Tanzania - Sao Hill Forestry Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4548 PROJECT PERFORMANCE AUDIT REPORT TANZANIA SAO HILL FORESTRY PROJECT (LOAN 1307-TA) June 13, 1983 Operations Evaluation 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. ABBREVIATIONS EEC - European Economic Community FAO/CP - Food and Agriculture Organization, Co-operative Program IBRD - International Bank for Reconstruction and Development ICB - International Competitive Bidding IDA - International Development Association IERR - Internal Economic Rate of Return ILO - International Labor Organization NORAD - Norwegian Agency for International Development OED - Operations Evaluation Department PCR - Project Completion Report PM - Project Manager PPAM - Project Performance Audit Memorandum SIDA - Swedish International Development Authority TWICO - Tanzania Wood Industry Corporation FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT TANZANIA SAO HILL FORESTRY PROJECT (LOAN 1307-TA) TABLE OF CONTENTS Page No. Preface ............................................................ Basic Data Sheet ................................................... Highlights ......................................................... PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT SUMMARY ...................... ..............1.... II. MAIN ISSUES .............................................. 4 A. Integration of Forestry, Sawmilling and Pulp and Paper Production ...................*............... 4 B. Financial and Economic Rates of Return ............... 5 Annex lA - Comments from Government ................*................... 9 Annex lB - Comments from Government ................................... 13 PROJECT COMPLETION REPORT I. Introduction ............................................ 21 II. Pre-Project Developments .............................. 25 III. Implementation ............................ 37 IV. Operating Performance ................................... 47 V. Institutional Performance and Development ................ 48 VI. Financial and Economic Re-Evaluation ..................... 50 VII. Bank Performance ..................... 53 VIII. Environmental Impact ........................................ 55 IX. Conclusions ................................................. 55 Annexes 1 - 10 Map IBRD No. 15896 - Sao Hill Forestry Project Plantations 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.  PROJECT PERFORMANCE AUDIT REPORT TANZANIA SAO HILL FORESTRY PROJECT (LOAN 1307-TA) PREFACE This is a project performance audit report on the (first) Sao Hill Forestry Project in Tanzania, for which Loan 1307-TA in the amount of US$7.0 million was approved in July 1976. The final disbursement will be made and the Loan Account will be closed in June 1983, when the undisbursed balance of about US$700,000 will be cancelled. The Closing Date was originally scheduled for June 1982. The audit report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) prepared by the Eastern Africa Regional Office. The PPAM is based on a review of the Appraisal Report (1107-TA) and the Presi- dent's Report (P-1875-TA) both dated June 18, 1976, and the Loan Agreement dated July 12, 1976. Correspondence with the Borrower and internal Bank memoranda on project issues, as contained in relevant Bank files, have been consulted. The audit mission has also reviewed documentation related to Sao Hill Forestry Project - Phase II (Appraisal Report, No. 3634-TA) and the Appraisal Report (No. 1929-TA) and other papers relating to Mufindi Pulp and Paper Project. The audit mission travelled to Tanzania in November/December 1982. Discussions were held in Dar es Salaam with the Principal Secretary, Ministry of Natural Resources and Tourism, and with the Director of the Forest Division and his staff. The mission visited the project plantations in Sao Hill and held discussions with the project manager and his staff. The mission also visited the sawmill in Sao Hill. The audit generally supports the conclusions in the PCR and agrees that forest production under this project has been successful. However, the audit emphasizes that, with the impending start-up of the Mufindi Pulp and Paper Mill, close coordination of plans for forest production, sawmilling and pulp and paper manufacture will be necessary. The audit also draws attention to the fact that pulpwood from the forest project will be used by Mufindi Pulp and Paper Mill and this project involves a very large investment and is expected to show a low rate of return. These issues are discussed in the PPAM. A copy of the draft report was sent to the Government of Tanzania and the substance of the comments received has been incorporated into the final document and the comments are reproduced in full at Annex 1. The audit mission wishes to thank the Ministry of Natural Resources and Tourism and the Forest Division for the valuable assistance provided during its visit to Tanzania.  PROJECT PERFORMANCE AUDIT REPORT TANEANIA SA0 HILL FORESTRT PROJECT (LOA-1307-TA) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Actual as % of Expectations Current Estimate Appraisal Estimate Total Project Costs (US$ million) 8.1 8.0 99 Loan Amount (US$ million) 7.0 6.3 90 Date Physical Components Completed 12/81 12/31/81 - Proportion Completed by above Date (see Key Indicators, PCR, Annex 1) - Economic Rate of Return (2) 13.5 21.Q/1 - Financial Rate of Return (%) 10.0 10.4 - Institutional Performance Unsatisfactory - Agronomic Performance Good - Number of Direct Beneficiaries (i.e. permanent employees 285 plus balance casual labor) 1,200 approx. 1,000 83 PROJECT DATES Actual or Original Plan Estimated Actual Board Approval 07/76 07/01/76 Loan Agreement.Date 07/76 07/12/76 Effectiveness Date 10/76 10/06/76 Closing Date 06/82 06/83 CUMULATIVE DISBURSEMENTS (see PCR, Annexes 2 6 3 for details) FY77 FY78 FY79 FY80 FY81 FY82 FY83 Appraisal Estimate (US$ million) 0.15 1.25 1.95 3.15 4.80 7.00 7.00 Actual (US$ million) 0.10 0.76 2.10 3.50 4.90 6.20 6.30 Actual as percentage of Estimate 67 61 108 111 101 89 90 MISSION DATA Sent Date No. of andays Specializationq of Performange Types of Mission by (Month/Year) Persons in Field Represented.b a Trend./d Probl eaL Identification FA0/CP 12/73 1 5 f - - - FAO/CP 03/74 5 5(est.) f - - - Preparation FAO/CP 07/75 3(est.) 20 f,e - - - Appraisal IBRD 09/75 3 30 f,e - - - Sub-total 14 60 Supervision 1 IBRD 08/76 1 10 ae 2 - T Supervision 2 IBRD 05/77 1 10 f 2 2 M,T Supervision 3 IBRD 12/77 1 5 f 2 1 0,T Supervision 4 IBRD 07/78 1 6 f 1 1 - Supervision 5 IBRD 03/79 1 7 a 2 2 0 Supervision 6 IBRD 11/79 1 7 f 1 1 - Supervision 7 IBRD 03/80 1 12 f 1 2 0 Supervision 8 IBRD/PA0 05/81 4 5 f,a,e,fa 1 2 M,T,0 Supervision 9 IBRD 10/81 2 5 f. fa 2 2 M,T,0 TOTAL 127 OTHER PROJECT DATA Borrower Goverment of Tanzania Executing Agencies Sao Hill Fore&try Project Unit (under the Forest Division, Ministry of Natural Resources) Name of Currency (abbreviation): Tanzania Shilling (TSh) Appraisal Year Average: US$1.00 - TSh 8.05 Implementation Years Average: US$1.00 - TSh 8.13 Completion Year Average: US$1.00 - TSh 8.25 Follow-on Project Name Sao Hill Forestry Project - Phase II Credit Number 1229-TA Amount US$12.0 million Date Board Approval April 13, 1982 Fiscal Year: July 1 to June 30. /a As estimated in the PCR. The audit believes this is overestimated. 79 as - agricultural economist; a - economist; f - forester; fa * financial analyst. ? 1 - Problem-free or minor problems; 2 - moderate problems; 3 - major problems. /d 1 - Improving; 2 - Stationary; 3 - Deteriorating. le M - Managerial; P P Political; T - Technical; 0 - Other.  - iii - PROJECT PERFORMANCE AUDIT REPORT TANZANIA SAO HILL FORESTRY PROJECT (LOAN 1307-TA) HIGHLIGHTS The project planned to develop forest plantations in the Sao Hill area in the Southern highlands, primarily to supply the new pulp and paper mill being developed at Mufindi, and to provide logs for sawmills. The project provided for the establishment of 15,750 ha of new plantations and the maintenance of 11,100 ha of existing plantations. The project included construction of forest roads, firebreaks and project buildings. The project has been implemented, fairly successfully. The appraisal targets for plantation development have been exceeded and present indications are that the growth rates for trees have been satisfactory, especially for the principal species, Pinus Patula. However, progress with auxiliary project activities, such as construction of forest roads, firebreaks and buildings has been less satisfactory. Progress with these have been hampered by nationwide economic problems, including serious shortages of fuel, spare parts and building materials. The project has been followed by Sao Hill Forestry Project Phase II. The new pulp and paper mill at Mufindi is scheduled to start opera- tions in 1984. This is a very large and expensive component which is expected to show a low rate of return. Estimates made in July 1982 put the total project cost at US$281 million and the economic rate of return at 6%. As the pulp and paper mill will be the principal user of logs from Sao Hill, the success of Sao Hill Forestry Project in producing pulpwood, is to some extent overshadowed by this large mediocre mill. Some of the other lessons learned and points of interest are as followsi - the proje t has not employed an experienced financial controller as planned.l Project accounts and financial analysis have been unsatisfactory. It has not been possible to calculate the stumpage rates which should be charged by the project in order to cover plantation production costs. The project shows a financial rate of return of only 6.8% based on existing stumpage rates (PPAM, para. 9 and 18); 1/ See Government comments (Annex lA, para. 3.02 and Annex 1B, para. 3) for explanation. - iv - - with the impending start up of the pulp and paper mill, close co-ordination of forest production, sawmilling and pulp and paper manufacture will be necessary. A forest management plan should be prepared to provide a detailed forecast of forest production and the allocation of this to sawmilling and the pulp and paper mill (PPAM, paras. 10 and 13 - 17); - under the original project proposals, plantations for sawlogs would be managed differently and harvested separately from pulpwood plantations. It has now been decided that a uniform system of plantation management will be introduced. Government has agreed to prepare a detailed plan for integration of harvesting and logging; and - the original plans for Mufindi Pulp and Paper Mill called for its use of coal for fuel. It is now believed that insufficient coal will be available in Tanzania and the factory intends to use wood for fuel. This wood fuel will come primarily from the plantation in Sao Hill and this use will reduce the amount of wood available for other purposes, especially sawmilling (PPAM, para. 15). PROJECT PERFORMANCE AUDIT MEMORANDUM TANZANIA SAO HILL FORESTRY PROJECT (LOAN 1307-TA) I. PROJECT SUMMARY 1. This was the first project in the forestry sector in Tanzania to be supported by the Bank Group. Detailed project proposals were prepared by FAO/CP in 1974, the project was appraised in September/October 1975 and it became effective in October 1976. The original project proposals included plans to develop forest plantations in both Sao Hill and in Ruvu (Coast Region). However, the latter were subsequently dropped due to disappointing results from the first plantations in Ruvu. The project was confined to the Sao Hill area where the principal aims of the project were to establish 15,750 ha of new pulpwood plantations and maintain 8,800 ha of pulpwood and 2,500 ha of sawlog plantations. In addition, the project provided supporting facili- ties for the plantation development program, including construction and maintenance of forest roads, firebreaks, buildings and staff houses, machinery and equipment, project management and studies of water availability and road design for the Mufindi pulp and paper mill. 2. The project has been followed by Sao Hill Forestry Project - Phase II. This provides continued support for the developments started under Phase I plus development of another 10,000 ha of new plantations. These projects are closely related to development of the Mufundi Pulp and Paper Project, which is scheduled to start production in 1984. This is a substantial project supported by several donor agencies, including the World Bank. It is located close to Sao Hill and would be the principal user of trees produced in Sao Hill. Some of the project forests would produce sawlogs, which would be milled in the Sao Hill area. At present, there is one sawmill in Sao Hill operated by the Tanzania Wood Industry Corporation (TWICO). 3. Total project costs were estimated at appraisal to be T.Shs.65.3 million. Actual project costs amounted to T.Shs.$64.8 million or 99% of the appraisal estimate. Although total expenditure was almost exactly the same as the appraisal target, physical achievements were significantly below expec- tations for some components. 4. This has been a relatively straightforward project from the point of view of implementation. It was implemented by a single agency, the Forest Division, which has considerable experience with forest plantations. The project was able to exceed the appraisal targets for plantation development, the principal project activity. The total area of new forests planted under the project amounted to 17,800 ha, and this was 13% higher than the appraisal target of 15,750 ha. The results of an inventory carried out recently indi- cate that, on average, the plantations will be able to achieve the yields - 2 - estimated at appraisal. Performance so far from the main project species, Pinus patula, has been good, although the growth of Pinus elliotti, which was planted in part of the project area, has been disappointing. 5. Implementation of subsidiary components was less satisfactory: Due to a large extent to high mortality in nurseries and young plantations, it was necessary to produce 65% more seedlings than expected at appraisal. Construc- tion and maintenance of firebreaks were about 90% and 73% respectively of appraisal targets. For road construction and maintenance, actual achievements were only 39% and 19% of the appraisal targets. In the case of buildings, the project was able to complete only about 47% of the amount expected, and construction of some of these was only partly completed at the end of the project period. 6. The failure of the project to achieve most of its subsidiary tar- gets, such as construction of roads and buildings, can be attributed primarily to the impact of nationwide economic problems. For example, roads could not be constructed on time or maintained adequately because spare parts and fuel for road-making equipment were frequently not available. Building construe- tion was behind schedule because of a serious shortage of building materials. Mortality was high in forest nurseries because fuel was sometimes not avail- able for pumping water needed to irrigate seedlings, and plastic containers in which to plant seedlings were in short supply. Implementation also suffered from frequent staff changes and a shortage of experienced staff. There have been several project managers during the course of the project period, it has not been possible to recruit an experienced financial controller, and no mechanical engineer was employed to supervise the project workshops. The project has thus not complied fully with one of the covenants in the Loan Agreement which required that the Borrower should employ a roads/piechanical engineer after consulting the Bank (Loan Agreement, para. 3.02).!' For Sao Hill Forestry Project - Phase II, appointment of an Assistant Project Manager (Finance and Planning) and a Workshop Manager has been made a condition of project effectiveness. 7. Apart from the generally disappointing results with construction and maintenance of project infrastructure, the failure of the project to complete all of the required firebreaks and to maintain fire fighting equipment in a fully operational condition has meant that the plantations have been exposed to higher than expected fire risks. Although the project has experienced only small losses from fire, it is located in an area with a long dry season where fire risks are potentially a serious threat. 8. In addition to development of the forest plantations at Sao Hill, the project included financial support for two studies designed to assist with development of the pulp and paper mill at Mufindi. One of these, which involved a study of the suitability of water supplies for the pulp and paper 1/ Borrower's explanation is set out in Annex 1A, para. 3.02 and Annex IB, para. 6. The project did employ a civil engineer to supervise road construction, but no mechanical engineer was employed to supervise the project workshops. The Loan Agreement was rather unrealistic in ex- pecting that one engineer would be appointed to fulfill both of these functions. - 3 - mill, was carried out successfully by overseas consultants using project funds. The other study involved preparing the design for a road down the escarpment between the forest plantations and the pulp and paper mill. This study was carried out during the project period but it was supported with funds from the European Economic Community (EEC), not with project funds. 9. One area of project implementation which has been unsatisfactory concerns project accounts and financial analysis. The project did not succeed in employing an experienced financial controller as planned. This post was filled by a Government Grade III accountant. As a result, the project accounts were never kept satisfactorily and expenditures were not classified correctly according to the principal project activities. Partly for this reason, the forest economist employed by the project was not able to complete the analysis of project costs which was to form the basis of calculations of stumpage rates, that is, the fees which need to be charged for pulpwood and sawlogs in order for the project to recover production costs. As these calculations have not been completed, it is unclear what stumpage rates should be charged by the project and how these rates would affect the financial viability of the sawmilling and pulp and paper industries which use these forest products. Analysis of these stumpage rates will be ndertaken as a matter of urgency under Sao Hill Forestry Project - Phase II.1 10. Another area of concern relates to the need for a forest management plan. Based on the forest inventory completed in 1980, and planned new forest plantings, this would provide a detailed year by year production forecast for all of the forests in the Sao Hill/Mufindi area, including pre-project, Phase I and Phase II plantations. It would show the total production of pulpwood, sawlogs and woodfuel, by species, and the allocation of these to the consumers in the sawmilling and pulp and paper industries. Government has agreed to prepare a management plan every five years, and that for the first five years would be completed by July 1983. In addition to this overall management plan, a plan for the integration of harvesting and logging operations is also required. This has not been necessary so far because the TWICO sawmill has been the only user of forest products. Now that the new pulp and paper mill will soon start operations, Government has agreed that a new company will be formed to coordinate and implement harvesting operations, and a detailed pla for integrating harvesting and logging will be prepared by June 1983. 