Cameroon - Oil Palm and Rubber Consolidation Project

Document of The World Banik FOR OFFICIAL USE ONLY Report No. 3713-CM STAFF APPRAISAL REPORT CAMEROON OIL PALM AND RUBBER CONSOLIDATION PROJECT May 5, 1982 Regional Projects Department Western Africa Regional Office This document has a restricted distribution and may be used hy recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$ 1 = CFAF 270 FF 1 _ CFAF 50 .i 1 _ CFAF 500 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 ton ABBREVIATIONS AFCA Association pour la Formation des Cadres de l'Administration (FR) BEI Banque Europeenne d'Investissements (Luxembourg) CCCE Caisse Centrale de Cooperation Economique (France) CCM Commission Centrale des Marches (Yaound6) CDC Conmonwealth Development Corporation (U.K.) CEC Coastal Estates Center (Douala) DGRST Direction Generale de la Recherche Scientifique et Technique (Yaound6) FED Fonds Europeen de D6veloppement (Brussels) FONADER Fonds National de Developpement Rural (Yaounde) IRHO Institut de Recherches sur les Huiles et Oleagineux (Abidjan) MINEP Ministere de l'Economie et du Plan (Yaounde) ONCPB Office National de Commercialisation des Produits de Base (Yaounde) PAMOL Soci6t6 Pamol Cameroun SAFACAM Soci6te Africaine Forestiere et Agricole (Cameroon) SPFS Societe de Plantations de la Ferme Suisse (Cameroon) SPV Service des Plantations Villageoises (SOCAPALM) UDEAC Union Douaniere et Economique de l'Afrique Centrale. Fiscal Year: July 1st to June 30.  FOR OFFICIAL USE ONLY CAMEROCN OIL PALM AND RUBBER CONSOLIDATION PRnJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS PAGE NO. I. BACKGROUND A. General 1 B. Agriculture 2 C. The Oilpalm and Rubber Sub-Sector 3 D. The Institutions 5 E. Performance under the Secondl SOCAPALM and CAMDEV Projects and Financial Situation 6 II. THE PROJECT AREA 10 III. THE PROJECT A. Summary Description 12 B. Detailed Features 13 C. Project Costs 18 D. Proposed Financing 19 E. Procurement 22 F. Disbursement 23 G. Accounts, Audit and Reportirng Requirements 24 IV. ORGANIZATION AND MANAGEMENT SOCAPALM 24 SOCAPALM Outgrowers Program 25 CAMDEV 26 CAMDEV Smallholders Program 26 V. YIELDS 27 VI. MARKETS AND PRICES 29 VII. FINANCIAL ANALYSIS 1 VIII. BENEFITS AND JUSTIFICATION 32 IX. ASSURANCES AND RECOMMENDATIONS 35 This report is based on the findings of a Bank mission which visited Cameroon in March-April 1981. 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.  -2- PAGE NO. TABLES IN THE MAIN TEXT 1.1 Bank Loans and IDA Credits for the Tree Crop Sector 3 1.2 SOCAPALM II - Cost to Completion 7 1.3 CAMDEV II - Cost to Completion 8 3.1 SOCAPALM's Smallholders Program 15 3.2 CAMDEV's Smallholders Program 17 3.3 Total Project Cost 20 3.4 Proposed Financing Plan 21 3.5 IBRD Financing Covering Five Years Expenditures 24 5.1 SOCAPALM Yield Estimates Tons FFB/ha 27 5.2 CAMDEV Yield Estimates Tons FFB/ha 28 5.3 SAR Rubber Yield Estimates - Western Africa Bank Financed Projects 29 SUPPORTING TABLES I.1 SOCAPALM Balance Sheets 1976 - 2000 37 I.2 SOCAPALM Income Statement 1975 - 2000 38 I.3 CAMDEV Balance Sheets 1975 - 2000 39 I.4 CAMDEV Income Statements 1975 - 2000 40 I11.1 SOCAPALM Field Establishment 41 III.2 CAMDEV Field Investment, Physical Targets 42 III.3 Project Cost SOCAPALM 43 III.4 Project Cost CAMDEV 44 II].5 Project Cost by Year 45 III.6 Proposed Schedule of Disbursement 46 VII.1 SOCAPALM Cash Flow 1981-2000 47 VI:t.2 CAMDEV Cash Flow 1981-2000 48 VI:[I.1 Project Rates of Return 49 VIII.2 Project Switching Values 50 CHART 1 SOCAPALM's Organization Structure 51 2 CAMDEV's Organization Structure 52 MAP 1. SOCAPALM Estates 53 2. CAMDEV Estates 54  CAMEROO(N OIL PALM AND RUBBER CONSOLIDATION PROJECT I. BACKGFROUND A. Gene:-al 1.01 The United Republic of Camerocn is located on the Gulf of Guinea in Central Africa. It extends northwards to the shores of Lake Chad and is bounded by Nigeria to the West, by Chad and the Central African Republic to the East aed by Equatorial Guinea, Gabon and Congo to the South. Covering 475,000 km , the country embraces a wide range of climatic conditions, from Sahelian in the extreme north to tropical rain forest in the south, permitting a well diversified agricultural sector and near self-- sufficiency in food production. 1.02 The country's mineral resources are being increasingly exploited. Oil production began in 1978. It is estimated to have reached about 4 million tons of crude in 1981 and further increases are expected. An oil refinery at Victoria, initially capable of producing 1.5 million tons of refined products annually, came oa stream during 1981. An important aluminum industry is located at Edea. Other industrial development is largely based on agriculture and forestry and involves domestic processing of primary commodities, such as cocoa and palm kernels, and the conversion of logs into lumber and paper products. 1.03 Infrastructure developments include improvement of the road network, modernization and expansion of the railway system, expansion of the port facilities at Douala and the creation of a new port at Rocher du Loup between Kribi and Campo. The country is favored by a number of sites suitable for the generation of hydroelectric power and the first major installation has been created on the Sanaga river at Edea. 1.04 Cameroon's population growth i; expected to accelerate from the current rate of about 2.4% per annum, and the total population will almost double by the year 2000 and reach about 16 million inhabitants. Over 40% is under 15 years of age. Though 70% of the population is presently engaged in the rural sector, the urban population is expected to reach close to 50% by the year 2000. Its exceptional growth has given rise to shortages of housing and urban employment problems. Since the agricul- tural labor force is unlikely to rise significantly from its present level, a substantial increase in agricultural productivity is called for if urban food needs are to be met.  - 2 - 1.O05 During the Fourth Plan (1977-1981), GDP increased by 8.1% per year compared with growth rates of about 4.5% during the two previous plans. Rapid agricultural expansion and high export prices helped strengthen the balance of payments in 1976-78, and growing oil exports are estimated to have been more than adequate to compensate for revenue losses due to coffee and cocoa developments in the last few years. The overall Treasury situation approached equilibrium in 1980. It should still improve during the Fifth Plan (1982-86) under the impact of oil production and an increased investment rate sustained by adequate domestic and national savings. B. Agriculture 1.06 Cameroon's diversified agricultural sector is the mainstay of the economy. One-third2 of the country's land area is classified as agricultural (156,000 km out of a total of 465,000 km ). However, the area actually under tillage at any one time is estimated to be only about 2 million ha or some 13% of this agricultural area. Smallholder farming predominates with about a million farm families contributing 93% of total agricultural production, while plantation agriculture makes up the remaining 7%. 1.07 The rural sector contributes about 30% of GNP, 50% of export earnings and employs about three quarters of the total work force. Per capita incomes vary widely between regions. While they reach $160 in the more favored parts of the southern forested zone, in the northern savannah area they range only between about US$66 and US$90. These income dispari- ties are a potential source of conflict since they tend to coincide with ethnic boundaries. Even in the more prosperous south, farmers wish to reduce the transfer of resources to Government via the national produce marketing board (ONCPB) which has historically paid farmers well below world market prices for their export crops, principally coffee and cocoa. Nevertheless, Government recognizes that in the long term, agricultural development must remain the cornerstone of the country's economic development. There is, therefore, concern at the accelerating rate of migration of population from rural areas to the towns, especially among the young, leading to rising urban unemployment and increasing labor shortages in the agricultural sector. In forward planning, increasing emphasis is being put on improving living conditions in the rural areas by providing better health and education services, and additional amenities, including water supply and electrification. This is linked to plans to increase productivity of smallholding agriculture by raising standards of husbandry and providing the credit necessary to permit adoption of more capital intensive systems. Principal constraints to the implementation of these plans are shortages of extension service, weak institutions, inadequate research, generally bad road infrastructure and poor supply and marketing .arrangements. 