Mali - Biomass Alcohol and Energy Efficiency Project

Document of The World Bank FORt OMFCIAL USE ONLY CR /to3s- MJ:r Zept No. P-3605--r4 REPORT AND RECOlDATION OF THE PRESIDENT OF THE INTENAIONAL D ASSOCATON TO THE EXECUTIVE DIRECTERS ON A PROPOSED CREDIT OF SDR 7.1 MILI ON TO THE R OF MALI FOR A BIONASS ALCOHOL AMD ENERGY EFFICIENCY PROJECT May 26, 1983 Th e_is me s w a ritd _ "m sd on be aed bY reerwts aiy in the perfmmce of theiw officiad dubii. Itrs cemkitmisa ant otherwise be ibdami withou Weed Bmum audhouaioum.  MAL CUERENCY EQUIVALTS Currency Unit = ffaliA Frnc (IF) USS1.00 = NF 648 PFSi1,000 = USS1.54 USS1 SDR 1.08163 ABBREVIATIONS AnD ACRONYMS APU - Alcohol Production Unit COD - Confederation of Oil Distribmtors MA - Ministry of Agriculture ME - Ninistry of State for Equiplent ON - Office du Niger OSBP - Office pour la Stabilisation et la Regvlarisation des Prix uT?F - Rehabilitation Task Force SI - Sugar DivLsion FISCAL YEAR Government: January 1 - December 31 Office du Niger: July 1 - June 30  FOR OMCAL USE ONLY MALI BIOHASS ALCOHOL AND ENERGY EFFICIENCY PROJECT Credit and Project Summary Borrower: Government of Mali Beneficiary: Office du Niger (ON) Credit Amount: SDR 7.1 million (USS7.6 million) Terms: Standard Relending Terms: US$4.1 million of the IDA credit for alcohol production and improved energy efficiency would be lent by Government to ON: 5 years grace, 13 years term, 9 percent interest per annum. Foreign exchange risk to be borne by ON. Commitment fee of 0.75 percent per annum on undisbursed balance of the subsidiary loan. Project Description: The main objectives of the proposed Project are: (a) to reduce Mali's dependence on petroleum imports through production of anhydrous alcohol (about two million liters annually) from surplus molasses to blend with gasoline and through improved energy efficiency in its two sugar com- plexes by better use of bagasse; and (b) to help develop a coherent program of policy reforms and investments to rehabilitate the Office du Niger. The project would include the following components: (a) biomass alcohol production, storage, and handling; (b) energy efficiency imprcvementa; (c) gasohol blending and distribution; (di technical assist- ance and training; (e) biomass energy study; and (f) tech- nical assistance for an Office du Niger Rehabilitation Task Force (RTF) and urgently required farm inputs. Benefits would derive from substituting locally distilled anhydrous alcohol for imported gasoline and from reducing the use of imported industrial diesel oil to generate steam and elec- tricity in sugar production. Additional benefits would derive from more efficient cane and sugar production and from its contribution to the long-term overall rehabili- tation program for the Office. The main risk3 facing this project are delays in implementation and insufficient cane supply resulting in lower capacity utilization than pro- jected. These risks would be addressed by strengthening the management of the sugar and alcohol production units, train- ing, agreement on minimum standards for qualifications and experience of key project staff, and technical assistance for cane production and handling. This document has a resticted disbution and may be used by recipients only in the performance of their ofril duties. Its contents may not otherwise be dislosed without World Bank authorizationo  - Lii - Estimated Cost: 1/ Local Foreign Total --- US$ million- Alcohol Production - 1.1 1.1 Energy Efficiency - 1.0 1.0 Gasohol Blending - 0.1 0.1 Technical Assistance and Training 0.2 1.0 1.2 ON Rehabilitation 0.1 2.1 2.2 Energy Study - 0.1 0.1 Base Costs 0.3 5.4 5.7 Contingencies: Physical 0.1 0.5 0.6 Price 0.1 1.1 1.2 Working Capital 0.3 0.2 0.5 Total Project Cost 0.8 7.2 8.0 2/ Interest During Construction 0.3 - 0.3 Total Financing Required 1.1 7.2 8.3 Financing Plan: Local Foreign Total ------US$ million--- IDA 0.4 7.2 7.6 Office du Niger v.2 - 0.2 Government of Mali 0.5 _ 0.5 Total 1.1 7.2 8.3 Estimated Disbursements: 1983 1984 1985 1986 ---------- US$ million -------_ Annual 1.0 2.1 3.6 0.9 Cumulative 1.0 3.1 6.7 7.6 Economic Rate of Return: The estimated overall ERR is 21 percent, cal culated on 59 percent of total project costs (excluding costs of the energy study and the Rehabilitation b?ask Force). The ERR for investment in the alcohol pro- duction unit is estimated at 20 percent, cklculated on 57 percent of the project's capital costs;-! for the energy efficiency improvements, the estimated EIRR is 22 percent, calculated on the remaining 43 percent of capital costs. Staff Appraisal Report: No. 4014-MLI Na: IBRD 16461 1/ Project costs are exempt from taxes and duties. 2/ Includes US$0.95 million PPF advance.  INTERNATIC AL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF MALI FOR A BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT 1. I submit the following report and recommendation on a proposed devel- opment credit of SDR 7.1 million (US$7.6 million equivalent) on standard IDA terms to the Republic of Mali to help finance a proposed Biomass Alcohol and Energy Efficiency Project. Proceeds of the IDA credit for alcohol production and energy efficiency improvement (US$4.1 million) would be relent to Office du Niger for 13 years, including 5 years of grace, with interest at 9.0 per- cent per annum. PART I - THE ECONOMY 1/ 2. Two reports entitled "Economic Memorandum on Mali" (3200-MLI) and "Mali-Special Economic Study--Planning Institutions and the 1974-78 Plan' (3333-MLI) were distributed to the Executive Directors on June 30, 1981. The following paragraphs are based on these reports and the findings of recent World Bank and IMF economic missions. Annex I gives country data. Introduction 3. Mali is one of the poorest countries in the world. Economic growth has been reasonable since independence in 1960, although highly variable. But economic management has encouraged consumption more than productive invest- ment, with the result that this growth was obtained at the cost of increasing imbalances in public finances and on foreign accounts. By the end of 1980, these imbalances were severe enough that the Malian Government began to recog- nize deficiencies of past policies. It embarked or: a cautious path heading toward economic and financial restructuration, and IDA and the IMF were asked to assist in this new effort. Nevertheless, growth in the near future will be limited by poor physical resources and underdeveloped human resources and infrastructure, although there is some potential for long-term economic devel- opment. Economic Resources and Constraints 4. Mali has a population of 7 million inhabitants, in an area of 1.24 million square kilometers in the middle of sub-Saharan West Africa. In 1981, GNP per capita was only US$190. Mali manifests all the signs of a least developed country, including a subsistence-oriented economy (85 percent of the 1/ This part is substantially the same as in the President's Report for the Economic Management and Training Project Report No. P-3356-MLI, dated November 15, 1982.  -2- population dependo on the primary sector), dependence on a few commodity ex- ports, an extremely low rate of domestic savings (minus 3.6 percent of GDP in 1980), a high population growth rate (2.7 percent), a low level of education (less than 10 percent adult literacy), and difficult living conditions that give a life expectancy of only 43 years. 5. Poor physical and underdeveloped human resources, as well as inade- quate infrastructure, constrain economic growth in Mali in the short and medium term. Potential for agricultural growth is limited by uncertain rain- fall, fragile soils prone to exhaustion and erosion, and low-yielding, tradi- tional crop and livestock technology with little scope for intensification. Mineral and energy resources are limited and difficult to exploit. Human re- sources are underdeveloped, in part because access to basic amenities like clean water, better health care, and educational opportunities remains quite limited. There are shortages of skilled workers and experienced managers. Transportation and communication are extremely expensive by world standards, because Mali is landlocked and internal distances are vast. The above factors result in low incomes, small domestic markets, and limited potential for industrial development. Finally, Mali is a small open economy, with trade concentrated in a few commodities. Imports and exports together amount to more than half of GDP. Cotton and livestock comprise four-fifths of exports, and petroleum and foodstuffs, one-third of imports. Thus. the country is ex- treme:y vulnerable to changes in world prices and declining terms of trade. 