Cameroon - Third HEVECAM Rubber Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11461 PROJECT COMPLETION REPORT REPUBLIC OF CAMEROON THIRD HEVECAM PROJECT (LOAN 2485-CM) DECEMBER 22, 1992 Agricultural Operations Division Occidental and Central Africa Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT COMPLETION REPORT CAMEROON THIRD HEVECAM RUBBER PROJECT (LN. 2485-CM) AVERAGE EXCHANGE RATE 1983 US$1 = CFAF 417 1984 - CFAF 480 1985 - CFAF 378 1986 " CFAF 323 1987 - CFAF 267 1988 - CFAF 303 1989 " CFAF 289 1990 " CFAF 280 1991 " CFAF 263 FF 1 = CFAF 50 FISCAL YEAR Government of Cameroon and HEVECAM: July 1 - June 30 World Bank: July 1 - June 30 WEIGHTS AND MEASURES 1 kilometer (km) = 0.621 miles 1 hectare (ha) = 2.471 acres 1 kilogram (kg) = 2.205 pounds 1 metric ton (t) 0.984 long tons ABBREVIATIONS CAMDEV Cameroon Development Corporation CCCE Caisse Centrale de Cooperation Economique (France) (Central Economic Cooperation Agency) CDC or COMDEV Commonwealth Development Corporation (UK) EIB European Investment Bank FONADER Fonds National de Developpement Rural (Cameroon) (National Rural Development Fund) HEVECAM Societe Hevea-Cameroun (Cameroon) ONCPB Office National de Commercialisation des Produits de Base (Cameroon) (National Office for the Marketing of Primary Commodities) SAFACAM Societe Africaine Forestiere et Agricole du Cameroun (Cameroon) (African Forestry and Agricultural Company) SME Small-Medium Enterprises SNI Societe Nationale d'Investissements (Cameroon) (National Investment Company) WFP World Food Program  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operatlons Evaluation December 22, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Cameroon Third HEVECAM Rubber Project (Loan 2485-CM! Attached is a copy of the report entitled "Project Completion Report on Cameroon Third HEVECAM Rubber Project (Loan 2485-CM)" prepared by the Africa Regional Office with Part II contributed by the Borrower. The plantation and infrastructure objectives of the project were achieved on schedule. However, planned yields could not be reached even though they remain higher than most other local rubber producers. HEVECAM is currently facing severe financial problems due mainly to the collapse of the world market for rubber, and the concomitant appreciation of the CFA franc. Accordingly, the economic rate of return reestimated at completion is negative. The public sector enterprise responsible for implementation is not financially viable and will be unable to balance its books when it is required to service its debt, starting in FY93. On balance, the project is rated as unsatisfactory and its sustainability as uncertain considering the obstacles still standing in the way of achieving profitable operation even under the revised institutional arrangements currently being explored. The Project Completion Report (PCR) is comprehensive and informative. An audit is planned. Attachment 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT CAMEROON THIRD HEVECAM RUBBER PROJECT (LN. 2485-CM) TABLE OF CONTENTS PREFACE ............................................................. i EVALUATION SUMMARY ............................................ iii PART I: PROJECT REVIEW FROM BANK PERSPECTIVE ........ .................... 1 1. Project Identity. 1 2. Background. 1 3. Project Objectives and Description. 2 4. Project Design and Organization . ........................ 3 5. Project Implementation. 3 6. Project Results. 6 7. Project Sustainability. 12 8. Bank's Performance .13 9. Lessons Learnt. 13 10. Borrower's Performance. 14 11. Project Relationships. 15 12. Consulting Services .15 13. Project Documentation. 16 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ...................... 17 PART Ill: STATISTICAL INFORMATION ............ ........................... 20 1. Related Bank Credits and Loans .20 2. Project Timetable: .21 3. Loan Disbursements .22 4. Project Implementation: .23 5. Project Costs and Financing .24 6. Project Results .26 7. Status of Covenants .27 8. Use of Bank Resources .29 9. Staff Inputs Data .29 Annexes 1. Balances .31 2. Internal Cash Generation .32 3. Projected Cash Flow .33 4. Breakdown of Operating Costs .34 5. Debt Servicing .35 6. Fonader Loans to Smallholders .36 7. Staff Numbers .37 8. Equipment .38 9. Information on the Rubber Market .39 10. Output and Sales Projections .41 Ma2 - IBRD 18369R 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.   - i - PROJECT COMPLETION REPORT CAMEROON THIRD HEVECAM RUBBER PROJECT (LN. 2485-CM) PREFACE This is the Project Completion Report (PCR) for the Third HEVECAM Rubber Project in the Republic of Cameroon, for which the World Bank Loan 2485-CM in the amount of US$8.3 million equivalent was approved on January 15, 1985. The loan closed on June 30, 1991, one year behind schedule. The loan was fully disbursed with the last disbursement on October 12, 1990. Initially, cofinancing in the amount of US$11.8 million equivalent each was provided by the Commonwealth Development Corporation (CDC), the Caisse Centrale de Cooperation Economique (CCCE), and the European Investment Bank (EIB). However, CCCE approved a supplementary loan of US$20 million equivalent in 1 989 to cover a part of Government's share of project costs. Parts I and IlIl and the Evaluation Summary of the PCR were prepared by the Agriculture Operations Division of the Occidental and Central Africa Department. Part II was prepared by the Borrower. The PCR is based primarily on the Appraisal Report, the Loan and Project Agreements, supervision reports, correspondence between the Bank and the Borrower, internal Bank memoranda, and discussions with Bank staff and representatives of the Borrower. The Report was sent to the Cofinanciers for comments. However, none were received.   - jHi - PROJECT COMPLETION REPORT CAMEROON THIRD HEVECAM RUBBER PROJECT (LN. 2485-CM) EVALUATION SUMMARY Proiect Obiectives and Financina (Part 1, para. 3) 1. In 1975, the Government of Cameroon began the long term development of a rubber estate located on the Niete River. Through Hevecam , a state corporation, planting was to cover 1 5,000 ha over a 1 5 year period, and rubber output was to reach 32,000 t. During the first two projects, most of the plantations and infrastructure were established. The purpose of the Third Project, which is analyzed in this Report, was to complete investment in agricultural operations (by planting the final 1600 ha) and infrastructure, start up commercial production and develop village plantations. A fourth project is planned, and this will complete the program, particularly as regards processing facilities. 2. The Appraisal Report of the Third Project was prepared by the CCCE. The total cost of the Third Project was calculated to be CFAF 32.8 billion (US$84 million), and half of the financing was to be provided in the form of loans from CCCE, CDC, EIB and the World Bank, while the Government of Cameroon and HEVECAM were to provide the balance. The amount of the World Bank loan was US$8.3 million. Proiect Desibn and Oroanization (Part 1, para. 4) 3. The main lessons drawn from the first two projects (i.e. the underestimation of costs for land clearing, high labor costs and difficulties in obtaining adequate supplies of seeds and budwood) were taken into account in preparing the Third Project. The design however did not envisage the lower than expected yields obtained, the rapid appreciation of the CFAF, and the drastic fall in world market rubber prices. 4. HEVECAM which had demonstrated its efficiency during the first two projects, was made responsible for the Third Project. This efficiency was the result of a management contract between the Government and SAFACAM, a private company specialized in rubber production. Proiect Implementation (Part 1, para. 5) 5. The Bank Loan became effective in August 1985, six months after Board approval. Disbursements under the Loan were regular and the original closing date was extended only once. During implementation Government was unable to fulfill its financial commitments and it obtained an additional Loan of CFAF 5.9 billion (US$20 million) from the CCCE in 1 989. In addition, because of a combination of low yields, unexpected low prices, a strong appreciation of the CFAF with respect to the dollar as well as disappointing financial performance of HEVECAM in generating funds internally, project financial resources were reallocated mostly away from capital expenditure and working capital to cover operating costs. This financing shortfall led management to seek cost reduction by using small local enterprises and scaling down the housing program from 700 to 500 units.  - iv - 6. An outgrower program, initiated under the second project was continued under the Third project, with 520 ha planted over the 1982-90 period. Difficulties encountered during the implementation of this component included land tenure problems, the long gestation period of hevea discouraging farmers from satisfactorily maintaining their plantations, and problems associated with selecting the right farmers who should be involved in setting up these plantations. Proiect Results (Part 1, para. 6) 7. The Project had mixed results. From a managerial and execution point of view, the Project was carried out very satisfactorily. The main reasons were the good performance of the technical operator, the fact that key staff remained in the same posts, and the effective support provided by the Government's supervisory agencies and the donors. In spite of the remoteness of the project area, the lack of any infrastructure and the delays characteristic of a public enterprise, the project staff were able to establish an efficient organization and train high-quality staff. From a financial point of view, the Project failed. A combination of factors contributed to this situation; the original project design was based on overoptimistic price projections of rubber and on generous investment assumptions. Moreover, the project was carried out by a Public Enterprise with its management rewarded on a cost plus basis contract and judged on technical performance only. Hence, there was no incentive to reduce costs. 8. The physical targets were achieved. Because the area planted under the second Project had been larger than planned, 997 ha were planted, compared to an appraisal target of 1,600 ha bringing the total plantation area to 1 5,028 ha. Immature areas were maintained, 500 housing units and 73 social facilities were constructed, and six processing lines were established. The final cost of the Third HEVECAM Rubber Project was CFAF 27.2 billion (US$86.1 million equivalent), compared with the projected CFAF 32.8 billion (US$83.7 million). The main reasons for the difference in CFAF costs were the judicious use of local subcontractors, the efficient management of works carried out under contract, and the elimination of certain non-essential investments. However, because of the depreciation of the US dollar, the actual costs in dollars exceeded the appraisal dollar estimates. 