Document of

CAISSE CENTRALE DECO&PERATION ECONO1IQUE

FOR OFFICIAL USE ONLY

Report No. 5046-CM

CAMEROON

THIRD HEVECAM RUBBER PROJECT

APPRAISAL REPORT

May 1984

INFORMAL ANNOTATED TRANSLATION (FOR INFORMATION ONLY)This document is reserved exclusively for internal use by the CaisseCentrale de Coopération Economique, the World Bank, the CommonwealthDevelopment Corporation and the European Investment Bank.

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CURRENCY EQUIVALENTS

Currency Unit - CFA franc (CFAP)F1 - CFAF 50US$1 - CFAF 3921 pound sterling - CFAF 560

WEIGHTS AND ME&SURES

1 kilometer (la) 0.621 miles1 hectare (ha) 2;471 acres1 kilogram <kg) = 2.205 poundsl metric ton (t) 0.984 long ton

ABBREVIATIONS

AFCA Association pour la Formation des Cadres d'Administration(France) (Association for Government Management Training)

CCCE Caisse Centrale de Coopération Economique (France) (Central EconomicCooperation Agency)

CDC Commonwealth Development Corporation (U.K)CEC Coastal Estate Center (Cameroon)DCN Direction Centrale des Marchés (Cameroon) - (Central Procurement

Office)DGRST Direction Générale de la Recherche Scientifique et Technique

(Cameroon) - (Directorate General of Scientific and TechnicalResearch)

EDF European Development Fund (Brussels)EIB European Investment Bank (Luxembourg)PONADER Fonds National de Développement Rural (Cameroon)

(National Rural Development Fund)IBRD International Bank for Reconstruction and Development (World Bank)

(Washington)IDA International Development AssociationIE Industrial EstateIRA Institut de Recherches Agronomiques (Cameroon)

(Agricultural Research Institute)IRCA Institut de Recherches sur le Caoutchouc (France)

(Rubber Research Institute)MINPI Ministère du Plan et de l'Industrie (Cameroon)

(Ministry of Plnnning and Industry)ONCPB Office National de Commercialisation des Produits de Base (Cameroon)

(National Office for the Marketing of Primary Commodities)RSS1 Grade 1 Ribbed Smoked SheetSAFACAM Société Africaine Forestière et Agricole du Cameroun (Cameroon)

(African Forestry and Agricultural Company)SE Smallholder EstateSGs Secondary Grades of RubberSNI Société Nationale d'Investissement (Cameroon)

(National Investment Company)SONEL Société Nationale d'Electricité (Cameroon)

(National Electricity Company)SPTR Société des Plantations des Terres Rouges (France)

(Terres Rouges Plantation Company)TSR Technical Specified RubberUNCTA1) United Nations Conference on Trade and Development

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PREFACE

The Caisse Centrale de Coopération Economique (CCCE) as leadagency for the appraisal of the Third HEVECAM Rubber project. has prepareda staff appraisal report in French. To facilitate its review by the WorldBank, it has been translated into English, vithout modification of contentor presentation. Since the completion of CCCE's report in early May 1984however, substantial changes have occurred. In particular: (i) the projectstart-up date has been postponed by six months to January 1985 and theplanting program has been revised following a post-appraisal mission,requiring changes in project costs and financing; and (ii) agreement hasbeen reached with Government on several points, leading to changes inassurances and recommendations.

To update CCCE's report an Addendum has been prepared andfootnotes (using capital letters) have been added to the main text. TheAddendum consists of two parts, dealing respectively with project costs andfinancing and vith assurances and recommendations. The Bank's PresidentReport and Legal Documents reflect all recent developments as of August 31,1984.

WAPADWorld BankDecember 1984.

CAHEROON

THIRD HEVECAM RUBBER PROJECT

TABLE OF CONTENTS

Page

INTRODUCTION ................................................. -i-

I. THE OIL PALM AND RUBBER SUB-SECTOR ...... ................... 1

II. TECHNICAL AND FINANCIAL RESULTS OF FIRST AND SECOND PROJECTS 2

A. BEVECAN ........................................... 2B. First project ......................................... 3C. Second project ........................................ 4

III. PROJECT FRAMEWORK .......................................... 10

Location ............................................... 10Population .......................................... 10Topography .......................................... 10Soil .......................................... 11Hydrography . ........................................... IlC*limate ............................................ IlVegetation .......................................... 12Communications ........................................... 12Electrical pover supply .................................... 13Public services and social services ....... ................. 14Labor ..................... ...................... 15

IV. THE THIRD HEVECAN RUBBER PROJECT ........ ................... 15

A. Overview ........................................... 15B. Description of project to complete 15,000 hectares .... 16

Clearing ... 16Planting and clone varieties ... 16Upkeep ... 17Phytosanitary protection . . .17Initial and subsequent tapping . . 17Yields ... 18Collection of latex . . .19Quality of rubber ... 19Factory ... 20Packing, shipment and exportation of rubber . .20Labor ... 21

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Table of Contents (Continued)

Page

Operational structures ....... ......................... 21Housing ............................................... 22Related social infrastructure ...... ................... 22Envirormental impact ....... ........................ ... 22Rolling stock and miscellaneous ....................... 22Associated experimentation ...... ................... ... 23

C. Description of associated programs ....................... 23

Smallholder estate program ............................ 23Food crops ..................... ....................... 25Future development of rubber in Cameroon ...... ........ 27

V. OBJECTIVES, ORGANIZATION AND MANAGEMENT . ................... 27

Objectives . ................................................ 27Supervision . ................................................ 28Management . ................................................ 28Procurement . ................................................ 29Public and social service activities ....................... 29Organization of HEVECAN ................. ................... 30Accounting records and documentation required .... .......... 31External audits ............................................ 31Training and replacement of expatriates supervisors .... .... 32

VI. PRODUCTION, MARKETS AND PRICES ............................. 32

Production of the industrial estate ......... .. ............. 32Duration of production ................. .................... 33Smallholders program . ...................................... 33World Market prospects .......... ........................... 33Producers and consumers of natural rubber .................. 34Market organization and prices ............................. 34

VII. PROJECT COST AND FINANCING ARRANGEMENTS .................... 35

Total project cost ................... ...................... 35Proposed financing plan and disbursements ...... .. .......... 37

Table of Contents

Page

VIII. FINANCIAL ANALYSIS . ............... .. . .............. ........ 42

A. Financial situation prior to amendments ....... ........ 42

General conditions . ....................... ............ 42HEVECAM I onlending ................. .................. 42HEVECAM II onlending ................ .................. 44HEVECAM III loans .................. ................... 45Taxation ................................................... 47Impact on projected cash position ..................... 47

B. Financial situation following amendments .... .......... 49

Adjustment to onlending terms ......................... 49Changes in taxation ......... .......................... 50Provisional HEVECAM accounts following amendments ..... 52

C. Financial Rate of Return .............................. 52

IX. ECONONIC ANALYSIS .................... ....................... 56

Economic rate of return ................ .................... 56

Sensitivity Tests ........ .............. .................... 57Risks .................................... 59

X. CONDITIONS AND RECOMMENDATIONS .............................. 60

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TABLES AND ANNEXES

TABLES Page

1. Planting program, Phase II .................................... 62. Second REVECAM Rubber Project estimated cost through

completion, June 30, 1984 ...................................... 73. Second HEVECAN Rubber Project estimated sources of

funds at end June 1984 ........... * * * . * . . .......................*.. 94. Estimated yields ....................... ........................ 185. Quality of finished products ............... .. .................. 196. Introduction of processing facilities .......... .. .............. 207. Container shipping rates (in FF) ............. .. ................ 218. Third HEVECAN project .................... ...................... 369. Third HEVECAN project proposed financing plan ........ .......... 3910. Allocation and mobilization of external finarcing .............. 4011. Allocation of Government financing and of HEVECAM's

self-generated funds ..................... ...................... 4112. Debt service prior to amendments ............................... 4613. Projected cash position vithout amendments .......... ........... 4814. Debt service after amendments .............. .. .................. 5115. Profits and loss account ................... .................... 5316. Balance sheet ........................ .......................... 5417. Cash flow ...................................................... 55

ANNEXES

T. Organization chartII. Management staffIII. Yields per hectare and per yearIV. Production forescasts for the 15,000 hectare programV. Possible allocation of CCCE financingVI. Phases I and Il financingVII. Maps IBRD (No. 18249 and 18369)

ADDENDIJM A/

I. Project Costs and FinancingII. Agreements and Recommendations

A/ Prepared by the World Bank.

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CAMEROON

THIRD HEVECAM RUBBER PROJECT

INTRODUCTION

The appraisal of the HEVECAM III project took place from September26 to October 12, 1983. Participating in the mission vere representatives ofthe co-financiers (World Bank, Caisse Centrale de Coopération Economique,Commonwealth Development Corporation, European Investment Bank) and theCameroonian agencies involved. During the CAMDEV-SOCAPALM supervision missionof late November 1983, views vere exchanged vith the Cameroonian authoritieson the conclusions reached by the appraisal mission.

This report vas prepared by the Caisse Centrale de CoopérationEconomique, but includes an economic analysis prepared by the World Bank; itreflects the progress of discussions through the end of December 1983 as wellas the subsequent changes proposed bv the co-financiers.

Preparation of the report vas greatly facilitated by the excellentspirit of cooperation prevailing between tne representatives of the fourfinancial institutions.

CAMEROON

THIRD HEVECAN RUBBER PROJECT

I. TRE OIL PALM AND RUBBER SUB-SECTOR

1.01 Approximately one-third of the land area of Cameroon is classified asagricultural (156,000 km2 out of a total of 465,000 km2). Hovever, the areaunder cultivation at any one time is estimated at only 2 million ha or some 13%of this agricultural area. Smallholder farming predominates, contributing some93% of total agricultural production, vith plantation agriculture which islargely oil palm and rubber making up the remaining 7%.

1.02 Within the plantation sector there has been considerable past as vellas ongoing investment; this has diversified exports which vere heavilydependent on coffee and cocoa, by creating large plantations of rubber and oilpalm. Apart from Government contributions this program involved the follovingloans and credits from external co-donors:

oil Palm and Rubber Sub-SectorExternal Financing

IBRD/IDA CCCE CDC EIBUS$ FF £ ESU

million million million million

1960 CA1DEV 1.01967 CAMDEV I 18.0 6.51969/73 SOCAPALM I 9.6 5.8 8.81975 HEVECAM I 16.0 20.01976 Ferme Suisse 6.01976 SAFACAM 11.01976/77 SOCAPALM II 25.0 13.4 2.31977/78 CAMDEV Il 15.0 36.8 3.91978 SAFACAM 14.41979 Mukete Plantation Ltd. 10.71979 Ferme Suisse 25.41979/80 HEVECAM II 31.5 80.0 12.01980 SOCAPALM 22.01981 SAFACAM 14.01982 Consolidation Project 50.8 80.0 6.7 3.81982 CAMDEV/IDENAU 24.0 6.91982 Ferme Suisse 47.01984 HEVECAM III (proposed) 8.3 92.0 8.0 13.0

Total 174.2 502.5 38.5 34.4

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1.03 The oil palm and rubber sub-sector largely comprises theparastatals, CAMDEV, SOCAPALM and BEVECAM, which at completion of ongoingand proposed projects vill total about 40,000 ha, 21,000 ha and 15,000 harespectively. Private sector plantation companies are smaller, comprisingPANOL (Unilever Plantations) with about 10,000 ha; SAFACAN with some 6,000ha and SPFS (Ferme Suisse) vith 3,500 ha. Rubber and oil palmsmallholdings are few. Pilot smallholder programs have been included inthe parastatal projects but progress has generally been slow.

1.04 The performance of CANDEV and SOCAPALM has been deficient. Majormanagement problems arose from a lack of autonomy and commercialorientation; incentives are inadequate, and the quality of staff could bebetter; operating results so far have been poor and the companies continueto pose a financial burden on Government. Recently, there has been animprovement in the management of SOCAPALM. So far, HEVECAM has performedvell during the investment period; but with the onset of production, it isimportant to avoid the problems'from which the other companies suffer.

1.05 Accordingly, under the Loan Agreement for the Oil Palm and RubberConsolidation Project, Government accepted'to review, prior to December 31,1984, its oil palm and rubber development strategy in consultation with theWorld Bank. Terms of Reference for the study have been prepared and it isanticipated that the study, to be carried out by consultants, vill becompleted on schedule. As part of the above review, Government vill berequired to present at negotiations, a statement of intent for thelong-term organization and management of the oil palm and rubbersub-sector, in general, and HEVECAM, in particular. A/

II. TECHNICAL AND FINANCIAL RESULTS OF FIRST AND SECOND PROJECTS

A. HEVECAN

2.01 By Decrees No. 75/284 of April 30, 1975 and No. 75/346 of May 23,1975, the Government established HEVECAM (Hevea-Cameroon), a statecorporation responsible for carrying out a program of 15,000 ha ofindustrial plantations of selected hevea plants. This companv, which fallsunder the legal provisions established by Law No. 68/LF/9 of June 11, 1968relating to Development Agencies, vas endowed with an initial capital ofCFAF 700 million. Of this amount, CFAF 400 million represents theestimated value of the land conceded to it by the Government and theremaining CFAF 300 million vas subscribed by the Government (CFAF 50million), the Office National de Commercialisation des Produits de Base

A/ See general condition in Addendum, para 2.02(a).

(ONCPB-CFAF 200 million) and the Société Nationale d'Investissement(SNI-CFAF 50 million).

2.02 Bv Decrees Nos. 76/615 of July 2, 1976 and 76/403 of December 17,1976, the Government granted REVECAM a concession of 40,000 ha north of theNiété River, 45 km from Kribi in the Ocean Department.

2.03 A technical assistance contract vas signed on May 23, 1975between HEVECAM and the "Société Africaine Forestière et Agricole duCameroun" (SAFACAN), a subsidiary of the "Société des Plantations desTerres Rouges" (SPTR), turning over to SAFACAM the management of the newestate. This contract, valid for eight years, is renevable by tacitagreement for successive four-year periods (para 5.03).

2.04 An "Establishment Agreement" vas authorized by Law No. 76/10 ofJuly 8, 1976 and signed on August 30, 1976. Under it, HEVECAN benefitsfrom regime C of the Investuent Code (Annex VII).

2.05 At the time of the first appraisal mission in 1975, it vas agreedvith the Government that in view of its large size, the program vould bedivided into three phases.

B. First Project

2.06 For the period 1975/76-1978/79, the principal objectives were toclear 7,500 ha, plant 5,800 ha, complete the operational and housinginfrastructures, carry out a program of complementary research, introducefood crops, complete the prospection of the concession, and line up thefunds required for technical assistance as vell as for a Master Plan studyfor the Ocean Department. 1/

2.07 External financing vas provided by an IDA credit (574-CM) ofUS$16 million and a CCCE loan of FF 20 million, both granted in 1975. Thenational contribution vas to be CFAF 1,633 million, including the initialcapital subscription of CFAF 300 million. The external loans on lendingterms vere laid down vithin the framevork of the Financial Agreementbetween Government and HEVECAN signed in 1975.

2.08 Initial operations vere delayed due to the remote location of theestate (absence of infrastructure, labor problems, difficult climatic

1/ The study vas entrusted to a consortium made up of SEDA (Sociétéd'Etudes pour le Développement de l'Afrique (African DevelopmentResearch Company), SATET (Sociité Africaine de Travaux et d'EtudesTopographiques) (African Topographical Research and ConstructionCompany) and SAFACAM. Its costs vere financed by the IDA credit(US$873,000) and the CCCE loan (FF 1,100,000).

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conditions). Furthermore, the project faced financial difficulties as aresult of:

(1) a change in the regulations concerning the housing ofvorkers;

(ii) a change in the land clearing techniques, reducing the riskof root diseases (particularly Fomes); and

{iii) an increase in inventories due to the geographical isolationand the increase in the fleet of heavv land-clearingequipment.