1.08 Under the Fourth Plan (1977-81) CFAF 133 billion (US$493 million), or 13% of the Investment Budget, were allocated to rural development. However, actual expenditures, at CFAF 68.5 billion, are  running somewhat behind estimate, 51.5% over the first four years. This program is modest in comparison with agri2ulture's contribution to the GDP (para 1.07). Although 93% of agricultural production comes from small- holdings, only 75% of current investment in agriculture is directed towards benefitting small farmers. The remaining 25% is applied to expanding the tree crop sector by investment in state-owned agro-industrial corporations producing palm oil and rubber. Under the Fifth Plan (1982-1986), the share of rural development is expected to be 24% of total investment. 1.09 Of the 39 projects financed by the Bank in Cameroon since lending started in 1967, 18 have been in agriculture. Total commitments through March 1982 amounted to about US$625 miLlion (Bank US$373 million, IDA credits US$252 million). The 1982-1986 lending program comprises only IBRD funds since, in view of its favourable oil prospects, Cameroon has been phased out of IDA financing. The number of projects proposed in 1982-86 is 25, compared with 22 in the period 1976-1980. C. The Oilpalm and Rubber Sub-Sector 1.10 In past, agricultural Bank lending emphasis was placed on assisting Government to diversify exports, which were heavily dependent on coffee and cocoa, by creating large industrial plantations of rubber and oil palms. These new estates also serve as nuclei for the economic development of previously neglected, largely unpopulated, parts of the country. This program involved seven loans and three credits totalling US$115.1 million: Table 1.1: Bank Loans and IDA Credits for the Tree Crop Sector US$ Million 1967 CAMDEV I Cr. 100-CM 11.0 Ln. 490-CM 7.0 1969 SOCAPALM I Ln. 593-CM 7.9 (Supplementary) Ln. 886-CM 1.7 1975 HEVECAM I Cr. 574-CM 16.0 1977 SOCAPALM II Ln. 1391-T-CM 7.0 Ln. 1392-CM 18.0 1977 CAMDEV II Ln. 1508-CM 15.0 1980 HEVECAM II Cr. 975-CM 15.0 Ln. 1971-CM 16.5 TOTAL 115.1  -4- With the completion of ongoing projects, the Bank will have financed the creation of some 48,000 ha of industrial rubber and oil palm plantations against appraisal targets of 50,000 ha, plus some 4,000 ha of associated outgrower plantations. These three companies account for the major part of the industrial tree crop area in Cameroon. Next in size is Pamol (Unilever Group) with about 10,000 ha followed by SAFACAM (6,300 ha) and SPFS (3,500 ha). 1.11 In line with Government's intention to involve smallholders in tree crop projects, CAMDEV II and SOCAPALM II included plans for 3,000 ha of smallholder oil palm and 1,000 ha of smallholder rubber, while in HEVECAM II provision has been made for 250 ha of smallholder rubber plantations. These components are developed alongside estates so that participating farmers benefit from the technical expertise of nucleus organizations and from estate processing facilities. 1.12 Although Government has not yet formulated detailed tree crop development proposals in Cameroon over the period of the Fifth Plan, various broad strategic objectives have been proposed. Recent policy statements suggest that an increasing proportion of agricultural investment will be allocated to develop the traditional sector and closer attention will be paid to the linkages between agro-industrial and traditional farming. This would tend to encourage the creation of rubber and oil palm small and medium sized holdings in association with the existing plantations rather than a continued rapid expansion of the estate sector. Assurances have been obtained at negotiations (para 9.01(a)) that no further expansion would be undertaken by HEVECAM, SOCAPALM and CAMDEV during the project period, while Government reviews with the Bank and other donor agencies, not later than December 31, 1984, its proposed sub-sector strategy for the Sixth Plan. 1.13 While long term prospects for natural rubber production look encouraging, the situation with regard to palm oil is less favorable. Large areas of oil palms in Malaysia, where much higher yields are obtained, largely due to more favorable climatic conditions, put Cameroon and most other African producers at a competitive disadvantage in world markets. The prospects of further extensive oil palm developments in Asia and Latin America suggest that prices in real terms will continue to decline. It will therefore become increasingly difficult for Cameroon to compete in world markets. Palm oil production targets should probably be geared to meet anticipated local demand plus whatever sales can be realized to neighbouring countries within the UDEAC group. Because it is essential that valid estimates be made of this future market, suitably qualified consultants would be engaged to carry out a vegetable oil market study to be financed under CAMDEV II (Loan 1508-CM). The study's recommendations should be remitted to the Bank not later than March 31, 1983 for review and before their implementation. Government is already in the process of recruiting consultants for this study. It also essential that appropriate mechanisms for orderly domestic market management be determined to assure equitable treatment of producers and consumers.  This would be one of the elements to be discussed during the strategy dialogue between Government and co-financiers (para 9.01(a). D. The Institutions 1.14 Societe Camerounaise de Palmerzies (SOCAPALM) SOCAPALM was established in 1968. This corporation, with a capital of CFAF 6.1 billion (US$22.6 million), has developed five oil palm estates located in the Littoral and Southwest provinces, totalling 21,000 hectares of which 15,000 hectares (71% of the planted area) are now in production. The remaining 6,000 hectares would be brought into bearing during the proposed project. No additional planting would be included under the project. SOCAPALM investment;3 totalling CFAF 13,420 million between 1970 and 1981 have been secured by equity contributions from Government plus grants, and long-term borrowings from external sources (FED, BEI, IBRD, CCCE). The Bank's contribution to-date amounts to US$34.6 million (para 1.10). 1.15 Cameroon Development Corporation (CAMDEV) CAMDEV is a statutory corporation with a present capital of CFAF 4.6 billion (US$17.0 million) owned jointly by Government (78%) and the National Produce Marketing Board (22%). Created in 1946 as a one crop- oriented estate company (banana), CAMDE"T began a long-term development program in the 1960s based on rubber and oil palm as major crops. It now has a planted area of over 39,000 hectares divided into eleven rubber estates (21,000 ha), eight oil palm estates (16,000 ha), three tea estates (1,200 ha), one banana- estate (800 ha) and 17 ha of pepper, all located in the Southwest province. The investment program totalling CFAF 14.7 billion between 1967 and 1981 was finan:ed by self-generated funds and long-term borrowings (FED, CCCE, CDC, IBRI), IDA). Bank Group contribution to date amounts to US$33 million (para 1.10). 1.16 FONADER was established in 1973 and is until now, responsible for organizing and supervising both rural development projects and agricultural credit operations. This inrolves: (i) providing financial assistance to farmers, individually or in groups; (ii) carrying out or helping to carry out rural development projects; and (iii) guaranteeing loans made by other credit institutions to individuals or groups in agricuture and livestock. FONADER is a separate legal and financial entity, under the supervision of the Minister of Agriculture, but with administrative autonomy. It does not have its own capital base. Its main sources of financing are an annual goverrment subsidy, which in the past came from surpluses accumulated by the cocoa and coffee stabilization funds, and disbursements from external loans passed on as government grants. Since it has a limited staff, ii: has relied on other government field services for supervision and execution, as well as for credit  - 6 - assessment of projects. To provide FONADER with additional experience and human resources, Government has requested the participation of FONADER in credit operations involved in the Bank-assisted SOCAPALM II and CAMDEV II projects in which credit funds for outgrowers are provided by Government and passed on through FONADER; similar arrangements would continue during the proposed project. FONADER's reorganization is presently under active study. Government intends to transform its present status of a parastatal rural development body into a Rural Credit Bank with the objective of distributing credits to farmers. For that reason, in the Project's small- holders programs, the credit operations would be financed by FONADER whereas the other smallholders' activities such as extension services and road construction would be undertaken by SOCAPALM and CAMDEV respectively. 