Madagascar - Forests Management and Protection Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4732 MAfr MEMORANDUM AND RECOMMENDATIONS OF THE PRESiDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EKECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 5.1 MILLION TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR THE FORESTS MANAGEMENT AND PROTECTION PROJECT January 14, 1988 This document has a restricted distribution and mav be used by recipients oniv in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency unit - Malagasy Franc (FMG) US$1.00 - FMG 1,360 FMG 1,000 = US$ .74 (as of July 1987) WEIGHT AND MEASURES metric British/US Equivalents 1 meter (m) - 3.3 feet (fc) 1 kilometer (km) = 0.62 mile (mi) 1 square kilometer (km2) = 0.39 square mile (sq.m.) 1 hectare (ha) = 2.47 acres 1 kilogram (kg) = 2.20 pounds (lb) 1 metric ton (m.ton) = 2,205 pounds (lb) FISCAL YEAR Government oA. Madagascar January 1 - December 31 Fanalamanga (parastatal July 1 - June 30 Mangoro plantation) ACRONYMS AIVF Amenagement Integre des Valles Forestieres (Integrated Forest Valley Development) DEF Direction des iaux et Forets (Forestry and "'s-er Department) FD Forestry Department GOM Government of the Democratic Republic of Madagascar IUCN International Union for the Conservation of Nature NMDC Norwegian Ministry of Development Cooperation SDC Swiss Development Cocperation WWF World Wildlife Fund  FOR OFFICIAL USE ONLY MEMORANDUM OF THE PRESIDENT DEMOCRATIC REPUBLIC OF MADAGASCAR FORESTS MANAGEMENT AND PROTECTION PROJECT Credit and Proiect Summary Borrower: Democratic Republic of Madagascar Beneficiary: Ministry of Livestock, Fisheries and Forestry, and Fanalamanga Amount: SDR 5.1 million (USS 7.0 million equivalent). Terms: Standard. Onlending terms: Borrower to Fanalamanga (parastatal Mangoro plantation) for US$ 2.4 million, on 20 years maturity with 7 years grace, at an interest rate of 8.491 of which represents an interest rate 101 higher than the IBRD rate at the time of Board presentation, foreign exchange risk being born by Fanalamanga. Financing Plan: Government and US$7.1 million cost recoveryl Swiss Grant 6.5 Norway GrarnL 2.0 IDA 7.0 USS$ 22.6 million 1/ Including $2.9 million taxes and duties Economic Rate of Return -- for Fanalamanga (32% of project cost): the economic rate of return for the incremental investment is over 50%. Staff Appraisal Report Report No. 6994 MAG Map IBRD 20657 This document has a restricted distribution and may be used by recipients only in the pertu,.i..i-e of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERFATIONAL DEVELOPMENT ASSOCIATION TC THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR SHE FORESTS MANAGEMENT AND PROTECTION PROJECT 1. The following memorandum and recommendation on a proposed development credit to Madagascar for SDR 5.1 million (USS 7.0 million) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and help finance a Forests Management and Protection Project. The project would be co-financed by a grant from the Swiss Development Cooperation (SDC) for US$ 6.5 million and by a grant from the Norwegian Ministry of Development Cooperation (NMDC) for US$ 2.0 million. The Swiss and the Norwegian grants would be administered by the Association. 