The Government then increased its contribution in 1978,subscribing an additional CFAF 1.4 billion in capital. It vas stillnecessary, however, to phase dovn the program to 4,200 ha and to transferthe remaining 1,600 ha to Phase II. Hovever, the quality of what had beenachieved augured vell for the future of the program. The draft Master Planfor the Kribi region vas not completed until June 1980.

C. Second Project

2.09 The second project, covering the period 1979/80-1983/84,comprised the preparation of 9,800 ha of land (of which 1,500 ha was to beplanted during Phase III), the planting of 9,300 ha (of vhich 1,600 ha wasleft from Phase 1), maintaining the immature areas from both phases,bringing 1,500 ha into tapping, constructing all the infrastructurerequired for expansion of the estate (roads, housing, hospital, schools,markets, etc.), building a 30 t/day factory 2/ and preparing nurseries forthe 1,500 ha to be planted during Phase III. Also planned were severalancillary operations: Initiation of a program of 250 ha of smallholderestates, completion of prospection of the Niité concession, topographicaland soil surveys on a new site, continued applied research, and food cropprograms.

2.10 The cost of the second project had been estimated at appraisal atCFAF 20,970 million, 3/ excluding HEVECAM's liquidity needs estimated atCFAF 2,400 million. External financing vas to be provided by an IDA credit(975-CM, April 18, 1980, US$15 million), an IBRD loan (1791-CM, April 18.1980, US$16.5 million), a loan from the CDC (January 24, 1980, 12 millionpounds sterling) and a loan from the CCCE (November 23, 1979, FF 80million, Nos. 58 31 00 79 050 and 58 31 00 79 060). The Government was toprovide CFAF 3,943 million as well as CFAF 2,400 million to cover the

2/ Theoretical capacity.

3/ Including CFAF 1,012 million in increases in stocks.

liquidity requirements of HEVECAM, equivalent to four months' operatingexpenses. The terms for onlending external loans vere defined under theCameroon-HEVECAM financing agreement signed on December 6, 1979.

2.11 The various supervision missions conducted on a regular basisduring Phase II as vell as the appraisal mission for Phase III noted thatthe project vas p-oceeding very satisfactorily. The major problemsencountered initially had been overcome, in particular those related to therecruitment and the stability of vorkers, thanks to the introduction ofadequate social infrastructure. This positive result must be credited to adynamic and competent management team made up of 43 senior staff, of vhom12 are expatriates, supported by the technical assistance of SAFACAN, whose"Cameroonization" program is proceeding effectively.

2.12 The targeted objectives have practically all been met. The landclearing vorks covering 15,000 ha should be completed in April 1984 and byend-June 1984, 9,200 ha (as against a projected 9,300 ha) should beplanted. A/ The first two rubber processing facilities (20 t/day for latexand 10 t/day for secondary grades) 4/ should be operational in early 1984B! and the initial tapping of the first fields planted vas actually carriedout in July 1983. The other investments have been made as projected, viththe exception of some housing and equipment which did not prove necessaryduring Phase II, largely because of better vorker productivity. All inall. based on the initial appraisal cost estlmate, this postponementrepresents CFAF 705 million. The food crop program has proceeded normally.In contrast, the pace of establishing the 250 ha of smallholder estates hasbeen slover than projected, vith 49 ha planted in 1982/83, though it may bepossible that the remaining 201 ha might actually be planted -during fiscalyear 1983/84. The only negative point, though not attributable to theproject, is that the studies on the selection of a new site in the Kribiarea have not been completed.

AI By end-June 1984, the total area planted reached 14,035 ha: 4,214 haunder the first project, and 9.821 ha under the secnnd project. Thetotal area of 15,000 ha would be planted before completion of thesecond project in December 1984.

4/ Theoretical capacity.

B/ The factory has been in operation since May 1984.

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Table 1: Planting Program Phase II

1979/80 1980/81 1981/82 1982/83 1983/84 Total

Hectares, Appraisal 998 2,210 2,200 2,192 1,700 9,300Hectares, Actual A/ 1,277 2.103 2,150 1,770 1,900 9,200

2.13 The project has had, in fact, to face only two sizableagricultural problems: Fomes and Gloeosporium, especially since 1981 forthe latter disease. A pest control research program has been undertaken incooperation with IRCA. For Fomes, chemical treatments have nov beensufficiently developed; for Gloeosporium, tests involving aerial treatmentand early defoliation have been carried out. While it is not vet possibleto assess accurately the effectiveness of this or other treatments alreadytested against Gloeosporium, which affects mainly the young trees, it hasnot had a sizable impact this year (a particularly dry one). Under thesecircumstances, earlier vorries may be partiallv alleviated. It isimperative, however. that experiments be continued. As a precautionarymeasure, in the appraisal of Phase III, sufficient funds have beenallocated for treating Fomes and Gloeosporium.

2.14 On the basis of HEVECAM's provisional results at end-June 1983and the fiscal 1983/84 budget. the total cost of Phase II has beenestimated at CFAF 24,601 million. as against the 1979 appraisal figure ofCFAF 20,970 which amounts to a cost overrun of CFAF 3,631 million (17Z).This gap vas analyzed vithin the context of evaluating the execution of theproject. When the postponement of certain construction and plant andequipment outlays (CFAF 705 million according te 1979 appraisal figures(para 1.12) and the 100 ha of planting not completed (approximately CFAF 12million) vere subtracted, the project had CFAF 20,970 million - CFAF 717mIllion = CFAP 20,253 million available to it. The gap between actualexpenditure and the revised appraisal estimate indicates an actual overrunof CFAF 4,348 million (21.5Z). Four principal factors explain the overrun:

(iv) increase in the real cost of labor by an annual average of18Z, as compared to the appraisal estimate of 10% (CFAF1,385 million);

A/ Updated as follows:

1979/80 1980/81 1981/82 1982/83 1983/84 Total

Hectares, Actual 1,258 2,103 2,166 1,976 2,318 9,821

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(v) increase ln the cost of oil products by an annual average of22% as compared to the appraisal estimate of IOZ (CFAF 839nillion);

(vi) depreciations of the French franc vis-a-vis the otherinternational currencies (the dollar and the poundsterling), increasing the cost of capital equipmentpurchased outside the franc zone (approximately CFAF 1,500million); and

(vii) completion of additional construction not foreseen atappraisal for Phase II (CFAF 1,029 million).

These four factors increased the real costs of the project byCFAF 4,753 million against an overrun of CFAF 4,348 million, indicatingother savings of CFAF 405 million. It is thus reasonable to conclude thatthe project has been carried out in accordance with the appraisal bothtechnically and financially.

Table 2: Second HEVFEAM Rubber ProjectEstlmted Cbst DWrx,4 Co pltoii, June 30, 1984

(in CFAF ;dfliov)

A B C DReVLsEd

Ppraisl Appraisal New DifferenceFstimate - Fstnite Estlmte (C - B) Z D/B

Agrlltural Costs 7,449 7,437 a/ 8,661 1,224 16.4Civil Works, adM±ris 3,032 2,403 b/ 3,595 1,190 49.5Velicles, EBipient 1,319 1,243Zi 1,404 161 13.0Factory 1,020 i,020 1,059 39 3.8M>iagoent Costs 5,976 5,976 7,275 1,299 21.7Other Activitis d/ 535 535 833 298 55.7Teclmical Assstaince 627 627 856 229 30.5Wbr*dng Capital 1,012 1,012 920 (92) (10.1)

Total 20,970 20,253 24,601 4,348 21.5

a/ Reduction of CPAF 12 million (100 ha not planted).i Rdti of CŒAF 692 =Llan (defered netsment).

c/ Reuction of CPAF 76 ndj.lnn (deferred Iestnient)._i Incudoe Applied Resarch, 0unersæps'roam, Food *ops and &*ber %vOqment in the

South Ceiter and Fast of the coutry.

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2.15 Particular attention has been paid to the evolution of overheadsas they appear in HEVECAM cost accounting, vhich for the 1983/84 budgetamount to CFAF 2,002 million. The analysis shows that this heading groupsthree categories of expenditure which are quite distinct, two of whichshould not be included in the overheads:

(i) CFAF 290 million is for social velfare efforts which arecarried out by HEVECAN on behalf of Government (health,education, vater and electricity supply for employees,various social activities, etc.);

(ii) CFAF 400 million represents the cost of activities performedby HEVECAM (forest clearing, construction, upkeep ofvehicles and equipment, and delivery of supplies), whichcould have been subcontracted to third parties hadcircumstances in the region so permitted. In this case,these costs would have been incorporated directly insuppliers' invoices;

(iii) only CFAF 1,312 million represents real overheads, i.e.,those costs of managing the project which cannot be chargeddirectly to operations.

2.16 The actual introduction of the initial financing plan shouldresuit in an end-June 1984 increase in funding of CFAF 3,836 million overthe appraisal estimate of CFAF 20,970 million, this as the result of:

(i) an additional contribution from the Government of CFAF 645million;

(ii) an additional capability for drawing against externalfinancing in the amount of CFAF 2,917, as the result ofexchange gains on the loans denominated in U.S. dollars andpounds sterling; 5/

(iii; CFAF 274 million in interest collected as a consequence ofthe company's surplus cash position.

As compared vith the total expenditure for Phase Il estimated atCFAF 24,601 million, the overall financial resources available of CFAF24,806 million will produce a net surplus of CFAF 205 million. Hovever, inaccordance with Section 4.01 of the IBRD Credit Agreement of April 18,1980, HEVECAM's net cash position must represent four months' expenditureor, at end-June 1984, an amount of CFAF 2,000 million. REVECAM has alreadyrequested that this amount be included in the Special Government Budget for

5/ These exchange gains are greater than the cost increases resultingfrom the devaluation of the French franc (para 2.14).

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fiscal year 1983/84 ïn the amount of CFAF 1,990 million, A/ which,complemented by the CFAF 205 million available, should be slightly abovethe required level. It would be advisable to ensure that this request beeffectively part of the Government budget before negotiations and actuallydisbursed before the signing of the Loan Agreements for Phase III (para10.01(a)).

Table 3: Second BEVECM Rubber ProjectFatfratd SoIXreS of Rxds at ed June 1984

(In CFAF milliix)

Appralsal NewEstiate Estfmate Dlfferoeoe Z

Capital lices 5,550 5,550 - -

(Of axtih (1,000) (1,000)Subsidies 1,186 1,831 a/ 4645 54.4

ctemal souroes of funds- IA/ID 6,615 8,425 +1,810 27.4-MC 5,400 6,507 +1,107 20.5- XE 2,219 2,219 - -

Sub-total extenal sources 14,234 17,151 +2,917 20.5

HEEVEM - 274 +274

Total 20,970 24,80 +3,836 18.3

a/ 0f ubdch CFAF 595 ellioe incbided ln GCue t's 19831-84 budget,but not in-1udng CFAF 1,990 mxUli zequesrd but nmt yet granted.

A/ The Bank and CDC have meanwhile agreed that the undrawn balances atJune 30, 1984 of the IBRD Loan 1791-CM (US$5.7 million) and the CDCLoan (pound sterling 0.3 million) vill finance the extension of theSecond HEVECAM Project from July to December 1984. Therefore,Government's contribution has been reduced to CFAF 970 million. Seeconditions of negotiations and Board presentation in Addendum, paras2.01 and 2.04(a).

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2.17 As regards the IBRD loan (1791-CM) of April 18, 1980, in view ofthe magnitude of the exchange gains, there should be an undrawn balance ofUS$5.5 million remaining at the end of Phase II which would not be used forPhase II operations. A/

III. PROJECT FRAMEWORK

Location

3.01 The estate, a 40,000 ha Government concession, is located southof the Kribi-Ebolowa road. It is bordered to the southwest by the LobéRiver and to the northwest by the Ndingui River. To the east, the boundarvstops a few kilometers short of the Adjap-Zingui-Mekanda road. Thegeographïc coordinates of the estate center are 100 7' East and 20 44'North. The estate headquarters and the factory are located about 45 km fromKribi by road.

Population

3.02 Prior to the initiation of the project, the population densityfor the area as a whole vas about 8 persons per square kilometer, or lessthan the national figure of 16.5. Excluding the 25,000 inhabitants of theKribi municipality, the population density within the project area vas nogreater than 6 persons per square kilometer. This population isconcentrated in small villages along the Kribi-Ebolowa road and theAdjap-Zingui road. The arrival of the 2,921 HEVECAM employees (count as ofJune 30, 1983) and their families (3,619 persons as of the same date) hasbeen accomplished without any particular disruption.

3.03 Although one of the least populated areas of the countrv, theOcean Department shows great ethnic diversity. At least ten differentethnic groups have been identified.

Topography

3.04 The average altitude of the estate is 50 m above sea level. As awhole, it is relatively flat, with tne exception of a few chains of lowhills which rise to about 200 meters. The land surveys nov completed haveshown the cultivable area to be about 18,000 ha, or 45% of theconcession. Part of the unplanted areas could be used for food crops andsmallholder estates.

AI See footnote A/, para 2.16.

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Soil

3.05 For the most part, the soïl is sandy clay, vith a 40% claycontent and a high proportion of fine sand. It is thus vell suited for theproduction of rubber. With a pH of approximately 5, the soil issufficiently nonacidic and generally low in potassium. During plantingand for the first two years, it is planned to add 10-10-20 fertilizer andDAP. A/ Subsequently, beginning with the third year of immaturity andduring the entire production period, potassium vill be regularly applied.

Hydrography

3.06 The concession is crossed east-west by the Niété River. Thefactory vould thus have a year-round water supply pumped directly from theriver and piped 1.5 kilometers. In contrast, drinking potable vater forthe residential areas is provided by various vells.

Climate

3.07 Prior to the beginning of the fi-st project, there were noprecise climatic data on the area. All that vas available vere rainfallmaps showing that the concession vas located between the 1,850 and 2,700 mmisohyets vith considerable local variations over 3,000 mm at Kribi and lessthan 2,000 mm at Ebolowa, with a dry period of three to four months'duration between late November and March and a shorter dry season in Julyand August. Since the start of the project, rainfall measurements havebeen made regularly. The details reported can be summarized as follows forthe 1976-82 period.

Average J F M A M J J A S O N D TOTAL

Rain mm 44 90 180 243 264 121 25 88 383 436 198 71 2,143Days ofRain 3 7 Il 14 14 7 6 16 22 18 13 5 136

The variations are sizable, however; the maximum rainfall was2,670 mm in 1976 and the minimum 1,600 mm in 1980. Be that as it may, inthe 84 months surveyed, there vere only 32 months in which rainfall wasless than 100 mm, including 16 months with less than 50 mm and one monthvithout any rain at all. Four complete years of surveys of temperaturestatistics are currently available (1979-1982) and show a high degree ofregularity, with minima rarely below 20 degrees Celsius (averaging 20.9degrees) and maxima averaging 32.9 degrees Celsius.

A/ Di-Ammoniac Phosphate.

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On the other hand, surveys of sun conditions have not beensystematic. It is estimated, however, that there is sunlight for 1,500 to1,800 hours per year, giving an average radiation of 350calorie-grams/square centimeter per day.

There is a limited risk of wind damage, which has been taken intoaccount in the selection of clones; RRIM 600, which is particularlyvxlnerable to the wind, has been planted in small areas only. The climaticconditions are thus generally favorable, but nevertheless include somerisks of isolated droughts which may have an impact on yields.

