Cameroon - Rubber and Oil Palm Projects (Vol. 1 of 2)

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6019 PROJECT PERFORMANCE AUDIT REPORT CAMEROON COASTAL TREECROP PLANTATIONS SECOND CAMDEV PROJECT (LOAN 1508-CM) SECOND SOCAPALM PROJECT (LOAN 1391T/1392-CM) SECOND HEVECAM PROJECT (CREDIT 975-CM/LOAN 1791-CM) December 31, 1985 Operations Evaluation Department Ibis docent ha a resrIkled distribaflea ad may be =sed by redpeats ody In the peformnance of their fidal duies. Its cateals may not otherwise be disdaned without World Bank authadelson. WEIGHTS AND MEASURES 1 hectare (ha) = 2.47 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) = 0.39 square miles 1 kilogram = 2.2 pounds I metric ton = 2,205 pounds I liter = 1.057 US quarts COUNTRY EXCHANGE RATES CAMDEV II SOCAPALM II HEVECAM II Appraisal Year Average US$1.00 = CFAF 245 245 210 Intervening Years' Average US$1.00 = CFAF 250 250 300 Completion Year Average US$1.00 = CFAF 300 300 420 GLOSSARY OF ABBREVIATIONS CAMDEV - Cameroon Development Corporation CAMDEV II - Second CAMDEV Project CCCE - Caisse Centrale de Coopgration Economique (France) CDC - Commonwealth Development Corporation (UK) EIB - European Investment Bank FAC - Fonds d'Aide et de Coopfration (France) FELDA - Federal Land Development Authority (Malaysia) FFB - Fresh Fruit Bunches FONADER - Fonds National de D6veloppement Rural (Cameroon) HEVECAM - Socift6 H4vfa-Cameroun (Cameroon Rubber Company) HEVECAM II - Second HEVECAM Project IRHO - Institut de Recherches pour les Huiles et Olagineux/Fats and Oils Research Institute OED - Operations Evaluation Department PCR - Project Completion Report PPAM - Project Performance Audit Memorandum PPAR - Project Performance Audit Report SAFACAM - Soci6t6 Africaine ForestiAre et Agricole du Cameroun SOCAPALM - Soci6t6 Camerounaise de Palmeraies (Cameroon Oil Palm Plantation Company) SOCAPALM II - Second SOCAPALM Project FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT CAMEROON COASTAL TREECROP PLANTATIONS SECOND CAMDEV PROJECT (Loan 1508-CM) SECOND SOCAPALM PROJECT (Loan 1391T/1392-CM) SECOND REVECAM PROJECT (Credit 975-CM/Loan 1791-CM) TABLE OF CONTENTS Page No. VOLUME 1: Preface ...............i................................ Basic Data Sheets Second CANDEV Project ........................................ iii Second SOCAPALM Project ........... .......................... iv Second HEVECAM Project ...................................... v Evaluation Summary .........**....................... vi PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY .................................................. 1 A. Background ........ ....................... 1 B. The Projects........... .............. .....**.**. 3 - Second CAMDEV Project ............................ 3 - Second SOCAPALM Project .......................... 5 - Second REVECAM Project .**................... 7 II. MAIN ISSUES ............ ...................... 9 - Management Training ....................... 10 - Labor Stability ............. ............. .. 11 - Smallbolder Development ...... .................... 12 - Criteria of Success ..................**.....**... 12 Annex 1: Summary Description of Oil Palm and Rubber Consolidation Project ...... ** ............. . ........... 15 Annex 2: Comments from SOCAPALM ............................ 17 Annex 3: Comments from CAMDEV ..............***............. 21 Annex 4: Comments from HEVECAM *...... .................4........ 27 Annex 5: Comments from CCCE *..... .......................... ... 29 Annex 6: PPAR Comments on Comments from CAMDEV ................... 33 PROJECT COMPLETION REPORT: SECOND CAMDEV PROJECT 1. Introduction ........ ............. ...... . ... 37 11. The Siector ....................... **........ * ..... 37 III. Project Formulation . .... . .... ......... . 39 IV. Project Implementation ........ . ............. 43 V. Project Justification ....... ............... 50 VI. Institutional Development ........................... 50 This hoamt has a ratriMed distribuio and may be used by recipients ondy in the prformana of th~ir official duis. Is contmnts may not othrwise be disciod without World Bank authorizaton. PROJECT COMPLETION REPORTS (cont'd) Page No. VII. CANDEV and Bank Performance .......................... 51 VIII. Project Impact ....................................... 52 IX. Conclusions ......................52 Annex: Estimated and Actual Costs ............................ 55 PROJECT COMPLETION REPORT: SECOND SOCAPALM PROJECT I. Introduction ......................................... 59 11. The Sector ........................................... 59 III. Project Formulation .................................. 60 IV. Project Implementation .............................. 64 V. Project Justification ................................ 69 VI. Institutional Development ............................ 70 VII. Borrower and Bank Performance ........................ 70 VIII. Project Impact ....................71 IX. Conclusions ....................................... 72 Annex 1: Estimated and Actual Costs ................... ... 73 Annex 2: Summary of Economic Analysis (Kienke Component) ..... 74 SPECIAL ADDENDUM: SECOND HEVECAM PROJECT Extract from Third HEVECAM Rubber Project Appraisal Report, May 1984 ............................... 75 Maps: 1. 12429X (PPA) 2. 12892 (PPA) 3. 14374 (PPA) VOLUME II: (To be issued in FY86) PROJECT COMPLETION REPORT: SECOND HEVECAM PROJECT I. Introduction ...... II. The Sector ..... III. Project Formulation .............. IV. Project Implementation ................. V. Project Justification VI. Institutional Development VII. Borrower and Bank Performance VIII. Project Impact ..................... IX. Cinclusions ..................... - i - PROJECT PERFORMANCE AUDIT REPORT CAMEROON COASTAL TREECROP PLANTATIONS SECOND CANDEV PROJECT (Loan 1508-CM) SECOND SOCAPALM PROJECT (Loan 1391T/1392-CM) SECOND HEVECAM eROJECT (Credit 975-CM/Loan 1791-CM) PREFACE This is a performance audit of three treecrop projects in Cameroon. To date the Bank has financed eight oil palm and rubber development projects in Cameroon, three of which have been audited earlier (OED Report Nos. 1752-First CAMDEV and First SOCAPALM Projects-10/12/77, and 3507--Niete Rubber Estate Project--06/22/81). Loan 1508-CM, in the amouat of US$15 million, was approved in December 1977 for the Second Cameroon Development Corporation Project (CAMDEV II). The project was cofinanced by the Caisse Centrale de Coopfration Economique (CCCE) and the Commonwealth Development Corporation (CDC), each for the sum of US$7.5 million equivalent. The project was completed in December 1983, one year later than expected, and final disbursements were made on September 24, 1984. The remaining balance of US$0.52 million was cancelled. Third Window Loan 1391-T-CM and Bank Loan 1392-CM, in the total amount of US$25 million, were approved in March 1977 for the Second SOCAPALM Project (SOCAPALM II). The project was substantially completed as expected by December 1981, and the final disbursements made on September 2, 1982 for the Third Window Loan and October 4, 1982 for the standard loan (closing date June 30, 1982). The remaining balances, totalling US$1.4 million, were cancelled. Credit 975-CM and Loan 1791-CM, in the respective amounts of US$15 million and US$16.5 million, were approved for the Second REVECAM Project (REVECAM II) in January 1980. The project was cofinanced by CCCE (US$19 million equivalent at the 1980 exchange rate) and CDC (US$25.7 million equivalent). The project was completed in June 1984. Last disbursements were made on April 22, 1983, for the Credit (closing date December 12, 1983). There are still US$1.9 million to be disbursed under Loan 1791-CM. The Borrower has been informed that the final date for submission of applications would be December 31, 1985. The audit report consists of an audit memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and Project Completion Reports (PCRs) on CAMDEV II, of March 15, 1984, and SOCAPALM II, of April 30, 1984. Both PCRs were prepared by the Western Africa Regional Office. Due to delays in project closing, the PCR for HEVECAM II is under preparation and will be circulated later as Volume II of this report. The audit report is based on - ii - a visit to Cameroon in April 1985, followed by contacts with the project co-lenders at their headquarters, a review of the Appraisal reports (CAMb?V II--No. 1676-CM, dated December 9, 1977; SOCAPALM Il--No. 1364-CM, of March 16, 1977; and HEVECAM II--No. 2661-CM, of December 10, 1979), the President's reports(CANDEV II--P-2150-CM, of December 8, 1977; SOCAPALM II--P-1982-CM, of March 16, 1977; and REVECAM II--P-2672-CM, of December 21, 1979) and corre- sponding credit and loan agreements. Correspondence with the Borrower and internal memoranda on project issues contained in relevant Bank files have also been consulted, and Bank staff associated with the project have been interviewed. The two PCRs and the Appraisal report for the third HEVECAN Rubber Project (5046-CM of May 1984), which contains detailed project staff views on the HEVECAM II project, which was then nearing completion, provide an excellent review of project implementation experience. Regretfully, only limited quantitative information was annexed to the PCRs. Detailed informa- tion covering the financial situation of both CAMDEV and SOCAPALM is, how- ever, avail&ble in project files. Points discusse4 in the audit memorandum have been selected because of their importance to this and other Bank- supported treecrops projects. The draft audit report was sent to the Borrower for comments on October 21, 1985. Comments received have been appended to the audit memoran- dum (Annex 2-5). PPAR comments on the comments received from CANDEV are provided in Annex 6. The valuable insight, assistance and facilities provided by govern- ment staff in Yaounde, the staff of CAMDEV, SOCAPALM, and HEVECAM at their respective locations, and of CCCE and CDC in Yaounde, Paris and London is gratefully acknowledged. * tit * CAllERON - SECOND CAN1DEV FAOJECT iLAN ISB-CN) PROJECT CONPLETION REPORT USIC DATA SMET Wit PROJECT DATA Atual as 3 ------ Appraisal Actual of Appraisal Eapectat. Estisate Estiates Total Project Cost (01$ Willime) 39.3 46.9 119.0 Loan Aunt US Killion) 15.0 14.3 at 95.0 Co-Fanvncing ISS Hillia Caisse Cmntrale de Coop. iconouiq 7.5 7.5 100.0 Comonmalth Developent Corp. 7.5 7.5 100.0 Date Physical Cospoents. Coapleted 06182 12/02 - Proportion Compl.by Target Date Wb - 76.0 Econmaic Rate of Return 4?) 17.6 5.0 Institutional Perforeaco Sod Poor Agronomic Performance Good Fair CMLATIVE DISBAtitENTS FY 78 FY79 FY 80 FY 81 FY 82 FY 83 FY 84 Appraisal Estieate (WO5 Killion) 0.7 3.6 6.9 10.4 14.1 15.0 15.0 Actual US$ illion) - 2.8 7.6 11.0 13.0 14.6 14.3 Actual as I of Appraisal 78.0 123.0 106.0 92.0 93.0 95.0 Date of Final Disbursemnt December 14. 1984 PRWECT DATES Original Plan Revisions Actual Conception - - 0/75 tegotiations 1117 - 11/77 Board Approval - - 12/27/77 Loan Signing - - 02/01/78 Effectivenkss Date 06101179 - 06/30/78 Closing Date 12/3"i2 12/31/83 12114/84 - - .------------------------- ------------------------------------------------- 9ISSION DATA No. of Nandays Specf. Periors. Type of "Ission Date Persos in Field Repres.b/ Rating ci Trea di Probleas al Identification 00/75 - - - - - - Prepare-ior 00175 - . - - - - Appraisal 03/77 3 21 - - - - Supervision I 02176 2 3 A,F 1 2 - Supervision II 1i178 2 5 A,F 1 2 - Supervision iII f:i79 I 5 F 3 FfN Supervision IV 10f80 2 10 A,F 2 3 F,N Supervision V .4/41 2 6 A,F 2 3 F,,T Supervisior if 05182 6 F 2 2 PT Total $8 -- -- -- --------- ------------------ -- ------- - ------- -------------- --------- OTHER PROJECT DATA [orroweri The Government o Eastron E,ecutive Agenty: Caseroon Developeent Z4rpora-jol Pfreceding Project. CANDEV 1 Follon-om Project, Jil ale and luber Consolidation Project Loan Nutber: 21e0-Cm koan Asount Ci$s N.liop*: 50.5 Late a4 Sor: Apossi: (5l:S2 ----------------------------------------------------- ----------- ------------------------------ . . at An unisoirsee balarce oi US50.7 million sas cancelled. b, A a Agriculturalist; F - Fi. anial 4balyst. ci I frotlea i-ee or s:nor probieas; 2 a floderate probless; Major proleus. di I a !aproving; 2 x Stationary; 3 a Deteriorating. e; rt Financial; N x Npagerial: 7 - Technical. - 19 - CAMEROON -,SECOND SOCAPALN PROJECT OAN 1391-T AND 1392) POJECT COMPLETION REPORT BASIC DATA SHEET KE PROJECT DATA ---------------- Actual as % Appraisal Actual of Appraisal Expectat. Estimate Estimates Total Project Cost tUSS Million) 35.5 !9.0 102.0 Loan Amount US$ Million) 25.0 23.6 ai 94.0 Date Physical Components Completed 12181 06/82 - Proportion Compl.bV Target Date (1) - 06.0 Economic Rate ot Return t) 15.0 - b/ Institutional Performance Good Foor Agronomic Performance Good Good CUKiLATIVE DISBURSEMENTS 'C. Fy 77 FY79 Fk 79 Fk 80 fY a1 F 82 Appraisal Estimate (US$ Million) 2.1 a.1 10.4 15.0 23.0 25.0 Actual (MS Mililon) - 1.7 5.5 11.5 18.2 23.6 Atual as Z of Appraisal - 28.0 53.0 '7.0 79.0 94.0 Date of Final Disburseient Loan 1391: September 2, 1992 Loan 1392: October 4, 192 PROJECT DATES ------------- Original Plan Revisions Actual Conception - - 06/75 Negotiations 02/77 - 02/77 Board Approval 03/77 - 03/29/77 Loan Signing - - 08/25177 Effectiveness Date 11/77 - 11/23/77 Closing Date 06/30/82 - 06/30182 MISSION DATA ------------ No. ot Man(ays Specif. Perfore. Type of Mission Date Persons in Field Pepres.c/ Rating di Trend ei Problems f/ Identliication 60/75 - - - - Preparation 75/7o - - - - - - Appraisal 0676 3 - - - - Supervision 17/77 2 5 A,F 1 2 f Supervison [1 02/78 2 5 A,F 1 N,F,T Supervision IIl 10/7 2 i A,F,S 2 I %,F Supervision If 10179 1 4 F 2 I G,T Supervision V 06rio 3 9 A,F 2 1 f,T Supervision V 04/8: 2 5 A.r 2 2 P.T Supervision 4i .7/82 2 5 4,; 2 2 M,T Total 4, UitER FRCJECT DATA 6or-ower: The Goernmeewt of Caseroon E'ecutive Agenzy: Societe Caserounaise de Paieraies Frecedinj Froject: SOCAPALM I Follow-3! 'roject: 01 Fais and rubber Consolioation Froject Loan Number: 216k-CM Loan Amount 1iSS allion) NG.i Date a; boar Approval: 05;27!ii2 at An undisburseo salance of M5i.4 milion was cancelleo. b/ The EFP oi the eain component was aoout the same as estimated, 141, but ERF of the stalier components, which fared pooriv, could not be estimated. c . z Agricilturaiist; F - Financial Analyst: S g ;uolic Finance Specialist. d, I = Problem free o minor problems; 2 = Moderate problems; 3 a Major problems. e! I - Improving; 2 z Stationary; 3 a Deteriorating. 41 F - Firancial; M s Managerial; T = Technical; 0 - Cthers. -v - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET CAMEROON SECOND NEVECAM PROJECT (CREDIT 975-CM/LOAN 1791-CM) BASIC DATA SHEET KEY PROJECT DATA Actual or Original Plan Corrent Estimate Project Cost (US$ million) 88.8 Cost Overrun (2) Loan/Credit Amount (US$ million) 31.5 Disbursed - Cancelled - Repaid - Outstanding - Date Physical Components Completed - Proportion then completed (%) 105 Economic rate of return (2) - CUMULATIVE DISBURSEMENTS FY79 FY80 FY81 FY82 FY83 FY84 Appraisal estimate (US$ million) - Actual (US$ mil.ion) - Actual as % of appraisal (%) - Date of Final Disbursement: PROJECT DATES Original Plan Actual Conception in Bank / Negotiations / / Board/Loan Signing / / / Effectiveness Date / / / Closing Date / / / / Borrower United Republic of Cameroon Executing Agency Socift6 H6v6a-Cameroun Financial Year of Borrower July I - June 30 Follow-up Project Third HEVECAM Rubber Project Loan 2485-CM of February 1985. - vi - PROJECT PERFORMANCE AUDIT REPORT CAMEROON COASTAL TREECROP PLANTATIONS SECOND CAMDEV PROJECT (Loan 1508-CM) SECOND SOCAPALM PROJECT (Loan 1391T/1392-M) SECOND HEVECAK PROJECT (Credit 975-CM/Loan 1791-CM) EVALUATION SUMMARY Introduction This report reviews the performance of three coastal treecrop plantation projects operated by parastatal companies in Cameroon. The three projects followed each on first-phase operations which had been considered reasonably successful at the time of their completion. Objectives The second CAMDEV Project financed mainly the clearing and planting of 8,000 ha into rubber trees; the Second SOCAPALM Project, 6,000 ha into oil palm; and the Second REVECAM Project, 9,300 ha into rubber. All three projects also provided for related processing, transport and labor housing infrastructure, and for the planting by smallholders of 2,000 ha of rubber and oil palm, 2,000 ha of oil palm, and 250 ha of rubber, respectively. Most SOCAPALK plantings, and all of HEVECAM's, were located in the sparsely populated southwestern region of the country. Implementation Experience All the projects have achieved substantial though varying portions of their physical targets, other than in smallholder development. CAMDEV II cleared and planted 6,300 ha into rubber (76% of appraisal estimate). SOCAPALM II achieved 90% and HEVECAM II above 100% of their plantation targets. Smallholder plantings did not exceed, overall, 50% of original expectations. Much of the areas that were planted by smallholders were poorly maintained and are considered lost. Results SOCAPALM and CAMDEV failed to obtain expected yields in areas reaching maturity. They also suffered high cost overruns, of the order of 66% per unit area actually planted by CAMDEV and 20% by SOCAPALM. As a result, but also because goveriment held ex-factory palm oil prices low and because the companies had been planned to work, in the best case, with a very tight cash flow situation during the first years of operation, both CAMDEV ane SOCAPALM found themselves in a dangerously weak financial situation very soon after project initiation. The Bank and its co-lenders agreed in 1983 to finance a joint consolidation project for the two companies, aimed mainly at balancing their current and expected financial deficits and improving on a number of their administrative and technical shortcomings. REVECAM has not encountered similar problems during its second phase operations. HEVECAM - vil - plantings are just coming into production, and little can be said at this stage as to how it will meet its quantitative, qualitative and marketing targets in the future. CAMDEV, by far the oldest of the three companies, -das been admini- stered by nationals, with a few expatriates in exclusively advisory posi- tions. It has suffered from serious management and accounting shortcomings, due in part to social and political pressures. SOCAPALM was managed by indi- vidually recruited expatriates complemented by national staff at different levels of management. Field maintenance and harvesting were often poorly administered. HEVECAM's top level administration has been provided by a European company under contract to government. This ensured timely plantings and a higher degree of field discipline. However, overall, none of the three projects provided explicitly for management training and institutional devel- opment (PPAM, para. 28: CAMDEV II PCR, para. 6.01; SOCAPALM II PCR, para. 6.01). Excessive emphasis on achieving physical targets and ensuring the immediate viability of the company have also diverted SOCAPALM's attention from labor settlement and stability objectives (PPAM, para. 29). Sustainability The short-term sustainability of the three projects has been ensured through two follow-up lending operations, the Oil Palm and Rubber Consolidation Project (Loan 2160-CM) and the HEVECAM III Project (Loan 2485-CM). The longer-term sustainability will depend on the capability of the two follow-up projects to train future maiagers and improve CAMDEV's cor- porate structures within the projects' lifetime. Findings and Lessons The unsatisfactory results observed in terms of local management training, labor stability and smallholder development suggest that the three projects' high priority on achieving physical targets within the prescribed time limits was met at the expense of the development of the scarcest produc- tion factor of the country, i.e., its human resources. This may have been detrimental to the longer-term prospects of both the plantations and of Cameroon (PPAM, para. 26 through 31; Annex 3: letter from CAMDEV management, para. 2.01; CAMDEV II PCR, para. 9.05). The projects have also generated serious doubts about the compara- tive advantage of Cameroon in growing oil palm and, to some extent, rubber (PPAM, para. 25; CAMDEV II PCR, paras. 4.23 and 9.03; SOCAPALM II PCR, para. 8.01). Project co-financiers have suggested a reorganization of CAMDEV into smaller, separate, specialized entities, each responsible for a differ- ent crop (PPAM, para. 12), since technical assistance alone cannot create the will or ability for substantial performance improvements in long-established and highly politicized institutions such as CAMDEV (CAMDEV II PCR, para. 7.02), and local management capability to administer a single-crop enterprise could be more easily available. - viii - Finally, the appraisals of the CAMDEV U and SOCAPALM II projects were based on unrealistic expectations regarding institutional efficiency, yields and income (CAMDEV II PCR, para. 7.03; SOCAPALM II PCR, para. 9.03). Furthermore, the inclusion of a small oil palm component in the mainly rubber oriented CAMDEV II project entailed a disproportionate supervision and over- head cost (CAMDEV II PCR, para. 9.09). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM CAMEROON COASTAL TREECROP PLANTATIONS SECOND CAMDEV PROJECT (Loan 1508-CM) SECOND SOCAPALK PROJECT (Loan 1391T/1392-CM) SECOND REVECAM PROJECT (Credit 975-CM/Loan 1791-CM) I. SUMMARY A. Background General 1. The United Republic of Cameroon is one of the rare African countries enjoying political and social stability, a considerable economic potential and virtual self-sufficiency in food. At the same time, it faces accelerating population growth (presently about 9 million and expected to reach 15 million by the year 2000, by which time 57% of the population is expected to live in urban areas, compared to 33% in 1980), a limited range of exports (coffee and cocoa alone accounted for close to 50% prior to the development of oil production), vulnerability to drought, limited physical infrastructure, institutional weaknesses and a lack of indigenous entrepre- neurs resulting in part from the social relationships prevalent in most African countries. The government has been successful in avoiding economic disruptions and a collapse of agriculture which could have resulted from the oil boom. Cameroon's fiscal and monetary policies have remained prudent. Government expenditures have been financed mainly from its own revenues. Some of the oil revenues generated since 1978 have been placed abroad, taking into account the limits of domestic investment absorption capacity. There has also been less recourse to external financing. On the other hand, interest rates have become negative in real terms in recent years, resulting in implicit subsidies and credit rationing. 