Uganda - Agricultural Rehabilitation Project

Document of The World Bank . FOR OFFICIAL USE ONLY Report No. 4150-UG STAFF APPRAISAL REPORT UGANDA AGRICULTURAL REHABILITATION PROJECT January 27, 1983 Eastern Africa Projects Department Northern Agriculture Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Ugandan Shilling (USh) US$1.00: USh 100.0 (First Window) US$1.00: USh 240.0 (Second Window) On August 23, 1982, the Government introduced a dual exchange rate coupled with a 5% devaluation of the official (Window One) exchange rate. The exchange rate in the Second Window is market-determined through a weekly auction and subject to wide fluctuations; it has steadily fallen from USh 300 to the Dollar in August 1982 to USh 240 to the Dollar in January 1983. Conversions in the Staff Appraisal Report have been made at the First Window rate, which is applicable to all external assistance projects. WEIGHTS AND MEASURES 1 Meter (m) = 3.28 feet I Square meter (m2) = 10.76 square feet 1 Kilometer (km) 0.62 miles 1 Hectare (ha) = 2.47 acres 1 Metric Ton (ton) = 2,205 pounds OUT-TURNS 1 kg of made tea = 5 kg of green leaf 1 kg of coffee = 1.92 kg of green coffee 1 kg of lint = 3 kg of seed cotton 1 bale of cotton lint = 185 kg ABBREVIATIONS AND ACRONYMS AEL = Agricultural Enterprises Limited AfDB = African Development Bank APC = Agricultural Policy Committee AS = Agricultural Secretariat BCU = Bugisu Cooperative Union CDC = Commonwealth Development Corporation CFTC = Commonwealth Fund for Technical Cooperation CMB = Coffee Marketing Board CTB = Central Tender Board EDF = European Development Fund LMB = Lint Marketing Board NTC = National Tobacco Corporation UABT = Uganda Advisory Board of Trade UCB = Uganda Commercial Bank UCCU = Uganda Central Cooperative Union UDB = Uganda Development Bank UTA = Uganda Tea Authority UTGC = Uganda Tea Growers' Corporation  FOR OFFICIAL USE ONLY Government of Uganda Fiscal Year July 1 - June 30 Uganda Commercial Bank Fiscal Year October 1 - September 30 AMOUNT OF IDA CREDIT US$70.0 Million This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFICIAL USE ONLY UGANDA AGRICULTURAL REHABILITATION PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE AGRICULTURAL SECTOR A. Background and Resource Base ...................... 1 B. Role, Structure and Performance ..... .............. 2 C. Organization and Supporting Services .... .......... 6 D. Constraints and Policy Issues ..................... 8 E. Government Objectives and Priorities .... .......... 11 F. The Financial Program ............................. 12 G. Bank Assistance Strategy .......................... 14 H. Project Formulation ....................... 14 II. THE IMPLEMENTING AGENCY - UGANDA COMMERCIAL BANK (UCB) A. History and Role 15 B. Capital and Ownership ............................ 15 C. Management, Organization and Staf,f .... ........... 16 D. Policies and Procedures ........................... 16 E. Accounting and Auditing .......................... 18 F. Operations and Portfolio .......................... 18 G. Financial Performance, Situation and Prospects ... 18 H. Evaluation ....................................... 20 III. THE PROJECT A. Objectives ....................................... 20 B. Pricing and Resource Allocation .... .............. 21 C. Marketing of Export Crops ........................ 21 D. Rehabilitation of Crop Processing Facilities ..... 24 E. Provision of Agricultural Recurrent Imports ...... 26 F. Training ......................................... 27 G. Technical Assistance ............................. 27 H. Cost Estimates ................................... 28 I. Financing Plan ................................... 29 J. Terms of the Credit .............................. 30 K. Procurement and the Rehabilitation Contracts ..... 31 This report is based on the findings of an Appraisal Mission to Uganda in May 1982 composed of Messrs. J. Wambia, H.J.S. Marples, P. Hopcraft (IDA), and R. Bates, C. Bourne, D. Hines, H.J. van Hilten (consultants). 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.  Page No. L. Disbursements .................. ................... 33 M. Counterpart Funds ................................. 35 N. Accounts and Audit ................................ 35 0. Environmental Impact ..... ........ 36 IV. PROJECT IMPLEMENTATION A. Organization and Management . .36 B. Annual Work Programs ..38 C. Reporting, Monitoring and Evaluation . .39 D. Implementation Schedule . .40 V. PRODUCTION, MARKETS, PRICES AND FINANCIAL ANALYSIS A. Production ................ 40 B. Markets .................. 41 C. Prices ..................... ....................... 42 D. Financial Analysis ............. .. ................. 45 VI. BENEFITS AND RISKS A. Project Benefits ................................. 46 B. Risks .......... .................................. 46 VII. CONDITIONS OF THE CREDIT ...... ....................... 47-49 ANNEXES: 1. Financial Tables .................................... 50-58 2. Terms of Reference .................................. 59-60 3. Criteria for Subproject Appraisal .... ............... 61 4. List of Eligible Imports ...... ...................... 62-66 5. Technical Assistance ................................ 67-68 6. Disbursement Schedule ............................... 69 7. Allocation of the Credit ...... ....................... 70 8. Implementation Schedule ............................. 71 9. Prices, Costs and Returns of Major Crops in Uganda ... 72 10. The Ginning Subsector ............................... 73 11. Price Projections for the Major Agricultural Exports of Uganda ................................. 74 12. Price Structure of Major Export Crops in Uganda ..... 75 13. Other Terms of Reference .............................. 76-111 14. Investment and Summary Cost Tables . ............... 112-116  CHARTS AND MAPS Figure 1 - Organizational Chart of the Uganda Commercial Bank Figure 2 - Organizational Chart of the Project Map of Annual Rainfall (IBRD No. 16793) Map of Farming Systems (IBRD No. 16789) Map of Coffee Growing Areas (IBRD No. 16790) Map of Cotton Growing Areas (IBRD No. 16791) Map of Cotton Ginneries (IBRD No. 16719) Map of Tea Growing Areas (IBRD No. 16792)   UGANDA AGRICULTURAL REHABILITATION PROJECT Staff Appraisal Report I. THE AGRICULTURAL SECTOR A. Background and Resource Base 1.01 Background. Uganda has a population of 13 million people, a size of 241,000 km2 and with an altitude of between 1,000-1,500 m, it enjoys a mild climate. Except for a few areas in the northeast, the country has moderately good to fertile soil and receives adequate rainfall to sustain successful crop production (see map). Average rainfall of 1,270 mm occurs mainly from March to June in the central and eastern parts of Uganda, and from September to November in the south and west; while the north has one long rainy season when about 760 mm fall between March and August. The soils around Lake Victoria, known as the "Fertile Crescent", are mainly alluvial and can sustain almost continuous cultivation of bananas, the staple food in the area. Alluvial soils extend to the northern part of Uganda, but due to increased rainfall variability and longer dry seasons, they are less productive than in the Fertile Crescent. Volcanic soils are to be found in the western part of the country dominated by the Ruwenzori Mountains, and in the eastern part around Mt. Elgon. These volcanic soils are also fertile and sustain high yields of tea and coffee respectively. 1.02 Land Use. Crop and livestock smallholder (2-3 ha) mixed farming is the dominant form of land use in Uganda. There is limited use of fertilizer in crop farming because where the mote remunerative cash crop coffee predominates, and bananas are the food staple, fertility is sustained by crop residues and cattle manure. In zones where cotton and annual crops predominate, yields have been sustained by using simple rotations. From a total land area of 20 million hectares, only 28 percent is cultivated; but most districts have already put to use the lands best suited to crops. Permanent unimproved pastures cover 5 million ha, almost equal to the area of cropland; forest and woodland, 7.5 million; mountains, 2 million; and swamps, 1 million. In addition to the land area, lakes and rivers cover 3.6 million hectares and fishing plays a major role in the country's food supply. The fish catch in the country nearly equals the meat products from cattle, goats, sheep and poultry in its significance to the Ugandan diet, both as a source of protein and by weight. 1.03 The Ministry of Agriculture has used farming systems as a basis for classifying the country into seven agricultural zones (see map). Farming systems in Uganda vary widely depending on climate, soil, location, altitude, and proximity to market and tradition. However, two basic systems dominate production of the smallholder cash crops, coffee and cotton. Over 90% of Uganda coffee is robusta, the bulk of which is produced in Buganda (see map). In that area, plantain (banana) is the main food staple, but other food crops such as maize, sorghum (mainly for beer), sweet potatoes, and legumes are grown. As in all areas of Uganda,  - 2 - the planting of mixed crops is common, the total area planted to mixed crops marginally exceeding that planted to crops in pure stands. 1.04 Where coffee is produced, livestock are valued particularly for manure which generates heavy increases in yields. Cotton is also grown in Buganda but the most important cotton growing area is east of the river Nile in a wide belt from Busoga to Acholi (see map). In much of that area finger millet is the dominant staple. The distribution of active cotton ginneries is shown in a map along with this report. Land fertility is under pressure in the densely populated parts but is generally well maintained by a rotation of three years cropping followed by three years fallow cum regenerated pasture. Cassava is generally grown outside the rotation as it is thought of partly as a drought reserve. In the last few years, when cotton became unprofitable to grow, there has been a big increase in cassava plantings, probably because it could be marketed over an extended period and would therefore not produce market gluts. While most cultivation is done by hand in Buganda, in the cotton growing areas, because of a much greater acreage of annual crops needing timely planting, ox cultivation is used extensively (especially in Teso and Karamoja). From the annual crop zones in the north and east, about 150,000 cattle are exported to the towns and densely populated areas of South Buganda for slaughter. The dominant cash crops in the montane systems are arabica coffee in Bugisu (Mt. Elgon) and tea in the western (Kigezi/Ankole) region (see map). In these montane systems, mixed farming practices are similar to those in Buganda. B. Role, Structure and Performance 1.05 General. Uganda's agriculture currently contributes 75 percent of GDP, 95 percent of the country s exports, and provides a livelihood to about 93 percent of the population. Agricultural export taxes account for 27 percent of the Government's tax revenues. Industrial activity is largely agro-based: cotton ginning, cigarette manufacturing, sugar refining, grain milling, and processing of coffee and tea. The transport and banking sectors also have important links to agriculture. The performance of the agricultural sector in the last decade is summarized in the production and livestock population data in Tables 1 and 2. Table 1 compares peak year production figures (Col. 1) with the 1980 and 1981 production figures. While statistics on official purchases in the peak years closely approximate actual production (the economic and political environment at that time was better than it is now), it is estimated that tobacco and coffee production declined less dramatically than is suggested by this table. Coffee was smuggled into Kenya, while tobacco was either smuggled into Sudan and Zaire or sold locally. It must also be noted that the statistics on the foodcrops, livestock and fisheries sectors are highly suspect. The reported 40% decrease in banana production between 1975 and 1981 is inconsistent with the absence of any signs of starvation in the banana growing parts of the country. The 1981 figures on food crops are however consistent with the long term (3-4 years) rising trend, representing a 14 percent increase over the 1980 production figures.  -3- Table 1 Principal Agricultural Production Statistics ('000 metric tons) Peak (Year) 1980 1981 1982 Estimates Export Agriculture (Official Purchases) Coffee (exports) 251.9 (1969) 135.5 97.5 162.0 Robusta 232.5 130.4 93.0 154.5 Arabica 18.4 5.1 4.5 7.5 Cotton Lint 86.4 (1970) 4.0 4.8 5.7 Tea (made) 23.1 (1972) 1.5 1.5 2.0 Tobacco 5.0 (1972) 0.4 0.1 0.9 Sugar (raw) 152.0 (1968) 2.4 3.0 n.a. Foodcrops (Estimated Production) Plantain 9,107.0 (1975) 5,699.0 5,900.0 6,600.0 Cassava 2,993.0 (1977) 2,072.0 3,000.0 3,300.0 Maize 674.0 (1976) 286.0 342.0 393.0 Sorghum 467.0 (1975) 299.0 320.0 400.0 Beans 340.0 (1967) 186.0 n.a. n.a. Groundnuts 1,136.0 (1966) 65.0 n.a. n.a. Livestock (Estimated Population in Millions) Cattle 5.5 (1978) 4.5 4.5 4.5 Goats 2.4 (1977) 2.0 2.7 n.a. Sheep 1.1 (1977) 1.0 1.4 n.a. Fish Catch (By Lake Region) Lake Victoria 17.0 (1981) 10.0 17.0 n.a. Lake Kyoga 167.0 (1977) 131.0 130.0 n.a. Other Lakes 42.1 (1978) 24.9 20.8 n.a.  -4- Table 2 Area, Volume and Farm Gate Value of Smallholder Crops & Livestock in 1980 (Current Market Prices for Foodcrops and Official Prices for Export Crops) Area Production Gross Value (1,000 ha) (1,000 mt) (USh Million) Crop Coffee (green) 224 103 835 Cotton (raw) 100 43 258 Tea n.a. 7.5 15 Tobacco n.a. 0.4 4 Bananas 1,173 5,699 19,950 Finger Millet 279 459 8,260 Sorghum 167 299 4,485 Maize 258 286 4,290 Cassava 302 2,070 6,210 Sweet Potatoes 231 1,300 3,900 Beans 265 186 5,580 Peas 250 155 4,650 Groundnuts 80 65 1,365 Sesame 70 24 720 60,622 Livestock Cattle Beef 81 13,770 Milk 335 10,050 Sheep and goat meat 10 2,074 Poultry Meat 10 2,500 Eggs 8 3,700 Pork 6 1,200 33,294 Total Crop and Livestock 93,916 1.06 Exports. At one time significant quantities of coffee, cotton, tea, tobacco, and sugar had been exported, but production of these cash crops declined precipitously in recent years, leaving coffee as the only significant export crop. Coffee's share in export receipts increased from 53 percent in 1971 to over 95 percent in 1981, despite a decline in official coffee exports from 175,000 tons in 1971 to 97,500 tons in 1981. The main causes of this decline have been the lack of basic agricultural tools and inputs, a greatly diminished processing capacity as hulleries  - 5 - were looted or broke down and were not repaired, a pricing policy that discouraged official sales of cash crops, and the overall impact of inefficient marketing Boards on the exports sector. It is expected that as the volume of coffee, cotton, tea, and tobacco exports increase following the rehabilitation of the economy, the share of coffee in total exports will decrease. However, agriculture will still account for over 90 percent of Uganda's exports in the foreseeable future. IDA has financed three projects in the agricultural sector: one for tea in 1968 (Cr. 109-UG), one for livestock in 1969 (Cr. 130-UG), and one for tobacco in 1971 (Cr. 212-UG). While the Smallholder Tea Project appears to have been a success although tea production declined precipitously due to low producer prices in the late 1970s, the Tobacco Project failed to achieve any of its objectives. The Project Completion Report for the tobacco project identified defective project design, bad organization and management, low prices paid to farmers, political turmoil in the country, and interference with project implementation following the 1971 coup as the main reasons for the project's failure. The better performance of the livestock project is referred to in para. 1.09 below. 1.07 Foodcrops. Eight foodcrops provide most of the calories in the Ugandan national diet: finger millet, maize, sorghum, plantain, cassava, sweet potatoes, phaseolus beans, and groundnuts. The production of these foodcrops has been reduced by 25 percent between 1976/77 (the peak year of production for most food crops) and 1980. The main causes of this decline have been marketing and price controls, and the lack of basic agricultural tools and inputs such as seeds and fertilizers, resulting in declining hectarage and yields. However, since the decontrol of food crop prices in 1977 and the removal of the domestic marketing monopoly of the Produce Marketing Board (PMB) in 1981, this subsector has shown signs of rapid recovery, and Uganda has already made firm commitments to export officially US$8 million worth of foodgrains in 1983. Uganda currently exports foodgrains unofficially to neighboring countries. The Bank is the executing agency for an IFAD-funded project (declared effective in March 1982) which aims at increasing food production in the eastern and northeastern parts of Uganda through financing of recurrent imports needed to sustain or increase food production. The project includes preparation for a follow up project with similar emphasis on food production and rural development in the same area, also expected to be funded by IFAD in 1984. 1.08 Livestock. Two million mixed farmers own 95 percent of the cattle population in Uganda and nearly all the goats and sheep. In 1978, Uganda had 5.5 million head of beef and dairy cattle, and was not only self-sufficient in most of its meat requirements but had an export potential. Uganda has better pastures than other Eastern African countries due to well distributed and ample rainfall (except in the northeast), and the main constraint to production is control of animal health, particularly the bovine epidemic diseases, rinderpest and contagious pleuroneumonia, the endemic tick borne disease East Coast Fever, foot and mouth disease, and trypanosomiasis. The cattle population, which was stable at around 5.5 million head until 1978, declined by about 20 percent between 1979 and 1981, and is now estimated at 4.5 million. The main causes of the recent decline in the livestock population and production are the looting of cattle populations, particularly on developed ranches, during and after the  - 6 - war of 1979 and the serious epidemic disease situation in the country subsequent to the breakdown of the disease control program. In the eastern and northern areas tsetse fly have reinfested large areas previously cleared. The resultant trypanosomiasis is causing widespread morbidity and some mortality of cattle, thus reducing growth and offtake. 1.09 From 1960 modern commercial dairying, ranching, poultry and pig farming was developed on a limited scale in Uganda. By the late 1970s about 400 commercial ranches were in various stages of development, each designed to carry 600 to 1,000 head of cattle. Properties were held on leasehold by individuals, cooperatives, or companies and examples of outstanding success were found in all types of leaseholders. This success was due in part to a reliable favorable environment, in part to well established land tenurial arrangements and in part to the profitability of commercial dairying and ranching where production was three to four times that obtained per unit of livestock or of land from traditional husbandry. IDA funded a Beef Ranching Project in Uganda which was approved by the Board in 1969. The Project met nearly all its objectives. Beef ranches developed under this Project were equally adversely affected by the general decline of the economy and the 1979 war. 1.10 Fisheries. The importance of fish in the Ugandan diet is demonstrated by the fact that 50 percent of the countryts animal protein comes from fish. Lake Kyoga and Lake Victoria contributed 78 percent and 10 percent of the total catch in 1981 respectively. The stocking of Lake Kyoga with large numbers of Tilapia and Nile perch species between 1956 and 1958 contributed to the increased catch from the Lake. The country's catch is reported to have built up from 13,000 tons in 1962 to 62,000 tons in 1970 and 167,800 tons in 1981. This rate of increase appears very steep, and the figures are subject to a wide margin of error. 1.11 The fishermen are mostly small scale producers using simple wooden boats. Fish is transported on bicycles and pick-ups to the main distributing centers where about 60 percent is either smoked or chilled and sent mainly to Jinja and Kampala. An ice plant in Soroti, when it was functioning, provided ice for preserving fresh fish during transportation to urban areas. In the 1960s, frozen, dried and smoked fish were exported to Kenya, Tanzania and Zaire. The recent decline in fish production in Uganda is largely explained by the breakdown of the fishnet manufacturing factory in Kampala, boat repair services, and ice plants. 1.12 Forestry. Of the 1.5 million ha of forest, some 700,000 ha are natural forest, 28,000 ha are softwood and eucalyptus plantations (largely in the Nile valley and the southern parts of the country), and the rest is savannah woodland. Fuelwood and poles from the savannah woodland are utilized largely in the non-monetary rural economy, while commercial logging takes place in the forests and plantations. The sector is estimated to have contributed some 4% of GDP in the mid-1970s. C. Organization and Supporting Services 1.13 The agricultural sector is served by three Ministries, numerous cooperative societies and several parastatals. All the parastatals in the  - 7 - agricultural sector currently have severe financial problems, with the possible exception of the Coffee Marketing Board and until 1982, Uganda Livestock Industries. The Ministry of Agriculture and Forestry is responsible for the development and implementation of crop production and forestry policies and programs. Five parastatals come under the direct supervision of the Ministry of Agriculture: Uganda Tea Authority, Uganda Tea Growers Corporation, National Sugar Works (Kinyala Factory), Wood Industries Corporation, and Uganda Agricultural Enterprises. 1.14 The Ministry of Cooperatives and Marketing is responsible for the development and implementation of policies and programs in the cooperative movement and agricultural marketing. It supervises the activities of the Coffee Marketing Board, the Lint Marketing Board, the Produce Marketing Board, and the cooperative movement. 