Tunisia - Forestry Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6730-TUN STAFF APPRAISAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT July 2, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Tunisian Dinar (D) US$ 1.00 = D 0.813 D 1.00 = US$1.23 WEIGHTS AND MEASURES The metric system GLOSSARY OF ABBREVIATIONS BNT - National Bank of Tunisia (Banque Nationale de Tunisie) CFPR - Professional Training Center of Remel (Centre de Formation Professionnelle de Remel) CRDA - Regional Agricultural Development Commission (Commission R6gionale de Diveloppement Agricole) CTV - Local Extension Unit - (Cellule Territoriale de Vulgarisation) DCES - Directorate of Water and Soil Conservation (Direction de la Conservation des Eaux et du Sol) DF - Directorate of Forests (Direction des For&ts) DGR - Directorate of Rural Engineering - (Direction du G4nie Rural) DPSAE - Directorate of Planning, Statistics and Economic Analysis - (Direction de la Planification, des Statistiques et des Affaires Economiques) DREF - Directorate of Forest Exploitation (Direction de la R6gie d'Exploitation Forestiere) INRF - National Institute of Forestry Research - (Institut National de la Recherche Forestiere) MOA - Ministry of Agriculture (Minist&re de 1'Agriculture) MOPF - Minietry of Planning and Finance (Minist6re du Plan et des Finances) OEP - National Livestock and Pasture Agency - (Office de 1'Elevage et des Piturages) GOVERNMENT OF REPUBLIC OF TUNISIA FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY REPUBLIC OF TUNISIA FORESTRY DEVELOPMENT PROJECT Loan Summary Borrower: Republic of Tunisia Amount: US$20 million equivalent Terms: 17 years, including 4 years of grace, at the standard variable interest rate Proiect Description: The proposed Project would establish the basis for the comprehensive conservation, development and use of Tunisia's forestry resources and provide for a doubling of current wood productin by the end of the implementation period following environmentally sound practices. To this end, the Project would include (a) thinning of some 50,000 ha of conifer plantations and exploitation of some 21,000 ha of natural forest together with a corresponding regeneration program; (b) establishment of some 10,600 ha of fast-growing plantations; (c) improvement of integrated forest management of two aegraded natural forests (6,600 ha); (d) improvement of some 3,400 ha of pafture and rangeland adjacent to forest regeneration; (e) preparation of a national inventory and developu2nt plan for forestry resources; (f) provision of technical assistance, training, and equipment to forestry related departments; (g) improvement of seed collection and forest nurseries, and distribution of selected trees; and (h) provision of nature conservation measures. Apart from production and environmental benefits,which include project action in support of the government program to protect eight world threatened vertebrates, the Project would have an important employment creating effect in rural areas. The principal risk, which was addressed in the design of the Project, is the possible slow adoption by beneficiaries of the range management program, which would hamper forest regeneration effort. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Estimated Project Costs Local Foreign Total -------(US$ Million)-------- Works 2.2 2.1 4.3 Plantations 9.7 6.2 15.9 Equipment 3.5 4.8 8.3 Technical assistance and training 0.5 1.3 1.8 Incremental operating costs 5.5 2.8 8.3 Total Base Cnsts 21.4 17.2 38.6 Physical contingencies 1.5 1.4 2.9 Price contingencies 7.3 1.4 8.7 Total Project Costs 30.2 /a 20.0 50.2 Financing Plan Local Foreigp Total -----(US$ Million)--------- World Bank - 20.0 20.0 Government 19.6 - 19.6 Net Project Costs 19.6 20.0 39.6 Taxes and Duties 10.6 - 10.6 Total Project Costs 30.2 20.0 50.2 Estimated Disbursement Bank FY 1988 1989 1990 1991 1992 1993 1994 1995 1996 Annual 0.6 1.9 3.1 3.9 3.6 2.9 2.1 1.5 0.4 Cumulative 0.6 2.5 5.6 9.5 13.1 16.0 18.1 19.6 20.0 Economic Rate of Return 18% Staff Appraisal Report No. 6730-TUN Nap No. IBRD 19893 /a Includes US$10.6 million of taxes and duties. STAFF APPRAISAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT Table of Contents Page No. I INTRODUCTION ........................................ 1 ii. THE FORESTRY SUBSECTOR ................ 2 A. PlAce of Forestry in Economy ............... ............. 2 B. Forest and Environment ................................... 4 C. Forest Resources ....................................... 5 D. Forest Use and Production ............................. 5 E. Processing Forestry Products ..................... ..... 6 F. Forest Production Price Policy............................ 7 G. Management and Institutional Framework ................... 8 0. Investment in the Subsector .......................... 9 I. Development Objectives and Strategiea .................... 10 J. Sector Constraints Relevant to the Project ............... 11 III. BANK LENDING IN AGRICULTURE AND PAST PERFORMANCE ............. 12 IV. THE PROJECT ....................... . . . . . . . ..... ... . 14 A. Context and Rationale of Bank Involvement ................ 14 B. General Description and Components ....................... 14 C. Detailed Features ..................................... 16 D. Start-up Activities and Status of Design ................. 21 E. Costs .......................... 0....*.. ....#... 21 F. Financing .......... .. . .... . ... ... . . .. 23 G. Procurement ......*........ ................. ........ 23 H. Disbursement .................................... 25 V. PROJECT IMPLEMENTATION ................................. 27 A. Organization, Management and Execution of Works .......... 27 B. Monitoring and Evaluation................ .............. 29 C. Accounts and Audit ....................................... 29 VI. PRODUCTION, MARKETS, PRICES AND FINANCIAL RESULTS ............ 30 A. Production ........................................ 30 B. Market Prospects ......................................... 31 C. Prices . . . . . . . . . . . . . . . . . . . . . . . . ..31 D. Financial Results ........................................ 33 This report is based on the findings of an appraisal mission which visited Tunisia in December 1986, composed of Messrs. C. Gois (Mission Leader), C. Holloway (Forestry Specialist), J. Glenn (Livestock Specialist), Ms. Patel (Economist), and Messrs. M. Ladurner, L. Marenzi and El Mili (Consultants). - 11 - Table of Contents (eontinued) Page No. VII. BENEFITS AND JUSTIFICATION ................................... 36 A. Benefits and Beneficiaries ............................... 36 B. Environmental Impact ..................................... 36 C. Economic Analysis .................................. 37 D. Project Risks and Sensitivit- Tests ...................... 38 VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ................. 40 Supporting Tables Table 1 Project Components by Year Table 2 Project Cost Summary Table 3 Estimated Schedule of Disbursements of Bank Loan Table 4 Vehicles Table 5 Annual Wood Production and Revenues Table 6 Plantations Established since 1962 Table 7 Estimated Government Cash Flow Table 8 Estimated Foreign Exchange Flow Table 9 Total Project-Related Direct Employment Creation Table 10 Selected Documents and Data Available in the Project File Charts 1. Implementation Schedule 2. DF - Organization Chart 3. DREF - Organization Chart map IBRD 19893 Annexes in the knplementation Volume Annex 1 Cost Tables Annex 2 Regeneration of Natural Forest Annex 3 Forest Exploitation Annex 4 Mechanization of Forest Plantation Annex 5 Fast-Growing Forest Plantations and Public Tree Planting Annex 6 Forest Management Annex 7 Range and Pastureland Improvement Annex 8 Nature Conservation Annex 9 Tree Seed Collection and Research Annex 10 Technical Assistance, Research and Training Annex 11 Domestic Forestry Production, Perspectives and Prospects Annex 12 Financial and Economic Analysis Annex 13 The Forestry Coordination Committee and the Project Management Unit. Competence and Duties STAFF APPRAISAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT L INTRODUCTION 1.01 In 1985, the deficit in Tunisia's trade in wood and wood products was over $65 million having nearly doubled in the previous six-year period while the potential for increased local production of wood products in recent years has been increasingly ignored. The proportion of the Ministry of Agriculture's investment budget allocated to forestry and soil conservation has dropped steadily during the past 15 years (from 25% in 1962/71 to 6.5% in 1982/86). Innovative management has been lacking. Given this background, and the current high development potential of Tunisia's forest resources the Government has decided to initiate restoration of forest management to the position of making a full contribution to the economic development of the country, by increasing production of wood and forest related products, better safeguarding the environment and revitalizing public involvement in forestry. 1.02 The Bank has been working closely with the Government in reviewing past agricultural expenditure policies and in developing the strategy for investments under the VIITH Development Plan, with particular focus on the adjustments needed to maintain growth and to reduce the sector trade deficit. It has been agreed that the improved management of forestry resources should form an integral part of this program. While the reorientation of sector policies is being addressed through the ASAL (Loan 2754-TUN), a Forestry Development Project would both strengthen this dialogue and provide the essential. mechanism to develop, implement and monitor the detailed technical and managerial innovations needed to achieve the full benefit of the agreed reorientation in subsector expenditures. The Bank's involvement would also facilitate the transfer of experience gained in other Mediterranean countries. 1.03 The ongoing Bank-financed Technical Assistance Project (Loan 2197-TUN) included a feasibility study on range management and desertification control in South and South-Central Tunisia. In early 1983, however, Government proposed that this study be enlarged to a forestry development improvement project. The study was carried out in 1985 by FAO through a Trust Fund Agreement and assistance under FAO's Technical Cooperation Program. Its final version was issued in 1986. It included an analysis of the forestry subsector and a preparation report for a Forest Development Project. By early October 1986, a Bank mission considered the project ready for appraisal which took place in December 1986. (3227R) - 2 - I. THE FORESTRY SUBSECTOR 1' A. Place of Forest in Economy 2.01 Forests in Tunisia occupy approximately 900,000 ha and constitute 5.5% of Tunisian land area.-/ High forest accounts for some 585,000 ha of the total and comprises 345,000 ha of natural forest and approximately 240,000 ha of plantations. The balance of 315,000 ha is maquis and garrigue' Some 99% of forests are on state land while there are approximately 9,000 ha of forest which have been established primarily by Government on private land. 2.02 In 1985, the total value of forestry-related production was estimated to be around D 38.0 million (US$47 million) which is some 4% of the value of production of the whole agricultural sector. This Includes receipts from forestry (cork, wood, secondary products, and fines) of about D 2.2 million, direct revenue from hunting, including licences, meat produced and animals exported (D 2.1 million), of esparto grass harvested (D 2.3 million) and of actual fuelwood taken (valued at D 5.0/m3 4/ it amounts to D 31.6 million). VALUE OF FORESTRY-RELATED PRODUCTS (D Million) 1981 1983 1985 Wood and wood products 1.1 1.4 2.2 Hunting and game 1.6 1.2 2.1 Esparto grass 1.6 1.8 2.3 Fuelwood 7.7 7.7 31.6 Total 12.0 12.0 38.2 /a /a The dramatic increase in fuelwood value results from the unit price, four times higher than before. I/ This report discusses the forestry subsector only. The Tunisian agricultural sector context, its Place and performance in the economy, the main constraints to its development, and policy changes required to achieve desired objectives are fully described in: (a) the Agricultural Sector Survey (No. 3876-TUN of 09/29/82); (b) the most recent Country Economic Memorandum (No. 5328-TUN of 10/85); and (c) the Agricultural Sector Adjustment Loan (Loan No. 2754-TUN) President's Report (No. P-4368-TUN of 09/03/86). 2/ All the figures indicated in this chapter are rough estimates, since no comprehensive inventory of forestry resources has yet been made in Tunisia. 3/ Two forms of degraded forest: maquis is dense scrub, up to 4 m high, which occurs primarily in the north; garrigue is more open and degraded scrub, which occurs primarily in the central region of the country. 4/ Average price received for official sales in 1985. (3227E) - 3 - 2.03 Forestry's indirect contribution is considered to be significant, although not easily quantified. Most of the 750,000 people who live in or around tho forest estate are poor and dependent to varying degrees upon forestry, not only for employment (an estimated 1W.2 million man-days in 1984), free fuel, free or subsidized grazing and other forest products, but also for the provision of roads and related services in otherwise isolated rural areas. Also of greater importance, in a relatively arid country such as Tunisia, is the contribution that forests and forestry make to the restriction of soil erosion, regulation of water supplies, prevention of sedimentation of dam impoundments, the stability and amelioration of micro-climates and the enhancement of amenity and recreational values. 2.04 However, as a result primarily of poor growth and paucity of high forest, over 95% of the country's timber and wood product requirements, excluding fuelwood, are imported. In 1985, the total deficit in the commercial balance of imports and exports of wood and wood products was around D 53.0 million (US$65 million). DEFICIT IN COMMERCIAL BALANCE OF WOOD AND WOOD PRODUCTS (D Million) 1980 1981 1982 1983 1984 1985 30.5 28.9 37.2 43.7 50.1 53.0 If forest resources could be better managed, wood production could be increased and there would be a ready market and scope for foreign exchange savings through import substitution. At present, Tunisian industries operate primarily on imported raw materials. Tunisia's total wood (including fuelwood), wood panel and paper and paperboard requirements in roundwood equivalents based on 1983/84 actual figures are estimated by FAO as follows: DEMAND FOR WOOD PRODUCTS (M3 million) 1983 1987 1991 2000 7.3 7.6 7.8 8.0 Projections are made based on actual figures and population forecasts, taking into account consumption per capita according to acceptable evolving criteria and type of product. It is assumed that fuelvood consumption would decrease through gradual replacement of wood by other fuels, whereas increase of demand would essentially result from industrial woood. B. Forests and Environment 2.05 The most important function of the Tunisian forest is to protect and enhance agricultural productivity by preventing the closely related phenomena of desert encroachment and soil erosion. The southern half of Tunisia is in the pre-desert or desert zone with an average annual rainfall of less than 200 mm. Loss of natural vegetation in these areas because of overgrazing and cutting for fuel has resulted in shifting of sand by wi.nd and its encroachment into agricultural areas further north. The principal means of preventing desert encroachment is by raising artificial dunes at the perimeter of the desert by mechanical fixing, followed by planting of trees and shrubs, which after a period of protection can be used as grazing reserves. Since the start of the first National Development Plan, in 1962, the Directorate of Forests in the Ministry of Agriculture (DF) has established some 11,700 ha of tree and shrub plantations in the south to fix contential dunes and arrest desert spread. It has protected more than 50 oases and many roads and buildings. A further 93,000 ha have been planted to fix coastal dunes mainly in the vicinity of Bizerte, Cap Bon, and Tabarka. 2.06 In the northern and central regions of the country, rainfall frequently occurs in short but severe storms and high winds are common (in Cap Bon, winds have been recorded for 300 days/year). Loss of the olive-lentisque forest that once cov,2red much of this region has accentuated soil erosion by wind and water and it has been estimated that 80% of the country is sub ect to erosion, at least half of which is severe. Some two to three billion m of water are believed to be lost to run-off each year. In part of the Project area, at Kasserine, there is ample evidence of abandoned land following acute degradation of vegetation. Maintenance of adequate forest cover, especially in areas of steep slopes, provides an excellent protection against soil erosion. Since 1962, DF has established 51,600 ha of forest plantations, primarily for protective purposes in degraded forests, 15,000 ha,of wind breaks in agricultural areas, and 15,200 ha of roadside planting to provide protection from wind and for shade. Since 1970, protective plantations, terracing, land consolidation and agro-pastoral management has been undertaken in eleven priority water catchment areas in the north and central regions to reduce sedimentation of dam impoundments for irrigation and hydro-electric development. 2.07 Some 3,470 ha of "recreational" forest plantations have been established primarily in the vicinity of townships, but hunting is the principal use of forests for recreation. Hunting, primarily of small game (e.g., partridges and hares), is organized through Hunting Associations (one per arroidissement) under the overall charge of a National Hunting Council. The Provincial Forest Officers and the Director, DF, respectively, are the chairmen of these associations and regulations are enforced by the Hunting Brigades of DF. In 1985/86, 15,800 registered local hunters and 1,600 foreign hunters were issued hunting permits. These numbers have doubled in the past ten years. Visiting hunters are restricted to shooting agricultural pests, primarily wild pig, thrushes and starlings. Approximately 2.0 million ha of forest and pastureland are open and 1.0 million ha closed (the Hunting Reserve) to hunting each year. Wildlife in terreetrial areas is estimated to earn over D 3.0 million/year for the country in direct and indirect revenue, comprising approximately D 1.2 million for licences, hunting, travel, and (3227E) accommodation expenses of visiting hunters, D 0,7 million in licence fees and value of meat obtained by local hunters, and D 1.4 million from export of meat primarily from harmful animals (primarily starlings and sparrows). 