2. The last two decades have seen an era of sustained economic growth (6.3% per annum in the seventies, up to 8% in the early eighties). Per capita income rose at an average rate of about 3.1% per annum from 1966 to 1980. It was estimated at around US$880 in 1981. The Agricultural Sector 3. The economy remains essentially based on agriculture, especially considering *hat oil production is expected to have a limited lifespan. Not- withstanding its decreasing relative importance, agricultural production has grown faster than population, and the rural sector still accounts for about a quarter of total exports and a quarter of GDP. It employs about 70% of the labor force. One-third of the country's land area is classified as agricul- tural, but less than 20% of cultivable land (2 million ha) is actually being tilled. Yields are low, but agricultural production is diversified, food production has been growing, and an efficient network has been established for food distribution to the main cities. Traditional smallholder farming - 2 - (about one million farm families) provides 93% of agricultural production. The remaining 7% come from industrial plantations. The productivity of small farms has been slow to increase mainly because of lack of extension services, bad road infrastructure and poor input supply and marketing arrangements. There is also growing concern about the exodus of young males from rural areas, resulting rural population imbalances and growing urban unemployment. To meet growing urban demand, agricultural productivity will have to increase substantially. The ongoing fifth development plan emphasizes investment in agricultural parastatals, notwithstanding their past lackluster performance. 4. Some of the key issues in agriculture relate to (a) efficient export crop production; (b) improving the quality of cash crops; (c) raising the productivity of small farmers; (d) government action on agricultural pricing and other policies; (e) how to improve and whether to expand agricultural parastatal companies; (f) .how far to pursue food self- sufficiency; (g) the balance to be achieved between economic efficiency and socio-political objectives; and (h) the need to generate agricultural employment fast enough to absorb more than one-fourth of the future labor force increase. Tree Crops and the Plantations Subsector 5. The main tree crops of Cameroon are cocoa, coffee (both Arabica and Robusta), oil palm and rubber. The first two are produced by smallholders, mainly on the plateau of South Cameroon. Assistance to cocoa growers is provided by the Socift6 de Dveloppement du Cacao (SODECAO). Cocoa and coffee production have remained practically constant over the last twenty years. The principal coffee and cocoa producing zones have also good potential for food crops, and the future development of those tree crops should aim at increasing yields and reducing production costs rather than expanding planted areas. 6. Palm oil has been traditionally produced from natural groves in the southern region, with low yields, poor quality and unstable supply. Since the late 1960s, the government has, with the support of the Bank and other donors, concentrated production on two public enterprises, the Cameroon Development Corporation (CAMDEV) and the Socigt6 Camerounaise de Palmeraies (SOCAPALM). Three small private estates also produce palm oil and rubber. This has resulted in better yields, quality and supply security. Palm oil is produced mainly for domestic consumption and accounts for 80% of edible oil consumption in the country, but substantial quantities are also exported because of seasonal imbalances between domestic production and demand. By 1975, national production of palm oil was 78,000 t, with 62% of it (48,000 t) produced in plantations, compared to 40% in 1970. In 1984, oil palm plantations covered a total area of about 51,000 ha (SOCAPALM: 21,370 ha, of which 19,000 ha mature; CAMDEV: 15,700 ha, almost all mature; private planta- tions: 14,000 ha planted). Smallholder plantations totalled some 3,500 ha, little of it producing. Again in 1984, SOCAPALM produced about 34,500 t of oil; CAMDEV reached 18,000 t. With a possible 18 to 21,000 t from private plantations, the plantation total would have reached or exceeded 70,000 t. The economic justification of further increases in palm oil production capacity in Cameroon is presently being reviewed under the Oil Palm and Rubber Consolidation Project (Loan 2160-CM). - 3 - 7. The area under rubber in 1975 was about 20,000 ha, with 17,000 ha under tapping producing about 18,000 t of rubber. Government plantations accounted for about 75% of rubber grown in the country, the remainder being found in private plantations. Out of the total above, CAMDEV had 11,000 ha under tapping in 1975 and produced 12,000 t. CAMDEV plantations are located on rich soils, suitable for food crop production and located close to the main food consumption centers around Douala. A second state enterprise, Hgv6a-Cameroun (HEVECAM) was established in 1975 with the exclusive objective of growing rubber, in the underpopulated forests in the hinterland of Kribi. In 1985, HEVECAM has 15,000 ha planted into rubber, out of which 1,500 ha are being tapped. CAMDEV has planted another 9,500 ha, resulting in a total area planted to rubber in Cameroon of about 44,500 ha. About 19,000 ha are under production. 8. CAMDEV plantations date back to the period of German trusteeship of Cameroon. It was later managed by the Commonwealth Development Corporation (CDC) of London. Originally a banana and tea plantation at the feet of Mount Cameroon, it has since expanded into rubber and oil palm plantings, replacing most of the banana plantingd which had suffered repeated storm damages and crop diseases. By 1976, CAMDEV was headed by a Cameroonian General Manager under the tutelage of the Ministry of Economy and Planning. It employed some 12,000 workers and was the largest single enterprise of West Cameroon and one of the largest tropical plantations in Africa, but suffered from a weak financial structure. SOCAPAI, established at the time of the Bank-assisted first SOCAPALM project, has been managed by expatriate staff recruited individually. HEVECAM management is provided by a European company under a long-term contract with government. In parallel to those large plantations, efforts to develop smallholder plantations have recently been undertaken but have mostly been unsuccessful. The government has also proposed to promote the establishment of larger-than-traditional (100-200 ha) farms. There is yet no clear indication as to who the future owners of such farms could be, since such a structure does not logically evolve from traditional farm structures, and experienced managers would be difficult to -*ind. 9. The Bank has helped finance to date eight treecrop plantation projects in Cameroon, all implemented by the three parastatals discussed above. Three of them represent the respective first-phase operations of the projects reviewed in this report (see paras. 10, 14 and 21). Two followed and are presently being implemented. In 1974, the Bank also financed a cocoa project in Cameroon.1/ B. The Projects Second CAMDEV Project 10. Antecedents. The CAMDEV project reviewed in this report represents the second phase of a program identified by CDC in 1964 for the rehabilita- tion of CAMDEV. It follows on the Cameroon Development Corporation Project 1/ PPAR on Cameroon Cocoa Project (Loan 1039), OED Report No. 5140, dated Sept. 18, 1974. (Credit 100-CM/Loan 490-CM), appraised by the Bank in 1965 and initiated in 1967 to help finance a seven-year period of development of estate-produced tree crops. The emphasis of the first project was on oil palm planting. Notwithstanding a two-year delay in completion, lower yields than expected and a 15% total cost overrun (although only 86% of the original planting target was met), the project was viewed as having been very successful in institution-building.2/ An increase in palm oil price forecasts which occurred between project appraisal and completion had helped maintain ERR expectations at about 16%. 11. Description. The Second CAMDEV Project, based on consultant studies and a program prepared by CAMDEV, was initiated in 1978. It shifted emphasis to rubber planting, with the objective of further strengthening CAMDEV's technical management while achieving, within a four and a half years period, (a) the clearing, planting into rubber and maintenance of some 7,900 ha; (b) the construction of two latex processing factories; (c) the planting of 1,000 ha each of outgrower rubber oil-palm; (d) the clearing and planting into oil-palm of some 600 ha; and (e) studies for the development of the West Coast region. The Bank provided half of the US$30 million foreign financing of the project. The other half was provided in equal shares by CDC and the Caisse Centrale de Coop6ration Economique (CCCE). The government was to provide the remaining US$9.3 million equivalent to meet the total estimated cost of US39.3 million. Credit for smallholders was to be provided by the Fonds National de Dfveloppement Rural (FONADER). The Second CAMDEV project was closed at the end of 1983, a year behind the original schedule. 12. Implementation and Impact. The overall outcome of the Second CARDEV Project has been unfavorable. While estate rubber plantings reached 80% of appraisal estimates, oil palm plantings failed to achieve half of the modest appraisal target. Smallholder plantations reached similar proportions of their planting targets, but at the time of the last supervision, two- thirds of the smallholder plantings were considered lost, due to poor manage- ment, inadequate selection of farmers, inappropriate location, lack of maintenance, weak extension and delays in input supply. The smallholders component manager was relieved of his duties in June 1982. Estate planta- tions financed by the project had not reached maturity at the time of comple- tion. Yields of earlier plantings failed to reach expected levels, mainly due to poor clone quality and inefficient tapping. Furthermore, rubber and oil palm prices failed to increase as expected. Large cost overruns were experienced because of costly rubber planting methods, high overheads and high marketing costs. Thus, net revenue increases were substantially less than forecast, resulting in enormous financial difficulties for CAMDEV. The optimistic appraisal of CAMDEV's financial management was not confirmed. Cost accounting was weak, expatriate advisors lacked the authority to see their recommendations prevail, and management suffered from social and political pressures. Master plan studies for the development of the West Coast proceeded satisfactorily although their original format was modified. 2/ (PPAR 1752 of October 12, 1977, p. 4). An amount of US$700,000 was cancelled from the loan when CAMDEV decided to have the domestic oil market and CAMDEV management studies financed by CCCE. The project has shown the need for a major reorganization of CAMDEV. Project co-financiers have suggested subdividing CAMDEV into smaller, specialized entities, each responsible for a different crop, in order to simplify the company's management requirements. Although past wisdom has sought the amal- gamation of parastatal enterprises to reduce the demand on scarce senior management personnel, the suggestion to subdivide CAMDEV into single-crop enterprises would be justified if the less sophisticated management such enterprises would require is shown to be more compatible with existing man- agement capability in the country. The particularly low yields achieved in palm oil production indicate that CAMDEV's oil palm estates might not be financially viable, other than on the West Coast, beyond Mount Cameroon, where climatic conditions are more favorable. The economic rate of return of the project, estimated at 17.6% during appraisal, was revised down to 5% after project completion. The opinion of CAMDEV management on the above issues is detailed in their letter of November 23, 1985, in Annex 3. 13. When the modest financial expectations of both the Second CAMDEV and Second SOCAPALM projects failed to materialize, resulting in serious financial difficulties for both institutions, the Bank decided, jointly with CCCE and CDC, to provide supplementary financing to CAMDEV and SOCAPALM under the Oil Palm and Rubber Consolidation Project (Loan 2160-CM) even before the two second-phase projects were completed. Considering the serious doubts raised about Cameroon's comparative advantage in palm oil production, the consolidation loan did not finance any new oil palm plantings. In the CAMDEV areas, it concentrates on the maintenance of some 8,000 ha of rubber trees and 1,000 ha of oil palm which had been previously planted and on the further planting or replanting of some 5,000 ha of rubber trees (see Annex). Dis- bursements on the CAMDEV component of the consolidation project were held up until the end of 1984, pending on government presentation of a management plan acceptable to the Bank. Second SOCAPALM Project 14. Antecedents. The second SOCAPALM Project followed up on a US$7.9 million loan made in 1969 to SOCAPALM (East Cameroon Oil Palm Project--Loan 593-CM) to finance the establishment of two oil palm plantations in M'Bongo and Eseka. That first project, prepared by consultants led by the French Institut de Recherches pour les Huiles et 016agineux (IRHO), aimed at estab- lishing 4,500 ha of oil palm and a palm oil mill on each plantation and con- structing roads, buildings and other infrastructure. Cofinancing was provi- ded by the Fonds d'Aide et de Coopfration (FAC) of France, in the form of a US$1.8 million grant, and an equal credit from CCCE. Significant cost over- runs led to reappraisal in 1972, a supplemental US$1.7 million loan from the Bank, additional funds from FAC and CCCE and the reallocation of some 2,000 ha of planting from Eseka, found unsuitable, to new locations around M'Bongo. The European Investment Bank (EIB) provided US$5.2 million to finance the Dibombari oil mill. The final cost of the project came to US$25 million, compared to the original very tight estimate of US$14.1 million (apparently resulting in part from efforts to demonstrate adequate returns to capital) and a revised estimate, at reappraisal, of US$19 million. Completion was delayed by three years to 1977. Original yield estimates of 15 t/ha of fresh fruit were reduced, at reappraisal and for PCR purposes, to 13 t/ha. Even the revised yields appear, today, to have been overestimated. The recalculated ERR benefitted from considerable Increases in world prices, thus overcoming the impact of the cost increases, to reach 14%, compared to an original 10% estimate. 15. Description. The second project was prepared by SOCAPALM. Appraised in 1976, 1: provided mainly for the planting of 6,000 ha of oil palm on Kienke estate and 1,000 ha on M'Bongo, the construction of a 20 ton/ hour mill in each estate, the maintenance of all plantings, the establishment of 2,000 ha of smallholder oil palm plantations and the construction of plan- tation roads, housing and other infrastructure. The construction of service headquarters in Douala for all Cameroonian coastal estates was also included among project objectives. Credit for smallholders was to be provided by FONADER, under the administration of and technical assistance from SOCAPALM's Service des Plantations. Arrangements with FONADER were similar to those made under the Second CAMDEV Project. 16. The project cost was estimated at US$38.5 million, of which USS25 million of foreign exchange. This included 10% physical contingencies and 25% price contingencies. Two Bank loans totalling US$25 million were made to government, including a standard loan of US$18 million and a Third Window loan of US$7 million. The remainder of the cost was financed by government (US$15.2 million equivalent) and SOCAPALM (US$3.7 million equivalent). 17. Implementation and Impact. The planting targets of the project were largely achieved, but SOCAPALM's financial position, which would have been at best very tight during the first years of implementation even if revenues had materialized as expected, became dangerously precarious as (a) production remained a third below projected levels because of labor difficul- ties, poor quality field work and oil mill breakdowns; (b) farmgate prices were kept low by government; and (c) no other liquid assets were provided to the company. A special review which took place in August 1980 concluded that if all government plans in the oil palm sector were implemented, supply would substantially exceed local demand, while the low yields and correspondingly high unit costs (about 30% above world prices of that pcviod) would leave the country in a very poor position to compete on the world market. SOCAPALM's long term cash deficit was seen in the range of US$40 million, and its finan- cial returns were recalculated to be no more than 3%, as against 13% at appraisal. Of the 2,000 ha target for smallholders plantings, 1,750 ha were planted, but possibly half of this area is expected to be lost due to poor maintenance and outright abandonment. This was due to inadequate selection of participants, poor labor discipline resulting in maintenance costs three times those expected, a failure to increase credit levels accordingly and failure of government to abide by the project covenant on produce prices for smallholders. An amount of US$1.4 million was cancelled from the standard Bank loan when it was decided not to proceed with the construction of the Coastal Estates Center building in Douala. Low levels of harvest led to a decision to delay the completion of the M'Bongo oil mill. CCCE later agreed to finance it. - 7 - 18. Project cost was US$39.7 million compared to an initial estimate of US$38.5 million (which also included the cost of the building in Douala which was cancelled). Further, a consolidation loan had to be made in July 1982 (which, together with the participation of co-lenders and government, provi- ded US$40 million to SOCAPALM), to help bring into production the 5,900 ha already planted in Kienke, provide administrative services, vehicles and equipment, complete the housing and social infrastructure of the estates, double the capacity of two mills and continue the smallholder program (see Annex). The SOCAPALM component of the consolidation project has been pro- ceeding satisfactorily. SOCAPALM's financial position remained unsatisfac- tory until the end of 1984, when government agreed to increase ex-factory palm oil prices by about 50%. This, combined with improved export prices, has reduced the financial pressure on SOCAPALM. SOCAPALM has been less sub- ject to political and social constraints than CAMDEV. The extended illness of the General Manager and the slow process of reorganization that took place when a new manager was finally appointed (but not given enough powers to dis- miss inefficient staff) explain much of SOCAPALM's management difficulties and some of the resulting physical deteriorations observed in the planta- tions. The audit mission agrees with the opinion of the General Manager of SOCAPALM on the above issues, provided in Annex 2, and with that of CCCE officials, in Annex 5. 19. The project has raised salutary questions on the future of the palm oil industry in Cameroon and the management strategy to be followed. The ERR recalculated after completion is very close to the original 14% estimate for the Kienke estate, which accounts for about two-thirds of project costs, and marginal if not negative for all other project components. The project has suffered 20% higher production costs and yields 25% lower than originally assumed (10 t/ha of FFB instead of 13 t/ha). The favorable Kienke forecasts can only be attributed to higher world price expectations, the dollar's appreciation with respect to the local currency and an assumption that estate maintenance and harvesting techniques will substantially improve. Second HEVECAM Project 20. In addition to the two plantation projects discussed above, the Bank has helped finance during the same period the second phase of the HEVECAM project for rubber production. Although a PCR had not yet been pre- pared for the Second HEVECAM project at the time of audit, an audit of the evolution of Cameroonian plantation projects during the first half of the 1980s must necessarily cover the results of that project. 21. Antecedents. HEVECAM was established in 1975 with a view to plant- ing to rubber some 15,000 ha out of a 40,000 ha concession in the very sparsely populated south-western region of the country within a three-phase program. The first phase was initiated in 1975 and financed through an IDA Credit (574-CM) of US$16 million, a CCCE loan cf FF 20 million (about US$4.4 rillion at then prevailing rates) and a national contribution of CFAF 1,633 million (about US$7.2 million), all of which was on-lent by government to HEVECAM. Its main objectives were to clear 7,500 ha, plant 5,800 ha, provide medical services, housing, general infrastructure and technical assistance, carry out research and a general prospection of the whole concession and prepare a Master Plan for the region.3/ Because of initial delays due to the remote location of the estate (neighboring the Kienke estate of SOCAPALM), high labor turnover and financial difficulties, planting targets had to be decreased to 4,200 ha. However, the quality of the results of the first phase was found to be good. The ERR for the three-phase pro- gram, originally estimated at 14%, was reestimated at about 12% after completion of the first project, as the higher costs were partly balanced by higher price expectations for rubber. 22. Description. The Second HEVECAM project, covering the period of 1979-1984, mainly aimed at planting 9,300 ha into rubber, maintaining imma- ture areas, bringing 1,500 ha into tapping, preparing nurseries, constructing a rubber factory with a first-stage capacity of 30t/day of crumb rubber, pro viding social and economic infrastructure within the plantation and clearing about 250 ha outside the concession for about 100 smallholders. The total cost of the project was estimated at about CFAF 20 billion (US$95 million), financed through an IDA credit (975-CM) of US$15 million, a Bank loan (1791-CM) of US$16.5 million, a £12 million loan from CDC (US$25.7 million at the 1980 exchange rate) and a CCCE loan of FF 80 million (US$19 million). The government was to contribute CFAF 3.9 billion (US$18.8 million) of equi- ty, CFAF 1.0 billion (US$4.8 million) of working capital and CFAF 2.5 billion (US$12.1 million) in debt service. On-lending to HEVECAM would be subject to a 10-year interest-free period. 