Uganda - Livestock Development Project

RESTRICTED Report No. TO-638a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BEEF RANCHING DEVELOPMENT PROJECT UGANDA September 9, 1968 Projects Department  CU;RRMCY EQUIVALITS US$ 1 i Uganda Shillings 7.14 U Sh 1 - 100 cents - US$ 0.14 El - U Sh 20 - US$ 2.80 t 1 million a US$ 2.8 million WEIGHTS AND MEASURES Imperial System  UGANDA BEEF RANCHING DEVELOPMENT PROJECT TABLE OF CONTEINTS Page No. S U M M A R Y i I. INTRODUCTION .... . . . . . . . . . . * * * * * * * * * 1 II. B3ACKGROUND ............................ 1 As General ... * . * . . . . . . . * . . . . * . . * 1 B. The Beef Cattle Sector . . . . . . . . . . . . . . . . 2 C . Animal Health . . . . . . . . . . . . . . . . . . . . 3 D. Agricultural Services . . . . . . . . . . . . . . . . 3 E. Land Tenure . . . . . . . . . . 4 . . . . . . . . . . 4 F. Government Policies on Livestock Development . . . . 4 4 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . e A. Project Description . . . . . . . . . . . . . . .. 5 B. Project Area . . . . . . . . . . . . . . . . . . . . 5 C. Detailed Features .............. . 6 D. Cost Estimates . . . . . . a a a . . . . . . . 7 E. Proposed Finan ci ng................ 8 F. Disbursements and Auditing . . . . . . . . . . . . . . 9 IV. ORGAUaZATION AND MANAGEENT . . . . . . . . . . . . . . . 10 A. Project Administration . . . . . . . . . . . . . . . . 10 B. Technical Services . . . . . . . . . . . . . . . . . . 10 C. Lending Operations . . . . a . . o . . V... .. . . ... 11 D. Procurement . . . . . . . . . . . . . . . . . . . . . 12 E. Marketing . . . . . . . . . . . . . . . . . . . . . . 12 V. BENEFITS AND JUSTIFICATION . . . .. .... . . . . . . 13 VI. CONCLUSIONS AND RECOMENDATIONS . . . . . . . . . . . . . 15 This report is based on the findings of an IDA appraisal mission to Uganda in May and June, 1967, composed of Messrs. J. C. Gerring, F. H. Knobel and A. Schumacher who all contributed to the report with Mr. Gerring having primary responsibility.  ANNEXES 1. The Banking System Table 1: Consolidated Financial Statement of All Commercial Banks Table 2: Financial Statement, 1966 and 1967 - Uganda Commercial Bank 2. Uganda Development Corporation Table 1: Consolidated Annual Balance Sheet 1962-1966 Table 2: Consolidated Profit and Loss Account 1962-1966 Table 3: Uganda Livestock Industries and Subsidiary Companies - Consolidated Balance Sheet and Profit and Loss Account 3. Animal Health 4. Ranch Development Models Table 1: Breeding Ranch - Large Size (9,000 Animal Units) Table 2: Breeding/Fattening Ranch - Medium Size (640 Animal Units) Table 3: Fattening Ranch - Large Size (7,500 Animal Units) 5. A. Ranch Investments and Operating Expenses Table lA: Breeding Ranch - Large Size Table 2A: Breeding/Fattening Ranch - Medium Size Table 3A: Fattening Ranch - Large Size Table 4A: Ranch Investments B. Projected Cash Position and Annual Herd Value Table 1B: Breeding Ranch - Large Size Table 2B: Breeding/Fattening Ranch - Medium Size Table 3B: Fattening Ranch - Large Size 6. Projected Phasing of Ranch Investment Costs and IDA Disbursements 7. Table 1: Projected Cash Flow - Uganda Commercial Bank, Livestock Account Table 2: Projected Cash Flow for Participating Banks 8. Administration Budget 9. Project Organization Chart 10. Duties. Powers and Qualifications of the Project Director 11.. Quantitative Benefits and Rate of-Return Calculations Table 1: Financial Rate of Return of Ranch Models Table 2: Estimated Net Benefit and Rate of Return to the Economy Table 3: Annual Increased Turn-off of Beef and Breeding Stock at Full Development from Project Ranches MAP - Project Areas  UGAP.DA BEEF RAXMCh I UG DEVELOPYENT PROJECT SIiTARY i. The Government of Uganda has requaested an IDA Credit to help finance the development of commercial beef ranches. The country has great potential for expanding its output of beef froma extensive areas of existing natural grasslands recently cleared of tsetse fly. This Project would supply substantial numbers of cattle to utilize this resource. ii. Finance would be provided for such investments as on-ranch roads, firebreaks, fencing, water supplies, stock handling and animal health control facilities, ranchl buildings, breeding stock and an initial procurement of feeder steers for fattening. iii. It is expected that five large government ranches, one large cooperative union ranch, and 50 mediun size co.mercial ranches