Malawi - Transport Engineering and Services Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4793 PROJECT COMPLETION REPORT MALAWI - TPANSPORT ENGINEERING AND SERVICES PROJECT (CREDIT S-017-MAI) November 18, 1983 Industry Department 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT MALAWI - TRANSPORT ENGINEERING AND SERVICES PROJECT (CREDIT S-017-MAI) TABLE OF CONTENTS Page No. PREFACE ............................. i BASIC DATA SHEET .. ii HIGHLIGHTS .................................................... iii I. INTRODUCTION .................................................. 1 II. THE PROJECT .. 2 A. Project Preparation and Approval .......................... 2 B. Project Description and Objectives ........................ 2 III. PROJECT IMPLEMENTATION AND MANAGEMENT . . 3 A. Achieving Project Objectives .. 4 B. Project Management .. 5 C. Training .................................................. 5 D. Use of Consultants .. 5 E. Implementation Schedule ................................... 5 F. Supervision & Disbursements .. 5 IV. BANK ROLE ..................................................... 6 V. CONCLUSIONS ................................................... 7 A. Lessons Learned ........................................... 7 B. Future Action ............................................. 9 ATTACHMENT Comments from Borrower. ..................... 10 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.   (i) PROJECT COMPLETION REPORT MALAWI - TRANSPORT ENGINEERING AND SERVICES PROJECT (CREDIT S-017-MAI) PREFACE This report covers an Engineering Project to finance transport and other studies for the Viphya export pulp mill project in Malawi. The Bank first became involved with the Viphya project as executing agent for UNDP-financed feasibility studies in 1973. Subsequently, in 1974, the Engineering Project was undertaken in order to complete the range of project preparation activities required. Because of market developments, both the financial and the economic rate of return estimated for the now postponed Viphya pulp mill project are low. Thus, despite the extensive preparation and considerable efforts to attract foreign private investors to the project, it has not been possible to mobilize the large amounts of capital required. Nevertheless, the pine plantations on which the project was to be based are a valuable resource and there has been some success in developing and preparing a smaller mechanical wood processing project which will utilize a portion of the forest. Comments received from the Borrower have been taken into account in finalizing the report and are reproduced as an Attachment. This project has not been audited by the Operations Evaluation Department.   (ii) PROJECT COMPLETION REPORT MALAWI - TRANSPORT ENGINEERING AND SERVICES PROJECT Credit No. S-017-MAI BASIC DATA SHEET KEY PROJECT DATA (US$ million) As of June 30, 1983 Original Disbursed Cancelled Refinanced Outstanding Credit No. S-017-MAI 2.00 1.79 0.21 1.52 0.27 Cumulative Loan Disbursement FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 (i) Planned Not specified. (ii) Actual 0.18 1.27 1.40 1.50 1.69 1.77 1.77 1.79 OTHER DATA Original Actual or Loan Date Reestimated Board Approval - 05/13/74 Loan Agreement - 06/13/74 Effectiveness - 08/28/74 Closing 06/30/78 06/30/81 Physical Completion 06/78 06/81 Borrower Republic of Malawi Executing Agency Viphya Pulp and Paper Corporation MISSION DATA Date of Month/Year No./Weeks No./Persons Manweeks Report Appraisal 11/73 1-1/2 3 4-1/2 12/08/73 Supervision 08/74 1 2 2 08/17/74 Supervision 10/75 1 2 2 11/08/75 Supervision 08/76 1 1 1 09/03/76 Supervision 03/78 1/2 2 1 03/28/78 Supervision 09/78 1 3 3 10/02/78 Completion 11/82 1/2 2 1 06/20/83   (iii) PROJECT COMPLETION REPORT MALAWI - TRANSPORT ENGINEERING AND SERVICES PROJECT (CREDIT S-017-MAI) HIGHLIGHTS The Bank first became involved in the Viphya Pulp Mill Project in Malawi in 1971, when it acted as executing agency in a UNDP-financed study of markets for products which could be manufactured from the extensive pine plantations of the Viphya plateau. Subsequent prefeasibility studies and feasibility studies were also financed by UNDP and executed by the Bank in 1972 and 1973. The studies indicated that the most feasible industrial development would be a mill to produce wood pulp for export. In view of the specialized technological and marketing aspects of such a project, it was clear that a qualified foreign partner already active in the pulp and paper industry would be essential. The Bank assisted the Government to identify prospective partners and joined preliminary discussions about the Project. Although the feasibility studies had been completed, further preparatory work was needed to enhance the Project's attractiveness to potential foreign investors. First, there remained major uncertainties about the mode and cost of transport from the mill site on Lake Malawi through Mozambique to likely pulp markets in Europe. Second, concerted