Cameroon - Rubber and Oil Palm Projects (Vol. 2 of 2)

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6019 VOLUME II PROJECT PERFORMANCE AUDIT REPORT CAMEROON COASTAL TREECROP PLANTATIONS SECOND CAMDEV PROJECT (LOAN 1508-CM) SECOND SOCAPALM PROJECT (LOAN 1391T/1392-CM) SECOND HEVECAM PROJECT (CREDIT 975-CM/LOAN 1791-CM) August 29, 1986 Operations Evaluation Department This document hasa restricted diutributlo and may be ued by recipients only i the perfomance of their ofclal duties. Its contents may not otherwise be disleosed without World Bank autheulution. CURRENCIES Currency Unit: CFA Franc (CAF) U.S. Dollar 1.00: CFAF 315.27 f WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CAMDEV Cameroon Development Corporation CCCE Caisse Centrale de Cooperation Economique (Central Bank for Economic Cooperation) PONADER Fond National de Development Rural (National Rural Credit Fund) CDC Commonwealth Development Corporation HEVECAM Soci8tf HEVECAM Cameroon ONCPB Office National de Commercialisation des Produits de Base (National Produce Marketing Board) SAEACAM SociGtg Africaine Forestiare et Agricole du Cameroun (African Forestry and Agriculture Company in Cameroon) SNI Sociftf Nationale d'Investissement (National Investment Agency) SPTR Sociftf des Plantations des Terres Rouges (Terres Rouges Estates Company) SYNTEC Chambre Syndicale des Bureaux d'Etudes en France (French Consultant Companies Union Organization) FISCAL YEAR Government: July 1 - June 30 a/ average exchange rate during project execution period. FOR OFFICIAL USE ONLY VOLUME II PROJECT PERFORMANCE AUDIT REPORT CAMEROON COASTAL TREECROP PLANTATIONS SECOND CAMDEV PROJECT (Loan 1508-CM) SECOND SOCAPALM PROJECT (Loan 1391T/1392-CM) SECOND HEVECAM PROJECT (Credit 975-CMILoan 1791-0K) TABLE OF CONTENTS Page No. VOLUME II: PROJECT COMPLETION REPORT: SECOND REVECAM PROJECT Basic Data Sheet ............... .................................. (Supersedes Basic Data Sheet for Second HEVECAM Project published in Volume I, December 31, 1985) I. Introduction ...I..................................... 1 11. Background ................................... .... I III. The HEVECAM II Project .............................. 2 IV. Project Implementation .............................. 4 V. Project Cost ...... 8 VI. Project Justification .................................. 10 VII. Borrower and Bank Performance .......................... 12 VIII. Conclusions ..**..... ..... 13 ANNEX: Root and Leaf Diseases ................................. 14 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. CAMEROON SECOND HEVECAX RUBBER PROJECT PROJECT COMPLETION REPORT June 30, 1986 Western Africa Projects Department A&riculture D -i- PROJECT COMPLETION REPORT BASIC DATA SHEET CAMEROON SECOND HEVECAY PROJECT ( CREDIT 975-CM/1OAN 1791-CM) BASIC DATA SHT - Ac-a r Od~nal Pian=re 0 Project Cast ($ wrim) 95.0 70.6 Coge () (26) tamnCrdi å~am (M uS$ fa14 31.5 31.5 1iab~ - 30.4 tqu S .1 . -1 , Repaid1 -- Dam P1 ompm.n~s C~plt 6/84 12/86 Pporti n m ae1 (X) - 105 1zw~t Ree of heum( 15 is GNMAM2 DI1MESE1!5~ Appis ta Esd $~d114au 2.6 8.5 15.0 23.8 31.5 - A=tul ( M11~mi 2.5 9.3 14.0 0.5 26.6 30.4 u a Z af Aprai (Z) 136 109 93 86 85 96.5 DM»of l D1dxusm~ 12/31/85 Orgia Plan cm.=~ in ank 11/78 Kat~ 10/79 11/79 amdon St~da 12/79 06/18/W Effect s DatE 09/16/80 C~-n Dae 06/30/85 12/31/85 BrZ~ Unitud RmM4k of Comr ""'"e"E gEcySoCift Øilum Em« 1ÛA Pina YMer of lorrmwr July 1 - Jum 30 Foll~ Project 2hird 1IEN libber Proj et ton 2485-X of Fdbuary 1985. US$ 8.3 K KES= DA IdYian No. of hele No. of %rMs Y k D=e P T~fnnfic~t æ 11/78 Ppqfaeim appraisal 03/79 12/79 Servie I 03/80 3 3 9 06/22/80 I 02/81 2 1 2 03/19/81 II 06/82 1 1 1 08/06/82 IV 03/83 1 2 2 05/03/83 v 11/83 1 2 2 11/14/83 VI 06/84 2 2 4 07/13/84 VII 11/84 1 2 2 12/20/84 VIII 04/85 1 2 2 05/10/85 C~utry 5change Rate Appraial yea average Ug$ 1.00 - aAF 210 Interveing years' mrage 15$ 1.00 - FAF 310 r~lticn year aSerg 1$ 1.00 - O'AF 425 CAMEROON SECOND HEVECAM PROJECT (Loan 1791-CM/Credit 975-CM) 'PROJECT COMPLETION REPORT I. INTRODUCTION 1. The project, for which Loan 1791-CM and Credit 975-CM were made in 1980 to the Cameroonian Rubber Company "Socifitf Hgvfa Cameroun" - (HEVECAM), was the fourth Bank Group lending operation for the development and production of rubber in the country. It was preceded by the CAMDEV I Project (Loan 490-CM and Credit 100-CM, US$180 million) In 1967 for oil palm and rubber estates, the Niit6 Rubber Project (Credit 574-CM, US$16.0 million) in 1975 for a rubber estate, and the CAMDEV II Project (Loan 1508-CM, US$15.0 million) in 1978, mostly for rubber development. The HEVECAM II Project is the follow-up of the Ni6t Rubber Project. 