9. Although the three projects were executed satisfactorily, HEVECAM will be unable to balance its accounts when it is required to service its debt, beginning in FY92/93. The following table shows that the reason for this is the dramatic decline in world rubber prices and, to a lesser degree, the leaf and root diseases that affected yields and production. Even the efforts made to reduce costs have been inadequate to offset the considerable fall in income produced by these factors. Appraisal Current/ (for 1991) Current /11 Appraisal (%I Area tapped (ha) 13,400 13,753 103 Yield Ikg per hal 1,580 1,230 78 Output It0 21,172 16,957 80 Production cost (net of amortization) CFAF/kg 562 (21 246 44 Selling price (CFAF per kg) 835 215 28 Gainl(lossl/kg 273 (31) Cash flow Imillions of CFAFI 5,783 -542 Exchange rate (CFAF/USfI 392 263 87% (11 See annexes 2 and 10 (21 This high estimate partly reflects the much higher rate of inflation 015% p.a} assumed at appraisal, whereas the actual Inflation rate was less than 10%.  v - 10. The financial performance of HEVECAM is and will remain disturbing for the near future. Annual operating losses remain very high at CFAF 3.0 billion (US$10 million) for 1990/91. The financial situation is made all the more critical by the low current and projected CFAF price of hevea and the continual appreciation of the CFAF with regard to the dollar. Consequently, unless there are major changes in dollar world prices or exchange rates, HEVECAM will be unable in the near future to service its debts or to replace assets though with prudent financial management and cost cutting it will be able to meet its production costs. The Economic Rate of Return of the project using the official exchange rate is negative. At a shadow exchange rate of 50% above the nominal rate the ERR is about 1 % compared to an ERR of 15% calculated at appraisal. Sustainability (Part 1, para. 7) 11. In the light of the adjusted yield projections and the efforts made to reduce production costs, HEVECAM considers that it will be able, from 1993, to cover its production costs (other than debt servicing) and generate sufficient revenues to renew its operating equipment. However, these projections seem optimistic, because yields still appear to be overestimated and management efforts are hampered by the organization's status as a public enterprise. It is therefore probable that the Government will have to service the enterprise's debts and subsidize its operations, unless world prices rise spectacularly and/or the exchange rate is adjusted. The latter would have an important impact on HEVECAM, because it is a labor-intensive enterprise with low import components. Under present conditions, HEVECAM would need: (i) a 1 5% increase in its sale price, in order to cover its production - operating expenses; and lii) an additional 25% price increase in order to meet its debt service obligations. 12. It seems that privatization is the only alternative available in order to maintain HEVECAM operations with a minimum cost for the Government. Although the current management is more effective than in other parastatals, we believe that there is room for further cost reductions (say of the order of 15% at the minimum) with private management. Private management would reduce costs significantly, especially by (i) improving the personnel productivity through performance incentives and free personnel policy, (ii) reducing social costs and excessive overheads and (iii) streamlining procurement procedures. These measures would be extremely difficult to implement by the Government because of social, political and administrative constraints. 13. Pending the sale of industrial assets (which may not be feasible in the current economic situation), a long term leasing arrangement with a private firm should be sought. Under these conditions, the private firm would be able to continue HEVECAM operations, renew the industrial equipment and pay a rent which would help the Government in reimbursing the debt. The rent should be linked to rubber prices in CFA Francs to take into account future changes in world prices and in exchange rates. The plantation estates should be subdivided and transferred to small and medium size outgrowers, once land tenure problems are solved, to significantly reduce agricultural costs. 1 4. Finally, it should be noted that prospects for rubber prices are more favorable than those for other agricultural commodities. For example, Malaysia (the world's largest producer) is undertaking a replanting program to counter the falloff in its output over the last two years. It is also important to note that West Africa ought to have a comparative advantage, given its lower labor costs than those in South East Asia, over the coming years. Improvements in management efficiency are however crucial if West African countries are to compete with the South East Asian countries.  - vi - Lessons Learnt (Part 1, para. 9) 1 5 The experience of HEVECAM shows that -- in order to substantially reduce costs -- future projects of this type should be confined to the private sector. HEVECAM's high investment cost (CFAF 65 billion, or US$200 million) results in a large measure from the government-controlled nature of the project, as evidenced by the following factors: - the use of government contract procedures, and related high construction standards not adapted to the needs of agricultural operations. - the requirement that equipment and machinery be new, whereas in many cases a private operator would have considered used equipment adequate; - the need for HEVECAM to assume responsibility for much of the Government's social and regional development role, including the development of the outgrower program; - a lack of flexibility in personnel management; - a cost-plus management contract conducive to technical excellence rather than profitability. 16. Before launching a project of this scale, it is essential to examine and evaluate the relevant technical agricultural aspects (soils, climate, plant diseases) in adequate detail. 17. The rate of return and sensitivity tests should take into account the usual risks highlighted in the preparation reports, e.g. technical problems (diseases, soil, climate) and possible wide price fluctuations and not be a simple mechanical exercise. 1 8. Other lessons: (a) The project shows that the Bank can act as a partner in projects prepared and appraised by other donors. It is not essential for the Bank to play a leading role in all projects that it finances, provided it satisfies itself that the proposed project is technically, financially and economically worthwhile, and that a commonality of views on key issues with cofinanciers has emerged. (b) The participation of several agencies with different disbursement procedures, provides great flexibility, and allows to avoid disruptions of project operations when one co- financier momentarily halts its funding. 19. In conclusion, HEVECAM provides a good example of a project that was perfectly executed from a technical point of view, but which turned out to be non-viable financially. This situation resulted mainly from a decline in world rubber prices, and also from excessive investment cost. To a large extent the latter aspect is the result of the public enterprise nature of HEVECAM, and of basing agricultural development on government action rather than on associating the farmers. Nevertheless, the project did have a positive impact on the development of the region. It created 4,500 jobs at an average unit cost of US$50,000. Although this is a high level, it is comparable to the average for the modern sector in Africa. The project also provided Cameroon with another source of foreign exchange earnings, which should help to improve its external sector accounts since rubber production has a low import content.  - vii - 20. In present circumstances, everything should be done to keep the enterprise in operation without, however, imposing additional costs on the Government accounts. This could possibly be done by leasing HEVECAM's assets to the private sector, which is much better placed than the Government to face international competition.   PROJECT COMPLETION REPORT CAMEROON THIRD HEVECAM RUBBER PROJECT (LN. 2485-CM) PART l: PROJECT REVIEW FROM BANK PERSPECTIVE 1. Proiect Identity Project Name Third HEVECAM Rubber Project Loan No. 2485-CM RVP Unit Africa Country Republic of Cameroon Sector Agriculture Subsector Agroindustry 2. Backaround 2.1 Cameroon has a broad climatic range, from tropical forest in the south to Sahelian conditions in the north. As a result, agriculture (which provides the country's economic base) is very diverse. Rubber growing has been developed by the Government in order to increase exports, which previously consisted primarily of coffee and cocoa. Public enterprises have been used to pursue this objective, and they were given the additional role of participating in the development of disadvantaged regions by constructing roads and social infrastructure and supporting village producers. It is in this context that, since 1967, the World Bank has provided financing totaling US$131.3 million for five projects undertaken by two public enterprises (CAMDEV and HEVECAM). 2.2 In Cameroon, rubber is produced by three enterprises, two of which are public (CAMDEV and HEVECAM) and one private (SAFACAM). Since 1984/85, when the Third HEVECAM Rubber Project was launched, output has risen from 1 7,000 t to 40,000 t, as a result of increases in CAMDEV (from 12,000 t to 21,000 t) and HEVECAM (from 1,000 t to 17,000 t). The area currently devoted to rubber growing is about 35.000 ha, and the total output expected once all cultivated areas are in production is about 50.000 , with a value (FOB Douala) of CFAF 12 billion (US$40 million), even at current depressed prices. These figures should be compared with those for CMte d'lvoire (68,000 ha planted, 40,000 ha in production, and an output of 61,000 t) and world output (about 5 million t). 2.3 HEVECAM was established in April 1975. Its purpose was to establish an agroindustrial complex consisting of 1 5,000 ha of rubber, together with social and industrial infrastructure, in the Ocean Department, 40 km to the east of Kribi on the Niete River, 250 km from the port of Douala. It was also to be responsible for promoting food crop production in the region and conducting experiments on the Hevea plant. Seed capital totaled CFAF 300 million, but this was increased to CFAF 17.7 billion (US$60 million at current prices) when the Third Project was launched at the beginning of 1985. The capital was provided by the Government (33%), ONCPB (59%) and SNI (8%). Output at normal levels of production was to be 32,000 t of rubber per year, representing a yield of over 2 t per ha. An assistance agreement was signed with SAFACAM, a Cameroonian private-sector rubber producer that is a subsidiary of the French group Terres Rouges.  -2- 2.4 The First Project was implemented from mid-1 975 to mid-1 979. The objectives were to plant 5,800 ha and establish the necessary infrastructure, the cost being CFAF 6.5 billion (US$28.5 million). Financing was provided by IDA (US$16 million under Credit 574-CM), CCCE (F 20 million, i.e. US$4.4 million), and a government contribution of CFAF 1.6 billion. The IDA and CCCE financing was onlent to HEVECAM at an interest rate of 5.5% for a period of 30 years, with a 1 5-year grace period for principal and interest. Because of the type of problems that frequently affect such a project, and resulting from its scale, the remoteness of the area and the lack of labor and infrastructure, the performance rate for the objectives was only 70% and projected costs were slightly exceeded (by 6%). However, project quality was good, and indicated that future prospects would be favorable. 