2.08 In spite of heavy human pressure on its natural resources, Tunisia has a very varied fauna and flora (approximately 75 species of mammals, 400 species of birds, over 100 species of amphibians, reptiles and fish, and more than 5,500 species and sub-species of plants). It has four national parks (the Isles of Zembra and Zembretta and the mainland parks of Ishkeul, Chambi and Bou Redma, which total 36,102 ha) and the new park, presently awaiting gazettement, of Bou Kornine (19,390 ha, primarily of coastal forest, 15 km south of Tunis). It also has seven wetlands of international significance to migratory waterfowl. Further development of natural areas is seen as an important complement to the country's recreational and cultural (archeological) facilities for tourism, which accounts for 1.5 million visitors/year. The revised Forest Code (para. 2.21) will provide for government involvement in a much wider range of conservation initiatives such as the establishment of biological reserves and protection of flora. Numerous initiatives have Lzen taken in recent years to conserve threatened species (Tunisia has eight world-threatened vertebrates, including the only species of deer in Africa), to protect raptors, control poaching and reintroduce formerly extinct species (addax, oryx, and ostrich) in the arid south as an alternative or complement to stock raising. The broader issues of enviroamental management, such as environmental impact assessment of development proposals are now being raised through the Directorate of Agricultural Environmental Affairs. C. Forest Resources 2.09 The natural high forest is composed of approximately 80,000 ha of cork oak, 10,000 ha of zeen oak, 10,000 ha of maritime pine, and 45,000 ha of miscellaneous species (e.g. oaks, cypress, thuya), which occur in a belt, 50 km wide, along the northwest coast in an annual rainfall zone of 850- 1,000 mm and 200,000 ha of Aleppo pine forest in the west central zone, north of Kasserine/Kairouan in annual rainfalls of 250-450 mm. The artificial forests (about 240,000 ha) are composed of approximately 40% broadleaved species and around 60% conifers. D. Forest Use and Production 2.10 Management plans exist for 262,000 ha of high forest, and 42,000 ha of forest plantations. Traditionally, high forest has been naturally regenerated by various shelterwood systems but grazing pressure has made natural regeneration increasingly difficult so that regeneration has often been long-delayed and eventually accomplished by seeding or planting even though the revenue of harvested timber is frequently too low to pay for these planting costs. 2.11 Forest losses from fire, principally during the summer (June- September) are low. An average of only 900 ha/year (0.1% of total forest area) were burned during the period 1971-1980, compared with, for example, 1.3% in Portugal. A system of surveillance is being established. Tunisian forests suffer from periodic attacks from insects. A wood borer (Phoracantha semi-punctata) in Eucalyptus is the most serious and, in the absence of persistent control measures, can cause widespread tree deaths. - 6 - 2.12 The most serious threat to the forest, however, is uncontrolled human use of forest and grazing lands. Much of Tunisia's forests have been degraded by the overgrazing of domestic stock. The combination of human pressure and often poor soils and low rainfall results in low growth rates in natural forests. Average growth rates in plantations are also poor. In 1985, the total production was estimated at 615,000 m3/year, comprising only 5 m3 /ha/year or about half of what might commonly be expected for broadleaved species and only 1.5 m3/ha/year or only 20% of normal expectations for conifers. Prior to 1965, many plantations, especially of eucalyptus, were established without adequate attention to site quality. Since the early 1970s, multi-purpose trees, such as Acacia spp., have been most commonly used but their growth has often been restricted by poor tending and maintenance and inadequate p-otection against grazing. Better management and site preparation could undoubtedly increase yields. 2.13 By far the greatest forest production at present is in forage and fuelwood (wood and charcoal), the majority of which is used by local populations, who reside in or within 5 km of the state forests and, therefore, have rights to forest products with minimal or no payment. The quantities of fuelwood cut each year by the Forest Services for sale is only a fraction of the wood taken by rightholders; the actual quantities of wood removed from the forest, legally and illegally, is consiAerably greater still. 2.14 A study of wood energy use in Tunisia, in 1983, ' estimates the current consumption of fuelwood (and charcoal) to be around 6 million M3. Of this amount, about a third is obtained from agricultural crop residues; illegal cutting from forests represents another third. Official sales of fuelwood represent less than 10% of total fuelwood use. However, there is reason to believe that fuelwood consumption figures are overstated.-' The volumes suggest large-scale trade outside forest regions; with the controls that are applied to transport and sale of fuelwood and charcoal, this illegal trade would be very risky and hardly profitable at prevailing prices, other sources of energy being less expensive and more practical.-! The use of fuelwood would appear to be prevalent in mountainous areas where wood is cheap (not having to support the high cost of transport). E. Processing Forestry Products 2.15 Approximately 40% of legally collected wood is transformed to charcoal by traditional systems. Their conversion efficiency is low (16%, on average), which could te increased considerably (to about 40%) by the use of improved kilna. The extension services would address these aspects under the Project, in particular through introduction of cheap but efficient kilns (para. 4.07). 2.16 Primary and secondary wood industries cover approximately 2,300 enterprises and employ some 11,700 persons. More than 95% of the sawn lumber used in Tunisia each year is imported. There are nine sawmills, which depend heavily on imported timber. The country has five particle board mills whose total installed capacity is 70,000 M , of which more than half has normally 1/ Mr. E. D. Michaelides, FAQ. 2/ See Annex 11 for more details. 3/ For example, the cost per 1,000 kCal is 10 millimes for fueloil, 12 millimes for fuelwood, 23 millimes for bottled gas and 43 millimes for charcoal. (3227E) - 7 - been supplied locally. A medium density fiberboard factory that was installed in 1982 with a capacity of 30,000 m3/year is closing down as a result of high production costs and weak demand for this type of product. There are six plywood factories workiag at 50% of their capacity and using approximately 18,000 m3 of wood each year, all of which is imported. The pulp mill at Kasserine is supplied entirely from Tunisian esparto grasslands; its production has fluctuated considerably but recently it has produced approximately 20,000 tons of pulp/year of which approximately half is exported to Western Europe and half used for paper production in Tunisia. Two factories for the manufacture of cork products are supplied entirely from the cork oak forests. There are 64 industrial furniture manufacturers and some 2,000 artisans. There are a variety of minor forest industries supplied entirely from State Forests, notably the manufacture of pipes from briar roots (Erica arborea), vegetable fiber from dwarf palm, aromatic oils from distillation of rosemary and myrtle bushes and sale of edible pine seed. 2.17 The industrial infrastructure would appear to be adequate given the Tunisian market for wood, with the exception of sawmilling capacity. Existing sawmills are characterized by old, outdated equipment. The private sector has been unwilling to invest in this subsector given the lack of availability of domestic logs suitable for sawing. With the proposed Project, the supply of such logs is expected to increase considerably and preliminary discussions with sawmillers indicate that renewal of equipment will follow. There is excess capacity in particle board manufacture given local market demand. However, Tunisian particle board is not competitive in international markets at present (quality and price considerations) which would preclude the possibility of exports. 2.18 Several other industries are directly dependent upon the state forest lands, including hunting (in 1983, 11,076 hunting licenses were sold and 590 tons of game meat were produced in addition to trophies) and apiculture, which produces several tons of honey and wax each year. F. Forest Production Price Poliy 2.19 There is no clear articulated forestry price policy. Wood is sold in three different ways by the Directorate of Forest Exploitation within the Ministry of Agriculture (DREF): (a) sales at fixed prices to the forest population (preferential rates) and to public sector entities; (b) by agreement, for small quantities that do not justify the organization of auctions; and (c) by auction, both for stacked wood and tree stands. Sales at fixed prices are made on the basis of a set schedule of rates (which also determine the floor price for auctions), that has in the past been raised only sporadically. These prices are not subject to any particular methodology of calculation and are based on DREF judgment taking into account recent auction results. Unlike agricultural commodities where an international reference price could be used to set domestic prices and where deviations in quality can be incorporated into the price setting formula, wood does not easily lend itself to such a calculation: (a) there is no standard international reference for much of Tunisian wood production; and (b) deviations from the norm, if such a norm could be found, would be very high, since the actual price received would depend on factors such as logging conditions (for auction sales on stump), transport costs, and quality of the wood. For imported wood, a complicated pricing system is in effect, whereby several duties and taxes (3227E) - 8 - (customs duties ranging from 6.5% for mining timber to 32.5% for vereer sheets, and higher still for processed products such as plywood, 1.ixury tax for certain hardwood species, export promotion tax, custom formality tax) are added to the CIF price. A fixed wholesaler margin is then added (varying from 20% to 30% for sawn timber depending on the species); as a result, the final selling price of certain imported wood is considerably higher than the CIF price (for example, the mark-up due to taxes and controlled margins is around 40% for certain sawlogs to over 100% for certain hardwood species). For primary wood products, such as those to be produced under the Project, however, custom duties are about 15%. The level of duties facing such products is consistent with the new reforms in trade policy being implemented by Government through the Industrial and Trade Policy Adjustment Loan (2781-TUN). 2.20 Raw cork production is sold in its entirety by the DREF to the Societe Nationale du Liege (SNL), a parastatal. The SNL in turn cedes a third of this cork to a private company according to the terms of a special convention between the two entities. Raw cork prices are set administratively by the DREF in consultation with the SNL, and typically cover only direct exploitation costs. The SNL's high processing costs (due to an inefficient and obsolete production process compounded by a high wage bill, which in turn is the reoult of an employment-creation mandate) lead it to create considerable downward pressure on prices in order to remain competitive with international prices of processed cork. Both these companies are capable of processing more cork than is available annually. The SNL exports around half of its production whereas the private company exports practically its entire production of processed cork. Selling raw cork by open auction at which both the parastatal and the private company are allowed to participate, would remove some of the distortions in pricing that are present in the existing system.!" Action would be taken under the Project to liberalize raw cork prices (para. 6.10). G. Management and Institutional Framework 2.21 The legislative base for forest management is contained in the Forest Code, published in 1966, which covers the forestey regime, the management, administration and protection of state forest and sand dunes that have been reforested, esparto grass areas, state and communal grazing lands, forest rights, policing of the forest, and sale of forest products, and hunting and protected areas. This Code is based on temperate country forestry, concerned mainly with quality timber production and the preservation of the forestry estate. The presence of a rural population occupying this estate and protecting their traditional rights is virtually ignored in the Code. Forest management (which also tends to ignore this situation and the consequences of uncontrolled cutting and grazing) has little chance of being implemented adequately. The 1966 Code is presently being updated and improved. The new Code recognizes the facts of occupation and use of the forest resources by the rural population and ensures that the integration of the population and its demands are understood by all concerned. In the absense of protective measures against overgrazing and undue human pressure such as those foreseen in the new Code, the successful implementation of certain project components (reforestation, new plantations) could be jeopardized. The new Code was approved by the Cabinet prior to negotiations and its promulgation is a condition of loan effectiveness. 1/ See Annex 11, Appendix 1 for dctails on the raw cork market in Tunisia. SJ.! Z */it., - 9 - 2.22 Principal responsibility for implementing forestry policy, including management of State or communal grazing lands and esparto grasslands, rests with the Directorate of Forests (DF) of the Ministry of Agriculture. Since January 1984, responsibility for soil erosion control and water catchment protection has been vested in a new Directorate of Soil and Water Conservation (DCES) within the same Ministry and, since October 1985, responsibility for logging and timber sales has been assumed by a new Directorate of Forest Exploitation (DREF). This reorganization has provided for increased specialization in forest operations but has also weakened the coordination of forest development activities and corrective measures are required (para. 5.02). 2.23 Each Governorate has a provincial Forest Service (arrondissement forestier) and two Governorates (Bizerte and Jendouba) have two because of the importance of the subsector in these Governorates. The forestry administration in its entirety is still relatively understaffed for the tasks assigned. In 1986, DF and DREF comprised 230 forest engineers and assistants, 230 senior or ordinary foresters and 74 administrative p.rsonnel. Forest laborers are trained at Remel Woodman's Training School and middle level technicians are trained at the Tabarka Institute. Specialization in range management and antidesertification techniques is provided in Tunisia at Medenine but higher degrees have to be obtained abroad, usually in Morocco or Europe. 2.24 The bulk of forest research is undertaken by the National Forest Research Institute (INRF), Tunis, which was established in its present form in 1966. In the past, the INRF's research standards have been consistently good and relevant to the country's needs but, since the end of a FAO/UNDP forestry research program in 1976, it has suffered from acute shortages of staff and funds. There is a need for better support for the INRF activities. The Project would address this constraint (para. 4.18). H. Investments in the Subsector 2.25 Total investments of the forestry and soil and water conservation subsector (CES) and their comparison with the agriculture sector are indicated below: 1962-1971 1972-76 1977-1981 1982-86 1987-1991a/ Period IV Plan V Plan VI Plan VII Plan M DT % M DT % M DT % M DT % M DT % Forest & CES 68.8 25 22.3 9.5 43.8 7.5 100 6.5 115.0 5.8 Agriculture 272.0 100 235.1 100 584.0 100 1360.0 100 2000.0 100 a/ Projected. These figures show that, after a period of important efforts (1962-74) during which the percentage of the investmentd in the subsector were about 25% of the entire agricultural sector, a drastic reduction took place to the low levels of around 6%. The reasons for this decline are thaL the Government considered that the forestry operations carried out under the Plans have been ( 3227E) - 10 - ineffective. Certainly, production of wood has not kept pace with the increasing demand, but the added responsibility since 1972 of the DF in protection of watersheds and the vast grazing rangelands of the ceintry without any significant increase in staff and a reduced budget, must have contributed to this apparent poor performance. 2.26 The official analysis of the VIT " Development Plan has revealed that the achievements are far from being unsatisfactory. In general, the revised plantation program of DF achieved between 80 and 100% of the forecast -- only the "permanent prairies" achieved less than 50% and this is attributed to insufficient suitable plants, land tenure complexities, and limitations imposed by various rural development statutes. The construction of new roads achieved 70% of the forecast, and maintenance kept pace with the program. Protection of the forests which includes the construction of fire-breaks and insect control varied from 75 to 100% of the program. Sand dune fixation achieved over 100% of the forecast. National park protection and management can be considered unsatisfactory with only 45-68% of the forecasts achieved. Improvement of the Esparto grasslands achieved 80% of the program. Some of the problems associated with the poor performance in some sectors, can be attributed to the readjustments made during the course of the VITH Plan. Only 72% of the required budget was eventually available. Conjiderable waste in planning can result from such significant reductions. I. Development Objectives and Strategies 2.27 Consistent with the macroeconomic objective of improving the balance of payments situation and alleviating the burden on the Government's budget, the mali mid-term objective of the Government in the agricultural sector, which includes the forestry subsector, is to promote greater efficiency and economy in the increased production of agricultural products, which can substitute for :ncreasing imports and lead to increasing exports, and in the use of public resources in the sector, including enhancing the role of the private sector in the provision of commercially viable sector support services. 2.28 The Government's medium-term agricultural sector adjustment program (MTASAP), as described in the government policy letter discussed in the context of the Tunisia ASAL-I (Loan 2754-TUN) includes specific actions to address the sector constraints over a five-year period (1987-1991) and aims to achieve its objectives by: (a) improving the prices and incentives framework towards further deregulation or linkage to border prices; (b) reorienting the public investment and expenditure program towards low cost, high priority, quick maturing projects and programs with lower budgetary demands while assuring adequate funding for maintenance of past investments; (c) strengthening basic services in support of farmers, while privatizing those government services which are commercially v4able, and improving cost recovery in others; end (d) improving productivity of land use and management of the country's forest and fisheries resources. 