Cameroon - Oil Palm (supplementary) Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 8a-CM REAPPRAISAL OF THE CAMEROON OIL PALM PROJECT January 22, 1973 Agricultural projects - Western Africa This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited jithout Bank Group authorization. The Bank Group docs not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS Currency Unit - CFAF Used in original appraisal report US$1 - CFAF 247 CFAF 1- US$0.0040 Current rate US$1 - CFAF 256 CFAF 1 - US$0.0039 WEIGHTS AND MEASURES 1 km = 0.624 mi 1 ha = 2.47 ac 1 m ton = 2,204.6 lb ABBREVIATIONS CALMDEV : Cameroon Development Corporation CCCE : Caisse Centrale de Cooperation Economique CDC i Commonwealth Development Corporation ENAT Entreprise Africaine de Travaux FAC Fonds d'Aide et de Cooperation FED Fonds Europeen de Developpement IRHO Institut de Recherches pour les Huiles et Oleagineux ORSTOM : Office de la Recherche Scientifique et Technique d'Outre Mer SNI : Societe Nationale d'Investissement SOCAPALM : Societe Camerounaise de Palmeraies SOPACOR : Societe des Palmeraies du Cameroun Oriental SOPAME : Societe des Palmeraies de Mbongo et d'Eseka SMAG : Salaire Minimum Agricole Garanti  UNITED REPUBLIC OF CAMEROON CAMEROON OIL PALM PROJECT TABLE OF CONTENTS Page No. SUMI ARY .* ............................................. i-ii I. INTRODUCTION .......................................... 1 Il. THE PROJECT ..................................... .... 2 A. Definition ... .............................. 2 B. Objectives ................................. ...... 3 C. Project Development Period ............... 3 D. Project Areas ....... .................... 3 E. Planting Program . .................... ..... 4 F. Labor, Labor Housing and Other Buildings ........ 4 CI. Land Clearing ..................... 5 H. Processing ................ ...... 6 I. iManagement Staff ...... ............................ 7 J. Miscellaneous .................... ... 8 K. Organization ............................. 9 L. Technical Support and Supervision ............. 9 III. COST ESTIMATES, FINANCING ARRANGEMIENTS, PROCUREIMENT AND DISBURSEMENTS .il........... ..... i A. Cost Estimates ................................... il B. Financial Arrangements ........................... 14 C. Procurement and Disbursement ..... ................ 17 IV. PRODUCTION, MARKETS AND ESTATE OPERATING RESULTS ...... 17 A. Project Yields and Production ..... ............... 17 B. Mlarketing,and Prices ............................. 18 C. Estate Operating Results ......................... 19 V. BENEFITS AND JUSTIFICATION ............................ 20 VI. CONCLUSIONS AND RECOMMENDATIONS ....................... 21 This report is based on the findings of a re-appraisal mission which visited Cameroon May-June, 1972, composed of Messrs. D. Elz, M. Iiuas and G. Losson (Bank).  -2- ANNEXES 1. Labor Table 1 - Labor Requirements Table 2 - Labor Cost 2. Housing and Buildings Table 1 - Labor Housing Table 2 - Buildings 3. Land Clearing and Planting 4. Factory Construction 5. Staff, Vehicles and Equipment Table 1 - Senior Staff Requirements Table 2 - Staff and Labor Requirements Table 3 - Staff and Overhead Charges Table 4 - Agency Cost of Senior and Subordinate Staff Table 5 - Vehicles and Equipment 6. Draft Terms of Reference for Visiting Agents 7. Costs and Cash Flow Table 1 - Appraisal and Revised Cost Estimate Table 2 - Project Costs Table 3 - Estimated Taxes Table 4 - Sources and Application of Funds 8. Estimated Annual Disbursements of Bank Loan 9. Yields and Production Table 1 - Yield Projection per Hectare Table 2 - Production - Palm Oil and Kernels 10. Exports and Revenue Table 1 - Exports of Palm Oil from Cameroon Table 2 - Exports of Palm Kernels from Cameroon Table 3 - Income Based on Export and Import Substituition Prices Table 4 - Income Based on ExDort and Domestic Mill Gate Prices  3- 11. Accounts Table 1 - Operating Accounts Table 2 - Balance Sheets 12. Economic and Financial Rate of Return Calculation Table 1 - Economic Rate of Return Analysis Table 2 - Calculation of Yearly Gross Farm Incomne Table 3 - Export, Domestic, Import Substitution and Average Weighted Prices for Palm Oil Used in Economic Rate of Return Analysis Table 4 - Prices and Margins for Project Output MAPS 1. Eseka Estate Site and Infrastructure 2. M4bongo Estate Site and Infrastructure   UNITED REPUBLIC OF CAOEROON CAEROON OIL PALM PROJECT SUMMARY i. Loan No. 593-CM for the Cameroon Oil Palm Project was signed on April 15, 1969 and became effective on August 14, 1969. For an amount of US$7.9 million it was made to finance part of