2.5 The Second Project covered the period from mid-1 979 to end-1 984. The objectives were to complete the clearing of 15,000 ha, bring the area planted to 13,400 ha, maintain immature areas, establish the first processing lines (with a capacity of 30 t per day), continue constructing infrastructure, establish 250 ha of smaliholdings, and begin tapping. The financing necessary had been estimated to be CFAF 23.4 billion. External financing was provided by an IDA Credit (975-CM; US$15 million), an IBRD Loan (1791-CM; US$16.5 million), and a CCCE loan (F 80 million). The Government was to provide the balance (CFAF 6.4 billion). The external financing was onlent by the Government to HEVECAM at a rate of 7.95% for a period of 20 years and with a 13-year grace period for principal and interest. Practically all the objectives were achieved, and quality was again satisfactory. However, there was a cost overrun of about 20% resulting from considerable increases in labor and fuel costs and from the depreciation of the CFAF, which made equipment purchased outside the franc area more expensive. Nevertheless, the financing provided was adequate to cover this overrun, because of the rise in the values of the dollar and the pound sterling. 3. Proiect Obiectives and Description 3.1 By the end of the Second Project in 1984, HEVECAM was efficient and well managed, and had succeeded in planting over 13,000 ha of rubber and establishing processing facilities with a capacity of 30 t/day, together with sound social infrastructure and services for conducting agricultural research and developing the activities of local farmers. The objectives of the Third Project were to complete the program of investment in agriculture and infrastructure and, particularly, to initiate commercial operations on a sound basis. To this end, the following activities were to be undertaken: - planting the final 1,600 ha, to bring the total area to 1 5,000 ha; - maintenance during the pre-production period of the rubber trees planted during the first two projects until they could be brought into production; - carrying out tapping of about 9,430 ha in addition to the 805 ha already being tapped by the end of the Second Project; - expanding processing capacity from 30 t/day to 64 t/day for latex and 32 tons/day for low grade rubber; constructing housing and social infrastructure, for workers; continuing the field trial on rubber varieties, disease control, and tapping techniques necessary for maintaining potential, increasing productivity and improving the quality of the rubber;  3 - - provision of technical assistance to HEVECAM (which had been developed as an investment organization) in order to convert it into an efficient industrial and commercial organization. 3.2 In addition, and in line with HEVECAM's development role, the enterprise was to perform the following activities: - expand the outgrower program from 250 ha to 500 ha; - implement a pilot food crop program; - research the conditions for developing rubber growing in the Southern and Eastern Provinces. At appraisal, the cost of the Third Project was calculated to be CFAF 32.8 billion (i.e. about US$84 million at 1984 prices). 4. Proiect Desian and Oraanization 4.1 Design. Though the first two projects financed by the Bank and other donors had been judged technically and managerially successful, owing to uncertainties concerning world market prospects for rubber and because of management problems in some of the parastatal companies, Government decided with the donors to limit expansion of rubber plantations and to only complete the initial HEVECAM program of 15,000 ha. The main lessons drawn from the first two projects concerned the underestimation of costs for land clearing, high labor costs and difficulties in obtaining adequate supplies of seed and budwood. These lessons were taken into account in preparing the third project. The design however did not envisage the lower than expected yields obtained, the rapid appreciation of the CFAF, and the drastic fall in world market rubber prices. The design therefore relied on high-cost plantation rubber production rather than the more cost efficient outgrower rubber program which could have reduced costs. Project preparation was carried out by CCCE, and appraisal done jointly by CCCE, the Bank, CDC and EIB. The appraisal report was prepared by CCCE with the Bank preparing only a President's Memorandum and an addendum on Economic Analysis to the Appraisal Report. 4.2 Organization. HEVECAM, which had demonstrated its efficiency during the first two projects, was made responsible for the Third Project. This efficiency was the result of a management contract between the Government and SAFACAM, a private company subsidiary of the French group Terres Rouges. SAFACAM appointed competent expatriates to the key positions of General Manager, Agricultural Manager and Financial Manager, and these remained in their positions during almost the whole of the Second and Third Projects; indeed, the General Manager had occupied that post since the very beginning of the Program. As a result of the many supervision missions conducted by the Government's supervisory agencies and the donors, project execution was monitored and all necessary adjustments were made. 5. Proiect Implementation 5.1 Effectiveness and rate of disbursement. The Third Project began in January 1985. Although the Bank loan was approved in February 1985, it only become effective in August of that year. However, in spite of this difference between the dates of loan approval and project start-up, no difficulties were encountered, thanks to the availability of other external financing. Disbursements of the Bank Loan were regular (see Part l1l), and 93% of the financing had been disbursed by the original  closing date (June 30, 1990) and were completed by october 1990. A further year extension of the closing date had been granted to complete all investments. 5.2 Costs and financina: At the time of the appraisal mission (October 1983), the cost of the project was estimated at CFAF 34.8 billion. It was reduced to CFAF 32.8 billion in light of the results achieved by the end of the Second Project (since these were not available at the time of the mission). The following table shows (in billions of CFAF) the final financing arrangements for the Third Project, together with the amounts actually disbursed. Planned Actual Government - Capital 6.940 6.940 - Subsidies 4.460 4.280 Loans: IBRD 3.255 2.624 CCCE 4.265 4.265 CDC 4.610 4.110 EIB 4.610 4.621 HEVECAM Self-financing 4.300 0 Total 32.800 27.200 The following observations should be made: - Government was unable to fulfill its commitments (totaling CFAF 11.4 billion). Therefore, in 1989, it obtained an additional loan from CCCE (CFAF 5.9 billion). - The amounts disbursed under the loans from CDC and (especially) the Bank were smaller than planned, because of changes in exchange rates. - The expected self-generated funds did not materialize because of the problems of yields and unexpectedly low prices (see para. 4.1). 5.3 Because of the financing shortfall and the need to cover operating losses, resources were allocated as follows (in billions of CFAF): Planned Actual Capital investment 23.850 19.700 Subsidies 4.460 4.280 Working capital 4.490 1.170 Operating loss 0 2.050 32.800 27.200 5.3.1 The investment program was reduced by eliminating certain activities that were not essential and, in particular, by scaling down the housing construction program. It was possible to reduce the labor force by improving the organization of activities and changing the tapping schedule. 5.3.2 Consequently, the shortfall in financing did not have a serious impact on project execution, mainly because the original investment program (and therefore financing needs) had been somewhat overestimated. The overestimation reflected in a large part the much higher rates of  -5 - inflation assumed at appraisal, 15% p.a on local costs and 7% p.a for foreign costs, whereas the actual rates of inflation were below 10% and 5% respectively. 5.4 Execution of aaricultural investments (a) The Plantation Proaram. Although problems arose because of the instability of the labor force (which was hired from other regions of the country), HEVECAM was able to carry out the works satisfactorily and on schedule, without using subcontractors. (b) The Outarower Program. Over the period 1982-1990, 520 ha have been established by 86 farmers. To date, only 20% of the planted acreage is in full production and initial results show that yields are 30 to 40 % lower than those obtained on the estate plantation. The pilot project is in its early stages of development, and of too modest in scale to draw any firm conclusion. It has, however, permitted to identify issues which need to be addressed prior to expanding this program. Among the principal ones are: land tenure, social and technical problems. - land tenure: land rights have to be established, before farmers are willing to develop land and plant trees that belong to them and cannot be claimed at a later date; - social: the prospective farmers are selected from local inhabitants (presently deriving their livelihood from hunting and fishing) and from immigrant workers (most now employed at the estate). With regard to the former, the responses are slow because they have no agricultural tradition and have difficulties changing their way of living from hunting to permanent cultivation. With regard to immigrant workers, there is a need to guarantee them job security and a receptive environment (land tenure, schools, infrastructure, technical support). - technical: while food crops are grown seasonally, it takes seven years for hevea to generate a cash income. This long gestation period discourages farmers to weed and maintain satisfactorily the hevea trees while waiting for the results: although intercropping food crops, such as vegetables, with hevea trees has shown good results. 5.4.1 In future this experiment, how individual outgrowers can develop and integrate in combination with the new form of management to be given to the estate operations, should be pursued. 5.5 Buildings and Drocessina facilities. HEVECAM carried out part of the works on force account and provided engineering consultancy and monitoring for the rest. For most of the social infrastructure works, it hired local SMEs, which were selected in accordance with standard procurement shopping procedures. For the processing facilities and construction works in the industrial area, Cameroon-based enterprises were used, although these were generally subsidiaries of European firms. 5.6 Procurement. For works undertaken by non-Cameroonian enterprises, HEVECAM followed the guidelines on bidding issued by the World Bank. No problems arose and all the bids were in comformity with Bank guidelines. For the works performed on force account (mainly relating to agriculture), the charges were based on cost accounting calculations, as verified by the supervision missions and auditors.  -6 - 6. Proiect Results 6.1 Investments: Because the area planted under the Second Project had been larger than planned, under the Third Project it was necessary to plant only 997 ha (instead of the planned 1,600 ha) in order to achieve the final objective of 15,000 ha. The area tapped was 10,900 ha, compared with the objective of 9,430 ha. Instead of the planned 700 housing units, 500 were constructed because fewer workers will be involved in the project than originally planned now that output projections have been reduced. The processing lines were established as planned. As regards the other programs, the area planted, under the outgrower pilot scheme was 287 ha, compared with the planned 250 ha. Agricultural trials were continued and intensified, and a method was devised for controlling a fungal leaf disease (by spraying defoliants from the air in the dry season in order to provide a less favorable environment for the fungus that attacks leaves during regrowth). Now that the Third Project has been completed, HEVECAM has 15,000 ha of planted land, a processing facility with a capacity of 130 t/day (for a 1 6-hour day), storage facilities, workshops and machinery, and the housing and social infrastructure necessary for the 4,500 employees. All that remains to be done over the next two years, is for HEVECAM to bring its machinery pool up to a full complement, and to complete its processing facilities so that it can collect and process all the latex produced once normal production levels have been reached; total investments required amount to only about CFAF 1 billion. 6.2 Technical results: Because of unfavorable climatic and soil conditions, aggravated by diseases affecting roots (Fomes)1 and leaves, HEVECAM's average yield of dry rubber per ha once normal production levels have been reached is unlikely to exceed 1,650 kg, compared with the 2,250 kg estimated at appraisal. In light of experience, specialists regard the appraisal figure as too optimistic, and it is now estimated that average yields will be closer to 1,500 kg per ha. Nevertheless, it should be noted that this is still an acceptable yield for rubber, judging by the results obtained in other rubber producing countries. Thus, one of the major deviations from the original appraisal estimates was in yields. Plant disease risks were flagged at appraisal, but it was assumed these could be effectively controlled. Their neutralization, on the large scale plantation, turned out to be more complex than foreseen and this has affected yields. The following table compares the projections with the results achieved (in t/ha): Year of tar ina Years of planting 7 8 9 10 11 12 13 Years of tapping 1 2 3 5 6 7 8 Projected 0.80 1.15 1.50 1.70 1.90 2.10 2.25 Actual (in 1990/91) 0.69 0.89 1.05 1.64 1.55 1.45 1.34 6.2.1 The most disturbing factor is that Fomes has killed many trees in the oldest areas (in the eighth year, only 380 of the 500 trees per ha originally planted remain). However, this can be partly attributed to the problems with soil preparation methods encountered at project start-up. It is also likely that the initial treatments prepared by the Experimentation Service will make it possible to reduce the number of losses. However, the additional cost incurred will be about CFAF 30,000 per ha. 1/ Outbreaks of Fomes have been so severe that special soil preparation methods have been adopted, at an additional cost of about CFAF 100,000 per ha.  6.2.2 No particular problems have arisen with regard to the operation of the processing facilities. HEVECAM manufactures three main types of product: granular rubber produced from latex, granular rubber produced from cup scrap (i.e. second grade), and centrifuged latex, which it has only just begun to manufacture. Because of its efficient quality control laboratory, HEVECAM has a good reputation in the market. Similarly, efficient processing supervision has reduced input consumption to satisfactory levels. 6.2.3 Past and projected output is as follows: Area tapped Yield OUtDU Remarks (ha) (kg/ha) (t) 1984/85 1,257 704 885 Actual 85/86 3,117 669 2,084 86/87 5,519 766 4,225 87/88 7,545 1,068 8,061 - 88/89 10,157 1,073 10,898 89/90 12,166 1,195 14,538 90/91 13,753 1,233 16,958 K 91/92 14,596 1,453 21,208 Projected (by 92/93 14,866 1,533 22,790 Hevecam) 93/94 1,636 24,321 94/95 6.2.4 Although the long-term objective (i.e. 24,321 tons per annum) is achievable, based on present experience, it is unlikely that production (output) will increase by 25 percent between 1990/91 and 1991 /92, as forecast by HEVECAM. 6.3 Manaaement: HEVECAM is well managed compared to other parastatals in African countries, as the following points illustrate: - it has developped a good management information system based on a computerized budget and accounting system; - it has increased its labor productivity by improving the worker/ha ratio from 1:4 to 1:4.5 over the last three years; - it has improved the tapper latex/day production to 33:1 from 28:1, and it expects to reach 39:1; - it has streamlined the engineering staff (responsible for development studies) from 358 in 1988 to 200 in 1991, which is consistent with the transition from development to production; - it has sold surplus clearing equipment.  -8 - 6.3.1 Because of the efforts devoted to organization and productivity, HEVECAM's staffing at normal production levels should not exceed 4,500 persons (currently 4,300), compared with the 5,700 projected at appraisal. Nevertheless, further cost improvement can be achieved. For example, the general services staff numbers about 220, and some of the vehicles could be replaced by less expensive models. However, it seems that only the introduction of a private management firm will make it possible to enter a new stage of development. 6.4 Personnel numbers and training: The following table shows HEVECAM's current overall staffing levels: Agricultural Production 3,275 Research 69 Joint services 291 Industrial - Processing facilities 226 - Workshops 206 General services 220 4,287 6.4.1 Of this total, there are 695 women (16% of the work force), a comparatively large proportion for rubber production. 6.4.2 So far, it has been necessary to hire labor from other regions of Cameroon, and this has caused a certain amount of instability in the work force. Gradually, however, HEVECAM's personnel is becoming settled, and this trend is being accelerated by the country's overall employment situation. The number of expatriate managers has declined from 11 in 1 985 (the beginning of the Third Project) to the present 4, and there are now 36 Cameroonian managers. This indicates how efficient HEVECAM's training program has been. It should be noted that such a problem is comparatively easy to solve when there are sufficient local personnel with the necessary educational qualifications (as in the case of Cameroon), and when the enterprise in question is well managed. HEVECAM hires the best young staff available who -- because the enterprise is well organized -- obtain on-the-job training through contact with expatriates. This form of training has proved to be more effective than sending young personnel abroad to take academic courses away from the practical day to day problems. 6.4.3 Particular efforts have been devoted to training the tappers, because this is very specialized work and their performance will affect the enterprise's results over both the short and the long term. The following table shows HEVECAM's training costs during the Third Project (in millions of CFAF): 85/86 86/87 87/88 88/89 89/90 Total Managers 21 23 9 2 1 56 Supervisory staff 4 35 30 32 0 101 Tappers 2 19 43 49 25 138 295  - 9 - 6.4.4 Except for some short courses for managers in Europe and other African Countries (Abidjan), all training has been provided at HEVECAM by specialists from Cameroonian enterprises (in data processing, accounting, mechanical engineering, etc.). 6.5 Marketina: Except for a few local sales to a footware and a tire manufacturer (totaling 120 t in 1990/91), almost all the rubber produced is exported, being sold through the sales department of Terres Rouges. Part of it is sold under contract to Michelin and Dunlop, and the rest is offered on the international market. The transactions are FOB Douala, at the world price. Terres Rouges bills HEVECAM for the real cost of its services, with a ceiling of 1 % of the CIF value of the goods. Since the beginning of the Third Project, when HEVECAM came into production, selling prices have been as follows (see Annex 9): Year Averane sellina orice 1984/85 CFAF 354 per kg FOB Douala 85/86 CFAF 283 per kg FOB Douala 86/87 CFAF 257 per kg FOB Douala 87/88 CFAF 312 per kg FOB Douala 88/89 CFAF 308 per kg FOB Douala 89/90 CFAF 232 per kg FOB Douala 90/91 CFAF 215 per kg FOB Douala 6.5.1 The other main deviation of project results from appraisal estimates concerned rubber prices. World rubber price in current US$ were projected to increase by 65 % over the period 1 984- 1991, when, in fact, they decreased by 10 % (see annex 9). Moreover the prices were further depressed by continuous appreciation of the CFA franc versus the US$ from CFAF 477 = US$1 in 1984/85 to CFAF 263 = US$1 in 1990/91. The following table shows the discrepancies between expected and actual CFAF prices per kg: 84/85 85186 86/87 87/88 88/89 89/90 Projected CIF 497 562 618 672 727 818 Projected FOB Douala 447 506 556 605 654 736 Actual FOB Douala 354 283 257 312 308 232 6.5.2 For the future, it appears that the prospects for natural rubber are better than those for most other agricultural commodities. It is for this reason that Malaysia, the world's largest producer, has decided to arrest the decline in its output over the last two years, by rehabilitating some of its older plantations. It seems reasonable to assume that West Africa is comparatively well placed in the coming years, because of likely trends in labor costs in Africa vis-a-vis Asia. Finally, it should be remembered that Africa account at present for only 5 percent of the world output (about 5.5 million t). 