2.29 Strategies. Specific forestry subsector strategies consistent with the above overall sector strategy have also been developed by Government and are described in the same letter. These strategies, which aim at guiding project identification and preparation for the VIIth Plan, are: (a) to increase the financial resources available for forestry development to help arrest losses of plant cover, and to mobilize better the subsector's (3227E) - 11 - productive potential, thereby reducing imports; (b) to give priority to the establishment of forest nurseries; (c) to improve management of the natural regeneration areas; (d) to mechanize exploitation and reforestation; and (e) to improve subsector knowledge through inventories and studies. J. Sector Constraints Relevant to the Project 2.30 The major constraints to implementing this policy for the development of the forestry subsector are considered to be as follows: (a) Social: In most natural forests, human pressure (manifested primarily by overgrazing of domestic stock and illegal cutting of fuel) is sufficient to prevent forest regeneration by natural seeding and, in turn, arrest wood production, because the Forest Service will not permit cutting mature trees if there is little hope of their being regenerated. In 1986, some 750,000 m' of wood (valued at about US$15 million) that should have been cut in 1972-85 were still standing in managed forests. The Project would address this constraint by introducing a technically and economically viable system of uational forest regeneration (para. 4.08), by supporting interventions to improve rangelands in the vicinity of natural forests and plantations so as to reduce grazing pressure in regeneration areas(para. 4.14) and by providing exploitation equipment (para. 4.07). The enactment of the new Forestry Code (para. 2.21) will provide the legislative basis to restrict grazing rights and provide for the formation of grazing associations, and activities to be implemented by the extension services will also contribute to alleviating this constraint (para. 4.07). (b) Ecological: Sites for fast-growing tree plantations are severely limited by poor soils in the north and inadequate rainfall further south; deep soil working and regular tending are essential for fast-growing plantations in Tunisia. The Project would address this constraint through the selection of suitable locations, adequate provision for tending (para. 4.06), appropriate mechanized soil preparation (para. 4.09), improvement of the seed collection and forest nursery techniques (paras. 4.11, 4.12), and accent on genetic studies and species trials in the research programs (para. 4.18). (c) Financial: Shortage of funds and inadequacy of transport and other equipment has been a major problem in forest exploitation, afforestation, management and other forestry operations. Tr.e Project by emphasizing investment leading to short-term revenues would help rebuild financial resources. Thus, nationwide annual wood production will be doubled by the third year of the Project (para. 4.07), new sources of forest exploitation (thinning of coniferous plantations) will be included (para. 4.07), and existing sources of revenue will be expanded, e.g., by improving techniques of cork extraction through training (para. 4.17), liberalizing auctions (para. 6.07), and by development of existing timber resources through better exploitation (para. 4.07). Production of forest nursery stock and its distribution for public planting will also alleviate government costs in national tree planting programs (paras. 4.11 and 4.12). The setting up of an MIS for the Project and of appropriate accounts in (3227M) - 12 - DF and DREF (paras. 4.17 and 5.16) would also permit the identification of inefficiencies in labor inputs and help Government to establish separate budget lines for socially oriented programs. (d) Planning: No complete national survey and inventory of forest and pasture resources has ever been undertaken in Tunisia, and this represents a substantial weakness in planning forest and livestock management. This in turn has obvious implications on the level of funding made available, the understanding of the role of forest and water conservation in agricultural production and of forestry as a source of import substitution. The Project would address this constraint through the preparation of the first national inventory of forestry and pasture resources and of a plan for the utilization of these resources (para. 4.15). (e) Institutional: Three separate Directorates are now concerned with forestry and soil conservation and a coordinating body is needed. Cooperation of local people is essential to assure forest regeneration and conservation, and development of extension and training are urgently required. The establishment of a network of biological reserves and national parks is needed for educational, scientific and conservation purposes and to support Tunisia's tourist industry. Forest research needs to be strengthened to provide the necessary technical support to forestry and pastureland development. Staff is not sufficiently knowledgeable on modern techniques of forest exploitation and management, and training is required. The Project would address this constraint through (i) the setting up of a Coordination Committee (para. 5.02); (ii) the development of extension activities (paras. 4.07 and 5.04); (iii) initiation of environmental extension training in national forest management and improvement of wildlife surveillance (pira. 4.16); and (iv) provision of equipment and training for forestry research exploitacion and management purposes (paras. 4.17 and 4.18). (f) Quality of Produce: Insufficient and outdated methods and techniques of exploitation lead in general to low quality produce which introduces constraints in its utilization possibilities and decreaseF its value. Typical examples are the need to cut long logs to permit their transportation on mule back and irregular cork boards which result from inadequate extraction techniques. The Project addresses this issue through training exploitation staff (para. 4.17) and the provision of exploitation equipment and improvement of access to the forest (para. 4.07). U. BANK LENDING IN AGRICULTURAL SECTOR AND PAST PERFORMANCE 3.01 The overall objective of Bank lending is to emphasize projects which have a direct and rapid impact on production, employment and exports (or import savings) and which minimize government net contributions. The focus of lending for agriculture meets this objective. ( 3227E) - 13 - 3.02 Bank group lending for agriculture in Tunisia started in 1967, and to date 17 projects have been approved for a total of US$407.9 million of Bank/IDA funds. Of these, eight are ongoing. Performance under these projects has been mixed, reflecting the institutional constraints in the sector. The First Fisheries Project (Cr. 270-TUN) was completed at the end of 1979, and the Project Performance Audit Report (PPAR) identified cost overruns and low loan recoveries for boats as major problems. These problems were addressed under the Second Fisheries Project (Ln. 1746-TUN), but recoveries remain a problem. The First and Second Agricultural Credit Projects (Ln./Cr. 779/264-TUN and Ln. 1340-TUN) financed lending by the National Bank of Tunisia (BNT) for on-farm development. While the projects achieved good rates of return, the continuing problem of higher interest rates on Bank funds compared to government-supplied credit and the lack of profitability of agricultural credit operations, as highlighted in the PPARs for these projects, caused disbursements to be slower than anticipated. The Third Agricultural Credit Project (LI. 1885-TUN) is addressing priority credit problems including the level of interest rates and recoveries. Action has been taken to decentralize BNT's operations, raise interest rates, and encourage improved recoveries. The physical implementation of the poverty-oriented Northwest Rural Development Project (Ln. 1997-TUN) is proceeding satisfactorily. The Grain Storage Project (Ln. 2052-TUN) is also progressing well after initial delays and the recruitment of new consulting engineers and chartered accountants. Under the Technical Assistance Project (Ln. 2197-TUN), strategies have been or are being developed for several sub-sectors including forestry, farm input distribution, farm mechanization, produce marketing, research and extension, and improved operation and maintenance of existing irrigation infrastructure. These strategies have contributed to the design of the proposed operation. Implementation of the irrigation projects -- First Irrigation Rehabilitation Proiect (Ln. 1068-TUN), Sidi Salem_Project (Ln. 1431-TUN), Southern Irrigation Project (Ln. 2157-TUN), Central Tunisia Irrigation Project (Ln. 2234-TUN), and the recently started Gabes Irrigation Pruject (Ln. 2605-TUN) -- has generally been satisfactory and on schedule. The PPAR for the First Irrigation Rehabilitation Project also found that the increased reliability of water supply brought about by rehabilitation works carried out under the project had a major impact on farm production and incomes in the project area by increasing farmers' willingness to take higher risks by planting higher value crops. The Northwest Agricultural Production Project (Ln. 2502-TUN) will help alleviate the constraints to increased production of cereals and livestock in Northwest Tunisia, inter alia by introducing an extension system based on the Training and Visit (T&V) system. Partly to avoid the necessity for future rehabilitation projects caused by lack of maintenance, the Irri ation Management Improvement Project (Ln. 2573-TUN) is designed to support nationwide improvements of the operation and maintenance of existing irrigation systems as well as policy and institutional reforms to increase the efficiency and self- financing of the irrigation development agencies (OMVs). The First Agriculture Sector Adjustment Loan (Loan No. 2754-TUN) made a good start and was declared effective in Novenber 1986. Acti3n plans are currently being prepared to meet the conditions of second tranche release which is scheduled for August 1987 and fulfill the obligations under the sector policy letter. 3.03 Lessons learned from the above projects have been incorporated in the design of the proposed Project, namely the advantages of setting up a centralized management unit responsible for project coordination and monitoring, of creating a revolving fund, and of being more conservative in (3 227E) - 14 - the pace of implementation and of loan distursement to take particularly into account the lack of experience of the executing agencies in dealing with Bank-financed projects. IV. THE PROJECT A. Context and Rationale for Bank Involvement 4.01 Context. The Bank has been working closely with the Government in reviewing past agricultural expenditure policies and has agreed on the strategy for investments under the Seventh Development Plan, with particular focus on the adjustments needed to maintain growth and to reduce the sector trade deficit. The improved management of forestry resources is an integral part of this program. Overall, in the agricultural sector, including forestry, it has been agreed that new projects should comply with the following selection criteria: (a) EER higher than 10%; (b) positive impact on the agricultural trade balance; (c) creation of jobs at low cost; (d) reduced government participation in costs; and (e) favorable impact on less developed areas. While the proposed Project would be in line with these selection criteria, in order to ensure overall consistency of all subsector investments with the agreed investment criteria, assurances were obtained at negotiations that Government would undertake that any major new investments in the forestry sector separate from the Project would also be selected in accordance with those criteria. In line with the Agricultural Development Policy Letter and of the strategy discussed for the subsector in the MTASAP (para. 2.28), some new policy measures have been taken to support the forestry subsector. Thus prices of wood sold directly to the general public were increased in July 1985; these increases were also reflected in the floor prices for wood sold by auction (para. 2.19). With the exception of chipwood, most sales of wood for commercial purposes are through open auctions at which any licensed wood trader may participate. The Forestry Code is being revised. -Proposals for research and extension are being pursued under other initiatives. Within the agreed Tunisia ASAL-I timetable of key actions for the MTASAP attached to the government letter, Government has prepared a plan to implement new forestry development. In particular, a launching program to assure the regeneration of approximately 3,000 ha/year of forest has been prepared. In addition, increased funds would be available for forestry development and water and soil conservation operations and prices of cork are expected to be liberalized. B. General Descriptioa and Components 4.02 The Project represents the core (about 80%) of Tunisia's investment program in Forestry for the Seventh Development Plan and it takes into account DF's plan under the medium-term adjustment program to ensure regeneration of 3,000 ha of natural forest each year to permit increased production. In accordance with government policy, private participation in forestry development will be expanded, whilst ensuring that the appropriate government directorates have adequate means of organizing and supervising these operations. 4.03 Rationale and Objectives. While the broad lines of sector policy reform have been identified through the ASAL, a forestry development project would both strengthen our on-going sector dialogue and provide the essential mechanism to develop, implement and monitor the detailed technical and - 15 - managerial innovations needed to achieve the full benefit of the agreed reorientation in subsector expenditures. The Bank's involvement would also facilitate the transfer of similar experience gained in other Mediterranean countries. 4.04 In light of the above, project objectives are to improve the cost effectiveness of a restructured forest resource development and management program which would help to: (a) increase fuelwood and industrial wood production; (b) improve forest grasslands and range management to compensate for grazing lost due to closing of forest lands for natural regeneration and planting; (c) reduce soil erosion and increase water retention to protect productivity of agricultural lands; and (d) preserve and expand the country's nature and wildlife heritage and thus complement the country's cultural and recreational facilities. 4.05 The Project would have five main components: (a) Forest Exploitation and Regeneration: - Thinning of about 50,000 ha of existing conifer plantations over 15 years old; - Exploitation and regeneration of about 21,000 ha of natural forest; - Provision of exploitation equipment to the DREF; - Promotion of the role of the private sector in forest exploitation; (b) Forest Plantations and Private Tree Planting: - Establishment of about 8,000 ha of fast-growing forest plantations in three blocks, by mechanized techniques; - Establishment of about 2,600 ha of linear plantations along the edges of rivers; - Expansion of seedling sales to private sector through the improvement of seed collection and increasing plant production in six forest nurseries that are primarily concerned with plant sales to the public; (c) Intensified Forest Management: - to address 6,600 ha of highly degraded forest areas through: - Construction of buildings, fire towers, roads and firebreaks, boundary marking and electrification; - Provision of transport, fire fighting and communication equipment; (d) Forest Pasture and Range Improvement. This component is complementary to the natural forest exploitation and mechanized fast-growing plantations and will include: - Establishment of permanent pastures over about 700 ha in humid and sub-humid areas; - Establishment of permanent pastures over about 400 ha in semi-arid areas; - Establishment of improved natural pastures, within forest areas over about 2,300 ha; (e) Institutional Development and Support: - Preparation of a national inventory of forest and pasture resources and of a plan for development of forest resources, based on satellite imagery (120,000 kM2 ) and aerial photography (40,000 kM2); (3227E) - 16 - - Improvement of national park management, environmental educational facilities and nature conservation; - Provision of technical assistance in project management and evaluation, accounts, forest inventory, research, conservation and training in Tunisia and abroad in forest and range development related matters; - Provision of equipment to DF and DREF headquarters and to forest related research and educational forest organizations. C. Detailed Features 4.06 Forest Exploitation and Regeneration. To maintain the health of forests and for economic management, approximately 25,500 ha of natural oak and pine forest, with a standing volume of some 743,400 m3 of wood, should have been felled and regenerated during the past 15 years. It has not been because assurance of regeneration under the existing conditions of extremely high pressure of humans and their livestock has not been possible. With the promulgation of the revised Forestry Code, the legislative basis will now be available to allow adequate protection of newly planted forests so that improved regeneration techniques can now be applied. 