Cameroon - East Cameroon Oil Palm Project

RESTRICTED RETURN TO jJ E CAflv Report No. TO-654a REPORTS DESK a WU1 WITHIN 0 E WEEK---- 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 The report may not be published nor may it be quoted as representing their views.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 EAST CAMEROON OIL PALM PROJECT FEDERAL REPUBLIC OF CAMEROON IETURN TO RECORDS CENTER ROOM Bl-1 Box No, t i 3 February 3, 1969. Agriculture Projects Department  CURRENCY EQUIVALENTS US$ 1 - 247 CFAF Francs CFAF 1 Franc US$0.004 WEIGHTS AID MEASURES 1 km 0.62h mi 1 ha = 2.h7 ac 1 m ton 2,204.6 lb ABBREVIATIONS SOPAME: Societe/ des Palmeraies de M4bongo et d'Eseka IRHO: Institut de Recherches pour les Huiles et Oleagineux FAC: Fond's d'Aide et de Cooperation SNI: Societe Nationale d'Investissement CORSTOM: Office de la Recherche Scientifique et Technique d' Outre-mer CCCE: Caisse Centrale de Cooperation Economique CMIDEV: Cameroons Development Corporation EEC: European Economic Community FED: Fonds Europeen de Developpement  FFDERAL REPUBLIC OF CAIEROON EAST CAMEROON OIL PALM PROJECT Table of Contents Page No. SUtMARY I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 1 II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. General . . . . . . . . . . . . . . . . . . . . . . . . 2 B. The Progress of Agricultural Development . . . . . . . 2 C. The Oil Palm Sector . . . . . . . . . . . . . . . . . . 3 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . 5 A. Definition .......... ... .... ... . . 5 B. Objectives . . . . . . . . . . . . . . . . . . . . . . 6 C. The P-;oject Areas . . . . . . . . . . . . . . . . . . . 6 D. Planting Program . . . . . . . . . . . . . . . . . . . 9 E. Processing .........1.0.... .... ..... 10 F. Labor Housing and AmenitiES . . . . . . . . . . . . . . 11 C. Cost Estimates . . . . . . . . . . . . . . . . . . . . 11 H. Financial Arrangements . . . . . . . ... . . . . . . . 12 IV. ORGANIZATION AND MANAGFEfENT . . . . . . . . . . . . . . . . 14 A. Societe des Palmeraies de Mbongo et d'Eseka . . . . . . 14 B. Accounts and Audit . . . . . . . . . . . . . . . . . . 15 C. Staff ....... ..... .. . 15 D. Technical Support and Supervision . . . . . . . . . . . 16 E. Smallholder Development . . . . . . . . . . . . . . . . 16 V. PRODUCTION -MARKETS AND ESTATE OPERATIGR . . . . . . 17 A. Yields and Production . . . . . . . . . . . . . . . . . 17 B. Marketing and Prices ..... .. . .. . .. . .. . 17 C. Estate Operating Results . . . . . . . . . . . . . . . 18 VI. BENEFITS AND JUSTIFICATION .1............... . .9 VII. CONCLUSIONS kND RFCOe'IIENDATIONS . . . . . . . . . . . . . . 20 This report is based on the findings of a Bank appraisal mission which visited East Cameroon in February/March 1968 composed of Messrs. Rowe, Lankester and Wadsworth (of the Bank).  ANNEXES 1. Population, Agricultural Production and Exports. 2. Market Prospects for Palm Oil and Palm Kernels. 3. Palm Produce Production, Production Plan, Domestic Markets and Prices. 4, Societe des Palmeraies de Mbongo et d'Eseka (SOPAME). 5. Oil Palm Research and Yields. 6. Labor. 7. Cost Estimates. 8. Project Cash Flow. 9. List of Goods and Annual Disbursement of Bank Loan. 10. Senior Staff Requirements. 11. Project Operating Accounts. 12. Project Balance Sheets. MAPS 1. East Cameroon Oil Palm Development Program. 2. Mbongo Estate Site and Infrastructure. 3. Eseka Estate Site and InfVastructure. 4. Population Density in the Federal Republic of Cameroon.  FEDERAL REPUBLIC OF CAMEROON EAST CAMEROON OIL PALM PROJECT SUMMARY i. The Federal Government of the Cameroon has asked the Bank for a loan to help finance two oil palm estates in E. Cameroon. Originally the Government requested an Association credit for this purpose, but after appraisal of the project it became evident that the delay in the replenish- ment of IDA funds would hold up implementation of the project. Consequently the Government asked for a Bank loan. The estates, each comprising 4,500 ha of oil palms, would be owned, developed and operated by the Societe des Palmeraies de Mbongo et d'Eseka (SOPAME). The project was prepared with the assistance of consultants, principally the Institut de Recherches pour les Huiles et Oleagineux (IRHO), and financial assistance for this work was provided by the French Government through the Fonds d'Aide et de Cooperation (FAC). ii. SOPAME would be formed early in 1969 as a development corporation, the share capital of which would be held by the Federal Government, Societe Nationale d'Investissement (SNI), a Government controlled investment cor- poration, and the cocoa and coffee price stabilization funds. SOPAME would operate in the same way as a commercial estate company. iii. The project would bring much needed development activity to the forest region of the E. Cameroon and would supply an expanding domestic market for palm oil. Some palm oil, surplus to domestic requirements, would be exported, as would all palm kernels. At maturity, project gross revenues wduld amdunt to an estimated CFAF 940 million (US$3.8 million equivalent) annually, and foreign exchange earnings CFAF 340 million (US$1.4 million equivalent). The estimated economic rate of return of the project is between 7 and 8 percent when all labor employed is costed fully. iv. The project is estimated to cost: $$14.1 million equivalent, in- cluding capitalized interest on the Bank loan. The project is technically and economically sound and is suitable for a Bank loan of US$7.9 million. FAC has stated that it would contribute, as a grant, US$1.8 million towards project costs; and the Caisse Centrale de Cooperation Economique of France US$1.8 million as a 21-year loan bearing interest at an average rate of four percent. The balance of project costs would be met by the Government and from self-generated funds. The borrower would be SOPAME.   FEDERAL REP'JBLIC OF CAMEROON EAST CAMEROON OIL PALM PROJECT I. INTRODUCTION 1.01 In March, 1967, approval was given for a Bank loan 1/ of US$7 million to the Cameroons Development Corporation (Camdev), in West Cameroon, and an IDA credit 1/ of US$11.0 million to the Government of the Federal Republic of Cameroon for investment in the equity of Camdev. The project i; part of Camdev's development program and consists of the planting or replanting of approximately 11,500 ha of oil palm, rubber, tea and pepper, the bringing into production of approximately 5,500 additional ha of exist- ing immature plantings, and the provision of the necessary infrastructure, processing facilities and other equipment. 