Malawi - Second National Rural Development Program (NRDP) (wood Energy) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2625-MAI MALAWI PHASE II OF NATIONAL RURAL DEVELOPMENT PROGRAM (WOOD ENERGY PROJECT) STAFF APPRAISAL REPORT February 8, 1980 Eastern Africa Projects 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 Malawi Kwacha (MK) US$ 1.00 MK 0.83 MK 1.00 US$ 1.20 WEIGHTS AND MEASURES 1 meter (m) 3 3.3 feet 1 cubic meter (mi) 35.3 cubic feet 1 hectare (ha) 2.47 acres 1 kilometer (km) 2 0.62 miles 1 square kilometer (km ) = 0.39 square miles ABBREVIATIONS ADD = Agricultural Development Division ADFO = Assistant Division Forest Officer ARD Agricultural Research Department ARFO - Assistant Regional Forestry Officer CCDC Capital City Development Corporation CIDA Canadian International Development Agency DA Development Area DFO Division Forest Officer EDF = European Development Fund EPA = Extension Planning Area(s) FAO/CP = Food and Agriculture Organization/Cooperative Program FRG Federal Republic of Germany GOM = Government of Malawi IDRC = International Development Research Center KRDP = Karonga Rural Development Project LLDP = Lilongwe Land Development Project LRDP = Lake Shore Rural Development Project MAI = Mean Annual Increment MANR = Ministry of Agriculture and Natural Resources NRDP = National Rural Development Program RFO = Regional Forestry Officer STO = Senior Technical Officer TA = Technical Assistant TO = Technical Officer SVADP = Shire Valley Agricultural Development Project GOVERNMENT FISCAL YEAR April 1 to March 31  FOR OFFICIAL USE ONLY MALAWI PHASE II OF NATIONAL RURAL DEVELOPMENT PROGRAM (WOOD ENERGY PROJECT) Table of Contents Page No. I. BACKGROUND ................... 1 A. Project Background ................. ..1................ B. The Agricultural Sector .............. ..1.............. C. The National Rural Development Program ............... 3 D. Government Services .................................. 4 II. THE FORESTRY SUB-SECTOR ................................... 6 A. Resources ................................. . 6 B. Institutions ........................ . 6 C. Production and Marketing , , ...7............. D. Development Objectives and Strategies ........... .... 9 III. THE PROJECT ............................................... 11 A. General Description ...... ............................ 11 B. The Project Area .................... ,......,.,,,..... 12 C. Detailed Features ................... ................. 13 D. Project Costs ........................................ 20 E. Financing ........... ......... O.. 20 F. Procurement ......... o ..................... 21 G. Disbursements ....... ............... ................... 21 H. Accounts, Audit and Reports . . ......... 23 I. Environmental Impact .-............................ 24 IV. ORGANIZATION AND MANAGEMENT .............................. 25 A. General Aspects ...... ..*. ....... .... .., ,. ... 25 B. Management of Project Components .................... 25 C. Training and Extension Service .- .................. 26 This report is based on the findings of an IDA appraisal mission to Malawi in March/April 1979, composed of Messrs. T. N. Baddar, N. Brouard, and B. Zegge (IDA). Mr. D. Hughart (IDA) visited Malawi in May, 1979 to evaluate the need for a rural energy utilization study. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  - ii - Page No. V. PRODUCTION, MARKETS AND PRICES ............................ 28 A. Production ....... .................................... 28 B. Markets .......... . ...... ... ..... ................... 30 C. Prices ............................................... 34 VI. BENEFITS AND JUSTIFICATION ..... ........................... 36 A. General .............................................. 36 B. Financial Returns . .................................... 36 C. Economic Returns .. ....... . .. . ............. *o- o .... ...* ..* 37 VII. AGREEMENTS REACHED AND RECOMMENDATIONS ......... ooo- ..... 42 Supporting Tables Table 1 Annual Cost by Component Table 2 Project Costs by Component/Expenditures Table 3 Financial Rate of Return - Forestry Department Table 4 Financial Rate of Return - District and Town Council Plantations Table 5 Financial Rate of Return - CCDC Plantations Table 6 Economic Rate of Return Table 7 Government Cash Flow Selected Documents and Data Available in Project File Chart No. 20456 IBRD Map No. 14336 IBRD  I. BACKGROUND A. Project Background 1.01 In 1978, the Government of Malawi (GOM) requested that the Bank consider financing the first phase of a wood energy program to meet the future demand for fuelwood and building poles. The potential for a wood energy project was first identified in February 1978, when a Bank mission visited Malawi and held discussions with the Ministry of Agriculture and Natural Resources (MANR). Assistance to the GOM in the preparation of the Project was provided by the FAO/CP. The Bank's Regional Mission in Eastern Africa (RMEA) provided support and guidance during identification and preparation. This report is based on the findings of a Bank appraisal mission which visited Malawi in March/April 1979, comprised of Messrs. T.N. Baddar, N. Brouard, and B. Zegge (IDA). Mr. Hughart (IDA) visited Malawi in May 1979, to evaluate the need for a rural energy utilization study. The Project would constitute the first phase of a long-term program aimed at developing forest resources to strengthen the country's traditional energy resource base. B. The Agricultural Sector 1.02 Malawi has a total land area of 9.4 million hectares, of which 36% is considered to be of arable quality. The land is very varied topo- graphically with extensive areas of plains, escarpments, plateaux and mountain massifs in each of the three regions. The altitude ranges from 50 m. to 3000 m. above mean sea level. Soils are relatively fertile, and the fairly reliable rainfall permits the cultivation of a variety of food and cash crops. However, only 2.9 million hectares are estimated to be under cultivation at present. Forest reserves occupy 9% of the total land area, while urban and infrastructure areas and National Parks account for 11% each. Of the remaining 33% of total land area presently unused, 60% is estimated to carry natural, woody vegetation. 82% of the total land area is held under customary tenure and is termed Customary Land. Freehold or leasehold land accounts for 2%, while 16% is held as public land. 1.03 The population of Malawi is currently estimated at 5.9 million (based on the 1977-census) with an average growth rate of 3% per annum. Over 92% of the population is rural with a population density of 59 persons per square kilometer. Although the average national farm holding is estimated at 2.56 ha, the average cultivated farm size is 1.66 ha per family of 5 persons. At this level of cultivated farm holding, arable land (3.4 million ha) could sustain a population of 10.2 million. At present growth rates, this would be reached in the quinquenium 1995-2000, when all available arable land would be completely taken up. This also assumes that farm production has first claim to arable land. Consequently, land conservation and maintenance of soil fertility through introduction of improved techniques, inputs and afforestation has become increasingly important. Thus, the only land available to forestry development is the remaining 3.1 million hectares of natural woodland which is considered unsuitable for agricultural production. However, part of this land  - 2 - has already come under crop production in face of increasing demand for land coupled with improved technologies in land husbandry. In the long term, agricultural production and forestry development might compete for the unused Customary Land. Crop Production 1.04 Malawi's agricultural production derives from two subsectors: smallholder agriculture and estate agriculture. The smallholder subsector accounts for 85% of all agricultural production, and meets the country's demand for food staples (maize, beans, groundnuts, sweet potatoes and rice), while providing agricultural raw materials for industry (cotton and fire-cured tobacco) and some export surplus. The export surplus from this subsector comprises nearly 40% of all agricultural exports. Smallhold*er output is esti- mated to have been expanding at about 3% p.a., in real terms (equal to the rate of population growth) in recent years. Better performance by the small- holder subsector has been constrained by (a) low incentives provided by low producer prices to smallholders; (b) transfer of a workforce equivalent to 140,000 persons and 470,000 ha of the best cultivable land to the estate subsector; and (c) limitation of smallholder participation in the production of high-value, high-cost agricultural export crops by government regulation (tobacco and tea). On the other hand, recent performance of the estate subsector has been spectacular, averaging 10% p.a., in real terms since 1973. Overall, the estates contribute 15% of the total agricultural produc- tion in the country, but account for 60% of all agricultural exports. Estate production is mainly centered on flue-cured tobacco, burley tobacco, tea and sugar. Livestock 1.05 The livestock population consists of about 837,000 cattle, 770,000 goats, 200,000 pigs and 100,000 sheep. The cattle herd is estimated to grow at 5% p.a., and contains over 2,000 grade dairy animals. Most cattle are found in the less densely populated central and northern regions, although some are in the Shire Valley. They are raised by traditional methods and they are considered by farmers as a source of wealth rather than as commodities for sale. Consequently, overstocking is becoming noticeable in some areas and is likely to get worse unless the current average annual take off rate of 9% to 10% is substantially improved in selected problem areas. Goat is an important source of meat in Malawi as are pigs and chickens which are found in many households. Most of the organized pig and poultry production is, however, in the hands of large commercial producers who mainly supply the urban markets. Malawi still imports most of its dairy requirements, though recent progress in local production has been impressive. New projects are being developed to increase the production and processing of dairy products. Development Strategy 1.06 The Government's aim has been to maintain self-sufficiency in food staples, expand agricultural exports significantly and improve rural incomes. Given the limitation on high quality land available for new cultivation, and the increasingly high cost of reclamation on marginal lands or lands exhausted  - 3 - by continuous cultivation, the main emphasis of current agricultural policy is on a sustained rise in productivity. It has attempted to provide a growth climate for both smallholder and estate production. 