketing intelligence and accounting and financial procedures (para. 3.11). 4.05 During the 5-year development period FDA professional and technical staff would increase from 300 to an estimated 424. The increase of 124 in- cludes 33 incremental staff, principally for forest management and reforesta- tion purposes, and about 91 recruited specifically for revenue assessment of stumpage fees. The present ratio of staff to the total forest area under concession is about 1-13,000 ha. The proposed staff increases would reduce this to about 1-8,000 ha, which is in line with other timber producing coun- tries in West Africa. C. Operations Planning and Research 4.06 The planning and research division will formulate and review forest policies for a balanced forest taxation system and an improvement in the assessment and collection of stumpage fees. The establishment of domestic wood processing would be encouraged, but log exports would be maintained at no less than 20% of total forest exploitation since sufficient high quality processing technology (e.g. veneer) will not be available in Liberia for a long time. It would also focus on developing and improving forest management and planning practices. 4.07 One of the most important activities of the planning and research division will be the collection and evaluation of market intelligence, logging and processing costs and plantation establishment. This data will be used to determine policies for the development of domestic wood processing and would provide the basis for assessing f.o.b. timber values and taxes. The services would be improved for collecting and interpreting information for the long- term forest management planning for concessions and forest reserves, and for setting and adjusting logging rates, particularly for removal of commercial species.  - 21 - Technical Services Divisions 4.08 The technical services divisions would enforce and control forest exploitation and fiscal policies by concessionaires. They would also be responsible for forest protection, surveys, reforestation, training and monitoring utilization of output. 4.09 The technical services division for management would be responsible for implementing the industrial trial plantation; details of the organization requirements for this component is shown in Chart 2. 4.10 The trial plantation headquarters will be in Grand Cape Mount County. Field activities would be carried out from a subsidiary field office and a camp at the plantation site. Vehicle maintenance and servicing of project equipment would be carried out by a mobile workshop. Staff require- ments for the industrial trial plantation are modest. In addition to the two senior staff to be recruited (para. 4.03) approximately 20 professional and technical staff would be required to operate the plantation. In addition, 7 manmonths of consultancy services to advise in intensive forest management techniques and operations would be provided under the project (para. 3.11). Administration and Controller's Divisions 4.11 The Administration and Controller's Divisions, which would be responsible for all FDA administration and financial matters, would be headed by the administrative manager and the financial controller, respectively. Under the project six manmonths of consultant services would be provided to improve and strengthen the accounting and financial operations of FDA (para. 3.11). D. Training 4.12 The head of the Training and Extension Unit, in the Technical Services Divisions, would formulate and coordinate training requirements for intermediate and lower technical staff. Training for forest rangers, scalers, etc., would be carried out by the FTI under the Mano River Union, and the proposed Commercial Logging and Sawmill Training Center financed by GTZ would provide training for industrial workers. All internationally recruited staff would have responsibility for training their Liberian counterparts and for in-service training of junior project staff (para. 3.10). E. Monitoring and Evaluation 4.13 The FDA Planning and Research Division would be responsible for monitoring and evaluation and would submit quarterly progress reports to FDA Board. The format of these reports would be established when project specialist staff are appointed. The monitoring and evaluation section would provide the basis for formulating and adjusting forest policies and regula- tions. It would also monitor growth rates and performance and yields obtained at the trial plantation. Other activities of the monitoring and evaluation section would include an assessment of the consequences for the industry in promoting lesser known species and of manpower and training requirements of the forestry sector.  - 22 - 4.14 Through the monitoring and evaluation process the Planning and Research Division would prepare the project completion report on behalf of GOL. The completion report would in particular assess to what extent the strengthening of FDA has increased revenue assessment and collection, pro- moted local processing industries and increased Liberian participation in the forestry industry. The scope and format of both the monitoring and evaluation quarterly progress reports and the project completion report would be dis- cussed and reviewed during project supervision. V. PRODUCTION, MARKETS AND PRICES 1/ A. Production 5.01 The project is concerned with institution building, together with trials and studies to determine the feasibility of establishing large-scale industrial plantations. The only output directly attributable to project investment will be from the 1,600 ha trial plantation. However, FDA would become effectively involved in forest management, which would lead to increased hardwood timber production and would be responsible for the pro- posed large-scale industrial development program. For this reason the following paragraphs assess the existing and potential yields and