Tanzania - Sao Hill Forestry Project - Phase Two

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3634-TA TANZANIA SAO HILL FORESTRY PROJECT - PHASE II March 18, 1982 Eastern Africa Projects Department Southern Agriculture Division This document has a restricted distribution and may be used by recipients only in the performances their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Tanzania Shilling (Tsh) US$ 1.00 = Tsh. 8.25 Tsh 1.00 = US$ 0.12 WEIGHTS AND MEASURES 1 meter (m) 3 3.3 feet 1 cubic meter (m ) 35.3 cubic feet I hectare (ha) = 2.47 acres 1 Kilometer (Km) 2 = 0.62 miles 1 square Kilometer (Km ) = 0.39 square miles 1 Kilogram (Kg) = 2.2 lb 1 Metric ton (ton) = 1000 Kg = 2,204 lb ABBREVIATIONS AFO Assistant Forest Officer APMFP = Assistant Project Manager(Finance and Planning) APMO Assistant Project Manager (Operations) c.i.f. Cost, insurance, freight FA = Forest Assistant FAO/CP = Food and Agriculture Organization/Cooperative Program FAO/TCP Food and Agriculture Organization/Technical Cooperation Program FO = Forest Officer GOT = Government of Tanzania GDP Gross Domestic Product 4 I = Mean Annual Increment m (r) = cubic meter roundwood /  FOR OFFICIAL USE ONLY TABLE OF CONTENTS Page No. I. BACKGROUND ............................................... 1 A. Project Background ......... . . ...................... . ................ 1 B. The Agricultural Sector .................................. 1 C. Previous Bank Group Assistance ........................... 3 II. THE FORESTRY SUB-SECTOR .... .............. ..................... 3 A. Resources ......... ................................... 3 B. Institutions ........................... ................. 4 C. Production and Marketing ............ .. ................. 9 D. Forestry Policy ........ . ..... ......................... ....... . 6 E. Bank Group Assistance . ............................ ...... 8 F. Review of Sao Hill Forestry Project I ... ................. 8 III. THE PROJECT . . . ..8 II.THPRJC ................................................... A. Project Rationale and Design ..... ........................ 10 B. The Project Area ..... ... ....................................... 11 C. General Description ...................................... 12 D. Detailed Features ........................................ 13 E. Project Costs ............................................. 19 -F. Financing ......................... 20 IV. PROJECT IMPLENENTATION ...21 A. Organization and Management . 21 B. Procurement ..22 C. Disbursements .......... 23 D. Accounts, Audit and Reporting .24 E. Environmental Impact ..24 V. PRODUCTION, MARKETS AND PRICES ...... ..25 A. Production ..25 B. Markets ... .27 C. Prices ....29 VI BENEFITS AND JUSTIFICATION . . .31 A. General ......... .......... 31 B. Financial Returns..... - - ..31 C. Economic Returns - ... .......32 VII. ASSURANCES TO BE OBTAINED AND RECONMENDATIONS .....35 I This document has a restricted distribution and may be used by recipients only in the performance ofi their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Continued) ANNEXES: Supporting Tables and Charts: ANNEX 1: Table T-l.l : Summary of Project Costs Table T-l.2 : Development of Existing Plantations Table T-1.3 : Development of New Plantations Table T-1.4 : Cost of Replanting Clearfelled Pine Areas Table T-l.5 : Nursery Operating Costs Table T.1.6 : Fire Protection Costs Table T-1.7 : Plantation Roads and Tracks -Construction and Maintenance Costs Table T-l.8 : Capital Cost of Buildings and Structures. Table T-l.9 : Vehicles, Tractors, Machinery and Equipment - Capital Costs Table T-l.lO: Project Administration - Local Staff Salaries and Wages Table T-l.ll: Headquarters General Services Costs Table T-1.12: Project Administration - Vehicle Operating Costs Table T-l.13: Technical Assistance Table T-l.14: Staff Study Tours Table T-l.15: Retroactive Financing ANNEX 2: Table T-2.1 : Pine per Hectare Models:Financial and Economic Table T-2.2 : Eucalyptus per Hectare Models: Financial and Economic Table T-2.3:: Phase II Afforestation Program: Financial and Economic Rates of Return Table T-2.4 : Overall Afforestation Program: Financial Rate of Return Table T-2.5: Overall Afforestation Program: Economic Rate of Return Table T-2.6 : Government Project Cash Flows Table T-2.7(a): Price Structure of Standing Logs Table T-2.7(b): Price Structure of Standing Pulpwood Table T-2.8 : Import Parity Price of Wood Table T-2.9 : Export Parity Price of Sawlogs ANNEX 3: Table T-3.1 : Estimated Schedule of Disbursements Table T-3.2 : Physical Work Schedule (Key Indicators) ANNEX 4: Table T-4.1 : Average Recorded and Estimated Production and Apparent Consumption of Sawlogs in Tanzania. Table T-4.2 : National Supply and Demand for Sawlogs, 1980-2010. Table T-4.3 : Production and Price Trends for Sawn Timber in Tanzania, 1977-81. Table T-4.4 : General Pattern of Sawnwood Consumption in Tanzania. ANNEX 5: Table T-5.1 : Assessment of Labor Availability. Charts and Maps: Chart C-1: Project Organization Chart C-2: Project Implementation Schedule Map No. IBRD 15896 Selected Documents Available in Project File Project Preparation Report Working Papers  I. BACKGROUND A. Project Background 1.01 In March 1981, the Government of Tanzania (GOT) requested the International Development Association (IDA) to consider financing the second phase of a long-term industrial afforestation program to meet the future domestic demand for sawntimber, paper and wood products. A first phase project, costing US$8.1 million, was financed with a Bank loan of US$ 7.0 million (Loan 1307-TA) in 1976 and implemented in SAO Hill which is one of the most promising industrial forest development areas in Tanzania. The implementation of this first phase project has generally been successful and about 18,000 ha of new plantations have been established, 500 ha have been replanted and 11,30C ha of old plantations have been maintained. The first phase project will be completed in December, 1981. 1.02 Assistance to the GOT in the preparation of the second phase was provided by the Food and Agricultural Organization/Cooperative Program (FAO/CP) in October/November 1980. IDA provided guidance during preparation. This report is based on the findings of an IDA appraisal mission comprising Messrs A. Sidhu, B.K. Zegge, S. Sengamalay(IDA)and M. Grut (FAO/CP), which visited Tanzania in April/May 1981 B. The Agricultural Sector 1.03 Agriculture dominates the Tanzanian economy, accounting for 50% of GDP and more than 80% of export earnings. About 90% of Tanzania's popula- tion of 17 million lives in rural areas, with approximately 2.25 million farm families grouped together in 8,000 villages. Smallholder farmers contribute about 75% of Tanzania's agricultural export earnings and more than 80% of the value of marketed cereal production. Their main food crops are maize, cassava and millet. Cash crops produced by smallholders include coffee, tea, cashews, pyrethrum, cloves, cotton and tobacco. Large-scale farming is confined to a relatively small number of estates producing sisal, tea, coffee, sugar, wheat and rice. Livestock continues to play a relatively minor role in the cash economy as much of it is reared for subsistence purposes. With a significant proportion of the cultivable area still unutilized and a suitable range of agro-climatic conditions for producing a variety of crops, the long-term agricultural potential is considered to be good. Tanzania's agricultural export structure is somewhat more diversified than that of most other African countries and seven commodities (coffee, cotton, cloves,sisal, cashew nuts, tea and tobacco) account for more than two-thirds of total export earnings. Within agriculture, the forestry sub-sector plays an important role in providing fuelwood, not only for domestic consumption but also for the production of tobacco and tea. To the extent that these forestry resources are being rapidly depleted in tobacco and tea growing areas, their inadequate supply is acting as a constraint on the sustenance and expansion of existing levels of production of these crops.  -2- 1.04 The long-term performance of Tanzania's agricultural sector has been disappointing and the trend growth rate has hardly kept pace with population growth. According to official statistics, agricultural value added in constant prices grew at 4.9% per annum during 1970-1979, with sub- sistence agriculture growing by 7.1% per annum and monetary agriculture by only 2.1% per annum. 1/ The total export volume of the seven major crops (para 1.03) in 1980 was 28% lower than in 1966 and 34% lower than in 1973. As a result of better relative producer prices, marketed food production has fared better than export crop production during the last half of the 1970s, but is still below the highest levels achieved in the major foodgrains earlier in the 1970s. 1.05 There are several reasons for this disappointing level of overall productivity in agriculture. The major ones are: inadequate producer price incentives, insufficient allocation of foreign exchange to meet basic import needs of the agricultural sector including that of the supporting infrastruc-- ture in processing and transport, shortages of basic inputs and spares, the generally inefficient operations of public crop authorities, inadequate agricultural extension and research services, the villagization program in the mid-1970s which moved many farmers away from their established farms and the droughts of 1973/74 and 1974/75. 