would participate in the Project. T'he IDA Credit would be channeled through the Uganda Commercial Bank (UCB) with coummercial banks' participating in the financing operations. Together with their own funds, these banks would pro- vide long term loans of 10-12 years for beef ranching developrmient. iv. The coordinating body for the Project would be a Project Committee composed of one representative each from the Department of Veterinary Services, the Department of Agriculture, the Liinistry of Commerce and Industry, the M4inistry of IMineral and Water Resources, the Bank of Uganda, the Uganda Commercial Bank and the Uganda Bankers Association. A small technical ser- vices unit headed by an internationally recruited Project Director would assist the applicant-borrowers in preparing ranch development plans as the basis for loans made by partici-ating banks. This technical unit would also supervise execution of the rancha development plans and would give technical assistance to participant ranchers. v. The Project is estimated to cost about US$5.1 million equivalent of which USA4.7 million would be for ranch development and the balance of USPO.4 million for technical services. The IDA Credit would finance approx- imately 60 percent of the total project cost (US4P3 million), and correspond roughly to the estimated foreign exchange costs. Thie balhnce would be pro- vided by participating banks (20 percent) and ranching companies or private ranchers (20 percent). vi. IThe Project is technically sound and economically justified. The proposed administrative arrangements are satisfactory. Expected benefits to participant ranches and to the national econory are substantial. The Project is suitable for an IDA Credit of US3 million. The borrower would be the Government of Uganda and the Credit would be chianneled through the Uganda Coimmercial Bank with cormercial banks participating in the financing opera- tions.  UGAITDA BEEF RA?TC1ING DEVELOP1,1ENT PROJECT I. INTRODUCTION lcOl The Government of Uganda on behalf of the Uganda Development Corporation (UDC) requested an IDA credit to help finance a large-scale beef ranching development scheme to be carried out by Uganda Livestock In- dustries Ltd (ULI), a subsidiary holding company of UDC. The request was based primarily on a report completed in the latter part of 1966 with the assistance of the Agricultural Development Service (ADS), an affiliate of the IBRD's Permanent Mission in Eastern Africa based in Nairobi. This appraisal report is based on the findings of a mission which visited Uganda in May/June 1967. The mission was composed of Messrs. J. Gerring, F. Knobel, and A. Schumachler, who all contributed to the report with Mr. Gerring hav- ing primary responsibility. 1.02 The request originally submLitted by the Uganda Government in- volved only the development of a Government ranching enterprise which appeared likely to have a rather limited impact on the country's economy. Furthermore, the local contribution would have been less than 10 percent of the finance needed, whicr would not meet the normal requirement for local participation in an IDA financed project in Uganda. 1.03 During appraisal the Project was broadened to include the commer- cial sector. In this enlarged Project, ULI would be assigned the key role of building up breeding herds of improved cattle in order to provide surplus breeding heifers and feeder steers for sale to private ranchers. 1.04 Discussions were held with officials of both private and public banks to explore additional sources of finance, and to provide a suitable system for making and servicing loans to ranching enterprises. The banks expressed a willingness to participate in the Project with IDA. However, since such participation would be a new experience to the banks, somewhat protracted discussions were necessary with Government and the banks before a financially acceptable Project could be formulated. (See Annex 1 on the Banking System) II. BACKGROUND A. General 2.01 Uganda is a land-locked country of some 58 million acres of which nine million are open water and one million swamp. Sitbuated between latitude 10S and 40l1, more than 60 percent of its land surface lies between 3,000 and 5,000 feet in altitude. It has a population of nearly eight million people, of which about 80 percent are in the rural areas.  - 2 - 2.02 Its economy depends mainly on agriculture, which, in 1966, contrib- uted about 60 percent of Uganda's GDP, with the beef industry accounting for about 4 percent. Livestock exports, c-hiefly hides, constitute roughly 2 percent of total export receipts. Livestock imports consist mainly of the higher quality beef from Kenya valued at L 195,000 in 1966, which accounts for approximately 2.5 percent of total food imports. In the face of uncer- tain price prospects for cotton and coffee, the two principal exports, diver- sification of farm production is most important. Uganda's soils and climate, together with successful eradication of the tsetse fly over large areas, offer favorable prospects for expanding the livestock industry. 2.03 The Uganda Development Corporation (UDC) was set up in 1952 to take the initiative in developing all major sectors of the country's economy on commercial lines. Its net annual earnings have averaged El.0 million in recent years, which represent a return of 7-15 percent of net assets (Annex 2). For each new enterprise it forms a subsidiary company, and in 1966 it created the Uganda Livestock Industries Ltd (ULI) to develop and manage beef cattle and dairy enterprises. ULI has since taken over a 40 ,000 acre ranch (Kiryana) previously operated by Agricultural Enterprises Ltd, as well as a 38,000 acre ranch (ilariam) previously run by Uganda Meat Packers Ltd, both subsidiary companies of UDC. ULI is extending its ranching operations by acquiring leasehold rights to thrce other areas totalling 147,000 acres. B. The Beef Cattle Sector 2.04 The cattle population is estimated at 3.6 million head (1965), the majority grazing communal lands. A.part from the drier northeast province of Karamoja,where the majority of the pure pastoralists are found (see Map), most of the country has an ideal climate for pasture and livestock production. During the last 15 years, tsetse fly has been cleared from extensive areas of unoccupied land. This has opened up some of the best grazing lands in the country on which it is conservatively estimated that one million head of cattle could be carried. Present plans to extend ULI's ranching operations are de- signed to exploit this potential for commrercial ranching. In addition, the Government has provided technical advice and financial support for the partial developrment of about one hundred privately owned ranches (3,300 - 10,000 acres), and some 40 cooperative group farms (300 - 1,200 acres) engaged in mixed livestock/cropping enterprises. A 38,000 acre ranch is being developed by a cooperative union. The major factor retarding this development is the scarcity of cattle. 2.05 In the traditional sector where local uniraproved stock are run merely as an adjunct to cropping, the numaber of calves weaned in the course of a year seldom exceeds 40 per hundred breeding cows. In consequence, few surplus breeding heifers can be sold for building up new herds. Cattle marketed from this sector consist miainly of stock for slaughter over and above subsistence needs plus a limited rudber of feeder steers for fattening. Sales recorded in 1963 show that 143,000 cattle went through the local government supervised markets. Several tines this number was sold privately or consumed by the subsistence sector.  - 3 - 2.06 Consumption of beef is expected. to increase about 4 percent per annum during the next five years. With rising incomes in the urban areas, Uganda is experiencing an increasing shortfall in the higher grades of beef, currently being met by imports of 8 - 10,000 cattle per year from Kenya. It is estimated that the rise in urban demand for this type of beef will approx- imate 7-8 percent per annum. This would require a doubling of meat imports over the next decade unless local production of better quality beef is promptly encouraged. C. Animal Health 2.07 Government has made considerable progress in the control of dis- eases which, until recent years, have limited the expansion of the livestock industry (Annex 3). These include in particular rinderpest and contagious bovine pleuropneumonia, both of which are being contained within the north and northeast regions of the country by barrier zones of vaccinated cattle. Foot-and-PIouth Disease, which is endemic and of lesser importance, is con- trolled mainly by quarantine measures, vaccination because of its high cost is practiced on a limited scale only, but would be carried out on project ranches (para. 4.04). 