6. Although economic deve?lopment will be difficult in the short and medium term, Mali has economic potential that can be developed over the long term. Malian farmers are among the most proficient in West Africa. Rainfed maize production could be significantly expanded in the south. Mali has more irrigated rice land than any other Sahelian country, as weLL as the largest physical scope for expanding irrigation. Hydroelectric generating potential on the Eiger and Senegal rivers is significant. Although mineral resources remain largely unexplored and unexploited, they may offer longer-term oppor- tunities. Sconomic Performance 1960-82 7. The Malian Government has attempted since independence to promote growth while trying to improve social equity and raise consumption from very lovt levels. During 1960-81, annual growth of GNP per capita averaged 1.1 per- cent in constant prices, although there were large swings from a decline in GNP in one year to jumps of over 10 percent in the next, The economiz struc- ture has shifted as the agricultural sector has becomr less important while the services sector has become more so. Although this tendency is normal for developin- economies, in Mali it also reflects the effect of policies that have shifted resources to the urban sector and to public consumption. At the same time, the industrial sector has stagnated despite government efforts to create a modern industrial base. Because of drought and declining terms of trade, as well as continuing mistakes in economic management and poor alloca- tion of public resources, there have been since independence consistently large and worsening imbalances in public finances and on foreign accounts, with declining domestic savings and growing foreign indebtedness. While economic and social objectives have been partially achieved, the process has  - 3 - led to severe financial and economic disequilibria that could be sustained only by dependence on foreign borrowing. 8. Mali's economic history can be divided into four periods (1960-67, 1967-74, 1974-80, and 1981-82) based roughly on changes in economic and poli- tical conditions. The changes in economic and 4inancial structure during these four periods are indicated in the following tabulation: 1/ 1960 1967 1974 1980 1981 2/ GDP (US$ millions, current) 273 241 414 1,325 1,119 Agriculture (percent GDP) 55 50 35 42 42 Industry (percent GDP) 10 13 16 10 11 Services (percent GDP) 35 37 49 48 47 Terms of trade index 100 73, 58 64 58 Gross dom- tic savings (percent GDP) 9.5 1.3 -19.2 -3.6 -5.7 Budget deficit (percent GDP) .. 5.3 3.5 4.0 2.3 Resource gap (percent GDP) -4 -16 -33 -20 -21 Net foreign assets (US$ millions) 2 3/ -56 -139 -249 -218 Longterm foreign debt (US$ millions) .. 269 441 853 1,079 GNP growth rate (percent per year) 4/ .. 3.5 1.8 6.8 0.2 These figures (as well as the economic indicators in Aanex I) illustrate some of the major trends in the Malian economy. 9. Post-independence, 1960-67. After independence, the first government undertook a major program of modernization that included an independent mone- tary system, an ambitious five-year development plan, a program of industria- lization based on state enterprises, and a welfare orientation intended to keep prices down and to assure consumers an adequate supply of basic commodi- ties. During this period, GDP growth was high but public pricing and invest- ment policies created imbalances that could not be sustained. Government budgetary deficits often exceeded 5 percent of GDP. By 1967 the resource gap had quadrupled (as a percent of GDP), net foreign assets had turned negative, and the debt service ratio had risen to 19 percent. The economic crisis led to the signature of monetary accords with France in early 1967, followed by a 50 percent devaluation in mid-1967, and to reintegration with the franc zone in early 1968. At that time, the French Treasary opened an Operations Account for Mlali to provide overdraft facilities to support the convertibility of the Mali franc. 1/ The symbol -.." means "not available". 2/ Figures are provisional and subject to change. 3/ 1962. 4/ At constant market prices in Malian francs. Growth rate refers to the period that preceeds the year under which the figure is given.  - 4 - 10. Economic Reform, the Sahelian Drought, and the Energy Crisis, 1967-74. In late 1968, a new government launched an ambitious but pragmatic reform program that proposed to increase official commodity prices and liber- alize private trade--especially in cereals. But the shock of the severe Sahelian drought (1968-73), followed by a quintupling of petroleum prices during 1972-74, prevented the new government from carrying out the reforms. Economic performance during 1967-74 was poor, reflecting these shocks. Output in the primary sector fell, and real per capita income declined. Economic policies remained inadequate. For example, low official prices discouraged agricultural production and led to increased food imports; and recourse to bank credit to finance the mounting losses of state enterprises led to in- creased external debt. By 1974, the economic imbalances--already large 7 years earlier--had either not improved or had deteriorated. The resource gap was larger, reflecting partly the large inflow of foreign aid to sustain consumption after the 1968-73 drought. Domestic dissaving was greater, net foreign assets had fallen by over 100 percent, and public external debt more than doubled. 11. Uneven recovery, 1974-80. Compared to the drought years, the sub- sequent period ras favored by generally better weather and more foreign aid. There was more rapid growth of GDP, led by agriculture and reflecting recovery from low drought levels. But the severe disequilibria in public finances and external account3 created earlier were not corrected. Inflation increased. Domestic dissavings and the resource gap remained high. The need to finance increasingly large Government Treasury deficits and growing losses in the state enterprises sector caused short-term foreign liabilities to double. Borrowings to finance the 1974-78 development plan caused external long term public debt to double as well. Despite a few abortive efforts late in the period, the Goverment did not develop and carry out reforms. While continuing external shocks, like a second jump in petrolelum prices, hampered reform efforts, availability of substantial foreign resources also made the im- balances more manageable and relieved some of the pressures to chauge poli- cies. 12. New orientations, 1980-82. Faced with worsening financial disequi- libria but less central bank financing resulting from reduced access to the Operations Account provided by France, the Malian Government at thG ead of 1980 requested technical and firLancial assistance from both the Bank and the IMF to help it carry out a program of economic reform and adjustment. Sup- ported in part by technical assistance financed by IDA (Cr. 1307-MLI), the Government has started to liberalize cereals marketing, reduce the role of the agricultural produce marketing board, restructure the state enterprise sector and improve the viability of key enterprises, and study how to restructure rural development agencies. The Government initiated several major fiscal improvements in 1981, despite difficult circumstances including poor rains in 1980 and a further deterioration in the terms of trade. These measures in- clude credit restraint, improved tax collection, higher taxes on staple con- sumer goods and petroleum, fewer subsidies to offset price increases, rest- raint on government personnel costs, savings on maintenance of government material, reductions in scholarships, and suspension of some education expenditures. Initial steps have been taken to restructure the state enter- prise sector and to improve the medium-term viability of key enterprises. To  - 5 - improve incentives for agricultural production, the govern,nent substantially raised commodity prices for the 1981-82 season and increased official consumer prices for cereals. In May 1982, the IMF approved a one-year Standby Loan for SDR 30.375 million (about TJS$33.9 million). The government has also formally asked to rejoin the Vest African Monetary Union (WANU), a move that would improve Mali's financial and monetary position. Finally, the new Five-Year Plan for Economic and Social Development for 1981-85 puts special emphasis on the need for policy reforms to re-establish fundamental financial and economic equilibria, notably by balancing the government budget, reducing the balance of payments deficit, reducing the losses of the state enterprises, and controlling training and recruitment for the Civil Service. Development Policies 13. 