Papua New Guinea - Enga Provincial Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3602-PNG PAPUA NEW GUINEA APPRAISAL OF THE ENGA PROVINCIAL DEVELOPMENT PROJECT March 11, 1982 Projects Department East Asia and Pacific Regional Office 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.  CURRENCY EQUIVALENTS Currency Unit - Kina (K) Kl = US$1.50 US$1 = K 0.67 WEIGHTS AND MEASURES 1 kilogram (kg) = 2.20 pounds 1 metric ton (ton) = 2,205 pounds 1 kilometer (km) = 0.62 miles 1 square kilometer (sq km) = 100 ha 1 hectare (ha) = 2.47 acres GLOSSARY OF ABBREVIATIONS APO - Aid Post Orderley DPI - Department of Primary Industry DWS - Department of Works and Supply FMC - Food Marketing Corporation GLC - Goodnews Lutheran Church HQPCC - Headquarters Project Coordinating Committee HQPC - Headquarters Project Coordinator LDP - Less Developed Provinces LGC - Local Government Council NGO - Non-Government Organizations NPEP - National Public Expenditures Plan NPO - National Planning Office OPC - Office of Project Coordination PC - Project Coordinator PI - Project Implementation division (NPO) PNG - Papua New Guinea PNGDB - PNG Development Bank PSC - Public Services Commission SSC - Secretary's Staff Committee GOVERNMENT OF PAPUA NEW GUINEA FISCAL YEAR January 1 - December 31 i  FOR OFFICIAL USE ONLY PAPUA NEW GUINEA ENGA PROVINCIAL DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction .... . . . . . . . . . . . . . . . 1 National Overview . . . . . . . . . . . . . . . . . . . 1 Structure of Government . . . . . . . . . . . . . . . . 3 Development Objectives and Less Developed Provinces. 4 II. THE PROJECT AREA . . . . . . . . . . . . . . . . . . . . 6 Physical Characteristics . ...... . . . . . . . 6 People and Their Life Style . . . . . . . . . . . . . . 7 Provincial Economy . . . . . . . . . . . . . . . . . . . 8 Agricultural Sector . . . . . . . . . . . . . . . . . . 9 Government Structure ... . ..... . . . . . . . . . 11 Public Services . . . . . . . . . . . . . . . . . 12 III. THE PROJECT . . . . ..... 17 Project Origin . . ....... .17 General Description .... . . . . . . ...... . . 19 Detailed Features . . . . . . . . . . . . . . . . . . . 20 Cost Estimates .... . . . . . . . . ....... . . 32 Financing ..... . . . . . . . . .. ....... . 32 Procurement ..... . . . . . . . . ...... . . . 33 Accounting and Auditing. . . . . . . . . . . . . . . . . 34 Government Funds Flow and Bank/IDA Disbursements . . . . 34 IV. PROJECT IMPLEMENTATION, ORGANIZATION AND MANAGEMENT. . . 35 Implementation Responsibility. . . . . . . . . . . . . . 35 Coordination and Management. . . . . . . . . . . . . . . 36 Project Implementation .... . . . ...... . . . . 37 Progress Review .... . . . . ...... . . . . . 37 Reporting, Monitoring and Evaluation . . . . . . . . . 38 Project Staffing . . . . . . . . . . . . . . . . . . . 39 Operating Agreements .... . . . ...... . . . . 40 Implementation Schedule . . . . . . . . . . . . . . . 40 Recurrent Costs . . . . . . . . . . . . . . . . . . . 40 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. V. BENEFITS AND JUSTIFICATION . . . . . . . . . . . . . . . 40 Nonquantifiable Benefits . . . . . . . . . . . . . . . . 41 Quantifiable Benefits. . . . . . . . . . . . . . . . . . 41 Risks . . . . . . . . . . . . . . . . . . . . . . . . . 46 Environmental Tmpact ................. . 48 Fiscal Impact . . . . . . . . . . . . . . . . . . . . . 48 VI. AGREEMENTS REACHED AND RECOENDATIONS. . . . . . . . . 49 ANNEXES 1. Project Area Tables 1. Altitudinal Zones 2. Population and Land Distribution 3. Provincial Agricultural Production 4. Provincial Health Statistics 5. Provincial Education Statistics 6. Provincial Revenues and Expenditures 2. Project Costs and Disbursement Schedule Tables 1. Total Project Costs (by Component) 2. Total Project Costs (by Category) 3. Project Road Costs 4. Disbursements Schedule 3. Project Implementation and Organization Tables 1. Implementation Responsibility 2. Additional Staff Requirements 3. Schedule of Key Activities 4. Agricultural Production and Economic Analysis Tables 1. Clan Model A - Technical Coefficients and Revenues 2. Clan Model B - Technical Coefficients and Revenues  Tables 3. Clan Model C - Technical Coefficients and Revenues 4. Footnotes to Tables 1, 2 and 3 5. Clan Model Distribution 6. Number of Clans Reached 7. Phasing of Benefits 8. Forecast of Agricultural Production 9. Economic Costs and Benefits - Total 30-Year Roads and Agricultural Investment Package 10. Sensitivity Analysis 5. Related Documents and Data Available in Project File CHARTS World Bank 23067 Provincial Government Organization Chart World Dank 23091 Project Funds/Information Flow World Bank 23068 Implementation Schedule MAPS IBRD 15769 Population Distribution and Road Network IBRD 15770 Agriculture IBRD 15771 Social Infrastructure   I. BACKGROUND Introduction 1.01 The Government of Papua New Guinea (PNG) has requested Bank Group assistance for the initiation of a provincial development program in the Enga Province, which is of one of the least developed and poorest provinces in PNG. The proposed project constitutes the first phase of the development program. Project components include subsistence farming and crop development, reforestation, livestock distribution, health system upgrading, road improve- ments, rural electrification, education and training, business development, provincial administrative strengthening and community development. The Enga Provincial Government was responsible for project preparation with assistance from the national Government. This report is based on the findings of an appraisal mission comprising Messrs. A. Hasan, B. Liese, A. Mercer, G. Soto, E. Mendez (Bank) and B. Finney and M. Murchison (Consultants) which visited PNG in March/April 1981. National Overview 1.02 General. Papua New Guinea is a land of mountainous terrain, endowed with reasonably good soils, abundant rainfall, considerable mineral resources, and forestry and fishery resources of good commercial potential. It has a land area of about 500,000 sq ka and a population of only about three million, 85% of whom are largely subsistence farmers living in traditional societies in sparsely populated rural areas where economic opportunities are quite limited, productivity is low and local services generally poor. Although the rural areas are generally sparsely populated, there are some areas where land shortages are emerging and outmigration increasing. Rugged mountains, rising to over 4,500 m, thick forests, vast swamps and large rivers divide the country into numerous ecological zones and have resulted in wide cultural and linguistic diversity among the people. The most striking feature of PNG's economy is the dualism which is evident in the relatively small employment of people in the modern monetary sector and the large proportion of the popula- tion engaged in subsistence cultivation. The modern sector is dominated by mining and by the expatriate community which contributes significantly to both public administration and the private sector. Mining and the government sector and a variety of small manufacturing and service establishments contribute about 15% and 50% respectively of GDP; agriculture, forestry, and' fishery provide the remaining 35%. GNP per capita in 1979 was estimated at about $780. The imputed per capita income of subsistence farmers,-however, is ouly about $150. Population growth is high at about 2.3% p.a. 1.03 Agriculture Sector. In addition to accounting for a significant share of GDP, the agriculture. sector contributes about 50% of total exports  -2- and, importantly, provides livelihood for some 85% of the population. There are three basic modes of agricultural production. The subsistence sector, which contributes an estimated 40-50% of total agricultural output, encom- passes most of the rural population, although probably less than 5% of the population relies exclusively on this means of support. Second, most of the rural population is also engaged to some extent in the commercial sector, producing cash crops on smallholdings. Third, there are some 500-600 export-oriented plantations. Responsibility for development of the agricul- ture, forestry and fishery sector rests with the Department of Primary Industry (DPI), which at the national level is responsible for overall policy and planning, operation of agricultural colleges and research stations and provision of specialized technical support; at the provincial level DPI handles extension, farmer training and implementation of provincial agricul- tural development programs. Other major institutions which are involved in the sector are: (a) Papua New Guinea Development Bank (PNGDB) which provides agricultural credit; (b) marketing boards for coffee, cocoa, and copra, which function as regulatory agencies;/l (c) the Food Marketing Corporation (FMC) which undertakes marketing of vegetables, and (d) the Department of Land and Survey, responsible for land matters. 1.04 In 1979, the main cash crops (practically all for export) were (in m tons): copra (105,000), coffee (47,000), cocoa (27,000), palm oil (30,000) and rubber (4,500). The first three are cultivated over large areas of smallholdings and plantations and the last two in small consolidated settle- ment areas. The main subsistence crops are sweet potatoes, bananas and taro. Most families keep pigs. Crop yields are low under traditional practices, but higher yields have been obtained under good management. The performance of the sector has not been very satisfactory in recent years. Major constraints impeding growth are: (a) insufficient investment, particularly in the estate sector resulting from uncertainty over estate acquisitions; (b) decline in the quality and level of extension and its link with research as a result of decentralization and shortage of adequately trained manpower; (c) scarcity of good agricultural land (reasonable access with moderate to high fertility and suitable topography) mainly because of difficulty of acquiring land, most of which is under customary clan control and is thus subject to a complex land tenure system; (d) declining levels of productivity in the subsistence sector and its inability to keep pace with rural population growth. The Bank's Agricultural Services Review Report/2 discusses these in greater detail. Recommendations put forth in this report are being reviewed by the Government, and discussions are underway about the possibility of Bank support for an agricultural support services project. 1.05 Roads. The road network in PNG comprises just over 18,300 km of vehicular road of which only 500 km are sealed. Resulting from the country- s /1 The Copra Marketing Board is involved in physical marketing also. /2 Report No. 3161-PNG, January 30, 1981.  -3- topography, the road network consists of a number of regional systems and does not reach the majority of the population, many of whom remain isolated and inaccessible, except by foot or air. Further, high rainfall and adverse topography result in high costs for construction and maintenance. About 27% of the roads are maintained by the Central Government, and the remaiider are the responsibility of provincial and local governments. Much of the emphasis on road construction in the past years has been directed at major roads. Now the Government s priority is shifting towards providing basic access roads to smaller population centers and rural areas to provide access to markets and to facilitate access to the population of basic services such as education, agriculture extension and health. 1.06 Health Services. The structure of health services is pyramidal, with the hospitals at the top, health centers and subcenters /1 at the next level and aid posts /2 at the base. The ratio of key health staff to population is 1:17,000 (doctors) and 1:1,630 (aid post orderlies). In general the coverage is reasonably good. Government's health policy places high priority on expanding rural health facilities and preventive services, promoting health education and training local health manpower. 1.07 Education and Training. Faced with a continuing shortage of skilled manpower, the Government attaches great importance to the development of educational systems, both formal and nonformal. In 1979, it was estimated that 58% and 13% of the children of the relevant age groups were enrolled in primary and secondary education. In the formal education sector, Government policy objectives are to expand enrollment particularly for females, improve the imbalances of educational opportunities among provinces, and improve the quality of education. In addition, the Government has in recent years increased its attention towards nonformal education, particularly in rural areas, recognizing that only 32% of the population over the age of ten is literate, the formal school system generally bypasses the majority of rural people and that less than 1% of the population ever receives post-secondary or tertiary education. Structure of Government 1.08 Papua New Guinea has a parliamentary system of Government, the most salient characteristic of which is its high degree of decentralization /1 Health centers provide basic curative, family health and health improve- ment services; these are staffed by health extension officers, nurses and orderlies. Health subcenters provide a limited range of services including treatment of outpatients, health education, community health, nursing and obstetric care; these are staffed by nurses and orderlies. /2 Aid posts provide basic health services to a small population (500-3,000) and are staffed by aid post orderlies (APO); service includes outpatient treatment, health education, and advice on environmental improvement.  - 4 - of authority and implementation, in recognition of the wide diversity of people in the country. In all, there are 19 provinces with an average population of about 160,000. Primary provincial functions, where provincial law overrides national law, include the coordination of local government councils and courts, primary and nonformal education, housing and regulation of trade (other than banks), cultural activities and public entertainment. Concurrent (or shared) functions which allow provincial governments latitude in matters exclusively affecting the province include agriculture, health (excluding hospitals), secondary education, and roads (excluding main highways). To discharge the above responsibilities the provinces have organized provincial secretariats and departments with their own bylaws and staff transferred from the corresponding national units. 1.09 Provinces are allowed to introduce fees and taxes on retail sales, trading licenses, land, head tax and public entertainment. The National Government also refunds to the provinces the proceeds of certain taxes collected in the provinces and 1.25% of the export value of goods produced in the province and exported, besides providing grants tied to projects or pro- grams. Most importantly the National Government provides the provinces with grants to cover all recurrent costs, and funds under the National Public Expenditure Plan (NPEP) to cover incremental development expenditures./l Overall the provincial governments own revenues contribute only about 8% to their total expenditures, with the rest being provided by the National Govern- ment. The provincial contribution is low mainly because of the limited tax base, and also the low level of market activity in most provinces. In general, decentralization has increased government expenditures and, importantly, adversely affected the level and quality of government services because of the lack of adequately qualified and experienced staff and insuf- ficient coordination between national and provincial efforts. However, with increasing attention towards controlling government expenditures, and as the provincial governments gain maturity and experience and benefit from a greater emphasis on education and training, these problems should gradually abate. Further, increased local participation in the planning and implementation process has the potential to improve the relevance of expenditures for provincial needs and to increase the coordination of spending within the provinces. Development Objectives and Less Developed Provinces 1.09 National Development Objectives and Strategy. The key development problem confronting the Government is how to pursue balanced economic growth and modernization in a dualistic society, in the face of immense sociological and physical constraints. The National Government articulated, in 1976, the Post-Independence National Development Strategy which sets out the following as the key national objectives: (a) equitable distribution of growth benefits; /1 Decentralization and provincial finances are discussed in detail in the Bank's recent Economic Report on PNG (No. 3544-PNG).  -5- (b) improved regional distribution of social services; (c) an increased monetary sector and control of the economy by nationals; (d) decentralization of economic activity, planning and government spending; (e) development of a more self-reliant economy; (f) national integration; and (g) satisfaction of basic needs. The strategy followed by the Government for attaining the above objectives consists of the followirg elements: (a) sectoral programs in rural transport, agriculture, rural health, primary education and rural business development, aimed directly at providing economic opportunities or improving services to rural people; (b) projects specifically aimed at development of less developed provinces and areas; (c) social and welfare programs such as malaria control, population planning and programs for disadvantaged groups, which improve the general level of well-being throughout the country; (d) investments in mineral resources, commercial agriculture and forestry infra- structure; (e) projects aimed at improving food production, subsistence and nutrition; (f) programs for expanding formal and nonformal education for nationals; and (g) programs for improving skills of public servants and effectiveness of the public administration. The above strategy is implemented through the National Public Expenditures Plan (NPEP) which is a rolling four- year plan encompassing all development and incremental government expendi- tures. All NPEP expenditures have to contribute to one or more of the above elements of the strategy. 1.10 Less Developed Provinces (LDPs). Because of the Government-s concern about uneven economic and social development in Papua New Guinea, it has identified nine LDPs which rank below the national average with respect to a number of development indicators based on health, education, land availabi- lity, transport, government staffing, and smallholder agricultural incomes./l Incomes of most of the people living in these provinces fall below 30% of the national per capita income. Raising the standard of living of people in the LDPs and developing a more even distribution of public and private services and economic opportunities there have become increasingly important features of the NPEP. Initially, integrated rural development projects were chosen to serve as vehicles for focusing on LDPs. The first projects of this kind were the ongoing IDA-financed Southern Highlands Rural Development Project (para. 1.11) and the ADB-financed East Sepik Project. Resulting from experience gained under these projects and reflecting the growing political pressures from the provincial governments, national government policy has now moved towards promotion of full-scale development plans which focus on the totality of economic and social development issues facing the LDPs. Such development plans for the seven remaining LDPs are in various stages of preparation, and the Enga plan was completed in late 1980 (para. 3.01) /1 Health index is based on life expectancy, child mortality, malnutrition and availability of services. Education index comprises adult literacy, and school enrollment. Land transportation index is derived from avail- ability of road access. Government staffing indicates the number of staff per capita.  -6- 1.11 Southern Highlands Rural Development Project (Credit 841-PNG) was appraised in September 1977 and approved by IDA in June 1978. The project includes the following: (a) nutrition/subsistence component to effect improvements in the subsistence sector; (b) promotion of commercial crops (coffee, tea, cardamom, and mulberry) and related processing and support services; (c) rural health facilities and staff training; (d) construction and upgrading of main and feeder roads; and (e) expansion and strengthening of formal and nonformal education. Total project costs are $32.2 million of which IDA is financing $20.0 million (62%), and implementation is scheduled over six years. 1.12 Overall implementation of the project has been generally satisfac- tory. Although there have been delays with certain components, the develop- ment of the physical aspects of the project (construction of roads, buildings, schools, health centers and a power line) is on schedule. The silk component is being scaled down and consolidated because of certain technical and institutional problems and lack of relevant socio-economic data. The project is expected to be completed on time, and disbursements have been satisfactory at about 90% of appraisal estimates. This project was designed and initiated prior to establishment of a formal provincial government. With the occurrence of the latter, the support and commitment of national departments is not fully forthcoming in matters relating to them, thus adversely affecting implementation of certain components. This problem has particularly affected staff recruitment and health training; because of procedural problems and inadequate salaries offered, about 40% of expatriate positions are still vacant. Moreover provincialization has also rendered inappropriate the project management structure. Discussions are underway between the depart- ments involved to resolve these matters. Most of the problems that have arisen, while largely resulting from changed circumstances, also reflect the fact that this is the first multisectoral project undertaken in PNG. While it is too soon to draw conclusions, lessons that have emerged so far, parti- cularly in regard to project design, management structure and staffing risks, have been fully incorporated into the design of the proposed project. II. THE PROJECT AREA Physical Characteristics 2.01 The Enga province is located almost in the center of PNG's main land mass (IBRD Map No. 15769). The total area of the province is 12,200 sq km with most of it being high (generally between 800 to 4,000 m above sea level) and steep (slopes over 350) (Annex 1, Table 1); as a result only about 30% (400,000 ha) of land is usable for human occupancy or agricultural pur- poses. The province is drained by three river systems, and natural vegetation consists mainly of rain forests. The soils are largely formed from volcanic ash; they are generally easy to work, and maintain a good level of produc-- tivity, particularly under the typical practice of mounding used by the  - 7 - farmers (para. 2.11). The soils have good physical properties, but tend to lose nutrients quickly when the rain forest cover is removed. Average rain- fall varies from 2,000 mm to 3,500 mm per year and is evenly distributed, with only occasional storms; evaporation rarely exceeds precipitation. Mean monthly temperature is around 17 degrees Celsius, changing only slightly through the year. The major climatic risk is frost which occurs above 1,600 m, becoming severe beyond 2,600 m. People and Their Life Style 2.02 Contact with Outside World. Enga is remotely located, and about 50 years ago the people still lived in stone age isolation. It is one of the last areas to be brought under Government's administrative control, and sustained contact with the outside world has barely lasted more than two decades. 2.03 Demographic Features. The population of the province is about 165,000 with an average family size of 5.4 (Annex 1, Table 2). Most people live in the valleys between altitudes of 1,400 and 2,600 m to avoid severe frost risks common in higher altitudes and malaria and other perceived risks in lands below 1,400 m. The crude population density is 14 per sq km, which is nearly three times the national average; Enga contains some of the most densely populated subsistence farming areas in PNG. It is also one of the most rural provinces with about 96% of the population living in rural areas; the remaining live in urban areas comprising the government centers. The largest of these urban areas (Wabag) has a population of 1,500. Population is growing at about 2% p.a., and is likely to increase in the future, given the high proportion of young people, improvements in health services, declining traditional birth spacing practices, and low external migration. 2.04 Social Organizations and Life Style./l Despite their links with the outside world and involvement in the cash economy, the Engans remain a clan-based subsistence oriented society with a very rudimentary standard of hygiene, clothing and shelter and live in scattered homesteads cultivating their subsistence gardens spread throughout clan territories. Each Engan belongs to a clan - a community averaging about 350 persons. There is little political integration beyond the clan level. The clan constitutes the basic unit of land tenure in Enga;/2 although clan lands have recognizable bound- aries these are often subject to disputes particularly as a result of the emerging scarcity of good cultivable land. Within clan land, distribution of land is highly complex; however each family has access to land for food gardens,/3 inheritance of which is generally patrimonial. /1 Detailed description in Project File (Working Paper No. 1). /2 Nearly all land in the province is held under customary tenure; only about 2% is alienated and leased to the Government and church groups. /3 Garden areas are reported to range from 0.05-0.45 ha per person.  2.05 The men undertake, on a communal basis, the heavy tasks of clearing and preparing the land and fencing, while women perform the time-consuming tasks of tending the food gardens and provision of foods for the family and pigs. Cash crops are also generally looked after by women; however incomes from these go to the men. While produce from food gardens is at the sole disposal of the family owning the land, income from cash crops is generally shared among the subclan. It is estimated that men spend only about 60% of their productive time on agricultural activities with the remaining devoted to mainly rituals and ceremonies. The women, on the other hand, spend about 80% for agriculture and livestock. 2.06 Pigs are central to Enga's way of life; they are the primary article of exchange, probably exceed the human population, and compete with humans for the food resources, consuming about 60% of the total sweet potato production. An estimated 80-90% of the human diet is made up of the staple sweet potato, with the remaining made up of other traditional crops (e.g. taro, yams, etc.), and some animals and birds. Pigs are not part of the regular diet, but are mostly slaughtered at ceremonies. In general, food is not eaten frequently enough and is nutritionally inadequate, thus resulting in energy and protein deficiency and contributing to malnutrition, particularly in children (para. 2.23). 2.07 The social and cultural environment in Enga, as elsewhere in the PNG Highlands, creates certain constraints to economic development. The following are the more prominent ones: (a) the expansionary nature of the Highland clans and their tendency towards tribal fighting which results in destruction of physical property and cash crops; (b) difficulty of providing extension in a highly fragmented society not always on peaceful terms within itself and not very receptive to advice from nonclan members or influence that has not been self-motivated; (c) the difficulty of acquiring clan lands for use by nonclan members; (d) low success rate of businesses in the Highlands because of the traditional requirements of achieving leadership which encourages conspicuous investment, and the strong links within clans involving obligations and contributions which deter from viable operations of the rural enterprises; and (e) since women do most of the task of tending gardens and cash crops, expansion of the cropped area would be limited by their ability to spend more time, compared to present levels, on agricultural activities. Provincial Economy 2.08 Owing to the above factors and limited development efforts so far, the provincial economy is characterized by lack of a developed monetary sector as well as the limited number of commercial activities. Thus, of the total estimated value of output in the province in 1980 (K 17.5 million), the subsistence sector accounts for about 85% (national average is only 15%); cash cropping contributes about 10%. The remaining 5% of output is dominated by government expenditure which account for about 60% of this output, with the rest representing value added by indigenous enterprises in the private sector such as trading, construction, sawmilling and transport. At present, mineral resources do not play a part in the province-s economy, but with the likely  - 9 - establishment of a small alluvial gold mine at Porgera (expected in the late 1980s) this should also contribute to expansion of the monetary sector. There are hardly any employment opportunities outside the Government and the missionary organizations. Agricultural Sector /1 2.09 Overview. Sweet potato cultivation and pig rearing dominate the activities within the sector; only in recent years, with the introduction of imported vegetables and pyrethrum in the higher altitude areas and of coffee in the intermediate altitudes, has commercial agriculture begun to make inroads in the traditional cropping system. 2.10 Land Use, Distribution and Potential. Of the 400,000 ha of agri- culturally usable land in the province (para. 2.01) about 92% is estimated to be forested, 5% fallow, and only about 2% under crops; urban areas account for the remaining 1%. Although as these figures indicate there is adequate scope for increasing cropped area within the province as a whole, the skewed distri- bution of land and cultural factors create a condition of land shortage in some areas and unavailability of land in others; thus 45% of clans own 23% of usable land, 38% own 34%, and the remaining 17% own 43%. The first type of clans have little additional land for expansion and in general face land shortage. While the latter two types of clan have substantial usable land, it is either generally inaccessible or in sparsely populated areas or in high malaria and other health hazard zones; further their use by non-clan members is unfeasible in the foreseeable future. Thus in the medium term, a signifi- cant increase in cropped area is unlikely (para. 3.11). 2.11 Subsistence Farming System. Subsistence production mainly comprises sweet potato /2; in addition, small amounts of other crops (taro, yam, banana, etc.) are also grown by most families. Rough estimates, based on per capita consumption, indicate production of about 350,000 tons of sweet potatoes (including consumption by pigs) and 23,000 tons of other crops (Annex 1, Table 3). In land-short areas, subsistence horticulture has been increasing in complexity due to a rapidly growing human and pig population, the /1 In general, information on farming systems, production, yields, and land tenure is sketchy and based on the work of anthropologists, ad hoc infor- mation collected by extension workers and field visits at appraisal - in all cases the information is generally clan specific. Thus provincewide generalizations based on these data are unlikely to have a high degree of accuracy given the immense diversity among clans. A baseline survey would be undertaken during the project period (para. 4.08). /2 Sweet potatoes are cultivated in mounds which are about 3 m in diameter, 1 m high and 1-2 m apart and have composting based on feces and vegetable detritus carefully mixed with top soil; this practice largely compensates for the inherent low levels of nitrogen in the region's volcanic soils.  - 10 - introduction of new crops and their intercropping with the traditional crops, and the marketing of an increasing proportion of production as cash crops. The combination of these factors has resulted in diminishing availability of land for food gardens, depletion of soil fertility, increasing risks of erosion and frost, cultivation at high altitudes (up to 2,800 m), deforesta- tion, and increased land disputes. Thus from all indicators, it is becoming clear that for a large segment of the population the subsistence system is fast reaching its limits, and is likely to reach crisis point by the turn of the century. Therefore it is important that efforts be undetaken soon to reduce stress on the subsistence system in these areas and enable it to cope with population increases. The major constraints to development of subsis- tence horticulture include: lack of adaptive research on suitable technologies and crops, weak extension services, and, importantly, limited absorption capa- city of an untrained rural population whose subsistence depends on the succes- ful application of their long-tried traditional agricultural practices. 