2.08 Noteworthy progress has been made in the control of tsetse fly, the vector responsible for trypanosormiasis of cattle. This fly, which renders vast areas of Africa uninhabitable by cattle, has been successfully cleared from 11,000 square miles (7 million acres) in Uganda. A five-year program to clear a further 3,200 square miles is well under way. This achievtement, more than any other single factor, by opening up unoccupied land, has pro- vided the opportunity for developing commercial ranching. 2.09 Tickl-borne diseases, particularly East Coast Fever, have for years been responsible for serious losses in the traditional livestock sector where dipping is not practiced. Veterinary authorities in Uganda have dem- onstrated that the routine dipping of all cattle effectively prevents these losses. This method is now used on all commercial ranches. More recently plans have been formulated for a national tick eradication scheme. D. Agricultural Services 2.10 The Department of Veterinary Services of the Ministry of Animal Industry, Game and Fisheries is responsible for carrying out all disease control measures including veterinary diagnostic and research services. Its performance has been irpressive. This department has taken the lead in devel- oping the private ranching sector in order to make effective use of lands cleared from tsetse fly. It is also responsible for much of the research on cattle breeding and has set up an efficiently operated artificial insemina- tion service to livestock producers. To encourage the marketing of more cattle from the traditional sector, it has replaced a number of private bar- gaining markets with auction rings where cattle are weighed before being auctioned.  - 4 - 2.11 The Department of Agriculture of the Ministry of Agriculture and Cooperatives is responsible for pasture improvement and management research in which it is conducting some outstanding work at its Serere Research Station. This Department together with the Departmient of Cooperatives of the 'LIinistry of Agriculture and Cooperatives provides advisory services to private and co- operative producers. Assistance in the siting and construction of dams for livestock water supplies, an important need in the development of commercial ranching, is provided by the Department of Water Development of the Ministry of Mineral and Water Resources. 2.12 Education and training facilities have been expanded recently. The University of East Africa offers a degree course in agriculture at Kampala, Uganda, and in Veterinary Science at *abete, Kenya. The Veterinary Training Institute at Entebbe in Uganda conducts a two year course for the training of veterinary assistants. Outstanding students can continue for a third year leading to a diploma in animal husbandry. However, it is evident that the agricultural sector will continue to need the services of expatriate pro- fessional and technical staff for som-e years to come. Despite efforts to recruit Ugandans for Government services, there are more vacancies than can be filled by qualified Ugandans, particularly in the fields of education, research, planning, and the managenent of development projects. 2.13 M4ost of the agricultural credit available has been used on a short- term basis for cash crops, principally coffee and cotton. Recently the banks have shown an increasing interest in the livestock sector and have made a few three-year loans for the purchase of cattle. ULI has also obtained some short-term capital for its ranching scheme from one of the large commercial banks. E. Land Tenure 2.14 Land for ranching can be leased from Government for periods of 49 to 99 years. Rentals range from Sh 0.20 - 0.50 (US`0.03 - 0.07) per acre per annum for the first five years. The lease is then reviewed and at inter- vals of 15 years thereafter to make sure that the lessee has fulfilled mini- mrum development recuirements. In a few areas, notably in Buganda, land is owned freehold and can be mort,7aged. sold to Africans, or leased to non- Africans. F. Government Policies on Livestock Development 2.15 Government recognizes the irmportant role of livestock development in diversifying agriculture. In the beef cattle sector it plans to invest E h.5 million (US$12.6 m) for the period 1967-72 compared with F 2 million (US$5.6 m) from 1961-66. The bulk of this investment would be expended on clearing further areas from tsetse fly, controlling tick-borne diseases and for the expansion of quasi-government and cormercial ranching. The remainder would be used for improving stock routes and marketing facilities, research on pasture improvement, and the further development of on-ranch water supplies.  