1.02 In the absence of sufficient IDA funds the Government of the Federal Republic of Cameroon has now applied for a Bank loan to finance part of the costs of developing two oil palm estates in the E. Cameroon. The two estates would total 9,000 ha of oil palms. The Government has entered into contracts for clearing 600 ha of land at one estate, and for the supply of oil palm seedlings to plant this area. Four hundred ha will be planted in l'68 and 200 ha in 1969. These contracts would not be financed under the proposed loan. 1.03 The project has been prepared by consultants led by the Institut de Recherches pour les Huiles et Oleagineux (IRHO) with financial help from the French Government through the Fonds d'Aide et de Cooperation (FAC). IRHO was responsible for assessing technical and economic feasibility and the Office de la Recherche Scientifique et Technique Outre Mer (ORSTOM) for soils investigations. This preparatory work was largely conducted in 1965-1966. Government work on project identification ahd preparation started in 1963 and was mainly the responsibility of the Federal Plan Ministry. The Bank's Permanent Mission in W. Africa also provided assistance in project prepara- tion. 1.04 FAC has declared its intention to meet 15% of total project costs as a grant to the Federal Government, and the Caisse Centrale de Cooperation Economique (CCCE) of France 15% of project costs as a 21 vear loan bearing interest at an average rate of 4 percent. 1.05 Three Bank missions have visited the Cameroon in connection with this project: a pre-appraisal mission composed of Messrs. Picciotto, Amselle, Brochu (FAO) and Hartley (consultant) in March 1967; a mission to investigate and discuss with the Government the proposed land clearing method, composed of Messrs. Darnell, Helmers, Wadsworth and La Lau (con- sultant) in December 1967; this report is based on the findings of an ap- praisal mission composed of Messrs. Rowe, Lankester and Wadsworth which visited Cameroon in February-March 1968. The mission worked closely with representatives of FAC and CCCE. 1/ President's Report No. P-530; Appraisal Report No. TO-548b.  - 2 - II. BACKGROUND A. General 2.01 Cameroon has a surface area of 47,495 km and a population estimated at 5.5 million. GNP per capita is estimated at about US$110. The Federation was formed in 1961 from the former French administered Territory of the Cameroon -- East Cameroon, and the southern part of the former British Trusteeship Territory of the Cameroon -- West Cameroon. 2.02 The Federal Government is increasingly integrating the economies of the two Regions, each of which has its own Government and a high measure of political autonomy. Nonetheless, differences of language, culture, levels of education and economic development, and poor inter-regional communications result in the Regions remaining in many respects, two distinct units. 2.03 Agriculture dominates the economies of the Federation, accounting for about 40 percent of GDP anc 80 percent of exports. Subsistence farming represents about half the value of agricultural production. While agricul- tural exports are relatively diversified, coffee and cocoa account for nearly 50 perzent. The major non-agricultural export is aluminum. Annex 1 contains details of population, agricultural production, and exports for the two Regions. 2.04 In W. Cameroon, commercial plantation production provides about 40 percent of the Region's exports. The Cameroons Development Corporation (Camdev), a statutory authority of the W. Cameroon Government, produces 30 percent of all exports. In E. Cameroon, the development of commercial plantations has been much less significant, and agricultural exports, which account for 85 percent of total regional exports, stem predominantly from the traditional agricultuye. B. The Progress of Agricultural Development 2.05. Over the past four years food production has at least kept pace with the growth in population. The performance of the principal expert crops has been mixed. Coffee and cocoa production have been increasing, but this growth is unlikely to continue due to marketing problems in coffee and prices for cocoa which in the last four to five years have failed to stimulate new planting. Banana production for export has substantially declined, largely due to disease. The most significant production gains have been in cotton, where production, now close to 60,000 tons annually, has more than doubled over the past six years. 2.06 Development programs which can be expected to significantly increase agricultural production are as follows: (a) The ex.ansion of Camdev operations. These will increase the production of palm oil, tea, rubber and pepper. This program is being financed by IBRD, IDA, anc. the European Economic Community (EEC).  - 3 - (b) The cotton program in the north of E. Cameroon which shotild continue to result in steady production increases. (c) A rice production program, also in the north of E. Cameroon. This program has started recently and incorporates ambitious plans for irrigation and flood control. The Government intends to seek Bank Group support for this project, when ready for financing in about two years. (d) A sugar estate in E. Cameroon jointly owned by Government and private enterprise which will meet part af domestic sugar needs. 2.07 Elsewhere in the Federation production increases depend on the normal activity of the extension services and the use of a limited supply of agricultural credit. Significant production gains cannot be anticipated in the foreseeable future. C. The Oil Palm Sector 2.08 The following table shows Cameroon palm oil and kernel production and foreign trade in these commodities in fiscal year 1966/67. Production Foreign Trade Commercial Traditional Total Impot Exports -------------------------metric tons ---------------- Palm oil E. Cameroon 1,300 26,000 27,300 400 - W. Cameroon 16,600 10,000 26,600 1,400 8,800 Estimated illegal imports from Nigeria N/A N/A N/A 4,80()0 N/A Total 17,900 36,000 53,900 6,600 Palm Kernels (Exports include palm kernel equivalent of palm kernel oil) E. Cameroon 1,100 16,900 18,000 - 11,100 W. Cameroon 4,600 2,100 6,700 - 5,100 Total 5,700 19,00.) 24,700 - 16 0 2.09 Commercial production includes some oil and kernels from wild palms processed by a palm oil mill in E. Cameroon. Traditional production is from naturallv occurring wild palms to which farmers have the right of harvest, and oil and kernels are extracted by manual methods. The apparent imbalance between oil and kernal production -- about 2:1, while oil palms vield oil and kernels in proportion about 4:1 -- is due to many wild palms  - 4 - not being harvested for ffb 1/ and kernels being collected from the ground after the ffb has fallen and rotted. More and more wild palms are being treated in this way because it is increasingly difficult to find labor prepared to climb the palms 2/ to harvest the ffb. This, and the decline in the total number of productive palms due to felling and clearing land for other crop cultivation, and increasing tapping for palm wine production 3/ are resulting in a steady decline in traditional production. Eventually traditional production of palm oil will become insignificant. 2.10 Commercial production is centered in W. Cameroon , where two estate companies ope-ate -- Camdev and a Unilever subsidiary,,Pamol. In 1966, the two groups accounted respectively for about 40 arld 60 percent of W. Cameroon commercial palm oil production. 2.11 E. Cameroon has six small estates in production, four of which are owned bv the Government. Plantings are old, many dating to pre-1914. Be- cause the palms are old, and thius tall, the estates have problems in finding labor for harvesting. Yields are now low, and for all practical purposes cannot be increased. Economically, the life of these estates is very limited, and within a few years they will be phased out of production. 