1.06 Other factors which inhibit improved performance of the agricultural sector in the country include socio-political constraints, food security objectives and the complexity of the decision-making process. The socio- political constraints are largely a product of frequent and, sometimes, experimental institutional changes such as villagization, decentralization of Government and the establishment of numerous parastatals. These have had destabilizing and, in some cases, disruptive effects on basic agricul- tural services and hence on production, at least in the short-term. On the other hand, their anticipated desirable long-term effects (e.g. improved extension through higher literacy and concentration of rural population) have yet to take hold. Similarly a firm commitment to long-term socio- political goals, such as equitable growth in rural incomes, continues to prevent the adoption of otherwise attractive solutions to current production and distribution problems in the agricultural sector and other sectors of the economy. Food security objectives, vigorously pursued by the GOT since the disastrous drought of 1974/75, have made it almost impossible for the Govern- ment to shift the balance of relative producer prices away from foodgrains towards export crops. This limits Tanzania's capacity to maximize its foreign exchange earnings. Prompt Government response to domestic factors inhibiting agricultural performance has been often constrained by the complex- ity of the decision-making process within Government. This is further complicated by the lack of a coherent long-term strategy for agriculture and the general shortage of qualified and experienced staff in key ministries and agencies. 1/ The Bank notes that the basis for the subsistence agriculture estimates is unrealiable and the trend may be somewhat exaggerated.  1.07 In the agricultural sector, a development program needs to be formulated which would (a) improve agricultural productivity at the farm level, (b) reverse the decline in the production of both food and export crops, and (c) improve the efficiency of agricultural parastatals and agro- processing industries. The issues involved in the formulation and imple- mentation of such a program are currently being partly addressed by the Export Rehabilitation Program (Credit No. 1133-TA) approved in April, 1981 and by the Government's Program for Economic Survival launched in July, 1981. 1.08 The decline in agricultural production, transport bottlenecks and external shocks (the break-up of the East African Community in 1977, the war with Uganda in 1978/79, oil price increases and world-wide stagflation during 1970s and a general decline in prices of agricultural commodities) have all contributed to a severe economic and financial crisis in the country which is characterized by an alarming deterioration in the balance of payments, budgetary deficits (shortages of recurrent expenditures), shortages of essential commodities including spares and petroleum products and gross underutilization of capital and labor stocks. C. Previous Bank Group Assistance 1.09 Since its joining the Bank Group in 1963, Tanzania has received 49 IDA credits and 19 Bank loans amounting to US$976.3 million. Tanzania has also been a beneficiary of 10 loans totalling US$244.8 million which were extended for the development of the common services and the East African Development Bank operated regionally by Tanzania, Kenya and Uganda through the East African Community. In support of Tanzania's overall development strategy, Bank Group lending operations have assisted a wide range of activities. Agriculture and related activities have received 30% of the Bank Group's direct lending to Tanzania. The lending program in agriculture has featured three main types of projects. A series of regional rural development projects geared to agricultural production and the development of regional infrastructure. A second group consists of projects that are designed to improve general support services for the agricultural sector (e.g. credit, storage and marketing etc). A third group of projects is centered on specific crops or subsectors (e.g. tea, pyrethrum, dairy, fisheries and forestry). II. THE FORESTRY SUB-SECTOR A. Resources 2.01 About 45% of Tanzania's land area (about 40 million hectares) is generally classified as forest land. Nearly 33% of the forest land is protected forest reserves, while the other 67% is natural woodlands on public land which are nearly all unprotected and are disappearing fast in areas with  high population pressure. Except for 60,000 ha of softwood plantations and about 900,000 ha of closed indigenous forests, most of the forests are "miombo" woodland, dominated by the Brachystegia/ Isoberlinia association. These are made up of slow growing and scattered trees which yield limited quantities of commercial timber. Due to low stocking of merchantable timber per hectare and difficult accessibility only 22% of the 900,000 ha of closed indigenous forests is estimated to be commercially exploitable. About 50% of the 60,000 ha are under softwood forest reserve plantations, of which 50% is in the Sao Hill area and the rest is scattered throughout the country. About 12% of the area under indigenous forest reserves is gazetted as protected catchment forests. The indigenous forests supply most of the fuelwood and timber for the population and these are obtained free of charge for domestic use from forests on public land or by licence from forest reserves. B. Institutions 2.02 The Forest Division, Tanzania Wood Industries Corporation (TWICO), and the Southern Paper Mills Company (SPMC), are the three main institutions directly involved in forestry and forestry products. Forest Division 2.03 The Forest Division within the Ministry of Natural Resources and Tourism has overall responsibility for forest development, protection and conservation. All forest reserve plantations are owned by the State through the Forest Division and the implementation of all national forest projects, including the Sao Hill Forestry Project, is the responsibility of the Division. Management of indigenous forest resources on non-gazetted public land is the responsibility of Regional Development Directorates (under the Prime Minister's Office) through the Regional Natural Resources Officer, who has responsibility for all technical matters concerning forestry and other natural resources at the regional level. Technical and development matters relating to forestry and other natural resources at district level are handled by a District Natural Resources Officer, who is responsible to the District Development Director. 2.04 The Forest Division is headed by the Director of Forests and has four sections. The Management and Development Section is responsible for the design and implementation of national forestry projects. Project managers of such national projects are responsible to the Head of the Management and Development Section. However, the Project Manager of the Sao Hill Forestry Project, because of the size and overall importance of the Project, reports directly to the Director of Forests. The Survey and Inventory Section is responsible for all survey, mapping and inventory work of the Forest DivisiLon. The Manpower and Training Section is responsible for personnel administrati.on, education and training. Formal non-professional training is done at the Olmotonyi Forestry Training Institute which offers a two-year certificate course for candidates with Form four (Forest Assistants), and two-year  - 5 - diploma course for candidates with Form six, or a one-year course for the two-year certificate holders (Assistant Forest Officers). The Forest Indus- tries Training Institute (FITI) at Moshi offers short courses (up to six months) to workers in the Forest Division and the Tanzania Wood Industries Corporation (TWICO) in logging, sawmilling and woodproduct making. There are plans to extend FITI's courses to tool maintenance, pitsawying and wood preservation. In addition, there are two ILO-supported Workers' Training Centers at Sao Hill and Pongai. The University of Dar-es-Salaam's Faculty of Agriculture, Forestry and Veterinary Science at Morogoro offers a three-year program leading to a Bachelor degree and higher degrees in forestry. 2.05 Forestry research is formally done by the Research Section of the Forestry Division and has two units dealing with silviculture and wood utilization based at Lushoto and Moshi respectively. A Forestry Research Institute is curently under formation and it is intended to be an autonomous body with a board of directors and seven centers specializing in forest management (Lushoto), timber and forest engineering (Moshi), low-land affores- tation (Kibaha), plantation silviculture (Sao Hill), miombo woodland (Tabora), arid zone forestry (Dodoma) and southern zone silviculture and management (Rondo). 2.06 In 1980 there were 54 professional forest officers (graduates) in the Forest Division (for 118 established posts). In addition there were 14 professional foresters on the staff of the Faculty of Forestry of the University of Dar es Salaam, five in the regions, four in other agencies, and six in TWICO. Including the 1980 graduating class of forestry students, the total professional forestry strength of Tanzania was 93. This is a larger number than in any other East African country. In the same year there were 250 technicians - Assistant Forest Officers (Diploma level) and Forest Assistants (certificate level) - for 374 established posts. Tanzania Wood Industries Corporation (TWICO) 2.07 TWICO, a holding parastatal responsible for public participation in the country's sawmilling and wood-based industries, owns a number of sawmills and panel mills in the country. The individual mills are operated and managed as autonomous subsidiaries. TWICO also owns the Tanzania Timber Marketing Company (Tantimber) which is responsible for the marketing of sawn timber produced by TWICO-mills. Tantimber has monopoly on the import and export business for timber. Southern Paper Mills Company (SPMC) 2.08 SPMC is a subsidiary of the National Development Corporation (NDC) and has been formed to operate and manage the Mufindi pulpmill (which is partly financed by the World Bank Group - Ln/Cr No. 1650/875-TA). Although the implementation of the pulpmill project has had serious start-up problems, its construction has started and production is estimated to start in 1984-85. The pulpmill will have an installed capacity of 60,000 tons of pulp per annum.  