2.16 Beef producers' prices are free from government control and there are no taxes or quotas on the export of meat. A levy is made on the export of hides and skins which in 1965 amnounted to 4 percent of their export value. Diunicipal governments charge market fees of Sh 4-10 (US$0.56 - 1.40) per head. Imports of virtually all agricultural inputs are free from duty. III. THE PROJECT A. Project Description 3.01 The Project would be part of a long-term beef cattle development program. It would include development of five large ranches (each of 38,000 - 45,000 acres) to be operated by Uganda Livestock Industries (ULI), one co- operatively owned ranch (38,000 acres), and about 50 privately operated ranches (approximately 3,000 acres each). 3.02 In the investment program provision would be made for financing on-ranch roads and firebreals, fencing, water supplies, stock handling and animal health control facilities, machinery, ranch buildings, and for the purchase of breeding stock. Funds for the initial procurement of feeder steers for fattening would also be provided. 3.03 Loans to ranching companies/ranchers would be made by the Uganda Commercial Bank with cormiercial banks participating in the financing opera- tions. Each loan would be based on a ranch developmernt plan prepared by applicants with the assistance of a technical services staff (headed by a Project Director), internationally recruited for this purpose and attached to the Bank of Uganda. B. Project Area 3.04 The five ULI ranches are widely separated. Two are in Bunyoro near Piasindi, the Maruzi ranch is on the west bank of the Victoria Nile in Lango district, the Aswa ranch is in Acholi district, and the Nariam ranch is in Teso district (see Map). The first four ranches would be used for breeding. The Nariam ranch, located on the border of Karamoja, is exposed to occasional raiding by the neighboring Karamajong. It would therefore be used for a steer fattening operation since steers do not have the same in- trinsic value among the Karamajong tribal people as do breeding stock. 3.05 Approximately 50 privately operated ranches each, of about 3,000 acres, are partially developed in the Ankole->Jasaka region 1/ (see 1/ Finance from US-AID has helped to provide some of the basic infra- structure, such as roads, perimeter fencing, water and dipping facilities.  - 6 - ialap). The development of ranches in this area was strongly recommended by the Bank's 1960 General Survey .4ission 1/ wrhich regarded it as most im- portant to the development of the livestock industry. In addition, 40-50 privately operated ranches of 2,000 to 10,00) acres are in various stages of development in Buganda. A cooperative union ranch of 38,000 acres, at present carrying less than 1,000 cattle, is being developed near the ULI Bunyoro ranches (see Map). This and about 50 of the private ranches would participate in the Project. All are operated by Ugandans. In the case of the Ankole-Masaka scheme, the ranches are leased to Ugandans who either own at least 200 head of cattle or have the equivalent in cash. For the most part they are farmers of some business acumen with a satisfactory educational background, inte-rity and experience. Individually, they are responsible for the management of their own ranches as business enterprises, and are strongly supported with advice and supervision from qualified government advisory personmel. C. Detailed Features 3.06 All ranches in the Project areas are on land of gently undulating to flat contour at an altitude of from 3,000 to 5,000 feet. The year round climate is similar to a temperate zone summer. Annual rainfall exceeds 30 inches with two peak periods of precipitation, April-May and September-October. Pasture lands are reasonably fertile, but marked responses to moderate quan- tities of phosphatic fertilizers have been obtained experimentally on mixed grass-legume pastures. There are extensive denosits of high-grade phosphates in Uganda. Current production is about 25,000 tons of single superphosphate annually, most of which is exported. Such extensive deposits offer attrac- tive future possibilities for more intensive pasture development in Uganda. 