Zambia - Industrial Forestry (Phase III) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4527-ZA ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III November 22, 1983 Eastern Africa Projects Department Southern Agriculture Division 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.  CURRENCY EQUIVALENTS Currency Unit = Zambian Kwacha (ZK) US$1.00 = ZK 1.40 ZK 1.00 = US$0.71 SDR1.00 = US$0.96 SRD1.00 = ZK 1.46 WEIGHTS AND MEASURES 1 meter (m) = 3,3 feet 1 cubic meter (m3) = 35.3 cubic feet 1 hectare (ha) = 2.47 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) = 0.39 square miles 1 kilogram (kg) = 2.2 lb 1 metric ton (ton) = 1000 kg = 2,2041b m3(r) = cubic meter of roundwood m3(s) = cubic meter of solid wood m3(r), ub = cubic meter of roundwood under bark ABBREVIATIONS APM = Assistant Plantation Manager CA = Chief Accountant CCF = Chief Conservator of Forests CDC = Commonwealth Development Corporation FM = Finance Manager MLP = Manager of Logging and Processing MPM = Manager of Plantation Management FA = Financial Accountant FAO/CP = Food and Agricultural Organization/Cooperative Program FD = Forest Department FINNIDA = Finnish Development Agency FY = Financial Year GDP = Gross Domestic Product GRZ = Government of the Republic of Zambia ICB = International Competitive Bidding IDA = International Development Association INDECO = Industrial Development Corporation IPD = Industrial Plantations Division KITE = Kafubu Industrial and Timber Enterprises MAT = Mean Annual Increment MAP = Manager Administration and Personnel MAWD = Ministry of Agriculture and Water Development MD = Managing Director MLNR = Ministry of Lands and Natural Resources MM = Marketing Manager LCB = Local Competitive Bidding PPF = Project Preparation Facility PTA = Preferential Trade Agreement ZAFFICO = Zambia Forestry and Forest Industries Corporation ZIMCO = Zambia Industrial and Mining Corporation ZSBS = Zambia Steel and Building Supplies Limited ZAFFICO'S FINANCIAL YEAR April 1 - March 31  FOR OFFICIAL USE ONLY TABLE OF CONTENTS Page No I. BACKGROUND .............................................. 1 A. Project Background .................................. 1 B. Economic Setting .................................... 1 C. The Agricultural Sector ............................. 2 II. THE FORESTRY SUBSECTOR .................................. 4 A. Resources ........................................... 4 B. Institutions ........................................ 5 C. Production, Processing and Marketing .... ............ 7 D. Forestry Policy and Strategy ........................ 10 E. External Assistance ................................. 10 F. Review of Phase I and II Projects ................... 11 III. THE PROJECT ............................................. 14 A. Project Rationale and Design ........................ 14 B. The Project Area .................................... 17 C. General Description ................................ 18 D. Detailed Features ................................ 19 (a) Afforestation Program . ......................... 19 (b) Logging and Transportation Improvement .... ..... 21 (c) Sawmilling Program ........ ..................... 23 (d) Workshop Improvement ....... .................... 26 (e) Technical Assistance ....... .................... 27 (f) Training Program ......... ...................... 28 (g) Administration Support ...... ................... 30 E. Project Costs ...................................... 30 F. Financing ....................................... 31 IV. PROJECT IMPLEMENTATION .............. .................... 32 A. Organization and Management .......................... 32 B. Procurement ............ .................... 35 C. Disbursements ................. ..................... 36 D. Accounts, Audit and Reporting ........ ............... 37 E. Environmental Impact ........................ 37 This report is based on the findings of an IDA appraisal mission comprising Messrs. B.K. Zegge, H. Wagner, R. Ranasinghe and A. Bose and Ms. D. White (IDA) and Mr. K. Kehr (Consultant), who visited Zambia in October/November, 1982. 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.  Page No. V. PRODUCTION, MARKETS AND PRICES .......................... 38 A. Production .......................................... 38 B. Markets and Marketing Strategy ........... ........... 40 C. Prices .............................................. 44 VI. BENEFITS AND JUSTIFICATION ..... ......................... 45 A. General ....................... ...................... 45 B. Financial Analysis ............... .. ................. 46 C. Economic Analysis ................................... 49 VII. ASSURANCES AND RECOMMENDATIONS .......................... 51 ANNEXES ANNEX 1: Table 1: Summary of Project Costs by Time Table 2: Plantation Establishment and Replanting Costs Table 3: Nursery Costs Table 4: Fire Protection and Silvicultural Management Costs Table 5: Logging and Transportation Costs Table 6: Sawmilling and Processing Capital Costs Table 7: Sawmilling Processing Operating Costs Table 8: Workshop Improvement Costs Table 9: Technical Assistance and Training Program Costs Table 10: Training Costs Table 11: Project Administration Costs Table 12: Disbursement Schedule ANNEX 2: Table 1: IPD's Summary Income Statements Table 2: IPD's Summary Balance Sheets Table 3: Pine per Hectare Model Table 4: Eucalyptus per Hectare Model Table 5a: Project Financial Rate of Return Table 5b: Financial and Economic Rates for Pine Plantations Table 6: Project Economic Rate of Return Table 7: ZAFFICO's Income Statement Projections Table 8: ZAFFICO's Sources and Applications Statements Table 9: ZAFFICO's Balance Sheet Projections Table 10: Price Structure of Sawntimber, Poles and Roundwood Table 11: Import Price Equivalent of Standing Wood Table 12: Price Structure for Poles ANNEX 3: Table 1: National Supply and Demand for Industrial Roundwood Table 2: Supply and Demand Projections for Sawntimber Table 3: Demand Projections for Sawntimber by End-Use Table 4: Demand Projections for Poles and Wood Panels  - iii - Table 5: ZAFFICO's Forestry Plantations' Harvesting Potential Table 6: Sawmills in Zambia 1976 Table 7: ZAFFICO's Production Pattern Table 8: Output and Capacities of Existing ZAFFICO Sawmills Table 9: Estimated Volume of Sawlogs with Butt Diameter of 55 cm ANNEX 4: Selected Documents Available in the Project File Charts and Maps: Chart C-1: Proposed ZAFFICO Organization Chart C-2: Project Implementation Schedule Chart C-3: Proposed Layout of Production Complex at KITE Map No. IBRD 17030.   I. BACKGROUND A. Project Background 1.01 In July 1982, the Government of the Republic of Zambia (GRZ) requested the Bank to consider financing the third phase of their long-term industrial afforestation program which aims to increase the supply of industrial wood to meet the increasing domestic demand for sawn timber, roundwood, paper and other wood products, and to thereby supplement indigenous forest resources in meeting such needs. A first phase project for which a US$5.3 million loan (Loan No. 562-ZA) was approved in October 1968, established about 16,000 hectares of pine and eucalyptus over an eight-year period. The second phase project was financed with a loan of US$16.8 million (Loan No. 1424-ZA) which was approved in May 1977. The second phase project consisted of a planting and replanting program, plantation maintenance, expansions in logging and transport capacity, establishment of a new sawmill, staff training and charcoal trials. A total of about 20,000 hectares of forest plantations have been established and replanted under the second phase. The second phase project was completed in December, 1982. The physical implementation of both phases of the project have generally been successful particularly within the afforestation program where planting targets have been exceeded significantly. However, the Project's logging and sawmilling operations have been less successful and have suffered from weak management, inappropriate equipment and shortage of trained and experienced staff as well as from inadequate support services (accounting and engineering). 