23. A third phase project was appraised in 1984 under the leadership of CCCE. Its five-year objectives (1984-89) are mainly to plant another 1,600 ha of rubber to b-ing the total area to 15,000 ha, maintain all immature areas, expand tapping to 9,430 ha, complete infrastructure construction, establish new processing lines, continue research and technical assistance programs and expand the smallholders program to 500 ha. This project is the first one to make specific provision in the mill design for the incorporation of adequate treatment systems to avoid river pollution from too high effluent concentrations. Rightly or wrongly, environmental issues were not raised in any of the previous seven projects, and project impact on wildlife (through deforestation) and river or estuary pollution were not discussed in the corresponding appraisal reports. The project is to be financed in equal shares of US$11.8 million equivalent each from the Bank, CCCE, CDC and EIB. The balance is to be provided by government (US$30.4 million) and HEVECAM (US$11.4 million). The appraisal report for the third phase project includes the lending agencies' observations on the performance of the preceding phase, which are expected to provide the basic input for the Second HEVECAM PCR, presently planned to be issued early in 1986. 24. Implementation and Impact. Overall, the Second HEVECAM Project has proceeded very satisfactorily and has overcome the earlier recruitment problems by providing adequate social infrastructure. Management, comprising 12 expatriates at the top levels and another 31 Cameroonian staff at middle management positions, supported by technical assistance from the Soci6t6 Africaine Forestiare et Agricole du Cameroun (SAFACAM), has been dynamic. 3/ PPAR on Cameroon, Niete Rubber Estate (Credit 574), OED Report No. 3507, dated July 30, 1975. -9- Clearing, planting and processing infrastructure targets have practically all been met. Tapping of the first fields planted under the previous project was started in July 1983. Better worker productivity than expected resulted in fewer houses needing to be built. The foodcrop program proceeded normally. However, only about 20% of the smallholder program was achieved, and the selection of a new site in Kribi had not been completed at the time the third project was appraised. The project faced two plant disease problems. However, chemical treatments were developed for the first (Fomes), and aerial treatments, whose impact still needs to be assessed, were tested for the second (Gloeosporium). The project had a 21.5% cost overrun in CFAF terms on completed components. However, due to exchange rate changes, it cost slightly less in US$ terms than originally assumed. Since none of the second phase plantings and few from the first phase have yet come into production, it would not be possible at this stage to revise the original ERR estimate (of 15% on the second phase alone and 11.7% on the total program). The economic results of the project will depend on the regular availability of capable tappers, successful disease control, processing quality, and on over- coming transport difficulties due to the location of the plantation. II. MAIN ISSUES 25. All three plantation projects reviewed in this report have been the subject of follow-up (though not repeater) projects. The Oil Palm and Rubber Consolidation Project (Loan 2160-CM), covering SOCAPALM and CAMDEV jointly, was approved in May 1982 and became effective in June 1983, even before the SOCAPALM II and CAMDEV II projects were completed. The third HEVECAM project was approved in February 1985 and is awaiting effectiveness. Most short- comings correctly identified in the supervision and completion reports of the three projects, such as short-term financial constraints, palm oil prices, inefficient processing plants, poor accounting and the need for immediate management strengthening, are being attended through the follow-up projects. Further efforts are made to expand and improve smallholder operations. The more fundamental issue concerning the comparative advantage of growing oil palm and, to some extent, rubber trees in Cameroon is being handled by keeping new rubber plantings down to the strictest minimum in the new projects and not financing any new oil palm plantings, while further market analyses and soil and climate suitability studies are being conducted. Such issues will not be further discussed in this audit memorandum. The substantial improvements achieved by the present general manager of SOCAPALM, the tight management practices of HEVECAM and the positive role of Bank staff in helping achieve these results are readily recognized by both Cameroonian authorities and the Bank's co-lenders. 26. All these projects, notwithstanding their different profiles and distinct development strategies, shared a common hierarchy of implementation objectives, which were, in decreasing order of priority: (a) timely plantings to meet project calendars; (b) financial equilibrium of the enterprises (which, once the projects approved, replaced economic returns among project priorities); - 10 - (c) maximization of production (the principal but not exclusive means of achieving financial equilibrium); (d) stabilization of the labor force (insofar as it helps maximize production, rather than as a social or environmental objective of its own); (e) development of local management capacity (insofar as their training did not interfere with the expatriate managers or advisors' efforts to ensure timely plantings); and (f) smallholder development. 27. This hierarchy is in apparent agreement with the two government objectives for the agricultural sector, to achieve both security through self-sufficiency and increased foreign earnings. It also reflects the usual emphasis of the Bank on physical implementation and returns to the Bank's main input, capital. Yet, capital is not the scarcest production factor in Cameroon. Investment abroad of a substantial part of oil revenues, which Bank strategy papers view as an indication of Cameroon's prudent financial policies, is proof of limited domestic investment absorption capacity and a low opportunity cost of capital. Similarly, substantial areas with agricul- tural potential and ecological diversity are not being tilled, showing that land is not scarce either. Against this background, national human resources appear as the major constraint in the country's development effort, as opposed to the emphasis put by these three projects (and others) on physical achievements. Within the context of plantation projects, human resources development covers the three aspects of ?lantation management, plantation labor and smallholders. Indirectly, it affects the plantations' integration into regional structures and their impact on rural income and longer-term stability of the rural environment. Excessive attention to "acceptable" economic returns may also have added to the financial constraints of SOCAPALM. All these aspects are discussed in the following paragraphs. Management Training 28. While Cameroon has an increasing number of university graduates entering active life, it is still considerably short, in respect of its growing needs, of experienced managers. Furthermore, social pressures resulting from the secular customs of mutual help in a subsistence economy make it particularly difficult for local managers of large-scale industrial or agro-induetrial concerns to properly fulfill their responsibility to the concern. Expatriate management assistance with an active role in the decision-making process will therefore remain a necessity for a number of years to come. Until this obstacle is substantially removed, plantation-type projects will either develop as enclaves within the local economy or be subject to the difficulties met by the CAKDEV projects. Meanwhile, means to intensify and accelerate the training of modern, profit-oriented managers, which, in the case of tree crop estates is generally provided on the job, should be more actively sought with the understanding that these managers would assume gradually increasing control of their enterprises. Such a - 11 - strategy would require more flexible implementation calendars, more expatriate attention to the training of their local colleagues--even if at some expense to physical implementation--and government policies to minimize interference in public enterprise management. This issue has already been raised in other PPARs, such as the one on the Ghana Oil Palm Development Project (PPAR 5105). In that project, both the demands of a tight plantation schedule and the lack of skill of the expatriates in training (rather than managing) are highlighted as the causes of a failed training program. T' Bank should, on its side, reduce the importance of economic return indicators, which favor short-term returns over longer-term structural changes,4/ and which need only be compared to the prevailing opportunity cost of capital within the country. The SOCAPALM II PCR readily recognizes that no staff training and institutional development components were built into the project. The follow-up consolidation project has allocated limited funds for training but is taking a number of steps in the right direction: SOCAPALM has recently established a management training school at its Dibombari estate. Training officers for oil palm and rubber estate manage- ment, recently appointed at CAMDEV, should usefully complement the expatriate management support that company will be receiving during the next two years. These activitieq will require close supervision. Labor Stability 29. Expatriate management of plantation projects reinforce their "enclave" nature. This can be partially compensated for by strengthening the integration of the projects in the region in which they are located, through earlier and wider attention to the "urban" and social infrastructures of the plantation, especially when located in previously sparsely populated areas. This might be done by creating favorable conditions for the establishment of complementary economic, social and administrative activities in the planta- tion villages. Labor accommodations in the Cameroonian plantations appear to be superior to what was provided in the Ivory Coast to a mostly foreign labor force.5/ Yet, the lack of complementary activities may have dissuaded a large number of workers from definitively settling, especially in the SOCAPALM p.antations. HEVECAM has given earlier and greater attention to the urban and social infrastructure for plantation workers than the more production-oriented SOCAPALM and has been more successful in avoiding excessive labor turnover, Notwithstanding the extra cost and management effort required, the experience generated by HEVECAM should be put to profit to include in large-scale plantation projects components similar to those found in settlement operations. The initial cost would be partly compensated by savings in labor recruitment and training costs through a reduction of labor turnover in early project years, and by a corresponding improvement in 4/ The impact of the choice of the economic rate of return as a preferred indicator of project success on project desigin and its lack of suit- ability for long-maturing operations is discussed in OED Report 5718 - Sustainability of Project: First Review of Experience. 5/ Impact Evaluation Report - Ivory Coast; Oil Palm and Coconut Develop- ment Projects (OED Report 5072). - 12 - plantation maintenance and yields. Such an approach would, furthermore, maximize rural income opportunities through the extra services and artisanal production it promotes; and by allowing entire families to be established in the plantation rather than young males mainly, it would avoid worsening the demographic imbalance in the areas of origin of the plantation labor force. Smallholder Development 30. All three projects have failed to reach the number of smallholders they intended to involve in outgrower oil palm and rubber plantation activi- ties. Selected outgrowers were considerably scattered, making it more difficult for extension services to reach them, especially where access was poor or even non-existent. Those who were involved had no prior experience in oil palm and rubber growing and were already busy growing their traditional crops. Under these circumstances, inputs and credit provided for an area of about 2 ha proved insufficient to generate farmer interest in these activities. Credit was not always sufficient to cover maintenance costs. The yields achieved by the outgrowers were more than a third below those achieved at the plantations, themselves also much below appraisal estimates. Bank experience in Ivory Coast, Malaysia and Indonesia has shown that the success of smallholder development depends on (a) planting size sufficient to significantly increase the smallholder's income; and (b) close supervision and technical assistance provided by the project authority. As part of a wider labor and regional integration policy, a nucleus estate or FELDA-type approach for smallholder plantations seems warranted in rubber growing areas and could be rapidly tried on small areas (say about 250 ha in each project area) now reaching maturity, to be distributed in about 5 ha plots to fully settled workers identified to have some entrepreneurial capability. The financial feasibility of such an approach for oil palm cultivation needs to be further appraised. The FELDA system of plantations, practiced in Malaysia, consists of strictly supervised and assisted plantation settlements, where each settler receives an already planted area of 10 acres (about 4.5 ha), the cost of which is repayable in about 18 years. The plantation output is processed at FELDA (i.e., government) owned plants. Nucleus estates developed in Indonesia operate a central plantation and mill, while ensuring the development of surrour-ding plantations divided typically into 3 ha units (comprising 2 ha of tree crops and I ha of food crop), owned by smallholders, who are remunerated as salaried workers of the estate until their holdings reach maturity. The Bank is conducting a study of such options in collaboration with the FAO/WB Cooperative program within the frame of the FY86 sector work program. The Cameroon government proposal to develop medium-scale plantations in the vicinity of the three projects deserves careful study but should not lead to the distribution of (50 to 200 ha) plots to ministry employees without experience in rubber or oil palm or to plantation staff still on the payroll of the plantations. Criteria of Success 31. Notwithstanding their clearly identified shortcomings in early economic and financial returns, their limited success up to now in generating domestic managerial and entrepreneurial capacity, and, to some degree, the loss of national patrimony that forest clearing entails, all three projects - 13 - are viewed by government with substantial optimism and satisfaction. The opening of previously virgin forest areas for productive purposes and as potential foci of development at a time when unemployment is on the increase and the need for self-sufficiency in edible oils are considered by government to justify the investment made, more in social and longer-term development than purely economic terms. This longer term view is presently being reviewed by the studies undertaken under the Oil Palo/Rubber Consolidation project. Meanwhile, the assumption that a project would not be acceptable to the Bank's management and Board unless short term benefits were expected to result in a substantial rate of return (this, notwithstanding the low opportunity value of capital in Cameroon), had led appraisal staff to (a) predict optimistic yields or production results; (b) trim project costs to the limit; and (c) design rigid financing plans, based on the assumption of improved efficiency, allowing for limited cost contingencies without any reserve funds; thus entailing a very tight cash flow situation and minimizing infrastructure investments. As the expected yields failed to materialize, costs increased, alternative financing plans were not available and govern- ment failed to increase its participation in CAMDEV's and SOCAPALM's working capital, those enterprises faced severe financial shortages which further affected project maintenance, yields and social components. These observa- tions show the importance of flexible financing plans for treecrop projects, which have long immaturity pe-iods and low early yields. They also reinforce the impression that Bank-financed investments in a country like Cameroon have to be selected in terms of what they bring to pre-determined long-term development targets as much as other, shorter-term benefits and should give more weight to the social context and to human resources development. This, in turn, implies that a clear idea exists as to where Cameroon wants to be 40, 20 and ten years from now. Such global policy studies are not presently available. The Bank should support their implementation. t t k: 't 't-i -15- Annex 1 Page 1 PROJECT PERFORMANCE AUDIT REPORT CAMEROON COASTAL TREECROP PLANTATIONS SECOND CANDEV PROJECT (Loan 1508-CM) SECOND SOCAPALM PROJECT (Loan 1391T/1392-CM) SECOND HEVECAM PROJECT (Credit 975-CM/Loan 1791-CM) Summary Description of Oil Palm and Rubber Consolidation Project 1. The Consolidation Project would be implemented over a five-year period (1983-88) and would consolidate investments which SOCAPALM and CAMDEV had previously undertaken through Bank-financed projects. It would bring to maturity rubber and oil palm plantations, complete the necessary infrastructure and provide processing facilities to handle the additional crop when the trees came into bearing. In addition, CAMDEV's rubber replanting program would be supported. 2. Investments to be carried out by SOCAPALM would: (a) maintain during the remaining period of immaturity and bring into production 579 ha of young palms at M'Bongo and 5,112 ha at Kienke-total 5,691 ha-all planted under the SOCAPALY. II project; (b) provide for administrative services, vehicles and equipment needed for these immature areas; (c) complete the housing and social infrastructure investment in the Kieuke, M'Bongo and Dibombari estates; (d) double the capacity of the palm oil factories at Dibombari and Kienke estates by adding a second 20 t/hr processing line to each; (e) construct new company headquarters at Dibombari and additional storage capacity for 12,000 tons of palm oil; (f) provide management and staff training, soil survey and socio- ethnological studies; and (g) provide for the continuation of the smallholder scheme initiated under SOCAPALK II. 3. Investments to be carried out by CAMDEV would: (a) maintain during the remaining period of immaturity and bring into production 6,181 ha of young rubber planted under the CAMDEV II project, another 2,105 ha of young rubber financed on self-generated funds, 126 ha of young palms planted under CAMDEV II and 1,033 ha of young oil palms financed with self-generated funds; -16 - Annex 1 Page 2 (b) plant, and maintain during the project period, 1,719 ha of rubber to complete the CAMDEV II project; (c) replant 2,931 ha of old rubber and 500 ha of oil oil palm with young rubber, and maintain those immature plantations during the project period; (d) provide corresponding administrative services; (e) renew vehicles and heavy equipment, extend and, where necessary, upgrade the road, water supply, staff and labor housing and social infrastructure; (f) provide new rubber processing facilities in Kompina, Pendamboko, Malende, Tombel and M'Bonge, and equipment as required in the company's other rubber and palm oil factories; (g) provide technical assistance to CAMDEV, including the training of Cameroonian staff and scholarships abroad; and (h) provide continuing support to the rubber and oil palm smallholder programs initiated under CAMDEV II. 4. The project was approved on May 27, 1982. It became effective on June 21, 1983. The loan amount of US$50.8 million comprised US$16.3 million for SOCAPALM and the remainder for CAMDEV. Further financing was provided by CCCE and CDC. By April 30, 1985, US$8.55 million had been disbursed out of the Bank loan. Annex 2 Page 1 8-453/76 December 10, 1985 French (Cameroon) ORD JCB/bas Soci't6 Camerounaise de Palmeraies (SO.CA.PALM) Douala, Cameroon Mr. Yukinori Watanabe November 4, 1985 Director, OED World Bank Our Ref. FD/MN/DG/755/85-86/301 Subject: Second SOCAPALM Project Dear Sir: I acknowledge receipt of your letter of October 21, 1985. The principal error made in appraisindg the Kienk6 project was to overestimate SOCAPALM's technical and management capacities. It was known as early as 1976 that there were problems, and it would have been preferable to give the company the chance to use its existing potential to overcome these instead of imposing an additional project on it, on rather demanding financial terms (81 interest, short grace period). Planting is easy, especially when the clearing is done by force account: it is much harder to maintain the plantings efficiently when the extension agents are not for the most part adequately qualified. This was quite feasible without Kienk6, since the volume of borrowing was reasonable, and thanks simply to our improved yields we would have been able to generate a large enough cash flow to make this company into a highly profitable operation. Annex 2 . ia . Page 2 Under the optimal yield and cost conditions adopted in the appraisal, the end-of-project consolidated cash flow was estimated at 138 million with negative results in 1980 and 1981 (cf. Grey Cover Report No. 1364-CM of March 16, 1977, Annex 6, Table 1). This was to condemn the project right from the start, since it was clear that it would not be possible to achieve all of these ideal conditions. And this is what happened, with the result that SOCAPALM is heavily in debt for 20 years, with consequently no hope of foreseeing a harmonious development of its activities. The impact of low labor productivity is negligible when compared to the high levels of interest and amortization payments, which account for 23-30% of turnover. So the Company was left no chance. Its performance is far from being the worst of Cameroon's public enterprises: it has always managed to honor its commitments, and once the effects of the 1983 drought are past it should show a significant improvement in its technical yields. Thus in 1976 a decision should have been made either to entrust the Kienk6 project to another institution, or to set up a more favorable finane4eg plan, based for example on onlending. Agroindustrial activities of the type carried out by SOCAPALM, showing a delayed return and subject to the vagaries of the raw materials market, cannot succeed unless their financial structure is sufficiently sound. The equity capital/long-term debt ratio should not be less than 1, whereas in the project it is fixed at 0.5. With respect to the smallholder component included in the SOCAPALM II project, which is severely judged in the report, I would add that this is not a failure and that with the increased production of the Annex 2 Page 3 - 19 - first crops a new interest is becoming evident in this activity: the ongoing PAO study should make it possible to formulate appropriate guidelines for this sector, which is high on the Government's list of priorities. Very truly yours, /s/ F. Douxami 、ージDー メセブIjジ汐ぶ万多戸油冷 fノメ - 21 - Annex 3 Page I CAMEROON DEVELOPMENT CORPORATION 11neorporated under Dwra6 No. 821088 ot 22nd January, 19Q) SociAtLh de Dk&veloppernent an Capita! weial de 10.132.552.000 F. CFA Tatevaeft: L109C DS-29-St am; L Ivef 324,4 WN ROTA - LIMBE, FAKO DIVISION caftft OWC"*' LIMBE. *A61*404 8OUTH WEST PROVINCE REPUBLIC OF CAMEROON r,MICON/6 23rd November 198S Mr Yukinori Watanabe I B R D Director, Operations Evaluation Department 1818 H Street, N.W. Washington, D.C. 20433 U.S.A. Dear Mr Yukinori Watanabe, Re: PPAR: Cameroon Coastal Treecrop Plantations- CAMDE IT Un. IS08-0f), SOCAPALM 11 (Ln. 1391T/ 1392-01) and HEVECAN' 11 (Cr. 97S-CM/Ln. 1791-C 4 I refer to your letter of 21st October 198S to which was attached the draft PPANI and PCR on the Cameroon Coastal Treecrop Plantations -Camdev, Socapalm and Fevecam, I would like to comment on the documents as concerns C.