C. Production and Marketing 2.09 No reliable data for the production or consumption of wood exists in Tanzania. However, wood production comes mainly from 27 million hectares of natural woodlands, and about 90% of it is used for fuelwood and poles. The bulk of fuelwood consumption is for domestic purposes. Wood for indus- trial use accounts for only 10% of total wood production. The analysis in this report deals only with the demand for and supply of wood for such industrial purposes. 2.10 According to official s5atistics on log removals, the country's supply of logs averaged 195,000 m (r) during 1978-1980, made up of 63% hardwoods and 37% softwoods. However, an analysis of production trends for logs is difficult since only part of the actual production is recorded. In order to avoid payment of stumpage fees, some pitsawyers often do not declare their output from logs. A study by FA0 in 1974 concluded that actual produc- tion was two-and-one-half times greater than recorded production but this estimate would appear to be high, particularly for softwood whose cutting is more effectively controlled by the Forest Department than that of hardwoods. A more realistic assumption would be that recorded production represents about 50% of actual production of softwoods and 40% of hardwoSds, so that average log production in 1978-80 was in fact about 451,000 m (r) (Annex 4, Table T-4 1). This is consistent with the estimated average demand for 480,000 m (r) during 1978-80, a period in which shortages of local sawn timber and wood-based panels were frequently experienced. 2.11 Tanzania's industrial forestry sub-sector has a limited range of products which include sawn timber, plywood, fibreboard, particleboard, poles and fuelwood. Sawmilling dominates the sub-sector's production and consists of about 100 operating sawmills most of which are privately owned. They are typically very small and operate with obsolete equipment. Their efficiency and recovery rates are very low. The share of pitsawyers is about 74% of total recorded production of hardwoods but is only 27% of softioods. Total production in the sawmilling industry was estimated at 190,000 m in 1980, of which TWICO accounted for less than one-third. There are two plywood mills with a combined rated capacity of 12,600 tons per annum, a fibreboard factory with a capacity of 39,000 tons per year, and a particleboard mill with a rated capacity of 9,000 m per annum. All the plywood, fibreboard and particleboard mills are owned and operated by TWICO. A pulp and paper mill with a capacity of 60,000 tons per year is estimated to start production in 1984. Both the sawmills and the board mills have been operating well below their rated capacities in recent years, largely as a result of using obsolete and worn-out equipment coupled with shortages of spare parts, bottle- necks in logging operations and ineffective management. This has led to supply falling below domestic demand for these products. The supply of paper and paper products, which relies heavily on imports, has been severely con- strained by shortages of foreign exchange.  2.12 Tanzania has been a net importer of most wood panels and of sawn softwood, although it has occasionally exported sawn hardwoods. Much of the production in the sawn timber and wood-based panel industry described in para 2.11 is geared to meet domestic consumption. Log exports are banned. The present marketing system of wood and wood products consists of direct sales from non-TWICO mills to consumers, while sawn timber production from TWICO- mills is marketed by Tantimber. Production from board mills is distributed by the mills themselves. The industry is protected by import duties ranging from 30% on sawnwood, plywood and particleboard to 40% on fibreboard. 2.13 Domestic prices of sawn timber vary according to species and sizes because of the characteristics of the timber and their yield in sawmilling. Pine timber has been priced slightly below or close to ordinary hardwood. In recent years the shortage of sawn timber has resulted in an average annual increase of 7% in real prices for high quality hardwoods and 4.5% for utility timber (Annex 4, Table T-4.3). Since haulage capacity is limited, and has become worse in recent years, transport costs have had major influence on the supply and consumption pattern of manufactured wood products. Manufacturers and distributors of wood-based panels usually use a national freight cost system which sets freight charges on the basis of volume instead of haulage distance. This system discourages transporters from catering for markets far beyond a reasonable trucking distance. This had led to shortages of panels in distant areas of the country. On the other hand, this system has not been applied to sawn timber, so that appropriate freight charges are reflected in higher prices for sawn-timber in those areas which are far away from a sawmill. 2.14 The forestry sub-sector and its related industries are estimated to account for about 4% of the GDP, of which forest industries contribute slightly over 1%. Exports of forestry products are negligible. However, official data on the production and value of forestry products do not ade- quately reflect the important role played by indigenous forest resource in providing fuelwood, building poles, timber and minor forest products to meet the rural population's basic needs and for processing of tobacco and tea. On mountains and slopes, forests provide catchment to control water flow and protect soils. 2.15 Similarly, the contribution of the forestry sub-sector to Government revenue is small, largely because about 90% of the total consumption of forestry products in form of fuelwood and poles is obtained free of charge and the royalties levied on wood for commercial purposes, although they have been increased in recent years, are still low. In 1979/80, revenue obtained from forestry products accounted for less than 0.2% of total Government recurrent revenue. During 1976/77-1979/80 Government recurrent expenditure in the forestry sub-sector has varied between 0.2% and 0.3% of total Government recurrent expenditures.  -8- D. Forestry Policy 2.16 The Government's forestry policy aims at (a) acquiring enough land for afforestation to achieve an ecological balance and to meet future needs for forest produce of all kinds; (b) introducing management of forestry resources on public lands and villages and intensifying management in gazetted forest reserves in order to remedy the decline of indigenous forests and to reforest those areas which have been depleted of fast growing species; and (c) promoting a viable forestry subsector through appropriate research, extension and pricing of forest products. The major challenges facing the Government within the forestry sub-sector include the need to design a long-term afforestation program to provide adequate supply of fuelwood (as the major source of energy) to the rural and urban poor who cannot afford alternative sources of energy; to improve productivity and efficiency in the sawmilling and wood-based industries, both of which are currently operating far below their respective capacities; and the need to promote a viable forestry development program which would ensure maximum contribution of the forestry subsector to the national economy in the medium and long-term. The GOT is attempting to meet these challenges through programs assisted by the World Bank, FAO, and bilateral agencies (para. 2.18). E. Bank Group Assistance 2.17 The Sao Hill Forestry Project (Loan No. 1307-TA), approved in 1976, is the only project financed by the Bank Group to assist the implementation of the Government's long-term program which is aimed at developing forest resources to meet the country's requirements for timber and wood products (for review of Project, see 'F' below). The Bank Group has also financed two Rural Integrated Development Projects in Tabora and Mwanza-Shinyanga which have forestry components aimed at establishing forestry woodlots by villagers and district authorities to meet the demand for fuelwood and poles in these areas. The implementation of these components is still at an early stage. 