1.02 Until September 1982, the Industrial Plantations Division (IPD) of the Forest Department (FD) within the Ministry of Lands and Natural Resources (MLNR) was responsible for the implementation of both projects. Since then IPD has been incorporated into a public corporation under the Companies Act and it is currently operating as Zambia Forestry and Forest Industries Corporation Limited (ZAFFICO), a company which was registered on September 24, 1982. ZAFFICO is fully owned by the Zambia Industrial and Mining Corporation Limited (ZIMCO), a public holding company to which most parastatal companies in the country are associated. However, ZAFFICO will operate as an independent legal and financial entity as provided for under the Companies Act. 1.03 Assistance to the GRZ in the preparation of the third phase was provided by the Food and Agricultural Organization/Cooperative Program (FAO/CP). The Bank Group provided guidance during preparation. This report is based on the findings of an IDA appraisal mission comprising Messrs. B. K. Zegge, H. Wagner, A. Bose, and R. Ranasinghe and Ms. D. White (IDA) and Mr. K. Kehr (Consultant), which visited Zambia in October/ November 1982. B. Economic Setting 1.04 The Republic of Zambia has two major disadvantages: its situation as a landlocked country with long distance (1,500-2,000 Km) communication lines to the coast, and a large internal regional imbalance due to the contrast between a highly industrialized and agriculturally well developed zone in the central, eastern and southern regions and extensive under-developed rural areas in the north and west of the country.  1.05 In 1982, an estimated 6.2 million people lived in an area of 752,614 Km2. About 43% of the population lives in an urbanized zone (Livingstone-Lusaka-Kitwe) 40 Km wide on both sides of the 'line of rail', with a density of 35 people per Km2; the rest of the country is very thinly populated, averaging two persons per Km2. Historical and geographical reasons for regional imbalance and high urbanization of the country are the construction of the railway lines early this century, from Southern Africa, via the higher central and tsetse fly-free plateau of Zambia towards the copper mines of Zambia and Zaire. This led to the rapid development of copper exploitation in the 'Copperbelt' area, and to the settlement of white farmers on the fertile soils along the railroad. Today Zambia is one of the most urbanized African countries south of the Sahara with an urban population which has greatly increased especially since independence in 1964. Zambia is the world's fifth largest producer of copper and the national economy is heavily dominated by this export commodity. Nearly 95% of the country's exports consists of refined copper and some other metals (zinc, lead, and of fast increasing importance: cobalt) which are responsible, with fairly large variations over the years, for about one-third of the GDP and over half of government revenue. The slump in copper prices, rising production costs and inflation, and the geographical and political problems of copper export, have severely eroded the role of the copper industry in the Zambian economy, while growth in the entire economy stagnated during the 1970's. Views on the role and future of agriculture have changed in Zambia as a result. While in the past agriculture has been viewed as a sector playing a supplementary role, there seems now to be general agreement within the Covernment that a good part of the potential for future economic growth lies within agriculture, given its potential, in terms of land resources, climate and water resources, for crop and livestock production. However, this realism has not yet been reflected in the Government's strategy for future economic development. Thus, the challenge facing the Government right now is how to formulate this strategy and implement it. The Bank, through its sector work program for the next three years (1983 - 85) is helping the Government to meet this challenge. To this end, an agricultural import substitution and export strategy study has been recently carried out jointly by the Bank and Government. C. The Agricultural Sector 1.06 There has been limited structural change and diversification of aggregate production in the Zambian economy since independence. While the share of the copper sector has declined, the share of agriculture has remained constant and the sector has actually stagnated since 1965. Agriculture, providing a living to about 60% of the total population, contributes only 15% of GDP, indicating the low levels of rural productivity and incomes. Moreover, within the agricultural sector, the major two components, the commercial and the traditional farmers, appear to have grown disproportionately. While the commercial sector, consisting of about 26,000 large and medium scale farmers, has doubled its contribution to GDP in the period 1965-80, the share of the traditional sector, consisting of about 600,000 households, has gradually declined. Thus, the less than 2% annual growth rate in agricultural output recorded during 1970-80 was apparently confined to the commercial agriculture sector.  - 3 - Until recently, research as well as extension and training, have been oriented mainly towards production on the large, capital intensive commercial farms that occupy the most fertile land and are well served by transport and other infrastructure. Research and extension, therefore, have been largely commodity-oriented, with a heavy emphasis on a few crops, particularly hybrid maize. Consequently, little is known about traditional crop production and the farming systems practised in less favorable, or even marginal, agricultural areas. 1.07 Government's stated long-term objectives in the agricultural and rural sector have consistently been stated as: (a) to achieve a more equitable distribution of income and increase rural employment; (b) to become self-sufficient in major foodstuffs and in some agricultural products; (c) to diversify the economy and widen the export base by producing and selling abroad agricultural surpluses. However, the Government has been less specific and unclear as to the means of achieving these objectives. As a result, some of the policies and Government actions have not been fully consistent with each other or with the stated development objectives. 