2.12 Palm oil is the preferred, and almost sole edible fat available in the greater part of Cameroon, the exception being areas in the far north where grotmdnuts and cotton are important crops. There is no significant source of animal fats. 2.13 Faced with falling production of traditional palm oil, population increasing at rather more than two percent annually and no alternative source of vegetable oils, the Government has decided to increase the commercial pro- duction of palm oil. 2.14 In the public sector the Government has firm plans to increase Camdev's present 9,000 ha of oLl palms to 21,000 ha by 1973. This expansion 1/ Fresh fruit bunch (ffb), the product of oil palm, is a cluster of indi- vidual fruits. Each fruit consists of a nut, which contains the palm kernel, surrounded by oily flesh from which palm oil is expressed. 2/ In the early years of production oil palms can be harvested from the ground. Subsequently, they grow so tall that they must be climbed. Im- proved palms are bred to be slow growers as far as height is concerned, and in the 25 year life they are accorded under commercial management do not require cltmbipg. Since the number of wild palms is not increas- ing their average age is increasing. Consequently, the great bulk re- quire climbing. 3/ This entails removal of the female infloresence. Consequently no ffb is formed.  is being financed in part by the Bank Group. 1/ In E. Cameroon the only firm proposal is the 9,000 ha oil palm project which is the subject of this report. The Government wishes to promote commercial smallholder production but such development would be slow. Until the proposed E. Cameroon estate project is well underway it would be limited probably to 500 ha in E. Cameroon, for which FED financing is being sought, and a 800 ha project in W. Cameroon associated with Camdev operations. Plans for resuscitating the small estates in E. Cameroon probably will not materialize unless external sources of finance can be obtained. Presently, little interest is being shown !by external financing agencies. In short, if Government's plans materialize, Cameroon will be producing about an additional 64,000 tons of palm oil from state- owned and sponsored projects by the beginning of the 1980's (Annex 3). 2.15 In the private sector PAMOL has plans to double its present produc- tion by 1980, and if implemented these would result in an additional 10.000 tons of oil by 1980. Production from existing E. Cameroon estates and from wild palms is expected to steadily decline, and the domestic demand for palm oil to increase. 2.16 The following table is a summary estimate of the palm oil and palm kernel production for the period 1968 to 1985, assuming no new plant- ings other than those listed above. Further details appear in Annex 3. Metric Tons 1968 1971 1975 1981 1985 Oil Production Existing Commercial and Traditional 53,000 50,000 39,000 27,000 26,000 New Plantings - 900 27,400 75,500 75,500 Total Oil Production 53,000 50,900 66,400 102,500 01,50Q Kernel Production Existing Commercial and Traditional 25,000 24,000 19,000 13,000 12,000 New Plantings - 250 6,600 1_,000 L8SO00 Total Kernel Production 224,250 25,600 310J00 30,00 III. THE PROJECT A. Definition 3.01 The project consists of: (a) the establishment of 9,000 ha of oil palms on two estates of 4,500 ha each; (b) the creation of a state-owned corporation, Societe des 1/ Appraisal Report No. TO-54Sb.  - 6 - Palmeraies de Mbongo et d'Eseka (SOPAME), to own and manage the two estates at Mbongo and Eseka; (c) the setting up of a palm oil mill on each of the estates; and (d) the provision at eacb estate of necessary roads, buildings, and other infrastructure. B. Objectives 3.02 The major objective of the project is to increase E. Cameroon pro- duction of oil palm products. The Government has considered achieving this objective by smallholder production. Oil palms, however, are not treated as a cultivated crop in the traditional agriculture, and past attempts to establish smallholder production have failed. Before farmers would accept oil palms as a commercial crop it would be necessary for the Government to: (a) demonstrate to them the benefits of growing oil palms; (b) gain experience of growing the crop under E. Cameroon conditions; (c) provide ffb processing facilities for smallholder production; and (d) establish an organization to administer a smallholder scheme. 3.03 A subsidiary objective of the project is to develop the experience and conditions required for the successful promotion of smallholder oil palm cultivation in the vicinity of the two estates. The statutes of SOPAME empower it to promote such development and to provide ffb collection and processing facilities for smallholders (Annex 4). A program of smallholder development is not included in the project as it would not be practicable until completion of the majority of the proposed estate development and until detailed studies had been made of smallholders' needs (paragraph 4.13). C. The Project Areas Physical Characteristics 3.04 The Mbongo area is located 35 km southeast of Douala in the center of Cameroon's coastal plain (Maps 1 and 2). Lying on deep sedimentary sands the area is flat or gently undulating. Natural vegetation is tropical rain forest and a 'heavy stand of timber covers the area. Commercially valuable timber species have been removed in logging operations. The area's free draining soils are physically Very suitable for oil palms, but due to heavy leaching have a poor plant nutrient status. The efficient use of fertilizers would be essential to obtain the vields predicted and used in paragraphi 5.01 and Annex 5.  - 7 - 3.05 Rainfall, averaging 3,470 mm annually, although not ideally dis- tributed, is more than satisfactory for oil palms as are temperatures. Sun- shine, however, although satisfactory for the yields projected, is the factor limiting higher yields. The site is well provided with water for both domestic and industrial use, in particular by the Mbongo River. 3.06 The Eseka area lies about 130 km inland from the coast, and by road about 127 Im west southwest from the capital city of Yaounde and 220 km from Douala. The proposed estate site is adjacent to the town and logging center of Eseka (Maps 1 and 3). Topography is morp broken than that of Mbongo and includes some areas of steep land that could not be planted to oil palms. Tropical rain forest covers the whole area, but has been logged for marketable species. Soils are deep but have a distinct sandy surface layer, below this the clay content increases rapidly to about 45 percent. Clay aggregates, however, are very friable, and physical soil conditions are suitable for oil palm cultivation. Chemical qualities of Eseka soils are satisfactory for oil palms subject to the correction of a highly probable potassium deficiency. As in the case of Mbongo, particular attention would need to be paid to fer- tilizer programs. 