2. Agriculture plays a major role in the economy of Cameroon and is likely to remain the most important sector in the country's economic development strategy. The rural sector contributes 40% of GNP, 70% of export earnings and 75% of employment. Industrial plantations constitute a large segment of the agricultural sector. The intent of the Niftt rubber project was to increase export earnings and provide support to the Government's plan for the economic development of the Kribi region. 3. This Project Completion Report (PCR) makes use of the information contained in the appraisal report of the HEVECAM III Project (Loan 2485-CM, February 1985), a successor project aimed at completing the HEVECAM II Project. It is a summary of the two-volume PCR prepared by the Government which is available upon request. II. BACKGROUND REVECAM 4. By Decrees No. 75/284 of April 30, 1975 and No. 75/346 of May 23, 1975, the Government established REVECAM, a state corporation responsible for carrying out a program of 15,000 ha of industrial plantations of selected rubber plants. This company, which falls under the legal provisions established by Law No. 68/LF/9 of June 11, 1968 for development agencies, was endowed with an initial capital of CFAV 700 million. Of this amount, CFAF 400 million represents the estimated value of the land conceded to it by the Government and the remaining CFAF 300 million was subscribed by the Government (CFAF 50 million), the "Office National de Commercialisation des Produits de Base" (ONCPB) (CFAF 200 million) and the "SociatS Nationale d'Investissement" (SNI)(CFAV 50 million). By Decrees Nos. 76/615 of July 2, 1976 and 76/403 of December 17, 1976, the Government granted HEVECAM a concession of 40,000 ha north of the Nift4 River, located 45 km from Kribi in the Ocean Department. 5. An eight-year technical assistance contract was signed on May 23, 1975, between REVECAM and the "Socitd Africaine Foresti4re et Agricole du Cameroun" (SAFACAM), a subsidiary of the "Sociftl des Plantations des -2- Terres Rouges" (SPTR), turning over to SAPACAN the management of the new estate. This contract is renewable by tacit agreement for successive four-year periods. S. An "Establishment Agreement"., authorized by Law No. 76/10 of July 8, 1976, and signed on August 30, 1976, places HEVECAM under Regime C of the Investment Code. 7. At the time of the first appraisal mission in 1975, it was agreed with the Government that in view of its large size, the program would be divided into three phases (REVECAM I, II and III). The Niftf Rubber Project (REVECAM 1) 8. The principal objectives of the HEVECAM I Project (1975-79) were to clear 7,500 ha of jungle, plant 5,800 ha of rubber, complete the operational housing Infrastructures, carry out a program of complementary research, and prepare a Master Plan for the Uribi region. External financing was provided by an IDA Credit of US$16.0 million and a CCCE loan of FF 20.0 million. The national contribution was to be CFAF 1,633 million including the initial capital subscription of CFAF 300 million. 9. Project Implementation was delayed due to the remote location of the project. the absence of infrAstructure, the labor shortage and the difficult climate conditions. Furthermore, the project faced financial difficulties as a result of (a) a change in the regulation concerning the workers' houses; and (b) a change in land clearing techniques to minimize root disease. The actua:L project cost was 44% over the appraisal estimate. The Government increased its contribution in 1978, subscribing an additional CFAF 1.4 billion but it was still necessary to phase down the program to 4,200 ha and to transfer the remaining 1,600 ha to the NEVECAN II Project. Roweverr the plantings were generally good and the company's operations were well managed. III. THE REVECAM II PROJECT 10. Project Formulation. The HEVECAM II Project was to be another five-year pbbae of industrial rubber estate development within the 40,000 ha of the Niftf concession, and part of the Government's Naster Plan for the economic development of the Kribi region. The project was prepared mainly by HEVECAN. The original proposal was to (a) plant 8,450 ha of rubber, bringing the total planted areas to 11,550 