2.12 Cash Crops. Although the introduction of cash crops in Enga is quite recent and despite the weak extension services, about 60% of the fami- lies are now engaged in production of coffee and pyrethrum and numerous others in vegetable production, indicating the adaptive nature of the farmers to economic opportunities. In 1979, total production (in tons) for these crops amounted to about 1,500 /1, 200, and 2,000 respectively, (Annex 1, Table 3), and accounted for 3%, 96% and 40%/2 of national production. Incomes from these cash crops, however, are very low because of low yields and poor quality of product. Inadequate supply of good seedlings, poor cultivation and harvesting practices and lack of extension have all contributed to the unsatisfactory yields and production. Further, the poor road network and lack of a proper marketing facility (for vegetables) has inhibited markceting, and consequently production. Also, unlike other provinces, there are no plantations due to a lack of large tracts of accessible land; consequently the demonstration benefits from the presence of commercial agriculture have not been realized. Simple changes in husbandry (better pruning, weed control, spacing, etc.) could quickly and substantially increase productivity; further, with good demonstration efforts and effective agricultural extension, the potential for expanding smallholder cash cropping is considerable. 2.13 Livestock. Efforts have been made by Government and by missionaries to introduce sheep, goats and cattle with a view to improve the Engan diet, make better use of the fallow and grassland areas, and provide an additional cash-earning opportunity for small producers. Good progress has been observed in adoption of sheep and goats as these species are relatively hardy, do not require too much labor and are suitable to the ecological conditions. Poultry is also being actively encouraged as a source of income and nutrition since it has good potential for productive breeding at the village level. /1 Parchment coffee. /2 Percentage applies to commercially marketed vegetables.  - 11 - 2.14 Forestry. Rain forest is the predominating vegetation in Enga. The two most important species, in terms of usage, are Casuarina and Pandanus, the first providing housing, fencing and firewood while the pandanus nuts are important nutritionally and culturally. The casuarina is planted in fallow land where it assists in improving fertility and stops soil erosion. Increasing population pressures have led to greater use of steeper valley sides, pushing the forest margin upwards in places as high as 2,800 m. Although overall the province has vast resources of timber, in many areas these resources are becoming increasingly scarce as a result of the clan system of land tenure and the corresponding distribution of land. Thus in the next two to three decades for most of the clans living in the densely popu- lated valleys, forest resources will become increasingly inaccessible and forest margins will be pushed to ecologically undesirable levels, unless efforts are stepped up to replant deforested areas (para. 3.14). The commer- cial exploitation of forest is severely limited by rugged terrain, difficult climatic conditions, and the few species which have commercial acceptance at present. While the size of exploitable and accessible forest is adequate for the current provincial demand for sawn logs, this would become grossly insuf- ficient in about 30-40 years, highlighting the need for undertaking measures which would ensure that, as a minimum, the province does not have to resort to the costly option of transporting timber from other parts of the country. 2.15 Agricultural Incomes. Tentative estimates indicate a value of agricultural output from the province of about K 16.5 million in 1980 or about K 100 ($150) per capita, which is about 20% of the national per capita income. About 90% (K 90) of the income is the imputed value of subsistence output, and K 10, the value of income from cash crops such as coffee, pyrethrum and vege- tables. While per capita subsistence output is generally similar to that for other parts of the country, incomes from cash crops are only about 10% of the national average. Government Structure 2.16 Background, Organization and Management. Until 1974, Enga was part of the Western Highlands district. It was granted district status in that year, and elevated to a province in 1978. The province has a cabinet comprising the premier, deputy premier and seven ministers each with a port- folio of provincial activities, all of whom are elected members of the pro- vincial assembly. The Department of Enga, headed by a secretary, is respon- sible for public administration in the province. The secretary reports to the provincial cabinet, and is assisted by a deputy secretary who is in charge of day-to-day operations. The deputy secretary in turn is assisted by two first assistant secretaries, one responsible for policy and planning functions, and the other for field services which include all line divisions (agriculture, health, education, commerce, etc.). The organizational struc- ture is shown in Chart No. 23067. Total staff of the Department is about 800 (including 400 teachers), of which 98% are nationals; almost all staff belong  - 12 - to the national public service. Coordination among all government divisions within the province is effected through the Secretary's Staff Committee (SSC), which comprises all divisional heads. 2.17 Local Government Councils (LGC). These are elected bodies which are responsible for rural improvement programs, local road maintenance and for fostering political integration and nation building at the grass roots level. The councils receive revenues from the provincial government and from head taxes. Like elsewhere in the country, performance of LGCs in Enga has not been satisfactory because of mismanagement and lack of capabilities. The provincial government is reviewing measures to increase effectiveness of LGC operations. Public Services 2.18 Overview. Enga is one of the least developed provinces in terms of access to public services. Not only are there fewer education and health facilities, but there is also a smaller road network and an acute shortage of housing and office space for public servants. The province is ranked last, nationally, in terms of public servants/population (1:206 compared to the national average of 1:57). While most public services are provided by the Government, various Non-Government Organizations (NGOs), particularly the Goodnews Lutheran Church (GLC) (para. 2.29), have performed a useful role in provision of social services and vocational training. Government expenditures per capita have been and are among the lowest in the country; in 1981 these would amount to K 56 ($84) per capita compared to a national average of K 81 ($122). A substantial infrastructure program is required to enable Enga Lo catch up with the other provinces. Moreover, its recent administrative history, remote location, tribal fighting, poor and difficult internal communications, rapid localization, poor personnel administration, low management skills and inadequate staff training have all contributed to the reduced effectiveness of government services in Enga. 2.19 Roads. Enga has a road network of about 850 km, all of which is unsealed. Roads are classified in three major groups: (a) national highway (72 km); (b) provincial roads (311 km); and (c) feeder and access roads (474 km) (IBRD Map No. 15769). Information on traffic levels is inadequate; in general private vehicles account for about 60-70% of the traffic flow. Roads are generally of low standard geometrically and mostly limited to loads not exceeding 15 tons. Substantial sections of most roads traverse unstable terrain and are subject to landslides and washaways particularly in the wetter season. About 60% of the provincial roads and almost all the council roads are in poor condition which inhibits movement of essential government services, occasionally isolates large parts of the population from the provincial capital and district headquarters, makes transport of agricultural produce difficult and costly, reduces life expectancy of vehicles and signi- ficantly increases road maintenance and vehicle operating costs. The road policy articulated by the provincial government places priority on maintenance and upgrading of provincial roads to provide year-round access. Instead of concentrating on a few provincial roads, the maintenance policy has  - 13 - been to spread the limited resources over the entire network, with a view to keeping all provincial roads open most of the year. The present level of maintenance expenditures on provincial roads (K 3,500/km)/1 is generally satisfactory for roads that have been upgraded; however, for unimproved roads it is inadequate to ensure year-round passability. Maintenance expenditures are high because of the unfavorable climatic and geotechnical factors. The Department of Works and Supply (DWS)/2 is responsible for maintenance of national highways and provincial roads; equipment-intensive methods are employed, using labor as required. The LGCs are responsible for maintenance of feeder and access roads, for which they get a maintenance subsidy (K 550/km) from the provincial government; lack of adequate maintenance by the LGCs has resulted in the generally impassable condition of these roads. 2.20 Agricultural Support Services. These include extension, marketing support, input supply and farmer training. The provincial DPI undertakes all these activities, but mainly concentrates on extension. It has a staff of 70, who are organized along functional lines - livestock, crops, and fores- try. In general, crop extension has been inadequate, and little effort has gone towards commercial crops despite their importance as a source of income. In forestry, the focus is on distribution of seedlings (particularly casuar- ina), while in livestock the emphasis has been on introduction of sheep, goats and poultry. While the ratio of extension staff /3 to farm families (1:600) is adequate, the effectiveness of extension has been limited. Lack of experienced staff and a proper work program, inadequate training, and limitations imposed by a shortage of transport, poor road conditions and inadequate living facilities in districts have particularly contributed to the low effectiveness of extension. Extension has also been traditionally restricted by the fact that crops and livestock are normally looked after by women while extension officers are usually men (para. 3.12). Another serious constraint to delivery of agricultural services is the lack of an extension methodology which would be effective in a highly fragmented society with uneven distribution of agricultural work among men and women. Moreover, there is currently no regular farmer training program or adaptive research of any significance in the province. Measures to develop a culturally appro- priate extension methodology and strengthen extension services are included in the proposed project. 2.21 The DPI operates three agricultural centers (IBRD Map No. 15770). These are: (a) Taluma Center, located in the high altitude zone (above /1 Includes routine, periodic and emergency maintenance and selective improvements. /2 DWS is a national department. Its branch in each province undertakes construction and maintenance of all provincial buildings and roads on behalf of the provincial government. /3 District level staff.  - 14 - 2,200 m), which is presently producing and distributing seed potatoes, and operating a small tractor hire service for the commercial farmers in the area; (b) a poultry distribution center at Wappenamanda for breeding of chickens and ducks for distribution to villagers; and (c) an orchid collection center at Laigam./l While the Laigam center's emphasis is currently on orchid collec- tion and classification, it has started to supply flowers in limited quantities to the export markets. Being located in one of the least developed districts in the province, its purchases of flowers contribute an important source of income for farmers in that area. DPI also operates three forest nurseries for producing and distributing eucalyptus and casuarina seedlings (200,000 seedlings/year) and high quality planting material for coffee (100,000 seedlings/year) enabling additional plantings of about 200 ha of forestry and 40 ha of coffee. DPI owns or will shortly acquire about 900 ha in four blocks of land which are easily accessible and have little alternative use; swamps constitute most of this land. It has already established a forestry plantation on one of these blocks. 2.22 Agricultural Marketing. Marketing of coffee and pyrethrum is well organized and functions well. Coffee buying is handled by private entre- preneurs. In the case of pyrethrum, DPI assists the smallholder in view of the lack of private buyers as farmers are widely scattered and access is difficult. DPI purchases the crops, but subsequent baling, transport and sale to the factory (in Kagamuga, Western Highlands Province) are in the hands of private operators. With improvement in road access, DPI expects to gradually withdraw from this task and encourage the private sector as it has done for other crops. Until 1979, farmers sold their vegetables at the GLC operated marketing depot. Mainly due to managerial problems, GLC closed the depot in that year, and since then production appears to have declined. While limited, individual buyers continue to purchase vegetables in Enga, and a large proportion of this eventually ends in the FMC depot in Mount Hagen. In addition to this channel, farmers sell their produce (mainly sweet potatoes) at rural markets operated by LGCs. Since demand for vegetables is generally limited within the province, the price obtained and quantities traded at: these markets are low compared to markets in the large urban centers. Establishment of a permanent marketing facility in the province, which is linked to the national market, is needed to maintain and expand this important source of income (para. 3.13). 2.23 Health. The current services and programs provided by the health system include curative services, maternal and child health services, family planning, nutrition, health education, and endemic disease control programs. Access to health facilities in the province (IBRD Map No. 15771) is among the lowest in the country (Annex 1, Table 4). Moreover, a large number of these facilities are either in dilapidated condition or require extensions, and there is also a shortage of trained health personnel. Approximately 30% of children (under 5) are malnourished, and it is estimated that a further 3% of all children are mentally or physically retarded by poor nutrition. Among /1 Taluma and Laigam centers are closely linked.  - 15 - the various causes given by nutritionists and field workers for malnutrition, the more prominent are an absolute shortage of food, inappropriate eating practices, frequent infection and poor access to health facilities. 2.24 Education. The formal education system in the province (IBRD Map No. 15771) has expanded rapidly in recent years, particularly at the primary school level. Thus in the last five years enrollment in primary schools has increased by 63%, while secondary school enrollment doubled. Despite these gains, on most educational indices, Enga ranks last of the provinces (Annex 1, Table 5). Isolation and the high cost of living discourage teachers from coming to Enga, particularly in the case of community school teachers. Additionally, long distances prevent students from joining the secondary schools. Over the past three decades considerable work has been done in nonformal education in the province, particularly by the voluntary agencies; the province has had an adult education officer since 1976. While there have been some unsuccessful programs, on balance there exists a tested base for expansion of these activities. 2.25 Community Development Services. These services are directed towards facilitating adjustment to social change, encouraging inter-clan cohesion and promoting national integration and include community educational meetings, youth programs, woman's advancement programs, sports and other social development programs. At present these activities lack direction and are very limited because of lack of staff, vehicles and facilities at the headquarters and district level. 2.26 Business Extension. These services are weak and passive, basically responding to demand rather than promoting business. While it would be unrealistic to expect a rapid increase in commercial activity at Enga's present stage of development, a number of opportunities (trade stores, transport, contracting) exist for promoting entrepreneurs in the province. Moreover, if the Porgera gold mine materializes, there would be substantial demand for commercial services. The provincial government places high priority on strengthening business development activities in order to expand the monetary sector of the economy and, in the long run, the provincial tax base. 2.27 Media Services. The Office of Information is responsible for, among other things, communication and media support to all extension divisions of the Government. The provision of services is very poor as the Office is inexperienced and inadequately staffed and equipped. Given the need for effective communications techniques and materials for success of all types of extension, the provincial government is keen on improving information services. 