total production of tropical hardwoods and plantation-grown timber. Tropical Hardwood Production 5.02 The current log removals of about 605,000 m3 are substantially below the potential yield Vf the productive natural forest (2 million ha) estimated at 1.8 million m (r). However, past calculations were based on the assumption that some 70 species could be marketed, whereas in practice, only 15 species are currently acceptable on the world market. The sustain- able annual yield of presently acceptaBle species is estimated to be only 240,000 m (r) compared with 605,000 m of actual log removals in 1976. One of the project studies (para. 3.12e) will reassess future long-term sus- tainable log production targets, taking into account first, possible market outlets for some of the species currently not acceptable and, secondly, the extent to which plantations of selected faster grown indigenous species of known market acceptance (e.g., Terminalia and Triplochiton) could, in time, increase allowable cuts and productive potential. Overcutting of selected species can only be justified if the range of exportable species can be significantly increased and faster growing concentrated plantations could provide compensatory wood supplies more quickly than regeneration of the same species under natural forest conditions. Experience in other West African countries (e.g., Congo and the Ivory Coast) indicates that the prospects for each plantation development are promising. 1/ See Project File, Annex 3/I and VI.  - 23 - Plantation Production 5.03 Potentially, the most important species in Liberia is considered to be a tropical pine-Pinus Caribaea, which should be planted primarily for production of long fiber pulpwood, although its future value may also include coniferous sawlogs. Systematic establishment of these pines in Liberia com- menced only two years ago, but the results are encouraging enough already to warrant expansion. Two plantations are being planted--one in lower Bong County by the Swedish Consortium Liberia Forestry Corporation, and the other in Montserrado County by the FDA, assisted by West German Technical Aid (paras. 1.13 and 1.19). Mean annual increments in both areas are ex ected to average 15 m /u.b./ha,l/ which would produce a total volume of 225 m u.b./ha for pulp on a 15-year rotation, or 45 cm DBH 2/ sawn logs in 25 years with proper management. 5.04 Short fibered pulp material is supplied by exotic hardNoods such as Eucalyptus and Gmelina. Mean annual increments of up to 30 m u.b./ha would be obtained fr2m these trees under Liberian conditions, and on a 7- year rotation, 210 mi u.b./ha would be produced. The majority of Eucalyptus species and Gmelina will coppice from the cut stumps and up to 2 coppice rotations over a period of 28 years could be expected from Eucalyptus before replanting becomes necessary. Gmelina is preferred because it produces a higher quality pulp. B. Markets and Prics 5.05 Liberia is one of the few countries in Africa that is rich in accessible forest resources in proportion to the local population. In the West African tropical hardwood trade, which is mainly aligned with timber importers and manufacturers in Western Europe, Liberia's share of the West African log and sawn timber exports was about 385,000 m in 1976 and ranks fifth. In 1975, 6 species made up 72% of the log and sawn wood export mar- ket (Niangon, Sipo, Azobe, Makore, Tetrabelinia, Lovoa), with 15 to 20 other species marketed in smaller quantities. In dealing with markets and prices distinction has been made between tropical hardwood and plantation grown timber. Tropical Hardwood 5.06 Over the last two decades, the worldwide growth in the market share of tropical hardwoods has increased considerably. Between 1960 and 1970, world consumption of tropical hardwood logs increased by about 7% per annum while consumption of coniferous and temperate hardwood logs increased only 1.3% and 0.6% per annum respectively. Africa's share of the world tropical hardwood exports comes mostly from West Africa. About 75% of exports are 3~~~~~~~~ 1/ m u.b. - cubic meter excluding Bark. 2/ DBH - diameter breast height.  - 24 - logs, and the balance sawn wood, veneers and plywood. Over the next 10 years, demand for hardwood, especially quality hardwood, is expected to continue to rise rapidly. Consumption of tropical hardwood in Liberia is projected to grow 5% per annum, whereas aggregate world consumption growth, according to the latest World Bank forecasts, is projected at 4.2% per annum to 1980, and 4.0% per annum from 1980-1990. 5.07 With the world's most accessible forests being increasingly ex- hausted, together with the rapid depletion of forest resources of the West African leading exporters, Ivory Coast and Nigeria, marketing prospects for Liberia are good. With the established high demand for a number of species, particularly those with decorative properties, prospects for exporting logs to Western Europe remain good and competition from the Asia-Pacific regions is considered minimal. For sawn timber, potential markets for increased exports include Europe, the Middle East and possibly Nigeria and the Sahelian countries. However, considerable competition is expected from Asian suppliers, with high-quality production, and freight rates similar to those from West Africa. For exports to Western Europe, the Lome Convention will provide Liberia with tariff advantages for processed wood products over major Asian rivals of between 5% and 13%. On the other hand, to be successful, Liberia must improve its road infrastructure, which is reflected in late deliveries; its storage and port facilities (para 3.12f), which have led to impaired quality; and its marketing contacts, which are inadequate as the timber trade places much trust in mutual confidence. In addition, Liberia has not yet built up an adequate sawn timber processing capacity, 1/ and with few excep- tions, does not yet meet world market quality standards. One of the aims of the proposed project is to improve and increase sawn timber output by promoting increased mechanical wood processing by concessions through FDA's efforts in offering technical advice and market intelligence. 