*TDEV IT Project. (1) Project Preparation and Evaluation 1.01 The project was prepared by Camdev and evaluated by ajoint mission of the Financing Bodies from studies carried out by a hired expert consultant. When project implementation commenced it became clear that the studies althouph accepted by the appraisal mission of the FinancinR Bodies were not quite adequate : - important components (e.o. roads) were not included - crop yields were too optimistic - a new method of rubber nlantinp recommanded proved too costiv.. Camdev would now have to exercice more care in accepting experts' recommandations, 1.02 Project implementation iNas for -a period of upwards of seven years as was the case in Camdev T project. Project implementation for Camdev IT has reduced at appraisal to 5 years to conform with World Yank Policy (and in actual fact to 4 112 xears), a ,ery unreaJistic period for sucb a large project. (2) Project EXCCUtion and Tmillementation Z.01 The import ace attached to the achievement of physical objectives on target dates Fy the appraisal and ollow-up supervisory missions (by way of severe criticisms) was a contributory factor to cost overruns in the execution of Camdev IT project 1.etwoen 197 , and 1982 -../2 Annex 3 Page 2 - 22 - Paragraph 12 of the PPAM isfurther evidence of this fact by its criticism (on oil palm plantings and smallholder plantations) which seem to question the decision to abandon the oil palm programme and limit the smallholder plantings. The decision taken on purely economic grounds do not appear in the PCR or draft PPAM. 2.02 Based on wrong timing and programming and based especially on wrong advice, Cardev was made to abandon tried and proven methods of rubber planting and to adopt new mechanical methods because it was honed to be able to achieve large plantings in a relatively short period. By adopting traditional methods and slowing the project execution,,Camdev was able to regain control of the operations. This fact is not brought out in the reports. 2.03 Now that most of Camdev II's plantings have been completed (91% at 30/6/85) with considereble old rubber replantings (not a big component in the Camdev II project), the overal execution and implementation of the project over a period of 7 years (1978 to 1985) would not be as "unfavorable" as stated in paragraph 12 of the draft PPAM. There is instead adeqiate comparability of this project's execution with that of Camdev I which took a similar period of 7 years. 2.04 Although project implementation has been conpared between the three parastatals (Camdev, Socapalm, Hevecam), no unit costs comparisons have been made. "Estimated" economic rates of return appear to be an inadequate measure of comparison. (3) Management Training and Institutional Development With the pressures of Camdev I1 now over, Management is con- centrating on management training and improvement of efficiency at all levels. A generation of young Camerounian Managers are now moving foward. 14 Cameroonian graduates, 17 middle-level Management Trainees and 7 factory Management Engineers were recruited into Camdev during the Deriod of Camdev II (1978 to date). Five of the vra- duates have assumed nositions of Estate Managers. Up-prading of Middle-level Management is fast imnroving with the apDointment of Training Manavers and Training EnQineers. (4) Management 4.01 It is doubtful if any management no matter its origin could have performed miracles in the rresence of political situations (paragraph 7.02 of PCR). However in early 1982, the closing year of Camdev II's execution period, the Cameroon Government took the first corrective step by reorganising Camdev Board of Directors and defining the roles of the Chairman and the General Manager. Annex 3 Page 3 - 23 - The second corrective step was taken when a substantial staff incentive scheme was introduced. Discipline has improved, staff moral has risen and efficiency in operations has increased as can be confirmed by recent supervision missions (although a lot has still to be done). 4.02 Concerning the role of the six Technical Assistance Team convenanted in the Camdev II Project, it is not quite correct that their role as advisors as opposed to their role in line-management positions affected their effec- tiveness as technical assistance : i) The Development Officer (later given the higher tittle of "Agricultural Development Adviser") was in fact in charge of all new development nlantinus. Rubber plantings the main component of the project attained 80 S of project targets within date lines. The 20 % plantings at 30th June 1982 were una- chieved due to an unrealistic planting time schedule and a wrong planting method while this same expert had tried and agreed an easier and less costly method of rubber planting which has been the tradition in Camdev. ii) The Tapping Adviser - Here the Expert appointed (and approved by the World Bank) was incapable of expertise in rubber tapping which, today has improved to 99 S of efficiency due to the expertise of another consultant who only visited the Corporation on 2 occasions (within the last 2 years) of less than 2 months on each visit and without taking up a line- management post. iii) Crop Processing Engineer - The correct expert in this field has yet to be found. The incumbent in Candev today in direct-line management position since 30 months has yet to prove his worth. iv) Kompina Estate Manager - This expert was appointed to the project right from the start. His work was very satisfactory. v) Specialist Mechanic-Heavy Equipment - One was recrui- ted and there were no problems with the land clearing equipment. His expertise has been satisfactory. vi) Smallolders' Manager - This post was first filled by a Cameroonian Agricultural Extension Officer. He failed and was relieved of his post. He has since been replaced by a recommanded internationally reputed Expatriate who has been in post now for 2 years. ....../4 Annex 3 - 24 Page 4 This expert has commited the same errors as the Cameroonian before him in - bad selection of farmers - bad location and inaccessibility of widely scattered farms rendering supervision difficult - demonstrating complete lack of experience in rubber and oil palm plantation work. In retrospect the smallholders project is unsuitable for the eareas selected for the project in Camdev II Project. A new approach is being experimented (see para (6)). 4.03 On the whole, the time factor (4 V2 years) did not permit adequate attention to staff and "man power" training as would have been wished. But considerable experience was gained by management at all levels on how not to do too much within too short a time limit. Even labour skills were developed. 4.04 Concerning para 7.04 of the PCR, Management reported the deteriorating situation to Government well on time. The supervision mission helped management by forcefully drawing the attention of the Government to the situation. That it substituted itself for management is not altogether quite correct. (5) Financial Situation 5 01 Optimistic estimates of crop yields and high commodity prices were taken into account by the appraisal mission in order to attain the economic rate of return of 11 S. Apparently any lower rate would have made the project unacceptable by the World Bank. 5,02 With the improvement in prices in 1983 and 1984 and as the pressure of development work decreased, expenditure control in 1983 to 1985 has led to a rapid recovery of Camdev's financial situation as can be seen from audited accounts of 1983/84 and 1984/85, 5.03 With low commodity prices and ever increasing cost (wage increase on 1/7/85 was 13 ' average in Cameroon) the future situation needs to be watched and controlled carefully. (6) Smallholders' Portion The Smallholders nortion was a condition of the main Candev IT project Camdev areas at the foot of Mount Cameroon with very rich volcanic soils provide to small farmers living in this locality considerable revenues from food crop farming (chop farms). The Production of food is sold in neighbouring highly populated city of Douala. Revenue from chop farms is considerably more than could be expected from tree crop plantings. Annex 3 Page 5 - 25 To persuade these farmers to plant rubber trees in their chop farms was wrong. This persuation to plant up chop farms was done and carried out by the first Cameroonian Smallholders' Manager in order to meet up with planting target date lines. In doing so, farmers were badly selected in scattered locations. Some of these farmers were quick enough to realise their mistake and either abandonned the rubber trees planted or -eplanted then to their original lod crops. The Cameroonian Smallhol- ders Manager was relieved of his post. The expatriate Smallholders Manager recruited two years ago, has not performed better either. Again chop farms have been planted up to tree-crops and small farms have been plan- ted in scattered, inaccessible areas. Although only 10 % of the small farmers plantings have been lost (64 ha rubber and 36 ha oil palm and not two thirds as contained in the reports), most of these plantings shall be uneconomic to exploit. Block-Plantings for a distant village in "Jungle Forest Land" not under chop farms is being tried now on an experimental basis. This is not the same "Malaysian FELDA" type project which entails population ressettlement involving heavy infrastructures schools, hospital, Housing etc. Again this is the sort of advice which adopted without adequate studies or preparation can only lead to disaster. I trust you will find that these comments would have given more information for a more realistic document to be prepared. Yours faithfully, J N NGU GENERAL MANAGER 〞”〞才斗。妒州、夕K 一夕了一 - 27 Annex 4 Translation of incomins telex Attu. Mr. Yukinori Watanabe Director, OED 1. We acknowledoe receipt of your letter of October 21, 1985 enclosing the first version of the PPAR on HEVECAM Phase 11. 2. We have no particular cowments on the document, except that Phase 11 was extended to December 31s 1984 plus several individual operations in the first quarter of 1985. 3. World Bank disbursements for expenditures subsequent to June 30, 1984, amounted to: (a) Second semester 1984: CFAF 1,405 million for US$2,893,674 already paid. (b) First semester 1985: CFAF 330 million for approximately US$825,000 In process of payment. The undrawn balance of credit 1791-M will be on the order of US$1.1 million. Regards. Jean Remy, Director General, HEVECAM. I <2 s< -$t-~' r 29- Annex 5 Page 1 Caisse Centrale de Cooperation Economique Paris Mr. Yukinori Watanabe Paris, November 28, 1985 Director, OED World sank Our Ref. GEO2-DTE - JPM/MMD D1419 Subject: Cameroon - Palm-rubber subsector PPAR Dear Sir: Thank you for your letter of October 21, 1985 enclosing two copies of the first version of the PPAR on the second CAMDEV project, the second SOCAPALM project, and the second HEVECAM project. This exhaustive and very explicit report, which concerns three operations in which the CCCE is participating, largely meets with our approval. Nevertheless, two points have attracted my Department's attention, namely: 1. The figures on SOCAPALM's smallholder plantations do not agree with the figures obtained by the joint supervision mission in March 1985. If we believe these figures, the areas actually planted are very close to the theoretical project areas, the total abandonment rate representing only 10% of plantings, which is very low for a smallholder project and would tend to show that this component has on the whole been executed satisfactorily, even though not all the plantings are properly maintained. 2. The past experiences of CAMDEV and SOCAPALM are not sufficient justification for reaching a definitive negative conclusion on the viability of subsequent investments in the sector. Annex 5 Page 2 - 30 - (a) The agricultural yields of the two companies are poor, owing mainly to specific problems of organization, management and extension, and they should not therefore be extrapolated for other poasible projects, even though it is clear that Cameroon's yields will never reach the levels obtained, for example, in South-East Asia. (b) In addition to output problems, the viability of Cameroon's palm sector depends essentially on the level of oil prices on the domestic market, fixed ex-factory by the State. Any delay in raising prices is likely to create difficulties for the enterprises: this is what happened in the early 80s. But the opposite is also true: following the major increase in oil prices in February 1984 (from CFAF 190 to 295 per kilo ex-factory) the gross self-financing margin of the enterprises improved considerably in 1985. SOCAPALM's margin was +CFAF 3,145 million, and that of CAMDEV's oil division, net of head office costs and financial charges, was +CFAF 3,698 million, accounting for 54% of the corporation's total gross self-financing margin. In cur opinion, these two major factors preclude our using the experiences of the CAMDEV II and SOCAPALM II projects as a basis for coming to a definitive conclusion on the viability of Cameroon's palm-oil sector. Nevertheless, they do enable us to formulate three comments: - In Cameroon, as the report explains, the major companies have indicated the limit of their interest. Beyond a certain threshold, such as a bloc of plantings of around 10,000 ha for palm trees, economies of scale, if they still exist, are to a large extent offset by the decline in yields due to difficulties of organization, management and supervision. Annex S - 31- Page 3 - In addition, the quality and permanence of the extension service are two factors which, if not necessary, are at least valuable in ensuring the success of a project. As the report stresses, the best formula for this is technical assistance, with a team of extension workers seconded to a given position in the hierarchy, with responsibility for ensuring that the investments are made and the resultant products marketed, and, at the same time, for training high-quality Cameroonian supervisors capable of taking over. - While the principle of pricing cannot be disputed, the State must realize that it is necessary to make regular adjustments to the official prices, to take account of increases in the costs of factors of production and of any upswings in the sector's output. Under these circumstances, we feel that there must be room in Cameroon for a large oil production sector, geared initially to meeting the demand of the domestic market. I trust that these comments will enable you to finalize your PPAR, which may already be regarded as a significant factor in the study of strategies for developing the palm and rubber subsector within the framework of Cameroon's Sixth Five-Year Plan. Very truly yours, For the Director General / P. Arnaud Chief, Economic and Financial Division I A t F44 q Y t - 33 - ANNEX 6 Page 1 PPAR COMMENTS ON COMmiENTS PRm CAmDEV 1. Project Preparation and Evaluation (paras 1.01-2.04) The project evaluation was based on a preparation carried out by CANDEV. While we agree that yield estimates were too optimistic, the recommended planting technique was based on large experience in South East Asia and recognized by all rubber experts. The planting technique using plants in polybags, has proven to be more economical than the traditional "bare-stumps" planting method and to result in excellent field develop- ment condition. This technique is presently used by CANDEV as a common practice. 2. The major problem met during project implementation was the inaccurate land survey carried out by CANDEV and their Consultant at project preparation. The appraisal mission spent only a few days in the project area during the dry season and accepted the CAMDEV's proposal. Subsequently, planting was made in unsuitable areas which were flooded during the rainy seasons resulting in very high cost for drainage and field upkeep. Some of the planted areas were completely abandoned. Also, very large areas were destroyed by fire during the dry seasons due to inadequate weeding operation and complete lack of fire-fighting equipment. The replanting of the damaged fields had reduced CANDEV's capacity to develop new areas and to achieve the planting program. Planting materials were used for the replanting of damaged field instead of new development. With an accurate land survey prior to start the development and a good field management it would have been possible to complete the planting program within 5 years. It is not advisable to compare the development cost for the three parastatals as the land suitability, soils, topography, land use and vegetation and the planted crop were not similar in the three projects. 3. Management (para 4.01). Without any doubt the CANDEV's Management has tremendously Improved since 1984 and this has been recognized by the previous supervision missions. The introduction of the staff incentive scheme has improved the discipline in all estates and staff moral is high particularly in the rubber estates. 4. Technical assistance (par& 4.02). The "Guidelines for the use of consultants by World Bank borrowers" clearly indicates that the borrower is responsible for the selection and the performance of the -34- ANNEX 6 Page experts. The experts were selected and appointed by CANDEV's manage- ment, not bY the Bank. In many occasions the Bank supervision missions informed the CAMDEV's management of the poor performance of some experts. The criticisms made by CANDEV management on the performance of the experts In order to justify its failure to achieve the project objectives are not acceptable to the Bank. 5. Financial Situation (paras 5.01-5.03). We agree that the yields and the commodities prices estimated at project appraisal were too optimistic but no effort was made by the management In order to control and decrease the expenditures particularly on labor force, vehicles and equipment, and estates and head office overhead. It was only after the signature of the "Contrat Plan" in December 1984 that the Management took action to control excessive expenditures (labor force was reduced from 21,000 to 16,000). 6. Smallholders Schemes (para 6). We recognize the need to reconsider the smallholder development approach and to focus on block planting in undeveloped areas Instead of the present dispersed approach. A smallholder development study is presently being carried out by FAO/CP. The CAWDEV's very poor achievement in developing s=allholders clearly Indicates that this project component never received the Management's support. We cannot accept the argument that performan-a was poor because the emphasis was on trying to persuade farmers to replace food crops. In fact the proposal from the beginning was largely based on replanting of existing over-aged oil palm and rubber trees. - 35 - CAMEROON SECOND CAMDEV PROJECT (Loan 1508-CM) PROJECT COMPLETION REPORT March 15, 1984 Western Africa Projects Department Agriculture D 甭 必彥 喲邵 〕 慫 久 州 必 、× - 37 - CAMEROON SECOND CAMDEV PROJECT PROJECT COMPLETION REPORT Loan 1508-CM) I. INTRODUCTION 1.01 The project was the Bank Group's fifth lending operation in the tree crop oil palm and rubber subsectors. It had been preceded by the CAMDEV I project, I/ Credit 100-CM/Loan 490-CM (US$18.0 million) in 1967 for estate oil paln -and rubber; the SOCAPALM I project, 2/ Loans 593/886-CM (US$7.4 million/US$1.7 million) in 1%9/1973; he Niete Rubber (HEVECAM I) project. 3/ 574-CM (US$16.0 million) in 1975; and the SOCAPALM IT project, Loans 1391Y/2-CM (US$25 million) in 1977. The CANDEV I project was generally successful as was SOCAPALM I. 1.02 Agriculture provides a livelihood for about 75% of Cameroon's population and, In 1975, at project preparation, represented 35% of GDP and 70% of the value of exports. The intent of the oil palm and rubber projects was to increase exports and improve the balance of payments, especially from rubber, and to meet the growing domestic demand for palm oil. The project marked a continuation of this policy and, in addition, included smallholder rubber and oil palm components. 1.03 The Project Completion Report draws in part upon data and information contained in the appraisal report for the Oil Palm and Rubber Consolidation Project, Loan 2160-M (US$50.8 million) of July 26, 1982, a successor project mounted for the purpose, largely, of completing both the CANDEV IT and SOCAPALM IT projects, after they met with severe financial and other difficulties. 11. THE SECTOR 2.01 Historically, palm oil was obtained from the fruit of wild natural grove palms, which in 1970 accounted for over 60% of national palm oil production. By 1975, It accounted for 38%, reflecting the advent of industrial oil palm plantations and the decline of the natural groves. In the early 1970s the former comprised large Government-owned plantations and a few private ones, producing oil palm and rubber. By 1975, the national production of palm oil was 78,000 t; and of rubber, 16,000 t. The I/ Cameroon Development Corporation 2/ "SociftC Camerounalse de Palmeraies" 3/ "SociW Hevea-Cameroun" - 38 - area under rubber in Cameroon was about 20,000 ha. CAMDEV had an area of 11,000 ha under tapping with an annual production of 12,000 t. Three other entities accounted for 6,000 ha in tapping and about 6,000 t annual production. The Niete Rubber Project, in 1976, was well under way when the implementation of the CANDEV II Project started in 1978. 