2. Background. With a population of ten million inhabitants and a per-capita income of US$ 265 in 1986, Msdagascar is one of the poorest countries in the world. In the 1975-78 and 1984-86 periods, economic growth remained below population growth, and between 1979 and 1983, agriculture production stAgnated. Forests in Madagascar are of particular environmental and economic significa-ce due to their high level of biological diversity, their watershed protection function in a country highly susceptible to erosion, and their supply of fuelwood and construction materials. The uniqueness of the forest combined with the high rate of deforestation has brought the attention of the Government of Madagascar and the international community to the need for urgent action to improve the management of wood resources and forest production. 3. Since 1974, the Bank group financed in the forestry sector of Madagascar two projects on an industrial pine plantation (Mangoro plantation run by the Fanalamanga parastatal corporation) for producing woodpulp. The export market for wood pulp did not materialize and pine trees did not grow as expected. In addition, it became apparent that the two projects did not address major issues that Madagascar faces: (a) difficulties within the Forestry Department (FD) in dealing with forest management (exploitation control and inventory), nature conservation (protection of forest reserves and soil conservation) and reforestation; (b) difficulties in preventing the urban and rural populations from destroying forests for energy (charcoal) and (c) difficulties in attracting the private sector in replanting and ir exploiting rationally forest products (sawlogs). 4. The proposed project is the outcome of an ongoing dialogue between the Government and the Association on forestry sector strategy. Based on two Association-FAO/CP missions, it was agreed that a forestry sector approach would be more appropriate than the originally restricted industrial plantation focus. During the pre-appraisal mission, the International Union for the Conservation of Nature and Natural Resources (IUCN) and the World Wildlife Fund International contributed to the preparation of the natural forest protection component. The project was appraised in June 1987.  -2- C. Present obiectives: In order to address the priority issues facing the forestry sector in Madagascar, project objectives are to: (i) strengthen the FD capacity to plan and manage the sector and focus its activities on priority programs; (ii) prevent further degradation of protected natural forests; (iii) stimulate private reforestation by rural and urban populations; and (iv) assist Fanalamanga in att. acting private investment for wood-processing activities once the plantatl3n reaches the production stage. 6. Prolect Description. The proposed Project includes thxee components: (i) DEF (Direction des Eaux et Forits) reinforcement including (a) institutional strengthening activities focused on sector planning and monitoring, financial management and human resource development; (b) support to priority FD programs in forest management, private reforestation promotion, and seed supply; and (c) support to applied research; (ii) a natural forest protection component containing in the first phase (3 years), pilot actions in two representative forest reserves, the creation of a new National Park, and training leading to program implementation during the second phase; and (4ii) reorientation of Mangoro plantation to limit its activities to a sylvicultural program oriented toward charcoal and sawlog production in the best performing areas. Project execution responsibility would rest with Fanalamanga for ;1angoro plantation activities and with the FD for all FD activities and for the natural forest conservation program. The project, to be excuted over a period of 7 years, provides funds for civil works; vehicles, furniture and equipment; training; technical assistance; and incremental operating costs. The total cost of the project is estimated at USS 22.6 million equivalent, with a foreign exchange component of US$ 14.2 million (63%). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, end the disbursement schedule are shown irn Schedule B. A timetable of key project processing events and the status of Bank Group operations in Madagascar are given in Schedules C and D, respectively. A mnap is attached (IBRD t 20657). The Staff Appraisal Report, No. 6994 MAG, dated December 1987, is also attached. 7. Rationale for IDA Involvement. In line with the on-going dialogue with the Association (para. 4), the Government has responded by elaborating a Forestry Sector Development Stracegy and a National Conservation Strategy. These strategies, although appropriate, have not yet been translated into operational plans reflecting a clear sense of priority within available resources and institutional capabilities. The project will assist the FD in elaborating balanced plans and in strengthening managerial capabilities. The project has been designed with the expectation of having a synergistic effect with two other Association projects: Energy I (fuelwood production and training for charcoal manufacturer) and the Second Agricultural Institution Project (management strengthening in sector policy in particular, and institution development, in general). The project also responds to the Bank Group commitment to assist Sub-sahara African countr'es in dealing with deforestation, fuelw-od supply and conservation issues.  -3- 8. Agreed actions. The following agreements were resched during negotiations: (i) FD staff redeployment plan for project activities including timetable and staff selection procedures; (ii) IDA review of annual work programs of PD and Fanalamanga; (iii) annual IDA review of a rolling, three-year sector Public Expenditure Program starting with the 1989-1991 cycle and review before initiation of each new forestry project above US$1 million; (iv) measures to increase stumpage fee and improve collection; (v) change of the seed supply policy and applied research program; and (vi) establishment of a new National Park (Andasibe) and undertaking of a mid-term review for the Natural Forest Protection component and for the AIVF (Integrated Forest Valley Development) program. The Association received a policy statement for Fanalamanga defining its development strategy. Under this statement, Fanalamanga could invest, without Government funds, in semi-industrial operations, in competition with other private entrepreneurs. A covenant, in the Credit Agreement stipulates that, prior to initiation, the Government will furnish to the Association for approval each new forestry project having a cost in excess of $3 million. Fanalamanga will (a) create a marketing service to p.omote its products to private entrepreneurs for processing, and (b) reduce its personnel by one third by the end of 1988. The Government has agreed to convert to equity its long term debt due by Fanalamanga. A cross-effective agreement between IDA credit and Swiss and Norwegian Grants will be a condition of effectiveness. 9. Benefits. The benefits of this project would include: (i) long- term impacts of effective forestry management on agricultural and forest productivity, (such as lower erosion, higher yields) and on biological diversity; (ii) increased economic returrs to rural and urban population from reforestation and soil conservation activities; and (iii) increased domestic market supply for charcoal and sawlog from Mangoro plantation. 