tree planting was required to compensate for interruptions in the forestry program. Third, it was concluded that some preliminary engineering would help to firm up the project costs. To address these issues, a project preparation program was organized with a total estimated cost of US$6.4 million. Financing was arranged from the Government, UNDP, the United Kingdom and IDA. The IDA funds were primarily allocated to consultants fees for the transportation studies. These studies were completed in 1975. While the studies were being undertaken and subsequently until 1978, the Malawi authorities continued to attempt to conclude a joint venture arrangement with several foreign partners. However, during this time, a variety of factors including escalating project costs, declining world pulp markets, and the troubled situation in Mozambique, militated against the viability of the Project. In 1978, consultants were appointed to update all of the project and transportation cost estimates but it had become clear that the project was not viable. Subsequent efforts have been successfully directed towards identifying and preparing alternative mechanical wood industries, aimed at meeting the needs of the domestic market and using a portion of the Viphya wood resources.   PROJECT COMPLETION REPORT MALAWI - TRANSPORT ENGINEERING AND SERVICES PROJECT (CREDIT S-017-MAI) I. INTRODUCTION 1.01 Malawi's economy is predominantly agricultural, with few resources on which to build a significant industrial sector. Overall, industry accounts for only 10% of GDP, comprising mostly small to medium enterprises in agricultural related activities. Opportunities for industrial development based on import substitution were exploited before and after Malawi's independence in 1964 so that by the late 1960s, the only significant opportunities to broaden the country's economic sector by industrializing were in the export-oriented agricultural processing industries. 1.02 In Malawi, as in other African countries, the UK had experimented extensively with silviculture and had established several thousand hectares (ha) of plantations of exotic pines on the Viphya plateau in the northern sparsely settled part of the country. Under the prevailing soil and climatic conditions the growth of those pines was exceptionally good. By the mid-1960s, the idea of developing and expanding forest resources to provide the basis for an export-oriented forest-based industry was beginning to take shape. Further encouragement was provided by the widely held view that forest resources were being depleted worldwide, and that the paper needs of the world's economy would increasingly need to come from developing countries and that pulp and paper prices would rise to satisfy this growing demand. 1.03 Thus, with independence in 1964, the plantation program financed by the UK's ODA was accelerated. A number of forest industry preparation studies were carried out in the early 1970s culminating in a major prefeasibility study financed by the UNDP and executed by the World Bank with FAO assistance, which was completed in June 1973. This study recommended that the Viphya forests be used to produce bleached kraft pulp for the export market. The Government agreed with this conclusion and proposed to proceed with a project for a mill with a capacity of 150,000 tpy of pulp. This project, which at that time was estimated to cost about US$200 million, would be by far the biggest industrial undertaking in Malawi. Support was sought from the Bank group, UNDP/FAO and ODA for the further preparation of the project. It was agreed that foreign expertise would be required, both for technical assistance in the implementation and operation of the mill, and for marketing the pulp internationally. A joint venture arrangement was proposed, and the Bank assisted the Government to meet and initiate discussions with suitably qualified international pulp and paper companies. It was thought that the demonstrable interest of such a company in the Project would be supporting evidence of its commercial viability. It became apparent that one of the biggest concerns was the transport of pulp from the mill site on Lake Malawi to an Indian Ocean port for shipment to likely markets in Europe. There was insufficient information available concerning the cost and the technical problems to be overcome. Thus, the Transport and Engineering Services Project was prepared and appraised by the Bank in November 1973. 1.04 This completion report for the Transport and Engineering Services Project was prepared by Bank staff and includes information obtained from  -2- discussions with officials of VIPCOR and the Forestry Department during a mission to Malawi (the preappraisal of a subsequent Wood Industries Project) in November 1982. Some commentaries prepared by the Government in advance of these discussions are available in the Project File. II. THE PROJECT A. Project Preparation and Appraisal 2.01 The project was prepared by the Malawi Government authorities'/, ODA and IDA during 1973, after studying the Consultants' recommendation for an export pulp mill. The major objective was to carry out additional pre-investment investigations and provide technical assistance necessary for a final assessment of the pulp mill project. Following the request from the Government, a Bank appraisal mission visited Malawi in November 1973. 