ha; (b) continue the research program for rubber and foodcrops; (c) build a rubber factory with a capacity of 30 tons/day; (d) construct housing and social facilities for about 1,100 workers and their families; and (e) develop 250 ha of rubber for smallholders. - 3 - 11. Project Description. The project was appraised in April 1979 and included the following: - land clearing and preparation of 9,800 ha of forest; - planting of 9,300 ha with selected rubber clones; - maintenance of 13,500 ha of immature plantings; - tapping on 1,500 ha planted under HEVECAM I; - construction of workers' houses and social infrastructure (schools, hospital, markets); - completion of a research program for rubber and foodcrops; - land clearin, fnr fooderop development and provision of planting material for estate workers; - development of 250 ha of rubber for smallholders; - technical assistance and training of national staff; and - completion of a land survey. 12. Management and Training. The arrangements established under HEVECAM I were to continue. Responsibility for the creation of the plantation, its maintenance and exploitation was assigned to SAFACAN under the terms of a technical assistance contract concluded at the beginning of the first project, which was expected to continue through the five-year period of HEVECAM II. Under the contract agreement, SAFACAM was to ensure appropriate training for HEVECAM labor force and staff. HEVECAM had approved a long-term training and development program for managerial staff, and trainees were to work in established estate companies either in Cameroon or abroad. 13. Project Cost. The project cost was estimated at US$95.0 million including taxes and US$88.8 million net of taxes (CFAF 19,958 million and 18,658 million respectively). Physical contingencies were estimated at 10% on civil works and building and 5% on all other costs except salaries. Price contingencies were calculated throughout at 10% compounded annually. Total contingencies amounted to 42% of base cost. Annex 3.9 of the Government PCR gives details on the project cost. 14. Fin.-ncing Plan. A Bank loan of US$16.5 million and an IDA credit of US$15.0 million (total US$31.5 million Bank Group participation) were approved to finance 35% of total project cost net of taxes. In addition, the Government received two loans from CCCE totalling FF 80 million (US$19.0 million) and a loan of E12 million (US$25.7 million) from CDC. The Government contribution comprised equity of US$23.6 million and payment of US$12.1 million for debt service on its external borrowing for the first and second projects. Total Government contribution was to be US$35.7 million. The financing plan is in Annex 3.10 of the Government PCR. 15. Procurement. Land clearing, planting and civil wotks were to be made under force account. Except for this and contracts of US$200,000 or less, goods were to be obtained through international competitive bidding in accordance with Bank guidelines. Smaller contracts were to be awarded following local competitive bidding, and contracts of US$50,000 or less were to be awarded on the basis of three quotations. 16. Disbursements. The BaLk Group financing (US$31.5 million) was to be disbursed over 5 years and cover 402 of the cost of part B3 of the project, representing 35% of the total project cost not of taxes. 17. Coals and Target. Although rubber production was expected to start in 1982 from areas planted in 1976 under HEVECAM I, the production remained small during the first two years, and arrangements for processing were to be made at the existing SAFACAM Estate factory situated about 80 km north of the REVECAM Estate. A maximum production of 34,500 tons is expected by the year 2000 when the total 15,000 ha planted area has reached a peak yield of 2.3 tons per hectare. The rubber price was estimated at US$131.5/kg for 1982 to reach US$151.0 in 1999 (in 1979 constant terms) and to remain at this level during the project life. 18. Loan Neaotiations. Loan negotiations were conducted in November 1979. No major issues are!e. The Cameroonian and the Bank delegations agreed on lending terms, on the financing plan, and on HEVECAM minimum working capital. 