2.18 GOT is also receiving both financial and technical assistance (on bilateral basis) from the governments of Sweden, Norway and Finland in the wood processing industry. With this assistance, an investment program has been formulated which is made up of short-term (mainly rehabilitation of existing capacities), medium-term (principally geared to expansions and modernization in existing mills) and long-term investments (consisting of expanded production capacities outside existing mills). Expansions in Sao Hill are planned in both the medium and long term. F. Review of Sao Hill Forestry Project I 2.19 The first phase of Sao Hill Project was approved in July 1976 and became effective on December 10, 1976 and is scheduled for completion in  December 1981. No Completion Report on the project is yet available, but the project's implementation was reviewed during appraisal of Phase II. Phase I provided for the planting and maintenance of about 16,000 ha, and the maintenance of some 11,000 ha of existing plantations; the construction of about 164 km of primary and secondary forest roads, 393 km of tracks and maintenance of 2,400 km of forest roads; construction of 214 staff houses of various grades and 20 administrative and social buildings; research, training and studies. Provision was also made for the employment of two internation- ally recruited specialists (forest silviculturist/economist,and mechanical engineer) and the employment of local technical, clerical and supporting staff. On the basis of the review, the implementation of the first phase is judged to have been successful with respect to the project-s afforestation program in which the appraisal targets in nursery production, land prepara- tion, planting and replanting have been significantly exceeded. As a result about 18,000 ha of plantations are expected to be established by the comple- tion of the Phase I. Performance was below appraisal targets in weeding, construction of firebreaks, roads and staff housing largely due to delays in procurement of machinery and equipment, lack of spares, cement, and poor maintenance of vehicles and machinery. The water study and the road engineer- ing study for the pulpmill were carried out, although the latter was subse- quently financed from non-Project proceeds. The Project's afforestation program was reasonably staffed by local professionals and technicians, except for the post of financial controller which was not filled with appropriate personnel. The post of mechanical engineer was not filled at all due to an apparent lack of suitable candidates. As a result, the Project support services (workshop and finances) were not effective and the Project suffered from lack of internal controls and poor maintenance of Project vehicles and equipment. The research trials were carried out satisfactorily and a system of fire protection has been established in the Project. Funds for study tours under Phase I were not fully utilized, largely due to Project-s in- ability to release staff. The Project is expected to be implemented within the appraisal cost estimates of US$8.1 million. 2.20 Although the Project Completion Report has yet to be prepared, some conclusions can be drawn from the implementation of the first phase. A reasonably good project implementation capacity, comprising qualified and experienced staff and capital stock, has been established at Sao Hill. However, there is need to consolidate and fully utilize this capacity by (a) strengthening and streamlining project organization to ensure better implementation of targets, (b) strengthening project financial management, cost accounting and internal control procedures, (c) improving silvicultural practices, (d) strengthening the operation of the mechanical workshop and its spare parts supply system, (e) continuing the long-term research program undertaken in Phase I as well as widening its scope to cover aspects of agro-forestry, and (f) improving the existing fire protection system after reassessing its needs and scope. The second phase Project has therefore been designed to take account of the lessons from Phase I.  - 10 - III. THE PROJECT A. Project Rationale and Design 3.01 In recent years, the supply of sawn timber and other wood products has generally been inadequate to meet domestic demand and this has resulted in considerable increases in real prices for timber (paras 2.13). The shortage of sawn timber has been largely a consequence of structural problems I/ in the economy as a whole and in the sawmilling industry in particular, as well as of high costs of exploiting the natural forests, some of which are inacces- sible. The structural problems in the wood processing industry are being addressed through the Nordic assistance program (para 2.18). Demand/supply forecasts indicate that there would be further significant deficits in the aggregate supply of sawlogs and hence of sawn timber after the year 2005, unless new plantings are initiated during the next five years (paras 5.09- 5.10). According to inventory data of 1980, the existing plantations of about 30,000 ha in Sao Hill if properly managed would be sufficient to supply indefinitely the Sao Hill Sawmill with sawlogs and the proposed Pulp and Paper Mill at Mufindi with pulpwood at their respective initial capacities. Therefore the proposed expansion in plantations under the Project would be needed to meet the projected deficits in the overall national demand for sawlogs. 3.02 According to official estimates, increased supply of wood from natural forests could not be sustained beyond the early 1990s if not supple- mented with softwood plantations. Fast growing softwood plantations would be the best alternative for increasing sawn timber supply to cover the estimalted supply deficits. However, the establishment of new softwood plantations or the expansion of existing ones is generally constrained by the availability of ecologically suitable land. Sao Hill is one of the few areas in the country with sufficient land and a proven technological package for softwood plantations (paras 3.04-3.08). Low requirement for land preparation, and good communication links with the rest of the country, make Sao Hill one of the lowest cost production areas for softwood in the country. 3.03 The present and medium-term economic prospects in Tanzania (paras 1.06-1.08) require that the Project be designed to minimize possible adverse effects from such an environment. Three key factors have influenced the design of this Project. Firstly, there is the problem of inadequate Govern- ment finance as manifest in current and projected budgetary deficits, parti- cularly the general shortage of recurrent expenditure in the public sector. Particular attention has, therefore, been given to keeping the Project's incremental recurrent costs to a minimum. Secondly, is the problem of pro-- jected slow improvement in the country's balance of payments situation 1/ These include the small size of sawmills and numerous pitsawyers operat- ing with obsolete equipment, shortage of spare parts, inadequate loggLng and transport capacity and shortage of skilled manpower.  - 11 - leading to persistent shortages of imported spare parts and petroleum products; this necessitated minimizing the incremental foreign exchange burden resulting from the Project by, as far as possible, limiting the Project requirement for new vehicles, machinery and equipment to replacement of existing stocks, financing all foreign exchange costs, including expenditure on fuel and spare parts requirements throughout Project implementation, having stricter control on vehicle procurement, improved maintenance and reducing vehicle operations by almost 20% per annum. Thirdly, there is a need to consolidate and strengthen the project implementation capacity established at Sao Hill and to exercise restraint on the scale of new investments. As a result the proposals contained in the Preparation Report were considerably scaled down to take these considerations into account. B. The Project Area 3.04 The project is situated in Sao Hill within Mufindi District in Iringa Region. It is about 40 km south of Iringa, the Regional headquarters (Map No. IBRD 15896). The Tanzania - Zambia (Tanzam) highway traverses the high-elevation portion of the Project area, and the Tanzania-Zambia Railway Authority (TAZARA) railway the lower-elevation portion of the Project area. A good gravel road connecting Mafinga(formerly John-s Corner) and Mufindi passes through the older and some of the new plantation blocks. The existing and proposed plantation areas on and below the Mufindi escarpment are at present connected by a lengthy road of about 65 km. The escarpment road proposed under the Pulpmill project to link the pulpmill with the Tanzam highway would shorten the distance to 40 km. Apart from the rapidly growing township of Mafinga, there are 10 wards containing 20 villages with about 30,000 households or a total population of almost 140,000 all around the Project area. The male population, which is the main source of labor for the Project, is estimated at 75,000, of which about 50% is estimated to be the workforce. Each village has an area of 3,000 - 4,000 ha, which is considered to be more than enough for agricultural and other domestic needs (including afforestation for fuelwood production). The tea estates in the area also have enough land holdings for both tea growing and to meet their firewood requirements. The area allocated to the Project is approximately 94,300 ha of which 66,300 ha have been surveyed. About 64,000 ha are considered suitable for tree planting, of which 30,000 ha. have been planted to date. 3.05 The Project area is part of a massif, with an elevation of 1,500 m or above, extending from the Livingstone Mountains (near Lake Nyasa) north- eastwards through Njombe to and beyond Iringa. Most of the area covered by plantations and the proposed high-elevation extension areas in the northeast, lie above 1,800 m (see map). The topography of this area is mainly undulating and rivers and streams often rise in broad, flat marshes. In the east, the topography is generally steeper with ridges falling off gradually at first but later quite steeply into sharp valleys. Except on steep escarpment 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. However, eucalypts are more demanding than pine with regard  - 12 - to land preparation, and experience at Sao Hill has shown that they require complete ploughing before planting. Hence where land is too steep, rocky or otherwise unsuitable for ploughing, eucalyptus would not be planted. The Kigogo and Mufindi East Escarpment reserves, which have been recently acquired by the Forest Division, contain land suitable for eucalypts and would be well situated in relation to the pulpmill once the proposed escarpment road has been constructed. 