2.02 The appraisal mission discussed the preparation activities necessary for the pulp mill project with Government authorities and representatives of UNDP, FAO and ODA. They all generally agreed on a package of project preparation activities which would cost about US$6.4 million. ODA agreed to provide US$2.4 million for plantation activities. The UNDP/FAO undertook US$1.2 million of work to do a detailed feasibility study for the pulp mill and to provide initial technical assistance to VIPCOR. IDA agreed to consider a US$2.0 million credit for transport planning and additional technical assistance to VIPCOR, and the Government agreed to provide US$856,000 for local expenditures. The IDA mission issued its report on December 26, 1973. On May 13, 1974 an IDA Credit to the Malawi Government of US$2.0 million was approved for a period of ten years including five years' grace with a standard service charge. B. Project Description and Objectives 2.03 The Project, a part of a preparation program to promote and build the pulp mill project, included (i) consultancy services for transport planning, engineering and design; (ii) administrative, commercial, engineering and legal services required to assist VIPCOR to promote the scheme and negotiate with prospective partners; and (iii) a modest allocation to purchase some furniture and office equipment for VIPCOR. The consultancy services included two major studies: a Forest to Mill Transport Study and a Mill to Market Transport Study. 2.04 The preparation program for the pulp mill project also included pre-investment investigations on the following technical matters: (a) fuel and power requirements, and sources of supply; (b) transport requirements from the forest area to the mill and from the mill to the market including the design of facilities recommended; 1/ The Government created the Viphya Pulp and Paper Corporation (VIPCOR) to act as its executing agency and to enter into discussions with potential foreign private investors whose help was being sought to finance and implement the project.  - 3 - (c) hydrological and soil investigations to ascertain the suitability of the proposed mill and harbor sites on the shore of Lake Malawi; (d) environmental control; (e) wood extraction methods; (f) detailed forest inventory; and (g) training requirements for local staff. The project preparation program also included the necessary financing, management and marketing arrangements and the identification of capable and interested external parties with whom to make these arrangements. The tree planting program on the Viphya plateau, which had been suspended in 1970 when ODA began to doubt that an industrial development was viable, was to be resumed, also as part of the project preparation program. 2.05 When the Credit was made, market prospects for pulp, especially for the long fiber pulp that could be produced in Malawi, were judged excellent, and projections of future prices were favorable. Wood production costs at Viphya were (and still are) among the lowest in the world, but this inherent advantage of the proposed pulp project was offset by the high costs of transport over long distances to get the product to international markets. Thus, the feasibility studies which had already been undertaken showed that while the project was feasible, financial and economic rates of return would be marginal. The transport routes lay through neighboring Mozambique, which meant that Malawi would not have complete control of the transportation. 2.06 The objective of the Engineering Project financed by IDA was therefore to complement other assistance efforts to help Malawi (a) to secure suitable partners and negotiate contracts with them; (b) to determine the financial and economic advantages that would accrue to Malawi under the arrangements proposed by the partners; and (c) to execute those studies that would be of use regardless of the type of industrial plant to be constructed (e.g. identification and engineering of the road network required for the transport of logs from the forests to the mill site, and engineering of the transportation system from the mill to the markets). III. PROJECT IMPLEMENTATION AND MANAGEMENT A. Achieving Project Objectives 3.01 The transportation, planning and design studies, which constituted the major part of the project were virtually completed by October 1975, at which time consultants had submitted a Draft Final Report entitled "Pulp Mill Transport Systems Planning." Other consultants had completed, somewhat earlier, a Draft Final Report on "Road System