4.07 The forest exploitation component will effectively double national wood production, to approximately 260,000 m3/year, by the third year of the Project. Production will have three principal sources: (a) a continuation of the normal forest exploitation program, which in recent years has produced about 130,000 M3/year from initial natural regeneration fellings and thinnings, primarily in natural forest; (b) introduction of a supplementary final regeneration fellings in approximately 3,000 ha/year; and (c) introduction of a further supplementary program, which should produce around 40,000 m3/year from thinnings of coniferous forest plantations over 15 years old in approximately 7,000 ha/year. Natural forest production will comprise softwood (coniferous species) and hardwood (broadleaved species) and be restricted to ten forest arrondissements in the north and west (Bizerte, Sedjenane, B6ja, Ain Draham, Jendouba, Le Kef, Kasserine, Nabeul, Zaghouan and Siliana). Plantation thinnings will produce softwood only in these same arrondissements plus Tunis, Ariana and Ben Arous, in the vicinity of the capital. The Project will increase the percentage of mechanization in government exploitation operations (DREF) from 30% to 70% in natural forest by the final year and, through training and demonstration, would aim to increase mechanization in private exploitation to 30%. However, the degree of mechanization in forest exploitation would be low. The Project would provide essentially chainsaws, small tractors and implements and it is assumed that the fuel wood would continue to be exploited by hand (see Annex 3). By the end of the project period it will aim to raise private exploitation from 40% to 60% in natural forest and from 60% to 75% in forest plantations. Although the Project expects to raise the proportion of higher value wood produced (e.g., sawlogs, mining timber) through improved marketing, fuelwood production will still be increased by at least 50% and it is planned that DF extension services would promote the introduction of improved charcoal production techniques, which should double the conversion efficiency of traditional methods. 4.08 The forest regeneration subcomponent will support national measures to regulate utilization of the forest resource by introducing an improved system of regene-atiotn in some 21,500 ha of oak and pine forest in the (3227E) - 17 - arrondissements of Ain Draham and Jendouba (oak) and Le Kef and Kasserine (pine). Most regeneration will be natural (seeding, coppice and root suckers) supplemented by direct seeding from selected seed trees within the area to improve tree form. The program is shown below. NATURAL OAK AND PINE FOREST: ASSISTED REGENERATION PROGRAM (ha) Forest Total Type Area Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Cork oak 3,200 - 450 550 550 550 550 550 Zeen oak 4,300 - 550 750 750 750 750 750 Aleppo pine 14,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 TOTAL 21,5002,000 3 0 3 0 3, 3,300 33 3 4.09 Forest Plantation. The Project will finance some 8,000 ha of fast-growing mechanized forest plantations in degraded scrubland in the Sedjenane, Nefza and Tegma districts. It will involve mechanized land preparation (stumping and ripping or ploughing) and subsequent weeding, which is expected to be undertaken by private contractors with the supervision of the Forest Services, and manual tree planting by the Forest Services or contractors, using plants produced in Forest Service nurseries. In spite of the relatively capital-intensive nature of works to be carried out, this component will generate considerable additional employment (para. 7.02). Roads and firebreaks will be constructed during the course of land preparation. The principal species to be planted will be pines (at least 70%) and Eucalyptus, Acacia and other broadleaved species. The program is shown below. FAST-GROWING MECHANIZED FOREST PLANTATIONS: PLANTING PROGRAM (ha) Total District Area Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Sedjenane: low maquis 2,200 - 800 800 600 - - - high maquis 2,400 - - 200 700 1,500 - - Nefza 2,700 - - - - - 1,300 1,400 Tegma 800 - 200 300 300 TOTAL 8,100 - 1,000 1,300 1,600 1,500 1,300 1,400 (3227E) - 18 - 4.10 The Project will also finance approximately 2,600 ha of fast-growing riverain forest plantations, to be established by local Forest Services in the approximately 30-m wide government reserves at the edges of the principal rivers and their tributaries in the B6ja and Jendouba Governorates. Selected poplar clones will be planted at wide spacing (5 m minimum) at the water's edge followed by eucalyptus and Acacia cyanophylla. The trees will not only provide wood but will also fix the river banks and provide forage for grazing animals and windbreaks for adjacent agricultural crops. The program is shown below. FAST-GROWING RIVERAIN PLANTATIONS: PLANTING PROGRAM (ha) Total Species Area Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Poplar 1,000 - 100 150 150 200 200 200 Eucalyptus/ Acacia 1,600 - 100 250 300 300 350 300 TOTAL 2,600 - 200 400 450 500 552 500 4.11 Tree seedling sales (comprising trees and forage shrubs) to private individuals have risen from 2.8 million in 1981/82 to 8.0 million in 1985/86 and is expected to continue to rise at an increasing rate during the next five years under the DF Private Tree Planting Program. New irrigation systems, transport and tocls will be provided to six forest nurseries, in the arrondissements of Tunis, Ben Arous, Ariana, Bizerte, Kasserine and Gafsa, that play a major role in public sales and whose production will be doubled by year 3 of the Project and could be increased several times over without further extension of the nursery area. Five other forest nurseries that are much involved in public sales, in the Bizerte, Sedjenane, Beja, Ain Draham and Jendouba arrondissements, will be similarly improved under the forest plantation components. They include two poplar nurseries. 4.12 To enhance forest production, much greater effort must be devoted to improved seed collection from selected trees. Ten sets of tree climbing equipment will, therefore, be procured under the Project for use by the staff of the Tree Seed Center, in Tunis, and the arrondissements. Two small trucks will also be allocated to the Center for tree seed collection and distribution. 4.13 The Intensified Forest Management component will re-establish the DF's direction in the management of 6,600 ha of two degraded forest districts at El Feidja, a cork oak forest area in Jendouba arrondissement, and at Oum Djeddour, an Aleppo pine forest in Kasserine arrondissement. It provides for redeployment of staff (including creation of seven auxilliary posts), construction and rehabilitation of housing and roads, transport, installation of electricity, boundary marking, improvement of fire prevention and control, and re-establishing constructive communication between forest staff and local people. - 19 - 4.14 The Forest Pasture and Range Improvement component would provide for production of forage to replace that to be lost by the closing of forest areas to grazing to allow for natural regeneration or reforestation. The Project would finance: (a) the establishment of permanent pastures over about 700 ha (rainfall above 900 mm/year) with intensive soil preparatiott, relatively high levels of fertilizer and seeding of a mixture of grass and legume seed from varieties with high production potential, and over about 400 ha (rainfall below 900 mm/year), with minimum soil preparation, low level of fertilizer and seeding of a mixture of grass and legume seed from varieties adapted to semi-arid conditions which have reduced productive potential, the improvement of 2,180 ha of improved natural rangeland, the seeding of 165 ha of acacia and planting 200 ha of cactus (see details in Annex 7); (b) four vehicles for central office staff, six pick-up trucks for field staff, and six tractors and corresponding implements for transport of inputs and pasture maintenance; and (c) training of central office and field staff, j, Asion of consultant services for technical assistance, and of applied research studies or related subject matters. The objective would be achieved through: (a) determination of the most effective, least cost systems for producing the required forage; (b) study and establishment of appropriate forage management systems; (c) identification and strengthening of producer groups which could assume responsibility for pasture and range management and through group action improve livestock production and marketing; (d) strengthening the DF department for range management in order to improve its ability to implement the component; and (e) establishing applied research activities. 4.15 Under the Forest Inventory subcomponent the DF would carry out a full national forest and pastureland inventory, establish the basis for its periodical updating, and prepare the Tunisian comprehensive Development Plan of Forestry Resources. The Project would provide for consultant services (about 100 man-months) to assist a special unit in DF (para. 5.05) in preparing such inventory and plan. The DF has already part of the required counterpart personnel who have been trained abroad in inventory techniques. Additional training is provided by the Project both abroad (para. 4.17) and on-the-job. The inventory would be based on geometrically corrected satellite images at a scale of 1:50,000 and on about 40,000 km2 of panchromatic aerial photos at a scale of 1:20,000. The satellite images maps will be used for vegetation interpretation, classification and statification, inventory map system and statistical survey. The aerial photos will be used as a complement in areas where stereo interpretation is required and where large-scale texture information is of great importance. The system would be designed using a continuous updating scheme. Maps would be produced by a computer-aided system at the scale 1:50,000, but 1:25,000 maps would also be produced in specific forest areas covering about 33,000 km2. The Project would provide funds for the purchase of transportation equipment for the field teams and interpreta- tion, cartographic and analysis equipment. The National Development for Forestry Resources would start to be prepared as soon as enough inventory data (3227E) - 20 - would be available and would address in particular the issue of production and use of fuelwood in rural areas in the general context of use of renewable energies. It would contain, inter alia, areas to be preserved and exploited, forestry management strategy and programs, assessment of wood production, reforestation and regeneration. 4.16 The project's Nature Conservation subcomponent will establish and equip a mobile environmental extension unit in the Directorate of Forests that will permit public environmental education on a national scale and, inter alia, suppoit Tunisian efforts in protecting eight world-threatened vertebrates.1' It will provide vehicles and equipment for Tunisie's three mainland national parks (including the means of preventing depredations of wild pig in adjacent agricultural areas), equipment for animal population counts in the northern region and transport for the principal wildlife officers in the southern and central regions of the country. 4.17 The Technical Assistance and Training subcomponent of the Project would provide consultant services!' and a program of training in Tunisia (para. 3.11) and training abroad. Consultant services will be required to cover matters for which DF and DREF lack experience and skills to implement the Project satisfactorily. About 43 man-months would be provided in subject matters related to nurseries, cork exploitation, range development and pasture establishment, communication and extension, and in research themes such as genetics and biometrices. The Project Management Unit (PMU) would also be assisted in setting up a prLlect MIS system which would provide for improved physical and financial control of DF and DREF operations, including a project analytical cost accounting system. Terms of reference and qualifications of these consultants are included in Annex 10. Assurances were obtained at negotiations that this MIS system would be fully operational by December 31, 1988. Training needs have also been identified and quantified. In addition, the above Annex describes the program for training in Tunisia of about 230 agents for a total of 750 man-months. The largest part (185 agents for 555 man-months) will be held in the Job Training Center of Remel for which the Project provides additional training equipment. Training would cover maintenance of exploitation machinery, field group leadership and charcoal production techniques. Training facilities in the country are, however, not sufficiently equipped or capable of training in all aspects required by the Project and therefore, some training abroad is required. This would take the form of scholarships, training courses or study visits for a total of about 100 man-months. The themes and anticipated number of participants are described in Annex 10. 4.18 Under the Institutional Support subcomponent, the Project would provide funds to strengthen those research and training institutions which are most directly related to the project objective and activities. Key research themes have been defiLed (silviculture, forest utilization, economy and protection, rangeland development) and the Project would provide the transport, field and laboratory equipment for the INRF in order to implement the research program in direct support of the project initatives (Annex 9). No later than December 31, 1988, a protocol would be signed between DF and the 1/ See Annex 8 for details. 2/ Consultant services for the preparation of the inventory are described in para. 4.15. (3227E) - 21 - INRF to define the arrangement for this applied research support. Similarly, keeping in mind the important role played by the Remel Training Center (CFPR) in training staff for forest exploitation, this center will also be provided with training equipment. Government would ensure that the CFPR would provide the project training needs. Assurances were obtained at negotiations that the protocol with INRF would be signed and that the CFPR would ensure the preparation and implementation of a training program no later than December 31, 1988. The Project would also finance vehicles and office equipment for the DF and DREF to provide adequate liaison between the headquarters and the field and to help the PMU to fulfill its obligations. D. Start-Up Activities and Status of Design 4.19 Start-up Activities. The Project is scheduled to start in early 1988, howeve.-, some preliminary activities have already started in 1987. These relate to the preparation of the forest inventory and of the plan for utilization of forestry resources. To permit the use of this information in the preparation of the VIII Development Plan (1992-97) and in order to expedite the project implementation program, satellite imagery and aerial photos will be taken in 1987 during the appropriate season. The Loan would provide up to US$1 million under retroactive financing for these activities. Consultations would also be made to recruit the technical assistance team to help the DF in preparing the inventory and the plan. 4.20 Status of Design. All areas for executing project works have been fully identified and availability of land required is assured. Standard architectural plans and specifications are available for most project buildings and constructions. Technical specifications for specialized equipment to make maps for the inventory would be prepared by the consultants assisting in the preparation of the inventory. Tender documents for the execution of soil preparation for new plantations already exist in other departments of the MOA. However, the particulars of the equipment and methodology proposed to execute the works (Annex 4) require the assistance of an expert also provided by the Project. Reference bidding documents for the purchase of equipment previously approved by the Bank for other projects in Tunisia also exist. Some particular technical specifications for exploitation equipment are given in Annex 3. F. Costs 4.21 Over the seven-year implementation period (1988-1994), the total project cost of the Project is estimated to be US$50.2 million (D 40.8 million) with an estimated foreign exchange component of US$20 million (D 16.3 million) or 40% of the total project cost. The cost estimate includes taxes and duties, totalling US$10.6 million (D 8.6 million) or 21% of total project costs. Project costs are summarized in the following table and shown by year in Table 1 and by summary account in Table 2. (3227E) - 22 - PROJECT COST SUMMARY Local Foreign Total Local Foreign Total % For. % Total Cost Cost Cost Cost Cost Cost Exchange Base Cost S(D'000) -- (US$1000)------- Forest Exploitation Regeneration of natural forest 2,357.5 2,110.5 4.468.0 2,899.7 2.596.0 5,495.7 47 14 Forest exploitation 1,308.0 1,520.0 2.828.0 1,608.8 1,869.7 3,478.5 54 9 Operating costs 2.8.3 1011.0 3L,8d ,492.Z 124Li 4 l743.2 26 12 Subtotal 6,510.8 4,641.4 11,152.3 8,008.4 5,709.0 13,717.4 42 36 Forest Plantations Mechanized plantations 4,878.9 3,401.7 8.280.6 6,001.0 4.184.2 10,185,2 41 26 Riverain plantations 1,581.2 836.8 2,418.0 1,944.9 1,029.2 2,974.1 35 8 Operating costs .9L 298,t _6S9.4 44 3.9 _367.3 __811.2 45 2 Subtotal 6.821.0 4.537.0 11,358.0 8.390.0 5.580.5 13,970.5 40 36 Forest Range Improvement Pastures 489.2 331.3 820.5 601.7 407.5 1,009.2 40 3 Vehicles and equipment 105.2 107.2 212.4 129.4 131.9 261.3 50 1 Operating costs 180 5I.0 6A4.0 -188.l 3 0 10.7 a8Z.LZ 33 1 Subtotal 903.4 593.5 1.496.9 1,111.1 730.1 1,841.2 40 5 Forest MAnagemeat Vehicles & equip. 