3.06 The soils in the Project area have been formed in situ and there- fore reflect certain characteristics of the parent materials which are mainly gneisses and granites. The granite soils are deep, relatively uniform, sandy clay loams, often compacted in the top 20-30 cm where unweathered quartz pebbles are frequently the dominant physical component. Such soils are crumb structured, well drained and infiltrated by grass roots down to about 30 cm; their fertility is low and they are moderately acidic. Active erosion is hardly apparent, although extensive gully erosion has occurred in the past in the eastern sector of the upper elevation extension area, largely due to human settlement. Mechanical land preparation is often hindered by small termite mounds which occur in unusual profusion in some areas and with moderate frequency nearly everywhere else. 3.07 The climate is greatly influenced by altitude and topography. Rainfall ranges between 812 mm and 2,009 mm; the area in the south facing the escarpment has the highest rainfall, while rainfall decreases north- eastwards away from the escarpment. Rainfall is seasonal and is heaviest in November - January and March - April with a short dry spell in between of approximately two weeks in the first half of February and a long dry spell in May - November. The highest wind velocities occur during May - November. 3.08 Most of the Project area is covered with short grasses among which Loudetia simplex is often dominant above the escarpment and Hyparrhenia below it. Couch and associated grasses characterize areas which have been farmed in the past and require more intensive land preparation and weeding than the former areas. In certain parts of the Project area scattered trees or shrubs occur. The light vegetation cover which characterizes much of the Project area permits light land preparation, mainly strip ploughing, except in areas intended for eucalypts which require thorough land preparation. C. General Description 3.09 The proposed Project would be the second phase of the Sao Hill Forestry Project. It would provide for the further development of forest plantations established under Phase I and planting and establishment of new plantations, as well as for the development of infrastructure and forest services within the Project area. It would be carried out by the Forest Division of the Ministry of Natural Resources and Tourism over five years and would consist of the following: (a) Further development of about 18,000 ha of Phase I forest plantations for production of sawlogs and pulpwood;  - 13 - (b) Establishment and development of about 10,000 ha of new forest plantations for production of sawlogs and pulpwood; (c) Construction of about 160 km of forestsecondary roads, 725 km of tracks, and upgrading some 120 km of secondary forest-roads to primary forest roads; and the maintenance of existing and new roads and tracks; (d) Construction of 58 staff houses and other buildings and structures and the maintenance of existing and new houses and buildings; (e) Strengthening of the mechanical engineering services, financial and management information systems of the Project and the provision of short study tours for selected Project staff (f) Short-term consultancies and studies to review the Project's fire protection system; the die-back problem of pine trees in Sao Hill; stumpage rates and pricing of forestry products in the country; and existing and planned programs for national village afforestation. D. Detailed Features Afforestation (a) Further Development of Existing Plantations 3.10 The Project would provide for further development of about 18,000 ha of Phase I forest plantations in Sao Hill over a five-year period. These forest plantations consist of 16,000 ha of pine (principally P.patula) and about 2,000 ha of eucalypts. The development of these plantations consists of pruning, marking for thinning, measuring logs (scaling), replanting clearfelled areas, and fire protection - all of which are necessary for the full develop- ment of these existing forestry resources. 3.11 Pruning would be restricted to pines only, as eucalypts would only be grown for pulpwood. Pines would be pruned at the average ages of 5,6 and 8 years. In the first pruning all trees would be pruned, while the second and third prunings would be limited to the best trees. Approximately 34,340 ha of Phase I plantations would be pruned, some on a repeat basis, during the period of Project implementation with a total labor requirement of approxi- mately 12,000 man-months.  - 14 - 3.12 Marking for Thinnings would involve identifying and marking the trees which would be harvested. The eucalypts would be managed on a coppice system, with clearfelling every 8-10 years and would therefore not require thinnings other than early reduction of the number of coppice shoots. Thinning of pine would be at 14/15 and 18/20 years and clearfelling at 25 years, but Project management would have the discretion of postponing thinnings somewhat if desired - e.g. for reasons of market availability. Approximately 264 ha of Phase I plantations would be involved in the thinning program during the Project period. 3.13 Timber Scaling determines the volume of felled timber and forms the basis for charging stumpage fees. The requirements of the Sao Hill sawmill and the pulpmill would determine the amount of wood 3to be felled each year. The former's intake of logs would be about 45,000 m per annum while the total 3 wood intake of the pNlpmill (logs + sawmill waste) would rise from 57,000 m in 1984 to 226,400 m in 1987 according to the proposed operating schedule for the pulpmill. Since the pulpmill would obtain part of its raw materials from other sources (wattle logs and sawmill waste), the round woos requirement irom the existing forest plantations would increase from 45,000 m to 251,000 m per annum during the Project period. 3.14 Clearfelling and Replanting would be restricted to compartments which are 25 years or older. In order to obtain the wood requirements of the sawmill and pulpmill, about 150 ha/year would be clearfelled in addition to wood from thinnings. Unless more land suitable for eucalyptus can be found in the low elevation area than is at present available, the clearfelled pine areas would be replanted with eucalypts, which would be in short supply when the pulpmill starts operating, especially if it will need fuelwood as well as pulpwood, which has been suggested as a possibility. The oldest pine stands, which are the ones first in line for clearfelling, are on sites ecologically suited to eucalyptus, and situated in that part of Division I (map) which is nearest to the pulpmill. (b) Establishment and Development of New Plantations 3.15 The Project would provide for development of 10,000 ha of new plantations over a period of five years i.e. 2000 ha per year. The new plantation program would include surveying part of the new areas, establish- ment of nurseries, land preparation, planting, fertilization, weeding and research. 3.16 Surveying. Most of the 10,000 ha to be afforested under the second phase would be land which has already been surveyed. However, some of the area within the low-elevation portion and which would be suitable for eucalypts would need both topographical and soil surveying before detailed planning can be done. 3.17 Land Preparation. Since much of the Project area is generally covered by grass, land clearing involves manual breaking down of small anthills before ploughing or ripping is done. Strip ploughing would continue to be the normal method of land preparation for pine, while land which cannot  - 15 - be ploughed would be pitted or ripped and pitted. However, land earmarked for eucalypts would require complete ploughing, except in case of replanting clearfelled pine areas with eucalypts. In order to obtain the desired shatter- ing effect, ripping would be done in the dry season when the soil is hard. For this purpose the Project would provide for a 140 hp crawler tractor. In order to ensure satisfactory tree growth, pits would be 30 cm in diameter by 30 cm deep within a 1 m cleared patch. 3.18 Nurseries. Seed of P. patula and E. saligna and E. grandis would be obtained locally. Seed for other species would be locally procured or imported. The polythene tube method would continue to be used in the production of seedlings but the earth ball method, which has been introduced, would be further improved in order to avoid the Project's dependence on polythene tubes whose supply is subject to foreign exchange availability. Seedlings would be planted at an average density of 1370 per hectare. About 4 million seedlings would be produced annually for new plantings of 2,000 ha/annum and for replant- ing 150 ha/annum. Small temporary nurseries near planting sites would be established (instead of large and permanent nurseries) in order to minimize the need for transporting seedlings over long distances. 