Planning and Design Study" along with draft tender documents for the recommended roads. A supervision mission in October 1975 discussed these reports and tender documents and, subject to relatively minor changes, the mission and  -4- Government were in agreement with the findings and conclusions of the consultants. Very little of substance happened over the next three years as VIPCOR sought unsuccessfully to find a foreign partner. Costs were escalating rapidly and with the lack of foreign interest, there was increasing evidence that the pulp mill project was not viable. Cost estimates for the transport systems were updated in July and August 1978. Cost estimates for the pulp mill itself were updated in 1977 which also confirmed that the capital costs of the project were too high to justify proceeding with the construction. Final design of the limited port facilities required was not carried out because VIPCOR had not made a decision on the basic method of cargo transfer at lake ports, since by that time it had become apparent that the pulp mill project was not going to proceed. Most of the engineering study results, particularly those relating to forest roads, however, are useful for develoz ent of either a sawmill industry or a pulp mill in the future. 3.02 During the course of the Project, VIPCOR receiTed all the consultancy and administrative and commercial services and training, and all of the office equipment, which were included in the project scope. Both the services and equipment were necessary for VIPCOR to execute its tasks. VIPCOR staff obtained useful experience in the contacts with consultants and potential partners. While no technical partner was found who was seriously interested in the pulp mill project, almost all of the work, including the transportation studies, has relevance in the scaled-down project proposals which are now being actively pursued. 3.03 The main objective of the Engineering Project, the commercial utilization of the Viphya forest resources, has not yet been realized. Soon after the approval of the Credit, a number of difficulties arose which could not have been foreseen. In the first place, a rapid decline in pulp prices occurred in 1975-1976 in common with the worldwide slump in commodity prices that occurred after the overly rapid build up of prices in 1973-1974. At the same time, inflation rates remained high, increasing the projected capital and operating costs of the pulp project. Exacerbating these major changes in the external economic situation, which can be seen clearly in hindsight but were not at the time of appraisal, are some internal problems which affected the management of VIPCOR, and external transport problems affecting Malawi's export/import traffic following independence in Mozambique (in June 1975). Various reviews of the scope of the pulp mill project were instituted in the 1976-1980 period, including a project updating study which was included in the Project scope in 1977. In 1981, a decision was taken to postpone further consideration of building a large pulp mill. This deferral is likely to continue unless pulp prices improve substantially in real terms and a reliable transport system is determined, neither of which is likely to occur in the foreseeable future. Meanwhile, the domestic market for mechanical wood products has grown to the extent that a more modest project aimed at meeting local needs can be considered. B. Project Management 3.04 The Project was executed by VIPCOR, whose responsibilities included negotiation with consultants, reviewing of reports, and coordination of the activities relating to the Project with appropriate  -5- local organizations and the Government. In the early years VIPCOR received assistance from technical and financial specialists who helped to strengthen its management. They were funded by UNDP/FAO and by CIDA. No funds from the Credit were used for individual specialists assigned to VIPCOR, although financial advisory services by a US Bank to help promote the pulp mill were funded by the IDA Credit. 3.05 Throughout its existence, VIPCOR has been headed by Mr. L.S. Mihowa as Coordinating Officer and General Manager. He is responsible to a five-man Board of Directors, the Chairman of which is Mr. J.W. Tembo who is also Governor of the Reserve Bank of Malawi. The original VIPCOR staff was small but now totals 40, including chemical, civil, electrical and mechanical engineers who have been trained abroad in anticipation of the original large scale pulp and paper project. The training program was funded by UNDP and most staff are currently seconded to Government parastatal organizations in Malawi, but are available to VIPCOR when their services are required. C. Training 3.06 Training was included in the comprehensive program of the pulp mill project, but was not originally in the Project description. However, a training component was added to the project scope in 1980, and subsequently, a part of the Credit was