Zambia - Coffee Production Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7219 PROJECT COMPLETION REPORT ZAMBIA COFFEE PRODUCTION PROJECT (CR. 863-ZA) April 28, 1988 Eastern and Southern Africa Projects Southern Agriculture Division L 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.  ABBREVIATIONS CDC - Commonwealth Development Corporation CDO - Coffee Development Officer ERR - Economic kate of Return PAO - Food and Agricultural Organization GRZ - Government of the Republic of Zambia IDA - Intternational Development AssocTation INDECO - Industrial Development Corporation LINTCO - Lint Company of Zambia MAWD - Ministry of Agricultural and Water Development NCDP - National Commission for Development Planning RMESA - Regional Mission in Eastern Africa and Southern Africa RUCOM - Rural Commercial Companies Limited SAR - Staff Appraisal Report UNDP - United Nations Development Program ZCCL - Zambia Coffee Company Linited ZIMCO - Zambia Inoustrial and Mining Corporation ZECCO - Zambia Engineering and Contracting Company ZES - Zambia Engineering Services Ltd.  FOR OFYXCIA US ON4LY THE WORLD SANK Washington. D.C. Z0433 U.S.A. Opwgmuwm Evuluatim April 28, 1988 MEHORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Zambia Coffee Production Proiect (Credit 863-ZA) Attached, for information, is a copy of a report entitled Project Completion Report on Zambia Coffee Production Froject (Credit 863-ZA)' prepared by the Eastern and Southern Africa Regional Office. Further evaluation of this project by the Operations Evaluation Department has not been made. Attachment IThis document has a rstred distribution and my be used by r2cipients only in the performanc |of their offi l duties. Its contents may not otherwise be disclosed without Y/orld Bank authorization.|  FOR OFFICIL UU ONLY ZAZBIA COFFEE PRODUCTION PROJECT (CR. 863-ZA) Project Comwletion Report Table of Contents Page Basic Data Sheet.................... ll Evaluation Suimnary .................... iv 1. INrODUCTION.o..o@@*..o *.o **@.**.oosess**.seeee@o@..ees .. 1o . II. PROJECT IDENTIFICATION, PREPARATION, APPRAISAL A't0 NECOTIATION. .o. .o ............ . o .....o .................o. 2 III. PROJECT DIPlDffiNTATIONI...o............o............o........ c eec.. 4 A. Credit Effect4veness.................................... ... 4 S. Financing Problems and Project Revision .......0............ 5 C. Implementation of Estates and Factory Couponent ........... 7 D. Implementation of Smallholder and Research Componento .....o 13 E. Project Costs, Financing and Disburemnes................. 15 P. ProcureZont ................. is1 G. Adherence to Covenants. ...................... eec.. 15 Iv. OPERATING AND INSTITUTIONAL O .................. 16 A. Estates and Processing Componnt ........................... 16 B. Seallholder Coapon.nc............................. eec...... 19 C. Coffee Research............ eec..00 .....0 ................. 20 D. Bank Performane . ..... 21 V. FINANCIaL PERFOE4AqCE ......... o. ...... 21 VI. ECONmoIC R-EVALUATrOWc.......cc....... . ............ 23 vil. Co ICLUi S.. .................... e 24 AN= 1 : Draft PCR Prepared by ZCCL on Estates and Factory Component AME 2 : Project Costs and Disbursemnts AMIN 3 : Physical Impleamtation - Targets and Achievements ANNE 4 : Financial and Economic Analyses This document has a restricted distribution and may be used by recipients only in the performncem of their official duties Its contents may not otherwis be disclod witout Wold Dank authoration|  (i) ZAMBIA COFMtC PRODUCTION PROJ1:T (CR. 863-ZA) Project Completion Report Preface 1. This is the Project Completion Report (PCR) for the Coffee Production Project In Zambia, for which IDA approved on December 14, 1978 a Credit in the amount of US, 6 million. The Credit was declared effective on July 26, 1979. It closed on May 31, 1986 after a postponemnt of 20 months, with an undisbursed balance of approximately USS 3,500 whlch was cancelled In May 1986. Due to underestimatlon of project costs and the consequent shortage of funds, addltional financing 4as provlded by UNDP In the amount of US$1.1 million. 2. The PCR was prepared by Eastern and Southern Africa Region, Southern Agrlculture Division (Reglonal Offlce staff) and Is based on a draft PCR prepared by the Zambla Coffee Company Ltd. on the project's estates and factory component, a study of project related documents and files, and a brlef field visit. The Borrower (CRZ) did not prepare a completion report on the project's smallholder and coffee research compomnets. Data on the implementatlon of theso components, although Incomplete, was obtained from UNDP, Lint Company of Zambla and from Bank files. 3. The draft report was sent to the Borrower on January 29, 1988 for coments. However, no comments have been received. 4. This project has not been subjected to audit by OED.  (i1) ZAMBIA COFFEE PRODUCTION PROJECT - CR. 863-ZA Project Complation RePort Basie Data Sheet Actual Appraisal as 2 et- Key Prolect Data latigate Actual letimate Total Project Cost (USIM) 8.3 16.9 205 Credit Amount (USIM) 6.0 6.0 100 Amount Disbursed (USSM) 6.0 6.0 100 Amount Cancelled (UStM) - - 1/ - Dste Physical Couponents Completed 12/83 6/86 Proportion than Completed 1001 752 Economic Rate of Return 212 -7S/2/ Financlal Performance unsatisfactory Institutional Performance marginal Important Dates Appraisal 03/78 03-04/78 Negotiations 10/78 11/03/78 Board Approval 12/78 12/14/78 Slgng of Credit Agrement 01/79 01/26/79 Kffectiveness 04/26/79 07/26/79 Closing 09/30/84 05/31/86 Other Project Data Borrower : Government of Zambia (GRZ) Executing Agencies : RUCOM (later ZCCL); HAWD (later LINTCO) Fiscal Year - RZ : January 1 - December 31 - RUCCM, ZCCL, LINTCO April 1 - Harch 31 Nam of Currency : Kvacba (K) Currency Exchange Rates 1978 (Appraisal) US* 1.00 - K 1.23 Intervening Years (1979 - 1985) US$ 1. 00 - K 1.20 - 2.70 1986 (Completion) US$ 1. 00 a K 7. 10 Average for IDA Disbursoemnts US$ 1.00 - K 1.28 Follow-on Project : Second Coffee Project Credit Number s 1743-ZA Credit Amount : SO& 16.9* Date of Board Approval : 11/25/1986 1/ US$ 3,548.82 were cancelled on May 22, 1980. Ti ERR is estimated at -72 if required improvement In management and in operating performance, and needed additional lnvestmnts are not carried out. With such improvements and investmant - vhich are included in the Second Coffee Project - ERR is estimated at 22.  (iii) Cumulative Disbursements FY?9 FY80 FY81 FY82 FY83 FY84 FY85 FY86 Appraisal Estimate (US.tE, C.6 2.0 3.3 4.7 5.7 6.0 6.0 6.0 Actual (US$M) - 1.1 2.3 2.9 3.6 5.1 5.7 6.0 Actual as X of Estimate - 56 70 64 63 85 95 100 Date of FLnal Disbursement May 22, 1986 Mission Data Perfor- Date No of Nandays Specializatiqn Report mance (Ho/Yr) Persons in Pield Represanted_' Date RatiaL Identification 7/77 3 33 a, b, c 08/03/77 - Preparation 9/77 5 55 a, b, e, f, g 01/25/78 - Pre-Appraisal 1/78 2 21 b, e 02/10/78 - Appraisal 3-4/78 3 63 a, b, g 11/15/78 - Supervision I 3-4/79 1 - 7 g 05/0'/79 - 2/ Supervision II 3/ 9/79 1 3 g 10/03/79 - Supervision m7y4/ 10/79 1 3 h 10/25/79 - Supervision IV 1/80 2 18 a, g 02/27/80 2 Supervision V 4/ 3/80 1 1 h 04/08/80 - Supervision VI 3/80 1 3 b 04/10/80 - Supervision VII 5/80 1 2 b 07/08/80 - Supervision VII; 8/80 2 22 b, g 10/30/80 3 Supervision XX '/ 3/81 3 45 a, c, g 06/05/81 3 Supervision X 3/ 6/81 1 4 I 08/06/81 - 5/ Supervision XI 8/81 1 3 a 09/08/81 3 Supervision XII 9/81 1 1 h 09/23/81 - 5/ Supervision XIII 1/82 1 10 a 03/19/82 3 Supervlsion XIV 8-9/82 2 24 c, a 09/23/82 3 Supervlsion XV 3-4/83 4 28 a, e, *, g 07/15/83 3 Supervlsion XVI 12/83 2 21 e, g 03/21/84 3 Supervision XVII 5/84 2 20 e, e 06/18/84 3 Supervlsion XVIII 7/ 9/84 1 5 * 09/12/84 - 5/ Supervision XIr 11/84 2 22 e, a 12/24/84 3 Supervision XX 3/85 1 7 e 04/29/85 3 Supervision XXI 11/85 3 23 e* c, j 11/25/85 3 1/ a - ecowomist; b - agricultural economist; c - coffee specialist; e - financlal analyst; f a clvil engineer; g - agriculturalist/agronomlst; h - disbursement officer; i - loan officer; j a irrigation specialist. 2/ Not rated because project was not yet effective. 3/ Partial mission combined with oission on other project(s). 4/ Mission concentrated on disbursement lssues only. 5/ Mission Issued only Back to Office report. j/ Hid-Term Revlew. 7/ Misslon concentrated on providing assistance in flnalizing of documents required by IDA to make necessary changes in the project's legal agreements, following the take-over of project assets by ZCCL.  - iv - ZAMBIA COFFEE PRODUCTION PROJECT (Credit 863-ZA) PROJECT COMPLETION REPORT EVALtiATION SUMMARY Introduc'.ion The project was the Government's first major coffee development program and the first operation in which the Bank Group supported Zambia's infant coffee industry. Obiectives The project's main objectives were to increase coffee production and assist in diversifying the economy away from the dominating mining sector. The project also aimed at achieving a more balanced distribution of incomes between rural and urban population. These objectives were to be achieved by (i) developing a 400 ha parastatal coffee estate and rehabilitating an existing 50 ha coffee plantation, (ii) establishment of coffee processing facilities, (iii) a pilot program for developing 600 smallholder coffee plantations, and (iv) supporting and improving coffee research. Implementation Experience Implementation of the project's estates and factory components was initially the responsibility of RUCOM Industries, a parastatal company with about 30 diversified and scattered operations most of which were unviable. RdCOM management could not give adequate attention to the project, and did not meet operational requirements. Among the shortcomings were inadequate forward planning, coordination and monitoringg insufficient project support services especially in procurement and accounting; and the absence of systematic accounting and cost control. at the estates. Project management on the estates performed reasonably well under prevailir.g difficult conditions. But it failed to make important alterations in the irrigation system design and in the land development plan, which would have greatly contributed to higher yields. Management generally improved after project assets and responsibilities were transferred in 1984 from RUCOM to a new parastatal organization, Zambia Coffee Company Ltd. (ZCCL). However, progress was slow, and at project completion many problems remained: (a) deficiencies in the irrigation system were yet to be corrected; (b) crop husbandry practices were sub-standard and coffee yields disappointing; (c) coffee production management and engineering staff was inadequate; and (d) cost controls needed further improvements and costs were in excess of operational needs.  Results The project's objectives have been reached to some extent. The project has been successful in establishing a basis for a viable coffee industry in the country: experience gained during project implementation has provided valuable input into the design of a coffee policy prepared by the Government in consultation with IDA. It has also benefitted commercial and smallholder farmers who have taken up coffee production in recent years. The project has furthermore helped in developing a suitable coffee marketirg netw-rk and is effectively introducing Zambian coffee on the international market as a product with desirable quality characteristics. With regard to its narrower development obje-tives, the project has been able to complete about 70% of the 450 ha es,tate to be established/rehabilitated under its main component. The coffee factory financed under the project has been commissioned and is operational. The UNDP assisted smallholder coffee development program has demonstrated that coffee can be grown successfully by small coffee growers. It has however also shown that for smallholder coffee to be viable supplementary irrigation is required; and coffee growers need to group themselves into organizations which enable economical provisior. of services and efficient coffee processing and marketing. The contibution made by the project's research component - financed by UNDP - has been negligible. The project failed to achieve its production objective and its aim to establish a viable organization for operating the two project estates and coffee factory. This is mainly the result of delays in plantation development, operating problems including low yields, an inadeauate irrigation system, and unsatisfactory management. Among the reasons for this disappointing performance ranks highly a grave underestimation of project costs during appraisal. This is turn led to a severe and continuous shortage of funds hampering th. implementation of the project's invesuaent program as well as operational effectiveness. At project completion it was estimated that additional investments of about US$ 5 million in machinery, equipment and management would be required to make the estates and factory fully operational. Sustainability The problems experienced in project implementation have made it increasingly clear that the choice of RUCOM Industries, and more generally of a parastatal organization, for implementing a project of this size and complexity has been inappropriate, especially as in- country expertise and experience with coffee production and processing were rudimentary. It is also unlikely that necessary improvements in operational effectiveness and the cost consciovsness required to ensure efficient operations can be achieved within the existing structure of ZCCL. Rather, it would appear that increased efficiency and effectiveness would be contingent on appropriate private sector participation in the Company. At the present level of management and  - vi - w-ithout new investments to upgrade ZCCL's operations, the project's economic rate of return (ERR) is eatimated to be negative. Strengthening of management and increased operating efficiency together with private sector participation in ZCCL and improvements in operations through required additional investments would significantly increase ERR. However, due to the high amount of expenditures already incurted and because of low coffee production in the past, ERR for the entire estateslfactory component would still be only about two percent, Findinas The lessons learned from the project have been incorporated into the design of the Second Coffee Project. That project concentrates on future coffee development in the private sector including large and small farmers. With regard to smallholders, it furtnermore emphasizes the need for cost effective production limiting public sector and project assistance to areas which are agroclimatically most suitable with adequate irrigation potential, and where farmer groups can be snitably organized. With regard to ZCCL, the Second Coffee Project provides funds to upgrade management and operations so that the Company can become viable. However, as the efficiency and cost effectiveness required to ensure such viability are not expected to be achieved within ZCCL's present ownership structure, IDA financing provisions for this component are contingent on the completion of satisfactory equity participation arrangements which would require significant private sector involvement in the institution.  