2 11. The PCR reestimated the economic rate of return from production of pulpwood at 22.7% compared with 13.5% estimated at appraisal. However, the audit believes that it is difficult to estimate a reliable rate of return for pulpwood production as a separate project, in the way done in the PCR. The 1/ Although the forest economist employed by the project was expected to carry out an analysis of stumpage rates during the project period, the Borrower has pointed out that the Loan Agreement did not require that new stumpage rates be introduced until January 1985 for Eucalyptus and January 1992 for pines (see Annex 1B, para. 7). 2/ For further comment by Borrower, see Annex 1A, para. 2.A, and Annex 1B, para. 8. -4- project has been successful in terms of producing pulpwood, but if pulpwood production and processing is treated as a combined project, this will be seen to be an expensive project with a low rate of return..1 12. For sawlogs, the PCR reestimated the economic rate of return at 20.2% compared with 21.5% at appraisal. Sawlogs show a higher rate of return than pulpwood, and it was decided during project implementation to change the system of plantation management in a way which will increase the proportion of forest production which can be used as sawlogs. II. MAIN ISSUES A. Integration of Forestry, Sawmilling and Pulp and Paper Production 13. Forest products from plantations in the Sao Hill area, including pre-project, Phase I and Phase II plantings, are intended primarily to serve the needs of Mufindi Pulp and Paper Project and local sawmillers. In order to plan for the rational utilization of forest products, a long-term manage- ment plan is required for all forests and processing industries in the area. Although a plan has not yet been prepared, Government has agreed under Sao Hill Forestry Project - Phase II to prepare a working plan every five years, with the first five year plan to be prepared by June 1983. A forest inventory was completed in 1980, and this, together with plans for additional plantings, would provide the foundation on which a management plan could be based. This would include year-by-year production forecasts for each species, with allocations for pulp and paper manufacture, sawmilling and fuelwood. 14. The audit does not believe that over a period of years total forest production from the Sao Hill area will be significantly out of line with the requirements of the processing industries. However, the PCR for Phase I shows that production of pulpwood and sawlogs from new plantings under the project would be very uneven from year to year because the original plantings were concentrated in just a few years. This information should be aggregated with production data from all other forest plantations in the area in order to see if total production of pulpwood, sawlogs and fuelwood matches the processing industries' needs each year and to provide a foundation for a detailed har- vesting plan. 15. The way in which forest plantations in Sao Hill will be utilized will probably be changed significantly because Mufindi Pulp and Paper Project now expects to have difficulty obtaining sufficient coal fuel, as planned originally, and it would like to change over to wood fuel. Although the plantations in Sao Hill will apparently be able to meet the factory's needs for wood fuel, this change will reduce the amount of wood available for other purposes, notably for sawlogs. 1/ The Borrower comments that further studies are being carried out (Annex lA, para. 2.B). - 5 - 16. The original proposals in the appraisal report for Sao Hill Forestry Project - Phase I were based on the assumption that there would be separate working circles for sawlogs and pulpwood; the sawlogs would have been har- vested on a 25-year cycle and the pulpwood over a 15-year cycle. The sawmill and the pulpmill would have organized their own independent logging opera- tions. It has now been decided that there should be one cambined working circle for both pulpwood and sawlogs. This would last for 'i years and the best timber would be allocated to the sawmill, wh le most thinnings and small trees would be used by the pulp and paper mill.,V This is the normal system of management in most countries where pulpwood and sawlogs are grown in the same area and it has the obvious advantage that different types of trees are used for the purposes for which they are best suited. However, with a unified system of plantation management, it is desirable to have a unified system of harvesting trees, rather than have the sawmills and the pulp and paper mill organize their own independent logging operations. The Government of Tanzania has agreed that a unified system for forest management and harvesting should be instituted. This may involve the creation of a separate company or organi- zation to control harvesting operations, although the audit understands that the TWICO sawmill in Sao Hill would still prefer to make its own arrangements for harvesting. The details of exactly how this harvesting organization would function have not yet been decided, although Government has agreed to let IDA know its plans for this by June 1983. As the pulp and paper mill is scheduled to start operations by mid-1984, it is becoming urgent that decisions be taken about the arrangements for harvesting, for the necessary equipment must be ordered well ahead of the start of operations. 17. In concluding this section, the audit would like to emphasize the need for coordinated action by the Ministry of Natural Resources and Tourism (Forest Division), the Mufindi Pulp and Paper Project (Southern Paper Mills Company Limited) and the Sao Hill Sawmill (TWICO) in preparing an overall forest management plan and a plan for integrated harvesting and logging. B. Financial and Economic Rates of Return (a) Financial Rates of Return 18. The PCR for Sao Hill Forestry Project shows that the project would have a financial rate of return of 6.8% based on existing stumpage rates (Shs 90/m3 for sawlogs and Shs 32/m3 for pulpwood). This is not satisfactory. During appraisal of Sao Hill Forestry Project - Phase II, higher stumpage rates, which it was thought would be adequate to cover forest production costs, were estimated to be Shs 157/20 for sawlogs and Shs 55/66 per m3 for pulpwood. On the basis of these estimated stumpage rates, the PCR demon- strates that Sao Hill Forestry Project - Phase I would show a financial rate of return of 10.4%. Similar calculations have been made for the pulp and papermill (July 1982 Supervision Report) and these suggest that this would show a financial rate of return of 7.3% using the revised estimated stumpage rate for pulpwood (Shs 55/m3). Thus, although the forest project shows a 1/ Or for fuelwood, in view of the possible change-over of the pulp and paper factory to wood fuel. - 6 - financial rate of return of 10.4%, which may be considered satisfactory, the financial rate of return is still low for the pulp and paper mill with this stumpage rate. It has not yet been possible to make an accurate estimate of actual stumpage rates based on the forest project's production and financial data, although this should have been completed during Phase I. This will be done under Sao Hill Forestry Project - Phase II and Government has agreed to complete this by June 1983. The possibility exists that this analysis will demonstrate that an even higher stumpage rate is required than that suggested earlier, and this would clearly have an adverse effect on the financial position of the pulp and paper mill and the sawmill. (b) The Economic Rate of Return 19. The PCR has estimated the economic rate of return from the sawlog and pulpwood components separately. For sawlogs the PCR estimates the rate of return to be 20.2%. This is very similar to the rate of 21.5% estimated at appraisal. For pulpwood, the PCR estimates that Sao Hill Forestry Project would show a rate of return of 22.7%, although the PCR acknowledges that the rate of return would be lower if production of pulpwood and pulp and paper processing were viewed as an integrated project. At appraisal, the economic analysis treated forest production and pulp and paper manufacture as an integrated operation and estimated the rate of return to be 13.5%. The economic analysis in the PCR has estimated an economic price for pulpwood, through deducting pulp and paper processing costs and harvesting and transport costs from the value of the pulp and paper produced. The estimated economic price for pulpwood has then been used to value pulpwood output from the forest project and to calculate the economic rate of return for pulpwood production separately from pulp and paper processing. In estimating this economic price, the PCR has incorporated certain assumptions, which were accurate at the time of appraisal of Mufindi Pulp and Paper Project but are no longer valid today. In particular, the economic analysis in the PCR has assumed that pulp and paper produced at Mufindi would all be used in Tanzania and should therefore be valued at import parity, for it would replace imports. Information pre- sented in a recent supervision report (July 1982) for the pulp and paper project indicates that the project now expects to export a significant propor- tion of its output during the early years, when factory capacity will exceed the size of the domestic market. For example, the supervision report suggests that in 1990 exports would amount to about 39% of total production. The price per ton of pulp or paper exported would be significantly lower than the landed cost of imported paper. If the export surplus produced by the project were valued at export prices and the balance of production at import parity, this change would make the economic rate of return from pulpwood production lower than that shown in the PCR..1/ 1/ The audit is not in a position to assess the export market prospects for pulp or paper produced at Mufindi, but the factory could experience difficulty in finding suitable markets. - 7 - 20. The audit would also like to mention that in the analysis undertaken for the PCR of the forest project, the procedure used for estimating the economic price of pulpwood, through deducting average processing, logging and transport costs from the value of the final paper products, is subject to a very large margin of error. Although, :n general, this procedure is satis- factory, in this instance it is unreliablL because the residual (the economic price of p(,)wood) is so small in relation to the processing costs and the final product price. Thus, a small error in estimating either of the latter becomes a very significant error in the residual price being estimated. In the calculation for the PCR, the economic price of pulpwood would have fallen to zero if the price of paper products had been only 14% lower, or the pro- cessing and logging costs had been only 17% higher than those used in the analysis. 21. In order to carry out an economic analysis of pulpwood production and pulp and paper processing, the audit believes that the most satisfactory procedure is to undertake an analysis of the combined operations of pulpwood production and processing, although the available data do not permit this to be done as part of the audit. Any attempt to analyze pulpwood production separately from processing must involve some approximation in placing a price on pulpwood. If separate rates of return are estimated, it is clearly es- sential that the same price is used for valuing pulpwood as an output to the forest project and an input to the pulp and paper mill. In this instance, the economic analysis of pulpwood production in the PCR has used a different price for pulpwood from that used in the most recent economic analysis of the pulp and paper mill (July 1982 Supervision Report). This makes comparison of the two projects more difficult. In the PCR for the forestry project, pulpwood has been valued at US$19 per m3.1/ In the July 1982 economic analysis of the pulp and paper project, standing pulpwood has been valued at US$8.00 per m3. If, in order to make the two calculations comparable, the rate of return for pulpwood projection is recalculated using the same value for pulpwood as that used in the analysis of the pulp and paper project, pulp- wood production shows a return of 13.8% as compared with 22.7% suggested in the PCR.V/ Even this rate of return can be achieved only through making a very large investment in the pulp and paper mill, which itself is expected 1/ This is Shs 318/m3 at an exchange rate of Shs 16-50 to one US dollar. This is based on the economic prices calculated during appraisal of Sao Hill Forestry Project - Phase II (see the PCR, para. 6.04, and the Phase II Appraisal Report, Annex 2, Table T-2.8). 2/ The audit has used the figure of $8.00 per m3 for this calculation, because this is the only value which can be used with the available data for both projects, not because the audit feels that the figure of $8.00 per m3 is necessarily the most accurate figure. The data available for the rate of return analysis for the pulp and papermill do not permit the rate of return to be recalculated using a price other than $8.00 per m3. - 8 - to show a return of only 6.3%.1/ In the July 1982 Supervision Report, the total project cost for the pulp and paper project was estimated to be US$281.5 million, including working capital and interest during construction. The audit has not been able to discover how the price of US$8 per m3 of pulpwood was arrived at in the analysis of the pulp and paper project, and the audit is not sure if this is an accurate value to place on pulpwood.!/ However, whatever price is used, so long as pulpwood is valued at the same price for both projects, one is forced to conclude that the overall result of both projects is that a very large investment has been made and this promises to show a low rate of return. It is not realistic to look at pulpwood production in isolation, because large quantities of pulpwood have no alternative use other than pulp and paper manufacture. I/ With no costs treated as sunk costs and with a shadow exchange rate of T.Shs 16 equals one US dollar. 2/ The person who did the analysis has left the Bank. CONFIDENTIAL - BNBY Or NAItRAL awm MW DRM Tehme: Masw6" ft a Gm. aFlo DIVISM. TIM,hm: ftr mufsUn. NArmAL B&W or Comuace, ft M* O sub QGocz 'u Amm. P.O. Bo= 426 hn as SMIAAM. .. W...cf/12/79.. 20th April, 1983 Shiv S. Kapur, Director, Operations Evaluation Department, The world Bank, 1818 H Street, N.W. Washington, DiC. 20433, U. S. A, Dear Sir, RE: PROJECT PERFORMANCE AUDIT REPORT ON TANZANIA SAO HILL FORESTRY PROJECT (LOAN 1307 - TA) Refer to your draft report of 22/2/83. Comments will be given where the Forest Division will not. agree with the text. 1. Project Summary: 1o comments. The gover.i%ent aree with the reasons given for the failure of the project to implement some of the subsidiary components satisfactority. 2, Main Issues: A. Intergratiag of Forestry, Sawmilling and Pulp and Paper Production: A five year working plan is under preparation and it will be ready before June, 1983. The idea of using fuelwood,in the Sao Hill Pulp and Paper ?Jill was not highlighted during the preparation of phase I. We would like to have more indormation. The creation of a separate company to control the harvesting operation is still under preparation. It will not be possib for the company to become operational by June 1983,"6 the economic problems facing the country. B. Financial and Economic Rates of Return: No comments, except further studies are being condu- cted by our Forest Economist at Sao Hill. COMMENTS ON COMPLETION REPORT: ..... /2 1. Introduction - 10 - .a. A No comments Ya - 2, pre-project Developments NO comenzs. 3. Implementations: 3.02 The appointment of the Financial Controller and Road Mechanical Engineer was delayed because several Ministries are involved. The Fina#Sial Controller was appointed through the Ministry of,Finance and Manpower, and the Road Mechanical Engineer-through the Ministries of Works and Manpower. The Road Mechanical Engineer appointed was actually a civil Engineer, thus, he didlnt have suitable qualification. 3.03 Start - up: The survival rate -f .ees planted in the field at the start-up of th project;ecause of drought and the project was using26ighforts were made to im3pve it by using polythne tubes* 3.04 (a) Building programme: We agree with the reasons given for the delay of the Building Programme. However, in the future building contra- ctors will be sought, so that the project staff put more effort on the afforestation programme, 3.04 (b & c) Vehicle and Equipment: There were delays in placing orders and receiving spares for the project. This will be minimized in Phase II by the appointment of internationally recruited workshof Manager. 3.05 Building Costs: The building costs increased du. to increase labour costs and building materials-cement, corrugated iron, fuel sheets etc. 3.06 Revision: We agree with the minor changes made by the Project Management to the appraisal recommendations. IMPXLEENTATION SCHEDULE: 3,07 Introduction - No comments 3.08 (a) Surveys: Soil survey is very important especially in the 2nd rotation. We recommend that the World Bank, to provide funds for construction of a 'min-lab, purchase of.equipment for analyses of soil samples and filiar at Sao Hill, -11- - (b) Nursery/Seedling production: The survival rate of plants in the first two years was very low, because o:f drought and using Swaziland beds. Hence e efforts were made to produce more seedlings for replanting Nursery costs will be improved during the implementation of Phase II by appointing an intermationally recruited Assistant Project M1anager(inance and Planning) and by using polythene tubes and by stopping using earthballs-rurther research on this in needed. (c) Land preparation: No comments. (d) planting: As in (b) Efforts will be made to select seed from seed stands established in other projects. (e) Replanting: No comments. (f) Weeding: Chemical weeding is not a promising alternative to mechanical weeding due to foreigh exchange component an unavailability. (g) Pruning: Efforts will be made to purchase jore pruning equipments to reach the set target. (g) Forest Managerment and Silviculture: Arrangements are been made by the aifferent parties concerned to form one Harvesting Company which will distribute raw- materials to the pulbpmill and sawmill. 3.09. Five protection: No comments. 3.10-3.11 Road construction and maintenance; An internationally recruited Workshop TManager will 6c appo- inted in-phase II to manage the project Workship, hance the problem of maintenace of contruction equipment will be minimized. 3.12 Building: Building contractors will be used during phase II. 3.13 Research Activities: Provision for laboratory services has been included in phase II for soil analysis. 