Papua New Guinea - Agricultural Support Services Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3518-PNG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$14.1 MILLION TO THE INDEPENDENT STATE OF PAPUA NEW GUINEA FOR AN AGRICULTURAL SUPPORT SERVICES PROJECT April 12, 1983 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Kina (K) Calendar 1981 October 1982 US$1.00 = K 0.67 K 0.77 K 1.00 = US$1.487 US$1.30 K 1 million = US$1,487,000 US$1,300,000 WEIGHTS AND MEASURES 1 kilogram (kg) = 2.20 pounds 1 metric ton (t) = 2,205 pounds 1 kilometer (km) = 0.62 miles 1 square kilometer (sq km) = 0.39 square miles 1 hectare (ha) = 2.47 acris GLOSSARY OF ABBREVIATIONS BCL - Bougainville Copper, Ltd. CPI - Consumer Price Index CSIRO - Commonwealth Scientific and Industrial Research Organization DPI - Department of Primary Industry FAO/CP - Food and Agriculture Organization Cooperative Programme IFAD - International Fund for Agricultural Development ICO - International Coffee Organization IMF - International Monetary Fund ISNAR - International Service for National Agricultural Research NPEP - National Public Expenditure Plan NPO - National Planning Office PNlG - Papua New Guinea PSC - Public Service Commission UNDP - United Nations Development Programme GOVERNMENT OF PAPUA NEW GUINEA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY PAPUA NEW GUINEA AGRICULTURAL SUPPORT SERVICES PROJECT Loan and Project Summary Borrower: Independent State of Papua New Guinea Beneficiaries: Department of Primary Industry (DPI) Amount: US$14.1 million (including capitalized front-end fee) Terms: Repayment in 17 years, including four years of grace, at the standard variable rate. Financing Terms: The proceeds of the loan would be allocated to DPI through the National Public Expenditure Plan (NPEP) and through budget allocations. The Government would bear the foreign exchange risk and the interest rate risk. Project Description: The project would expand and improve the country's agricul- tural support services in the areas of research, education and training, extension services, sector planning, agricul- tural project development and regulatory services. The loan would finance expenditures for civil works; equipment, furniture and vehicles; salaries of expatriate and national staff; travel and subsistence expenses; operational expenses, such as materials and supplies, utilities, leasing and operation of vehicles; consultancies; and fellowships. If properly implemented, the project would be essentially risk-free. Uncertainties relate essentially to project implementation, such as the expeditious recruitment of necessary staff and close cooperation between the central and provincial agricultural services. Recognizing this, the Government has agreed to employ professional recruitment agents and to adopt gradually the proposed research/extension approach in the provinces. | This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Project Costs:/a Local Foreign Total (US$ million) ----- Crop Research 2.4 2.4 4.8 Aigricultural Education and Training 1.3 1.1 2.4 Planning and Economics 0.9 1.5 2.4 Agricultural Extension Support 1.0 0.8 1.8 Land Utilization Services 0.8 0.6 1.4 Agricultural Project Development 0.5 0.6 1.1 Livestock Services 0.5 0.5 0.9 Quarantine Services 0.5 0.2 0.7 P'lantation Management and Training 0.2 0.2 0.4 Transit Staff Housing 0.1 - 0.1 Y.onitoring and Evaluation 0.1 0.1 0.2 Fellowships - 1.4 1.4 Consultancies - 1.2 1.2 Base Cost 8.2 10.6 18.8 Physical contingencies 0.4 0.9 1.3 Price contingencies 1.7 2.5 4.2 Total Project Cost 10.3 14.0 24.3 Frocnt-End Fee Uii sank loan -O. 0.1 Total Financing Required 10.3 14.1 24.4 t Lnancing Plan: Local Foreign Total ----- (US$ million) ----- IBRD - 14.1 14.1 Government 10.3 - 10.3 Total Financing Provided 10.3 14.1 24.4 Estimated Disbursements: Bank FY: 1984 1985 1986 1987 1988 -------- (US$ million equivalent) -------- Annual 1.8 3.1 3.9 3.2 2.1 Cumulative 1.8 4.9 8.8 12.0 14.1 /a Including taxes and duties, equivalent to about US$1.1 million.  - iii - Rate of Return: The benefits of the project are difficult to quantify. Elence no rate of return has been calculated. Staff Appraisal Report: No. 4243-PNG dated April 8, 1983. Map No.: IBRD 16740  I I  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INDEPENDENT STATE OF PAPUA NEW GUINEA FOR AN AGRICULTURAL SUPPORT SERVICES PROJECT 1. I submit the following report and recommendation on a proposed loan to the Independent State of Papua New Guinea for the equivalent of US$14.1 million, including the capitalized front-end fee, to help finance an agricultural support services project. The loan will have a term of 17 years, including four years of grace, at the standard variable rate. PART I - THE ECONOMY 2. The last economic report, "Papua New Guinea: Development Policies and Prospects for the 1980s" (Report No. 3544a-PNG), was distributed to the Executive Directors in December 1981. This section reflects the findings of that report and subsequent. economic missions, and draws from recent IMF work on Papua New Guinea (PNG). Structure of the Economy 3. Papua New Guinea is a land of rugged and sometimes impenetrable mountains', rich valleys and coastal plains, and numerous widely scattered islands. It is favored with abundant rainfall, considerable mineral resources, and forestry and fishery resources of good commercial potential. The capital city, Port Moresby, with a population of about 134,000, is an enclave, with no road links to other parts of the country, and is the largest urban settlement in what remains an overwhelmingly rural society. Per capita GDP in 1981 was US$786. The population as of mid-1982 was about 3.0 million, spread among 19 provinces (with populations ranging from 26,000 to 310,000), each with its own parliament and separate administrative apparatus. 4. The modern sector of the economy is dominated by copper mining and associated investments and by the public sector. In the late 1970s copper, through Bougainville Copper, Ltd. (BCL), accounted for about 15% of GDP; by 1982 this had fallen to 6.5% as prices declined sharply and as the more pro- ductive veins were being exhausted. The Ok Tedi mine is thought to have contributed about 3% to GDP in 1982 (largely through capital investments); this is expected to grow to perhaps 12% of GDP in 1987, thus more than compensating for the decline in BCL. Non-mining industry accounts for about 9% of GDP -- low for a country of PNG-s per capita income -- while government services, heavily dominated by expatriates in the upper ranks, account for about one-quarter of the total. Strikingly, the primary sector, which employs about 85% of the labor force, only contributes about 35% of GDP, a large portion of which is in the subsistence sector.  -2- 5. PNG's growth record has been quite mixed; for the decade of the 1970s as a whole, per capita growth was negative at -0.2% per annum despite the strong growtlh in copper exports. The latter half of the decade was even worse in per capita income terms (-0.5% per annum) despite some good years, particularly 1978-79. The terms of trade effects on GDP during the seventies were roughly neutral. However, the years 1980 and 1981 showed an average decline of per capita income of about 4% per year, and in these years the terms of trade effect did begin to bite as the Government cut back services and restricted the growth in the money supply to protect the balance of payments and the value of the Kina. The terms of trade effect was a negative 10% of GDP in 1981; the terms of trade loss is expected to have worsened to about 15% percent of GDP in 1982 and to improve only slightly over the following five years. Growth, on the other hand, is expected by the Government to average 4.5% through 1987 (2.2%