ZAMBIA COFFEE PROUDCTION PROJECT - CR.863-ZA Project Completion Report I. INTRODUCTION 1.01 Since the mid-1970. the Goveroment of the Republic of Zambia (GRZ) has been deeply concernet about the country's excessive dependence on copper mining, and about the uneven distribution betwven rural and urban incomen. With the decline In copper prices in 1975, Zambia entered into a period of worsening economic crises which highlighted the need for focussing development efforci on other sectors of the economy to provide alternative sources of income and foreign exchange earnings. Zambia's agriculture wlth its vast unexploited land and water resources was recognized as the country's main potential for dlversifying the economy away from mining in the short and medium term and, at the same time, reducing income disparities between the rural and urban population. 1.02 Accordingly, in its Third National Development Plan, GR. gave increased priority to rural development in general and Increased agricultural production in particular. The aim of the Plan was to achleve higher levels of and self-sufficiency in staple foods and to exploit the export potential of certain crops. In this context coffee was selected as a crop to receive Increased development assistance, and a coffee development project was prepared to achieve self-sufficiency in this commodity, provide the asis for later exports, and create additional sources of Income for the rural population. 1.03 The project as negotiated c.nslsted of: (a) establlshment of an estate with 400 ha of coffee and 400 ha of maize at Kateshi; (b) rehabilitation of 50 ha of coffee plantings at Ngoll; (c) provision of farm machinery, equipment, irrigation, vehicles, Inputs, houses and office, workshop and storage facilities required for plantation establishment/rshabilitation and for esta:e operations; (d) construction of and equipping t coffee factory for processing the coffee from the two plantations; (e) training of technical, management and marketing staff, and (f) technical assistance in plantation management and engineering. The project Included also funds for (a) a pilot scheme for smallholder coffee growing; (b) support to coffee research; and (c) identification and preparation of further projects in the coffee sub-sector. It was the first IDA assisted project In this subsector and the slxth Bank financed operation In agriculture in Zambla. 1.04 Rural Commercial Industries Ltd. (RUCOK), a parastatal corporation established in 1961 and wholly owned by another parastatal, Industrial Development Corporation Ltd. (INDECO), was to be responsible for implementing the main project components: establishment/ rehabilitation and operation of the two estates and the coffa- factory, training of coffee pers'nnel, engagement of technical asslsti ~e and  - 2 - preparation of future coffee projects. The smallholder pilot scheme and the project's coffee research component were to be imp;emented by the Ministry of Agriculture and Water Development (MAWD) 1i 1.05 The project's legal documents were signed in January 1979 ar.- the Credit was decla ed effective in July of the same year. In 1980 it became apparent t at project costs would be considerably higher than estimated at appralsal, and the consequent shortage of funds developed into a major bottleneck in project lmplementation. Furthermore, the project's orientation towards coffee production and processing for local consumption appeared to be inappropriate. These issues were examined during a mid-term IDA review mission in 1981, which resulted in: (a) reorientation of the project towards coffee production for exports; and (b) an understanding that the use of IDA Credit funds would be restricted to cover foreign exchange requirements under the project's coffee estate and factory component, while GRZ would arrange financing for the suallholder pilot scheme and for coffee research. Such financing was provided under a UNDP supported coffee project. But financial problems continued to plague the project, and management constraints at RUCOM impeded effective project implementation. As a result, implementation responsibility was transferred in 1984 to Zambia Coffee Company Ltd. (ZCCL), a firm established by INDECO under new management. The Credit Closing Date was extended by one year to September 1985 and after another informal extension, the Credit account was closed in May 1986. By that time about 410 ha of coffee had been planted or rehabilitated - although considerable iufllling is still required in the newly planted areas. The coffee factory waa commissioned in June 1986. About 1,200 smallholder growers have taken up coffee production. Progress in coffee research has been negligible. 1.06 This report has been prepared by Eastern and Southern Africa Regional Office staff based on a draft project completion report on the project's estates and factory component prepared by ZCCL (Annex I), a desk study of files and a brief field visit. Information on the project's smallholder and research components, although incomplete, has been provided by UNDP and Lint Company of Zambia. II. PROJECT IDENTIFICATION, PREPARATION, APPRAISAL AND NEGOTIATIONS 2.01 Identification of the project started iT October 1976. Following Government's request to the Bank in May 1977 for providing preparation assistance, the project was prepared during the second half of 1977 by a joint team of MAUD and the Bank's Regional Mission in Eastern and Southern Africa (UMESA). In January 1978, the team completed a draft preparation report which was reviewed during the same month by an IDA pre-appraisal mission. The project preparation report was finalized in March 1978, and the project was appraised by IDA in March/April of the same year. / The Ministry was earlier designated Ministry of Lands and Agriculture.  -3- 2.02 During the early stages of project identification, it had been the intention of the Government to promote coffee production by family farms. This concept was de-emphasized when President Kaunda indicated in early 1977 that initial agricultural development efforts in Zambia would primarily focus on estate agriculture with outgrowers, involving substantial Government ownership. The project was prepared accordingly, concentrating on the Kateshi estate in (Northern Provirce) which was being developed by RUCOM, and the nearby Ngoli estate which had been developed by MAWD but required rehabilitation. The initial project design envisaged the planting/rehabilitation of 400 ha of coffee under central management, with the intention to sub-divide the estates into smallholder plots upon completion of the development phase. The design also included establishment of a coffee factory with about 1,000 tons throughput capacity, land development for maize cultivation to produce stover for mulch, and assistance for coffee research and further project preparation. Other designs considered but eventually rejected included: (i) a project with more than about 400 ha of coffee plantings was considered too large to be effectively managed and also exceeding the domestic coffee requirements (exports was considered to be premature especially as there was no export marketing experience to build on); and (ii) a project concentrating from the outset on smallholders was considered too risky mainly because of farmers' unfamiliarity with the crop. On the other hand, it was felt that estate development without smallholder participation was not compatible with Government policy. Hence the proposal to sub-divide the estates into smallholder plots after the trees reached maturity. 2.03 This proposal was abandoned during further project preparation, when it was considered that estate coffee production would provide the soundest basis for a viable coffee industry in Zambia. However, to lay also the foundation for effective coffee development in the smallholder sector, a component for smallholder coffee growers was added to the project. The size of this component became an issue during project preparation and appraisal as views differed about the number of mallholders to be supported by the project. It was finally decided to limit this component to a pilot scheme involving about 600 farmers. Other Issues which emerged during project preparation centered on organlzatlon and management. The preparation team highlighted the need for competent anI experienced management to ensure the commercial viability of the coffee estates. In this context the team was concerned about the rather discouraging results recorded by many parastatal organizations. But as the estates were to be operated as a public sector establishment, it was proposed to incorporate a new company with separate management under a General Manager, and an ownership structure where no shareholder would have the majority. A new company under experienced management and with a dispersed ownership, it was believed, could successfeily avoid a repetition of the problems experienced in other parastatals. To further underpin the commercial nature of the project, the team also suggested that private sector participation in the company be encouraged.  - 4 - 2.04 Government did not favor the establishment of a separate company and decided to entrust to RUCGM the prcject'l estate development program at Kateshi and Ngoli as well as establishment of the project's coffee factory. This important change from the proposed project concept was introduced during appraisal, and was supported by the appraisal mission. It was also agreed that the estate component would be increased by 50 ha to a total of 450 ha of coffee to be developed or rehabilitated. The project's soallholder and research components were to be carried out by HAVD. 2.05 At appraisal, RUCOM operated more than 30 diversified commercial units scattered throughout Zambia. Hany of these incurred regular losses with the result that the overall financial performance of he firm was unsatisfactory. This was pointed out by the appraisal m. lion, together with the fact that RUCOK did not have sufficient skilled staff and middle management personnel to handle its various operations. To overcome RUCOM's financial and management problens, the project as apprasl.d envisaged the preparation and implementation of a plan for the improvement and restructuring of the Company's existing operations. The project also required RUCGM to establish and maintain certain financial ratios, and it included an equity infusion by Government into RUCOM of K 1.4 million. RUCOM's General Manager was to have the overall responsibility for the project's estate coffee production and processing component. He was to be assisted by a Plantation Manager with da,-to-day responsibility for project implementation, and by an Engineering Manager who was to plan and supervise procurement and maintenance of machinery, vehicles and equipment, and construction and maintenance of buildings, especially of the coffee factory. These two managers were to be recruited internationally and be provided with local counterparts. 2.06 The project was negotiated in October/November 1978, and with some minor modifications acce?ted by the negotiation teams as presented by the appraisal mission. The project as negotiated had an estimated total cost of US$ 8.3 million comprising US$ 6.8 million for estate and factory development, and US$ 1.5 million for the project's smallholder and research components. The latter were to be financed fully by IDA, while the components to be implemented by RUCoM were to be funded as follows: US$ 4.5 million by IDA, US$ 1.6 million by Government and USt 0.7 million from expected cash generation by the *states. III. PROJECT IMPLEKENTATION A. Credit Effectiveness 3.01 The target date in the Development Credit Agreement for fulfilling the conditions of effectiveness was specified as April 26, 1979, three months after the signing of the Agreement. However, an extension by three months became necessary and the Agreement was declared effective on July 26, 1979. The delay was mainly due to slow completion of required legal opinions and execution of the subsidiary loan agreement between Government and RUCOM. 3.02 The other effectiveness condition - appointment by RUCOM of the project's Plantation Manager and Engineering Manager - had been met in  April. The Plantation Manager took up his assignment on May 1, 1979, the Engineering Manager on July 1, 1979. Early action had also been required on two additional matters: (i) transfer of the Ngoli estate to RUCo4, and (li) Issuance of a water permit to RUCOM for at least 43,000a3 of water per day from the Lukupa river for a minimum of 20 years. This vas required to ensure that Kateshi estate would have adequate water for irrigation. RUCOM furnished evidence that it had taken physical possession of Ngoli estate, and that lt had been provided with a suitable water permit, which was however valid for one year only. To enable timely start up of the project, IDA considered this satisfactory provided that a permanent water permit would be Issued by August 1979 and legal title to Ngoli transferred by December 1979. It was however not until July 1980 and October 1980 that necessary action on the title transfer and on the water permit were completed. B. Financing Problems and Project Revision 3.03 With the engagement of the Plantation and Engineering Managers, the project's main components got off to a good start, and in the initial project period development and rehabilltation activities at the two project coffee estates were ahead of schedule. But soon financing problems emerged which developed Into major bottlenecks for effective project Implementation and led to a major revision of the project. 