3.14 Staff Training: No comments. 3.15-3.17 Studies/Aerial Survey: NO comments. Ans1A -12 - 3.18 Reporting: No comments. 3.19 Accounts and Audits: Efforts are been made to look for a qulified government Accountant who will perform the Financial Controller's Job. 3.20 Procurement: The Forest Division is starting a Procuring Unit which will clear and forward project consignments. 3.21 Costs: As in (3.19) 3.25 - 3.25 No comments. (B. S essy) for: ACTITG DIL.CTOR OF FORESTRY CONLNTI ALl - 13 -i Pag 1 ME - &IM OP TAEA MIRY OF NATURAL N n URC AND TOURM Telp: OMMaNaIa," VM N SUAW. FRm DvLswonK Telpho: Dr a 2m 2721. NATIONAL BANw OF COMMERCE, In ome glasb,ek CIaz, TowEn Bun.DIN. .O. Box 426. Da as SAas. Ra.NorD/33/23/87Dmn&Aw R e . N . .................................. 13th May, 1983 Shiu S. Kapur, Director, Operations Evaluation Department, World Bank, 1818 H. Street N. W. Washington D.C. 20433 U. S. A. Dear Sir, RE: SAOHILL FCREST PROJECT le have Coae througn the report and have made a few comments on some of the sections, We hope that our comments will facilitate completion of your final report, a copy of which we are eagerly awaiting. Yours sincerely, P. . Kimariyo Acting Director of Forestry for PRINCIPAL SECIZZT 01' MNISTIRY OF1 NATURAL RES'URCL) AN L - L4 - (RUE PT 1.. gatgas* the statement in para 6 (page 3) that implementation suffered fz%om frequest staff changes and a shortage of experienced staff is too general and misleading. Major staff changes - with due repla- cements and additions occurred in 1977 and thereafter most of the staff have remained in the Project except for the project Manager and the first Financial Controller who was duly replaced upon resigation. 2. Staff Shortages: Shortage of experienced staff especially in the Workshop and to some extent in the Finance Section is, however, true but this resulted from a short-fall in Phase I in detailing the number and calibre of staff required to support these sections. 3. Recruitment of a Financial Controller: To say that it was impossible to recruit an experienced Financial Controller (see para 6 pg. 3 or PM report) is also $iAleading. The Bank Agpduring negotiations that the project could use an Accountant who should retain the title of Financial Controller. The suggestion by the Tanzania delegation was based on the fact that the project is a part of-the Forest Division and not a corporate body. The employment of Government Accountants as "Financial Controllers" in the project has enabled the pvoeot to observe Government accounting regulations. This is reflected in the Annual Proj ct Audit reports by Government Auditors. Due credit should be given to the Finance Section for observing Government accounting procedures during tIhe period. 4. Classification of Expenditure According to principal Categories: This may not have been satisfactorily because:- (a) the finance section was understaffed and as a result most of their time was spent on preparing, checking and paying wages and other bills and following these .. ../2 - 15 - Annes 18 - 2 - Page3 up to the eventual payment. After paLVents the few people in the section cooperated to separate the payment vouchers and batch tIem according to Government standing regulations and to preppare financial statements and re-imbursement claims. Attempts to classify the expenditure were made but lack of enough staff tied up the Financial Controller's time on small icsues most of the time. 5. Analysis of Project Cost & Cost Controllep One of the $asks of the "Forest Economist" was to assist in the setting up of proper plantation records and of a costing system as well as to assist in all management, administrative, budgetary economic and financial matters. Due to the broadness of the terms of reference, the specialist did not have time to assist in setting up a cost system as well as Budgetary control measures. This task was left to an already over. worked finance section. 6; Compliance to the Gonvements in the Loan Agreement: The statement that "the project has thus not complied with one of the covena to in the loan agreement which required that the borrower should employ a financial controller and a Road/Mechanical Engineer after consulting the Bank" is false. The convenant was complied with, Firstly, the Bank agreed during negotiations that the project could employ an accountant who should retain the title of Financial Controller, Secondly, the CV of the first Financial Controller were submitted to the Bank before his appointment. The CV of the second Financial controller was also submitted to the World Bank before his appointment. As regards the road/mechanical engineer, it must be noted that it was (and still is) difficult to find such a specialist. We, however, recruited a Civil Engineer with bias in roads after submitting his CV to the world Bank. It is the project management unit which pointed out the urgency of employing a Mechanical Engineer - thus having two posts - Civil and Mechanical. Attempts to recruit the Mechanical Engineer staggered to the end of the period. 6-.1 3 Pag 4 7 Stupage Rates: During negotiations the Tknzania delegation indicated that in Tanzania royalties rather than stumpage tates were being charged, Consequently, all rates are parawnational and that any attempts to introace stumpage rates at Sao Hill in!solation of the other softwood and hardwood plantations in the country may present some problems. It was for this reason that it was agreed that the Government would introduce stumpage rates by January 1, 1985 for eucalyptus and Januaryl, 1992 for pines. The timing of the stumpage rates concides with the time when the first plantations of the mentioned species planted during Phase I would be harvested (see Report No, 1307-TL para 7.01). The stumpage rates to be applied at Sao Hill would therefore be differentiated between the pre-project and project plantations and would be adjusted especially for the sawlogs to be in line with the national stumpage. rates. In short, an accurate estimate of actual stumpge rates of the industrial plantations was not expected to be completed during Phase 1, but data should have been collected/accumulated, 7 Integrated Harvesting and Logging Plan: This is very pertiment and is a logical consequence of a unified management system. 9t' Financial & Economic Rates of Return: Your comments are very relevant and nothing short of an analysis combining the operations of wood production and precessing will give realistic attainable rates of return. The production of wood is not an end because the wood has to be processed even where the wood is not used as fuel wood,-telephone/electricity poles or mining timber. B - Comments on the Project completion report Only a few remarks are made on this report. 1. Para 3.08 Ce) - Replanting: The clearfelled areas carried pines and aot eucalyptus. 2. P.ara 3.13 - Research Activities: The reference to the PAO teams as having helped the Phase I research activities is out of context. The FAO consultants were requested to-wards the end of Phase 1 to advise on some tree physiological, solvicultural and fire protection measures with a view of improving management practices during Phase II. ............. /4 - 17 - 4 AnAz 13 Pae 5 3. Para 3,19 - Accounts and Audits: It is not true that the Project lacked its own budgetary controls, costing and other internal controls agaomst errors, fraud, watage, cost overruns etc. Due credit should have been given to controls set up by the project staff especially from 1977/78 to the end of the project. The few e.rrors revealed by Government Auditors as well as the few frauds noted by our budgetary control system, should not mar the good efforts by the projeci staff and especially the everworked and understaffed Finance Section. It is not true that there is little information on how effective the first financial controller was. Even if we were not asked a close perusal of the finance files at the project should have indicated how effective he was. He did the best he could as an Accountant acting as a financial controller and much of the efficiency which appeared after his departure was a direct consequence of the foundation he had laid down for project accounting. He deserves credit. Thirdly, to say, "his relacement, a Government grade III Accountant, turned out to be inadequate for the project's needs" is to admit that the Mission did not note that the first Financial Controller was also a Government Grade III Accountant. If the Mission was referring to his personal aptitude then this should have been a confidential subject with a copy to the incumbent. rourthly, The Mission seem to take Sao Hill Forestry Project as an Industrial Plantation Corporation. Sao Hill Forestry project was and still a government Department - hence the problems encountered - i.e. trying to use commercial/industrial accounts within a Government department, Probably the Bank should have asked the Government to form a Sao Hill Industrial plantations Corporation. This was neit er done during Phase I nor Phase II and Sao Hill Forestry ject remains a aovernment Department. 4. Para 3.20 - Procurement: Due credit should be given to the project for taking time to familiarize itself with the procurement procedure. Zhis paid divided because the project adhered to the Bank procurement procedures most of the time. The part-time Procurement Officer at Dar es Salaam played a very vital role in our precurement and although he had a lot of other divisional work to perform, his performance was very good. We are really grateful to him for his efforts in seeing project procurements go through the proper government - 18 -i pap 6 procedures/insViVuZIOns at Dar es Salaam; clearance of project consignment at the port and the eventual transportation of project consignments to the project. She Bank was very co-operative with direct disbursements ad this facilitated the achievements of some project targets which would have failed or fell short. 5, para 3,21 w Gestas The biggest short-fall was that expenditures were not properly allocated to the relevant categories. This will be closely followed in Phase II. 6, para A. 04 w Concenantas See para 6 of the comments on the Project Performance Audit HemoranduM above. lurthermore, the replacement of staff was adetuate and fairly prompt even in the accounting section, Given the fact that the first financial controller resigned, no one would expect the Government to find his replacement quickly as there are no accountants waiting the resignation of others to be.employed. Even if there were such accountants, sometime would be required for the screening and final selection? The aerial photographic survey was not carried out because the area had been covered by the National serial survey programme during the later years of the project. The aerial photographs from the national survey were considered suitable for forest mapping as well. This was a blessing to us. 7, para 5.02 - Staffing: Most of the material in this para should be a confidential subject,. 8. para 5.03 - plantation Work Plans, Workstudy and Costing: It is not true to say that these vital areas were neglected. The Appraisal report - 1307-TA, was accepted as the basis for working plan and all Annual plans of operation were based on it, Work study was carried out on various operation andf-tbe data was used in our management practices. The name is true of costing, Bank Missions and Project Management emphasized these vital but areas but staffing problem hindered prominent action. ......./6 - 19 - 6 sa Anes3 Palo 7 10. Para 9.01 - Concected Efforts" I concur fully with the conclusions regarding the very valuable ind dedicated support by all parties involved in implementing the project. Lastly, these comments have been made off-the-cuff on the topics in the report which I have had something to do with from the preparation to the implementation of Phase I. I have found the Project completion report to be thorough, well presented and very revealing on the shortfalls though explanation of these short-falls is sometimes too general to be misleading. In future the sections dealing with personal performance should be separated from the main report in order to avoid demoralization. I hope our good cooperation will continue at the same level or even higher. yours sincerely, for Prine pal secret Prepared by: M.C.P. Mtuy, Project Manager, c.c. Principal Secretary, Ministry of Finance, .P.O. BOX,9111, Dar es Salaam.  - 20 - TANZANIA SAO HILL FORESTRY PROJECT - PHASE I - Loan 1307-TA COMPLETION REPORT November 23, 1982 Eastern Africa Projects Department Southern Agriculture Division  - 21 - TANZANIA SAO HILL FORESTRY PROJECT - PHASE I, Loan 1307-TA Project Completion Report I. Introduction 1.01 This report has been prepared by Messrs. Sengamalay (Financial Analyst) and Wagner (Forester) of the Southern Agriculture Division, who conducted the completion mission in September/October 1981, as part of the last supervision of the Sao Hill Forestry Project - Phase I. Agriculture and the Forestry Sub-Sector 1.02 Agriculture has dominated the Tanzanian economy over the years, and in 1981, it accounted for about half of Tanzania's GDP and about 80% of its export earnings. As part of its policy on agricultural, rural and natural resources development, the Tanzanian Government has since the early 1960's endeavoured to develop a National Afforestation Program, with the view to achieving a viable forestry sub-sector. The Government's policy on forestry has been basically aimed at: (a) acquiring sufficient land for afforestation in order to achieve an ecological balance and to meet future wood requirements; (b) introducing effective controls and management of indigenous forest reserves in order to curtail their decline, and re-afforesting those areas with fast-growing species, and (c) promoting a commercially viable forestry sub-sector through appropriate research, extension, and pricing of forest products. 1.03 Nearly half of Tanzania's land area (about 40 million hectares) is generally classified as forest land. About a third of this forest land con- sists of protected forest reserves, while the balance is natural woodlands which have generally been unprotected and fast disappearing, especially in areas with high population pressure. Most of the area under natural forests is Miombo (Savanna) woodland composed of slow-growing and scattered indigenous trees which do not yield much commercial timber, except for about 900,000 ha of closed indigenous forests which are said to contain a considerably larger proportion of high-value trees. However, due to low stocking of marketable timber per hectare and relative inaccessibility, only about 22% (about 200,000 ha) of the 900,000 ha of closed indigenous forests is estimated to be commercially exploitable. The indigenous forests provide most of the fuelwood and timber for the rural population, and on mountain slopes they serve as catchment forests controlling water flow and preventing soil erosion. Around 1.6 million hectares ... 6/ - 22 - have been gazetted by the Forest Division, Ministry of Natural Resources, as catchment forests and in recent years about TSh 1.0 million (US$ 110,000) have been spent annually on their protection and management. 1.04 There are about 60,000 ha of softwood plantations which have been established by the Government up to 1981, and of these about 50% are in the Sao Hill area (Iringa Region) and about 3,000 ha in Buhindi (Mwanza Region). The rest are scattered throughout the country. Prior to the commencement of the IBRD-financed Sao Hill Forestry Project - Phase I, in 1976, there were about 11,000 ha of existing plantations in the Sao Hill area. The area under plantation has increased by about 18,000 ha during the project period 1976-81 Sao Hill and the Mwanza Region are the areas most suited for expanding the softwood plantations. 1.05 Reliable data on production and consumption of wood do not exist in Tanzania. However, wood production comes mainly from the unprotected natural woodlands and about 90% of it is used as fuelwood and poles. The bulk of fuelwood consumption is for domestic purposes. Wood for industrial use accounts for only about 10% of the total production. According to official statistics, the country's supply of logs averaged 195,000 m3(r) during 1978-80. As often some pitsawyers do not declare their consumption in order to avoid payment of stumpage fees, the full production is not recorded and the official figures are therefore considerably understated. It would be realistic to estimate the actual production at about 450,000 m3 which would be consistent with the estimated national demand for timber of 481,500 m3. 1.06 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 adequately reflect the important role played by indigenous forest resources 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. 1.07 Similarly, the contribution of the forestry sub-sector to Government revenues is small, largely because about 90% of the total consumption of forestry products in the 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. 1.08 Tanzania's forest industry has a limited range of products which include sawn timber, plywood, fibre board, particle board, poles and fuelwood. Sawailling dominates the industry and consists of about 100 operating sawmills most of which are small and privately owned and operated with obsolete equipment. - 23 - Total production of the sawmilling industry was estimated at 190,000 m3 in 1980, of which the Government-owned parastatal,Tanzania Wood Industries Corporation (TWICO) accounted for less than one-third. There are two plywood factories with a combined rated capacity of 9,000 tons per year, a fibre board factory with a capacity oJ 9,000 tons per year, and a particle board mill with a capacity of 9,000 a per annum. All these factories are owned and operated by TWICO. 1.09 The Mufindi Pulp and Paper Mill with a capacity of 60,000 tons per year is scheduled to commence production in 1984. This mill is owned by the Southern Paper Mills Company, another state-owned enterprise and is partly financed by the World Bank Group (Loan 1650-TA and Credit 875-TA). The Pulp and Paper Mill is situated in the Sao Hill area and once in production would be the main beneficiary of the Sao Hill Forestry Project in addition to TWICO, who are already utilizing the earlier plantings for saw logging. 1.10 The Forest Division within the Ministry of Natural Resources has overall responsibility for forest development, protection\and conservation. All forest reserves 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. 1.11 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 its size and overall importance, reports directly to the Director of Forests. The Survey and Inventory Section is responsible for all survey, mapping and inventory work of the Forest Division. The Manpower and Trading Section is responsible for personnel administration, education, and training. 1.12 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. ... 