1981-85 Development Plan. The new plan continues to give priority to water development for the rural population, livestock, and irrigation; to agricultural and livestock production for achieving food self-sufficiency, for supplying an expanded agro-industrial sector, and for increasing commodity exports; to energy development; and to conservation of natural resources-- especially forests and pastures. These objectives seem to respond fairly well to the major economic constraints facing the country. The new Plan clearly accepts the coexistence of the public, mixed, and private sectors, and it seeks to increase local private participation in investments. 14. Development expenditures proposed by the new Plan are estimated at US$2.2 billion (in 1981 prices and exchange rates), of which US$1.7 billion would be required during the five-year planning period. Roughly 70 percent oulJd finance actual capital investments, the rest being for supporting expen- ditures. Foreign sources will be expected to provide over 85 percent of the financing. Compared to the previous planning period (1974-80), the implied annual investment level appears to be 50 percent greater. Judging from past experience implementation of the Plan may encounter delays and difficulties in project preparation and execution, partly because the link to budgeting is weak. 15. Foreign Aid. Foreign aid finances practically all public investment in Mali Pr" is therefore critical for promoting future growth. More than half of this aid is in the form of grants, and almost all the rest is loaned on highly concessional terms by official aid agencies. Multilateral agencies provide about two-fifths of long-term loans. IDA is by far the largest multi- lateral lender, accounting for about half the multilateral loans and for 18 percent of total debt committed and outstanding. Long-term external public debt (about two thirds of which is disbursed) has increased substantially over the last 10 years, although debt levels per capita and as a share of GDP have declined, reflecting the increase in official grant aid and growing recourse to short-term liabilities drawn on the Operations Account. Actual debt ser- vice payments on long-term debt have been modest, amounting to US$9.3 million in 1981, or only 4.6 percent of exports of goods and non-factor services. This ratio is lower than in the late 1960s and the early 1970s, and has been made possible by rescheduling some debts and by converting some loans into grants. However, the debt-service ratio could rise significantly in the future unless rescheduling is extended or further conversion occurs, which seems probable.  - 6 - 16. Sustained and viable growth of Mali's economy in the longer run depends crucially on policy reforms and investments that will strengthen the economy. As noted, the Government has recently taken some initial steps in this direction, including changes in certain economic policies, improvements in public finances, and a new emphasis on policies in the 1981-85 Plan. The Government's actions indicate a new commitment to economic reform--including more reliance on the private sector--and warrant cautious optimism that re- forms will be carried out. However, while these are positive signs, it is still too early to judge if the measures can be sustained. Similar efforts have been initiated in the past but postponed because drought, world infla- tion, structural constraints and poverty leave the country little margin for maaeuver. Continued progress in these directions will be difficult because policy reforms will take time and needed investments will require increased resources. Regarding policies, existing patterns of high domestic coasump- tion--both public and private--will have to be switched carefully to avoid undue hardship on an already poor population. Regarding investments, Mali's financing capacity for initial expenditures and rerurrent costs is severely constrained by both the legacy of high spending levels and the limited savings potential when per capita income is extremely low. IDA can assist in design- ing and implementing policies and can help finance sound productive invest- ment, including a high level of recurrent, local-cost financing to reduce delays in project implementation. PART II - WORLD BANK GROUP OPERATIONS IN MALI 17. The proposed credit would be the Association's twenty-eighth credit extended to Mali (including two supplementary credits), which would bring total commitments of IDA funds to US$255.9 million equivalent. Of the twenty- seven operations already approved, ten have been for agriculture, eight for transport, two for education, two for telecommunications, one each for small- scale industries, urban development, petroleum exploration promotion, power and water supply, and technical assistance. Transportation and agriculture represent the largest share of past commitments, with 31 percent each of total commitments. The experience with ongoing operations has been mixed. In general, project implementation has been hampered by Mali's difficult public finance situation, althiough the disbursement profile through 1982 for Mali is slightly more Faepid than for both the West Africa Region and all IDA coun- tries. In addition, the International Finance Corporation has made two in- vestments for a total of US$3.2 million equivalent, in a company manufacturing bleach and plastic products, and in a company processing sheanut butter for a export. Notes on the execution of ongoing projects are in Annex II. 18. The Bank Group's strategy in Mali is governed by the constraints and potentials sat out in Part I. The principal objectives of Bank Group assis- tance are to help improve the country's economic policies, to finance produc- tive investments, and to help develop institutions to implement policies and projects effectively. The scope and pace of IDA's program depends on an on- going assessment of the country's economic management, particularly upon the willingness and ability of the government to address policy issues and under- take reforms where they are needed.  -7- 19. Future IDA lending for agriculture will focus on pricing and institu- tional issues. Future lending in the road transport sector would address the problem of generating and allocating adequate recurrent cost financing. A second agricultural production project in the cotton zone will address sector pricing issues. Projects are also being prepared for rural water and health, as well as a third education project emphasizing basic education, adult literacy and technical training. PART III - THE ENERGY AND AGRICULTURAL SECTORS Energy Situation and Outlook 20. Energy demand in 1950 is estimated at about 760,000 tons of oil equi- valent or about 110 kg per capita. Firewood meets about 69 percent of energy demand; petroleum products, 24 perc5nt; and charcoal, the remaining 7 percent. Mali has forests covering 40,000 km , possibly holding wood reserves of about 150 million tons, but wood is rapidly being depleted around population centers because it is used to meet over three-quarters of household energy demand. Imported petroleum products satisfy virtually all commercial energy demand that is not met by firewood or charcoal. Because high petroleum import costs are a major factor in the serious balance of payment crisis Mali now faces, the Government attaches high priority to developing alternative domestic energy resources. Potential sources of renewable energy include wind and solar power, and agricultural by-products--primarily rice husks, groundnut shells, and sugarcane bagasse and molasses that are either wasted or under- utilized. The latter resources form the basis of the proposed Project. Petroleum Products 21. Petroleum consumption grew steadily at an average annual rate of 9.5 percent between 1971 and 1979 but decreased slightly in both 1980 and 1981 because of domestic price increases. Current consumption is an estimated 191.5 million liters (157,000 tons), down from a peak of 222.7 million liters in 1979. Petroleum products consumption is expected to increase in the 1980s, though at a lower rate than in the 1970s. Gasoline accounts for almost 40 per- cent of consumption volume, and its share has been increasing. 