3.07 Climate is favorable for oil palm cultivation. Rainfall averages 2,252 mm annually and is satisfactorily distributed. Sunshine conditions, although not recorded, can be expected to correspond to the average for the forest region of the southern E. Cameroon. This ranges from 1,600 to 1,700 hours annually. The site is well provided with water, especially by the all season Nyong River which forms its sDuthern boundary. Communications 3.08 Mbongo is connected bv all weather road to Douala, although this requires passage by ferry over the Dibamba River. Douala or Tiko would be the ports of export for produce from both Mbongo and Eseka, depending on the site or sites selected for storage facilities as a result of the market- ing study referred to in paragraph 5.05. 3.09 About 25 km of all weather dirt road connect Eseka with the main road between Douala and Yaounde. Both roads are in poor condition and with- out improvement would result in high transport costs. Fortunately, Eseka lies on the railway between Douala and Yaounde and points north. Should these roads not be improved the railway would be used to evacuate project produce for both export and domestic sales. Land Tenure and Acquisition 3.10 Both project areas lie in thinly populated areas (see Map 4). Only a small amount of land is occupied, which is on the periphery in each case. Prior to its acquisition by the Government the land was owned by the community and occupiers had the right of usufruct. An area of  -8- 12,500 ha 1/ has been acquired at Mbongo and 9,200 ha 2/ at Eseka. These areas of land are now owned by the E. Cameroon Government. 3.11 In the Mbongo area all 140 families that occupied land prior to its acquisition remain. Most of these live in, and farm around, the small village of Mbanda and as many as possible would be employed bv SOPAME. This area would not be developed with oil palms and most of the families would be allowed to stay. A few farm families would have to be resettled, and spme compensation would be required. There is no shortage of land out7.ide the project area and resettlement wo:ild create few problems. T1;e Government wishes to avoid formalized compensation for land acquirel for public use, since it foresees that this could set precedents for the future. Thus, what- ever compensation is required wculd be paid by the Government, not by SOPAME, and would not be an item of project costs. There are no villages in the 9,200 ha acquired at Eseka, but about 70 families have houses and food gardens just within its periphery. It is proposed to leave as many of these undisturbed as possible. Preparation of a detailed planting plan will det:ermine the need for, and timing of, resettlement. Necessary compensation will be handled in the same way as at Mibongo. Assurances have been obtained from the Government that it would proceed with resettlement and compensation arrangements in accordance with the ptoposed planting program and that it would meet the full costs of the compensation payments. Labor and Social Services 3.12 The Mbongo area and its environs are very thinly populated, consequently social services in the area are minimal. About 2,000 people live in the area of influence of the proposed estate, but of these only about 350 are men of working age, most of whom are engaged in the traditional agriculture. Only about 40 men are below 30 years of age reflecting the ex- tent of migration to the tQwns. In the Mbongo area this is accentuated by the proximity of Douala. About 800 workers would eventually have to be brought in from outside the area to develop and operate the estate. The situation in the Eseka area is different. Eseka urban and rural areas have a total population of about 9,300. The male population between the ages of 21 and 50 is about 1,700; of these some 600 now work for wages; theoretically 1,100 could be interested tn working on the estate. Taking into account ex- perience elsewhere in the Cameroon, probably between 350-400 men could be selected and retained as permanent labor (Annex 6). The eventual balance of 500-550 men would have to be recruited from other parts of the E. Cameroon. Social services are relatively well developed in Eseka, and the town and surrounding villages contain one hospital, three dispensaries, 15 primary schools, and two secondary schools. 1/ Decree No. 67-56/COR signed at Yaounde April 13, 1967. 2/ Decree No. 67-278/COR 3igned at Yaounde November 10, 1967.  -9- D. Planting Program 3.13 Planting commenced in 1968 and would be completed in 1973 as shown in the table below. All plantings would be in production by 1977. ha of oil palms planted Estate 1968 1969 1970 1971 1972 1973 Total Mbongo 400 200 900 1,500 1,500 - 4,500 Eseka - - 600 900 1,500 1,500 4P500 Total 400 200 1,S00 2,400 3.000 1,500 9,000 3.14 The small amount of planting proposed for 1968 and 1969 is dictated by the shortage of planting material. Established nurseries contain sufficient seedlings for only 600 ha and new nurseries have been prepared in 1968 to provide material for 1970 plantings. Seeds and Nurseries 3.15 IRIIO would provide seed for the project under contract to SOPkiE. All seed supplied would be hybrid and of a dura x pisifera cross. Approxi- mately 50 percent of the hybrid seed would be from dura mother palms pol- linated with pisifera pollen from palms originating on the IRHO station at La Me in the Ivory Coast. The remainder from dura mother palms pollinated with pollen from palms originating at the IRHO station at Sibiti in the Congo (Brazzaville). A 50 percent mixture of the two crosses is satisfactory, and while the Sibiti cross is expected to be marginally Iiigher yielding, IRHO cannot supply a larger amount of this material. The yield advantage would not lustify delaying the planting program. Land Clearing Method 3.16 To achieve the proposed planting program mechanical methods of land clearing would be used. Annex 6 examines the labor situation in E. Cameroon and concludes that in view of the lack of skillelA labor available it would not be feasible to attempt land clearing by hand methods for the proposed plant- ing program. Additionally, project management would have little or no experience of the E. Cameroon, and in particular of the labor problems. 3.17 On a unit area cleared basis the cost of mechanical clearing is estimated at CFAF 75,000/ha, compared with CFAF 56,000/ha for hand clearLng. Hand clearing thus has a significant cost advantage, but this would be lost as, under present conditions, the clearing cannot be conducted as rapidly as is feasible bv machines (See Annex 6). Mechanical clearing also enables appreciable labor savings to be made in subsequent estate maintenance and harvesting operations.  E. Processing Palm Oil Mills 3.18 At full production, 1980 for Mbongo and 1981 for Eseka, each estate would produce about 61,000 tons of ffb annually. Assuming a peak monthly load of 15 percent of annual production, and 500 mill working hours monthly, final milling capacity required would be'18 tons of ffb per hour. Required capacity would build up as follows: Estate 1974 1975 1976 1977 1978 1979 Mbongo 6 6 12 12 18 18 Eseka - 6 6 12 12 18 3.19 At this time it is not possible to determine the most economic phasing of the build-up in capacity. This depends on the type of palm oil extraction press that would be used. Presses are available with capacities ranging from 3 tons to 13 tons per hour, and would be obtained in appropriate multiples. SOPAME would hire consultants to advise on the design and lo- cation of mills and preparation of tender documents. Assurances have been obtained from the Government that consultants satisfactory to the Bank would be appointed. 