6.6 Financial asmects: (a) Current merformance. and groiections: Annex 3 shows HEVECAM's performance since the beginning of the Third Project, which also marked the beginning of production. It shows that annual operating losses have ranged from CFAF 0.9 billion (in FY85/86) to CFAF 3 billion (in FY90/91), even though debt service charges had not yet been included in the accounts (because of the grace period). These cumulative losses have  - 10 - reduced the equity to CFAF 6.7 billion, which is only 38% of nominal capital (CFAF 17.7 billion) and 14% of long-term capital (CFAF 46 billion). In such circumstances a private enterprise would have to either obtain a capital inflow or go into liquidation. Nevertheless, short-term indebtedness is not excessive for an enterprise of this scale. ("Suppliers credits" amount to about CFAF 1 billion; there is no bank overdraft; and receivables are at a normal level, in contrast to the situation of many less well- managed public enterprises.) Although it is not surprising that an agroprocessing enterprise with large fixed costs such as HEVECAM should make a loss before reaching the stage of full production, it is more disturbing to see that medium-term prospects are unfavorable. The table below shows current production costs and projections for 1992/93, which can be regarded as the first year of normal production levels: Production Costs (CFAF per kg of dry rubber) 1990/91 1992/93 (17,000 t) (23,000 t) Direct costs: agricultural 111 91 Direct costs: processing 49 45 Transport cost from plantation to 1 9 1 5 Douala port Related costs: personnel 1 5 9 A. Subtotal: direct costs 194 160 Personnel benefits 0 8 (Fixed costs Technical assistance 3 2 pre-FY90/91) General services 48 40 B. Subtotal: indirect costs 51 50 C. Total: A + B 245 210 D. Amortization 144 102 E. Total production costs, net of 38 312 financial charges These costs do not include debt servicing. This will become due in 1992/93, and will total about CFAF 1 billion beginning from that year (i.e. about CFAF 45 per kg). These production costs can be regarded as reliable, and have been used to make the medium and long-term financial projections shown in Annexes 2 and 3. With an average selling price of CFAF 228 per kg (current), these projections show that HEVECAM's internal cash generation (net of financial charges and once the enterprise has attained normal production) would total about CFAF 500 million. This will not be sufficient to enable HEVECAM to service its debts or renew all its assets. Consequently, unless there are major changes in world prices or exchange rates, the  - 1 1 - Government will have to continue to carry HEVECAM's debt burden and finance the replacement of some assets. HEVECAM is a typical example of an enterprise that could benefit from a depreciation of the real exchange rate, since about two thirds of its operating costs are incurred locally and all its income is in the form of foreign exchange. For example, operating costs for 1990/91 are as follows (see Annex 4): Total costs (net of amortization and debt servicing) CFAF 4.5 billion of which: personnel costs CFAF 2.7 billion imported goods and services CFAF 1.8 billion Once normal production levels are reached -- when costs are expected to be CFAF 4.9 billion (of which CFAF 2 billion payable in foreign exchange) and income will be CFAF 5.4 billion -- a 50% depreciation of the real exchange rate would increase net internal cash generation from CFAF 0.5 billion to CFAF 1.5 billion at current prices (i.e. CFAF 2.25 billion at the real depreciation rate). Even so, HEVECAM would not be able to achieve the necessary financial equilibrium to enable it to undertake asset renewal and debt servicing, which will exceed CFAF 2.5 billion in 1995/96 and reach a cumulative total of CFAF 4.3 billion by the end of the 1 990s. (b) Rates of Return: Projections made during the appraisal of the Third Project showed a 10% internal rate of financial return (IRR) and a 1 5% economic rate of return (ERR) over 34 years. Due to much lower yields and selling prices, and despite important reductions in investment and productions costs, the revised rates of return are negative, with an IRR of -17% and an ERR of -14% (over 34 years). The latter rate was obtained by using the same conversion factor (0.77) as for the appraisal, in order to allow for the over-valuation of the CFAF. Nevertheless, the ERR does not take account of the project's impact on regional development, which is very difficult to quantify. Using shadow exchange rates improves the IRR, but will not bring it back to a level approaching 10%. In fact, with a shadow rate of 50% above the nominal rate, the IRR remains negative (-3%), and becomes positive only at 100% (+ 1%) above nominal rates. 6.7 Proiect Impact on Re ional Development and the Environment (a) The project's impact on regional development is difficult to quantify, although it will clearly produce a number of effects, for the following reasons: - the creation of 4,500 jobs, which have attracted traders, food producers and craftsmen to the area; - the establishment of an hospital in an area previously without such medical services;  - 12 - the development of SMEs specializing in construction, electric power, wood processing and -- in particular -- transportation, in the areas of both Kribi and Douala; improvements in the road network, benefiting the entire population of the area. (b) There were a number of apprehensions as regards the environmental impact of the project: The deforestation of about 20,000 ha did not have a detrimental impact, since the area has been replanted with rubber trees, which are more efficient in their photosynthesis than natural forest and the hilly areas have been covered with cover plants. - The effluent from the processing facilities, containing latex and chemical waste (formic acid and ammonia), are properly treated by being filtered through a series of screens and passed through four settlers with a unit area of 4,000 m2, two of which are for aerobic fermentation and two for anaerobic fermentation. The quality of the water after treatment and before its release into the Niete River is monitored by the laboratory at the processing facilities, and samples are regularly sent to the Institut Pasteur in Yaounde for testing. - The rubber industry is a large consumer of wood because all exports are transported on non-reusable palettes. HEVECAM itself consumes 1,200 m3 of wood per year, but this is only scrap from the wood processed for export, and not newly felled material. 7. Proiect Sustainabilitv 7.1 Short-term. Under current conditions (see ann. 2), HEVECAM will continue to be operating at a loss. Consequently, the Government (the sole owner) is responsible to finance all debt servicing; find the resources necessary for cover operating losses, and for increased working capital; and finance the final capital investment under the Fourth Project. The total financing requirements will be about CFAF 1.5 billion. However, due to its difficult budgetary position, government is presently negotiating with CCCE to obtain an additional loan. 7.2 Medium and lona-term. Although projections indicate that, excluding amortization and debt servicing, HEVECAM can achieve financial equilibrium from 1992/93, it is unlikely that such equilibrium will be realized, because yield projections remain overoptimistic and present prices remain too low. Further cost reductions are necessary, and these can only be achieved within a private sector management framework. Under present conditions it is estimated that further production cost reductions can be achieved, in the order of at least 1 5 percent. In particular, a private firm would be able to: (i) increase personnel productivity through appropriate performance incentives, strict personnel management and possible staff cuts; (ii) reduce free social services; (iii) strongly reduce the company overheads (e.g. closing down the Douala office and replacing several cars by motorcycles or bicycles); and (iv) sharply cut the cost of supplies by avoiding administrative procurement and by adopting lower standards (e.g. purchase of second hand equipment). 7.3 Pending the sale of industrial assets (which may not be feasible in the current economic situation) a long term leasing arrangement with a private firm should be sought. Under these  - 13 - conditions, the private company would be able to continue HEVECAM operations, renew the industrial equipment and pay a rent which would help the Government in reimbursing the debt. The rent should be linked to rubber prices in CFA Francs to take into account future changes in exchange rate and in world prices. The plantation estates shoud be subdivided and transferred to small and medium size outgrowers, once land tenure problems are solved. Other potential alternative arrangements should also be explored, with a view to introducing an effective private sector management of the enterprise. The overall objectives would be to protect the jobs created, and to minimize the financial burden for the Government. The Government and external donors must urgently agree on the details of implementation of the privatization process, and on the necessary measures required to make this an attractive proposal for potential buyers and/or tenants. 8. Bank's Performance 8.1 The Bank carried out 10 supervision missions during the five years of the project, most of which included a financial analyst, a rubber specialist, and an economist. In most cases, these missions were organized jointly with the other donors, and although the coordination was time consuming, it proved to be beneficial. These missions undoubtedly caused HEVECAM to keep its technical and financial monitoring documentation up-to-date, and enabled the Bank to keep itself completely informed regarding the project's progress. The inclusion of a rubber specialist meant that some of HEVECAM's projections could be submitted to more realistic revisions, and that valuable technical advice could be given to the agricultural services. The Borrower has noted the Bank inflexibility when it became necessary to modify the pati-passu arrangments at the end of 1 987 (see Part II), but the problems seem to have been caused mainly by administrative delays on the part of the government agencies responsible for supervising HEVECAM. 9. Lessons Learnt 9.1 With hindsight, a number of lessons can be learned from the HEVECAM project as a whole, because the Bank participated in the financing of all three projects. (a) Before launching an agricultural project on such a scale, it is essential to ensure that all possible precautions are taken with respect to the agricultural aspects. More detailed studies should have been made prior to embarking on a large scale project. The findings would probably have resulted in a different scaling and phasing of the project. (b) Undoubtedly, additional costs are incurred when a project is implemented by a government enterprise, for the following reasons: - Contract procedures require higher construction standards than are necessary for agricultural operations; - Only new equipment and machinery could be purchased, whereas in many cases a private operator would regard used equipment as acceptable. - The management contract to operate HEVECAM rewards the operators for technical performance rather than for financial results (see para. 11.2). (c) The system adopted for paying the management contractor was certainly less than ideal, because it was geared to the amount of investment (in the implementation  - 14 - phase) and to operating costs (in the production phase). Once again, more importance was attributed to the quality of the works than to profitability. (d) The rate of return, and sensitivity tests, should have taken into account all risks hightlighted in the preparation findings, such as technical problems (diseases) and wide price fluctuations, and not be a simple mechanical exercise. (e) The Third Project shows that the Bank does not necessarily have to take the leading role in the projects it finances, since this part can be done by another cofinancer (in this case CCCE), which can take responsibility for project preparation and for preparing the Appraisal Report. Nevertheless, the Bank should ensure that, at appraisal, it can make its own reliable assessment of the conclusions drawn and that a commonality of views on key issues with cofinanciers has emerged. (f) The participation of several agencies has provided greater flexibility. In this case, the arrangement allowed disbursements to be continued without interruption even when one of the co-financiers halted momentarily. (g) If the Bank were to finance other agroindustrial plantation projects, the agricultural aspects should -- as far as possible -- be undertaken by the farmers themselves, while processing and marketing should be the responsibility of the private sector. 