1.15 The cooperative movement has dominated the internal marketing of export crops in Uganda since World War II. Membership of cooperative societies in 1980 was reported to be over 1.0 million families, about half of the families in the country. The movement, with Government support, has assisted farmers with the purchase and distribution of inputs, processing and marketing of cash and food crops, extension of credit, distribution of consumer goods, and provision of transportation. There are about 3,500 registered primary cooperative societies in Uganda of which about 2,300 are single purpose cooperatives concerned mainly with marketing and processing coffee and cotton. 1.16 The Ministry of Animal Industry and Fisheries has overall responsibility for the development of the livestock and fisheries subsectors. The Ministry supervises the activities of Uganda Meat Packers Factory, Ltd., Uganda Dairy Corporation and indirectly, Uganda Livestock Industries. The Ministry's Department of Veterinary Services has played a leading role in the initiation of commercial dairying and ranching in the country; the latter are mainly in areas cleared of tsetse fly. The Department also demonstrates frame drying of hides and skins and licenses traders who export these commodities. 1.17 Research. Agricultural research in Uganda has concentrated heavily on the cotton crop because of its early economic importance. It was undertaken by the Ministry of Agriculture, the Faculty of Agriculture of Makerere University and the Commonwealth Cotton Growing Corporation. Several varieties of American Upland cotton ("Allen" and "Sunflower") were brought to Uganda in the period 1903-1910. With minor introduction of Egyptian and Malawian strains, these varieties have led, through extended breeding programs, to the strains currently in use. Breeding and selection focussed not only on increase in yield (about 2% per year was achieved) but also on resistance to some of the many pests and diseases which afflict cotton in Uganda. Cotton breeders in Uganda had considerable success in producing varieties resistant to some insect pests and to bacterial blight but the crop remains very susceptible to other insect damage. Until a decade ago, the cotton breeding stations (Namulonge, Serere, Bukalasa, Ngetta, and Kawanda) released 3-4 tons of new seed each year which was multiplied through five generations (five years) to produce the 10,000-12,000 tons of seed needed for each crop year. The multiplication  - 8 - process was done, firstly, through the agricultural department and prison farms and then by farmers in demarcated areas segregated by natural barriers to ensure that all growers in those areas grew only the specified stock seed for multiplication. Much research on spraying and chemical weed control was also carried out. 1.18 The agricultural departmzit als) carried out research on practically all the major crops, pasture, and livestock husbandry. Coffee and tea research have not influenced the production of coffee and tea in Uganda to the same extent as cotton research. Many local and foreign research scientists left the country during the last decade due to the decreasing importance which the Government attached to research, the worsening security situation, and the lack of funds and materials with which to work. Many facilities, equipment and materials need replenishment before research can again play a significant role in agricultural development. 1.19 Extension. The Ministry of Agriculture has a large extension service comprising of about 2,300 agents, of whom some 700 are university graduates, posted at district, county, and parish levels. The service has used many extension techniques including crop demonstrations and field days, farmer seminars at District Farm Institutes, farm youth clubs, and farm women's organizations. The absence of most agricultural inputs and implements in the last five years made the work of extension agents irrelevant as farmers could not apply recommended inputs or farm practices. Extension agents were also immobilized by the increasing lack of transportation. 1.20 Credit. Agricultural credit has played a minor role in Uganda's agriculture with the possible exception of annual crop marketing credit to cotton and coffee processors. The Cooperative Department administered a rural cooperative credit scheme from 1962 to 1974 to provide credit to small-holders for annual agricultural inputs. The maximum funds loaned in any one year was USh 16.5 million in 1972. The default rate was very low, varying from 0.1% to 4%. Currently, agricultural credit is provided to farmers mainly through the Uganda Commercial Bank (UCB), which typically accounts for 70 percent of total agricultural credit, while the other 6 commercial banks share the remaining 30 percent. Over 90 percent of agricultural loans are repaid on schedule. About 48 percent of total lending in Uganda goes to agriculture, mainly to large scale farmers (those owning more than 5 ha), ranchers, and marketing Boards and hardly any is for cash crop development. The maximum interest rate on 5-8 year agricultural loans is fixed by the Bank of Uganda, in agreement with the IMF (see Table 3), currently at 14 percent. D. Constraints and Policy Issues 1.21 The causes of declining agricultural production and exports are the lack of foreign exchange to finance capital and recurrent imports needed for production, processing and marketing; and an array of policy and institutional constraints. These have been accentuated by the adverse political and security situation in the country over the past decade. However, these causes did not merely originate in the 1970s. Some of their  - 9 - origins can be traced to pre-independence years, ana their early results can be traced to the late 1960s, two years before the advent of the Military Regime. 1.22 Foreign Exchangce. Th- agricultural s:.tor is cu!revtly a minor consumer of foreign exchange (US$25-30 million per year out of an annual import bill of over US$500 million) and is a ne_ earner of foreign exchange. Gross foreign exchange earnings from the sector in 1981, with no significant volume of non-coffee exports, were US$220 million. Related industrial enterprises making textiles, cooking oil, soap, flour, animal feed, and leather also depend on some imported inputs. The lack of adequate processing capacity, which is a direct result of the shortage of foreign exchange, is a major physical constraint to the recovery of Uganda's agricultural exports even at current low levels of production. Efforts to increase production and to improve marketing efficiency would be unsuccessful without simultaneously relieving the processing bottlenecks. An appropriate agricultural technology policy would contribute significantly towards further reducing the import content of agricultural production. 1.23 Policies. Before and after independence in 1962, the Government's policies in the agricultural sector, especially export agriculture, have had four broad characteristics. The first is that at the farm level Government has recognized and supported the dominant role played by smallholders. It has put greater emphasis on encouraging smallholder mixed-farm production rather than estate production, with the notable exception of the sugar industry which relies on estate sugarcane almost exclusively. Secondly, farmers are encouraged to form cooperative societies through which support services, input supplies, and credit are extended to them. The Uganda Central Cooperative Union (UCCU) has an extensive monopoly in the importation, wholesale, and retail trade of most agricultural inputs and implements, including supplies and spares used by crop processing enterprises. Farmers are often compelled (directly or indirectly) to sell their produce of certain crops (coffee and cotton in particular) through their society. Since 1977, coffee farmers have been allowed to sell coffee to privately owned hulleries as they had done prior to 1972. Farmers' cooperative societies are members of larger district cooperative unions to which they are compelled to sell their produce by law. Thirdly, Government parastatals have a monopoly to buy and export all cash crops. Thus unions and private coffee processors are in turn obligated to sell their crop to marketing Boards. The fourth characteristic is Government's use of pricing policies to shelter farmers, processors and marketing Boards from fluctuations in the international price of their crops through, firstly, price assistance funds for coffee and cotton (not anymore) and, secondly, fixed prices to producers, processors and marketing Boards. The Government's industrial protection policy, which bans imports of many items produced locally and used by the agricultural sector also provides a strong disincentive to agricultural production as domestic prices for these goods often exceed the import price. In addition, the agricultural sector subsidises the industrial sector through under valuation of agricultural exports and industrial imports via an overvalued exchange rate and through a foreign exchange allocation bias in favor of industry.  - 10 - 1.24 The administration of these policies is split between four Ministries: the Ministries of Agriculture and Animal Industry have primary responsibility for production at the farm level; Cooperatives and Marketing for marketing through cooperatives and marketing Boards; Finance for pricing of export crops in collaboration with the Ministry of Cooperatives & Marketing. The Ministry of Agriculture has no significant (de facto) input in the determination of producer prices, nor does it influence marketing policies. There is a need for closer policy coordination between the four Ministries, so as to ensure that they do not pursue conflicting policies and objectives. The establishment, under this Project, of an Agricultural Policy Committee, supported by a technical Secretariat (para. 3.02) is aimed at partially solving this problem. The poor state of Uganda-s public service (Ministries as well as non-financial parastatals), which has been demoralized by ridiculously low salaries, political interference, lack of human and budget resources, and the adverse security situation, is evident in all agricultural institutions in Uganda. 1.25 Consequences. The decline of the agricultural sector is as much the result of the policies and institutional set up as the lack of foreign exchange. In fact, there is a circular relationship between the two. Cooperatives and marketing Boards have become inefficient as buyers, processors and sellers of produce from farmers. The pricing and exchange rate policies have discouraged the production of export crops, but especially cotton and tea (which cannot be easily smuggled and marketed outside the cooperatives and marketing Boards). The prices paid to farmers and processors for these crops have been uncompetitive with those of competing non-controlled produce (mainly foodcrops). Tobacco production likewise declined, but tobacco was sold locally at market rates through unofficial channels. While the production of coffee also suffered from these policies, up to 50,000 tons of coffee were smuggled to Kenya where it fetched prices refiecting international coffee prices converted at the open (parallel) market exchange rate which was thirty times as high as the official exchange rate until the June 1981 devaluation, and is now three times as high as the official exchange rate. 1.26 The typical coffee hullery was capable of processing an average 2,450 tons of coffee per year, but processed only 1,700 tons on average in 1981. The situation in the cotton ginning subsector described below is typical of that prevailing in the coffee, tea and tobacco subsectors. The number of working ginneries declined from 52 in 1971 to only 32 in 1982. Among the 32 that are still operational, none are capable of ginning even 20% of their peak levels achieved in early 1970s, and nearly all have stocks of unginned cotton. The regional distribution of operative ginneries is shown in a map along with this report and their basic data in Annex 10. The typical ginnery in Uganda today is a 30-year old double roller with 20 installed gins but of these, only 10 are usable. One double roller gin is theoretically capable of processing 720 bales of lint per year (each weighing 185 kg). The average production per gin has declined from a 1971 peak of 576 bales (i.e. 413, 429 bales from an installed capacity of 882 roller gins) to 60 bales in 1980 (i.e., 22,455 bales from an installed capacity of 358 roller gins in 32 working ginneries). The typical ginnery in Uganda was capable of ginning 7,200 bales of lint per year in the 1970s but only ginned 700 in 1981.  11 - 1.27 On August 23, 1982, Government introduced a dual exchange rate. All agricultural exports and priority imports (including those intended for the agricultural sector) are valued at the official (Window One) rate of US$1.0 = USh 100; while all other exports and imports are valued at the parallel (Window Two) rate which is determined by a weekly auction of foreign exchange by the Bank of Uganda currently fluctuating at about USh 240 to the dollar. As the Government-stipulated margins of crop processing to factories dwindled and became negative, and as their throughput also declined to under 10 percent of capacity, their capital base (equity and fixed assets) thus became completely eroded; furthermore, they became unable to obtain working capital credit from banks who regard them as bad lending risks without Government guarantees. Most of their able staff were unpaid for long periods and sought alternative employment. Marketing Boards were once profitable, but are not so now because of the drastic decline in the volume of produce they handle, Government price controls and taxes (direct and indirect) on export crops, and their increased inefficiency. 1.28 Conclusions. Thus, the financial and managerial state of processors and marketing Boards, which is in part the consequence of Dolicies outlined above, is a formidable obstacle to the revival of export agriculture. A revival of export agriculture therefore requires a major effort to stimulate farm level production through appropriate pricing and exchange rate policies; the rehabilitation of processing facilities and importation of annual inputs; an array of policy and institutional measures designed to improve efficiency in the processing and marketing of cash crops; increased coordination of policies, programs and resource allocation in the sector; and an enlightened policy of industrial rehabilitation and reform, giving emphasis to export orientation based on abundant domestic resources and appropriate import substitution with lower and rationalized tariffs. In this context, the Bank's Trade Policy and Export Diversification studies scheduled for FY84 and FY85 are expected to support the Government's efforts in the agricultural sector. E. Government Objectives and Priorities 1.29 The Goverment's objectives and priorities for the agricultural sector are stated in the Recovery Program (1982-84) which it presented at the Consultative Group Meeting in Paris in May 1982. The Recovery Program's main objective is to increase Uganda's export earnings through the revival of export agriculture. In the short run (next 2-3 years), the objective is to increase utilization of existing capacity through improvements in the availability of inputs, and through repairs and replacement of broken down and obsolete plant and equipment where justified. 1.30 The recent increases in producer prices are expected to lead to increased farm-level production of all export cash crops, even though ir. some cash crop producing areas food crops offer higher cash returns. This is partly because of the high sunk cost and low variable cost (mainly labor) structure of coffee and tea, leading to a slightly inelastic supply situation. However, food crops provide effective competition for cotton and tobacco. Export cash crop prices paid to farmers and processors will  - 12 - need to be competitive with those of food crops, to be increased substantially annually in real terms and be properly timed and promptly paid if increased volumes of these export crops are to be expected. A principal function of the Agricultural Secretariat (para. 3.02) will be to recommend prices to be paid to farmers and processors of export cash crops. To encourage processors to invest in new costly equipment, their processing margins, efficiency and throughput (via higher producer prices) must be increased substantially. It is unlikely however that Government can raise enough resources to reactivate agricultural exports back to their former peaks within the period of the Recovery Program. Government has therefore set priorities for agricultural rehabilitation which would reinforce and complement its overall priorities and strategy for rehabilitating the economy. The broad priorities are: recurrent imports to increase or sustain production; the selective rehabilitation of processing facilities for cash crops; policy and institutional reforms aimed at increasing farm level production, processing capacity utilization and efficiency, improved marketing efficiency and proper allocation of scarce resources to agriculture. In the Recovery Program, which is also the Government's foreign exchange budget, these priorities for the agricultural sector have been costed at US$220 million for the two year period beginning June 1982. F. The Financial Program 1.31 The Government has also agreed with the IMF on a second stand-by Program covering the period July 1982 to June 1983. The main features of the program are summarized in Table 3. G. Bank Assistance Strategy 1.32 The Bank has reviewed the Recovery Program, including the agricultural sector priorities, and supports it. The priorities for this Agricultural Rehabilitation Project are consistent with Government's Recovery Program. In line with the current focus of Bank assistance to Uganda on rehabilitation and reconstruction of the economy, especially the directly productive sectors, the program in agriculture is aimed mainly at rehabilitation. The Bank is already providing imported inputs and spare parts to the agricultural sector through the First and Second Reconstruction Credits approved in FY80 and FY82 respectively. About US$19 million of the US$95 million under the First Reconstruction Credit has been spent on the agricultural sector. Of the US$70 million under the Second Reconstruction Credit, US$17 million has been earmarked for agriculture (inputs, spare parts, packing materials, transport, etc.). The imports and subprojects are selected on the basis of their potential to quickly earn or save foreign exchange. This assistance will enable the agricultural sector, in the short run at least, to further utilize existing processing capacity. However, the sector's needs far exceed the level of support which the Bank expects to provide during the period of the Recovery Program. Medium term increases in agricultural output and efficiency will therefore require further support from other donors, a determined effort at properly focused exchange rate, price policy and institutional reforms, and higher levels of recurrent inputs in addition to processing facility rehabilitation. The Bank's dialogue with Government, together with  - 13 - Table 3 Summary of the 1982/83 Financial Program Assumptions Real GDP growth 10.0 percent GDP deflator (increase) 25.0 percent Exchange rate depreciation (weighted average) 43.0 percent Objectives Balance of payments Current account deficit 2.1 percent of GDP Current deficit 1.5 percent of GDP Debt service ratio 20.0 percent of mer- chandise exports 1. Exchange Rate. Establishment of a dual exchange rate system with a modest depreciation in one market which will remain managed and a sharp depreciation in the other with weekly auctions where the Bank of Uganda will sell a minimum of US$8 million during each four-week period. Agricultural exports and imports would be valued at the lower of the two exch4nge rates. 2. Supply-side Measures. Large increases (33-66%) in agricul- tur4l producer prices, petroleum product prices; increased investment in the productive sectors under the Recovery Program. 3. Public Finance. Reduction in overall budgetary deficit to 2.2% and bank financing to 0.2% of GDP. 4. Monetary Policy. Increase in total domestic credit limited to 33% per annum with appropriate quarterly ceilings (performance criterion). Increase in net credit to Government limited to less than 1% with appropriate quarterly ceilings (performance criterion). Increase in the structure of interest rates by one percentage point. 5. External Borrowing. New borrowing at 1 to 5 years (perform- ance criterion) limited to SDR 30 million. New borrowing of 1-12 years (performance criterion) limited to SDR 80 million. 6. External Arrears. Net minimum reduction in external arrears of SDR 18 million with appropriate quarterly levels (performance criterion). SOURCE: IMF  - 14 - Government's recent actions, suggest a strong determination to come to grips with the sector's problems and some convergence of views on how some of these problems can be tackled. 1.33 A second objective of Bank assistance in the sector is to improve sector planning, resource allocation, policy analysis capability and help solve institutional and manpower problems. The Technical Assistance Credit, approved in FY81, provides resources to be used for technical assistance for studies, preparatory work on plant and equipment rehabilitation, and staff training and support for sector institutions. An Agricultural Sector Study, scheduled to begin in FY83 and to be completed in FY84, will enable the Bank to advise the Government on longer-term agricultural policies and a strategy beyond rehabilitation, while an Agricultural Parastatals Study by IDA, scheduled for FY85, will help Government define its policies for dealing with the issues affecting agricultural parastatals. H. Project Formulation 1.34 Background and Identification. The Government recognized the need for a project to address the major problems of the agricultural export sector immediately after the war of 1979 and requested IDA for assistance to rehabilitate the coffee subsector. However, due to the Government's delay in implementing necessary economic reforms (particularly the currency devaluation) and continuing political instability prior to the December 1980 elections, IDA was unable to appraise the project. The comprehensive Project for the exports sector was identified during the Economic Mission in July 1981 and the appraisal of an IFAD Agricultural Reconstruction Program, whose focus is exclusively on food and livestock production in eastern and northern Uganda. In September 1981 Government requested IDA for assistance to rehabilitate the agricultural exports subsector. 