3.04 The first financing problems were recorded already two months after Credit effectiveness when the project was left virtually without funds. Salaries could no longer be paid in time, and supplies of fuel, Inputs and materials became critical. Some of the initial liquidity problems - such as unfamiliarity of RUCOM staff with IDA procedures for withdrawing funds from the IDA Credit - were soon resolved. But shortly thereafter, as early as January 1980, it became apparent that the project was conslderably underfunded. An analysis carried out by RUCOM in mid 1980 estimated that the costs for the project's estates and factory component vould be almost twice as high as indicated In the appraisal report. An IDA supervision mission In August 1980 confirmed this. The mission noted that appraisal cost estimates were too low for almost all expenditure categories, and for some items, as for example coffee processing machinery, had to be increased by more than three times. The hlgher costs were reported to be due to an underestimation at appraisal of both Inflation rates and base costs. Regarding the latter, appraisal estimates appeared to be particularly low for labor requirements, machinery and building costs, and management and administration expenditures. The funding shortfall was estimated to exceed US$ 5 million. 3.05 To develop a suitable strategy for resolving this problem an IDA Mid-Term Review Mission visited Zambia in March 1981. This mission examined a number of planning options including several possibilities for reducing the plantation development component. It f'nally concluded, mainly on the basis of expected rates of returns for the different  -6- options, that the best course of action would be to go ahead with developing/rehabilitating the 450 ha coffee area and using the combined gravlty and pump irrigation system as proposed in the appraisal report. The slasion Introduced only one major conceptual change: coffee produced from project *states was to be mainly exported (802) rather than to be consumed locally. The main reasons given for this were as follows: (i) the mission doubted that the domestic market could absorb the project's entire incremental production of about 800 tons as had been stated in the appraisal report. (Later reviews of the domestic coffee market indicated that these doubts were justified.); (ii) there were some inherent contradiction in the appraisal report: - such of the coffee processing equipment listed in the report - such as electronic, bichromatic and ultra-violet sorting equipment would not be necessary for the relatively unsophisticated domestic market; - the coffee to be grown under the project was of the arablca type, while most of the Imports were instant coffee manufactured from lower quality robusta coffee; and (1ii) the economic value of the project's arabica coffee output was higher if the coffee was exported than if It was used for substituting lover quality imports of robusta. 3.06 With this modification and its effect on processing plant deslgn (pare 3.17), the Mid-Term Mis. ton revised project costs for estate development and the processing plant. The revised total costs were estimated at US$17.1 million compared to appraisal estimates of USg 6.8 mIllion (Annex 2, Table 1). The largest single cost increase was in the establishmuent of coffee processing facilities, which were now estimated to cost US$ 4.8 illlon against the appraisal estimate of US$ 1.2 million. 3.07 For flnancing the expected cost increase, the mission projected that Internal cash generation from the estate operations would Increase from appraisal estimates by US* 2.5 milllon over the project period. It os also assumed that Gover-n nt and parastatals would contribute an additional U8* 2.8 million to the project, leaving a financing gap of about US$ 5.0 million. To fill this gap, it was recomended, that IDA consider financing the shortfall. Alternatively, Government should seek bilateral assistance for financing the cost of the processing facilities (US$ 4.8 illion), and IDA should re-allocate some of the funds earmarked for scallholder coffee development and research to the estate component. 3.08 GRZ and RUCGK approached several potential financing apurces including Kreditanstalt fuer Uiederaufbau, Commonwealth Development Corporation (CDC), and French and Kuwait bilateral aid, to secure funding for the processing facilities. But for various reasons, such as delays In decision making and unattractive financing terms and conditions,  -7- agreement courd not be reached with any of these sources to assist in financing the cost overruns. A solution to the funding problem seemed finally to emerge in late 1982/early 1983 when it became apparent that the foreign exchange requirements for the factory were lover than estimated during the Mid-Term Review, and when It was agreed that (a) undisbursed funds from the IDA Credit would be re-allocated and used exclusively for meeting direct foreign exchange requirements of the project; (b) Zambia Industrial Mining Corporation (ZIKCO), the parent company of INDECO, would make available KS million (equivalent to about USSS million) to finance all remaining local costs for estate development and for the factory, and (c) Government would refrain from claiming eligible expenditures already incurred under the project's smallholder and research components, and finance all future expenditures for these components from its own or other resources. While this development helped to relieve the finaneing constraints, other factors including high Inflation, the devaluation of the Kvacha, delays and problems in estate development, and lower than expected coffee production (para 4.06) mitigated against a full resolution of the financing issue. In 1984 ZDICO and INDECO undertook to make additional equity funds available (up to a total of somewhat more than K 10 million), and to assist in securing loan funds from Zambian credit institutions. As a result of these measures, liquidity improved somewhat in 1985, and availability of inputs for the estates was adequate for the first time. But due to ZIMCO's and INDECO's own funding constraints coupled with the estates' inability to generate the expected revenues financing continued to be a problem throughout the project period. In addition, it became apparent during 1985 that considerable further Lnvestments In such iteos as agricultural machinery and equipment, irrigation, factory electrification and in management would be requlred to make the project estates and factory fully operational. These Investment and funding needs are being addressed in the Second Coffee Project for which IDA approved a Credit in November 1986, and which includes a component for improving and completing the first project's estates and factory components. Total additional funding requirements, are estimated at US*5.O million. About USt2 million of this are expected to be provided in the form of loans from IDA. US02.2 million in equity funds are being identified. Only US$ 0.8 million are projected to be financed from cash generated by the estates and factory. C. Implementation of Estates and Factory Component 3.08 General. The project's estates and factory component comprised the rehabilitation of 50 ha of coffee a Ngoli and establishment of 400 ha each of coffee *n maize at Kateshi and the provision of facilities for processing about 800 tons of coffee annually. It also included the development of irrigation facilities, procurement of vehicles and agricultural machinery and implements, and buildings for staff and offices. Furthermore provision was made for technical assistance and training. 3.10 Estate Development. In the initial project period progress in establishing/rehabilitating the two estates was good although difficulties had been encountered. In addition to the funding problems discussed above, shortages of machinery, equlpment, inputs, vehicles,  -8- workshops facilLties and tools, largely due to inadequate forward planning and slow procurement by RUCOM management Lapeded the timely development of the estates. Equipment had frequently to be substituted by labor wlth the result of substantial increases in labor cost and poor quality construction of the main lnlet canal at R'teshi. Problems arose also in the areas of land clearing and preparation whlch Vax to be carried out by the Land Clearing Unlt (LCU) of HAND. The Unit, which was not under the direct control of the Plantation Manager, often used poorly maintained equipment, left the land ln a rough state and could not be relied upon for provLding servlces in time. A consultant engaged by RUCOK towards the end of 1983 judged the standard of land preparation as poor. In some of the cleared area a further complication was added by the unexpected high lncidence of anthills. These were levelled at high costs and created difficulties for the survlval of seedlings (because of the poor soil characteristics of the anthill material), and for the flow of Irrigatlon water. These factors together with: problems ln the Irrigation systoe (para 3.13), the use - until 1985 - of bare-root seedlings, and lnsufficient mulching of coffee trees (parts 4.05 and 4.06), caused hlgh seedling mortality rates whlch in some areas exceeded 602. The result has been continuous need for ulfllling the gaps ln the establinhed coffee area and retardation in the planting program for new areas. At project completLon, the recorded coffee areas at Ngoli and Kateshi totaled 407 ha. However, if existing gaps in the various coffee blocks are taken Lnto conslderation, the adjusted coffee area determined on the basis of a tree account is only about 308 ha, or somewhat less than 702 of the appraisal target. 3.11 A comparison of the appraisal targets with the actual coffee and maize areas planted or rehabilitated, before accounting for gaps requirLng infilling in the plantations, is presented below: Planted/Rehabilltated Coffee Area Area Annually Planted to XaLze Year Appraisal Target Actual Appraisal Target Actual 1979/80 64 134 90 173 1980/81 104 249 210 292 1981/82 204 307 310 345 1982/83 304 349 450 400 1983/84 404 369 450 242 1984/85 450 407 450 587 1/ 1985/86 450 407 2/ 450 600 T/ 1/ Includes 50 ha planted to soya in 1984/85 and 100 ha in 1985/86. I/ Adjusted for gaps to be inflIled, the actual area planted/rehabilitated In early 1986 has boen estlmated at only 308 ha. 3.12 Although maize plantings exceeded appraisal targets in most years, the main purpose for growing the maize which was to provide mulch for the coffee trees was not achieved. Rather, due to operational problems and insuffLelent tractors and equlpment the maize stover was usually burnt after harvest. Production of maize for grains has generally been unprofitable.  3.13 Irrlgation. Successful establishment/rehabilitation of project plantations and reaching the coffee yields projected were critically dependent on the adequate availability and timely applicatlon of irrigation vater. Surface Irrigation was selected as the most suitable system for the two project estates. At Ngoli such a system already existed. For the Kateshi estate a main canal and secondary distribution channels vere to be constructed under the project. Since Irrigation water needed to be pumped to reach part of the coffee area, the project provided also for three pumps, piping and a night storage reservoir. 3.14 The establishment as vell as the maintenance and operation of the surface irrigation systems especially at Kateshi have generally not been satisfactory. A major problem with the system has been its design. All furrovs have been laid out down the slope which in many instances exceeds 32. In part of the coffee area this has led to (i) severe soil erosion with coffee trees having been washed out, (il) quick run-off of lrrlgatlon water and rainfall, with little penetration into the soil, and (111) high vater losses. In addition, poor construction and maintenance of the water diverslon structures, the main canals and the reservoirs have caused considerable water leakage with the result that many coffee blocks receive inadequate and some almost no irrigation. Furthermore, at the time of project completion, the existing pumping installations were operating much below capacity and required a complete overhaul. 3.15 These problems combined with difficulties to establish effective furrow irrigation lu Inadequately levelled areas with high anthlll denaslty (par, 3.10) have made it necessary to prepare a complete re-assesasnt of the existing furrow Irrigation system in the various coffee blocks and determine the cost effectiveness of (t) Improving the present systes, and (11) introducing alternative distribution systems such as sprinklers or drip irrigation in part or all of the area under coffee. Such re-assessment has started and a draft proposal for an improved system has been prepared with finance from the Commonwealth Fund for Technical Co-operation. 3.16 Machinery, Equipment, Buildings. At the time of completion the project had provided 17 tractors, 14 trailers, two lorries and one comblne harveater together with various agricultural implements and tools. It had also financed 24 vehicles Including 12 motorcycles for personel transport, about 60 staff houses, an office, an input store, a workshop and other required farm bulldings. The project had furthermore provided for the improvement of existing infrastructure and the construction of about 60 km of roads and tracks (Details are in Annex 3). As outlined above, the project provisions for agricultural aachinery and equipment, vehieles, workshop tools, offlce machinery and for housing have however not been adequate to ensure effective and efficient estate c irstions. Also, many of the vehicles and much of the agricultural eachinery and equipment procured have already been consumed or are reaching the end of thelr useful life. In addition, some of the existing implements are unsuited to the tractors available. It will therefore be necessary to supplement the financing provislons made in the project. The additional investment needs have been examined during the appraisal of the Second Coffee Project, and funds for financing these needs have been allocated in that project.  - 10 - 3.17 Coffee Factory. For the coffee factory RUCOM invited bids ln October 1980. Flve bids were received but the Mid-Term Review Mission (para 3.05) concluded that the machinery and facilities proposed by the responsive tenderers would not be capable of producing quality coffee suitable for the export market. It was therefore decided to draw-up revised tender documents, a responsibility which was taken over by INDECO on behalf of RUCOM. INDECO engaged Zambia Engineering Services (ZES) for this purpose. But as ZES had no prior experience in designing coffee factories, the Initial technical proposals were found to be inadequate for meeting the requirements of high quality coffee production. INDECO therefore employed a coffee processing consultant to provide assistance in preparing the necessary technical revislons in the bidding documents. International tenders were invited for the supply and installation of the coffee machinery, and the contract was awarded to a French firm in July 1983. The contract for civil works construction was awarded to Zambia Engineering and Contracting Company (ZECCO), a subsidiary of INDECO. Factory commissioning was expected by October 1984. 3.18 Machinery and equipment for the factory were supplied in a timely manner, but civil works constructions experienced major delays which added to the cost. The delays were due mainly to materials shortages, slowness in materials procurement, insufficient monitoring, and low priority given at times by ZECCO to expeditious factory completion. Also, due to Inadequate-supervision, construction quality was sub-standard In several areas. INDECO took corrective actions in mld-1985 through the establishment of a high-level Project Monitoring Co=mlttee and the engagement of an engineering consultants firm to supervise civil works constructlon. The factory was finally commissioned In June 1986 and has been taken Into operation. A number of problems noted during and after couuissioning need however yet to be rectified and some equipment replaced. NDECO has taken up these matters with the equipment supplier and ZECCOA/ Initlal operation of the mechanical drying facilities has not yet given the desired results, and some modifications may be required to Improve the flow of coffee. Perimeter fencing and a weighbridge are yet to be provided. Also, a permanent solution for factory electrification is yet to be found, as the existing power supply through stand-by generators Is adequate only for the short-term. These latter needs are being addressed In the Second Coffee Project. 3.19 To date, almost US*4 million have been Invested in constructing and equipping the processing plant. There Is no uniform opinion whether the investment of such a sun has been justified or whether a simpler, less costly design would have been more appropriate. The factory has been deslgned wlth the aim to produce arablc- coffee of a quality capable of earning high premiums in overseas markets. While the plant will meet high processing standards once the necessary rectifications and replacements have been completed (para 3.18), It remains to be seen whether premiums will actually be earned which will prove that the 1/ It has recently been reported that one water reservoir is used to hold both the factory water supply and the recirculatior water. If correct, this would be a serious design error which needs to be rectified.  - ll - decision In favor of a high technology factory has been correct. In the 1984/85 coffee 7ear, when the coffee from the two project estates vas processed on existing equlpment and sorted by hand, prices earned were in line with average prices paid for Kenyan coffee. 3.20 Tachalcal Assistance and Trainig. Technical assistance eogaged under the project covered the areas of plantation management, and englneering, design and establishment of coffee processing facilities, coffee sarketing, financial managesent and control, and project evaluation. The performance of consultants has been mostly satisfactory especially when considering the shortage of funds, machinery, equipment and supplies experienced in the project implementation. On the other hand, the unsatisfactory lay-out of the irrigation system (para 3.14), hilgh seedlings mortality rates, and poor crop husbandry practices (para 4.06) would indlcate that there was room for lmprovement in plantatlon managemeqt. Also, witb regard to the factory design a wlder range of options should probably have been more actively considered by the processlng consultant. 3.21 Project consultants provided on-the-job training especially in the areas of field operations and marketing. The project financed also study tours to review coffee production and processing operations in Kenya. It furthermore provided overseas training courses in mechanical and electrical engineering and in coffee marketing and liquoring. The tralilng has been generally successful In the transfer of know-how, but several staff trained heve left the project, and the overall training objective of enabllng notional staff to take over all key functions in estate coffee production and processing has not been achleved. Further technical assistance and training are required for some more time. Provision for this has been made In the Second Coffee Project. 3.22 Studies. The project had included funds for RUCOI to identify additional areas suitable for estate coffee production, and to prepare future projects. n view of the funding problems mentioned above, financing for this was not made available under the project. Also, the problems experienced in project management made it desirable to transfer the project preparation task to another agency. The National Coinission for Development Planning (NCWP) took therefore over this responsibility, and financing was made available under the IDA assisted Technical Assietance Project (Credit 873-ZA). This enabled the preparatlon of the Sectd Coffee Project. Preparation was carrled out with the assistance of 3638k staff, project consultants and additlonal consultants flnanced under Credit 873-ZA, and was completed In early 1986.  - 12 - D. Implementation of Smallholder and Research Components 3.23 Siallholder Component. This pilot comoonent which concentrated on four districts in Northern Province, had the objective to establish coffee plantings on about 600 smallholder farms. Subject to preparation of a suitable plan, the project also envisaged assistance to smallholder coffee development In North-Western Province. The project provided funds for (a) the strengthening of MAWD staff - including the engagement of two Coffee Development Officers (DCOs); (b) procurement of transport; (c) the supply of inputs and knapsack sprayers to coffee farmers; (d) housing construction and study tours for the two DC0s; and (d) identification and preparation of future smallholder coffee development projects. 3.24 The component started well with the engagement of a capable DCO, and the recruitment of more than 250 smallholder coffee growers in the project area by early 1981. However, in view of the project's funding problems, It was decided to discontinue IDA financing for this component and use all Credit funds for the project estate and factory development program. As a result, Credit disbursement for smallholder coffee development, for which US$800,000 had been allocated, was only about US$15,000. These funds were used mainly to finance small equipment and operating expenditures of the CDOs during the early period of project implementation. 3.25 Support for smallholder coffee development was however provided under a UNDP/FAO assisted coffee project. That project was originally designed to supplement the IDA financed development program, but in fact the two projects overlapped with the result of some Initial confusion. IDA was also concerned about the larger project area covered by the UNDP/FAO supported program which went beyond the pilot approach for smallhol46r coffee development favored under the Coffee Production Project. The UNDP/FAO assisted project, signed in December 1979 and amended in June 1980, provided US$415,000 to finance over a period of about 2.5 years, consultants services, equipaent and supplies for smallholder coffee development, and coffee research. The projecc's smallholder component had the objective to (a) develop 90 ha of smallholder coffee involving some 600 farmers In seven districts of Northern Provlnce and in some parts of North-Western Province (b) provide extension services to coffee growers, (c) establish coffee processing facilities for small coffee farmers, and (d) identify future smallholder coffee projects. The project which was to be Implemented under the responsibility of MAWD, was extended in November 1981 by four years to the end of 1985, and the UNDP contribution increased to about US$1.3 milllon. It was again mended in 1984 when KAWD transferred responsibility for smollholder coffee development to Lint Company of Zambia (LINTCO), a parastatal owned by MAND. At the same time coffee development efforts were expanded to cover four Provinces: Northern, North-Western, Luapula and Copperbelt. 3.26 The UNDP/FAO supported project was completed In December 1985, when about US$l.1 million had been disbursed. Under its smallholder component it provided the services of a coffee agronomist and of a coffee extension specialist, consultancy services in coffee processing, and vehicles, equipment and training. It also financed the establishment and part of the operating costs of LINTCO's Coffee Development and Marketing Divislon comprising 16 headquarters and 39 field staff, and 72 workers at  - 13 - coffee nurseries. LINTCO provides coffee extension services and, under a credit schem, supplies small coffee growers with seedlings, inputs, and knapsack sprayers. In additlon, LINTCO is training farmers and makes avallable primary processing equipment for small growers. The Company furthermore offers coffee marketing services to smallholders. By mid-1985 _allholder coffee grovers serviced by LINTCO were about 1,200 with a coffee area of more than 320 ha. Details by Province are below: Province Numboi,r of Farmers Coffee Rectarage Northern 781 253 North-Western 351 49 Luapula 45 10 Copperbelt 8 15 Total 1,18S 327 3.27 Coffee Research. The project's research component was to support ongolng coffee research work and to Initiate dryland coffee research programs. In this context the project provided funds for (a) the employment of an Internationally recruited research agronomist and of local staff; (b) the purchase of transport, inputs, machinery and equipment; (c) the constructlon of a small coffee pulpery and installation of irrigation facilities; and (d) training and study tours. 3.28 Similar to the project component for smallholder coffee development, Credit support for this component was deleted from the project and the entire US$600,000 Credit funds initially provided for coffee research was reallocated to financed the project's coffee estate and factory development program. The UNDP/FAO assisted coffee project described above provided some support to MAND's coffee research efforts through part-time technical assistance by the earlier mentioned FAO coffee agronomist and through the procurement of some equipment. But, as HAND was subject to severe financial constraints, and thus unable to make available sufficient counterpart funds, the project was able to continua only part of the ongoing research, and the Misamfu Research Statlon's seed supply program. It introduced some new trials on tree spaclng and lining, and supported testing of new coffee cultivars. However, overall there has been no measurable progress in coffee research in Zaabla In recent years. I. Prolect Costs, Financing and Disbursements 3.29 Project Costs. Total project costs were estimated at US$8.3m. This estimte proved to be unrealistically low, especially with regard to the project'Q estate development and processing component. By the time of Credit closing, actual costs incurred under this component were almost 0S$ 14.5 million compared to an appraisal estimate of about US$ 6.8 million. Actual costs would have been even higher had the entire proposed coffee area been developed and all aachinery and equipment requlred for effective estate operation been procured (see para 3.16). Cost overruns were especlally high for estate development costs (includlng inputs, wages and machinery/equipment operations) and for the coffee factory, exceeding appraisal estimates by more than 2502 Civil works costs for housing and office buildings were also considerably higher than projected at appraisal (see also para 3.32). A comparison of estlmated and actual costs, summarized below, is given in Annex 2, Table 2.  - 14 - Project Costs (US" 000) Actual SAR Actual as Component Costs Estimate 2 of Estimate Eatate Coffee Production and Processing 14,578 6,726 217 Sallholder Development 1,746 964 181 Coffoe areearch 601 582 103 Total 16,925 8,272 205 Coats of the saallholder development and the resoarch components were funded *ainly under above mntioned UNDP/FAO assisted project (para 3.25). Coats for these components were hlgher than the SAR estlate in part because the UDP/FAh supported project included a larger mallholder project area and more technical assistance input than was envlsaged under the Coffee Production Project. 41. Financing. Considerable difficultles were experienced in financing the cost over-runs. While GRZ, ZDMCO and INDECO made substantial efforts to aleviate tbh funding problem, their ability to ralas necessary funds was li ted, and the project suffered constantly from a shortage of funds (pares 3.04-3.08). To ensure the viabillty of the project' estate and factory component and to enable the astablisment of an efflcient smdlholder sector and of effective coffee research, more flnancing Is still required. These financing needs are beiog covered under the Second Coffee Project. At the tlue of project completlon, financing of project costs as compared to the SAR financing plan was as follows: Project Financing (US$ =) Actual SAR Plan 1. Coffee Estates & Processing G=Z/INDECO/ZD3CO1/ 8.0 1.6 Self Genaratad Funds 0.6 0.7 IDA 6.0 4.5 Sub-total 14.6 6.8 2. Socllholder an* Research Co_ponents utll 1.1 - GRZ 1.2 - IDA 1.5 Sub-total 271 3. Total 16.9 8.3 1/ Includes funds advanced by INDEC0 for which instltutional credit financing is expected to be obtaLned.  - 15 - 3.31 Disbursements. Disbursements averaged between 60% and 70% of appraisal estimates for moat of the project period. Disbursements were slower than expected due to slov procuroment and delays ln project implementation resulting from uncertainties about project funding. In early 1981 it vas decided that Credit disbursements would be limited to foreign exchange expenditures under the project's estates and processing component. The Credlt was closed in May 1986 when the entire Credit acouot of US$6 million but US$3,500 had been disbursed. Details on disbursements are in Annex 2, Tables 3 and 4. F. Procurement 3.32 Procurement of goods and services has been in accordance with Bank Grnup procurement guidelines. Procurement under ICB procedures Included one contract in excess of US$1 mIllion for the supply and Installation of machinery for the coffee factory. Problems were encountered with regard to the procurement of staff houses and office buildings when a local contractor failed to complete the work in time, and construction quallty did not meet appropriate standards. This required retendering for most of the houses and administration buildings, as well as the engagement of a new contractor to repair and complete the 13 houses already started by the first construction firm. Civil works for the coffee factory were financed locally and procured by INDECO without IDA review of the decision of-contract award. Construction was plagued by considerable delays due to shortage of materials and inadequate monitoring. Also, poor workmanship has required substantial repairs. 3.33 Procurement eervices by RUCOM headquarters were not fully satisfactory with the result that especially inputs, materials and spare parts were often delivered late or in Insufficient quantities. The situation Improved with thc engagement of a procurement officer, who received some training in uld-1984. For foreign procurement, RUCOM engaged In late 1982 an international procurement agency which resulted in more timely Importation of vehicles, machinery and equipment. G. Adherence to Covenants 3.34 Compliance with co q nants In the Development Credit Agreement nd the Project Agreementl has been mostly satisfactory, although several of the dated covenant were met late. Exceptions were some of the provisions In the Project Agreement targeted at Improvements in RUCOM' s financial and operating performance. Sectlon 4.03 required RUC(M to prepare and implement a plan satisfactory to IDA for the restructuring of Its operations. A sattafactory proposal was not prepared, but over time RUCOM nevertheless liquidated most of lts unprofitable operations in an effort to stop the financlal 4rain they were causing. Section 4.05 (a) specified that RUCOM (and later ZCCL) should ensure that current assets exceed always current llabllitles. This requirement has not always been met, in part because of the overall funding problems experienced by the project. RUco/ZCCL complied only partly with the need, detailed in Section 3.01, to keep engaged at all times adequate and competent management and support staff, and to carry ou: Its operations in accordance with appropriate agricultural and management practices. 1/ The Project Agreement with RUCOM Industries was amended in 1985 after ZCCL had taken over from RUCo( project assets and the responsibllity for project completion.  - 16 - Management left considerable room for improvement; there have been shortages of procurement, financial and engineering personnel; and *gricultural and management practices required up-grading. Under RUCoM and especially after the establishment of ZCCL, efforts have been made to address management and operational problems and meet staffing requirements. But these efforts have been only partly successful, end under the direction of INDECO, ZCCL has now engaged Tate and Lyle Technical Services to assist the General Manager in managing coffee estate and factory operations. 3.35 Due to the shortage of project funds it was agreed in 1981 that Government would not submit disbursement claims for the project's smallholder and research components. IDA did therefore not insist on separate accounts for these components, nor on the detailed work program for the smallholder component which was required under Section 3.07 of the Development Credit Agreement. IV. OPERATING AND INSTITUTIONAL PERFORMANCE A. Estates and Processing Component 4.01 The project's estate and processing component implemented by RUCOK and later by ZCCL has been successful in contributing to the establiihment.of Zambia as a producer of quality coffee, and in gaining valuable experience in the production, processing and export marketing of coffee. It hap thereby helped the country to make substantial progress in the formation of a new industry. Rowever with regard to the narrower objective of achieving physical targets for estate development and coffee production, performance has generally not been satisfactory. The plantations have yet to reach the standard of a well managed coffee estate; plantation establishment is yet to be completed; and coffee yields are still below their potential. While this is in part due to exogenous factors including the general deterioration of economic environment in Zamb_a during the project period, some of the elements which caused unsatisfactory performance were under the control of the lmplenting agencies. 4.02 During the initial project years, operating performance was haupered by the shortage of funds and the need by RUCCH management to cope with the problems of more than 30 diversified antd scattered co=ercial operations, many of which were unviable and constituted a permaent drain on RUCoM resources. Partly as a result of this, RUCOM management in Lusaka did not give adequate attention to the plantation; and forward planning, coordination and aonitoring by RUCOI top mana;ement have often been lacklig. These problems were aggravated by inadequate support services especially in procurement and accounting. The lack of qualified procurement and accounting staff were among the main reasons for late and Inadequate supplies of inputs, spare parts and materials, and for the absence of systematic accounting and cost control at the estates. 4.03 The situation improved somewhat with the engagement of a chief accountant and a procurement officer. But continued weakness in RUCOM headquarters management, poor communication and coordintion, and RUCOM's  - 17 - unstable finances made it lncreasingly necessary to extricate the project from RUCOK's operations. GRZ, ZIMCO and INDLCO decided therefore to transfer project assets and responsibility for project completion to Zambla Coffee Company Ltd. (ZCCL) which was established in early 1984 under new management. 4.04 Under its new General Manager and with the assistance of a Planeial Controller engaged in 1985 ZCCL has taken several steps to improve operations: the General Manager has assumed direct responsibility for day-t-day operations spending most of his time on the estates; In 1985 all required inputs were applied for the first time; detailed budgets are now being prepared for al: operating departments; and a management accounting system has been introduced. ZCCL has also played a pivotal role in Zambia's admission to the International Coffee Organization, and has successfully opened up a number of channels for the export marketing of Zambia's coffee,j/However, progress in addressing the Company'r t'ny problems has been slow. By aid-1986 (a) most of the defic1ivnc.Y in the irrigation system, Its maintenance and operation had yet to 7:.e 0 'ected; (b) crop husbandry practices did not meet acceptable standardt (; coffee yields continued to be disappointing; (d) maize production, introduced in the project to produce stover for mulching the coffee trees, had become a major objectives in itself drawing scarce resources from the coffee operations, while the maize stover was usually being burnt; (e) coffee production management and engineering staff was inadequate; (f) field operating manuals and standards were incomplete; (g) cost controls and the management information system needed further improvements; and (h) costs were In excess of operational needs. 4.05 On the estates, lnitlal performance under the expatriate Plantation Manager seemed encouraging: In spite of considerable difficulties, plantation establishment and rehabilitation were ahead of schedule. But by 1983 and even more so in 1984 it became apparent that targets for plantation establishment and production would not be achieved. This was mainly due to the shortage of funds, materials and equipment and other constraints such as the the poor performance of MAMD's Land Clearing Unit, over which plantation management had little or no control. On the other hand, with regard to crop husbandry practices and lrrigatlon development, estate management could have performed better. Management could have recognized earlier the problems in the Irrigation system design (para 3.13) and made use of a system such as contour furrows which would have been more appropriate for the topography of the area. Land clearing was another area where improvements could have been achieved: (i) soils were apparencly not adequately examined; and (1i) management did not make appropriate alterations in the initial land development plan when It encountered In some areas major problems such as anthill densities in excess of 2002 of appraisal estimates. Due to poor levelling of many anthills, buckets have now to be used In some coffee blocks for irrlgation. These problems together with inappropriate nursery management, including the use of bare-root Instead of potted seedlings in often poor soils, have been mainly responsible for the high mortality rate of coffee seedlings. In several coffee blocks planting vent ahead although sufficient irrigation water could not be assured. 4.06 Crop husbandry practices have been sub-si.andard: coffee trees have often been poorly pruned with the result of overbearing dieback, 1/ Success was due largely to a competent and knowledgeable marketing consultant, who also provided appropriate training to Zambian statf in marketing.  - 18 - difficulties in disease and pest management, and the reduction of yields; mulching has been completely inadequate leading to water stress, wilting and dieback; and erosion control measures have not been taken in a meaningful way, The above problems combined with insufficient irrigation, inadequate fertilizer applicAtion and pest/disease control, and a shortage of machinery, equipment and spares, resulted in under-achievement in plantation establishment (para 3.11' and low coffee production. Compared with appraised and Mid-Term Review estimates, the amount of coffee produced by the estates has been as follows: - Production (tons) Actual as Year SAR Estimate Hid-Term Actual 2 of SAR ______________ ,________ Estimate 1980/81 40 70 10 25 1981/82 115 157 56 49 1982/83 226 242 83 37 1983/84 398 400 138 35 1984/85 630 645 97 15 1985/86 821 936 200 24 1986/87 851 1,026 254 / 30 1/ Up to September 30, 1986 The poor production results are due to the delay in plantatlon establishment and lower than expected yields. While accurate data on coffee yields are not available and because of dlstortions due to the different infilling needs in the various coffee blocks, a coffee consultant employed in late 1985 estimated that with the existing Irrigation system and at prevailing management levels, average yields of mature coffee were only about 750 kg per hectare. le projected that average yields could be brought up to 1,750 kg/ha if investments were made in an improved irrigation system, tractors and other required equipment, while at the same time management and cultural practices were brought up to appropriate standards. 4.07 The coffee management expertise, idditional equity funds and the cost consciousness needed to ensure the Company's viability, would be provided most suitably through private sector participation in ZCCL. SAch participation vol..lA elqo hb ainaeted to assist In the removal of existing constraints on effectlve personnel management and on management of the Company in general. A strategy Involving private sector participation In ZCCL is being supported under the Second Coffee Project, which provides funds for required additional Investments In Irrigation, machinery, equipment, management and training. To avoid further delays In addresslng urgent operatioL4l and management problems INDECO/ZCCL, in consultation with IDA, have entered In 2id-l986 Into an agreement with Tate and Lyle Technical Services under which management and irrigation expertise are being provided. Also, with the asslstance of Commonwealth Fund for Technical Cooperation a corporate plan has recently been prepared to establish the basis of suitable organization, management and equity particlpation arrangements. This plan is now being reviewed by the various concerned institutions.  - 19 - B. Smallholder Component 4.06 Smallholder coffee development was the responsibillty of !MUD until late 1983 when under a dlrectlve froo President Rauuda coffee extension and development actlvltles were transferred to LINTCO. In line with the smllholder development objective of the project, assistance Including support provided by UNDP/FAO (para 3.25) concentrated lnltlally on Northern Province. The tvo Coffee Development Offlcers (CDOs) engaged under the project, with the help of four extension assistants and the UNDP financed xpatriate coffee agronomist and extension specialist, were successful in stimulating -,nsLderable farmers interests in coffee growing. In Northern Province actual farmer recruitment exceeded mostly appraisal estimates, reaching about 400 and 600 by the end of 1982 and 1983 respectively. 4.09 These results were encouragling especially In view of the difficult circumstances under which the CDOs operated: due to the overall shortage of funds and supply problems, staff was .often left without transport, petrol and Inputs. Efforts in smallholder development were also constrained by the lack of credit facilities and of ready marketing outlets. 