2.02 The CAMDEV I and SOCAPALM I projects had helped the Government diversify production in the western areas of the country. In the sparsely populated southwest region, the Government decided to mount a large industrial estate program as the soil was conducive to the purpose and the area otherwise poorly endowed with natural resources. This was the context in which the SOCAPALM II Project, located in large part in the southwest region, was financed. The CANDEV II project remained in locations north of Douala, where substantial amounts of foodcrop are grown by local farmers. 2.03 CAMDEV was originally established under the German trusteeship. During the British period which followed, it was managed by the Commonwealth Development Corporation (CDC), London. Originally a largely banana and tea plantation, it subsequently took up oil palm and rubber development. By the early 1960s the operation was in difficult financial and operating conditions, and the Bank's assistance was requested. This led to the CAMDEV I project in 1967, with the revitalization of the operations and finances of the corporation and the concentration of its activities in oil palm and rubber. In 1975, at the completion of CAMDEV I and the start of CANDEV II, the Bank viewed CAMDEV's management as being fairly effective, but still in need of substantial strengthening if high efficiency of plantation operations were to be achieved. 2.04 In 1976, CAMDEV employed 12,000 workers. It was under the tutelage of the Ministry of Economy and Planning and headed by a Cameroonian General Manager. CDC, which has been CAMDEV's managing agent for several years prior to 1974, was a co-lender for the project. It was to provide technical and marketing advice to it as well. Another entity important to the industry was the National Fund for Fural Development (FONADER), a government agency whose primary function was to provide credit to the agriculture sector. 2.05 CAMDEV II was an obvious follow-up project to CAMDEV I, given the latter's success. Under CAMDEV I, 6,300 ha of oil palm and 4,200 ha of rubber had been developed. The economic rate of return was 16% and the financial results were favorable. Indeed, for the first time in many years, CAMDEV was profitable and in reasonably liquid financial condition. CAMDEV II was therefore percieved as being a repeat project, with the expectation of further improved financial results and economic benefits. - 39 - III. PROJECT FORMULATION A. History 3.01 The project was envisaged in the early 1970s, and a study of the area was made in 1975 by consultants. From this information, CAMDEV prepared a 10-year program which, after further study by the co-donors, envisaged rubber, oil palm and coconut development in areas of 10,000 ha, 8,000 ha and 7,000 ha respectively. The Bank then proposed a program of 8,500 ha of rubber including 500 ha for smallholders, and 5,000 ha of oil palm, including 2,000 ha for smallholders. The rubber target was somewhat modified during ensuing studies, while oil palm estate plantings were greatly reduced due to either the unsuitability of the land or the lack of information on the soil type, a study of which had not yet been completed. B. Project Components 3.02 The project was to be carried out over a four and a half year period (1977-1981) and comprised the following: (a) clearing of 7,900 ha and planting with rubber, maintenance during implementation, and provision of infrastructure, including two latex processing factories; (b) planting of 1,000 ha each of outgrower rubber and oil palm, including credit, extension and management services; (c) clearing of 600 ha of land and planting with estate oil palm, including maintenance during implementation and provision of infrastructure; (d) strengthening and support of CAMDEV's technical management; and (e) study of CAMDEV's next development phase and a master plan for the west coastal region, in view of CAMDEV's longer term development. C. Estate Programs 3.03 New rubber plantings were to be located at three existing rubber estates, Tombe (900 ha), Malende/Meanja (1,000 ha) and Mbonge (1,000 ha) and at a new plantation, Kompina (5,000 ha). The samllholder planting areas of 1,000 ha would be located in the Malende and Kompina areas. The 600 ha of new oil palm plantings would be developed at CAMDEV's existing West Coast oil palm estate and the 1,000 ha oil palm outgrower development, at CAMDEV's main oil palm operation, the Mondoni/Mungo estates. Clearing of land for the plantings would be by force account, following CAIMDEV practice, by a combination of mechanized and manual labor. Two new latex processing factories, at Mungo and Tombel, each of 17 tons/day capacity, were to be built. The new estate plantations were expected to require up to 5,000 workers, and, given the relative proximity of the major urban - 40 - centers, it was realized that adequate labor supply might be a problem. Other infrastructure to be provided included access roads, housing and other amenities. D. Outgrowers Program 3.04 CAMDEV was to organize a separate division for outgrower management that would handle farmer selection and formation of outgrower groups, preparation of annual work programs, provision of inputs (provided on a grant/credit basis) and maintenance of accounts and records. Five field extention workers for oil palm and ten for rubber were envisaged, providing ratios of 130/1 and 70/1 samlholders/agent, respectively. This reflected the greater difficulty experienced in growing rubber. Credit to smallholders was to be provided by FONADER, which was to receive a loan from Government for the purpose at 9% interest, with repayment terms of 12 years and 18 years respectively, including a grace period of 5 years for oil palm and 8 years for rubber, in view of the latter's longer maturity period. FONADER and CANDEV were to enter into a credit administration agreement for the joint execution of this component. CAMDEV would collect the oil palm fruit bunches and coagulated rubber from smallholders. E. Management 3.05 While CAMDEV's institutional structure was thought satisfactory, the Bank considered that its management and technical direction needed considerable strengthening if it was not to revert to the earlier considerable inefficiency which the CAMDEV I Project had helped correct. That earlier stage had been marked by CANDEV's assumption of widespread social responsibilities, including the provision of health services. Under the CAMDEV I Project, the company divested itself of these responsibilities, and the cumbersome bureaucracy and large level of employment was reduced, but vestiges of the concept remained. The project, therefore, provided for support to the General Manager, comprising a Development Officer, responsible for new plantings, a Tapping Advisor, to improve rubber production, which was particularly weak, and a Crop Processing Engineer, to improve the efficiency of crop processing operations. At the field level, three additional staff were to be provided: managers from the Kompina Estate and the outgrowers program, and an expert to supervise the maintenance of heavy agricultural machinery. An experienced manager for the outgrower program was considered especially vital. F. Project Cost 3.06 The project cost was estimated at US$39.3 million, of which US$21.2 million or 54% in foreign exchange, including taxes of US$2.1 million. The project was exempt of import duties. A physical contingency of 10% and price contingencies of 8% per annum were provided. Details of estimated and actual costs are given in Annex 1. - 41 - G. Financial Plan 3.07 The CDC and the "Caisse Centrale de Coop6ration Economique" (CCCE) co-fivanced the project together with the Bank as follows: Industrial Plantations 10.4 4.8 5.6 6.0 26.8 Smallholders 1.0 0.5 0.5 0.9 2.9 Technical Assistance 0.6 0.3 0.3 0.3 1.5 Studies and Master Plan 1.6 1.2 0.4 0.9 4.1 Unallocated 1.4 0.7 0.7 1.2 4.0 Total 15.0 7.5 7.5 9.3 39.3 The Bank provided US$15 million, and CDC and CCCE an amount each of US$7.5 million equivalent, with financing on a pari passu basis of 2:1:1. The CDC and CCCE loans were on conditions similar to the Bank's. H. Procurement 3.08 Land clearing and other small construction works were to be done under force account. Except for this and for contracts of under US$100.000, goods were to be obtained through international competitive bidding in accordance with Bank guidelines. Smaller contracts were to be awarded following local competitive bidding. I. CAMDEV Finances 3.09 CAMDEV's financial staff and accounting system were thought satisfactory, following on CAMDEV I, although it was stressed that better use should be made of the management information system. It was expected that the project would strengthen CAMDEV's financial position. The financial rate of return on the project itself was expected to be about 11%, an acceptable if modest level. CAMDEV's own financial contribution to the project during implementation was estimated at US$11.9 million, of which US$7.6 million was contributed to the project cost, and US$4.3 million for debt service during implementation. Inasmuch as CAMDEV's cash balance in June 1977 was laready US$5.8 million equivalent, it was expected to remain at the satisfactory, but somewhat low level of US$4 million during implementation, and to reach about US$11 million after crop maturity. It was foreseen that working capital would be reduced initially, leading to a somewhat Iwer that practicable level, and modest short term borrowing, about US$1.5 million, would likely be necessary following project completion. It was realized that even minor shortfalls in revenue, below predicted levels, would result in a need for sharply increased borrowing. The appraisal therefore stressed the need for careful monitoring of the financial position, both by CAMDEV and the Bank, to avoid being caught in financial difficulty. - 42 - J. Goals and Targets 3.10 The rubber estate component was expected to reach a peak yield of 2,000-2,300 kg/ha, and the outgrower program 1,750 kg/ha, with a total annual production of 19,000 tons of rubber. The world outlook for natural rubber appeared good, with prices in constant 1977 terms ranging between US40-44 cents per lb. For oil palm, the yield at maturity, based on previous experience in the area, was expected to be 16 tons/ha of fruit bunches for estates and 13 tons/ha for outgrowers, with an oil extraction rate and kernel content of 21% and 4.5% for both estates and smallholders. International prices for palm oil per ton were estimated in 1977 constant terms at US$552, declining to US$410 in 1980, and averaging US$422 from the mid 1980s; the estimates for the price of kernel per ton were, respectively, US$360, US$261 and US$304. Domestic prices of palm oil were expected to follow international prices. It was also expected that Cameroon would consume the bulk of its palm oil production, with an average surplus of 15% being exported, without difficulty in finding a market, and that all of the kernel production would be exported. 3.11 The objectives of the project were to increase the exports and foreign exchange earnings from rubber development and to increase the amount of palm oil available for the growing consumption in Cameroon, with the continuation of some growth in exports and foreign exchange earnings from oil palm. At appraisal, the economic rate of return was estimated at 17.6%, details of which are given in Section V, together with actual results. L. Loan Negotiations 3.12 Negotiations were held in November 1977. No major issues arose. It is, however, understood that the Bank's position had been that the expatriates hired for senior positions would be placed in line management posts, but that the Bank gave way to Cameroonian representations and agreed on an advisory role for the experts. This proved a serious mistake. In retrospect, it is evident that given this market change, the Bank should have lowered the project targets, which depended on improved efficiency. M. Covenants 3.13 The more important covenants were as follows: (a) Government would provide funds to FONADER for credit to smallholders for inputs; (b) Government, upon recommendation of CAMDEV, would maintain producer prices for coagulated rubber and oil palm fruit bunches at a level sufficient to ensure reasonable revenues to samllholders and for CAMDEV to recover its smallholder expenditures; - 43 - (c) FONADER would recycle loan repayments by smallholders to provide further credit; (d) CANDEV would employ a manager for the Kompina state prior to loan effectiveness, and a manager for the smallholder programs and a chief mechanic on or before June 30, 1978; (e) CAMDEV would carry out a systematic replanting program to replace older oil palm and rubber plantings; (f) CANDEV's debt would not exceed the sum of its equity capital and reserves; (g) CAMDEV's liquid assets would be maintained in an amount equal to at least three months of cash expenditures; and (h) CANDEV's work program and related budget for smallholder development activities for the forthcoming year would be furnished to the Bank and FONADER for prior review and agreement. 3.14 The loan was approved by the Board on December 27, 1977 and became effective on June 30, 1978. IV. PROJECT IMPLEMENTATION A. Overview 4.01 The project eventually experienced formidable financial difficulties and it was decided to mount another lending operation, the Oil Palm and Rubber Consolidation Project, to complete unfinished works from CAMDEV II and SOCAPALM II Projects and do additional works. 4.02 There were six supervision missions between February 1978 and May 1982, when the Consolidation project was approved. Evidence of financial difficulty was identified by the third mission in December 1979, and the subsequent decision to make the Consolidation Loan was recommended by the fourth mission, in October 1980. The remaining two supervision missions were wrap-up operations, attention by then being focussed on preparation of the Consolidation Project. Clearly, the decline in CAMDEV's financial fortunes was rapid, as it occured in little more than two years. B. Project Implementation History 4.03 The project proceeded fairly well during the first one and a half years. Rubber processing operations improved. It appeared that the 1978/79 plantings would be on schedule except for Tombel, where the remaining rubber plantings (800 ha) were abandoned when widespread inadequate subsoils were encountered. It was proposed instead to establish - 44 - an additional 800 ha at Kompina, subject to the results of soil surveys. The first phase of the outgrower programs was established and the development study of CAMDEV launched. 4.04 However, by the end of 1979 the financiRl situation had deteriorated. In retrospect, it is evident that it had begun to deteriorate two years earlier, at project outset. Cash generation during the two previous years had been only 43% of the appraisal estimate, due to a sharp reduction in net profit as the result of 24% higher overheads and 10% higher sales expenses than forecast. There was a large cost overrun on the rubber component due to the very costly method of planting adopted. Estates planting was ahead of schedule, but outgrovers planting was only 20% of the planned amount. Yields of oil palm and rubber from the - established estates were between 10% and 20% less than had been estimated. This led to a negative cash position of about US$1.9 million equivalent, the first at CAMDEV in some years. 4.05 The next supervision (October 1980) found that affairs had further deteriorated. It was estimated that the cost of the project had increased by US$12 million and that, given the weakening of CAMDEV's financial situation (para 4.15), an additional US$21.5 million contribution from the Banck would be required to complete the project. The project rubber estate plantings were still on schedule but the Kompina development was experiencing high cost overruns due to unforeseen drainage problems which were the result of inadequate field studies and to the heavy cost of labor and materials to control the unusually difficult weed conditions. In one area of 350 ha, the labor cost in 1979/80 was US$250,000, against US$55,000 budgeted. At Mokoko, waterlogging was experienced because the planting area fell away from the nearby river, and planting was suspended pending installation of a drainage system. There were also major drainage problems at Penda Mboko. With respect to the unforeseen rubber soil and land problems, a firm had been awarded a contract, following Bank guidelines, to make land and soil surveys. Its performance was poor, as three of the four rubber locations proposed for development, aggregating 2,000 ha, were badly chosen containing swamps, needing drainage, and facing other problems. The experience with established estates led to the conclusion that the estimate of rubber yellds have been overoptimistic and more conservative targets, about 5% lower than earlier estimates, were adopted. 4.06 The oil palm estate activities were suspended at this time, in view of their small size and poor progress. The smallholder program was making little progress due to inadequate extension, slow provision of inputs and grants, in attention to the selecti3n of good candidates for farming the smallholdings, and the selection, sometimes, of plots with poor soils, at too remote a location and/or lacking roads. Only 145 ha of oil palm and 216 ha of rubber had been planted, against targets of 450 ha. The smallholder component had, it appeared, been poorly planned, and was being badly managed, a capable and experienced smallholder manager not being in post. - 45 - 4.07 The smallholder history is of interest: (a) in December 1977, before effectiveness, a Bank supervision mission noted that a temporary Cameroonian smallholder manager had been appointed, contrary to the agreement to put in post a highly experienced, internationally recruited expert, but decided not to make an issue with Government and, rather, observe progress; (b) in the light of the situation in October 1978, a mission report stated that the smallholder unit management should be strengthened by recruiting and expatriate with appropriate experience, as provided for under the project; (c) at the last supervision mission, in June 1982, it was noted that while 610 ha of rubber and 310 ha of oil palms (60% and 30% of target) had been planted, 2/3 of the plantings had to be considered lost because, as stated in a Bank letter to CAMDEV, "many holdings had been placed in an isolated location or were so ill-maintained as to be either uneconomical or to have reverted to bush. Further, that in an effort to reach (keep up with) the appraised targets, the selection of holdings and quality of planting, for both rubber and oil palm suffered greatly..." In June 1982 the smallholders operation manager was relieved of his duties and transferred back to the Ministry of Agriculture. C. Oil Palm and Rubber Consolidation Project 4.08 In any event, the Oil Palm and Rubber Consolidation Project was approved in May 1982 for US$50.8 million, of which CAMDEV's share was about two-thirds, for the following components: 4/ (a) maintenance during immaturity and the bringing into production of 6,200 ha of young rubber trees, 130 ha of young oil palms planted under CAMDEV II, 2,100 ha of other young rubber trees and 1,000 ha of other young oil palm; (b) planting and maintenance of 1,700 ha of rubber trees; (c) replanting with rubber trees and maintenance of about 2,900 ha of rubber plantations and about 500 ha of old oil palm plantations; 4/ CDC and CCCE providing co-financing, together, of another US$19.7 million equivalent. - 46 - (d) construction and equipping of five new rubber processing plants, including facilities at MBongo and Tombel which were included in the CAMDEV II Porject but had not been built because of the uncertainties experienced as the project progressed; (e) financial assistance to smallholders for the maintenance and bringing into production of the 1,000 ha each of rubber and oil palm holdings begun under the CAMDEV II Project, and construction and upgrading of 350 km of the roads in the smallholder area; this road component reflected that access roads provided for under the project were experiencing a considerable cost overrun, but, more important, they were said at this juncture to have been, at appraisal, both "undiscussed and under-budgeted, with major estate roads not provided for at all"; and (f) programs to strengthen CAMDEV's management, train its staff and improve its extension services. D. Studies 4.09 Under the CAMDEV II Project, a feasibility study for a possible follow-up project was prepared and a draft report presented to CAMDEV in 1980. However, as a result of the October 1980 mission, consideration of a CAMDEV III project (including major new estates) was suspended, with the realization that such a project would be unlikely before 1986 at the earliest. 4.10 The master plan studies for development of the West Coast also made considerable headway. However, the original format was altered with the suggestion that terms of reference, appropriate to the changed circumstances, should be prepared. The funds released were diverted to the studies mentioned below. 4.11 While the Oil Palm and Rubber Consolidation Project was being prepared and CAMDEV II coming to a close in 1982, it was agreed with the Borrower to retain US$900,000 of the loan to carry out studies of the domestic vegetable oil market and of the management performance of CAMDEV. To this end, the Closing Date was postponed to December 31, 1983. However, CAMDEV subsequently arranged financing of the studies by CCCE, leaving undisbursed an amount of US$700,000, which will be cancelled. E. Project Accomplishments and Costs 4.12 Rubber plantings, which constituted the bulk of the project, did not, of course, reach the mature state during implementation. Over the whole corporation, rubber production continued at the level of 1,300 kg/ha/annum, which reflected that the clones first planted were not of the highest quality. Inefficient tapping management resulted in lower than optimum production. Thus, while West Africa ranks with Malaysia in terms of yield potential, CAMDEV yields were considerably less. Nevertheless, the CAMDEV rubber operations, in contrast to oil palm, were acceptable, - 47 - although not up to good commercial standards, in terms of production and revenues, and did not face the uncertainties of the oil palm operation. Rubber yield at peak production was estimated at the end of the project at 2,200 kg/ha, sustaining an average yield over the bearing life of 1,780 kg/ha for new plantings and replantings, slightly less than at appraisal. These yields became the targets of the Oil Palm and Rubber Consolidation Project. 