Vegetation

3.08 The dominant vegetation is characteristic of the classicaltropical forest. Although already logged, some forest areas could be usedfurther. A logging permit has been given to the firm Rouillon & Fils.Nearly 10,000 cubic meters of timber with a market value of CFAF 460million have been used in the 1979/80-1982/83 period for project buildings.However, the study requested during negotiations of HEVECAM II, and whichvas to be carried out by the Forestry Department of the "Ecole NationaleSupérieure d'Agronomie" (ENSA), has never been completed because ofGovernment's failure to provide the necessary funds. A/

Communications

Port

3.09 During the appraisal of Phase I, some reference was made to thepossibility of developing a deep-water port in the Kribi area. The firststudies on this subject favored selection of the site known as "Rocher duLoup" (Wolf Rock). When this site was abandoned, a new studv vas conductedon the Grand Batanga site some 25 km south of Kribi. However, because ofdoubts surrounding the execution of the major industrial projects in thatarea (SEGAZCAM and SEFERCAM), it seems unlikely that this nev port will bedeveloped in the near future. It vas therefore decided that HEVECAM'srubber would be shipped through Douala, where the facilities are for thetime being adequate. The extra cost incurred by the increase in landtransportation requirements (254 km to reach Douala as against 67.5 km forGrand Batanga) vill increase HEVECAM's operating costs by nearly CFAF 400million per year (1983/84 basis) when full production is reached. Rovever,a temporary solution of transhipment by barge at Kribi could be lookedinto.

A/ This study is no longer relevant since all forest areas vithin the15,000 ha project area have been felled.

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Roads

3.10 The estate is connected to the Edea-Kribi road by a 15 km accessroad which HEVECAM has been maintaining. During the discussions held inlate November 1983, the representatives of the Ministry of Equipmentconfirmed that the regrading, completion and maintenance of this accessroad were to be carried out under the World Bank's Sixth Highvays Project. A/

(i) As regards the Edea-Kribi main road, Government had alreadypromised during the Phase II negotiations to complete itsrehabilitation before December 31, 1980. This clause vasnot fulfilled. In early 1983, a contract vas signed vith apublic vorks enterprise for the rehabilitation of thepresent road in order for it to be operational year-round.As for the asphalted road, a technical study will shortly behanded over to Government.

(ii) Transportation of rubber from REVECAM and of palm oil fromSOCAPALM's Kienke estate, does not necessarily require apaved road. Consequently, prior to negotiations, assurancesshould be obtained from Government that it vill routinely,and at its own expense, carry out the maintenance of theNicté to Kribi-Edea stretch of road (para 10.01(b)).Pending the construction of the nev paved Edea-Kribisection, the present road vill be maintained by theGovernment in a condition such that it vill be possible totransport BEVECAM's rubber and SOCAPALN's palm oil to Doualaduring any season (para 10.02(a)). BI

Electrical Pover Supply

3.11 The energy requirements for the processing of rubber and forhousehold use can be met economically only by using the hydroelectricalenergy provided by SONEL. Various contacts vith SONEL have been initiatedby HEVECAM and, in the course of the November 1983 discussions, it vasconfirmed that SONEL had made arrangements to connect Kribi 6/ vith Akom I.This work has already been started and should be completed during the thirdquarter of 1984. It could be financed by the remains of the World Bank's

A/ The regrading of the Edea/Kribi road vill not be financed by the WorldBank's Sixth Highways Project, but from Government's investmentbudget.

B/ See general condition in Addendum, para 2.02(b).

6/ Already connected to the SONEL interconnected grid.

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carrv out the work of connecting the plantation to the SONEL poverlineduring fiscal year 1983/84. Before negotiations, therefore, informationshould be obtained on the status of this work and its anticipated date ofcompletion. A/

Public Services and Social Services

3.12 As the seat of the Ocean Prefecture, Kribi has the usualinfrastructure and public services. However, in view of the isolation andthe number of workers and families for the project (a total of almost 7,000persons), the project found it necessarv not onlv to comply with the legalobligation of building housing (nine villages totallv completed underHEVECAM I and Il), but also to provide a number of communal amenitiesnormally the responsibility of the central, regional or municipalgovernment: police stations, a post office, a hospital (four wards), fourdispensaries, covered markets, sports fields, public lighting and watersupply for the villages, nine schools (with a total of 43 teachers), sixkindergarten facilities, meeting halls, etc. Similarly, the projectpromoted the introduction of essential private services: one bakery,shops, a bank office, etc. It is only normal that the proiect would bearthe cost of constructing and maintaining the housing, kitchens and sanitaryfacilities, which are legal requirements. However, once the productionphase begins it becomes necessary, in order to gain a clear assessment ofthe production and marketing activity for rubber, that the cost ofconstructing, maintaining and operating those public and social-serviceactivities carried out by the project on behalf of the public authoritiesbe handled as follows:

(i) for accounting purposes, these costs should be recorded in aspecial account labelled "Operations on beha1 of ThirdParties";

(ii) from the financial standpoint, appropriate arrangementsshould be made whereby these costs are not charged to eitherthe capital or operating accounts of HEVECAM.

In this regard, an agreement will have to be drawn up betweenHEVECAM and the Government vhich would specify the content of the publicand social services that HEVECAM would carry out and the arrangeLrents forfinancing them. The signing of such an agreement would be a condition ofeffectiveness of the external loans (para 10.05(a)). B/

A/ International competitive bidding vas carried out in February 1984 anda contractor has been selected. The vork is scheduled to be donebetween July and December 1984. Its cost vill be financed by theGovernrent (30Z) and IBRD (HEVECAM Il - Loan 1791-CM, 70Z).

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Labor

3.13 The initial concerns about the possibility of the project havingdifficulty locating and stabilizing a vork force of sufficient quality havenov been considerably alleviated. The project no longer has significantproblems in this regard. Analysis of the statistics published by HEVECAMshows that currently 75% of the work force has at least one year ofseniority, with 50% having more than two years, and 25% more than four.The proportions of the work force by origin are as follows: vest andnorthwest, 46%; south central, 39%; east, 8%; coast, 6%; north, 1%. Thepeople involved are generally young (82% under 30). The improvements notedare the result of the good living conditions offered to the workers(housing, social facilities, medical care, active sociocultural programs,etc.). Moreover, the project has introduced an extremely active program oftraining for the specific tasks involved in rubber cultivation (graftingand tapping schools) as well as the different trade specialties(electrician, mechanic, construction, etc.).

IV. THE THIRD HEVECAM RUBBER PROJECT

A. Overview

4.01 The Third HEVECAM Rubber project covers a third five-year periodfrom 1984/85-1988/89. A/ It includes:

(a) Completion of the Scheduled 15,000 ha Industrial Estate

(i) planting of 1,600 ha of selected clones to bring the totalplanted area to 15,000 ha; B/

(ii) maintaining the immature areas, reducing them from 14,195 hain 1984/85 to 5,350 ha in 1988/89;

(iii) initial tapping of 9,430 ha, in addition to the 805 haalready tapped during Phase II;

A/ For the Bank and CDC, the HEVECAM III project covers a four and a halfyear investment period (January 1985-June 1989). See Preface.

B/ The total area of 15,000 ha vould be planted before completion of thesecond project in December 1984.

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(iv) continuing the housing, building and social infrastructureconstruction program;

(v) establishing three processing lines for latex and three forlow-grade rubber;

(vi) continuing the program of applied research intended topreserve the productive potential and improve the quality ofthe rubber;

(vii) continuing the technical assistance provided by SAFACAMunder the renewed management agreement.

(b) Related Programs

(i) continuing the outgrower program to cover a total of 500 ha,including the 250 ha already planted during Phase II;

(ii) continuing the food crop program;

(iii) research and development on rubber cultivation in the Kribiarea, the central south area and the eastern part of thecountry.

B. Description of Program to Complete 15.000 hectares

Clearing

4.02 The land clearing vork covering the 1,600 ha remaining to beplanted will be completed before the end of Phase II. All that will berequired is a small amount of platforming for the villages and clearingoperations for smallholdings and food crops.

HEVECAM's forest clearing equipment includes 14 D8 tractors whichhave logged an average of 10,000 working hours, but their excellentmaintenance vill make it possible to extract another 2,500 hours from each.

Planting and Clone Varieties

4.03 The plant stock needed for the remaining 1,600 ha and thesmallholder estates is already in the first year of seedling life. Therehas been an exceptional rate of success of grafting in 1983 on 1982seedlings (90%). On the basis of work actually carried out up to the endof December 1983 and projections for 1984, 57% of the area will have beenplanted in polybag plants, 21% in seed, 14% in stumps and 8% in seedlingbag. The clone distribution will be approximately: GT1, 60%; PB 235. 12Z;PR 107, 9%; PR 261 and PB 260, 5% each; and PB 217, 4%. In the past twoyears, priority has been given to rapidly maturing clones in order to takeinto account experience gained in Malaysia and Ivory Coast. Planting

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density has been 550 trees/ha (8 m x 2.25 m) vith an average of 420 treesat the time of the second year of tapping.

Within the framework of a regional cooperation policy, Governienthas asked REVECAN ta provide grafting stock and grafted stumps to Gabon andthe Congo, each of which has initiated a project of about 3,000 ha ofindustrial estates. These shipments of plant material are invoiced to theprojects concerned and the revenues are deducted from the expendituresubmitted by HEVECAM to the project co-financiers.

Upkeep

4.04 The cover crop (Pueraria) is maintained so long as the cover fromthe trees themselves allows sufficient light to pass. Chemicals have beenused in wide areas so as to reduce labor requirements and the risks of soilerosion. Fertilizer dosages are nov vell known for the immature phase:10-10-20 and DAP for the first three years (NO to N2), and Potasium Cloridethereafter, including during the production period. The addition oftricalcium phosphate during N3 and N4 is also important.

Phytosanitary Protection

4.05 The two most important risks are Fomes and Gloeosporium. Themeans of combatting Fomes (white root rot) are nov vell adapted. REVECAMhas perfected a system of identification and treatment vith Calixin (activeingredient: tridemorphe). This treatment is applied only to affectedtrees and those nearby in the same line. It is considered reasonable, inview of past experiences, to make arrangements for two inspection roundsper hectare and per year during the immature phase and a single roundduring the production period. The results achieved by HEVECAM using thismethod are excellent, with the tree mortality rate not exceeding 1%annually.

For Gloeosporium, a disease of the young leaves, two pathogenicmushrooms have been identified by IRCA: Gloeosporium alba rubrum andColletrotrichum-gloesporides. Two types of treatment are currently in use:fungicides (Delsene) and aerial treatment (Ethrel) to induce earlydefoliation. The effectiveness of these measures has yet to be entirelyproven, but they at least appear promising. Provisions for treatment havebeen included for application from year N3 to year N14 (12 years) as aprecautionary measure, despite the absence of any severe attack in 1983.

Initial and subsequent tapping

4.06 It has been decided to carrv out initial tapping (on the basis ofa minimum of 200 exploitable trees wlth a minimum circumference of 50 cm)in year N7 (where NO is the year of planting). This delay is extremely

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cautious 7/ in that, despite the attacks from Gloeosporium beginning in1981, the growth of the GTI and PB235 clones has shown an average increasein circumference of 8 cm per year over a 5-year period, which is altogethersatisfactory.

In view of experiences in other producing countries, includingIvory Coast, HEVECAM proposes using a reduced intensity tapping system withintense stimulation beginning the first year with 10 applications of Ethrelper year. This S/2, d7 A/ system makes it possible ta reduce the need fortrained tappers (and consequently to improve the performance bonus systems)while tapping more during peak periods and reducing the consumption of barkpanels by about 30% as conpared to the d3/d4 system.

Yields

4.07 The yield forecasts show annual average production of 1,982 kg/haover a 30-year period, which appears to be sufficiently cautious anestimate in view of the results obtained by IRCA and the "Société Africainede Plantation d'Hévéas" tSAPH) in Ivory Coast, both of which exceeded 3,000kg/ha in S/2, d7 in 1981. The results of the first HEVECAM tapping of the1976 and 1975 plantings are very promising.

Table 4: Estimated Yields

Year of Tapping 1 2 3 4 5 6-7 8-17 18-22 23-25 26-27 28-30

Year of Planting 7 8 9 10 11 12-13 14-23 24-28 29-31 32-33 34-36

Yield, tons/haIndustr.Estate 0.8 1.15 1.5 1.7 1.9 2.1 2.25 2.1 2.0 1.9 1.8

Yield, tons/haOutgrowers 0.48 0.69 0.9 1.02 1.14 1.26 1.35 1.26 1.2 1.14 1.08

With the exception of the initial one-year lag, the industrialestate yield in the table closely resembles the figures used during theappraisals of Phase I and Phase II, and vas accepted by the appraisalmissions' agriculturists. While it is not overly optimistic in theory,achieving it will require particularly effective and precise technicalmanagement. For the smallholder estates, it appeared prudent to apply acoefficient of only 60%, as vas done at SAPH in Ivory Coast.

7/ A delay of 6 years vas assumed in the appraisal of HEVECAM II.

A/ A tapping system by which half the circumference of the tree is tappedevery seven days.

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Collection of Latex

4.08 Uith the use of stlnmlution, it can be reasonably assumed that70% of the production ull be collected in liqid latex and 30% ascoagulum, cup lump, bark-scrap and ground-scrap. This percentage of latex,below the one estimated during the Phase Il appraisal (75%), vas arrived atfollowing the results obtained by SAP* ln Ivory Coast. At present, HEVECAMis using 0.8 liter cups, which it vii exchange later for larger 1.2 litercups. Collection is normally in a tank for the liquid latex. For thesmallholder estates, the latex vill be coagulated in the cups to facilitatecollection.

Quality of Rubber

4.09 HEVECAN has conducted an exhaustive study of the processingtechniques for latex in Malaysia, Indonesia and Ivory Coast. It isdifficult at present to have a vell founded notion cf the futurecomparative advantage of smoked sheet and crunb rubber. Hovever, pastexperience shows that the prices for the best crumb grades (5L) are higherthan those for smoked sheet RSS1. In recent years, efforts to improvefactory techniques have been focused especially on "crumb" factories (forexample the SAPH's OSROU factory in Ivory Coast), and there must bepossibilities for improving the manufacturing procedures for sheet rubber.Nevertheless, it appears preferable for BE vCAM to concentrate on theprocessing of crumb rubber, as the analysis conducted indicates that undercurrent investment and manufacturing cost conditions, smoked sheet mustseil at a price CFAF 29/kg (US$74 per ton) higher than crumb rubber inorder to be competitive. Hovever, when the factory has been extended afterthe end of the third investment phase. the choice between crumb and sheetvill be subject to review in accordance vith market trends and technologyshifts.

Under these circumstances, the assumptions on quality of finishedproducts are as follovs:

Table 5: Quality of Finished Products

IndustrialQuality Plantation Outgrovers

(z) (z)

Latex 5L 35Latex 5 35Low Grade 10 25 90Loy Grade 50 5 10

Total 100 100

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Factory

4.10 The schedule for setting up the factorv's production lines hasbeen drawn up on the following grounds: two months of peak production,each representing 15Z of annual productior (as proved to be the case atDizangué), a regular 80% utilization of theoretical installed capacity ofthe equipment (1 t/h for drying latex as against 1.2 t/h estimated by themanufacturer), and operation during peak periods in two 8-hour shifts for25 consecutive days (400 hours).

To make it possible to improve vork site organization and obtainbetter prices from suppliers, it vas decided to group orders as much aspossible.

Table 6: Introduction of Processing Facilities

Factory Installation 1984/85 1985/86 1986/87 1987/88 i988189 Total

Latex

Civil Works, Building - 2 - 1 - 3Equipment - 1 1 1 - 3

LoW Grades

Civil Works, Building - - - 2 - 2Equipment - 1 - 1 1 3

Packing, Shipment and Exportation of Rubber

4.11 The crumb rubber vill be packed in 33.3 kg bales either on woodenpallets of 30 bales each (1 t) or wrapped in stretched polyethylene (shrinkwrap system) vith 33 bales per pallet (1.1 t). These pallets vould beshipped in 20-foot containers, making it possible to load 16 to 18 tons percontainer depending on the packaging method (or an assumed average of 17 tper container). The containers could be carried on trucks rented fromprivate carriers in Douala. As regards final destinations, it has beenassumed that 50% of the production vould be exported to France, 25% to theother countries of southern Europe, and the remaining 25% to the northernEuropean countries.

The shipping cost per ton based on tariffs currently beingapplied comes to CFAF 20,650 per metric ton (base 1983/84).