19. Covenants. The more important covenants were: (a) To maintain HEVECAM liquid assets at a level sufficient to cover REVECAM's expenditures for a four-month period; (b) upon completion of the project, to provide HEVECAM with funds, services and resources necessary to (i) plant -1,500 ha to complete the 15,000 ha estate development; and (ii) maintain and bring into production the rubber planted under HEVECAM I and II projects and install adequate processing facilities; (c) to prepare and provide the Bank with a long-term plan for the future development of perennial crops in the coastal area; (d) to upgrade and maintain the roads connecting HEVECAM's estate with Kribi and Douala; and (e) to employ a forestry consultant to carry out a survey of marketable timber in the HEVECAM concession area and to take measures for the exploitation of the timber. IV. PROJECT IMPLEMENTATION 20. Field development. In physical terms, the project was fully completed as foreseen: by the end of 1984, 9,800 ha were planted against a target of 9,300 ha. The total planted area reached 14,031 ha for a target of 13,500 ha at project completion. The Table below shows development by year and the cumulated planted areas. PLMrM PROAM PRAs II (ha) 1979/1980 IM& 19OV8 1983/84 Total Taset 998 29210 fl-W0 29192 1,700 1-f Actual 1,238 2,103 2,166 1,976 2,217 9,800 Omulative L,m ZOaga MS These I + Phase II Note: Planting was made with high yielding clones, mainly GT 1 (642).21. The project faced two sizeable agricultural problems Root disease (Poses) and leaf disease (Glososporium), whose control amounted to CFA? 361 million (against CUP 220 million at appraisal) and CFAP 160 million (no estimation), respectively. (Details are given in the Annex). 22. Exloitation. There were some delays in starting exploitation when compared with the appraisal estimates, as shown below. AREAS IN TAPPING (ha) Years Estimates Actual 81/82 131 - 82/83 243 - 83/84 1093 390 Delays in tapping were due to (a) the type of planting material used during REVECAM I, and (b) the Gloeosporium incidence on the trees' growth. The above estimates were revised during HEVECAM III appraisal and the actual tapped area is in line with the new estimates. A low tapping intensity system, half spiral tapped at 7-day intervals (S/2 D7), was applied to all mature areas from the beginning of exploitation in order to decrease the number of tappers. At the same time a stimulation program, using Ethrel at 2.5% concentration, was carried out to compensate low tapping intensity and to reach acceptable yield levels. 23. Production. Due to the delays in starting exploitation, the production was lower than the appraisal estimates as shown below. -6 - Production (Tons) Years Estimates Actual 81/82 26 C 82/83 206 0 83/84 708 146 As for the tapping area, the yield and the production, estimates were revised during the REVECAM III appraisal to take into account the type of planting material used for field establishment and the incidence of the root and leaf diseases. 24. Processing. The construction of the factory took place in 1982/83 and included one latex line with a capacity of 16 tons/day and one low-grade line with a capacity of 8 tons/day. The factory became operational in July 1984. The cost of civil works and equipment amounted to CFAF 1,243 million, i.e., a cost overun of 22% compared with the appraisal estimates of CFAF 1,020 million. 25. Civil Works and Buildings. Two hundred and seventy buildiis, mainly workers' houses, kitchen and sanitary installations were completed in addition to the estimated program. Most civil works were carried out by REVECAM at a total cost of CFAF 2,963 million, compared with an estimate of CFAF 3,032 million. 26. Smallholder Development Program. The project component of developing 250 ha for smallholders was considered as a trial for introducing rubber as a smallholder crop near the industrial plantation: in the North for the local population and in the South for settlers. By, June 1984, 233 ha (93% of the program) were developed, of which 31 ha in the North and 202 ha in the South. (a) North zone: The local population, consisting of hunters and fishermen, was not interested in developing rubber and only 19 smallholders participated in the project, i.e., an average of 1.6 ha per smallholder. Land clearing was made manually using chain saws, and stacking with crawler tractors. The smallholders were responsible for planting and field maintenance and received the FONADER development bonus. Field upkeep was so poor that HEVECAM had to provide laborers for field rehabilitation on several occasions, at a cost of CFAF 4.7 million. (b) South zone. Land clearing and preparation were carried out by REVECA using crawler tractors, and then land was