22. All petroleum products are imported and distributed by five interna- tional companies (Esso, Shell, Mobil, BP, and Total), who share the market about equally. The companies are members of the Mali Confederation of Oil Distributors (COD), a trade organization that works closely with the Govern- mcnt in coordinating public and private interests in the petroleum sector. Petroleum products are imported from Dakar by rail (23 percent of total volume), and from Abidjan and Parakou by road (65 and 2 percent, respectively) (see map). These shares reflect an acceptable compromise among several factors, including cost effectiveness, the limited capacity of the railroad, the need to diversify supply sources to minimize the risk of disruptions, and the varying accessibility of different regions of Mali to different sources of supply. The only bulk gasoline storage depot, which is owned by one of the  - 8 - oil companies, is located at Bamako, where all premium gasoline and about two- thirds of regular gasoline is sold. This marketing and distribution system works reasonably well, is cost effective, and is considered satisfactory. 23. The Government officially sets petroleum prices, and the pricing sys- stem is managed by the Office pour la Stabilisation et la Regularisation des Prix (OSRP), a Government agency. Prices are periodically reviewed in con- sultation with the private impor;ers and revised as appropriate. On average, domestic retail prices of gasoline, kerosene, and diesel have exceeded import costs in 1980 and 1981. In January 1982 prices were substantially increased, and the current retail price of regular gasoline is MF 520 per liter (US$3.04 per gallon). Retail prices of all petroleum products eve above their oppor- tunity value and on average exceed import cost by about 15 percent. Under the Petroleum Exploration Promotion Project (Cr. 1134-M1I), the Government is carrying out a review of its pricing policies for petroleum products. The Sugar Subsector 24. Compared to other countri9s in the Sahel, Mali has above average land and water resources. Cotton, coarse grains, and rice are the main crops cul- tivated by smallholders. In the 1970s, sugarcane also emerged as a major crop, grown on two irrigated plantations (Dougabougou and Siribala) by the Office du Niger (ON) approximately 280 km to the northeast of Bamako (see m'p and paras. 30-33). There is no shortage of irrigation water. Up to about 1,300 ha can be irrigated at Dougabougou, and 2,100 ha at Siribala using existing facilities. Cane yields have averaged about 50 tons/ha at Dougabou- gou, and over 90 tons/ha at Siribala, the difference resulting from the improved cane varieties and better soil and drainage at Siribala. Cultural practices are generally satisfactory although improvements could be made in cane handling and transport techniques through semi-mechanization. Tractors, vehicles, and other agricultural equipment are adequate but their timely Pnd efficient availability needs to be improved. The cane crushing capacity at the Dougabougou mill is 400 tons per day (tpd), at Siribala, 1,000. Both mills are of standard design with annex alcohol distilleries and were built with Chinese aid; Dougabougou was commissioned in 1966, Siribala in 1976. Sugar production at ON is generally considered profitable at existing official prices. For example, in 1981 full production costs, including ON profits, were estimated at about 400 MF/kg, when imported granulated sugar was oifi- cially sold retail at 600 MF/kg. However, the domestic price includes signi- ficant taxation; the border price was about 350MF/kg (US$0.64/kg) in 1981 and 250 MF/kg (US$0.40) in 1982. Future prices are expected to rise by about 50 percent from current lows, to a level near the production costs at ON. 25. Total sugarcane production increased gradually from about 177,000 tons in 1976/77 to 225,000 tons in 1979/80. Dougabougou and Siribala together produced over 18,000 tons of sugar and 8,000 tons of molasses annually from 1977 to 1980, when both facilities were operating normally. Sugarcane through-put was reduced in 1980/81 (173,000 tons) and 1981/82 (88,000 tons) because the 15-year old Dougabougou industrial complex, after frequent break- downs, was closed for rehabilitation for the entire 1981/82 campaign, and the factory at Siribala had operating difficulties caused by lack of spare parts and inadequate maintenance. As a result, sugar production dropped to about 11,600 tons in 1980/81, and molasses production to about 5,300 tons.  26. The Dougabougou factory started operating again in October 1982, having been completely rebuilt with Chinese assistance. The Chinese are also expected to rehabilitate the Siribala sugar zill, -which is currently scheduled to be completed at least one year before commercial production of alcohol starts under the proposed project. The Malians achieved satisfactory perfor- *nance for 15 years at Dougabougou without any prior experience in sugar operations. It is therefore reasonable to expect that performance in the 1980's will imurove as a result of the experience gained in the 1970's and the rehabilitation of the sugar mills. Past production levels of sugar and molasses can be resumed beginning with the 1984/85 campaign, and these would be adequate to meet the reouirements of the proposed project. 27. Each sugar mill has fermentation and distillation facilities capable of producing 95 percent ethanol, with sufficient capacity to process all the molasses remaining after sugar production. However, less than 10 percent of the available molasses is used to produce the alcohol sold in Kali for pharma- ceutical and industrial uses. The leftover molasses has no alternative market outlet because transport and handling costs exceed its current export market value and make it too expensive for widespread domestic use as a livest'ck feed-supplement. It is now discarded to the bush, where it creates an en- vironmental problem. This wasted molasses would be the raw material for fuel alcohol production under this project. Government Energy Strateg' 28. The Government intends to develop all potential domestic energy resources to reduce dependence on imported oil products, but there is a long lead time to exploit most potential domestic energy resources, like hydro- electric power and solar energy. In addition, the demand for liquid fuels (mainly in the transportation sector) is relatively inelastic over the loag run because of current lo.f consumption levels and limited opportunities for interfuel substitutions owing to technical and economic reasons. Meanwhile, the cost of petroleum imports is expected to continue to rise in the medium term. In this context, an opportunity to produce liquid fuel with a short lead time and using existing facilities has a high priority. 29. The molasses now wasted can be used to produce anhydrous ethanol (ethyl alcohol of at least 99 percent purity), which could replace an equal volume of gasoline in a blend of gasoline and alcohol commonly referred to as wgasohol. Experience in other countries has shown that gasohol blends con- taining up to 20 percent anhydrous alcohol have practically the same perfor- mance as gasoline and that gasoline-powered vehicles do not require engine modificatiKons to run on gasohol. The gasohol blend in Mali would have a modest alcohol content (less than 5 percent), thus minimizing any technical problems, while achieving significant savings in gasoline imports (about 2 million liter per year worth approximately US$1.0 million). The Office du Niger 30. The Office du Niger is a parastatal enterprise operating the largest irrigation network in West Africa. The French colonial administration created it in 1932 to grow irrigated rice and cotton in an area that was once part of  - 10 - the central delta of the Niger River. The irrigation system consists of the Iarkala barrage, which raises the water level of the river by over 5 meters, a feeder canal upstream of the dam, and three main irrigation canals (Sahel, Nacina, and Costes--under constrrction), and thousands of kilometers of secondary and tertiary canals an, drains (see map). Total irrigable land, developed mostly in the 1930s end 1940s, amounts to almost 60,000 ha, of which about 36,000 are in single-cr,op rice and about 3,000 in sugarcane. Cotton production was stopped in 1970. As the largest rural development operation in 1ali, ON operates two sugar complexes (para. 24), provides irrigation water and extension and other farnu support services to ovnr 5,000 families cultivat- ing rice, operates four ric'! mills, and maintains two experimental feedlots for beef cattle. The ON employs about 4,000 permanent