8/ - 26 - Bank Group and Bilateral Assistance to Forestry 1.13 Since joining the Bank Group in 1963, Tanzania has received 53 IDA credits and 19 Bank loans amounting to US$ 1,024.3 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 Develop- ment 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 consisted of projects that are designed to improve general support services for the agricultural .sector (i.e. credit, storage, and marketing etc.). A third group of projects is centered on specific crops or sub-sectors (i.e. tea, pyrothrum, dairy, fisheries, and forestry). 1.14 The Sao Hill Forestry Project, Phase I (Loan 1307-TA), approved in 1976, and Phase II (Credit 1229-TA) approved in April 1982, are the only projects financed by the Bank Group to assist in the implementation of the Govern- ment's long-term program which is aimed at developing forest resources to meet the country's requirements for timber and wood products. The Bank Group has also financed two Rural Integrated Development Projects in Tabora and Mwanza- Shinyanga which have forestry components aimed at establishing woodlots by villagers and district authorities to meet the demand for fuelwood and poles in these areas. The implementation of these components and of Phase II of the Sao Hill Project is still at an early stage. 1.15 GOT is also receiving both financial and technical assistance (on a 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 of existing mills) and long-term investments (consisting of expanded production capacities outside existing mills). Expansion in Sao Hill is planned in both the medium and the long term. ... 9/ - 25 - II. Pre-Project Developments Origins u :he Project 2.01 The origins of the project date back to 1964/66, when the Tanzanian Government initiated preliminary studies on the possibility of establishing a large-scale export-oriented pulp and paper industry. Three such studies 1/ were carried out by Messrs. Sandwell & Co., a Canadian consulting firm, which indicated that there were two suitable areas in the country for the establishment of the pulp and paper industry; viz. the coastal Ruvu region, about 40 miles from Dar eas Salaam, and Mufindi in the Sao Hill (Iringa) region situated at about 400 miles from Dar es Salaam. The Sandwell reports favored setting up of the pulp mill in Ruvu due to its proximity to the port of Dar as Salaam and the resulting better rate of return (22% gross financial rate of return in Ruvu as opposed to 14% in Mufindi as estimated at that time). In order to feed the proposed pulp and paper mills, the Sandwell reports had recommended the establish- ment of large-scale forestry plantations in the respective areas. 2.02 Based on these studies, the Government of Tanzania in 1966, sought financial assistance from the Bank Group and other overseas sources for a program to establish pulpwood plantations. An FAO/IBRD/CP mission visited Tanzania in 1967, to see whether the project was suitable and the mission's report concluded that there was insufficient technical evidence to justify pine plantations on a large scale. Furthermore, there were uncertainties on the location of the pulp- mill. It therefore recommended that intensive pine establishment trials be carried out in the Ruv region, for a period of five years after which the possibility of Bank Group financing would be reviewed. Although the Mufindi area had more favorable growing conditions, its long distance from Dar es Salaam and inadequate transportation facilities made it less attractive for a project, as the proposed mills were of very large scale (170,000 tons per annum in Ruvu, and 136,000 tons per annum in Mufindi). 2.03 From 1967 to 1972, the Forest Division of the Government's Ministry of Natural Resources, assisted by SIDA Forestry Experts, had planted in total about 2,500 ha of pine and eucalyptus in the Rum region. Similarly, in the Sao Hill area, too, plantings had continued since 1966, but on a modest scale based on availability of funds. By 1972, about 7,000 ha had been established in Sao Hill, and by 1976, when the IBRD-financed project commenced, there were about 11,000 ha of existing forestry plantations in the Sao Hill area. A second feasibility study was carried out by FAO (Consultant Arne Sundelin) in 1970, for a mill in Rum with 240,000 tons per annum capacity based on increased world pulp prices during that 1/ (a) Pulp and Paper Development Survey, Sandwell, V1454/1 of 1/31/64; (b) Mufindi Pulp Project, Sandwell, V1454/2 dated 12/23/64; and (c) Rum River Pulp Project, Sandwell V1730/1 dated 8/31/66. ... 10/ - 26 - time. NORAD initiated a technical assistance program in the Ruvu area in 1972, with their team studying the pine and eucalyptus establishment techniques. The NORAD team was also working with staff of TWICO on the feasibility study for construction of a saw mill at Sao Hill with a round log intake of 27,000 m3, proposed to be implemented in 1974-75. 2.04 In the meantime, in 1972, a CIDA-financed feasibility study was done on the prospects of establishing a pulp and paper industry to supply the domestic market in Tanzania. Stadler Hurter, who were engaged on this assignment, reviewed the possibility of establishing the industry based on either bagasse, wattle or sisal waste. This project was proposed to be established as the Arusha-Chini Industrial Paper and Paper Board Scheme in northern Tanzania. However, this proposal did not make the necessary comparisons with other alternatives based on coniferous wood from the Ruvu region or appropriately consider Dar es Salaam as the main market for its products. In addition, TWICO had a proposal to develop its savailling and plywood industry as part of the forest industry development. 2.05 During the mid-1960's to early 1970's, two factors improved the economic prospects for establishing the export pulp mill, in the Sao hill/ Mufindi area. (a) Construction of the TANZAM railway which would pass right through the proposed project area, and (b) sharp increases in the world market prices for unbleached and bleached kraft pulp during 1972-73. Identification 2.06 A one-member FAO mission visited Tanzania in early December 1973, to review the forestry aspects of the Ruvu Pulpwood Project and/or other forest industrial projects. The mission was able to clearly identify four possible projects at that time for Bank Group financing based on the various studies on the forestry sector in Tanzania carried out up to that time. These were: 1. Ruvu Export Pulp Project, 2., Mufindi Export Pulp Project, 3. Arusha-Chini (Stadler Hurter) Paper and Paper Board Conversion Plant, and 4. TWICO Sawnilling and Plywood Program. The mission's first tentative estimates of the investment requirements over the period 1976-80 (first.phase) for development of all these projects amounted to about US$ 16.0 million. This figure was based on the establishment of 20,000 ha of plantations each in Ruvu and Mufindi, construction of an industrial paper conversion plant and financing 20% of the TWICO program. The estimated construction cost of a pulp mill (capacity 240,000 tons) in Ruvu at that time ..11/ - 27 - was US$ 112.0 million, and the total estimated investment program over a fifteen-year period (3 phases) in the forestry sector stood at around US$ 145.0 million. 2.07 The conclusions of the identification mission were as follove: (a) Ruvu region. Small-scale Pinus caribaea trial plantations established in the early 1960's, had survived, looked healthy, and were growing well. The large-scale plantations established by the Government since 1967, were extremely patchy and poor due to inadequate organization and management during the planting season, complete dependence on untrained casual labor and lack of funds for carrying out essential plantation maintenance. The eucalyptus plantations had started to die back due to lack of adequate moisture and further trials were recommended before undertaking large-scale eucalyptus plantations. Since the Sandwell and Sundelin studies, other agricultural or township water supply schemes had been initiated which would use much of the flow of the Ruvu river on which the pulp mill was to depend for water supply and effluent disposal. A proposal for damming the river needed to be studied further. Also, the Government planting program of 2,000 ha per year from 1975 to 1980, was found to be totally inadequate for the establish- ment of the pulp mill which would require a reserve of at least 70,000 ha. However, if the Government were to substantially increase its planting program and resolve the issue of water usage, the Ruvu project was found to be a commercially viable proposal with an expected gross rate of return of 20% on the investment, mainly due to the attractive world market prices for pulp. (b) Mufindi project. The Government's Forest Division had established between 1958 and 1964, about 3,600 ha of pine plantations which were growing well and the area under plantation had increased to about 7,000 ha by 1972/73. The area which consisted of rolling grassland at 2,000 m altitude with an annual rainfall of 1,000 am was found to have favorable growing conditions. The pulp mill site could be conveniently located in Mufindi on the Kigogo-Ruaha river. The suitability of this area had been enhanced by proximity to the TANZAM rail- way and increased world prices for pulp. (c) Arusha-Chini project. This was mainly based on bagasse from the sugar estates close to Arusha and had the disadvantage of being far away from its market in Dar es Salaam. The project was to be built in stages, increasing to 60,000 TPA by the year 1985. (d) TWICO Sawmilling and Plywood Program. As the detailed report was not available at that time, the identification mission could not review the proposals. It was expected to be ready for review by the project preparation mission. ... 12/ - 28 - Preparation 2.08 The FAO/CP Project Preparation Mission visited Tanzania during February 1974, and submitted its report in June 1974. The mission recommended to IBRD the financing of a five-year project which would establish 23,000 ha of industrial plantations in the Ruvu and Sao Hill regions. The plantations were expected to supply the raw material requirements of the pulp and paper industry. The project was intended to be the first phase of a twenty-year pulp and paper industry development program. the Following annual planting program was recommended: Table 1: Tanzania Forestry Project Proposed Phasing of Annual Planting Programme 1/ (ha) Year Ruvu Sao Hill Total 1 700 750 1,450 2 1,100 1,500 2,600 3 1,850 2,250 4,100 4 1,850 4,500 6,350 5 2,600 6,000 8,600 8,100 15,000 23,100 2.09 The preparation mission confirmed that in the Ruvu region the planting results were very poor. Therefore, it was proposed that the Government's program of 2,000 ha per year should be reduced to 700 ha and 1,100 ha in the first two years, respectively, in order to ensure more effective establishment techniques, and to allow time to strengthen Project Management. The mission also indicated that in the Ruvu region land considered suitable for pine pulpwood plantations exceeded 100,000 ha, and proposed that sufficient land should be acquired for the establishment of about 96,000 ha (net) of pulpwood plantations. 2.10 In the Sao Hill area, the Government forest reserves already covered about 35,000 ha of which by early 1974 about 9,000 ha had been planted with pine, the oldest plantations being about 20 years. Although the Government's planting target was only 800 ha per year, the mission felt that sufficient experience had been obtained by the Forest Division to justify an expansion of the planting program. The mission therefore proposed that the targets should be increased to 4,500 ha per year over a five-year period. The total land area suitable for industrial plantation was estimated at 80,000 ha out of which a potential net plantation area of about 60,000 ha was expected. 2.11 The project was envisaged as part of a long-term industrial forest development program, which would cover all the available area, both, in Sao Hill and Ruvu by the year 1991. The phasing of the plantation program is set out in the table below: 1/ Excluding fuelwood plantations for pulp mill. ... 13/ - 29 - Table 2 - Tanzania Forestry Project Proposed Phasing of Ruvu and Sao Hill Forestry Programmes Area to be planted (ha) Ruvu Sao Hill Total Approximate area of plantations assumed to be established by the time IBRD project commenced 2,100 8,800 10,900 Area to be established during period of first phase of IBRD project (say 1975-79) 8,100 15,000 23,100 Area to be established during period 1980-85, Phase II 47,400 21,000 68,400 Area to be established between 1986 and 1991, Phase III 38,400 18,400 56,800 96,000 63,200 159,200 2.12 The main species to be planted were Pinus caribaea in the Ruvu area and Pinus patula and Pinus elliotti in the Sao Hill area. Experiments were to continue with other species of pines in both areas. No eucalyptus plantations were included in the first phase of the project, because the mission considered it premature to do this until the viability of the pulp mill operation had been proven by more detailed study and its probable fuelwood and eucalyptus pulpwood requirements determined. Rotation of 15 years was proposed for all three species of pines. The expected yields over a 15-year rotation at that time were: Pinus caribaea (in the Ruvu area) 13 m3/ha/year (MAI) 1/ Pinus patula 15 m3/ha/year (MAI) Pinus elliotti 11 m3/ha/year (MAI) 2.13 The Project was to be implemented by a newly created "plantations unit" within the Forest Division of the Government's Ministry of Natural Resources. This unit was expected to have a headquarters in Dar es Salaam with two territorial organizations, one for Ruvu and the other for Sao Hill. The project costs (estimated at US$ 13.0 million with a foreign exchange component of 38%) included the financing of equipment for afforestation, road construction, 1/ Mean annual increment under bark. ... 14/ - 30 - installation of fire breaks and provision of administrative buildings and housing. Summary of the estimated project costs as follows: Table 3 - Tanzania Forestry Project Estimated Project Costs Local Foreign Total Local Foreign Total ---TSh million ---- --US$ '000 -------- Equipment 1 10 11 0.15 1.42 1.57 Road construction 1 1 2 0.15 0.15 0.30 Buildings & housing 7 1 8 1.00 0.15 1.15 Afforestation 25 8 33 3.45 1.15 4.60 Research & training 0 6 6 0 0.80 0.80 Administration 8 2 10 1.15 0.15 1.30 42 28 70 5.90 3.82 9.72 (US$ 10.0 million) Price escalation contingency 10% p.a. 20 2.80 Total Project Cost 90 12.52 (US$ 13.0 million) The project was expected to provide employment for about 1,200 people. 2.14 The pulpwood produced by the project was expected to form part of the raw material requirements of a 180,000 TPA unbleached kraft pulp and paper mill located in Sao Hill (supplying the.domestic market primarily), and a 240,000 TPA bleached kraft pulp mill in the Ruvu area which would be export-oriented, but also supply printing and writing paper to the domestic market. In accordance with the preliminary studies carried out up to that time, the Sao Hill mill was expected to proceed in two phases (50,000 TPA by 1985 increased to 180,000 TPA by the early 1990's). The Ruvu mill was expected to come on stream sometime between 1990 and 1995. During the time of project preparation, the Government had plans to undertake a detailed feasibility study on the pulp and paper mill project by consultants financed by NORAD. 2.15 The financial rate of return on the overall long-term pulp and paper industry program (estimated over a life of 38 years) including establishment of plantations, a logging industry, and pulp mill developments was expected at 12% and the economic rate of return 15%. The gross rate of return on total investments in the pulp mills alone was estimated at 14% for the 50,000 TPA mill and at 20% ... 15/ - 31 - for the two larger mills. No rates of return calculations had been made exclusively for the pulpwood plantation project; but the preparation mission had estimated an internal rate of return of 10% if saw logs were produced instead of pulpwood. It was also anticipated that in the event of a postponement, delay or'non-construction of the pulp mills, thq plantations could be treated as a saw log crop, producing saleable saw logs to the domestic market. 2.16 A two-member team (one from IBRD and the other from FAO/CP) visited Tanzania in mid-July 1974, to discuss the preparation report on the pulpwood project. Based on the report and discussions the team highlighted a number of actions which had to be taken by the Government before the project could be appraised. These were: (a) Aerial and preliminary land survey of the additional land required in Ruvu and Sao Hill areas, and the gazetting of such land as forest reserves; (b) initiation of soil and site quality surveys in all forest lands ear-marked for plantation establishment; (c) survey of labor availability in Ruvu and Sao Hill areas in relation to project requirement; (d) study of the possible effects of the projects on the population already living in these areas and determination of compensation etc. This study was expected to include competing claims for use of the selected lands, although both areas were found to be sparesely populated; (e) with regard to the establishment of the pulp mills, in addition to the detailed feasibility study, site surveys, damming of rivers, water availability, and the possibility of constructing access roads had to be looked into. 2.17 The Government through the National Development Corporation (NDC) appointed Jakko Poyry, the Finnish consultancy firm, to undertake the feasibility study on the pulp mills in December 1974. During March 1975, an FA0/CP mission visited Tanzania and Helsinki in order to review the progress made by the Govern- ment in taking the necessary steps as stated in para 2.16 above. In addition, a two-member IBRD pre-appraisal mission visited Tanzania in April 1975, for the same purpose. On review it transpired that the Government was having serious difficulties in the Ruvu area in obtaining the land identified in the FAO/CP preparation report due to counter claims by the Government's Livestock Agency. The low rainfall in 1974 further aggravated the problem of defining and acquiring suitable forest land in the Ruvu region. In the meantime, the Jakko Poyry report had proposed Mufindi (in the Sao Hill area) or Iringa (40 miles from Sao Hill plantations) as the locations for the pulp mill. The chances of Ruvu for the establishment of a large-scale plantation and pulp mill appeared to have diminished ... 