Uganda - Forestry Rehabilitation Project

Document or The World Bank FOR OFFICIAL USE ONLY Report No. P-4402-UG MEMORANDUH AND RECONMENDATION OF THXE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 10.0 MILLION TO THE REPUBLIC OF UGANDA FOR A FORESTRY REHABILITATION PROJECT MAY, 27, 1987 Eastern & Southern Africa Region Northern Agriculture Division IThis document has a restricted distribiltion and may be utd by recipielns only in the performance Of their official duties. Its contents may not otherwise be diselosed without World Bank 2uthorizaltion  CURRENCY EQUIVALENTS U Sh 1,400 - US$1 (at Appraisal - June 1986) U Sh 6,000 - US$1 (at Negotiations - May 1987)1/ SDR 0.7655 - US$12/ WEIGHTS AND MEASURES (Metric System) 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 miles 1 hectare (ha) - 2.47 acres 1 ton (t) - 1,000 kilogram (kg) - 2.205 pounds (lb.) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CIDA - Canadian International Development Agency DANIDA - Danish International Development Agency EEC - European Economic Community FD - Forest Department HAF - Ministry of Agriculture and Forestry NGO - Non-Government Organization UNDP - United Nations Development Program FISCAL YEAR July 1 - June 30 1/ Following currency reform announced in May 1987, 100 units of local currency (U Sh) are equivalent to 1 unit of local currency (New U Sh). 2/ At April 30, 1987  FOR OFFICIAL US ONLY UGANDA FORESTRY REHABILITATION PROJECT CREDIT AND PROJECT SUMKARY Borrower: Government of Uganda Beneficiary: Ministry of Agriculture Amount: SDR 10.0 million (US$13.0 million equivalent) Terms: Standard IDA Terms Onlending Terms: Not applicable Financing Plan IDA 13.0 EEC 7.0 DANIDA 7.5 UNDP 2.2 CARE 0.2 Government of Uganda 3.4 Total 33.3 Economic Rate of Return: 15Z Staff Appraisal Report: No. 6427-UG (May 27, 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPCED CREDIT TO THE REPUBLIC OF UGANDA FOR A FORESTRY REHABILITATION PROJECT 1. The following report on a proposed development credit to the Republic of Uganda for SDR 10.0 million (US$13.0 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms and help finance a Forestry Rehabilitation Project. Cofinancing of the project would be provided by EEC (US$7.0 million), DANIDA (US$7.5 million), UNDP (US$2.2 million) and CARE (US$0.2 million). 2. Background. Agriculture in Uganda, including crops, livestock, forestry and fisheries, which provides sustenance to 14.7 million people, is the source of income to over 90% of the population and accounts for 582 of GDP and 99% of exports, mostly from coffee. Seventy percent of the land area is cultivable with 72 of dry land area in forest reserves; there is a long tradition of smallholder farming and the country is largely self suf- ficient in food. Formal forest development and management has been under- way in the natural forest, and in the peri-urban areas of Uganda since the establishment of the Forestry Department (FD) in 1898. Over 10,500 ha of peri-urban hardwoods were established for poles and fuelwood prior to the 1930s and the first formal working plans for systematic forest management were introduced about the same time. During the 1960s, and early 1970s, Uganda earned a reputation for dynamism and excellence for its tropical high forest management system. Visitation to the natural forests became a thriving tourist business that earned over US$20 million in foreign ex- change during this period. Except for a brief period in the early 1980s, Uganda has experienced 15 years of political instability. Since the 1970s, the management capability and budgetary support available to the ED have declined sharply. toss of control of the forest estate by the FD has been followed by uncontrolled illegal charcoal production and pitsawing in the natural forest. Managed extraction and sawmilling of wood virtually closed down during this period. The sawmilling industry is currently operating at 15% of it's 1970 capacity. If measures are not taken immediately to reverse this situation, the major energy source, fuelwood, will become increasingly scarce and crop residue and animal dung burning will increase with negative impact on agricultural productivity and on the natural rain forests which contain many unique plant and animal genetic resources. The impending move (July 1, 1987) of the FD from the Ministry of Agriculture and Forestry to the Ministry of Environment will ensure that the forestry sector receives strong support to manage Uganda's forest resources on a long-term environmentally sound and sustainable basis. 