1.17 IRHO (Institut de Recherches pour les Huiles et Oleagineux). A French research institute which is well staffed and operates on an inter- national scale, previously provided research, technical advice and oil palm seed. Although the Cameroon station at Dibamba has now been taken over by the National Research Organization DGRST, two IRHO scientists remain under contracts with SOCAPALM and CAMDEV. These contracts would be continued during the project period. E. Performance Under the Second SOCAPALM and CAMDEV Projects and Financial Situation SOCAPALM 1.18 The second SOCAPALM investment program (1977-82) included: (a) establishing the first phase of a new 6,000 hectares oil palm estate at Kienke, maintaining these immature plantings and providing infrastructure including the first phase of a processing factory; (b) establishing an addLitional 1,000 ha of oil palm on M'Bongo estate, expanding the M'Bongo processing mill and providing both M'Bongo and Eseka estates with additional equipment and staff housing; (c) establishing 2,000 ha of smallholder oil palm plantation under an outgrower program; and (d) creating a common services center for a group of estate companies (Coastal Estates Center (CEC)) in Douala. Total estimated project costs of CFAF 9,464 million (US$38.5 million), were to be financed by an IBRD loan (US$25 million) and a Government contribution of US$13.5 million equivalent passed on as equity (US$8.2 million), grant (US$0.6 million) and loan (US$4.7 million). 1.19 Estimated cost to completion, summarized below, is shown in detail in Working Files. As no agreement has yet been reached between the CEC participants regarding a site for the construction of the center, it is now doubtful that any expenditures will be incurred for the Douala complex bef.ore the closing date (para 3.07). Excluding this component, cost overrun on SOCAPALM II per hectare planted is expected to be 18%.  - 7- Table 1.2: SOCAPALM II - Cost to Completion Latest Percentage Estimate of Per Hectare Appraisal October 1981 Appraisal Planted Physical Targets (ha) Kienke 6,000 5,887 98 M'Bongo 1,000 735 74 Outgrowers 2,000 1,730 87 Sub-Total 9,000 8,352 93 Cost to Completion (million CFAF) Kienke 5,927 6,412 108 110 M'Bongo, Eseka 2,379 2,800 118 160 Outgrowers 599 505 84 97 Sub-Total 8,905 9,717 109 118 Headquarters Complex 559 ___ TOTAIL 9,464 9,717 103 1.20 However, SOCAPALM's financial situation (Appendix Tables I.1 and 1.2) remains tight: its cash position at June 30, 1981 was negative by CFAF 275 million, (US$ 1.0 million), and irinus CFAF 1,100 million (US$4.0 million) at December 31, 1981. This situation stems from: (i) a lack of self-generated funds due to yields that have been well below expectation coupled with lower than forecast selling prices and (ii) lower than expected production due to factory breakdowns and low productivity of labor (high turn-over and absenteeism). Although yields from still partially immature plantations are expected to improve from the present average of 8 tons of FFB per hectare to over 10 tons FFB/hectare by 1987, average yields at full maturity will nevertheless remain below appraisal estimates which were expected to peak at 15 tons FFB/ha. They are not expected to exceed 13.5 tons/ha in M'Bongo, 12 tons/ha in Dibombari and Kienke, and 11 tons/ha in Eseka and Edea. Measures have been taken to improve the oil mill efficiency. As for the labor situation, the rates of turnover and absenteeism have been reduced over the past year and it is expected that the situation will continue to improve as the underlying problems come to be better understood as a result of further socio-ethno- logical studies (para 3.11). Thus, in order to improve SOCAPALM's financial structure, the company's capital needs to be increased by CFAF 2,000 million (US$7.4 million). Government has agreed to this increase and this was confirmed during negotiations. Actual deposit of CFAF 1,000 million would be a condition of effectiveness (para 9.02(a)), assurances were obtained during negotiation that the second tranche of CFAF 1,000 million would be deposited before June 30, 1983 (para 9.01(b)).  -8- CA_DEV 1.21 The investment program under the CAMDEV II project included the following: (a) clearing, planting and maintaining 7,900 ha of estate rubber and 600 ha of estate oil palm; (b) planting about 1,000 ha each of outgrower rubber and oil palm; (c) provision of technical specialists with company-wide responsibilities; and (d) preparation of an expansion study for CAMDEV and a master plan study for the region. 1.22 Expected cost to completion, summarized below, is shown in detail in Working Files. The proposed Master plan will not be undertaken as originally planned, as a similar Master Plan, performed under the HEVECAM I Project, revealed that specific issue-oriented studies would be more appropriate than preparing a global development plan. Accordingly, Government and the Bank agreed to carry out instead a vegetable oil marketing study (para 1.13) and a reorganization study for CAMDEV (para 1.24). The estate oil palm development has been reduced to half of appraisal target because of labor shortages and poor quality of soils on the west coast estate of Debundscha. As for the outgrowers, the small- hoLder unit was not established until January 1979 (PY2) and this delayed start has been reflected in the planting program. Table 1.3: CAMDEV II - Cost to Completion Latest Percentage Estimate of Per Hectare Appraisal October 1981 Appraisal Planted Physical Targets (ha) Estate, Rubber 7,900 6,181 78 Estate, Oil Palm 600 281 47 Outgrowers, Rubber 1,000 844 84 Outgrowers, Oil Palm 1,000 570 57 10,500 7,876 75 Cost to Completion (million CFAF) Field Establishment 4,430 5,528 125 164 Fixed Assets 2,940 4,027 137 Smallholders 802 493 61 87 Technical Assistance 400 258 65 Expansion Study 460 496 108 Master Plan 600 400 67 TOTAL 9,632 11,202 116 155  - 9 - 1.23 The investment program has beEn plagued by delays and, above all, cost overruns, reflecting a general lack of cost-control at both Headquarters and in the estates which was aggravated by various human and structural weaknesses in the control process. This situation has had a direct repercussion on CAMDEV's financial situation (Appendix Tables 1.3 and I.4) which resulted in a deficit of C:FAF 937 million (US$3.5 million) as of June 1981, and a deficit of CFAF 1,6)0 million US$5.9 million) as of December 31, 1981. 1.24 Corrective Measures. Two sEts of measures are required. Firstly, in order to provide CAMDEV with ac.equate funds, a capital increase of CFAF 6 billion (US$22.2 million) is required. Government has agre?d to this increase and this was confirmed duriag negotiations. Actual deposit of a first tranche of CFAF 4,000 millicn (US$14.8 million) would be a condition of effectiveness of the proposed Bank loan (para 9.02(a)), and assurances were obtained during negotiations that a second tranche of CFAF 1,000 million (US$3.7 million) would be paid-in not later than June 30, 1983 and a third tranche of CFAF 1,000 mi:llion (US$3.7 million) not later than June 30, 1984 (para 9.01(b)); secondly, to strengthen CAMDEV's management and reduce costs, the corporatiDn would (i) appoint for a period of three years five internationally :-ecruited specialists to line positions (para 3.17). Their recruitment would be a condition of effecti- veness (para 9.02(b)), and their actual assignment in the field would be a condition of disbursement against the CAMDEV component (para 9.03(a)); and (ii) engage an independent consultancy firm to advise on the reorgani- zation of CAI4DEV's management structure and the improvement of its accounting system. This study would be financed out of the CAMDEV II Loan 1508-CM. I't is expected that the consultants' report would be submitted to the Bank not later than September 30, 1982 for review, and that implementation of the agreed-upon recoumendations would begin five months thereafter. Concerning staff incentives, there is at present insufficient flexibility in the salary structure to allow for appropriate rewards for outstanding performance. Moreover, the present pension benefits are inadequate; maximum monthly benefits amount to CFAF 30,000 (US$110), equivalent to only 6% of the actual compensa- tion (salary and fringe benefits) paid to estate managers. Therefore, assurances were obtained during negotiations that measures be studied before December 31, 1983, concerning stafi incentives and that Government would inform the Bank of any proposed measures to improve staff pension systems (para 9.01(c). 