2.28 Electrification. This is limited to a few government centers. Grid connection is unfeasible because of unfavorable terrain and population distribution and density. Diesel generators and microhydros supply  - 16 - electricity in the province. The latter is being promoted by the Government because of its cost and maintenance advantages, and is particularly suitable in Enga given the land form and rainfall. 2.29 Non-Government Organizations (NGOs). The NGOs, have been very active in the provision of social services. They operate the provincial hospital, and a number of health centers and schools. For many of these facilities the national/provincial government contributes part of the operating expenses./l The NGOs also undertake numerous training programs for farmers, health personnel, women and tradesmen at a number of vocational centers; however, these activities have been limited because of lack of funds and inadequate facilities. In view of the importance of these activities to provincial development, they would be strengthened under the proposed project. 2.30 Government Revenues and Expenditures. In 1981, total provincial government revenues are estimated to amount to about K 9.2 million; about 99% of this would be transferred from the national budget, with the remaining coming from the province mainly as derivation grants,/2 sales taxes and head taxes (Annex 1, Table 6). While most provinces rely heavily on national government financing for development and recurrent expenditures, the situation in Enga is particularly severe as the low level of market activity severely limits the scope for internal revenue generation. Although Enga depends heavily on the national budget, per capita expenditures and revenue transfers from the center are the second lowest of all the provinces. In 1981, per capita expenditures and revenue transfers would be K 56 and K 54, respec- tively, compared to the average for all provinces of K 81 and K 77. The proposed project is viewed by the National Government as a vehiclk- which wcwild not only channel larger resources to Enga but also ensure that incremental expenditures are in line with development priorities. 2.31 In 1981, revenues are allocated as follows: infrastructure (38%), education (27%), health (13%), administration (12%), agriculture (7%), and others (3%). About 55% of expenditures were for provincial government operating costs, 16% for road maintenance, and the remaining 29% for capital works, mainly road upgrading, schools and health facilities. The pattern of expenditures in the past has been generally similar and reflects the priority attached by the provincial government to social services and infrastructure in order to initiate establishment of the minimum necessary base for development. /1 The Government and NGOs enter into standardized operating agreements which spell out the responsibilities and duties of each party. /2 Reimbursement of export duty on exports originating from province.  - 17 - III. THE PROJECT Project Origin 3.01 Enga Provincial Development Plan. The proposed project is a time slice of the Enga Plan, which was prepared by the provincial government with assistance from the National Government. The latter initiated this exercise in the context of its policy of promoting development of LDPs (para. 1.10). The Plan is the pioneering effort of a long-term program aimed at achieving the following major economic and social development objectives in Enga: (a) improving communications so as to strengthen links between the government and the people; (b) promoting integration between the dissimilar and often antagonistic clans with a view to reducing tribal conflicts and creating conditions conducive to development; (c) increasing productivity and production in the agricultural sector in order to reduce land pressures, increase nutrition, incomes and the standard of living of the people; (d) strengthening government services to improve their effectiveness; and (e) increasing the provincial economic and revenue base by fostering growth of the trade and services sector. Achieving the above would take a very long time because of the poor development base, limited cultivable land in the medium term and, importantly, the difficulty of inducing change in a society just emerging from a neolithic setting. Change is desired strongly by the provincial population who realize that others in the country are more "modern" and that from this modernity stems an improved standard of living. Their most frequently articulated wants are better roads, health services, schools and opportunities to increase cash income. 3.02 The main objectives of the Plan are: (a) to strengthen the agri- cultural, manpower, entrepreneurial, infrastructure and institutional platform which could effectively support efforts towards achieving the above-mentioned economic and social development objectives; and (b) to increase production of cash crops through rehabilitation and additional planting, covering a combined area of about 1,100 ha, giving particular attention to minimizing any adverse effect on land availability for food crops. By focusing on improving the physical and human resource base, the Plan would satisfy the minimum necessary conditions of development. Expenditures (capital and recurrent) proposed under the plan amount to about K 21 million ($34 million),/l over six years and include the following components /2: (a) infrastructure investments (42%) comprising: (i) selective improvements to high priority roads with a view to improving passability and opening potential agriculturally usable areas; and (ii) housing and other priority infrastructure; (b) a health /1 Baseline costs (excluding contingencies) in April 1981 prices. /2 Figures in parenthesis are percentage of base line costs.  - 18 - program (18%) aimed at improving the rural health system through upgrading the aid post system and health centers and subcenters; (c) an agricultural component (14%) aimed at: (i) establishing a program of adaptive researchn and strengthening extension to improve productivity and expand production of subsistence and cash crops; (ii) expanding forestry extension and seedling production to reforest fallow and other land; and (iii) promoting livestock production and distribution to improve nutrition and increase incomes; (d) commercial assistance and training (9%) intended to provide contractor assistance, training of tradesmen, and strengthening of business development services; (e) institution building (7%) focuses on measures to improve the effectiveness and efficiency of government services and its planning and implementation capacity; (f) an education (7%) component intended to provide vocational training particularly to women, and improve efficiency and coverage of the formal school system; and (g) community development (4%) to strengthen community services, with a view to involving people in the economic and social development process, fostering nation building and assisting the people to make an orderly transition to a more modern way of life. 3.03 A positive feature of the Plan is the involvement of local leaders, technocrats and people in its preparation. The criteria underlying the Plan's design include the following: (a) selection of components which would promote key development objectives; (b) limitation of new activities and concentration on improvement and expansion of existing activities which directly support the Plan's objectives, in recognition of the provincial government's limited absorptive capacity and organizational weaknesses. A limited number of new initiatives are being proposed, particularly in agriculture, education and community development to fill basic deficiencies which limit development but are currently not addressed; and (c) recognition that the components and the envisaged pace of change must be feasible in the sociocultural setting in question. When viewed in the context of the constraints, priorities and limited options available to the province, the Plan concept is sound. The large investments in the productive support components are needed at Enga's present stage of development - a clan-oriented and primitive society inhabit- ing a remote and poorly serviced province. Investments in infrastructure, health, institution-building and education reflect the poor condition and shortage of critical infrastructure in the province, poor health of the people, weak and low level of government services, and the need to enable nationals to benefit from and participate in economic development; investments in social services and commercial assistance are needed to bring about cohesion among the people, and encourage and orient them towards business and commercial activities and thus expand the provincial economic base. Further, these investments complement the efforts in the agricultural sector, and without them, the agricultural investments are not likely to be success- ful. The low level of economic activity in the province and the inadequate economic base limit the prospects of nonagricultural commercial investments at this stage.  - 19 - 3.04 The types of agricultural activities being proposed are commensu- rate with requirements of the first stage of agricultural development i.e., establishment of an adaptive research program and the strengthening of extension, as well as the need to address nutrition and fuelwood requirements. The absence of credit and any significant increase in cropped area within the Plan period reflect that: (a) the Plan addresses the problems of a subsistence system wherein physical and social constraints militate against any significant expansion of cultivable land in the medium term; and (b) the institutional and technological base is still very weak. The strengthening and expansion of the latter, through this and successive plans, coupled with improvements in roads and the growing awareness of the people, would gradually pave the way for expansion in marketed and nonmarketed output of the agricultural sector. 3.05 Project Formulation. Originally, the Government proposed the entire Plan for Bank financing. However, as a result of discussions (during apprai- sal) on how best to keep the Plan manageable and financially replicable, it was decided to carry out the Plan in two phases of four years each, with the first phase constituting the scope of the proposed project. The thrust of the appraisal philosophy centered around the following: (a) ensuring that the Plan and the project content were fully supportive of the development objec- tives; (b) keeping the size of the first phase modest to ensure compatibility with the implementation capacity of provincial agencies; (c) improving cost effectiveness by taking a least-cost approach and merging certain overlapping activities; (d) staging activities over the two phases to reflect their rela- tive priority. As a result, in the first phase the relative share of compo- nents for agriculture and institution-building increased, while those for infrastructure and commerce declined. The infrastructure component was significantly reduced because a large number of lower priority roads were deferred to the second phase; and (e) ensuring that project requirements are in line with the Government's existing organizational arrangements and procedures. General Description 3.06 The project comprises the entire first four-year phase (1982-85) of the provincial Plan./l Its overall objectives and the scope of its /1 The proposed project would be part of the National Public Expenditures Plan (NPEP) for 1982-85. Like all other NPEP projects, it consists of very specific and detailed activities (about 50 activities). The National Government follows this practice in order to ensure greater control and to limit discretion in regard to financial and physical aspects, in recognition of the general weaknesses in the government agencies. While some aggregation of activities is done in this report, in general the titles and detailed cost format presented here follow closely those indicated in the NPEP document to avoid any confusion and inconsistency.  - 20 - components are essentially the same as those for the entire Plan and its com- nents (para. 3.02). Expenditures (capital and recurrent) envisaged under the proposed project amount to about K 8.3 million ($12.4 million)/l or 40% of the Plan. Of the total project investments, the infrastructure component accounts for 27%; agriculture 21%; health 17%; education 8%; commerce 6%; institution building 18%; and community development 3%. Detailed Features /2 1. Agricultural Development ($2.62 million)/3 3.07 The agricultural component emphasizes a holistic approach to growth of the subsistence sector through interventions in the following three key subsectors - crops, forestry and livestock (IBRD Map No. 15770). Efforts in the three subsectors are staged over the project period to ensure a gradual buildup of DPITs work program and to reflect their relative priority - the crops program being initiated mainly in the first year, forestry in the second and livestock in the third year. Details of activities within the three subcomponents are given below (paras. 3.08-3.16). Crop Development ($1.77 million) 3.08 This subcomponent would strengthen subsistence and cash crop support services, and comprises the following interrelated activities. 3.09 Subsistence System and Cash Crop Support Team ($1.1 million). The project would establish a four man technical team whose objective would be to introduce better technologies and practices (presently available and to be developed) with a view to increasing production of both subsistence and cash crops. The team would consist of a land use specialist, as the team leader, a field horticulturist and a research horticulturist responsible for subsistence systems improvement, and a cash crop extension specialist for promoting coffee and cardamom. As these specialists are likely to be expatriates, qualified national staff would be recruited as counterparts (para. 4.09). Given the interrelationships between subsistence and cash crops within the Enga farming system, close coordination and links between efforts to promote the two are 11 Baseline costs (excluding contingencies) in April 1981 prices. /2 Detailed description of components is given in Project Files. /3 Baseline costs excluding contingencies.  - 21 - important and therefore these efforts are being undertaken jointly. The team would build upon work, relating to the above subjects, already completed and liaise closely with similar activities underway elsewhere in the Highlands (particularly under the Southern Highlands Project) so as to avoid duplication of effort and where possible complement these efforts. The team would be located in Wabag and work under the supervision of the assistant secretary in charge of the provincial DPI. The project would finance the team's full costs including houses, vehicles, and incremental salaries and operating costs. 3.10 Promoting growth in the subsistence system would form the major responsibility of the team and would be effected through the following means: (a) promoting known technology (e.g. use of coffee skin as fertilizer) immediately to increase food crop yields particularly in areas where land pressure is increasing or where soil fertility is low; (b) providing to farmers, on a trial basis, seeds and planting materials of high-yielding varieties and selected food crops to increase nutritional quality and food production. Distribution of these inputs would be undertaken through field trips and using the district extension staff; (c) developing improved technology and land use practices which are ecologically desirable and cul- turally acceptable. In addition the team would undertake the following: (a) assist with the base-line survey (para. 4.08); (b) investigate agricultural potential of sparsely populated areas; (c) undertake land use and land capability studies; (d) advise farmers on marketing of surplus food and cash crops; and (e) in conjunction with the extension specialist (para. 3.29), train DPI extension staff in matters relating to subsistence production. The team leader would also recruit short-term consultants, researchers and university students to undertake work on priority areas of the subsistence system, some of which have already been identified, e.g. nutritional and food intake survey, labor availability and economics of major agricultural activities, monitoring on a sample basis population and land use changes, ecology of mounding, role of pigs in nutrients recycling and soil erosion (para. 3.34). The efforts of this team are expected to result in increasing yields and cropping intensity, improving soil management, diversifying food production, and reducing the need for large amounts of land for fallow; the latter would make available additional land for food and cash crops. Attainment of these objectives would be slow, however, given the difficulty of access and of inducing change in a subsistence system. 