1.07 Improvements in smallholder productivity have been so-ught through two different approaches. The more general approach has concentrated on a gradual improvement of extension, land husbandry and farmer training services throughout the country; these efforts have been supported by small, low-cost rural development projects and by special activities and programs such as ox-training, dairy improvement, and tea development (usually funded by the UK or by UNDP). The second approach has been based on the introduction, since 1968/69, of considerably more expensive and management intensive integrated development programs in four specific areas. These are: the Lilongwe Land Development Projects (LLDP I, II, and III; IDA Credits 113, 244, and 550), Shire Valley (SVADP I and II, and the Consolidation Phase III, IDA Credits 114, 363 and 823), Karonga (KRDP I and II, IDA Credit 282, and Third Window Loan 1286) and Lakeshore Rural Development Project (LRDP), formerly funded by the Federal Republic of Germany (1968-74) and now assisted by the European Development Fund (EDF). All of the above programs are characterized by the provision of infrastructure (roads, markets, water and health facilities, etc.) institution of land improvement and conservation measures, improved extension and other services, and provision of credit facilities. These four comprehensive programs - which are concentrated in the more densely populated areas - cover areas with one million persons, or 20% of Malawi's population. Despite this emphasis over the last ten years, the increases in smallholder marketed production have been disappointing both nationally and on a project basis. Between 1971 and 1978, the value of smallholder officially marketed production grew at about 3.0% per annum, compared with 10% per annum in the estate sector (para. 1.03). C. The National Rural Development Program 1.08 In the mid-1970's, it was realized that such an intensive level of investment as occurred in the major projects, could not be replicated in the rest of the country if all the rural population was to be reached within a reasonable time. A rethinking of the strategy was therefore undertaken, resulting in the subsequently formulated policy of the National Rural Develop- ment Program (NRDP), to provide a more extensive level of services to a larger population concentrating resources on the more immediately productive aspects of agricultural investment. NRDP is intended to extend and consolidate various development programs over the entire country, and is specifically designed to increase the level of smallholder production through the provision of agricultural inputs and farm services; particular attention being paid to increasing the efficiency and scope of extension, input supply, marketing and credit services. Under the NRDP emphasis is placed on improved productivity from already cultivated areas; attention is also given to soil conservation, watershed management, and afforestation.  1.09 The MANR is responsible for the implementation of the program. The Central Services and management capability of MANR are strengthened to serve the needs of the program. MANR Headquarters and the field organization have been restructured; instead of three regional agricultural areas plus four major projects, the country has been divided into eight Management Units (Karonga, Mzuzu, Kasungu, Lilongwe, Salima, Zomba, Blantyre, and Shire) each administering one Agricultural Development Division (ADD). On average, each ADD is divided into five Development Areas (DAs), each covering an average of about 25,000 farm families. 1.10 The program envisages a 15-18 year development period for each Development Area, divided into four phases. The activities would start with a two or three year preparatory phase. This would include land and agro- economic surveys, followed by detailed physical and economic planning; the establishment of agronomic trials where necessary; construction of essential additional staff housing; allocation of new extension staff; and construction of additional water sources, marketing facilities, rural roads and health posts. The next phase, tentatively called extensive phase, would be imple- mented over a period of about five years and would include investments in production related items such as improved extension and training, marketing, supply of inputs and credit. During the following five-year intensive phase, more attention would be given to increasing research and introduction of new crops and processing technologies; intensification of cropping programs; opening up of new areas where available for settlement; land conservation and consolidation; animal husbandry; and the construction of new roads. Finally, the areas would enter a consolidation phase, which would involve a continuation of more intensive development, further improvements to social infrastructure, especially education and health; and may also include the development of rural industries. In practice, there will not necessarily be a clear dividing line between activities in each phase. In September 1977, the Government requested the assistance of IDA, EDF, UNDP, United Kingdom (UK), the Canadian Inter- national Development Agency (CIDA), and the Federal Republic of Germany (FRG), to finance the first phase of the program. In addition, as part of the long-range objectives for NRDP, it asked the United States Agency for Inter- national Development (USAID) to help strengthen the country's Agricultural Research Service. As a result, a joint appraisal with IDA, EDF, UK and CIDA personnel took place in November 1977, and NRDP I was approved by the Board in November 1978, (Credit 857-MAI). D. Government Services 1.11 The Ministry of Agriculture and National Resources' major activity is the provision of services to the agricultural sector. It is also respon- sible for fisheries, water resources, national parks, geological surveys and forestry. There are two Deputy Secretaries one of whom is responsible for the implementation of the agricultural program which operates through three departments: Department of Agricultural Development (which provides farmer services and supervises land use planning, settlement schemes and irrigation programs throughout the country), Animal Health, and Research; the other Deputy Secretary is responsible for all programs dealing with natural resources such as forestry and wildlife.  -5- Agricultural Extension 1.12 Crop and animal health extension are important services provided to farmers by the Government. However, the effectiveness of the extension services was questioned in view of the recent performance of the smallholder subsector which indicates, among other things, that extension efforts have provided nominal stimulus to agricultural development. This has led MANR to restructure its extension services by instituting a geographical unit approach based on ecological principles consistent with administrative boundaries and upon a size related to both areas and population density. These Extension Planning Areas (EPA's) are as uniform in terms of physical resources as possible. They total 180, covering the whole country. They are, in turn, grouped together for administrative purposes into Development Areas of which there will be about 40 when NRDP is fully implemented. Currently, there is about 1 field extension worker (Technical Assistant) to 1,700 to 2,400 far- mers, depending on the area. The field worker carries out individual farm visits and, in some instances, establishes farmer groups for extension teaching and credit. He is supported by divisional supevisory staff and specialist staff at divisional and regional levels. In the project areas (Lilongwe, Karonga, Shire Valley and Lake Shore) the level of extension staff in touch with the farmers and the supporting specialist and training services have been greatly increased. Farmer Training 1.13 Training facilities for farmers and their wives have become increas- ingly available in recent years. Three levels of training are provided: Farm Institutes, Divisional Centers and Day Centers. There are three Farm Insti- tutes at Mbelwa (Mzuzu), Likuni (Lilongwe) and Thuchila (Blantyre) with a total capacity of 500 farmers per annum for courses lasting two to three weeks. There were 16 Divisional Centers operating in 1979, which conducted courses of one to two weeks' duration for about 17,000 farmers and wives in a year. All centers have demonstration gardens, plots or farms. Day Centers consist of a room at an EPA field office, used for day courses to farmers and wives. The courses are centered on specific topics of current interest or importance. The number of these centers varies annually as some are upgraded and transformed to specific projects or new ones are constructed. Agricultural Research 1.14 Agricultural research is carried out by the Agricultural Research Department (ARD) of MANR, the Faculty of Agriculture of the University of Malawi and the Tea Research Foundation (an independent organization focusing on tea research). The University at Bunda College of Agriculture carries out its own research or does so on behalf of MANR. Its main contribution todate is in the field of bean and livestock research. The ARD is a full-time research department with national responsibilities covering all crops and livestock. Administratively, agricultural research is organized on the basis of research stations which, in turn, are subdivided into sub-stations and district sites. Scientifically, research is organized under research projects based on crops or disciplines. The link between research and extension has so far been weak.  -6 - II. THE FORESTRY SUB-SECTOR A. Resources 2.01 About 50% of Malawi's land area is covered by what is generally classified as forest land. About 20% of the forest land is national parks and game reserves, 20% forest reserves and protected hill slopes and 60% natural woodland on customary land. The forest resources on customary land are completely unprotected and are disappearing fast. Apart from small areas of montane and sub-montane rain forest, most of the forests are "miombo" wood- land, dominated by the Brachystegia/Julbernardia/Isoberlinia association. They yield limited quantities, but excellent quality of fuelwood and a small number of crooked poles. The mean annual increment (MAI) from woodland on customary land is lower than from forest reserves due to greater stand de- gradation from combined effects of high population pressur e and livestoc. Average MAI's for the whole country are estimated at 1.2 m /ha and 0.8 m /ha for forest reserves and customary land respectively. 