1.25 A smallholder unit was created under the Second CAMDEV project in January 1979, eighteen months after the project started. This unit is experiencing a number of technical and managerial problems, and it therefore requires to be strengthened including its extension staff and delivery of inputs and cash grants to participants. Better attention would be paid concerning criteria applied to select project participants. This will avoid that plantations, are established on poor soils unlikely to give the minimum yields required to ensure profitability, or farms located too far from all-weather roads where crop collection would be difficult. Accounts are badly kept and it is at present difficult to trace the amounts of loans due by the farmers. This situation should improve with the assignment of the internationally recruiited smallholders specialist.  - 10 - Moreover, with its future status as a Rural Credit Bank, FONADER will finance credit to farmers from its own ressources whereas CAMDEV will be directly responsible for the field supervision and roads upgrading (para 1.16). II. THE PROJECT AREAS A. SOCAPALM Headquarters 2.01 SOCAPALM's headquarters are in Douala, and its five estates are located within a 160 km radius of the port (Map 1). To avoid sky-rocketing rent for accommodation and offices, the company proposes to relocate the headquarters to Dibombari estate, 15 km north of Douala. The cost of this new complex is justified and would be included in the project (para 3.07). The two main estates to be assisted under the project are M'Bongo and Kienke. M'Bongo Estate 2.02 The estate is located 35 km southeast of Douala on flat or gently undulating terrain. Formerly under tropical rain forest the area carried a heavy stand of timber. The free draining deep sedimentary sandy soils are suitable for oil palms, but due to heavy leaching are low in nutrients. Although rainfall averages 3,470 mm annually, it is poorly distributed and the pronounced dry season sets a limit to production potential. The M'Bongo river provide adequate water for both domestic and industrial use. The estate is connected by an all weather road to Douala, although this requires passage by ferry over the Dibombari river. Production is presently sold either ex-factory, or in Douala. Kienke Estate 2.03 Kienke estate is located in the southwest region, in the Lobe river basin, at a distance of 244 km south of Douala, 10 km west of Niete estaLte (HEVECAM) and 10 km east of Kribi. The soils are typically ferrallitic, derived from metamorphic rocks. The climate is equatorial, hot and humid. There are four seasons, with two relatively dry and two wet seasons annually. Seasonal moisture deficits may impose some limitations on yield. 2.04 Kienke estate is linked to the main road connecting Kribi and Ebolowa. From Kribi, there is a northward link to Edea which provides access to Douala and Yaounde. However, these roads are generally in poor repair and are scheduled for upgrading, as provided for under the Development Credit Agreement for the HEVECAM II project (Section 4.05). The port of Kribi is not yet sufficiently equipped but a 2,000 tons storage tank will be built under the project to enable exporting the future plantation production (para 3.08).  - 11 - Labor 2.05 Both estates are located in sparsely populated areas and are heavily dependent on labor recruited from outside the region. Workers (at present, 2,000 in M'Bongo and 1,000 in Kienke) come mainly from the south- central and eastern provinces and further investments in social infra- structure, to be continued during the pro ect, will be required to meet the needs of resident laborers and their families. A bonus system was recently introduced as an additional incentive to attract labor. Nevertheless, turn-over is still high, especially at the M'Bongo estate located near Douala, as young unmarried workers are more attracted by the city life. Recent measures, such as the improvement i.n statutory housing standards on estates, have been expensive but have nct yet had the desired effect in stabilizing labor or improving performance. The labor problem is long standing and deeply rooted in social attitudes and customs. Prior to independence, few Cameroonians displayed interest in paid employment and in West Cameroon in particular, the estates relied heavily on immigrant Nigerian workers. B. CAMDEN' 2.06 The various estates involved ia the project have been planted around the lower slopes of Mount Cameroon (for rubber) and along the west coast (for oil palms) (Map No. 2). CAMDE'I's Head Office is at Bota, near Victoria, and warehouses, main repair shops and hospital are centered a short distance away in Tiko. Palm oil processing mills are at Idenau and Mondoni; rubber processing facilities are at Tiko, Missellele, Meanja, and Mukonje. The port facilities at Victoria and Tiko are used for exports of palm oil and kernels whereas Douala hancdles CAMDEV's rubber and banana exports and imported supplies. 2.07 Certain problems have proved more difficult than was anticipated at appraisal: rocky soils in Tombel, steep land at MBonge, water-logging at Mokoko and drainage problems in Penda-MBoko, all of which have contri- buted to cost overruns on field operations and road establishment. A soil surveyor has been appointed to undertakE detailed surveys necessary to complete the remainder of the planting program. 2.08 All of the CAMDEV estates are located in the South-West Provincg having a relatively low density of popuLation (25 inhabitants per km compared with the Teighboring West Provirce which has a high rate of 75 inhabitants per km ). Plantation workers thus are mostly recruited from the West and North West Provinces and there is practically no shortage except in the coastal oil palm estates of ]:denau and Debundsha. Moreover, CAMDEV's labor force, totalling 20,700 workers, is relatively stable and turnover and absenteeism rates are low. However, there is an imbalance with a surplus of labor available for relatively unskilled tasks but a shortage of skilled rubber tappers and oil palm harvesters. This problem would have to be tackled during project implementation and should be addressed by a combination of improved l:raining and better motivation through appropriate incentive schemes.  - 12 - III. THE PROJECT A. Summary Description 3.01 The project would be implemented over a five-year period and would consolidate investments which SOCAPALM and CAMDEV undertook during previously Bank financed projects. It would bring to maturity rubber and oil palm plantations, complete the necessary infrastructure and provide processing facilities to handle the additional crop when the trees come into bearing. In addition, CAMDEV's rubber replanting program would be supported. 3.02 Investments to be carried out by SOCAPALM would be: a) to maintain during the remaining period of immaturity and bring into production 579 ha of young palms at M'Bongo and 5,112 ha at Kienke -- total 5,691 ha -- all planted under the SOCAPALM II project; b) to provide for administrative services, vehicles and equipment related to these immature areas; c) to complete the housing and social infrastructure investment in Kienke, M'Bongo and Dibombari estates required in support of the young plantings; d) to double the capacity of the oil palm factories at Dibombari and Kienke estates by the addition to each of a second 20 t/hr processing line; e) to construct a new company headquarters at Dibombari and additional storage capacity for 12,000 tons of palm oil; f) to provide management and staff training, soil survey and socio- ethnological studies. g) to provide for the continuation of the smallholder scheme initiated under SOCAPALM II; and 3.03 Investments to be carried out by CAMDEV would be: a) to maintain during the remaining period of immaturity and bring into production 6,181 ha of young rubber planted under CAMDEV II project, 2,105 ha of young rubber planted on on-going estates and financed on self- generated funds, 126 ha of young palms planted under CAMDEV II and 1,033 ha of young oil palms planted. on on-going estates and financed with self- generated funds; b) to plant, and maintain during the project period, 