allocated to settlers. Development consisted of large blocks of about 50-100 ha. The settlers were responsible for planting and field upkeep and received the FONADER bonus. Foodcrops were established along the inter-row stacking. Field conditions and upkeep were generally satisfactory. Twenty-two settlers participated in the project, i.e., an average of 9.2 ha per settler. *7q. 27. During HEVECAM III, an additional 250 ha would be developed. To encourage local population participation, REVECAM decided to carry out land clearing and preparation. The development to the north would be made in blocks of about 10 ha for groups of smallholders instead of the dispersal planting of very small areas (1.6 ha on average) carried out during the HEVECAM II project. This approach, would ensure better training and supervision of smallholders. 28. Research. The Agronomic Research Division was created in 1979, and staffed with 27 employees. Its main activities were: (a) multipli- cation of new rubber clones; (b) manuring program based on soi? and foliar analysis; (c) root and leaf diseases control; (d) exploitation systems; and (e) studies for rubber development in several areas. Expenditures amounted to CFAF 195 million, i.e., a cost cverun of 89% compared with appraisal estimates. 29. Personnel. The labor force increased from 1,933 laborers in June 1979 to 2,945 in June 1984; its distribution by number of working years was as follows: More than 5 years: 21% More than 3 years: 412 Less than 3 years: 38% BEVECAM staff increased from 26 in June 1979 to 47 in June 1984. Under a management contract, SAFACAM provided 11 expatriates to REVECAM management; in addition three expatriate volunteers were appointed in managerial positions. 30. Social Infrastructure. To attract and maintain its labor force HEVECAM developed its own social infrastructure which included schools and kindergartens, markets, hospitals, health centers, shops, mosques, churches, community halls, theaters, power stations, water-head tanks, and clubs. With 10 primary schools representing 75 classrooms, an average of 1,750 students attended school each year. The schools are operated by 67 teachers, of which 14 were appointed by the Ministry of Education and the others by NEVECAM. Government erected a post-office and a commercial bank opened a branch. 31. In addition, HEVECAM established 11 company stores for its personnel. Sales increased from CFAP 117 million in 1980/81 to CFAP 240 million in 1983/84. HEVOCAK also contributed CFAP 229 million for social and sports activities, transport of laborers to town, uniforms, movies, etc. 32. Training. Staff training was financed by CCCE and provided by specialized institutions in Europe and Africa as well as in large industrial estates in C8te d'Ivoire. During project execution, the number of Cameroonian staff appointed to managerial positions increased from 14 in June 1979 to 32 in June 1984. Training was provided to selected national staff in view of the future Cameroonization of higher management positions, when the extension of SAFACAM management contract will be renegotiated - 8 - (June 1987). Details of the training program are given in the Governmental PCR, Annex 4.24. The training of supervisors and specialists was organized on site and included seminars. Training in tapping operations was provided for many laborers. Each year HEVECAM received students from agricultural and technical universities for a training period of several weeks. V. PROJECT COST 33. The total project cost in local currency amounted to CFAF 22,258 million compared with 19,958 million at appraisal. The cost overun of 11.5% is mainly due to the factory equipment, the ovethead, the technical assistance (management contract) and the other activities: research and smallholders' development (paras 34-38). When expressed in U.S. dollars, the project cost was only 74% of the estimate due to changes in the exchange rate of the CFAF against the U.S. dollar (para 39). The estimated and actual project costs shown below are derived from the Government PCR, Annexes 3.9.1 and 4.39.1. PROJECT COST Appraisal Actual B/A Appraisal Actual B/A Itams Estimate Cost % Fatimates cost % A B A B - - -CFAF millon- - - - - US$ mlllion- - - Field Developnent 7,449 8,180 109.8 35.3 25.9 73 Civil -rks 3,032 2,962 97.7 14.1 9.4 65 Material and Edpmnt 1,319 1,378 104.4 6.3 4.4 70 Factory 1,020 1,243 121.8 4.9 3.9 80 Overbead 5,976 7,111 119.0 28.4 22.6 s Technical assistance 627 746 119.0 3.0 2.4 80 Other Activities 535 688 128.5 2.5 2.0 80 Total _22A 258 111.5 70.6 74 34. The field development cost was 9.8% over the estimate. However, the planted areas exceeded the target by 5% (9,800 ha compared with 9,300 ha), and the daily labor wages increased at an annual average rate of 15% compared with an estimate of 10%. Considering these factors, field development cost in real terms was within the appraisal estimate. 