1.35 Preappraisal and Appraisal. The wide ranging reforms implemented in June 1981 (particularly the 92% devaluation of the Ugandan shilling from USh 8 to the US dollar in April 1981 to around USh 100 by August 1982 and the increases in producer prices) together with an apparently improved prospect for political stability following the December 1980 elections offered the possibility for economic recovery, the key to which was seen to be the quick revival of coffee, cotton, tea and tobacco exports (in that order of importance). IDA preappraised the Project in February 1982 and appraised it in May 1982. The Project, especially its policy and institutional focus, supported with studies (six of which may lead to projects) is designed to be a platform for the resumption of normal agricultural project lending (possibly from 1985) and to strengthen sector dialogue between Government and donors. The key signal for the transition to new project specific investments in the sector will be the full utilization of the existing productive investments. 1.36 Coffee, Tea and Livestock Subprojects. The investments proposed under this Project are all geared to facilitate levels of production which are consistent with the long-term viability and international market prospects of the export crops, especially coffee and tea, and conform to the World Bank's lending guidelines on coffee and tea projects. They do not necessarily anticipate the return to peak levels of exports (see  - 15 - Table 1). In the case of coffee and tea, all incremental production is expected to be sold within Uganda's quota markets. No new plantings of coffee or tea are proposed under the Project. The inclusion of a livestock component in a Project whose emphasis is on export crops is justified on four grounds: (a) livestock are an integral part of the farming systems in the export crop growing zones; (b) they provide necessary draft power, manure, protein and supplemental income through the sale of meat and milk; (c) they provide an investment opportunity (and therefore strong incentive for cash crop production) to farmers; and (d) the continued spread of epidemic diseases leading to high mortality would cause an unacceptable reduction of the livestock resource base, which could only be reversed over many years, with far-reaching consequences for the agricultural economy. II. THE IMPLEMENTING AGENCY - Uganda Commercial Bank (UCB) A. History and Role 2.01 History. The Uganda Commercial Bank was established in 1965 under an Act of Parliament. It was conceived as a successor to the Uganda Credit and Savings Bank from which it inherited nine branches with USh 42 million in deposits and USh 20 million in advances. Since 1965, UCB has grown steadily, despite the difficult environment in Uganda during the 1970s, to become the predominant banking institution in Uganda. As of July 31, 1982, it had about USh 13.7 billion in total assets, 2,570 employees, and 54 branches located throughout the country. UCB is by far the largest commercial bank in Uganda, and accounts for over 80% of total banking activity in the country. As at March 31, 1982, it commanded 47% of total deposits and 65% of advances in the country. 2.02 Role. UCB's role is largely that of a commercial bank. In addition to general commercial banking activities, it engages in small scale industrial and agricultural term lending and administers four Government development funds on a managed funds basis, three of which are in the livestock subsector. B. Capital and Ownership 2.03 UCB's present authorized capital is USh 1.5 billion of which USh 130 million is paid up. Government is the sole shareholder, and is expected to increase its subscription to USh 500 million in 1983. This is in excess of the amount required to be subscribed by Government to UCB (USh 170 million) by 1985 under the agreement for the Industrial Rehabilitation Credit. The ratio of total assets to equity has increased slightly from 61:1 in 1980 to 63:1 in 1982, but is projected to decrease to 3.6:1 in 1983 (and to stay below 6:1 thereafter) when UCB's fixed assets are revalued (see Annex 1(d)). UCB agreed to hire a valuer to revalue its fixed assets not later than December 31, 1983 (Section 3.04(i) of the Project Agreement) and maintain a debt to equity ratio of less than 20:1 until the Credit is closed, except by agreement with IDA (Section 3.03 of the Project Agreement).  - 16 - C. Management, Organization and Staff 2.04 Management. Management of UCB is vested in a nine member Board of Directors whose Chairman is the Chief Executive Officer, with responsibility for the day to day administration of the institution. The Chairman and Managing Director is appointed by the President of Uganda. The incumbent, appointed in 1979, is an experienced commercial banker. The rest of the Board is appointed by the Minister of Finance. Although the UCB Act provides for a Deputy Managing Director, also appointed by the President and expected to serve on the Board, this position has never been filled. Instead, the Board has proposed to Government the creation of two new senior management positions under the Managing Director; a General Manager for Operations and a General Manager for Administration. Government approval has been received, and the positions are likely to be filled from within UCB through promotions. 2.05 Organization and Staff. The bank is organized at headquarters in Kampala into eight operating and support divisions (see Figure 1) each headed by a Chief Manager: Administration, Personnel, Legal, Inspection, Accounting, Research, Credit, and City Branch. In addition, the 54 branches (53 rural, one City Branch) are under the direction of four area managers. Of the 2,570 employees the bank had, as of September 1982, 141 were senior level professionals: 129 were general commercial bankers, while 12 were specialists, such as engineers and lawyers. With the present volume of business, the professional staffing position appears to be adequate. UCB has not experienced difficulty in recruiting and training suitably qualified Ugandans when needed because it is considered one of the best employers in Uganda. It has its own training school for staff development. 2.06 The Credit Division. The unit which would have primary operational responsibility for the physical implementation aspects of the proposed Project is the Credit Division, which looks after the loan operations of the bank. It is headed by an experienced Chief Credit Manager who is assisted by two Assistant Chief Credit Managers. The fact that UCB is banker to most rural enterprises confers to it significant informational advantages not shared by other banks in their loan appraisal and monitoring operations. In addition, the UNDP has provided a Credit Advisor to the bank. The bank employs experienced though not formally qualified accounting staff. The Credit Division has a credit processing unit and a control unit which are responsible for the administration of loans and debt recovery. The division currently has 16 experienced professional level staff, including economists, financial analysts, statisticians, an industrial engineer, debt recovery officers, veterinarians, and agriculturalists, and is in the process of recruiting three more industrial engineers. UCB's staffing levels are adequate to handle the US$5 million credit facility under the Industrial Rehabilitation Project in addition to the proposed Agricultural Rehabilitation Project. The bank agreed to maintain adequate staffing levels in its Credit Division which would enable it to implement this Project. D. Policies and Procedures 2.07 Policies. The most important general policy followed by UCB in its lending is that all advances be adequately backed by sound security.  - 17 - Specific lending guidelines tailored to the features of each sector and subsector of lending also exist and are generally followed and revised from time to time in accordance with changes in the economic environment, and in Government credit policies. 2.08 Loan Processing. UCB follows normal commercial bank practices in regard to approval, disbursements, control and recovery of advances. Discretionary limits for approval of loans have been prescribed by the Board of Directors for the Managing Director, the loans committees, and the branch managers. Loan decisions are made at one of four levels: the branch; the Credit Manager-s Loans Committee (chaired by the Chief Credit Manager); the Managing Director's Loans Committee; and the Board of Directors (for loans above USh 1.0 million) which will be the case for most subprojects in this Credit. The Board of Directors meets once monthly. The Bank of Uganda imposes an additional element on the decision-making structure by requiring that loans exceeding USh 1.0 million must first be approved by it. Approval is usually given. The decision-making structure does not result in long delays between loan application and credit decision. The typical lag for loans emanating from rural branches is two weeks for referrals at the Managing Director's Loan Committee and four weeks for referrals to the Board of Directors. The discretionary limits for approval of loans are very low at all levels and would have to be raised if they are not to hamper UCB's future lending operations. The management of UCB is taking a cautious attitude on this issue, but expects to raise these limits as soon as conditions allow. UCB has a fairly flexible approach to what it deems acceptable collateral. The responsibility for administering the disbursement, utilization and repayment of approved loans rests with branch managers. Branches are required to submit to the Credit Division on the last day of each month a return of all overdrawn and outstanding loan accounts. These are reviewed to ensure that advances are in accordance with the terms and conditions specified and repayments are regular. Further monitoring of the condition and movement of advances in branches are effected by inspection visits to branches by control officers from the Credit Division, as well as by regular audit visits by the bank's inspectors. 2.09 All projects are appraised according to a standard format which covers the commercial, financial, technical and economic aspects of the proposal, as well as an assessment of the experience and entrepreneural capability of the sponsors. The bank's existing standard form for preparing these appraisals is adequate but complicated and could be simplified. The loan delivery capacity of IJCB is also adequate. Crucial to these functions is the presence of rural branches. 2.10 Loan Follow-up. A satisfactory system of follow-up on loans is yet to be developed by UCB. It is necessary that the accounting records be restructured and the proper systems put into place to provide timely and accurate statistics on the number and value of overdue loans in relation to the total size of the portfolio and in relation to other portfolio characteristics such as loan size, enterprise size, loan maturity, lending sector, etc. UCB agreed to rectify this shortcoming during the implementation of the proposed Credit and to introduce a system which would involve monthly supervision of projects in the disbursement stage and quarterly visits not later than December 31, 1983 (Section 2.05 of the  - 18 - Project Agreement). This will be additional to the normal watchdog functions that branch managers exercise over clients. E. Accounting and Auditing 2.11 UCB has a mechanized accounting system which is satisfactory. Its accounts are audited jointly by Messrs. Lawrie Prophet and Company, and by Messrs. Coopers and Lybrand Ltd. So far, UCB's accounts have been prepared and audited on time. F. Operations and Portfolio 2.12 UCB's lending to agriculture is slightly above the guidelines set by the Bank of Uganda. Its lending for agriculture has been mainly for crop processing. Normally, full repayment of these advances is made at the end of the crop cycle. 2.13 The size and diversity of UCB's portfolio, and the carry-over feature in the majority of the accounts make it difficult to assess the quality of this portfolio by standard arrears analysis, a problem which is compounded by UCB's loan follow-up system (para. 2.10). The general economic situation of Uganda, however, suggests that a good number of the accounts may be inactive and inadequately serviced. For example, about 8% of the total advances as of July 1982 were to marketing parastatal bodies. Most of these are not operating satisfactorily and have insufficient turnover in their accounts. Because of these problems and uncertainties, UCB has been fairly conservative in making loan loss provisions. As of July 31, 1982, its net provision for bad and doubtful debts was USh 185 aillion. This was a little over 2% of the total advances, but is expected to be increased to USh 435 million in FY83. The provision for bad and doubtful debts is maintained strictly on a cumulative basis, and is deducted from the bank's pre-tax profits. In addition, the bank has accumulated inner reserves, which are an added protection for possible loan losses, of USh 85 million. The portfolio of agricultural loans as of July 31, 1982 was USh 4.1 billion, the largest proportion of the total portfolio (45%). UCB, together with UDB, successfully administered the IDA-funded Beef Ranching Project (Cr. 130-UG, 1968). The loan was fully disbursed in 5 years, and 98% of the subloans were recovered. G. Financial Performance, Situation and Prospects 2.14 Financial Performance. UCB generates a reasonable net return on its overall operations. New income (i.e. income arising out of new operations) was 18.8% of total income and 50.6% of equity in the 1981 financial year. This compares favorably with the rates of return experienced during the 1970s. Annexes 1(a)-(d) show the structure of interest rates in Uganda and summarized audited financial statements and selected ratios for UCB from 1976 to 1981 with projections to 1987. Except for 1979, when UCB made a USh 52.1 million loss because of war-related damages and write-offs, it operated profitably during the period under review (1976-1982). Its net profits increased from USh 11 million in 1976, representing 0.5% of its working resources to USh 499.7 million in 1982 (provisional estimates),representing 3.6% of working resources. A net income to working resources ratio of more than 1% is considered good for a  - 19 commercial bank. UCB's other financial performance indicators are also good. Except in the loss making year of 1979, its management expense ratio, which measures the proportion of income going to overhead, throughout the 1970s was below the 60% considered desirable and was 57% in 1981. The estimate for 1982 is 38.9%. 2.15 Deposits are the main non-capital liability. In July 1982, they comprised 90% of total liabilities. Demand deposits are 62% of total deposits; savings deposits, 32%; and time deposits, 6%. Loans are the major earning assets, amounting to 66% of total assets in July 1982. At the same point in time, the ratio of advances to deposits was 69%. The limit according to Bank of Uganda Act of 1969 is 82.5%. UCB agreed to keep its loans to deposits ratio below 82.5% until the Credit is closed (Section 2.01(a) of the Project Agreement). A considerable proportion of the bank's capital is tied up in balances at the Bank of Uganda (12%) and in Uganda Government Stock (26%). 2.16 UCB has been able to perform so well financially largely because of the substantial interest spread, averaging 7%, in the 7 years under review. Since this spread is a function of deposit and lending rates set by the Bank of Uganda in consultation with the IMF, UCB has largely benefitted from the Government's policy of keeping deposit rates low. The margins are very slim for agricultural loans. UCB estimates that a total administration cost of USh 51,600 is incurred per loan. For a loan of USh 1.0 million, administration costs would be 5.2%, which when added to average costs of funds of 11.0% makes the total cost of a small USh 1.0 million loan 16.2%. Since the average loan rate for agriculture is 14%, smaller loans are uneconomic. On these calculations, the bank would have to make loans of at least USh 1.7 million to break even. While the cost estimates are rough, they underscore a major economic reason for the demonstrated preference for large loans. Under the proposed Agricultural Rehabilitation Project, loan processing (including the cost of hiring engineering surveyors), and supervision costs are estimated to average USh 4.1 million (US$41,000) per loan. UCB would have to make loans of at least USh 55 million (US$550,000) to break-even. The typical loan size under the Project would be USh 70 million (US$700,000), and would thus give UCB a 3.3% net return/profit at prevailing interest rates. 2.17 UCB experienced substantial growth in nominal terms between 1976 and 1982. Its total assets increased from USh 2.2 billion to USh 14.0 billion; its deposits from USh 2.1 billion to USh 13.3 billion; and its advances from USh 0.9 billion to USh 9.0 billion. This growth in assets and deposits was not accompanied by increases in UCB's paid in capital, which remained at USh 30 million until early 1982. Thus, even though UCB-s reserves tripled between 1976 and 1982 from USh 32 million to USh 119 million, its total equity base did not increase enough to maintain its leverage ratio (total assets/equity) at a satisfactory level (considered to be 3:1). The increase in UCB's authorized capital, the budgeted increases in its paid in capital, and the planned revaluation of its fixed assets would lead to a reduction in its leverage ratio to acceptable levels. 2.18 Situation and Prospects. The economic decline of Uganda severely limited lending opportunities of UCB in the 1970s. In September 1980, UCB's total advances were only 35% of its total deposits, half of the 70%  - 20 - permitted by the Central bank. The estimate for July 1982 is 69%. Because of the nature of its operations, growth in UCB's resources and lending depend mainly on developments in the economy. Since such developments are difficult to forecast, the medium-term operational and financial projections for UCB have to be read cautiously. It should be expected however that if the economy picks up, demand for credit would increase and lending opportunities would expand for the commercial banks. UCB, being the major commercial bank, would be expected to take a large (but declining) share of the expanding business. In that case, UCB would need to increase its deposits considerably so as to have an acceptable ratio of deposits to advances. The bank has a sufficiently strong short-run capacity to generate deposits if necessary. If the economy stagnates, UCB is still likely to retain a large sthare of the limited commercial banking business. Its financial prospects are therefore fairly good, provided it continues to obtain an adequate spread. To ensure that its financial performance does not deteriorate, UCB would be allowed a spread of at least 7.5% on the rehabilitation portion of the proposed IDA Credit (Section 4.04 of the Development Credit Agreement), especially because this Credit would finance subprojects with high risks in a sector to which nearly all other banks have ceased making term loans (though perhaps not solely on account of risk) and would represent a large proportion of UCB's resources and operations over the next five years. 2.19 Projections from available data indicate that UCB would have adequate liquidity to handle the proposed Credit. The Bank of Uganda's stipulation that importers using foreign exchange loans automatically pay 100% of their credit balances in the Bank of Uganda would not apply to the rehabilitation portion of this loan on-lent to UCB. The terms and conditions of on-lending from Government through UCB to sub-borrowers are described in paras. 