1,719 ha of rubber to complete the CAMDEV II project;  - 13 - c) to replant 2,931 ha of old rubber and 500 ha of old oil palm plantation with young rubber, and maintain those immature plantations during the project period. d) to provide for administrative services related to these immature areas; e) to renew vehicles and heavy equipment, extend and, where necessary upgrade the road, water supply, staff and labor housing and social infrastructure; f) to provide new rubber processing facilities at Kompina, Pendamboko, Malende, Tombel and MBonge, and equipment as required in the company's other rubber and oil palm factories; g) to provide technical assistance to CAMDEV, including provision for the training of Cameroonian staff and scholarships abroad; and h) to provide continuing support to the ongoing rubber and oil palm smallholder programs initiated under CAMDEV ]I. B. Detailed Features SOCAPALM 3.04 The field establishment program detailed in Appendix Table III.1 is summarized below: PYl PY2 PY3 PY4 PY5 TOTAL ----hectares------------------ Upkeep and Maintenance 5,691 4,100 2,416 566 - 5,691 Brought into Production - 1,591 1,684 1,850 566 5,691 All land clearing and planting will be completed under the on-going SOCAPALM II project. Thus, field costs would include only the upkeep and maintenance of planted but still immature areas. Equipment and operating costs would be only those related to the above immature areas. Estates general charges and headquarters overheads would be apportioned on a per hectare basis. 3.05 Infrastructure for housing and social buildings would complete the programs initiated under the SOCAPALM II project for Kienke, M'Bongo, Dibombari estates. Two additional villages would be built in M'Bongo and Kienke, as well as classrooms and shops, village electrification would continue and water would be supplied in each estate village. At Kienke, a dispensary would be provided to cover first aid and emergencies, but for maternity and long term care, SOCAPALM woulc share the HEVECAM hospital facilities financed under another Bank Loan/Credit located in the adjacent Niete estate.  - 14 - 3.06 Factory Extensions Financing was included in the SOCAPALM II project to expand the M'Bongo factory capacity to 40 tons/hour. Construction would be completed in FY 1981-82, as well as the first stage 20 tons/hour Kienke oil mill. Under the proposed project, Kienke and Dibombari oil mills would each be extended by the addition of a second 20 tons/hour processing line. The Dibombari extension would be financed by BEI. 3.0C7 Headquarters in Dibombari. The transfer of SOCAPALM Head- quarters to Dibombari received the Bank's apptoval in early 1979, on the grounds that it would both improve the company's performance and reduce overhead costs. The investment was to be financed under SOCAPALM II project but was contingent on the decision of the CEC members to build a joint headquarters in Douala. Now it appears that CEC members do not wish to establish a joint headquarters; therefore the transfer of SOCAPALM's owII headquarters to Dibombari is now justified and would be financed under the proposed project. This investment is considered financially and economically fully justified. 3.08 Oil Terminals. Though the vegetable oils market study will better assess the evolution of the local market, most of the incremental production will be exported. SOCAPALM expects to export 10,000 tons (34% of production) in 1981-82. Shipments have been made through Victoria which proved very costly. Financed by self-generated funds, construction of a first phase storage capacity of 2,000 tons is underway. As exports are expected to increase, storage capacity at Douala as well as in Kribi needs to be expanded. In Kribi, a 2,000 tons storage tank is projected to handle the nearby Kienke estate production which would be more economically shipped through Kribi than through Douala. Provisions have been made for additional storage capacity; while the final decision on its size and location will await detailed analysis of the Marketing study's recommenda- tions, limited construction for the most urgently needed facilities at Kribi and Douala would be undertaken immediately. 3.09 Smallholders The smallholder scheme initiated under the SOCAPALM II project would continue under the proposed project. The program and future planning includes the following hectarage of oil palm smallholdings to be maintained and brought into production:  - 15 - Table 3.1: SOCAPALM's Smallholders Program Hectares Maintained PYl PY2 PY3 PY4 PY5 TOTAL Planting 1979 144 - Planting 1980 327 327 - Planting 1981 554 554 554 - Planting 1982 635 635 635 635 - Sub-Total SOCAPALM II 1,660 1,516 1,189 635 Planting 1983 500 500 500 500 500 Planting 1984 - 500 500 500 500 Sub-Total Present Project 500 1,000 1,000 1,000 1,000 TOTAL 2,160 2,516 2,189 1,635 1,000 Areas planted under SOCAPALM II (1,660 ha) would be brought to maturity whereas those planted under the project would be maintained during the project period. 3.10 Due to bad roads in Eseka and Edea districts, it is essential to upgrade the present network. Two motor graders would be purchased, one for each sector, and 65 kilometers of roads wou.d be upgraded and regularly maintained. 3.11 Studies, Scholarships As recommended in the master plan for future expansion and diversification of crops, SOCAPALM would carry out a soil survey and prepa- ratory study for a proposed coconut estate at Muanko. Another study would further examine the important labor issue, as a follow-up to the various studies already prepared in the past. These will be reviewed and a socio- ethnological study is envisaged to focus oln the causes of high labor turnover taking into account the experience of private plantations operating in Cameroon and neighbouring countries. SOCAPALM's scholarship program would continue during the project, specially for agronomists who will be sent abroad (Ivory Coast and Malaysia) and for financial staff to be trained by AFCA specialists who have already initiated a satisfactory training of HEVECAM's accounting clerks. CAMDEV 3.12 The field establishment program, detailed in Appendix Table III.2, includes:  - 16 - (i) upkeep, until maturity, of 8,286 ha immature rubber, of which 6,181 ha were planted under CAMDEV II and 2,105 ha from self generated funds; about 4,759 ha of the total would enter into production during the project; (ii) upkeep, until maturity, of 1,159 ha immature oil palms of which 126 ha were planted under CAMDEV II and 1,033 from self generated funds. All of these plantings would be brought into production during the proposed project; (iii) Under CAMDEV II about 7,900 ha rubber were intended to be planted; however, some 1,719 ha would only be cleared but not yet planted. This would be completed under the proposed project as shown below: Appraisal Actual Planting 1978 400 518 Planting 1979 1,350 1,537 Planting 1980 1,850 1,455 Planting 1981 2,150 1,081 Planting 1982 2,150 1,590 Sub-Total CAMDEV II period 7,900 6,181 Planting 1983 - 1,719 TOTAL 7,900 7,900 While land clearing, (felling) would be mechanical, as well as windrowing to be undertaken with CAMDEV equipment, all other operations would be with manual labor. Polybag planting materials would be available from existing CAMDEV II nurseries, and planting would be at a density of 510 trees per hectare; (iv) about 2,931 ha of old rubber trees would be felled and replanted. These plantations have low density of trees per hectare or lack of tappable bark, and have become uneconomic; and (v) on the existing oil palm estates, 500 hectares of old palms would be replanted with rubber. 3.13 Administrative cost, vehicles, heavy equipment The project costs would include the estates' general charges and the Headquarters overheads related to project, supported immature areas, and apportioned to them on a per hectare basis. In the same way, only vehicles and heavy equipment required for the completion of the above field establishment program would be financed.  - 17 - 3.14 Factories The processing facilities to be financed under the project would be required to handle increased productioa. Incremental rubber production would be processed by new units to be built at MBonge, Malende, Kompina, Penda MBoko, and possibly Tombel. Furthermore the existing Mondoni oil mill and the Tiko and Mukonje rubber factories would be rehabilitated. Increased palm oil production of the west coast estates would be processed by a new oil mill to be built at Idenau and financed by CCCE and BEI. 3.15 Buildings, water supply, road rehabilitation The completion of worker houses and related social buildings and water supply in CAMDEV II estates would also be financed. CAMDEV would also need to rehabilitate villages and roads in other on-going estates for immature as well as mature areas. Particularly in mature areas, poor condition of road network has led to a drop in production (estimated at 5%) since some areas are totally isolated during the rainy season. The inclusion of this component in the project would enable a better control and planning of CAMDEV's rehabilitation efforts. 