5.08 Because of the great variety of species and grades and the rela- tively closed nature of the market, there is no clear indicator for hardwood log prices. However, it appears that the prices of West African logs have risen by about 30% in real terms over the last 10-15 years. Based on IBRD price projections, prices of tropical hardwood logs in constant dollar terms, depending on the species, are expected to be 40 to 60% higher in 1980 than in 1975, and 50 to 70% higher in 1985, which may be somewhat overly optimistic. Tropical hardwood sawn wood prices will rise in real terms by 15% between 1970/72 and 1980, and by another 5% in 1985. 5.09 In calculating the estimated projects benefits derived from strength- ening FDA, an average F.O.B. price of US$131 m for logs was used. Prices were based on actual end 1977 prices, adjusted according to IBRD price projections for 1985 The average 1985 F.O.B. price for square-edged timber would be about US$263/m by using the same trend forecast as the IBRD projections. 1/ Although the present capacity in Liberia is about 205,000 m (s) of which less than 50% is utilized, poSentially the local wood processing industry could grow to about 600,000 m (s).  - 25 - Plantation-Grown Timber 5.10 The primary objective of GOL's plantation development program is to produce low-cost long fiber softwood (e.g., pines) and short fiber hard- woods (e.g., Gmelina) in significant quantities for export in manufactured form, either pulp, chips, or sawn timber integrated with chips primarily to Western Europe. 5.11 Concerning future world market prospects for pulp and paper, recent reports prepared by FAO and World Pulp and Paper Demand, Supply and Trade, indicates that pulp consumption is expected to increase from about 48 million tons (1972/74) to 74 million tons in 1990. This projected demand can be met by available surplus capacity until the early 1980's. However in the longer term, world demand for paper will continue to increase and substantial capacity will have to be installed during the next decade. Western Europe and Japan in particular will continue to be increasing net importers of pulp3and paper products. Their currSnt pulpwood imports equivalent 167 million m (r) will rise to 284 million m (r) by 1990. Earlier studies by the Bank 1/ indicate that some of the developing countries located in the tropics, of which Liberia is one, which have the potential to produce fast growing pulpwood plantations and relatively low cost pulpwood, will be able effectively to compete with pulp manufacturing enterprises located in the traditional producers' countries (e.g. North America and Scandinavia) where wood supplies are becoming scarce or more costly. Recent studies by FAO 2/ support that the developing coun- tries should be able to increase their export pulp production by about two million tons between 1975 and 1990. They also indicate that the developing countries will increase their share of world trade in pulpwood and pulp from the present 6% to about 10%. 5.12 World long fiber pulp prices, which remained fairly constant through the 1960's, rose four times in the period 1970-1974, reaching a peak of US$600 per ton in 1975. With large stocks in the major producing area of Scandinavia and North America, and generally depressed market conditions throughout the world, long fiber pulp prices fell drastically between mid-1976 and late 1977 to less than US$350/ton. This is considered a temporary phenomenon which will persist into the early 1980's. Bank IPD projections indicate that a mill net price of US$395/ton for bleached long fiber pulp would be a realistic average price for calculating the possible economic viability of an export-oriented pulp mill in Liberia. Similarly, a mill net price of US$370/ton would be rea- sonable for bleached short fiber pulp. 1/ Madagascar Appraisal Report No. 590-MAG (Annex 8 p. 4 and 5). 2/ Demand, Supply and Trade in Pulp and Paper - Trends and Prospects to 1990: FAO Advisory Committee on Pulpwood Paper, Tunisia 1977.  - 26- 5.13 In assessing the possible economic viability of exporting plan ation grown pine sawn timber, a mill net price of US$90 m (s) (about US$120/mi (s) C.I.F. Europe) has been used. The amount of sawlogs produced from the project trial plantation could easily be absorbed in both the domestic and export market to Europe and elsewhere. The production of chips has been valued at a mill net price of US$50 per B.D.U. Both price estimates were obtained from the Forestry Department of FAO. VI. FINANCIAL ANALYSIS Stumpage Fees 6.01 One of the principal benefits of strengthening FDA will be the implementation of policies leading to more efficient collection of forest stumpage fees and other forest taxes (paras. 3.05 and 7.06). 6.02 Presently, it is estimated that about 15% to 20% 1/ of forest stumpage fees are not collected by FDA due to incorrect scaling of logs and marking of species and poor control of log exports at ports, together with insufficient knowledge to assess the economic value of raw and processed lumber. There is a lack of information about the cost of logging and proces- sing operations and market trends and prices which result in under-recovery of stumpage fees. It is estimated that recovery of stumpage fees could be increased by at least 7.5%, which would represent an increase in revenues of between US$2-3 million per annum by 1982/83 (Table 11). The impact of this is dealt with under the government cash flow (para. 6.04). 