4.10 To overcome lnput supply, credit and marketing problems, and in an attempt to expand the smallholder coffee sector rapldly, LINTCO was given at the end of 1983 the mandate and funds for coffee development in Zmbli. LINTCO establlshed for this purpose a Coffee Development and Marketing Divislon provlidng extenslon and marketlg servlces Including Input supply, credit and crop procurement. Adlinistration of the UNDP/FAO project, and technical assistance provided under that project were also transferred to LINTCO; the coffee development area was expanded to cover four Provinces; and extension staff was Increased to lnclude one Senlor Coffee Development Officer, four Provincial Coffee Officers, and 19 Dlstrict Coffee Officers. This development resulted in a considerable expansion of the number of smallholder coffee growers which almost doubled to about 1,200 by mid-1985. While the increased interest in coffee growing has been a comsendable achievement, the effectiveness of LINTOD's services has been limited due to a wmber of shortcomings: (1) the Coffee Division's extension staff have been inexperienced end In- fficlently tralned in coffee agronomy and processing; expertise in Irrigation development has been lacklng; (ii) scattered distributlon of the exlsting *mallholder coffee growers has made the effectlve provision of services difficult and costly; (tll) due to the scattered distrlbution of coffee farmers and the Coffee Division's lack of organlzation and management expertise, little attention has been pald to grouping uoffee growers Lato organlzational unlts which would: (a) enable the establishment of Improved coffee processing facllities; and (b) permit economlcal and effective provision of services;  - 20 - (iv) coffee extension staff at grass root level have been dealing also with several other crops such as soya and cotton, and therefore have been able to spend only limited time on coffee matters; and (v) equipment and transport available to extension staff has been Insufficient. 4.11 During preparation of the Second Coffee Project it has become apparent that a viable smallholder coffee industry will require adequate concentration of smallholder growers and the grouping of small coffee farmers into appropriate organizational units. It has also become clear that under Zambia's climatic conditions coffee plots can in most cases not be established successfully if supplementary irrigation Is not provided. Coffee yields obtained under rainfed conditions are generally not sufficient to make production viable. Accurate statistical data on euallholdar yields are not available, but estimates prepared by consultants on the basis of field observations indicate that suallholder coffee yields on rainfed land would generally be only 350 kg to 400 kg of clean beans per hectare, while Irrigated coffee would yield about 900 kg to 1,000 kg/ha. 4.12 The Second Coffee Project is addressing the above noted shortcomings in smallholder coffee development. It finances technical assistance, training and vehicles, equipment and materials required by LMNSCO's Coffee Development Division. It concentrates on Northern and Luapula Provinces and on smallholder groups using Irrigation facilities. Furthermore, during preparation of the Second Coffee Project agreement has been reached on a Government policy which limits public efforts in smallholder coffee development to the areas which are agro-climatically most suitable for coffee growing. C. Coffee Research 4.13 Coffee research has been carried out by fAWD's Coffee Research Unit at Nisamfu Agricultural Research Station and two sub-stations near Mpika and Mbala. Under the above mentioned UNDP/FAO asslsted coffee project an expatriate coffee agronomlst was financed who was initially stationed at Nisamfu to assist the Unit In strengthening ongoing adaptlve research work and develop new coffee research programs. Whlle a fev new trials were Introduced with the agronomist's help, achievements In the form of new research results have been Insignificant. Also, progress ln strengthening the lnstitutional and research capabilities of the Coffee Unlt has been negligible. This has been largely due to continuous underfunding of the Research Unit: It often received only 202 - 302 of budget allocations. In addition, the UNDP financed agronomist could not attend full-time to research matters as he was providing technical advice also to extension staff and farmers. Furthermore, there seem to have been little supervislon and critical examination of the research results by ANUD. UNDP/FAO's active support of coffee research termLnated In 1984 with the transfer of the agronomist to LINTCO's headquarters In Lusaka. A new effort to strengthen coffee research is now being made under the Second Coffee Project, which would support the requirements (including funding) of government coffee research beyond those included in the Agricultural Research and Extension project. Components in the second project include improvements in certain trial sites and processing facilities, provision of laboratory, scientific and farm eiquipment and technical assistance.  - 21 - D. Bank Performance 4.14 On balance, Bank performance was mixed. The appraisal team prepared cost estimates which were far too low for all major cost categories. It also considerably underestimated the difficulties in establishing and operating a large coffee estate within a parastatal establishment. The project preparation team had highlighted the dlscouraging experience with parastatal organizations in Zambia and proposed a diverse ownership structure for the estates in order to ensure that operations would follow commercial principles. Therefore it recommended that the lank should consider withdrawing from the project if a suitable ownership structure could not be agreed upon. The appraisal mission however raid less attention to this issue, and it agreed to give responsibility for the estates to an institution which was already beset with problems even before taking on such additional responsibility. In hindsight it would also sees that the aim to develop/rehabilitate 450 hectares of coffee may have been too ambitlous: at the time of appraisal there had been very little experience with coffee growing in Zambia; expertise in coffee production and processing was negligible; and the project area was remote and had little support services available. 4.15 Bank supervision has overall been satisfactory. 21 missions comprising specialists on coffee cultivation and processing, agronomy, irrigation, economics and finance spent about 36 man-weeks in Zambia to supervise the project. Supervision missions have helped project management, INDECO and ZINCO to focus on some of the main implementation bottlenecks such as shortcomings in crop husbandry practices; procurement, accounting and cash management operations; cost control; progress monitoring; and the quallty of clvil works construction. They have also assisted In a more accurate re-assessment of project costs and in finding at least partial solutions to the project's considerable under-funding. Furthermore they actively participated in expeditious preparation of documents required to change the project's legal agreements once Government, ZIDCO and INDECO had decided to establish ZCCL and transfer project responsibilities to the new Company. However, supervision could have been more effective if some of the major issues in project implementation had been brought out more forcefully during the initial period of project implementation. This applies especially to the unsatlsfactory irrigation system and land development where corrective action should have been taken in the initial stages of establishing the varlous coffee blocks. It also applies to the sub-standard agricultural practices some of which are only nov being upgraded to meet acceptable norms. On the other hand, it is difficult to separate these problems entirely from the detrimental effects which the constant shortage of funds had on all estate and processidng operations. As the funding problem was never fully resolved, it would in retrospect sees that the Bank should have been more forthcoming in providing additional financing subject to an appropriate private sector participation in the project. V. FINANCIAL PERFOUMANCE 5.01 Until the establishment of ZCCL in 1984, RUCOH Industries maintained project accounts which differentiated between capital and development expenditures. After deducting crop revenues and miscellaneous Income, all expenditures were capitalized and consolidated  - 22 - with the accounts of RUCOM's other operations. Accordingly, profLts (losses) from project activitLes remained undetermined, and financial operating performance vas not separately measured. Also, there were no detailed budgets or analyses of cost variances which would have helped to control cost and to assess better financial performance. The capitalized project expendLtures as of March 31, 1984, when ZCCL took over project assets, are presented in Annex 4, Table 1. 5.02 WLth the comencement of operations by ZCCL a separate proflt and loss account vas established for the project. Folloving the recom_ ndations of several supervision missLons, the Company also engaged a Financlal Controller and has taken some steps to improve budgeting and financial management. But more needs to be done to bring costs in line vith operational requirements. ZCCL has recorded profits of K 230,000 and K 550,000 for the financial years 1984/85 and 1985/86 respectively. For the first six months of 1Y1986/87 the Company's unaudlted accounts indlcate a profit of K 2.4 million (see Annex 4, Table 2). These favorable financial results have been due mainly to: (1) the substantial devaluatlon of the Kwacha in recent years: between the beginning of FY1984/85 and the end of September, the Kwacha has been devalued by about 802 against the US Dollar. As a result, the Kvacha value of coffee export earnings has quintupled over this perlod, vhlle operating costs are estimated to have increased by less than 2002; (iS) due to drought ln Brazll, world coffee prices were unusually high duriag the perlod from October 1985 until September 1986. By early 1986, world prLces for arablca coffee were almost 602 higher than the average of 1985. By mid-1986 they still exceeded the 1985 price average by about one third; (lili) until September 30, 1985 ZCCL continued to capitalize a consLderable proportlon of pre-production expenditures; thelr write-off - over a seven year period - comenced only at the end of September 1985; and (iv) depreciation of factory bulldings and machinery has not yet h-e.. v*fI.eeteA 4w 700r'T f4wneneL- etteet *eaf~.8 th* factory was commissioned only in. June 1986. Also, depreciation charges are lov as the assets of the Company have not been revalued to take account of the devaluation of the Kvacha. 5.03 Taklg Into consideration the decrease In coffee prices In recent months, and the price projections for arabica coffee prepared by the Bank's Cooodlty Studies & ProjectLons DivisLoars, It is expected that ZCCL vill Incur losses durLng the next years. Without conslderable Improvements in management, and assuming that no addltlonal Livestments are m*de to bring operatlons up to appropriate standards, and to expend the coffee plantation to the orlglnal target area of 450 ha, It is estimated that ZCCL's financial losses durLig the forthcoming nlne years would average about K 1.1 million per annum (ln constant 1986 K). The  - 23 - situation would be expected to improve subsequently, with the Company becoing marginally profitable starting with 111996/97. ZCCL's cash flow would be negative over the next decade requiring contlnuous borrowings of about K 0.8 mllion a year. The not present value of ZCC' s cash flow, using a discount factor of 8S, would be negative. (Details are ln Annex 4, Tables 3 and 4). 5.04 If proposals for improving ZCCL's operations are implemented as ou:lined In the Second Coffee Project - Includlg the strengthening of anagement; participatlon of the private sector In the Coupany; and lnvestments to upgrade efficiency and expand coffee plantation to the original target area - the estates and factory would be financially viable. With the proposed improvemnts and equity input by the private sector, ZCCL's income is forecast to becom positive in FT 1990/91 with anual profits Increasing to about K 5 million (In constant 1986 K) starting in nY 1995/96. The Company's cash flow would enable debt servicing of existing loans and of new borrowings which would be required only during the period n1TY 1986708 T WV 9.AndC to;n.t -A presen value would be about K 20 million. (Details are In Annex 4, Tables 5 and 6.) VI. ECONOMIC RE-EVALUATION 6.01 At appraisal, the economic rate of return (ERR) for the project's estate and factory component was estimted at about 212. ERR was re-estimted at 112 by the MLid-Tom Review MissLon (para 3.05). The project's main beneflt was to accrue from the Increase In production and "Il, of coffee expected from project Investments. Expectations have not been realized. For example, for 1Y 1985/86, the project's Incremntal coffee production was estimated at about 780 tons and some 900 tons by the appraisal and Mid-Term Review Missions respectively. This compares to an actual incremental production during that year of about 170 tons. The under-achievement is due to delays in plantation establishment and lower than expected yields which in turn have been the result of the problems in management, funding, cost-controls etc. diacussed above. Without improvemnts in management, increased cost-consciousness and the additional investments required to make operations more efficient, ERR is now stimated at minus seven percent (see Annex 4, Table 7). Strengthening of manageuent, appropriate reductlons in operating costs, and new lnvestnts proposed under the Second Coffee Project would considerably improv EU But due to low coffee production In the past, ad because of previous delays ln plantatlon establlshaent, ERR for the entlre estate/factory component is estimted to be still only about two percent even if needed Improvements and new lnvestmats are made (see Annex 4, Table 8). On the h *d, as a result of the substantial amount of sunk costs, ER on lcreomeatai investments and strengthening of sanagment would be high: It Is estimted at about 252 (see Annex 4, Table 9). 6.02 While the above economic results are disappointing, in evaluating the project it needs to be considered that there are a number of unquantified benefits accruing from the project to the coffee subsector as a whole. These include the project's significant contribution to developing a new industry in Zambla and sttmulating the interest ln  - 24 - coffee production especially by comercial farmers who have a'ready successfully established several coffee plantations. It has also helped In setting up a marketlng network and in effectively Introducing Zambian coffee on the international coffee market as a product with good quality characteristics. VII. CONCLUSIONS 7.01 The project was the Governsent's first major coffee development program, and the first operation In which the Bank Group supported Zambla's emerging coffee industry. When the project wes conceived, the country had little experience with coffee. The area under coffee was negligible, and annual production was less than 100 tons. The project has been successful In laying the foundation for the establishment of a viable coffee subsector in the country: experience galned under the project has provided valuable Input into the design of a sultable Covern ment coffee policy; it has also been beneficial to co rcial and suallholder farmers who have now taken up coffee production in larger numbers. The project has furthermore succeeded in meeting part of its narrower development objectives: of the 450 ha of estate coffee to be established/rehabllitated under its main component, the project has been able to achieve about 702, and the project financed coffee factory has been commissioned and is operational. Furthormore, the UNDP financed smallholder coffee development program has shown that there Is some potential for a small growers coffee subsector. The program has however also demonstrated that coffee can only be grown profitably by smallholders lf supplementary irrigation Is avallable and If coffee growers organize themselves Into effective farmer groups. 