3.16 Smallholders program, initiated under CAMDEV II financing would be continued and completed according to the following schedule: Table 3.2: CAMDEV's Smallholders Program (in Hectares) Years of Planting Oil Palm Rubber Total 1978/79 25 57 82 1979/80 145 157 302 1980/81 200 350 550 1981/82 200 280 480 Sub-Total CAMDEV II 570 844 1,414 1982/83 100 200 300 1983/84 100 200 300 1984/85 100 200 300 1985/86 100 200 300 1986/87 100 200 300 Sub-Total Project 500 1,000 1,500 TOTAL 1,070 1,844 2,914 The planting program would be flexible and could be modified to give more emphasis to rubber for reasons outlined above. The unit would be reinforced by an internationally recruited smallholder's specialist and a training program for the extension staff. As for SOCAPALM smallholders' program, project financing would include maintenance of the road network linking various plantations with the main roads leading to the factories; provisions would be made to upgrade yearly 350 km of secondary roads.  - 18 - 3.17 Management consultant team CAMDEV needs to strengthen and to improve its management performance (para 4.06). Therefore, for a transitory period of three years, the following internationally recruited specialists would be put in line positions: A Deputy General Manager, a Financial Manager, a Management Controller, a Factory Engineer and a Manager of the small- holders unit. These temporary recruited officers would be additional to the present team of advisors whose responsibilities would also be transformed by putting them into line positions during project implementation. 3.18 Studies, scholarships As for SOCAPALM, funds would be allocated to continue the present scholarship program for agronomists and to initiate a training program for financial management staff. These programs would be established in accordance with the recommendation of a specific study to determine the company's needs and priorities. C. Project Costs 3.19 The total cost of the proposed project during the five-year investment period is estimated at CFAF 41,000 million (US$152 million) inclusive of all identifiable taxes. The foreign exchange component would be 50% or CFAF 20,620 million (US$76.3 million). Government intends to forego import duties and levies on imported equipment; this was confirmed during negotiations. Under this assumption, the tax element accounts for CFAF 2,102 million (US$7.8 million) or 5% of total project costs, leaving a net of tax total of CFAF 38,898 million (US$144.2 million). Physical contingencies have been estimated at 5% on all costs except salaries, and price increases applied on baseline costs plus physical contingencies compounded yearly as follows: 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 (i) Fertilizers, chemicals gasoline 12% 11.5% 11% 10% 10% 10% (ii) Other foreign exchange 9% 81,% 8% 7% 7% 7% (iii) Local costs 12% 12% 12% 12% 12% 12% Price contingencies for fertilizers, chemicals and gasoline are based on projected price increases for petroleum products. Other foreign exchange costs follow projected international inflation, and local cost increase is linked to domestic inflation. Cost estimates were based on March 1982 prices. Total contingencies amount to 43% of the base costs or 30% of total project costs. A summary of project cost estimates is given in Table 3.3 and a yearly breakdown by categories of expenditure is given in Appendix Tables III.3, III.4, and III.5.  - 19 - D. Proposed Financing 3.20 The proposed financing plan is given in Table 3.4. The project expenditure would be financed by (i) external sources of funds (US$76.3 million or 50% of total cost including taxes, and 53% of costs excluding taxes); (ii) SOCAPALM and CAMDEV (US$71.2 million, or 47% of total costs including taxes and 45% of costs excluding taxes); and (iii) Government direct contribution to the smallholders programs (US$4.5 million, or 3% of total costs including taxes, and 2% excluding taxes). 3.21 The Bank loan of US$50.8 million (including the capitalized front end fee) would be made to Government for a 20 years period including 5 years grace period and at the interest rate applicable at the time of Board circulation. These terms are justified on country grounds. The Bank loan would be deployed as follows: US$16.3 million to cover 44.5% of SOCAPALM's investment program, US$25.6 million representing 25% of CAMDEV's investments and US$8.1 million or 64% of the smallholders scheme. CDC London would lend Sterling 6.2 million or US$12.3 million to cover 12% of CAMDEV's investment program. BEI, with the equivalent of US$6.6 million would finance 100% of the extension of SOCAPALM's Dibombari oil mill (US$4.1 million) and 100% of the upgrading of CAMDEV's Mondoni oil mill (US$2.5 million). CCCE would lend FF 40 million or US$7.4 million to cover 7% of CAMDEV's investments. It is expected that the long terna external financing would be made to Government on the following conditions: Loan IBRD CDC BEI CCCE On-Lent To: SOCAPALM - SOCAPALM CAMDEV CAMDEV CAMDEV CAMDEV Amount US$50.0 M US$12.3 M US$6.6 M US$7.4 M % of Total Cost: - Including Taxes 33% 8% 4% 5% - Excluding Taxes 35% 8.5% 4.5% 5.1% Loan Period 20 years 20 years 15 years 20 years Grace Period 5 years 5 years 2.5 years 5 years. 3.22 SOCAPALM and CAMDEV would finance local expenditures of US$16.3 million and US$54.9 million respectively representing 44.5% and 53% of their project expenditures. These funds would come from Government capital increases (US$29.6 million), Government and local medium term loans (US$ 13.3 million) and self generated funds (US$28.3 million).  - 20 - Table 3.3 CAMEROON OIL PALM AND RUBBER CONSOLIDATION PROJECT Total Project Cost IN MILLION CFAF IN MILLION US$ % of Local Foreign Total Local Foreign Total Foreign Exchange Exchange Exchange 1. SOCAPALM a) Field Establishment Costs 574.0 209.0 783.0 2.1 0.8 2.9 27 b) Estates and Headquarters General Charges 601.0 350.0 951.0 2.2 1.3 3.5 37 cl) Civil Works, Buildings 759.0 550.0 1,309.0 2.9 2.0 4.9 42 c2) Vehicles, Equipment 63.0 634.0 697.0 0.2 2.4 2.6 95 d) Factories 279.0 1,989.0 2,268.0 1 0 7.4 8.4 80 el) Dibombari Headquarters 359.0 209.0 568.0 1.3 0.8 2.1 37 e2) Oil Terminals 139.0 278.0 417.0 0.5 1.0 1.5 67 f) Studies, Scholarship 54.0 137.0 191.0 0.2 0.5 0.7 71 Sub-Total SOCAPALM 2,828.0 4,356.0 7,184.0 10.4 16.2 26.6 61 2. CANDEV a,b,c,) Field Establishment Costs 2,965.0 1,822.0 4,787.0 11.0 6.7 17.7 38 d) Estates and Headquarters Overheads 4,607.0 2,015.0 6,622.0 17.0 7.5 24.5 30 el) Roads, Water Supply, Buildings, Houses 1,937.0 1,310.0 3,247.0 7.2 4.8 12.0 40 e2) Vehicles, Heavy Equipment 63.0 1,227.0 1,290.0 0.2 4.6 4.8 95 f) Factories 470.0 1,930.0 2,400.0 1.9 7.1 9.0 80 g) Management Team, Training, Scholarship 233.0 562.0 795.0 0.9 2.1 3.0 71 Sub-Total CAMDEV 10,275.0 8,866.0 19,141.0 38.2 32.8 71.0 46 3. SMALLHOLDERS SOCAPALM Program 437.0 640.0 1,077.0 1.6 2.4 4.0 59 CAMDEV Program 818.0 480.0 1,298.0 3.1 1.7 4.8 37 Sub-Total SMALLHOLDERS 1,255.0 1,120.0 2,375.0 4.7 4.1 8.8 47 BASE COST 14,358.0 14,342.0 28,700.0 53.3 53.1 106.4 50 Physical Contingencies 718.0 717.0 1,435.0 2.7 2.6 5.3 50 Price Contingencies 5,304.0 5,561.0 10,865.0 19.7 20.6 40.3 50 Contingencies 6,022.0 6,278.0 12,300.0 22.4 23.2 45.6 50 TOTAL COST 20,380.0 20,620.0 41,000.0 75.7 76.3 152.0 50 Of Which Taxes (2,102.0) (2,102.0) (7.8) (7.8) TOTAL COST EXCLUDING TAXES 18,278.0 20,620.0 38,898.0 67.9 76.3 144.2  CAMEROON OIL PALM AND RUBBER CONSOLIDATION PROJEC- Proposed Financing Plan (Tn '000 US$) TOTAL X IBRD X BEI 7/ COMDEV 70 CCCE 7. SOCAPALM % CAMDEV 7 GOVERNMENT 1, SOCAPALM Field Establishment/Direct Costs 3,400 50 1,700 50 1,700 Field Establishment/General Charges 4,100 50 2,050 50 2,050 Equipment, Civil Works 20,800 50 10,400 50 10,400 Dibombari Oil Mill 3,700 100 3,700 Studies, Scholarship 1,000 50 500 50 500 Unallocated 3,.00 1,650 400 1,650 Sub-Total 1. 36,700 16,300 4,100 16,300 2. CAMDEV Field Establishment/Direct Costs 22,900 36 8,200 21 4,900 43 9,800 Field Establishment/General Charges 32,400 100 32,400 Vehicles 4,600 90 4,100 10 500 Heavy Equipment 1,700 63 1,100 37 600 Mondoni Oil Mill 2,200 100 2,200 Other Mills 9,500 63 5,900 25 2,300 12 1,300 Water Supply 2,500 36 900 21 500 43 1,100 Roads Upgrading 6,100 36 2,200 21 1,300 43 2,600 Houses, Buildings 6,900 36 2,500 21 1,400 43 3,000 Management Team, Scholarship 3,600 63 2,200 37 1,400 Unallocated 10.300 2,600 300 1,200 700 5,500 Sub-Total 2. 