3. Project Objectives. The proposed credit aims to help the Govern- ment of Uganda to improve the management of its forest resources to meet domestic needs for timber, fuelwood and other forest products on a long- term sustainable basis, while at the same time increasing the area and improving the management of protected forests. The project would rehabili- tate and strengthen the FD to achieve the above objectives through a com- bination of tighter administration and control of forest harvesting opera- tions, intensified natural forest and plantation management and increased support to rural forestry. .,:.  - 2 - 4. Project Description. The project would, during seven years, support: (1) pert-urban plantations and pilot wood farms: direct estab- lishment of 900 ha of eucalyptus plantations for demonstration purposes; provision of seedlings for establishment by prtvate farmers of 1,000 ha for production of fuelwood and poles on a pilot basis; (ii) farm forestry: establishment of nurseries in rural areas for production of 27 million seedlings annually by year 6 of multipurpose species to be Planted by farmers and non-government agencies; extension, farmer's training and agro- forestry demonstration; (Wi) natural forest management rehabilitation: redemarcation of 1,350 kms of forest boundaries, encroachment and enrich- ment planting of 26,000 ha, extension for improved charcoal production, umproved logging management and revenue collection, management and biomass inventory for selected natural high forest and plantation areas, expansion and protection of nature conservation areas from 5% to 20% of natural forest area plus introduction of restrictions on logging coupled with intensified forest management over 40% of the natural forest area; (iv) sofwoodplantationrehabiltation: rehabilitation of 13,900 ha of soft- wood plantations and re-establishment of fire-protection systems; (v) re- habilitation and strengthening of the FD: rehabilitation of offices and accommodation, provision of transport and forestry equipment for supervi- sion of forest activities, technical assistance for planning, procurement and financial management, and studies on timber marketing; and (vi) train- ing: rehabilitation of Nyabyeya Forest College, rehabilitation of Nakawa sawmill and limited study tours. The total cost of the project Is estimat- ed at US$33.3 million equivalent with a foreign exchange component of US$21.7 million (65%). A breakdown of costs and financing plan are shown in Schedule A. Amounts and methods of procurement and disbursement, as well as the disbursement schedule, are given in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Uganda are given in Schedules C and D, respectively. A map, IBRD No. 20050, is also attached. The Staff Appraisal Report No. 6427-UG, dated May 27, 1987, is being distributed separately. 5. Rationale for IDA Involvement: This project would support IDA's country assistance strategy for Uganda by contributing to economic recovery through rehabilitation of the forest resource base to promote the recovery of wood industries and to expand fuelwood availability. In line with our agricultural and energy sector strategies, the Forestry Project addresses the problems of deteriorating fuelwood availability and increasing forest degradation. It includes an environmental conservation component--an aspect increasingly recognized by the Association as key to successful for- estry development. The Association will play a catalytic role in mobiliz- ing cofinancing and coordinating donor assistance to the forestry sector. 