16/ - 32 - considerably at this stage. Therefore, priority was given to the preparatory work at Sao Hill, leading to the project appraisal. The revised cost estimates for the Sao Hill plantation project alone stood at US$ 7.5 million at this stage with a target of 16,000 ha of pulp wood and saw log plantations. There was also mention of a separate Ruvu forest research project at an estimated cost of US$ 1.5 million. The Government decided that Mufindi would be the proposed site for the pulp mill with an initial capacity of 65,000 TPA. Appraisal, Negotiations, and Board Approval 2.18 The IBRD appraisal mission visited Tanzania from September 15, 1975, until October 8, 1975, as the uncertainty concerning the location of the plantations and the pulp mill had been cleared by then. The Government had also requested Messrs. Jakko Poyry to continue with the detailed feasibility study of the Mufindi pulp and paper mill. The appraisal mission identified the following issues before its departure: (a) One question was whether the proposed project should be seen as part of an ongoing program (i.e. with further plantations and an industrial investment in the future) or be limited to the initial effort of 16,000 ha. Although it appeared initially that both approaches could be used, on appraisal the project was to be considered as part of an overall plan which aimed at establishing and maintaining about 65,000 ha of pine and eucalyptus plantations. (b) Though the preparation report had chosen-to leave out the costing of existing plantations of about 10,000 ha in its economic calculations, the appraisal mission took into account the costs of the existing plantations and also their maintenance costs during the project period. (c) There were some eucalyptus plantations which belonged to private smallholders; whether more eucalyptus plantings on a smallholder scheme should be undertaken and if so, whether such plantations would be used for the pulp mill, needed to be decided by the mission based on the proposals by the Government's Forest Division. (d) Sufficient land for the initial project had been gazetted by the Government; however, the question of future land availability in the Sao Hill area had to be addressed. In addition, trials had to be conducted to establish the suitability of the low elevation areas at Sao Hill. (e) Although the proposed forestry areas were sparsely populated, the Government's proposal to resettle some people from the area in Ujamaa villages raised the issue of socio-economic impact of the project. The mission had to seek more information on the issue and on the opportunity cost of land under different circumstances. (f) As the Bank's Industrial Projects Department were handling the pulp mill project, there was some doubt as to the extent to which this appraisal mission on the plantations project needed to analyze the effects of the proposed pulp mill on the project. It was agreed that details of this issue would be taken care of by the IPD. ... 17/ - 33 - 2.19 On return, the appraisal mission prepared a post-mission issues paper on October 21, 1975, and the decision meeting was held on October 29, 1975. The issues were discussed and decided upon as follows: (a) The mission could identify sufficient land for a long-term forestry program. However, the land area gazetted by the Government had to be increased for this purpose and it was decided that this would be made a condition of loan effectiveness, although the Government had already indicated its commitment to the project. Further, the land was "almost entirely empty of people", and given the existing forestry tradition in the area, coupled with the endorsements from the national, regional, and local governments on the use of this land as proposed in the project, no major competing claims could be identi- fied; hence, it was decided that the opportunity cost of land was not an issue. (b) The Government had already established some Ujamaa villages in the area, and the mission felt that there might be possible conflicts between the objectives of the villagization scheme and those of the project. It was concluded that a Government study on the socio-economic factors covering this aspect should be undertaken. (c) The mission felt that selection of competent personnel was essential for the success of the project. The Tanzanian Project Manager proposed by the Government was acceptable. He would require two experienced Technical Advisors and an Accountant whose appointments would be made in consultation with the Bank. . (d) It was the mission's view that if plantation costs were to be recovered at an interest of 10% per annum, the stumpage rate of TSh 49/m3 charged for saw logs at that time was inadequate. The mission's preliminary calculations showed that the stumpage rate should be increased to TSh 60/m3 for 25-year-old saw logs and TSh 50/m3 for 15-year-old pulpwood in order to make the plantations financially viable. The Government had agreed in principle to a review of the existing stumpage rates. (e) The Government and the mission were of the opinion that smallholder plantations of eucalyptus would not be a viable proposition due to the lack of sufficient knowledge and extension skills among the Forest Division staff on village plantations. Therefore, it was decided that a smallholder component would not be included in the project, but would be considered for inclusion in the Bank-financed rural development projects. (f) The mission had confirmation on reservations raised about the Ruvu area in the previous reports. The NORAD team had discontinued its research efforts in the area and the 1974 drought had killed off many plantations. Although the Government had plans to continue with reduced planting (1,000 ha per year instead of the original 2,000 ha), the mission felt that it would be too risky to go ahead with a venture in the Ruvu region, It was decided therefore to delete the Ruvu component. ... 18/ - 34 - 2.20 The project appraisal report was prepared, having had assurances from the Government on the availability of additional land and non-encroachment into the project forestry land by villagers in the area. The mission also had reasonable confidence in the capacity of the Forest Division staff to implement the program of 16,000 ha of new plantations in addition to maintaining the existing 11,000 ha of pulpwood and saw log plantations. The Government had also given assurances on the increase of stumpage rates to the appropriate levels by January 1985 for eucalyptus and by January 1, 1992 for pine in order to ensure that the project plantation costs were adequately recovered. The main economic justification for the project has been that it would be part of the entire Sao Hill afforestation and industrialization program. At appraisal, the economic rate of return on the pulp and paper mill at 65,000 TPA was estimated at 12.4% over 25 years, and at 13.5% over 37 years for a 180,000 TPA mill. The saw log production showed a 21.5% rate of return over 26 years and the average weighted economic rate of return of the saw log and pulpwood components stood at 13.5%. In the calculations the import parity price for paper and sawn wood were used. Foreign exchange costs and benefits were shadow priced at TSh 10 per US$ 1 and unskilled labor was costed at 45% of the wage rate. 2.21 During negotiations, it transpired that the gazetting of the forestry land involved a two-stage procedure and that the initial gazetting of 72,000 ha had been done on May 14, 1976. The final gazetting was to be done after 90 days (i.e. September 1976) as required by law. Therefore, it.was agreed that the final gazetting would be a condition of project effectiveness. Although the mission had built in cost escalation factors, the Tanzanian delegation felt that housing costs had increased heavily. However, it was agreed that housing standards and costs as appraised would be adhered to initially, and these would be reviewed at a later stages if found inadequate. The Government also confirmed that the socio-economic impact study had been done and that there was no likeli- hood of villagers encroaching on project land as they were going to be the direct beneficiaries of the project. The Government delegation felt that although the project documents required a "Financial Controller", a suitably qualified accountant should meet the requirements of the project. The Bank agreed that while the term "Financial Controller" would be retained, employment of an accountant was acceptable. 2.22 The project was approved by the Board on July 1, 1976, with an IBRD loan of US$ 7.0 million to supplement the US$ 1.1 million of Government-financing making up the Forestry Phase I total cost of US$ 8.1 million. The general reaction from the Executive Directors was favorable towards the project. It was noted that forestry was one of the 14 (out of 18) Tanzanian projects considered directly productive and approved by the Board since FY75 as against 10 projects (out of 14) approved before FY75 which were considered as infrastructure development programs. It was noted that Tanzania had good soils and climatic conditions suited for forestry and that the growth of certain species of pines in Tanzania was considered better than in temperate climates. The project was the first major effort in developing forestry as a source of material for industrial use, and it was noted that the Mufindi pulp and paper mill project to be appraised in the near future was dependent on the Sao Hill forestry resources. ... 19/ - 35 - Project Description 2.23 As approved by the Board, the project was to comprise part of the Government's overall afforestation program carried out in the Sao Hill area which aimed at the eventual establishment and maintenance of about 65,000 ha of pine and eucalyptus plantations. The project would over five years (1976/77 to 1980/81) provide for the planting and maintenance of about 16,000 ha of this total area, and for the development of infrastructure and forest services within the project area. The Forest Division of the Ministry of Natural Resources would execute the project and would have overall responsibility for project administration. Specifically, the project components were: (a) Establishment of 15,750 ha of new pulpwood plantations including surveys, establishment of nurseries, land preparation, fire control, and firebreak maintenance; (b) maintenance of 8,800 ha of existing pulpwood and 2,500 ha of saw log plantations; (c) construction of some 164 km of primary and secondary roads and 393 km of tracks and maintenance of some 2,400 km of forest roads; (d) construction of staff housing (about 44 units for staff and about 170 units for labor) and 20 administrative and social buildings; and (e) research, training, and studies, as described below: (i) Forest research and trials on different species, both at high and low elevations, establishment of cultural techniques and fertilizer use. (ii) A training program in methods of establishing large-scale plantations, and in forest manage- ment and engineering. (iii) A study of water availability in the project area. (iv) An engineering study of the best alignment of a road connecting the project area with the site for the proposed pulp mill. (v) Aerial photography of the project area and areas selected for expansion of the plantations. ... 20/ - 36 - .24 The project was designed more or less on the same lines as it was riginally conceived except that with the clearer assessment of the unsuitability ,f the Ruvu region.for a large-scale forestry program coupled with the limited :apacity of the Government's Forest Division, the size of the new afforestation :omponent had been drastically reduced (from 23,000 ha to 15,750 ha). The road Lnd building programs were purely support-oriented as they were essential to the tffective implementation of the project. The cost estimates of the various >roject components at appraisal stood as follows: Foreign Exchange TSh '000 US$ '000 % Afforestation (incl. fire protection) Pulpwood Working Circle 15,077 1,873 11 Sawlog Working Circle 673 84 12 Access and Plantation Roads 1,846 229 28 Project Management Administration 6,912 859 18 Buildings and Housing 6,260 777 15 Equipment 5,763 716 84 Research, Trials and Training 3,938 489 92 Studies Aerial Photography 309 38 100 Water Study for Pulp Mill 939 117 94 Escarpment Road Study 432 54 87 Base Line Cost 42,149 5,236 34 Physical Contingencies 2,666 331 43 Price Contingencies 20,488 2,545 18 Total Project Cost 65,303 8,112 30 ... 21/ - 37 - III. Implementation 3.01 The project successfully implemented the main component (viz. afforestation) exceeding the appraisal target of 15,750 ha, despite the fact that during the same period several of the other Bank/IDA financed projects in Tanzania experienced serious implementation difficulties. However, implementation of the project's other components such as construction and maintenance of forest roads, civil works, etc., suffered considerably, mainly due to the overall shortages of spares, fuel, building materials,etc., and other economic ills that prevailed in the country, especially during the period 1979 to 1981. Apart from the factors affecting the national economy, several weaknesses within the Project Management Unit have also been revealed. Effectiveness 3.02 The Loan Agreement was signed on July 12, 1976, and the date of the project/loan effectiveness was fixed at October 12, 1976. There were two conditions of effectiveness: viz. (a) appointment of the Project Manager and Silviculturist/Economist; and (b) gazetting of 60,000 ha of forest reserves. As both these conditions were met (the Project Manager appointed and an experienced Forest Economist selected with Bank assistance) by the end of September 1976, the project was declared effective on October 12, 1976. It was also required that by November 15, 1976, (or a later date mutually agreed) a Financial Controller and a Road/Mechanical Engineer (with their qualifications and experience satisfactory to the Bank) would be employed. When the project was declared effective on October 12, 1976, a candidate had been selected by the Government for the post of Financial Controller, but the Bank had not been informed of his qualifications, and the Road/Mechanical Engineer's post remained vacant as no candidates had been selected. The Forest Division sought assistance from the Bank in identifying a suitable candidate (see para 4.40 for further details). Start-Up 3.03 Due to the forestry tradition that had already existed in the Sao Hill area, the Forest Division and the Project Management Unit had built up considerable implementation capacity. As the project was envisaged as a continuation of the on-going plantation program, there were no delays in the project start-up. In fact, when the first IBRD supervision mission arrived in late August 1976, it found that the previous year's (1975/76 pre-project year) plantings of 2,600 ha had exceeded the appraisal mission's estimate of only 1,500 ha, although the Forest Division's own target had been 3,000 ha. However, the mission noted that the survival rate was low and efforts would have to be made to improve it. The Project Unit felt that the planting target for the ensuing year (project first year 1976/77) could be 2,000 ha as against the appraisal estimate of 1,500 ha. ... 22/ - 38 - 3.04 Although the planting program could be implemented without delay, there were several factors affecting the timely start-up and implementation of the other components: (a) The building program including the construction of staff housing and the establishment of an upland nursery had to be delayed due to the limited capacity of the project construction unit to burn the 6 million bricks required. However, this constraint was not expected to affect the planting program. (b) The vehicles and equipment used at Sao Hill previously were largely in a run-down condition and the shortages of spare parts had become critical. Although the Government Central Bank had simplified procedures for obtaining foreign exchange for importation of spare parts, delays were still expected in the placing of orders and receiving of spares by the project. This was considered an important potential bottleneck in achieving the first year's targets in planting. (c) Despite its previous experience in afforestation work, the Project Management Unit was not familiar with the Bank's procurement procedures; hence, procurement of vehicles and heavy equipment which were based on ICB, was expected to be slow initially. Delay in the appointments of the Mechanical Engineer and the Financial Controller was also to contribute towards procurement delays in urgently needed equipment. In fact, the first supervision mission had realized the difficulties and had waived the ICB procedure for certain urgently required project vehicles in order to expedite project start-up. 3.05 It was also noted that although operating costs for the plantations remained within appraisal estimates, building costs had indeed (as previewed at negotiations) increased substantially (e.g. Category A houses appraised in 1975/76 at TSh 132,000 would cost TSh 207,000 in 1976/77). The Project Management Unit was considering the possibility of employing its own labor force to implement the construction component, although it had limited capacity given the project targets to be achieved. Revisions 3.06 There were no major revisions of the project components during implementation. However, certain relatively minor changes to the appraisal recommendations were made by the Project Management, in view of changes in the circumstances during implementation. These are reviewed below: (a) Surveys. The appraisal had indicated that in addition to topographic surveys based on aerial photographs and maps, detailed soil surveys of the plantation area of 70,000 ha would be undertaken. However, during the first two years it was found that an annual target of 14,000 ha was unrealistic as the project unit could not do soil survey analysis of such a large area. Hence, the annual target was revised to be equal to the yearly planting target plus a margin of 25%. ... 23/ - 39 - (b) Land preparation. Initially, it was suggested that all the planted area would be strip-ploughed by wheeled tractors, and for this purpose 65 hp tractors had been reco mmended at appraisal. However, during implementation the 65 hp tractors were found to be inadequate and were replaced with 78 hp tractors in 1978/79.as the eucalyptus area had to be completely ploughed. During 1980/81, more powerful 94 hp tractors were purchased which made possible a more thorough land preparation. Similarly, there were minor changes to the recommended tractor attachments to suit the project requirements. (c) Nursery/seedling production. The appraisal mission had recommended the establishment of two nurseries big enough to produce about 1.5 million transplants annually which would meet the project requirement. However, due to high transport costs and heavy seedling losses during implementation, the Project Management decided in favor of several smaller nurseries near the planting area. The appraisal mission had also recommended the abandonment of the so-called "Swaziland Bed Transplanting Technique" due to its improper use at Sao Hill and the high failure rate at planting. Instead, the polythene tube method was suggested. However, as polythene tubes had to be imported, the project experienced shortages due to procurement delays. In 1977/78, the Project Manage- ment introduced the earthball (boulette) technique (learnt from a visit to Madagascar) complementary to the polythene tube method. Satisfactory results were obtained during the initial years. However, when used more widely in 1980, the earthball system resulted in heavy seedling losses due to poor handling during tansport. The project continued to use the polythene tube method in addition to the earthball system. (d) Planting season. The appraisal report envisaged the planting season to be normally between December and March. However, as the village labor were heavily involved in planting of other crops (mainly food crops) especially in December, the project had to extend the planting season whenever this was affected by temporary shortage of labor. (e) Staff houses/buildings. The proposed standards, sizes and other specifications of the various types of buildings, especially staff houses, were detailed in the appraisal report. However, due to cost escalation coupled with heavy demand from the staff for housing facilities, the Project Management had to modify the specifications (especially the size of the built-up area of houses) in order to accommodate more employees in fewer numbers of housing units. These modifications necessarily resulted in some deviations from the appraisal recommendations in the allocation of houses to the various staff categories. Also, the phasing was spread over five years instead of two years as stated in the appraisal report. ... 