9.2 In conclusion, HEVECAM provides a good example of a project that was perfectly executed from a technical point of view, but which turned out to be unviable financially. This situation resulted mainly from a decline in world rubber prices, and also from excessive investment cost. To a large extent the latter aspect is the result of the public enterprise nature of HEVECAM, and of basing agricultural development on government action rather than on associating the farmers. Nevertheless, the project did have a positive impact on the development of the region. It created 4,500 jobs at an average unit cost of US$50,000. Although this is a high level, it is comparable to the average for the modern sector in Africa. The project also provided Cameroon with another source of foreign exchange earnings, which should help to improve its external sector accounts since rubber production has a low import content. 9.3 In present circumstances, everything should be done to keep the enterprise in operation without, however, imposing additional costs on the Government accounts. This could possibly be done by leasing HEVECAM's assets to the private sector, which is much better placed than the Government to face international competition. 1 0. Borrower's Performance 10.1 The Government did everything necessary to bring the project to completion. In general, it met its obligations within a reasonable time, in spite of the financial problems arising over the last few years. When the problems became excessive, as in 1989, the Government borrowed CFAF 5.9 billion to contribute to HEVECAM in the form of investment and subsidies. It also agreed to adopt the following measures, in line with the performance contract signed with HEVECAM in February 1 990: (i) capitalizing CFAF 10 billion in loans (the whole of the First and Second Projects); (ii) forgoing interest on the capitalized loans (CFAF 7 billion); (iii) rescheduling debt servicing for the balance on loans for the Second Project (CFAF 13 billion). In justification of these measures the Government undoubtedly took account of HEVECAM's regional development role.  - 15 - 10.2 The Government did not interfere with the project to any excessive degree, and granted the General Manager the largest possible measure of flexibility compatible with a government-controlled enterprise. It also participated actively in all supervision missions. However, it is to be regretted that the Government did not fulfill the following commitments, which it had entered into as part of the performance contract: - It did not carry out a study for a tax system that would take account of the special nature of perennial crops. - It did not address HEVECAM's proposals for increasing the competitiveness of the rubber industry (e.g. by reducing certain parafiscal taxes and electric power tariffs, liberalizing maritime freight rates, adopting special tax measures, eliminating registration fees, etc...) - It made no proposals for transferring to the State some of the public service costs assumed by HEVECAM (in particular, those relating to education, law enforcement and posts and telecommunications). 10.3 When FONADER ceased to exist in 1988, the Government took no steps to replace it, thus compromising the continuation of the outgrower planting program. Finally, the Government did not prepare a master plan for the development of the Oil Palm and Rubber Sector, as it had agreed to undertake under the Loan Agreement. 11. Proiect Relationshios Project relationships with the Bank, and with the other donors, were excellent at all times. The relationship between the Government and the World Bank were also satisfactory until 1 989, when the Bank and the other donors called for the privatization of HEVECAM to be initiated. No such steps have yet been taken, and until a satisfactory plan is agreed, the Bank is unwilling to participate in the financing of a Fourth Project, i.e. the final phase of the HEVECAM investment program. 1 2. Consultina Services 1 2.1 As indicated in para. 8.2, at the outset HEVECAM signed a contract for the provision of support for implementation and management with SAFACAM, the latter being a private enterprise (a subsidiary of the French group Terres Rouges) which operates oil palm and rubber plantations in Cameroon. Its services have certainly been much more effective than might have been expected from a more conventional source of general technical assistance. It is quite clear that the sound implementation of the project's physical components was the result of the presence of competent expatriate managers receiving support locally from SAFACAM and from the Paris headquarters of Terres Rouges. It should also be noted that the three main expatriate officials (the General Manager and the Agricultural and Financial Managers) remained in their positions throughout the project, in spite of the difficult living conditions, and this continuity also contributed to the satisfactory execution of the project. 1 2.2 The mode of payment for external support in the implementation phase (cost-plus) was less than ideal. However, it should be noted that it would have been difficult to apply a different system, because the external partner did not bear full responsibility for the operation (since it was operating under a management contract), and was responsible to a Board consisting of government officials. It also had to act in accordance with the statutes governing public enterprises. Moreover,  - 16 - the mode of payment adopted was in keeping with the practices of the time, and the rate agreed (2% of investment) was considerably lower than the amount sometimes applied (between 8% and 9%). There are certainly more grounds for criticizing the payment system adopted for the operating phase (1.5% of operating costs), because it would have been comparatively easy to find systems that provided greater incentives to make savings. 12.3 The main criticism that can be leveled at the external support is that it made insufficient adjustments to correct overoptimistic yields. As a result, and despite lower rubber prices than anticipated, this maintained a favorable financial outlook of HEVECAM's operations and, thereby, obscured the need and urgency for drastic investment and cost reductions as profitability did not appear to be an issue. 13. Proiect Documentation All quarterly financial and technical statements and annual reports produced by Hevecam were very detailed and of high quality. Operating accounts and annual balance sheets were also published within agreed time limits, and these were audited by the Cameroonian subsidiary of Price Waterhouse. Finally, it should be noted that twice a year high-quality supervision reports were also produced.  - 17 - PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE The views expressed below are those of HEVECAM, the final beneficiary of the Loan granted to the Republic of Cameroon (the Borrower). 1. Effects of exchanae rate changes: The Bank's Loan Agreements are expressed in US dollars, and this leads to a number of well-known problems when loans are made to borrowers in the franc area. Nevertheless, it will be useful to consider the particular effects this had on the Third Project. 1.1 At the time the loan was aranted: When the project was examined and the Agreement was signed, it was planned that the Bank's share would be US$8.3 million (CFAF 3.255 billion at the rate of US$1 = CFAF 392), i.e. 19% of pari passu. In fact, the US$8.3 million provided financing to the value of only CFAF 2.62 billion (an average rate of US$1 = CFAF 316), a financing shortfall on the Bank's part of CFAF 630.8 million. 1.2 At the time of revavment: Indexing this Loan against a basket of currencies reduced the effects of exchange rate differences between the CFAF and the US dollar, and limited exchange risks in both directions. However, it should be noted that, by October 15, 1990, the date at which the financing terminated, the amount of US$8.3 million had been revalued to US$9.6 million (the revaluation factor being 1.16), which was equivalent (at the rate of US$1 = CFAF 255.35) to CFAF 2.46 billion, as opposed to CFAF 2.12 billion, the value that the loan amount would have reached if it had not been indexed to the basket of currencies (i.e. a revaluation of about 16%). Nevertheless, it should be noted that, as of that date (October 1 5, 1 990), the revalued loan amount to be repaid (as expressed in CFAF) is smaller than that received (CFAF 2.457 billion, compared with CFAF 2.624 billion), a potential exchange premium of CFAF 167 million. 2. The Monitoring of the Revalued Loan and the Interest Rate The Bank provided the Cameroonian Government with semimonthly statements on Loan 2485-CM (with copies to HEVECAM), and, in particular, these made it possible to monitor changes in the variable interest rate and the amortization adjustment factor. Since 1 988, HEVECAM has received these very irregularly, and we have had to request this documentation whenever it had not been received. The most recent documents received relate to the period from October 1 to 1 5, 1 990. In this connection, please refer to our telexes 1 93-HCNT/T of September 13, 1 988 and 11 2-HC/T of July 20, 1990 (with a follow-up in the form of fax No. 87-HCNT/FE of September 24, 1991). At the same time as submitting this Report, we are writing to the Bank to request all the semimonthly statements that we have not received.  - 18 - It should also be noted that we have sometimes received documentation relating to Loan 2160-CM (relating to SOCAPALM and the Cameroon Development Corporation). 3. Problems Arisina From Chanaes in the Bank's Pori Passu Share When the Loan Agreements were signed, the following paripassu shares were agreed: Government 27 % HEVECAM 6 % Bank 19 % COMDEV 27.5 % ) Subtotal for loans: CCCE 20.5 % ) 67% 100.0 % After the 1987 supervision missions, it was proposed to change the donors' shares in light of the following: - changes in exchange rates since the preparation of the financing plan; - the reductions in HEVECAM self-financing and government financing. Although CCCE and COMDEV agreed to change their shares retrospectively to July 1, 1987, the Bank agreed in principle to do so only from June 1, 1988, resulting in the following breakdowns: From July 1, 1987 to May From June 1, 1988 to the 30, 1988 conclusion of the project Bank 19 % 24 % COMDEV 46 % 46 % CCCE 30i % _________ 96.5% 100% CCCE and COMDEV agreed to these changes in letters dated, respectively, November 21, 1988 and November 2, 1988 (confirmed by a letter of May 3, 1989). For its part, the Bank waited before making a decision on these changes until it received an official request from the Ministry of Planning and Land Use Development. This was not received until October 3, 1988 (by telex). As a result, it was only from this date (October 3, 1988) that the Bank's share could be changed (see the letter dated December 13, 1 988). This lack of synchronization caused one of our applications for a release of funds (No. 27/87-88 for CFAF 32.68 million), and led to a third paripassu period:  -19- From June 1, 1988 to l ______________ October 30, 1988 Bank 19 % COMDEV 46 % CCCE 30__%_ 95 %, i.e. a shortfall of 5% HEVECAM considers it unfortunate that the Bank showed a certain administrative rigidity in these circumstances, particularly in view of the fact that, in the end, the entire amount of US$8.3 million was indeed mobilized. In spite of this, HEVECAM's management was entirely satisfied with its relationship with the various Bank representatives who monitored the project, and appreciated their cooperativeness and insightful opinions.  - 20 - PART III: STATISTICAL INFORMATION 1. Related Bank Credits and Loans Credit/Loan Purpose Approv. Status Credit 100-CM/Loan 490-CM (US$11 To increase CAMDEV's output and productivity 1967 Completed million and US$7 million respectively) through the planting of oil palm and rubber and the modernization of processing facilities. Credit 574-CM: Ni6t6 Rubber Estate To establish the initial 5,800 ha of rubber under a 1975 Completed Project (US$ 1 6 million) 15,000 ha program and prepare a master plan for the development of the Southwestern Province. Loan 1508-CM: Second CAMDEV To continue to strengthen and support CAMDEV, with 1977 Completed Project (US$15 million) emphasis on rubber planting, processing equipment, oil palm planting and outgrower development. Credit 975-CM/Loan 1791-CM: To plant 9,300 ha with rubber clones, maintain 1979 Completed Second HEVECAM Rubber Project immature areas, bring to tapping 1,500 ha, construct (US$15 million and US$16.5 million the first phase of the rubber processing facility, respectively) together with social infrastructure, and undertake smaliholder development. Loan 2160-CM: Oil Palm and Rubber To offset the operating deficits in SOCAPALM and 1984 Completed Consolidation Project (US$50.8 CAMDEV, and strengthen their technical and million) administrative management capacity; to bring young rubber trees into production and complete the processing facilities and other infrastructure in order to meet the needs of increased production.  - 21 - 2. Proiect Timetable: Stage Oriainal MonthNYear Actual: Month/Year Identification 1974 1/ 1974 1/ Preparation 1982/83 1982/83 Appraisal 10/83 10183 Post-appraisal 12/83 12/83 Negotiation 10184 10/84 Board approval 02/85 02/85 Signature of Loan 02/85 02/85 Agreement Effectiveness 08/85 08/85 Closure 06/90 06/91 Completion 06/91 06/91 / The Third Project was planned from the beginning of the HEVECAM Program in 1974.  - 22 - 3. Loan Disbursements: (In millions of US$) Fiscal Year Estimate Actual Actual % of Disburs. Cumul. Disburs. Cumul. Estimate (Cumulative) 85/86 1.92 1.92 1.57 1.57 82 86/87 1.83 3.75 1.63 3.20 85 87/88 1.74 5.49 1.38 4.58 83 88/89 1.66 7.15 1.46 6.04 84 89/90 1.15 8.30 1.64 7.68 93 91/92 0 8.30 0.62 8.30 100 Final disbursement date: October 12, 1990. The pari passu system was applied to disbursements, with shares changing during the project period in response to changes in exchange rates, HEVECAM's lack of internal cash generation, and the problems encountered by the Government. Financina Planned C%i Actual as of Oct. 3. 1988 1%) Government 27% HEVECAM 6 World Bank 19 24 CDC 27.5 46 CCCE 20.5 30 100.0 100  - 23 - 4. Proiect ImDlementation: As compared with the appraisal projections, implementation was as follows: Planned at appraisal Implemented A. Completion of 15.000 ha planting program (a) Planting 1,600 ha 997 ha (b) Maintaining immature trees From 14,195 ha at the From 14.195 ha at the beginning of the project to beginning of the project to 5,350 ha at the end 4,119 at the end (c) Tapping, in addition to the 1,257 ha as of 9,430 ha 10,909 ha June 30, 1985 (d) Continuation of social program: Housing units 700 500 (1) Social not quantified 73 (2) (e) Processing facilities Lines for processing latex 3 3 Lines for secondary grade 3 3 (f) Support for SAFACAM Extension of agreement Signature of amendment: November 20, 1984 B. Related Programs (g) Smaliholder development 250 ha 287 ha (h) Food crop program Continuation Trials on varieties and growing methods; support for farmers (i) Continuation of agricultural trials - Disease control trials; - comparisons of methods; - 68 ha for trials on behavior in the Eastern Region. (1) Because of employee reductions. (2) Schools, markets, places of worship, clubs and clinics.  - 24 - 5. Proiect Costs and Financina A. Planned at Appraisal Project Costs Finencino (in thousanri of USSi in millioru in thowanrs IBRD CCCE CDC EIB HEVECAM Government of CFAF of USS 1. Investment 1.1 ParWll finarncig Veiebs & technical asistance 1,230 3.100 3.100 Processng facilities 4,810 11,800 11,800 Agriciitura trials 820 2,100 2,100 Inrirect coret 480 1.200 ____ 1,200 Subtotal 7,140 1S.200 0 3,100 0 11,800 1,200 2,100 1.2 P, rPisau Operating + technical assistance 7,070 18010 3,500 3.8S0 4,980 1,060 4.790 Agrictitrel development 6.640 14,120 2,740 2,80 3,910 830 3,760 Civilenginrering works 3,100 7,920 1,640 1,620 2,200 460 2,100 Vehicle & eqipment 1.000 2.660 600 620 710 _ 160 670 Subtotal 18,710 42,600 8,280 8,800 11,800 0 2.600 11,320 11. Governmrent-financed 4,480 11,400 11,400 Ill. Working capital 4,490 11,480 7,300 4,180 Total prolact cos 32.800 83,680 8,280 11,800 11,800 11,800 11,000 29,000 Fee 20 20 _ Total fInacd 83,700 8,300 11,00 11,800 11,800 11,000 29,000 Totl cowt nt of taxas 29,576 75,480 S,300 11,00 11.900 11,800 11,000 20,800 B. Exerution B.1 Overall (in billions of CFAF) Planned Actual Government Disbursement: Capital 6.940 6.940 Subsidies 4.460 4.280 Loans: World Bank 3.255 2.624 CCCE 4.625 4.625 CDC 4.610 4.110 EIB 4.610 4.621 HEVECAM: Self-financing 4.300 0 32.800 27.200 Actual financing was less than planned because of: (a) changes in the exchange rate for the US$; (b) the absence of any HEVECAM self-financing. However, HEVECAM was able to make some savings (essentially in housing).  - 25 - B.2 From World Bank Financina (in US$): Planned Actual Civil Works 1,540,000 1,815,012.62 Vehicles 500,000 932,986.29 Agricultural development 2,740,000 2,602,564.86 Operating 3,500,000 2,928,738.23 Fees 20,000 20,698.00 8,300,000 8,300,000 The differences were mainly caused by changes in the US$/CFAF exchange rate.  - 26 - 6. Proiect Results. The Annexes contain information on the following: - Annex 1: HEVECAM's balance sheets during the project period, reflecting the deterioration of its financial position (with net worth constituting only 38% of its capital and 14% of long-term capital). - Annexes 2 and 3: Medium and long-term financial projections, with trends in internal cash generation and cash flow.  - 27 - 7. Status of Covenants Section/Covenant Status of Compliance 1. Loan Anreement: The borrower declares its commitment to: 3.01 - Enable HEVECAM to achieve the FULL COMPLIANCE: The Government has objectives of the project. practically met all its obligations, even though at certain times disbursements were seriously delayed. Because of its financial problems, the Government obtained a CCCE loan in order to make the planned capital increase. - Relend the proceeds of the Loan to FULL COMPLIANCE HEVECAM under terms and conditions approved by the Bank. 3.02 - Cause FONADER to enter into an FULL COMPLIANCE agreement for the provision of credit and cash premiums for outgrowers. - Make available to FONADER the funds NOT FULLY COMPLIED: This condition has required to enable it to meet its not been fulfilled since FONADER ceased obligations. its activities in 1988. - Cause FONADER to furnish to the Bank NOT FULLY COMPLIED: FONADER was a all information concerning the Project silent partner throughout the Project. and any condition which interferes with the Project. 4.02 - Ensure that HEVECAM's liquid assets NOT FULLY COMPLIED: As a result of the are at all times maintained at a level Government's own liquidity problems. sufficient to cover its expenditures for However, this did not create serious the following four-month period. problems for the Project. 4.03 - Maintain the roads connecting the FULL COMPLIANCE: In particular, the estate and Douala. Edea-Kribi road was surfaced. 4.04 - Review oil palm and Hevea strategy. NOT COMPLIED 2. Proiect Acreement: HEVECAM shall: 2.02 - Enter into an agreement with FULL COMPLIANCE FONADER, serve as an agent between FONADER and the outgrowers, and maintain its support service for outgrowers.  - 28 - 2.03 - Enter into a Management Services and FULL COMPLIANCE Technical Assistance (Marketing) Contract satisfactory to the Bank. 2.04 - Procure goods and civil works in FULL COMPLIANCE accordance with the Schedule to the Agreement. 2.05 - Insure the goods financed by the Bank. FULL COMPLIANCE - Use Bank financing exclusively for the FULL COMPLIANCE purposes of the Project. 2.06 - Furnish to the Bank procurement FULL COMPLIANCE documents and information on any material modifications. - Maintain records adequate to justify the FULL COMPLIANCE Bank's disbursements and furnish to the Bank periodic reports and proposed budgets. 2.07 - Perform all its obligations under the FULL COMPLIANCE Financing Agreement and the Credit Administration Agreement. 2.08 - Exchange views with the Bank and FULL COMPLIANCE inform it of any condition that threatens to interfere with the progress of the Project.  - 29 - 8. Use of Bank Resources Stage of Month/ Number of Staff Weeks Overall Type of Persons Year Persons in Field Special. 1/ Perform. 2/ Problem 3/ Throuoh Apwraisal Identification Preparation - - - Appraisal 09/83 2 3 FA-PC Post-Appraisal 12/83 2 1 FA-PC - Supervision 1 Supervision 03/85 2 1 FA-PC 1 2 Supervision 10/85 1 3 PC 1 3 Supervision 04/86 2 1 FA-PC 2 F-T 4 Supervision 11/86 1 3 PC 2 F 5 Supervision 06/87 1 1 PC 2 F 6 Supervision 11/87 3 3 FA-PC-E 3 F 7 Supervision 06/88 1 4 PC 3 F 8 Supervision 02/89 4 1 FA-PC-F-E 3 F 9 Supervision 02/90 3 1 FA-PC-E 2 F 10 Supervision 12/90 3 2 FA-PC-E 1 F N.B. - Project Identification and preparation did not require specific resources: (i} the Third Project was planned from the beginning of the HEVECAM Program and (ii) preparation was done by CCCE. 1/ E = Economist; F = Forestry specialist; FA = Financial analyst; PC = Perennial crop specialist. 2/ 1 = No problems, or only minor problems; 2 = Noteworthy problems; 3 = Major problems. 3/ F = Financial; T = Technical. 9. Staff Inout Data (staff weeks) FY79 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 TOTAL Preappraisal 0.7 6.8 7.5 Appraisal 26.2 15.0 41.0 Negotiation 2.6 2.6 Supervision 10.0 11.2 14.3 11.1 6.1 16.3 10.6 5.9 0.5 86.0 Other _ 8.1 6.5 0.3 _ 14.8 TOTAL 0.7 41.1 34.1 11.5 14.3 11.1 6.1 16.3 10.6 5.9 0.5 152.2   -31 - Annex 1 HEVECAM BALANCES (In millions of CFAF) ITEM 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 Capital and capital provided, 17,737 17,737 17,697 17,697 17,697 17,697 minus unpaid called up capital (4.626) (3.380) (3.239) (3.239) (132) (132) 13,111 14,357 14,458 14,458 17,565 17,697 Subsidies - Gross 2,666 3,358 3,737 3,737 5,424 5,715 - Amortization (2.232) (2.511) (2.589) (2.631) (4.883) (4.883) - Net of amortization 434 847 1,148 1,106 541 832 Carried forward (426) (1,324) (3,620) (5,417) (7,715) (8,852) Operating result for the period (898) (2,296) (1,797) (2,298) (1,137) (2,972) NET WORTH 12,221 11,584 10,189 7,849 9,254 6,705 Long and medium-term debt 27.492 29.970 33.067 37.572 39.1 39.248 A. LONG-TERM CAPITAL 39,713 41,554 43,256 45,421 48,438 45,953 Fixed assets - Gross (neg.) (46,342) (48,418) (53.447) (58,312) (62,402) (64,159) - Net of amortization 36,266 38,806 41,894 44,560 43,920 45,679 minus revaluation reserve (1.900) (1.900) (1.900) (1.900) (525) (525) B. FIXED ASSETS AND INVESTMENTS 34,366 36,906 39,994 42,660 43,396 45,154 C. WORKING CAPITAL (A-B) 5,347 4,648 3,262 2,761 5,042 799 Net current assets 4,546 4,212 5,240 6,801 7,305 4,919 Current Liabitities 1 116 1,337 1 720 2.710 1,759 4.336 D. WORKING CAPITAL REQUIREMENT 3.430 2.875 3.520 4,091 5,546 583 E. NET CASH POSITION (C-D) 1.917 1 773 (258) (1.330) (504) 216 Including: Bank overdrafts (919) -1.7 (1,050) (1,423) (525) (23) Current accounts Cash in hand 2,827 1.775 792 93 20 239  INTOANAL CASH OENRATION millions CFAF (constant 1991/921 NEVECAN OPEAtING ACC.UMT 1964/85 1965/86 1966/87 19M/8 1968/89 1989/90 1990/91 1991/92 192/93 199394 1994/9S 195/96 1996/97 1997/98 199699 output (t) 885 2.064 4.225 8.061 10.896 14.538 16.958 21.206 22.790 24.321 24.321 24.321 24.321 24.321 24.321 Turrover 302 529 1.066 2.344 3.288 3.289 3.633 C.M29 5.082 5.424 5.424 5.424 5.424 S.424 5.424 Operating costs Direct cost: agricultural 195 46 767 1.109 1.488 1.694 1.885 2.102 2.076 2.117 2.11? 