directly used for training purposes. In addition, the VIPCOR staff obtained valuable training by executing the Project and through contact with the several consultants. D. Use of Consultants 3.07 The Project retained consultancy services for transport and project updating studies from three consulting firms, and also for the administrative and commercial sectors through a US bank which was engaged as financial advisor of the project. The several consultants were appointed under terms and conditions acceptable to the Bank and followed their respective Terms of References. Both VIPCOR and IDA were satisfied with their performance. E. Implementation Schedule 3.08 The major part of project implementation (the consultants' studies) was completed within the estimated schedule, i.e., by 1978, but because the pulp mill project did not turn out to be viable, the schedule was extended to allow time to develop the appropriate strategy regarding an alternative project. F. Supervision and Disbursement 3.09 Five supervision missions were carried out through the duration of the Project. These were normally associated with other missions, or with meetings which had been called to discuss specific project developments. UNDP/FAO and, later CIDA, funded and supported professional staff that were attached to VIPCOR, and frequent informal contact was maintained with these development agencies. Meetings were also held with VIPCOR staff in Washington and elsewhere, and informal contacts with the consultants were maintained. Several times throughout the Project, Bank  - 6 - staff reassessed the pulp mill project's economic viability and when there was sufficient final documentation in 1978 from the several consultants' studies available, the Bank recommended to the Government that the pulp project be deferred. The Government was reluctant to take any formal action in this regard, but in view of the obvious difficulties in attracting a technical partner and mobilizing the necessary capital funds, it was clear that implementation of the project in the short-to-medium term was not likely. Overall, the Project was adequately supervised in the sense that no different conclusion would have been reached with more frequent supervision missions to Malawi. However, as discussed in paras 5.05 and 5.06, a different approach and more supervision could have resulted in reaching the final recommendation to defer the project sooner and with less money being spent. Since 1978, the Bank has worked with the Government on a possible alternative, but smaller project in Viphya. One such project, based on mechanical wood industries, is now being appraised. 3.10 The allocation and overall disbursement of the IDA credit are given below: IDA Credit, 1974 Actual (US$ '000) Consultancy 1,310 1,693 Administrative and Commercial Services and Training 415 51 Office Equipment 55 48 Unallocated 220 - Total 2,000 1,792 Undisbursed 208 The Credit was closed on April 27, 1981 and the remaining undisbursed funds, US$208,000, were cancelled. IV. BANK ROLE 4.01 Since Malawi's independence in 1964, development agencies, including the Bank, have played a continuous role in the development of the Viphya wood resources. Immediately after independence, FAO played a leading role among the external agencies and sent missions to review the possibility of building an industry to be based on the Viphya plantations. The Bank took over the leading role in 1970 when it executed a UNDP-financed study of pulp markets that could be supplied from Malawi. The study was encouraging enough to prompt the Government, UNDP and the Bank to organize a follow-up prefeasibility study of a pulp mill in 1972. FAO was asked to assist as the Bank did not have its own technical staff at that time. The outcome of the prefeasibility study was the organization, largely under the guidance of Bank staff, of the US$6.4 million program of activities to prepare the pulp mill project. 4.02 It was planned that VIPCOR would manage the program after it was established at the end of 1973, and that the development agencies would play a more passive role. Internally VIPCOR's effectiveness in management and decision making developed more slowly than anticipated but this did not  delay overall project execution. Externally, a number of unanticipated changes jeopardized the viability of the pulp mill project. First was the uncertainty about the security of export transportation caused by the worsening political climate within Mozambique after its independence. The second problem, which developed more slowly, was the decline in world pulp prices; and the third was a continued escalation of capital and operating costs. Consequently, the pulp project became less economically viable than originally projected. 