3.11 Recognizing the need for increasing farmers- incomes, the other important aim of the team would be to promote productivity and production of cash crops. Promotion of cash crops would be carefully undertaken to assure that it does not divert land from food crops. The main focus would be on coffee and cardamom /1 development and to a lesser extent on pyrethrum /1 The agronomic requirements of coffee and cardamom are generally similar and the two can be cultivated in combination. Cardamom is a new crop and trials conducted in the province have yielded promising results.  22 - which would be supported through the Taluma center (para. 3.12). Specifically the cash crops specialist would: (a) advise coffee farmers on better crop husbandry and encourage rehabilitation where needed; (b) train extension staff in coffee and cardamom production and investigate suitable sites for expansion of these crops; (c) establish a marketing system for smallholder cardamom production; and (d) establish four pilot nurseries (totalling about 2 ha) which would provide high quality planting material for coffee and cardamom. By the fifth year these nurseries would permit additional coffee plantings of about 200 ha/year and about 20 ha/year of cardamom. Total plantings during the project period are expected to be about 400 ha of coffee and 40 ha of cardamom spread throughout suitable areas in the province. In the second phase and subsequent years, the cropped area is expected to increase gradually, but significantly, in the less densely populated areas as a result of improvement in roads and extension services, and the demonstration benefits of the pilot coffee and cardamon estate (para. 3.35). Some expansion of these crops is expected to take place in the land-short areas also through availability of fallow land. The team would submit the following to the SSC, and the Bank for comments: (a) a preliminary report by December 1982, outlining work initiated and completed, scope of the future work program, and recommendations on immediately applicable improved technology and practices; and (b) a final report, by June 1985, containing recommendations on policies and future activities in the field of subsistence agriculture and cash cropping (para. 4.12), 3.12 Research and Farmer Demonstration/Training Centers ($541,000). The project would support the following: (a) expansion of two agricultural centers ($486,000) to increase the scope of their activities by financing additional classrooms and other training and research facilities, trainee accommodation, staff housing and vehicles, and incremental salaries and operating costs. The DPIs agricultural center at Taluma (para. 2.21) would be expanded to undertake crop trials and seed production of pyrethrum and suitable high altitude vegetables and crops, and train farmers in these crops and livestock (para. 3.16). For this purpose DPI would recruit a temperate zone crops and a livestock instructor and a pyrethrum agronomist./l The GLC's center at Mukuramanda would also be expanded to increase farmer training courses in coffee and low altitude vegetables and pig rearing and poultry./2 To undertake this, a crops and a livestock instructor would be recruited by GLC. These two centers complement each other in that one would promote development in the high altitude areas with the other focussing on low altitude areas. The staff at both centers would liaise closely with the /1 National DPI's pyrethrum agronomist is being assigned to Taluma. The other two staff would be volunteers, with the livestock instructor preferably a woman. /2 Farmer training and trials for cardamom would be done at the estate (para. 3.35).  - 23 - subsistence team; (b) continuation of funding ($55,000) from 1983 onwards /1 for the Highlands Orchid Collection Center (para. 2.21) in view of the development nature of this activity, its potential as a commercial crop in high altitude areas, source of revenue for farmers in an agriculturally poor area, and its scientific and potential touristic value. Because of lack of adequate links with export markets, extension activities (which would be undertaken through the Taluma center) would be limited in the first few years, but are subsequently expected to increase considerably as an assured market develops. 3.13 Vegetable Marketing Depot ($135,000). The project would finance the construction of a marketing depot in Wabag. Discussions are underway, between the provincial government and FMC, on the latter operating this depot and linking it to its national marketing system. Operating arrangements are expected to be completed by mid-1982 and construction would commence thereafter. While the size and design of the facility would be decided after the management arrangements are made, preliminary analysis suggests a need for a facility capable of handling about 1,500 tons annually./2 Forestry Development ($0.60 million) 3.14 Forestry Extension and Nurseries ($273,000). The project would support establishment of forestry nurseries and strengthening of forestry extension. Four nurseries would be established which would produce about 300,000 seedlings per annum. The main seedling would be casuarina which would be planted in fallow land (to improve soil fertility), around houses and on deforested steep valley sides and high altitude grasslands. In addition eucalyptus and pinus would be produced mainly for establishment of the forestry plantation (para. 3.15). "Kit sets" for establishing a small 2-bed nursery would also be distributed to schools and suitable villages, who would also receive three months of assistance from a forestry officer. The promotion of these "kit sets" is intended to reduce the pressure on government-financed nurseries and if successful would be expanded in the second phase. In addition, a range of small (0.5 ha) demonstration woodlots would be established on clan lands to demonstrate better forestry management techniques. One additional district forest officer would be recruited to fully staff the forestry service at the district level; these officers are responsible for management of the nurseries, providing extension advice to the farmers and distribution of seedlings. 3.15 Forestry Plantation ($326,000). This activity would expand the ongoing forestry plantation aimed at, mainly, creating a forestry reserve of timber in accessible areas, utilization of presently idle land, and training of forestry field staff. Under the project, 215 ha would be planted, mostly /1 The center's operation is being funded through the on-going NPEP until 1982. /2 The capacity would be expanded under subsequent projects as vegetable production increases.  - 24 - with eucalyptus in poorly drained areas and pinus in well drained soils. Complete control of the plantation activities would allow DPI to monitor technical and financial coefficients. Poorly drained areas would be drained about 12 months in advance of planting, through construction of main and lateral drains. Drainage plans for these areas would be prepared by drainage experts from the PNG Geological Service and would be ready by end of 1982. To undertake the expanded plantation activities DPI would recruit two additional forestry officers. Livestock Development ($243,000) 3.16 The emphasis of livestock development is on increasing the distri- bution of livestock to the villagers for fattening, for own consumption as well as for sale, through the following: (a) establishing a ruminant livestock breeding center ($195,000) on 140 ha of government land for breeding and distribution of sheep, goats and buffalo. The project would finance civil works, breeding stock, vehicles, salaries and operating costs. The center would be fully developed by 1990, at which time its annual output would be about 200 sheep, 300 goats and 20 buffaloes, and it would be self-financing. It would be managed by an expatriate volunteer for a period of three years with a national trainee expected to replace him after this period, and it would maintain close links with the Taluma center (para. 3.12) which would provide the short-term training for animal husbandry; and (b) continuation of funding ($48,000) from 1984 onwards /1 for the poultry breeding center at Wappenamanda. The center was established in 1980 and would reach full production in 1988 at which time it would be distributing about 19,000 ducklings and 2,000 chicks to villagers. Distribution would be undertaken by DPI district livestock officers who would also provide technical assistance. Emphasis would be given to distribution in the less developed parts of the province. The scale of both livestock activities is small, but is expected to be expanded in follow-on phases if response is good. 2. Infrastructure Development: ($3.42 million) 3.17 Roads ($1.87 million). The project would fund selective improve- ments in six high priority roads (totalling 92 km) which have been chosen taking into consideration the following: present condition and utili- zation of road by essential government services; population served; and potential development impact on traversed area. The roads to be improved are (IBRD Map No. 15769): Tsak Valley Road (13 km); Highway Junction to Meriamanda (17 km); Meriamanda to Kompian (21 km); Yampu to Anditale (14 kim); Highway Junction to Yalis (11 km); and Yalis to Pawari (16 km). A condition /1 The center is funded through the ongoing NPEP until 1983.  - 25 - survey of each of the roads has been done by DWS engineers and the essential improvement works needed to provide all-weather access have been identified and costed (Annex 2, Table 3). Work involved includes resheeting, slip rectification, regrading and bridging/culverting and would cost an average of about $22,800/km. Improvements in the Yalis to Pawari section and the Highway to Meriamanda section would be initiated after arrangements have been finalized for establishment of the estate and upgrading of the sawmill, respectively (para. 3.35). 3.18 The provincial DWS would be responsible for implementing the road subcomponent using plant intensive construction methods. However, in line with its policy, DWS would promote and use the limited private provincial construction capacity for the construction of small bridges and culverts and for regravelling; private provincial construction capacity is, at present, limited to plant hire firms which have potential to undertake small con- tracts. In 1980, the province spent about K 4,000-5,000/km for maintenance of these roads, which covered both routine, periodic and emergency maintenance and selective improvements. With the latter being accelerated under the project, maintenance expenditures are estimated to decline to about K 3,500/km and total about K 340,000 annually from year 5 onwards. Assurances were obtained at negotiations from the government that it would allocate annually maintenance funds amounting to K 3,500/km for provincial roads (including project roads) and K 550/km for council roads; further it was also agreed that these levels would be revised periodically to take into account inflation and other changes in condition and usage of individual roads. This level of maintenance would ensure the adequacy of the total provincial road system, which is crucial to the proposed development effort. 3.19 The project would assist DWS initiate a rudimentary traffic counting system in Enga using mainly high school students. The system would be established by December 1982 and would initially cover the main provincial roads, including project roads. Total costs for operating this system would be about $39,000 over four years. 3.20 Rural Electrification ($380,000). The project would finance installation of three microhydros in isolated government stations to provide power to aid posts, primary schools, government offices and houses; unit sizes are expected to range from 30-40 KW. Preliminary engineering and layout have already been completed; detailed engineering would be undertaken prior to installation. Installation of these units requires simple civil works and does not need any specialized engineering skills. The provincial DWS would undertake the engineering and installation work and consult with GLC, as required, who have installed a number of these units in the province. DWS would be responsible for periodic maintenance, while routine clearing of debris, silt removal and lubrication would be the responsibility of a designated officer at the government station.  - 26 - 3.21 Provincial Building Program ($1.0 million). Under the project, DWS would construct an office block, provincial store and single officer's quarters at Wabag and government offices at two district centers. Standard government building designs would be used which are satisfactory. In addition DWS would construct about 50 houses, and project-related health, education and community development facilities (costs included under the respective activities), based on standard designs. For houses and buildings to be constructed under this and the second phase project, DWS would develop about 100 serviced sites (at an average cost of about $2,500/site), on government land in the six main government centers. 3.22 Strengthening Provincial DWS ($168,000). To enable the provincial DWS to undertake the required infrastructure works under the project, it would be strengthened with the following additional staff: one roads foreman, two architectural/buildings foremen, one draftsman and one electrical foreman. The project would finance houses and vehicles, for the above staff./l 3. Health Component ($2.12 million) 3.23 Health Centers and Subcenters ($1.0 million). The project would finance rehabilitation/expansion of four health centers and subcenters which are in dilapidated condition and inadequate for the size of population served, and establishment of two new health subcenters (IBRD Map No. 15771). In addition 11 centers and 7 subcenters would be provided with basic equipment packages, each costing K 6,000 and K 4,000, respectively. The project would also finance a two-man consultancy team consisting of a hospital planner and architect for a period of three months to draw up an appropriate plan for development of a referral hospital in Enga./2 Assurances were obtained at negotiations that consultants would be engaged on terms and conditions satisfactory to the Bank. 3.24 Aid Post System ($1.0 million). The project would support improvement in the aid post system through the following: (a) about 45 aid posts and aid post orderly (APO) housing would be upgraded through replace- ment of bush material by new permanent material. Materials will be prepared in prefabricated kits by DWS, and erection would be supervised by the APO's; cost per kit is about K 8,500; (b) essential equipment packages would be /1 Project-related incremental salaries and overheads of DWS are included in the cost of each civil works item. /2 GLC which operates the provincial hospital has decided to close down this facility in about two years.  - 27 - supplied to all the aid posts, each package costing about K 200; and (c) the APO and nurse-aid training facilities attached to the provincial hospital would be upgraded and expanded. The school will have a yearly intake of 25-30 students, and would help fulfill the province's health manpower needs. In addition an in-service training program for APOs would be initiated which would have an annual intake of about 10. 3.25 Health Monitoring System ($120,000). The health monitoring and reporting system would be improved under the project. A health monitoring consultant would be hired for about four months to assist in this task. A health auxiliary would be recruited in the division of health who would be trained by the consultant and who would supervise the reporting system. The project would finance consultant's costs and incremental staff salaries and operating costs. Assurances were received at negotiations that the consultant would be engaged on terms and conditions satisfactory to the Bank. 4. Education Component ($1.05 million) 3.26 The project would improve the efficiency and coverage of the formal education system and expand vocational education through supporting the following activities (IBRD Map No. 15771): (a) Teachers Inducment Allowance ($20,000). Additional allowance would be provided for primary school teachers to compensate for working in remote areas with poor living and working condi- tion. The additional allowance would amount to K 75/annum/l and benefit about 60 teachers in 10 schools; (b) High School Facilities ($490,000). A boarding facility (for 150 students) would be provided for a newly established high school to increase access to high school education for students from outlying areas. The facility-s design is based on standard designs and is satisfac- tory; (c) Vernacular Education ($81,000). A pilot program of vernacular instruction would be initiated at the preprimary school level. Instruction in the vernacular is expected to have a salutory effect on student performance later in primary school, and also result in increased enrollment and decreased dropout. By the fourth year 20 such courses would be in operation affecting about 500 children; these courses would be conducted at classrooms to be constructed next to the community schools. Teachers would be selected from within the community and would have at least six years of education. A course coordinator would be recruited to develop the program, train teachers and supervise implementation. The project would finance staff salaries, coordinator-s vehicle and house, material for classroom,/2 books, and opera- ting costs. Being a pilot program, it would be evaluated after it has been /l 38% of present inducement allowance of K 200 p.a. /2 Classrooms would be constructed by self-help.  - 28 - in operation for a sufficient number of years;/l (d) Vocational Training (460,000). The project would expand vocational training at the NGO facilities at Yampu and Wanepop (para. 2.29), by financing dormitories, classrooms/ workshop, vehicles, staff housing, staff salaries, and incremental operating costs. Additional activities aimed at women would be undertaken at the Yampu center including training in food gardening, nutrition, health, sewing and home economics; yearly intake would be about 20. Women graduating from this center are expected to act as agents of change irn their clans. The carpentry center at Wanepop would be expanded to double capacity to 35 students, so as to alleviate the shortage of trained carpenters/joiners. 5. Community Development ($0.36 million) 3.27 The project would enhance community development services by constructing community development centers ($342,000) in three of the six districts of the province /2, and strengthening community and family services section ($20,000) through staff upgrading and provision of housing. Together these activities would enable a concerted focus on national integ- ration and socio-economic awareness. The centers will consist of a simple building, plus adjacent sports grounds and facilities, and serve as focal points for economic and social development activities within the districts they serve. Meetings and training sessions in agriculture, health, family planning, adult education, business opportunities and other topics of interest to the population will be organized at the centers with assistance from concerned divisions. In addition, the centers will serve as general social centers for gatherings, reading, video/film viewing and sports. Because the districts offer few opportunities for social interaction outside of traditional social gatherings, these centers have the potential for stimulating social interaction that cuts across narrow local loyalties and brings people from many groups together in constructive activities. One center would be constructed in the first year of the project. Being a new initiative, its impact and the beneficiaries- response would be evaluated for about two years by the socio-economic evaluator (para. 3.32). Based on his recommendations, two new centers would be established in the fourth year with appropriate modification in building layout, and operating procedures. The project would finance construction of the centers, incremental staff salaries and houses, vehicles and other operating costs. /1 Evaluation would test the relationship between vernacular teaching and the following variables: (a) student achievement; (b) parental attitude - towards schooling; (c) effect on enrollment and dropout rates. Funds for this evaluation would be provided under the Bank-financed primary education project (Ln. 1934-PNG, Cr. 1087-PNG). /2 Centers for the other three districts will be established in the second- phase project.  - 29 - 6. Commercial Assistance and Training ($0.74 million) 3.28 The project would support the following: (a) strengthening of the division of commerce ($275,000) with a view to expand coverage of business extension. Two additional business development officers would be recruited and posted at the district level to promote entrepreneurs and provide exten- sion on business development. In addition a building trades technical officer would be recruited who will be responsible for assisting local build- ing contractors in tendering and bidding procedures, implementing projects through on-site visits and maintaining close liaison with DWS. Given the large expansion in building construction arising out of this and subsesequent projects, there is considerable potential for developing a viable small-scale building contracting industry; and (b) establishing a trade training (carpentry and plumbing/welding) program ($463,000) to cater for an acute shortage of trained tradesmen in the province. Two trainers would be recruited in DWS since it is the main employer of tradesmen in the province, who would provide on-the-job training to about 200 tradesmen during project period. The project would finance housing, vehicles, salaries, and operating costs. 7. Institutional Development ($2.17 million) 3.29 Organizational and Staff Development ($650,000). The project would establish a provincial division of Organization and Staff Development whose objective would be to perform the following: (a) review all matters relating to public administration including organizational structure and management at the headquarters and district level, planning, budguting and implementation systems and procedures, management reporting system, field extension services, and work program of all line divisions and their effectiveness in supporting development objectives; and recommend and implement improvements and changes; (b) develop and implement an effective staff development and extension training program; and (c) provide management consultancy services to the other divisions. Staff will initially consist of three expatriates (an assistant secretary, a staff development and training officer, and an extension specialist) plus their counterparts. The project would finance staff houses and salaries, vehicles, training and other operating costs. 3.30 The assistant secretary, in addition to managing and coordinating the division's work, would be responsible for the organizational development and management consultancy aspects of the division's function. The staff development officer would be responsible for the training aspects. The extension specialist would examine and evaluate the content and methodology of the present extension system of the provincial line divisions, paying particular attention to agricultural extension, and subsequently assist  - 30 - these in developing and implementing effective extension services. Efforts of this newly created division are expected to streamline the provincial organizational structure, establish a relationship between expenditures and development objectives, improve the management reporting and information system, strengthen planning and control, increase the capabilities of staff and job satisfaction and in general have a salutory effect on effectiveness of public administration in the province; recommendations arising from it could serve as a replicable model for other provinces. The Public Service Commission (PSC), which is responsible for improving public administration at the national and provincial level, is very supportive of this activity. The division would submit the following to the SSG, and the Bank for its comments: (a) a preliminary report, by December 1982, outlining scope and plan for future work program, and recommendations on immediately needed training program; and (b) a final report, by June 1985, containing evaluation of work initiated and completed and recommendations on policies and future activities aimed at improving provincial public administration. 3.31 Finance and Management Services ($340,000). The project would upgrade the provincial Finance and Management Services Division through providing urgently needed extra staff, accounting machines, and staff housing. The additional staff include an expatriate provincial accountant, a national trainee accountant, reimbursement clerks and support staff. The provincial accountant would be responsible for the total provincial government accounting, including the project, and would work closely with the organizational division (para. 3.29) in developing the management information system. 3.32 Implementation and Evaluation Support ($440,000). The project would strengthen the implementation and evaluation capacity of the provincial government by financing a project coordinator (PC), and establishing a Development Monitoring Unit. The PC would be essentially a facilitator responsible for coordinating project planning and implementation (para. 4.02). The Development Monitoring Unit, consisting of an expatriate socio-economic evaluator (rural sociologist/anthropologist) and his counter- part, would continuously provide feedback to project management on the socio-cultural appropriateness of project activities (para. 4.07); this is important considering that the success of the project will hinge upon the appropriateness of project activities to the Engan social system. The project would finance staff salaries, houses, vehicles and operating expenses. 3.33 Upgrading Information Services ($213,000). The project would support efforts to strengthen information services by upgrading the existing media center, and providing additional staff. The major thrust of these efforts would be use of effective communication techniques for providing extension; additional staff would be recruited, including a media coordinator, graphic artist and a translator. The coordinator would maintain close  - 31 - liaison with all extension activities of the provincial government and provide necessary support. The project would finance civil works, staff salaries, vehicles and incremental operating costs of the expanded media center. 3.34 Studies and Training Fund ($525,000). This fund would finance salaries, consultants fees, travel and miscellaneous operating expenditures for undertaking the following: (a) studies, including, baseline survey, project evaluation study design and implementation (para. 4.08), preparation of a follow-on project, studies on priority economic and social issues and other matters in support of the project; and (b) overseas and domestic professional training for local staff. The Government would submit to the Bank for its comment, a summary outline of the scope and costs of the studies and training, prior to their initiation (para. 4.12). Activities Parallel to the Project 3.35 In the context of the provincial development plan, three viable commercial projects /1 have been identified for financing outside of the proposed Bank Group project since funds are available from commercial sources. These projects would not only have a catalytic influence but provide partial justification for some of the proposed components. The projects are: (a) rehabilitation of the existing old and oversized pyrethrum processing plant which is not expected to be operative beyond 1983. Increasing efficiency of processing would result in both increasing competitiveness of pyrethrum exports and also prices paid to growers, and support pyrethrum development under the proposed project. The National Government, which owns the existing plant, is reviewing various options and is expected to reach a decision shortly. Financing is expected to be from supplier's credit; (b) establish- ment of a 50 ha coffee and cardamom estate on alienated land in Lower Lai by the Enga Investment Corporation, the investment arm of the provincial government. DPI, particularly the cash crop specialists financed under the project, would provide technical assistance in establishing the estate. PNGDB would finance the project from funds under the Bank-supported credit project (Cr-1149). The provincial government expects to submit this project to PNGDB, for financing, by mid 1983. This estate, besides providing income for the province, is expected to have a significant impact on promoting coffee and cardamom production in an area which has significant potential for cash crops. With a view to providing reasonable year-round access to this area, the proposed project would be financing improvements in the road to Pawari; (para. 3.17); and (c) rehabilitation of the Meriamanda sawmill, which is not /1 Total costs of the three projects are about $650,000. Preliminary analysis of these projects, undertaken by the plan preparation team, indicates financial rates of return ranging from 17-28%.  - 32 - only the largest commercial employer in the province, but important to the development of commercial activity in the province and utilization of provincial forest resources./l PNGDB is also expected to finance this project, and submission of the project by the provincial government is also expected in mid 1Q83. In conjunction with this rehabilitation, the road to Meriamanda would be improved under the Dronosed project to provide reasonable access to traffic associated with the mill. Cost Estimates 3.36 Total project costs over the four-year project period (1982-85) are estimated at about $16.0 million, including a foreign exchange costs of about $8.0 million or 50%. Of the total costs about 3% (US$0.5 million) is for taxes and duties. Unit prices for equipment, materials and supplies, salaries and civil works are based on April 1981 prices. Physical contingen- cies total an equivalent of 5% of base costs and include 15% on roads, 7% on houses, and 10% on other civil works; such contingencies for salaries, vehicles and operating costs are included in baseline costs. Civil works, vehicles and equipment, expatriate salaries, and incremental operating costs account for 52%, 7%, 11% and 30%, respectively, of base-line costs. Price contingencies are equivalent to 21% of baseline costs plus physical contin- gencies, and have been calculated as follows: 9% in 1981, 8.5% in 1982, 7.5% for 1983-85. Price contingencies for foreign and local costs are assumed to be same. Project costs by components is summarized in Table 3.1 (page 33) with detailed costs in Annex 2, Tables 1 and 2. Financing 3.37 The Bank Group would finance 50% ($8.0 million, comprising a Bank loan of $6.0 million and an IDA credit of $2.0 million) of project cost, equivalent to the full foreign exchange costs of $8.0 million. The national government would provide the remaining $8.0 million (K 5.3 million). All project funds would be fully allocated under the NPEP for 1982-85 and released on a quarterly basis to the provincial government (para. 3.40). To help ensure the prompt start of the project, various activities such as recruitment of key project staff, and construction of houses and procurement of vehicles for these staff commenced during the fourth quarter of 1981. For this reason and to cover project expenses prior to loan signing, retroactive financing of up to $0.8 million equivalent is proposed to help cover eligible expenditures after September 30, 1981. /1 The mill is owned by a local group, who have approached the provincial government to assist them in rehabilitation of the mill.  - 33 - Table 3.1: PROJECT COSTS F.E. Local Foreign Total Local Foreign Total Cost ----(K million)---- --- ($ million) --- % (%) /a /a Agriculture 1.0 0.7 1.7 1.5 1.1 2.6 21 42 Infrastructure 1.0 1.3 2.3 1.5 1.9 3.4 27 56 Health 0.7 0.8 1.5 1.0 1.1 2.1 17 52 Education 0.4 0.3 0.7 0.6 0.4 1.0 8 40 Community development 0.1 0.1 0.2 0.2 0.2 0.4 3 50 Commercial assis- tance & training 0.3 0.2 0.5 0.4 0.3 0.7 6 43 Institution building 0.7 0.7 1.4 1.1 1.1 2.2 18 50 Baseline Costs 4.2 4.1 8.3 6.3 6.1 12.4 100 49 Contingencies Physical 0.2 0.3 0.5 0.3 0.5 0.8 5 Price 0.9 0.9 1.8 1.4 1.4 2.8 23 Subtotal 1.1 1.2 2.3 1.7 1.9 3.6 28 Total Project Costs 5.3 5.3 10.6 8.0 8.0 16.0 128 50 /a Percentage based on '$' costs and may differ from those based on 'Kina' costs and detailed cost tables, due to rounding. Procurement 3.38 In view of Enga's remote location and the relatively small size /1 and scattered (spatially and temporally) nature of project activities, international competitive bidding would not be feasible or appropriate for the procurement of goods and civil works under the proposed project. Therefore the procurement of buildings, housing and roads totalling US$8.5 million,/2 vehicles (US$0.3 million /2), miscellaneous equipment and furniture (US$0.7 million /2) would be undertaken through local competitive bidding procedures which were found at appraisal to be satisfactory to the Bank. Construction of civil works would also be carried out by Department of Works and Supply (DWS) under force account if suitable contractors are not timely available; to encourage contracting, it is the policy of DWS to use subcontractors for plant and small civil works, wherever possible. Miscellaneous equipment and furniture costing less than US$5,000 would be procured through prudent A About 80% of the works contracts are expected to range from $50,000- 100,000, and none are over $0.5 million. /2 Including contingencies.  - 34 - shopping (three bid method). Procurement documents for all contracts of US$400,000 or more would be submitted to the Bank prior to tendering and award. Accounting and Auditing 3.39 Project expenditures will be accounted by DWS (Wabag) for civil works and vehicles, the Department of Finance for staff salaries, and by the provincial finance division for all other costs. All these accounts are maintained according to sound accounting principles and consistently applied. It will be the responsibility of the provincial accountant to assemble expenditure details from all sources and prepare the quarterly financial report /1 which will serve as a basis for the National Government s quarterly financial review (para. 4.04), as well as for claiming reimbursements from the Bank (para. 3.41). The project accounts would be audited by independent auditors acceptable to the Bank. Assurances were obtained at negotiations that: (a) copies of these audited accounts would be submitted to the Bank not later than nine months after the end of the fiscal year; and (b) that such audit reports would contain a separate opinion on the compliance of expenditures with the purposes of the project, accuracy of the reimbursement claims and the procedure and controls used for preparation of these claims. Government Funds Flow and Bank/IDA Disbursements 3.40 All project funds would be fully allocated under the NPEP for 1982-85 and prefinanced by the National Government out of annual budget appropriations; these would be based on annual/quarterly cash flow statement prepared by the Department of Enga for each of the 50 activities comprising the project. Funds would be disbursed on a quarterly basis in accordance with normal budgetary procedures. At the close of the quarter a physical,/ financial review would be conducted by a team from the national governmentL (para. 4.04), to review expenditures in the prior quarter. 3.41 Bank/IDA funds would be disbursed at the rate of 67% of expenditures for civil works, expatriate staff salaries, vehicles, equipment, and the studies and training fund. Expatriate staff salaries, vehicles and civil works carried out by contract whose value is more than $30,000, would be disbursed against full documentation, while statements of expenditures would be used for equipment and the studies and training fund since they involve numerous and small payments and for civil works carried out by force account or by contract whose value is less than $30,000. The statements of expendi- tures, certified by the provincial accountant and the project coordinator (PC), and the full documentation (for items specified above) would be submit- ted by the PC to the national finance department (para. 4.03) which in turn would submit these to the Bank for reimbursements. Detailed documentation in support of the statements of expenditures would be retained by the PC-s office /1 These are standardized reports used for all NPEP projects, and would contain itemized details of expenditures for each project activity.  - 35 - and made available to the Bank for inspection during the course of project supervision missions. Retroactive financing of up to $0.8 million is proposed to finance expenditures incurred after September 30, 1981 (para. 3.37). Disbursements are expected to be completed by June 30, 1986. An estimated disbursement schedule is given in Annex 2, Table 4. The standard disbursement profile has not been used as it does not correctly reflect the likely funds flow pattern under this project. The disbursements schedule is based on mission estimates and is believed to be realistic considering the following: (a) it is based on a careful assessment of experience under similar Bank-financed projects in PNG and of other NPEP projects and takes into account likely potential delays; (b) about 60% of the project consists of fast disbursing items, i.e., civil works and vehicles; (c) project activities have been staged over four years to permit a gradual build-up of work load and provide ample lead time for key tasks, e.g. staff recruitment and procurement; (d) the project consists mainly of expansion and strengthening of ongoing activities. IV. PROJECT IMPLEMENTATION, ORGANIZATION AND MANAGEMENT Implementation Responsibility 4.01 The Department of Enga would be the executing agency for project implementation. The various project components would be implemented by existing provincial divisions, the provincial branch of DWS, and NGOs (Annex 3, Table 1). The project's implementation, organizational and manage- ment arrangements are designed to incorporate the National and Provincial Governments desire that the project should complement existing provincial programs and should not be implemented at the expense of these programs, its management should be integrated into and strengthen the provincial adminis- trative structure, and its implementation procedures should be consistent with regular government procedures. These arrangements are expected to disseminate improved management and control techniques used under the project to the ongoing work program of the provincial government. The implementing agencies are generally well experienced in the majority (70%)/l of the types of activities proposed under the project, as these are mainly an expansion of existing activities. Prominent among the newer activities are adaptive research, coordination and evaluation, organizational development and contractor assistance. The expansion of existing activities under the project ranges from 15-20% of current levels of these activities./2 With additional staffing and coordination assistance to be provided under the project and efforts towards organization and staff development, all division are expected to be fully capable of implementing their respective components. /1 About 70% (by amount) or 60% (by number) of project activities are those with which provincial agencies have prior experience. /2 Expenditures liave been used as surrogate for work programs.  - 36 - Coordination and Management 4.02 Provincial Level. The overall responsibility for implementation of this project will rest with the Secretary of the Department of Enga. Coordi- nation among the implementing divisions would be effected through the existing Secretary's Staff Committee (SSC) which meets weekly, consists of heads of all provincial and national divisions, and is chaired by the Secretary. With the initiation of the project, the SSC will also include the project coordinator (PC) and the socio-economic evaluator. Coordination and implementation arrangements and funds flow are outlined in Chart No. 23091. Given the essentially provincial nature of this project, the SSC incorporates the key functions and influence necessary to ensure coordination of the work program among the various divisions and achieve project objectives and physical targets. The PC would be responsible for coordinating and facilitating the efforts of the various divisions in implementing the project components, monitoring the project's progress, assisting divisions in completing progress reports, coordinating quarterly reviews, assisting the provincial accountant in preparation of the quarterly financial reports, and day-to-day liaison with national government departments in matters relating to the project. The PC would report to the First Assistant Secretary for field services who is responsible for all the line divisions. 4.03 National Level. The existing coordination mechanism at the national level established for the ongoing Southern Highlands Project (,SHRDP) would also be used under the proposed project. However, given the provincial character of this project and the fact that all decision making and implementation responsibility lies with the provincial government, the role of the national staff and bodies under this project would be mainly to provide assistance on project matters involving national departments; under the SHRDP, these had more of a managerial role. In line with existing arrangement, an officer each from the Office of Project Coordination (OPC) /1 within the Department of Finance and Project Implementation (PI) division /2 within the National Planning Office (NPO), will serve as Headquarters Project Coordinator (HQPCs) for the project. Their task will be to render assistance to the Project Coordinator in matters which are difficult to deal with from Wabag and to liaise with and request action from national government departments and agencies on behalf of the project, and undertake quarterly reviews (para. 4.04). The HQPCs will not be fully occupied on this project /1 OPC is mainly responsible for liaising with external agencies with regards to externally funded projects, including matters relating to disbursements, reporting etc., and ensuring that implementation of such projects is in line with legal agreements. /2 PI division is responsible for quarterly financial/physical review of all NPEP projects.  - 37 - but will have other similar responsibilities. The existing Headquarter's Project Coordinating Committee (HQPCC) would serve as the overall facili- tating mechanism at the national level. The members of the HQPCC would be heads of government departments involved in the project, including inter alia Finance, NP0, PSC, and DWS. The HQPCs are nonvoting members of this committee with OPC acting as secretariat. Project Implementation 4.04 Progress Review. In accordance with established government practise for all NPEP projects, quarterly financial and physical review of this project would be undertaken to ensure that funds are being spent in the right manner and for the desired purposes and that terms and conditions laid down by the national government and the Bank are being met by the implementing agencies. At present, the NPEP reviews are generally brief, limited to examination of standardized quarterly physical/financial reports prepared by implementing agencies (para. 4.06), and lack technical review. To test a viable option for effective supervision of development projects by the national government, its existing procedures would be strengthened for the purposes of this project. This should lead to gradual reduction of the Bank's own supervision effort, and augmenting the implementation capacity of the provincial government. For this project, supervision would be as follows: (a) at the provincial level, the PC would conduct a quarterly review subsequent to which he would submit a report to the SSC and the HQPCs; (b) at the national level, quarterly review w.ould be conducted jointly by the NPO and the Finance department at headquarters. Prior to these headquarter's reviews, a team comprising the HQPCs would visit the province to attend the above provincial reviews. For the second quarter this team would be assisted by sectoral specialists from NP0, while for the fourth quarter it would be assisted by technical specialists from national technical departments such as DWS, DPI, Education, Health, etc. These specialists would undertake a detailed physical/technical review with a view to assisting provincial line divisions in identifying and solving implementation problems and providing general technical assistance. 4.05 The NPO would coordinate the field visits ensuring that these take place no later than six weeks after the quarter and that the team spends adequate time in the field. Based on the findings of the second and fourth quarterly team, the NPO staff would prepare a summary report, which highlights key problem areas and actions to be taken, and submit it to the Secretary's Staff Committee within two weeks of the review. Assurances were obtained at negotiations that the project would be supervised along the above lines. Considering the large number of components, the Bank's supervision would focus on key sectors (agriculture, infrastructure, and institution building which account for about 70% of project cost), with supervision of the remaining mostly delegated to the national government; however, in the early years of the project, efforts would be greater than conventional projects given the untested record of the national government.  - 38 - 4.06 Reporting, Monitoring and Evaluation. Monitoring of the project's physical and financial progress would be conducted on a day-to-day basis by action officers in implementing divisions, under guidance of their respective divisional heads and with support of the PC. In line with established government practise these officers would prepare quarterly progress reports using the standardized NPEP report format, which would be reviewed by the PC and National Government-s review team (para. 4.04). Based on these quarterly reports the PC would prepare a semi-annual progress report for submission to the Bank through OPC. The summary report of the National Government's review team (para. 4.05) would be attached to this progress report. Assurances were obtained at negotiations that the Government would submit to the Bank the semi-annual progress reports by September 15 and March 15 of each year. 4.07 Ongoing review of socio-cultural appropriateness and effectiveness of project activities, particularly the new initiatives, would be undertaken by the development monitoring unit (para. 3.32). Among other aspects this unit would focus specifically on extension methodology used, response of people to introduced crops and livestock, vernacular schooling, women s vocational training, and community development centers. The main purpose of this focus would be to make recommendations to project management on modifications to these activities so that they may be better adapted to the needs and characteristics of the people. In addition, outside of project activities, the unit would review the appropriateness of the ongoing family planning activities; recommendations arising out of this review would form the basis for an expanded family planning program in the follow-on project. Also, it would undertake studies on other social matters (e.g., tribal fighting) of importance and make appropriate recommendations. Review of these activities would take the form of regular field work and interviewing and other ad hoc studies. 4.08 The NPO would have the responsibility for evaluating the overall success of the project as well as achievements of each project component in relation to its objectives. In conjunction with appropriate provincial divisions and units,/l it would design and implement by December 1982 a data gathering and evaluation system which would enable it to perform this task and undertake by December 1983 a base-line survey on Enga's agriculture sector including inter alia data on crop yields, cropped area, cultivation practices, marketed and nonmarketed production. The uncertainty surrounding data on farming in the project area creates a particular need for the base-line survey. In recognition of the small size and nature of this project and to prevent overburdening provincial staff, the data gathering and evaluation system would be on a modest scale, focusing on key parameters for the main activities, and as much as possible relying on the existing reporting system. The PC, with assistance from the HQPCs, would prepare the project completion report. Assurances were received at negotiations that the Government would /1 Subsistence team, Organization and Staff Development division, and Development Monitoring Unit.  - 39 - submit to the Bank the project completion report of such scope and detail as the Bank may request, no later than six months after completion of the project. 4.09 Project Staffing. Over four years 52 additional staff would be recruited, including counterpart staff, comprising 29 professionals, 19 semi- professionals and 4 clerical staff /1 (Annex 3, Table 2); of these, 36 staff (including 17 professionals) would occupy permanent positions, i.e. ongoing after the project. Additional professional and semiprofessionals represent an increase of about 70% and 20%, respectively, over present levels of these staff in the province; excluding counterparts, the increase is 50% and 17%, respectively. Fourteen of the professional and 10 of the semiprofessional staff are likely to be expatriates since there is a critical shortage in Enga, and in PNG in general, of trained nationals with experience in implementing some of the activities proposed under the project. Six of the expatriates are expected to be volunteers supplied by NGOs and volunteer agencies. The expatriate professional staff would be needed mainly for the newer activities (adaptive research, coordination and evaluation, organizational development, contractor assistance) and for the positions of accountant and extension specialist, while the semiprofessional staff would be needed mostly for implementing the increased civil works program and trade training. These expatriates would be charged with the real work of implementation. To enable nationals to take over the permanent positions after the expatriates left, trained but most likely inexperienced national staff would be recruited in temporary positions to serve as counterparts to the expatriate staff for a period of 2-3 years. The expatriates would train, prepare and evaluate the counterparts. While this supernumerary approach is not the most desirable, it is unavoidable given the small scale of operations and discrete technical nature of most jobs, both of which do not allow a hierarchy of positions through which local staff could be promoted. There are however safeguards built into this system which ensure that local staff perform well. Importantly the vacated positions are not guaranteed to the counterpart staff since the PSC would advertise the jobs nationwide. Also promotion into the regular jobs would depend on performance in the counterpart position. Excluding volunteers, about 750 man-months of expatriate assistance would be financed at a total cost of $2.6 million ($3,400/man month); these costs include salaries, leave fares and gratuity. 