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Table 7: Container Shipping Rates(in FF)

Sea Z of Export,Destination Conference Actual by Destination

France/Atlantic Ocean 7,200 5,440France/Mediterranean Ports 7,920 6,080

Average 7,560 5,760 50Z = 2,880

Spain 7,040 5,920)) 25% = 1,480

Italy 5,920 5,920)

Northern Europe 10,608 10,608 25% = 2,652

Total Cost by Container 7,012Cost FF/Metric Ton 413Cost CFAFIMetric Ton 20,650

Insurance costs are 0.25% of c.i.f. value, vhile marketing costs(brokerage fees, surveillance of off-loading, negotiation fees, arbitrage,etc.) have been estimated at 1.25Z of the c.i.f. value.

Labor

4.12 At the end of Phase I, there vas a total labor force of 1,600.During the course of Phase II, an additional 1,400 personnel vas recruited.By the end of Phase III, another 1,200 employees vill have to be hired (fora total of 4,200). For a peak period (starting in 1997/98), totalemployment bas been estimated at 5,700. It vill therefore be advisable toincrease the housing and social infrestructure. Hovever, by adopting thestimulated d7 tapping system and keeping the tapping vork on a forceaccount basis, the staffing increase during Phase III has been limited to1,200 persons instead of the estimated 1,700 forecast during Phase I andPhase II appraisals on the basis of other tapping methods.

Operational Structures

4.13 Plans exist for:

{i) in Douala: the construction of 250 square meters of officespace and 1,000 square meters of varehouse to replace thepresent rented space which is no longer suitable;

(ii) in Niété: the construction near the factory of garages,varehouses and shops as vell as the offices of theDirectorate of Agricultural Operations. The remainingoffices and present buildings are to be retained. Inaddition, plans are to build three division offices, three

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fertilizer varehouses, four division varehouses, fiveherbicide varehouses and eight garages (two per division).

Housing

4.14 The housing program includes the construction of 575 type A2workers' houses with kitchen and sanitary facilities, of which 105 vould befor factory personnel, and the reconstruction of 125 houses in villagesnumber 1-2. The construction standard of wooden houses built ten years agoin these villages is inferior to that of houses built recently. A newstandard for house construction vas adopted, namely average space occupiedper worker of 19 square meters compared to the 15 square meters planned forPhase II due to 33% of workers being married. There are 15 houses forsupervisors and foremen, including six supervisors and three foremen'shouses for the factory.

Related Social Infrastructure

4.15 This comprises tying into the SONEL line for the public lightingof six villages (vith two more remaining to be connected after the end ofPhase III), vater supply to three villages, the construction of a fifthyard in the central hospital, four dispensaries, three primary schools,three kindergartens, five major markets, ten shops, five religiousbuildings, three sportfields, a staff club, two meeting halls and twofestival halls. In addition, the social services of the project includethe purchase of a variety of equipment for the hospital, the dispensariesand the schools.

Impact on Environment

4.16 Some 90% of the total project plantings have already been plantedunder the first and second projects. Steep lands have not been planted andadequate soil conservation measures have been taken through theestablishment of leguminous cover crops. Food cropping by plantation labornear the villages and by rubber smallholders would be confined to the flatand slightly undulating lands to minimize the risk of soil erosion. Theblock rubber processing plants, commenced under the second project, wouldbe completed under this one. The factorv design vould incorporate adequatetreatment systems to ensure that the concentration of effluent would bevithin accepted limits.

Rolling Stock and Miscellaneous

4.17 This covers all purchases and repairs of vehicles andmiscellaneous equipment (not including those pertaining to the factory andsocial services) required to complete the program and bring it intooperation. The purchase in 1987/88 of a twin-engine aircraft has also beenadded. The current single engine craft rented part-time from SOCAPALM isapproaching the end of its useful life, and it appears appropriate toreplace it by a twin-engine craft that can be used more flexibly (flying inall veather conditions, with landing authorized in Yaoundé-it is highly

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probable that the use of a single-engine aircraft for all veatherconditions may soon be banned in Cameroon). The maintenance of a privateair connect-ion is important because the CANAIR Kribi-Douala flight nolonger exists and the highway travel time from Niété to Douala, even vith areconditioned road, vill still be five hours, and even more during therainy season. Moreover, REVECAM's requirements justify the purchase of itsown aircraft.

Associated Experimentation

4.18 In order to maintain the plantation's productive potential,improve cultivation techniques and the quality of the rubber, theassociated research program already existing in Phases I and II vill haveto be continued and expanded. This program is one of applied researchrather than basic research, which is normally carried out by specializednational institutions, and vill be aimed primarily at:

(i) improving the measures against Foues and Gloeosporium;

(ii) testing of tree/ha densities, fertilizers, stimulation andtapping for the industrial estate and smallholdings, as vellas between-row crops for the latter;

(iii) lov-temperature drying of the rubber;

(iv) experimenting vith food crops.

This program vill be the responsibility of HEVECAM vithlogistical support from national institutions (IRA) and foreign researchinstitutes (especially IRCA). Its annual cost vill average CFAF 105million (base 1983/84).

C. Description of Associated Prograits

(a) Smallholder Estate Program

Principles of Intervention

4.19 Beginning in Phase II, the Government stressed the development ofsmallholder estates in association with the industrial estate. Thisorientation has been reinforced under the Fifth Plan. The results obtainedduring Phase II show that, in general, there is a strong interest in thistype of operation on the part of the people. Indeed, two categories ofpersons are involved: the village-level independent planters, rather fewin number and spread along the major road arteries, and the nonindependentplanters who are generally "contractors" vho have moved into the HEVECAMconcession to carry out certain piecevork activities (pruning, constructionwork, etc.). The latter category has an investment and labor capacitywhich is often greater than that of the independent planters. Accordingly,the first 250 ha program of Phase II vill be divided: 150 ha for the

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nonindependent and 100 ha for the independent planters. This prcportioncould conceivably be reversed for Phase III. It is nonetheless true thatit vill still be an experimental program; as a consequence, its scope villnecessarily have to be Ilmited, and all the more so to avoid the problemsexperienced with the CAMDEV and SOCAPALM smallholder operations. As aresult, there is a limited target of an additional 250 ha.

Operating Arrangements

4.20 Partners. HEVECAM acts as the Covernment's chief contractor andthe National Fund for Rural Development (FONADER) is responsible for creditoperations. A credit management agreement has been concluded betweenHEVECAM and the planters. A/

Distribution of Tasks

HEVECAM: provides the folloving services:

- selection and training of planters;- mechanical preparation of the land (only for nonindependent

planters);- provision of selected plant stock, inputs and necessary

equipment;- control of project execution;- collection and purchase of rubber;- maintenance of collection trails;- bookkeeping for planters;- relations with FONADER and the supervisory authorities for the

arrangement of financing and repayments.

FONADER: provision of credits and bonuses for planters.

Planters:

- preparation of land (in the case of independent planters);- execution of planting, maintenance and tapping operations.

Financing Arrangements

Government:

- subsidy to HEVECAM covering supervisory staff and structuralcosts during the introductory phase as vell as preparation ofland area for nonindependent planters;

- subsidization of planters, through FONADER, corresponding to

A/ See general conditions in Addendum, paras 2.02(c) and 2.03(a).

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50% of the value of the work days provided by theplanter during the introductory phase (N-1 to N-6);

- advance to REVECAM covering supervisory staff and structuralcosts as from 1989/90. This advance is reimbursed in the formof a lump-sum payment per kilogram of village rubbercollected;

- advance to HEVECAM for services rendered during theoperational phase (shipment of inputs and maintenance oftrials), also reimbursed in the form of a lump-sum payment perkilogram of smallholding rubber collected.

FONADER:

- Long-term credit to planters (11.25% interest for 20years with 10 vears' grace) covering the purchase of graftedplants, the provision of inputs and all HEVECAN services.other than the mechanical preparation of the land area;

- short-term credit at the time of initial tapping (9.25%annual interest for 6 months).

Planters:

- payment in kind during the establishment period(N-1 to N-6) A/ of 50% of workdays;

- assumption of the cost during operational phase of all inputs,small equipment and workdays;

- repayment of long-term and short-term credits to FONADER.

Special Remarks

4.21 It is planned to limit the village smallholder to an average of 5hectares B/ and the medium size holdings to an average of 20 hectares.

The purchase price of the rubber collected shall be 60% of theex-factorv price for secondary grades.

(b) Food Crops

Principles of Action

4.22 This second program, also financed by the Government and alreadybegun during Phases I and II, has two purposes:

A/ Year 1 to Year 6 after planting which is ref erred to as Year N-O.

B/ From 2 ha up to a maximm of 10 ha.

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(i) to increase food production to meet the groving demandresulting from the arrival in large numbers of HEVECAMworkers and their families (15,000 to 20,000 persons duringpeak periods);

(ii) ta increase the incomes of project workers and planters inthe area by helping them to produce food themselves fortheir own needs and to market the surpluses through theproject.

Arrangements

4.23 The program vould consist of three parts:

(i) by HEVECAN vorkers: HEVECAN manually clears about 15 ha pervillage of 300 workers (i.e., .05 ha per vorker). This landis made available to the workers who may purchaseplantain/banana and sweet potato seedlings from HEVECAM,which maintains a nursery for this purpose. The productsmay be consumed by the producer or sold to the projecttreasurer's offices at a puaranteed price. During Phase II,116 ha have been cleared, and 60 ha vill be cleared duringPhase III for villages 11, 12, 13 and 14. In addition, aplantain/banana plantation involving project workers on a 26ha parcel vill be set up under a contract between thecompany and volunteer workers. In this case, the vorkersmust repay the cost of the seedlings made available to themand sell their production to the project treasurer's office;

-ii) by the smallholder planters on the estate and nearby:HEVECAM helps the planter clear his own land (tree clearingonly), and the planter himse7f must finish the preparations.HEVECAM provides the plants and undertakes to buy theproduction at a fixed price. The program covers 20 ha ofadditional land per year and should enable the rubberplanters to obtain an income before tapping;

(iii) by HEVECAM: the project itself vill develop 75 ha vithsweet potatoes, plantain and manioc so as to meet rapidlythe food requirements and to improve crop-raising techniques(seeding, maintenance, etc.) in cooperation with IRA (para4.18). This operation vill serve as a support to large-scale IRA operations, which vill provide its technicalossistance.

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All in all, these three programs are estimated to cost CFAF 281million, or CFAF 56 million per year. According to the calculations, totalrevenues from them vill exceed cumulative expenditure by the end of thethird year.

Main Problems

4.24 It vill be particularly important to ensure that smallholders andplanters rotate crops adequately, leaving areas fallow and introducingnitrogenous plants to regenerate the soil.

(c) Future Development of Rubber in Cameroon

4.25 In view of the favorable market prospects for rubber (para 6.04),Government vishes to examine the feasibility of further expansion of rubberin a regional program, carried out under the project and financedcompletely by Covernment. Investigations would be made in (i) the OceanDepartment in which HEVECAM is located; (ii) the Centre Province; and (iii)the East Province. With regard to the first of these areas, a survey vouldbe made of three potential areas: to the south of Lobé; between Lookoundjéand Kiendé; and between Lookoundjé and Nyong. The land suitability surveyvould comprise 15,000 ha in each case, so as to obtain a net planted areaof 7,000 ha. In respect to the second area, a socio-economic study wouldbe carried out in the Ntem Department to determine the feasibility ofintegrating rubber into the traditional cocoa and food crops farmingsystems. The conditions of the East Province differ considerably fromthose in which rubber is presently cultivated in Cameroon, being at analtitude of 600-700 m with a rainfall at 1500-1750 mm. The feasibilitystudy vould therefore include clone trials on three sites, each of 15 ha,from which assessments of growth could be made some five years afterplanting and also a broad evaluation of the physical and economic potentialof the area.

V. OBJECTIVES, ORGANIZATION AND MANAGEMENT

Objectives

5.01 The legal provisions under which HEVECAN vas founded (para 2.01)gave it a dual mission:

- The commercial activity of establishing the enterprise,operating the production unit and marketing the production.To this end, HEVECAM is governed by the provisions applicableto limited-liability companies under private law;

- To contribute, under the control of the public authorities, toimplementation of the economic and social development plan, inparticular to improve the living standards of vorkers in thecompany and the surrounding population.

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Supervision

5.02 Although the law does not rule out the possibility of privatesector participation in the share capital, it is currentlv held entirely bythe Government or public enterprises (para 2.01).

The Board of Management is composed of nine to twelve members(eleven at present) appointed for three-year terms. Tle Chairman of theBoard is appointed by the President of the Republic by decree, and thePrefect of Ocean Department is an ex officio member. The "Office Nationalde Commercialisation des Produits de Base" (ONCPB) (National Office for theMarketing of Primary Commodities) has two seats on the board by virtue ofits participation in the capital; for the same reason, the "SociétéNationale d'Investissement" (SNI) (National Investment Company) has oneseat. The Covernment is represented bv two persons from the Ministry ofAgriculture, two from the Ministrv of Planning and Industry, one from theMinistry of Finance and one Government Commissioner.

Management

5.03 In view of the stakes involved (CFAF 60 billion of investments in1983 terms and nearly 6,000 jobs created), it is essential to assure thatthe operation is managed in accordance vith sound commercial efficiency andthat, in particular, the management team is of high caliber and has thenecessary autonomy and responsibility. Upon founding the company, theGovernuent, under a technical assistance agreement signed on May 23, 1975,turned over the responsibility for directing the operations ofestablishing, maintaining and operating the project to a specialized firm(the SAFACAM-Terres Rouges Group). This firm was to designate one of itshighly qualified staff to exercise the povers vested by lav on a GeneralManager, and to vhom the Board of Management would delegate all otherpovers necessary for the efficient management of the project. Furthermore,during the period that Cameroonian staff with the required qualificationsand experience vere not available and subsequently during the time requiredfor their training, the SA`hlAA-Terres Rouges Croup undertook to makepersonnel belonging to its. .wn organization or to sister companiesavailable to the project. Finally, SAFACAM-Terres Rouges vas to provideits know-how, prepare the annual programs and the corresponding budgets,conduct inspections everv six months, and train and improve the Cameroonianstaff. SAFACAM-Terres Rouges further undertook to handle marketing in theevent HEVECAM so requested, in accordance with terms to be agreed betweenthe parties when appropriate. A/

This agreement has been carried out in a highly satisfactorymanner since its inception. The personnel assigned have always been up tothe tasks, vhether in technical, administrative or fïnancial areas, and

A/ See general condition and condition of Board presentation in Addendum,paras 2.03(b) and 2.04(b).

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have been especially conscientious about ensuring the conditions for truegradual replacement bv Cameroonian supervisors. In this regard, HEVECAM isa fine example of the integration of national and expatriate staff in anunified team where each carries out his duties effectively. Moreover, theSAFACAM-Terres Rouges Group has truly benefited HEVECAN vith the experienceit has acquired in Cameroon and other areas of the vorld, in particular inAsia.

This agreement vas valid for an eight-year term and renevable bytacit agreement for successive periods of four years. The first renevaloccurred in May 1983, and it vill be necessarv to modifv its presentarrangements to take into account the transition from development toproduction and marketing of rubber. The remuneration arrangements in themanagement contract should be based to a greater degree on the resultsobtained, in particular the self-generated funds. Moreover, the SAFACAM-Terres Rouges Group, in its twice-yearly inspection reports, shouldemphasize the comparative analysis between HEVECAM and other estates vithregard to general overheads and operational costs, in particular the laborcosts. Likewise, particular attention should be paid to analyzing theaccounts and monitoring the cash flow.

Government will have to submit its proposals vith respect to themodifications to be made in the p-resent arrangements two months prior tothe date of negotiations (para 1U.01(c)). A/

Procurement B/

5.04 Existing procedures for procurement were modified by Decrees83/440 and 83/441 of September 1983. It -rill be necessary to assessvhether this new procurement regulation vill give HEVECAM sufficientautonomy in this respect.