3.20 Capacity beyond 18 tons of ffb per hour would be required at each mill to cater for the outgrowers and smallholders who probably would be established in a subsequent stage of the project (paragraph 3.03). The mills would thus be designed to facilitate an. expansion to at least 24 tons per hour. 3.21 Processing facilities would be required for some production at Mbongo in part of 1972 and for the whole of 1973 as the construction of the mill would be deferred until 1974 to avoid underutilization of capacity at high cost in thie early years. This production would be sold to a Government- owned oil mill at Edea which could accommodate the quantities involved. Simi- larly, one year's production at Eseka would be processed with hand presses or part sold as Efb on local markets. While sales proceeds are considerably re- duced by these arrangements, losses are outweighed by delaying the heavy ini- tial investment in mills by one year. Bulk Storage 3.22 Each mill would be provided with adequate palm oil storage as determined by the mill consultants. New bulk storage facilities for export stocks would also be required as the existing storage tanks at Douala were constructed in 1952 and require replacement due to poor maintenance. A new road between Douala and Tiko, in W. Cameroon, is in course of construction, and the required storage facilities would be sited at Douala or Tiko, depending on the result of the marketing study referred to in paragraph 5.05.  Mill Location 3.23 A site has been selected for the Mbongo mill at the point where the Yaounde toad crosses the Mbongo River. No site has been selected at Eseka although siting would not create problems in view of the juxtaposition of the river, road and railway. Siting would be determined by the mill consultants. F. Labor Housing and Amenities 3.24 In project costs an amount of CFAF 133,000 (US$540 equivalent) is allowed for housing each married worker who is accompanied by his family, estimated at 25 percent of the labor force. A similar amount is allocated for the Auarters required by four unmarried workers. The costs also include approximately CFAF 70,000 (US$280) for the improvement and renovation of each housing unit in the twelfth year after construction. Particular atten- tion would be paid to the layout of labor villages and their associated health and education facilities, and to the provision of land for food crop cultiva- tion. The latter would be established as a block which would serve each village and 0.2 ha would be allocated to each family. Such arrangements would take into account possible smallholder development at a later date (paragraph 4.13). The Government proposes to engage the services of a consulting firm to plan and locate these villages and to provide educational and health facilities at its expense. The French Government has indicated its agreement in principle to finance the costs of this study. Assurances have been obtained that the Government would employ such consultants and provide the necessary social services. G. Cost Estimates 3.25 Total project costs are estimated at CFAF 3,472 million (US$14.1 million). Summary cost estimates appear below and details are given in Annex 7. Estimated Proiect Costs 1968 throuph 1975 Foreign Exchange Component CFAF Million$ US$M US$M Plantation Development 1,866 7.6 3.3 Vehicles and Equipment 62 0.3 0.2 Houses and other Buildings 202 0.8 0.2 Oil Mills 649 2.6 1.9 2,779 11.3 5.6 Contingencies 177 0.7 0.3 2,956 12.0 5.9 Operating Losses 47 0.2 - Interest on proposed Bank Loan 469 1.9 1.9 Total Protect Costs 14.1 7.8  - 12 - 3.26 The major items in the cost estimates are in line with costs experienced by publicly-owned plantation estates in W. Cameroon and Ivory Coast and, except for land clearing costs, similar to those of private estates in W. Africa. Mill costs are based on suppliers' quotations for similar mills for the Ivory Coast. A contingency provision of two percent in 1968 rising by a further two percent per annum to a maximum of 10 percent in 1972 and continuing thereafter has been provided in the estimates for all expenditures, except land clearing costs which contain a built-in contingency of approxi- mately seven percent. In line with the usual provisions for development projects, the Government has confirmed that SOPAME would be granted import duty free privileges during the development period and all estimated costs are free of import duty. H. Financial Arrangements Proposed Financing 3.27 It is proposed that a Bank loan of US$7.9 million, including capi- talized interest, should be made to SOPAME. The loan would cover 56% of the total project costs of US$14.1 million. The estimated foreign exchange cost of the project is US$7.8 million. 3.28 The Bank loan would bear interest at 6 1/2 percent, would be disbursed over the seven years 1969 through 1975, and would be repaid over twenty years from 1979 through 1998. During the grace period of ten years, interest would be capitalized for the first eight years only. 3.29 The project would be financed jointly with FAC, CCCE and the Cameroon Government. The Government would receive a FAC grant of CFAF 443 million (US$1.8 million) and CCCE would make a loan of CFAF 443 million (US$1.8 million) to the Government at an average interest rate of 4 percent per annum. The FAC grant and the CCCE loan would be invested in SOPAME by the Government on identicFl terms. 3.30 The CCCE loan would be repaid by equal installments over the twelve years 1977 through 1988, and there would be a maximum grace period of nine vears during which only interest would be payable. The French aid agencies have agreed that the FAC grant would be fully disbursed before the CCCE funds and the first disbursement of the CCCE loan is not expected until 1972. The effective grace period of the CCCE loan would, therefore, be reduced to five years. Cash Requirements 3.31 The proposed uses and sources of funds during the development period 1968 through 1975 are summarized below. A detailed cash flow appears in Annex 8.  - 13 - Uses and Sources of Funds 1968-75 Total CFAF Millions uS$m Uses Development Costs including contingencies /1 2,956 12.00 Operating and Processing Costs including contingencies /2 293 1.20 W4orking Capital 9 0.03 Total Uses 3,258 13.23 Sources Government Cash Contributions in the form of Share Capital 611 2.50 Bank Loan /3 1,482 6.(0 FAC Grant 443 1.80 CCCE Loan 443 1.80 Self-Generated Funds 279 1.13 Total Sources 3 8 13.23 /1 Excluding operating losses and capitalized interest. /2 Including interest payable annually to CCCE. /3 Excluding capitalized interest. 