workers, plus about 5,500 seasonal cane cutters. Annual gross revenues, including cost recovery for agricultural services to rice producers and sales of sugar, alcohol, and rice, averaged about US$25.0 million in 1977-80. Financially, the ON has its own independent budget; but it has received aid from external donors and modest transfers from the OSRP to compensate for losses caused by the official price structure for rice. 31. Although placed under the Ministry of Agriculture with a Director appointed by the Council of Ministers, the ON has considerable financial and managerial autonomy. Until recently, the managerial structure of the Office du Niger consisted of ten centralized departments under the Director, includ- ing civil works and mechanical support, agricultural production, industrial activities, marketing, studies, and purchasing and supplies, as well as admin- istrative services like accounting, personnel, statistics, and farmer affairs. In the past year, partly as the result of technical assistance financed by the Association, (para. 34) the office has introduced decentralization measures that would lead to a separate rice sector (with five geographic suo-divisions) and a separate sugar sector (with two geographic subdivisions), all supported by services provided by reorganized profit and cost centers. The new struc- ture, which is intended to give greater operational autonomy to the production units, will take at least two years to put into place, and, in the meantime, decision-making and budgetary control remain highly centralized. 32. The operational performance of the ON was relatively good through the late 1970s but has been deteriorating since then, especially after it started construction of a new main irrigation canal (Costes) in 1978, in part to pro- vide gravity irrigation for the sugarcane plantations. By switching out of mechanized cotton production by 1970, rice cultivation increased from 30,000 ha at independence to nearly 40,000 ha by 1976, although it has since shrunk to about 36,000, partly because of irrigation and drainage problems. Paddy yields also increased from 1.6 tons per ha in 1970 to over 2.5 in 1978 but have since declined to earlier levels, owing in part to problems with farmer incentives. After the creation of the new sugar plantation in the mid-1970s, output quadrupled from less than 5,000 tons to nearly 19,000 in 1978. Output has a'lso fallen in the early 1980s, however, largely as a result of closing the Dougabougou sugar factory for major renovations because repairs had not been adequately provided for in the past.  - 11 - 33. ON did not issue adequate financial reports on its operations from 1964 to 1978. Problems related to the valuation of assets after the transi- tion of ownership from France to Mali are the main reason for this, but accounting and financial control systems and staff are also inadequate. Through the help of technical assistance financed by IDA (para. 34), Office du Niger has prepared consolidated financial statements for 1979 and 1980. These have been audited but not certified, pending Government decisions on its rights as a shareholder and as a creditor of Office du Nige-r and the verifica- tion of key assets, mninly rceiv-ables and inventories. These financial statements indicate good capitalization but deteriorating profitability and uncertain liquidity resulting from both allocating financial resources to build the Canal Costes and declining rice and sugar production in 1981 and 1982. In fiscal year 1982, ON had a cash flow deficit requiring it to roll over its bank overdrafts, but liquidity is expected to improve as sugar pro- duction returns to previous levels. The alcohol production envisaged under this project would further strengthen ON finances. 34. rDA has financed one previous project to ON for US$4.5 million, beginning in 1978 (Credit 854-MLI), consisting of a three-year program of technical assistance and pilot rehabilitation works. As IDA's first action in this irrigation scheme, the project was viewed as a vehicle for evaluating both ON's capabilities and the prospects for larger-scale support, with the basic objective to lay the groundwork for a future, large-scale rehabilitation project. To this end, the project aimed to strengthen ON administration, to experiment with alternative types of physical rehabilitation, to prepare plans for and estimate costs of future rehabilitation, and to support agricultural research for crop diversification. The project encountered several difficul- ties, including delays and cost overruns caused by delays recruiting consult- ants and problems working with the staff of ON. The PPAR If concluded that the project did not achieve its major objective of preparing an irrigation rehabilitation project, but it did bring to light the major institutional constraints in ON, including its organizational structure and socio-economic conditions for its farmers, which had been underestimated at appraisal. It concluded that any improvement in physical facilities should be subordinated to action in these areas. The PPAR also pointed out the need to include spares and service in financing for equipment. The design of the proposed project would deal with these problems, through provisions to strengthen management in the sugar sector and financing for technical assistance, train- ing, and spares to improve maintenance. More importantly, ON has demonstrated a firm willingness to take actions consistent with this project. 35. By early 1982, largely as the result of financial pressures caused by the deteriorating cash-flow of ON, the Malian authorities recognized that im- portant actions must be taken both to increase sugar and rice production and to reforr the overly centralized administrative structure of ON. Actions to streamline ON management include establishing separate sugar and rice sectors as a first step toward effective devolution of authority (para. 31). Actions to improve the relations between ON and its farmers include a reduction in water charges where irrigation is poor, an increase in the share of production 1/ Project Performance Audit Report No. 4414, dated March 25, 1983.  - 12 - farm families arer allowed to keep, and--in some cases--greater security cf land use rights. The government also accepted a high-leveL diagnostic mi3sion in late 1982, led by French representatives with Dutch and World Bank financed participants, which collaborated with Malian authorities to produce an ambitious rehabilitation plan for ON, covering three phases. The first would be to consolieate current activities by intensifying production on existing infrastructure. The second would be to rehabilitate and modernize the irriga- tion system; and the third would be to expand production onto newly developed land. Subsequent to the release of this rehabilitation plan, representatives of the World Bank, French, Dutch and other bilateral aid agencies and of the Malian government have met on several occasions in Washington, Paris, and Bamako to discuss and agree on broad principles for a coordinated, donor- Zinanced progr&m to help rehabilitate the ON. Znere has been general agree- ment on measures to enhance the working conditions of rice farmers (along the lines of on-going Dutch-financed experiments), to improve the quality of irri- gation services, and -- with respect to the sugar zector -- to establish a separate production unit with full managerial and financial autonomy within the ON. The purpose of this third measure is to protect the productive assets of the sugar sector and to enable it to function efficiently within an organi- zation that is otherwise chronically short of funds and administratively cum- bersome. It is all the more important since sugar profits provide essential financial support for rice production. The proposed project would provide a valuable first step in implementing both the first phase of the government'3 rehabilitation plan and in carrying out some of the measures agreed upon by the donors. It would also be an important sign to the Government that IDA supports its positive new efforts to strengthen the Office. PART IV. THE PROJECT Background 36. The project was identified by an IDA mission to Mali in February 1980. Preparatory studies and related technical assistance were carried out with financing of two advances totalling US$0.95 million under a Project Preparation Facility. An IDA mission appraised the Project in October 1981. Negotiations were held in Washington in May 1983 with a Government delegation led by the Minister of Agriculture. A credit