2.02 A recognition of the need to conserve and supplement indigenous forest resources has led to the development of an afforestation program in Malawi. At present, about 72,400 ha are under exotic forest reserve planta- tions of which about 49,000 ha belong to the Viphya Pulpwood Project. About 700,000 ha of indigenous forests are gazetted as forest reserves or protected hill slopes. In addition, a total area of 258,000 ha of indigenous forest is proposed for forest reserves which would bring the total area under gazetted forest reserves to nearly 1 million hectares. Only forest resoruces within gazetted areas are under management, while forest resources on customary land are under no control. Traditionally, fuelwood and poles have been and are obtained free of charge from customary land or by license from forest reserves. Pressure on these reserves is increasing rapidly, and there is a real danger of overcutting, which could lead to increased soil erosion and degradation, siltation and floods, and general ecological instability. B. Institutions 2.03 The Department of Forestry in MANR has overall responsibility for forest development, protection and conservation, and forest products. With the exception of small areas of private forest plantations totalling about 2,200 ha, all plantations are owned by the State through the Department of Forestry. Indigenous forest resources occurring on non-gazetted Customary Land are under the responsibility of traditional authorities headed by the Chiefs. There are also about 800 ha of District Council Forests. 2.04 The Department of Forestry is headed by the Chief Conservator of Forests and has five divisions. The Forests Division is responsible for the administration and management of both, plantations and protected forest reserves. The Management Services Division is responsible for education and  - 7 - training, research and provision of technical services to the Department of Forestry. The Forest Industries Division is responsible for sawmilling activities in state-owned mills, seasoning, manufacture, preservation treat- ment and the sale of all timber products from sawmills. The Viphya Pulpwood Division is responsible for all forest operations affecting the Viphya Project; planning, establishment and general management of pulpwood plantations and the proposed Wood Energy Division which was recently established to be responsible for present and future fuelwood plantations together with forestry extension. 2.05 Forestry Research is formally done by the Forestry Research Insti- tute (FRI) which has six sections dealing with silviculture, pathology, entomology, tree breeding, soils and Viphya Forest Industrial trials. FRI has already embarked on a rural fuelwood research project, supported by the International Development Research Center (IDRC) of Canada, with special reference to: (a) identify the most suitable species for establishment in the major climatic zones in the country; (b) identify the most suitable species for afforestation at the village and individual level; (c) identify appropriate methods of establishing and managing adopted species; (d) educate and inform the public on matters of practical afforestation. 2.06 Forestry Education is provided by the Malawi College of Forestry, which carries out all training of staff for the Technical Officer, Technical Assistant, Forest Ranger and Nurserymen grades. At the Technical Assistant level, the college offers a general forestry certificate course of two year duration. Since 1975, the number of students taken annually has been increased form 30 to 40. At the Technical Officer level the college offers an 18-month diploma course open to those who have successfully completed the general forestry certificate and who have been subsequently employed by the Department of Forestry. The certificate affords an in-service promotion opportunity to Technical Assistants on successful completion. In addition, there are special training courses for nurserymen and forest guards, and refresher courses for the technical staff. The capacity of the college is being further extended by the Department of Forestry and the training courses for nurserymen is being intensified to cater for the needs of the Project. C. Production and Marketing 2.07 Malawi's forestry is not highly developed in terms of the range of forest products it produces. The major products are sawn timber, veneer, plywood, poles and fuelwood. Annual production of industrial roundwood from  -8 - 3 both state and private forests is about 85,000 m , of which about half consists of softwood from state plantations. The wood is locally processed into sawn timber, veneer and plywood which are largely absorbed by the domestic market. Exports of forest products are negligible, and hence do not contribute to the country's export earnings. 2.08 No reliable figures for fuelwood and poles production exist. Esti- mates of potential supply of fuelwood and poles from several sources are based on a recent survey carried out by the Department of Forestry. These sources are: sustained yield from indigenous forests in gazetted and proposed reserves, sustained yield from indigenous forests on customary land, clear felling in gazetted and proposed reserves where conversion to plantations is planned, district council forests, plantations and sawmill residues. The supply estimates are potential in as much as many of the sources are not presently managed on a sustained yield basis nor wholly harvested or used. For 19F7 it was estimated that the potential supply was approximately 8.8 mil- lion m . An analysis of the demand reveals that the countrV s total fuelwood and poles consumption in 1977 was estimated at 11 million m per annum of which 86% was fuelwood (para 5.09) and the rest was building poles (para35.13). There is therefore an apparent general deficit for 1977 of 2.2 million m . The anal- ysis further reveals that 14 districts (out of a total of 24) are at present in deficit supply3ranging from 1.6 million m per annum in Lilongwe District to 0.05 million m per annum in Chickwawa District. From the size of the present deficits it could be concluded that the lack of wood products must be causing extreme distress in some of the deficit supply areas. However, the potential supply figures are based largely on sustained yield from uncultivated customary land and forest reserves, neither of which is yet under sustained yield manage- ment. That extreme distress has not so far been experienced indicates that demand is being met by destruction of forests on customary land. Future pro- jections show that the situation is likely to deteriorate further over the following three decades since all but one of the districts at present in surplus supply will have moved into deficit (para 5.14). 2.09 The forestry sub-sector accounted for about 3% of the agricultural GDP in 1978, (current prices), while its contribution to total GDP in the same year was about 0.8%. Thus, in terms of its economic contribution, the forestry sub-sector is insignificant. However, official data on the value of forestry products do not adequately reflect the important role played by the indigenous forest resource in providing fuelwood, building poles and minor forest products to meet the rural population's basic needs. This is probably so because on Customary Land both fuelwood and poles are obtained free for the individual's own domestic use. 2.10 Similarly, the contribution of the forestry sub-sector to Government revenue is small, mainly because over 98% of the total consumption of forestry products is obtained free of charge and the royalties levied on wood for commercial purposes are nominal. In 1977/78, revenue obtained from forestry products accounted for only 0.7% of total Government revenue. At the same time, Government expenditure on the development of the forestry sub-sector has declined from 6.8% of total development expenditure in 1974/75 to 3.0% in 1977/78.  - 9 - 2.11 There is no single organization responsible for the marketing of fuelwood and poles in the country. Instead there is a large number of indi- viduals involved in the marketing of fuelwood and poles at sales points in urban and semi-urban areas in the country. These individuals must obtain licences and pay fixed stumpage rates for cutting wood (para. 5.16). D. Development Objectives and Strategies 2.12 The role played by the forestry sub-sector in the Malawi economy is understated largely because official statistics on the value of forestry products do not adequately reflect the important role played by the indigenous forest resource in providing fuelwood and building poles to the rural population. Thus, in view of rising prices of fossil fuel derivatives and the desirability of remaining less dependent on such non-renewable sources of energy, and the relative high cost of developing alternative sources of energy (e.g. electricity), the Government of Malawi is anxious to encourage the development of forest resources (which is renewable and relatively cheaper) to strengthen Malawi's permanent energy resource base. 2.13 Estimates of existing supplies and of present consumption have been made for all categories of forest produce and projections of supply and demand to the end of the century have been prepared. At present consumption rates, the demand for fuelwood and poles is expected to double in 25 years, while existing supplies would have virtually disappeared, even in areas where at present there is a substantial surplus. Ave5age yields from clearfelled natural woodlands vary from roughly 30 to 100 m /ha, and the mean annual incremenS (MAI) of the forests and woodlands of Malawi as a whole is less than 1 m /ha, while that of forest plantations is 10 m /ha to 15 m /ha. It is clear therefore, that if the projections are correct, either large-scale tree-planting will have to be resorted to, or else alternative sources of energy will have to be found, or a combination of both. 2.14 At present, there is little hope that alternative sources of energy will be made available at prices which the population in general can afford to pay. Rural electrification is unlikely to materialize because of relatively high costs associated with its establishment. Imported fossil fuels are getting increasingly prohibitive and scarce, and are a drain on foreign exchange. Limited coal deposits of poor quality occur in the north of the country, but they have not been exploited as yet and transport costs may prove to be excessive. Solar energy, biogas, and other small-scale units are still at the experimental stage. No cheap and plentiful alternatives exist for poles in house building. For all these reasons, the only practical solution appears to be to establish fuelwood and pole plantations as fast as possible in order to try to guarantee supplies of the traditional products in the future. The proposed future prices for fuelwood produced in the country (para 5.17) would be beyond the means of the majority of the population. It is clear that each rural household would have to grow its own woodlot in order to supply its domestic needs. Though the present size of the average holding  - 10 - (2.56 ha) in the country as a whole is adequate to provide enough land for cultivation (1.66 ha on average), for a woodlot (0.40 ha) and for dwellings, there are many farmers who might find it difficult or impossible to devote enough land to tree-planting. In such cases woodlots would have to be sited on unoccupied (preferably non-agricultural) communal land as close as possible to the farniers concerned. At the same time, attempts would be made to effect savings on wood energy uses, both in the home and in industry, and studies will take place to develop and promote alternative sources of energy. 