4.03 The Bank's role in this period was that of firstly monitoring the transportation studies which were considered useful for preparation of either a sawmill industry or a pulp mill project, and secondly examining the viability of the pulp mill from time to time. As it become more obvious that the viability was in serious doubt, the Bank began to look at alternative uses for the Viphya wood resources. The period of re-examination lasted from 1978 to 1981, when the pulp mill was postponed indefinitely, and the decision taken to use the resource for sawn timber, panels, and possibly paper for local consumption. The Bank group, including IFC, is now playing a key role in the examination of the these alternatives. Given the generally recognized shortage of project management staff in Malawi, the Bank and other development agencies have played, and are playing, a useful role in getting a project organized and implemented to utilize the Viphya wood resource. Thus, although international pulp and paper companies continued to express some interest in the Project, none was prepared to commit equity funds nor to enter into guaranteed marketing agreements. The indication of commercial viability which was being sought (para 1.03), was not forthcoming. 4.04 One can question whether setting the present, more realistic goals could have been done more effectively, and particularly whether Bank staff were sufficiently critical in the preparation and appraisal period. No fault can be taken with the fundamental position that an engineering exercise was necessary to determine the best way to provide comprehensive information concerning infrastructure and transport requirements and that management assistance was needed for VIPCOR. However, given the known magnitude of these problems, one can ask whether more caution should have been taken in proceeding with a project with a marginal economic return. One can also question why there was not a continuing process of review, so that the conclusion not to proceed with the pulp mill project could have been reached earlier than 1981, and efforts and funds could have been redirected toward pursuing alternatives before the funds were fully spent. At least in part, this can be attributed to the Government's early strong resolve to proceed with the project, and its reluctance to divert from this objective, even in the face of mounting negative evidence concerning the project's worth. These questions should, of course, be directed to both the Malawian authorities as well as the development institutions involved. V. CONCLUSIONS A. Lessons Learned 5.01 Engineering projects should be appraised critically giving attention to controlling costs and dividing project implementation in  -8- stages, as appropriate, so that the project can be stopped (or altered) after review in the event of adverse developments. This is difficult to do in cases like that of the proposed Malawi pulp mill, where firm resolve on the part of the Government leadership tends to push things along despite adverse developments, and where a large number of development agencies are involved cooperatively in the integrated package of project preparation activities. Nevertheless, the expenditures could have been phased so that that a hold could be put on them, if a subsequent phase appeared uncertain or unnecessary. In particular, the Bank's early insistence that the viability of the project be confirmed by firm expressions of interest from foreign technical and marketing partners who would be prepared to invest in the project, should have served as a basis for reducing expenditures. 5.02 In the case of the transportation engineering work funded by the Credit, a conceptual engineering phase could have been clearly separated from detailed engineering work, and a careful review of the status of the pulp project arranged between these two steps. As it was, the conceptual and detailed engineering work were both authorized when the consultancy contracts were let, and only a minimum of technical review took place. 5.03 On the other hand, even though most of the project preparation funds were spent, and some perhaps without benefit to Malawi, a second lesson is that unusually large, complex and risky projects should be evaluated carefully, in an engineering or preparation phase, before the commitment to the construction phase is made. Had not the engineering approach been adopted, a situation could have developed where Malawi was not only politically, but also financially, committed to the construction of an export pulp mill and large sums of money have been spent before the full realization was reached that the project was not viable, largely due to unforeseen events. Thus, the engineering/preparation approach was the right one. 5.04 A third lesson is that, although the development of the forests and the pulp mill are inextricably linked, there is a vast difference in the timing of the two developments due to the long lead time to get the plantations established. It takes from 15-30 years to get plantations established before a pulp mill or other industrial plant based on them can be developed. As a result, the outcome of the Engineering Project, namely