Public and Social Service Activities

5.05 As indicated in paragraph 3.12, in order to identify clearlv theoperations pertaining to HEVECAM's two roles, the following arrangementsvill have to be made:

(i) maintain separate accounting records (Operations on Behalfof Third Parties) and estabiish a special and suitablefinancing arrangement for the public and social serviceactivities;

A/ Satisfactory proposals have meanwhile been received; see generalcondition and condition of Board presentation in Addendum, paras2.03(b) and 2.04(b).

B/ This section has been revised; see Addendum para 1.09.

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(ii) specify these activities vithin the framework of a generalagreement between the Government and HEVECAM. This documentvould be a condition of effectiveness of the external loans(para 10.05(a)).

Organization of REVECAM

5.06 The present organization of the project has been vell suited toestablishment operations and has born ample witness to its competence andeffectiveness. The technical management is sound and has been able torespond with sufficient rapidity to the major problems encountered, inparticular the Fomes and Gloeosporium diseases, the hiring and training ofCameroonian workers and supervisors. Generally speaking, the managementhas been able to deal satisfactorily with all the problems brought about bycarrying out a vast agroindustrial operation in a particularlyunderdeveloped area. Administrative, accounting and financial data are ofhigh quality and published regularly. In this regard, the quality of thequarterly progress reports is exemplary. The current organizationalstructure is illustrated by the organization chart at Annex I.

T'ais organization vill have to evolve in ordcar to deal with theproblems of the start-up operations and expanding production activities bv:

(i) gradually establishing decentralized management units:

(a) four field sectors of 3,750 ha each as each enters thetapping stage;

(b) an Industrial Department (DI) covering the factory,shops, garages, and the maintenance of buildings andhousing; and

(c) a Central Services Department including the GeneralManagement, the Administrative and Financial Department(DAF), the Technical Studies Department (DET) and theAgricultural Operations Department (DEA).

Each administrative unit should control all the relevantactivities and draw up administrative documents (analyticalbudget, analytical accounts, statistics). Control vill beexercised by DAF as regards the functioning of analyticalaccounting systems and personnel management, by DET asregards the technical standards for budget preparation, andby the DG (management control) as regards management ratios,the control of cost of operations, and the relationshipbetween the norms and the budgets.

The necessary coordination vill be provided by DEA for theagricultural sections and DI for the industrial units.

(ii) Computerized processing of technical data (statistics),budget data, and accounting and financial data. Before so

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doing, HEVECAM vill have to simplify and harmonizeprocedures so as to avoid a number of duplications in thevarious published documents, to define an analyticalaccounting plan which is more suitable, and to clearlydefine procedures. A data processing team for the firstfour years of the project is planned foi this purpose.

In any event, and for the life of the loans, the General Manager,the Administrative and Financial Director, the Director of TechnicalResearch and the Industrial Director vill have to have qualifications andexperience deemed acceptable by the cofinanciers. This assurance should beobtained at negotiations, as vas the case for the negotiation of Phase II(para 10.03(a)).

Accounting Records and Documentation Required

5.07 In addition to SAFACAM's half-yearly inspection report (para5.03), HEVECAN must continue its past practice of producing quar-erlyreports which make it possible to monitor developments as regard tophysical operations (production, labor, supervision, inputs, vehicles,materials, processing, etc.), the cost price per operation, and thefinancial situation. In particular, the half-vearly and annual reportsshould highlight and analyze any major departures from the appraisalreport. The annual budgets should be forvarded to the cofinancierr forexamination before submittal to the Board of Management (para 10.03(d)).Both the budgets and the annual balance sheets should also be compared withthe appraisal report forecasts. Assurances should be obtained atnegotiations to this effect (para 10.03(e)). A/

External Audits

5.08 HEVECAM should continue its past practice of using the servicesof a qualified outside auditor, whose appointment should be approved by thecofinanciers. The internal audit report should be submitced to thecofinanciers four months following the end of the financial year, currentlyJune 30. This report must include all the customary verifications, inparticular:

(i) compliance vith all the stipulations as regards the originof goods and services in accordance with the various loanagreements;

(ii) receipt and actual performance of goods and services;

(iii) payment for them;

A/ These assurances should include a Deputy General Manager; see generalcondition in Addendum, paras 2.03(c), 2.03(f), and 2.03(g).

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(iv) in the event these goods and services are financed byexternal loans, their eligibility for such financing as vellas their use as foreseen at appraisal; and

(iv) special commentary on other expenditure not subject tojustification.

In addition, this report must verify HEVECAM's debt/equity ratio.Assurances vith regard to the implementation of these arrangements shouldbe obtained during negotiations (para 10.03(c)).

Training and Replacement of Expatriate Supervisors

5.09 The training of the vork force has been provided by the projectsince its inception. The grafting school, for example, has made itpossible to train specialized vorkers to a skill level comparable to thatprevailing at SAPH in Ivory Coast and other rubber companies in Malaysiaand Indonesia. The same effort has been successfully carried out in otherareas involving mechanics, electricity and construction. This effort mustnov be extended ta train tapping personnel. A tapping school vas set up in1982; the first twelve tappers are obtaining good results.

The training of Cameroonian supervisors has also been an activearea and the 30 Cameroonian supervisors now in place are, as a whole, quitecompetent 8/. However, experience in other similar projects has shown thatbecause of a high demand for university-trained supervisors (ENSA andPolytechnic School), it vould not be possible to fill all the managementpositions with nationals through this source. Annex II illustrates thetrend for supervisory personnel and the replacement of expatriate managersby Cameroonians. This forecast vas carried out by the appraisal missionfolloving discussions vith, and vith the approval of, the GeneralManagement of HEVECAM and representatives of the supervisory authoritypar;icipating in the mission. Ai

VI. PRODUCTION, MARKETS AND PRICES

Production of the Industrial Estate

6.01 The tapping of the areas first planted during HEVECAN I began 'aJuly 1983. Pending the entrv into service of the two HEVECAM processing

8/ This training program is part o' the Technical Assistance Contract(para 5.03).

A/ See general condition in Addendum, para 2.03(d)).

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facilities envisaged for early 1984 (para 2.12, footnote B) the latex gathered,after coagulation in the cups, is currently processed in SAFACAM facilities atDizangue. Annex IV shows the provisional production from 1983/84 to 2017/2018.Maximum output is expected to begin ih. fiscal year 1998/99. During the fiveyears of the project, production vill it.crease from 721 t r,- to 12,799 tons,the latter figure representing scarcely 38Z of annual pro uction in the peakperiod. The total production during the five years of the project (29,910tons) amounts to 3.4Z of the 873,000 tons expected during the 30 years oftapping. In other vords, this third phase remains essentially a phase ofinvestment, and the self-generated funds of the proiect vill continue to bequite limited during the period.

Duration of Production

6.02 During this appraisal, it was assumed as a vorking hypothesis thatthe fields would not be replanted following 30 years of tapping. This vas, ofcourse, merely an assumption; unless the prospects for natural rubber areextremely poor 30 years hence, it is quite obvious that it vill be in theinterest of the plantation to maintain its productive capacity by extending andreneving the areas under cultivation as appropriate. The operation ofmaintaining productive potential vould have to be undertaken out ofself-generated funds beginning in about the year 2000.

.Smai'riOlders' Program

6.03 The smallholder estates will begin to produce in the final year ofthe project, 1988/89, vith 23 tons. Full production should be achieved in2000/01, -wirh 675 tons. Total production anticipated from the 500 ha in theprogram over a 30-year tapping period is about 17,500 tons.

World Market Prospects

6.04 From 1950 to 1979, vorld consumption of natural and synthetic rubberincreased from 2.4 million to 12.3 million tons and subsequently fell slightlyto 11.5 million tons in 1982. During that period, the share of natural rubberdecreased from 67Z of the total to approximately 30Z and in 1982 vas about 32%,or some 3.7 million tons.

Analysis of the long-term prospects for natural rubber and itscompetitiveness vis-a-vis synthetic elastomers have been the subject ofextensive study and debate. In 1980, the World Bank and FAO published a reportentitled "The World Rubber Economy: Structure, Changes, Prospects," which is agood reference document. In addition, since World War II there has been anInternational Group for Rubber Research, with headquarrers in London, vithrepresentatives from almost all the countries in the vorld, that produce andconsume natural and synthetic rubbers; it also has observers from the majorinternational organizations concerned (FAO, UNCTAD, World Bank, InternationalRubber Research and Development Board (IRRDB), research institutes, etc.).

Growth prospects and projected prices for all elastomers dependheavily on assumptions about oil prices, and recent projections have showngreat variation. Bank forecasts indicate a steady growth in elastomer demand

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to about 21 million tons in the year 2000, and relative stability in theproportion of natural rubber required. Assuming a share for natural rubber of30Z, the annual demand for natural rubber vould therefore be some 6.3 milliontons, an increase of 2.6 million tons (70%) over present production. Providedthat HEVECAM rubber remains competitive, there should be no problem inmarketing the relatively minor annual production of 30,000 tons.

Producers and Consumers of Natural Rubber

6.05 Three producers provided almost 80% of the 3,735,000 tons of naturalrubber in 1982: Malayssia, with 1,517,000 t (41%); Indonesia, vith 878,000 t(23Z); and Thailand, with 552,000 t ('5%). The African continent (essentiallyWest Africa), with 165,000 t, accounts for scarcely 4% of world production.

Used primarily for the manufacture of tires (60 to 70% of totalconsumption), particularly radial tires, natural rubber is consumed largely bythe most developed industrial countries: United States, 585,000 t (35%);Japan, 439,000 t (12Z); EEC, 650,000 t (18Z). Consumption patterns are thusparticularly influenced by developments in the automobile industry. Per capitaconsumption is about 15 kg/year in the United States, 10 kg/year in Europe, andless than 3 kg/year in the Third World. Consumption in China, for example, isroughly 0.5 kg/year. The potential market is hence very large, not to mentionthe fact that research programs leave hope for improvements in quality for newuses (rubber with stabilized viscosity, thermoplastic rubber, liquid rubber,etc.).

Although limited for the time seing, Africa's production is growingrapidly, and its share in the world market should be able to increase in thefuture: it is unlikely that Malaysia and Indonesia can continue to develop thiscrop at the same pace as in the past because of the problems of competition forland with other crops and for labor.

Market Organization and Prices

6.06 Within UNCTAD, an International Natural Rubber Organization wascreated on October 6, 1979 and ratified in 1982 by all the States concerned.This provides for the establishment of a maximum buffer stock of 550,000 tons(15% of production), financed half by exporting countries and half by importingcountries. It is probable that the establishment of this organization in 1982,even though it vas only confined to natural rubber, made it possible to haltthe rapid decline in prices which started at the end of 1980 and to help bringabout the recovery which began in 1983. As of January 1984, the c.i.f. priceof rubber in Europe vas about US$1,250 per ton, or CFAF 490 per kilogram usingthe exchange rate of CFAF 392 as applied in this report or CFAF 545 perkilogram at the current exchange rate. It appeared reasonable for appraisalpurposes to retain the World Bank's long-term assumptions (revised July 7 andconfirmed in October 1984 for RSS1 c.i.f. New York). Hovever, during the riveyears of the project, in order to estimate carefully the gross self-generatedfunds, it vas decided to apply a 10% deduction to the project's rurnover. TheSAFACAM management contract (para 5.03) vill be expanded to include rubbermarketing arrangements.

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Finally, the various grades produced vere taken into account so as todetermine the average price of HEVECAM output in terms of the projected pricefor RSSI:

Z RSS1 Price Z Output Z Price

IE Rubber

5L 105 x 35 = 37S 94 x 35 = 32SGs 90 x 30 = 27

100 96

SE Rubber

Sas 90 x 100 90

VII. PROJECT COST AND FINANCING ARRANGEMENTS A/

Total Project Cost

7.01 The total cost for the five years of the project is CFAF 34,808million (US$88.8 million). The cost has been calculated:

(i) exclusive of interest during construction on Phase IIIfinancing (CFAF 4,207 million, or US$10.7 million) becauseof the onlending proposals examined below. It should benoted that under the existing arrangements for the onlendingof the HEVECAM I and REVECAM II loans, there are nofinancial charges relating to the first tvo projects duringthe five years of HEVECAM III;

(ii) exclusive of all taxes vith the exception of those which,not being readily identifiable, are normally included in thecost of the project (approximately 8%). This question villbe re-examined below;

(iii) inclusive of physical contingencies calculated at variousrates depending on the nature of the operations (average4.4Z) and price contingencies (based on 15% per annum forlocal costs and for foreign exchange costs 7.5Z per annum in1984/85, 7X in 1985/86, and 6% thereafter). Baseline costs

AI This chapter has been amended; See Addendum, Part I.

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are expressed in mid 1983/84 terms, using available data, inparticular those from the CEC's 1983/84 internationalcompetitive bidding documents. In total, contingenciesrepresent 45Z of the base cost and 31% of the total cost.

On average, the foreigu exchange component is about 34% (CFAF11,850 million, US$30 million).

Table 8 provides a summary presentation of project costs by year.

Table 8: Tiird HEVAM Rubber PtojectPreject Cost by Year

(CFAF mliUOnt)

1984-85 1985-86 1986-87 1987-88 1988-89 IUtL

I. Proga Iestiit Costs

a. Senior ManagmEnt 1,273 1,031 847 654 469 4,238b. Courm Techaical Services 379 301 262 205 141 1,288c. Techircal Assistace 148 140 110 112 72 582d. Direct Agrlcultural Costs 1,365 1,031 882 743 529 4,550e. Indirect Agrlculturl Costs 147 85 70 55 37 394f. Factory 127 929 359 1,183 392 2,990g. Boasng 45 216 379 462 345 1,447h. »dÉhstaeive : dlWdgs 365 166 il 16 16 574i. Veblcles 139 125 127 167 142 700j. Fadypunt 49 48 62 144 45 348k. Fx pern1ntitn 81 112 113 124 130 560

Sub-total 4,082 4,184 3,222 3,865 2,318 17,671

Il. Opeq3tfios by Coebroemet Accaunt

a. Social Services 473 325 382 478 522 2,180b. Dtgrcxms' Progrn 100 93 96 87 78 454c. Food Crop Developent 39 39 38 37 37 190d. Rubber Devlopoent Progran 101 17 88 58 58 422

Sib-ttal 713 574 604 660 695 3,246

mIk. w M Capital 150 826 503 785 846 3,110

Total Baseline Csts 4,945 5,584 4,329 5,310 3,859 24,027

C-oeig xs 806 1,697 1,921 3,298 3,059 10,781

TOML PRQJECT X5sTS 5,751 7,281 6,250 8,608 6,918 34,808! ~ _ =

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7.02 The cost of the project has been broken down into three majorcategories:

(i) completion of the 15,000 ha industrial estate, as discussedin paragraphs 4.01 to 4.17 above, except for the activitiesof the public and social services carried out by HEVECAM onbehalf of the Goverument, described in paragraph 4.15;

(ii) operations carried out by REVECAM on behalf of theGovernment as described in paragraphs 4.18 to 4.24 plus thepublic and social service activities discussed in paragraph4.15;

(iii) working capital requirements, taking into account theincreased need for spare parts resulting from the increasein processing and transportation capacities, a requirementfor operating liquidity calculated to cover tvo months ofoperating expenditure and 1.5 months of sales, and a lagbetween the expenditures and their reiabursement by externalco-donors' loans.

Proposed Financing Plan and Disbursements

7.03 The proposed financing plan is shown in Table 9. External loanstotal CFAF 18,448 million (US$47 million), or 53% of the project cost, withthe balance being provided by the Government--CFAF 11,894 million (US$30.4million), or 34Z-and by HEVECAM-CFAF 4,466 million (US$11.4 million), or13Z. It has been assumed that the external loans would apply only to theprogram for completing the 15,000 ha, vhile the operations carried out onbehalf of the Gover.aent are financed 100Z by the Government, and theworking capital is funded by the Government and REVECAM's own resources.