1.08 The poor agricultural performance described in the foregoing paragraphs has been caused by a number of interrelated factors, including (a) inadequate planning and implementation capacity within the Ministry responsible for agricultural development and within the institutions charged with the management of the sector's development, which has critically inhibited policy analyses and decision making which are necessary for specifying alternative strategies for achieving long-term objectives; and (b) the following other three major problems which have collectively and independently inhibited implementation capacity within the sector. First, marketing and pricing policies have given rise to severe distortions in producer incentives leading to less than optimal resource allocation in the agricultural sector. During much of the period since Independence, a variety of government-controlled marketing agencies has been created and vested with monopoly rights to purchase and sell specified agricultural commodities in the country. The operational efficiency of these institutions has been poor. During the same period, Government pricing policy has been tilted against producers in favour of consumer interests, resulting in implicit taxation of producers in the agricultural sector and massive subsidies to mainly urban consumers. Second, Government's budgetary allocations for productive purpose within agriculture have been inadequate, reflecting in part Government's planning shortcomings and its failure to accord agriculture its rightful importance. Specifically, inadequate recurrent budgets have created special problems in managing and maintaining agricultural services, particularly research and extension. A Bank study in 1981 found that agricultural services were underfunded by 40% and that only 20% of MAWD's recurrent budget was spent on providing agricultural services to farmers, while 80% of its budget was utilized to finance subsidies to parastatals handling agricultural marketing, input delivery and credit. Inadequate Government investments in agricultural services partly explain the persistent stagnation in Zambian agriculture, especially in traditional agriculture. Third, the effects of inadequate Government investments in key agricultural services have been made worse by the weakness of agricultural credit institutions in the country.  - 4- 1.09 In the agricultural sector, a development strategy needs to be formulated to identify specific areas of growth potential and define key policies and instruments needed to achieve as efficiently as possible the stated objectives of the Government. The issues involved iLn the formulation of such a strategy are currently being examined under an Import Substitution and Export Development Strategy Study, which is being undertaken jointly by the Bank and the Government. 1.10 Todate Bank Group assistance to agriculture has involved nine projects (two for industrial forestry, two for livestock/dairy development, two for tobacco production one for coffee production and two area-based project for crop production. The first livestock loan was cancelled in 1973 at GRZ's request because of pricing problems and poor management. The dairy project which aims at improving milk production by smallholder producer was approved in 1982 and is having initial implementation problems (especially inadequate funding). The first and second industrial forestry projects were relatively well executed. The two commercial tobacco farming projects were completed, but were unsuccessful in meeting their respective objectives of training and establishing Zambian commercial tobacco farmers and hence raising tobacco production. The projects encountered major managerial problems and pricing policy issues. The coffee project is being executed satisfactorily, although it has faced cost overruns and shortages of foreign exchange and Government funds. The two area-based agricultural development projects have just become effective and are facing inadequate Government funds and pricing issues, which are likely to constrain the attainment of their major objectives of increasing production. Assistance to agriculture has also been provided through projects in other sectors. The Fourth Education Project, for example, had a major component to strengthen the training of extension staff and farmers; lines of credit to the Development Bank of Zambia have financed the provision of medium and long-term finance to commercial farmers. II. THE FORESTRY SUB-SECTOR A. Resources 2.01 Zambia's forestry resources consist of natural or indigenous forests and man-made plantation forests. The proposed Project would be concerned with the latter, which principally produce industrial wood. Zambia's climate is characterized by a warm and wet season from November to April and a cool and dry season from May to September. Average annual rainfall is about 800 mm in the central region and 1,300 mm in the northwest. Natural Forests 2.02 Most of the forest areas are in a high plateau lying between 1,000 m and 1,500 m above sea level. About 370,000 km2 or 50% of the total land area is covered by forests which can be divided in two inain types. First are closed forests, of which the Zambia teak forest in the Southern and Western parts of the country is the most important. It consists of two commercial species: Baikiaea plurijua (teak) and Pterocarpus angolensis (mukwa). Second are open woodlands of which the "miombo" woodlands are the  most extensive, dominated by Brachystegia, Isoberlinia and Julbernardia speciies, and containing a number of commercially valuable species such as Afselia quenzensis, Allizia spp., Burkea africana, Ectando plerggena spp., Khaya niasica and Pterocarpus angolensis. Only slightly more than 7 million ha of a total of 37 million ha of indigenous forests are gazetted and nominally under the protection of FD. About 70% of the gazetted forests have some sort of management and concessions for felling for timber or firewood. The average yield of commercial sawlogs in these forests varies between 5 and 13 m3/ha (in the northwest, as high as 38m3/ha), while about 50 m3/ha of poles and firewood is obtainable. The indigenous forests are a declining resource. The easily accessible areas, mainly close to cities and along the line-of-rail, have been exploited for a long time and are now virtually depleted. Increasing transport distances and lower yields would make it difficult to exploit the remaining forests economically in future. The indigenous forests are slow to regenerate. On average, it takes about 50 to 60 years to produce sufficient sawlogs with appropriate diameters in indigenous forests, while eucalyptus would provide similar dimensions in about 12 years and pine in 25 years. Plantation Forests 2.03 With exploitation of indigenous forests becoming increasingly uneconomic, the Government launched in 1962 a long-term industrial reafforestation program, carried out by the former Industrial Plantations Division (IPD). Since then about 36,000 ha of pine and 7,500 ha of eucalyptus plantations have been established in the Copperbelt area. There are four major plantation areas belonging to the former IPD, at Ndola, Chati, Lamba and Ichimpe. The main species are Pinus kesiya, Pinus oocarpa, Eucalyptus grandis and Eucalyptus cloeziana. The age structure of these plantations reflects IPD's plantings in the last five years when about 50% of total plantations were established. Their annual roundwood production potential (sustained yield) is currently estimated at 200,000 m3 each of pine and eucalyptus sawlogs, with another 120,000 m3 in small logs. Actual exploitation has been a small fraction of this potential, due partly to insufficient or ineffective wood processing capacities. B. Institutions 2.04 The Forest Department, the former Industrial Plantations Division now Zambia Forestry and Forest Industries Corporation (ZAFFICO) and a number of wood-based industries are the main institutions directly involved in the forestry sub-sector. The Zambia Industrial and Mining Corporation Ltd. (ZIMCO), the sole shareholder of ZAFFICO, is the apex holding company for most of the Government's investments in state enterprises. Forest Department 2.05 The Forest Department, which is part of the MLNR, has responsibility for forestry policy, management, research, extension and training. The Department is headed by the Chief Conservator of Forests, and is comprised of two main divisions, one for field staff and the other for specialists. Until the establishment of ZAFFICO, IPD was also a division of the Forest Department. The head office of the Department is in Ndola, the capital city of the Copperbelt Province.  - 6 - 2.06 The major spheres of operation of the Forest Department are: (i) management of the gazetted forest estate, consisting of production reserves and protection reserves (in water catchment areas and areas of specific botanical or wildlife interest); (ii) control of production of wood products from gazetted forests for domestic and industrial use; and (iii) extension and publicity, including advisory services to private woodlot owners and a network of nurseries. Insufficient staff and budget resources prevent the FD from exercising effective control over the forest estates. 2.07 Forestry research consists of (a) forest research, on indigenous and exotic species; and (b) forest products research including charcoal kiln testing and timber preservation, seasoning and structure testing. 2.08 The Zambia Forest College at Mwekera near Kitwe is under the authority of the Forest Department, and trains Forest Rangers and Foresters at lower and higher level courses, respectively. There are no facilities in the country for graduate training for forestry professionals. Short-term training on a number of technical subjects is provided by a Forest Workers Training Center at Chati, owned by ZAFFICO. IPD/ZAFFICO 2.09 IPD was the national agency responsible for industrial forestry plantations development and, in this capacity, had implemented two projects in this sub-sector supported by the Bank. On September 24, 1982, IPD was incorporated as a public limited company under the Zambian Companies Act, as the Zambia Forestry and Forest Industries Corporation, Ltd. (ZAFFICO), as a wholly owned subsidiary of ZIMCO. (IPD will be referred to in discussions of past activities in this report.) ZAFFICO's statute gives it wide powers including land acquisition, establishment and management of plantations, sawmilling, raising funds and manufacture of pulp and paper. ZIMCO 2.10 ZIMCO was established in 1970 under the Zambian Companies Act as the holding company for most of GRZ investments in state enterprises. After a process of acquisitions and changes, most recently in 1979, ZIMCO now has over 100 direct or indirect subsidiary companies, themselves set up under company law, in virtually every sector of the economy: mining, industry, agriculture, finance, trade, hotels, transport, energy, etc. In FY81, the aggregate turnover of the ZIMCO-affiliated companies was K2.2 billion (however, gross profits totalled only K57 million), and consolidated balance sheet value of assets was K4.4 billion. These companies employ over half of the industrial work force, wilh more than 125,000 employees in March 1981. 2.11 The 1979 reforms were intended to improve the business orientation and decision-making capacity of ZIMCO companies,, and to overcome a pattern of common problems including undercapitalization, eroding equity, caused mainly by inappropriate pricing, operational inefficiencies and severe weaknesses in management. For ZIMCO, the major reforms were the appointment of a full-time directorate and management ("executive directorate") with wide powers, reconstruction of its Board,  and the abolition of ZIMCO sub-holding companies, with two exceptions (one being the Industrial Development Corporation, Ltd., or INDECO). The previous system of responsibility of the companies to relevant Ministries or Government departments was abolished. The chairmen of boards of subsidiary companies are now selected from among ZIMCO executive directorate members. ZIMCO now has powers, increasingly exercised, to approve budgets and corporate plans of subsidiary companies, appoint directors and managers, set standard terms and conditions of service and approve price changes of products. It has recently introduced a new salary structure and terms and conditions of service for all staff of ZIMCO-affiliated companies, which are an improvement over those of the past; the salaries are 15% to 25% higher than that for staff in comparable positions in the civil service. 2.12 Other than ZAFFICO, ZIMCO-affiliated companies in the wood processing sub-sector are the Zambezi Saw Mills Ltd., Mining Timbers Ltd., and the Zambia Steel and Building Supplies Ltd. (ZSBS), all INDECO subsidiaries. The former operates two saw mills and a wood-working factory. ZSBS is a distributor of imported and local building materials (including sawn timber) and manufacturer of blockboards and timber doors. Wood-based Industries 2.13 Sawmilling dominates the wood processing industry. There are some 15 sawmills in the country, the majority of which are operated by quasi-government companies. There are four private sawmilling firms. Aside from ZSBS, there is a privately-owned plywood factory in Chingola. The Zambezi Paper Products Ltd., a private firm, operates the only paper manufacturing factory, based on waste paper and imported pulp, in Ndola. There is also a match factory, based on plantation pine, in Kitwe. About 50 public and private firms are estimated to be operating in the furniture and joinery industry. C. Production, Processing and Marketing 2.14 In recent years domestic production of wood products in Zambia has met only part of the estimated demand, while imports have lagged due to foreign exchange shortage. Domestic production has been inadequate both quantitatively and qualitatively, although the total rated sawmilling capacity in the country has been adequate in relation to estimated demand. The problems are thus of capacity utilization and improved wood quality. It is estimated that the current aggregate potential supply of wood from domestic forests (under sustained management) is considerably in excess of demand in the foreseeable future (Annex 3, Table 1). Wood Supply and Demand 2.15 Indigenous forests in Zambia continue to be the main source of sawn timber, poles and mining timber, in addition to fuelwood, despite progressive depletion. At present, about 7 million m3 of fuelwood, equivalent to the output of 135,000 ha, is cut annually from miombo forests, much of which is converted into charcoal. Both the use of wood and its conversion into charcoal have been inefficient, to the extent that up to an estimated 40% of wood could be saved with more efficient stoves  - 8 - and charcoal kilns. The Forest Department, together with the Bank, prepared a fuelwood project for Lusaka, a major charcoal consumption center, with eucalyptus plantations as a long-term replacement for indigenous wood; the project also envisaged establishment of means to better control and price exploitation of public forests. However, the prevailing economic difficulties in Zambia led to a reassessment of the Government's most immediate development priorities and consequent postponment of its plans to invest Government resources in the fuelwood project. 