35. The factory cost overun is due to the depreciation of the French Franc vis A vis the other international currencies (U.S. dollar and pound sterling), increasing the cost of capital equipment purchased outside the Franc zone. 36. The overhead cost was CFAF 1,135 million over the estimate due to social welfare efforts carried out by HEVECAM which amounted to 1,041 million for hospital, medical expenses and education. During HEVECAM III - 9- negotiations, it was agreed between the Government and the Bank that expenditures related to public services such as schools and hospitals would be financed by the Government. 37. Cost overun for the technical assistance is due to a higher than expected inflation rate index applicable to the Management Contract (the index was fixed by SYNTEC). 38. Cost overun for other activities was due to the change in land clearing techniques for the smallholder component and also the research program for controlling root and leaf diseases which was not forecast at appraisal. 39. The total project cost expressed in U.S. dollars of 74% compared with the appraisal estimates is due-to the exchange rates as shown below. ACTUAL AVERAGE EXCHANGE RATE PER YEAR (CFAF/US Dollar) (Appraisal estimate - US$1 - CFAF 210) Years 1979/80 US$ 1 = CFAP 211) 1980/81 US$ 1 - CFAF 260) Average US$1 CFAF 315.27 1981/82 US$ 1 = CFAF 310) 1982/83 US$ 1 - CFAF 372) 1983/84 US$ 1 = CFAF 425) 40. Project Financing. During the project period, financing was provided as follows. PROJECT FINANCING (CFAF million) a/ Institutions Equity Loan Grant Total IDA (Cr. 975 CM) 4,252.5 - 4,252.5 IBRD (Ln. 1791 CM) - 6,611.7 - 6,611.7 Subtotal - 10,864.2 - 10,864.2 CCCE 1,000.0 2,219.0 781.0 4,000.0 CDC - 6,568.0 - 6,568.0 Government 4,550.0 79.6 1,040.2 5,669.8 Subtotal 5,550.0 8,866.6 1,821.2 16,237.8 Total Derived f9,730 t GP.27.1 /a Derived from the Government PCR Annex, 4.27.1 - 10 - 41. During the first semester 1979/80, financing was provided by CDC (80%) and Government (20%). Starting*January 1, 1980, financing wao provided by IDA/IBRD (4A%), CDC (26%), CCCE (18%) and Government (16).. After the CCCE and CDC funds were fully disbursed in June 1984 and i view of the CFAF exchange rate against the U.S. dollar, IBRD decided to Jacrease its financing to 70% and to extend the loan closing date from June 3O, 1985 to December 31, 1985. The IDA/IBRD financing was estimated at appraisal at CFAF 6,615 million. Actual disbursements amounted to CFAP 10,864.2 million, i.e., an increase of 64%, bringing the IDA/IBRD financing contribution to 48.8% compared with 40% at appraisal. The Bank disbursements amounted to US$15.0 million on Credit 975-CM (100%) a0d VS$15.4 million on Loan 1791-CM (93%), or a total of US$30.4 million (96.5% of estimated financing), leaving a balance of US$1.1 million, which waO cancelled on January 28, 1986. The CDC and CCCE loans were fully disbursed. VI. PROJECT JUSTIFICATION 42. Economic Assessment. The project investment was completed in five years as planned. Relative to the objectives and expectations at appraisal, the overall performance derived from the Government PCR (para 5.01) is summarized below: % Planted area (ha) 105 Smallholder Development (ha) 93 Field Development Cost 110 Investments Cost (other than field) 104 Overhead Cost 119 Technical Assistance Cost 119 Smallholder Development Cost 129 Total Project Cost (CFAF) 111.5 Total Project Cost (US$) 74 43. Economic Rate of Return. At HEVECAM II project appraisal the economic rate of return (ERR) was estimated at 15% (MVECAM II SAR, Table 8.1). During the HEVECAM III appraisal process (October 1983 - May 1984), the ERR was recalculated for the 34-year project life to include REfCAN I and II. All costs were taken into account from the beginning of the PrOgram (HEVECAM I and II) and, therefore, included investment, recurrent az%4 exploitation costs (production, transportation and marketing). The plantation, the project and the smallholders program were analyzed #eparately. The ERR is approximately equal to the ERR estimated at HEVECAM II apprsisal as shown below. - 11 - ECONOMIC RATE OF RETURN FanaLC Rate Net Present wtching Value at 12% of Return Value at 122 Benfit cost (2) (CEAF ilian) -m- W 1. Plantaim. 