and project summary is given at the beginning of this report and a staff appraisal report is being circulated separately to the Executive Directors. A supplementary project data sheet is presented in Annex III. Project Objectives and Scope 37. The main objectives of the proposed Project are: (a) to reduce Mali's dependence on petroleum imports through production of anhydrous alcohol (about two million liters annually) from surplus molasses to blend with gasoline and through improved energy efficiency in its two sugar complexes by better use of bagasse; and (b) to help develop a coherent program of policy reforms and in- vestments to rehabilitate the Office du Niger. The project would include the following components: (a) biomass alcohol production, storage, and handling;  - 13 - Oa energy efficiency improvements; (c) gasohol blending and distribution; (d) technical assistance and training; 'e) biomass energy study; and (f) technical assistance for an Office du Niger Rehabilitation Task Force (RTF). Project Description 38. Biomass Alcohol Production, Storage, and Handling: Tne Siribala and Dougabougou distilleries are currently designed to produce industrial grade alcohol (hydrous ethanol) of about 95 percent purity. The existing distil- lation train at Siribala would be upgraded to produce anhydrous ethanol of at least 99 percent purity to be blended with gasoline to produce 'gasohol'. The Dougabougou distillery would be maintained as the source of hydrous alcohol to meet local demand; surplus industrial grade alcohol would be transported 20 km to Siribala for further processing. 39. To accommodate the proposed alcohol production, the project would provide additional storage, loading and unloading facilities, and vehicles, including: (i) vehicle loading facilities at Dougabougou to deliver surplus hydrous alcohol to Siribala; (ii) vehicle discharge facilities and buffer storage at Siribala to accommodate the hydrous alcohol received from Dougabou- gou; (iii) vehicle loading facilities and storage for anhydrous alcohol at Siribala to be delivered to the Bamako blending depot; and (iv) trucks to transport hydrous alcohol from Dougabougou to Siribala. Existing molasses storage capacity is sufficient to meet anticipated requirements. To help avoid past problems caused by poor maintenance, the project would finance technical assistance and training to strengthen onerations and mainte-ianee in the mills and distilleries (para. 42), finance a stock of spare parts, and help protect sugar sector finances from other ON uses until all sugar and alcohol production costs are covered. 40. Energy Efficiency: The Siribala and Dougabougou industrial complexes currently operate at suboptimal thermal efficiency because process equipment, instruments, and piping are inadequate and maintenance and operations are poor. The sugar mills and alcohol distilleries would be modified to increase efficiency of steam utilization and distribution by adding cooling towers, a yeast recycling system to increase fermenter through-put, and, at Siribala, complete repiping, additional instrumentation, and evaporation vessels. As a result of these investments co produce and distribute steam efficiently, there should no longer be any need for supplementary petroleum fuel for either sugar or ethanol production. Operation and maintenance would also be strengthened (para. 39). 41. Gasohol Blending and Distribution: To ensure consistent, satisfac- tory gasohol quality, alcohol would be blended with gasoline at the retroleum products storage depot at Bamako owned and operated by a Mobil affiliate (para. 22). The project would install a 250,000 liter alcohol storage tank with piping and an automatic blending pump under Government ownership, which would be leased to the existing depot operator under terms of no less than 13 percent interest for 12 years (Development Credit Agreement (DCA) Section 3.05). Alcohol Production Unit of ON would sell the alcohol ex-distillery to the petroleum distribution companies who would arrange alcohol transport from the Siribala distillery to the Bamako depot. During negotiations, assurances  - 14 - were obtained that the Government and ON would formalize, before Janaary 31, 1984, an agreement with the Mali Confederation of Oil Distributors (or with its individual members) specifying satisfactory arrangements for the storage, marketing and distribution of gasohol (DCA Section 3.05). These arrangements have already been discussed and agreed in principle. 42. Technical Assistance and Training: Technical assistance would be provided to staff at various levels to support project implementation and subsequent operations, covering both plantations and factories. Regarding factories, the project would finance a review of their technical and opera- tional staff training requirements and preparation of a detaiL.d training and technical assistance prog:em, inclrding provision for implementine revised operations and maintenance systems and management information, accounting. and financial controls systems. Assurances were obtained during negotiations that the detailed prograa would be prepared for IDA approval by January 31, 1984 (Project Agreement (PA) Section 2.01f). Regarding plantations, the project would finance training and technical assistance for sugarcane production and handling to ensure that future cane supply is sufficient and reliable. 43. Biomass Energy Study: Because the Government is committed to devel- oping other renewable energy resources, the project would finance a study to assess both the potential and the economic justification for biomass fuel production in Mali. The study would be carried out by the Ministry of State for Equipment with seven work-months of assistance from internationally- recruited consultants under mutually agreed terms of reference (DCA Section 3.06). 44. Rehabilitation Task Force: Since late 1982, Government has takea initial steps to develop a comprehensive OR rehabilitation pnan (para. 35), and discussions with possible donors on basic aspects of reform and rehabili- tation have advanced satisfactorily. Given the difficulties in the past, donors have agreed that future interventions should be part of a collabora- tive, multi-donor effort, even though donors may finance actions separately. In order to prepare a program that incorporates both a coherent set of policy reforms with an integrated package of investments that could be financed by various donors, ON would set up a Rehabilitation Task Force (RTF). This com- ponent would finance the resident technical assistance, short-term consulting services, studies, logistical support and equipment needed to staff the RTF and to enable it to operate effectively. The RTF would report to the ON Director During negotiations, assurances were obtained that by December 31, 1983, the RTF would be created with the necessary technical assistance and a work program established on terms and conditions satisfactory to the Associa- tion (PA Section 2.01e). To develop a rehabilitation program, the assistance would consist of three resident specialists, qualified in irrigation engineer- ing and operations, agronomy, management and financial analysis, and agri- cultural development generally. To help set up a unified sugar sector (para. 47), assistance would consist of two consultants qualified in sugar industry management and financial accounting. Approximately 15 work-~rears of expert and consultant services would be provided. 45. In addition, as part of initiating the rehabilitation program, the Government requested financing from various donors to replenish stocks of  - 15 - inputs necessary to maintain yield levels for rice and sugar. These stocks have been seriously depleted as a result of ON financial difficulties over the last two years (para. 33). As cane production for the beginning of the project is critically important to ensure throughput for the sugar mills and distilleries, a provision of USS0.4 million has been made within this com- ponent to allow ON to purchase fertilizers and other chemicals for cane pro- duction. These stocks would be reconstituted by ON out of revenues fronl the sale of sugar products paid to the Sugar Account (para. 47) in 1934 and there- after. 46. Project Organization and Management: The Office du Niger would be responsible for implementing the alcohol production, storage, and handling component, the energy efficiency component for the sugar industrial complexes, the industrial and plantation technical assistance and training, and the reha- bilitation task force. The Ministry of State for Equipment would be respon- sible for implementing the gasohol blending and distribution component and the biomass energy study. 