24/ v 40 - Implementation Schedule 3.07 As the major component of the project - the establishment of new plantations - was implemented well ahead of schedule, despite initial set backs, the project could be judged as reasonably successful. However, ,due to several constraints, some within the Project Management Unit, and others beyond its control, the support and institutional components were not implemented as effectively as expected at appraisal, and some have met with only moderate success. The attached statement of Key Indicators of Project Implementation (Annex 1) details on an annual basis the physical achievements under the various components against the respective appraisal targets. These are reviewed below: Afforestation 3.08 In accordance with the appraisal report, the project's afforestation program consisted of establishing 15,750 ha of new plantations, replanting 330 ha of clearfelled area and maintaining 11,250 ha of existing plantations. The project was also expected to undertake the required ancilliary activities such as surveying, land preparation, weeding, pruning, etc., in order to achieve its target. (a) Surveys. The proposed survey of the planting area consisted of broad topographic surveys based on aerial photographs and base maps and detailed soil surveys including both physical and chemical soil analysis. Funds provided under the project for an aerial photographic survey were not utilized, and the project instead used maps obtained from previous aerial surveys. Although these maps could not be considered totally adequate for the present needs of the project, an inventory of plantation areas completed in December 1980, based on these maps showed fairly accurate results. Soil survey aspects were neglected mainly due to inadequate laboratory facilities within the project and within the country. Although some soil surveys (about 16,000 ha or 22% of the original estimate) were undertaken mainly in association with other forestry institutions within Tanzania, the progress was slow and unsatisfactory. (b) Nursery/seedling production. Although there were substantial losses of seedlings mainly due to the changeover to and mishandling of the earthball system (36% loss overall in five years), the project nurseries produced more than sufficient numbers of seedlings.to meet the requirements of a large area under plantation. The appraisal estimate of the requirement was 32.2 million seedlings for 16,080 ha (15,750 ha of new plantations plus 330 ha of replanting), whereas the project nurseries produced 53 million seedlings. Although the cost of this operation has been assumed to be far in excess of appraisal estimates, due to inadequate nursery and cost accounting records, actual costs could not be ascertained. (c) Land preparation. During the initial years, strip-ploughing was done with only the 65 hp tractors which were found to be totally inadequate. The survival rate of new plantings in the first two years was found to be only 50% although this was partly due to exceptional drought conditions. However, with the ... 25/ - 41 - acquisition of 78 hp, and subsequently the 94 hp tractors, land preparation was done more thoroughly. Here again, in physical terms the land prepared for plantings was adequate; but the quality improved only during the latter part of the projact period. (d) Planting. There were severe set-backs in the initial years of the project due to poor land preparation, late planting, coupled with drought, and inadequate supervision during field planting. In fact, only 240 ha and 500 ha were achieved in 1976/77 and 1977/78, respectively, against the corresponding targets of 1,500 ha and 2,250 ha leaving large shortfalls. However, the shortfalls were more than made up during the 1978/79 season mainly due to changes in the Project Management with increased supervisory staff coupled with a concerted effort to apply better supervision and improved land preparation techniques. The improved situation continued until the end of the project period, when the overall actual plantings reached 17,822 ha exceeding the appraisal target by 13%. Approximately 70% of the coniferous plantations consisted of species Pinus patula which has performed satisfactorily except in areas where land preparation had been inadequate. The FAO consultant A.C..Baines 1/ has recommended, however, that the genetic base should be broadened, since all the seeds were continually collected from the same selected trees. Pinus elliotti did not perform well and plantings of this species would be discontinued in Phase II. (e) Replanting. The project managed to replant most of the clearfelled eucalyptus areas, although these areas were in excess of the appraisal estimates. The physical achievement of 465 ha was 41% above the appraisal target over the five years. (f) Weeding. As mechanical weeding was recommended during the initial planting years, breakdown of tractors and rotary slashers plus non- availability of spare parts affected the project's weeding program. However, an 82% physical performance was achieved, mainly due to greater momentum during the last three project years. Chemical weed control was also tried on an experimental basis. (g) Pruning. The targets set in the appraisal report have been exceeded slightly over the five years, although during the first two years, this aspect was behind target. The shortages of the appropriate saws and lack of files to maintain them resulted in more labor input into pruning and the pruning schedules have not always been met. (h) Forest managememt and silviculture. The concept of silvicultural management had changed during the project implementation period. According to the appraisal report, the plantations were to be divided into and managed under (i) a 15-year pulpwood cycle with one pruning in year 5 for fire protection and no thinning at all, and (ii) a 25-year small saw log cycle with three prunings and thinnings. However, this concept was changed during an effort to develop the sawmil.ling industry. Under the revised system, the plantations would be 1/ See FAO/GOT Technical Cooperative Program Report No. TC 8/URT/0182(1)- Field Document 3 - Silviculture in Nurseries and Plantations - Sao Hill Forest Protection by A.C. Baines, Rome. - 26 - 42 - managed in an integrated manner, whereby the basic harvesting cycle would be 25 years, with the small logs (less than 20 cm in diameter) of the thinnings going to the pulpmill and the final harvest of large logs (over 20 cm in diameter) used for sawmilling. Up to the end of the project period, no guidelines had been developed for the implementation of the revised scheme. Assurance was obtained from the Government during negotiations of the Phase II Project that suitable arrangements would have been established before June 30, 1983. Fire Protection 3.09 The project has had a low fire record. During the period 1978 to 1980, there were on the average 12 fires annually, destroying altogether about 50 ha per year which amounted to 0.17% of the plantation area each year. Never- theless, with a pronounced dry season and a concentration of highly inflammable species like pines, fire hazard has always existed at Sao Hill. The.,project staff have studied forest fire protection equipment and systems in the United Kingdom, Madagascar, Swaziland, and Zambia, and have built up a reasonably efficient fire protection scheme. However, constant breakdown of equipment (especially the grader) and lack of advanced fire fighting equipment and spare parts coupled with a .shortage of fuel have caused concern to the project in this respect. Construction of fire breaks (90% of appraisal target) and their maintenance (73% of appraisal target) have not always been up to the same standards as expected at appraisal. A recent study by FAQ has revealed project weaknesses in this area and suitable recommendations have been made to improve the fire protection techniques under the Phase II Project. Road Construction/Maintenance 3.10 The project component that suffered most and physically as well as institutionally achieved the least was road construction and maintenance. Although during the initial years reasonable results were achieved (60 km actual against 75 km targetted for construction and 302 km actual vs. 313 km targetted for maintenance during the first year) the program came to a virtual halt during the last two years of the project. Overall, only 39% of the road construction and 19% of the road maintenance targets were achieved. The main factors con- tributing towards this poor performance are: (a) construction equipment broke down during the third year and could not be-repaired effectively due to an acute shortage of parts; (b) the project workshop was not managed properly and was not capable of taking care of the project's needs; the workshop manager's post remained vacant throughout the project period; (c) shortage of fuel in the country led to limited use of even the available machinery and equipment. ... 27/ - 43 - 3.11 Results show that less than 12 km of construction and maintenance per month on the average were done by the project's equipment during the five-year period. The road density achieved was extremely low at only 12.5 m/ha as against the appraisal recommendation of 35 m/ha. This in turn affected plantation management, fire protection, and silvicultural treatment, adversely. Buildings 3.12 Although in terms of number of units constructed the project achieved only 47% of the appraisal target, in actual fact the built-in areas were larger than the appraisal specifications. Due to changes in the Government's standards on housing, coupled with heavy demand from staff, the Project Management had to resort to altering initial size and other specifications of buildings in order to accommodate more staff members in fever units. Despite this, the project was able to solve its staff housing problem only partially. The project also experienced heavy cost overruns mainly due to the increase in the cost of building materials and partly due to inadequate controls over costs and materials. As construction by outside contractors was difficult at Sao Hill (being remote from Dar es Salaam), the project's own construction unit was engaged in building work. With its limited capacity this unit could not achieve the targets as scheduled. The appraisal was probably too optimistic in phasing the building program over the initial two years and the Project Management had to spread it over five years. Research Activities 3.13 The project's small research unit has been reasonably active throughout the project period and in physical terms achievements have been either ahead or close to appraisal targets. Research activities included species and provenance trials (achievement in ha: 177% of appraisal), setting up of pilot plantations (110%) and undertaking fertilizer trials (73%). Assistance in this area was received mainly from FAO teams in studying aspects of disease control and silvi- culture. One of the major shortcomings of the research activities, however, has been the absence of satisfactory soil analysis due to lack of adequate facilities. Staff Training 3.14 From time to time, project forestry staff were sent abroad to other tree growing countries on short visits to study comparable forestry practices. An ILO training center, with active participation of the project, opened in 1980, and commenced offering three-month-courses for junior forestry staff (Forest Attendants and Headmen) in forestry and connected subjects. The appraisal did not envisage any extensive training programs as the existing facilities within the country were then considered adequate. Studies/Aerial Survey 3.15 The water availability study in respect of the Mufindi Pulp Mill was completed by Messrs. H. P. Gauff K.G. (consulting firm) on behalf of the Govern- ment's Ministry of Water Resources and financed under the project. The appraisal intended the study to be completed in 1976 (year 1); but it was actually completed in 1978/79 in two stages. ... 28/ - 44 - 3.16 The engineering study on the road connecting the project area with the Mufindi T,,p Mill was carried out in 1979, under EEC financing; hence, the funds provided under the project were not utilized for this purpose. 3.17 The aerial photographic survey of the project area was not carried out, as data from previous surveys were used by the project, as noted in para 3.08 (a) above. Reporting 3.18 The Sao Hill Project Management regularly reported on the project activities. In addition to meeting the reporting requirement of Section 4.02 of the Loan Agreement, the project was encouraged by initial Bank supervision missions to prepare annual progress reports covering the physical plantation activities, and the Project Management has consistently adhered to these reporting procedures. The project has also submitted a final "review of activities" at the end of the project period. Accounts and Audits 3.19 The project's annual accounts consisting of "statements of expenditures" have been received by the Bank regularly, in accordance with Section 4.02 (b) of the Loan Agreement. These accounts were unfortunately not reviewed adequately in detail until 1981; it appears that the earlier supervision missions focussed their attention mainly on the forestry aspects of the project. The detailed review (which in retrospect should have been done much earlier) found that although the project's basic accounting records were maintained satisfactorily, there were several shortcomings in the system of financial control. Apart from the Govern- ment's overall budgetary control (exercised through the Treasury) the project lacked its own budgetary controls, costing and other internal controls to safe- guard against errors, frauds, wastage, cost overruns, etc. The first Financial Controller resigned from the project in December 1978, and there is little information on how effective he was, as the accounting aspects were not looked into in depth by initial IBRD supervision missions. His replacement, a Government Grade III Accountant, turned out to be inadequate for the project's needs. During and after negotiations, IBRD missions had unfortunately stated that an "Accountant" might be able to perform the Financial Controller's job, and the appointee's qualifications and experience were not properly examined. The require- ments of Sao Hill project as an industrial forestry plantation organization are far more demanding than those of a Government Department, and the Financial Controller should have had higher qualificationq and experience. Procurement 3.20 The project was reasonably successful in procuring vehicles, equipment, and machinery, keeping as far as possible in line with items specified in the appraisal report. Annex 4 lists the items actually purchased compared with the appraisal specifications. However, due to the inadequacies within the project (administration and accounting units), several weaknesses were noted with regard to procurement. Initially, delays occurred due to unfamiliarity of the project staff (especially the Financial Controller) with Bank procurement procedures; but, ... 29/ - 45 - for the most part, distance between the project and Dar es Salaam, country- wide shortages of essential equipment and spare parts, congestion and losses at Dar es Salaam port and shortage of foreign exchange allocations also have contributed substantially towards procurement problems. Although a part-time 'procurement officer" attached to the Forest Division of the Ministry of Natural Resources was stationed in Dar es Salaam, he was not a project-funded employee, and his efforts in clearing project consignments did not meet the project's requirements. Timely identification of requirements and placing of orders with sufficient lead time (especially under difficult conditions that prevailed in Tanzania) were not adequately handled by the project. The project took some advantage of ICB and the Bank's direct disbursement procedure, especially due to difficulties in obtaining foreign exchange allocations from the Government. However, as the orders were not always big enough to attract foreign manufacturers/ suppliers, full benefit of ICB procedures was not derived by the project. Costs 3.21 The total actual project costs at the end of the five-year period was virtually in line with total appraisal estimate (i.e. 99%); however, there were cost overruns under certain categories of expenditures (i.e. civil works and project administration), although the physical targets under these components have not been achieved. Details of actual project costs are given in Annex 5. In view of the weaknesses in the accounting unit in allocating project expenditure, it is quite possible that costs under certain categories have not been stated accurately. Vehicles and equipment were procured for the most part in accordance with appraisal recommendations and the actual expenditure of TSh 9.294 million was only slightly .(2%) in excess of the appraisal estimate. In the case of civil works (i.e. buildings and roads) however, the physical achievements were well below appraisal targets (47% for buildings and 39% for roads), although 76% of the appraisal allocation was used up. Design changes in the buildings could account for part of the cost overrun. Also, as the entire civil works were under- taken on force account, the permanent construction staff salaries which were incorrectly allocated to project administration should have been added to the actual cost of civil works. This would in fact reflect the accurate and higher cost overrun on civil works and a more balanced administration cost which showed an over-expenditure of 82%. Similarly, the afforestation component, which shows a saving of TSh 1.746 million (7%) should include plantation staff salaries, which had been also included under administration. The apparent savings of TSh 4.248 million appearing under research, trials, training and studies is attributable to the aerial survey which was not carried out together with some reduced activities in research. In general, the above-mentioned problems in project accounting do not facilitate a fully proper and accurate comparison of project costs by component. ... 