7.02 The project has so far failed In its production objectives and In Its aim to establish a viable coffee company capable of operating the two project estates and the coffee mill. This has been mainly due to unreliable cost estimates at appraisal, a consequent severe shortage of funds, an uncatisfactory irrigatlon system, and inadequate management. However, the problems experienced during project implementation and the diffzculties encountered in resolving them have also made it Lncreasingly cler that the cholce of RUCOK Industries, and more general of a parastatal organizatlon, for Implementing a project component of this sixe and complexity has been inappropriate. It is thus also unlikely for the future that the necessary Liprovements In operational effectiveness, *mg the cost consciousness required to ensure efficient operations, can be achleved within the existing structure of ZCCL. Rather, as pointed out by supervision missions, incrazsed efficiency and effectiveness together with addtilonal equity required to finance pert of the Company's remaining investment needs would most suitably be provided through appropriate private sector particlpatlon In ZCCL. 7.03 The lessons learned from the project have been Incorporated into the design of the Second Coffee Project and Into the coffee pollcy prepared by GRZ in consultation with IDA. Both the policy *nd the Second Coffee Project concentrate on future coffee development In the private sector Including large and small farmers. With regard to smallholders, they furthermore emphasize the need for cost effective production limiting publlc sector and project assistance to areas which are  - 25 - agrocilatically most suitable with adequate Irrigation potential, and where vlable farmer groups can be suitably organized. With regard to ZCCL, the Second Coffee Projoct providso funds to upgrade management and operations so that the Company can become viable. However as the efficiency and cost effectiveness required to ensure such viability cannot be expected to be achieved within ZCCL'z present ownership structure, IDA fliancing provisions for this component are contingent on the completion of satlfactory equity partlcipation arrangements which would roquiro slgnificant private sector lnvolvement In the institution.  - 27 - AINNE X 1 Pogo I of 6 ZAMBIA COFFEE PROJECT (CREDIT 863-ZA) DRAFT PROJECT COMPLETION REPORT - ESTATES AND FACTORY DEVELOPMENT (Prepared by ZCCL) 1. INTRODUCTION: 1.01 The Coffee Project is the first Bank assisted project In Zambia. This PCR ls based on material gathered from Staff Appraisal Report of 1975, the Report of the Supervision Mission of 1981 and the records of Zmbla Coffee Company Limited. 1.02 The Coffee Sub-sector. Coffee production in Zambia was mainly confined to the Northern Province, the site of this project. Estate productlon of coffee was restricted to tvo Estates at Ngoli and Kateshi. Sbe m*a constraints in developing estate coffee production are lack of szalting large state farms In the coffee area; lack of identification of mw eites, where estates could be established in the Northern Province, lack of expertise in estate coffee production and processing and lack of funds. 1.03 Agricultural Policy. Zambia's policy on agricultural and rural development are: (a) achieving a more even distribution of rural incomes by redressing the imbalance of social and economic opportunities vhich favor urban workers over rural workers; (b) attaining self sufficiency in food stuffs and lidustrial crops; and (c) dLversifying the economy and widening the export base by producing and exporting agricultural surpluses. 1.04 The objectives of the state component of the Project as conceived 1i 1978, were to: ':) h.41"t:t: -o :exit4in 4ww4.t^. =ff estate of f0 Sh at Ngoll whlch, upto that time, had been the responsibility of the Minlstry of Agriculture and (b) develop a coffee estate at Kateshl of some 400 ha which would also be Irrigated. Those two estate are respectively about 55 kas and 35 bms north of lamama In the Northern Province of Zambia. The project also provided for the establishment of coffee processing faclilties to pulp, dry, hull, grade, roast, grind and reack the coffee from the estates. The project was to be completed In S years and would produce an average of 800 tonnes of clean coffee per annum at full development, mainly for domestLc consumptton. 450 ha of maize would be grown principally to  28 - ANNEX 1 page 2 of 6 provide culsh - . this would produce about 2000 tons c-f maie grin ; lae annually. The cost of .he project was estn*t-ad &v K5.605 million (US$6.726 M). IDAV s financing intlud-: e tc amallholder component and the coffee research cooon.,c was to be US*S.4 M. 1.05 Institutions. The estate :c-alovant of the project was to be carried out by Rucom Industricr Ltd. Rucom is a parastatal and a wholly owned subsidiary of Indeco Ltd which In turn is a wholly owned subsidiary of ZINCO Ltd. 2. PROJECT IDENTIFICATION, PREPARATTON AND APPRAISAL: The XinIztry of Lands and Agricultu.re planted coffee in 50 ha at Ngoll where water potential was enough from Kabulukutu and Chaafubu rivers. This experiment had already proved beyond any reasonable doubt that agroclimatic conditions in the region were suitable for producing quality coffee. Realling the success of Ngoli Coffee Scheme the Government of Zambia through Rucom Industries Limited wanted to expand the coffee growing activity in the Northern Province. In 1976 Rucom Industries Limited planted again on experiment basis 14 ha of coffee at Kateshi where water was available in abundance from Lukupa river. Results of this experlment were also encouraging. In March, 1978 the World Bank appraisal Mission visited Zambia for preparing the report on Coffee Project, which was the basis of the bank's lnvolvement and funding. 3. IMPLEMENTATION: 3.01 The implementation of the coffee project has not been totally successful. The targets set in the appraisal report both with regard to the estate development and the coffee processing factory have not been met both in timing and physical terms. The limited success of thc project has been the result of a combination of factors such as staffing, funding, changes in part of the project concept and institutional drawbacks experienced during the implementation of the project. 3.02 Effectiveness and Start Up. The original date of effectiveness was scheduled to be 26 April 1979. This was hovever conditional upon the recruitment of two Internationally recruited project staff in consultation wiuh the IDA. The actual effective date of the project was July 26, 1979 following the arrival in May and July 1979 of the internationally recruited Plantation Manager and Project Englneer respectively. 3.03 Revisions. A mid tern appralsal mission In March 1981 analysed the projects development. The mission worked at various scenarios with regard to the irrigation systems and the coffee processing equipment. The Mission recommended that the 450 hectares be developed on the bceis of a gravity-cum-pump irrigation system as the yields of coffee under  - 29 - ALNEX 1 Page 3 of 6 this scenario would be higher than a purely gravity Irrigation system. The Mlssion's findligs were that the average 7 year yield of the first planting cycle would be 1357 kas of coffee per hectare as agalst 1300 kgs eatimated at appraisal. The yields in the second and subsequent prunlng cycles were estimated as 1970 kgs/hectare on a 5 year cycle as against 1800 ka eatimated at appraisal. With regard to the coffee processing factory, the mid term mslsion was of the oplnion that the market concept as envisaged In the appraisal report did not tie up with the type of processing recommended. The appralsal report has considered that the project would cater to the domestic markets. However, the mid term mlsslon was of the opinion that the machinery and process design would yield coffee that was fit for exports and earn much needed foreign exchange for the country. Hence the project concept was revlsed to export 802 of the out-put and sell only 202 on the doaestic markets. 3.04 implementation. As early as January 1980 It became apparent from an analysla of the 1980/81 estimates and past expenditures that total project cost would be considerably higher than foreseen at appraisal. Project management was constrained by shortage of equipment and materials that frequently had to be substituted by labor thereby increasing costs conslderably and adding to management problems. An additional problem which haspered operations was the Initial lack of communicatIon between Ruco- HQ and Kateshi and between K&teshi and Ngoll. In the light of these pioblems an indepth review mission was called for. 3.05 Estate Developomnt. The appraisal estimates of estate development was as follows with regard to Kateshi: Maizo Coffee Total Period Bush Clearing Hectare Hectare Coffee Ha. Pre Project 54 ha 40 14 14 Year 1 560" 160 40 54 Year 2 186 " 260 100 154 Year 3 - 360 100 254 -- 400 I 54 YerS - 400 46 400 Year 6 As ldlcated earller, there were several problems that the project was faced with aod lmplementation could not be in line with appralsal projectlons. Vlth regard to bush clearing, a total area of 1200 hectares has been cleared at Zateshi. Coffee plantations have reached 345 hectares but there is stlll need for gapplag th_s hectarage as the plant densities are not In line with optimum densities. Maize area Is presently at 450 hectares. In addition 100 hectares have been planted under soya both as a rotational crop and for commercial Income.  -30 - iL9INE 1 Page A of 6 The *r a under coffee at Ngoli stands at 62 hectares. In additlon to the problems statcd above two additional reasons have caused the delay. In physlcal terms it vae originally recomended that land clearing operations would leave the larger ant hills standing. This proved to be I-practical because of actual number and size. The other significant factor was the under-estimation of project cost at apprat al. The mid term mission put the total project cost at K14.27 millilon (US$ 17.8 mllllon) against the appralsal estimates of KS.6 Million (US$7 Million). 3.06 Ylelds. The yields experienced to date both in coffee and maize have beon much lower than estimated both at the time of the appralsal. and the mid term mossion. Actual ylelds of coffee during the 1985 was in the reglon of 700 - 800 kgs per hectare as against the original estimates of 1300 kg* during the first cycle. Reasons for the lov yields have been the delays in planting, lower than estimAted plant densities lack of Inputs on time, Inadequate mulching, unsatisfactory agronomical practices and a poorly designed irrigation system. Yields of maixe have been belov levels originally estimated. At appraisal yields were estimated at 4.8 MT per hectare and revised downwards to 4.0 MT at mdd term appraisal. Current levels of yields have been in the regLon of 2.7 tonnes per hectare. The low ylelds are due to a lack of Inputs on tia and non-avallablllty of adequate eaehInery on 3.07 Factory. The processing factory is expcted to be comdissLoned in April IA 7 The delays In thlo regard have been mny. In 1980 tenders were lnvited for the factory and services of a consultancy were engaged for evaluatitg them. 3.08 Disbursements. The project was disbursed from R4EA as follows: CUMULATIVE US$ Mt US$ ZR 1979/80 1,075,006.53 846,998.51 1,075,006.53 846,998.51 1960/81 1,077,641.12 878,975.69 2,152,647.65 1,725,974.20 1961/82 751,794.80 636,494.11 2,904,442.45 2,364,468.31 1962/63 664,276.69 627,034.12 3,568,719.14 2,991,502.43 1963/64 662,988.96 1,398,223.28 4,431,708.10 4,389,725.71 1964/85 1,041,714.07 1,760,798.15 5,473,422.17 6,170,523.86 1985/86 371,086.56 1,290,425.83 5,844,508.73 7,460,949.67 -' ~~ - -. --:. J 3.09 Training. The appralsal envisaged the replacment of the Plantation Manager and Engineering Manager by Natlonals at the and of the project. This was not achieved as no sultable understudy could be ldenatfled. 3 plantatlon personnel attended a 14 day study tour in Zeny&. One person attended a 10 week liquoring course In UK but has  - 31 - ANNEX 1 Page 5 of 6 since left the project. 2 Engineers attended a 10 week course on agricultural equipment but one of theo has since left the project. 3 persons attended a marketlng seminar In Europe. Two persons attended a 90 day course ln Kenya on liquoring and marketing of coffee. The appraisal report provided for K33000 for tralning. In retrospect, this figure appears to be low. Further the project had difficulty in obtalning the right calibre of staff due to Its location. 3.10 Costs. The actual costs of the project to-date including the coapletion of the factory Is estimated at about K32 M as against an appraisal estimate of K5.605 Million (US$7 M) as shown in the annexure I. Significant cost overrun were recorded both in the estate development and the factory costs. The mid term appraisal estimated the cost of the project at X14.27 K (US*17,8 Million). The reasons for the overrun are an under estimate of costs at project appraisal, lack of local funding, a significant change in the factory daslgn, infl4tionary factors and delays in implementation. A further reason for the cost overrun was the extensive use of labor for estate development. In Kwacha terms, the depreciating value of the Kwacha over the period of the project was also a significant factor. Cost overruns 'aave been financed largely by Indeco/Zimco and local borrowings. A decision on the final capital structure of the company will taken shortly. 