125.6 140.9 266.3 154.2 173.3 327.5 53 1 Works 270.5 241.0 511.5 332.7 296.4 629.1 47 2 Operating costs 17S.3 1168 22.2 215Z 143, UM 40 1 Subtotal 511.2 498.8 1,070.0 702.6 613.S 1.316.1 47 3 Institutional Develoent Forest inventory 735.5 1,455.9 2,191.4 904.7 1.790.8 2,695.5 67 7 Nature conservation 384.7 436.9 821.6 473.2 537.4 1,010.6 53 3 Seed collect. & nurseries 265.0 379.7 644.7 326.0 466.9 792.9 59 3 Techn. asst. and training 131.5 479.1 610.6 161.7 589.3 751.0 78 2 Institutional support 254.8 269.0 523.8 313.4 330.9 644.3 51 2 Operating costs __ZA" _ -U" 113. .269.2 .891, 1-861.1 48 S Subtotal 2.559.5 3.745.6 6.305.1 3,148.2 4,607.2 7.755.4 59 20 Total Base Costs 17,366.0 14,016.3 31,382.2 21,360.4 17.240.2 38,600.5 45 100 Physical contingencies 1,273.7 1,125.0 1,125.0 1.566.7 1.383.7 2.950.4 47 8 Price contingencies 5,911.1 1.426.4 7.037.5 7.270.7 1.385.8 8,656.3 16 22 Total Project Costs 24,550.6 16,267.7 40,818.5 30.197.8 20,009.4 50.207.2 40 130 4.22 Base costs expressed in June 1987 prices were derived from recent contracts, market surveys and best assessment of actual costs for works executed under force account by the DF, DREF and other government departments. Physical contingencies have been allowed in general rt the rate of 10%. No physical contingenc, allowance was provided for operating costs, studies, technical assistance and training. Price contingencies have been calculated on the basis of the following annual percentage rates applied to local and foreign costs, including physical contingencies, as follows: 1987 1988 1989 1990 1991-1994 Local costs 8.0 8.0 8.0 8.0 8.0 Foreign costs 3.0 1.0 1.0 1.0 3.5 (3)287E) - 23 - F. Financing 4.23 A Bank loan of US$20 million to the Government of Tunisia is proposed to finance 100% of the foreign exchange component of the Project, including the foreign exchange component of incremental operating costs. The balance of funds required would be financed by the Government. The Bank loan would cover 40% of project costs (51% of project costs net of taxes). The project costs would be shared in the following amounts and proportions: Local Foreign Total % of Net --(US$ M Equivalent)--- Project Costs World Bank - 20.0 20.0 51 Government 19.6 - 19.6 49 Net project costs 19.6 20.0 39.6 100 Taxes and duties 10.6 - 10.6 27 Total project costs 30.2 20.0 50.2 127 4.24 The proposed Bank loan would be for 17 years including four years of grace. US$16.6 million would be included in the DF and US$3.4 million in the DREF annual budgets respectively. Government would finance the remaining project costs (US$30.2 million). The loan proceeds would retroactively finance up to $1 million for the purchase of satellite imagery. An estimate of the annual budget allocations between DF and DREF is given in the table below: ESTIMATED BUDGET ALLOCATIONS OF PROJECT COST (D'000) OF DREF Total Local FE Total Local FE Total Local FE Total 1988 2,132.9 3.021.0 5.153.9 454.3 373.1 827.4 2.587.2 3.394.1 5.981.3 1989 2,050.5 2.002.3 4,052.8 654.3 378.3 1,032.6 2,704.8 2,380.6 5,085.4 1990 2,342.2 1.620.3 3,962.5 832.7 412.4 1,245.1 3,174.9 2,032.7 5.207.6 1991 2,672.7 1,596.1 4,268.8 767.2 372.1 1,139.3 3.439.9 1.968.2 5,408.1 1992 3,024.7 1,570.9 4.595.6 853.3 472.2 1,325.5 3,878.0 2,043.1 5.921.1 1993 3,580.7 2.071.4 5.652.1 816.1 416.9 1.233.0 4,396.8 2,488.3 6.885.1 1994 3.135.2 1,639.4 4,774.6 1,234.0 321.3 1,555.3 4,369.2 1,960.7 6.329.9 Total 18.938.9 13,521.4 32.460.3 5.611.9 2,746.3 8,358.2 24,550.8 16,267.7 40.818.5 F. Procurement 4.25 Procurement would be centralized and carried out by DF and procurement arrangements are summarized in the foilowing table. (32276) - 24 - ----------------Method-------------- Project Element ICB LCB Other NA Total Cost ---------(US$ million)---------- Roads (exploitation) - (-) 2.0 (1.0) 0.9 (0.5) - (-) 2.9 (1.5) Buildings and minor works - (-) 0.5 (0.2) 0.1 (0.1) - (-) 0.6 (0.3) Seeding, planting - (-) 8.0 (3.0) 3.5 (1.5) - () 11.5 (4.5) Tending - (-) 1.0 (0.5) 5.3 (2.0) - (-) 6.3 (2.5) Soil preparation 6.3 (2.5) 0.3 (0.1) 0.1 (0.1) - (-) 6.7 (2.7) Satellite and aerial photos 1.0 (0.7) - (-) 0.3 (0.3) - (-) 1.3 (1.0) Vehicles 2.1 (1.4) 1.0 (0.7) - - - (-) 3.1 (2.1) Tractors and implements 1.1 (0.9) 0.4 (0.3) 0.3 (0.2) - (-) 1.8 (1.4) Other equipment - (-) 2.7 (1.9) 0.8 (0.5) - ( ) 3.5 (2.4) Technical assist. & training - (-) - (-) 2.0 (1.6) - (-) 2.0 (1.6) Incremental staff and other operating costs - - - - - - 10.5 (-) 10.5 (-) Total 10.5 (5.5) 15.9 (7.7) 13.3 (6.8)10.5 (-) 50.2(20.0) Note: Figures in parentheses are the respective amounts financed by the Bank. 4.26 Items procured under International Competitive Bidding (ICB) would be in accordance with Bank guidelines published in May 1985. Qualifying domestic manufacturers would be granted a margin of preference equal to 15% of CIF bid price of the imported goods or the actual custom duties and import taxes whichever are lower. Items to be procured by ICB include land clearing, soil preparation, construction of roads and firebreaks for mechanized fast-growing plantations estimated at US$6.3 million. The size of contracts is likely to attract foreign competition most partidularly in joint ventures with local earthmoving firms to which they would bring the know-how and experience. ICB would also be used for the supply of aerial photos (US$1 million), vehicles (US$2.1 million), and tractors and implements (US$1.1 million). 4.27 Local Competitive Bidding procedures in Tunisia are generally consistent with the need for economy and efficiency in the execution of the Project. However, assurances were obtained at negotiations that no margin of preference would be granted to local manufacturers, all bidders would be treated equally (particularly in the provision of securities) and bid opening would be public. The major international makes are well represented in Tunisia and LCB is an adequate procedure for procuring minor machinery, tools and miscellaneous equipment. With the exception of the soil preparation and related works for mechanized plantations, LCB would be widely used for other works such as the construction of buildings, tanks, fire towers, and other works (US$0.5 million), construction and rehabilitation of roads of existing forest access and exploitation (US$2 million), part of seeding, planting and tending operations (US$9 million) and miscellaneous soil preparation (US$0.3 million). Equipment and vehicles costing US$150,000 equivalent or less would also be procured under LCB provided the aggregate cost of all vehicles and equipment so awarded would not exceed US$4.5 million. (3227E) - 25 - 4.28 Other Procedures. Both DF and DREF are experienced in executing works and constructions on Force Account. Accounting control of the execution of force account works under standard government procedures, which are acceptable to the Bank, will be improved with the help of technical assistance (para. 4.17). This arrangement would give additional assurances of full compliancy with the Bank SOE procedures requirements. Force account would be used for seeding, planting (US$3.5 million) and tending operations (US$5.3 mill-on), as well as for some roads and small dispersed works (US$1 million), with prior approval of the Bank. Goods readily available off-the-shelf, such as office equipment or specialized items of small value (US$0.8 million), would be procured through Local Shopping based on at least three price quotations. Specialized items such as satellite images (US$0.3 million) will be subject to Internationel Shopping from the few available suppliers. 4.29 Consultants for technical assistance (US$1.7 million) with qualifications, terms and conditions of employment satisfactory to the Bank, would be appointed following Bank guidelines on the use of consultants published in August 1981. 4.30 Contract Review. All bidding packages for works estimated to cost the equivalent of US$1 million or more and bidding packages for goods costing the equivalent of US$300,000 or more would be subject to the Bank's prior review of procurement documentation resulting in a coverage of about 75% of the total estimated value of contracts for both goods and works. The balance of contracts would be subject to random post-review by the Bank after contract award. The first bidding document for works or goods below those limiLs would also be reviewed prior to the start of the bidding. Assurance that the above procedures would be followed were obtained at negotiations. H. Disbursements 4.31 The disbursement profile for EMENA Agriculture and for Tunisia Specific Investment Loans show that full disbursement has taken an average of ten and eleven years after Board Presentation date respectively. For the two specific investments in agriculture projects completed in Tunisia in the past (Loans 1068 and 1431-TUN) full disbursement was attained after nine years and Loan 1796 (project already completed) will be disbursed in eight years. Other on-going projects in the sector show a good pace of implementation and disbursements have mainly been affected by the increasing value of the dollar compared to appraisal estimates. In the case of the present Project, full disbursement has been assumed to take place over nine years according to a profile very similar to the Tunisia Sector Investment and Maintenance Loans. This is a conservative estimate that takes into consideration: (a) allowance for an initial delay for preparation and launching of the Project; (b) an allowance for a delay at the end of the Project due to unexpected factors and to lack of experience of the executing agencies in implementing Bank projects; and (c) an allowance of one and a half years to finalize disbursemc t after project completion. Table 3 indicates the expected schedule of disoursements and compares it with the other referred profiles. 4.32 Disbursements would be made after receipt of full documentation, except in the case of works on force account and goods and services provided under contracts valued below US$100,000 equivalent for which disbursements would be made against certified statements of expenditure (SE). The SOE would be certified by the project implementating agency incurring the ( 3227E) - 26 - expenditure. Supporting documentation would be retained by the implementing agency and made available for inspection during Bank supervision missions and by external auditors. No separate reimbursement application for less than US$20,000 would be accepted for direct payments. Disbursement categories, amounts allocated and the share of expenditures to be financed would be as follows: Category Amount of % of Expenditure to Loan Allocated be Financed (US$ million) 1. Works, buildings, roads 2.4 50% of local and 100% of foreign expenditures 2. Plantations, soil preparation, seeding and tending 7.1 40% of local and 100% of foreign expenditures 3. Equipment, vehicles and 6.0 70% of local and 100% of foreign materials expenditures 4. Consultants and training 1.4 100% of total expenditures 5. Unallocated 3.1 Total 20.0 4.33 To ensure the efficient and timely implementation of the Project, the Bank would deposit after loan effectiveness an initial sum up to US$2 million to set up a revolving fund to finance eligible expenditures corresponding to the Bank's share of four months' project needs. Bank funds would be deposited in US dollars in a special account at the Central Bank of Tunisia (BCT) and would be channelled as needed to the Project through the Banque Nationale de Tunisie (BNT). For this purpose, a project account would be opened by the DF at BNT in Tunis. Government counterpart funds would be secured through appropriate budget allocations. Assurances were obtained at negotiations that the Project's draft annual budgets and financial plans, as proposed to the Ministries of Planning and Finance, would be presented to the Bank for information no later than September 30 of each year. 4.34 The Bank would replenish the revolving fund as requested upon receipt of satisfactory evidence that expenditures made from it were eligible for financing out of the fund. A replenishment request would normally be sent to the Bank when 50% of the revolving fund has been disbursed, i.e., about every two to three months. Should any disbursement made from the special account not be acceptable to the Bank, Government would be required to deposit the corresponding ineligible amount into the special account, or if the Bank so requests, refund to the Bank an amount equal to the amount not eligible. 4.35 No further deposits into the special account would be made by the Bank when the total unwithdrawn amount of the part of the loan that is (3227E) - 27 - expected to be disbursed at loan closure would be equal to US$4 million. If it is determined that any amount outstanding in the special account is not required to cover further payments for eligible expenditures, the Government would refund to the Bank such amount outstanding in the special account. V. PROJECT IMPLEMENTATION A. Organization, Management and Execution of Works 5.01 Project execution will be managed by a Project Management Unit (PMU) specially set up for this purpose in the Forestry Department (DF) and under the direct responsibility of its director general. It is headed by an engineer assisted by one administrator, one accountant, and other support staff as required. The Project would provide equipment to help the PMU to fulfill its duties specified in Annex 13. PMU would be responsible for coordinating project activities among the executing agencies (DF, JDREF, INRF, and CFPR) and for organizing training and technical assistance programs. However, the primary responsibility for project execution would rest with the DF, followed by the DREF, the INRF (applied research) and the CFPR (training). 5.02 A Forestry Coordination Committee (FCC) has been created to review, coordinate, and monitor the annual programs of forestry development in the country and in particular, their relation to the Project. The FCC would also evaluate how those programs comply with the strategy agreed with the Bank in the framework of the Agricultural Sector Adjustment Loan (Loan No. 2754-TUN). It was set up before negotiations, and would be chaired by the Secretary General of the MOA and it would have representatives of forestry, livestock, water and soil conservation departments and of the development agencies working on the project impact area. The FCC would meet twice a year, at least. 5.03 At the central level of the MOA, the DPSAE would monitor project activities within the established methodology for monitoring and evaluating the projects executed under the MOA. It would also be responsible for the preparation of the project completion report. 5.04 All project activities related to the Exploitation component (logging, felling and thinning) would be the responsibility r2 the DREF which would be provided with the equipment (para. 4.18) and training (para. 4.17) to improve the quality of produce and its performance. During project implementation, the preparation of direct DREF logging would decrease in favor of contract logging. The DREF logging operation is intended as an extension service for the introduction of new techniques and it would encourage its own operators to buy equipment and continue as independent contractors eventually. Although the Project would also provide some maintenance equipment, maintenance and repairs of exploitation equipment will rely on the existing structure which is satisfactory. The DREF will also be responsible for selling the wood following procedures outlined !n para. 2.19 and detailed and described in Annex 11. 5.05 All the other project components would be the responsibility of the DF, apart from the applied research and part of training assigned to (32279) - 28 - specialized agencies. The supervision and execution of the Forest/Pastureland inventory and the preparation of the national plan for the development of forestry resources would be carried out through a unit within DF to be specially set up and operated with the help of external technical assistance (para. 4.17). Assurances that this unit would be created before loan effectiveness and that the inventory and plan of development would be ready by December 31, 1990, were obtained at negotiations. The remaining components would be implemented through the existing directorates of the DF (see Chart No. 2) depending on the specialty. The activities under the Project are largely part of the usual routine of the DF. However, special assistance would be required for drafting bidding documents for soil preparation included in the mechanized plantation component. The Project would provide funds for this purpose (para. 4.17). In addition, the promotion of a successful large-scale public tree planting program would be of primary concern of DF. The Project would finance training of staff in nursery development and in communication (para. 4.17), and an information campaign among the public would be developed to promote appropriate tree planting and maintenance. 5.06 The applied research program would be implemented by the INRF in accordance with a protocol to be signed with the DF (para. 4.12). Furthermore, the Government would ensure that extension training in exploitation techniques would be provided by CFPR. The Project would also provide funds for equipment and consultant services for this agency. The PMU would be directly involved in monitoring the implementation of the research and training programs in addition to the overall Technical Assistance and Training component. 5.07 As of December 1986, the DF with its five subdirectorates (Chart No. 1) and its regional departments comprised about 460 technical staff ( 28 chief engineers, 34 engineers, 150 assistant engineers, and 213 technicians) and 68 administrative personnel. Under the present condition of constrained activities due to budgetary limitations, this staff is sufficient but it lacks operational means (transportation, equipment) to fulfill its tasks satisfactorily. The Project would strengthen the headquarters with operational means (para. 4.18) to improve liaison with the field, ameliorate the management and control of accounts through the technical assistance program (para. 4.17) and refresh and enhance the technical skills of existing staff through training (para. 4.17). The DREF (Chart No. 2) has 35 technical staff (3 engineers, 15 assistant engineers and 17 other technicians) and 6 administrative personnel. Field activities are carried out by laborers recruited as needed. As a whole, this structure is adequate given current exploitation volumes. However, there is a virtual absence of transportation between headquarters and the field (to be addressed by the Project, para. 4.18); the two chiefs of technical departments in the DREF have not yet been formally appointed which leads to work overload of the Director. The situation however is expected to be corrected shortly. The Project would provide funds to strengihen the operational and technical capabilities of the DREF (para. 4.18). Contracting of Works 5.08 Mechanized Plantations. Works related to fast growing forest plantations represent 34% of the total project investment costs; US$6 million or 45% correspond to mechanized operations covering about 8,100 ha distributed (3 227 E ) - 29 - in three areas - Tegma, Nefza and Sedjenane. Preparation work to be carried out by DF would include demarcation of areas, preparation of tender documents and subsequent procurement procedures, cutting, removing and sale of any wood produced from the natural ground cover prior to clearing and selection of species to be planted. Clearing and soil preparation would be executed by contract procured under ICB procedures (para. 4.26). Technical specifications referred to in Annex 4 would be taken into consideration when issuing bidding documents for the execution of the earth works. The DF would be assisted by consultants in the preparation of these documents (para 4.17). The same contractor would also be responsible for undertaking infrastructural work such as construction of roads and fire breaks. Bids would be invited for separate lots, which could also be awarded in packages of 2 or 3 lots depending on prices and contractors' capacity. The DF would assure the supervision of the works and be directly responsible for the planting and subsequent tending during the two years after planting. 