2.16 The estimated annual utilization of domestic wood in recent years, based on wood products sold (excluding firewood) have been about 231,000 m3 roundwood equivalent, with the following break down (see Annex 3, Table 1): sawlogs from natural forests 120,000 m3, sawlogs from industrial plantations 40,000 m3, wood for poles 40,000 m3, wood for panels 23,000 m3 and match billets 8,000 m3. This was converted into corresponding products, including e.g., 56,000 m3 and 16,000 m3 of sawnwood from natural and industrial forests, respectively. To arrive at consumption figures, imports have to be added to the above, consisting mainly of: wood panels, raw materials for the local paper factory and sawn timber, which translates into an estimated annual roundwood equivalent of 40,000 m3 for panels and 100,000 m3 for paper; and 106,000 m3 of sawlogs, although these figures have varied sharply due to import restrictions. Small diameter logs from thinnings in domestic forests are not utilized, in the absence of a pulp mill. 2.17 Non-availability of reliable consumption data makes it difficult to estimate aggregate demand of wood and wood products. Using per capita consumption of sawnwood in past years when there were no import controls, in conjunction with recent consumption, the current annual demand is estimated at 90,000 m3 of sawnwood, equivalent to 257,000 m3 (r) of saw logs. Adding this to the consumption figures in para 2.16 as well as imports, probably gives a rough approximation of the current annual demand, at about 460,000 mi (r) equivalent. Thus, demand is presently more than twice the actual supply from domestic sources. However, the aggregate potential supply of industrial wood, estimated at 770,000 m3 (r) in 1981 including 250,000 m3 (r) from natural forests, is again considerably higher than estimated demand. Aggregate projections for supply of and demand for roundwood (Annex 3, Table 1) indicate that the supply surpluses would decline from 264,000 m3 in 1985 to only 61,000 m3 in 2000 and supply deficits are likely to emerge in the early 2000s. Given the long-maturity of pine trees (25 years), this suggests that modest plantings to cover the likely gaps should be initiated now. There are thus two types of imbalances in the industrial forestry sub-sector: inadequate and inefficient domestic processing capacity to meet internal demand and overproduction of industrial forestry resources in relation to both domestic wood processing capacity and to national demand for wood and wood products. Wood Processing 2.18 Zambia's wood processing industry has a limited range of products consisting of sawn timber, plywood, blockboard and poles, and is largely based on indigenous forests (Annex 3, Table 2). It is dominated by saw  mills. These sawmilL's !"a profile of which is summarized in Annex 3, Table 6) can be divided into the following four distinct groups: (a) Four mills opperatIng in the teak forests of the Western Prov-nce' t'0 pcubliic and two private, with installed capacities of 20.000 m3 (s) and 7,000 m3 (s), respectively. The majoir Droducts of these mills are teak and mukwa sawnwood. Their actual production was only about 50% of the capacity iI i981, largely due to operational inefficiencies. (b) Five circular saw mills in the Copperbelt producing sawn timber for the copper mines from several indigenous species. Their total production was about 25,000 m3 of sawn timber in 1981, as against an installed capacity of 40,000 m3. The major products include pitprops, sawnwood, railway sleepers, smelter and refinery poles for mines. (c) Several very smali mills based on indigenous forests in .arious other parts of the country, with installed capacity estinac2d at 17,000 m3 (s). (d) Mills based on ndustrial forest plantations within the Copperbelt area consist of ZAFFICO's five sawmills and two small c-'rcular mills belonging to furniture companies. Their toral capacity was estimated at 33,000 m3 of sawn timber and purlins in 1982, but actual production was only 24,000 m3. Another new circular mill, with a rated capacity of 20,000 i3, i-s being installed by ZAFFICO at Kalibu and will become operational in 1983. 2.19 ZAFFICO produces telegraph and power poles by preservative treatment of eucalyptus roundwood, with a capacity of 15,000 m3, and smelter poles for copper refineries. Mining Timbers Ltd., produces mining poles mainly from indigenous species. Other wood products include blockboard and plywood, both of which are produced by ZSBS, mainly from imported raw materials, as locally produced sawn timber is usually too small in diameter and has high moisture content. ZSBS capacities are 8,400 m3 of blockwood and 3,600 m3 of plywood, but production is at about half of these levels, due to Lrequent lack of imported polyester glue. A private plywood plant, established in 1980 with a capacity of 9,000 m3, has recently started production, using indigenous species, but with plans to later use plantation wood. The Zambezi Paper Products Ltd., uses imported waste paper and pulp. The firm has a plan to establish a 6,000 ton pulp plant which could use plantation wood in future, but Government approval has not been forthcoming to date. Marketing and Prices 2.20 Zambia has been a net importer of all kinds of paper and paper products, wood panels and sawn softwood. All the production of sawn timber and wood-based paneL industry described in the foregoing paragraphs is geared to meet domestic consumption. The present marketing system of wood and wood products consists of direct sales from IPD/ZAFFICO mills to consumers, while wood products and production from non-IPD/ZAFFICO mills,  - 10 - including imports, are mainly marketed through private small merchants, ZSBS and Mining Timbers Limited. The industry is protected by import duties of 30% on sawnwood and on wood panels; nevertheless imports of sawn timber from low cost producers in neighboring countries do effectively compete with domestic production (para 2.21). 2.21 If adjustment for quality differential is made, market prices for domestic sawn timber are considerably higher than those of imports. A comparison of domestic and imported pine sawn timber prices; revealed, for instance, that Swazi or South African seasoned pine sawn timber of medium quality was priced at K233/m3 net of tax, compared to K290/m3 for IPD pine sawnwood (16mm x 25mm) in Lusaka. IPD was able to charge such high prices because of inadequate supply of sawn timber relative to domestic demand. However, due to improved efficiency and productivity during Project implementation, the average ex-factory price for treated sawn timber from the Project is estimated at K209 per m3 compared to the c.i.f. border price of K233/m3 for imported Swazi timber. Thus the Project would be competitive even under free trade conditions. D. Forestry Policy and Strategy 2.22 The Government's major policy objectives for the forestry sub-sector are stated as: (i) conservation of indigenous forests through conventional measures (e.g. forest protection and controlled exploitation), and through planting of fast growing exotic species; (ii) protection of forest reserves in water shed or river flow areas against soil erosion and river silting; and (iii) promotion of a viable forestry sub-sector through appropriate research, extension, reafforestation and wood processing programs. However, the Government has been less specific in defining the measures to achieve these objectives. Hence the major challenge facing the Government is to design a long-term development strategy for the forestry sub-sector that would address key issues regarding (a) adequate supply of fuelwood, as the major source of energy, to the rural and urban poor who cannot afford alternative sources; (b) establishment of appropriate industries to utilize existing and future forestry resources; (c) the role to be played by the public sector vis-a-vis the private sector in the future development of the forestry sub-sector; and (d) the improvement of productivity and efficiency in the sawmilling and wood-based industries. These issues will be addressed in a proposed Forestry Sub-sector Develop- ment Study which has been agreed upon by the Bank and Government, and which is expected to be carried out before the end of 1983. The proposed Project, primarily a rehabilitation program designed to increase domestic wood production and improve productivity and wood quality, would meet part of the major gaps in domestic supply of wood products, as well as partially address the issue of productivity and efficiency in the public sector. Therefore, the project would not prejudice the outcome of the forestry study, but is viewed only as one immediate step among the various steps likely to be identified in the study for the resolution of the issues indicated. E. External Assistance 2.23 The Industrial Forestry Plantations Project Phase I (Loan No. 512-ZA) and Phase II (Loan No. 1424-ZA) were projects financed by the Bank Group. The Commonwealth Development Corporation (CDC) also participated in  - 11 - the financing of the second phase. These phases were primarily aimed to expand industrial forestry plantations to meet the country's future requirements of timber and wood products, although components for wood utilization, particularly log transportation and sawmilling, were included in the second phase. The proposed Bank loan for the third phase Project would continue Bank Group assistance to the industrial forestry development program. 