3.11 Performance of Consultants, Contractors and Suppliers. The performance of the contractors as regards the factory could have been better which would have enabled Its completion at an earlier date. The factory design, whlch was done by a Consultant, has been criticised by a recent Consultant of IDML Some of the problens of the development of the estates could have been avoided. Projections of estimates by visiting consultants have not been accurate. 3.12 Accounting, Auditing and Progress Reporting. The projects record of producing timely financial statements and audited reports was satisfactory. The Management reporting systems are being improved. Detailed budgets are now belng prepared. The availability of accounting staff at the Project continues to be a problem due to the housing situation. 3.13 Procurement. The project has been faced wlth problems of pro,curemnt due to Lts situation. Procurement was also haupered due to financial constraints. 4. OPESATING P1RFOMANCP: As lndlcated earller the performance of the estates has still not come up to the projected levels. Since the processing factory has not been completed, it is only hoped that the quality of the product will be up to the expected standards. 5. FIPNCIAL PERFORMANCE: 5.01 The appraisal estimated the internal financial rate of return at 14% over a 25 year perlod. The revised financial rate of return on the new project cost on the basis of 1986 constant prices is 12% as shown in  - 32 - ANNEX 1 Page 6 of 6 a Annexure rl. A recent reappraisal of the project has indicated that unless significant investments are made, the project will not realise tts full potential. In arriving at the new internal rate of return, it has been assumed that such further lnvestments will be available. 6. INSTITUTIONAL PERFORANCE: 6.01 Rucou vhich undertook the project Initially found it difficult to manage the project effectively due to its multi-farious activities. Hence a new company Zambia Coffee Coupany was incorporated in 1982 to take over the coffee project. However the actual take over was completed only with effect from 1 April 1984. ZCCL's management has been faced with a serious problem of staffing. The location of the estates is an impedement to getting staff of the right calibre. This has been compounded by the fact that the staff housing problem on the estate has not been fully resolved. The project continues to depend upon expatriate staff particularly in key technical and accounting fields. In training of staff ZCCL has not been very successful and 2 persons who were trained have since left. ZCCL Is currently under the charge of a full time General Manager with a strong agricultural background. Budgetary controls are being enforced. A management information system is being put into place. 7. OONCLUSION 7.01 In physical terms, the isplementation of the project may be regarded as satisfactory given the constraints the project was faced with. The size, scheduling and complexity of the project was under estimated. The overall project concept has to be changed mid way its Implementation. The Implementation capacity of the original executing authority was not up to expected levels because of its other commitments. The scheduling of civil works and procurements did not take into account the local problems of the site and the financial constraints. Operating forecasts did not prove to be reasonable. On the other hand, the project is earning foreign exchange instead of belng an lport substitution one. 7.02 The future of the project is still unclear. Estimates made by IDA Consultants indicate that the full potentlal of the project can never be achieved unless further substantial Investments can be made.  - 33 - ANNEX 1 ANNEXURE I ZAMBIA COFEE COMPANY LITTED PROJECT COST LATEST ESTIMATE PER ON COMPLETION S.A.R. K' 000 K' O0O LAND BUILDINGS 9,665 2,054 PLANT, MACHINERY, EqUIPMENT 10,282) 735 VEHICLES 1,505) FURIITURE, FIXTURE, FITTINGS ETC. 280 - PRBRODUCTION& DEVELOPMENT 10,201 2,816 EXPENDITURE 31,933 5,605 _ _ '' '~~~nuin  - 34 - A.NSEX 1 NVEXLRE : ZAHNSA COFFEE COMPANY L4I1TED CCMPUTATION OF INTERNAL RATE OF RETURN YEAR FUNDS FUNDS NET DISCOUNT NET PRESENT DISCOUNT NET PRESENT OUTFLOW INFLOW FLOW 102 VALUE 122 VALUE -Kt' 000 K' 000 i0o V00 K' 00 1979 - 80 1706 - (1706) 0.909 (1551) 0.893 (1523) 80 - 81 1683 - (1683) 0.826 (1390) .797 (1341) 81 - 82 2099 - (2099) 0.751 (1576) .712 (1494) 82 - 83 1540 - (1540) 0.683 (1052) .636 ( 979) 83 - 84 1734 - (1734) 0.621 (1077) .567 ( 983) 84 - 85 4781 232 (4549) 0.564 (2566) .507 (2306) 85 - 86 6472 861 (5611) 0.513 (2978) .452 (2536) 86 - 87 8005 473 (7532) 0.467 (3517) .404 (3043) 87 - 88 963 1539 576 0.424 244 .361 208 88 - 89 4903 3102 (1801) 0.386 ( 695) .322 t 580) 89 - 90 785 6472 5687 0.350 1990 .287 1632 90 - 91 195 7596 7401 0.319 2361 .257 1902 91 - 92 600 7596 6996 0.290 2029 .229 1602 92 - 93 600 7596 6996 0.263 1840 .205 1434 93 - 94 600 7596 6996 0.239 1672 .183 1280 94 - 95 600 7596 6996 0.218 1525 .163 1140 95 - 9G 600 7596 6996 0.198 1385 .146 1021 96 - 97 600 7596 6996 0.180 1259 .130 909 97 - 98 600 7596 6996 0.164 1147 .116 811 98 - 99 600 7596 6996 0.149 1042 .104 728 99 - 2000 600 7596 6996 0.135 944 .093 651 2000 - 2001 600 7596 6996 0.123 861 .083 581 01 - 02 600 7596 6996 0.112 784 .074 518 02 - 03 600 7596 6996 0.102 716 .066 462 03 - 04 600 7596 6996 0.092 643 .059 412 4,140 506 __ ....~~~~~  - 35 - ANNEX 2 TAble 1 WZA COFnE PRODUCTION PROJECT - CR. 863-ZA Project Cowmletion Regort Cost Estimates at Appraisal and :t Mid-Term Reviev For Project Cgponents Implemnted by RUCOM Mid-Term Appraisal (k '000) -- Estate Component Land clearing 642 304 Vehicles, equipment, furniture 1,469 510 Vehicle operating costs 785 139 Crop inputs 666 316 Labor Vages 1,657 509 Irrigation including pumps and operatiou 427 677 Roads and tracks 116 96 Buildings, stores and houses 1,987 1,046 Management and Administration 1671 876 Sub-total 9,620 4,473 Prucessing Plant Kbchinery and buildings 3,746 940 Addition 500 KVA pover line 128 - Training 65 - Sub-total 3,939 940 Other Components ImPlemnted by RUCOK 130 192 Grand total-/ 13,689 5,605 Grand total in USS/- 17.U1 6.8M &/ Excludes Luildings related to processing pleant. T/ Includes contingencies c/ Prevailing exchange rates: K1.00 a U8$1.25 - at mid-term reviev; K 1.00 * US$ 1.20 - at appraisal  - s^ 'r toloaes _ -n Ad aV m M~ WW,W FUSII1 REAl- l ElR - 351 _* d C ad Vgu hm 1 n IN 24 114 25 u 13 74 - 13 3U 413 ad _P%ma 33 2 a 3 a as 36 73 2 1.467 GU U ftr,qm on -I if*lm 16 Got 75 M1 60 163 3 73 a1 4,247 1.157 3.6616 kdpS1in3wsbmft 23 53 US a7 2 1 - - 33 3aM (023 A011111111"- 3 24 23 - - - - 7 135(3 -ot ad ltIr Nuaw iD 27 544 65 7 4 4 424 1n 2,37 1.255 1.32 am"y Ulu 5t a -. - - - - - 3 363 233 1i0m 23 3.15 1.M0 2,2 ooumtad ad Wmm&qO 21 23S 23 2M M la. 162 61 to I-I 1.32 34 1110416111421 1im 1.4 2.366 5,36 I,42 3*416 1.135 5? 14.51 6.724 7.6 L. wa m OA4 NA 127 mS so13 44 6 MA. 1,746 Su4 3 3. in.& 6NA is 146 i3n 54 38 um ___ SE M ~ ~ orn ft ha. ~wham m adamp~am hmwuu atq stow jtm Cleo" pan. OMIIIIOvfidtMI SW tk MU ofla POKA7 ad ealosd lmofy ad hnqm mona*m mm In to be gMd IV mom. A' I1wh pa1-1 ad Prm OMaUinm. jf m ma ut~10 S k 119MI quafiag od1tom *g*qg dsAcm1t twa G' ahAlaUm tb1ha bum of "brs de& Iom the uWAiO Omi".* Ger pm3t. 33~mD1 flimme co" bw tor 41Ia0&0 to Sbo M1NDU ad IOMPIM f ha Sb I kale d I. PoM)t NW ClaINi VMgg 33, M. A =MWIrN3 at MeSbR MA 411111t for tta mIlto3S 'i ommm ,ith Nm,am imma M" "M 131/9 ala*1i pwoo Is mmqfa3l adAy to a I ttioud antma t- Mum lasero%ua a lerga wojs smi _l to _dafo&to D  - 37 - ANNEX 2 Table 3 ZAMBIA COFFEE PRODUCTION PROJECT - CREDIT 863-ZA Proiect Completion Report Schedule of Cumulative Disbursements (USS '000) Cumulative Actual Actual Disbursement Bank Group Disbursements Disbursements as % of Appraisal FY and Quarter (Appraisal Estimates) Estimate FY 79 Q3 360 0 0 Q4 600 0 0 n 80 Q1 1,080 18 2 Q2 1,540 580 38 Q3 1,740 1,075 62 Q4 2,000 1,115 56 FY 81 Ql 2,260 1,134 63 Q2 2,580 1,754 68 Q3 2,960 2,149 73 Q4 3,340 2,328 70 FY 82 Ql 3,860 2,570 67 Q2 4,170 2,626 63 Q3 4,450 2,900 65 Q4 4,670 2,930 64 FY 83 Ql 4,900 3,550 72 Q2 5,260 3,559 68 Q3 5,490 3,569 65 Q4 5,720 3,581 63 FY 84 Ql 6,000 1/ 3,841 64 Q2 6,000 3,871 65 Q3 6,000 4,338 72 Q4 6,000 5,105 85 rY 85 Ql 5,000 5,213 87 Q2 6,000 5,442 91 Q3 6,000 5,554 93 Q4 6,000 5,705 95 FY 86 Ql 6,000 5,803 97 Q2 6,000 5,867 98 Q3 6,000 5,950 99 Q4 6,000 5,997 2/ 100 1/ SAR para 4.36 indicated disbursements ending September 1983, while the Development Credit Agreement specified September 1984 as the Closing Date. 2/ The Credit was closed in May 1986. About $3,500 of the Credit amount remained undisbursed and were cancelled.  - 38 - ANNEX 2 Table 4 ZAMBIA COFFEE PRODUCTION PROJECT - CR. 863-ZA Proiect CM'eletion Revort Credit Disbursements (US$ '000) Amount of Credit Actual Actual Category Allocated ln DCAi/ Disbursement as S of Allocation A. Estate and Process- ing Component (1) Vehicles, Equipment, Machinery 785 2,447 312 (2) Technical Assistance and Training 450 650 144 (3) Civil Works and Land Preparation 2,355 1,923 82 (4) Salaries and Wages 560 902 161 (5) Incremental Inputs 225 60 27 D. S0allholders Comuonent (6) Vehicles, Equipment, Civil Works, Operating Costs, Salaries, Wages, Training 670 1S 2 (7) Technical Assistance 280 - 0 C. Research Component (8) Vehicles, Equipmnt, Machinery, Inputs, Ope?tilng Costs, Tralioln 675 _ 0 Total 6,000 5,297 1/ Unallocated Crodit aaount of US$650,000 has been dlstributed proportionately to various categories.  - 39 - ZAZBIA AY"ES 3 COFFEE PRODUCTION - CREDIT 863-ZA Page 1 of Prosect Completion Report Targets A Achievemnts at Proiect C Mltion Appraisal Actual Ite" Unit Tarpet Achievements Coffee production tons 621 1/ 200 1/ Maize production tons 1,973 1/ 1,480 T/ Bush cleariag ha 800 1,635 1/ Maize planting ha 450 SOO T/ Coffee planting ha 450 407 7/ Farm machinery procur_ment - tractors 70/80 UP No 6 0 3/ - tractors 40/50 BP no 12 7 t/ - trailers (7 ton cap.) No S 6 5/ - trailers (3.5 ton cap.) No 6 8 ai - lorry No 1 2 - combine No - 1 Implem_nts procurement S completlon - 85 Irrigation development - main canal construction (9ka) X completion 100 100 - field distr. canl const- ruction (44 ka) S completion 100 85 - night resqrvoir construction (30,000 a-) No 1 2 7/ - installation of pumps no 3 7 T/ - piping to resezvoir (1 km) X completion 100 100 - generator Nm - 4 9/ Farm and access tracks - farm entrance tracks WE 6 4.5 - access tracks Ka 55 55 - track along canal Ka 5 - Personnel transport - cars no - 4 - 4MD station wagons so 2 5 - 4ID pick-ups No 3 2 - u no - 1 - motorcycles no 5 12 Workshop tocle 2 procured - 80 Communication, office equipment - radio sets No 2 2 11/ - office equlpment 2 completion - 100 Staff housing - for managers No 3 3 - for assistants No 7 4 - for support staff No 31 8 - for permanent laborers No 50 45 10/  - 40 - ANNEX 3 Page 2 of 2 Building construction - Kateshi - farm buildings % completion 100 100 11/ - puplpery 2 completion 100 100 12/ - input stro. 2 completion 100 100 - workshop Z completion 100 100 - lmplesent shed. X completion 100 100 13/ - office 2 completion 100 100 - Ngoli - addl. fermnting tanks X completion 100 100 - addl. drying tables 2 completion 100 100 - Input store 2 completion 100 - - power houses 2 completion 100 100 - Kasama - coffee mill % completion 100 85 14/ - warehouse 2 completion 100 N.A. 15/ Coffee processing machinery - Kateshi - pulping machin2ry Set 4 2 16/ - pumps No 3 3 - moisture meter No 1 1 - factory machinery 2 lnstallatlon 100 100 17/ Training - general (3 persons) Days 45 45 18/ pulplag (1 person) Days 90 90 mechanical, electrial (2 persons) Days 180 180 19/ - coffee mill operations (1 person) Days 15 - - coffee liquoring (1 person) Days 90 180 20/ Preparation of future project K'000 167 N.A. 2/ 1/ Targets and achievements for 1986 2/ Effective coffee area planted Is only 308 ha If gaps in plantations are considered. 3/ Includes tractors with higher HP. Ti Inlcudes tractors with lower HP. 5/ Includes trallers wlth higher loading capacity. 6/ Includes trailers with lower loading capaclty. T/ A feeder reservoLr (12,000 i3) and a night storage reservoir (17,000 m3) have been constructed at kateshi. 8/ Includes 3 portable pumps. 9/ Three 250KVA sets for factory; 34KVA set Lnstalled at Ngoll. TO/ Soma support staff is housed in low cost housing. iU/ Includes pump house and 300 ton bulk silo. IY/ Ezisting pulpery was improved. 13/ Existing shed from Ngoli was moved to Kateshl. 14/ Perimeter fencLng and connection to natlonal grld yet to be completed. T5/ Is part of coffee mill. 16/ Procurement of 2 addltlonal sets has been postponed until productlon volume justifies their procurement. 17/ Machinery has been installed, but some replacements are requlred. 18/ Comprises field agricultural trainLug of 15 days each for 3 persons. IT/ Two persons were tamned in mechanical engineering, but one failed to complete course successfully. 20/ Two persons have been tralned. 21/ Has been carrled out under Technical Assistance Project, Cr.873-ZA.  - 41 - ANNEX 4 Table T ZAMBIA COFFEE PRODUCTICON PROJECT CR. 863-ZA Project Co2pletion Report Capitalized ProJect Expenditures as of March 31. 1984 - vhen ZCCL Took Over ProJect Assets K '000 Fixed Assets Leasehold, Land, Buildings 2,356 Plant & Machinery 556 Vehicles 471 Office Equipment 59 Capltal Work-In Progress 20 Sub-Total 3,462 Less: Depreciation 536 Total Fixed Assets 2,926 Pre-Production and Development Expenditure Crop Inputs 1,018 Wages 2,189 Management 6 Administration 1,316 Fuel and Repairs 755 Travel and Sundries 394 Interest and Bank Charges 1,105 Depreciation 543 Sub-Total 7,320 Less : Stocks of Materials on Hand 508 Crops Revenue 926 Interest Income 8 Sub-Total 1,442 Plus: Pro-Project Expenditure 127 Total Pre-Production and Development Expenditures 6.005 Y/ Total Capitalized Expenditures 8,931 1/ Comprises: (i) Development Expenditures of K 3,989,000 and (ii) Pro-Production Expenditures of K 2,016,000.  - 42 - A.%NEX 4 Table 2 ZMBIA eoPF M1ODUCTIOPIOHOJCYCT - CR. 863-ZA Project Completion Report Profit and Loss State ent for ZCCL FY84/85 FT85/86 FY86/87 Sales 769 5,520 6,861 Cost of Sales 396 3,314 2j563 Gross Profit 373 2,206 4,298 Adminlstratlve s peaes 224 1,206 787 Selliln and Dlstrlbutiou lzpenses 90 311 684 Finance Charges 9 487 193 Operating Profit SO 202 2,634 Other Income (Charges) 180 348 (240) Net Profit 230 550 2,394 I/ First half year through September 30, 1986 (unaudited)  . . 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