Cameroon - Niete Rubber Estate Project

Report No. 716a-CM FILE CoPY Appraisal of Niete Rubber Estate Project Cameroon May 20, 1975 Western Africa Regional Office Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Croup. It may not be published, quoted or cited without Bank Croup authorization. The Bank Croup does not accept responsibility for the accuracy or completeness of the report.  CAMEROON NIETE RUBBER ESTATE PROJECT CURRENCY EQUIVALENTS US$ l = CFAF 225 CFAF 1 = US$ 0.0044 CFAF 1,000,000 = US$4444.44 WEIGHTS AND MEASURES (Metric System) 1 hectare (ha) = 2.47 acres 1 kilometer = 0.624 miles 1 kilogram = 2.204 pounds 1 metric ton = 2,204.6 pounds 1 liter = 1.057 U.S. quart ABBREVIATIONS CCCE : Caisse Centrale de Cooperation Economique (France) CDC or CAMDEV : Cameroon Development Corporation ENSA : Ecole National Superieure Agronomique FAC : Fonds d'Aide et de Cooperation HEVECAM Societe Hevea - Cameroun IRAT Institut de Recherches Agronomiques Tropicales et de Cultures Vivrieres IRCA Institut de Recherches sur le Caoutchouc en Afrique PAMOL Societe Pamol Cameroun (Unilever Group) SATET Societe Africaine de Travaux et d'Etudes Topographiques SAFACAM Societe Africaine Forestiere et Agricole - Cameroun SOCAPALM Societe Camerounaise de Palmeraies SEDA Societe d'Etudes pour le Developpement de l'Afrique SOSUCAM Societe Sucriere du Cameroon SOCFIN Societe Financiere HEVECAM'S FISCAL YEAR July 1 to June 30  CAMEROON NIETE RUBBER ESTATE PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS ............................ i - v I. INrTRODUCTION ..... ...................... ......... II. BACKGROUND ........ ........................... 2 A. General ............................ 2 B. Agricultural Sector ........................ 3 III. DEVELOPMENT OF ESTATE AND OUTGROWER AGRICULTURE. 4 IV. THE PROJECT .................................... 6 A. Project Area ............................... 6 B. Summary Description .................... .... 8 C. Detailed Features ........ ............ . 9 D. Organization and Management ........ .. 12 E. Accounts and Audit ................... .... 15 V. COST ESTIMATES AND FINANCIAL ARRANGEMENTS ...... 15 A . Cost Estimates ....... . . . .. . . . . . . . . . . . . . . 15 B. Financial Arrangements ......... .. .......... 17 C. Procurement ...... .......................... 19 D. Disbursements ............. .. ............... 19 VI. PRODUCTION, MARKETING AND FINANCIAL RESULTS .... 20 A. Yields and Production ......... .. ........... 20 B. Marketing and Prices ....... ................ 20 C. Financial Results ........ .................. 21 VII. BENEFITS AND JUSTIFICATION ...................... 21 VIII. AGREEMENTS REACHED AND RECOMMENDATION .... ...... 23 This report is based on the findings of an IDA mission which visited Cameroon in November/December 1974, and whose members were Messrs. Losson, Leduc, Palein, and Winston; Mr. Forget (Legal staff) was with the mission part of the time.  ANNEXES 1. Draft Scope of Work for a Master Plan for Southwest Region 2. The Project Area and Features of Niete Estate Table 1: Soil Analysis of the Northern Part of the Concession Area Table 2: Schedule of Operations Table 3: Production Schedule Table 4: Staffing Schedule Table 5: Labor Force Table 6: Exploitation Schedule Table 7: Tapping Specifications Table 8: Construction Program 3. La Societe Africaine Forestiere et Agricole - Cameroun (SAFACAM) Appendix 1: Draft Agreement 4. Audit Terms of Reference 5. Cost Estimates Table 1: Project and Program Costs Table 2: Summary Cost per Hectare for Agricultural Development Table 3: Land Clearing and Road Construction: Civil Works by Contractor - Completion by Estate Force Account Table 4: Land Clearing and Road Construction by Estate Force Account Table 5: Salaries and Costs of Professional Staff Table 6: Wages and Costs of Nonprofessional Staff Table 7: Housing Costs 6. Cash Flows Table 1: HEVECAM Income Statement Table 2: HEVECAM Sources and Application of Funds Table 3: Government Cash Flow Table 4: Estimated Quarterlv Disbursements of IDA Credit Table 5: HEVECAM Sources and Application of Funds (5,800 ha) 7. Natural Rubber: Trends and Outlook Table 1: World Production and Consumption 8. Economic Rate of Return Calculation Table 1: Price Structure and Marketing Margins for One Ton of Rubber Table 2: Economic Rate of Return Calculation Table 3: Economic Rate of Return Calculation (5,800 ha)  MAPS 1. Population, Rainfall, Transportation and Project Area -IBRD 11484 2. Niete Rubber Estate Concession - IBRD 11485 CIIARTS Organization Chart - IBRD 9584   CAMEROON NIETE RUBBER ESTATE PROJECT SUMMARY AND CONCLUSIONS Background i. The Government of Cameroon has requested the assistance of IDA and the French Caisse Centrale de Cooperation Economique (CCCE) in financing a rubber estate in the southwest of the country. The project vas prepared by the Societe Africaine Forestiere