10. Risks. The following factors could affect project results: (i) insufficient enforcement related to forest management activities would depress wood-product prices; (ii) FD personnel instability or failure to renew staff and focus on priority areas could undermine institutional development results; and (iii) inadequate management of sector/project activities at senior levels. Project emphasis on annually agreed work programs, on task and geographical selectivity, and on human resource development (training) aim at reducing these risks. 11. Recommendations: I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, DC. January 14, 1988  -4- S:hadule A DEMOCRATIC REPUBLIC OF MADAGASCAR Forests ManaQ_ment and Protection Prolect Estimated Cost a/ Local Foreian Total --------(US$ million)------- DEF Reinforcement 2.28 5.54 7.83 Natural Forest Protection 1.37 4.67 6.04 Reorientation of Mangoro Plantation 3.94 2.50 6.44 Total Baseline Costs 7.59 12.71 20.31 Physical Contingencies .22 .,o .72 Price Contingencies .60 4.98 1.58 Total Project Costs 8.41 14.19 22.61 a/ Inclusive of taxes and duties (USS 2.89 million). Local Foreian Total --------(USS million)- Financing Plan GOM and Cost Recovery (b) 6.5 0.6 7.1 IDA 0.7 6.3 7.0 SWISS COOPERATION 1.2 5.3 6.5 NORWAY COOPERATION - 2.0 2.0 Total 8.4 14.2 22.6 b/ Inclusive of taxes and duties (US$ 2.9 million).  Schedule B Table 1 DEMOCRATIC REPUBLIC OF MADAGASCAR Forests Management and Protection Prolect Procurement Methods (US$ million) Disbursement Category Procurement Method Total ICB LCB Other N.A. I. Civil works/land preparation 4.3 2.4 6.7 (-) (2.2) (1.8) (4.0) II. Vehicles and Equipment 1.7 0.9 2.6 (0.3) (0.4) (.7) III. Technical Assistance 6.3 6.3 & Training (0.7) (0.7) IV. Incremental Operating 7.0 7.0 & Administrative Costs (1.6) (1.6) Total Costs 1.7 5.2 8.7 7.0 22.6 (Total IDA) (0.3) (2.6) (2.5) (1.6) (7.0) Note: Figures in parenthesis are the respective amounts financed by the Association  -6- Schedule I Table 2 DEMOCRATIC RSPUBLIC OF MADAGASCAR Forest* Management and Protection Proiect Disbursement of IDA credit Category Credit amount S financed ($000) A) Natural Forest Protection I. Civil Works a) National Park 200 902 of total expenditures b) Other 1680 902 of total expenditures II. Vehicle & Equipment 360 1002 of total expenditures III. Technical Assistance 300 1002 of total expenditures IV. Additional Operating cost 200 1002 salary of one SPN engineer 502 of vehicle maintenance Total 2740 B) R'orientation ManLoro Plantation I. Civil Works 1300 702 of total expenditures II. Vehicle & Equipment 250 100% of total expenditures III. Technical Assistance 230 100Z of tctal expenditures IV. Maintenance plantations/infra. 300 30% of total expenditures V. Administration 840 502 of total expenditures Total 2920 C) PPF Refunding 950 D) Unallocated 390 Total of IDA Credit 7C00 Estimated IDA Disbursement IDA Fiscal Year 89 90 91 92 93 94 95 ------(USS million)------------ Annual. 2.0 1.4 .6 .7 .7 1.5 .1 Cumulative 2.0 3.4 4.0 4.7 5.4 6.9 7.0  -7- Schedule C DEMOCRATIC REPUBLIC OF MADAGASCAR Forests Manatement and Protection Proiect Timetable of Key Processint Events (a) Time taken to prepare: 2 years (b) Prepared by: Government with assistance of IDA, FAO/CP, the International Union for the Conservation of Nacure (IUCN) and the World Wildlife Fund (WWF). (c) First IDA mission: May 1985 (d) Appraisal mission June 1987 (e) Negotiations December 14-18, 1987 (f) Board presentation February 16, 1988 (g) !'lanned date of effectiveness July 1, 1988  SCHQDULE D STATW r " O "OUt PM UAT20NS IN LRADAXCAR