15,000 ha 15.84 17,081 -22.50 +29.10 2. Total project /6 14.94 13,216 -14.64 +17.13 3. Smltholder Progrea 15.01 251 -19.29 +23.91 la Soure: RCVWM m SAR, para 9.05, page 57. 7 aundft watUhAlder program. 44. Sensitivity Analysis. The sensitivity analysis below compares the impact of changes in costs, benefits, prices, yields and lags in benefits to the ERRs' and net present values of the plantation, the overall project and the smallholder program for REVECAM I, II and III Projects together. ECONOMIC RATE OF RETURN - SENSITIVITY ANALYSIS Plantation Project Saaltholder ERR NPV ERR NPV ERR WV W (CF M.) TMT (cWA N.) WV (CAPxK. 1. Costs incriase: by 102 14.08 9,751 13.16 5,500 13.67 146 by 202 12.49 2,420 11.56 -2.218 12.45 41 2. Benefits decrease: by 102 13.90 8,043 13.00 4,178 13.53 121 by 20% 11.75 -996 10.80 -4,861 11.88 -9 3. Cost increase: by 102 and Benefits decrease: by 102 12.16 712 11.21 -3.539 12.19 16 4. Costs increase: by 202 and Benefits decrease: by 202 7.48 -19,891 7.42 -20,294 9.23 -219 5. Prices decrease: by 102 13.89 8,042 12.97 4,178 13.52 120 by 152 12.85 3,523 11.92 -341 12.73 56 6. Yields decrease: by 152 13.70 7,115 12.77 3,250 13.05 82 ty 20% 12.92 3,793 11.98 -72 12.31 23 7. Benefits lagged: 1 year 13.51 7,397 12.71 3,533 13.26 112 2 years 11.71 -8,970 11.05 -5,114 11.86 -13 Source: HEVECAM III SAR, para 9.07, page 58. - 12 - The analysis shows that the project, excluding the smallholder program, can effectively withstand the impact of a 10% change in costs, benefits, prices or yields, where the ERR is above the 12% estimate for the opportunity cost of capital. The ERR of REVECAM II evaluated at completion is equal to the ERR evaluated at appraisal, which confirms that the project has successfully achieved its level of economic viability and*has the potential to be successful in the continuing phase of HEVECAM III. 45. Financial Rate of Return. The financial rates of return (FRR) have been calculated for the 34-year project life. The analysis was carried out for the 15,000 ha plantation, the project and the smallholder program. FINANCIAL RATES OF RETURN Plantation Smallholder 15,000 ha Project /a Program FRR (%) FRR (%) FRR (%) 1. Point Estimate 10.24 9.37 8.98 2. Sensitivity Costs increase by 10% 8.33 7.38 7.12 Costs increase by 20% 6.58 5.54 5.41 Benefits increase by 10% 12.32 11.36 10.61 Benefits increase by 20% 14.15 13.19 12.13 /a excluding smallholder program. These FRRs show acceptable levels of return to financial investment of the project. These rates are considered high for an investment in tree crop development in West Africa. VII. BORROWER AND BANK PERFORMANCE 46. HEVECAM's performance was satisfactory: 105% of the planned development was achieved, management was efficient in handling the technical and social aspects of the project, and through social welfare BEVECAM was successful in stabilizing its labor force. The Government supervised the project regularly and efficiently with the co-financiers. Funds were provided in due time and HEVECAM never faced financial difficulties during project execution. Except for the schools' operation, the Government complied with all covenants as described in the Government PCR. para 3.04.06 (page 24). During HEVECAM III negotiations it was agreed that expenditures related to public services would be financed by the Government. 47. The Bank supervised the project regularly and competently. The eight supervision missions carried out jointly with the other co-financiers (CCCE and CDC) focused properly on project implementation, labor recruitment and stabilization, project cost and HEVECAM cash flow. In - 13 - October 1983, the Bank appraised REVECAM III for which a loan (2486-CM) of US$8.3 million was approved in February 1985. The project includes: (a) completion of the planting program to bring the total planted area to 15,000 ha; (b) maintenance of the immature areas; (c) tapping on about 9,430 ha: (d) completion of the infrastructure construction; (e) continuation of the smallholder program; and (f) continuation of applied research and technical assistance. 