et Agricole--Cameroun (SAFACAM). This report is based on the findings of an IDA appraisal mission in November/ December 1974. ii. Initially, Government asked IDA and CCCE to appraise the estab- lishment of a 15,000 ha rubber estate. The proposed objective appears to be economically sound but inflation makes it impossible to produce a firm and realistic financial plan for the 16 years needed to develop such a large undertaking. It is therefore proposed to provide finance for five years, encompassing the planting of 5,800 ha of rubber as well as prep- aratory work for subsequent development. As Government sees the project appraised in this report as a first step in establishing a 15,000 ha estate, the financial and economic data show the projected results both of the larger estate and of the proposed project. iii. If for any reason Government's plans did not materialize, the area of rubber planted under the project would constitute an economic unit, al- though its completion, i.e. bringing all 5,800 ha into full production, would require a total of seven years and some US$11 million (net of taxes and con- tingencies) in addition to the cost of the five-year project. The Government would assume responsibility for providing, or causing to be provided, these funds, since IDA can give no commitment at this stage. At a later stage, however, the Bank Group and CCCE would consider financing either the remaining development of the 5,800 ha, or further expansion, on the basis of the pre- paration work financed during the first phase. iv. The project would also provide for preparation of a major long-term development plan for the southwest region. In outline, this plan would aim at developing some 100,000 ha or more of nuclear estate and outgrower com- plexes, over some 25 years, in a region that is now sparsely populated and undeveloped but suitable for a range of tree crops including rubber. Description of the Proiect v. The project comprises the first phase of development--1975/76 through 1979/80--of a large rubber estate. It would include:  - ii - (a) clearing 5,800 ha and planting them with high yielding rubber; preparation of land for a further 1,700 ha to be planted in 1980/81 in a second phase of development; and maintenance of the 5,800 ha of plantings for the duration of the five-year project development period; (b) conducting establishment and yield trials with different clones of rubber, and agronomic research if required; (c) constructing housing, health, education, and the social facilities for about 3,000 estate families; and service roads for the estate; (d) establishing a commissariat to ensure food supplies to estate employees, and also to supervise trials with foodcrops; (e) establishing and staffing a state-owned company to own and operate the estate; and employing a suitably qualified firm to: (i) manage the new company, (ii) prepare a follow-up project, including the continuation of pedological and topological studies, and (iii) train Cameroonians at all levels of responsibility on the estate; and (f) preparing a master plan for the development of the Kribi region which emphasizes the production of perennial crops. The estate would be owned and operated by a Government-owned corporation, HEVECAM. The Government recognizes that it will take time for Cameroonians to be trained for senior management positions in the rubber industry. There- fore, HEVECAM would employ the management services of SAFACAM, a Cameroonian estate-operating company which itself is affiliated with SOCFIN, a well- known international corporation specializing in tropical estate production and sales. The Association has reviewed and approved a draft of the manage- ment contract, whose signing would be a condition of credit effectiveness. HEVECAM's senior management wculd comprise a Director General and the managers of the Technical, Industrial and Administrative departments, whose qualifi- cations and experience would be satisfactory to IDA. Cost Estimates and Financial Arrangements vi. The project cost is estimated at US$23.2 million, net of taxes (US$5.3 million). The foreign exchange component would be about US$16.6 million, or 72% of total cost net of taxes. Total cost includes physical contingencies and provisions for price increases amounting to 42% of the base cost estimates, which are at end-1974 prices.  - iii - vii. The proposed IDA credit would be for US$16 million, made to the United Republic of Cameroon on standard terms, and would cover 56% of total costs including taxes and US$0.8 million of corporate fees which would be fully paid by Government-CCCE would lend US$4.45 million equivalent to Government, for a term of 20 years, including 10 years of grace, with interest at 5.5%; the CCCE loan would finance 16% of total costs. Government would finance the remaining 28% of total costs. About US$15.1 million of the proceeds of the IDA credit together with the CCCE and Government contributions would be made available to HEVECAM as equity (45%) and a subloan (55%). The equity contribution of US$12.2 million would consist of US$3.5 million IDA funds, US$7.7 million Government funds, and US$1.0 million Caisse loan funds. The subloan of US$14.8 million would consist of US$11.6 million IDA funds and US$3.2 million of CCCE loan funds, and would be made by the Government to HEVECAM under a Project Financing Agreement that is a condition of effectiveness of the credit. The proposed subloan would be for 30 years at a 5-1/2% interest rate; no interest would be charged during the 15-year grace period. Hence, the effective interest rate on the subloan over 30 years would be below 2%. The above financial arrangements reflect the fact that in rubber projects yields only begin in PY 8 and do not reach their maximum before PY 18. The arrangements would enable HEVECAM to meet its operating costs as well as debt service obligations and to build up adequate balances out of self-generated funds. viii. Some preparatory work, involving advance contracting and amounting to a maximum of US$0.4 million, had to be initiated prior to Board Presenta- tion since, otherwise, a whole year of planting would have been lost. IDA and CCCE would finance such expenditures retroactively to the extent that eligible payments are made before signing. Procurement ix. Procurement would be through international competitive bidding (ICB) under IDA guidelines except for items mentioned below and individual contracts not exceeding US$60,000, which would be let locally under competi- tive bidding procedures advertised locally that would be agreed with IDA. Goods manufactured in Cameroon and in countries which are a party to Central African States Customs Union (UDEAC) would be granted a preference of up to 15%, subject to standard provisions, and prequalified Cameroonian contractors a preference of 7-1/2%. Contracts for manual clearing of land, if arranged, would be under these procedures. Otherwise, clearance would be mechanized and carried out on force account, as would road building and other construc- tion. Assuming that land clearance is mechanized, goods and services subject to ICB -- largely machinery, vehicles and equipment and fertilizers -- are estimated to cost US$5 million. This comparatively small amount reflects the large component of project costs that comprises labor and management. A minimum amount of land-clearing equipment, costing US$0.38 million, has already been ordered under ICB, with IDA and CCCE approval, because deliv- ery is expected to take 12 months and otherwise the project might have been delayed. Arrangements for the provision of management services by SAFACAM would be acceptable to IDA.  - iv - Disbursement x. Disbursements by IDA and CCCE would be in the proportions 58:17. Proceeds of the IDA credit would be disbursed to cover 58% of total expendi- tures of the following items: (a) civil works and plantations--US$4.8 mil- lion; (b) equipment and materials--US$2.2 million; (c) administration-- US$2.5 million; (d) food crop development--US$300,000; (e) technical assis- tance--US$580,000; (f) project related studies--US$120,000; and (g) master plan--US$700,000. US$4.8 million, representing contingencies, would be unallocated. Disbursements would be on a standard documented basis includ- ing, where appropriate, periodic work certificates, the full documentation for which would be retained bv the Borrower and made available for inspec- tion by the Association during the course of supervision. Any unused bal- ance would be used to finance similar activities which have been reviewed in the appraisal of this project. Benefits and Justifications xi. The project would contribute to the realization of important Government socio-economic development objectives. First, at peak produc- tion, the completed 5,800 ha estate would produce 13,000 t of rubber (77% of Cameroon's present output), a level that could be sustained for more than 20 years without major replacements. Net foreign exchange earnings of US$7 million would be generated each year, decreasing Cameroon's still heavy reliance on two major export crops--cocoa and coffee, whose export prospects are limited. Second, the project, being labor intensive, would provide secure employment to 3,000 employees and their families--10-12,000 people in total--most of them from the north, and considerable improvement in their standards of living. Satellite foodcrop production, trade and transport activities would a'so develop. Third, it would help spread the benefits of development more evenly among regions by opening up an area with good potential for successful establishment of other estate and small- holder plantations which would ultimately form a whole new agroindustrial complex in the hinterland of the port of Kr