6.03 Although the proposed strengthening of FDA will produce major benefits, many are not quantifiable. The increase in staff, together with housing and office facilities, equipment and transport, will permit FDA to perform effectively without having to rely on the concessionaires for housing, transport, etc. Increased efficiency and better control of FDA staff in determining and collecting stumpage fees should lead to an immediate increase in log export revenues (para. 6.02). The estimated financial rate of return from strengthening FDA, based on the incremental costs and benefits derived from increased log export revenue collection is 17.8% (Table 11) over 20 years. The financial return can be considered a close approximation of the economic rate of return. During the development period, FDA would be staffed and equipped to control all forestry sector operations, and to plan and direct future forestry development, including implementation of Government-controlled projects. 1/ See Project File, Annex 1 (Part V).  - 27 - Financial Implications to Government 6.04 The financial implications of the project for Government are sum- marized in Table 10. After taking into account the incremental stumpage fees (para. 6.03) and stumpage fees from the 1,600 ha plantation, the cumulative deficits rise to US$2.6 million by 1981, but are eliminated by 1984. Annual cash surplus thereafter average approximately US$1.7 million after meeting all project costs and debt service. 6.05 The Government cash flow does not take into account costs and financing for the proposed large-scale industrial plantation development scheduled to start in 1982/83. However, there are likely to be substantial, but at this stage unquantifiable, increased revenues from local processed timber. This would result from the more effective use of currently under- utilized mechanical wood processing capacity; one of the aims of the project is to improve the increased domestic wood processing (para 5.07). VII. BENEFITS AND JUSTIFICATIONS A. Project Benefits 7.01 The project would increase the benefits from GOL's forest develop- ment and the value added by the sector through more efficient utilization and control of natural resources, increased plantation grown wood production, protect the environment and develop the mechanical wood processing industry. This would be achieved by strengthening FDA (paras 6.02, 6.03) and imple- menting an industrial trial plantation and studies which would lead to the establishment of a large-scale industrial plantation development program. Environmental Impact and Land Use and Exploitation Policy 7.02 The plantation program would assist in preventing soil erosion and improve water catchment area protection in the Grand Cape Mount County. Fur- thermore, the introduction of forest management plans in the concession areas and forest reserves would help to conserve Liberia's natural forests, thereby protecting the natural ecosystem and avoiding environmental disruptions. Under the project, a start will also be made with investigations concerning programs for preservation of national parks and wildlife conservation. 7.03 The proposed completion of the national land use classification program would provide Liberia with a much needed tool for national and regional planning as it will delineate the most suitable areas for forest development and avoid unnecessary conflicts between agriculture and forestry. 7.04 Studies relating to the sustainable yield of Liberia's natural hard- wood timber (para. 3.12e), together with the promotion and market intelligence of the lesser-known species could result in a significant upward revision of the allowable cut of preferred species, with further potential increases in foreign exchange earnings.  - 28 - B. Economic Analysis - Industrial Trial Plantation 7.05 In calculating the economic rates of return, the following assump- tions were made: (a) project life based on rotation of 20 years for chips, 15 years for pulp (with residual values for the pulpmill) and 25 years for sawlogs; (b) all prices expressed in end-1977 prices; (c) because of input duties and quantitative restrictions, the accounting price of foreign exchange was adjusted to US$1.075. Since the common unit of account is measured at border prices, a standard conversion factor of 0.93 was used, project costs exclude price contingencies, but include 5% physical contingencies; exclude identifiable taxes and duties; (d) although the opportunity cost of labor in the project area is about 10% below the market wage rate, to reflect the higher seasonal demand of labor for some of the plantation operations, the market wage rate of US$1.50 per manday has been used for project laborers. All local costs were multiplied by the standard conversion factor to express them in terms of border prices; and (e) output has been valued at export parity prices. Since no IBRD forecast has been made for plantation/mill output, FAO/EEC and Bank IPD price projections were used. FDA revenues are based on actual end-1977 prices for tropical hardwood logs adjusted according to IBRD price projections for 1985. 7.06 Although the proposed 1,600 ha trial plantation is mainly for fact finding and training, the economic justification assumes that it will lead to the establishment of a Government large-scale commercial industrial plan- tation program of about 70,000 ha by the 1990's. To test the viability of this large-scale program, preliminary feasibility study calculations have been made. Models (Tables 12-14) representing three probable plantation end uses were prepared for pulp, sawlogs integrated with chips and for chips only. The net foreign exchange earnings/savings arising mainly from exports (at full development) together with the estimated economic internal rate of return and the net present worth for the three options are shown below:  - 29 - Economic Year to Net Annual Net Internal Reach Full Investment Incremental Present Rate of End Use Options Development Logging Mill Benefits Worth 1/ Return