30/ Disbursements and Funding 3.22 The Sao Hill Forestry Project had an excellent disbursement record, as can be seen from Annex 2 (Schedule of Cummulative Disbursements). During the initial stages of the project, as the project staff were unfamiliar with Bank procurement and disbursement procedures, disbursement was agow and behind appraisal estimates. Changes in project management with the departure of the first Project Manager and the Financial Controller during 1977/78, also contributed towards slow initial project implementation and disbursements. However, since June 1979, up to December 1981 (completion date), the actual disbursements exceeded those projected in the appraisal estimates. Annexes 2 and 3 contain details of disbursements and withdrawal of loan proceeds respectively. 3.23 Although there were delays in receiving the Government's quarterly allocation of funds due to severe economic difficulties, especially during the last two years of the project period, the project generally did not suffer from lack of funding. The Government local cost component was only US$ 1.1 million or 13% of the total project cost and despite restrictions in allocation of funds to several other sectors, the Sao Hill Forestry Project was allocated its requirement. Consultants, Contractors and Suppliers 3.24 The water availability study for the Mufindi Pulp Mill, financed under the project was satisfactorily done by H. P. Gauff K.G. of the Federal Republic of Germany. This study was carried out in two stages: the first on surface water, financed by the project at a cost of TSh 1,025,500 (US$ 125,000), and the second on ground water, financed under the pulp mill project. The engineering study on the Mufindi escarpment road was financed by the EEC. As the construction of buildings and forestry roads were undertaken by the project on force account, no outside contractors were employed for any civil works. 3.25 The performance of foreign suppliers (mainly of heavy equipment and spare parts) was satisfactory. However, port clearing difficulties routinely occurred in Dar es Salaam which is a common problem faced by all Tanzanian importers. On the other hand, throughout the project period, the project experienced difficulties in obtaining project requirements from local suppliers who are mainly state-owned companies. The problem was so acute during the last two years of the project period (1979/80 and 1980/81) that the project had to deposit full payment well in advance and to wait for long periods before delivery of the items ordered. This problem which was common to all such buyers in Tanzania was necessitated by severe shortages of essential parts, etc.. and the credit squeeze faced by most of the agents/suppliers of imported and even locally fabricated goods. The project was able, however, to tide over these locally imposed difficulties mainly because of generally good project management and reasonably adequate funding from the Government. ... 31/ - 47 - IV. Operating Performance 4.01 The operating performance of the Project Management Unit could be considered very good in relation to the afforestation program which was the main project component. The regularly prepared annual progress reports reveal that there was a reasonably satisfactory system of self-monitoring of physical progress at the various plantation divisions. The project management and the forestry staff kept in touch with developments outside the project and were dynamic enough to try out new and improved methods of nursery production and other forestry practices. The frequent contacts of the project with outside organizations such as FAO, Scandinavian experts on forestry (NORAD and SIDA, in particular), coupled with guidance from Bank supervision missions appear to have helped the Project Management and staff considerably. 4.02 Although the project had some initial set backs due to procedural unfamiliarity, changes in project management, etc., the recovery during 1978 and the continual momentum in the physical implementation were remarkable. However, there is also evidence that quality in plantation activities might have been sacrificed in the process of planting more hectarage. The project managed to complete a forest inventory by 1980 with reasonable accuracy, although there are indications that the planted areas may have been somewhat overstated due to insufficient allowance for failures and open areas within the plantations. 4.03 As noted earlier, the performance with regard to the other project components - particularly the construction of forestry roads and buildings - was poor. Although the country-wide shortages of spare parts, building materials and other project requirements could be partly blamed for this poor show, the failure to appoint a Mechanical Engineer and other needed workshop staff cost the project dearly. Lack of planning on the use of heavy machinery coupled with inadequate repairs.and maintenance resulted in heavy idle machine time, as well as non- achievement of targets. 4.04 The covenants with regard to the appointment of a suitable Project Manager and a Silviculturist/Forest Economist - Section 3.02 and Section 5.01 - and reserving of adequate land for the project (which were made conditions of project effectiveness) were met without delay. However, the recruitment of a Roads/Mechanical Engineer before November 15, 1976, (as stipulated in the Loan Agreement) was never made and this position remained vacant throughout the five-year period. There is evidence that the Government's Ministry initially did make some attempts to identify suitable candidates, but the matter seemed to have been softpedalled thereafter, despite repeated reminders from the Bank. The post of Financial Controller was erroneously downgraded by the appointment of a Grade III Accountant who did not meet the requirements of the project. In retrospect it could be said that inclusion of a Financial Analyst in the Bank's supervision missions at an earlier stage would have helped identify and correct this shortcoming. Replacement of staff (Section 3.07) have not always been prompt or adequate, especially in the accounting division. The aerial photographic survey (Section 3.04 (a) ) was not carried out. All other general and specific covenants including reporting, submission of audited accounts etc., have been reasonably complied with. ... 32/ - 48 - V. Institutional Performance and Development 5.01 The Sao Hill Forestry Project Management Unit was initially formed out of staff an secondment from the Ministry of Natural Resources (Forest Division). During the five-year project period (1976-81), this unit evolved into one of the most productive and important units among the various Govern- ment organizations involved in the forestry sector. The Project Manager is directly responsible to the Director of Forests at the Forest Division. Although there have been changes in the Project Manager position, staff continuity at the Ministry level and the continued Ministry commitment to the project have helped in its institutional performance. However, certain administrative and organizational weaknesses did exist during the project period. Staffing/Training/Growth 5.02 The frequent changes in the Project Manager position had some adverse effects on the discipline and morale of the project staff and, in turn, on their performance. The first Project Manager resigned under suspicious circumstances involving charges of misappropriation of project funds. His successor, although very effective initially, had to attend his National Service Training, away from the project for one year, during which time management control over staff deteriorated. An experienced Forestry Officer but a relatively weak Administrator, acted as PM during this time. The situation improved considerably after the return of the second PM from the National Service, but towards the last quarter of 1981, he left the project again on a long study tour abroad. The person who acted as PM earlier was transferred to the Ministry (Forest Division) and a new PM with lesser forestry experience but with administrative capability, was appointed to the post. 5.03 Although the plantation divisions of the project were reasonably well staffed, the support services divisions (viz. workshop, administration, finance, and accounting) suffered from lack of adequately qualified and experienced staff. As a result, the support by way of vehicle and equipment maintenance, road and building construction, costing and availability of statistical data, etc., was not adequately forthcoming. Certain vital areas such as plantation work/management plans, work study, and costing have been neglected partly due to lack of emphasis by Bank missions and Project Management and partly because of staffing problems. 5.04 The junior forestry staff were trained by the Senior Project Staff on the job coupled with the short courses at the ILO Workers Training Center in which the project actively participated. Several Senior Forestry Staff were given the opportunity of visiting similar forestry projects in Zambia, Malawi, Madagascar, and Swaziland, and bring back new ideas and try out improved methods of seedling production and silviculture. The presence of the experienced Forest Silviculturist/ Economist within the project to provide guidance also facilitated staff training on the job. ... 33/ - 49 - 5.05 The Project Unit, which started on a small scale, grew over the five years to become a very important organization within the forestry sector, employing about 285 permanent forestry and other staff and providing employment and livelihood to about 1,000 laborers and their families from the Sao Hill area. The project has also added social activities such as health clinics, community centers, staff social clubs, etc., in the project area, which has made life more pleasant in the remote Sao Hill region. Expatriates 5.06 As the Roads/Mechanical Engineer was not recruited, the only expatriate employee hired by the project was Mr. Finch, the Forest Economist/ Silviculturist. The project's experience shows that his terms of reference as initially stated in the appraisal report were too broad. As a result, he could not,devote adequate time for areas such as costing of plantation acitivities, monitoring project indices, and setting up plantation records. Due to frequent changes in the project management his responsibilities turned out to be more administrative; hence, less time was devoted to duties covered in the terms of reference. However, his presence and constant guidance to the forestry staff on the silvicultural aspects and his assistance to the Financial Controller on procurement matters proved to be extremely useful. His contribution towards the preparation of annual progress reports and reviews were helpful to the project management. He left the project at the end of his contract in November 1981; however, the project is expected to follow the standards and practices set by him during his stay with the project. ... 34/ - 50 - VI. Financial and Economic Re-Evaluation Financial Rate of Return 6.01 During appraisal, this plantation project was identified as part of the overall pulp and paper industry development project (i.e. including the pulp mill). However, it was felt that wood produced by the project should be priced on a reasonable commercial basis, resulting in at least a 10% financial rate of return to the plantation. It was found that the prices existing during appraisal in 1976 (viz. average of TSh 49.4/m3 for saw logs and TSh 35/m3 for poles) were totally inadequate for the purpose of making these plantations financially self-supporting. Hence, agreement was reached with the Government to the effect that stumpage rates would be raised to appropriate levels by January 1, 1985, for eucalyptus and January 1, 1992, for pine. On July 1, 1981, the Govern- ment revised the stumpage fees to an average of TSh 90/m3 for pine saw logs, and TSh 32/m3 for pine and eucalyptus pulpwood. The financial rate of return calculated on the basis of these revised stumpage rates is only 6.8% (see Annex 7), at 1981 constant prices, which shows that wood is still underpriced. 6.02 The subject of reviewing stumpage rates was discussed with the Govern- ment again during appraisal of Phase II of the project in 1982. It was agreed that a comprehensive study of wood production costs would be undertaken before June 30, 1983, with the view to revising existing stumpage rates to appropriate levels. Estimates made during appraisal of Phase II of the Project in early 1982 (see para 5.16 of Staff Appraisal Report No. 3634-TA dated March 18, 1982) showed that saw logs should be priced at TSh 157.20/m3 and pulpwood at TSh 55.65/m3. The financial rate of return based on these estimated stumpage fees would be 10.4%, as shown in Annex 7, which is still below the opportunity cost of capital in Tanzania assumed to be 12% at present. Constant review of the wood prices charged in Tanzania is therefore vital, if the forestry plantations are to be financially viable. Economic Rate of Return 6.03 At appraisal it was assumed that the plantation project would almost exclusively meet the pulpwood requirement of the pulp and paper mill and only slightly the saw log requirement of the sawmills. The internal economic rate of return on this basis (i.e. as a pulp and paper project) was 13.5%. The IERR of the sawlog component based on the relatively small 330 ha at appraisal was 21.5%. The main assumptions used in the appraisal calculations were: (a) Import parity price was used for arriving at the economic value of sawlogs and pulpmill production cost was used for the pulp and paper project; (b) unskilled labor was shadow priced at 45% of minimum wage rate; ... 35/ - 51 - (c) shadow rate of exchange of US$ 1.00 = TSh 10.0 was applied to foreign cost component; the official rate of exchange at appraisal was US$ 1.00 = TSh 8.05; (d) economic life of the Project for sawlogs was 26 years, and for pulpwood 37 years. 6.04 In the absence of reliable data on estimated production costs at the Mufindi Pulp and Paper Mill (due to delays in construction and commissioning) and at the TWICO Saw Mills, import parity prices for pulpwood and sawlogs (based on imported paper products and sawn timber) have been used in this report for the purpose of economic analysis of the project. These prices as adopted from the Staff Appraisal Report of the Sao Hill Forestry Phase II Project of March 1982, are TSh 159.0/m3 for pulpwood and TSh 423.0/m3 for sawlogs. In addition, the following assumptions, revised on the basis of available information, have been used for the calculation of the revised IERR: (a) Cost of unskilled labor has been valued at 70% of the official wage rate to reflect the increasing employment opportunities in the project area; (b) cost of the project foreign exchange component and benefits (at import parity price) have been shadow priced at US$ 1.00 = TSh 16.50 (i.e. double the official exchange rate of TSh 8.25/US$ prevailing in 1981); (c) a nominal value of TSh 50.00/ha of land has been included for the actually planted area to reflect its future opportunity cost; (d) economic life of the saw log component has been taken at 26 years, while for pulpwood it has been assumed at 30 years; (e) actual project costs from 1977 to 1981 (i.e. project period) have been converted to 1981 constant prices by using appropriately weighted annual inflation rates as shown in Annex 10; (f) costs of the plantation have been allocated between pre-Phase I, Phase I, and Phase II of the Sao Hill Forestry Project, based on estimated proportions adopted in the Staff Appraisal Report of the Phase II Project. ... 36/ - 52 - 6.05 The revised internal economic rate of return based on the above assumptions would be 21% for the whole Phase I plantation as shown in Annex 8 (i.e. pulpwood and sawlog components). The revised economic rate of return for the sawlog component is 20% and that for the pulpwood component is 23% as shown in Annex 9. The main reason for the difference between the rate of return during appraisal and as revised at present is that the production costs of the pulpmill had inflated the costs of the pulpwood plantation during appraisal (thereby reducing the IERR), whereas in the PCR, the plantation project has been separated, and its output valued at an economic price without the pulp mill costs. Therefore, the plantation project on its own, appears to be economically more attractive than when looked upon as part of the pulp and paper industry project. Sensitivity Analysis 6.06 Sensitivity analysis carried out on the revised economic rate of return of the plantation project reveals the following: (a) If yields of sawlogs and pulpwood drop by 50% and consequently benefits are reduced by the same margin, the project would still give an IERR of 16%; (b) if the yield/benefits lag by three years, the IERR would be 16%; (c) if the cost of maintaining the plantation from year 6 increase by 50%, the IERR would be 18%; (d) if yields/benefits drop by 50% coupled with an increase in cost of 50%, the IERR would be 13%. ... 37/ - 53 - VII. Bank Performance Justification and Objectives 7.01 The initial emphasis at preparation and appraisal, prompted by the Government and agencies such as the National Development Corporation, was that the project should be designed basically to meet the requirements of the proposed Mufindi pulp and paper mill. However, at appraisal, the project economic evaluation took into account the possibility of delay in construction or non- building of the pulp mill. Despite initial difficulties and cost overruns experienced by the Mufindi pulp mill, the Government's program to develop all components of the forestry sector (i.e. establishing plantations, saw milling and wood processing, and the pulp and paper industry) has been reasonably successful. Therefore, the decision to invest in the Sao Hill forestry project should be considered technically and economically (if wood is priced appropriately) correct. 