Uganda - Sugar Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6987-UG STAFF APPRAISAL REPORT UGANDA SUGAR REHABILITATION PROJECT March 7, 1988 Agriculture Operations Division Eastern Africa Department Africa Region This document has a reticted ditribuon and may be used by recpient ody In the perfonnne of thei officia duties Its contens may not otewise be disosed wihout Wodd Bank authorizion  CURRENCY EQUIVALENTS Exchange Rates US$1.00 m Uganda Shillings (USh) 60.00 USh 1.00 - US$0.0167 WEIGHTS AND MEASURES Metric System CALENDAR KSW Fiscal Year: May 1 . April 30 IDA Fiscal Year: July 1 June 30 !'roject Year s May 1 - April 30 ABBREVIATIONS AND ACRONYMS AfDB - African Development Bank AfDF - African Development Fund AGSEC - Agricultural Secretariat of the Bank of Uganda AWP - Annual Work Program BUA - AfDB Units of Account EAHL - East Africa Holdings Ltd. ERP - Economic Recovery Program ERR - Economic Rate of Return FUA - AfDF Units of Account FBL - Food and Beverage std. FRR - Financial Rate of Return ha - Hectare ICB - International Competitive Bidding IFC - International Finance Corporation JVA - Joint Venture Agreement (1985) KSW - Kakira Sugar Works (1985) Ltd. MOI - Ministry of Industry and Technology MSL - Madhvani Sugar Limited MSW - Madhvani Sugar Works PIU - Project Implementation Unit SA - Subsidiary Agreement SCU - Sugar Corporation of Uganda, Lugazi SDR - Special Drawing Rights SIU - Sugar Industry Unit tcd - tons of cane per day tcy - tons of cane per year tsy - tons of sugar per year UDB - Uganda Development Bank  FOP, OmCiAL US ONLY SUA REHARTILITATION PROJECT CREDIS AND PROJECT SUMMARY BorrhoU r Government of Uganda Beneficiareest Kakira Sugar Works (1985) Ltd (RSW) and Ministry of Industry and Technology (MOT) Amounts SDR 18.9 million (US$24.9 million equivalent) Tess Standard, with 40 years maturity Rlendina Terms: US$24.6 million to KSW at an interest rate of 8.7S, repayable over 15 years including a 5 year moratorium on interest and capital payments with KSW to bear the foreign exchange risk. The balance of US$0.3 million through budgetary transfer to MOI. CofinancSuitt AfDB BUSA 6.86 million (US$8.7 million equivalent) AfD? VUA 7.97 million (US$9.4 million equivalent) Proisect Descrintion: Cbiectives: The project would, over a six year period: (1) restore RSW's sugar production from present zero level to historical levels (85,000 tsy) and save foreign exchange used for imports; (ii) strengthen MOI's management of the sugar sector; and (iii) provide a mechanism for liberalizing sugar marketing and pricing. Comnonents: The project would restore efficient agricultural and processing operations at KSW through (i) the physical rehabilitation of lands, factory and associated infrastructure by providing machinery, equipment, civil works and transport; and (ii) technical assistance to strengthen KSW management and staff. Agricultural development would include the rehabilitation of the irrigation system and the re- establishment of an outgrower production scheme to augment cane supplies to the factory. The project would also, through technical assistance and logistics, strengthen MOI's role in monitoring the performance of the sugar industry and advising the Government on industry policy matters. Benefits and Riskss The main benefit would be net annual foreign exchange savings of approximately US$33 million by 1993. The project would also create employment opportunities for 4,300 persons and improve incomes and living conditions for about 1,400 outgrowers. The success of a joint venture in KSW would improve the climate for private investment in Uganda and thereby assist Government efforts to rebuild the economy. Failure by the Government to provide foreign exchange required for import of spares and inputs would |Ths documont has a stid distribution and may be used by recipients only in th perormanco of thok offic dutis. Its contents may not othrwise be duclosed without World ank authorzatin.  - ii - threaten sustainability of ISV operations. Under the Economic Recovery Credit IDA will obtain Government consent to include the sugar industry among priority sectors covered by the Open General Licensing System. Delays in replacing expatriate staff by Ugandan nationals would raise operating costs and foreign exchange remittances. ISW's program for training Ugandans for managerial and key technical positions would be monitored through Annual Work Programs. Disagreements between Government and the minority shareholder in XSW could threaten sustainability of operations; the Joint Venture Agreement is designed to minimiae this risk. Estimated Cost Comoonent a/ Local Foreian Total _-- -( (us$ M)