5.09 Other Works. As a rule, miscellaneous infrastructure works (construction and rehabilitation of buildings, roads, fire towers, fire breaks, etc.) would be executed through contracts procured under LCB (para. 4.27) and supervised by the DF. However, force account could be used when the dispersed nature of the works and their small size would render them unattractive to contractors. Standard designs for these works are available and most of them have been accepted by the Bank in other projects. All other forest related works (seeding, planting, clearing, tending and maintaining) are traditionally carried out by DF on force account. B. Monitoring and Evaluation 5.10 Monitoring. The PMU would be responsible for monitoring the progress in project implementation and for collecting data needed to evaluate the project impact.. For this purpose, early in the project implementation and within the framework of the technical assistance component, the PMU would be assisted by a consultant (para. 4.17) to set up a project management information system (MIS). This MIS would follow the main pattern for project monitoring and evaluation already used for other Bank-financed projects in Tunisia but with the necessary adjustments due to the intrinsic nature of forestry activities. It would cover both the financial and the physical implementation of the Project, addressing in particular execution of contracts, control of force account works and loan disbursements. The strengthening of the DF and DREF accounting system and the setting-up of separate project cost accounts would also contribute to establishing a suitable MIS. 5.11 Reporting and Evaluation. The Planning Department of the Ministry of Agriculture (DPSAE) would be responsible for evaluating project results. The PMU would prepare semi-annual project progress reports in accordance with mutually agreed guidelines and would submit them to the Bank. The DPSAE would prepare a project completion report within six months of the closing date. Assurances to this effect were obtained at negotiations. C. Accounts and Audit 5.12 The administrative and accounting departments of DF and DREF at central and regional levels are performing satisfactorily within the public accounting system required by Government. Annual budget allocations refer to types of expenditures of the Public Accounting Plan but they are not connected ( 3227E - 30 - to specific development projects. The DF and the DREF are also made responsible for managing special socially oriented funds aiming at supporting emergency Government programs.!- Within the framework of improving current financial management conditions, separate project cost accounting systems would be set up in DF and DREF. Assurances to this effect were obtained at negotiations. The Project would assist in designing those systems through the provision of consultant services (para. 4.17). These accounts would be coordinated by PMU and maintained in accordance with principles and practices satisfactory to the Bank which have been recently discussed and are being adopted by other departments of the MOA, e.g., under the NW Agricultural Production (Loan 2502-TUN). In order that project accounts are properly kept, any nationally subsidized program should be identified in the annual budgets of DF and DREF. These separate budget lines would be established no later than December 31, 1988. Assurances to this effect were obtained at negotiations. The project accounts would be audited by independent auditors acceptable to the Bank. The auditcrs' annual long-form reports, along with opinions on the Statements of Expenditures for disbursements under the Bank Loan and on the revolving fund (Special Account), and audited project financial statements would be sent to the Bank within six months after the end of each fiscal year. Assurances to this effect were obtained at negotiations. VI. PRODUCTION, MARKETS, PRICES AND FINANCIAL RESULTS A. Production 6.01 Wood production from existing natural forests and plantations would take place during the project invesment period, beginning in year 1 and reaching full development from year 3 onwards. Wood production from new plantations would follow rotation lengths and yields, beginning in Year 11, and ending in year 40. Due to the nature of trees planted and the expected rotation lengths, some wood would be produced in each of these years. The greatest amount of wood would be produced in years 31-36, when mature pine trees are expected to be clear felled. Total estimated wood production with and without project over the 40-year period is shown below. PROJECT ESTIMATED WOOD PRODUCTION Zeen Cork Without Incre- Poplar Pine Eucalyptus Acacia Oak Oak TOTAL Project mental -------------------------(in thousands of cubic meters)---------------------- Peeler Logs 391.8 - - - - - 391.8 - 391.8 Sawlogs - 2,193.5 211.1 - 1,160.0 - 3,564.6 180.0 3,384.6 Chipwood 93.6 1,819.8 725.4 - - - 2,638.8 1,400.0 1,238.8 Mining Timber - 748.0 139.5 - 77.5 - 965.0 40.0 925.0 Poles, Posts. Pickets - 701.6 180.2 - 40.0 - 921.8 520.0 401.8 Fuelwood - 2,071.0 1,320.0 /a 160.0 1,047.0 1,362.0 5,960.0 3.060.0 2,900.0 TOTAL 485.4 7.533.9 2,576.2 160.0 2,324.5 1,362.0 14,442.0 5,200.0 9,242.0 Without Project - 3,600.0 960.0 160.0 160.0 320.0 5,200.0 Incremental 485.4 3,933.9 1,616.2 - 2.164.5 1,042.0 9,242.0 /a Includes some acacia. 1/ Forestry-related activities have traditionally been used to absorb unskilled unemployed labor. - 31 - B. Market Prospects 6.02 Tunisia's self-sufficiency ratio in wood and wood products is very low except for small volume items such as agricultural timber and chipwood. Consequently, no difficulty is foreseen in marketing project output of timber and fuelwood which is aimed at domestic consumption. 6.03 The Project's main output, both in terms of volume and value, will be sawlogs. At present, domestic production of sawlogs and sawn timber, represents barely 4% of total consumption. Over the Project's 40-year life, Tunisia's self-sufficiency ratio in sawn timber would increase to over 20% if FAO projections of wood demand are met (Annex 11), even under the extremely conservative assumption that private plantations do not provide any sawn timber to the market. In addition, poplar peeler logs that have not so far been produced in Tunisia, will be made available. 6.04 Projected output of chipwood for particle board would represent some 13% of incremental wood production. These quantities would be adequate to ensure full capacity utilization of existing industrial infrastructure, and would certainly preclude the need for imports of raw material which have taken place in the past. More importantly, the type of chipwood mix provided would change from the present 50% eucalyptus-50% pine and other conifers to a more desirable one of roughly 30% eucalyptus-70% pine. This in turn would enable production of better quality particle board, and would replace imported sawn timber in certain kinds of furniture making. 6.05 Utility timber in the mining, agriculture and construction sectors would also be provided by the project. Around 10% of incremental project output would be used for mining timber (pitprops, roofing of galleries), and would substitute for part of the approximately 20,000 m3 of mining timber imported annually. Timber ieeds for agriculture are largely provided by private woodlots and farm windbreaks. Availability of wood from these sources is likely to increase given the Government's policy of encouragement to private plantations. Consequently, agricultural timber and poles for construction would only represent around 4% of incremental project output. 6.06 Fuelwood (including charcoal) would represent over 30% of incremental project output. This implies an almost doubling of current official production. The deficit in fuelwood has been estimated at around 2 million m3/year by the FAO. This deficit is presumably met through illegal cutting of forests. Together with other project actions (improved yields of charcoal and better thermal efficiency to be achieved through the utilization of improved wood stoves), the incremental production is expected to alleviate the present pressure on Tunisian forests. An additional factor that is expected to contribute to decreasing illegal activity in forests is the increasing use of alternative energy sources for cooking, notably bottled gas. C. Prices 6.07 As discussed in paragraph 2.19, the DREF sells wood either by auction or at fixed prices. Auctions are organized for sale on stump or of stacked wood (paras. 6.08-6.09). Fi2ed price sales are made in three different ways, namely sales at preferential rates to the forest population (also called rights-holders), against invoice to public sector entities, and by agreement for small volumes that do not justify the organization of auctions. Fixed (3227E) - 32 - price sales are made on the basis of a schedule of rates that have in the past been revised sporadically. The distortions introduced by the current practice of separate auctions for chipwood and by the way fixed prices are determined should be corrected. Assurances were obtained at negotiations that auctions would be opened for all categories of wood to all licensed wood buyers by December 31, 1988, and that each year starting with 1989, reference prices for all types of wood to be sold directly to wood users would be determined based on the prices obtained under auctions undertaken in the preceding year, and taking into account the ability of such users to pay. 6.08 Auction Price of Tree Stands. DREF sells tree stands of specified standing volume at public auctions (para. 2.14). Auction prices depend on the type of wood involved, prices for end-products and logging conditions. In 1985, the average price received in the project area was 24 D/M3. In 1986, there was a higher proportion of small wood offered at a time when this market was depressed, and the average price received was only 11 D/m3. Price data by species are not routinely maintained by the DREF, and examination of such data as do exist revealed that per cubic meter, pine stands fetch about twice as much as eucalyptus stands. 6.09 Auction Price of Stacked Wood. Approximately 30% of DREF wood production is sold as stacked wood at roadside. Auction prices depend on the type of utilization and quality of the wood as well as demand and supply interactions in the market at the given time. In the course of the Project, DREF sales of stacked wood are expected to increase less rapidly than total wood production, since private e-ploitation of forests is to be encouraged (para. 4.07). 6.10 Price Outlook. Price projections for individual items have been made based on (a) world market price outlook for temperate hardwoods and softwoods,!' and (b) expected supply/demand situation in local markets for the item in question. Weighted average growth rates have been calculated taking into account the proportion of wood expected to be sold in each of the ways discussed above (paras. 6.07-6.09) by category of end-product, and are as follows: (a) Sawlogs: While global demand for both hardwood and softwood logs is expected to grow, the supply potential of both temperate and tropical woods is limited. As a result of a tight supply situation, prices of logs are likely to rise in real terms in international markets. Local prices are expected to follow. Real price growth rates for pine sawlogs and poplar peeler logs are expected to be around 1% p.a. until 2000 and constant thereafter, and those for zeen oak and eucalyptus to increase at 1.3% p.a. until 2000 and remain constant thereafter. (b) Chipwood: The ratio of pine chipwood price to eucalyptus chipwood price is expected to be around 1.5. Prices of both woods are not expected to grow in real terms given that local supply is adequate to meet demand. (c) Mining Timber: Domestic demand for mining timber is not likely to grow appreciably in the foreseeable future. Prices are therefore projected to remain constant. 1/ Obtained from World Bank Commodity Forecasts Division; closest substitute to Tunisian woods. (3227E) - 33 - (d) Agricultural Timber: The demand for agricultural timber is satisfied to a large extent from private plantations, and prices for project output are not expected to grow in real terms. (e) Fuelwood: Fuelwood from legal cuttings is mostly transformed into charcoal, which is sold in both urban and rural areas. Prices are determined by demand/supply interactions and have more than tripled since 1980. However, given the relative price of fuelwood compared to other energy sources, fuelwood prices are not expected to follow past growth trends; rather, they are projected to increase at the same rate as that projected for petroleum products: 3.7% p.a. until 2000 and constant thereafter. (f) Cork: The price for cork varies widely in international markets based on quality considerations. The quality of Tunisian cork itself is variable, given the di'fferences in exploitation, which condition future harvests, and which are further exacerbated by the cyclical nature of cork production (trees are debarked on a 12-year rotation). Selling cork by free auction, open to both the parastatal and the private sector (para. 2.20), would remove the distortions in cork pricing that are present in the existing system, to the benefit of DREF, which would obtain better prices for its production, and to the country as a whole. Prices for cork in the domestic market are expected to increase since demand for cork exceeds supply. Assurances that cork sales would be liberalized by December 31, 1989 were obtained at negotiations. In such a situation, it is difficult to predict with certainty the actual rate of increase in prices. A growth rate of 3% in real. terms has been retained until the year 2000. This is on the conservative side given the world market outlook. It is estimated that international prices are at least 50% higher than local prices.1/ 6.11 Composite Growth Rates. Based on the individual forecasts above, composite price growth rates have been calculated by species per cubic meter of wood on stump. Prices of pine stands should ine ease at slightly less than 1% p.a. and those for eucalyptus at around 1.3% p.a., in real terms until the year 2000, and remain constant thereafter. Prices of zeen oak stands are projected to increase at 1.6% p.a. while those of cork stands at 3.3% p.a. iii real terms until the year 2000, due to the relatively higher increase in both fuelwood and cork prices. Prices of poplar stands are expected to increase at around 1% p.a. in real terms until the year 2000, and remain constant thereafter. Overall, all price estimates retained are on the conservative side, since (a) 1986 prices were used as base year prices, and wood markets were unusually depressed in that year (Annex 11); and (b) very stringent assumptions concerning price increases have been made for all categories of wood other than sawlogs and fuelwood. D. Financial Results 6.12 Impact on Government Finances. Inflows to the Treasury would consist of production taxes payable on wood processing, taxes on staff salaries and duties and taxes on equipment and operating costs incurred in its use, in 1/ Based on the average export for Portuguese cork, brought to forest level for comparison purposes (see Annex 12). -34 - addition to sales receipts from wood and the proposed loan. Outflows would consist of government investment in the sector, incremental salaries and operating costs, together with debt service on the proposed Bank loan. Incremental ievenues resulting from secondary forest production or second level tax effects have not been included in the analysis. Table 7 summarizes the impact on government finances (details in Annex 12) over the first 20 years of the project. The net impact on government finances shows annual variation given the irregular sales revenues resulting from the Project, which in turn are due to the rigid observance (for the purposes of the analysis) of highly theoretical rotation and harvesting cycles. In reality, of course, the work program of the DREF would be considerably more stable. 6.13 Cost Recovery. A financ,ial analysis of the Project was carried out to determine cost recovery for production-oriented components from the Government's standpoint given these financial flows. The analysis shows that under the production, markets and price scenario discussed above, the Government achieves 100% cost recovery of forestry investment and O&M costs with a return of capital of 14%. Furthermore, cost recovery of accompanying measures such as range establishment is also indirectly achieved. In implementing the pasture and rangeland component, an effort would be made to interest the residents of forest villages to assume the responsibility for management of improved forage plots at an early stage. Since the pastures are being established or improved to permit closing and reforestation of areas presently used for grazing, recovery of investment costs would not be aimed for at this stage. Producers will bear expenses associated with the control of use of pastures as well as the maintenance of fences and removal of undesirable plants. Although high charges would hamper the already difficult task of organizing producers and getting them to take over management and control, the DF should estimate the operation and maintenance costs of the newly improved pastures and set up a procedure to recover such costs from the beneficiaries taking into account their ability to pay, by December 31, 1991.1' Assurances to this effect were obtained at negotiations. 6.14 Financial Rates of Return. The FRRs evaluated by project component and overall are shown below: Componen,t FRR Regeneration of natural forests 48% Establishment of new plantations 11% Exploitation of existing forests & plantations 32% Forest nurseries 26% Overall 14% 1/ Currently DF charges a nominal fee for the use of open or forest rangeland and the Office de Developpement Sylvo-Pastoral du Nord-Ouest recovers about 80% of O&M costs of their improved pastures. <3227E) - 35 - The Regeneration component is the most attractive since project actions involve exploiting natural forests in order to achieve regeneration with high immediate benefits. Similarly, high incremental revenues accrue as a result of better valorization of existing resources in the exploitation component. Forest nurseries show a high FRR due to low costs of production compared to the selling price of seedlings. An important implication for the Government, given its objective of encouraging private plantations, is that full cost recovery could still be achieved even if selling prices were lowered by 20%. 6.15 Sensitivity Analysis. The sensitivity of the FRR to changes in the magnitude and timing of incremental revenues and costs flows was tested under a variety of assumptions, which have been summarized below (details in Annex 12). Net Present Value /a FRR (%) Overall Project 3,883 14.0 Costs up 10% 1,832 11.8 Costs up 20% (219) 10.4 Revenues down 10% 1,444 11.6 Revenues lagged 1 year 1,666 11.6 Costs up 10% and Revenues lagged 1 year (386) 10.3 Revenues up 10% 6,323 15.6 /a In thousands of 1986 dinars at 10% discount rate. The scenario of an increase in revenues is included above since price estimates retained for the analysis are rather conservative (para. 6.11). Thus, a 10% increase in revenues does not seem at all unlikely. 