4.13 No further oil palm was planted on the estates after 1980 in view of the poor progress (4.06), and the acreage planted under the project remained at 281 ha. Corporation wide, CAMDEV was experiencing average yields below eight tons of fruit bunches per ha (12.2 tons at appraisal, for all production). The outlook was that, with the lower than expected yield, the oil palm estates might not be financially viable, other than on the West Coast where climatic conditions were more favorable. For the Oil Palm and Rubber Consolidation Project, average yield was assumed at 10.2 tons/ha over the bearing life. 4.14 Actual planned areas at project completion, in June 1982, were as follows: Actual as Appraisal Actual % of Estimate Rubber Estates 7,900 6,300 80 Oil Palm Estates 800 281 47 Smallholder Rubber 1,000 844 84 Smallholder Oil Palm 1,000 370 37 The actual cost of the project was CFAF 11,730 million, compared with CFAF 9,632 million at appraisal, for an area planted equal to 76% of the appraisal target. Further cost details are given in Annex I. F. Financial Results 4.15 CAMDEV's net revenues declined from CFAF 1,317 million in 1978 to CFAF 67 million in 1982 on gross revenue of, respectively, CFAF 7,800 million and CFAF 13,200 million. Cash generation was in the range of CFAF 2,100 million - CFAF 1,700 million, respectively, that is, it declined sharply in relation to revenue, eventually becoming too small to enable continued substantial self-financing of CAMDEV investments. In the same period the debt/equity ratio increased from 0.5 to 1.0, a manifestation of the need to finance investment increasingly through debt, including large bank overdrafts. Thus in conjunction with the Oil Palm and Rubber Consolidation Project, it was considered advisable to increase CAMDEV's capital by an additional equity of CFAF 6,000 million (US$22.2 million equivalent), which Government agreed to provide. - 48 - 4.16 The reasons the net revenue increases were substantially less than forecast at appraisal were as follows: the increase in sales revenues, predicated on an increase in rubber and oil palm prices did not occur, as prices did not increase as expected. The appraisal forecast a reduction in costs, which were believed to be too high, through improvements in management and efficiency which the expatriate management staff would provide. This did not happen as the Cameroonian authorities insisted on using the expatriates as advisors, and not in line management, the original Bank conception. In the light of CAMDEV's management weaknesses, this was clearly a backwards step. The General Manager lacked field authority, most work practices did not improve, and irregularities continued. However, sights may have been set -inrealistically high. CAMDEV had a large area under development on several estates, constituting a major operation. Such a large, dispersed operation requires, to operate at full efficiency, experienced and capable management with full authority over financial operations and staff, including hiring and firing. Given the nature of the operating environment with strong social and political overtones, it was unlikely that such authority would be available to management. G. Management 4.17 While the appraisal considered CAMDEV's financial management and accounting satisfactory and thought that its technical direction would be competent given the assistance of the expatriate expertise provided by the project, as the project progressed, contrary views evolved. It was concluded toward the end of the project, in anticipation of the Oil Palm and Rubber Consolidation Project, that (i) a major management reorganization was necessary, involving the regularization of the roles of the Chairman of the Board and General Manager, to vest in the latter full authority over day-to-day operations, whereas, through the implementation period, the Chairman had de facto assumed that authority; (ii) a senior expatriate team should be given line functions rather than fill advisory roles; and (iii) consultants were required to study and make recommendations on CAMDEV's management structure, its reorganization and its accounting system. 4.18 Cost accounting was particularly weak. Operating costs were not recorded in detail, thereby depriving management of unit cost data which are the basis of cost control. For example, data for individual vehicle cost control was lacking. Other examples included the practice of charging the social costs of each worker, that is, insurance, pension and other social benefits, to estate overhead rather than salary accounts, and the use of inter-departmental memos by technical service departments, notably the Heavy Equipment Pool, in charging the estates for their services. - 49 - 4.19 Management was weak despite the presence of expatriate management advisors. The latter lacked authority to modify procedures, improve discipline and change staff, and their advice was not generally taken by management. This was manifest in the oil palm smallholder program, in the continued extremely poor maintenance and consequent inefficiency of the oil palm mills, which also lacked capable expatriate management, and the disorganized and over-expensive planting practices. H. Commentary on Project Results 4.20 The foregoing casts the overall outcome of the project unfavorably. However, a distinction between the physical results of the project and the results of CAMDEV's operations as a whole is appropriate. The project goals were to increase export earnings through rubber development and the production of oil palm for the domestic market. In fact, the project was fairly successful, with estate rubber plantings nt 80% of target. Oil palm plantings were disappcintirg but the target was very small. 4.21 The project, moreover, had other goals which were equally important. These were to substantially improve CAMDEV's management, increase corporation revenues, and to strengthen the financial position. Those goals were not achieved in part due to exogenous factors: commodity prices, rising costs induced by oil prices, and aging of CADEV's tree crop plantations; while the project might have improved efficiency, with commensurate reduction in costs and higher yields for the entire corporation, in view of the management arrangement, this was unlikely and some improvement was probably the moat to nope for. 4.22 An important result of the project was the realization that aging of oil palm plantings was a very important factor in their economic and financial viability. The impact of aging on yield was, of course, well known but seems not to have been taken into adequate account in projecting production. Indeed, yield projections were over-optimistic at all stages. In addition low yields resulted from large losses at harvesting and highly inefficient processing operations. The low yield, overall, of CAMDEV seems to have been a surprise to many. 4.23 It was realized, as well, that CAMDEV's oil palm plantations were less well endowed than had been thought in terms of climate and soils, and that satisfactory yields could only be expected in coastal areas. There was a growing outlook that oil palm might have a more limited future than had been thought, since the corporation's operations during project implementation raised questions about the competitiveness of CAMDEV's oil palm on world markets, the future size of the domestic market, the financial viability of CAHDEV plantations within the domestic framework, and, indeed, CAMDEV's competitiveness with other domestic oil palm entities. By the end of implementation, there were more questions about CAMDEV's future role than there were at the beginning. It was evident that these questions werc applicable to the industry as a whole. - 50 - V. PROJECT JUSTIFICATION A. Economic Assessment 5.01 The project investment period was completed in four and a half years, as predicted. Relative to the objectives and expectations at appraisal the overall long-term performance parameters are summarized as follows: Area planted 76% (oil palm 40%; rubber 80%) Average yields 88% (oil palm 78%; rubber 100%) Total production 50% (oil palm 16%; rubber 80%) Average prices static Total costs 75% overrun (relative to area planted) These new predicitons are based on conservative yield projections but do assume ultimate improvement in management to a good level. 5.02 At appraisal, the overall economic rate of return for the project was estimated at 17.6% over a 30-year period. Economic returns anticipated from the oil palm component averaged 23%, and for the major component, rubber, 16%. The actual overall economic rate of return is estimated at 5%, with a negative return on the oil palm component and 8% on the rubber component. 5.03 The justification for the project was supported by the expectation of increase foreign exchange earnings from the incremental rubber produced, and from import savings due to the incremental oil palm production for the fast growing domestic market. These expectations have been justified but to a much lesser extent than originally predicted. Similarly, the actual project achievements regarding creation of jobs and income distribution have been realized with regards to estate production, especially for rubber, although with poor employment efficiency. The comparable achievements in employment creation for the outgrower components were negligible relative to the potential. VI. INSTITUTIONAL DEVELOPMENT 6.01 The project did not incorporate specific institution-building elements, but it was intended that greatly increased emphasis would be placed upon cost control and that the specialist advisors would strengthen planning and organization. However, this did not occur to any worthwhile extent and, there was little in the way of institutional development. - 51 - VII. CAMDEV AND BANK PERFORMANCE 7.01 CANDEV's performance in conjunction with the physical elements of the project was mixed. Rubber estate plantings approached the targets. The oil palm estate planting target was small in any case, smallholder rubber plantings were fairly well met, but smallholder oil palm plantings were a failure. The efficiency of these operations was much less than optimum and reflected weaknesses in field and plant operations. 7.02 CANDEV's performance as an institution was disappointing from the Bank's viewpoint as, certainly, it failed to improve the efficiency of its management and work force, which had been a main objective. However, the Bank was over-optimistic in its expectations. In retrospect, it was unlikely that the leverage provided by the project, and the provision of an expatriate team at management advisory level, could have a pronounced impact on CAMDEV's establishment and its efficiency. CAMDEV had become part of the political fabric of the region, was a major source of income and employment and had a large entrenched cadre of senior and middle level management dispersed over its properties, with considerable political ramifications. To expect that the technical assistance provided would be sufficient to create the will, mandate and ability to move this monolithic organization by a quantum jump in efficiency within just a few years was unrealistic. 7.03 The Bank's performance was not entirely adequate. The unrealistic expectation at appraisal of improving efficiency may have been the product of the sucess achieved under CAMDEV I in improving the organization from the very poor state to which it had declined. But having accomplished this, it perhaps should have been seen that further improvement would be much more difficult given the ever increasing size and complp-ity of CANDEV operations. Bank attitudes in mounting the project were likely influenced by the seemingly unlimited horizon for both oil palm and rubber and Government's pressure to replicate a good development, whereas it is now clear that CAMDEV's optimal manageable size has long been surpassed. 7.04 The Bank supervised the project well, although more frequent supervision missions would have been desirable, and diagnosed difficulties as they arose, particularly in 1980 when it became incumbent to act quickly to contain CAMDEV's prospective financial losses. To identify and control such deteriorating financial situations as they begin to occur requires close monitoring and quick action by an organization's management. CAMDEV's management was not doing so. It was fortunate that Bank supervision missions substituted for CAMDEV management in this respect. It is remarkable that with only one supervision mission a year, too infrequent to monitor and prescribe financial action for such a large, complex organization, the Bank was able to be so effective. The result of the Bank's appraisal expectation of improving efficiency was that CAMDEV's expenses were forecast at too low a level; in effect, revenues which should have been replaced, at the outset, by debt or equity will in fact be replaced by funds from the Consolidation Project. - 52 - VIII. PROJECT IMPACT 8.01 From the physical standpoint, the project will add marginally to CANDEV's production of oil palm and considerably to rubber production. The experience of CAMDEV as an institution will have a considerable impact on the parastatal subsectors: (a) The only marginal suitability of the (southwest) area for oil palm development has been established and future development in the area is, therefore, problematical. (b) The financial viability of CAMDEV oil palm has been put in question, and a broad assessment is required of the future of the crop within the corporation. (c) The need to consider the long term domestic market for oil palm and the place of the respective oil palm entities within it has become clear. (d) The competitiveness of Cameroon's oil palm on the export market, the size of the market open to Cameroon, and an apparatus to regulate the share of exports that the several oil palm companies can expect need to be studied: a prominent factor is that West African oil palm yields are, at most, about half of Malaysia's, which has among the world's highest yields, and when prices are low, West African oil palm is at a disandvantage. (e) The project has shown the risk of letting a plantation entity grow to unmanageable size particularly in a situation where commercial management standards do not obtain. 8.02 There is much information available on oil palm in Cameroon within the Bank but there has not yet been a strategic study, presumably because a high level of parastatal efficiency had been assumed. The Bank would fill a valuable role if it assisted Government in mobilizing a tree crop strategy study with particular reference to oil palm development. IX. CONCLUSIONS 9.01 The project was moderately successful in the achievement of physical objectives: rubber plantings, much the largest element, were not far off target; oil palm plantings were small, but even those targets were not completed; and the smallholder component results were poor. 9.02 However, the one main objective of improving CAMDEV's overall efficiency through more effective practices failed. CAMDEV continued much as it was at the beginning of the project. As the improvement of CAMDEV's financial situation had been based in part on increased efficiency,CAMDEV's financial position deteriorated during implementation. Exogenous factors - commodity prices, rising world costs - were also contributing causes. 9.03 - 53 - The decline in CAMDEV's fortunes mirrors the cutlook for oil palm operations. Thus, it became evident as implementation proceeded that: (i) the profitability of oil palm was doubtful and therefore its further development would have to be reconsidered - indeed, as part of the Oil Palm and Rubber Consolidation Project, the Government agreed to a freeze on further developement; (ii) that some of its land areas were of marginal value for development because of climatic and soil conditions; (iii) that the domestic market for oil palm required a comprehensive study, as did the slowly growing export market; and (iv) that the priority of oil palm development over other tree crops and other development options in the agriculture sector should be reassessed. 9.04 On the other hand, 'he rubber sub-sector appears to have better potential inasmuch as issues of a similar nature did not arise in the face of the same exogenous factors. However, the same internal concerns of failure to improve operating efficiency arise with rubber as with oil palm. 9.05 Some observations arising from the project may be useful in similar future projects. An important one is not to base future revenues on a significant improvement in operational efficiency, unless there is a reasonably firm basis for doing so, for example, a technological advance. A negative result may have serious financial consequences with a entity-wide impact. The corrolary is that, in the face of substantial improvement in the operations of a large corporation in previous years, objectives with respect to further improvement should be kept modest, being more difficult to accomplish. A clear need is that of relating objectives and targets to the resources available: in this case expectations should have been lowered when, at negotiations, an expatriate advisory role was substituted for expatriate line management. 9.06 Project formulation of a successor industrial plantation project, following successful ones, should not be perfunctory in assessing the conditions that must prevail for continued success: availability of funds, adequate market, good management, labor and so forth. While this is obvious, it is evident there was some relaxation in project appraisal and formulation, and the project was treated routinely. 9.07 Complementary to the above is the necessity to maintain sector information up to date and to make sector studies within the context of which the implications of new projects can be considered. 9.08 On a more micro-scale, there is the observation that the Bank should adhere to its own structures. The need for a qualified expatriate smallholder manager was clearly spelled out and convenanted, but follow-up on this during implementation did not reflect the importance attached to it. - 54 - 9.09 Finally, the wisdom of including in the proejct the 600 ha estate oil palm component is not apparent. The area was small in relation to established CAMDEV plantings and, therefore, almost irrelevant to physical expansion - presumably the objective when, originally, the area proposed was much larger. The overhead cost must have been high to both CAMDEV and the Bank. The Bank had to give as much attention to oil palm as to rubber, a disproportionate disposition of resources. 9.10 Epilogue: As of early 1984 the Oil Palm and Rubber Consolidation Project, the successor project made largely to complete and bring to maturity the plantings only partly completed under the project, was experiencing difficulty. The SOCAPAIM component was progressing but no disbursements had been made for the CAMDEV component, pending resolution of management difficulties, concerning which the Bank made concrete proposals. With regard to the subsector study provided for in the loan agreement, it was expected that the Government would initiate such a study in 1984 to determine the appropriate strategy for future oil palm and rubber development. WAPAD March 15, 1984 - 55 - Annex 1 CAMEROON SECOND CAMDEV PROJECT Loan 1508-CM ESTIMATED AND ACTUAL COSTS (Millions CFAF) Actual as Appraisal a Percent Estimate 1/ Actual of Estimate ESTATE DEVELOPMENT Field Costs 3,257 4,080 125 Estate Overheads 1,173 1,830 155 Housing and other Amenities 1,538 2,155 140 Vehicles and Equipment 715 784 110 Roads System 74 829 2/ N.A Processing Plant 613 452 74 Subtotal 7,370 10,130 137 SMALLHOLDER PROGRAMS Planting Program 802 475 59 OTHER EXPENDITURES Technical Assistance 400 298 74 Expansion Plan Study 460 527 115 Master Plan Study 600 300 50 Total 9,632 11,730 N.A. 3/ 1/ Including contingencies. 2/ As explained (para 4.08), the extent of the plantation road net work had been greatly underestimated. 3/ Actual and estimated costs not directly comparable in view of the limited land clearing and planting accomplishments of the project. .－一うヒ．_ が・’Aノノアご甘ろルーオ - 57 - CAMEROON SECOND SOCAPALM PROJECT PROJECT COMPLETION REPORT April 1984 Western Africa Project Department Agriculture D 一也祈一 必么州粊。×汗為吋 - 59 - CAMEROON SECOND SOCAPAIM PROJECT PROJECT COMPLETION REPORT Loans 1391T/1392-CK 1. INTRODUCTION 1.01 The project, for wbich Loans 1391-T/1392-CM (US$25 million) were made in August 1977 to Socifitfi Camerounaise de Palmeraies (SOCAPALM), was the Bank Group's third lending operation for the development and production of oil palm. It was preceded by the CAMDEV I Project Loan 1/ (US$18.0 million) in 1967 for estate oil palm and rubber and the SOCINALN I Project, Loans 593/886-M (US$7.4 million, US$1.7 million) in 1969 and 1973, the latter a supplementary loan. The CANDEV II Project, Loan 1508-M (US$15.0 million) for oil palm and rubber, which contained a smallholder oil palm component, was made in December 1978. SOCAPALM I was largely successful in achieving its physical targets. 1 .02 Agriculture provided a livelihood for about 75% of Cameroon's opulation and, in 1975, at project preparation, represented 35% of GDP and 702 of the value of exports. Industrial plantations constituted a large egment of the agriculture sector, palm oil being one of the main ommodities produced. The main purpose of the project was to increase palm oil production to meet the rising domestic demand. 1.03 This Project Completion Report (PCR) makes use, inter alia, of the information contained in the appraisal report for the Oil Palm and Rubber Consolidation Project, Loan 2160--CM, 1982, a successor project made partly for the purpose of completing the SOCAPALM II and CANDEV II Projects. both of which had met with severe financial problems and other difficulties. II. THE SECTOR 2.01 Palm oil derived from wild groves has long been a staple food and source of vegetable oil in Cameroon. To Increase production, the Government elected to develop industrial oil palm estates, as part of a long term plan to develop the tree crop subsector in the interest of domestic food supply, and for the export of cocoa, rubber and coffee. The tree crop industrial estates were located mainly in the western and south central areas of the country. I/ Cameroon Development Corporation. - 60 - 2.02 The CAMDEV I Project financed oil palm and rubber planting aggregating about 10,000 ha. SOCAPALM I provided 6,000 ha of oil palm at M'Bongo estate and 2,500 ha at Eseka estate, and oil palm mills at both. The SOCAPALM I Project took 13 years, instead of the planned nine, due to labor shortages and planting and management problems, and experienced a 30% cost overrun. Still, management was strengthened, the problems brought under control, and targets largely achieved. 