2.15 Malawi's first long-term forestry development objective would be the improvement of fuelwood and building pole supplies to both the rural and urban population for domestic and commercial use by (a) establishing rural nurseries to provide seedlings of fast growing species to farmers for establish- ment of woodlots, and (b) establishing tree plantations in wood deficit rural areas and near main urban centers. This would help to shield the majority of the population with low incomes from the inevitable rise in fuelwood prices in the future as the indigenous forest resource continues to dwindle, and might eventually remedy the disequilibrium between demand and natural supplies in deficit areas and urban centers. 2.16 A second long-term objective would be the introduction of management of forest resources on Customary Land and the intensification of management in gazetted forest reserves. This is only feasible if it is carried out simultaneously with the establishment of tree farming woodlots and tree plantations. The introduction of forest management would help to eventually remedy the decline of natural forest on Customary Land, thus preventing further environmental destruction, and improving substantially wood produc- tion as well as producing more revenue from sales of wood and wood products. 2.17 A third development objective would be to promote a viable forestry development through appropriate legislation and pricing of forest products. At present, forestry legislation is not effectively executed because of severe budget constraints which make it impossible for the Department of Forestry to recruit and train adequate staff and for the available staff of District Councils to effectively carry out their policing and extension tasks in areas outside Forest Reserves. The current pricing of forest products is not based on cost recovery and very little revenue is generated from the sale of wood. Current royalties and timber sales are sufficient to cover annual recurrent expenses of the Department of Forestry, but fall short of covering the Depart- ment's development expenditure which is largely financed by budgetary alloca- tions from the country's Treasury. The revenue from royalties and timber sales accounted for only 27.8% of the Department's expenditure in 1977/78. Through appropriate pricing of forest products the country's forestry sub- sector should be capable of generating enough revenue to cover its recurrent and developmental needs and thus become financially self-reliant and viable.  - 11 - III. THE PROJECT A. General Description 3.01 The proposed Project would be the first Bank Group financing in the Malawi forestry sub-sector and would form the initial phase in a program to meet the demand for fuelwood and poles. It would provide for intensive development involving the establishment of forestry plantations and farmers' woodlots in five deficit districts and for a farmers' woodlots program in the remaining districts. It would be carried out over five years and would consist of the following: (a) A pilot program for the establishment of a national network of 88 nurseries to be operated by the Forestry Deparment for the production of seedlings (mainly Eucalyptus) for sale to the public, who would be encouraged to grow their own woodlots in order to be as self-sufficient as possible in fuelwood and poles. The establishment of these nurseries would be preceded by a systematic survey of wood deficit areas and villagers likely response to an accelerated seedling produc- tion program. (b) Establishment of fuelwood and pole plantations for sale of forest produce to meet mainly the commercial and indus- trial demand: (i) 300 ha in each of five deficit districts, namely: Blantyre, Kasungu, Karonga, Lilongwe, and Zomba (total 1,500 ha), to be operated by the District Councils; and 300 ha in each of the three urban centers, namely: Kasungu, Karonga, and Zomba (total 900 ha), to be operated by the Town Councils; (ii) 3,000 ha in each of three districts, namely: Blantyre, Lilongwe, and Zomba (total 9,000 ha), to be operated by the Forestry Department; and (iii) 1,500 ha within the boundaries of the city of Lilongwe, to be operated by the Capital City Development Corporation (CCDC). (c) Strengthening of the Wood Energy Division with responsibility for coordination, direction and control of all matters relating to Project implementation and other similar projects. (d) Charcoal production trials to investigate improved methods of production and marketing of charcoal.  - 12 - (e) Establishment of an Energy Unit to investigate more efficient use of wood energy, consequent savings in fuelwood usage levels and alternative sources of energy. (f) A pre-investment phase in preparation for NRDP III. B. The Project Area 3.02 Five districts were selected for intensive activities under the Project: Blantyre and Zomba in the Southern Region; Lilongwe and Kasungu in the Central Region; and Karonga in the Northern Region. Of the remaining 19 districts, less intensive activities (nurseries and farmers' woodlots) would be pursued in 16 districts, 6 in the Southern Region (Chiradzulu, Machinga, Mangochi, Mulanje, Thyolo, and Mwanza); 7 in the Central Region (Dowa, Mchinji, Ntchisi, Dedza, Ntcheu, Nkhotakota, and Salima); and 3 in the Northern Region (Chitipa, Mzimba, and Rumphi). 3.03 The country is topographically very varied, from the low lying flat plains of the Lower Shire Valley (below 200 m) in the south, through the escarpments bordering the Shire Highlands and Lake Malawi, to the peneplains of the Central Region and the high plateaux of Mulanje, Zomba, Viphya, and Nyika mountains (up to 3000 m). Except on steep mountain and hill slopes or where soil depth is a limiting factor, topography by itself is not a serious constraint to tree growing, though it may impose limitations on harvesting and extraction. Tree planting is usually carried out on soils which are considered too poor for agricultural use, and naturally the poorer the site, the poorer the yield. However, apart from waterlogged or extremely rocky sites or steep slopes, the soils are generally sufficiently fertile for successful tree growing. 3.04 The climate is greatly influenced by Lake Malawi (about 580 km long and 50-80 km wide), altitude and topography. At the southern tip of the Great Rift Valley, Malawi is exposed to maritime climate influences crossing Mozambique, with easterly to south-easterly prevailing winds from the Indian Ocean. Rainfall is seasonal, associated with the intertropical convergence zone, and falls mainly in summer, from November to March in the south and into April in the north. At high elevations winter precipitations occur and are an important factor for tree growth; there are no arid areas in Malawi. Two main types of climate influence tree planting: (a) areas with a mean annual rain- fall of 800 mm to 1,000 mm and a mean annual temperature of 20C to 250C; these areas may be roughly divided according to altitude (from 200 m to 1,000 m and above 1,000 m) and are generally suitable for Eucalyptus tereti- cornis and Eucalyptus camaldulensis; and (b) high elevation areas above 1,500 m, with a mean annual rainfall exceeding 1,000 mm and a mean annual temperature below 20C which are generally suitable for Eucalyptus grandis. Generally, the climate is favorable to tree growth in Malawi, the main constraint being the degree of water stress caused by the length and severity of the dry season.  - 13 - C. Detailed Features (a) Nurseries 3.05 The main thrust of the Project would be directed towards encouraging farmers to plant their own woodlots either on their own individual holdings or communally in groups on customary land outside their individual holdings in order to be self-sufficient in fuelwood and poles for their domestic needs. To achieve this, a national network of nurseries would be established to provide seedlings for sale to the public at cost price. A total of 88 nur- series would be established and managed by the Wood Energy Division of the Forestry Department, each producing about 100,000 seedlings per annum from year 2 onwards. In addition, the nurseries producing seedlings for the five rural and three urban district plantations would also be able to sell about 100,000 seedlings per annum each to the public from year 2 onwards. 3.06 It is clear that the demand for fuelwood and poles would continue to be far in excess of current supplies with demand steadily increasing with the growth of population (para 5.15). Present prices do not reflect the real value of wood and are bound to increase sharply as this natural resource becomes more and more scarce, thus putting it eventually beyond the means of the average rural householder. The ideal solution would be for most rural households to have their own small woodlots to supply their needs of fuel- wood and poles. Although farmers' acceptance of planting their own woodlots has not been seriously tested, there is sufficient evidence to show that the rural population is becoming increasingly aware of this shortage. Forestry staff in all three regions of the country have reported an increasing demand for seedlings. Nevertheless, due to the pilot nature of this component, it was designed with sufficient flexibility so as to adjust readily to farmers' responses. Every attempt would be made to locate nurseries in high demand areas; however, nurseries would be easily relocated if the demand for seed- lings in certain areas is not forthcoming. Moreover, to facilitate the availability of seedlings to the farmers, nurseries would transport the seedlings in bulk to villages within a radius of 15 kilometers on appointed days prior to and during the planting season; the cost of transport has been included in the cost of seedlings. In addition to planting, production and sale of tree seedlings, supplies of tree seeds would be made available so that small farmers would be able to raise such seedlings on their own homesteads following the successful experience developed in other East African countries. 