47. For implementation of those components related to the sugar sector, assurances were obtained during negotiations that by July 1, 1984 a unified Sugar Division (SD) would be established for all ON sugar operations including sugarcane plantations, alcohol distilleries, sugar mills, and support services such as warehousing, storage, maintenance, and transportation (PA Section ?.Olb). The SD would have managerial and financial autonomy, including a separate bank account, and a manager and a financial manager (DCA Section 3.07, PA Sections 2.Old, 4.02). Opening the separate bank account for sugar, into which ONl would deposit all revenues from the sale of sugar, sugar by- products, and alcohol, is a condition of Credit effectiveness (PA Section 4.03a, DCA Section 6.01b). Control over sugar and alcohol revenues would remain under the manager of the SD until all expenditures for producing sugar and alcohol were met (PA Section 4.03b). In addition, assurances w-re ob- tained that, at least three months before the start of each sugar campaign, the head of the Sugar Production Unit would submit to ON's Director for approval an Operational Plan for the cane crushing season (PA Section 3.04a). 48. The proposed project would also create an Alcohol Production Unit (APU) as a separate profit center, or self-contained organizational and accounting unit under the SD (PA Section 2.01b). The head of the APU would be project manager for all aspects of project implementation related to alcohol production. He would be assisted by a chemical engineer, a financial con- troller, and two storage operators to be recruited under the project to supplement existing staff at the two distilleries. Establishment of the APU is a condition of Credit effectiveness (DCA Section 6.01c). 49. Employment and Productivity: As the project basically involves the modification and improvement of the existing plants, it would create only about 200 new jobs, consisting of additional workers to operate and maintain the distilleries and to load, unload, ship, and blend alcohol. After project completion, the labor productivity at Siribala and Dougabougou is expected to increase significantly, partly as a result of project training and technical assistance, which are expected to improve the two plants' operating and main- tenance standards and their energy efficiency.  - 16 - Project Cost and Financing 50. Total financing required for the project cost is estimated at US$8.3 million equivalent, of which 87 percent would be foreign exchange expendi- ture. This estimate includes refinancing of the PPF advance of US$0.95 mil- lion, and excludes duties and taxes, which are not applicable. Total con- tingencies are JS$1.8 million, or 23 percent of total project costs. Base costs are estimated in mid-1983 prices, and allowances for expected price increases for both local and foreign costs are based on projected annual inflation rates of 8.0 percent in 1983, 7.5 in 1984, in 1985, and 6.0 in 1986 and thereafter. Allowances for physical contingencies are estimated at 10 percent of base costs. Project costs are summarized in the credit and project suamary. The proposed IDA Credit of SDR 7.1 million (US$7.6 million) would finance the foreign exchange costs of the project and US$0.4 million of local expenditures. To finance local currency expenditures for the APU, ON would use internally-generated cash equivalent to US$0.2 million as an equity contribution to the APU. ON's equity contribution would also include the two distilleries and related assets. The Government equity contribution to the APU would finance interest during construction in local currency (US$0.3 million). ON would also finance part of the local costs for the RTF (US$0.2 million). The total local contribution will be 5 percent of total project cost. 51. During negotiations, assurances were obtained that the Government would lend to Office du Niger US$4.1 million equivalent for the exclusive benefit of the APU, for 13 years including 5 years of grace at an interest rate of 9 percent p.a., with a cammitment fee of 0.75 percent p.a. on the undisbursed partion. ON would bear the foreign exchange risk. Execution of the subsidiary loan agreement would be a condition of Credit Effectiveness (DCA Sections 3.01c, 6.01a). Assurances were also obtained that the Govern- ment would enter into a financial lease agreement with the owners of the Bamako depot. The lessee will be responsible for operating and maintaining the project facilities. The lease will expire in 12 years and lease installments would be calculated to yield 13 percent. The lease agreement will be executed by January 31, 1984 (DCA Section 3.05a). Procurement and Disbursement 52. Contracts for goods, civil works and construction, including the necessary engineering for the Project's alcohol production and energy effi- ciency components shall be separated into lots; the bidders for such lots will be grouped under the overall responsibility of a principal contractor who will ensure adequate coordination and effici. t execution of contracts covering detailed engineering, construction, supply of equipment, installation, and start-up of the modified plants. Contracts will be awarded following inter- national competitive bidding in accordance with IDA procedures, with a 7.5% and 15% margin of preference for local contractors on civil works and local suppliers of equipment, respectively. The principal contractor will secure the appropriate equipment performance guarantees from the vendors. This con- tracting arrangement would mitigate the risk of cost overruns, and minimize the Project demand an ON's scarce management resources. Because the small size of individual contracts would be unlikely to attract international  - 17 - competitition, equipment for gasohol blending will be procured in accordance .5th local procedures, satisfactory to IDA. Vehicles, tools, office equip- ment, and training materials for the technical assistance components, esti- mated to cost less than US$50,000 equivalent per contract, and in aggregate not to exceed US$300,000 equivalent, may be procured through negotiated purchase, after soliciting bids from at least three reliable suppliers, in accordance with procedures satisfactory to IDA. 53. Funds from the IDA Credit would be disbursed as follows: (a) civil wcrks: US$0.3 million; (b) equipment, materials and spares: US$2.5 million; (c) engineering services: US$0.4 million; (d) technical assistance, training * and studies: US$2.7 million; (e) PPF refinancing US$0.9 million; (f) unallo- cated: US$0.8 million. Disbursements would be against 100 percent of foreign and 75 percent of local expenditures. Disbursements would be fully documented. The Credit is expected to be fully disbursed by December 31, 1987. Financial Covenants 54. To define clearly management responsibility for this project ard to ensure that the entire sugar sector would have sufficient funds for efficient operations, the Sugar Division and under it the Alcohol Production Unit, would have independent financial management within Office du Niger. At nego- tiations, assurances were obtained that the Sugar Division would have a se- parate bank account, distinct from the general account of the ON, where all revenues from sugar and alcohol sales would be deposited. The funds would be used in priority to assure operation of the plantations and mills, according to an Operational Plan agreed to by the head of the SD and the Director of ON, and to assure distillery operation under the APL'. It was further agreed that the APU will maintain (i) a ratio of current asse's to current liabilities of at least 1.5:1; (ii) working capital of at least US$500,000 equivalent; (iii) a debt to equity ratio of no more than 55/45; and (iv) total funded debt of no more than US$4.5 million equivalent (PA Section 4.04). Furthermore, ON would be required to give APU first call on molasses (PA Section 4.05). Auditing and Reporting Requirements 55. Within six months of the end of the fiscal year, ON would be required to submit to IDA annual audited consolidated financial statements, including accounts of the SD sugar operations and annual financial statements of the APU, certified by independent auditors acceptable to IDA (PA Section 4.02b, & c). In addition, the Project's financial controller would submit quarterly financial statements for the APU and quarterly project progress and procure- ment reports (PA Section 4.02e) within four months of the end of each quarter. Assistance to carry out the above tasks would be provided by financial consul- tants (para. 42). Finally, within six months after the closing date for the project, the Government would prepare and submit to IDA a project completion report (DCA Section 3.04d).  - 18 - Benefits, Risks and Policy Content 56. The project's overall economic rate of return 1s estimated at 21 per- *ent (calculated on 59 percent of project costs for which benefits have been quantified) resulting principally from the substitution o; about two million liters of gasoline imports per year with an equal voluce of locally distilled anhydrous alcohol, as well as from savings of industrial dLesel oil (amounting to about 800,000 liters per year) that would otherwise be needed to generate steam for sugar production without this project. Net anual foreign exchange savings from reduced gasoline and diesel oil imports as a result of the project are about US$1.3 million in 1983 prices. The project would also yield several non-quantifiable benefits, including more efficient sugar production resulting from improved plant operation and maintenance, a more effective organization of ON resulting from decentralized profit and cost centers, a program of coherent policy changes and investments for ON that different donors could finance in a coordinated fashion, additional strategic fuel storage, and a study to identify additional sources of renewable energy in Mali. 57. Technical risks associated with project start-up and operations are not significant because the technology is simple and commercially proven. ON has experience producing hydrous alcohol, and the equipment that would be pro- vided by the proposed project to produce anhydrous alcohol requires essenti- ally the same level of skill and expertise. 58. The main inolementation risk is that plant construction and start-up wotald be delayed. In addition, there is the risk that factory capacity would be underutilized, in part because of inexperienced management and/or a pos- sible shortage of molasses. Finally, there is the risk that the Rehabilita- tion Task Force would not lead to an acceptable assistance program for ON. The employment of an experienced and established engineering firm and the proposed contracting arrangements (para. 52) are designed to minimize the implementation risk. The risk of capacity underutilization would be reduced by strengthening operational and maintenance staff of the Alcohol Production Unit, improving the management of the sugar sector to assure that past high levels of molasses production are sustained, and assuring that key project staff have requisite qualifications and experience (para. 42). Regarding the RTF, the risk is considered worth taking given the large improvements in the dialogue with ON since late 1982 and the strong interest of other donors in supporting a program of assistance. PART V - LEGAL INSTRUMENTS AND AUTHORITY 59. The draft Development Credit Agreement between the Republic of Mali and the Association, the draft Project Agreement between the Association and Office du Niger, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately.  - 19 - 60. Special conditions including conditions of effectiveness of the project are listed in Section III of Annex III. 61. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 62. I recommend that the Executive Directors approve the proposed Devel- opment Credit. A.W. Clausen President Attachments by Ernest Stern Washington D. C. May 26, 1983 .  - 20- ANNEX I TAB.L 3K ALi -S1Ci IMDICATOMR TA SUET HALI REFC7CNCC Camps (WKCIGCD AYVECEU ARCtA (SIIDUSAND SQ. MOST - Hor t T CSSSFSTCp TOTAL 1 240.D MST RECENTMIDDLEcinc AGRICULTURAL 320.5 1960 /b 1970 /b STMATC tb AMRICA STM OF BAARA AFRICA SOUTH OF BANUA CNP PER CAPITA (US) 60.0 80.0 190.0 250.8 1053.2 ENEGY CONSUNITION PER CAPITA tRLY WCANS o. MAL EQUIVALENT) 14.0 20.0 27.7 66.5 610.1 POPULATION AND VITAL STATISTICS POPULATIoN MID-TEAK (THOUSANDS) 4224.0 5362.0 7045.0 URBAN POPULATION (PERCENT OF TOTAL) 11.0 14.9 19.9 17.8 28.3 POPULAiION PROJECltONS PoPULIrON 3IN eMAR Zoo (MILLIONS) 12.9 STATIUYRT POPILATION (HILLIONS) 40.7 WEA STATIONARY POPULATION IS EACIED 2135 POPULATION M tITY PER SQ. KM. 3.4 4.3 5.5 27.7 54.7 PER SQ. KM. ACRTCULTURAL LAND 13.3 16.9 21.4 86.7 129.9 POPULATIDN AGE STEUCTURE (PERCENr) 0-14 YRS. 43.7 44.7 45.5 ".8 4.o 15-b4 YIS. 53.7 52.6 51.9 52.3 51.1 65 YRS. AND ABOVE 2.6 2.7 2.7 2.9 2.8 POPULATION GROWTH RATE (PERCENT) TOTAL 2.1 Z.4 2.7 2.7 2.8 URBAN 5.2 5.4 5.6 6.2 5.2 CRUDE BIflI RATE (PER THOUSAND) 49.9 49.1 49.5 47.3 47.2 CRUDE DEATH RATE (PER THOUSAND) 26.8 23.8 21.4 19.5 15.7 GROSS REPODUCTION RATE 3.3 5.2 3.3 3.2 3.2 FAMILY PLNNNING ACCEPTORS. ANNUAL (THOUSAN. ) USERS (PENCENT OF KARRIFI ) WOME) . .. FOOD AND NUTRIIION INDEX OF FOOD PROD:CTIOt PER CAPITA (1969-71-100) 103.0 LOO.0 84.0 88.7 90.7 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 86.9 85.6 83.1/c 90.2 93.9 PROTEIG (CRAMS PER DAY) 56.3 34.4 1.47 53.1 54.8 OF WHlCH ANL AND PULSE 15.1 15.4 13.671 18.4 17.0 CHILD (AGES 1-4i 4DRTALZTT RATE 45.8 39.8 33.9 26.7 23.9 HEALTH LiFE EXPECTANCY AT BIRTH (YEARS) 37.2 40.3 43.2 45.6 51.0 INFANT MOTALITY RATE (PER THOUSAND) 194.7 174.5 154.5 129.9 118.5 ACCESS TO SAFE MATER (PERCENT OF POPULATION) TOTAL .. . ' 9.0/ 23.9 URBAN .. 29.0 42d75 54.9 RURAL .. .. 3.o77 18.5 ACCESS TO ElCRETA DLSPOSAL (PERCENT OF POPULATION) TorAL * 8.0 .. 25.8 URBAN .. 63.0 .. 63.1 RURAL . . 20.2 POPULATION PER PEYSICIAN 67047.6 443L4.0 25555.1/c 32097.3 16185.2 POPULATION PER NURSING PERSON 4920.1/.,f 2846.1 2375.071 3264.6 2Z13.2 POPULATION PER HOSPITAL RED TOTAL 1535.07/eg 1480.OR 1848.Z/c 1225.0 1036.4 URBAN 370.2T. 1310.8 617.77; 249.5 430.8 RURAL 2950zss.u 1604.7 .. 1712.1 3678.6 ADMISSlONS PER HDSPITAL RED .. 27.3 30.5/c HOUSING AlKICE SIZE OF HOUSEROLD TOTAL .. .. 4.8/d URBAN .. .. RURAL .. .. AVERAGE NNMER OF PERSONS PER ROOM TOTAL .. .. MAN .. .. RU2AL .. .. ACCESS ZOM ELECTRICITY (PERCENT OF WELLINGS) TOTAL .. .. URRAN .. .. RURl L --  - 21 - PXge 2 TABLE 3A NALC1RTIL INDICATDRS DATA SMNT MALI IEFEREICE GOUP (uEEUTED AWAOBS -MNOST RECENIT ESStIAUT 196D lb 1970 /b ESTVIATE /b AFRICA MOUTH OF TBAKA AFRPCA SOU1N OF BANARA EDUrATION ADJUSTED ENROLIUEET RATIOS PRhANAY3 TOTAL 10.0 24.0 28.0 63.2 83.3 HALE 14.0 31.0 36.0 72.7 96.1 FEMALE 6.0 17.0 20.0 30.3 30.4 SECONDARY: TOTAL 1.0 5.0 9.0/c 10.2 13.3 MALE 1.0 8.0 13. Mc 13.2 19.' FEMALE 0.3 2.0 s.oTe 6.6 11.3 * VUCATLONAL ENROL. (Z OF SECONDARY) 14.6/h 9.8 1.0/1 7.9 4.7 PUPIL-TEACHER RATIO PRIlORY 44.6 40.1 4Z.6 47.4 38.6 SECONDARY 17.4 15.4 .. 26.2 23.4 ADULT LITERACY RATE (PERCENT) 2.51 .. 9.4/d 34.0 33.6 CONSUMPTION PASSENGER CAltS PER THOUSAND POP%fi.:.:-_ 0.5 1.6 Z.1/1 3.0. 31.9 RADIO RECEIVERI. PER THOUSAND POPULATION 1.9 11.2 13.1 34.8 71.8 TV RECElVERS PER THOUSAND POPUIATION .. .. .. 1.7 17.9 NEWSPAPER ("DAILY GENERAL INTERESr) CIRCULATION PER THOUSAND POPULAnON 0.2 0.5/k D.5. 2.9 19.1 CINEMA ANNUAL ATTENDANCE PR CAPITA 2.0 o.57i .. 1.1 0.6 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 2430.0 2963.0 3741.3 FEMALE (PERCENT) 48.1 47.9 47.6 34.1 36.5 AGRICULTURE (PERCENT) 94.0 91.0 72.6 78.4 56.5 INDUSTRY (PERCENT) 3.0 4.0 11.7 9.2 17.7 PARTICIPATION RATE (PERCENT) TOTAL 57.5 55.3 53.1 41.4 37.0 MALE 60.6 58.6 56.7 53.9 46.9 FEMALE 54.5 52.0 49.7 29.1 27.2 ECONMNIC DEPENDENCY RATIO 0.8 0.9 0.9 1.2 1.3 IlNCOE DISTRIBUTION PERCENT OF PRIVATE INCON? RECEIVED BY HIGHEST 5 PERCENT OF RUISENOLDS .. HIGHEST 20 PERCENT OF HOUSEHOLDS .. LOWEST ZO PErCENT OF HOUSEHOLDS .. LOWEST 4U PERCENT OF HOUSEBOLDS .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCMIE LEVEL (USS PER CAPITA) - URBAN .. .. 98.0/c 134.3 507.0 RURAL .. .. 60.07i 82.9 200.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) UURBAN .. .. 61.01c 96.4 523.9 RURAL .. .. 37.07rh 60.4 203.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 27.0/f 39.3 RURAL .. .. 48.07! 69.0 Not available Not applicable. NOTES /a The group averages for each indicator are population-uigbted arithltic *ans. Coverage Df countries mong the indicators depends on availability of data asd Is not unifoze. /b Unless otherwi noted. data for 1960 refer to any year between 1959 and 1961; far l970. betwen 1969 end 1971; and for Moat Recent Eatisate, between 1978 and 1980. /c 1977; Id 1970; /e 196Z; /f Covery_nt Pereonnel; /G overent hospital establisluente; /h Not Includilg private vocationil schools; /1 1975; L 1974; /k 1972; /; 1968. ey, 1982  -22- ~~~~~~ANNEX I Wbt.. Alithuaghlb Situ ii. 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