the cost of establishing 9,000 ha of oil palm on two estates of 4,500 ha each, including two palm oil mills and necessary infrastructure. Total project costs were estinated at CFAF 3,463 million (US$14 million equivalent at CFAF 247/US$) iLncluding operating losses during the development phase and interest on the Bank loan, but exclud- ing the value of the land. The loan was made to Societe des Palmeraies de Mbongo et d'Eseka (SOPAME), an autonomous Government agency. The name of this agency has since been changed twice, firstly to Societe des Palmeraies du Cameron Oriental (SOPACOR) and recently to Societe Camerounaise de Palmeraies and in this report is referred to as SOCAPALM. The balance of project financing was provided by two French agencies, Fonds d'Aide et de Cooperation (FAC) a grant of CFAF 443 million (US$1.U million equivalent) and Caisse Centrale de Cooperation Economique (CCCE) a credit of CFAF 443 million (US$1.8 million equivalent) and by Government equity in SOCAPALM of CFAF 611 million (US$2.5 million equivalent). ii. Since the loan became effective five Bank supervision missions have visited the project. Initially the project proceeded satisfactorily, but in 1971 it was clear that significant cost overruns were occurring and that the Eseka estate site was unsatisfactory. A supervision mission in May 1971 recommended that SOCAPALM prepare a detailed analysis of expendi- tures needed to complete the project and proposals for overcoming the prob- lem of the poor site at Eseka. SOCAPALMI submitted its new estimates early in 1972. These estimates were unsatisfactory because no attempt had been made to seek means of reducing costs. Consequently, the Bank decided to reappraise the project. iii. In the course of reappraisal the project was modified. It is now proposed that the project development period be extended by 1--1/2 years to 9 years; the area of palms at Eseka be reduced from 4,500 ha to 25500 ha and that at Hbongo increased from 4,500 ha to 6,000 ha. These changes result in total plantings of 8,500 ha instead of the original 9,000 ha, however, project production at maturity is forecast to be similar to original appraisal estimates due to the higher yields that are now anticipated. Total revised project costs are CFAF 4,958 million (US$19 million) including capitalized interest on the existing Bank loan. This represents an :increase of CFAF 1,495 million (US$5.8 million equivalent at current exchange rate) over appraisal estimates. About CFAF 230 million (US$0.9 million) of the increase is due to the extension of the project development period, about CFAF 53 million (US$0.2 million) to the provision of a warehouse and workshop facilities not included at appraisal and the remainder CFAF 1,212 million (IJS$4.7 million) to cost overruns on palm oil mills, management and overhead, vehicles and equipment,  - ii - buildings, land clearing and increased contingencies. A substantial part of these overruns is due to the underestimation of price inflation when the pro- ject was appraised in 1968. iv. The higher project costs will be more tlian compensated for by in- creased benefits which were significantly underestimated at appraisal in re- spect of crop yields and prices. Consequently the economic rate of return from investment in tie project is now calculated as 10% without siuadow pric- ing and is 2.4 percentage poillts above the rate estimated at appraisal. With appropriate and justified shadow pricin- the economic rate of return would be 12%/. v. Since the approval of the first financing the exchange rate CFAF/US$ has altered. Disbursements to June 1972 were made at an average of CFAF 270 per US$ and subsequently at the current rate of CFAF 256. As a result the total funds available in CFAF under the original financing hlave increased by CFAF 172 million, about US$0.6 million at the current ex- change rate. After taking into account these extra funds the amount required to finance the cost overrun of CFAF 1,495 million (US$5.8 million) is CFAF 1,323 million (US$5.2 million). vi. The revised project is technically and economically sound and is suitable for a supplenental Bank loan. It is proposed that a Bank loan of US$1.7 million (CFAF 435.2 million) should be made to finance 33% of the additional costs. FAC and CCCE have indicated that they would make a grant and loan respectively totaling CFAF 495 million (US$1.9 million) or 37% of the supplemental costs. The remainder of CFAF 393.1 million (US$1.6 million) or 30% of the supplemental costs would be financed by Government and self- generated funds. If tihis proposal is accepted, the Bank would finance ap- proximately 50% of total project costs, FAC and CCE 28% Government and self- generated funds 22%. This compares with the original financin- plan of Bank 57%, FAC and CCE 24% and Government 19%. The 'orrower would be SOCAPALM.  