7.04 The assumptions used for the external loans are as follovs:

IBRD CCCE CDC EIB

Amount (CFAF million) 4,613 4,613 4,613 4,609(US$ million) 11.8 11.8 11.8 11.8

Loan Period 20 years 20 years 20 years 15 years

Grace Period 5 years 5 years 7 years 5 years

Indicative AnnualInterest Rate 10.50% 10.00Z 10.00% 8.00O

Front-end Fee 0.25% - 0.50Z -

Commitment Charge 0.75% -- 0.75% 1.00%

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All these loans vill be made to the Government; the follovingchapter discusses the on-lending arrangements for these loans between theGovernment and HEVECAM so as to take into account the latter's capacity tosustain debt service and taxation. Signature of this financing agreementwill be a condition of effectiveness of the IBRD and CDC loans and one of adisbursement conditions for CCCE (para 10.05(d)). A/ Moreover, thesmallholder program totally financed by the Governient, will be carried outby HEVECAN under a credit agreement vith FONADER, to be signed before March31, 1985, which vill also have to be approved by the cofinanciers (para10.03(g)). Government will have to guarantee that at all times the netvorking capital vill be such as to be able to finance the net operatingcycle calculated on the basis of tva months' turnover and one and one-halfmonths' operating expenditure exclusive of financial costs, including anyshort-term bank assistance the company might obtain. Moreover, Governmentwill have to undertake to provide sufficient equity funds to the project tocover, for the life of the project, the gap between capital investmentoutlays and their repayment by external financing. This assurance shouldbe obtained during negotiations (para 10.02(a)). B/

7.05 With the exception of the management contract and the lightvehicles and equipment (CFAF 480 million, or US$1.2 million), which arefinanced 100 percent by CCCE, 9/ as well as the factory (CFAF 4,609million, or US$11.8 million), financed 100 percent by EIB, the other goodsand services will be purchased by the project in accordance vith World Bankprocedures and in compliance vith prevailing Cameroonian legislation.Hovever, the possibilities for increasing the flexibility of Cameroonianprocurement procedures as they apply to HEVECAM, vill be studied duringnegotiations with a view to increasing their efficiency.

7.06 The disbursement assumptions are given in tables 10 and 11, wherecosts have been detailed by colenders. For external sources of funds, alag of four months has been estimated between the date of expenditure andactual disbursement.

7.07 The IBRD, CCCE, CDC and EIB loans vould be linked by across-effectiveness clause. C/ Finally, Goverument should guarantee thesatisfactory outcome of operations during and after the five-year period ofthe project.

AI See condition of effectiveness in Addendum, para 2.05(b).

B/ See general condition in Addendum, para 2.02(d).

9/ See Annex VI.

C/ See condition of effectiveness in Addendum, para 2.05(c).

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Tabla 9: THIRD HEVECAN RUBBER PROJECT

Propos.ad Fhienmic-plm(in CFAF umillo)

Sub-totaimrL hem

oesr IrD COE oec Eoe ._ _s _eGv

r. Progm Tnvest Costs

Paallel Hmglng (1a)

C=~ - LTght Veiles F*dpm 48CX- Tedlcal A 797

Subtoal 1.277 1,277 1,277E] - Factou. 4.609 4,609 4,609lEVECAM - Indirect Agr. Costs 564 564Gavenmt - erlntatad 856 856

Subtotal Paxllel Flnad -i 7,306 1,277 4.609 5,886 564 856

sa: 1}5R/CDC

HEsirg 2,400 1,2M0 1,200 2,400A*s{dstrastve auLlding 733 366 367 733Other Vebils, Fqtlpt 993 467 496 993

Subtotal 50% I)/OD)C 4,126 2,063 2,063 4,126

Senior luiagot 6,006 740 1,343 740 2,823 738 2,445C-amm Tedxdcal Servnres 1,827 225 408 225 858 225 744

Subtotal Joint Financln A 7,833 965 1.751 965 _ 3,68 963 3,189P-ri-uag 100% 12% 23Z 12% 47% 12% 41%

-Joint HinancirÉ B

Dlrect Ag. Casts 6,340 ',585 1,585 1,585 - 4,755 1,585Pe2rcrtage 100 25% 25Z 25% - 75Z 25Z

Subto=al PrcxIWjmestunet Ccsts 25,6oe 4,613 4,613 4,613 4,609 18.448 1,527 5,630Peroeitage 100% 18% 18% 18%Z 72 22Z

II. Operatfm by Cewerruat !.ccomt 4,710 4,710

Ili. -ai ta 4,493 - 2,939 1,554

lUrAL FIMNACN 34,808 4,613 4,613 4,613 4,609 18,448 4,466 11,894Peroentage 100% 13.25% 13.25% 13.25% 13.25% 53% 13% 34%

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T3bla I'J

AI! r.3tian ana Hnbii!at:mIni Eternai rinancinq

iin CFiF fillianj

1994i15 199519. 190â/97 i?s7:ai5 c19i9 1?5i;0 TTbIL

ALCATIO

CCCE

'Senior Hanagemmt 321 ZÙ2 250 7453 19& :342Comon Techniral Servires 99 86 87 76 à0 409Tichnicil Assistance ilo 177 153 175 1_3 P37Direct daricuhmral Costs 400 335 317 297 23O 1555Vehicles and Euuipmt 9 6i il ;o lia 48

Suh Total 1070 ni W35 ?i7 lm no 4613

I3RD

Senior lanaugment 1:J IOC 154 134 li9 740Coun Technical Services 54 4U 48 42 e. 25Direct Wqricultural ûsts 401 _;35 ;li 5 236 1515Husino 26 146 290 400 3i 12WSerices aildinas 21a 112 9 13 15 367Other Vehicles k Equinm t 70 69 93 15; u 4 496

Sub Tot 946 76J e 1064 925 0 4613

CDC

Senier naiapmeet 177 166 154 134 lof 740Coman Technical Services 54 46 49 42 3 225Direct Aaricutural Services 401 ris 317 297 235 1S5.Husiq 27 14 290 399 ME 1206Sevires Duildinas 216 111 a 14 15 366Other Vebicles k Equi-sent 71 70 3 179 4 49U.

iub Total 94i 976 90d 1065 24 O 4613

EIh

Fartnrv Includinq Housinq 15; 123 n2e 196 74 o 4609

TOTAL iLOCATION 3117 33 3265 5002 mu96 O 1£44f

1103IL!SATiCN

CCCE N13 !Oà 952 904 764 244 4613lmD i31 99 893 1010 905 i7 4613caC à3 90 992 1010 C*4 275 4ol3£13 102 876 765 1500 113; M 460

TOTAL ?IILISATION 207; 3691 3502 4424 24 1029 1944E_3 _= = - =m =

- 41 -

I&ilAD!ON 1F MIVERHNENT F!HiNCIN6 >NbY HEYEEiA' ;F:r5E ED FPJHD

! in CFAF Nillimn,

1994965 1965i/56 IMiii7 19E1!6S 1zigiS9 TOTAL

ALLOCATION OF BOVERNMIIET FINAIICINS

PRIOISRM 15DOG HECTARES

ev Capital IncreuseSenior Ibaseamt 54 550 509 444 3 .446Camo n Technical Services 1;9 16v 157 139 j ë 743-Direct arinctural Cesti 4c. 35 297 'iJ ic 1585Nkrking Capitai 0 793 23ME 50 273 1554

Sub Total Caitai Increase 1163 139 1221 113 à-. 25 i

ES SbsidiesExpmriuuntation 95 149 1:7 iûs :41 a5iSocial Services S55 42S 52 :7a Y41 z345

Eub Total Suhidies 650 570 719 riu 1122 4101

OPERAIII UN Fi 3JERNNENT ACCiWT

Omtaramr Pruraa 112 llié 14 135 !34 631Food Crop hJlonmet 45 50 55 i2 69 2ilRbher Oavelopeet Praras I1 143 119 i5 9 553

'-- Total Operation bv Savt 269 309 301 2112 29 !4b5

TOTAL o TIERII FINANCINS 2092 2717 2247 2392 2456 11994

UILLDCArIai Q HEYECANPS SaF-GElERATE qUOS

PROGRAN 15v HECTARES

Senior Manaqemnt 176 1M 1254 134 109 7,3Co Technical rvices 54 49 49 41 i 3 5Indirect Aricultairal caste 174 llS !O7 95 73 564

Sub Total 404 330 30r ;70 214 1527

HOP.iNs CAPITAiL

Seare Parts _i 94 140 1?5 2l i46Gti1ers 92 162 _id :4 -'1 7153

Euh Tctal 149 256 42c 944 1162 293?

TODTL £YECAH 552 56 -as 1214 la370 4466

- 42 -

VIII. FINANCIAL ANALYSIS

A. Financial Situation Prior To Amenduents

General Conditions

8.01 At the present time, HEVECAM benefits from:

(i) an "Establishment Agreement" signed April 30, 1976 (see para2.04) which enables the company to benefit from Regime C ofthe Investment Code. Under the terms of this agreement,HEVECAM is exempt from payment of import and export dutiesfor a period of ten years and from Company tax for the firstfive years of operation;

(ii) a financing agreement for the REVECAN I loans stipulatingthe on-lending terms to the company of the loans contractedby the Government with external cofinanciers. A similarfinancing agreement vas concluded December 6, 1979 tostipulate the onlending terms for the HEVECAM II loans.

HEVECAN I Onlending

8.02 Interpretation of the HEVECAM I financing agreement raises noproblems.

(j) the actual cost of Phase 1, closed at June 30, 1979, is CFAF6,717 million (including inventories for CFAF 374 million);

(ii) the corresponding financing, part of which vas providedafter June 30, 1979, amounted to CFAF 7,778 mîll'on, brokendown as follows:

- 4 3 -

Capital

Initial deposit (national sources) 300.0Further ïncreases 3,328.4

National 2,700.0CCCE 134.0IDA 494.4

Subsidies 485.0

United Republic of Cameroon 176.1Onlending of part of CCCE loan 51.6Onlending of part of IDA credit 257.3

Long-term loan, United Republic of Cameroon 3,561.1

Onlending of part of CCCE loan 759.7Onlending of part of IDA credit 2,801.4

Interest earned 103.2

Local sources of funds amounted to CFAF 2,876.1 million ascompared to the originally projected CFAF 1,745 million estimatedat appraisal.

(iii) Onlending terms to HEVECAM of IDA credit and CCCE loan toGovernment: the onlending agreement provides that the fundsfrom these two loans would partially cover:

(a) agricultural operations, the cost of buildings andinfrastructure, the purchase of equipment and materialas well as fixed costs:

major onlending: 15% as capital increase85% long-term loan from UnitedRepublic of Cameroon to HEVECAM.

The terms of this loan are clearly described:

Amount: 85% of the (real) expenditures referred toabove, or CFAF 3,561.1 million computed at the end ofthe investment period.

Term: 30 years with a grace period (principal andinterest) of 15 years.

Interest rate: 5.50% per annum.

Repayment: 30 half-yearly installments of CFAF 175.9million each (principal and interest) beginning March1, 1991.

- 44 -

(b) Operations to develop food crops, research associated withthe project, and the cost of technical assistance.Onlending in the form of a subsidy.

As a consequence, HEVECAM's debt service from Phase I is limitedto the repayment of the loan of CFAF 3,561.1 million, or anannual cost (from March 1991 to September 2006) of CFAF 351.8million.

HEVECAM II Onlending

8.03 The HEVECAM II financing agreement, based on estimateddisbursements at the end of Phase II, is analyzed as follows:

(i) the total cost of Phase II as of June 30, 1984 is estimatedat CFAF 24,601 million (paras 2.15 and 2.16).

The financing made available to HEVECAN as of that date willbe as follows:

Capital increase 5,550From domestic funds 4,550Refinanced by CCCE 1,000

Subsidies 1,831From domestic funds 1,050Refinanced by CCCE 781

Long-term loan, United Republic of Cameroon 17,151

Onlending of total loanIDA + IBRD 8,425 10/ A/CDC 6,507

Partial onlending of CCCEloan 2,219

(ii) The onlending terms are as follows (Articles II and III ofthe financing agreement):

10/ The IDA credit, which was the first mobilized, has been fullyutilized. In contrast, US$5.6 million of the IBRD 70an, or CFAF 2,178million equivalent, would not be made available for Phase II pendingstudy by the World Bank of Government's proposals for its use.

A/ These remaining funds are being used to finance an extension of PhaseII; see footnote to para 2.16.

- 45 -

Anount: to be determined, at the end of the investment,upon examination of the amount of external financingactually received, or approximately CFAF 17,151 million.

Term: 20 years with a grace period (principal and interest)of 10 years.

Interest rate: In accordance with Article III, Section3.02, it vili be set at the end of the Phase II investmentperiod and calculated in such a way as to permit repaymentto the Government of:

- all the amounts disbursed (in terms of CFA francs)against the IDA, IBRD and CDC loans;

- the proportion of the CCCE loan onlent in loan form;

- interest and other financial costs borne by theGovernment in implementation of the variaus agreementsconcerning credits with IDA, IBRD, CDC and CCCE, onthe proviso that:

- any moratory interest whicb may eventually becharged vill not be passed on to REVECAM;

- the charges on the IDA credit will be calculated onthe basis of the terms applicable to the Bank loan(term, interest rate and commitment charge);

Repayment: 20 equal, half-yearly installments (principaland interest), the first falling due on June 1, 1990.

(iii) Examination of the financing agreement and of the coveringletter to the cofinanciers shows that REVECAM is to repay tothe Governuent, after the end of the ten-year grace periodand aver the folloving ten years, the folloving annualamounts:

- all the loans received (i.e., CFAF 17,151 million), withthe Government bearing all exchange risks to avoid anyimpact on REVECAM;

- all interest paid by Governuent to the cofinanciers (CFAF14,686 million), in accordance with the loan agreementsbetween the Government and the cofinanciers.

HEVECAN III Loans

8.04 In accordance with the terms set forth in paragraph 7.04, thetotal external loans envisaged for financing Phase III, amounting to CFAP18,448 million, vill incur a total financial charge of CFAF 18,377 million.

- 4 6 -

It is assumed that HEVECAN vill fully support the debt service onthese external loans in accordance vith the same terns and repaymentschedule.

Table 12 below summarizes HEVECAM's debt service for Phases I, IIand III.

r3cie I.1

15ET SEi!YICE PRIOR TG IiHlENDMENT8iin CFdF Million)

HEYE;id I IEYEEAH Il HEVEUMI 111 TODTiL

Interest Caoitai Total Inter-st Cwital Total Int!rest Caaitil Total Interest Lamit3l Total

1;984~5 z240 -45 2493k 481 4il 461 £8137 3uo 3ue dVD soode îliî lloî lloù îîhûd9 1512 1512 1512 151290 734 955 1592 17.59 536 2295 '4F3 1394 3a6791 id .a 7lie L4 1715 i194 1700 IY75 2775 32.6 S6Sa 1 3592 19Ç li2 ;52 1469 1715 S1i iOl lm52 2E5, 3260 à129 63a993 160 172 352 1469 1715 3194 1475 1429 2904 ;1234 :lo :44094 171 le! 3S2 1469 1715 3184 1339 1429 r769 2979 r325 63ù495 161 191 .52 1469 1715 3154 1197 149 2616 3U17 3Z;5 i15296 150 202 352 1469 1715 U164 1070 1429 2499 2i6; 3346 H035i,J 139 213 M5 1469 1715 31i4 934 1429 e63 2542 3357 5a9990 127 23 ;£ 1469 1715 3194 799 1429 2:229 2:5 -369 S76099 liS 27 ;52 1469 1715 3154 E 1429 !.A _Ç2 247 :lai 562E

2000 101 251 3-52 731 959 1539 523 1196 1721 1355 307 3662.1 i 7 265 132 422 968 139i 509 1233 1742

2 ?3 ,rq 352 32" 969 129' 39t 1247 !6433 5? 295 352 224 96a 1192 291 1263 1!444 41 ;11 -52 125 968 193 loo 1:e? 14455 23 529 .52 2 12 539 4 841 390à 5 170 1-5 * 170 175

Total 17la :561 5279 14666 17151 319837 IE037 19448 36825 3472! 391li) .7;41

- 47 -

Taxation

8.05 In view of the provisions of HEVECAM's incorporation agreement,it should pay full import and export duties, as of fiscal 1986/87. Inaddition, after the first five years of operations, it will also pay thecompany tax (38.5%) as well as all other taxes for which HEVECAM is (orshould be) presently exempted, either under the "Establishment Agreement"or under the external loan agreements.