6.16 Impact on Foreign Exchange Account. Inflows to the foreign exchange account would arise from savings due to import substitution, some export earnings and receipt of the proposed loan. Outflowr would consist of foreign exchange denominated expenditures on investment items and recurrent costs and on debt service of the proposed loan. A net surplus of foreign exchange due to the Project is expected to occur as early as year 2 of the Project. This is due to (a) increased domestic production of sawlogs and mining timber, both of which are currently imported; (b) increased production of chipwood, which leads to increased production of better quality particle board (para. 6.04) that would substitute for low grade imported sawn timber in certain types of furniture making; and (c) exports of poplar logs and small export of mining timber. The resulting foreign exchange savings more than offset foreign exchange denominated expenditures. Table 8 shows the expected impact for the years 1988-2007. The positive foreign exchange impact, net of debt service, is expected to total some US$24 million by year ten of the Project, and US$70 million over the life of the loan (17 years). (3227E) - 36 - VII. BENEFITS AND JUSTIFICATION A. Benefits and Beneficiaries 7.01 The direct quantifiable benefits of the proposed Project would arise from an increase in the production of sawlogs, other industrial timber, and fuelwood. This incremental production is expected to result in a decrease in imports of sawn timber, mining timber and chipwood (both directly and indirectly as discussed in paras. 6.04 and 6.16), and generate exports of poplar logs and to a lesser extent of mining timber, once local needs are satisfied. The resulting foreign exchange savings and earnings are expected to be of the order of US$4.5 million p.a. on average for the first 20 years, and considerably greater thereafter when mature pine trees are clear felled. As a result of the Project, Tunisia's self-sufficiency ratio in sawn timber would increase from its present level of 4% to around 20% over the Projects' 40-year life. The increase in the quantity and quality of chipwood produced would permit full capacity utilization of existing industrial infrastructure. The Project would result in a doubling of current official fuelwood production (an increment of some 2.9 million cubic meters) over its life, representing on average 72,500 m3 annually. This production, when transformed into charcoal, would be equivalent to 3,600 tons of Liquefied Petroleum Gas for household use, which would cost Tunisia around US$0.6 million/year were it to be imported (1986 prices). 7.02 Over the seven-year implementation period, the Project is expected to generate over 10,000 man-years of direct employment for unskilled labor and about 2,300 man-years of direct employment for skilled and semi-skilled labor (Table 9). Since project actions will occur for the most part in the relatively disadvantaged regions of the country, a large part of this employment will benefit poorer workers in these areas and help stem rural exodus. Even relatively capital-intensive operations (e.g., mechanized planations) are expected to generate over 1,900 man-years of direct, unskilled employment over the project implementation. Over the 40-year life of the Project, the exploitation of incremental wood production, resulting from proper implementation of forest management plans alone, would generate around 1,200 man-years of employment for unskilled labor (public sector), whereas over 9,000 man-years of employment would be provided through the private sector. The Project would thus bring about a shift in relative importance between the private and public sectors in employment creation, consistent with government objectives (para. 2.27). B. Environmiental Impact 7.03 A very important benefit of the proposed Prol4ct is its expected environmental impact. The Project's major contribution to environmental conservation will be the proposed regeneration of indigenous forest by ecologically and economically viable methods. Regeneration of some 85% (21,500 ha) of natural oak and pine forest that is presently in arrears (para. 4.08) will be initiated during the project period by a system of assisted natural regeneration that will use selected tree seed from the indigenous forest. These initiatives will be supported by pasture Improvement and grazing control (para. 4.14). Regeneration of approximately 10,000 ha in the southern-most affected arrondissement (Kasserine) will make a major contribution to the prevention of desert spread. These interventions will also contribute to a doubling of national annual production by the third year (3221E) - 37 - of the Project. Around 30% of the increase will be fuelvood, the present shortage of which is one of the principal causes of forest destruction (para. 2.12). Wood conservation will also be promoted by the replacement of wasteful manual tree felling and cross-cutting by semi-mechanized means and the improvement of charcoal-making techniques, which will double production efficiency. 7.04 The Project will arrest soil erosion by wind and water as well as increasing future wood supplies substantially by the establishment of over 10,000 ha of fast-growing tree plantations in degraded shrubland and on the banks of rivers. The riverain plantations, in addition, will fix river banks and serve as windbreaks in the agricultural areas in which they are to be established. These plantations will include a proportion of exotic tree species and the forestry research program will monitor their effects on the soil. Improvements in water supplies and transport that will affect a total of 25 forest nurseries will contribute to a significant increase in plant production (tree seedlings and forage shrubs) for public sales and tree planting. Annual plant production in the six nurseries primarily involved in public sales will be tripled, as will national production, to 90 million plants per year, by the fifth year of the Project. 7.05 The forest management component, which includes forest protection from fire, elimination of illicit clearance and rehabilitation of degraded forest, will be implemented in two pilot areas. Rehabilitation of overgrazed forest grasslands will be included in the regeneration, reforestation and management components and will contribute to a national plan to rationalize use of forests and forest grasslands. The Project's forest and pasture land inventory will provide the means of identifying degraded areas in need of remedial treatment and the basis for future national planning. 7.06 The nature conservation component will establish an enviro.Alental extension unit for public education and provide vehicles and equipment for Tunisia's three existing and one projected mainland national parks, wildlife inventory equipment for use nationwide, and vehicles for the principal wildlife officers throughout the central and southern region governorates. This would support the government proposal for protecting eight nationally and internationally threatened species of vertebrates. It will also provide technical assistance in environmental extension and training in national park management, ornithology, and animal and plant ecology. C. Economic Analysis 7.07 The overall economic rate of return (ERR) of the project is estimated at 18%. The quantification of benefits varies by component. In general, benefits are measured as the value of incremental wood production valued in economic prices. In one case, an attempt has been made to quantify certain intangible benefits (such as fire protection). Costs, also valued in economic prices, include investment and incremental operating costs over the Project's life (40 years). Tradeable items are valued at their border prices adjusted for transport to and handling within Tunisia. Labor, both skilled and unskilled, is valued at its estimated opportunity cost (50% of market wage for unskilled labor and the full market wage for skilled labor, adjusted for taxes). These items together with outputs and inputs not traded in world markets have been adjusted to border prices through the standard conversion factor for non-traded goods (estimated to be 0.90). The ERRs by project component and overall are shown below. - 38 - ERR Regeneration of natural forest > 50% Establishment of new plantations 16% Exploitation of existing forests & plantations 22% Forest nurseries 40% New forest management 17% Total Project /a 18% /a Includes all project costs. Unquantifiable benefits, such as long-term gains through research, training, and all environmental benefits are not included. Had it been possible to quantify, and therefore include such benefits (in particular, environmental) the ERR would certainly be much higher. The very attractive returns provided by the regeneration component are due to the fact that project actions generate immediate benefits. In the case of new plantations and forest nurseries, the ERRs are higher than the FRRs due to the high tax component included in the domestic prices of equipment and machinery. An additional factor for new plantations is the importance of unskilled labor in total plantation establishment and maintenance costs. In the case of the exploitation component, the ERR while 22%, is lower than the FRR. This is due to there being a smaller difference in economic terms between the benefits streams with and without project, whereas in financial prices, with project revenues are much greater than those without project. The benefits of the forest management component are largely environmental and include (a) protection from fire which could potentially damage not only the forest areas but the human and animal population living within or near them; and (b) the sustaining of forest, animal and crop production in the perimeters concerned.! 7.08 The alternative to the Project in the areas in question would be a continuation of present trends. Thus, in the absence of regeneration fellings, natural forests would remain unexploited and the two forest management perimeters would suffer further degradation. In the absence of new plantation establishment (mechanized), the scrubland would be suitable only for grazing, given the nature of the regions' soils. This has already been incorporated into the analysis as the "without" project scenario. Riverain plantations will fix river banks and serve as windbreaks; their absence would engender certain losses in agricultural productivity in the area. A viable mutually exclusive alternative does not suggest itself in light of the above. D. Project Risks and Sensitivity Tests 7.09 No major or unusual technical risks threaten the success of the proposed Project. Normal risks of fire have been addressed in project design (fire-breaks and surveillance). Plantation establishment technologies have been used successfully in other countries under similar conditions. However, the success of the Project could be threatened by slow acceptance of the new Forestry Code on the part of the forest population and, as a result, continued 1/ See Annex 12 for full details of the economic analysis by component. (3227E) - 39 - grazing pressure in forest areas. The Project's pasture component, which accompanies all relevant project activities, has been designed expressly to overcome this potential problem. 7.10 Risks that may result in deviations from the Project's ERR are delays in implementation, cost overruns and lower than expected production volumes, The price estimatei retained are conservative and barring major unforeseen calamities would tend to understate project benefits. Switching values for the Project's critical variables are given below. SWITCHING VALUES FOR CRITICAL VARIABLES /a Regene- Plan- Exploi- Nurse- Total ration tations tation ries Project Yields/Benefits -40 -55 -17 -54 -45 Establishment costs +96 +148 +53 +242 +123 Maintenance costs +297 +994 +37 +340 +302 Other project costs' +1,326 /a OCC = 10%. /b Indirect costs (inventory, research, training and technical assistance, Project administration) apportioned to each component. It can be seen that yields, and therefore benefits, would have to decrease by 45% to decrease the Project's ERR to 10%. Such a decrease in yields in unlikely since projected yields are conservative and considered to be attainable given foreseeable technical and managerial constraints. Project investment costs would have to increase by 123% to decrease the ERR to 10%, which would also appear to be an unlikely scenario. 7.11 Sensitivity tests were performed to assess the impact of these critical variables on the Project's outcome. They are summarized below for the Project as a whole: (a) a 10% decrease or a year's delay in benefits would reduce the ERR to 15%, and a 20% decrease or two years delay would reduce the ERR to 13%; (b) a 10% increase in costs would reduce the ERR to 16%; a 20% increase to 14%; and (c) a 10% increase in benefits would increase the EPR to 21%, while a 20% increase would increase it to 25%. This analysis was also carried out by component. The regeneration component is not very sensitive to increases in costs or decreases in benefits (a 20% increase in costs together with a 20% decrease in benefits still yielded an ERR of 38%). For the plantation component, timeliness in implementing project actions seems to be a more critical factor affecting the ERR than either an increase in costs or decrease in benefits (a two-year delay in realizing benefits reduces the ERR to 14%). - 40 - 7.12 The above underlines the importance of strong project management and monitoring to coordinate project activities and minimize delays in implementing project actions. This coordination is particularly critical for new plantation establishment. VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATION 8.01 At negotiations assurances were obtained that: (a) New major investments in the forestry sector would be selected in accordance with criteria already mutually agreed for the agricultural sector in general (para. 4.01); (b) A project MIS system would be prepared and implemented to be fully operational by December 31, 1988 (para. 4.17); (c) Before December 31, 1988, (i) selected applied research themes considered essential for the Project would be included in the INRF work programs in accordance with a protocol to be signed between DF and the INRF; and (ii) the CFPR would provide training to forest exploitation workers on selected matters (para. 4.18); (d) In the framework of execution of works or supply of goods to be procured under local competitive bidding and to be cofinanced by the Bank no margin of preference would be granted to local manufacturers, all bidders would be treated equally, particularly in the provision of securities, ind bids shall be opened in public (para. 4.27); (e) All bidding documents for works estimated to cost the equivalent of US$1,000,000 or more and for goods costing the equivalent of US$300,000 or more, and the first bidding documents for works or goods below those limits would be subject to Bank's prior review. The balance would be subject to Bank's post-review after contract award (para. 4.30); (f) A revolving fund with an initial deposit up to US$2 million would be set up (para. 4.33); (g) The Project's draft annual budgets and financial plans would be presented to the Bank for information, not later than September 30 of each year (para. 4.33); (h) The DF would prepare the forestry/pastureland inventory and the Master Plan for Development of the Forestry Resources by December 31, 1990 (para. 5.05); (i) The Project Management Unit (PMU) would prepare and send to the Bank semi-annual progress reports in accordance with mutually agreed procedures (para. 5.11); (3237E) - 41- (j) The DPSAE would prepare a Project Completion Report within six months of the closing date (para. 5.11); (k) Any nationally-subsidized "make work" programs should be identified separately in the annual budgets of DF or DREF no later than December 31, 1988 (para. 5.12); (1) Separate cost account systems for the Project would be kept by DF and DREF coordinated by PMU; Government would hire independent auditors and transmit their reports to the Bank within six months after the end of each fiscal year (para. 5.12). (m) By December 31, 1988, auctions would be open for all categories of wood to all licensed wood buyers, and each year starting with 1989, reference prices for other types of sales would be determined based on the prices obtained under auctions undertaken in the preceding year and taking into account the ability of wood users to pay (para. 6.07); (n) Cork sales would be liberalized by December 31, 1989 (para. 6.10); and (o) The DF would estimate operation and maintenance costs of improved pastures implemented under the Project and set up a procedure to recover such costs from the beneficiaries, taking into account their ability to pay, by December 31, 1991 (para. 6.13). 8.02 As conditions of effectiveness of the proposed loan, Government would promulgate the Forestry Code (para. 2.21), and set up within the DF a unit to supervise the execution of the forest/pastureland inventory and the preparation of the master plan for the development of the forestry resources (para. 5.05). 8.03 Based on the above agreements, the proposed Project is suitable for a Bank loan of US$20 million to the Government of Tunisia for a term of 17 years including 4 years of grace. The Project is expected to be completed by December 31, 1994. ( 3227aIa) - 42 - Table 1 STAFF APPRAISAL REPORT TUNISA FORESTRY DEVELOPMENT PROJECT Project Components by Year (DIAR '00) Base Casts Total 198 1989 1990 1991 1992 1993 1994 DINAR .US$ '00) zzzzz ZZ=Zw= ZZZZUZZ ZZZ=Z= vZZv ZZ888 == ZtZZaXZ 2=22 asztzzs:z:zzzz::2 A. FOREST EXPLOITATION 1,431.2 1#497.6 1,869.0 1,474.2 1W684.3 1t568.7 1627.3 11P152.3 13717.1 P. FOREST PLANTATION 736.4 951.9 1411.0 1866#9 2#102.8 228.6 2008.4 11,358.0 13070.5 C. FOREST MANAGEMENT 174.1 262o6 92,2 123.2 146.9 210.9 60.0 iso?0.0 1,16.1 D. FOREST RANOE IMPROVEMENT 268.8 302.3 361.5 247.7 130.5 93.9 92.3 1496.9 19841.2 E. INSTITUTIONAL DEVELOPMENT AND SUPPORT 2#708.7 1373.2 529.2 483.7 251.4 660.1 298.8 61305.1 7)755.4 Total ?ASEL1NE COSTS 51319,2 4387#7 4262.9 49195.7 4315.7 4814.2 4.086.9 31382.2 38v600,5 Phus.cal Cortingereis 475.6 330.8 304.8 297.1 322.4 375.2 292.8 2t398.7 2,950.4 Price Contigenc:es 186.5 367.0 639,9 915.2 1P282.9 1P695.7 1p950.2 7037.5 8,656.3 total PROJECT COSTS 5981*3 >085.4 5*07.6 5408.1 SP921.1 6s885.1 6329.9 40t818.5 50s207.2 zvzzzcz SmZaaa =2SSSES Zasz=ZEs xzz=tz ===s=vrazzS as=ssa= ::=zzs ta1es 1p619.9 1t162.6 19000.7 1#016.2 1137.9 1P504.6 1#136,0 8.627.9 10,612.4 Forein E;Ichange 3t394#1 2M3806 2032.7 1968.2 2,043.1 2t488.3 1.960.8 16v267.7 20#009.4 ---w--------------------------------------------------------------------------------------- Februerv 1?# !087 !3:44 - 43 - Table 2 STAFF APPRASAL REPORT TUN~I MRETRY DEOPMENT PROJECT SEmm~y Accouts Cost mmmy BEST. COPY AVAILABLE (DINAR '000) (USf '000) Z Tota: ------------- ----------- %Forein Basa Local Foreign Total Local Foreign TÅtal Excharme Cos'a s:2==*= 332=333= c2. 13 2343r3= X==za: a 2:g:ag z: NESMNENT COSTS 4. VEHICLES AND EQUIPNVT PICK-UP 326.7 381.5 708.2 401.8 469.2 871.1 54 2 IMPLEENTS 53,7 56,4 110.2 66.1 69.4 135.5 51 TRACTOR 273.1 664.0 937.0 335.9 916J 19152.6 71 3 CARS 636.2 603.5 1,239.7 782.6 742.3 19524.9 49 4 OTHER EOUIPIENT 880.4 1054,3 1,934.7 1,083,0 1p296.8 29379.8 54 6 CARTMMRAPHIC EWUIPHENT 12.1 24.3 36.4 14.8 29.9 44.7 67 NOTO 35.0 22.9 57.9 43.0 28.2 71.2 40 CCNSUMAoLES 7.1 15.8 22.9 8. 19.4 28.1 69 SPAREPARTS 163.1 19.5 352.6 200.6 233.1 433.7 54 TRUCKS 40.8 60,9 101.7 50.2 74.9 125.1 60 3ACHINERY 63.8 88.8 152.6 78.4 109.3 187.7 58 2 SUPIES 331.4 660.9 992.4 407.8 812.9 1,220.7 6? 