3.28-3.29. H. Evaluation 2.20 UCB is a well-established bank and the largest financial institution in Uganda. It is reasonably well staffed and has been performing well financially. It is our judgment that the agricultural exports processing sector could be successfully reactivated, and that UCB is a suitable channel for that portion of the IDA Credit. III. THE PROJECT A. Objectives 3.01 The objective of the Project is to increase Uganda's foreign exchange earnings from agricultural exports within the next 3-5 years by: (a) improving the Government's capability in resource allocation and pricing related to the agricultural exports sector; (b) introducing reforms aimed at increasing cotton and coffee marketing efficiency; (c) rehabilitation of processing facilities of coffee, cotton, tea, tobacco (barns) and financing investments in nontraditional exports, through a line of credit to UCB; (d) provision of sector imports, including the requirements of the livestock subsector; (e) training for Ugandan staff expected to be involved in Project implementation; and (f) technical  - 21 - assistance, including studies, to assist Government to implement price and marketing reforms, formulate sector development strategies and identify subsector projects. B. Pricing and Resource Allocation 3.02 In its Recovery Program and agreement with IDA under the Second Reconstruction Credit, the Government undertook to establish a unit with the capability to support and rationalize policy making in pricing, marketing of export commodities, and resource allocation in the agricultural sector. The unit would also assist the Government to develop goals and strategies for the agricultural sector, evaluate agricultural policies, allocate foreign exchange budgeted for the sector under the Recovery Program, review the sector's foreign exchange budget, and monitor the allocation of foreign exchange to the sector. The Government has assigned the responsibility for carrying out these functions to an Agricultural Policy Committee (APC) (Section 3.02(a) of the Development Credit Agreement). The APC, formed on October 26, 1982, is expected to have a major input in the June 1983 budget process in matters relating to agricultural prices and allocation of foreign exchange to the sector. The APC will be supported in its analytic functions by an Agricultural Secretariat (Section 3.02(b) of the Development Credit Agreement). The organization and functions of the Agricultural Secretariat and the Agricultural Policy Committee are described in the chapter on implementation (Chapter IV). The Terms of Reference (TORs) for the Agricultural Policy Committee (APC) and the Agricultural Secretariat are shown in Annexes 2(a) and 2(b) and have been agreed with Government. The formation of APC and the Agricultural Secretariat were conditions of negotiations. There is also an urgent need for strengthening the Statistical Unit in the Ministry of Agriculture. Government agreed to hire consultants to conduct a comprehensive study of costs of production, processing and marketing of major export crops so as to improve the information base in support of the Government's decisions affecting the sector (Section 3.05 and Schedule 2C(l) to the Development Credit Agreement). This study would be complemented by the proposed Parastatals Accounting Study to be funded by IDA which inter alia will cover five agricultural parastatals. C. Marketing of Export Crops 3.03 Coffee. The importance of coffee to the Ugandan economy is paramount and changes in the Coffee Marketing Board's (CMB) structure or marketing policies must be approached cautiously so as not to risk the diversion of foreign exchange earnings from official channels or to undermine Government revenue derived from coffee. However, in order to maximize marketing efficiency and thus export earnings, it is necessary that certain improvements be gradually introduced in coffee marketing over the next 2-3 years. These may include: (i) reverting CMB's ownership and control to producers in a manner directly related to coffee deliveries to CMB; (ii) revising CMB's role from sole buyer to sole sales agent for the coffee growers of Uganda (receiving sales commissions based on the quantity and value of coffee sold) so that CMB's profits would be represented by gross commissions less marketing costs, rather than as a fixed shilling per  - 22 - kilogram of coffee sold calculated to cover its costs; (iii) creating a two-payment system enabling the grower to share in the final price of his product as well as enabling the CMB to create grower incentives to produce higher quality (and thus more valuable) coffee under strict safeguards to ensure that farmers have confidence in the system; (iv) modifying Government's taxation on coffee through the CMB by expressing the first payment as a specific shilling amount, and the second payment on the basis of a graduated ad valorem formula; (v) reviewing and diversifying marketing methods, including auctioning of those coffees whose quality aspects merit this, with adequate safeguards to protect Uganda's interests. In particular, the arabica coffees, whose prices can vary most markedly depending on quality, would stand to yield substantially higher returns in an auction. The CMB also needs to increase its ability to assess the quality and thus value of coffee through the provision of equipment and training of Ugandans. The implementation of many of the above proposals would necessarily take a few years and require skill and caution. The Project would provide technical assistance needed to assist the Government in implementing these changes. IDA has submitted proposals to Government on how it could improve coffee marketing in Uganda. Government agreed to hire consultants to assist in preparing detailed proposals for coffee marketing reforms (Section 3.05 and Schedule 2C(2) to the Development Credit Agreement). 3.04 The coffee industry operates under considerable constraints, most of them unnecessary and bureaucratic. These include delays in the allocation of foreign exchange; unavailability and inadequate use of railway wagons resulting in the use of expensive road transport; and excessive documentation. In all these cases, immediate administrative measures could be taken to eliminate or reduce the problem which results in direct loss of foreign exchange earnings. The APC and the Agricultural Secretariat are expected to address this problem on a continuing basis. 3.05 Cotton. Until 1982, the major problem facing the cotton industry was not the operations of its marketing system; rather, it was its very existence. The production of lint declined from its peak of 413,000 bales in 1969/70 to less than 22,500 bales in 1980/81. As a result of the 500% increase in producer prices in 1981, the industry is showing brisk signs of recovery. This recovery would be considerably strengthened if (a) the Government maintains adequate incentives for production and processing; (b) there are strong incentives for efficiency in the marketing of the crop; and (c) competition is introduced in the industry, as a means of securing (a) and (b) above. The recommendations for coffee marketing apply equally for cotton, i.e., (i) ownership and control of the Lint Marketing Board (LMB) should revert to producers; (ii) LMB should be the export sales agent of cotton producers and be allowed to keep its profits; (iii) the creation of a two-payment system; (iv) the adoption of a combined specific and ad valorem export tax system. In addition, (v) domestic textile mills should be allowed to contract to buy cotton directly from farmers' societies or unions and commission ginneries to gin it on their behalf; (vi) cotton ginneries should have the option to sell lint to the Lint Marketing Board (LMB) at the guaranteed minimum price or to sell directly to the domestic textile industry if it offers a higher price; and (vii). unions should likewise have the option to sell cottonseeds to LMB, oil and soap factories. As conditions of negotiations, Government introduced the last two reforms listed above.  - 23 - 3.06 In 1973 LMB acquired most oil and soap factories in Uganda previously owned and operated by Asians who were deported. The profits and losses of the oil and soap mills impact upon the finances of the LMB, and their value bears no relation to the performance of the Board as a marketing organization. The Board's financial obligations with respect to these mills cloud attempts to assess or to enhance its efficiency as a marketing organization. Although a few are profitable enterprises, the LMB has always considered them to be a burden and has urged Government to reallocate them to another parastatal or to sell them to the private sector. The Government agrees with IDA that LMB should divest itself of the oil and soap factory business as soon as possible and has already reduced the number of edible oil and soap mills falling under the responsibility of the LMB from 17 to 8. Government has directed that these oil and soap mills be divested from LMB under recently enacted laws which allow their owners (prior to their expropriation in 1973) to reclaim them. Government agreed to hire consultants to study the appropriate future role of cotton in Uganda's economy; the production possibilities; and the suitable organization and financial structure of the cotton industry and its relation to the textile industry, the oil mills and soap factories (Section 3.05 and Schedule 2C(3) to the Development Credit Agreement). 3.07 Tea. The Uganda Tea Authority (UTA) has the official monopoly for the export of all tea from IJganda. Domestically, all tea is marketed by Uganda Blenders, Ltd. Uganda has lost its reputation for quality tea in the world market for a variety of reasons, and her tea fetches very low prices. The causes of the decline in tea quality include faulty processing equipment, poor liquoring and grading, and mass marketing through UTA. The Government recently considered further centralization of the production, processing and marketing of tea under one organization but has postponed it pending the results of a broader study of the tea industry which would be carried out as part of this Project and agreed upon at negotiations. The study would consider Uganda's comparative advantage in tea, the optimal size of the industry, its future organizational and financial structure (Section 3.05 and Schedule 2C(4) of the Development Credit Agreement). There are therefore no immediate marketing recommendations for the tea subsector addressed in the Project. 3.08 Tobacco. The National Tobacco Corporation (NTC) has responsibility for processing and marketing all tobacco grown in Uganda, including exports which have virtually ceased. Although NTC officially has a marketing monopoly, the low official producer prices for tobacco resulted in an estimated 25% of the flue-cured crop and 50% of the fire-cured crop being sold through unofficial channels until June 1982. The situation is expected to improve considerably as a result of the 60% increase in producer prices announced in June 1982. However, Uganda's comparative advantage in tobacco, and the suitability of the current structure of the industry are in doubt. Government agreed to hire consultants to carry out a study to consider Uganda's comparative advantage in tobacco, the optimal size of the industry and an appropriate organizational and financial structure of the industry (Section 3.05 and Schedule 2C(7) to the Development Credit Agreement). There are no significant marketing issues in the tobacco subsector requiring immediate attention under this Project.  - 24 - 3.09 Nontraditional agricultural exports. There is considerable scope for diversifying and increasing Uganda's export earnings through the promotion of nontraditional agricultural exports especially those of an agro-industrial nature. The minor exports (past potential and actual) include cereals, oil seeds, sugar, spices, fruits and vegetables, hides and skins, animal feeds, eucalyptus oil, gum arabic, forest and wood products, flowers, smoked and dried fish. The potential for exporting foodgrains exists in the near future. They have increased considerably as a result of the dual exchange rate introduced in August 1982. The minor agricultural exports are valued at the Second Window (auction) exchange rate, which is about 2.4 times the official exchange rate in terms of Ugandan shillings. Uganda earned US$13 million in 1975 from these minor agricultural exports, but more recent figures are not available. Government agreed to hire consultants to conduct a detailed feasibility study to determine the potential for these minor exports and to identify the necessary policy and institutional measures that would promote them (Section 3.05 and Schedule 2C(5) to the Development Credit Agreement). A good export potential also exists in the livestock subsector for hides and skins and possibly for beef. Government agreed to hire consultants to examine such possibility, the policy and institutional prerequisites for promoting such exports and to identify appropriate production and marketing strategies (Section 3.05 and Schedule 2C(6) to the draft Development Credit Agreement). C. Rehabilitation of Crop Processing Facilities 3.10 The lack of adequate processing capacity will be felt most acutely if cotton, tobacco and tea production in 1982/83 is double that of 1981/82 as is widely expected to be, stimulated by recent increases in producer prices. Efforts to increase production and to improve marketing efficiency would not be successful without simultaneously relieving the processing bottlenecks. This is not only true for cotton (where the 1980 crop is still being ginned) and coffee but also for tea. Uganda's stock of exportable (processed) coffee at the beginning of the coffee year is estimated to have declined steadily from 128,640 tons in 1977 to 87,540 tons in 1982. At the same time, her official coffee exports decreased from 153,120 tons in 1976 to 117,000 tons in 1981 but increased sharply to 162,000 tons in 1982. It is estimated that about 250,300 tons of coffee delivered or ready for delivery between 1978 and 1982 (60,600 tons in 1980) have not been processed. The rehabilitation of coffee hulleries, liquoring facilities of CMB and the Bugisu Cooperative Union mill in Mbale, the tea collection services of UTGC, tobacco barns and cotton ginneries under this Project would complement, not duplicate, the projects of the European Development Fund (EDF) and the African Development Bank (AfDB) in the coffee and cotton subsectors. This will be done through a US$29.1 million line of credit to UCB, of which US$0.8 million will be for the requisite technical assistance. 3.11 With respect to the rehabilitation of the tea industry, the Project adheres to the strategy agreed at the donor's meeting (IDA, CDC and EEC) with Government at Entebbe on March 23, 1982. The major rehabilitation requirements of the tea industry are expected to be catered for through a proposed EDF US$16 million tea project whose focus will be on  - 25 - smallholder tea; the proposed Commonwealth Development Corporation (CDC) US$8 million project whose focus will be on tea estates; the IFC-sponsored US$5.5 million investment in the Toro-Mityana Tea Co. already approved by the Board; and US$1.2 million earmarked under the Second Reconstruction Credit to the tea industry. These however exclude smallholder tea leaf collection facilities for the Uganda Tea Growers' Corporation (UTGC) and do not completely cover the subsector's recurrent imports which would be financed under this Project. However, even the short-term financing of the UTGC tea operations is inhibited by its limited ability to buy foreign exchange and lack of creditworthiness. Therefore, pending the outcome of the studies referred to in para. 3.07 and follow-up action, Government agreed to reschedule UTGC's local currency debts and provide it with a minimum 3-year debt moratorium. This would be a condition of disbursement for the tea component of the Project (Schedule 1.4 to the Development Credit Agreement). As of November 1982, UTGC owed USh 112.1 million in local currency loans. 3.12 UCB agreed to select final beneficiaries on the basis of thorough preparation by engineering consultants to be recruited under this Project and documented appraisal of each subproject covering technical, managerial, financial and economic aspects as detailed in Annex 3 (Section 2.01(b)(i) and Schedule A to the Project Agreement). 3.13 The capital expenditures whose foreign exchange costs would be eligible for financing include: (i) Plant and machinery: replacement of obsolete, worn-out or damaged equipment including gins,1/ opener/cleaners, hullers, presses and press pumps, prime movers, conveying systems, electrical equipment (including generators); balancing equipment; and the cost of installation and commissioning of all such equipment; (ii) Spare parts: up to two years' stock of spare parts for plant and machinery; (iii) Civil works: repairs of existing structures and civil works; (iv) Small tools and maintenance equipment: to ensure that there are adequate tools for maintaining rehabilitated processing factories; (v) Packing materials: up to two years' requirements of imported packing materials necessary for fully utilizing rehabilitated factories. They are included because it is estimated that whatever is financed under the recurrent import program element of this Project would have been already utilized by the time the rehabilitated factories are ready for use; and 1/ Details of the type of ginning equipment (saw or roller gins) would be worked out by the engineering surveyors.  - 26 - (iv) Transportation: lorries, pick-ups, tractors, wheel carts, including spares used directly. 3.14 This component will finance about (a) 20 coffee factories, (b) 12 ginneries, (c) tobacco curing barns (d) tea collection facilities; and (e) the production, processing and marketing of nontraditional exports. Many coffee, cotton, and tea factories meeting the selection criteria are omitted from this Project because they have been earmarked for or are receiving adequate assistance from other donors, principally the AfDB, CDC and the EDF. Tobacco barns, which are built and maintained by individual farmers, have all but disappeared in Uganda, and those still in existence need many repairs.2/ In all, it is expected that this component of the Credit would finance about 30 loans with an average size of just under US$0.7 million in the coffee and cotton subsectors, and many other smaller loans in. the tea, tobacco and nontraditional exports subsector. Any subprojects whose costs are expected to exceed US$1.5 million would require prior approval from IDA before they are rehabilitated (Section 2.02(i) of the Development Credit Agreement). By about 1990, this component of the Project is expected to increase coffee hulling capacity by about 15,000 tons; increase ginning capacity by about 17,500 tons of lint; improve the tea leaf collection capacity of UTGC by 2,400 tons (made tea equivalents); increase the capacity of about 1,200 tobacco curing barns to produce 1,500 tons of additional tobacco and provide capital for the expansion of nontraditional exports. E. Provision of Agricultural Recurrent Imports 3.15 The fourth feature of this Project is the provision of imports required to sustain and increase the production of Uganda's traditional agricultural exports (coffee, cotton, tobacco, and tea) and non-traditional exports and livestock. 3.16 Subsidies on acaricide were introduced fifteen years ago when the Veterinary Department decided to pursue a tick eradication policy. All cattle owners were encouraged to use acaricide to control ticks and eventually to eradicate East Coast Fever, the most important tick borne disease. In order to encourage traditional owners in those areas to follow the lead of fenced farmers who already used acaricide, Government agreed to subsidize the cost of acaricide by 50%. This subsidy has persisted long after the reason for its introduction has disappeared as cattle owners have been well aware of the benefits of using acaricide for some years and no longer need any subsidy to encourage them to do so. 3.17 Because of the decline in reliability of firms trading in agricultural chemicals about ten years ago and the shortage of foreign exchange and hence imported veterinary drugs and chemicals from that period, the Veterinary Department assumed responsibility for the importation and distribution of the more critical veterinary drugs and chemicals including acaricide. These commercial activities are a heavy and 2/ There is adequate processing capacity for tobacco and only curing barns need major rehabilitation.  - 27 - unnecessary burden on a professional department with very minimal resources. Because of the subsidy on acaricide, its scarcity and consequent rationing, there have been allegations of favoritism. Government agrees that these anomalies should be removed. Government agreed to return the wholesale and retail marketing of veterinary drugs and chemicals to commercial traders and cooperative societies and to phase out the subsidies on acaricide by December 31, 1984 (Section 4.02 of the Development Credit Agreement). 3.18 All recurrent imports proposed to be financed under the Project and their proportional distribution conform with the foreign exchange budget for the sector in the Government's Recovery Program. The detailed positive list of eligible imports and broad subsectoral allocations (Annex 4) are annexed to Schedule 1 of the Development Credit Agreement. Amendments to the list would require prior IDA approval. F. Training 3.19 Local and overseas training would also be provided for staff directly involved in the Project in the following organizations: (a) the Agricultural Secretariat; (b) mechanics and fitters on the maintenance of rehabilitated ginneries and hulleries with the help of two expatriate staff recruited under the Project; (c) officials in the Ministries of Agriculture, and Cooperatives and Marketing; (d) UCB staff; and (e) key liquoring and grading staff of the CMB. The typical length of the training period would be three to six months, but would not normally exceed one year. Specifically, professional training for officials of the Agricultural Secretariat and the two agricultural Ministries would provide skills in the following areas: (i) pricing methodologies and exchange rate policies that would boost Uganda's traditional exports; (ii) appropriate marketing institutions for agricultural exports, and their regulation and incentive systems; (iii) project formulation and appraisal; (iv) the budget and financial policies and systems for the agricultural ministries and parastatals; and (v) foreign exchange budgeting, allocation and monitoring. Training for officials of UCB would mainly be in project preparation, appraisal, supervision, and agricultural credit policies. G. Technical Assistance 3.20 There are two objectives of providing technical assistance under this Project: (a) for the studies needed to recommend solutions to specific subsector issues, and (b) to support immediate Project implementa- tion. The main features of this component of the Project are summarized in Annex 5. Following are the 7 studies to be undertaken under the Project: (1) coffee marketing (technical); (2) cotton industry strategy and organization; (3) tea industry strategy and organization; (4) survey of costs of production, processing and marketing of major export crops; (5) livestock marketing and development strategy; (6) nontraditional agri- cultural exports (prospects, policies, and institutional framework); and (7) tobacco industry strategy and organization. These would require about 126 man-months of consultant services. In addition, funds equivalent to about 12 man-months would be made available for the Agricultural Secretariat to recruit consultants for specific tasks as may be necessary. It is expected that the Agricultural Secretariat would be staffed and  - 28 - funded initially with five technical assistance personnel and seven Ugandan counterpart professionals (see Figure 8). 