Impact on Projected Cash Position

8.06 Table 13 provides, in simplified form, the estimated cash-flowfor the 15,000 ha HEVECAM operation 11/ under its present contract, withoutamendments. To facilitate calculations, the evaluation of taxationestimates has been confined to taxes on production costs, imports andsales. The company tax has not yet been taken into account. Finally,calculations were made only through 2005.

During the five years of the project, REVECAN would have to payan additional sum of CFAF 9,954 million, representing CFAF 4,207 million ofinteriim interest and CFAF 5,747 million In taxes. The net annual cash flowshows a deficit during another four years and the cumulative total does notbecome positive until 2000. HEVECAM would thus register a structuraldeficit for many years that would require sizable Government subsidiesannually. This structural deficit is not due to a lack of productivity byHEVECAM or the rubber sector in Cameroon. It is simply the result of thelong gestation period required before a hectare of rubber reaches fullproduction. Two years are required to prepare the land and the plantstock, followed by seven years before the first tapping, and another sevenyears before reaching full production.

11/ All the 15,000 ha operations, excluding smallholder estates, foodcrops and development of hevea rubber cultivation in the south centraland eastern parts of the country.

-48-

:iM!TED ,ailI FL-N UITU MIEle Ua,

- aloEi onu OCTNvITIEi:

i in CFilF iliii

,iPFUCT- `DelC5 5F FUHDi wN FLOI M6T miEC- NET C FLOUiON iF EEF9EFItID EaT3L SELF-. 0 ENT Tues-XQJJIING ENBu1tL slND EST TAXTAES aiii LM FlS EIC TL ET rg EEEFT TO4 iUU CULTI YE00T FDMIEI*L CPnITAL IDIES - IŒ SEiYIC£5 WCFiiJhiEVIWIS CIUIES TIES

i la Mdc ld i b3 hi if4mIT;/1994 0970 3163 19 199 45 5957 -1013 -1013 143

IÇOliOS suez 363 -3 1163 650 5440 -34 240 2401 -282 llel-- 6ZI9 3;M1 S6 lm3 570 6195 -130 Q1 41 -fl4 59787 54 31 265 1221 719 5767 -Z7 mi 13; 2139 -2376 -lu,-99 98. 4424 650 1130 ne0 7194 -19- 11à0 2072 2 -4124 -590i

.317 372m 1297 9r6 1182 71t9 au2 1512 2342 3954 -302 5

6mb Totl 32137 di lm979 r25 6329 4101 31703 -434 426 57;; 39

wu HR1 IiIci

liai"90 7 1029 . 13 57 -10Oi 2107 2933 6920 -é7 . 1 091 639 Uri ion 60 441 6135 3312 9477 -06 -2ffl

- 92 4621 a7l 1010 M0g9 44 6315 3419 9&14 -533 -3119293 M9!» 10240 1029 112 73 h44 34924 932Â -4 -33594 242 1=7 fIZ 131S2 10849 63 3571 M2 967 -3;W95 2110 13U64 l625 1409a 12;;9 bli12 Zan 1003 2744 -300459 2914 14;73 1025 I 12gi4 6 5 403 1£0073 221I -72497 2061 1576 1025 163 1422Z) 5Bff 40 99 531A -21%99 243 15525 12A5 155 14111 i 764 406 me 4281 -1763QY 2250 15/U49 £02 16769 14517 52 4067 9695 4024 -Im11

200 26 15759 1019 16777 1419 S6e2 4113 7! .334 4467el 1940 15;; 1f1é 16766 14016 17<42 4019 57T o5 259162 24 15;5 lu14 16549 1404 bel2 4041 53 9371 1i?62-3 3377 15283 101 162 l96 1191? 1544 4121 56 6254 121é84 2D1 15025 1010 1635 134 14U5 3;76 ç43 9411 256MW

*; - O 2145 1479 1004 15102 13667 9 393 492 937 34:

ai Excluiinq umtgor,f md oeaid rmhnr deveupunt prouram.bi Out Of total olipihlu Mont Di 43. tht difftru= L15iO) uuid bu disuburd in 1954i95cf Elipibelu i 1I9I but diubursd in 1939ff6di i t-dil. a follao1a

*50 ha iiestmt Progr 3Social Servicu 324iSoiare Prts 746

- bortine Cueitai 2z40

. _~~~~~~~~~~~~~23au-i

- 49 -

B. Financial Situation Following Amendments

To take this situation into account, the cofinanciers propose twoseries of adjustments, the first concerning the terms of financing and thesecond the tax status of the project.

Adjustments to Onlending Terms (see Annex VIII concerning HEVECAM I andHEVECAN II onlending terms)

8.07 The proposed adjustments are as follows:

HEVECAM I: The existing onlending terms, 15 years grace + 15 yearsrepayment, remain unchanged.

REVECAM II: The existing onlending terms, 10 years grace + 10 yearsrepayment, would be modified as follows: 13 years grace + 7years repayment. This leaves the 20-year total life of theloan unchanged.

HEVECAM III: The following onlending terms are proposed: 10 years grace+ 10 years repayment.

Exchange risk: It is proposed that the Governnent, as borrower offoreign exchange, bear the exchange risk, and onlend toHEVECAM in local currency.

These arrangements do not, therefore, change the basic principlesalready accepted, under which HEVECAM repays to Governuent the totalfinancial costs it bears in nominal teras, with the exception of possibleexchange differences. On the other hand, they do improve the progressivenature of BEVECAM's debt service, making it compatible vith the rising paceof production.

Grace Period Repayment Total

HE=CAM I 15 years 15 years 30 vearsHEVECAM II 13 years 7 years 20 yearsHEVECAK III 10 years 10 years 20 years

Table 14 summarizes the debt service of HEVECAM 1, Il and IIIfollowing amendments.

_ 50 _

Changes in Taxation A/

8.08 The cofinanciers have duly noted Government's concern withadjusting the tax status of development companies to take into accounttheir special purpose. In the case of an agro-industrial company likeREVECAM (as is the case for oil palm companies), its special nature liesessentially in the fact that it takes many years to establish theplantation and much more time is required before a planted hectare reachesfull production.

These time lags, as noted, are much longer than those customarilyrequired for an industrial investment project, which is the frame ofreference used as the basis for establishing the Investment, Customs andTax Codes.

It is consequently less a particular tax status that HEVECAMneeds than a special provision within the common law governing commercialcompanies, since it is a commercial company.

A/ This section has been substantially revised; see Addendum, para 1.14.

- 51 _

l ab!ie 14

DeT SEnVIOE ti "it AENiHEHTSiin CFiF Hlilliani

.iEVECdll E HEVECAE II HEVECAN II T.OTAL

Intere!t Caoital Total intErest Capital Total literfst Caaitai Total Intere5t Capital lotai

19941959637

go

-.1 99 79 1i7 9 7i 17I92 190 162 352 190 162 3M5.-3 16u 172 32 ;223 14 4547 33 14% ë9-994 'Jl 19! 32 i2957 1591 454e 316 177p- 49'jo

55 161 19! 352 263j 1911 454i 2_}5 97 3e5Z . 5573 S30 95896 156 202 32 4 M"5D 4550 239 1043 3692 5u43 3541 959497 139 2'3 5 1794 227 54 4549 .12 12c0 3682 4415 4à7 85298 12z 225 3 1242 3306 454E 2u301 1391 S368 3:60 4CI2 E5899 is5 237 35 5a-9 -i 7ù 4549 2094 15i6 3692 2;79 5795 8593

2000 lO1 251 35_ 15 127 36l; 1956 2078 40341 87 265 352 1580 212 ;69 l:o. 2:iJ 4832 3. r;9 52 12 2415 62 1;;J Z6c7 v343 0/g5 295 35,0 2.72 39 937 3977 404 4! 311 352 497 a28 3 .667 529 3511 40395 23 3)9 32 23 25 352o 5 170 175 5 178 175