102,700 25,600 2,500 12,300 7,400 54,900 3. SMALLHOLDERS Loans and Grants to Farmers 3,700 100 3,700 S.H. Unit and Roads/SOCAPALM 3,850 95 3,700 5 150 SMH. Unit and Roads/CAMDEV 3,750 95 3,600 5 150 Unallocated 1,300 800 500 12,600 8,100 4,500 TOTAL 152,000 50,000 6,600 12,300 7,400 16,300 54,900 4,500 % Including Taxes 33 4 8 5 11 36 3 % Excluding Taxes 35 4.5 8.5 5.0 10 35 2 Percentages, Including Taxes External Sources Local Sources IBRD 33 SOCAPALM 11 BEI 4 CAMDEV 36 CDC 8 GOVERNMENT 3 3 CCCE 5 50% 507. -  - 22 - 3.23 Government would contribute to 36% of the smallholders programs (US$4.5 million). This contribution would be in addition to required equity increases for both SOCAPALM and CAMDEV: CFAF 2,000 million (US$7.4 million) for SOCAPALM and CFAF 6,000 million (US$22.2 million) for CAMDEV. Moreover, assurances were obtained at negotiations (para 9.01(f)) that Government would make two interest free medium term loans: CFAF 1,000 million (US$3.7 million) to SOCAPALM, which would reimburse 50% in PY3 and 50% in PY4; and CFAF 2,000 million (US$7.4 million) to CAMDEV, which would reimburse in PY5. Also in view of strengthening SOCAPALM and CAMDEV working capitals, Government intends to grant, for the project period, a company-tax exemption for both entities. 'This was confirmed during negotiations. 3.24 Effectiveness of the IBRD loan would be contingent upon the Government's contracting loans with CDC, BEI and CCCE, or securing alter- native satisfactory sources of finance, to cover the balance of project costs (para 9.02(c)). The IBRD loan would be granted to Government on standard terms. Government would on-lend US$12.0 million to SOCAPALM and US$21.9 million to CAMDEV on the same terms and conditions as the IBRD loan. So as to strengthen the two companies financial structure, US$8.0 million would be passed on as equity: US$4.3 million for SOCAPALM and US$3.7 million for CAMDEV. The financing of the smallholders units' administrative costs, extension services and road upgrading would be passed on to the executing agencies on a grant basis: US$4.3 million to SOCAPALM and US$3.8 million to CAMDEV. A condition of effectiveness would be that separate satisfactory financing agreements have been signed by Government with SOCAPALM and CAMDEV and become effective (para 9.02(d)). Financial assistance and supervision of the smallholder programs would be managed by SOCAPALM and CAMDEV under two Credit Administration Agreements with FONADER acceptable to the Bank. The arrangements would be similar to those implemented under the second SOCAPALM (Loan 1392-CM) and second CAMDEV (Loan 1508-CM) projects. Disbursement against this component would be conditional on the effectiveness of these agreements as well as the effectiveness of a satisfactory financing agreement between Government and FONADER (para 9.03(b). E. Procurement 3.25 Apart from US$4.5 million for vehicles financed by CCCE, all other goods and services would be procured under the Bank's procurement guidelines. Contracts of US$100,000 or more would be awarded through international competitive bidding (ICB) in accordance with Bank guidelines. These ICB would be launched by the Coastal Estate Center (CEC) through the Government's Direction Centrale des Marches (CCM) as at present. CEC regroups the needs of its five plantations members and prices obtained are the lowest and control of procurement procedures has been good. Goods so purchased would be expected to total about US$54.5 million (Bank, US$22.0 million) and would cover vehicles, equipment, fertilizers  - 23 - and factory equipment. Contracts for goods and services worth less than US$100,000 would be procured on the basis of competitive bidding advertised locally, in accordance with local procedures satisfactory to the Bank. Such contracts would not be expected to exceed US$9.6 million (Bank, US$5.0 million). Contracts for civil works estimated to cost less than US$50,000 would be procured after having obtained quotations from at least three contractors. Should suitable contractors not be readily available, such civil works would be undertaken by force account (US$16.3 million, Bank US$7.0 million). Past exl)erience has shown that worker houses and social buildings, scattered on various distant estates are unlikely to attract foreign bidders. About 180 man-months of technical assistance staff would be required during the project period (para 3.17) at an average cost of US$11,700 per man-month, total US$2.0 million (Bank US$1.0 million). The remaining expenditure (US$69.6 million, Bank US$15.0 million) represents SOCAPALM and CAMDEV personnel and operating costs. F. Disbursements 3.26 The Bank loan of US$50.8 million would be disbursed over about six years and would cover 33% of total project costs including taxes and 35% of total costs net of taxes. A proposed schedule of disbursement is in Appendix Table III.6. The percentages of disbursement proposed in this annex have been based on experienced averages of Bank-financed tree crop projects in Cameroon. Thus the loan is expected to be disbursed in a shorter period than the one proposed in the Region-wide disbursement profile for the perennial crops subsector. The Bank loan would be allocated as follows:  - 24 - Table 3.5: IBRD Financing Covering Five Years Expenditures Categories and Sub- US$ % Categories 1. SOCAPALM Expenditures a) Field Establishment Costs, Estates and Headquarters Overheads 3,800,000 50% b) Vehicles, Equipment, Civil Works 10,400,000 50% c) Studies, Scholarships 500,000 50% 2. CAMDEV Expenditures a) Field Establishment Costs 8,200,000 36% b) Heavy Equipment, Processing Facilities 7,000,000 63% c) Roads, Water Supply, Buildings 5,600,000 36% d) Management Team, Scholarships 2,200,000 63% 3.. SMALLHOLDERS Expenditures a) SOCAPALM Program: Unit Administration and Roads 3,700,000 95% b) CAMDEV Program: Unit Administration and Roads 3,600,000 95% 4. Front End Fee 750,739 5. Unallocated 5,049,261 TOTAL 50,800,000 Disbursement would be fully documented except those in respect of SOCAPALM and CAMDEV operating costs and works carried out by force account where certified statements of expenditures would be used, and the supporting documentation would be retained by the project units concerned and made available for inspection during the course of project supervision missions. G. Accounts, Audit and Reporting Requirements 3.27 SOCAPALM financial management has improved under the second project and the company has now a sound and reliable accounting system both in financial and cost accounting. Detailed yearly budgets are made with the cooperation of all estates and headquarters' staff and monthly comparisons between actual and budgeted costs are made by the internal audit service. Further improvement will be obtained when all the accounting process has been computerized.  - 25 - 3.28 CAMDEV's accounting system, though respecting the standards of sound accounting practice, needs to be improved. The manual, costly and time-consuming system adopted in the early 50s has not evolved in spite of the rapid growth of the corporation and the management and accounting reorganization study (para 1.24) will have to make adequate recommenda- tions to modernize the present system. 3.29 Both companies would continue to appoint independent auditors acceptable to the Bank for the annual auditing of their accounts. The audit reports would be submitted to the Bank within six months of the close of each financial year, that is not later than December 31. The auditor's opinion on project expenditures would include verification whether: (i) goods and services had been procured from member countries of the Bank, Switzerland or Taiwan; (ii) goods had bsen received or work performed; (iii) payment had been made; and (iv) special attention would be paid on disbursements made under statements of expenditure. IV. ORGANIZATION ANI) MANAGEMENT Societe Camerounaise de Palmeraies (SOCAPALM) 4.01 SOCAPALM is a development corporation owned by the Government (50.7%), the Societe Nationale d'Invest:lssements (SNI), (9.3%) and the National Produce Marketing Board (40%). The present chairman is the Minister of Agriculture. Except for the participation of a Government Commissioner in its affairs, SOCAPALM functions as a normal commercial entity, subject to the Cameroon Investment Code. 4.02 The General Manager is appointed by the Board of Directors on the recommendation of the Minister of Economy and Plan, and is responsible for day-to-day management. The present expatriate General Manager was appointed in 1979 and has performed satisfactorily. The Headquarter's management team has been reinforced by a newly appointed internal financial controller. An oil palm specialist from IRHO has been also recently recruited to take charge of the research program. 