2.24 Over the years, the Government of the Republic of Zambia (GRZ) has also received technical and financial assistance from the Governments of Finland, United Kingdom and Sweden, particularly in sawmilling, forestry research and extension. At present only Finland, through the Finnish Development Agency (FINNIDA), maintains an active assistance program. Most of this aid would be for ZAFFICO, to procure sawmilling equipment for the third phase project, while a small part of it would assist the Forest Department to strengthen its research, extension and training for the period 1983-88. FINNIDA's assistance to ZAFFICO would be fully coordinated with IDA's assistance. F. Review of Phases I and II Projects Phase I Project 2.25 The first phase project was part of GRZ's long-term industrial plantations program primarily aimed at meeting the mining industry's demand for roundwood and sawn timber. It provided for annual planting of 1,000 hectares each of pine (mainly P. Kesiya) and eucalyptus (mainly E. Grandis) over the period 1969-1976. The project was managed by IPD, which operated almost independently and on a self-accounting basis. The total plantation target of 16,000 hectares was reached in seven years instead of eight but, based on reassessment of wood requirements, the ratio of pine to eucalyptus planted was 72:28 instead of 50:50 at completion of the project. These changes were made with the Bank's agreement. However, GRZ rejected a Bank recommendation to create a Forest Industries Board in 1970 to manage the implementation of the industrial plantations program because it did not share the Bank's judgement that such a Board was necessary. Total project cost amounted to K15 million as against the appraisal estimate of K8 million, equivalent to a cost overrun of 90%, which was wholly financed by the Government. The cost overrun was due largely to an inflation rate which was higher than the appraisal mission's assumptions. However, actual increases in the value of sawn timber were large enough to offset the higher costs, and a 10% rate of return was estimated in the Bank's Audit Report of the project. Although the project was generally successful in achieving its physical targets, insufficient attention was given to the training of senior Zambian staff, and consequently part of the second phase project was designed to redress this shortcoming. Phase II Project 2.26 The second phase project was designed to continue IPD's long-term planting and maintenance program, expand logging and sawmilling capacity and conduct studies designed to lead to more economical and efficient land clearing and charcoal production. It provided for, over a five year period (1978-1982): (a) new plantings of 15,000 ha of pine and 2,500 ha of  - 12 - eucalyptus; (b) replanting 2,000 ha of clearfelled areas with eucalyptus; (c) maintenance of (a) and (b), together with all existing IPD plantations; (d) increasing IPD's logging and transportation capacity from about 60,000 m3(r) to 120,000 m3(r) per year; (e) establishment of a sawmill with a capacity of about 40,000 m3 of sawnwood per year (double shift); (f) staff training and fellowships; and (g) research, experimentation and studies designed to improve land clearing and charcoal production methods. Total project costs were estimated at K27.5 (US$34.5) million. IPD was responsible for project implementation, although provision was made to convert IPD into a commercial company by December 31, 1978. However, this did not happen until September 24, 1982. 2.27 The second phase loan is not yet fully disbursed but the project is virtually completed. The Project's Closing Date is December 31, 1983, after which the PCR would be prepared. On the basis of an implementation review, this phase is judged to have been successful with respect to the project's forest plantation establishment program, for which most of the appraisal targets for nursery production, land preparation and planting have been surpassed. About 20,500 ha of plantations (17,000 ha of pine and 3,500 ha of eucalyptus) are expected to be established by completion, thus achieving 13% for pine and 40% for eucalyptus above appraisal targets within the original cost estimates. However, the replanting program was less successful, partly due to IPD's preferential resource allocation for plantation establishment and partly by bottlenecks in sawmilling operations (e.g. capacity underutilization) which led to a reduction in clearfelled areas relative to appraisal assumptions. Similarly, IPD's performance in forest plantation maintenance (consisting of weeding, pruning, thinning and fire protection) was less successful and far below appraisal targets because of project management's preoccupation with plantation establishment, a sharp increase in labor costs in 1981 and lack of an immediate market for first thinnings. The proposed Phase III would, among other things, attempt to refocus management's attention on silvicultural aspects of the project. Furthermore, for a variety of reasons including delayed procurement of equipment and civil service regulations, performance was below appraisal targets in (a) road construction and maintenance, (b) fire protection roads and compartment roads, (c) staff training and (d) research and studies. 2.28 Phase II continued IPD's logging and transportation methods, consisting of systems for tree length (mostly for eucalyptus) and for short logs (mostly for pine). IPD established a 110,000 m3(r) logging and transportation capacity, but its utilization has been only about 70% due to a variety of reasons, including inability to utilize the short-log transport system for tree-length logs during slack periods in the former,l/ lack of spares, inadequate maintenance, sawmilling bottlenecks and weak management. These problems have rendered the existing logging and transportation system expensive and less effective. The proposed third phase project would address these problems. 1/ For instance, in FY82 the short-log transportation capaciity had only 55% capacity utilization, while the tree length transport capacity was 130% utilized.  - 13 - 2.29 The construction and operation of the Phase II new sawmill at Kalibu has been delayed by over four years largely due to procurement delays. Installation of the mill was completed in the first quarter of 1983 and test runs are underway. The CIF cost of mill equipment plus installation exceeded by about 33% the appraisal figure of US$1.2 million. As appraised and tendered for, it is now apparent that the sawmill does not include all the needed handling facilities, adequate electric power and water supply, sawn timber seasoning facilities (drying kilns or yard), dry sawn timber sorting and chipping sheds, fuel conveyor system, waste disposal slabs and office buildings. Without these facilities, it is inconceivable that the mill's installed capacity of 20,000 m3 of sawn timber can be attained and that its product mix would be in line with domestic market requirements. Phase III would provide for removing these design shortcomings. 