3 LAORATORY 26.5 44.8 71.2 32.6 55.1 87.6 63 U-Total UEHICLES AND EQUIPMENT 2850.0 3,867.6 6,717.6 39505.5 4#757.1 8,262.7 58 21 3. PLANTATIONS CLEARING 20,3 20,0 40.3 25.0 24.6 49.6 50 SEEDING 49175.2 3,328.4 7.503.6 5.135,5 49094.0 9t229.5 44 24 501L PREPARAT1WN/REGENERATION 1,147.9 1,128.4 2s276.3 1>411.9 1,387.9 2799.8 50 7 TEDING 2,504.9 605.2 3.110.1 3.081.0 744.4 3,825.4 19 t Sub-'jtal PLANTATINS 7*849.2 5,082.0 12.930,2 9.653,4 6,250.9 39904.3 39 4: C. U0RS RDS 1598.5 1#572.6 39171.1 19966.1 1.934.4 3,900.5 50 1C FENCING 23.7 13.8 37.4 29.1 16,9 46.0 37 - OTHER UORS 35.9 34.6 70.5 44.2 42.5 86.7 49 0 CONSTRUCTIONS 127.9 102. 230.7 157.4 126.4 283.8 45 Total WRS 1,786.0 19723.7 3.509.7 2,196.8 2120.2 4.317.0 49 1 . STUDIES TRAINING A TEMICAL ASSISTANCE TRANNG ADROAD 25.9 232.9 259.8 31.8 286.5 318.4 90 ,OrULTANTS 360.4 920.6 1,181.0 443.2 1#009.4 1.452.6 69 4 uh_Tota: STD.1S TRAIN4ING AND TECHNICAL ASSISTANCE 386.2 1,053.6 1.439.8 475.1 1295.9 1,771.0 73 1 9NVESTNENT CCSS 12.870.5 119726.9 24,597.3 15830.9 14#424.2 301255.0 4' - 44 - Table 2 Page 2 Summary Accounts Cost Sumary (cont'd) :. CRRENT COS'S A. PERSONNEi. ENGINERS 68.6 - 68,6 84.4 - 84.4 - TECHNICAL STAFF 557.3 - 557.3 685.5 - 685.5 SUPPORT STAFF 14.6 - 14.6 17.9 - 17.9 - LABORERS 1,873,1 - 1,873.1 29303.9 - 2303.9 - 3 Sub-Total PERSONNEL 2#513.6 - 2*513.6 39091.8 - 3.091.8 - D. WORKS RMADS 290.9 286,2 577.2 357.8 352.1 709.9 50 CONSTRUCTION 16,6 15.1 31.6 20,4 18.5 38.9 48 Sub-Total WORKS 307.5 301.3 60.8 378,2 370.6 748.8 49 C. RAE INPRONENT PASTURE MAINTENANCE 264.5 36,9 301.4 325,3 45.4 370.7 12 TrE MAINTENCE 16.9 1.6 18.5 20.8 2.0 22,8 Sub-Total RANGE INPROVNENT 281.4 38.5 319,9 346.1 47.4 393.5 12 1. VTHICLES AND E31PNENT '1iHICLES 798 1,038.0 1,836.8 982.6 1#276.8 2259.3 57 44CHINERY 580.2 889.9 19470.1 713.7 1,094.6 1808.3 61 TRUCKS 13.9 21.7 35.6 17.2 26.7 43.8 61 Sub-Tot;l 'XNICLES AND EQUIPNENT 1#393.0 1#949.6 3*342.6 19713.5 2t398.0 4111.4 58 otal RECURREXT COSTS 4e495,5 2.289.4 69784.9 5.529.5 2,816.0 8.345.5 34 tal OASELINE COSTS 17,366.0 14*016.3 31p382.2 21#360.4 179240.2 389600.5 45 Phusical Continenciaa 1,273.7 19125.0 2398.7 1,566.7 19383.7 2.950.4 47 3 Price Contirancies 5.911.1 1.126.4 7p037.5 7.270.7 1p385.5 8#65M.3 16 tal ROJECT C=TS 24,550.8 16,267,7 40,818.5 30,197,8 20,009.4 50,207.2 40 13C 333 833 838 Z~sans 333~8 33888883 33333 33 3 23 - 45 - Table 3 STAFF APPRAISAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT Estimated Schedule of Disbursements of Bank Loan IBRD BAnk Disbursements (US$ million) /a Relevant Profiles Fiscal Year By End of Cumulative Cumulative EMENA Tunisia Semester % Disbursed SIL-A SIL December 31, 1987 0.0 0.0 0 0 0 June 30, 1988 0.6 0.6 3.1 1.1 1.0 December 31, 1988 1.0 1.6 7.8 4.2 3.8 June 30, 1989 0.9 2.5 12.5 7.2 6.6 December 31, 1989 2.0 4.5 22.4 12.8 12.6 June 30, 1990 1.1 5.6 28.2 18.5 17.6 December 31, 1990 2.0 7.6 37.9 26.3 24.9 June 30, 1991 1.9 9.5 47.5 34.2 32.2 December 31, 1991 1.8 11.3 56.4 42.8 40.0 June 30, 1992 1.8 13.1 65.6 51.4 47.8 December 31, 1992 1.5 14.6 72.9 59.4 25.1 June 30, 1993 1.4 16.0 80.1 67.4 62.4 December 31, 1993 1.1 17.1 85.4 74.0 68.7 June 30, 1994 1.0 18.1 90.6 80.7 75.1 December 31, 1994 0.8 18.9 94.3 85.8 80.1 June 30, 1995 0.7 19.6 98.0 90.9 85.2 December 31, 1995 0.2 19.8 99.0 94.4 87.4 June 30, 1996 0.2 20.0 100.0 98.0 93.6 December 31, 1996 98.4 95.7 June 31, 1997 100.0 99.2 December 31, 1997 100.0 /a Expected date of signing: August 3, 1987 effectiveness: December 31, 1987 completion: December 31, 1994 closing: December 31, 1995 (32279) STAFF APPRAISALREPORT IUIIA FORESTRY DEVELOPMENT PROJECT Vehicles Forest Forest Mechan. Riverain Forest Range Nature Seed Instit. Regener. Exploit. Plant Plant Managt. Improv. Inventory Conserv. Collect. Support Total Car 5 CV- - - - - 4 - - 13 - 17 Car 9 CV- - - - - - 1 - - 15 - 16 Car 4WD (Small) is - 4 4 - - - - - - 23 Car 4WD (Large) - - - - 6 - - 17 - - 23 Pick-up truck 4 WD - 10 - - 4 6 12 14 3 7 56 Minibus- - - - - - - 1 - - 1 2 Workshop truck - 2 - - - - - - - - 2 Motorcycles - 83 - 25 - - - - - - - 108 (D Table 5 STAFF APPRAISAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT DOMESTIC FORESTRY PRODUCTION - PERSPECTIWES AND PROSPECTS Annual Production and Revenues from Natural Forests and Forestry Plantations /a 1980 1981 1982 1983 1984 1985 Wood (a2) Sava Timber 4,579 4,528 3,446 1,796 762 1,687 Mining Timber 299 1,070 614 18 606 414 Chipwood 22,270 29,224 25,589 11,880 11,209 17,500 Fuelvood 76,748 89,025 86,558 93,250 32,108 30,365 Poles, Posts, Pickets 19,436 14,489 16,012 11,694 12,658 12,923 Subtotal /b 123,332 /d 138,336 /d 132,219 /d 118,638 57,343 62,889 On Stump /c noa. n.a. n.a. 221,517 /e 54,265 11,880 Total Wood ('000 M') 123 138 132 n.a. 112 75 Total Wood (D '000) 485 551 502 886 666 940 Cork (D '000) 331 303 295 304 371 338 Secondary Products (D '000) Herbs & Medicinal Plants 67 40 59 35 90 238 Seeds & Seedlings 15 11 26 38 68 84 Quarry Products 45 20 49 165 151 250 Apiculture ) ) ) 9 22 24 Other (including ( 9 ( 7 ( 13 Olives & Almonds) ) ) ) 24 54 62 Pasture Fees 8 14 21 45 60 67 Hunting 24 83 14 142 152 66 Other 46 48 35 77 74 108 Subtotal (D '000) 214 223 277 535 671 899 Grand Total (D '000) = U n.a. = not available. /a Official sales by DREF. lA Stacked wood exploited and delivered to roadside by DREF. /c Exploited by private enterprise. /d Includes wood sold on stump. /e Trees; no figures or equivalent m' available. ( 32278) - 48 - Table 6 STAFF APPRAISAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT Plantations Established under National Development Plans 1962-86 (Hectares) Type of Plantation 1962-1972 1973-1976 1977-1981 1982-1986 Grand (Plans 1-111) (Plan IV) (Plan V) (Plan VI) Totals Protection Inland dunes 5,573 1,877 2,665 1,563 Coastal dunes 15,335 6,850 7,050 1,695 Enrichment 6,400 2,650 2,905 1,630 Open areas 34,000 6,700 8,565 2,303 Wind breaks 8,500 2,500 3,750 220 Roadsides 2 l0 S5 2,900 Total 72,508 21.577 33,505 10,311 137,901 Production Forest areas 30,600 6,900 15,000 5,000 Agricultural 6,700 745 - - Fruit trees - - - 110 Recreation 11500 600 600 730 Total 38,800 8,245 15,600 5,840 68,485 Fodder Shrubs Acacia, Cactus 9,650 4,360 31,020 17,374 62,404 Total protection areas 137,901 ha Total production areas 68,485 ha Total fodder shrubs areas 62,404 ha Total plantations 268,790 ha - 49 - lab~le 7 Page 1 STAFF APPRAISALRPORI IUMISIA FORESTRY DEVELOPMENT PROJECT FINANCIAL AND ECONOMIC ANALY51S uovernment Cash Flow - Ineramental /A 1988 1989 1990 1991 1992 1993 1994 - (Current 01000)---------------- IELOMS Sales Receipts Wood 553 2.357 3,654 3,991 4,361 4,763 5.322 Taza Wood /6 60 255 395 431 471 515 57S Staff salaries /C 22 54 76 74 72 73 107 Equipment and investments /4 1.527 905 670 664 774 1,126 767 Recurrent costs/g /g 71 204 255 278 292 306 312 Subtotal 1,660 1,418 1,396 1,447 1,559 2.020 1.761 Total Inflows 2,233 3,775 5.050 5,438 5,920 6,783 7.083 OUTFLgWS Investment 5.609 4.099 3.906 4,059 4.547 5,461 4.632 Salaries 167 399 566 548 532 542 797 Operating costs 205 587 735 801 842 882 900 Total Outflows 5,981 5.085 5.207 5.408 5,921 6,885 6,329 Current Surplus (Deficit) (3,748) (1,310) (1S7) 30 (1) (00) 754 BANK FINANCING Loan Receipt IBRD / 1.300 2.358 2.520 3.008 2.683 2.032 1.463 Debt Service Interest /g 2 198 393 615 842 93) 970 Principal /h 1,251 1,251 1.251 Commitment fee /1 161 34 28 21 14 18 4 Subtotal 213 232 421 636 2,107 2,190 2,225 NET FINANCING 1.087 2,126 2.099 2.372 576 (158) (762) NET CURRENT SURPLUS (DEFICIT) (2.661) 816 1.942 2.402 575 (260) (8) CUMULATIVE SURPLUS (DEFICIT) (2.661) (1.845) 97 2,499 3,074 2.814 2,806 /a With project over without project. Inflation rate of 8% till 1994; 4% thereafter till 1999. and 2% beyond. /l Resulting fars subsequent transformation; concerns industrial wood only-production tax of 16.82%. Ir Weighted average tax rate of 13.441. /A Including duties. /1 Weighted average tax rate of 34,63. /t Based on expected disoursemant profile; slow disbursement rate due to delays in processing requests. /g Although loan is on variable interest rate terms, a rate of 81 on the average balance outstanding has been assumed. /l Payable in 13 equal installments assumed to occur at the end of the year. /1 At 0.25% on undisbursed balance. Includes front end fee of 0.75% on entire loan amount. (32275) - 50 - lable Page 2 STAFF APPRAISAL REPORT FORESTRY DEVELOPHENT PROJECT FINANCIAL AND ECONOMIC ANALYSIS Government Cash Flow - Inemantal /A 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 - ----------------------------------------1994 O'000) ---------------------------------------- Sales Receants Wood 1,595 1,593 1.591 2,671 2.892 4,878 7.609 8,421 8,643 7.261 6.732 2.819 1,584 lanU Wood l1 172 172 172 289 313 527 822 910 934 785 728 305 171 Staff Salaries /C 107 107 107 107 107 107 107 107 107 107 107 107 107 Equipment and Investments /4 126 126 126 97 93 126 89 114 138 164 146 144 70 Recurrent Costs /d /a 312 312 312 312 312 312 312 312 312 312 312 312 312 Subtotal 717 717 717 805 825 1.072 1,330 1.443 1.491 1.368 1,293 868 660 Total Inflows 2,312 2,310 2,308 3,476 3.717 8.950 8.939 9.864 10.134 8.629 8,025 3.687 2,244 QUIllEMS Investment 635 635 635 488 468 631 448 575 694 825 731 722 360 Salaries 797 797 797 797 797 797 797 797 797 797 797 797 797 Operating Costs 900 900 900 900 900 900 900 900 900 900 900 900 900 Total Outflows 2.332 2.332 2,332 2.185 2.165 2.328 2.145 2,272 2.391 2.522 2.428 2.419 2.047 Current Surplus (Deficit) (20) (22) (24) 129 1.552 3.622 6,794 7.592 7,743 6.107 5,597 1,268 197 IORD 1f 704 151 baJALr.ds Interest /g 921 826 711 598 493 403 316 232 152 74 Principal /b 1,203 1,157 1.112 1.069 1.048 1,028 1.008 988 969 950 Commitment Fee/1 1 0 Subtotal 2.125 1,983 1.823 1.667 1,541 1.431 1,324 1.220 1.121 1.024 MET FINANCING (1.421) (1.832) (1.823) (1.667) (1.541) (1.431) (1,324) (1.220) (1.121) (1.024) NET CURRENT SURPLUS (DEFICIT) (1.441) (1.854) (1.847) (376) 11 2.191 5,470 6.372 6.62R 5,083 5.597 1,268 197 CUKULATIVE SURPLUS (DEFICIT) 1,365 (489) (2.336) (2.712) (2.iui) (610) 4.960 11.332 17.954 23.037 28.634 29.902 30,099 /A With project over without project. Inflation rate of 8% till 1994; 4% thereafter till 1999. and 25 beyond. /h Resulting fram subsequent transformation; concerns industrial wood only production tax of 16.82%. I& Weighted average tax rate of 13.44%. Id Including duties. / Weighted average tax rate of 34.63%. if Based on expected disbursennt profile; slow disbursement rate due to delays In processing requests. /g Although loan is on variable interest rate terms. a rate of 8 on the average balance outstanding has been assumed. / Payable in 13 equal installments assumed to occur at the end of the year. /I At 0.25% on undisbursed balance. Includes ftont end fee of 0.75% on entire loan amount. - 51 - lable 8 Page 1 STAFF APPRAISAL REPORT IUNISIA FORESTRY DEVELOPMENT PROJECT FINANCIAL AND ECONOMIC ANALYSIS Foreign Exchange Flow /A 1988 1989 1990 1991 1992 1993 1994 -------------------- (Current US$1000) Imort Substitute Wood Protution /r Poplar logs Sawlogs/sawn timber /A 964 2.635 3,963 4,042 4,123 4.205 4.289 Chipwood /g - 60 75 76 78 79 81 Mining timber /1 137 433 821 837 854 871 888 Subtotal 1.101 3,028 4,859 4,974 5.055 5,155 5.258 Export Possibili&ies /g Poplar logs - - - - Mining timber - - - Subtotal - - - Bank Loan Recetot 1,600 2,900 3,100 3.700 3,300 2,500 1,800 Total Inflows 2,701 5.928 7.959 8,674 8,355 7.655 7.058 011780145 Denominated eenditures Vehicles & equipment 3,130 763 371 51 251 873 177 Plantations 188 843 1,187 1,466 1,637 1,674 1,781 Works 167 453 380 424 475 456 422 Studies - T.A. 473 477 269 226 18 9 Operation & Maintenance IS4 409 539 559 559 590 704 Subtotal 4.112 2,945 2,746 2,726 2.940 3,602 3.084 Debt Service Interest 64 244 483 756 1,036 1,145 1,193 Principal - - 1,539 1.539 1,539 Committment fee 198 42 34 26 17 10 5 Subtotal 262 286 517 782 2,592 2,694 2,737 Total Outflows 4.374 3,231 3.263 3,508 S.S32 6.296 5,821 NET SURPLUS (DEFICIT) (1.673) 2.697 4,696 5,166 2.823 1.359 1,237 CUMULATIVE SURPLUS (DEFICIT) (1.673) 1,024 5.720 10,886 13,706 IS.068 16.305 /A Incremental. /h Or inflow equivalent, items resulting in a foreign exchange savings. /C Valued at average import price (CIF). /g includes 15% discount for quality considerations; weighted average across species. /a 1989 figure represents import of chipwood foregone. 1990 and beyond represents substitution of 25% particle board for sawn timber. If Maximwm 20,000 m3 per year (current imports). /g At FOB price. - 52 - Page 2 STAFF APPRAISAL REPORT FORESTRY DEVELOPMNT PROJECT FINANCIAL AND ECONDIC AMALYSIS Foreign Exchange Flow /A 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 - --------------------------------------(1994 US$000) ----------------------------------- Import Substitute Wetd Production /f Poplar logs - - - - - 1S7 167 157 157 157 157 157 157 Sawlogs/ Sawn timber /A 4.289 4.289 4,289 4,774 4.831 5.170 5.550 5.656 5.680 5.324 5.236 4.612 4,491 Chipwood /g 8 81 81 136 146 238 397 438 457 388 359 177 80 Mining timber /f 888 888 888 987 987 987 987 987 987 987 987 987 888 Subtotal 5.258 5,258 5.258 5.897 5.964 6,395 6.934 7.081 7.124 6.699 6.582 5,776 5.459 Elpart PassibiltLIAi /g Poplar logs - - - - 1.167 2.460 3.120 3.120 3.120 2.815 - mining timber - - - 45 66 90 165 156 177 45 45 45 - Subtotal - - - 45 66 1.257 2,625 3.276 3,297 3.165 2.860 45 - Bank Loan ReSeipt 900 200 - - - - - - - - - - Total Inflows 6.158 5.458 5.258 5.942 6.030 7.652 9,SS9 10.357 10,421 9.864 9.442 5.821 S.459 OUIELCHS Foreigan Exchane EMZonditure& Vehic. & equip. - - - - - - - - Plantations - - - - - - - - - - - Works - - - - - - - Studios - T.A. - - - - - - - - Operating costs 700 700 700 300 300 300 300 300 300 300 300 300 300 Subtotal 700 700 700 300 300 300 300 300 300 300 300 300 300 Ditbt Servics Interest 1.133 1,016 875 736 606 496 389 285 187 91 - - - Principal 1.480 1,423 1,368 1.315 1,289 1.264 1,240 1,215 1,192 1,169 - - - Comitment fee 1 0 - - - - - - - - - Subtotal 2,614 2.439 2,243 2,051 1.895 1.760 1.629 1.500 1.379 1.260 - - Total outflows 3,314 3.139 2.943 2,351 2.195 2.060 1,929 1.800 1.679 1.360 300 300 300 NET SURPLUS jDEFICIT) 2.844 2.319 2,315 3,591 3.835 5.592 7.630 8.SS7 8.742 8.304 9.142 5.521 5.159 CUMULATIVE SURPLUS (DEFICIT) 19.149 21.468 23,783 27.357 31,209 36,801 44,431 52,988 61,730 70.034 79.176 84.697 89.856 /a Incremental. /b or inflow equivalent, items resulting in a foreign exchange savings. /r Valued at average import price (CIF). /d includes 15% discount for quality considerations; weighted average across species. /g 1989 figure represents import of chipwood foregone. 1990 and beyond represents substitution of 252 particle board for sawn timber. /I Watmum 20,000 m3 per year (current imports). /9 At FOB price. (3227t0 - 53 - TableL. STAFF APPRAISAL REPORT IlalSIA FORESTRY DEVELOPMENT PROJECT FINANCIAL AND ECONOMIC ANALYSIS Total Direct Protect Related Emoloyment Creation (In man-years) Total 1906 1989 1990 1991 1992 1993 1994 Project Period SkIlled Labo Engineers S 9 11 10 to 9 9 Supervisors - Technicians 30 S 65 59 58 54 53 Other Skilled Labor /_ U1 1M1 1n2 121 1I4 1n9 1hZ Subtotal /4 117 210 249 242 242 232 229 1.521 Contractors' Labor Requirements /C _J J1 .6 16 1n l15 1& _M TOTAL us4 33 318 3M a8u AU .m8 ;..killed Labor Exploitation 152 270 292 239 214 184 172 Plantations - 114 286 463 600 654 683 Pasture Establishment 100 62 62 '7 $7 57 57 Regeneration 41 5A .3 . _, ..= _w .-am Subtotal /b 293 600 1.113 1.318 1,466 1.520 1.S80 8,090 Contractors' Labor Requirements /S 12 .48 .2_ ..__wgM .W11 ..2 .1W 1l,g2 TOTAL us L" I" L" A.=ff 86 1.M LOW A&gM /A Foremen, vehicle and equipment operators. /h OF and OREF for exploitation; total requirements for other component. /G For exploitation only. MgUg: 1 man-year is assumed to be 300 man-days for unskilled labor, and 250 man-days for skilled labor. 3217/027 - 54 - Table 10 STAFF APPkAISAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT Selected Documents and Data Available in the Project File 1. Projet de Développement Forestier et Lutte contre la Désertification, FAO - 2 volumes, March 1986 2. Evaluation and Review of Proposal made by FAO concerning the National Forest and Pastureland Inventory in Tunisia, Alf Oskog - Nov. 1986 3. The Tunisian Wood Market, L Morenzi - January 1987 4. Préparation du VII Plan - Rapport de la Sous-Commission des Forêts et de la Conservation des Eaux et des Sols, Ministry of Agriculture - July 1986 5. Projet d'Extension et de Consolidation des Pépinières Forestières, Ministry of Agriculture - July 1986 6. Projet du Centre National de Production de Semences de Tunis, Ministry of Agriculture - July 1986 7. Reboisement de Hautes Production dans le Secteur Agricole, Ministry of Agriculture - Sept. 1986 8. Projet d'Amélioration des Plantations Artificielles, Ministry of Agriculture - Sept. 1986 9. Projet de Développement des Plantations Rurales dans les Governorats de Béjà et Jendouba, Ministry of Agriculture - November 1986 10. Stratégie à Adapter pour la Régénération des Forêts Naturelles, 1 Vol. + 4 annexes - Ministry of Agriculture - Sept. 1986 3 a a 7E) STAFF APPRAISAL REPORT TURISKA FORESTRY QEVELOPMEN1T PROJECT Imlemntation Schedule 1988 91 1 1994 Forest Regeneration (ha) 2000 3000 300 3C l 00 RegenrationFellirg '000 M3) 1 0 .700 230 2'30 230 12302 Plantation Thinning <ha) 2500 500 8500 8500 8500 8500 M<chanized Plantation (ha) 1000 1300 1600 5 0 1400 Riverrain Plantation <ha) 0.1 500 500 ... 77-1 -56 - Chart 2 STAFF åtPPRMSL REPORT TUNWA FORMSRY.DEVELOPMENT PROJEC DF Or~aIztimøCh ftký #w dø dem fwøtg ~~do ftsø wøuI t~-*e de, du dø le u ¥ *t døp MM&tO 0» 4p . køe mr* dm 1-neg~e l IuftýHWS deu fwø 4~d pwnw 1sm ~4dm#&4W~W d"l9 V (Pk,,tG.11de<hrne.étø( ~uø$~t I.,cé 9vld~IIaet L J J LiL~:før - 57 - Chart 3 STAFF APPRASAL REPORT TUNISIA FORESTRY DEVELOPMENT PROJECT DREF OQgaization Char,t Ministere de ragrculture Direction de la regie d'explot fo r estier e Service des Sous-eotion affaires teofique ~administratives et financieres Service de la Service des progrmmation et ventes et des suiv des travaux autorisations orisation MAP SECTION 8' 9' ·iu- BIZERTE er ·37" 37- Tabarka ARIANA La L Goulette o Kelibia A N DR A HTUNiý® o-BEN ý.,ROUS J NDOUB A BEJA SEi Batb sa(, Korba JENDOUBA SafKrb ZAGHOUAN, o NABEUL PI du ý ahs Hammamet <EL K F EL KEF Ennfidhac -36' SILIANA 36 - aker SOUSSE MONASTIR SbetKaluå KAIROUAN Khasba eMAHDIA KASSERI'NE.[ 'KASSERINE, 35 SIDI B 35° Fra ZID Fériana- Mahrés Redeyet 0 25 50 75 KILOMETERS 34° TOZEUR Nefta GABES <GBELLI MEDENINE 3x T U N l S I A FORESTRY DEVELOPMENT PROJECT *TATAOUNINE - Project( Mechanized Reforestation Salt Lakes Forest Management Ports G Nature Corservatron Rivers EL KEF Regeneration Area Nursery Range Management Main Roads Riverine Plantations o Cittes and Towns ® Governorate Capitals i e Oak National Capital aa I' NS A o Pine -- ·- Governorate Boundaries TUNISIA - sp-------sInternational Boundaries Esparto Grass Other Forest/Scrub A L B Y A 32* 32° S9°. NIGER CHAD C ro Jenaie,