3.21 To strengthen the capacity of UCB and the Government to implement the Project the following 12 expatriate staff (total 276 man-months) and professional services would be needed: to UCB : (a) an engineering surveyors' firm to prepare detailed cost estimates and contracts for factories requiring rehabilitation; (b) engineering supervisors to supervise the actual rehabilitation of factories by contractors; (c) a Project Manager for 36 man-months; and (d) a procurement agent/officer for 13 months; to the Ministry of Cooperatives and Marketing: (e) two accountants and two engineers for 12 months each (specialized in ginneries and hulleries) to re-train fitters and mechanics in ginneries and hulleries on the repair and maintenance of the rehabilitated factory equipment; to the Ministry of Agriculture and Forestry: (f) two economists/statisticians for 24 months each; to the Agricultural Secretariat: (g) one financial analyst for 24 months, one economic statistician for 24 months, one agricultural economist for 24 months, one agriculturalist for 24 months, one economist for 24 months who would be its Director and also be responsible for training and direction of the studies listed in paras. 3.03-3.09). 3.22 The recruitment of the firm of engineering surveyors, a procurement agent/officer, the appointment of the Project Manager and the Director of the Agricultural Secretariat (with a further requirement they be in post) would be conditions of effectiveness (Section 6.01 of the Development Credit Agreement). 3.23 In addition, vehicles, office equipment and supplies would be provided to the Secretariat, UCB, the Statistical Unit of the Ministry of Agriculture's Planning Department, and the Department of Cooperatives unit responsible for accounting and auditing and the re-training of fitters and mechanics in ginneries and hulleries across the country. H. Cost Estimates 3.24 The total Project cost is estimated at US$88.9 million with a foreign exchange component of US$71.3 million or 80%. Taxes and duties amounting to US$6.8 million or 8% are included. Estimated costs are summarized in Table 4. Because this Project is partly recurrent financing and partly a line of credit to a bank for on-lending to sub-borrowers, there are no allowances for physical or price contingencies in the cost estimates. 3.25 The cost estimates are based on November 1982 prices updated to March 1983 and are derived from recent quotations and appraisal estimates. A high foreign exchange proportion (82%) of the rehabilitation subprojects is projected because of the low level of industrial production in Uganda, a situation which has started to improve gradually. Since the final definition and assessment of the necessary physical rehabilitation would only be made after in-depth appraisal has been undertaken by UCB, the Project costs for the rehabilitation component are tentative. Similarly, the subsectoral allocation of foreign exchange for the recurrent agricultural imports are estimates obtained during appraisal, projections based on recent allocations, and some notions of subsectoral priorities.  - 29 - Table 4 Project Cost Summary % of Z of Foreign Total Local Foreign Total Local Foreign Total Exchange Base Costs - (US Shs Million) - -(US$ Million) A. Coffee Subsector 543.0 2,2)3.5 2,746.5 5.4 22.0 27.4 80.2 30.9 B. Cotton Rehab. 487.8 2,215.5 2,703.3 4.9 22.2 27.1 82.0 30.4 C. Tea Subsector 203.3 765.3 968.6 2.0 7.7 9.7 79.0 10.9 D. Tobacco Subsector 202.4 482.0 684.4 2.0 4.8 6.8 70.4 7.7 E. Livestock Subsector 105.3 630.8 736.1 1.0 6.3 7.3 85.7 8.3 F. Techaical Assistance 106.7 388.7 495.4 1.1 3.9 5.0 78.5 5.6 G. Nor-traditional Exports 120.0 440.0 560.0 1.2 4.4 5.6 78.6 6.3 TOTAL PRDJECT COST 1,768.5 7,125.8 8,894.3 17.6 71.3 88.9 80.1 100.0 3.26 Project costs would be financed in the following amounts and proportions. Table 5 Financing Plan % of Local Foreign Total % of Net Currency Exchange Proj. Project Costs Costs Total Costs Costs ------ US$ Million -- 1. Proposed IDA Credit - 70.0 70.0 78.7 85.3 2. IDA Tech. Asst. Cr. - 1.3 1.3 1.5 1.6 3. Gov't. of Uganda 0.2 - 0.2 0.2 0.2 4. UCB 4.6 - 4.6 5.0 5.6 5. Beneficiaries of Recurrent Imports 5.5 - 5.5 6.2 6.7 6. Bank of Uganda 0.5 _ 0.5 0.6 0.6 Net Project Cost 10.8 71.3 82.1 92.2 100.0 Taxes & Duties 6.8 - 6.8 7.8 TOTAL PROJECT COST 17.6 71.3 88.9 100.0 Project financing by the financial agencies for the different categories of goods or services is set out in Table 6.  - 30 - Table 6 Project Financing by Category of Goods and Services Bank Proposed IDA of IDA Tech. Uganda GOU UCB Beneficiaries Credit Asst.Cr. Total -------------------------US$ Million------------------------ Processing Factory Rehab. - - 4.2 2.4 28.3 - 34.9 Recurrent Imports - - - 9.8 39.2 - 49.0 Technical Asst. and Training 0.5 0.3 0.3 - 2.5 1.3 5.0 Total 0.5 0.3 4.6 12.2 70.0 1.3 88.9 3.27 UCB would meet the foreign exchange costs of technical assistance necessary to prepare subprojects (mainly to cover the partial costs of engineering surveyors) soon after negotiations but prior to Credit effectiveness not exceeding US$300,000 from its own sources. These costs would be retroactively financed by IDA upon effectiveness (Schedule 1.2 to the Development Credit Agreement). The Government would allocate adequate funds to the Ministry of Cooperatives and Marketing and to the Ministry of Agriculture and Forestry to enable these organizations to accomplish their tasks under the Project (Section 3.01(a) of the Development Credit Agreement). J. Terms of the Credit 3.28 Government would borrow US$70 million from IDA on standard IDA terms. The Government may re-allocate the funds between the rehabilitation and recurrent imports component, and within each of the above categories during implementation with the approval of IDA. About US$1.3 million of the technical assistance component would be financed from the ongoing IDA Technical Assistance Credit. Government would on-lend US$29.1 million from IDA funds equivalent to the estimated foreign exchange cost of the factory rehabilitation component of the Project and the necessary technical assistance, to UCB under a subsidiary loan agreement at 6.5% per annum (Section 3.01(c) of the Development Credit Agreement). Government would bear the exchange risk. These on-lending rates are similar to those agreed under other recent IDA credits to Uganda and are considered reasonable. UCB would on-lend the IDA funds to sub-borrowers at 14%. In addition, UCB would charge sub-borrowers a 1% commitment fee on undisbursed balances.  - 31 - 3.29 The US$29.1 million that Government would on-lend to UCB would be amortized in accordance with the aggregate of the amortization schedules of the subloans UCB makes from this amount and disbursements against technical assistance (Section 3.01(c) of the Development Credit Agreement). UCB's policy limits the maturity of most of its loans to 10 years, including an appropriate grace period. UCB would have a 15-year repayment period, including 5 years of grace. The proposed grace period of 5 years would be adequate for UCB to fully commit the funds (3 years) and disburse a substantial part before it starts repayment to Government. The sub-borrowers would have a maximum repayment period of 10 years and a maximum grace period of three years. K. Procurement and the Rehabilitation Contracts 3.30 Rehabilitation Contracts. Recent experience in Uganda suggests that it would not be prudent to undertake the rehabilitation without prior detailed survey of actual rehabilitation needs of each plant. It is also clear that the actual rehabilitation requires close supervision and coordination. The technical, administrative and financial requirements for the rehabilitation effort, compounded by ICB procedures, would be beyond the capabilities of individual ginneries or hulleries. A condition of the subloans would therefore be that the rehabilitation requirements of a factory being rehabilitated would be ascertained by UCB-s surveyors and that sub-borrowers would use services of the firm of construction engineers retained by UCB to undertake the actual rehabilitation of their factory on their behalf (Section 2.04 (a)(vii) and (viii) of the Project Agreement). 3.31 The rehabilitation of ginneries and hulleries would be done by engineering contractors selected on the basis of international competitive bidding and unit price quotations (Schedule 3A(l) to the Development Credit Agreement). The contractors would be responsible for the procurement of all the materials for factories they rehabilitate. The loans to owners of these factories would also include necessary raw materials, packing materials and spares for up to two years. These materials and spares would be procured through the procedures for the recurrent imports component of the Project with the assistance of the Procurement consultant (paras. 3.34-3.38). 3.32 Rehabilitation contracts for the ginneries and hulleries would be individually too small and too dispersed to attract international contractors. Therefore, to encourage competition, minimize the risk inherent in entrusting the entire rehabilitation contract to one firm, and to increase the likelihood that local contractors may also bid, UCB would award about 5 contracts for the rehabilitation of hulleries, ginneries, and tobacco barns of roughly equal sizes valued at a total of approximately US$25 million. Interested firms may bid for one contract or a combination of the contracts, and the lowest qualified bidder would be selected. Bidders for the rehabilitation of the processing facilities would be prequalified and contracts would be awarded in accordance with prevailing IDA Guidelines for Procurement of Goods and Works (Schedule 3A(4) to the Development Credit Agreement). A 7 1/2% preference for prequalified domestic contractors would apply (Schedule 3C to the Development Credit Agreement).  - 32 - 3.33 Consultancies. The Government has appointed the Commonwealth Fund for Technical Cooperation (CFTC) to be its recruiting agent for technical assistance personnel for the Agricultural Secretariat. These would also be employed on terms and conditions of service acceptable to IDA. All technical assistance (including those staff recruited through CFTC) would be selected according to IDA Guidelines for the Use of Consultants (Section 3.05(c) of the Development Credit Agreement). The average man-month cost for all technical assistance, including salary, costs, fees, international travel and subsistence, is expected to be about US$10,000. Vehicles, office operating equipment and expenses, housing repairs and minor items would also be included. In aggregate, 419 man-months of technical assistance are envisaged. 3.34 Recurrent Imports: Agricultural inputs, tools, packaging and bagging materials, veterinary supplies, equipment and spares totalling US$39.2 million would be bulked to the extent practicable to increase competition in bidding (Schedule 3A(3) to the Development Credit Agreement), and packages of US$500,000 or more would be awarded on the basis of International Competitive Bidding (ICB) in accordance with IDA-s Procurement Guidelines. Qualifying domestic manufacturers would receive a preference in bid evaluation of 15% or the import duty, whichever is lower (Schedule 3B(4)(ii) to the Development Credit Agreement). Items that cannot be grouped to form packages of more than US$500,000 equivalent but whose value exceed US$10,000, totalling about US$2 million would be awarded on the basis of the Central Tender Board-s normal competitive bidding procedures which have been reviewed by IDA and found to be generally acceptable (Schedule 3D to the Development Credit Agreement). Packages of items whose value is below US$10,000 would be procured directly by the individual beneficiaries (Schedule 3D(2) to the Development Credit Agreement). 3.35 Between 15 and 17 bidding packages/contracts are expected to make up the estimated US$39.2 million in the recurrent imports category of the Project (see Table 7). With a threshold of US$1.0 million for prior IDA review of procurement documentation (Schedule 3E(2) to the Development Credit Agreement), about 44% of the total number of packages would cover about 83% of the value contracted. On that basis, between 6 and 8 contracts amounting to about US$32.6 million over the three year procurement period would be subject to prior review. Random checking of smaller contracts would be carried out in the field. 3.36 The allocation of foreign exchange under this Project would be the responsibility of the Foreign Exchange Allocation Committee which is currently responsible for the allocation of foreign exchange purchased at the official or managed (Window One) exchange rate, and all the imports would be imported at the managed exchange rate, currently US$1.0 = USh 100. Importers are required to pay 100% of the local currency equivalent for foreign exchange purchases, and would do so under this Project. Once an importer has been allocated foreign exchange,he has to obtain an import license from the Uganda Advisory Board of Trade (UABT), a process which results in a second complete review, and causes further delay. Since all items being imported under this Project will be only those listed in the positive list, and in order to eliminate the duplicative review process of the Board of Trade for imports under this Project, Board of Trade import licenses would be issued within five working days of the foreign exchange allocation to importers under this Project (Section 3.03 (vi) of the Development Credit Agreement).  - 33 - 3.37 The Board of Trade is supposed to supervise the procurement procedures for cooperative, private and parastatal sector imports. The Central Tender Board (CTB) is supposed to supervise procurement by Government ministries only. However, the CTB in practice supervises all procurement in the country, a load it is not designed to carry, resulting in unacceptably long delays in procurement. The CTB is expected to be strengthened with technical assistance provided under the Second Reconstruction Credit. 3.38 Five parastatals (CMB, LMB, UTGC, AEL, and NTC), the UCCU, and the Ministry of Animal Industry and Fisheries are expected to purchase over 90% of all recurrent imports financed under this Project either on their own behalf or their customers (farmers and processors). In order to ensure that procurement is as efficient as possible, and to lessen the load on the CTB and UABT, UCB would engage a procurement agent to handle bulk procurement and disbursements for those importers allocated foreign exchange under the Project who wish to use the agent's services for a fee. The recruitment of such a procurement agent would be a condition of effectiveness (Section 6.01(d) of the Development Credit Agreement). The procurement agent would station an officer in Kampala for some 13 months over the two-year period during which most recurrent imports would be purchased and is expected to handle most of the procurement under the Project. The agent would work with the CTB and UABT consistent with IDA, UABT, and CTB procurement policies and procedures. Other importers who do not wish to use the services of the procurement agent retained by UCB would not have to do so. Table 7 Procurement Profile of Value/Number of Contracts No. of Cumulative % Total Contracts Value (Number) (Number) Threshold Above Above Threshold Above (US$000) Threshold (US$ million) Threshold Recurrent Imports Above 10,000 1 11.0 (1) 28 (6) 5,000 -10,000 1 19.04 (2) 49 (13) 2,000 - 5,000 5 32.62 (7) 83 (44) 1,000*- 2,000 2 35.32 (9) 90 (56) 500 - 1,000 4 38.21 (13) 98 (81) 200 - 500 3 39.15 (16) 100 (100) * Denotes threshold for prior review of procurement documentation by IDA. L. Disbursements 3.39 Disbursements under the IDA Credit would be made for the foreign cost of eligible imports against full documentation, including invoices paid by the Bank of Uganda or the relevant commercial bank under existing  - 34 - regulations controlling the allocation of foreign exchange. IDA funds would be disbursed against technical assistance costs and eligible imports from any IDA member country, Switzerland and Taiwan. The Bank of Uganda would clear all withdrawal applications before they are forwarded to IDA. 3.40 Upon Credit effectiveness, IDA would advance the Government US$1.5 million equivalent to be deposited in a Special Account. The Bank of Uganda will make payments to suppliers from the Special Account according to the agreed disbursement percentages within each eligible expenditure category, and obtain direct reimbursement from IDA to replenish it. The Bank of Uganda will ensure that complete withdrawal applications, with supporting documentation, are sent to IDA immediately after payment being made from the Special Account (Section 2.02 of the Development Credit Agreement and side-letter). It is hoped that this payment procedure will speed up disbursements considerably for both the rehabilitation and recurrent import components of the Project. Slow disbursements have so far been a major problem of IDA operations in IUganda. 3.41 The Recovery Program envisages a total rehabilitation requirement (capital and recurrent) in foreign exchange for the period 1982/83 to 1984/85 of US$736.5 million, of which US$ 220 million or 30% has been budgeted for agriculture. The annual allocations to agriculture (in million US$) are 78.9, 1982/83; 81.1, 1983/84; 60.0, 1984/85; and include the amount of this Credit, i.e. US$70.0 million to be fully disbursed over the same period. These imply an average monthly allocation to agriculture of US$6.1 million. Excluding the amount of this Credit, they imply that Government would allocate US$3.9 million from its other resources (including aid) to agriculture monthly. However, actual allocations to the agricultural sector over the past six months have averaged only US$1.6 million, reflecting in part a shortfall in foreign exchange availability compared to what was expected when the Recovery Program was inaugurated. In order to encourage the Government to allocate its own resources to agriculture according to its foreign exchange budget, and to ensure that adequate foreign exchange allocations to agriculture continue after the disbursements for recurrent imports under this Credit cease, Government agreed to allocate at least 30% of the foreign exchange earnings from agriculture above US$300 million during the preceeding financial year to finance items imported under this Credit in the subsequent financial year, beginning July 1, 1984 (Section 4.05 of the Development Credit Agreement and side-letter). The Credit would be disbursed to finance 100% of the foreign cost of eligible imported goods; 100% of the foreign cost of technical assistance or 75% total costs; 80% of the cost of goods procured locally but previously imported; and 100% of the foreign cost or 80% of the total cost of the rehabilitation costs, the last percentage being the estimated foreign exchange component of rehabilitation costs (Schedule I to the Development Credit Agreement). 3.42 Annex 6 shows the projected schedule of disbursements for the Credit. Disbursements are expected to start in the third quarter of FY84 (April 1984) and to be completed by December 1986 in the case of recurrent imports (three years) and December 1988 in the case of rehabilitation contracts (five years), spanning a period of five years after Board approval. The allocations of the Credit are shown in Annex 7. The Project is expected to be completed on December 31, 1988, and the Credit to  - 35 - be closed on September 30, 1989. This is less than the average 9 years for development finance company credits in East Africa, as indicated in the regional disbursement profiles, but is consistent with the disbursement profile of the First Reconstruction Credit and with the actual monthly imports to the agricultural export sector in 1982. It is expected that the implementation of the types of rehabilitation investments to be financed under the Credit would take a shorter time compared to the implementation of new projects normally financed under DFC operations. The rehabilitation arrangements proposed to be adopted for this Credit would also facilitate quick disbursement. As 40% of the coffee processing capacity in Uganda is owned by private processors (i.e. whose owners are not cooperative societies or unions), UCB would ensure that their needs are taken into account in allocating the proceeds of the line of credit (Schedule B to the Project Agreement). M. Counterpart Funds 3.43 Local currency counterpart funds generated by the repayment of the line of credit from UCB and from the sale of recurrent agricultural imports would be allocated to a special Government account at the Bank of Uganda set up for this purpose. The Bank of Uganda would credit the account with the domestic counterpart funds as soon as these have been paid in by UCB or by importers (Section 3.04(a) of the Development Credit Agreement). The Government would allocate the counterpart funds to the recurrent or capital costs of projects in the Recovery Program and after its expiration to projects in a future Development Plan (Section 3.04(b) of the Development Credit Agreement). N. Accounts and Audit 3.44 The Bank of Uganda, the Ministry of Agriculture and Forestry, the Ministry of Animal Industry and Fisheries, the Ministry of Cooperatives and Marketing, Uganda Commercial Bank, and the processing factories involved in Project activities would open and administer separate Project accounts and would keep records consistent with sound accounting practice, adequate to reflect their operational and financial position. These records should permit proper identification of all receipts and payments in respect of the Project as well as the assets and liabilities created by Project transactions (Section 4.01(a) of the Development Credit Agreement). Every year during the life of the Credit, the accounts would be audited by independent auditors acceptable to IDA and submitted to IDA not later than nine months after the completion of the financial years of the respective organizations (Section 4.01(b) of the Development Credit Agreement and Section 3.02(b) of the Project Agreement). The Special Account will be audited separately by independent auditors acceptable to IDA. UCB-s financial year runs from October 1 to September 30 and its accounts are audited by an independent accounting firm acceptable to IDA. This arrangement is expected to continue during the Project implementation period. Beginning March 31, 1984, UCB would submit to IDA yearly reports of its operations, resources, portfolio, accounts and progress in implementation of the recurrent and rehabilitation components to be financed under the proposed Credit to IDA (Section 2.08(b) of the Project Agreement).  - 36 - 3.45 Lhe accounts of cooperative unions, which own all ginneries and 60% of all hulleries in Uganda, are audited by the Audit and Accounts Division of the Ministry of Cooperatives and Marketing (MC&M) or by private auditors. The MC&M is understaffed and would be strengthened through the provision of two accountants on technical assistance for one year each in FY84 (Section 3.05(b) of the Development Credit Agreement). Supported by a team of 10 (preferably ex-cooperative department staff) accountants and auditors who would be assigned by Government to work with them, the accountants would assist the cooperative societies to update (or audit, as the case may be) their accounts which are in arrears (Section 3.06 of the Development Credit Agreement). 0. Environmental Impact 3.46 The Project's impact on the environment would be modest, but positive. Installation of blowers at ginneries would enable seed cotton to be moved automatically from ginnery storage to the gins with less pollution of the air which ginnery workers breathe. Rehabilitated hulleries and ginneries would be better lighted, cleaner and safer for workers. Improvements in cotton and coffee processing operations would drastically reduce the need for storage in makeshift village stores and in farmers houses, which would improve living conditions. As cotton, coffee, tea, and tobacco cultivation is not considered to be ecologically deleterious, and as the Project does not involve modifications in cultivation techniques, no environmental impact on the production side is anticipated. Environmental and safety guidelines relating to cotton and coffee factories financed by IDA have been passed on to UCB and will be adhered to in the rehabilitation subprojects. IV. PROJECT IMPLEMENTATION A. Organization and Management 4.01 The proposals for the organization and management of the Project and Secretariat as shown in Figure 2 take into account its multiple features and activities which involve a commercial bank in term lending, an import program, training, studies, and policy and institutional reforms affecting four parastatals and five ministries. It also takes into account the Ugandan administration system which is characterized by division of responsibilities and imbalances in capabilities and authority among various ministries and parastatals. 4.02 The Project Manager employed by UCB would be responsible for all the physical implementation aspects of the Project. At the policy level, the APC and Secretariat are designed to provide symmetry in the planning, resource allocation, execution and monitoring of activities in the agricultural sector. The APC would also be the Steering Committee for the Project. The longer term intended purpose of the APC (i.e. directing and coordinating policy, plans, and resource allocation within the agricultural sector) would follow naturally, and its workability be adequately tested, from its beginning as a Steering Committee for this Project. To remove the possibility that the Steering Committee might slow down UCB's approval process in respect of the rehabilitation component of this Project, UCB-s operations under the Project would not be under the direct purview of the  - 37 - Steering Committee, and UCB would report directly to IDA. The Managing Director of UCB, who would be ultimately responsible for the rehabilitation aspects of the Project, is a member of the Presidential Economic Advisory Committee (PEAC) and the APC. The Government has appointed the Permanent Secretary, Ministry of Planning, as Chairman for the APC. The Director of the Secretariat would be the Secretary to the APC (Section 3.02(b) of the Development Credit Agreement) which would meet at least once monthly in its first year of operation. The Ministry of Planning and Economic Development administers the IDA Technical Assistance Credit which would finance a portion of the technical assistance component of the Project, and would thus be involved in the recruitment of some staff or firms under the Project. UCB would hire all its technical assistance from the proceeds of the Agricultural Rehabilitation Credit and be responsible for its own technical assistance, in addition to the rehabilitation component of the Project. UCB would be represented in the Steering Committee by the Managing Director. The Ministry of Agriculture and Forestry would be responsible for ensuring the success of the effort to strengthen its Statistical Division and would provide all necessary support. Similarly, the Ministries of Cooperatives and Marketing and Animal Industry and Fisheries would be responsible for the Project components falling within their purview. 4.03 To increase the likelihood that Government pricing decisions, priorities in resource allocation and its policies in the agricultural sector will be consistent with the priorities of farmers, processors and even marketing Boards, analytic functions relating to these crucial decisions would be centralized in the Secretariat. IDA has submitted proposals to Government on how it could institute a better mechanism for setting prices of agricultural export crops, i.e. more directly related to domestic and external prices. Government agreed that the Agricultural Secretariat would consult IDA annually on its recommendations of such prices within reasonable time prior to their submission to the APC to enable IDA to comment on them (Section 4.03(b) of the Development Credit Agreement), and the APC would formally review these prices yearly based on the recommendations of the Agricultural Secretariat (Section 4.03(a) of the Development Credit Agreement). The Government has decided that the Secretariat would be initially located in the Bank of Uganda (BOU). 4.04 The Secretariat would consist of a Director, a Deputy Director, one evaluation officer, two agricultural economists, two agriculturalists, three financial analysts, two economic statisticians and an adequate number of support staff. Five of the professional staff of the Secretariat would initially be technical assistance personnel. The terms and conditions of their recruitment would be agreed between IDA and the Government before such staff are recruited (Section 3.05(c) of the Development Credit Agreement). 4.05 The Secretariat would report to the APC, but would be under the direct administrative and budget authority of the Governor of the Bank of Uganda. The APC, whose terms of reference appear in Annex 2(a), would formulate, coordinate, direct, and review key policies and programs within the agricultural sector. To provide for high level coordination between the key Ministries and agencies concerned with the performance of agriculture, the APC would have top level policy making represention by  -38- Permanent Secretaries from the following Ministries: Planning and Economic Development (Chairman); Commerce; Agriculture and Forestry; Cooperatives and Marketing; and Animal Industry and Fisheries in addition to the Governor, Bank of Uganda, and the Managing Director of UCB (Section 3.02(a) of the Development Credit Agreement). The Secretariat would be responsible for conducting seven sector studies under this Project referred to in paragraphs 3.02-3.09. The scope of these studies, and the terms of reference for the study teams, have already been agreed with Government. Detailed Government/IDA review would be held within six months of the completion of interim and final reports of these studies by consultants (Section 3.05(d) of the Development Credit Agreement). 4.06 The responsibility for training would lie with the Director of the Secretariat. Assisted by the training officers of the various organizations involved in the Project where training needs have been identified, his training responsibilities would include assessment of specific staff training needs and identification of suitable training opportunities. The Secretariat would prepare and submit to IDA detailed training proposals including: (i) main objectives; (ii) types of training to be provided; (iii) training needs in terms of numbers, categories and levels of personnel over time; (iv) candidate selection criteria; (v) plans to utilize newly acquired skills; (vi) arrangements for the administration, monitoring and evaluation of the training program; and (vii) budget and financing proposals. The first of these programs would be submitted to IDA not later than December 31, 1983 (Section 3.07 of the Development Credit Agreement). 4.07 The operational responsibility for implementing the rehabilitation component of the Project would lie with UCB, specifically the Project Manager, the Chief Credit Manager and the Credit Division. UCB would also supervise the recurrent import component of the Project handled through its procurement agent. As this Project would represent a major part of UCB's operations for the next 5 years, UCB agreed to assign exclusively to the Project for its duration: (i) three debt-recovery officers; (ii) two senior credit analysts; and (iii) two agricultural economists each with at least three years of relevant experience (Section 2.01(b)(iii) of the Project Agreement). In addition, the Credit would provide UCB with a Project Manager and eight vans to boost its capacity to appraise and supervise the subprojects. B. Annual Work Programs 4.08 Basic documents for Project implementation would be annual programs and budgets. These would facilitate a full annual review of progress in Project implementation between Government (through the Steering Committee), UCB, and IDA and make possible technical, financial and managerial adjustments or modifications to the Project as implementation proceeds and experience is gained. The work programs, which would be approved by IDA after final submission to the APC, would contain a description of: (i) plans and disbursement targets of UCB and the Bank of Uganda; (ii) the APC and Secretariat's work plans; (iii) the plans of the Planning Department of the Ministry of Agriculture and Forestry; (iv) the plans of the Ministry of Animal Industry related to the Project; and (v) the plans of the Ministry of Cooperatives and Marketing related to the Project.  - 39 - 4.09 After the first year, work programs would start with an analysis of actual performance (e.g., foreign exchange allocations, pricing policy, etc.) during the preceeding period. Because the LMB, CMB, NTC, UTA, AEL and UTGC each have a key role to play in the implementation of policies and the import program, they would also be required to submit brief annual work programs to the APC through their respective parent Ministries. The APC would review and approve the first set of work programs not later than May 31, and submit them to IDA not later than June 30, 1983. Thereafter, the work programs would be presented to IDA by the APC for review and approval every March 31 (Section 3.08(a) of the Development Credit Agreement). IDA may also review and comment on the programs during supervision. These dates would enable the work programs to have an input in the national budget process and to provide a basis for meaningful dialogue with IDA and the IMF on such matters as setting agricultural prices, review of foreign exchange allocations to agriculture, export performance, etc. Most importantly, it is expected that the Secretariat would provide the basis for the June 1983 export pricing decisions, projections of foreign exchange earnings and export tax revenues, and the agricultural sectors recurrent and development budget estimates. C. Reporting, Monitoring and Evaluation 4.10 The APC, through the Agricultural Secretariat, would be responsible for monitoring and evaluation. The Government would appoint to the Secretariat an Evaluation Officer who would be responsible for reporting, monitoring and evaluation in the Secretariat. The Secretariat would design, and APC would submit to IDA, not later than June 30, 1983, a monitoring and evaluation system which the APC would implement not later than September 30, 1983 (Section 3.09 of the Development Credit Agreement). Information would be obtained from the institutions involved in Project implementation in order to assist managers, the Secretariat and APC in: (i) collecting statistics on Project components for further evaluation and reporting needs; (ii) assessing progress in the fulfillment of targets set out in the annual work programs and budgets; (iii) identifying problems and constraints for timely adjustment and reorientation of all Project activities; and (iv) managing the Project at all levels. 4.11 A set of questionnaires would be designed, tested, and used to collect information every three months beginning September 1983. The Secretariat would formally request and obtain the completed questionnaires every quarter beginning January 15, 1984 as a step in each institution's participation in the formulation of the work programs, reporting, monitoring and evaluation with the active support of the Secretariat. The Secretariat and UCB would prepare reports every six months summarizing Project progress and performance, and submit them to the APC. IDA may review and comment on the reports during supervision. 4.12 The Government (through the APC) and UCB would prepare a completion report summarizing Project performance and evaluating its impact. The reports would be submitted to IDA not later than six months after the closing date, now set at September 30, 1989. (Section 3.11(d) of the Development Credit Agreement).  - 40 - Table 8 Area, Yield, and Annual Farm Level Production Without Year 6 (1988) Project Without With Incremental (1981) Project Project at Year 6 Coffee (Kiboko) _/ Area (000 ha) 217.00 217.00 217.00 - Yield (tons/ha) 1.60 1.60 2.00 0.40 Production (<DOO tons) 289.00 289.00 297.80 8.80 Processed ('000 tons) 150.00 179.00 194.00 15.00 Cotton Area ('000 ha) 40.40 371.50 400.00 28.50 Yield (tons/ha) 0.26 0.26 0.40 0.14 of seed cotton Seed cotton (Q000 tons) 10.50 96.60 160.00 63.40 Lint ('000 togs) 2/ 3.50 32.20 53.30 21.10 Tea Area ('000 ha) 3/ 0.50 0.76 1.17 0.41 Yield (tons/ha) 3.60 6.00 6.00 - Production ('000 tons) 4/ 1.70 4.60 7.00 2.40 Tobacco Area ( 000 ha) 2.50 4.50 6.00 1.50 Yield (tons/ha) 0.20 0.20 0.40 0.20 Production ('000 tons) 0.50 0.90 2.40 1.50 1/ From Year 2. _/ Ginned. 3/ Being plucked; plantings would not increase. 4/ Green tea. D. Implementation Schedule 4.13 The implementation schedule for the Project appears in Annex 8. V. PRODUCTION, MARKETS, PRICES AND FINANCIAL ANALYSIS A. Production 5.01 Farm Level. Table 8 summarizes the expected crop area, yields and additional production expected to result from the Project.  - 41 - 5.02 Illustrative crop budgets (costs and returns) for the main crops in the Project areas (coffee, cotton, tea, tobacco, bananas, maize and groundnuts) appear in Annex 9. There would be no increases in area under coffee or tea, but coffee yields and tea pluckings would increase as farmers respond to higher prices, increased marketing efficiency, higher processing capacity and increased availability of agricultural imports, by better husbandry and harvesting. All projected yield "increases" are really a return to previously normal yields when imported agricultural inputs and implements were available to farmers. On average, by 1988, coffee yields are expected to increase by 0.4 tons/ha (26%) and annual processed coffee production by 15,000 tons (8%); cotton yields would increase by 0.14 tons/ha (54%), and annual production of lint by 21,100 tons (66%); tea yields would not increase but annual production would increase by 2,400 tons green leaf (52%); tobacco yields would increase by 0.2 tons/ha (100%) and production of uncured tobacco by 1,500 tons (166%). In addition, yields and output of all food crops are expected to increase modestly. Livestock mortality would be reduced by 0.92% per annum, resulting in a livestock population of 200,000 (5%) bigger than would be possible without the Project in 1990. 5.03 Processing. At the processing level, the cotton ginning capacity of Uganda is expected to increase by over 100,000 bales (18,500 tons) and coffee hulling capacity by at least 15,000 tons by 1987. Tobacco factory processing capacity is adequate at the moment to handle all the expected increase in farm level production with only a few minor repairs needed at the NTC factory. However, about 1,376 tobacco curing barns in the middle north area of Uganda will need rehabilitation and are catered for under the Project's line of credit to UCB. Increases in production or exports of nontraditional crops or livestock have not been estimated. Annex 10 shows the background information and projected output relating to the cotton ginning subsector. Ugandan textile mills have the capacity to absorb about 80,000 bales of Uganda's lint. The Government currently rations the amount of lint that it will make available for domestic use and exports the rest. This situation is expected to persist for the next 2 years. The same situation applies for tobacco and tea where domestic demand exceeds the available supply. However, because the Government is eager to earn foreign exchange from any incremental production of cash crops, and as local demand is satisfied or suppressed by a high consumer price policy for coffee, tea, cigarettes, and textile goods, a higher proportion of increased production is expected to be exported. B. Markets 5.04 All incremental coffee, cotton, tea and tobacco production (Table 9) is expected to be marketed in Uganda-s traditional export markets without difficulty since Uganda still maintains a presence in most of these markets even at current low levels of exports. Similarly, all incremental food crop production is expected to be readily absorbed in the country, although at slightly depressed prices. In the case of coffee all incremental production would be sold within Uganda's prospective quota  - 42 - markets projected at 190,520 tons3/, and there would be no need to revert to the non-quota market to dispose of any surplus produce. On a worldwide scale, Uganda is a minor producer of all her major export crops and the increased export volumes of coffee, cotton, tea and tobacco would have no effect on world market prices. Marketed production of all above crops is projected to increase on account of (assumptions, in order of importance): (1) improved security; (2) considerable improvement in the exchange regime in favor of exports and with lower export taxes; (3) increased coffee, cotton and tea processing capacity; (4) increased use of railway transport for export to Mombasa; and (5) increased availability of inputs. In the absence of this Project, however, marketed production of these crops is still projected to increase, but to a lesser degree. Table 9 Projected Marketed Production of Major Export Crops (Thousand Metric Tons) Cattle Year Coffee Cotton Tea Tobacco Population (Millions) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) 1981 Actual 117 117 3.5 3.5 1.7 1.7 0.5 0.5 4.5 4.5 1982 Estimated 162 162 18.6 18.6 3.0 3.0 0.6 0.6 4.5 4.5 1983 150 150 22.8 27.4 3.4 3.4 0.7 1.0 4.4 4.5 1984 150 155 24.9 29.3 3.7 3.7 0.8 1.4 4.4 4.5 1985 160 160 26.6 32.0 3.8 5.0 0.8 1.6 4.3 4.5 1986 160 165 28.7 45.4 4.0 6.0 0.6 1.8 4.3 4.5 1987 160 170 30.0 50.4 4.3 6.5 0.7 2.0 4.3 4.4 1988 170 180 32.2 53.3 4.6 7.0 0.8 2.0 4.2 4.4 1989 170 190 36.0 55.0 4.7 8.0 0.9 2.2 4.2 4.3 1990 179 194 38.0 55.5 5.0 9.0 0.9 2.4 4.1 4.3 (1) Without project (2) With project. C. Prices 5.05 The prices of all the main products exported by Uganda are forecast to fall or remain constant in real terms in the 1980s, and should be a cause for concern to the country (projected in Annex 11). On the other hand, Uganda may be the cheapest producer of robusta coffee in the world, since robusta coffee is indigenous to Uganda. She should be able to 3/ The projection assumes that Uganda retains her 1976 share of the world coffee market (4.33%), and that total world demand in 1990 would be 4.4 million tons.  - 43 - retain the competitiveness of her coffee, and perhaps to regain that of tea, cotton, and tobacco in the international market if the Ugandan shilling is valued realistically. The Government is committed to the maintenance of such an exchange rate in the long run although the Ugandan shilling iE overvalued and farmers pay an average implicit export tax of 70% (Annex t2). While Uganda fetches a premium price for some of its cotton and should be able to regain the premiums for its mild washed arabica, its low quality robusta coffee, tea and tobacco fetch prices ranging from between 20-50% below the world market average.4/ The reasons for this poor market performance range from poor processing to inappropriate grading and packaging. The situation is expected to improve considerably for the following reasons: the factory rehabilitation effort being undertaken by various donors in the agricultural subsectors; an improved marketing and incentive system; and improved availability of packaging materials and transport spares. 5.06 Coffee. About 20% of world coffee production is consumed in producing countries. Of the supplies entering international markets, almost 90% is imported by the United States, Canada and European countries. The United States absorbs more than one-third of world coffee imports and Western Europe takes approximately one-half of total imports. Major importing countries in Europe are West Germany (10% of world imports), France (8%), and Italy (6%). Consumption in coffee producing countries is expected to grow by 3.8% between 1980 and 1985, and by 1.5% in the remaining years up to 1990. World import demand is projected to grow at an average rate of 2.7% a year up to 4.4 million tons in 1990. The demand for Uganda's coffee is expected to fit this pattern. 5.07 The world's largest coffee-producer is Brazil (on average 25% of the world's production), followed by Colombia (12%), Ivory Coast (6%), Mexico (5%), Guatemala (3.5%), and Indonesia (3.5%). Uganda's share of the world market is about 4.3%. World coffee production has been expanding at an average annual rate of 3% from about 4 million tons in 1974 and will probably reach 7 million tons in 1990. 