UNITED REPUBLIC OF CAMEROOi CAIOEROON OIL PALM PROJECT I. INTRODUCTION 1.01 Loan No. 593-CbM based on Appraisal Report No. 70-654a for the Cameroon Oil Palm Project was appraised in February/March 1968 signed on April 15, 1969 and became effective on August 14, 1969. For an amount of US$7.9 million it was to finance part of the cost of establishing 9,000 ha of oil palm on two estates of 4,500 ha each, including two palm oil mills and necessary infrastructure. Total project costs were estimated at CFAF 3,463 million (US$14 million equivalent at CFAF 247/US$) including operating losses during the development phase and interest on the Bank loan but exclud- ing the value of the land. The loan was made to Societe des Palmeraies de Mbongo et d'Eseka (SOPAIIE), an autonomous Government agency. The name of this agency has been changed to Societe des Palmeraies du Cameroun Oriental (SOPACOR) and then to Societe Camerounaise de Palmeraies and in this report is referred to as SOCAPALM. The balance of project finarncing was provided by two French agencies, Fonds d'Aide et de Cooperation (FrAC) a grant of CFAF 443 million (US$1.8 million equivalent) and Caisse Centrale de Coopera- tion Economique (CCCE) a credit of CFAF 443 million (US$11.8 million equiva- lent), and by a Government contribution to SOCAPALM equity of CFAF 611 mil- lion (US$2.5 million equivalent). 1.02 Since the loan became effective five Bank supervision missions have visited the project. Initially the project proceeded satisfactorily, but in 1971 it was clear that significant cost overruns were occurring and that the Eseka estate site was unsatisfactory (para 2.06). A supervision mission in May 1971 recommended that SOCAPALM prepare a detailed analysis of expend- itures needed to complete the project and proposals for overcoming the prob- lem of the poor site at Eseka. SOCAPALM submitted its new estimates early in 1972. These estimates were unsatisfactory because no constructive attempt had been made to effect economies. 1.03 A Bank reappraisal mission consisting of Messrs. Elz, Huas and Losson visited Cameroon from May 23 to June 7, 1972. The mission reestimated project costs to completion at CFAF 4,958 million (US$19 million) an increase of CFAF 1,495 million (US$5.8 million equivalent at current rate of exchange) over the appraisal estimate. The mission recalculated the economic rate of return from investment in the project as 10% cormpared with the 7.6% estimated at appraisal. Improvement in the rate of return stems from the use of a higher economie value for palm oil produced by the project. The use of a higher eco- nomic value for project produced palm oil is justified since the import sub- stitution price for project oil is estimated to be highier than the price fore- cast at appraisal. Despite the reduction of the area of palms, project pro- duction at maturity is forecast to be similar to original appraisal estimates due to the higher yields that are now anticipated. The higher yield estimates are based on information that has become available from field trials in the five years since original appraisal.  -2 - II. TUE PROJECT 2.01 In this Chapter, the major changes in the project and in its implementation which have occurred since appraisal, or which are now pro- posed, are described and their impact on costs discussed. A. Defiiiition 2.02 The appraisal report defined the project as consisting of: (a) the establishment of 9,000 ha of oil palms on two estates of 4,500 ha each;5 (b) the creation of a state-owned corporation, Societe des Palmeraies de !'lbongo et d'Eseka (SOPAME), to owm and manage the two estates at Mbongo and Eseka; (c) the setting up of a palm oil mill on each of the two estates, which by the end of the project development period would have capacities of 12 tons/hr at Ubongo and 6 tons/hr at Eseka: and (d) the provision on each estate of necessary roads, buildings, and other infrastructure. 2.03 Following reappraisal it is proposed to redefine items (a), (b) and (c) as follows: (a) the establishrient of about 8,500 ha of oil palms, about 6,000 ha at M1bongo estate and about 2,500 ha at Eseka estate; (b) to agree to the change in name from SOPMIE to Societe Camerounaise de Palmeraies (SOCAPALU), to own and manage the two estates at Mbongo and Eseka and to take on additional responsibilities for all exist