3.07 The exact location of the woodlots would vary according to the size of the farmer's holding and land availability on, or as near as possible to, his holding. Obvious tree planting sites would include boundary lines and land unsuitable for agriculture, but shallow soils and badly-drained sites should be avoided. There is increasing evidence that in situations where free-ranging goats and other livestock pose a threat to woodlots, small farmers are more likely to protect trees that are sited close to their own homesteads and most of the output from which would be utilized for  - 14 - domestic consumption. It is estimated that the annual domestic needs for fuel- wood and poles per3household is 4.2 m , based on average annual consumption per head of 0.85 m and an average family size of 5 persons. To produce such a volume of wood regularly requires an area of 0.4 ha assumi3g a national mean annual increment (MAI) on farmer woodlots of about 10 m /ha. The area required would obviously be smaller if either the consumption per head is lower or the MAI is higher, or both. The number of trees which should be planted to produce such a sustained yield would depend on the spacing adopted. It is anticipated that a close spacing of 2m x 2m would be used, equivalent to an initial stocking of 2,500/ha. Such a spacing would ensure an adequate stocking and an adequate volume production even if half of the trees planted were to fail. An average household would therefore have to plant about 1,000 seedlings to meet all its domestic fuelwood and poles needs. The annual seedling production of a nursery would therefore be sufficient for the plant- ing of 40 ha of woodlots, or approximately the equivalent of the annual domestic needs of 100 households. 3.08 The main species to be planted are Eucalyptus: Eucalyptus grandis at high elevations and where the annual rainfall exceeds 1,000 mm, and Euca- lyptus tereticornis or Eucalyptus camaldulensis at low elevations and where the annual rainfall is lower than 1,000 mm. All these species grow well and fast, and coppice readily over a period of 30 years or so. Small quantities of other species (e.g. Gmelina arborea) might also be produced, though their yield is much lower than that of Eucalyptus and they are much less suitable for use both as fuelwood and as poles. It is expected that farmers will come to realize that Eucalyptus are in every way preferable to Gmelina. Planting stock would be raised in black polythene tubes (para 5.03). Suitable termi- cides such as aldrin would be applied in the nursery 1/; three nursery appli- cations prior to planting out should ensure adequate protection against termites in the field, especially if the tubes are not removed and fresh soil is not allowed to come into contact with the seedlings. Farmers would have to follow the planting instructions carefully to ensure a good survival rate and reduce termite damage. Forestry extension services would be provided by the nurserymen, the Wood Energy Division and the agricultural extension services of MANR (paras 4.04-4.07). (b) Fuelwood and Pole Plantations 3.09 Fuelwood and pole plantations would be established by the District Councils and Town Councils, the Forestry Department and CCDC to cater for the needs of the commercial and industrial sector and some of the affluent urban dwellers. It is intended that these rural and urban councils (including CCDC) would get involved in the afforestation program and would be given sufficient incentives (para 5.20) to ensure their active participation in a program that is of national importance. Details of these plantations are as follows: 1/ Although aldrin has been banned by some countries as an insecticide used in large-scale spraying, in the U.S.A., the Environmental Protection Agency does not object to its use in nurseries prior to planting out.  - 15 - (i) District and Town Council plantations: Eight plantations (five rural in Blantyre, Kasungu, Karonga, Lilongwe, and Zomba; and three urban in Kasungu, Karonga, and Zomba) of 300 ha each would be established and operated by the respective District Councils and Town Councils with technical assistance being provided by the Forestry Department. These fuelwood and pole plantations would be on customary land allocated for this purpose and planting would be at the rate of 75 ha per annum from the second through the fifth year of Project implementation. Each unit would have a nursery producing 200,000 seedlings per annum of which half would be required for the planting program and the other half would be available for sale to the public (para 3.05). Each nursery would have a nurseryman responsible for all nursery operations and for the sale of surplus plants to the public. During the off-season, when no nursery operations are in progress, he will assist in extension duties. Casual labor would be employed during the active nursery season only. A site of about 0.5 ha should suffice for the nursery and buildings. The planting spacing will be 2.75 m x 2.75 m, representing an average initial stocking of 1,330 stems per hectare. One seedling and three coppice rotations each of eight years would be adopted. The plantations would be protected against fire throughout their life. Some protection against grazing may also be required in certain areas during the first year or two of establishment. The establishment of the plantations would be the responsibility of the District and Town Councils Forest Rangers. The annual planting area would not necessarily be a single block of 75 ha, but may be divided according to land availability and distributed all over the District in order to ensure that the produce would be as close to markets as possible. (ii) Forestry Department plantations: 3,000 ha of fuelwood and pole Eucalyptus plantations would be established in each of the three districts of Blantyre, Lilongwe, and Zomba; a total of 9,000 ha within selected forest reserves at an annual planting rate of 450 ha in the second year and 850 ha in each subsequent year. As far as possible the planting sites would be concentrated depending on land availability, for ease of management and protection and would be chosen close to the markets to minimize transport costs. The species, planting spacing, rotation age, silviculture and coppice management will be the same as for the district and town council plantations (para 3.12). The establishment of the plantations would be the respon- sibility of the Wood Energy Division of the Forestry Department, the executing agency of the Project.  - 16 - (iii) CCDC plantations: The Capital City Development Corpora- tion (CCDC) was established by Act of Parliament in 1968, to develop Lilongwe as the national capital of Malawi; the Government endowed the Corporation with freehold title to the designated areas of approximately 20,000 ha. The corporation is charged as agent of the Government to administer and supervise the orderly construction, develop- ment and maintenance of the capital city. Apart from environmental considerations which have been given a high priority in all aspects of the city planning leading to the establishment of a Landscape Department which currently produces over 200,000 trees, plants and shrubs each year and maintains all parks and open spaces, it was considered of equal importance that CCDC should utilize some of the land within the city boundaries for the establishment of fuelwood and pole plantations to meet the ever increasing demand from the commercial and industrial sectors as well as from the urban dwellers. 1,000 ha of forest plantations of which 90% is Gmelina have already been established. Under the Project, an additional area of 1,500 ha of fuelwood and pole plantations would be established within the designated capital city boundaries. The technical package for the new plantations would be the same as for the rural and urban district plantations and Forestry Department plantations. The existing small nursery of Alisuamde would be expanded to a capacity of 400,000 plants per annum which would be sufficient for an annual planting program of 300 ha. The plantations would be operated by the Forestry Section of the Landscape Department of CCDC. 3.10 In summary, the planting program over 5 years would include 2,400 ha in district and town council plantations; 9,000 ha in forest reserves and 1,500 ha in Lilongwe CCDC plantations. In addition, the seedlings produced by the nurseries for sale to the public are sufficient to plant about 3,800 ha per annum by farmers either individually or in groups on customary land, a total of about 15,000 ha over a four-year period beginning with the second year of Project implementation. No difficulty is foreseen in the allocation of customary land by the traditional authorities for farmer woodlots. Land for forest reserve plantations has been earmarked but not fully demarcated and a large part of the land for district and town council plantations has been identified. The approval of the traditional authorities appears to be the main single factor that influences the availability of land for Project plantations. Land for CCDC plantations in Lilongwe is available within the city boundaries and is held freehold. In some cases compensation may have to be paid. To ensure the availability of land for Project purposes, the written approval of the traditional authorities for the allocation of land required for project plantations would be a condition of disbursement for each individual plantation.  - 17 - (c) Wood Energy Division 3.11 A Wood Energy Division has been established within the Department of Forestry of the MANR to be directly responsible for Project implementa- tion and to direct, coordinate and control all matters relating to wood energy. At headquarters it would consist of three senior forestry officers, a planning officer, a financial controller, accounting personnel, a senior forester responsible for extension work and supporting administrative and clerical staff. Responsibility for all project work initially will devolve through the three Regional Forestry Officers (RFO) in each of the three administrative regions: North, Central and South who would each be assisted by a professional officer especially responsible for wood energy (Assistant Regional Forestry Officer, ARFO) and supporting staff. Further devolution of responsibility would be to a Senior Forester at each Agricultural Development Division headquarters, who will coordinate all Project and NRDP forestry activities and Forestry Department District staff. 3.12 A wood energy extension service of three units, one for each Regional Forestry Office would be set up with responsibility for extension work through publicity (e.g. films) and advisory activities. These facilities would be operated in conjunction with the existing agriculture film production and extension unit of MANR. (d) Charcoal Trials 3.13 Charcoal is not a traditional fuel of any importance in Malawi. Until recently, fuelwood has been readily accessible all over the country within reasonable hauling distances, and this has not encouraged the develop- ment of a charcoal industry. However, some charcoal is produced in Chikwawa and Dedza Districts and in a few places in the Northern Region, though on a small scale and using traditional earthen kilns. With the opening up of Forest Reserves for forestry development and large-scale conversion of cus- tomary land to agriculture, especially in tobacco-growing areas, large quan- tities of indigenous fuelwood are becoming available, often at great distances from markets. Charcoal burning would be a rational way of dealing with this new situation, as charcoal can be economically transported at much greater distances than fuelwood. The traditional method of charcoal burning is wasteful and inefficient, and more modern methods would be investigated. A provision of MK 100,000 is made for charcoal trials to be carried out by the Wood Energy Division of the Forestry Department into methods of production, investigation into marketing, promotion, and consumer acceptance of charcoal. Assurances were obtained at negotiations that detailed plans for the study would be prepared by the Forestry Department by December 31, 1980 and agreed with IDA prior to initiation of the study. (e) Energy Unit 3.14 The magnitude of the future energy requirements in Malawi is such that it can be seriously questioned whether wood can and should provide the only source of energy. Therefore, an Energy Unit would be established within  - 18 - the Planning Division of MANR to carry out a variety of studies required for the planning of possible future wood energy projects, investigating the possibilities for reducing wood consumption through improving utilization efficiency and developing other renewable energy resources. The unit would work with other ministries and institutions in developing designs and fabri- cation techniques for cooking stoves, large-scale wood combustion devices such as tobacco curing barns, biogas units and solar heaters suitable for widespread use in Malawi. A great deal of research has been done on these technologies elsewhere, and experimental stoves, biogas units, and solar water heaters have been built at one or another of the three campuses of the University of Malawi. 3.15 The technological work to be done by the Unit is expected to com- plement and extend these efforts by concentrating on putting into practice what is known theoretically and has been demonstrated within University confines. The technicians to be recruited for the Unit should be either University diplomates or persons who have completed apprenticeships and have practical experience with materials and fabrication techniques involved in the technologies with which they will be working. It is important that these technicians should be able to work effectively both with the University faculty, consultants, and Unit Management in developing and testing suitable designs and with extension agents and the public in demonstrating the cons- truction and use of the units, monitoring the acceptance and performance of the units in the setting for which they have been designed, and in determin- ing reasons for lack of acceptance or poor technical performance. It is anticipated that several design-test-demonstration-failure-diagnosis-redesign cycles will be needed before successful stove or biogas designs are developed. Detailed plans for the Energy Studies would be prepared by MANR and would be submitted to IDA by December 31, 1980 for approval. Assurances to this effect were obtained at negotiations. 3.16 A survey team has been included to give the Unit the capacity to collect and process data on fuelwood collection and use and other subjects that are required for planning future wood energy projects and to assist in the development of appropriate technologies. The main task of the survey team would be to update and refine the description of the geographic pattern of wood scarcity and abundance. The team would also be used to collect data on: (a) traditional tree harvesting systems and their effects on forest yields; (b) the relationship between deforestation and agricultural productivity; and (c) cooking practices, use of crop residues, availability and use of animal wastes, availability of scrap metal and artisans of various types and other topics on which limited amounts of field data collection would be useful in setting goals for the technological adaptation effort. 3.17 Initial emphasis would be given to those districts where the wood problem is most acute, such as Lilongwe and Blantyre. It is intended to carry out an initial pilot survey with an Agro-Economic Survey team in Lilongwe District during 1979/80. The project would then use the experience of the pilot to mount further surveys. Close links would also be maintained with the National Sample Survey of Agriculture which is incorporating wood utilization questions in its survey.  - 19 - (f) NRDP III Pre-Investment Phase 3.18 Until recently, Malawi's approach to rural development has centered on intensive, integrated projects (para 1.07). The concept of a National Rural Development Program emerged from discussions within Goverri.aent and with IDA missions on the impact of the major agricultural projects in Malawi and the possibility of extending these projects to other areas of the country (para 1.08). Bank Group operations in Malawi will continue to emphasize rural development through further investments under NRDP of which Phase III is proposed to include Karonga/Chitipa third phase and a new rural development program in Dedza Hills. 3.19 The planning and implementation of rural development projects are often constrained by a lack of continuity between the two stages. Difficul- ties in selecting sites for buildings, acquiring sites as public land and then completing construction, difficulties in recruiting staff and lengthy proce- dures in tendering for equipment means that implementation may run a long way behind schedule. The main objectives of the NRDP III pre-investment phase are first to improve the quality of input data with a view towards improved quality of planning and secondly to improve the logistics of project imple- mentation by minimizing delays in the starting period. Improvements have already been initiated under NRDP I with the establishment of uniform report- ing procedures, standardized accounting, centralized policy control, a central evaluation unit and a system of regular review meetings to aid project monitoring, evaluation and modification. Under the pre-investment phase it is proposed to ensure timely planning and implementation by: (a) appointing key project staff one year before project implementation so that they can contribute to the detailed planning; (b) collecting additional base line data in the immediate year before project implementation; and (c) providing in-service training of planning and management staff in techniques of practical performance oriented planning, including the preparation of annual work plans. For the pre-investment phase to be successful, it would be important that key project staff are in post and operational at an early stage. Therefore it would be a condition of disbursement for expenditures incurred in each respective DA that the Project Officer is appointed.  - 20'- D. Project Costs 3.20 Total Project costs are estimated at MK 13.6 million (US$16.3 million) of which MK 4.0 million (US$4.9 million) or about 30% represent foreign exchange costs. Details of Project costs are presented in Tables I and 2 and are summarized below: Foreign as Component Local Foreign Total Local Foreign Total % of total -------MK'000-------- -------US$ 000------- Nurseries 714 158 871 857 190 1,047 18 Plantations: - Councils 473 145 618 568 173 741 23 - Forestry Department 2,702 1,200 3,902 3,241 1,440 4,684 31 - CCDC 514 150 664 620 180 800 23 Wood Energy Division 1,469 730 2,199 1,762 876 2,638 33 Charcoal Trials 58 42 100 70 50 120 42 Energy Studies 321 496 817 385 595 980 61 Pre-Investment NRDP III 200 116 316 240 139 379 37 Total base costs 6,451 3,037 9,488 7,741 3,644 11,385 32 Physical contingencies 645 304 949 774 365 1,139 32 Price contingencies 2,427 691 3,118 2,912 829 3,741 22 Total contingencies 3,072 995 4,067 3,686 1,194 4,880 24 Total Project Costs 9,523 4,032 13,555 11,427 4,838 16,265 30 3.21 Project costs were estimated at prices as of December 1979. A physical contingency of 10% was included for all Project costs. Price con- tingencies were calculated on a cumulative basis: for local costs the rates were 12% for 1980, 11% for 1981, and 10% thereafter while for foreign exchange costs the rates were 9% for 1980, 8% for 1981 and 7% thereafter. Taxes in- cluded in Project costs are negligible since virtually all items would be exempt from import duties. E. Financing 3.22 Financing of Project costs would be as follows:  - 21 - MK (million) US$ (million) _ Government 2.1 2.5 15 IDA 11.5 13.8 85 Total Project Costs 13.6 16.3 100 3.23 The proposed IDA credit of US$13.8 million would be to the Govern- ment of lIalawi on standard IDA terms. The credit would finance about 85% of total Project costs, including 100% of foreign exchange costs (US$4.8 million) and 78% of local costs (US$9.0 million). Government would meet the remaining MK 2.1 million (US$2.5 million) or 15% of Project costs. Funds for the District Councils and Town Councils plantations would be passed by Government