3.19 Planting and Weeding. Planting would be done by hand during the early part of the rainy season which extends from November - April and this would permit replacement of dead plants to be done within the same season. P. patula which has done best in the high elevation areas at Sao Hill would continue to be the major species at that elevation while P. caribaea and possibly P. kesiya would be planted in the lower-elevation area. However, in order to avoid the risk associated with monoculture, some compartments in the higher elevation area would be planted with P. taeda and P. elliottii. On good ploughable land, particularly within short distances from the pulpmill, E. grandis and saligna would be planted. Fertilizer (NPK) would be applied only to eucalypts because of its significant response. The cost of applying borate, whose deficiency is suspected to cause the dieback of occasional trees in Sao Hill, has been provided for in the Project and would be incurred following the recommendations of a tree physiologist and a silviculturist who will visit Sao Hill under FAO/TCP funding in 1981. P. patula and, especially, eucalypts are sensitive to weed competition. Except for eucalyptus areas, where weeding would be both mechanical and manual, weeding in all other areas would be by hand. Vehicles and Equipment 3.20 Vehicles and equipment to be provided under the Project would include 12 motor cycles (4 additional and 8 replacements) for middle-level staff transportation; 5 four-wheel drive vehicles (all replacements) for general and staff transportation; 1 crawler and 1 ripper (both replacements); 3 wheel-tractors (94HP) and 2 wheel-tractors (78HP) - both replacements -; 5 harrows and 5 ploughs (both replacements); 3 additional trailers for general transportation; 5 seven-ton trucks (2 additional and 4 replacements), 1 ten-ton truck (replacement) for general transportation; 20 bicycles for Forest Assistants (all additional); 9 additional water storage tanks and 6 additional water pumps for nursery work.  - 16 - 3.21 In order to avert the problem of recent shortages in spares needed for efficient use of vehicles and equipment, the Project would finance the provision of initial spares for new and replacement vehicles, machinery and equipment for workshop and general plantation operations and for fire protec- tion activities and the purchase of spare parts inventory throughout the Project period and the purchase of 2 light pick-ups for supplies transporta- tion, 2 four-wheel-drive vehicles for work study activities and workshop transport needs. Fire Protection 3.22 Fire protection of forest plantations is important because of the real threat of fire, given the pronounced dry season and the concentration of inflammable species in the Project area. A fire protection system has already been built in the Project which includes firebreaks, fire towers, fire control centers, mobile fire investigation units, fire patrols and fire extension work. In addition, the Project would provide for the purchase of 3 four-wheel drive vehicles, construction of 5 new fire-towers and additional firebreaks in new areas and the purchase of fire-fighting equipment to be determined by a fire protection consultant whose employment would be financed by FAO's Technical Cooperation Program in 1981. A total provision of Tsh 1.25 million (US 151,515) has been included for the purchase of the fire protection equipment. Assurances were obtained that disbursement against these funds would be made after the Consultant has drawn up detailed proposals satisfactory to both GOT and IDA. Research 3.23 The long-term research trials program would be continued and funds totalling TSh 945,500 would be provided as follows: staff salaries - Tsh 373,000 (Table T-l-10), 4 wheel-drive vehicle - TSh. 147,500 (Table T-l.9), hand tools and implements - TSh. 25,000 (Table T-1.2); fertilizers, etc. - TSh. 200,000 (Table T-1.3); labor - TSh. 200,000 (Table T-1.3). The following specific investigations would be carried out under the Project: Species and provenance trials. Pinus elliottii has performed surprisingly poorly in the high elevation area. Further provenances would be tried. Improved strain of P. taeda would also be tried in the same area. For the low elevation area an attempt would be made to find a less heavily branched variety of P. kesiya, as well as the best provenances of P. caribaea and P. oocarpa. Improved varieties of Eucalyptus grandis would be tried at both high and low elevations. Nutritional studies. At present NPK fertilizer is given to eucalyptus at planting. The possibility of excluding N would be investigated. Similarly the effect of zinc and boron applications on the growth of both pines and eucalyptus would be assessed. Provision for laboratory services has been included (Table T-1.13) for soil and foliar analysis.  - 17 - Agro-forestry. The effect on costs and growth rates of growing maize and other agricultural crops between trees during the first few years would be investigated. Especially in the case of the new eucalyptus plantations, where the land would be completely ploughed, it would not be difficult for the Project to cultivate the land between the trees or to induce farmers to do so, and this would minimize weeding costs. The possibility of grazing under the older stands would be investigated, especially in the case of stands of narrow-crowned species like P. elliottii in which there is a considerable amount of grass growth. This would reduce fire hazard. Nurseries. Soil tests, germination tests, perfection of the earthball tech- nique, and the correct fertilizer mix and irrigation schedule would be subjects for further investigation. Weeding is a very labor demanding and, therefore, expensive operation. Research would be carried out to determine areas and conditions where weeding could be either omitted altogether, or reduced in intensity. Alternative methods of weed control would be tested. Civil Works (a) Road Construction and Maintenance 3.24 About 120 km of-secondary roads within the Project area would be upgraded to all weather primary roads capable of serving all purposes including log transport. The construction and maintenance of other logging roads would be the responsibility of the log consumers. Also about 160 km of secondary roads (all-weather roads for personnel access) and 725 km of tracks would be constructed during Project implementation. All roads would be constructed using designs adopted in Phase I and which are satisfactory. 1/ The Project would also provide funds for the maintenance of new and existing forest roads and tracks. In order to facilitate the implementation of the road construction and maintenance program, funds would be provided for the purchase of 1 con- struction grader - 140 HP (incremental), 2 tow graders (incremental), and 1 tipper-truck (replacement). (b) Buildings and Housing 3.25 About 58 houses for senior and junior staff would be constructed and provision would be made for maintenance of existing and new buildings. A field office to serve as headquarter for the plantation division in the lower elevation area would also be constructed under the Project. 1/ Road density: high elevation - 15 m/ha. (secondary roads) low elevation - 18 m/ha. Road standards: primary roads - 8 m wide. secondary roads - 7 m wide. tracks - 4 m wide.  - 18 - Technical Assistance (a) Long-term Specialists 3.26 The mechanical engineering services would be strengthened by the employment of an internationally recruited Workshop Manager, with practical experience in the organization, management and operation of a workshop for repair and maintenance of vehicles and agricultural machinery and equipment, for five years. In order to strengthen the Project's financial management, planning and cost accounting systems, the Project would finance (i) the employment of an internationally recruited Assistant Project Manager (Finance and Planning) for three years and who would be a person with appropriate financial and personnel management and planning experience and qualifi- cation; and (ii) the employment of an internationally recruited Work Study Specialist, for a period of three years, to assist in developing improved, cost effective silvicultural practices and field operations and train local counterparts. Assurances were obtained during negotiations that GOT would assign personnel with appropriate experience and qualifications as local counterparts to the Assistant Project Manager, Workshop Manager and Work Study Specialist. (b) Short-term Consultants 3.27 The Project would also finance short-term consultancies as follows: (i) an internationally recruited Forest Fire Protection Specialist (for two man-months) to assist Project management to review and draw up an implementa- tion plan of the recommendations made by the FAO/TCP fire protection specialist (para 3.23); (ii) a three-man-month consultancy in support of Government's proposal to carry out a comprehensive study that would form a basis for appropriate and rational stumpage rates and pricing of forestry products in the country; (iii) a Tree Physiologist (one man-month to accompany a supervi- sion mission to review the implementation and effectiveness of the recommenda- tions made by the FAO/TCP silviculturist/physiologist team on the dieback problem in the existing Sao Hill plantations; and (iv) two internationally recruited Village Afforestation Specialists for three man-months each who would assist GOT to review existing programs and studies and to formulate a National Village Afforestation Program; the specialists would be a Sociologist and a Forestry Specialist. 3.28 Assurances were obtained during negotiations that the selection, qualifications, experience and terms and conditions of employment of the specialists (para 3.27) and short-term consultants (para 3.28) would be satisfactory to IDA and be in accordance with IDA guidelines; that the work- study specialist would be appointed by December 31, 1982 and the appointment of the Assistant Project Manager (Finance and Planning) and the Workshop Manager would be a condition of Project effectiveness. (c) Training 3.29 The Project would also provide for short study tours for selected Project staff to visit similar projects in neighboring countries to broaden their experience.  - 19 - E. Project Costs 3.30 Total Project costs are estimated at Tsh 123.6 million (US$15.0 million) of which Tsh 50.7 million (US$6.2 million) or 41% represents foreign exchange costs. The Project costs do not include any local taxes and duties since virtually all items would be exempt from import duties and the local taxes are negligible. Details and phasing of the project costs are presented in Annex 1, Tables T-l.l through T-1.15 and are summarized below: Foreign Base Local Foreign Total Local Foreign Total Exchange Cost ------TSh. '000------ ------US$'000 - ------ Afforestation Development of Existing Plantations 7,518 160 7,678 911 19 930 2 9 Replanting clearfelled areas 1,752 319 2,071 213 39 252 15 2 Development of New Plantations 11,223 5,969 17,192 1,360 724 2,084 35 19 Nursery Operations 4,280 2,100 6,380 519 254 773 33 7 Fire Protection 4,412 856 5,268 535 104 639 16 6 Sub-total 29,185 9,404 38,589 3,538 1,140 4,678 24 43 Civil Works Roads - construction/maintenance 1,561 2,459 4,020 189 298 487 61 4 Buildings & Structures 4,378 1,876 6,254 531 227 758 30 7 Sub-total 5,939 4,335 10,274 720 525 1,245 42 11 Vehicles, Machinery & Equipment 1,113 11,222 12,335 135 1,360 1,495 91 14 Project Administration Staff Salaries and Wages 11,135 -- 11,135 1,350 -- 1,350 - 12 HQ - General Services Cost 1,634 1,072 2,706 198 130 328 40 3 Vehicles Operating Cost 1,548 6,310 7,858 187 765 952 80 9 Sub-total 14,317 7,382 21,699 1,735 895 2,630 34 24 Technical Assistance & Training Technical Assistance -- 6,271 6,271 -- 760 760 100 7 Staff Study Tours -- 247 247 -- 30 30 100 1 Sub-total _ 6,518 6,518 -- 790 790 100 8 Total Base Cost 50,554 38,449 89,415 6,128 4,710 10,838 43 100 Contingencies - Physical 3,896 3,187 7,083 472 386 858 45 8 - Price 18,460 8,687 27,147 2,237 1,053 3,290 32 31 TOTAL PROJECT COST 72,910 50,735 123,645 8,837 6,150 14,987 41 139  - 20 - 3.31 Project costs were estimated at prices as of December 1981. A physical contingency of 10% was included on all Project costs except staff salaries, technical assistance and study tours. Price contingencies were calculated on a cumulative basis: for local costs the rates were 14% for 1982, 13% for 1983, and 12% thereafter, while for foreign exchange costs the rates were 8.5% for 1982, 7.5% for 1983 and after. Price contingencies total 31% of Project baseline costs. 3.32 Provision has been made for financing retroactively Project expendi- ture between January 1st and credit signing date. Such expenditure is esti- mated at Tsh 6.6 million (US$800,000) (Annex 1, Table T-1.15). 3.33 Project costs provide for a total of 132 man-months of long-term consultancies (para 3.27) at an estimated total cost of TSh. 5.5 million (US$666,666). This includes cost of salaries, fees, travel and subsistence. The average cost per man-month is TSh. 41,666 (US$5050). Provision is also made for a total of 12 man-months of short-term consultancies (para 3.28) at an estimated total cost of TSh. 594,000 (US$72,000). The average cost per man-month is TSh. 49,500 (US$6,000). The Project would also provide for the expenditure on salaries and wages of existing and incremental local staff of about Tsh 11.1 million (US$1.3 million) including contingencies. IDA disburse- ment against these local salary and wages expenditures would be on a declLning basis (para 4.06e). F. Financing 3.34 The Project costs would be financed as follows: Tsh US$ (million) (million) % IDA 99.0 12.0 80 GOT 24.6 3.0 20 Total 123.6 15.0 100 3.35 The proposed credit equivalent to US$12.0 million to GOT would be on standard IDA terms. The credit would finance 80% of total Project costs, including 100% of foreign exchange costs (US$6.2 million) and 66% of local costs (US$5.8 million). GOT would finance the remaining US$3.n million.  - 21 - IV. PROJECT IMPLEMENTATION A. Organization and Management 4.01 The Forest Division of the Ministry of Natural Resources and Tourism would be responsible for the implementation of the Project. Project activities would be carried out by the Project Manager who would be directly responsible to the Director of Forests. Assurances were obtained during negotiations that the position of Project Manager would be kept filled at all times with a person whose qualifications and experience are satisfactory to IDA. 4.02 The Project organization would be as shown in Chart C-1, and the anticipated scheduling of implementation of the various components is shown in Chart C-2. The Project Manager would be assisted by two Assistant Project Managers, one responsible for plantation operations and the other for finance and planning. The Assistant Project Manager (Operations) (APMO) would be responsible for forest plantation management, survey and work plan, all civil works, research and trial activities under the Project. The forest plantations would be divided into three Divisions. Three Divisional Plantation Officers (DPO), each responsible for a Division consisting of a number of plantation blocks, would assist the APMO in the implementation of the afforestAtion and fire protection programs of the Project. In each Division, Forest Officers (FO) and Assistant Forest Officers (AFO), who would be in charge of afforesta- tion and fire protection activities at plantation or section level, would be responsible to the DPO. The FO and AFO would be responsible for implementing agreed activity targets in their respective sections or units and they would be assisted by Forest Assistants (FA) who would supervise the physical implemen- tation of such activities. Six additional FA's would be posted to the Project. Assurances were obtained during negotiations that GOT would appoint and assign six FA's with appropriate experience to the Project by December 31, 1982. The APMO were obtained by a Civil Engineer in implementing the civil works program under the Project. A reasonably good capacity, in terms of staff and equipment, exists at the Project to implement the civil works program. A Senior Forest Officer in charge of research activities in the Project would assist the APMO. A Forest Officer responsible to the APMO, would be in charge of the Survey and Work Plan Section. This section would utilize the recent forestry inventory data to prepare a five-year Working (Management) Plan with detailed prescriptions on a compartment basis for pruning, thinning, clearfelling, replanting and other operations. Assurances were obtained during negotiations that such a Working Plan would be prepared by July 31, 1983 and that Project management would implement the Plan thereafter, taking into account IDA's comments and that subsequent plantation inventories would be undertaken and work plans prepared every five years. 4.03 The Assistant Project Manager (Finance and Planning) (APMFP) would assist the Project Manager in all matters relating to support services consisting of finance, accounts, administration, work study and costing, and the workshop. Since it has not been possible for the Project to recruit locally such a person in the past, the APMFP would be internationally-recruited  - 22 - (para 3.26). The APMFP would be assisted by a Senior Accountant who would be in charge of the Accounts and Finance Section. Procurement and supplies matters would be the responsibility of two procurement and supplies officers, one at the Project head office and another stationed in Dar-es-Salaam, who would report to the APMFP, through the Senior Accountant. This would facilitate expeditious procurement and clearing of imported goods for the Project, a problem which beset the first phase of the Project. The Administration Section would be headed by an Office Supervisor who would assist the APMFP in matters relating to personnel administration and staff welfare. In order to set up an effective costing system for the Project, a Work Study and Costing Section would be established and headed by an internationally-recruited Work Study Officer (para 3.26). A Forest Officer, Assistant Forest Officer and a local Cost Accountant would assist the Work Study Officer. An internationally- recruited Workshop Manager (para 3.26) would assist the APMFP in setting up and supervising a mechanical workshop for servicing and repairing all Project vehicles, machinery and equipment. B. Procurement 4.04 Procurement under the Project would be in accordance with Bank/ IDA guidelines. Specifically: (a) orders for vehicles, tractors, machinery and equipment and initial spare parts (US$1.7 million - including price con- tingencies) would be bulked as far as practicable. Orders of US$100,000 and above would be procured through international competitive bidding (ICB) from suppliers who maintain or agree to maintain in Tanzania adequate after sales service and inventory of spare parts; (b) orders for vehicles, tractors, machinery and equipment below US$100,000 would be procured in accordance with existing local competitive bidding (LCB) procedures which are satisfactory. These orders would not, however, exceed US$300,000 in aggregate; (c) civil works (US$1.2 million) would be undertaken in accord- ance with Government standards and designs which are accept- able to IDA. As these works would be small (individual items would not exceed $100,000) and at geographically dispersed locations, they would not attract ICB and LCB and since the Forest Division has the capacity to implement such a program with reasonable efficiency, construction would be by force account; (d) the selection and employment of consultants (US$0.7 million) would be in accordance with Bank/IDA guidelines.  - 23 - 4.05 Draft tender documents for all contracts expected to cost in excess of US$150,000 would be submitted to IDA for approval before bid invitations are issued. Bid evaluations and recommendations for award would be submitted to IDA for comments before contracts are awarded. In the evaluation of ICB bids for purchase of vehicles, tractors, machinery and equipment, domestic manufacturers would be allowed a preference of 15% or the existing rate of duty, whichever is lower. Assurances were obtained during negotiations that the procurement procedures outlined above would be followed. C. Disbursements 4.06 Funds from the Credit Account would be disbursed on the following basis: (a) 100% of foreign and 75% of local cost for vehicles, machinery, equipment and spare parts (US$1.7 million); (b) 75% of total cost of construction of housing, buildings and structures and construction and maintenance of roads and tracks (US$1.3 million); (c) 100% of total cost of technical assistance and staff study tours (US$0.9 million); (d) 100% of foreign cost and 75% of local costs of afforestation, (US$5.5 million); (e) salaries and wages of local Project staff with disbursements at 75% up to US$0.4 million; 60% up to an aggregate of US$0.6 million; and 40% up to a total of US$0.8 million; (f) 100% of foreign cost and 75% of local costs of headquarter general services and vehicle operation (US$1.3 million); (g) An unallocated amount of US$0.5 million representing physical contingencies on items (a) to (d) and (f), and transferable to them as required. 4.07 All disbursements would be fully documented except for expenditures by force account under (b), and local expenditures under (d), (e), and (f) which would be on the basis of Statement of Expenditure signed by the Project Manager and the Ministry of Finance. However, supporting documents in respect of Statement of Expenditure would be retained by the project for inspection by IDA supervision mission.  - 24 - 4.08 A schedule showing the estimated pattern of credit disbursement is at Annex 3, Table T-3.1. This schedule is based on the historical dis- bursement profile of the Phase One Project which was faster but considered more appropriate than the available regional or country-wide profiles. D. Accounts, Audit and Reporting 4.09 An improved system for financial management and planning, internal controls and cost accounting would be implemented. The provision for strengthen- ing the finance and planning section in the Project organization would assist in meeting this requirement (para 3.26). Separate records relating to all expenditures under the credit, would be kept in accordance with acceptable accounting practices, and reflecting the complete operations and financial position of the project. All accounts relating to the Project, including Statement of Expenditures, would continue to be audited annually by the Government Auditor General whose services have been satisfactory to the Bank under Phase I. The audited accounts together with the auditor-s report would be submitted to IDA within six months of the end of each financial year. Detailed annual and quarterly reports covering the physical implementation of the Project and the funds received and expended, together with the expenditure budget for the ensuing quarter, would be-prepared and submitted by the Forest Division to the Ministry of Natural Resources and Tourism and to IDA. Findings of the research program (para 3.23) would also be included in the Project Annual Report. In addition, appropriate records with regard to the following would be maintained on a continuous basis: (a) actual total and unit costs covering various afforestation activities, viz: plantation eatablishment and maintenance, replanting, land preparation, weeding, pruning, production of seedlings etc.; (b) historical statistical data relating to the operating costs of the different types of vehicles, tractors, machinery and equipment; and (c) unit costs of construction relating to staff houses, buildings and structures. Within six months of the completion of disbursements, GOT would prepare and submit to IDA a Completion Report. Assurances were obtained at negotiations that the accounting, auditing and reporting procedures would be followed. E. Environnmental Impact 4.10 The forest plantations within the Project area would continue to provide protection to minor catchment areas and the maintenance of soil cover on vulnerable sites within the Project area. By providing softwood to meet the national demand, the Project would reduce pressure on the environmentally important indigenous forests. The Project would have no particular adverse effects on the environment.  - 25 - V. PRODUCTION, MARKETS AND PRICES A. Production Yields 5.01 The 1980 inventory of Sao Hill plantations indicated that old stands of P. patula had a mean annual increment (MAI) of 20 m /ha (under bark). It is likely that actual yields from pines are much lower than this figure because the utilizable volume is much lower and older stands are generally better than average within the Project area and other conifers are slower growers than P. patula in Sao Hill. Thus t e overall average yield from pine could realistically be estimated at 15 m /ha per year. On this basis the expected distribution of average yield over the rotation and different products are as follows: Age: Thin to Yields m /ha Years (stems/ha) Pulpwood 1/ Sawlogs 2/ Total 10 800 40 -- 40 14/15 500 30 30 60 18/20 300 25 50 75 25 50 150 200 Total --- 145 230 375 1/ Logs below 25 cm diameter. 2/ Logs above 25 cm diameter. 5.02 Eucalyptus plantations at Sao Hill are still too young to give a reliable estimate of MAI, but on the basis of non-Project plantations in the area and of research exyerimental plots, the average yield for eucalyptus is estimated at 18 m /ha/year, provided the standard practice developed by the Project is followed. Eucalyptus would be clear-felled every 8 years and then they would be left to regenerate from coppice. 3 Thus the average yield at the age of clearfelling would be 8 x 18 = 144 m /ha. The eucalyptus plantation life cycle would be 32 years, including one seedling crop and three coppice rotations of 8 years each. Output 5.03 On the basis of an MAI of 15 m /ha for pine and 18 m /ha for eucalyptus and the assumed plantation cycle for each species, the proposed plantations under the Project consisting of 8,000 ha of pine, and 2,000 ha of eucalyptus, and 760 ha of replanting of clearfelled pine with eucalyptus, production would be as summarized below:  - 26 - ----------000-- m3 ------------------ Pine Plantations Eucalyptus Plantations Crop Pulpwood Sawlogs Pulpwood Sawlogs Seedling Crop --- --- 397 --- lst Coppice or thinning 320 --- 397 --- 2nd Coppice or thinning 240 240 397 --- 3rd Coppice or thinning 200 400 397 --- Final Crop 400 1,200 --- Total Production 1,160 1,840 1,588 5.04 Since the existing pine plantations at Sao Hill are adequate to meet the requirements of both the sawmill and pulpmill at their presently planned capacities, the pine pruning program in existing plantations and all the pine sawlogs production under the second phase would require expansion in the sawmill. Under its medium and long-term development program, TWICO plans to expand the Sao Hill sawmill by adding another production line in the late 1980's and to establish another sawmill to meet the expected growth in domestic demand for sawn timber in the 1990s. Similarly, there is a possibility that the pulpmill might increase its capacity to satisfy the growing domestic demand for paper and paper products and improve its profitability through an increased scale of operation. 5.05 Eucalyptus would be exclusively used as pulpwood, while pine would constitute a raw material for both the sawmill and pulpwood. Pine logs below 25 cm diameter would go to the pulpmill while bigger logs would be for the sawmill. Except for eucalyptus and possibly for some stunted pine stands, integrated harvesting of pine plantations would be practiced throughout the Project area. This would mean that each compartment of pine would yield both sawlogs and pulpwood and separate working circles would not be set aside for each product. 5.06 At present the Sao Hill sawmill is the only consumer of wood from the Project area and it manages its own harvesting and logging on the basis of working circles. However, both GOT and Project management recognize the need for rational management and harvesting of the Project's forest resources on an integrated basis, particularly once the pulpmill becomes operational. For this purpose GOT commissioned a study by consultants in 1980 which has identified a number of possible institutional arrangements for managing and harvesting the Project's output on an integrated basis. Although GOT has not yet made any decision, it is expected that a rational decision would be made in line with the sound advice it is receiving from the consultants. During negotiations assurances were obtained that GOT would consult IDA before any institutional arrangement for integrated management and harvesting of the forest resources in Sao Hill is decided upon and that GOT would have estab- lished such institutional arrangement before June 30, 1983.  - 27 - B. Markets 5.07 The major consumers of the Project's output of round logs would be the existing Sao Hill sawmill and the Pulp and Paper Mill currently being constructed at Mufindi. Their respeciive installed capacities, in termi of annual log intakes, would be 45,000 m (r) for the sawmill and 283,000 m (r) for the pulpmill. The sawmill has been operating since 1976 and reached its rated capacity (single shift) in 1981. It is considered to be the most efficient mill of all TWICO sawmills and has been operated profitably. The pulpmill is scheduled for commissioning in 1984 and is expected to reach its full rated capacity in 1989. Prospects for its expansion beyond its initial capacity would be contingent upon future growth in markets for its products and its financial performance. On the other hand, TWICO plans to expand its sawmilling capacity in Sao Hill in the late 1980's and early 1990