7.02 The proposal to site the project initially at Ruvu and later at both Ruvu and Sao Hill continued until the final appraisal stage. Ruvu was con- sidered more suitable because of its proximity to Dar es Salaam rather than as a better tree-growing area. In retrospect, the decision at appraisal to delete the Ruvu component from the proposal and to undertake the plantation and pulp mill operations exclusively in the Sao Hill area, turned out to be sound. Similarly, the difficulties - administrative and technical - in starting village woodlot programs in other projects in Tanzania in recent years has shown that the decision to leave out of the Sao Hill Project the proposal to plant eucalyptus by private smallholders was appropriate. The project's administrative and technical capacity was insufficient to implement such a component successfully. Implementation Capacity 7.03 The general plantation establishment capacity of the Forest Division was assessed reasonably correctly by the appraisal mission and the setting of realistic targets for new plantations at 16,000 ha was commendable. However, the project's capacity to undertake the supportive components such as construction of roads and buildings, and maintenance and fire protection was rather over- estimated. Even within the afforestation program, some weaknesses have persisted mainly in the quality of new plantings and In maintaining areas under plantation. Although the presence of the Forest Economist/Silviculturist helped the afforestation component, the weaknesses in administration, staffing and other organizational ills should, in retrospect, have received closer and earlier attention from the Bank, followed by firm advice to Government. Preparation 7.04 The project was quite thoroughly prepared by the initial identification missions, by the FAO/CP preparation mission and by subsequent pre-appraisal missions. The components had been generally well thought out and (except for some of the administrative issues noted above) the risks ascertained at early stages. The limiting of the project to Sao Hill area as a straight forward forestry project was mainly due to the uncertainties and problems in other ... 38/ - 54 - proposals identified at the preparation stage, and this proved in the end to be a blessing in that it simplified project implementation. Supervision 7.05 The frequent Bank supervision missions appear to have had a very favorable impact on project implementation. Initially, this was especially important in familiarizing project staff with Bank procedures ardA subsequently in helping provide guidance to the Project Management on technical issues. As the project management faced practical difficulties either in meeting targets or in employing certain recommended methods, the Bank missions appear to have been flexible in their outlook and suggestions as reflected-in several revisions, although minor, made to the original appraisal recommendations during implementation. However, the Bank's attention, until 1981, to the review of project accounts and weaknesses in financial controls, administration, and staffing, particularly in the workshop and equipment maintenance areas was inadequate. After all, these ended up as the areas closely related to the project's shortcomings. 7.06 Generally, cordial and mutually fruitful working relationships established between Bank missions and key officials of the Government (especially the Principal Secretary and Director of Forests at the Ministry of Natural Resources), and with the Project Manager and his team assisted a great deal in the continued implementation of the Government's long-term forestry programs with Bank Group assistance. Phase II of the Project 7.07 The Government of Tanzania approached the Bank Group in 1980 for financing of a Phase II of the Sao Hill Project based on its satisfaction with the reasonably good performance on Sao Hill Phase I. After preparation work by FAO/CP in February 1981, and appraisal by an IDA mission in April/May 1981, IDA approved continued financial assistance to the program with a credit of US$ 12.0 million in April 1982 (Credit No. 1229-TA). The Bank Group has had an excellent opportunity during Phase I to learn some vital lessons and to assess the strengths and weaknesses of the Project Management Unit and the Government's Ministry, and Phase II has been designed with the main purpose of consolidating the gains already made in the afforestation program and strengthening the organizational and administrative capacity of the Project Management Unit. In addition, the Government's capacity to finance a continued program in forestry with its limited resources was taken into account. 7.08 Specifically, the following have been built into the Phase II project in order to give effect to the consideration stated in para 7.07: (a) Expansion of new plantations was limited to 10,000 ha (i.e. 2,000 ha per year) as the responsibility for maintaining the existing plantations (18,000 ha established under Phase I and about 11,000 ha established before 1976) had increased. Further, the Government's financial capacity would permit only a limited Phase II program. ... 39/ - 55 - (b) The project organization was streamlined and staffing reorganized in order to ensure better implementation of project components. (c) The financial management and cost accounting and internal control procedures have been strengthened by the recruitment of an expatriate Financial Controller, with counterpart staff to ensure continuity of effective systems. (d) The Mechanical Workshop and the spare part procurement and supply system would be strengthened by the employment of an expatriate Workshop Manager, together with suitable support staff. (e) A Work Study Specialist would be employed for the purpose of improving forestry practices and cost reductions. (f) Provision has been made for improving the fire protection system. In order to ensure that weaknesses identified during Phase I do not continue, the employment of the Financial Controller and the Workshop Manager have been made conditions of project effectiveness. VIII. Environment Impact 8.01 The project which involved planting of trees in lands which were mostly originally grasslands, has had a beneficial effect on the environment as tree cover reduces soil erosion and improves soil fertility and water retention. Furthermore, special consideration was given during appraisal and implementation to avoid competing land use claims. As the area was extremely sparsely populated, land use conflicts did not arise. IX. Conclusions 9.01 Despite the reservations that have been made (especially on the components that are considered to have played a supportive role to the main afforestation component) in the earlier chapters of the report, the Sao Hill Forestry Project should be classified as a successful one. Concerted effort on the part of the Government/Ministry concerned, continuous dedication of the Project Management and the supportive role of the Bank missions and other aid agencies (NORAD, SIDA, etc.) have greatly helped make the provision of financial assistance to the forestry sector in Tanzania a more worthwhile proposition. 9.02 During an extremely difficult period of economic problems in the country, the generally successful implementation of this project and the commencing of Phase II is of special significance, especially as much of the rest of the agricultural sector has been faced with fundamental weaknesses in policy ... 40/ - 56 - direction and management (as revealed in the recent IBRD/EAPSA Agricultural Sector Study). Unlike most other organizations and projects which involve production and distribution of food crops and/or cash crops, the forestry operation has been relatively immune from interference (e.g. political pressure for employment creation),thereby facilitating the relative success of the project. ... 41/ 汗F F FF戶，,,,,，妒，r !！露曆！!!&};!-&&:‘〕！!! 二萬日；奮騷法 i喜奮k&j 屆寫。＿_________＿禺。 括奮杜•••F〞〞〞•，•••曆日．發 ,，。呂 日禺界 薯奮喜．,.,,；實卜 症丑覓‘·蒼斤‘號’曆騷蒼答·•股戶 g『二’嗡 〕〕’&’妝“&&&&&&&！戶 邊．，計，．多日必 ‘〕”&&‘藝’‘醫“!！【． 。：&&&&&&&’籐’&！〕i薩 !;!.!!:&；〕：:::；〕｝-｝〕， ,re•于織卜曆g &’騖’騷““藝““股I& 甘二＿＿訪r乏露居蓄庭 •各“留擘藝•日喜騙浩召‘露丰「 ，二，:.::，低g榆 &&&&&&&&‘膩旦 騙。．,；多露奮 么h一寥認召，華CC寫斗認亂尸 ’目必，口．哺糅戶騙口口閱唱J lh口－，•I 〕細 。仁．仁．：乞。三症，喜當騙 &&&&&&&&&&&’膩鉉 膩。誡r尸要戶戶抑露曆、， &&“華蓄整，“壓”藝任。‘藝馴―邑 _.,,____,＿。，。；＿當區 &&&&&&&&&&&“蜃巨 一Lg一戶 Annex 2 TANZANIA SAO HILL FORESTRY PROJECT - PHASE I Project Completion Report Schedule of Cumulative Disbursements - Loan 1307-T& (US$ 1000) Fiscal Appraisal Estimates Actual Disbursements Actual as % YeLrF-uarter Quarter Cumulative Quarter Cumulative of Epraisal 1976/77 September 30 December 31 March 31 - - - - - June 30 150 150 100 100 67 1977/78 September 30 200 350 100 300 86 December 31 300 650 - 300 46 March 31 400 1,050 200 500 48 June 30 200 1,250 265 765 61 1978/79 September 30 200 1,450 235 1,000 69 December 31 300 1,750 350 1,350 77 March 31 100 1,850 375 1,725 93 June 30 100 1,950 375 2,100 108 1979/80 September 30 200 2.150 400 2,500 116 December 31 400 2,550 400 2,900 114 March 31 300 2,850 420 3,224 113 June 30 300 3,150 273 3,497 ill 1980/81 September 30 300 3,450 329 3,826 ill December 31 550 4,000 374 4,200 105 March 31 400 4,400 423 4,623 105 June 30 400 4,800 245 4,868 101 1981/82 September 30 500 5,300 574 5,442 103 December 31 600 5,900 534 5,976 101 March 31 600 6,500 160 6,136 94 June 30 500 7,000 116 6,252 89 1982/83 September 30 - - - 6,252 " 1/ 89 December 31 2/ 60 6,312 i/ 90 l/ Represents actual total amount disbursed up to gept-30, 1982 2/ Date of final disbursement. 3/ Principal repaid upto Oct. 31, 1982 totalled US$ 65,000 November 23, 1982 - 59 - Annex 3 TANZANIA SAO HILL FORESTRY PROJECT PHASE I Project Completion Report Withdrawal of Proceeds up to Sept. 30, 1982 (Loan 1307-TA) (US$ '000) Amount Amount Category Allocated Disbursed Balance Vehicles and Equipment 1,200 970 230 Civil Works 1,000 933 67 Research, Trials, Training and Studies 1,000 520 480 Administration 1,000 1,589 (589) Afforestation 2,000 2,240 (240) Unallocated 800 - 800 TOTAL 7,000 6,252 748 October 29, 1982. - 60 - Annex 4 TANZANIA SAO HILL FORESTRY PROJECT - PHASE I Project Completion Report Procurement of Vehicles, Equipment and Machinery Appraisal Estimates Actual Purchases No. Items No. Items 14 65 hp tractors 4 65 hp tractors (Int. Harv.) 8 78 hp tractors (6600 Ford) 2 94 hp tractors (Ford County) 4 7-ton flat bed trucks 4 7-ton flat bed trucks 2 10-ton trucks 9 truck plat forms - - 1 irrigation equipment 1 irrigation equipment 12 2 furrow reversible ploughs 11 4 disc ploughs 11 rotary slasher 2 rotary slasher 3 disc harrows 4 light harrows 4 tatu harrows 2 5-ton tractor trailers 6 tractor trailers 11 wireless sets 22 wireless sets 1 5-ton fire truck 2 land rovers 3 trailer pump units 2 land rover trailer pump units 1 trailer water tank 2 trailer tanks 2 collapsable rubber tanks 60 hand pumps 50 hand pumps work shop equipment work shop equipment 1 tipper truck - 5 tons 2 tipper trucks - 7 tons 2 motor graders 2 motor graders 1 saloon car 1 saloon car 6 pick-ups (4 wheel drive) 7 pick-ups (4 wheel drive) 2 3/4-ton pick-ups 2 3/4-ton pick-ups 3 light pick-ups - - 2 field telephone sets - - 2 public telephones 1 public telephone 6 Diesel water pumps 8 motor cycles (90 c.c.) 2 water pumps 1 minibus October 29, 1982 Annex 5 TANZANIA Sao Dill Forestry Project - Phase I Project Completion Report Statement of Project Costs (Tshs 000) Total 1/ Project Total Project Actual as Z Year 1 Year 2 Tear 3 Year 4 Year 5 Year 6. Cost Cost-Appraisal of Appraisal Underspent Category 1976/77(t) 1977/78 1978/79 1979/80 1980/81 1981/82(h)(Actual) Estimates Estimates (Overspent) Vehicles & equipment 441 2,648 3,666 1,384 905 250 9.294 9,140 102 (154) a Civil works 1,026 1,663 2,085 1,895 2,138 978 9,785 12,857 76 3,072 Research, trials, training & studies 175 445 490 1,009 1,527 455 4,101 8,349 49 4.248 Project administration 1,549 2,578 3,002 3,992 4,838 2,756 18.715 10,272 182 (8,443) Afforestation 1,733 3,269 4,401 4 7,239 1,586 22,939 24,685 93 1,746 Total 4,924 10,603 _13,64 12,991 16,647 6,025 640834 65,303 99 469 1/ Apprasial estimates include contingencies under each category. October 29, 1982 - 62 - Annex 6 TANZANIA SAO HILL FORESTRY PROJECT PHASE I, Ln. 1307-TA Project Completion Report Estimated Yields of Pulpwood and Sawlogs from the Projct Pine Eucalyptus 3/ Project Plantings ThinninHarvesting Harvesting Year Pine Eucalyptus Pulpwood 1/ Sayogs 2/ Pulpwood (ha) (ha) 3 3 3 (ha)(in) (a ) (in) 1 ('77) 240 100 - - 2 ('78) 500 900 - - 3 ('79)4920 160 - - 4 ('80)5450 300 - - 5 ('81)5600 75 - - 6 .7 8. 9 - - 8,000 10 - - 72,000 11 9,600 - 12,800 12 20,000 - 24,000 13 196,800 - 6,000 14 218,000 - - 15 224,000 - 16 7,200 7,200 - 17 15,000 15,000 8,000 18 147,600 147,600 72,000 19 163,500 163,500 12,800 20 168,000 168,000 24,000 21 6,000 12,000 6,000 22 12,500 25,000 - 23 123,000 246,000 24 136,250 272,000 - 25 140,000 280,000 8,000 26 12,000 36,000 72,000 27 25,000 75,000 12,800 28 2464000 738,000 24,000 29 272,500 817,500 6,000 30 280,000 840,000 - Expected Average Yields per ha from Thinning and Clearfelling (m3u.b.) Age years Pulpwood Sawlogs Total 10 (thinning) 40 - 40 14/15 (thinning) 30 30 60 18/20 (thinning) 25 50 75 25 (clearfelling) 50 150 200 Totals 145 230 375 2/ 1/ At present, the savaill takes wood down to a diameter of 15 cm u.b., but it has been assumed for the purposes of this table that once the pulpmill starts up, the minimun sawlog diameter will increase to an average of 20 cm. 2/ This total corresponds to a mean annual yield 375/25-15 m3/ha u.b. / MAI for Eucalyptus is 10 m3/ha u.b., clearfelling after 8 years Nov. 2, 1982 -63- Annex 7 TANZANIA Sao Hill Forestry Project - Phase I Project Completion Report Calculation of Financial Rate of Return (Tsh '000) At Existing Stumpage Rates At Estimated Stumpage Rates Net Net ear Cost Benefit Benefit Cost Benefit Benefit 1 11548.10 0.00 -11548.10 11548.10 0.00 -11548.10 2 12324*90 0.00 -12324.90 12324.90 0.00 -12324.90 3 12245.00 0.00 -12245.00 12245.00 0.00 -12245.00 4 12411.80 0.00 -12411.80 12411.80 0.00 -12411.80 5 10704.90 0.00 -10704.90 10704.90 0.00 -10704.90 6 9173.00 0.00 -9173.00 9173,00 0.00 -9173.00 7 6996.90 0.00 -6996.90 6996o90 0.00 -6996.90 8 6213.10 0.00 -6213.10 6213.10 0.00 -6213.10 9 7062.70 256.00 -6806.70 7062.70 445.20 -6617.50 10 6922.90 2304.00 -4618.90 6922.90 4006,80 -2916.10 11 3101.60 716.80 -2384.80 3101.60 1246.60 -1855.00 12 3101.60 1408.00 -1693.60 3101.60 2448.60 -653.00 13 3101.60 6489.60 3388.00 3101,60 11285.80 8184.20 14 3101.60 6976.00 3874.40 3101.60 12131+70 9030.10 .15 3101.60 7168.00 4066.40 3101.60 12465.60 9364.00 16 3101.60 878.40 -2223.20 3101,60 1532.50 -1569.10 17 3101,60 2086.00 -1015.60 3101.60 3638.00 536.40 18 3101.60 20311.20 17209.60 3101.60 35423.50 32321.90 19 3101.60 20356.60 17255.00 3101.60 35513.30 32411.70 20 3101.60 21264.00 18162.40 3101.60 37094.40 33992.80 21 3101.60 1464.00 -1637.60 3101.60 2554.20 -547.40 22 3101.60 2650.00 -451.60 3101.60 4625,60 1524.00 23 3101.60 26076.00 22974.40 3101.60 45516.20 42414.60 24 3101.60 28840.00 25738.40 3101.60 50340.70 47239.10 25 3101.60 29936.00 26834.40 3101.60 52252.20 49150.60 26 260.90 5928.00 5667.10 260.90 10333.80 10072.90 27 260.90 7959.60 7698.70 260.90 13893.60 13632.70 28 260.90 75060.00 74799.10 260,90 131039.10 130778.20 29 260.90 82487*00 82226.10 260.90 144009.50 143748.60 30 260.90 84560.00 84299.10 260.90 147630.00 147369.10 143431.80 435175.20 291743.40 143431.80 759426.90 61595.10 Financial Rate of Return=6.8% Financial Rate of Return=10.4% - 64 - Annex 8 TANZANIA SAO HILL FORESTRY PROJECT- PHASE I, Ln. 1307-TA Project Completion Report Calculation of the Economic Rate of Return Whole Plantation Project (TSh '000) Year Cost Benefit Net Benefit 1 15013.10 0.00 -15013.10 2 15946.30 0.00 -15946.30 3 15629.40 0.00 -15629.40 4 15750.90 0.00 -15750.90 5 13580.80 0.00 -13580.80 6 11456.90 0.00 -11456t90 7 8519.20 0.00 -8519.20 8 7461.10 0.00 -7461.10 9 8608.00 2544,00 -6064.00 10 8419.30 22996.00 14576.70 11 2225.90 7123.20 4897.30 12 2225.90 13992.00 11766.10 13 2225.90 64490.40 62264.50 14 2225.90 69324.00 67098.10 15 2225.90 71232.00 69006.10 16 2225.90 8380.00 6154.10 17 2225.90 20004.00 17778.10 18 2225.90 194702.40 192476.50 19 2225.90 194384.40 192158.50 20 2225.90 203184.00 200958.10 21 2225,90 13968.00 11742,10 22 2225.90 25125.00 22899.10 23 2225.90 247230.00 245004.10 24 2225.90 273439,40 271213.50 25 2225.90 283944.00 281718.10 26 187.30 57168.00 56980.70 27 187.30 75470.40 75283.10 28 187.30 710208.00 710020.70 29 187.30 780168.00 779980.70 30 187.30 799680.00 799492.70 Internal Economic Rate of Return: 21.00% November 3, 1982 - 65 - Annex 9 TANZANIA SAO FORESTRY PROJECT - PHASE I - Ln. 1307-TA Project Completion Report Economic Rates of Return of Project Components (TSh '000) Pulpwood Sav1ogs Year Cost Benefit Net Benefit Year Cost Benefit Net Benefit 1 6542.70 0.00 -6542.70 1 8470.40 0.00 -8470.40 2 6949.50 0.00 -6949.50 2 8996.80 0.00 -8996.80 3 6811.30 0.00 -6811.30 3 8818,10 0.00 -8818.10 4 6864.30 0.00 -6864.30 4 8886.60 0.00 -8886.60 5 5918.50 0.00 -5918.50 5 7662.30 0.00 -7662.30 6 4993.00 0.00 -4993.00 6 6463.90 0.00 -6463.90 7 3712.70 0.00 -3712.70 7 4806.50 0.00 -4806.50 8 3251.50 0.00 -3251.50 8 4209.60 0.00 -4209.60 9 3751.40 2544.00 -1207.40 9 4856.60 0.00 -4856.60 10 3669.10 22896.00 19226.90 10 4750.20 0.00 -4750,20 11 962.00 7123.20 6161.20 11-15 1263.90 0.00 -1263.90 12 962.00 13992.00 13030.00 16 1263.90 6091.20 4827.30 13 962,00 64490,40 63528.40 17 1263.90 12690.00 11426,10 14 962.00 69324.00 68362.00 18 1263.90 124869.60 123605.70 15 962.00 71232.00 70270.00 19 1263.90 138321.00 137057.10 16 962.00 2289.60 1327.60 20 1263.90 142128.00 140864.10 17 962.00 7314.00 6352.00 21 1263.90 10152.00 8888.10 18 962.00 69832.80 68870.80 22 1263.90 21150.00 19886.10 19 962.00 56063.40 55101.40 23 1263,90 208116.00 206852.10 20 962.00 61056.00 60094.00 .24 1263.90 230112.00 228848.10 21 962.00 3816.00 2854.00 25 1263.90 236880.00 235616.10 22 962*00 3975.00 3013.00 26 0.00 30456.00 30456.00 23 962.00 39114,00 38152.00 27 0.00 63450.00 63450.00 24 962.00 43327.40 42365.40 28 0.00 624348,00 624348.00 25 962.00 47064.00 46102.00 29 0.00 691605.00 691605.00 26 187.30 26712.00 26524.70 30 0.00 710640.00 710640.00 27 187.30 12020.40 11833.10 28 187.30 85860.00 85672.70 29 187.30 88563.00 88375.70 30 187.30 89040.00 88852.70 Internal Economic Rate of Return: 22.7% Internal Economic Rate of Return: 20.2% November 3, 1982 Annex 10 TANZANIA SAO HILL FORESTRY PROJECT - PHASE I, Ln. 1307-TA Project Completion Report Conversion of Actual Project Costs into 1981 Prices (TSh '000) Phase I Foreign Inflation 1/ Adjusted Local Inflation 2/ Adjusted Total Total Expenditure Exchange Rates Inflation 1981 Cost Component Rates Inflation 1981 Cost Adjusted Cost Year Expenditure (702) (352) (International) Factors (Forein) (652) (Local) Factors Local (1981 Prices) 1977 Purchases: (76/77+77/78) 10.225 7.157 2,505 (77) 7.9 () 1.0390 4,652 (77) 10.8 () 1.0540 (78) 15.9 1.2042 (78) 11.1 1.1700 (79) 13.2 1.3631 (79) 5.8 1.2378 (80) 8.9 1.4844 (80) 12.8 1.3962 (81) 9.0 1.6179 4,052.8 (81) 15.4 1.6112 7.495.3 11.548.1 1978 Purchases: I (77/78+78/79) 12.124 8.487 2,970 (78) 15.9 () 1.0795 5,516 (78) 11.1 (4) 1.0555 (79) 13.2 1.2219 (79) 5.8 1.1167 (80) 8.9 1.3306 (80) 12.8 1.2596 (81) 9.0 1.4503 4.307.4 (81) 15.4 1.4535 8,017.5 12,324.9 1979 Purchases: (78/79+79/80) 13.318 9,323 3,263 (79) 13.2 ( ) 1.0660 6,060 (79) 5.8 ( ) 1.0290 (80) 8.9 1.1608 (80) 12.8 1.1607 (81) 9.0 1.2652 4.128.3 (81) 15.4 1.3394 8.116.7 12,245.0 1980 Purchases: I (79/80+80/81) 14,819 10,373 3.630 (80) 8.9 (h) 1.0445 6.743 (80) 12.8 (i) 1.0640 (81) 9.0 1.1385 4.132.7 (81) 15.4 1.2278 8,279.1 12,411.8 1981 Purchases: I (80/81+81/82) 14,348 10.044 3,515 (81) 9.0 (i) 1.0450 3,673.2 6.529 (81) 15.4 (h) 1.0770 7,031.7 10,704.9 TOTAL 64.834 45,384 15,883 20,294.4 29,500 38,940.3 59,234.7 11 Obtained from Table (2) - Tanzania Projected Price Indices - S. Chitale. Country Economist, EA1DA - memo dated 9/24/80 - Price Contingencies for Tanzanian Projects. 2/ Weighted average of nominal vage rate (502), construction (152) and CPI (352) as per S. Chitale's Table (2) applied on project components - Administration (502) Civil Works (15%) and Afforestation (352). November 2, 1982 斗