to the respective councils as additional budgetary allocations. Funds for the CCDC plantation would be onlent by Government to CCDC at an interest rate of not less than 10% repayable over 30 years, including a grace period of nine years. The execution of a subsidiary loan agreement acceptable to IDA between Government and CCDC would be a condition of disbursement for the CCDC planta- tions. The remaining funds would be channelled by Government to the Ministry of Agriculture as a standard budgetary allocation. Assurances were obtained at negotiations that the above terms and conditions would be followed. F. Procurement 3.24 Procurement orders for vehicles, machinery and equipment (US$1.0 million) in excess of US$100,000 would be subject to international competitive bidding procedures in accordance with IDA guidelines; orders would be bulked whenever possible. Orders for less than US$100,000 would be in accordance with local procedures which are acceptable to IDA. Housing and other buildings (US$4.0 million) to be constructed in accordance with Government standards acceptable to IDA which, due to their small size and dispersed locations, would not attract international competitive bidding, would be constructed either after local competitive bidding or by force account of the Ministry of Works or MANR as no likely bulking would exceed US$500,000. G. Disbursements 3.25 Funds from the Credit Account would be disbursed on the following basis: (a) 100% of foreign or 90% of local expenditures for house construction except expenditures by CCDC. (b) 100% of foreign or 90% of local expenditures for vehicles, equipment and furniture except expenditures by CCDC.  - 22 - (c) 100% of foreign or 90% of local expenditures for consultants' services and studies except expenditures by CCDC. (d) 100% of foreign or 90% of local expenditures for incremental salaries except expenditures by CCDC. (e) 90% of total expenditures for operating costs including agri- cultural inputs and labor except expenditures by CCDC. (f) 100% of CCDC expenditures. 3.26 The disbursement percentages for local expenditure have been cal- culated so as to allow for pressing budgetary constraints and accordingly reduce Government contribution during the first two years and increase its contribution in the last three years of Project implementation; this would not affect total IDA financing as given in para 3.22. As of July 1, 1982, or when an aggregate amount of US$6.9 million has been disbursed under the credit, whichever occurs earlier, all local expenditures provided for under (c), (d) and (e) above would be disbursed at a rate not to exceed 75%. Disbursements against (b) and (c) would be fully documented as would expendi- tures under (a) for construction under contracts. Disbursements for civil works under contract, equipment, vehicles and furniture under (f) would also be fully documented. Disbursements for construction by force account under (a) and for local expenditures under (d) and (e) would be made against statements of expenditure certified by the DFO in charge of the Wood Energy Division in the Forestry Department. Disbursements for local expenditure for force account construction, incremental salaries, operating costs and planta- tion development under (f) would be made against statements of expenditure certified by the General Manager of CCDC. Full documentation to support statements of expenditure would be retained by the Wood Energy Division and CCDC respectively and made available to IDA for inspection in the course of Project supervision.  - 23 - Estimated Schedule of Disbursements Quarterly Cumulative IDA Fiscal Year Quarter Ending Disbursements Disbursements (US$) (US$) 1979/80 March 31, 1980 June 30, 1980 1980/81 September 1980 400 400 December 1980 400 800 March 1981 800 1,600 June 1981 800 2,400 1981/82 September 1981 800 3,200 December 1981 800 4,000 March 1982 900 4,900 June 1982 900 5,800 1982/83 September 1982 800 6,600 December 1982 800 7,400 March 1983 800 8,200 June 1983 800 9,000 1983/84 September 1983 600 9,600 December 1983 600 10,200 March 1984 600 10,800 June 1984 600 11,400 1984/85 September 1984 500 11,900 December 1984 500 12,400 March 1985 400 12,800 June 1985 400 13,200 1985/86 September 1985 300 13,500 December 1985 300 13,800 H. Accounts, Audit, and Reports 3.27 Project accounts would generally be maintained in MANR with separate accounts for each component. In previous projects, accounts have been audited by the Auditor General and as this arrangement has proved satisfactory to IDA, this procedure would be followed for the proposed project. CCDC's accounts are currently audited by independent public accountants. Assurances were obtained at negotiations that all Project accounts including statements of expenditures (para 3.26) would be audited by independent auditors acceptable to IDA (including the Auditor General) and that the audited accounts together with the auditors report would be submitted to IDA not later than six months following the end of the fiscal year. Assurances were also obtained that  - 24 - within six months following completion of the Project or not later than six months after the closing date the Forestry Department and CCDC would prepare a completion report on the execution of the project evaluating its successes and problems. I. Environmental Impact 3.28 In the early period of forest reservation, a primary concern was the protection of major catchment areas and the maintenance of a soil cover on vulnerable sites. Most reserves maintain this function, though instances occur where encroachment with natural forest destruction has taken place. Due to the increasing population pressure and the rapid expansion of agriculture, overcutting and the elimination of natural cover has become common, leading to soil exposure and increasing run-off. The main impact of the proposed Project would be to assist Government's efforts to control this process of degradation by providing additional sources of fuelwood and enforcing long-term policies and practices to halt or reverse these trends. 3.29 Another area of major concern is the risk involved in the use of toxic chemicals as a protection against termites. The Project limits the use of such chemicals to treatment of the planting stock which would be raised in nurseries in black polythene tubes (para 5.03). Three treatments with a suit- able termicide such as aldrin would be carried out in the nursery prior to planting out. Although aldrin has been banned by some countries as an insec- ticide used in large-scale spraying, in the USA, the Environmental Protection Agency does not object to its use in nurseries prior to planting out. The residual life of such an insecticide at 1% strength is about five years which makes it efficient against termites. Aldrin would be applied by the nursery- men who would receive special instructions in its proper handling and use. Moreover, confining the treatment to the seedlings in the polythene tubes would reduce exposure to health risks to a minimum.  - 25 - IV. ORGANIZATION AND MANAGEMENT A. General Aspects 4.01 The Forestry Department of the Ministry of Agriculture would have principal responsibility for the implementation of the Project. A Wood Energy Division established within the Department would have direct responsibility for this and other similar projects dealing with wood energy (see chart). This division would be responsible for the development and operation of a nationwide network of nurseries and the Forestry Department fuelwood and pole plantations. It would also recruit and second technical staff to the District Councils and Town Councils to assist them with the development and operations of their plantations. The Head of the Wood Energy Division, who would also be Project Manager, has already been selected from among the senior staff of the Forestry Department and is well qualified for the task. He would be assisted in Project implementation within the Wood Energy Division by seven professional officers, 13 technical officers, and 38 support staff. The nurseries and the plantations would be operated by the Division in close cooperation with the regional forestry offices employing 235 persons (excluding labor) of whom 114 are nurserymen. Every effort has been made to keep Project design within the limitations of the output of newly trained Malawian and existing expatriate staff. No major difficulty is foreseen in the availability of adequately trained staff; the Malawi College of Forestry at Dedza is increasing its intake of students at both Forester and Forest Ranger levels by one third which can be accommodated without any physical expansion of the available facilities and would also step up its special training courses for nurserymen (in the off-season) in order to meet the needs of the Project. However, there is an acute shortage of adequately trained accounting staff in the country. Therefore, provision was made under the Project for the recruitment of an internationally qualified financial controller. Assurances were obtained from Government that the staff required for the Wood Energy Division would be recruited within the first year of Project implementation and that a financial controller with qualifications and experience acceptable to the Association would be appointed not later than June 30, 1980. B. Management of Project Components 4.02 Project management at headquarters would be the responsibility of the Division Forest Officer (DFO) in charge of the newly established Wood Energy Division who would be responsible to the Chief Conservator of Forests for the functioning of the division and all its fuelwood and pole plantation activities, nurseries and extension services. He would be assisted at head- quarters by two Assistant Divisional Forest Officers (ADFO), a Planning Officer, a Financial Controller, and Accountant, a Senior Forester (Extension) and other support and clerical staff. The headquarters staff would work through the existing structure of RFOs who are responsible for all forestry activities within their regions. In each of the three regions an ARFO (Wood  - 26 - Energy) would be responsible to the ADFO (Wood Energy) for all activities concerning fuelwood and pole plantations, nurseries and extension services. He would be assisted by a senior forest ranger (extension) who would be responsible for the operation of the advisory and publicity activities. 