4.03 All existing SOCAPALM estate managers are experienced oil palm specialists with a proven capacity to administer day-to-day management issues of individual plantations under their responsibility. Moreover, a pool of experienced Cameroonian cadre has been developed through on-the- job training. To consolidate this effort, the Government has organized a training program for agricultural staff, whereas financial staff are participating in training sessions performed by a consulting firm, "Association pour la Formation des Cadres de l'Administration", AFCA. The company's organization structure is showni in Chart No. 1. SOCAPALM Outgrowers Program 4.04 SOCAPALM is the managing agency, on behalf of FONADER, for outgrower development in the areas served by its oil mills. Under the  - 26 - SOCAPALM II project, a credit administration agreement was signed by FONADER and SOCAPALM and this arrangement would continue under the proposed project. After a late and difficult start, the smallholders' unit, (Service des Plantations Villageoises, SPV) which operates under the supervision of a field Manager is now performing satisfactorily. With the assistance of the internal financial controller, this unit has its own accounts, expenditures are regularly claimed and paid by FONADER. The SOCAPALM II project has been a training ground for FONADER in undertaking its responsibility for smallholder development. Regular contacts, flow of information and funds have developped satisfactorily between SPV and FONADER whose involvement in the smallholdeis' scheme has increased and improved. Disbursements on loans 1391-T-CM and 1392-CM related to SOCAPALM's smallholders scheme are kept up to date. Cameroon Development Corporation (CAMDEV) 4.05 With concessions totalling 98,000 hectares CAMDEV is the largest development corporation in the country; its 20,700 permanent staff and seasonal workers, make it the biggest employer in Cameroon. It has a Board of 12 members chosen among leading businessmen and civil servants representing the main ministries concerned (agriculture, labor, finance), and, as for SOCAPALM,has a Government Commissioner belonging to the Ministry of Economic Affairs and Planning. The corporation's organiza- tion structure is shown in Chart No. 2. 4.06 CAMDEV's General Manager, a Cameroonian national with a strong financial background has had a satisfactory record since he took over in 1974, but the corporation's senior management team needs strengthening, so as to reorganize, improve and modernize its accounting and management systems. Such needed improvements would be based upon recommendations of a reorganization study to be undertaken (para 1.24). These recommendations would be discussed between Government and the Bank before their implemen- tation and are expected to lead to a tighter cost control mechanism and improved efficiency of the corporation. CAMDEV's Smallholders Program 4.07 This program suffered earlier from accounting procedure weaknesses. In 1981, corrective measures were introduced to open individual accounts per participant necessary to trace each participants balance of loan due and claim Bank loan financing. For this, a smallholder specialist would be recruited to strengthen the unit's management, supervise the extension staff training program and plan and organize the planting program. 4.08 The Credit Management Agreement between FONADER and CAMDEV initiated under the CAMDEV II Project would be updated and extended. The amounts of cash grants to be paid to farmers would be specified, and inidexed to reflect changes in the minimum wage. Furthermore, the flow of funds from FONADER to CAMDEV to reimburse expenditures for the smallholder program for which CAMDEV is FONADER's agent needs to be improved, as well as FONADER's disbursement claims sent to co-financiers.  - 27 - 4.09 For the smallholders programs, Goverament would set the producer prices for oil palm fruit bunches and rubber in consultation with SOCAPALM, and CAMDEV at levels adequate to ensure a reasonable revenue to smallholders from their plantings, and the recovery by SOCAPALM and CAMDEV of the cost of collection and processing and other expenses related to smallholder development. Although it is yet too early to make useful calculations for smallholder rubber prices, cash flow projections for smallholder oil palm producers (in working files) who are now about to begin harvesting, shows that a purchase price of about 20% higher than assumed in the CAMDEV II SAR would be requ.ired to allow recovery of credit and a net return per man-day at level equal to that paid to plantation workers. During negotiations, Government agreed also to periodically exchange views with the Bank on the method Eor setting producer prices (para 9.01(e)). V. YIELDS SOCAPALM 5.01 During appraisal of the second SOCAPALM project, production estimates were based on the assumption that over 25 years, the average annual FFB yield would be 12.9 tons per ha with a peak of 15 tons in Year 8 of production. However, actual production for the period 1973-79 has been 29% below appraisal mainly due to soil conditions, moisture deficit, labor problems inadequate field maintenance and factory breakdowns. Management at estate level has improved but still the environmental constraints will remain and revised yield estimates have been clrawn up by SOCAPALM. These new forecasts of yield potential are summarized below: Table 5.1: SOCAPALM Yield Estimates - Tons FFB/Hectare SOCAPALM II APPRAISAL NEW ESTIMATES ESTIMATE M'BONGO DIBOMBARI ESEKA ALL ESTATES KIENKE EDEA Peak Production 15.0 13.5 12.0 11.0 Total Production Over Bearing Life 322.5 282.5 250.0 229.2 Average Yearly Production 12.9 11.3 10.0 9.2 % of SOCAPALM II Estimate 100 88 77 71  - 28 - CAMDEV - Oil Palms 5.02 Yield forecasts for oil palm estates have been revised on several occasions. Average yields over the bearing life were estimated at appraisal at 12.2 tons FFB/ha for CAMDEV I (for the non-west coast estates Located in the Tiko plain) and at 13.1 ton FFB/ha for CAMDEV II (estates located on the west coast, benefiting from a more favorable climatic condition). Based on performances to date, CAMDEV's revised yield estimates are as follows: Table 5.2: CAMDEV Yield Estimates - Tons FFB/Hectare Non West Coast Estates West Coast Estates CAMDEV I New CAMDEV II New Appraisal Estimate Appraisal Estimate Peak Production 13.5 11.5 16.0 13.5 Total Production Over Bearing Life 305.8 255.3 326.5 279.0 Average Yearly Production 12.2 10.2 13.1 11.1 New Estimates as % of Appraisal 83.5 85.0 CAMDEV - Rubber 5.03 Production from the old estates is expected to remain below 1.9 ton per hectare. Although improved standards of tapping and the use of stimulants are expected to raise yields, the genetic potential of clones planted during the 1950s, and early 1960s is below that of current plantings. Many minor clones were planted on an experimental scale and yield performance has in general been disappointing and these areas will continue to depress overall average yield until the 1990s. Moreoever, poor management and lack of tapping control has led to excessive bark consump- tion; shortages of tappers, crop losses due to washouts and lack of passable roads in rainy seasons also added to lower yields. Under the project, uneconomical areas due to bad clones and lack of bark will be gradually replaced by high potential clones, the road network will be improved, and organization of tapping will be strengthened, by an increased training program, and appropriate tapping premiums. 5.04 However, the genetic potential of the clones planted under the CAMDEV II project, and expected to be planted under the present project, together with improvements in road network and tapping control, should lead to yields at least as appraised if not higher, i.e. peak, production of 2,200 kilo per hectare and an average yield of 1,780 kilo per hectare during the bearing life. Comparison with similar projects in Western Africa is summarized below:  - 2 9 - Table 5.3: SAR Rubber Yield Estimates - Western Africa Bank Financed Projects CAMEROON IVORY COAST CAMDEV II HEVECAM I & II SAPH GRAND BEREBY & Present Ln. 1191-CM Ln. 1633-IVC Ln. 938-IVC Project