3.32 Interest payments on the Bank loan commence in 1977 and repayments of principal two years later. The debt service obligation, which would nct have arisen if IDA funds had been available, creates an estimated maximum cash deficit of CFAF 94 million (US$0.4 million) during the years 1976-1978. The Cameroon Government has tndertaken to provide any short term funds which mav be required during this period. From 1979 onwards the estimated annual cash surplus would average CFAF 300 million (US$1.2 million) which would be available for distribution, subject to working capital requirements and provision for replanting. Procurement and Disbursement 3.33 To ensure the maximum use of international competitive bidding procedures, and the most convenient administrative procedure for procurement and disbursement, the following arrangements have been agreed between FAC, CCCE and the Bank. (a) W4ith the exception of the first oil mill, whiclh would be financed by FAC and CCCE, and the employment of consultants for the planning and location of villages (paragraph 3.24) all goods to be procured for the project will be subject to international competitive bidding. (b) The Bank would finance the Eseka oil mill and the cost of importing fertilizers, vehicles, building materials and oil palm seedlings. In addition 60% of the land clearing contr.._ would be financed and approximately 42% of )lantation devel- opment costs. The total foreign exchange financed  - 14 - including capitalized loan interest, is estimated at US$5.4 million. (c) FAC and CCCE would finance the Mbongo oil mill, 40% of the land clearing contract and approximately 20% of plantation development costs. The total foreign exchange financed by the French aid agencies is estimated at US$2.4 million. 3.34 BanP. loan disbursements would be made against full import docu- mentation for the imported items in the list of goods including vehicles, oil mill equipment, fertilizers a,'d seeds, and against completion certificates for land clearing and mill insgallation. Reimbursement of local currency ex- penditure incurred in plantatioin development would be made on the basis of the percentages agreed between th$ co-lenders. Annex 9 contains details of proposed disbursements.. IV. ORGANIZATION AND MANAGEMENT A. Societe des Palmeraies ce Mbongo et d'Eseka 4.01 A development corporation, SOPMIE, would be established to execute the project. 4.02 At least 20 percent of the equity of development corporations must be held by the Federal Government. Initially the Government would own 48 per- cent of the equitv of SOPAME and the remaining shares would be held by SNI (12 percent) and the cocoa and coffee price stabilization funds (20 percent each). 4.03 Except for the participation of a Government Commissioner in its affairs SOPA'IE would function as a normal commercial entity, benefiting from tax relief and other concessions under the Cameroon Investment Code. By law, Government Commissioners have extensive powers of intervention in the affairs of development corporations if, as in the case of SOPAME, the State holds more than 50 percent of the share capital. Importantly, the Commissioner would have the authority to: (a) Attend all meetings of the corporation in an advisory capacity. (b) Receive the minutes of all corporation meetings. (c) Investigate all corporation records. (d) Suspend action on any decisions made at corporation meetings while referring these to the Minister of Planning for approval. The latter authority is very far reaching, and incompatible with the efficient functioning of a commercially oriented estate company. For this reason, assurances have been received from s:he Government that the Commissioner's  - 15 - right of delay would be restricted. The restriction would preclude the use of the right of delay except in the case of policy decisions which might increase the charges and obligations of the Government under the loan agreement with the Bank. 4.04 The Board of SOPAME would consist of eleven directors, including four senior government officials, the Director General of SNI, the Chairmen of the Chambers of Commerce and Agriculture, who also have other local busi- ness interests, representatives of the cocoa and coffee price stabilization funds, and a Cameroonian Area Manager of Camdev. The Bank has approved the nominees submitted by the Government, who provide a suitable blend of Govern- ment and local business representatives. 4.05 The General Manager would be appointed by the Board of Directors OTI the recommendation of the Minister of Planning and Development and would be responsible, under the autlhority and control of the Chairman of the Board, for the day to day management of the Company. 4.06 The formation of SOPAME is expected early in 1969. Further detaiils of the development corporation regulations and the statutes of SOPAME appear in Annex 4. B. Accounts and Audit 4.07 Full accounts would be kept by SOPAHE and the annual accounts would be approved by the Minister of Planning and Development. Auditors would be appointed bv the shareholders, subject to the approval of the Minister. A choice would be possible between the Government Auditor and a private audit- ing company. In view of the pressure of work on the Government Auditor there would be considerable advantages in employing a private firm. Assurances that a private firm satisfactory to the Bank would be employed have been received from the Government. C. Staff 4.08 The Government intends that key positions in SOPAIE would be filled by expatriates. There are no E. Cameroonians with experience in modern estate practice and few in commercial oil palm cultivation. Camdev has trained a number of qualified W. Cameroonians on its staff, but requires these for its own expansion program. Some, however, may wish to apply for SOPAME positions and would be considered. Nonetheless, language would be a problem and posts of estate manager and above would have to be filled by personnel with a good knowledge of spoken and written French. Due to this it is unlikely that either experienced W. or E. Cameroonians could be employed initially in posts higher than that of Assistant Estate Manager. 4.09 The Government appreciates the problems, has engaged the General Manager designate with the approval of the Bank, and has already begun to seek candidates for the other key posts which wotuld have to be filled in 1969. These are: administrative assistant/personnel manager, chlief account- ant, and one estate manager. Full details of senior staff needed for devel- opment of the project are given in Annex 10.  - 16 - 4.10 Recruitment is being conducted by IRIIO whicih has close contacts with Frenich speaking oil palm estate personnel. IRHO has acted similarly in the Ivory Coast where it has been successful in recruiting.a large number of well qualified personnel for the Ivorv Coast Covernment's oil palm development program. A number of candidates have been short-listed but appointments would await the completion of project financing arrange- ments. The Government would submit for approval to the Bank the names and references of the candidates it proposes to appoint to key posts (Annex 10). Assurances have been received from the Government that the Bank's approval would be sought for changes in these appointhents made during thle project's development period. D. Technical Support and Supervision 4.11 Despite the quality of the key staff that SOPAIME would obtain, the companv would need additional technical support. IRIIO, with its up-to-date knowledge of the problems of oil palm cultivation in the Cameroon and W. Africa, and its facilities for providing recommendations on, and investigat- ing subjects relating to all aspects of oil palm cultivation, is well suited for this role. SOPAMIE would sign a technical assistance contract with IRHO after the terms and conditions have been approved by the Bank. Costs of the contract are included in the project costs. 