A. TA--m UP SAMnl/^ LOAM APO IRA A OMtITS (AS OF 11/86/67) ANOIUH ZN LOAN OR FISCAL USUMILLION UNDIS- CREDIT NO. YEAR SOROWN rPuros UESS CANCtLLATTOIO ,Ngj (1) 26 LOAN(S) CREDITS(S) CLOSFW 2t4.49 CREDTM, CR.11660-MAG S1 MADAGASCAR ACCT. & AUDIT TRO. 11. S .64 CR.1616-MAO 61 MADAGASCAR FORESTRY it M9Ut 3.71 CR.12110-MAO 92 MADAGASCAR 22 VILLAGE LVSTOCK 1."6 6.91 CR.12496-MAO 62 MADAGASCAR AG.INSTS.TAS. 5.79 .84 CR.12966-MAO 68 MADAGASCAR PETNOL.I 11.68 8.2e CR.13876-AO Is MADAGASCAR LAC ALAOTRA II IURIZ 19.S0 9.61 CR.F6646-tAG 64 MADAGASCAR HWYS.VI 1i.66 8.69 CR. FUSS-MAQ 64 MADAGASCAR COTTON 9.96 .92 CR.1191U-MAG 84 MADAGASCAR HWYS.VI 26.U4 *.92 CR.1436U-MAG 64 MADAGASCAR COTTON 7.96 .67 CR.14970-MAG 64 MADAGASCAR URBAN I 12.0U 9.98 CR.Aff76-MAG 6S MADAGASCAR IND.SECTOR LOAN 1l.91 3.76 CR.1641U-MAG 86 MADAGASCAR INO.SECTOR LOAN 40.00 10.73 CR.1689f-MAG 86 MADAGASCAR IRRIGATION REHAB. 10.67 9.10 CR.161O-MAO 66 MADAGASCAR ACCT./MGWT.TRAINING 16.1U 16.16 CR.18910-UAG is MADAGASCAR AGRI.SECTOR ADJUST.C 20.00 12.02 CR.16940-MAO 36 MADAGASCAR RAILWAYS III 12.66 10.29 CR.17090-MAG 66 MADAGASCAR AG.INST.TAS II If." 8.4t CR.AOJ20-MAG 67 MADAGASCAR IND. A TRADE POLICY 66.62 61.96 CR.15260-MAG 87 MADAGASCAR CYCLONE REHA8. 17.76 6.74 CR.16261-MAG 67 MADAGASCAR CYCLONE REM.SUPP.CR. 10.23 6.44 CR.17620-MAG 87 MADAGASCAR PORT REHABILITATION 16." 156. CR.17870-MAG 67 MADAGASCAR ENERCY I 26.00 26.00 CR.18046-MAG 67 MADAGASCAR SECOND AGRIC. CREDIT 16.66 10.00 CR.18346-MAO 87 MADAGASCAR IND. & TRADE POLICY 16.66 12.64 440.70 234.82 TOTAL (NET APPROVED) 726.16 OF W4ICH HAS BEEN PAID TO THE BANK (AMORT. A INTEREST) 46.17 TOTAL NOW OUTSTANDING 679.10 TOTAL UNDISSURSED 234.82 (I THE APPROVED AND DISBURSEMENT AMOUNTS FOR IDA-6/IDA-7 CREDITS AS TAKEN FROM ACCOUNTING HAVE SEEN CONVERTED TO I EQUIVALENTS BASED ON THE CURRENT EXCHANGE RATE.  Schedule D S. Stoteunt of IVC Imeatmtat (" of Nov *ber 30. 19871 Loan Eauitv Total -----(US$ Million)---- 1977 Sotema - Textile Mill at Majunga 11.00 0.299 11.299 1980 Bata - Shoe Manufacturing in Antananarivo 1.25 -- 1.25 1983 Pecheries do Nosai-Be 2.57 fl099 2.669 1985 Cotona, S.A. at Antisirabe 9.35 0.184 9.534 1987 Sotema II - Textile Mill at Majunga 3.70 0.008 3.708 Total 27.87 0.590 28.460 Total Commitments now held by IFC 16.36 0.582 16.942 Total Undisbursed 3.06 0.008 3.558 J  4< 4S 48 - , MADAGASCAR THIRD FORESTRY PROJECT TROISIEME PROJET FORESTIER FRMM . . ,RN VI ) ; P 'IRIOTECTED AM A _ PAVED ROADIS AndoaS >+ , AR PR;EIfGFF ReIrCs CXTfJCEIw)NN1FS MAAO PRANIATON All WEATHER ROADS P,AIATT2ON DU ANACO RUTfS ACCLSSIRFS EN TOUTF SA/IXW; A FORtST MAN.GAM3AEN1 * EST10N FOOIft, RAILWADS ( , ' ZODMARR Cw4 Elf POE DyFF 14._ 7rODAFAN + AIRPORTS 14 INE(C,FAIWD TORSP VAlIfY 0 (PELCwNT FFRT, rI | ~ ~ RF~E TANfA NZ EFOrf' 115 YAlIffS RMFRS FORFTCES Ala C AE. I NATURAL RFSERVE FORFI + RESfERVE1 NrrURllf _. R,,,FAEANY NIOUNDARlfS AnTsoh,I, - jholh F NATIONA PARK '" lKES 1U(5 DA RI N PAW1. -ATIONAl W4SDSFRTN INTERNATnONAL BOUNDARIES Idondr.ono LRART(D IYIA rS Mnohozpnqo + ot8 KILOMiTERS EL S0 100 IS0 200/ MILES 0^l% 50 10 0 Ro mitEHe somH OIL :( J LA" Mn. nool 1114~~~~~~~~~~~~~~~~~~~~~~~~k VI, 168 \A,d,rTs Andill mvan 9 J Ats+ anan \ rl.J lu nno /: / AFToamvoaFsina wn FA~ ~ ~~ .t-,-,X VoIp4 A z /s :,,Anb<rneXSomoTIA Antssri E' M. o s..,. t, ~ ~ ~ --ON-oV.,nk TsLEETOEFmoETorodyX ANTAAArVanjOry FonjukarnyiKoroso VhFa ints B.~~~~~ ,Nk,( In I bLInnREAl1 se aSVoEFon.d. MDN )% - HFta. /o, oM hono 22' Tolioro TANZANI A Vor o ~ ~ ~~~~~~~~~ ~n-d o ZMIA -24' 24- 0~~~A.pn.1 ( A. . , Vohw ZI/ S M<]Ftz] { *Jf )_9vXe0 M(JnariToinnar LAND ~~~~~~0 42