not to proceed with a pulp mill, does not demonstrate that the decisions in the 1950s to plant trees, and in 1964 and 1973 to expand the plantations were then incorrect. It does, however, demonstrate the necessity to remain flexible in planning uses of plantations, and not to judge, a priori, that they will be used for only one purpose, and one purpose only. 5.05 Tough decisions face countries like Malawi, Zambia, Madagascar, and Congo - to name a few - where for various technical and historical reasons, demonstrated success has been achieved in establishing thriving plantations on land likely to have few other uses, but where the internal market for the products of the plantations is limited and infrastructure and transport limitations are large. In an expanding global economy, export pulp could be a viable option. However, in today's economy, doing nothing for the moment except to update studies, may actually be the best option. An in-between choice, which is that now being proposed in Malawi, is to put part of the resource into mechanical wood products for the local  - 9 - market. This in-between option requires far less capital expenditure, it is more labor intensive, is more flexible in the possible range of products, and most of them are quite suited to local markets, and--with careful planning--it need not exclude the possibility of one day also producing pulp for export and/or local markets. This is a fourth lesson that has been learned from the project. 5.06 Lastly, a fifth lesson learned is that engineering projects should be closely supervised. Indeed, they may well be the best opportunity for Bank staff to work closely in project development to direct project formulation to best possible solutions. With the benefit of hindsight, one can say that more supervision could have taken place in the difficult years from 1975-1978, in order to reduce the expenditure of project preparation funds and efforts. On the other hand, the Government has been unusually sensitive to external intervention in the direction of the Viphya pulp project, and had reacted strongly to any assessment which could be seen as casting doubt on the viability of the pulp project. Because of these circumstances, more vigorous supervision efforts were considered counter-productive. B. Future Action 5.07 When the Bank and the Government finally agreed in 1981 that the pulp project was not likely to proceed in the foreseeable future, it became possible to consider more modest, domestically-oriented mechanical wood industries projects to utilize the Viphya resources. 5.08 At present, the Government and the Bank are working together to develop a project for restructuring the wood industries sector in Malawi. The efforts include: (i) A Viphya based sawmill/panel mill complex, sponsored by VIPCOR, and being jointly developed with KfW and the Bank. The output would be largely for the domestic market; (ii) Restructuring of three existing sawmills in south Malawi to upgrade their performance and better utilize available wood resources; (iii) A joint effort with IFC to promote a small, viable paper project in south Malawi, largely for the domestic market; and, (iv) Several studies on alternative uses of Viphya resources and overall development of forest and forest-based industries in Malawi.  I  - 10 - ATTACHMENT VIPHYA PULP AND PAPER CORPORATION lWlMED Tele.: VICOGR. U13w. Ia~peqiN..2267 Tdq=-m: Butms 633 E991633 130 h IpO_/6 Tds :4157 VIPCOR BLANTYRfE P.O. BOX 1252 CQ m_ o mid I. ad t..db c-ONWW omewBATR MALAWI COMMENTS RECEIVED FRnM THE BORROWER 25th August, 1983 Mr. Shiv S. Kapur, Director, Operations Evaluation Department, The World Bank, 1818 H. Street N.W, Washington DC 20433, U.S.A. Dear Mr. Kapur, RE: PROJECT COMPLETION REPORT ON MALAWI - TRANSPORT ENGINEERING AND SERVICES PROJECT (VIPHYA EXPORT PULP ENGINEERING PROJECT (CREDIT S-017-MAI) I acknowledge with thanks receipt of your letter dated 26th July, 1983 on the above subject. I have read the Project Completion Report with great interest and I agree with the contents subject to the following minor points:- Para 3.05 (i) Mr. J.W. Tembo should read J.Z.U. Tembo (ii) After mechanical engineers add "and five professional accountants. The sentence should now read as follows:- The original VIPCOR staff was small but now totals Comments ) 40, including chemical, civil, electrical, mechanical incorported ) engineers and five professional accountants. in PCR. ) (iii) After UNDP add Malawi Government. The sentence should now read as follows:- The training programme was funded by UNDP and the Malawi Government. The point is that while the engineer training programme was funded by UNDP, the accountants training programme was funded by the Malawi Government. 2 ---2  - 11 - ATTACHMENT :2: Apart from these very minor amendments, we have no objections to the publication of the report and we look forward to receiving a copy of the final report in due course. Yours sincerely, CO-ORDINATING OFFICER