5.08 Prices are expected to decline to a forecasted low of US$2.62/kg (1981 constant) by 1985. This decline in prices is expected to slow the rate of coffee plantings which will result in a strengthening of coffee markets during the second half of the 1990s. 5.09 Tea. Developing countries have become dominant in the consumption of tea (61% in 1980), and this trend is most likely to continue. With their higher expected population growth, higher expected income growth and higher income elasticity of demand for tea, it is projected that their share of total consumption will increase to 63% by 1985 and to 69% by 1995. Because of this larger role of the developing countries, world tea consumption should grow at a slightly faster rate in the 1980-95 period (3.2%) than in the 1961-80 period (2.8%). However, in the period 1980-85, tea consumption is expected to grow at only 2.4% p.a. because of the slower income growth expected in this period. 4/ Compare the 1982 prices of Uganda's main exports in row (b) of Annex 12 with the 1982 world market prices in Annex 11.  - 44 - 5.10 World tea production is expected to grow at much the same rate as in past years (3.6% p.a. in the 1980-95 period, compared with 3.7% in the 1970-80 period). Because of their faster growth rate, China, Kenya, Turkey and the USSR will achieve a larger share of total production and world exports. Uganda's tea production (1,700 tons in 1981) is less than 0.25% of the world's total. 5.11 Five countries (India, China, Sri Lanka, USSR and Turkey) produce 70% of the world's tea production and five countries (India, United Kingdon, USSR, Japan and the United States) consume 70% of total consumption. Since the 1960s, production has grown fastest in East Africa (Kenya, Malawi and Tanzania), Turkey and USSR, with rapid expansion in area planted and increased productivity from new clonal (vegetatively propagated) varieties leading to these increases. Prior to this, India and Sri Lanka were by far the most important producers and exporters. The rate of growth of production has been falling in India and output has actually fallen in Sri Lanka since 1965. Tea production in China has increased very rapidly recently and that country is now the second largest producer of tea and the third large.t exporter. 5.12 The United Kingdom remains the most important importer of tea, with about one-quarter of its imports being re-exported. However, its share of international trade has fallen steadily from 43% in 1961 to 23% in 1980. Pakistan, USSR and Iran are the fastest growing importers of tea. Because it is believed that output will continue to grow faster than consumption, tea prices in constant dollar terms are expected to continue to decline over the 1980-85 period to a forecasted low of US$1.71 per kg in 1981 constant dollars by 1985--although at a slower rate than in the recent past. Because of expected depressed income growth for the next few years, and the expected low prices for tea in the period to 1985, the current dollar price decline could be severe--averaging about 3.2% p.a. There should be some increase in constant dollar terms in the period 1985-90 (averaging 1.5% p.a.) but prices are likely to decline thereafter to 1995 at an average annual rate of 1.2%. These movements would result in the following constant 1981 dollar price forecasts: US$1.89/kg in 1983; US$1.71/kg in 1985; US$1.84/kg in 1990; and US$1.74/kg in 1995. Uganda's tea fetches very low prices (average of 50% of the world market prices) on the world market. 5.13 Cotton. Prospects for income and population growth indicate that the outlook for fiber consumption is still quite favorable. Per capita demand growth is highest relative to increases in per capita income where average incomes are low, therefore cotton consumption prospects are best in the developing countries. Economic and climatic conditions in many developing countries also favor expanded cotton production, and long term trends in the geographical relocation of the textile industry are likely to continue, although slowed by trade agreements. Demand growth for cotton in the centrally planned economies slowed sharply in the 1970s due to increasing supplies of man-made fibers and this is likely to continue to keep their cotton consumption growth modest in the future. Mill consumption in the industrial countries is projected to continue to decline at a moderate rate. On a world basis, mill consumption of cotton is projected to increase at an average of 1.9% per year to 1995. World production is expected to increase at a rate sufficient to meet projected demand growth averaging 1.9% per year to 1995.  - 45 - 5.14 Over the longer term, cotton prices will be affected less negatively than in the recent past by the behavior of man-made fibers' prices as demand growth assimilates the present world wide excess capacity in the man-made fiber industry and higher capital and feedstock costs tend to restrain investment in new production capacity. The price of Mexican Middling 1-3/32 inch quality is projected in 1981 constant dollars at US$2.68/kg in 1985. Uganda's cotton fetches premium prices on the world market averaging 10%. 5.15 Tobacco. Uganda is a minor producer and exporter of tobacco (less than 0.01% of world production). On the basis of recent consumption patterns and expected world population and income growth rates, consumption of tobacco is estimated to reach approximately 6.8 million tons in 1990, and 7.7 million tons in 1995, implying an average annual growth rate of 2.3% per annum in the forecast period. Assuming no major changes in the rate of technological progress and government policy, world production is estimated to reach 6.7 million tons in 1990 and 7.5 million tons in 1995. Production and consumption will grow at about 3.0% in developing countries, a slightly higher rate than in the recent past. Projected production and consumption growth in industrial countries is slow and falling. In centrally planned economies, the historical rate of growth in production and consumption of 1.3% is anticipated to continue over the next decade. 5.16 Because of the heterogeneity of the tobacco leaf and consumer tastes among countries, many exporters (including Uganda) also import some leaf. However, eight countries--the United States, Turkey, India, Brazil, Zimbabwe, Greece, Italy and Bulgaria--account for over 50% of exports in terms of volume and for an even higher proportion in terms of value. 5.17 Constant dollar prices in the long term are expected to remain at approximately the same level as the last few years with some narrowing in regional differentials as developing country producers upgrade the quality of their crop. Uganda's tobacco generally fetch lower prices on the world markets. Prices projected for tobacco in 1990 and 1995 are in the region of US$2,000/ton in constant 1981 dollars. D. Financial Analysis 5.18 Processing: The background data of ginneries likely to receive the rehabilitation loans appear in Annex 10, i.e. past production, debt situation, ginning capacity (nominal and actual), stocks in 1981, etc. The effects of this Project on UCB's finances have been projected to 1987 and found to be profitable (Annex 1). By their very nature, projections of a commercial bank's operations are risky--a risk which may be significantly increased by the dominant position of UCB in an economy that is shaky. The projections assume the terms of the Credit outlined in paras. 3.28 and 3.29. Other assumptions behind the projections are summarized in notes accompanying Annex 1.  - 46 - VI. BENEFITS AND RISKS A. Project Benefits 6.01 The main benefits to be derived from the Project would be an increase in Uganda's principal exports (cotton, tea, tobacco, and coffee), reduction in livestock mortality, and improved decision making and resource allocation within the agricultural sector (specifically the exports subsectors). The Government's information base for the sector planning, pricing decisions and resource allocation would be improved by (a) the completion of the seven studies; (b) the strengthening of the Statistics Division of the Ministry of Agriculture and Forestry; and (c) the work of the Agricultural Secretariat and the APC. Because of its nature as part program credit and part DFC-type operation, no overall rate of return calculation has been made for the Project. B. Risks 6.02 The principal risk facing the proposed Project is the potentially unstable security situation in Uganda. This is expected to improve over time, especially as the economy recovers and, to the extent that this Project improves the state of the economy, this risk will be reduced proportionately. The second risk is the possibility of delays in delivery of Project items to Uganda, and a delay in the implementation of the Project. This risk is fully reflected in the projected disbursement profile. The proposed implementation procedures, organization and management structure of the Project would minimize this risk, especially the use of professional engineering surveyors to prepare the subprojects and the use of rehabilitation contractors organized by UCB (rather than the sub-borrowers). Procurement and disbursement for the rehabilitation component would be much faster since this would be the responsibility of the contractors, supported by UCB's staff. 6.03 For the recurrent imports, the risk of delays in procurement and disbursement is considerably lower since this Project would benefit from the experience and technical assistance of the First and Second Reconstruction Credits and would be assisted by a professional procurement agent. The proposed use of a positive list, procurement agent and bulking is intended to overcome some of the problems experienced in Bank program loans to Uganda so far. The same applies to the technical assistance component of the Project which would benefit from the experience of the ongoing IDA Technical Assistance Project. 6.04 Thirdly, UCB would be taking major financial risks in its on-lending to numerous rural based hulleries, barns, and ginneries (most ginneries are in financial trouble) and to the tea parastatals which are technically bankrupt and have very weak managements. The use of engineering surveyors and supervisors, and the proposed bidding process for the rehabilitation component of the Project are also intended to speed up disbursements. While strict adherence to the agreed appraisal, selection criteria and implementation procedures should reduce the risks significantly, yet the nature of the political and economic (domestic and international) environment in which these sub-borrowers will operate is such that even very carefully selected subprojects could run into severe  - 47 - financial difficulties. It is for this reason that substantial lending spreads are recommended for UCB on the IDA Credit, which should cover most of UCB's risks. Finally, the half-yearly supervisions and monitoring that UCB will receive within the context of this Agricultural Rehabilitation Project and the Industrial Rehabilitation Credit, the close supervision that the policy and institutional aspects of the Credit that will be made within the context of the Second Reconstruction Credit (especially the operations of the Secretariat and the APC), and the Government's expressed strong political commitment to the Project would significantly reduce the risks inherent in it. VII. CONDITIONS OF THE CREDIT Negotiations 1. Government established the Agricultural Policy Committee (para. 3.02 and Section 3.02(a) of the draft Development Credit Agreement) and the Agricultural Secretariat (para. 3.02 and Section 3.02(b) of the Development Credit Agreement). 2. Government allowed cotton ginneries the option to sell lint to the Lint Marketing Board (LMB) at the guaranteed minimum price or to sell directly to domestic textile mills (para. 3.05). 3. Government allowed cotton ginneries the option to sell cottonseeds to LMB, oil and soap factories or to export markets (para. 3.05). 4. Government agreed that LMB should divest itself of oil and soap factory business as soon as possible (para. 3.06). Effectiveness 1. UCB would have recruited a firm of engineering surveyors and a Project Manager (para. 3.22 and Section 6.01(b) and (c) of the Development Credit Agreement). 2. The Bank of Uganda would have recruited a Director for the Agricultural Secretariat, (para. 3.22 and Section 6.01(a) of the Development Credit Agreement). 3. UCB would have recruited a procurement agent/officer to assist it with procurement and disbursement aspects of the Project (para. 3.38 and Section 6.01(d) of the Development Credit Agreement). Other 1. UCB agreed to hire a valuer to revalue its fixed assets not later than December 31, 1983 (para. 2.03 and Section 3.04(i) of the Project Agreement).  - 48 - 2. UCB agreed to maintain a debt to equity ratio of less than 20:1 until the Credit is closed, except by agreement with IDA (para. 2.03 and Section 3.04 of the Project Agreement). 3. UCB agreed to introduce a loan follow-up system satisfactory to IDA which would involve monthly supervision of subprojects in the disbursement stage and quarterly visits (para. 2.10 and Section 2.05 of the Project Agreement). 4. UCB agreed to maintain a loans-to-deposit ratio below 82.5% until the Credit is closed (para. 2.15 and Section 2.01(a) of the Project Agreement). 5. Government agreed to allow UCB to maintain a spread of at least 7.5% on the rehabilitation loans it finances under this Credit (para. 2.18 and Section 4.04) of the Development Credit Agreement). 6. Government agreed to reschedule the local currency debts of Uganda Tea Growers' Corporation (UTGC) and provide it with a minimum three-year debt moratorium as a condition of disbursement for the tea component of the Project (para. 3.11 and Schedule 1.4(b) to the Development Credit Agreement). 7. UCB agreed to select final beneficiaries on the basis of thorough preparation by engineering consultants to be recruited under this project and documented appraisal of each subproject covering technical, managerial, financial and economic aspects as outlined in Annex 3 (para. 3.12 and Section 2.01(b)(i) and Schedule A to the Project Agreement). 8. UCB agreed that any subprojects whose costs are expected to exceed US$1.5 million would require prior approval from IDA before they are financed from this Credit (para. 3.14 and Section 2.02(i) of the Development Credit Agreement). 9. Government agreed to return the whosesale and retail marketing of veterinary drugs and chemicals to commercial traders and cooperative societies and phase out the subsidies on acaricides by December 31, 1984 (para. 3.17 and Section 4.02 of the Development Credit Agreement). 10. The detailed positive list of eligible imports and broad subsectoral allocations (Annex 4) was agreed to and annexed to the Credit Agreement. Amendments to the list would require prior IDA approval (para. 3.18 and Annex to Schedule 1 of the Development Credit Agreement). 11. UCB would meet the foreign exchange costs of technical assistance necessary to prepare subprojects (mainly to cover the partial costs of engineering surveyors) soon after negotiations but prior to Credit effectiveness not exceeding US$300,000 from its own resources. These costs would be retroactively financed by IDA upon effectiveness (para. 3.27 and Schedule 1.4(a) to the Development Credit Agreement). 12. Government agreed to on-lend to UCB US$29.1 million from IDA funds equivalent to the estimated foreign exchange cost of the factory rehabilitation component of the Project and the requisite technical assistance, at 6.5% per annum for 15 years including 5 years grace.  - 49 - The funds would be amortized in accordance with the aggregate of the amortization schedules of the subloans UCB makes from this amount and disbursements against technical assistance (para. 3.28-29 and Section 3.01(c) and (d) of the Development Credit Agreement). 13. UCB agreed to on-lend the IDA funds to sub-borrowers at 14%, plus 1% for a maximum period of 10 years and a maximum grace period of 4 years (para. 3.28 and Section 2.01(b)(ii) of the Project Agreement). 14. The Ministry of Agriculture, Ministry of Cooperatives and Marketing, the Ministry of Animal Industry and Fisheries and the Bank of Uganda agreed to submit copies of their annual project accounts to IDA not later than nine months after the end of their financial years (para. 3.44 and Section 4.01(b) of the Development Credit Agreement). 15. UCB agreed to submit copies of its audited accounts to IDA within nine months of the end of its fiscal year (para. 3.44 and Section 4.01(b) of the Development Credit Agreement and Section 3.02(b) of the Project Agreement). 16. Beginning March 31, 1984, UCB would submit to IDA yearly reports of its operations, resources, portfolio, accounts and progress in the implementation of the recurrent and rehabilitation components to be financed under the proposed Credit (para. 3.44 and Section 2.08(b) of the Project Agreement). 17. The Agricultural Secretariat would consult with IDA on prices of export crops to producers and processors and the APC would formally review these prices yearly based on the recommendations of the Agricultural Secretariat (p4ra. 4.03 and Sections 4.03(a) and (b) of the Development Credit Agreement). 18. Detailed Government/IDA review would be held within six months of the completion of interim and final reports of subsectoral studies being undertaken as part of this Project (para. 4.05 and Section 3.05 (d) of the Development Credit Agreement). 19. Government agreed to submit a comprehensive Project-Related Training Program to IDA not later than December 31, 1983 (para. 4.06 and Section 3.07 of the Development Credit Agreement). 20. UCB agreed to assign exclusively to the Project for its duration: (i) three debt recovery officers; (ii) two senior credit analysts; and (iii) two agricultural economists, each with at least three years of relevant experience (para. 4.07 and Section 2.01(b)(iii) of the Project Agreement). 21. Upon Credit effectiveness, IDA would advance the Government US$1.5 million equivalent to be put in a Special Account from which payments would be made according to agreed disbursement categories and percentages and reimbursements obtained from IDA directly to the Government (Procedure 1) (para. 3.40 and Section 2.02 of the Development Credit Agreement).  - 50 - ANNEX 1(a) UGANDA AGRICULTURAL REHABILITATION PROJECT Financial Tables Structure of Interest Rates (Per cent per year) 1981 1982 June November December Bank of Uganda Ways and means 2.5 5.0 2.0 Rediscount rate 7.0 9.0 10.0 Bank rates to commercial banks 8.0 10.0 11.0 Treasury bills 35 days 4.71 8.0 9.0 63 days 4.95 8.5 9.5 91 days 5.08 9.0 10.0 Government stocks 5 years 8.5 11.0 12.0 10 years 9.5 11.5 12.5 15 years 10.5 12.0 13.0 Commercial banks 1/ Deposit rates: Demand deposits - Optional Optional Saving deposits 5.0 8.0 9.0 Time deposits: 3 to 6 months 6 to 9 months 9 to 12 months 1 to 2 years 6.0 12.0 2/ 13.0 2 to 3 years 7.0 Negotiable Negotiable 3 to 5 years 8.0 Negotiable Negotiable 5 years and over Negotiable Negotiable Negotiable Lending rates 3/ Agriculture 8.0 13.0 14.0 Export and Manufacturing 12.0 14.0 15.0 Commerce 12.0 15.0 20.0 Unsecured 12.0 17.0 20.0 1/ Minimum interest rates. 2/ One-year deposit. 3/ Maximum lending rates. Source: Data provided by the Ugandan authorities. December 1982  AGRICULTITRAL REHABILITATION PROJECT 11ganda Com-ercIal Book Profit and Loss Accounts 1976 -1987 (Io USh lIll.o.s) 1976 1977 1978 1979 1990 1981 1982 1983 198b 1985 1986 1987 (Estt=ato) 1. INCOME a. Interest & Discount 140.46 179.91 245.68 265.43 191.56 489.89 1,397.01 1,717.96 2,002.72 1,821.62 2,088.75 2,202.29 6. Ether Inco=e 30.62 46.76 42.43 33.44 90.31 218.63 218.63 218.63 19.63 218.63 218.63 218.63 Total Iscore 171.08 226.67 288.11 298.87 471.87 708.52 1,615.64 1,936.59 2,221.35 2,040.25 2,307.38 2,420.91 2. EXPENDITURE a. Internet on Depostts BBorroaig 62.98 78.04 105.83 145.21 224.43 256.40 595.75 773.13 793.S9 809.25 922.85 980.72 b. SeIs-i-s & Alltasoces 36.53 42.87 55.41 78.81 90.89 136.94 184.23 198.09 211.95 225.81 239.67 253.53 c. Othor Ad=intstrative Espenses 16.27 52.80 25.86 68.73 40.05 95.46 51.00 129.81 49.19 42.19 120.77 257.61 217.08 2728.65 240.22 251.79 263.36 274.93 d. Othor Expenditsre 44.32 43.72 38.61 75.92 42.47 130.00 128.88 141.88 158.88 178.88 188.88 208.88 Total ERpendt-re 160.10 190.49 24Z.90 350.94 406.97 644.11 1,115.94 1,343.75 1,04.64 1,465.73 1,614.76 1,718.06 3. NET INCOME (LOSS) FOR THE YEAR BEFORE TAX 10.98 36.18 45.21 (52.07) 64.07 64.18 499.07 992.84 916.71 574.52 692.62 702.85 4. LESS CORPORATION TAX 5.OO 224.87 296.42 408.35 287.26 346.31 351.43 5. PROFIT (LOSS) AFTER TAX 5.98 36.18 45.21 (52.07) 64.07 64.18 274.84 246.42 409.35 287.26 346.31 351.43 UNAPPROPRIATED PROFITS BEFORE TAX 0.60 0.7l 7.03 9.03 (51.06) 1.03 27.48 _ 32.32 33.87 32.01 34.07 32.01 TOTAL 6.58 36.29 45.51 (51.57) 13.03 65.48 302.32 328.74 442.23 319.27 390.38 383.44 6. APPROPRIATIONS a. Capitol Reserve 1 15 7 - - - - - - - - b. GeC.ral Reaerve 2.5 6.5 10 - 3 12 5 25 75 80 70 90 I. Ioser Bererva 1.5 14.5 28 - 7.5 26 250 260 325.1 204.57 278.37 260 d. Proposod DIivdeod 1.4 - - 1.5 - 15 9.97 - - - 0.25 Total Appropriatiosa 6.4 36 45 - 12 38 270 294.87 410,13 284.57 348.37 350.25 Onappropriated ProfIts 0.18 0.28 0.51 (51.6) 1.3 27.48 32.32 33.87 32.1 34.7 32.01 33.19  - 52 - ANNKEX 1(c) UGANDA AGRICULTURAL REHABILITATION PROJECT Uganda Coetercial Bank Actual and Projected Balance Sheets 1976-87 (in SOb oilSlion) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Current Assets Cash an Sand N Balaces with Other Banks 550.49 652.34 594.04 1,927.83 2,463.31 4,857.54 1,331.25 1,437.75 1,552.08 1,677.00 1,744.01 1,813.08 Treasary Bills 287.89 222.43 57.38 116.31 69.82 89.87 2,374.02 1,289.08 412.32 2,490.4 3,981.84 4,319.88 Investments at Cost 221.70 436.85 426.85 571.85 1,471.85 1,391.85 593.55 322.45 103.08 622.06 995.00 1,079.72 Advances and Other Accaunts 869.03 1,306.38 1,882.63 1,961.60 2,215.60 5,609.57 9,013.05 11,057.05 12,830.08 9,184.00 13,421.06 14,290.01 Items in Transit 101.14 79.31 188.71 - - 890.97 69.88 550.87 1,328.01 3,245.07 610.47 439.19 Shnrtdated Uganda G-vernment Stacks - 29.85 - - - - - - - - - - TOTAL LIQUID AND OTHER CURRENT ASSETS 2,030.24 2,727.14 3,149.62 4,577.59 6,220.95 12,839.80 13,312.00 14,658.37 16,227.10 18,619.07 20,753.01 21,944.69 Fined Assets Bask Premises 80.62 92.78 105.28 108.74 91.58 80.89 173.32 2,325.15 2,343.45 2,361.75 2,384.93 2,403.23 Residential Premises 12.57 23.42 37.96 46.94 16.09 15.63 77.67 1,069.28 1,075.68 1,084.08 1,094.72 1,100.12 Furniture, Equipment, Mnt-r Vehicles 12.74 26.55 50.43 47.89 62.44 71.26 29.73 419.25 422.59 425.89 430.07 433.37 Capital WSaks in Progress 62.89 68.28 68.28 78.28 88.28 98.28 100.28 110.28 TOTAL NET FIXED ASSETS 105.93 142.75 193.68 203.56 222.99 236.05 349.00 3,892.00 3,930.00 3,970.00 4,010.00 4,050.00 Other Assets Custonern Liabilities fur Acveptances, Guaranteas and Indeenities 44.06 271.29 194.19 111.34 749.44 681.45 342.00 342.00 342.00 342.00 342.00 342.00 TOTAL ASSETS 2,180.24 3,141.18 3,537.48 4,892.50 7,193.38 13,757.30 14,003.00 18,892.37 20,499.01 23,131.07 25,105.01 26,336.69 Lass Liabilities Current Depasit and Other Accsts 2,055.53 2,763.09 3,220.95 4,684.47 6,234.35 12,925.43 13,312.05 14,377.50 15,528.00 16,770.00 17,441.00 18,138.09 Items In Transit 23.85 71.81 69.38 Dividend (Proposed) 15 20 20 20 20 10 Acceptances, Guarantees and Indemnities for Aceounts nf Cuntumere 44.06 271.29 194.19 111.34 749.44 681.45 342 342 342 342 342 342 TOTAL LIABILITIES 2,099.59 3,034.38 3,415.14 4,819.66 7,055.60 13,606.88 13,669.05 14,739.50 15,890.00 17,132.00 17,803.00 18,490.05 'ET WORTH 80.65 106.80 122.34 72.84 137.78 150.42 264.14 4,152.87 4,609.1 5,799.07 7,302.07 7,846.19 Represented By: Share Capital 30 30 30 30 30 30 130 500 500 500 500 500 Capital Reserve 8 23 30 30 30 - - - - - - - General Reserve 23.5 30 40 40 43 55 60 85 160 240 310 400 Profit 6 Lass Acc-ust .24 0.3 0.47 51.60 1.32 27.51 32.32 33.87 32.01 34.07 32.01 33.19 Revaluation Reserve - - - - - - - 3,503 3,503 3,503 3,503 3,503 Tr-nisng Fud .46 .46 .5 .5 .5 .5 - - - - - - Uganda Government Funds 18.44 23.03 21.37 23.93 32.95 37.91 41.82 - - - - - IDA Induntrial Rehabilitati-n Credit - - - - - - - 31 144 322 457 500 IDA Agricultural Credit - - - - - - - - 270 1,200 2,500 2,910 TOTAL 80.64 106.79 122.34 72.83 137.77 150.92 264.14 4,152.87 4,609.10 5,799.07 7,302.07 7,846.19  UGANDA AGRICULTURAL REHABILITATION PROJECT Uganda Commercial Bank Actual and Projected Ratios - 1976-1987 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 _ - ~~~~~~~ ~ ~~~(Est.)