3.07 Good natural pastures -row readily in most parts of Uganda, the composition reflecting soil fertility and rainfall. Most ranches carry a variable cover of thicket and bush composed of tree Savanna species which in some areas encroach on land available for grazing. Preliminary investiga- tions suggest that chemical control may help to overcome this problem and funds would be provided under the Project for use at the discretion of the Project Director to carry out further trials. 3.08 In a few areas stock water is readily available from either per- manent rivers or boreholes. In most parts, however, the main source of water is a dam or valley tank, These are constructed to "harvest" the run- off during the rainy season and to store a sufficient quantity of water to maintain an adequate supply throughlout the year. The present cost of con- structing such facilities is hi;,h in relation to the volume of water stored. Funds would be provided under the Project, for use by the Project Director, to investigate more efficient and less costly methods of dam construction. 1/ The Economic Development of Uganda. Baltimore, Md., The Johns Hopkins Press, 1962.  D. Cost Estimates 3.09 The total estimated cost of the Project is US$5.1 million equiva- lent which is summarized below by major investment categories. See Annexes 4 and 5 for details. Foreign Exchange Investment Category Cost / Coraponent i '000 us$'ooo (U5$'000) Ranch Development Physical Inputs 2/ 300 840 350 Breeaing Cattle 800 2,250 1,745 Feeder Steers 3/ 590 1,650 750 Subtotal 1,690 4,740 2,845 Technical Services 125 345 155 Total Project Cost 1,815 5,085 3,000 1/ Shown in rounded figures. 2/ Includes fencing, machinery, water facilities, on-ranch roads, etc. 3/ Immature cattle for fattening. 3.10 Broken down by major investment categories, the bulk of the Pro- ject cost would be for purchase of breeding cattle (44 percent) ald feeder steers (32 percent). Inputs for ranch development account for 17 percent and technical services for the remaining 7 percent. Funds allocated for the purchase of stock are higih relative to other inputs. This is because large areas of pasture already exist. More is being cleared of tsetse fly eacih year. To utilize this natural resource, cattle are the most essential investment item for ranch development. The estimated foreign exchange com- ponent is US$?3 million, 60 percent of total Project cost, or 100 percent of the proposed Credit. About US$2.5 million in foreign exchange would be for the purchase of cattle in neighboring Kenya and Tanzania. 3.11 Cost estimates for on-ranch development, operating expenses, and projected cash position are based on three types of commercial beef ranching operations envisaged under the Project (Annex 5). Individual ranch devel- opment would take two to three years, and execution of the Project would be completed in five years (Annex 6). Estimuates for the cost of technical ser- vices are projected in Annex 8.  - 8 - E. Proposed Financing 3.12 The Project cost of US.,.5.I mil.lion equivalent would be financed as follows: Source Ranch Development Technical Services Total TU73'OO) (50) (us$,'ooo) (/) (US$'ooo) (%) IDA 2,845 60 155 45 3,000 59 Government - - 190 55 190 4 Commercia-l Banks 948 20 - - 943 19 Ranchers 947 20 - - 947 18 Total 4,740 100 345 100 5,085 100 3.13 The Government would relend the IDA funds to the Uganda Commercial Bank (UCB), a government owned bank. Comrmercial banks, acting as agents of UCB, would also participate in the finarcing operations of the project. These participating banks are at present Barclpy's Barnk DCO, National and Grindlay's Bank and Standard Bank Ltd along with their respective overseas development corporations. These financing arrangements were devised during negotiations when it was determiined that Government could not on-lend the proceeds of the Crodit to any financial institution that was not an '`approved body" under the External Loans Act. 1/ Under the agreed arrange-'.ent, UCB would lend directly to ranchers on its own account and to ranche,s and ranch- ing enterprises through other participatinr comrercial1 baiks which would act as its agents. 