2.117 2.117 2.117 2.117 (F/kg) 220 221 181 1s8 13? 1l1 III 99 91 87 sr 87 s8 87 s8 Direct costs: processing 96 'll 208 395 600 630 832 953 1.015 1.062 1.082 1.082 1.082 1.082 1.082 (F/k) 110 56 49 49 55 43 49 45 45 44 44 44 44 44 44 Shipping costs 16 41 70 127 220 228 320 327 351 375 375 375 375 375 375 (F/kg) l 19 17 16 20 16 19 1s 1s 1s 15 is is 1S 1s Persomwl -related costs 0 91 172 266 261 272 248 236 203 207 zor 207 207 207 207 (F/kg) 0 41 33 24 19 15 11 9 9 9 9 9 9 9 Sa. total: direct costs 308 710 1.217 1.897 2.569 2.824 3.285 3.618 3.645 3.781 3.781 3.751 3.781 3.781 3.781 (Wkg) 348 341 288 235 236 194 194 171 160 155 155 155 155 155 155 CA) Profit on direct costs *7 -181 -151 447 718 4S 349 1.111 1.437 1.643 1.63 1.643 1.643 1.643 1.643 (/kg) -8 -87 -36 55 66 32 21 52 63 68 68 68 68 68 68 Expenditures social progr 0 0 0 0 e 0 183 182 182 182 182 182 182 182 (F/kg) 0 0 0 0 0 0 0 9 8 7 7 7 7 7 7 Technicalt ssi.tunte 0 0 0 0 0 0 55 70 36 44 44 44 44 U (F/kg) 0 0 0 0 0 0 3 3 2 2 2 2 2 2 2 Portion of hared costs 156 334 583 791 1.044 614 816 813 902 3z 932 932 932 932 932 (F/kg) 176 160 138 96 96 42 48 38 40 38 38 38 38 38 38 Profits dloses othbr th operW 0 -87 -32 38 5 38 20 0 0 0 a 0 0 0 0 Total Indirect cOsts 156 247 551 830 1.095 652 891 1.066 1.120 1.158 1.158 1.158 1.158 1.158 1.158 (FA/I) 176 228 130 103 100 45 53 50 49 48 48 48 48 48 48 Total direct and indirect costs 464 957 1.768 2.727 3.664 3.476 4.175- 4.684 4.765 4.939 4.939 4.939 4.939 4.939 4.939 (F/kg) 525 459 418 338 336 239 246 2Z 209 203 203 203 203 203 203 Depreciation ard mortization charge 69 525 877 1.226 1.732 2.180 2.447 2.421 2.324 2.248 1.999 1.927 1.868 1.746 1.550 (F/kg) 78 247 208 152 159 ISO 14 114 102 92 82 79 7r 72 64 Total operating costs s34 1.472 2.645 3.953 5.396 5.656 6.622 7.105 7.089 7.187 6.938 6.866 6.807 6.6a5 6.489 (F/k) 603 706 626 490 495 389 390 . 335 311 296 285 28 280 275 267 Cash generation -163 -428 -702 -383 376 -187 -S42 - 317 485 485 4as 485 485 48S  PROJECTED CASH FLOW m ion CFAF (cmutnt 911921 ISVECCA: APPLICATION OF FtUIS 19U8/89 1989/90 190/91 1991/92 1992/93 1993/94 14195 19/96 1996/97 1997/90 1998/99 1999/00 ....... ......... --- --- --- -- ......... -- - - ....... -------. .. .... ..... -------. --- -- -------............. -. .... 'was Cah gneration -376 -la7 -542 46 31 485 485 48S 485 485 8U 485 Sahscription capital 3.106 132 Sebaidies (CCCIE) 2.58 213 iorld Food rgram 44 21 9 II 0 0 0 0 0 0 0 Len-ten loan 1.302 535 Total funds -376 4.267 2.726 26 327 48S 485 485 48S 485 48S 485 ...... ........ .............................................................. ............................................................................................. .......................... AplI catoIns flied assets: wicultural 496 441 249 146 SO 20 20 20 20 20 20 20 flixed asets: li*itrili 2.632 2.152 5 612 1U3 96 0 0 0 0 0 0 FlIsd msets: re_tl * 0 0 0 119 3o 3100 300 300 300 300 300 Privatizatien Stud 63 0 0 0 0 0 0 0 0 S. ertiuwr 97 e6 71 IOS 105 SO SO SO SO SO SO SO Operation tber thn proJect 4 3 2 a 0 0 0 0 0 0 0 0 Oter Infrastrurture 129 52 3 0 0 0 a 0 0 a 0 0 Tecnical e sl tances flf d 170 SO 34 25 0 0 0 0 a 0 0 0 sO reof utilitieepersatio 340 309 242 0 0 0 0 0 0 0 a O Share f ceon fixee epees SOO 730 3SA 169 80 SO SO SO 50 SO So SO NIlslll_ 0 22 0 0 0 0 0 0 0 a a 0 Ndiuiter a emu/food crop 16 21 17 9 10 0 0 0 0 a o 0 "ticector Infrretnrture 206 191 159 106 90 90 90 90 90 90 90 90 working capital requiromsnt:Increase 0 1.005 175 329 106 102 0 0 0 0 0 0 Total: apileation 4.592 5.141 2.205 1.564 922 710 S10 S10 510 510 1S0 510 ,............................................................................................................................................. .... .. ...................................... . . ..... Amusa cash poeltion -874 521 -1.296 -595 -26 -25 -25 -25 -2S -25 -25 Cuamiltive cah position 594 -280 241 -1.055 -1.65 -1.a76 -1.901 -1.926 -1.951 -1.976 -2.002 -2.027 Debt servicing 817 1.534 2.576 3.984 4.351 4.351 5.351 4.351 3 Cummletive belnce -2.467 -4.227 -6.828 -10.837 -15.213 -19.589 -23.966 -28.342  -34- Annex 4 HEVECAM BREAKDOWN OF OPERATING COSTS: FY90/91 (In thousands of CFAF) FI. Operating Expenses, Net of Amortization - Direct costs 3,301,924 - Joint expenses 792,569 - Technical assistance 35,657 - Losses, other than operating 45.254 Total 4,175,404 Note: Change in inventory - 346,139 l II Wage Bill (a) Personnel Costs - Salaries and allowances: Cameroonian managers 225,305 - Salaries and allowances: expatriate managers 109,080 - Assignment of expatriate personnel 119,041 - Salaries and allowances: Cameroonian supervisors 229,188 - Salaries and allowances: other African supervisors 4,570 - Wages and allowances: Cameroonian workers 1,746,675 - Wages and allowances: other African workers 8,834 - Expenditure on social programs 294,794 - Trainees 3,464 - Social benefits 21.202 Total: wage bill 2,762,153 (b) Personnel-Related Costs 392,561 III. Imported Goods and Services - Purchases abroad by HEVECAM 941,482 - Purchases of imported goods from local wholesalers 740.185 Total 1,681,667  -35 - Annex 5 HEVECAM DEBT SERVICING (UNDER THE PERFORMANCE CONTRACT AND AFTER GRANTING OF DEBT RELIEF) (In millions of CFAF) FIRST PROJECT SECOND PROJECT THIRD PROJECT TOTAL Interest Principal Interest Principal Interest Principal Interest Principal 92/93 Responsibility 552 265 552 265 93/94 totally assumed 1,082 452 1,082 452 94/95 by Government 1,036 498 758 284 1,794 782 95/96 990 544 1,678 772 2,668 1,316 96/97 938 596 1,789 1,028 2,727 1,624 97/98 880 654 1,660 1,157 2,540 1,811 98/99 822 712 1,515 1,302 2,337 2,014 99/00 756 778 1,349 1,468 2,105 2,246 00/01 686 848 1,163 1,654 1,849 2,502 01/02 611 923 953 1,864 1,564 2,787 02/03 528 1,006 716 2,101 1,244 3,107 03/04 439 1,095 446 2,370 885 3,465 04/05 343 1,191 149 1,625 492 2,816 05/06 240 1,294 13 .351 253 1,645 06/07 129 1,405 129 1,415 07/08 57 666 57 666 08/09 09/10 10/11 11/12 12/13 Total 10,089 12,927 12,189 15,976 22,278 28,903 Note: Before debt relief, total repayments were CFAF 39 billion (principal) and CFAF 29 billion (interest).  - 36 - Annex 6 HEVECAM FONADER LOANS TO SMALLHOLDERS The following conditions were applied to FONADER loans to HEVECAM outgrowers: - Interest rate: 9% - Period: 18 years, including an 8-year grace period. From the ninth year, repayments were as follows: - n + 9: 4% of principal - n + 10: 6% of principal - n + 11: 8% of principal - n + 12: 10% of principal - n + 13 through - n + 18: 12% of principal  -37 - Annex 7 HEVECAM STAFF NUMBERS 84/85 85/86 86/87 87/88 88/89 89/90 90/91 1. Acricultural Field + trials + joint services 2,025 2,064 2,400 2,974 3,056 3,536 3,524 2. Industrial Processing 48 56 80 177 215 245 292 Workshops 298 271 262 223 188 151 117 Storage facilities 79 and joint services 143 135 120 127 128 82 3. Administrative/ Financial Hospital 58 58 59 60 56 54 47 Other 271 265 60 269 265 231 205 Total 2,843 2,849 3,192 3,830 3,919 4,299 4,264 Note: Staff ing levels have been reduced, except for personnel involved in production.  - 38 - Annex 8 HEVECAM EOUIPMENT VEHICLE POOL 1986/87 87/88 88/89 89/90 90/91 - Trucks for collecting latex, etc. 76 81 89 99 101 - Light vehicles and pickups 88 89 84 86 73 - Buses 8 8 9 10 9 - Wheeled tractors 16 15 15 15 9 - Tracked public-works machinery 16 16 16 16 5 - Rubber-tired public-works machinery 14 14 14 14 10 - Dump trucks 7 8 8 8 2 - Forklift trucks 4 5 6 9 9 The above table shows that all such items of equipment have been reduced, except for those used in production (trucks and forklift trucks).  - 39 - Annex 9 (Page 1 of 2) HEVECAM INFORMATION ON THE RUBBER MARKET 1. Output (in thousands of t) OUTPUT l_______________ Natural rubber Synthetic rubber Total 1979 3,860 9,330 13,190 1980 3,850 8,695 12,545 1981 3,705 8,545 12,250 1982 3,750 7,825 11,575 1983 4,025 8,275 12,300 1984 4,260 9,045 13,305 1985 4,340 8,945 13,285 1986 4,435 9,245 13,680 1987 4,760 9,440 14,200 1988 5,040 9,985 15,025 1989 5,125 10,325 15,450 Difference: + 2.9 % + 1.7 % + 2.1 % 1989/80 p.a. p.a. p.a. IRSG projections 1990 5,170 10,335 15,505 1991 5,425 10,605 16,030 Source: International Rubber Study Group (IRSG). Consumption in Western Europe, the main market for Cameroon's output (about 40,000 t/year) totals 1 million t.  -40- Annex 9 (Page 2 of 2) 2. Price Trends Price Trends for RSS1' in Various Currencies Equivalent Average CIF New-York CIF Tokyo CIF London FOB Douala per year US cents/kg Yen/kg Pence/kg CFAF/kg 1982 100.2 - 51.71 274,1 1983 123.8 - 75.47 416,1 1984 109.6 - 76.49 426,6 1985 92.4 181.8 64.20 351,0 1986 94.4 134.5 59.35 284,5 1987 111.3 139.9 65.18 302,13 1988 128.7 150.2 70.98 358,16 1989 111.2 129.4 63.32 312,8 1990 (6 months) 100.6 119.0 55.78 248,7 1/ RSS1 = Grade 1 Ribbed Smoked Sheet. Note: The qualities produced by HEVECAM, which meet current market demand, are rated below RSS1, which is the traditionaL benchmark.  OUTPUT AND SALES PROJECTIONS NEVECAN: OUTPUT AiD SALES 19114/S 1985/86 1986/87 19WA/ 1988/89 1909/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/9? 1997/98 1998/99 Area t_ 1.257 3.117 5.519 7.545 10.175 12.16 13.753 14.596 - 14.866 14.866 14.866 14.866 14.866 14.86 14.866 Output r tper (kg/day) 29 27 28 33 32 31 33 36 37 39 39 39 39 39 39 Yield per ha 704 669 76 1.068 1.073 1.195 1.233 . 1.453 1.533 1.636 1.636 1.636 1.636 1.636 1.636 Total eutput (t) 885 2.0U4 4.225 8.061 10.898 14.538 16.95 21.208 22.79 24.321 24.321 24.321 24.321 24.321 24.321 Latex X 55S 55 S8x 582 58S 61X 60X 60 6 602 60X 602 60X 602 60X acmi grad 2 1002 452 45X 42X 42X 422 39X 402 40X 402 402 40X 402 402 40X fOS etlirn price (kg) Averag price 354,01 282,80 257,06 311,89 307,57 232,11 215,51- 228,00 228,00 228,00 228,00 228,00 228,00 228,00 228,00 Latex price 372,25 289,51 269,34 322,04 320 24S 227,30 230,00 230,00 230,00 230,00 230,00 230W00 230,00 230.00 Second grak price 351,27 257,06 242,91 295.95 290.40 214,30 196,27 225,00 225,00 225.00 225.00 225,00 225,00 225,00 225.00 Charge an satee (per kg) 7,5 4,4 4,2 - 5.8 5,90 5,90 5,05 5,00 5,00 5,00 5,00 5,00 5,00 5,00 5,00 Turnmwrr, with changa In Inventory 302 529 1.006 2.344 3.288 3.289 3.633 4.729 5.082 5.424 5.424 5.424 5.424 5.424 5.424 (in millioi of CFAF) h'arking capital raWfirant 30X turnoer 1.090 1.419 1.525 1.627 1.627 1.627 1.627 1.627 1.627 Chg In working capital r*Wirmnt 329 106 102 0 0 0 0 0     IBRD 18369 CAMEROON., KOM THIRD HEVECAM RUB)ER PROJECT /J NIETE RUBBER ESTATE PLANTING PROGRAM, 1975-1985 Plantirng Year Nectares 1975 is~ 1 1976 267 .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~n )~~~ 71oKIOEER Iosi 12\5OCTO 199O