4.10 To avoid delays in staff recruitment resulting from procedural problems, all staff positions have been authorized by PSC and recruitment of all first year positions has been initiated. Also, the Project Coordinator, two DWS staff (para. 3.22) and the provincial accountant (para. 3.31) have been appointed. Assurances were obtained that qualifications and experience of the following key specialists and their counterparts, would be satisfactory to the Bank: subsistence system and cash crops development team (para. 3.09); assistant secretary, staff development and training officer, and extension /1 College graduates are classified as professionals, and high school graduates with technical skills as semiprofessionals.  - 40 - specialist, in the Organization and Staff Development division (para. 3.29); provincial accountant (para. 3.31); project coordinator and socio-economic evaluator (para. 3.32). 4.11 Operating Agreements. The Department of Enga would enter into operating agreements, with nongovernmental agencies responsible for certain project activities (paras. 3.12, 3.13 and 3.26) to specify their respective responsibilities under the project and help assure timely project completion. These agreements would be signed prior to initiation of the project activities (para. 4.12). 4.12 Implementation Schedule. The project would be implemented over a period of four years, from January 1982 to December 1985, coinciding with the period of the 1982-85 NPEP. Schedules for project implementation (Chart No. 23068) and key activities (Annex 3, Table 3) are attached; the latter schedule includes, inter alia, the following: (a) key staff and their appointment dates (para. 4.10); (b) technical reports to be submitted to the Bank and their completion dates (paras. 3.11 and 3.30); and (c) prior actions needed before certain project activities can be undertaken (paras. 3.17, 3.34 and 4.11). Particular attention has been given to recruitment and staffing delays, implementing capacity of provincial agencies, and construction times in determining these schedules. These schedules were agreed at negotiations and assurances were obtained that the project shall be carried out in accordance with these two schedules, and that the Bank shall be consulted when these are revised during the course of the project, in light of implementation experience and changed circumstances. 4.13 Recurrent Costs. After the project period, the annual incremental operating and maintenance costs of project facilities and staff would amount to about K 0.5 million ($0.7 million) or 12% of the provincial government's existing recurrent costs. Given the province's limited revenue generation, these funds would be provided by the National Government./l V. BENEFITS AND JUSTIFICATION 5.01 The project would benefit, directly or indirectly, the entire popu- lation of the province. The benefits and justification of the proposed project have to be viewed in the context of the long-term program, comprising a series of interdependent projects undertaken to accelerate social change and economic growth in an isolated tribal society which is one of the poorest in Papua New Guinea. Unless the program is undertaken, Engans would continue to live in an isolated and rudimentary subsistence setting, and a large number of them would progressively face food shortages and engage increasingly in interclan fights. While maintenance of subsistence production and increasing /1 In line with current practise, these funds would be allocated through the NPEP and be part of the second phase project.  - 41 - cash crops incomes are an important aim of the long-term program, equally significant is the qualitative changes which would result from efforts in health, education, institution building, social development and commercial assistance. The proposed project would initiate this program through developing the human and physical resource base and improved agricultural packages. Although the project components are diverse, there is an organic integrity to the project given the intertwined nature of the economic, institutional and social issues it addresses. Nonquantifiable Benefits 5.02 The important nonquantifiable benefits of the project include the following: (a) a more balanced diet resulting from increased production (and therefore consumption) of nutritionally higher value food, e.g., vegetables, poultry, sheep, goats; (b) improvement of the basic health care system should improve delivery of existing health education and nutrition, family planning and preventive programs. This would help raise the quality, vigor and productive capacity of the future work force and improve the effectiveness of education; (c) the education component would result in increasing the enrollment rate and decreasing wastage in formal education, improving the quality of education and making it more relevant to rural life, retaining/attracting qualified teachers in Enga, and providing vocational skills to women and adults who at present are not addressed by the education system; (d) the small, but important, social development component would accelerate the process of nation building and socio-economic awareness, foster inter-clan cohesion and assist people in making a smooth transition from an isolated setting to a more "modern" way of life; (e) the strengthen- ing of Government's planning, implementation, evaluation and management information system, improvements in staff training and development, and establishment of an effective media unit would improve the efficiency and effectiveness of government administration and public services in the province, thus establishing a viable institutional base for undertaking sustained economic and social development programs; and (f) the commercial assistance component would accelerate the development of the monetary sector, support establishment of a viable contracting industry in the province, and help meet the shortage of trained tradesmen in the province. Importantly, achievement of the above benefits would, collectively, reduce the incidence of tribal fighting. Quantifiable Benefits 5.03 Overview. These benefits result from the agricultural development efforts undertaken during this and successive projects, the goals of which are to increase and diversify food production, expand fuelwood availability, and increase cash crop incomes. The efforts under this project are essentially geared towards strengthening of support services and constitute the beginning of the long-term program. The full agricultural impact of the project is difficult to assess for several reasons. First, its implement- ation and impact would be dispersed throughout all areas of the province where agriculture is practiced. Secondly, achievement of objectives depends  - 42 - on many factors which are difficult to forecast, including the accuracy and efficiency of adaptive research results and extension recommendations, and the degree and speed of uptake of recommendation by farmers. Thirdly, there is a lack of prior experience of similar projects being implemented in a backward and isolated society. Moreover, being a time-slice operation, the project's impact is inseparable from the impact of the expansion of the extension network and improvements in roads to be undertaken in the follow-on project and successive development plans. In view of the above reasons, no overall estimates were made of the project-s effects. However, an attempt has been made to estimate the likely increase in production which would result from a 30-year program of complementary investments in agriculture and roads. These estimates are based on conservative but reasonable assumptions for key technical parameters which would govern growth of the agriculture sector in Enga. 5.04 Assumptions. Three clan farm models A (400 ha), B (650 ha) and C (750 ha) have been used to illustrate agricultural impact. Clans A represent about 45% of the population, predominate in densely populated lower altitude areas, engage in coffee production, and generally face land shortage. Clans B represent 22% of the population, live in higher altitude areas and produce pyrethrum and vegetables; they have adequate land for expansion but access is poor. Clans C represent about 33% of the population, live in generally inaccessible lower altitude areas, but have substantial land for expansion; at present they do not produce commercial crops. All clans are engaged in production of sweet potatoes and other subsistence crops cultivated in home gardens. These models represent the farming system of a clan in view of the complex links and interdependence between an individual farm family and clan, and also encompass the entire farming system including subsistence gardening, cash crops, livestock and forestry. 5.05 In the without program situation, the following changes in agri- cultural production are forecast: (a) total subsistence production /1 for all clans is expected to grow, through increased cropped area, in line wi th population growth (2% p.a.). However, for clans A, production is forecast to stagnate after about 20 years as under the present levels of technology, available crop and forestry area would be unable to sustain the increased population;/2 and (b) cash crops and vegetable production are unlikely to increase from present levels given the lack of extension and market access. /1 This is based on per capita subsistence production which itself iis based on an estimate of subsistence requirements. The future per capita subsis- tence requirements per annum in the with and without situation are assumed to be the same as the present levels, i.e. about 900 kg of sweet potatoes, 2.2 cu m of fuelwood and 140 kg of home garden produce /2 Under this assumption per capita subsistence production would remain constant for clans B and C, but decline, after 20 years, for clans A.  - 43 - 5.06 Estimates of agricultural production in the with program situation are based on changes in the three key parameters: yields, cropped area and farmer participation. The assumed changes are as follows: (a) yield increases of 15% and 40-45% are assumed for sweet potatoes, and vegetables and cash crops, respectively, and are expected to result from better varieties and practices, but without use of fertilizers or pesticides. These yields are below the genetic potential of existing varieties and increases attainable with more modern practices; (b) area under vegetables and commercial crops (coffee, pyrethrum and cardamom) increases by 6 ha (from 9 ha to 15 ha) in case of clans A, 6 ha for clans B (from 6 ha to 12 ha), and 25 ha for clans C./l This incremental increase in cropped area is largely dictated by future market prospects rather than availability of suitable land; on the latter basis cropped area could be considerably larger, particularly in case of clans B and C once roads have been improved., Cropped area assumed under sweet potatoes, home garden, and fuelwood is based on per capita subsistence requirement (para. 5.05) and; (c) considering the difficulty of access and of inducing chainge in the particular tribal setting, it is assumed that it will take 30 years to reach 95% of the clans, and 8 years (after contact by extension workers) for any one clan to reach full development-higher yields and changed cropping pattern. Farm models and other details are provided in Annex 4, Tables 1-7. Needless to say, the production estimates resulting from the above assumptions are only indicative. Nevertheless, they suggest the expected magnitude of development. 5.07 Agricultural Production. Resulting from the long-term program, incremental production at full development (year 30) is expected to be 50,000 tons of sweet potatoes, 32,000 tons of home garden produce and vegetables, 100,000 cu m of fuelwood, 3,500 tons of parchment coffee, 300 tons of pyrethrum and 50 tons of cardamom (Annex 4, Table 8). 5.08 Mlarketing and Prices. The incremental production of sweet potatoes, fuelwood, and a large part of the vegetables would be consumed at the farm. The future market prospects for the commercial crops is necessarily speculat- ive considering that marketable output would occur mostly after 10 years. This notwithstanding, the prospects appear good considering that output from the province represents a small percentage of total market. Thus about 12,000 tons of vegetables are expected to be marketed annually by year 30 which would represent about 25% of the estimated national demand for mnarketed vegetables by then. This is about half of the current market share of vegetables produced in Enga. Farmers are expected to sell their vegetables at the marketing depot (para. 3.13) where prices would be linked to the national market, and which is expected to offer 25-30% higher prices /1 Clans C are not engaged in commercial crops at present.  - 44 - than individual buyers./l In year 30, total provincial production (including incremental resulting from program) of parchment coffee (5,000 tons), pyrethrum (500 tons) and cardamom (50 tons) would represent about 3%, 100%, and 30%, respectively, of PNG's likely future exports (and production) of these crops./2 Enga's present share of national production is about 2% for coffee; it is the sole producer of pyrethrum and expected to become a major producer of cardamom besides the Southern Highlands province. Considering that no major changes are assumed in Enga's or PNG's market share of these commodities, no problems are foreseen in marketing of the incremental production. The above cash crops would be marketed through existing channels (para. 2.22); prices received by farmers range from 75%-85% of f.o.b. prices and are generally in line with economic farmgate prices. 5.09 Agricultural Incomes. Based on the future changes in agricultural production in the with and without situation, estimates were made of the likely per capita subsistence and cash crop incomes,/3 in year 30, for the three clan models under two different scenarios of population growth. These estimates are indicated in Table 5.1. The table highlights the following: (a) unless the program is undertaken there would be a 25% decline in subsis- tence income for about 45% (clans A) of the population resulting from reduction in food and fuelwood availability. For the remaining population, while no decline in subsistence income (and production) is anticipated, the malnutrition is expected to remain because of poor diet. As a result of the program, these conditions would be averted by ensuring a stable supply of staples, and increasing production of nutritionally higher value foods;/4 (b) although there is a significant increase in cash crops income, subsis- tence incomes would continue to be the main component of total income; and (c) while there are no dramatic increases in per capita incomes over present levels, the fact that the program is able to register even these increases, despite the almost doubling of population, is in itself creditable. /1 Higher prices result from lower marketing and transport costs due to economies of scale. /2 Future exports from PNG are based on PNG's retaining its current share of the world market (about 1% for coffee and pyrethrum) and capturing about 2% of the cardamom market. World market is assumed to expand by the long-term historical growth rate. /3 Because of the complex resource and output sharing within the clan system, per capita incomes are not very meaningful indicators. Subsistence income comprises value of self-consumed sweet potatoes (70%), fuelwood (17%) and home garden produce (13%); figures in parenthesis indicate percentage of total income. /4 Increase in consumption of nutritionally better food accounts for the slight increase in per capita subsistence between the with and present situation.  - 45 - Table 5.1: PRESENT AND FUTURE PER CAPITA AGRICULTURAL INCOMES /a (Kina/annum)