2.30 IPD's operations of sawmills was unsatisfactory. Both mill production and productivity have been low in relation to installed capacity and potential performance. Most sawn timber produced is of low-to-medium quality and unseasoned. Total IPD installed capacity (excluding the Kalibu sawmill) is about 31,000 m3 of sawn timber, but only 60% of this capacity was utilized in 1981/82. The average sawmill recovery rate was about 40% in the same period compared to the average potential recovery rate of about 45%. The major operational problems behind this poor performance include lack of well trained and experienced technical staff to operate and maintain the mills, weak management at the operational level, inadequate engineering services, obsolete and inappropriate equipment for processing, design deficiencies in the relatively new Metex mill, poor coordination between mills and the ineffective logging and transportation system. IPD Financial Situation and Profitability 2.31 IPD's financial statements for the period FY78 through FY82 are presented in Annex 2, Tables 1-2. These statements indicate that the overall financ-al situation of IPD was not satisfactory. As of March 31, 1982 IPD's assets totalled K51.7 million, of which K45.7 million was represented by plantations. Assets were financed almost wholly by long term loans, a common feature of the resource structure of most parastatals, which thus have no share capital as such and whose equity consists only of retained earnings and grants. It was envisaged that with the incorporation of IPD by December 31, 1978, a proper capital structure would emerge, but since incorporation was delayed by almost four years, IPD continued with a financial structure unusual for a commercially-oriented entity. Meanwhile, the interest burden on loans became very heavy, e.g., K3.2 million in FY82, although interest on GRZ loans (which constituted most of IPD's long term loans) has not been paid since FY80, pending its capitalization during the formation of ZAFFICO. IPD's sales have fluctuated widely as between its different products, mainly due to problems in harvesting and in saw milling. Underutilization of capacity was reflected in relatively low sales volumes, which did not reach K3 million per year until FY81, but rose to K3.8 million in FY82. IPD's profits declined rapidly in recent years, with losses incurred in FY80 and FY81, although it made a profit in FY82 when sales increased. Apart from relatively low production levels, other factors contributing adversely to IPD's efficiency have been high physical losses between logging and production, low efficiency of log conversion,  - 14 - excessive fire damage and increasing selling expenses and bad or doubtful debts. A comparison between IPD's actual profitability and the appraisal targets is made difficult by the delay in the construction of the new sawmill since this affected both the revenue and cost assumptions contained in the appraisal report. However, after taking this into account, IPD's sawn timber production and sales performance significantly exceeded the appraisal targets, particularly in FY80 and FY81, although operating profits were far below appraisal targets and they were certainly not comm.ensurate with the actual sales achi-eved, A similar comparison on other financial aspects of IPD cannot be made because no financial forecasts (apart from income statements) were prepared for IPD during appraisal. IPD's liquidity (net working capital) situation has been deteriorating rapidly, so that at the end of FY82, it had a net negative balance of K3.8 million, largely represented by non-payment of agreed funds by the Government. The financial policies and covenants proposed under the third phase Project should reverse this deteriorating financial situation and ensure that ZAFFICO is founded on a sound and viable financial basis (paras 6.06 and 6.09). III. THE PROJECT A. Project Rationale and Design 3.01 The proposed Project would mainly produce sawn timber, transmission poles and agricultural posts. In recent years, the supply of sawn timber has generally been inadequate to meet domestic demand largely because domestic production, particularly that of hardwood sawn timber, has been constrained by various inefficiencies, while imports have been curtailed by the serious shortage of foreign exchange. The hard wood processing industry, which is exclusively based on natural forests, consists of small sawmills operating with obsolete equipment, shortage of spares and of skilled manpower, and inadequate logging and transport capacity. The exact nature of these issues and their possible solutions would be the subject of the proposed forestry development strategy study. The problems relating to the softwood sawmilling industry, which is almost exclusively in the hands of ZAFFICO, are addressed in this report. Supply/demand forecasts (Annex 3, Table 2) indicate that the current domestic supply deficit of about 18,000 m3 of sawn timber would increase to about 52,000 m by year 2000, even aftEr the third phase project has been implemented, implying that the proposed Project would only have moderating effects on the shortage of sawn timber in the country. It is therefore obvious that future investments in the sawmilling industry, both within ZAFFICO or the softwood sawmilling operations and in the hardwood processing industry, would be required to cope with domestic demand for sawnwood. IDA support for the proposed Project vis--a-vis aliternatives (such as improved fuelwood supply or private sawmilling) is justified by the Project's significant contribution to improvement in domestic supply of sawn timber which is an important input in such key sectors of the economy as mining and construction. The inadequate supply of sawn timber to these sectors in recent years has adversely affected growth, particularly in the construction sector, indicating the high opportunity cost of sawn timber within the Zambian economy. Prospects for Zambia's foreign exchange situation are that it will continue to be tight and more increasingly  - 15 - constrain imports, including sawn timber, than hitherto. Despite the ongoing rapid depletion of indigenous forests for fuelwood, Zambia has not yet reached a situation (and will probably not do so in the next ten years) whereby overall shortages of fuelwood have started to act as a major constraint to growth in those sectors which are dependent on it. Thus, on a priori grounds, domestic production of sawn timber would appear to have higher opportunity costs than investments in the production of fuelwood in Zambia today. Furthermore, investments in fuelwood and in private sawmilling would require hard policy decisions and improvements which might require long time to implement. In particular, a clear Government policy with regard to the role of private investment in the future development of the wood processing industry would be necessary before incremental private investments can be made. For this reason, relatively little private investments has taken place in the country's wood processing industry in the past. In view of this, private sawmilling in Zambia does not constitute an immediate and real investment option at present. This may change after the proposed study on forestry sub-sector development strategy has been completed and its recommendations accepted by the GRZ. 3.02 The hardwood sawmilling industry accounts for nearly 42% of domestic demand for sawnwood, while ZAFFICO output's share of sawnwood is about 30%, and the rest is represented by either imports or unsatisfied demand. In recent years, due to foreign exchange problems, only about 60% of the sawn timber supply deficit of nearly 18,000 m3 per annum has been met by imports. The bulk of the imported sawnwood consists of medium quality of softwood, mostly Swazi timber, which is largely used in the construction industry and, to a less extent, in the mining industry. The present and medium-term economic prospects in Zambia (para 1.05) indicate that the forecast domestic sawn timber supply deficits (para 3.01) would not be covered by imports for lack of foreign exchange. The Project has therefore been designed not only to increase the supply of sawn timber but also to improve product quality and to diversify the product mix in order to replace imports of sawn timber in the construction and mining industries. 