48. The REVECAM II project had no adverse effect on the environment. Exploitation of marketable timber was completed before the project started only secondary jungle and nonvaluable timbers were cleared. As an anti-erosion measure, no land clearing was carried out along the rivers and on steep areas. The factory water effluents are treated to prevent river pollution. Since the development area was previously occupied by hunting Pygmy tribes, wildlife was nonexistent in the area when the project started. VIII. CONCLUSIONS 49. Overall, the HEVECAM II project has been successful in implementing the planned development program and has overcome the problem of labor recruitment and stabilization by providing adequate social infrastructure. Management, comprising 12 expatriates and 35 Cameroonians, supported by technical assistance from SAFACAM has been dynamic. All physical targets were met with the exception of the smallholders development program (93%). The project had a 11.5% cost overun in CFAF terms, but due to exchange rate changes, its cost in U.S. dollar terms is 74% of the appraisal estimate. Since the REVECAM II plantings are still immature, the economic and financial rates of return estimated during HEVECAM III appraisal are maintained (para 43). While the production impact in terms of quantities of rubber product seems ensured, actual financial and economic results will depend on future rubber selling prices. The success of the project is due to management competence in overcoming the labor shortage problem in the remote location of the project by providing adequate social infrastructure. The phasing of project implementation was ambitious but HEVECAM was successful in achieving the physical targets within the limits of the estimated cost. This type of development could not be replicable without a strong and efficient management as it was the case for REVECAM. The Government is now considering the extension of its tree crops program through the development of small- and medium-size plantations. The Bank supported the Government approach and an FAO/CP study was completed and provided to the Government in June 1986. WAPAD June 1986 ANNEX Page 1 of 1 ROOT AND LEAP DISEASES (Fomes and Gloeosporium) The two sizeable agricultural problems faced by HEVECAM during the project were: (a) Fomes. The disease was detected in early 1978 and became a serious problem in 1979. In collaboration with the Institut de Recherche du Caoutchouc en Afrique (IRCA), HEVECAM had developed an effective treatment by the end of 1981. Detection of Fomes was systematically carried out on all trees by making light soil digging around the tree's collar. Affected and neighboring trees were treated with fungicide (Calixin) at a solution of 0.7% for the first treatment and 0.5% thereafter. Detection and treatment started one year after planting. Expenditures for Fomes treatment during the project period amounted to FCFA 361 million, compared with an estimate of 220 million at appraisal. Higher than estimated expenditures were due to treatments in very young plantings, one year after planting, instead of the three years after planting forecast at appraisal. (b) Gloeosporium. The disease occurred in 1979 and affected the 1975 and 1976 plantings but remained limited. However, by early 1982, it affected all planted areas. Upon recommendation from the Rubber Research Institute of Malaysia, fungicides were sprayed on all areas at a cost of FCFA 25,000/ha. In 1983, the Gloeosporium incidence decreased, but reoccurred in 1984 in all areas including the youngest plantings. Trees lost their leaves and as a result their growth was delayed. In collaboration with IRCA, HEVECAM started research on ways to control the disease and decided to carry out artificial defoliation using Ethrel (2-chloro-ethyl phosphonic acid) on about 2,500 ha prior to the 1985 refoliation. Aerial pulverisation of a mixture of 3 liters of Ethrel at 46% active ingredient and 37 liters of water/ha was carried out at a cost CFAF 30,000/ha. One month later, refoliation was completed, except for the clone GT1 whose refoliation was about 80%, requiring additional treatments of fungicides. Artificial defoliation was extended to 6,500 ha the following year at a cost of CFAF 25,000/ha, which is equi-.lent to the value of about 100 kg of rubber at present prices. When compared with production in the untreated areas, the higher production defoliation cost in treated areas covered the defoliation cost in six months. The defoliation program was thus justified. During the project period, expenditures for the control of Gloeosporium amounted to CFAF 160 million. VAPAD June 1986