-- A. INCOME AND EXPENSES (X) Net Income/Total Income 6.4 16.0 15.7 - 13.7 10.0 30.9 30.6 36.7 28.2 30.0 29.2 Net Income/Equity 17.6 43.1 45.0 - 61.9 41.3 224.8 14.9 21.1 18.8 16.9 16.38 Net Income/Working Resources 1/ 0.5 1.3 1.4 - 1.0 0.5 0.3 3.3 4.2 3.3 2.9 2.8 Management Expenses Ratio 2/ 48.8 46.2 52.4 84.0 56.6 57.0 38.9 36.1 30.2 32.7 35.1 36.2 B. SPREAD (%) Average Interest Earned 12.9 10.1 10.6 10.5 10.6 14.5 15.5 15.5 15.5 15.5 15.5 16.5 Average Interest Paid 3.1 2.8 3.3 3.1 3.0 9.0 11.0 11.0 11.0 11.0 11.0 11.0 SPREAD 9.8 7.3 7.3 7.4 7.6 5.5 4.5 4.5 4.5 4.5 -4. 4.5 C. FINANCIAL STRUCTURE Advances/Deposit Ratio 0.4/1 0.6/1 0.4/1 0.4/1 0.4/1 0.4/1 0.7/1 0.8/1 0.9/1 0.8/1 0.8/1 0.8/1 Total Debt/Equity 34/1 30/1 34/1 99/1 68/1 120/1 61/1 3.6/1 4/1 4.7/1 4.8/1 4.9/1 Total Assets/Equity 34/1 34/1 33/1 97/1 61/1 122/1 63/1 3.6/1 5.1/1 5.8/1 5.9/1 6/1 Equity/Total Deposits (x) 3.0 3.0 3.1 1.0 1.7 1.0 1.7 28.7 27.0 25.5 25.5 24.5 1/ Working Resources = capital + reserves + deposits + borrowings 2/ Management Expense Ratio = salaries + overheads - income after interest payments  _ 54 - ANNEX 1(e) Page 1 of 5 UGANDA AGRICULTURAL REHABILITATION PROJECT Notes & Assumptions for Projections of UCB Financial Statements 1. Interest and Discount will be at an average of 15.5% advances effective from 1982. 2. Deposits: (a) Projected GDP (nominal prices): Real GDP Assumed Inflation Year GDP (USh Million) Growth % Rate % 1982 895,301 4.8 50.0 1983 1,134,393 5.6 20.0 1984 1,318,379 5.7 10.0 1985 1,491,349 5.7 7.0 1986 1,637,610 3.6 6.0 1987 1,798,275 3.6 6.0 (b) The Bank Deposits/GDP ratio (1970-1981) averaged 6%. (c) UCB currently (1982) commands an average of 25% of total deposits. However, as the economy and security situation improves, it is reasonable to assume that the share of other banks in total deposits would increase, and UCB's share would decrease progressively. UCB's deposits would increase on an average of 5.2% p.a. during the projected period. % Share UCB Deposits Year Total Bank Deposits of UCB USh Million 1982 53,718.06 25 13,313 1983 68,063.58 21 14,378 1984 79,102.74 20 15,528 1985 89,480.94 19 16,770 1986 98,256.06 18 17,440 1987 107,896.05 17 18,139 3. "Other Income" has been estimated to remain constant at the 1981 figure of USh 218.63 million. 4. Interest payable on Deposit & Borrowing will be 11% of current Deposit and other accounts, after deducting 50% of the total in respect of Demand Deposits. No interest has been charged separately on Borrowed Funds as a more than usual percentage has been allowed as interest bearing balances.  - 55 - ANNEX I(e) Page 2 of 5 Interest-bearing Deposits Interest-bearing Deposits (Year) (USh million) 1982 732.16 1983 790.68 1984 854.04 1985 922.35 1986 959.25 1987 997.62 5. Salaries and allowances will increase at an average rate of USh 13.86 million per annum. The substantial increase recorded in 1982 is a result of introduction of cost of living allowance and general increases in allowances. 6. Apart from a few costs, the items under other expenditures are considered more or less fixed and are projected to increase by an average of USh 50 million each year. 7. The Tax Holiday for the Bank is now over and from 1983 onwards, profits tax is expected to be levied at 50% effective from January 1, 1983. For 1982, the tax applicable is 45%. 8. Assets will be professionally revalued in the course of 1983. Nevertheless, for the purposes of these projections, a factor of 10 has been used in valuing the Bank's fixed assets. This is considerably less than the impact of the two major currency devaluations since 1980. 9. Share capital will increase to USh 500 million in 1983. Government has already agreed to increase the Authorized Capital to USh 1,500 million. 10. An IDA Line of Credit of US$5 million has been converted at a current (1982) average official exchange rate of USh 100 = US$1 at Window 1. 11. Funds held in respect of Uganda Government Funds are considered too inadequate for any effective on-lending and it is proposed to pay these back to Government in 1983. The Bank will nevertheless continue to administer recovery of loans outstanding. 12. Acceptances, Guarantees, and Indemnities have been averaged at USh 342 million per month. 13. IDA Agricultural Credit of US$29.1 million has also been converted at USh 100 = US$1. 14. Advances are generally expected to be 60% of total deposits.  - 56 - ANNEX 1(e) Page 3 of 5 (i) However in 1982 advances are expected to amount to USh 9,013.5 million after taking into account IDA loans (Reconstruction I & II and the Industrial Rehabilitation Credit) marked on the portfolio amounting to USh 1026 million and thereafter to increase as follows: 1982 1983 1984 1985 1986 1987 Reconstruction I (IDA) 7,987.5 8,628.5 9,316.8 10,062.0 10,464.6 10,883.1 Reconstruction II (IDA) 1,026.0 2,400.0 3,100.0 IDA Line of Credit 31 144 322 457 500 IDA Agricultural Line of Credit* - 270 1,200 2,500 2,910 Total Committed 9,013.5 11,057.5 12,830.8 11,584.0 13,421.6 14,293.1 Disbursed and Oustanding 1,397.09 1,755.76 2,132.92 2,065.22 2,167.15 2,238.68 *Loans marked for importation of recurrent items are expected to be repaid within one year of grant thereof and repayments will be paid back to Bank of Uganda immediately. These are therefore not expected to affect the portfolio, hence their exclusion. (ii) The IDA Credit of US$5 million is also expected to additionally increase Advances by cumulative subloan balances as above. The credit account has been converted at the Exchange Rate of USh 100 = US$1. (iii) The Agricultural Credit of US$29.1 million for factory rehabilitation is expected to be utilized in full within 5 years and the cumulative balances are expected to increase aggregate loans as above. (Rate US$1 = USh 100) (See No. 13). N.B. Drawings in respect of Recurrent Imports are expected to be repaid within one year and paid back to Bank of Uganda the same year. They are not therefore considered to affect advances considerably. 15. Cash-on-hand & Balances with other Banks will be 10% of total deposits. This conforms with statutory requirement prescribed by the Central Bank. 16. Historically, only about 40% of total deposits have attracted interest (i.e., Time Deposits). The rest of the 60% is in respect of  - 57 - ANNEX 1(e) Page 4 of 5 demand deposits which do not attract interest. However in view of the desire to mobilize more deposits in order to back up the expected increased lending, interest bearing deposits are expected to increase to 50% of total deposits in 1983 onwards. Interest payable is expected to average 11% per annum. 17. Fixed Assets are expected to increase by USh40 million every year. However it is proposed to revalue the bank's Assets in 1983. Heavy capital investment in 1982 is a consequence of the bank's plan to rehabilitate damaged bank premises. Total Fixed Assets would be allocated as follows: bank premises, 61%; residential premises, 28%; and furniture, 11% after deducting capital works in progress. There are no immediate plans to complete capital works in progress. 18. Until communication systems and reconciliation procedures have drastically changed, no regular trend of movement in Items in Transit will been determined. 19. No specific policy has been adopted by the bank in its investments. However it is assumed here that the residue from total deposits after deducting total advances and cash-in-hand, is invested in Treasury Bills and Other Investments in the proportion 80% and 20% respectively. 20. Other Administrative Expenses are expected to increase by an average of USh 11.57 million per annum. 21. Other Expenditures are expected to increase by USh 15 million every year from 1983. 22. (a) Except for the IDA Industrial Line of Credit for which the entire loan of USh 500 million has not been disbursed, all lendings in respect of all other existing loan categories have been fully disbursed. (b) Based on the ruling interest rates the average interest on outstanding as well as on the projected outstanding loans is 15.5%. (c) Apart from the increase in Paid-up Capital from Government from USh 130 million to USh 500 million, no other cash subscriptions or subscriptions in the form of notes receivable from Government are expected. Liquidations or Acquisitions are not applicable to the bank in its present structure. (d) Dividends are expected to be paid to Government and on the basis of past experience, the bank may determine how much to pass over to the Government from the profits made after tax.  - 58 - AINEX 1(e) Page 5 of 5 (e) It is expected that provisions for Bad and Doubtful Debts (which are kept strictly on cumulative basis) will average about USh 30 million per year and this together with write-offs have been taken into account within Other Expenditures in the Profit and Loss account projections. 23. Interest rates presently applicable are: Savings Bank Accounts 9% p.a. Fixed Deposit Receipts (for one year and over - negotiable) 13% p.a. Bank Discount Rate 10% p.a. Bank Rate 11% p.a. Treasury Bill Rate - 35 days 9% p.a. 63 days 9.5% p.a. 91 days 10% p.a. Government Stocks - 5 years 12% p.a. 10 years 12.5% p.a. 15 years 13% p.a. Source: UCB, Credit Division  - 59 - ANNEX 2(a) UGANDA AGRICULTURAL REHABILITATION PROJECT Terms of Reference Terms of Reference for the Agricultural Policy Committee. Location Bank of Uganda, Kampala. Composition Chairman, Permanent Secretary, Ministry of Planning; Permanent Secretary, Ministry of Agriculture; Permanent Secretary, Ministry of Animal Industry and Fisheries; Permanent Secretary, Ministry of Cooperatives and Marketing; Permanent Secretary, Ministry of Finance; Permanent Secretary Ministry of Commerce; Governor, Bank of Uganda; Managing Director, UCB. The Committee Secretary will be the Director of the Agricultural Secretariat. Responsibilities Annual review of budgets (development and recurrent) of all Government bodies within the agricultural sector. Annual and quarterly allocation of foreign exchange within the agricultural sector. Quarterly review and allocation of technical assistance within the agricultural sector. Quarterly review of prices to be paid to farmers for export crops, and processing margins allowed to marketing organizations. Monthly review of performance in export and domestic marketing of agricultural commodities. Aid coordination in the Agricultural Sector. As Steering Committee of the Agricultural Rehabilitation Project, the Agricultural Policy Committee will have the overall responsibility for the Project.  - 60 - ANNEX 2(b) UGANDA AGRICULTURAL REHABILITATION PROJECT Terms of Reference for the Agricultural Secretariat. Location : Bank of Uganda, Kampala. Composition (i) Internationally recruited staff: 1 Economist who will be Director of the Secretariat 1 Agricultural Economist (Commodities) 1 Financial Analyst (Budgets) 1 Agriculturalist 1 Economic Statistician (ii) Locally recruited staff: Deputy Director (Economist) 2 Financial Analysts I Agriculturist. I Evaluation Officer I Economic Statistician 1 Agricultural Economist Responsibilities : The main task of the Secretariat will be to provide the economic and analytical basis for policy-making in the areas of aid coordination to the agricultural sector, pricing, marketing, and resource allocation relating to agriculture in support of the APC. It will work closely with and strengthen institutions responsible for data, gathering and analysis in the operating ministries and the Bank of Uganda. The Secretariat will undertake ad hoc tasks as may be assigned to it by the APC using its staff or consultants. Reporting : It will operate in all budget and administrative aspects as a special department within the Bank of Uganda under the direct supervision of the Governor of the Bank of Uganda.  - 61 - ANNEX 3 UGANDA AGRICULTURAL REHABILITATION PROJECT Criteria for Rehabilitation Project Appraisal 1. The economic benefits of the proposed rehabilitation. Although the pre-selection process ane the engineering surveyor's work would eliminate projects without obvious economic merit, even those on the list would require thorough economic and financial analysis. To ensure that funds are not spent on rebuilding a project which would potentially not be efficient in the long term in Uganda, the economic and financial rate of return concepts will be used in the selection process. UCB will pay particular regard to the availability of adequate labor, cotton, coffee or other raw material as the case may be in a particular area served by a factory and their competitiveness relative to that of other crops grown in the same area. 2. The appropriateness of the engineering and the technical design of the proposed rehabilitation and the cost estimates. As much as possible UCB will seek to fully rehabilitate fewer enterprises rather than to try and repair many of these halfway. 3. The financial situation of the project, and the cooperative union if it is owned by a cooperative union, and its financial restructuring needs, either in the form of injection of new equity and/or repayment, rescheduling or cancellation of debts; and the financial viability of the enterprise after rehabilitation. It is particularly important that borrowers be given a realistic chance to repay the loans since their financial viability has over 10 years been undermined by the pricing policy of the Government which have denied them reasonable (or indeed until June 1981, positive) trading margins. 4. The quality and competence of the management. This is especially relevant for the ginneries which are owned by cooperative unions which are subject to much political interference. In cases where existing managers have no demonstrable background and experience in the business, installation of competent management would be a condition for lending.  UGANDA AGRICULTURAL REHABILITATION PROJECT COFFEE /a SUBSECTOR /b Base Costs Guantity (U Shs Million) Phb. Dot. --------------------------------- ------------------------------------------Cont, For. Gross Duts Ta: Unit 83/84 84/85 85/86 86/87 87!88 88/89 Total Unit Co-t 83/84 84/85 85/86 86/87 87/88 88/89 Total Rate Ebch, Tao Rate Rate Rate A. COFFEE ANNUAL IHPORTS I. CHEHICALS FENITRGTHION 50 EC 591.1 /c UNIT 5,355,4 35,470.5 28,724.2 - - - 69,550 1,265 6.8 44,9 36.3 - - - 88.0 0 0.87 0 0 0 DIELDRIN 591,1 UNIT 092.6 5,911.9 4,787.5 - - - 11.592 1.150 1.0 6.8 5.5 - - - 13,3 0 0,87 0 0 9 BENTATE 591.2 TONS 1.8 11.8 9,6 - - - 23.2 3,220,000 5.8 38.1 30,9 - - - 74.7 0 0.87 0 0 U COPPER OXYCHLORIDE 591.2 TONS 17.8 118.2 95.7 - - - 231.8 425,500 7.6 50.3 40.7 - - - 98.6 0 0,87 0 0 0 Sub-Total CHEMICALS 21.1 140,1 113,4 - - - 274.6 2. SEMI-CAPITAL REGUIREMENTS FOR COFFEE CP 15 SPRAY PUMPS I SPARES 721,9 UNIT 770 5,100 4,130 - - - 10.000 13,322.4 10.3 67.9 55.0 - - - 133.2 0 0U69 0.21 0.3 0 FORKS 695.1 UNIT 23,100 153,000 123,900 - - - 300,000 870 20.1 133.1 107.8 - - - 261.0 0 0.69 0.21 0.3 0 COFFEE TRAY WIRE 693.5 ROLLS 77 510 413 - - - 1,000 17,250 1.3 8.8 7,1 - - - 17.3 U 0.87 0 0 0 PRUNNING SAUS 695.31 UNIT 7,700 50,008 41,300 - - - 100,000 870 6.7 44.4 35.9 - - - 87.0 0 0.69 0.21 0.3 0 COFFEE PULPERS 721.9 UNIT 38.5 255 206.5 - - - 500 69U000 2.7 17.6 14.2 - - - 34.5 0 0.87 0 0 0 Sub-Total SEMI-CAPITAL REGUIREMENTS FOR COFFEE 41.0 271.8 220.1 - - - 533,0 3. MISCELLANEOUS COFFEE EOUIPHENT AND SPARES MISCELLANEOUS TRANSPORT 785.2 786.81,625,4,625,9 /d UNIT 0.l 0.5 0.4 - - - 172,500,000 5.6 37.0 29.9 - - - 72.5 0 0.69 0.21 0.3 0 SPARE CHAINS/PULLEYS FOR CURRENT NOBEL HANDPULPERS 721.9 UNIT 77 510 413 - - - 1,000 32625 0.3 1.8 1.5 - - - 3.6 0 0,69 0.21 0.3 0 HANDPICKING UNITS 721.9 UNIT 0.3 2 1.7 - 4 2,214,000 0.7 4.5 3.7 - - - 8.9 0 0.87 U U 0 LIOUORING EOUIPMENT FOR BCU 665,2 SUm 0.1 0.5 0.4 - - - I 2,300U000 0.2 1.2 0.9 - - - 2.3 0 0,87 0 0 0 MILLING LINE FOR CEN 721.9 SUN 0.0 0.5 0.4 - - - 1 16,445,000 1.3 8.4 6.8 - - - 16.4 0 0.87 0 0 0 LIGUORING EOUIPNENT FOR CHB 665.2 SUm 0.1 0.5 0.4 - - - 1 4,600,000 0.4 2.3 1.9 - - - 4.6 0 0.U7 0 0 0 COPPER SHEATHING FOR EXISTING DONPULPERS 682.22 UNIT 577.5 3-825 3,097.5 - - - 7.500 4,350 2.5 16.6 13.5 - - - 32.6 0 0,69 0.21 0.3 0 Sub-Total MISCELLANEOUS COFFEE EOUIPMENT AND SPARES 10.9 71.9 58.2 - - - 141.0 4. GUNNY BAGS 654.5 UNIT 101,316.6 671,058 543,425.4 - - - 1.315,800 261 26.4 175.1 141.8 - - - 343.4 0 0.69 0.21 0.3 0 Sub-Total COFFEE ANNUAL IMPORTS 99.5 65U.9 533.6 - - - 1,292.0 gton _ X /a EACH YEAR REPRESENTS A FINANCIAL YEAR JULY I - JUNE 30, BEGINNING WITH JULY 1, 1983 /b EXCHANGE RATE OF USN1.U0 = U Sbs 100 tc TAE NUNBERS AFTER EACH RECURRENT IMPORT ITEH LISTED REPRESENT THE UN STANDARD INTERNATIONAL TRADE CLASSIFICATION CODE 1975 ED. /d SUCH AS WHEELBARROWS AND BICYCLES BUT NOT INCLUDING PASSENGER VEHICLES Jasjars 27, 1983  AGRICULTURAL REHABILITATIOTN PORJECT TOBACCO /a OUBSECTOR lt Base Costs Qoantit4 /U hs Nolloos' Phs. Doc --- --- --- --- --- --- -- --- --- --- --- --- --- --- - - -- - - - --ss,-- - - -- - - -- -C t For. tross Dots Tax Unit 03/04 84/05 85/06 86/0? 07/00 88/09 Total Unit Cost 03/04 84/85 05/00 00/07 87/00 80/89 Totall Rate E,xt. Ts: Rate Rate Tate A. TOBACCO ANNUAL IMPORTS / 1. SPARES FUR NTC FACTORY sum 0,1 0.5 0.4 - - I34.500,0U0 2,7 /7.6 14.2 - 4.5 U 0087 U U U 2. TRANSOPUT SPARES FOR HiT FACTORIES 705,2,700,01 625,4,625.9 Id tON UGl US 3.4 - 31- 1 00,U 0UU 2 ,4 19.0 12.0 - I,0 U 0.65 0,260 U4 U 3, OEMI-COPOTA[ REQUIREMENTS FOR TOBACCO MOEt 695.1 UNIT G0,U24.666.300.953.760.5 - - 130,090 400 4.6 30.5 24,7 - - 90,0 0 0,07 0 0 0 PANGAS 0095.1 UNIT 1I4.040,919,00. 0.042,3 - - - 21.410 345 0.0 0,0 3.1 - - - 7.4 0 0,07 0 U U AXES 005.1 UNIT 1,040.610,019.1 0.042,3 - - - 21,410 645 1.1 7.0 5.7 - - - 13.0 U 3.93 0 0 U STITCHING MEEDLES 699.31 UNIT 205,3 1,359.) 1,101,1 - - - 2,000 73 0.0 0.1 8. - - 0.2 0 0.60 0.21 0.3 U CP3 PUMPS AND SPARES 721.0 ONIT 10.2 07.0 S4.0-9 133 25,300 0.3 1.7 1.4 - - - 3.4 0 0.07 0 PLANTECTOR SPRATERS 721,9 UNIT 39,0 204.2 213.9 - - 31 17.250 0.? 4.6 3.? - .9 0 US?7 0 0 BALING0PRESSES 721,23 UNIY 4.2 20.1 12 2.7 -- 55 50,6000 0.2 1.4 1.0 1 2.0 T 3.07 T BOO SAW0 WITH BLADES 005.31 OMIT '7 910 013 - - - 1,000 090 0.1 0.4 0.3 0.7 0 0.07 0, 0 U PLATFORM SCALES 721.9 UNIT 4,4 29.1 23,5 - - - 57 217.50T 1.U 0.3 5.0 -1 2.4 T 0.00 0.20 0.3 SALTER SCALES 721,9 UNIT 5.9 30.7 20.7 - - - 72 00.050 0.4 2.5 2.0 - - - 4.9 0 0,09 0.21 0.3 PAIL/TERRICANS0692,41-42 UNIT 0.5 3.0 2.9 - - - 7 205.160 0.1 0.7 0.0 -1 .4 0 0.07 0 0 0 SICKLES 695.1 UNIT 10 100.0 05.09 200 230 0.0 0.0 0.0 - - - 0.0 0 0,07 0 0 0 WATERING CANS 002.41-42 UNIT 507.3 3,757.7 3.043 - - - 7,300 400 0.3 1.7 1.4 - - - 3.0 0 0,07 0 0 0 SEEDBED PACKS 695,1 UNIT 3,050 29,500 20,609 - - - 50,300 1,205 4.0 32.3 20.1 6 3.3 0 0.07 U 0 MISCELLANEOUS TRANSPGRT 705.2 786,81,625,4,625.9 /e IO 3.1 0.5 0.4 - - - 1 13,469,000 0.0 5.3 4.3 - 10.5 0 0.69 0.21 0.3 0 OX-PLOUGHS 721,1O OMIT 50.1 331.5 260,5 - 50 16.000 0.0 5.3 4.3 - - 10.9 0 0,07 0 0 0 RAFFIA 654.9 AGO 7,7 51 41.3 - - tO 345 3.0 0.0 0.0 - - - 0.0 0 0.07 0 0 tub-Total SENI-CAPITAL REIUIREMENTS FOR TOBACCO 15.7 103.0 04.0 - -239 4. BAGS AND OTHER PACKING MATERIALS POLO LINED GUNNY BAGS 654,5 UNIT 1,040 12,240 9,9- - - - 24,300 435, 0.0 5.3 4.3 - 0.4 0 0.00 0.21 0.9 0 MESSIAN CLOTH 054.5 UNIT 29,7 100.9 059,4 - - - 386 87.000 2.0 17.1 03.9 33.6 0 0,69 0.21 0.3 0 TAR LINED PAPER ROLLS 041.02 UNlY 703.0 1.940,2 1,53076 3,016 11.200 3.3 21,0 07,7 - - - 42.7 0 0.03 0,20 0.45 0 J30E TWINE 657.51 OGLES 10.2 101.1 06.7 - - - 210 37,025 0.0 4.0 3.2 - - - 7.0 0 0.74 0.15 0.2 0 NYLINAROPES0657.51 ROLLS 0.3 2 1,7 - - - 4 130,050 0.0 0.3 0.2 - - - 0.0 0 0,.74 0.15 0 .2 0 Sub-Total BOOS AND OTHER PACKING MATERIALS 7.3 40,5 30.3 - 5.1 5. HERBICIDES ALBEX 5901.3 LITERS 1,329,9 0,000.2 7.132,9 - - - 17,270 1.300 1.6 12,.2 9,0 - 23.0 0 0,07 0 0 0 ALDRIN 591.3 KG 754,34,0995,5 4,045,3 9 ,795 400 0.3 2.3 0.09 4,5 0 0,07 0 0 OAPIUA OR NUVAN 501.3 UNIT 1.69911,253.2 9,112,0. 22.005 0.300 2.3 15.5 12.06 30.4 0 0.07 0 0 0 D/IMECROM 50, 501.3 UNIT 2,013,418.634,415,090,2 - - - 30,538 1.190O 3.2 21,4 17.4 -- 42.0 0 OR?7 0 0 0 SKIMMED MILK 591,3 BASS 30.3 240.7 004,0 - 472 20.700 0.0 5.0 4.0 - - - 9,0 0 0,00 0 0 0 0o Sub-Total HERBICIDES 0.5 56,4 45 .7 - - -110,06 Gob-Total TOBACCO ANNUAL IMPORTS Ic 30.5 2421.1 190,0 - - - 4074.0 /a EACH PEAR REPREEGENTS A FINANCIAL SEAK JOLT I - JUNE 30, OCAIMMIkO RITA JULY 1. 0963 /0 EXCHAN6E ROTE OF USMU00 0 SOs 100 Ic IMPORTED IN BULK BY NTC PFOA SALE TO FARMERS ON ITS BEHALF Id THE NUMBERS AFTER EACH RECUARENT IMPORT ITEM LISTED REPRESENT THE UM OTONDARS INTERNATIONAL 0R00E CLASSIFICATTION COPE 0975 ED. /e SUCH AS WHEELBARROWG AND BICYCLES BUT NOT INCLUDING PASSENGER VEHICLES Jaruars 27, 1003  UGAND!A AGRICULTURAL REHABILITATION PROJECT COTTON /a SUDSECTOR lb Base Costs Quantity (U Shs Million) Phs. Dom.