6. Agreed Actions. Before credit effectiveness, Government has agreed to complete the following actions: (a) establish a project account in local currency and a special account in foreign currency in a commercial bank; (b) reorganize the Forest Department and finalize staffing plan; (c) execute cofinancing agreements with respect to cofinanciers; (d) establish a project coordinating committee; and (e) formally reinstate forest guards in the staff establishment. During negotiations, Government assurances were obtained that: (a) counterpart staff for planning, procurement and financial management acceptable to IDA would be provided; (b) an annual work plan would be prepared and execution of the project would be carried  out with due regard to ecological and environmental factors consistent with Government policy on Forest Resource Management; (c) royalty rates would be increased for Class 1 hardwoods to 15%, for Class 2 hardwoods and cypress to 10% and for Class 3 hardwoods and softwoods to 7% of the retail selling price by becember 31, 1988; (d) the existing forestry legislation would be amended by June 30, 1988, to reflect the revised Policy Statement agreed during negotiations; and (e) all measures necessary would be taken by Sept- ember 30, 1988, to ensure that forest harvesting licenses issued include provision for the use of logging and milling equipment in conformity with sound forest measurement practices. 7. Justification. The main benefit would be the re-establishment of a sound lnstitutional organization for managing Uganda's forest resources in an ecologically sound way, while at the same time ensuring production of wood products to meet the countries' needs. The area of natural forest identified and managed as nature reserves would increase from 5% to 20% during the project period with an additional 30% managed as protective "buffer zone" with only limited pitsawing permitted. Logging activities would Improve through development of working plans for areas to be logged, stockmapping and tighter control of logging operations. On the supply side, production of wood products would be increased, and the need to cut timber in the natural forests reduced, through wood farming in urban areas and farm forestry in rural areas (for fuelwood and poles) and through soft- wood plantations (for timber). The economic return for the project is estimated at about 15%. Other important benefits, but not quantified, include sustained and increased agricultural productivity by avoiding the need to burn crop residues and animal dung and via the shelterbelt effect of farm trees. It would reduce time spent by women in collection of fire- wood. Time saved would yield social benefits through increased time avail- able for child care, household tasks and economic activities, through improved crop cultivation resulting in higher yields. 8. Risks. The major risks are: delay in project implementation due to a weakened FD, lack of donor coordination, and failure of the Government to allot forest revenues to meet requirements to sustain project activities beyond the project period. The project would minimize these risks by strengthening the FD through provision of equipment, operating costs, hous- ing, technical assistance and in-service training and by establishing pro- ject coordination and monitoring arrangements. It would also secure sub- stantial increases in forestry revenues above incremental operating costs that would help the Government to meet its obligation to sustain project activities. Security is not a major risk as the planting activities are not located in areas experiencing extensive civil war. 9. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and reconmend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. May 27, 1987  -4- Schedule A UGANDA FORESTRY REHABILITATION PROJECT Local Foreign Total --------(US$ mil1lion)------- - Estimated Costs 1. Energy Farming 0.2 0.6 0.8 2. Farm Forestry 1.9 4.9 6.8 3. Natural Forest Management Rehabilitation 1.4 4.2 5.6 4. Industrial Softwood Plantation Rehabilitation 0.4 1.4 1.8 S. Forest Department Rehabilitation 1.2 6.4 7.6 6. Training .6 1.5 2.1 Total Base Cost 5.7 19.0 24.7 Physical Contingencies 0.5 1.4 1.9 Price Contingencies 5.4 1.3 6.7 Total Project CosLs 1/ 11.6 2/ 21.7 33.3 Financing Plan IDA 2.8 10.2 13.0 EEC 2.0 5.0 7.0 DANIDA 2.0 5.5 7.5 UNDP 1.4 0.8 2.2 CARE - 0.2 0.2 Government of Uganda 3.4 - 3.4 Total Financing 11.6 21.7 33.3 -~~~~~~~~~~~~~~~ 1/ Includes US$1.25 million financed under a PPF. 2/ Includes US$0.4 million in taxes and duties and total project cost net of taxes and duties is US$32.9 million.  -5- Schedule B Page I oT 2 UGANDA FORESTRY REHABILITATION PROJECT Proposed Procurement Method (US$ Million) ICB LCB Other NA Total Civil Works 1.4 3.3 4.7 (1.4) ( 1.4) Vehicles 2.9 3.4 6.3 (2.9) (0.7) ( 3.6) Equipment 0.3 2.5 2.8 (0.3) (1.6) (1.9) Materials 1.3 1.3 (0.1) ( 0.1) Technical Assistance 6.3 6.3 (2.7) ( 2.7) Training 1.8 1.8 Operations & Maintenance 6.0 6.0 (2.8) ( 2.8) Establishment & Main- 2.0 2.0 tenance Labor (0.4) ( 0.4) Staff Allowances 2.1 2.1 (0.1) ( 0.1) Total 3.2 1.4 22.8 5.9 33.3 (IDA Total) (3.2) (1.4) ( 7.9) (0.5) (13.0) Note: Figures in parenthesis are amounts financed by IDA.  -6- Schedule B Page 2 of 2 Disbursements Category Amount (US$ Million) Civil vorks 1.25 100% of foreign and 90% of local expenditures Vehicles, Equipment and Materials 4.50 100% of foreign and 90% of local expenditures Technical Assistance and Training 2.25 1001 of expenditures Incremental Recurrent Cost 2.25 50% of expenditures I/ Refund of Project Preparation Facility 1.25 100% of principal disbursed and accrued charges Unallocated 1.50 1/ Ac-tual disbursement would be on a declining basis: 90% until cumulative disbursement under this category reaches US$0.5 M; 70% until US$1.0 M; 50% until US$1.5 M; and 30% until US$2.25 1M. Estimated Disbursement from IDA Credit (US$ Million) IDA FY 88 89 90 91 92 93 94 95 Annual 0.4 1.7 2.3 2.7 2.5 2.0 1.1 0.3 Cumulative 0.4 2.1 4.4 7.1 9.6 11.6 12.7 13.0  -7- Schedule C UGANDA FORESTRY REHABILITATION PROJECT Tihetable of Key Project ProcessinL Events 1. Time taken to prepare: Fifteen months 2. Prepared by: ESMAP with Canadian financial assistance 3. First Presentation to IDA: March 1985 4. Appraisal Mission: July 1986 5. Negotiations: May 11-18, 1987 6. Planned Date of Effectiveness: September 1987 7. List of Relevant PPARS: None  Schedule D Page I of 2 THE STATUS OF BANK GROUP OPERATIONS IN UGANDA A. STATEMENT OF BANK LOANS AND IDA CREDITS AS OF MARCH 31, 1987 Amount in US$ million Loan or (Lesa Cancmllations) Credit No. Year Borrower Purpose Bank IDA Undimburmed One (1) loan and thirteen (13) credits fully disbursed 8.40 261.45 I/ 1248-UG 1982 Uganda Industrial Rehabilitation 35.00 22.36 1328-UG 1983 Uganda Agricultural Rehabilltation 70.00 38.91 1329-UG 1983 Uganda Third Education 32.00 1.44 1367-UG 1983 Uganda Posts and Telecommunications Rehabilitation 22.00 1.16 1434-UG 1984 Uganda Second Technical Assistance 15.00 11.55 1445-UG 1984 Uganda Third Highway 58.00 54.04 1510-UG 1985 Uganda Water Supply and Sanitation Program 26.00 15.93 1539-UG 1985 Uganda Agrlcultural Development 10.00 9.41 1560-UG 1985 Uganda Second Power 28.80 26.93 1561-UG 1985 Uganda Petroleum Exploration Promotion 5.10 4.74 Total 8.40 565.35 186.47 of which has been repaid .08 3.76 Total now outstanding 8.32 561.59 IDA amount sold: 17.50 of which has been repaid 17.50 TOTAL NOW HELD BY BANK AND IDA 8.32 561.59 1/ TOTAL UNDISBURSED 0.00 186.47 ., 1J Includes exchange rate adjustment.  -9- Schedule D Page 2 of 2 B. STATEMENT OF IPC INVESTMENTS AS OF MARCH 31, 1987 Fiscal Amount in US$ million Year Obligor Type of Business Loan Equity Tbtal 1983 Toro and Mityana Tea Food and 1.76 - 1.76 Co., Ltd. (TAMTECO) Food Processing 1983 Sugar Corp. of Uganda Food and 8.00 - 8.00 Food Processing 1984 Uganda Tea Corp. Ltd. Food and 2.75 - 2.75 Food Procebilng 1984 Development Finance Development Flnance - 0.38 0.38 Company of Uganda Total gross commitments 12.51 0.38 12.89 now held by IFC - - Total undisbursed (Including) participant, portlon) 6.74 0.27 7.01 Source: IFC Disbursements Section a