2.03 Following these two projects and a rubber plantation project located in the poorly endowed, sparsely populated, southwest region (HEVECAM I) 2/, the Bank-Group assistance helped to further expand tree crop production in the late 1970s with the funding of the SOCAPALM II project and the HEVECAM II rubber project, located in the same region. 2.04 In 1975 the national production of palm oil was 78,000 t including production from wild palms, the few private estates, and the large Government estates, CAHDEV and SOCAPALM, with 14,000 ha and 15,000 ha under oil palm respectively. Consumption was estimated at almost 69,000 t, and had been increasing at the rate of about 4 1/2 % annually. Consumption in 1980 was estimated to be 85,000 t; it was expected to rise to 106,000 t by 1985. The difference between supply and domestic consumption in 1975, about 10,000 t, was exported to nearby countries, and a continuing export market of at least this size was foreseen. III. PROJECT FORMULATION 3.01 The project was envisaged as part of the continuing development of the palm oil industry. It was decided to use it, as well, as a vehicle to mount a smallholder oil palm program for the first time in Cameroon. A main objective of the semallholder component was to spread the benefits of oil palm cultivation among a wider group. It was hoped that the smallholder component would prove replicable on a wide scale. A. Project Description 3.02 The project was prepared mainly by SOCAPAIM. The original Government proposal was for a 6,000 ha estate development at Kienke, 1,000 ha smallholder development at Eseka, and a livestock component, which was subsequently dropped. The project was appraised in June 1976 and comprised the following: 2/ Soci6t6 Hvia-Cameroun. - 61 - (a) clearing about 6,800 ha and planting of 6,000 ha of oil palm on Kienke estate and provision of a 20 ton/hour oil palm processing mill; (b) clearing and planting 1,000 ha and replanting an additional 300 ha of oil palm (previously planted but destroyed by rodents) on M'Bongo estate, and completion of the M'Bongo mill with a 20 ton/hour capacity installation; this would increase the M'Bongo estate to 7,000 ha; (c) maintenance of all the industrial estate plantings during the project Implementation period; (4) establishment of 2,000 ha of smallholder oil palm plantations on land cleared by farmers, including provision of credit and extension services; and (e) provision of other infrastructure including harvesting and collection equipment for M'Bongo and Kienke, 360 km of plantation roads, including the main access road, housing, utilities and other amenities, and a headquarters service complex in Douala. B. Management 3.03 SOCAPALM, a Government corporation, was intended to function basically as a conventional commercial entity. At appraisal, the management was considered adequate and the General Manager's performance satisfactory. The estate managers, who were experienced oil palm specialists, had already proved their capacity. There was evidence that throughout the estates an experienced Cameroonian pool of technical and mangement personnel was being established through on-the-job training. 3.04 A Service des Plantations (SVP) was to be created to run the smallholder program with one extension officer for every 80 outgrovers, the objectives being intensification of planting, Improved control, and lower harvest transport costs. A process for selecting farmers to cultivate oil palm holdings of about 1.5 ha was devised. A yearly program prepared by SOCAPALM was to serve as the basis for the provision of funds by the credit agency, Ponds National de Developpement Rural (FONADER) to SOCAPALM for the smallholder program. SOCAPALM would provide inputs, credit and processing and marketing services, and would collect and purchase outgrower produce. Credit would be at 9% interest annually, repaid at fruit bunch collection, over a 7 year period. A cash sum of US$200 equivalent per ha, representing 80% of the smallholders labor cost per ha for oil palm development, would be provided as a grant to farmers earning at least 75% of their income from agriculture; to farmers earning less than 75% it would be a loan. SOCAPALM's costs would be paid by a Government grant and, after Implementation, according to an annual schedule. - 62 - C. Project Cost 3.05 The project cost was estimated at US$38.5 million, of which foreign exchange US$25.0 million or 65%, including indirect taxes of about US$4.7 million. The project was exempt of import duties. A physical contingency of 10% and price contingencies aggregating 25%, were provided. Details of estimated and actual costs are given in Annex 1. D. Financial Plan 3.06 Two Bank loans to Government totaling US$25 million, financed the foreign exchange cost, net of taxes: they compromised a standard Bank loan of US$18 million and a Third Window 3/ loan of US$7 million, disbursed pari passu in the ratio 18:7. The Government (US$15.2 million equivalent) and SOCAPALM (US$3.7 million equivalent) financed the remainder of the cost. 3.07 The Government contributions comprised equity investment (US$8 million) in SOCAPALM, a loan to SOCAPALM of US$4.7 million with a 10 year term, 5-year grace period and 9% interest rate, a grant of US$0.4 million to SOCAPALM for its smallholder component expenses, a grant of US$1.2 million to FONADER to provide smallholder credit and grants, and an equity contribution of US$0.7 million for the Coastal Estate Center (para 3.12). E. Procurement 3.08 Most construction, land clearing and road building, were to be done by force account using SOCAPALM equipment. Procurement would otherwise, except for small items, be carried out through international competitive bidding following Bank guidelines. Contracts under US$100,000 were to be awarded on the basis of local competitive bidding. F. SOCAPALM finances 3.09 The project appraisal report contained a brief exposition of SOCAPALM's current and prospective financial situation. It stated that the financial return on the project itself would be about 18%, which coupled with the return on SOCAPALM I would give a return on the combined Bank-financed projects of about 13%. It forecast that the project itself would achieve an operating surplus (before depreciation and debt service) beginning in 1981 toward the end of implementation, and that by 1984, SOCAPALM would generate sufficient cash to meet further investment costs. By 1990 SOCAPALM was expected to earn as much as US$8.6 million annually. 3/ The "Interest Subsidy Fund for the Third Window" had the purpose of providing funds to the Bank to enable it to reduce the interest rate substantially on designated Bank loans, in this instance by 4%. - 63 - 3.10 The financial forecast indicated that until 1983 SOCAPALM's annual cash generation would hover around zero on annual gross operating revenues of the order of US$9 million, as the project-financed oil palm would only provide significant revenues on reaching maturity in 1983. Thus, higher costs, lower palm oil prices and smaller crops than expected could quickly erode SOCAPALM's financial position and make the provision of substantial additional funds necessary. For this reason it would have been appropriate to build into the financial plan a substantial margin of safety, although it may be argued that the (Government) treasury was a source of contingency financing. G. Goals and Targets 3.11 Expected yields were 15t/ha of fresh fruit bunches (ffb) for estates and 13t/ha for smallholders at peak production, 9 years after planting, based on CAMDEV I and other experience. The oil extraction rate was estimated at 21.5% and kernel content at 4.5% of ffb. Annual production by 1990 was estimated at 29,000 t of oil and 6,000 t of kernel. The price of palm oil in 1976, US$370/ton, was expected to increase only slightly in real terms to US$390/t by 1985, and of kernels from US$170/t to US$281/t. H. Coastal Estates Center 3.12 The Bank supported the establishment of a Coastal Estates Center (CEC) to provide common services to the main tree crop corporations in Cameroon. Among the services CEC was to provide, were recruitment of estate labor and a pool of experts which would be on call to provide technological advice, statistical services and land clearing. CEC was to be located in a Douala building complex, funded by the project, disbrusements to be contingent on CEC's establishment. In fact CEC was not established and the Douala complex not built in the face of the acute financial problems the oil palm industry experienced and the necessity of conserving funds. I. Loan Negotiations 3.13 Negotiations were conducted in February 1977. The Cameroonian delegation objected to the 11% rate of interest on credit to smallholders proposed by the Bank, calling for a much lower rate. A compromise was reached: credit would be at 9%, but would only be provided for farm inputs, and cash payments for 80% of the implementation labor costs would be made to smallholders as a grant (para 3.04). No other serious issues arose. - 64 - J. Covenants 3.14 The more important covenants were as follow: (a) producer prices for oil palm fruit bunches to be set at a level adequate to ensure a reasonable revenue to smallholders and to enable the recovery by SOCAPALM of the cost of services provided to smallholders; (b) funds to be provided to FONADER for SOCAPALM, to enable the latter to provide grants and credit to smallholders; (c) SOCAPALM to prepare a work program for the smallholder component by December 31 each year, which would be reviewed by the Bank prior to implementation; (d) SOCAPALM to keep qualified individuals, acceptable to the Bank, in senior management positions (para 3.03); (e) SOCAPALM to replace its oil palm plantings when they became over-age, beginning in 1989, replanting about 4% of its total plantings each year; and (f) SOCAPALM to maintain the level of its debt at no more than two times its consolidated capital and surplus (i.e., equity), and its liquid assets at a level equivalent to its cash expenditures over the preceding three months, or CFAF 450 million, whichever was more. 3.15 The project was approved on March 29, 1977 and became effective November 23, 1977. The delay in effectiveness was the result, mainly, of bureaucratic delays. IV. PROJECT IMPLEMENTATION A. Overview 4.01 Planting targest were largely achieved, but SOCAPALM's financial position became very weak during implementation. In the end, the Bank made a US$50 million loan under the Oil Palm and Rubber Consolidation Project (Consolidation loan), to help restore the financial viability of SOCAPALM and CAMDEV, the latter experiencing similar financial difficulties during the implementation of CAMDEV II. - 65 - B. Financial Deterioration 4.02 While implementation appeared to proceed well in 1978, the first year, it soon became apparent that SOCAPALM as a whole, was not living up to expectations because production of the older oil palms was proving much less than estimated. The principal reasons for this were labor difficulties, including absenteeism, poor quality field work and breakdown of the oil palm mills. Furhter, yields had been projected too optimistically. In 1978/79 the actual yield was only 66% of forecast, and the aggregate production of the M'Bongo, Eseka, Edea and Dibombari estates was 55,000 t ffb. vs the 87,000 t estimated. 4.03 Review of SOCAPALM's financial position in conjunction with a co-donor review of project status in December 1979 disclosed that from 1979/80 through 1985/86 SOCAPALM's cash accumulation as compared with appraisal estimate would be as follow: Appraisal New Estimate Difference (Millions CFAF) Cash Accumulation 9,128 (272) 4/ (9,400) 4/ Reduced Income 7,400 Increased Expenses 2,000 Reduction 9,400 (US$44 million equivalent) 4.04 The prospective income loss was due to: (a) the adoption of more realistic estimate of yields per ha; instead of an average annual ffb yield of 13 t/ha a average yield of about 10 t/ha for all estates, including Kienke, was used; (b) a 35% increase in the cost per ton being assumed, reflecting current experience; and (c) an increase of 18% in the selling price per ton, reflecting commodities/palm oil price trends. C. Special Review 4.05 In response to continuing deterioration, a special review mission took place in August 1980. The mission's broad findings were significant: "The continuing difficulties of SOCAPALM, already in business 12 years, raise serious doubts as to the feasibility of Government's long term strategy for the oil palm sector. If present plans are implemented (other oil palm proejcts were under consideration), supply will substantially exceed local demand, but high costs and low yields leave the country in a 4/ Negative. - 66 - very poor position to compete on the world market. In the context of the needs of the agriculture sector as a whole, it seeems that a disproportionate and unwarranted proportion of total investment is going into agro-industrial projects that are only marginally, if at all, financially profitable. The difficult situation in which SOCAPALM finds itself should be made the occasion for a second look at the country's oil palm program and the Bank's future involvement in the Sector." 4.06 The specific findings were that (a) the prospective long term (cash) deficit was indeed likely to be in the range of US$40 million equivalent, and the average yield somewhat less than 10 t/ha, or at least 20% below appraisal estimate; (b) with the current world market price of CFAF 105,000 per ton of palm oil, SOCAPALM would experience sizeable actual losses on export sales since its production costs were CFAF 135,000/ha; and (c) with Government holding the line on inflation, increases in the domestic price of palm oil (which Government sets) would probably be limited to 6% annually, leading to its further divergence from the world price. The financial return on SOCAPALM's operations was recalculated to be no more than 3%, as against 13% at appraisal. 4.07 As to performance at this stage, labor absenteeism was 20-25%, with daily output per worker well below standard. At the M'Bongo estate, for example, on worker was required for 3 ha of plantation rather than the 5 ha estimated at appraisal. In 1980/81 total estate employment was 5,600 of which 3,890 signed on and 3,015 left, entailing a very large turnover. Another factor, reflected in the poor yields, was that young immature plantings had not been, and were not being, adequately maintained, jeopardizing their productivity at maturity, because priority was given to harvesting the crop from bearing areas. Plant health was good at two of the three large estates, but upkeep at all three was poor. 4.08 At the largest estate, M'Bongo, the three harvesting rounds each month were of low standard and much fruit was left on the ground; pruning was backward and palm circles not well weeded. The oil mill was overmanned, workshops untidy and repair work poorly organized. However, the road system was kept in good order. Of the 1,080 ha of immature plantings in 1978-82, only about 75% survived, 25% having died as the result of poor weeding. On the other hand, conditions at the smaller Eseka estate were fairly satisfactory. D. Kienke Estate 4.09 Of the 1,000 main labor force at Kienke in 1982, labor absenteeism was 30% and that of specialized workers 10%, leaving a shortage of some 50 people. Supervision was lacking and management appeared weak. Generally, operations were in the fair-poor category: weeding of four-year old plantings, which were well-grown, was poor and competition of cover crop was serious. Similar observations were applicable to the plantings of other years. The 20-ton oil mill under construction experienced difficulties due to absenteeism and lack of labor discipline, but was eventually completed satisfactorily. - 67 - 4.10 Notwithstanding, the planting targets at Kienke were substantially met; of the 6,000 ha estate target, 5,900 ha were planted by mid-1982, the project completion date. Because of labor shortages and delays in providing earthmoving equipment, the original plan to do land clearing by force account was dropped and, instead, land was cleared under two contracts at a cost of CFAF 2,296 million (US$9.7 million), about 15% above appraisal estimate. The cost per ha was CFAF 390,000 (US$1,660), about 20% over estimate including the cost of plantation road construction. E. Smallholders 4.11 Of the 2,000 ha smallholders' target, 1,750 ha were planted. However, possibly 50% was so poorly maintained as to be likely to perish. In the endeavor to meet the 2,000 ha target, the smallholders unit did not select the participants carefully enough, a situation faced in CAMDEV II as well. There were also difficulties with labor discipline and theft in the collection of fruit. Smallholder labor for maintenance cost three times that estimated. FONADER, despite SOCAPALM's urging, did not increase the grant amount to offset the higher costs. This discouraged the farmers and was one of the factors responsible for the poor maintenance. 4.12 However, towards the project's end the financial management of SOCAPALM improved, largely due to the newly appointed controller of accounts. Cost accounting improved, accounts were better kept, and accouting information was provided promptly, on a monthly basis, to enable management to exercise careful financial control and detect prospective problems, provided it availed itself of the information. 4.13 An amount of US$1.4 million was cancelled from the loan 5/ on June 30, 1982, the Closing Date, reflecting the decision not to proceed with the Douala Coastal Estate Center building complex. In any case, a suitable parcel of land had not been found for its construction. Due to uncertainty of the size of the future harvests, completion of the M'Bongo oil mill was delayed. Eventually CCCE agreed to finance it. F. Project Cost 4.14 Project cost was CFAF 9.72 billion (US$39.1 million), compared with CFAF 9.46 billion (US$38.5 million) at appraisal. Details are given in Annex 1. The costs are not directly comparable as, among other things, the Douala Coastal Estate complex was not built and plantings not entirely completed. 5/ The amount was cancelled from the regular Bank loan; the Third Window Loan was fully disbursed. - 68 - G. Consolidation Loan 4.15 In July 1982, the Bank loan for the Oil Palm and Rubber Consolidation Project was signed (para 4.01). It included US$16.3 million for SOCAPALM which, together with co-donor contributions and those of Government, provided an amount of US$40 million to: (a) maintain and bring into production the oil palm planted at Kienke under SOCAPALM II, about 5,900 ha; (b) provide administrative services, vehicles and equipment for the above area; (c) complete housing and social infrastructure in Kienke, M'Bongo and Dibombari estates in support of young plantings; (d) double the capacity of the oil palm factories at Dibombari and Kienke estates; and (e) provide for continuation of the smallholder schemes initiated under SOCAPALM II. 4.16 It is evident that much of the funds was for the purpose of meeting the operating expenses of SOCAPALM during the post-implementation period of SOCAPALM II, funds which had been envisaged as being generated by SOCAPALM's operations. However, SOCAPALM's profitability had largely disappeared and operations in future years were contingent on a massive capital injection, which the Consolidation Loan helped provide. 4.17 In the aftermath of the review mission, and in view of the magnitude of the oil palm sector's problems, it was realized that: SOCAPALM's yields were substantially lower than had long been thought, its efficiency considerably less than imagined, the growth of domestic demand was limited and the competitiveness of Cameroon palm oil in world markets was poor. In this context, the Consolidation Project was a sort of holding operation to protect existing investment, pending a study and clarification of the status and future of the industry. H. Situation in Mid-1983 4.18 In mid-1983, at the end of the first year of the Consolidation Project, the progress of the SOCAPALM component was reasonable. However, SOCAPALM's financial situation continued to be much the same as described (paras 4.03, 4.05) I. Management 4.19 It is evident that SOCAPALM's management was weak. The SOCAPALM II appraisal report had found little fault with management (para 3.03) and the loan documents address management only in terms of filling several vacant senior posts, the executive controller for the Corporation and chief - 69 - account and estate manager for the Kienke Estate. There was no provision for management development or training. The first supervision found, however, that field maintenance at SOCAPALM was below standard, and that the entire organization showed the result of insufficient control in all sectors. Some of the inefficiencies in operation, labor discipline problems, for example, could be blamed in part on the political constraints to dismissing staff. However, political interference with SOCAPALM was by no means as strong as with CAMDEV, and SOCAPALM's management must take the main responsibility for the weaknesses in SOCAPALM's operations. 