4.12 SOPAME would benefit from additional technical supervision, partic- ularly where this was concerned with the inter-relation of estate methods, costs and benefits. This type of service would be provided by a Visiting Agent, who would make bi-annual visits to each estate and subsequently sub- mit his report to both the Board of SOPAME and to the Bank. Assurances have been received that SOPAIIE would satisfactorily contract with an experienced commercial oil palm estate company to provide such a service, and that this service would be utilized throughout the project development period. E. Smallholder Development 4.13 No plans have been made for sponsoring smallholder development in areas surrounding the two estates. Investigation of the potentialities for, and needs of an effective program of smallholder or outgrower development would be carried out by consultants employed by the Government. Possible smallholder development has three forms: outgrowers - who on their own land would grow oil palms and have their ffh purchased and collected by SOPMME; smallholders - who would be settled on land adjacent to the estate which would be acquired for this purpose and who would be administered under a formal settlement program; and smallholders - who would be selected estate workers who would obtain credit to purchase economically sized holdings, probably 4 ha, which would be subdivided from the existing planted acreage of the estate. Assurances have been received from the Government that studies would be made to determine the most appropriate form of smallholder or out- grower development, and that reports and recommendations would be made available to the Bank for comment.  - 17 V. PRODUCTION. MARKETS AND ESTATE JPERATING RESULTS A. Yields and Production 5.01 Project vield estimates are based on results from the IRHO station at La Dibamba, which lies on the western border of the proposed Mbongo Estate. La Dibamba yield performance, appropriately modified, is directly applicable. The same yield projections are used for Eseka, where growing conditions are similar to those at Mbongo, although the sunlight factor may be better and thus result in higher yields. Annex 5 contains the project yield projections and the bases for these. In brief, yields would increase from five tons of ffb/ha in the fourth year after planting to 13.5 tons/ha at maturity in the eighth year. Yields would continue at the latter level thoughout the economic productive life of the palms, currently considered to be 25 years. 5.02 At maturity the two estates would produce about 122,000 tons of ffb annually, yielding about 26,000 tons of palm oil and 6,000 tons of palm kernels. B. Marketing and Prices 5.03 Domestic consumption of palm oil in E. Cameroon is estimated at between eight and ten kg/capita annually. The decline in production from wild palms has resulted in total regional demand outstripping regional supply. Consequently, palm oil prices have increased and the supply balance is one of deficit. In contrast the situation in W. Cameroon is one of surplus. 5.04 Previously the W4. Cameroon surplus was exported; but steadily rising E. Cameroon prices, combined with the harmonization of customs and duties, and the improvement of trading channels between the two regions, has resulted in the surplus being used increasingly to satisfy the E. Caneroon shortfall. Since 1966 Camdev has been selling most of its oil locally for transshipment to E. Cameroon, and while Pamol continues to export oil, it is increasing its supply to the local market. 5.05 In addition to the SOPAME project both Camdev and Pamol are in- creasing their palm oil plantings (paragraphs 2.14 and 2.15). Thus, while local demand will continue to expand, both E. and W. Cameroon will be in a surplus position by 1975. Thereafter, the two Regions would expect to export jointly the difference between production and domestic demand. Table 2, Annex 3, shows that this would rise to about 30,000 tons of palm oil by 1980 and thereafter decline unless additional new plantings were made. Finding overseas markets for the volumes of oil involved, at peak less than five per- cent of the current world trade in this coimmodity, should not be difficult, but a rationalization of the marketing policies of Government-owned producers, imnortantly Camdev and SOPANE, would be desirable. A degree of competition in the local market is acceptable, but duplication of facilities such as port storage tanks and handling installations would be uneconomical. The Government agrees that the situation requires study, and assurances have been received from the Government that an expert appraisal of SOPMME's mar- keting needs would be commissioned. This would include an evaluation of  - 18 - futitre palm oil exports from the Federal Republic of Cameroon and the indi- vidual responsibjility of SOPkME, Camdev and any other Government sponsored oil palm project to fulfill these requirenments. Assurances have also been received that the action recommended as a restilt of the study would be taken following consultation with the Bank. 5.06 Annex 2, which was prepared by the Bank's Trade Policies and Export Projections Division, examines market prospects for palm oil and palm kernels on the world market. It concludes that during the life of the project the cif Europe prices for palm oil and palm kernels will be in the range of US$155-US$165 and US$134-US$138 per metric ton respectively. For the purposes of this report the following prices are assumed for palm produce exports: palm oil US$160 per metric ton cif Europe; palm kernels US$136 per metric ton cif Europe. These prices compare with average 1968 European market prices of US$170 for palm oil and US$155 for palm kernels. During 1968 the price of palm oil fell to a low of US$140 per metric ton, due to the supply of fish oil, soybean oil and sunflower seed oil in large quantities. Whilst palm oil prices are currently improving, the price levels experienced during 1968 and previous years are unlikely to be achieved in the foreseeable future. 5.07 The price assumptions in paragraph 5.06 form the basis for calcu- lating the project's financial results. In addition, account is taken of substantial domestic sales of palm oil. It is estimated that the percentage of project produced oil sold locally would fall to a minimum of about 70 per- cent by 1979 and thereafter increase in the absence of plantings other than those specified in this report (paras. 2.14 and 2.15). It is assumed that this oil would be sold ex-mill gate at a minimum price of 25 percent higher than the anticipated export price of approximately CFAF 27,000/ton, equivalent to about CFAF 34,000/ton. The projected price of CFAF 34,000/ton compares with ex-mill prices currently obtained by Camdev and PAMOL of between CFAF 50,000/ton and CFAF 60,000/ton, and it is possible that higher prices would be obtained. 