3.03 At the Project level, a roundwood harvesting potential analysis (Annex 3, Table 5) indicates that the supply of good quality sawlogs would increase from about 70,000 m3(r) in 1982 to 547,000 m3(r) in 1999 and that the composition and sources of supply would change dramatically during the period 1984-99. At present, 66% of the sawlog supply is made up of pine sawlogs and 34% of eucalyptus sawlogs. In 1999 the sawlog supply is forecast to consist of 84% pine sawlogs and 16% eucalyptus sawlogs. While at present about 55% of sawlogs (mainly eucalyptus) is obtained from the Ichimpe forest plantations and the other 45% (mainly pine logs) from the Ndola plantations, it is expected that in 1999 about 54% of the supply of sawlogs would derive from the latter group and only 46% would come from Ichimpe. The increasing availability of high quality sawlogs and the changes in both pattern and sources of sawlog supply would have an impact on both future location and technology for additional wood handling and processing facilities. Increased size of sawlogs and the dominance of pine sawlogs have influenced the choice of both logging and processing equipment proposed in the Project. The Project has also been designed with the necessary flexibility to take account of the foreseen changes in the pattern of sawlog supply. The future dominance of the Ndola plantations in the supply of pine sawlogs implies that the Kalibu Sawmill should primarily  - - be designed to process pine sawlogs to avoid long distance and costly logging to KITE. Since, however, the Ndola plantations' output would outstrip the demand of the Kalibu Sawmill in the nesar future, serious consideration should be given to expanding the mil:L through installation of frame saw lines, which would be more efficient than the existing circular saws in the mill, by i990. The Kalibu Sawmill's production would be centered around the processing of good quality pine sawlogs, and this would require that the mill be provided with adequate facilities for handling large sawlogs and for further processing of sawn timber.2/ 3.04 The bulk of the wood processing industry in Zambia, in general and within the Copperbelt area in particular, continues to be based on the indigenous forests (hardwood), or imported wood-based materials, despite the increasing availability of plantation softwood from ZAFFICO (para 2.15). Due to lack of facilities for furt.her processing of sawnwood, ZAFFICO's sawmilling, in the past and at present, has been restricted to the production of a joinery grade which is extensively used in the domestic furniture and joinery industry. ZAFFICO should soon embark on the production of a structural grade of sawn timber which is extensively used in the domestic construct_on industry and in the mines. This would facilitate integration or linkages between the Project and other wood-based industries in the country. The third phase Project would thus emphasize improvement in the quality of sawnwood through the establishment of appropriate sawmilling and timber upgrading facilities. 3.05 Since improvement of ZAFFICOs performance is also critically dependent on the management factor, which in the past has been quite weak in handling logging and sawmilling operations of ZAFFICO (para 3.30), an external team of skilled and experienced specialists would be provided to strengthen ZAFFICO's management and to set commercial and management standards. A training program would also be provided to supplement the technical assistance program and to improve long-term individual staff and institutional performance. 3.06 In summary, the third phase Project has been designed: (a) to improve the utilization of existing forestry investinents in plantations and handling and processing facilities, with a view to increasing production and improving the quality of ZAFFICO's wood products and product mix to meet revealed market preferences and to reduce imports; (b) to improve and strengthen linkages between investments in forestry resource- and wood-based industries; and (c) to strengthen the management and improve operational efficiency of ZAFFICO as a whole, with special reference to its operations in logging, sawmills and supporting services. These Project objectives are consistent with the Government's overall long-term policy objectives of economic growth and diversification and of improving the country's future balance of payments situation through sensible import-substitution. Similarly, the Project objectives are in line with the Government's objectives in the agricultural sector which include increased output for domestic use and export, and increased rural employment and incomes. The Project objectives are also consistent with 2/ Further processing of sawn timber consists of seasoning, grading, square cutting of ends, cutting to length specifications, resawing, jointing and pressure impregnation.  - 17 - the policy dialogue the Bank has been pursuing with the Government of Zambia which has emphasized the need to diversify the economy away from copper dependency toward greater agricultural and manufacturing output in the long-term. B. The Project Area 3.07 The Project is situated in the Copperbelt area close to the border with Zaire (Map No. IBRD 17030). The four main plantation blocks are grouped around Kitwe. East of Kitwe are the Ndola existing plantations consisting of about 18,000 ha and a semicircle of plantations stretching from southwest to link with the Lamba blocks containing 4,500 ha. West of Kitwe are the Chati blocks consisting of nearly 11,000 ha; while another block with 10,000 ha is in the Northwest. The expansion of the reafforestation area by 1,500 ha under the third phase Project would be mainly in the Lamba and Ichimpe areas and would bring the total plantation area belonging to ZAFFICO to about 45,000 ha. 3.08 It is a practice in Zambia that forest plantations are only established within areas gazetted as Forest Reserves which are categorized as State Land. There is, however, the need for the project and related plantation land to be formally transferred to and licensed under ZAFFICO. For this purpose, it was agreed during negotiations that ZAFFICO would obtain site licences, titles or rights in property under the Forest Act for its plantations. Furthermore, surrounding the Project area are abundant arable lands and there is consequently no pressure to use Forest Reserve lands for agricultural purpose. The plantations have been established in generally well drained deep soils with a well balanced nutrient supply. However, there are local differences in the suitability of the soils and amount of rainfall for pine or eucalyptus. The Ndola area seems to have a 20% higher yield for pine than the other areas, while Chati has an exceptionally good growth rate of eucalyptus, which may not be reached in other areas. The land is generally flat, very gently undulating and varying in altitude from about 1,500 m in the north to about 1,200 m in the south. Average annual rainfall in the Project area lies between 1,200 and 1,300 mm, occuring mainly from late October to early April. Mean temperatures are 15