4.03 Each plantation would be managed as a separate unit. Each of the three forestry department plantations would be headed by a senior forester (STO grade) assisted by a forester (TO grade), a senior forest ranger (STA grade), four forest rangers (TA grade) and the necessary support staff of clerical officers, storekeepers, capitaos, and nurserymen. In each of the district and town council plantations, two forest rangers (TA grade) and a nurseryman to operate the nursery and supervise the annual planting program of 75 ha would be recruited and seconded by the Forestry Department and would operate under the supervision of the respective councils. The CCDC plantations would be operated by the Forestry Section of the Landscape Department of CCDC under the overall supervision of the Chief Horticulturist as Head of the Landscape Department. The Forestry Section of the Department headed by a senior supervisor is responsible for establishment and management of all CCDC plantations of which 1,000 ha have already been established. The nurseries would be the responsibility of the nurserymen assigned to each; their activi- ties would be coordinated by the regional offices who would provide extension service in the nursery off-season. C. Training and Extension Service 4.04 The introduction of the relatively new technical package of the Project in Malawi - particularly the raising and planting of Eucalyptus trees, especially Eucalyptus tereticornis and Eucalyptus camaldulensis, the use of termicide and the planting of woodlots by farmers - necessitates planning and training at all levels. The Forestry Research Institute and the College of Forestry would play a major role in this education and re- education process. New nursery and plantation techniques are required for the success of the Project and of the whole program, and although these techniques are simple to adopt they would require a change. Senior staff would have to be reoriented before they themselves can adequately supervise, educate and train the staff under them. Similarly, the technical staff would need special in-service training, and all the Project nurserymen would be particularly trained at special intensive courses. The education of the farmers and technical assistance to them would be provided by the extension services of the Division, the Department, and the Ministry. 4.05 The bulk of the extension work would be carried out by the nursery- men, who would devote about half of their time (mostly during the nursery off-season) to advise farmers on planting and tending techniques, particularly concerning Eucalyptus. Special attention would be given to choice of species, soil preparation, planting distance, planting season, protection against termites, browsing animals and fire, and weeding. The management of woodlots would be left to the farmers' discretion - cutting according to their needs - but advice would be given to avoid any gross mismanagement.  - 27 - 4.06 In view of the increasing cost of producing fuelwood for domestic consumption, the importance of extension work to convince the farmers to grow their own woodlots either individually or in groups assumes added signi- ficance. Assistance from agricultural extension staff and community develop- ment officers would be of great value in reaching the smallholdLr farming population on a much wider scale. To avoid possible conflict and confusion among the rural public and field level workers, the work program for all forestry extension work as it affects village people both within and outside areas covered by particular rural development projects would be coordinated with all other extension programs within each ADD. Responsibility for repre- senting the Forestry Department's extension interest in each ADD would rest on a Senior Forester (STO grade) assigned to each ADD who would be responsible to the RFO through the ARFO (Wood Energy) for all technical aspects and for administrative control of Forestry Department staff in the ADD. The Senior Forester would be responsible to the Divisional Development Officer for the execution of a coordinated forestry extension program as agreed for the ADD and would report to both his supervisors. 4.07 Although the agricultural extension staff would not normally assist in the enforcement of forestry legislation, the Agricultural Development Department is keen that its staff should assist and facilitate in every way possible the realization by the people of Malawi of the importance of conser- ving existing forest resources by wise utilization practices, to promote the realization that the rural population will be unable to rely on indigenous resources for fuelwood and poles indefinitely and that smallholders should begin now to provide for their future needs by planting their own trees. Senior foresters are already in place in two ADD's and are funded by the Agricultural Development Department under other rural development projects; the remaining six are provided for under this Project. The agricultural and forestry staff at all levels would maintain liaison on the whole range of their joint and several responsibilities so as to ensure a full understanding of each department's policy, objectives and priorities.  - 28 - V. PRODUCTION, MARKETS AND PRICES A. Production Technical Aspects 5.01 Species: For all plantations suitable Eucalyptus species would be encouraged, though the planting of other trees (e.g. Gmelina arborea) would not be excluded, particularly on individual woodlots where there might be a strong demand for such trees. Eucalyptus grandis (local seed source) should only be planted at high elevations and where the annual rainfall exceeds 1,000 mm; elsewhere, suitable strains of Eucalyptus tereticornis and Eucalyptus camaldulensis (Australian seed sources) would mostly be planted. All these species coppice freely, and would be grown on a rotation of 8 years, with one seedling and 3 coppice rotations. After 32 years or so, the plantation should be replanted afresh. However, it is expected that most of the farmer woodlots would not be managed on a systematic basis, but instead may be cut selectively according to the needs of the owner, roughly on a 5-yearly coppice cycle, cuttings being carried out more or less constantly all over the woodlot. 5.02 Nurseries: A network of 88 nurseries would be established nation- wide for the production of seedlings for sale to the public. In addition, eight nurseries would be attached to the district and town council plantations for production of seedlings, both for plantations and a similar number for sale to the public. It is estimated that each of these nurseries would produce an average of 100,000 seedlings annually for sale at a cost of about MK 0.026 per seedling. This also includes cost of bulk transport of seedlings to the villages on appointed days prior to and during the planting season in order to facilitate farmers' access to the source of supply. 5.03 Planting: All the planting stock would be raised in nurseries, in black polythene tubes 125 mm x 75 mm flat, 150 gauge. An effort would be made to replicate other successful trials elsewhere of direct sowing into tubes in preference to transplanting from seed beds. Sowing normally takes place in September - October. The ideal size of seedlings for field planting is 18cm-24cm in height. Root-pruning would be carried out regularly to prevent rooting into the nursery floor. Three treatments with a termicide (e.g. aldrin) would be carried out at weekly intervals prior to planting out, in order to ensure saturation of the soil in the tubes. Land clearing would be carried out manually in all plantations, and would cost on average 100 manday/ha on Forestry Department plantations and on forest reserves; and 25 manday/ha on district plantations because of basic differences in vegetation. The cost of site preparation would be more than offset by the sale of produce. The exact planting spots would be pegged ("marking"), and pits 30 cm x 30 cm would be dug; the pits would be refilled just before planting. Planting should take place as early as possible in the rainy season which normally extends from December to March, provided the soil is sufficiently moist, and should be completed by February at the latest. "Beating up" (the replacement of failures) would only be carried out if the failure rate exceeds 10% or if deaths occur in concentrated groups, and should take place, as far as possible during the current planting season.  - 29 - 5.04 Weeding: The following weeding schedule would be adopted on planta- tion: In the first year, 100% manual weeding after planting (3 operations at 43 md/ha per operation). In the second year, 100% manual weeding (2 operations at 43 md/ha per operation) plus 100% slashing (one operation at 10 md/ha). In the third year, 100% slashing (2 operations at 10 md/ha per operation) plus spot weeding (one operation at 6 md/ha). 5.05 Fertilizers: NPK and borate would be applied in all Eucalyptus plantations at the rate of 50 g each of NPK and borate per tree, at a total cost of MK 40/ha for fertilizers. The application of fertilizers would take place during a dry spell after planting and is expected to cost 20 md/ha. 5.06 Rates of growth: Until more accurate estimates are available, it is assumed that MAI of all the Eucalyptus species planted b3 the Forestry Department and the District and Town Councils would be 15 m 3ha during the first two rotations (seedling and first coppice crops), 12 m /ha during the second coppice rotation and 10 m /ha during the third coppice rotation. Thereafter, the area should be replanted, i.e. after 32 years. The woodlots would be managed by the individual farmers under a coppice system that would suit their own convenience and therefore it would be unlikely that these would be cut in a systematic way on a regular rotation. In practice, fuelwood would be cut selectively but roughly on a 5-year cycle. This means that after an initial pe5iod of approximately five years, the farmer would be able to obtain about 10 m /ha p.a., over 15 years and 8 m /ha p.a., for the following 15 years after which time the woodlot should be replanted. Output 5.07 Eucalyptus would be planted in all plantations belonging to the Forestry Department, District and Town Councils and Capital City Development Corporation as well as in farmers' woodlots. Small quantities of Gmelina arborea may also be produced on some farmers' woodlots. The total area planted during the Project period would include 12,900 ha of plantations and 15,000 ha of woodlots. Based on a plantation life of 32 years, including one seedling crop and three rotations of 8 years each and the rates of growth mentioned above total production from all project plantations and farmers' woodlots would be as summarized below: 3 ---------------------------------- in '000 m