5.08 SOPMIE may also benefit from European Economic Community (EEC) price support and tariff arrangements. Current arrangements expire in May, 1969, but so far there is no indication of the probable form in which they may be continued subsequently. No account is taken of possible beneficial EEC arrangements in the calculations of project earnings. Annexes 2 and 3 contain further details of the prices and markets for SOPAME produced palm oil and kernels. C. Estate Operating Results 5.09 Projected operating accounts aad balance sheets for SOPA'E appear in Annex 11 and 12. The oper&ting accounts show that the first profits, before tax but after loan interest charges, would arise in 1978, the eleventh year after the commencement of the project, when they would amount to approxi- matelv CFAF 76 million (US$308,000). Thereafter, profits would gradually in- crease from this level to approximately CPAF 300 million (US$1.2 million) annu- al.ly. Cumulative losses of CFAF 260 million (US$1.1 million) would be eliminated by 1980 and, subject to distribution of profits, substantial sums of cash would begin to accrue from 1980 onwards. The operating accounts have been  - 19 charged with straight-line depreciation for mills, assuming *i 25 year life, and with amortization of plantations over the same period, after allowing a residual value of cleared land equal to 50 percent of the original land clearing costs. Profits and cash availability from 1980 onwards would be sufficient to enable provision to be made for replAnting. Assurances have been received from the Government that adequate sums would be set aside for this purpose. 5.10 The financial rate of return on the project is more than 8 per- cent assuming domestic sales at the level of CFAF 34,000/ton. If domestic sales were made at current prices the financial rate of return would increase to 13 percent. The rate of return on net capital employed, which has been calculated on the assumption that profits represented by surplus cash over normal estimated requirements would be distributed, rises from approximately four percent in 1977 to more than twenty percent in 1987 and thereafter. VI. BENEFITS AND JUSTIFICATION 6.01 The project would have a substantial impact on the agricultural economy of the Cameroon. In particular, that of the forest areas of tlhe E. Cameroon where agricultural production is close to stagnation, and where other programs of agricultural development are in the earliest stages of trial and planning. No other opportunity exists in the E. Cameroon for im- plementino, within the next five years, an agricultural project with compar- able benefits. 6.02 At maturity, the project would provide permanent employment for about 2,000 workers, giving them living conditions and amenities at least equivalent to those that could be obtained in urban jobs. 6.03 Assuming all palm oil and kernels were exported, annual gross foreign exchange earnings stemming from the project at maturity could be estimated at nearly CFAF 900 million (US$3.6 million equivalent). In practice, however, most of the palm oil produced would be retained in the Cameroon. If this retained oil was not produced, either an equivalent amount of fats and oils would have to be imported, or a deficiency in fats and oils be al-- lowed to develop in diets. It is estimated that on average about 25 per- cent of palm oil produced and all kernels would be exported; at maturity, foreign exchange earnings from these exports would cover the forel n ex- change element of annual project operating costs which are estimated at CFAY 150 million (US$0.6 million equivalent). 6.04 Wages paid to project employees would amount to about CFAF 138 million (US$0.56 million equivalent) annually when the project is in full production. Much of this would be spent on locally grown foodstuffs, and would stimulate food crop production in the vicinity of the estates and elsewhere. 6.05 The economic rate of return on the project on the basis of conservative estimates of yields, costs free of identifiable taxes and price assumptions detailed in paragraph 5.06 and Annexes 2 and 3, is between 7 and 8 percent. Wages paid by SOPAME will be considerablv higher than the  - 20 - contribution that the labor would make to the economv if it were not employed by the Corporation. A necessarily rough estimate of this "contribution to GDP in alternative employment" is 60 percent of the full wage costs. If labor is costed at 60 percent of the full cost the internal rate of return to the economv from investment in the project is increased to between 9 and 10 per- cent. Sales are valued at export prices for the economic rate of return, although not less than 70 percent of SOP.AME production would be sold locally at a higher price. The estimated financial rate of return is between 8 per- cent and 13 percent, depending on the price obtained for palm oil sold on the domestic market (paragraph 5.10). The minimumn estimated combined ex-mill price for oil nnd k(ernels is equal to about CFAF 29,500 (US$119) per ton of palm produce. At full production it would be possible to meet all operating costs, including depreciation and amortization, and debt service with an average ex- mill price for palm produce equal to CFAF 25,000 (US$100) per ton. Amorti- zation and depreciation charges at full production included in the above figure are equal to CFAF 5,060 (US$21) per ton of palm produce. VII. CONCLUSIONS AND RECOMMENDATIONS 7.01 The project, as planned, is financially and economically sound and suitable for a Bank loan of US$7.9 million including capitalized interest. A number of assurances have been received from the Government including the following: (a) Resettlement of families in the project areas would proceed in accordance with the proposed planting program and that the full costs of compensation would be paid by the Government (paragraph 3.11); (b) Consultants satisfactory to the Bank would be appoin- ted to plan and locate the villages and associated infrastructure for project labor (paragraph 3.24); (c) The authority of the Government Commissioner to suspend action on decisions taken by SOPAME would be restricted to those which might increase the Government's charges and obligations under the loan agreement (paragraph 4.03); (d) A study would be commissioned by the Government to establish the prospects for and needs of oil palm smallholders or out- growers' program, the results of which would be submitted to the Bank for consideration (paragraph 4.13); (e) An expert appraisal of SOPAME's marketing requirements would be commissioned, and that action would be taken in accordance with the resulting recommencations after consultation with the Bank (paragraph 5.05): February 3, 1969  rALiT JACLROON 0OI PALM PROJECT POPUT-ATION, AGRICULTURtAL PRODUCTION. AND EXPRTS 1960 1963 196h 1965 East West Total East West Total East West Total East West Total POPULATION (000) 4,070 1,157 5,227 AGRICULTURAL PRODUCTION AND EXPORTS (000 tons ) Millet, Sorghum Production 35h _ 35h 377 - 377 1