4.20 The General Manager had made little effort initially to recruit for the vacant senior posts wich, however, were filled in due course. In early 1979, the General Manager became ill and was replaced temporarily and, eventually, permanently, by the executive controller. The same deficiencies and errors, reflecting a lack of supervision, motivation and discipline, with weak management at the root, continued. The Acting Gerneral Manager replaced a number of expatriates with more capable staff and there was a partial internal reorganization; a new technical advisor for smallholdings, and new factory managers at M'Bongo and Dibombari were put in post. 4.21 The foregoing may reflect, among other things, the Bank's inability to come to know the quality of management of such a large and complex organization in a short time, especially as good management is often a reflection of the ability of one or two key people, and weak management is difficult to quickly detect. Furthermore, a plantation can deteriorate very rapidly under weak management. J. Covenant Experience 4.22 The Government did not respect the covenants providing for consultations on, and the setting of, ffb producer prices for smallholders. SOCAPALM was unable to maintain the amount of liquid assets a' the covenanted level, however Government provided an additional CfAF 1.2 billion loan to SOCAPALM in 1980/81 and a further capital increase of CFAF 1.5 billion in 1981/82 to enable the Corporation to operate, which, in the process, improved its liquidity position. V. PROJECT JUSTIFICATION 5.01 The economic rate of return (ERR) of the Kienke estate, the major physical element of the project, was recalculated to be 12%. This is based on: (i) producer prices assumed in the original ERR calculation; and (ii) lower yield estimates than originally predicted and higher inves. sent costs being incurred. The ERR estimated at appraisal was 14%. The recalculated ERR is an estimate based on the initial production at Kienke. Full production is expected to be reached in 1988. - 70 - 5.02 The price of oil palm has, in fact, firmed up in the past year (1983-84) and the most recent Bank commodity forecast projects future prices at levels somewhat higher than appraisal forecast. The use of these prices in the recalculation raises the ERR of Kienke about 14.5%, about the same as at appraisal. 5.03 The ERR of the smallholder component was estimated at 23% at appraisal. As indicated (para 4.10), aside from a shortfall in the area planted, the plantings were poorly maintained and over half of them were thought not to have survived. In the circumstances, it is not possible to calculate an ERR, but it can be assumed to be marginal, if not negative. 5.04 The additional plantings at M'Bongo estate, which also fell short of the target and were poorly maintained, would also show a low ERR ii it were readily calculable. Here, of 110 ha planted, less than 75 ha survived, and the prospects for these are uncertain. The ERR (estimated at appraisal: 14%, like Kienke) would, therefore, be low. VI. INSTITUTIONAL DEVELOPMENT 6.01 The project did not incorporate specific institutional development initiatives although some elements lent themselves to strengthening SOCAPALM's organization and practices. The smallholding experience provided at least some framework in which to consider further smallholder development of oil palm. VII. BORROWER AND BANK PERFORMANCE 7.01 SOCAPALM achieved almost 90% of the oil palm plantings planned. The cost of planting per ha was about 20% above estimate which was not excessive in the circumstances, arising from the substitution of contractor development for force account and the higher than anticipated price increases in part due to the 1978 oil crisis. 7.02 However, SOCAPALM's performance as an institution was disappointing. SOCAPALM's operations were not well managed, production was inefficient and maintenance was on the poor side. Yields were on average only about 75% of expectations and aggregate production 66%. As a consequence, SOCAPALM's financial postion deteriorated so much that the Consolidation Loan was necessary. 7.03 With regard to the Bank's performance there is a question whether a basis for expecting SOCAPALM to function at optimum efficiency existed, given that it was only emerging from the planting stage. The remarks on SOCAPALM management (para 4.18) would suggest there was not. - 71 - 7.04 The difficulty may have been that the project was given a rather pro forma treatment by the Bank. Tree crops in Cameroon were perceived to be quite successful, have a good future, to be a good vehicle for Bank agriculture development activities, and likely to be financially viable. The rationale for additional projects seemed clear and consequently their formulation was relatively routine. 7.05 During implementation the Government and SOCAPALM were sometimes at odds with the Bank's concern about the financial situation, the need for retrenchment and the desirability of putting a hold on future investments. 7.06 In any case, given the outlook at appraisal, and the different scenario that developed during implementation, the Bank's knowledge of the oil palm sub-sector during the project formulation period does not seem to have been quite adequate. VIII. PROJECT IMPACT 8.01 The project had a major impact on oil palm development, which if not as positive as expected, is still salutary. It has put in question the future of capital-intensive plantation oil palm development and whether there should be any further development, the financial viability of existing development, the organization of the industry, including how to improve its efficiency, whether to consolidate companies and reduce dispersion, the desirability of putting some or all of the industry in private hands or operating it under management contract and, generally, future strategy. 8.02 SOCAPALM itself is a fairly simple corporation, being less dispersed than the others and producing only one commodity. As the most recently established oil palm corporation, it is less politicized and less fettered with social development responsibilities than the other corporations. SOCAPALM's situation should be easier to improve than that of CANDEV, for example. The Consolidation Project is underway and the SOCAPAIM component of it is progressing slowly but production is seriously affected by the current drought and the financial situation will continue to be poor. Favorable development in world palm oil prices, a domestic price closer to that of the world market, and tighter control of costs would improve matters. Of prime importance is the sub-sector study for determination of future oil palm strategy that Government undertook to have carried out, a, rsvided for in the Consolidation Project loan agreement. As part of the .,'erstanding, Government agreed to freeze expansion of plantati3ns until review of the strategy. 8.03 The foregoing critique must be tempered in that the sub-sector's development is subject to the interests of other lending agencies as well as those of :ie Bank. Other lenders are Javolved in the oil palm sub-sector and insofar as issues are concerned, the Bank must seek accommodations compatible with their perceptions. - 72 - IX. CONCLUSION 9.01 The project was sucessful in achieving the physical objectives, the almost entire targeted acreage of estate plantings, and about 50% of that for smallholder plantings. It has doubled the corporation's area under oil palm, and when the project-financed crop reaches maturity in a few years, its production. However, during the project implementation period, the financial fortunes of SOCAPALM declined to such extent that it was considered necessary, by means of the Consolidation Project, a sucessor project to SOCAPALM II and CAMDEV TT, to provide a very substantial sum during 1982-87 to inter alia pay for the cost of maintaining until maturity the area planted under the project. 9.02 The financial decline of SOCAPALM was serious. Whereas the appraisal estimated, and the project basis and expectations were, that the yield, production and revenues of SOCAPALM from the area planted under SOCAPALM I would suffice to maintain the Corporation in a viable financial state, inefficiency, in the form of lower yield and higher costs, led to an entirely different situation. In addition to the funds in the Consolidation Project, a major injection of equity funds by Government was necessary to keep SOCAPALM financially afloat whereas, in the more usual situation, the money would have been raised by internal cash generation. 9.03 The Bank appraisal expectations of yield, production and revenues were overoptimistic and lacked a sound basis. It appears there was no broad oil palm industry sub-sector review to provide a context in which to consider the project. A sector paper would have provided a better indication of yields for example. The project results put in question the future of oil palm in Cameroon, its competitiveness in world markets, the financial viability of oil palm investment, size of future domestic demand, the feasibility of public sector management of parastatal plantations, advisability of further development and the priority of oil palm in terms of their agriculture development alternatives. This points up the need for the full scale sub-sector study at the earliest opportunity, which Government has undertaken to have made. The Consolidation Project is in a sense a holding operation to maintain the status quo and keep the industry in reasonable financial shape, at the expense of the assumption of heavy debt, pending exploration of future directions and alternatives. The sector study would be a primary tool, and should be an immediate objective. A vegetable oils marketing study has recently been completed and will provide a useful input to the sector study. 9.04 Among the project experiences, which may be of use in future planning of tree crop projects, is the risk of a pro forma or routine approach to project formulation: in this case, it may have engendered the over-optimistic expectations. It was not a matter of inadequate appraisal so much as it was of formulating the project in a climate of past sucess. WAPAD April 1984 - 73 - Annex I CAMEROON SECOND SOCAPALM PROJECT Estimated and Actual Costs Loans 1391-T/1392-CM (Millions CPAF) Actual As Appraisal A Percent Estimate 1/ Actual Of Estimate KienKe Estate Field Establishment 21595 3,025 115 Construction 650 897 153 Equipment and Vehicles 486 317 136 Oil Mill 1,751 1,454 83 General Administration 526 758 146 SubTotal 6,008 6,451 109 M'Bongo and Eseka Estates Field Establishment 817 882 107 Construction 393 256 67 Equipment and Vehicles 358 363 103 Oil Mill 2/ 742 1,252 170 SubTotal 2,310 2,753 119 Outgrowers Field 292 256 88 Extension 182 257 3/ Supervision 113 3 SubTotal 587 513 TOTAL 8,905 9,717 4/ N/A 1/ Including contingencies, excluding Douala building complex. f/ Eventually financed by CCCE. 31 Include supervision. / Excludes Douala building complex. - 74 - Anaem 2 CAMEROON SECOND SOCAPAI( PROJECT Sumary of Economic Analysis Kienke Component ERR Percent Base Estimate 14.5 Costs Benefits + 10% Unchanged 12.7 + 20% Unchanged 10.9 Unchanged - 102 12.5 Unchanged - 20% 10.1 Unchanged One year lag 12.3 Unchanged Two year lag 10.6 Switching Values (at 12% opportunity cost of capital) - Cost must increase by 13.8%. - Benefits must decrease by 12.1%. - 75 - SPECIAL ADDENDUM SECOND HEVECAM PROJECT 1/ 1. The second project, covering the period 1979/80-1983/84, comprised the preparation of 9,800 ha of land (of which 1,500 ha was to be planted during Phase III), the planting of 9,300 ha (of which 1,600 ha was left from Phase I), maintaining the immature areas from both phases, bringing 1,500 ha into tapping, constructing all the infrastructure required for expansion of the estate (roadg, housing, hospital, schools, markets, etc.), building a 30 t/day factory_/ and preparing nurseries for the 1,500 ha to be planted during Phase III. Also planned were several ancillary operations: initiation of a program of 250 ha of smallholder estates, completion of prospection of the Ni6t6 concession, topographical and soil surveys on a new site, continued applied research, and food crop programs. 2. The cost of the second project had been estimated at appraisal at CFAF 20,970 million,3/ excluding HEVECAM's liquidity needs estimated at CFAF 2,400 million. External financing was to be provided by an IDA credit (975-CM, April 18, 1980, US$15 million), an IBRD loan (1791-CM, April 18, 1980, US$16.5 million), a loan from the CDC (January 24, 1980, 12 million pounds sterling) and a lcan from the CCCE (November 23, 1979, FF 80 million, Nos. 58 31 00 79 050 and 58 31 00 79 060). The Government was to provide CFAF 3,943 million as well as CFAF 2,400 million to cover the liquidity requirements of HEVECAM, equivalent to four months' operating expenses. The terms for on-lending external loans were defined under the Cameroon-HEVECAM financing agreement signed on December 6, 1979. 3. The various supervision missions conducted on a regular basis during Phase II as well as the appraisal mission for Phase III noted that the project was proceeding very satisfactorily. The major problems encountsred initially had been overcome, in particular those related to the recruitment and the stability of workers, thanks to the introduction of adequate social infrastructure. This positive result must be credited to a dynamic and competent management team made up of 43 senior staff, of whom 12 are expatriates, supported by the technical assistance of SAFACAM, whose "Cameroonization" program is proceeding effectively. 4. The targeted objectives have practically all been met. The land clearing works covering 15,000 ha should be completed in April 1984 and by 1/ From: Third HEVECAM Rubber Project, Appraisal Report, May 1984, paras. 2.09 through 2.16. 2/ TheorEcical capacity. 3/ Including CFAF 1,012 million in increases in stocks. - 76 - end-June 1984, 9,200 ha (as against a projected 9,300 ha) should be planted.4/ The first two rubber processing facilities (20 t/day for latex and 10 t7day for secondary grades)5/ should be operational in early 198461, and the initial tapping of the first fields planted was actually carried out in July 1983. The other investments have been made as projected, with the exception of some housing and equipment which did not prove necessary during Phase II, largely because of better worker productivity. All in all, based on the inital appraisal cost estimate, this postponement represents CFAF 705 million. The food crop program has proceded normally. In contrast, the pace of establishing the 250 ha of smallholder estates has been slower than projected, with 49 ha planted in 1982/82, though it may be possible that the remaining 201 ha might actually be planted during fiscal year 1983/84. The only negative point, though not attributable to the project, is that the studies on the selection of a new site in the Kribi area have not been completed. Table 1: PLANTING PROGRAM PHASE 11 (Hectares) 1979/80 1980/81 1981/82 1982/83 1983/84 Total Appraisal 998 2210 2200 2192 1700 9300 Actual /a 1277 2103 2150 1770 1900 9200 a Updated as follows: 1979/80 1980/81 1981/82 1982/83 1983/84 Total Actual 1258 2103 2166 1966 2318 9821 5. The ; oject has had, in fact, to face only two sizeable agricul- tural problems Fomes and Gloeosporium, especially since 1981 for the latter disease. A pest control research program has been undertaken in cooperation with IRCA. For Fomes, chemical treatments have now been sufficiently devel- oped; for Gloeosporium, tests involving aerial treatment and early defolia- tion have been carried out. While it is not yet possible to assess accurately the effectiveness of this or other treatments already tested against Gloeosporium, which affects mainly the young trees, it has not had a sizeable impact this year (a particularly dry one). Under these circumstances, earlier worries may be partially alleviated. It is imperative, however, that experiments be continued. As a precautionary 4/ By end-June 1984, the total area planted reached 14,035 ha: 4,214 ha under the first project, and 9,821 ha under the second project. The total area of 15,000 ha was planted before completion of the second project in December 1984. 5/ Theoretical capacity. 6/ The factory has been in operation since May 1984. - 77 - measure, in the appraisal of Phase III, sufficient funds have been allocated for treating Fomes and Gloeosporium. 6. On the basis of HEVECAM's provisional results at end-June 1983 and the fiscal 1983/84 budget, the total cost of Phase II has been estimated at CFAF 24,601 million, as against the 1979 appraisal figure of CFAF 20,970 million, which amounts to a cost overrun of CFAF 3,631 million (17%). This gap was analyzed within the context f evaluating the execution of the project. When the postponement of certain construction and plant and equipment outlays (CFAF 705 million according to 1979 appraisal figures) and the 100 ha of planting not completed (approximately CFAF 12 million) were subtracted, the project had CFAF 20,970 million - CFAF 717 million - CFAF 20,253 million available to it. The gap between actual expenditure and the revised appraisal estimate indicates an actual overrun of CFAF 4,348 million (21.5%). Four principal factors explain the overrun: (i) increase in the real cost of labor by an annual average of 18%, as compared to the appraisal estimate of 10% (CFAF 1,385 million); (ii) increase in the cost of oil products by an annual average of 22% as compared to the appraisal estimate of 10% (CFAF 839 million); (iii) depreciation of the French franc vis-a-vis the other international currencies (the dollar and the pound sterling), increasing the cost of capital equipment purchased outside the franc zone (approximately CFAF 1,500 million); and (iv) completion of additional construction not foreseen at appraisal for Phase II (CFAF 1,029 million). 7. These four factors increased the real costs of the project by CFAF 4,753 million against an overrun of CFAF 4,348 million, indicating other savings of CFAF 405 million. It is thus reasonable to conclude that the project has been carried out in accordance with the appraisal, both technically and financially. 8. Particular attention has been paid to the evolution of overheads as they appear in REVECAM cost accounting, which for the 1983/84 budget amount to CFAF 2,002 million. The analysis shows that this heading groups three categories of expenditure which are quite distinct, two of which should not be included in the overheads: (M) CFAF 290 million is for social welfare efforts which are carried out by HEVECAM on behalf of Government (health, education, water and electricity supply for employees, various social activities, etc.); - 78 - Table 2: SECOND HEVECAM RUBBER PROJECT Estimated Cost through Completion, June 30, 1984 (in CFAF million) A B C D Revised Appraisal Appraisal New Difference Estimate Estimate Estimate C-B %D/B Agricultural Costs 7449 7437/a 8661 1224 16.4 Civil Works, Buildings 3032 24037W 3595 1190 49.5 Vehicles, Equipment 1319 1243c 1404 161 13.0 Factory 1020 1020 1059 39 3.8 Management Costs 5976 5976 7275 1299 21.7 Other Activities/d 535 525 833 298 55.7 Technical Assistance 627 627 856 229 30.5 Working Capital 1012 1012 920 (92) (10.1) Total 20970 20253 24601 4348 21.5 /a Reduction of CFAF 12 million (100 ha not planted). 7T Reduction of CFAF 692 million (deferred investment). 7W Reduction of CFAF 76 million (deferred investment). 7d Includes applied research, outgrowers' program, food crops and rubber development in the South Center and East of the country. (ii) CFAF 400 million represents the cost of activities performed by HEVECAM (forest clearing, construction, upkeep of vehicles and equipment, and delivery of supplies), which could have been subcontracted to third parties had circumstances in the region so permitted. In this case, these costs would have been incorporated directly in suppliers' invoices; (iii) only CFAF 1,312 million represents real overheads, i.e., those costs of managing the projects which cannot be charged directly to operations. 9. The actual introduction of the initial financing plan should result in an end-June 1984 increase in funding of CFAF 3,836 million over the appraisal estimate of CFAF 20,970 million, this as the result of: (i) an additional contribution from the Government of CFAF 645 million; (ii) an additional capability for drawing against external financing in the amount of CFAF 2,917, as the result of exchange gains on the loans denominated in U.S. dollars and pounds sterling;7/ 7/ These exchange gains are greater than the cost increases resulting from the devaluation of the French franc. - 79 - (iii) CFAF 274 million in interest collected as a consequence of the company's surplus cash position. 10. As compared with the total expenditure for Phase 11 estimated at CFAF 24,601 million, the overall financial resources available of CFAF 24,806 million will produce a net surplus of CFAF 205 million. However, in accordance with Section 4.01 of the IBRD Credit Agreement of April 18, 1980, REVECAM's net cash position must represent four months' expenditure or, at end-June 1984, an amount of CFAF 2,000 million. HEVECAM has already requested that this amount be included in the Special Government Budget for fiscal year 1983/84 in the amount of CFAF 1,990 million,8/ which, comple- mented by the CFAF 205 million available, should be slightly above the required level* It would be advisable to ensure that this request be effec- tively part of the Government budget before negotiations and actually disbursed before the signing of the Loan Agreements for Phase III. Table 3: SECOND HEVECAM RUBBER PROJECT Estimated Sources of Funds at end June 1984 (in CFAF million) Appraisal New Estimate Estimate Difference % Capital increase 5500 5500 - - (of which CCCE) (1000) (1000) Subsidies 1186 1831/a +645 54.4 External sources of funds - IDA/IBRD 6615 8425 +1810 27.4 - CDC 5400 6407 +1107 20.5 - CCCE 2219 2219 - - Sub-total external sources 14234 17151 +2917 20.5 HEVECAM - 274 +274 Total 20970 24806 +3836 18.3 /a Of which CFAF 595 million included in Government's 1983-84 budget, but not including CFAF 1,990 million requested but not yet granted. 8/ The Bank and CDC have meanwhile agreed that the undrawn balances at June 30, 1984 of the IBRD Loan 1791-CM (US$5.7 million) and the CDC Loan (pound sterling 0.3 million) will finance the extension of the Second HEVECAM Project from July to December 1984. Therefore, Government's contribution has been reduced to CFAF 970 million. - 80 - 11. As regards the IBRD loan (1791-CM) of April 18, 1980, in view of the mgnitude of t he exchange gains, there should be an undrawn balance of US$5.5 million remaining at the end of Phase II which would not be used for Phase II operations. To Edea 0 1' To Lolodorf CAMEROON Biolo SOCAPALM SECOND STAGE KRIBI DEVELOPMENT PROJECT ZONE BOUNDARIES A - B KIENKE PROJECT ZONES C RESERVE ZONE Lobe o ® KIENKE CENTER AND OIL MILL MAIN ROADS MOTORABLE TRACKS 2*5ngl FOOT PATHS Akomi Adjap RIVERS M abenango T k k To Akcok (CHAD Zingur lo Akok NiGERIA -HEVECAM B,or 0 4 8 12 KILOMETERS JCENTRAL CAMEROON AFRICAN REPUBLIC GA,O -Co)omono bo,eP1° GA ONI , l 1 o .o0fl 0.0 >4 ToB cop obde CAMEROON SECOND CAMEROON DEVELOPMENT CORPORATION PROJECT CHAD Rubber and Palm Distribution on CAMDEV Estates 'Domena IC jEx,sting rubber planting areas Existng palm planting areas approximate NIGERIA r Proposed rubber planting areas delineation Proposed palm planting areas Proposed road and bridge Principal roads CAMEROON ENTRAL Secondary roads Ai -Tracks D i.auneUBLIC Railway Rivers EQUATORIAL. 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