3.14 Ranchers (including ranchin-g companies) would provide about 20 percent of investment cost and borrow the remaining 80 percent from the UCB and the commercial banks. Of the 80 percent borrowed, UCB and the partici- pating commercial banks themselves would provide one-quarter (or 20 percent of the investment cost) from their own resources and would seek reimburse- ment of three-quarters from IDA funds channeled by Government to UCB. UCB would use IDA funds for this rei-mbursement and would pay the commercial banks ,a service fee of 1.5 percent for loans made to private ranchers and 1.0 percent for loans made to UII. All loans to ranchers would be at 8 percent per annum and the weighted average interest rate to UCE would be about 6.o percent. Out of this interest incomne, Govermaent would pay the Bank of Uganda about 2 percent for the costs of the Project technical services , giv- ing Government a net interest of around 3.25 percent after payment of the IDA Credit service charge. 3.15 The expected contribution from the participating ranchers/ranching companies of around 20 percent is considered reasonable, taking into account the likely increase in their operating costs because of expanded operations 1/ The Bank of Uganda is not an "approved body" but UCB is.  - 9 - and of the need to retain ani-mals for herd build-up. They would obtain needed shaort-term working capital from the participating banks. This was confirmed during negotiations. 3.16 Government would draw on the IDA Credit to meet the foreign exchange costs of technical services (45 percent) and would pass this on to the Bank of Uganda. Since income from interest on the ranch sub-loans would be insuf- ficient to cover the total cost of the technical services in the first few years, Governmenit would advance the difference, being repaid in full in Year 4 (Annex 7, Table 1). Assurances to this effect were obtained during nego- tiations. 3.17 Loans to ranchers/ranching companies would be phased over a period of three years and IDA funds would be disbursed over a period of five years (Annex 6). UCB would receive the IDA proportion (75 percent) of loan repay- ments collected by the participating commercial banks and would credit these funds to a separate Livestock Account. The surplus, after meeting IDA debt service, would be relent through paxticipatin'g banks or other financial institutions satisfactory to IDA for further beef cattle development. These funds, amounting to about US, 3.5 raillion, plus the initial funds from IDA and the participating banks' contribution would channel, during the 16-year life of the Project, approximately US-7 million investment capital into the beef ranching subsector (Annex 7, Table 2). After 16 years, 1/ Government would make available surplus funds to financial and other qualified institutions for the further development of the agricultlural sector. Assurances as to these relending operations were obtained during negotia- tions. F. Disbursements and Auiditing 3.18 Withdrawrals from the I1DA Credit for ranch development would be 75 percent of disbursements made by UCB and the participating banks for this purpose over five years. Documentation for reim-bursements would consist of schedules, supported by appropriate evidence, of awounts disbursed by participating banks to ranchers/ranching companies. Disbursements for the foreign exchange cost of techrical services would be made against appropriate documentation. All documentation for disbursements would need to be counter- signed by the Project Director. Tie UCB, the Bank of Uganda and the Parti- cipating Banks would establish and maintain separate accounts for the Project. 3.19 Several comrzercial auditing firms of international repute have branch offices in Uganda. Tlhe financial accounts of UDC and its subsidiary companies are audited annually by Cooper Brothers & Co., an international firm of chartered accountants, whose services would be acceptable to IDA. The Bank of Uganda and the UCB, both government banks, have internal auditors 1/ A 16-year period has been adopted in the calculations to cover a 12-year loan committed in Year 3 with an additional year allowed for slippage at the end.  - 10 - but are subject to external audit by the Controller and Auditor-General or such auditors as the Minister of Finance may appoint. These auditing ser- vices and practices are satisfactory for both private and -overnment finan- cial institutions. Assurances were obtained durin- ne-otiations that Prolect accounts in the UCB 3ank of U-anda and Participating Banks would be audited annually by an auditor acceptable to IDA and certified copies of the audit statemenits would be forwarded to IDA. IV. ORGANIZATION MlD _MTAGEif