Total 1719 35ii 5279 14&îb 17151 31937 19377 l1448 3MU2 S7-91 391ia. 73-941

~~~~~~~~~~~~~~~~~ _ -

- 52 -

After an in-depth analysis, the cofinanciers propose that theREVECAM company be exempted from all tax and customs duties (import andexport duties, company taxes, business license tax, turnover tax, specialcompany taxes, registration fees, etc.) as long as it has not reached asufficiert maturity ratio, i.e., as long as 50% of the area undercultivation has not reached full production (fiscal year 1994/95). Thepromulgation of a law or regulations setting forth the adjusted taxarrangement would be a condition of effectiveness of the loans (para10.05(b)). A/

Provisional HEVECAM Accounts Following Amendments

8.09 Tables 15, 16 and 17 show the financial prospects for REVECAMafter adjustment of the onlending terms and taxation system. These threetables relate solely to the operations of the 15,000 ha program as vell asthe proposed subsidized public and social service activities of HEVECAM.Normally, if the cofinanciers' proposals are accepted, expenses of thesepublic and social services should not appear on REVECAM's accounts, but ina separate account labelled "Operations carried out on behalf of theGovernuent" (see para 4.15 above).

C. Financial Rate of Return

8.10 Financial rates of return have been calculated for the 34-vearproject life. The investment costs of HEVECAN I and II have been takeninto account, including taxes, financial requirements for stocks, workingcapital and interest payment for loans. All costs have been expressed inconstant 1983/84 terms. Benefits have been accrued from rubber sales atconstant 1983/84 projected World market prices. The analysis vas firstcarried out for the 15,000 ha plantation by taking into account only itsrelated investment and operating costs and then extended to the totalproject by including all other social activities (except the smallholderprogram). The financial rate of return for the smnallholder program vasanalyzed separately. The Financial Rates of Return are as follows:

Plantation Total Smallholder(15,000 ha) Project a/ Program

FRR % FRR Z FRR Z

1. Point Estimate 10.24 9.37 8.98

2. Sensitivity

Costs increase by 10% 8.33 7.38 7.12Costs increase by 20% 6.58 5.54 5.41Benefits incriase by 10% 12.32 11.36 10.61Benefits increase by 20% 14.15 13.19 12.13

a/ Excluding smallholder program.

A/ See Addendum para 1.14.

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- 54 -

rible IJMLCE~ SHET-

(Ezmws INI SU NER, FOIOW AU mi vaOEw PRMISJ

lis CFAF Nillimn

TAL FIXE DEPECI- NET NfONKIN RElUIRED METTOTAL LONS CUITAL ASSET dttN FIXE» CAPITAL NONKINS LIOUIDITT

VEA CAPITAL R9951115 SSIES L ET NU TE! LOL STUMTUE ASSIT! CAPITAL

1982/ 9m57 67 .O 10245 69 264 24998 3151 21147 444; 1971 247694 11569 112S -64i 12047 19154 31201 3134 3819 27I5 3634 2171 14635 12731 112 -1439 12420 Z229 33210 36069 4606 31462 W749 2319 1429

86 14569 1129 -227 13410 26481 3191 41421 5540 3551 4010 2694 13269 1m570 1129 -3M 13696 2993 43679 45111 577 3929 4440 3S1 1099* 16920 1129 -3926 14122 4407 49529 49963 4926 44037 4492 4295 11769 17096 1129 -4399 14636 39131 52767 52966 695 46291 646 5457 1021se 17996 1129 -2835 16139 39160 55349 5775 49913 6436 64U2 -4691 17696 196 11D :9220 39012 59302 62240 1199 50741 ;561 7342 21992 1796 4996 1129 24020 ;t920 62940 65006 14599 50419 12522 13? 439593 17e99 9447 1128 27471 37423 694 66974 1756 49309 15556 8753 61394 1796 14375 1129 33399 3651 69050 664 15770 47094 21956 9203 1275395 17196 1391 1129 32405 32642 6547 62906 19191 44725 20322 9543 1077996 17696 13172 11A 32196 29103 61299 6402U 2069e 43339 1790 966 a27497 11996 1i65 1129 32689 24936 Si625 63596 22495 41091 16534 9E45 lI;S99 17996 14746 1129 33770 20024 53794 6427 24923 3934 14450 9695 454'99 17996 16570 1129 35594 14229 49823 MM3 26517 3521 12302 992! 2391

2000 1796 1e22 1128 37946 1215 50097 6330 27104 36216 13991 9921 S3602001 17896 19714 112 3573s 97U4 46S22 6317 2M997 34200 14322 9912 441022 17996 20o4 1129 39672 7097 46759 63433 30721 32712 14047 9595 4152203 16996 20657 1129 39691 4010 43691 65246 338 31905 11793 9949 1935204 17i96 20119 1129 39943 499 4U42 66038 I16 29974 1046 9i35 6332005 17996 21172 1121 40196 170 4066 64427 3669 27959 12507 9769 27392006 17996 20591 1129 39615 39615 63821 938 25190 14425 9715 4i102007 !1996 19013 112B 3E037 39037 62230 39435 22795 15242 9656 55962009 17E96 171Ui 1128 36277 62255 4921 21434 14!43 9575 52692009 17a99 15400 1128 34424 34424 599 4052t 1939 15065 9317 5149210 17996 134LI6 1129 32409 3249 59454 41547 17907 14592 92M3 53192011 17896 11501 1129 30525 3052 5 57334 40839 164?i 14029 ?l21 49092012 17s96 9393 1128 2407 2907 55535 39757 1571 12629? 8994 36552013 17996 7211 1l29 26235 26235 53952 3 4 14201 12027 9795 32322014 17096 4949 1129 23973 23873 53152 39936 13216 10657 9515 21422015 17896 2409 112 21432 21432 539 41038 12901 9S31 9077 4542016 178U6 1419 1129 20443 20443 52649 41S43 11106 93e37 7194 21432017 17996 490 1128 19514 11514 49139 3936 9403 10111 600 41022019 17996 303 1128 19327 I327 41402 34154 7249 12-79 4737 7U42

- 55- Table 17

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- 56 -

IX. ECONOMIC ANALYSIS

9.01 The third phase of the project which commenced in 1975 vouldcomplete the 15,000 ha industrial scale plantation in à sparsely populatedand hitherto largely neglected forest region. In the prolect area, forestof little economic value has gradually been replaced by high value rubberplantings. Rubber has become a priority crop in Government's developmentplans due to its value in foreign exchange earnings and its suitability forthe rather infertile soils of the lowland humid tropics. The plantation'saverage annual production of 32,000 tons during the 20-year period ofstable production (1994-2013). at the projected World market price, vouldgenerate at least US$41.0 million in foreign exchange (in 1983/84 dollars)per year. This vould help reduce the country's present heavy dependence oncocoa and coffee for agricultural export earnings.

9.02 The project, through its association with IRCA and its ownexperimentation program, would improve the technological base for theCameroon rubber industry.

Economic Rate of Return

9.03 Economic rates of return have been calculated for the 34-yearproject life of HEVECAM III. All costs vere taken from the very beginningof the project and, therefore, include investuent, recurrent andexploitation costs, taking account of production, transportation andmarketing costs. Two principal analyses vere carried out; firstly,excluding the costs of the supplementary activities such as the rubberdevelopment program, the food crops program and the provision of socialservices; and secondly, with the inclusion of the costs of thesesupplementary activities. The smallholder program vas analyzed separately.

9.04 All costs are exclusive of taxes and inclusive of physicalcontingencies. Foreign exchange costs have been calculated on the basis ofUS$1.00 = CFAF 392, while local costs have been adjusted by a standardconversion factor of 0.77 to take into account the present overevaluationof the CFAF. Labor vas costed at net vages after taxes, which isconsidered to represent its opportunity cost.

9.05 The quantifiable benefits directly attributable to the projectwould be derived from the sale of rubber on export markets. The price ofrubber vas derived from the July 1983 World Bank projections for RSSI SpotNew York and is expressed in 1983/84 dollars. The prices for plantationrubber and smallholder rubber are discounted by 4 and 10% respectively toreflect the average price of the different qualities of crumb rubberproduced by the two types of producers. Other addïtional benefits thatwould accrue to the Kribi region as a result of infrastructure developmentare difficult to quantify. These are, therefore, excluded from theanalysis. The detailed derivation of the economic cost and benefit streamsis presented ïn the project files under the assumptions listed above. Theeconomic rate of return results are summarized as follows:

- 57 -

EconomicRate of Net Present Switching Value at 12ZReturn Value at 12Z Benefit Cost

% CFAF Million z z

1. Plantation: 15,000 ha 15.84 17,081 -22.50 +29.102. Total Project a/ 14.94 13,216 -14.64 +17.133. Smallholder Program 15.01 251 -19.29 +23.91

a/ Excluding smallholder program.

9.06 The ERRs indicate that the project vould be profitable even ifthe costs of supplementary programs vere included. HEVECAM, as anentreprise, vould have an ERR of about 16%. The overall project vould havean ERR of about 15%. The smallholder program would have an ERR comparableto that of the overall projet.

Sensitivity Tests

9.07 The following sensitivity analysis compared the impact of changesin costs, benefits, prices, yields and lags in benefits to the rate ofreturn and net present values of the industrial plantation, the overallproject and the smallholder program.

- 58 -

Plantation Project SmallholderERR NPV ERR NPV ERR NPVMiY (CFAF M.) (Z) (CFAF M.) (Z) (CFAF M.

1. Costs increase:by 10% 14.08 9,751 13.16 5,500 13.67 146by 20% 12.49 2,420 11.56 -2,218 12.45 41

2. Benefits decrease:by 10% 13.90 8,043 13.00 4,178 13.53 121by 20% 11.75 -996 10.80 -4,861 11.88 -9

3. Cost increase:by 10% and

Benefits decrease:by 10% 12.16 712 11.21 -3,539 12.19 16

4. Costs increase:by 20% and

Benefits decrease:by 20% 7.48 -19,891 7.42 -20,294 9.23 -219

5. Prices decrease:b-y 10% 13.89 8,042 12.97 4,178 13.52 120by 15% 12.85 3,523 11.92 -341 12.73 56

6. Yields decrease:by 15% 13.70 7,115 12.77 3,250 13.05 82by 20% 12.92 3,793 11.98 -72 12.31 23

7. Benefits lagged:1 year 13.51 7,397 12.71 3,533 13.26 1122 years 11.71 -8,970 11.05 -5,114 11.86 -13

9.08 The analysis shows that the total project, excluding thesmallholder program, can effectively withstand the impact of a 10% changein costs, benefits, prices, or yields: the ERR would be above the 12%estimate for the opportunity cost of capital in all these cases. Costswould have to increase by 20% or benefits would have to drop by 20% forproject rates of return to decline below 12%. Alternatively, thesensitivity analysis of the ERR to changes in costs and benefits expressedin terms of switching values at the 12% opportunity cost of capital showsthat either a shortfall in benefits of 15% or a rise in cost of 17% wouldreduce the ERR to 12%.

9.09 Prices and yields are the major determinarts of the project'sbenefits. If the World market price should drop by 10% ir 15%, the ERR ofthe total project vould decrease from 15% to 13% and 12% respectively. Ayield reduction of 15% or 20% would bring the ERR down to 13% or 12%. A

- 59 -

delay in the timing of benefits by one year or two years would result in areduction of the ERR to 13Z and 11Z respectively.

9.10 Both the plantation and the smallholder programs have ERRs thatare not very sensitive to changes in the key parameters. For instance,with a 20% increase in costs, the ERR continues to exceed 12% for bothprograms; while with a 20% decrease in benefits, the ERR slips to justbelow 12%.

Risks

9.11 In the first and second projects, the supply of adequate laborand the stability of the labor force vere considered possible problems. Inthis connection the project has not encountered major problems. Some 50%of the labor force nov has more than two years service vith over 80Z lessthan 30 years of age. This is in large part due to the satisfactory socialbenefits provided by the plantation and the active program of traininglabor in the specifie tasks of the plantation.

9.12 The major risk is that HEVECAN might become afflicted vith thesame problems of maintaining efficient commercial operation as encounteredby CAMDEV and SOCAPALM folloving the transition from the development to theexploitation stage. The SAFACAM management contract vould be reinforced interms of its performance requirements and this is considered an adequatesafeguard during the project period. In the longer term, the positivedialogue between Covernment and the Bank on the corrective measuresrequired for the parastatals (albeit that this dialogue is still at anearlv stage), and the policy statement of intent for the oil lpalm andrubber sub-sector anticipated at negotiations should provide the necessaryGovernment support for the efficient operation of the parastatalplantations.

9.13 The principal agricultural risk vould be Gloeosporium leafdisease. The disease, however, is well known in the rubber world.Promising control measures have been developed and are being activelvrefined by HEVECAM's technical department in coordination with the I.R.C.A.Research Institute. The precautions incorporated in the project design areconsidered adequate for attainment of the estimated yields.

- 60 -

X. CONDITIONS AND RECOMMENDATIONS A/

10.01 Two months pricr to negotiations, Government should provide thecofinanciers with:

(a) evidence of the budgetary provisions of the CFAF 1,990 millionrequired 12/ to bring the cash position of the company at the endof Phase Il in June 1984 to the equivalent of four months'operations, in accordance vith clause 4.01 of the IBRD CreditAgreement of April 18, 1980 (para 2.16);

(b) evidence of action to rehabilitate the Ed-a-Kribi and Kribi-Niitéroads (para 3.10);

(c) the proposal amendments to the SAFACAN management contract andthe proposed SAFACAM marketing contract (para 5.03);

(d) the proposed adjustments in the tax status of HEVECAM (para8.08).

10.02 During negotiations, the Governuent should agree to the followingpoints:

(a) HEVECAM's vorking capital and self-generated funds vould, at alltimes, be sufficient to cover its production cycle and the gapbetween its investment expenditures and their related financingby external sources of funds (para 7.04); and

(b) to ensure regular maintenance of the Niét&-Kribi and Kribi-Edearoads (para 3.10).

10.03 During negotiations, HEVECAM should agree to the following:

(a) to employ for the duration of the repayment period, a GeneralManager, an Administrative and Financial Director, a TechnicalDirector and an Industrial Director, with qualifications andexperience acceptable to the cofinanciers (para 5.06);

(b) to continue the present arrangements for accounting and reportingprocedures (para 5.07) and external auditing (para 5.08), adaptedto the date of production start-up;

A/ This chapter has been substantially revised; see Addendum, Part Il.

12/ This amount vas calculated during appraisal in October 1983. Itshould be updated based on the use of HEVECAN II credits and thecompany's financial situation.

- 61 -

(c) to update the present arrangements with SAFACAN for managementand marketing contracts; HEVECAN would consult vith thecofinanciers before any termination, suspension or amendment ofthese arrangements (para 10.01(c));

(d) to obtain the cofinanciers agreement before incurring any newmedium or long-term debt;

(e) to submit draft annual budgets to the cofinanciers for review(para 5.07);

(f) to provide adequate incentives to staff; and

(g) signature, by March 31, 1985, of a Credit AdministrationAgreement acceptable to the cofinanciers, between the outgroversand FONADER (para 7.04).

10.04 Conditions of Board Presentation would be:

(a) signature of the amended SAFACAM management and marketingcontract (para 10.01(c)); and

(b) approval by Covernment of the final draft of a law or regulationsetting out the adjusted tax arrangements (para 8.08).

10.05 Conditions of Effectiveness would be:

(a) the promulgation of a law or regulation setting out the adjustedtax arrangements (para 8.08); and

(b) the conclusion of a general convention betveen Government andHEVECAM defining the financing and execution of the publicservice and social service activities (paras 3.12 and 5.05).

HEVECAW

OROANIZATIONAL CHART

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- 65 -

HEVECAN III

YIELDS FER HECTARE AD PER YEaa

PlantationsTe-ar Estaces Smallholdi&ngs

Tapptng Plantation . kglhalyear

1 7 800 480

2 8 . 1150 690

3 9 1500 900

4 10 1700 1020

5 il 1900 1140

6 12 2100 1260

7 13 2 100 1260

8 14 2250. 1350

9 15 2Z50 1350

10 16 2250 1350

il . 17 2250 1350

12 18 2250 1350

13 19 Z250 1350

14 20 22 1350

1s 21 2250 1350

16 22 2250 1350

'17 Z3 2250 1350

18 24 2100 1260

19 25 2100 1260

20 26 2100 1260

21 27 2100 1260

22 28 2100 1260

23 29 2000 1200

24 30 2000 1200

2' 31 2000 1200

26 32 1900 1140

27 33 19o0 1140

28 34 1800 1080

29 35 1800 1080

30 -36 1800 1080.

4~~~~~~~~~

-66- ANNEX IV

UEVECAK III PRODUCTION FORE_ASTS FOR THE 15,000 HA PROGRAMJanuary 1984 (in tons of dry rubber)

Cultivated areas (ha) -TotalI .1 ______ ~~~~~~~~~~~~~~~~Produc-1

i ____ 1 220_ 1 5851 1.6951 2.5001 2.5001 2.1501 1.9501 18001 00 tion 1

184/85 1 2531 4681 I I I I I 1 72111 85/86 1 3301 6731 1.3561 I I i I 1 1 2.35911 86/87 1 3741 8771 1.9491 2.0001 1 I I I I s.200a1 87/88 1 4181 9991 2.5431 2.8751 2.0001 1 I t 1 8.83111 88/89 1 4621 1.1111 2.8811 3.7501 2.8751 1.7201 1 1 I 12.7991' 89/90 I 46Z1 1.2291 3.2211 4.2501 3.75ùl 2.4721 1.5601 1 1 16.9441.1 90/91 I 4951 1.2291 3.5601 4.7501 4.2501 3.2251 2.2421 1.4401 1 21.1911. 91/92 1 4951 1.3161 3.5601 5.2501 4.7501 3.6551 2.9251 2.0701 1.2801 25.30111 92/93 I 4951 1.3161 3.8141 5.2501 5.2501 4.0851 3.3151 2.700t 1.8401 28.0651I 93/94 1 4951 1.3161 3.8141 5.6251 5.2501 4.5151 3.7051 3.0601 2.4001 30.1801i 94/95 I &951 1.3161 3.8141 5.625i 5.6251 4.5151 4.0951 3.4201 2.7201 31.6251i 95/96 1 4951 1.3161 3.8141 5.6251 5.6251 4.8381 4.0951 3.7801 3.0401 32.6281I 96/97 1 4951 1.3161 3.8141 5.6251 5.6251 4.8381 4.3871 3.7801 3.3601 33.2401971/98 1 4951 1.3161 3.8141 5.6251 5.6251 4.8301 4.3871 4.0501 3.3601 33.5101

I 98/99 1 4951 1.3161 3.8141 5.6251 5.6251 4.8381 4.3871 4.0501 3.6001 33.7501I 99/00 I 4951 1.3161 3.8141 5.b251 5.6251 4.8381 4.3871 4.0501 3.6001 33.7501I 00/01 I 4621 1.3161 3.8141 5.6251 5.6251 4.8381 4.3871 4.0501 3.6001 33.7171I 01/02 1 4621 1.2291 3.8141 5.6251 5.6251 4.8381 4.3871 4.0501 3.6001 33.6301I 02/03 1 4621 1.2291 3.5601 5.6251 5.6251 4.8381 4.3871 4.0501 3.6001 33.3761I 03/04 1 462; 1.2291 3.5601 5.2501 5.6251 4.8381 4.3871 4.0501 3.6001 33.001O1 04/05 I 4621 .1.2291 3.5601 5.2501 5.2501 4.838[ 4.3871 4.0501 3.6001 32.6261! 05/06 1 4401 1.2291 3.5601 5.2501 5.2501 4.515i 4.3871 4.0501 3.6001 32.28111 06/07 1 4401 1.1701 3.5601 5.2501 5.2501 4.5151 4.0951 4.0501 3.6001 31.93011 07/08 E 4401 1.1701 3.3901 5.2501 5.2501 4.5151 4.0951 3.7801 3.6001 31.49011 08/09 1 4181 1.1701 3.3901 5.0001 5.2501 4.5151 4.0951 3.7801 3.3601 30.978109/10 1 4181 1.1121 3.3901 5.0001 5.0001 4.5151 4.0951 3.7801 3.3601 30.6701

110/11 1 3961 1.1121 3.2211 5.000o 5.0001 4.3001 4.0951 3.780! 3.3601 30.2641I 11/12 I 3961 1.0531 3.2211 4.7501 5.0001 4.3001 3.9001 3.7801 3.360i 29.76011 12/13 1 3961 1.0531 3.0511 4.7501 4.7501 4.3001 3.9001 3.6001 3.3601 29.16011 13/14 1 i 1.0531 3.0511 4.5001 4.7501 4.0851 3.9001 3.6001 3.2001 28.13911 14/15 1 1 1 3.0511 4.5001 4.5001 4.0851 3.7051 3.6001 3.2001 26.6411I 15/16 I I I 4.5001 4.5001 3.8701 3.7051 3.4201 3.2001 23.19511 16/17 1 1 I I 1 4.5001 3.8701 3.5101 3.4201 3.0401 18.34011 17/18 I I I I I 1 3.8701 3.5101 3.2401 3.0401 13.6601I I __________2_90I 34.00100.75'485251486t..12.8..12.4..0..30 I I I I I I It T 12;9031 36oloZ7isssl48.625127.8221112.4121100.5301 *86.48Oj8l292

34.7001100.7751148 62511 i 2952~~~~~~~~~~~~~~~

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t961 hAmuwr

UNIDMI4 l3-lO doNOIIYWiY Xla lSSX ll . .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a

MU9VECAN£1Ilowbe, 1983

PHASIU I M1 Il1 FINANCINUC

_i __M- , A,-._

1 .a~~~~~~~~~~~* D1. Caoinasocler I Io I I C 1 :::m es

I In/Crin H. oi I S 4 0075 ou.i r ou5 m 1 1 1 C 5 1 1 I S 1 e a00 0050 31 5 1 00 gr1 2. Lon/te|JItti vote 1 7/30/?5 , _29/ . 4/19/p0 4/18/80 1 /24/1 _ 11123179, 11/ l3/19

I~~~~CA daua . __3 su I0 94 o . I is oo ou à I6 ocl10

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; CFA sttount I ,îb5 5eo00 e o oo o , o I I I . I i I I I I . i I I I.

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- rml.burme.nt puriod 4 40 yeure . 10 ypars . 40 7mars * 15 yaara 13 year * 12 yer , 10 ars ** - grece period (intereea * principal) g 10 yecre 1 10 yenre à 10 yeeat s S yeere | 7 jearo I ymar. * 5 yero *i - date ot liret paymoAt I 10/111985 1 10/31/1986 : 4/1/1990 1 411/1986 1 4/30/1987 1 4/20/1988 1 4/30/11985 1

___e__e/_ _dat pe _ of 11/203t 1 0/31J1999j 10/13111999 1 10/31/1999 10131994 194g - date of~ ~ ~ Ett.Y.l!.... ....... ... ALili.... 1013111995- l__________ _41111999_

s 8eele date - Cuverr nt lemu te lRICU< I - uinancing agremng , ignhd la sUpts.ber 1975 * Flnancine amrec.nt *hemad 12/6/69 1

_ ennat I CrW 3.1610.1OO.o * Te bu contirîd by NIlII Dftreo *t *n4 projectI - Interect rate 5. 5 *aI - lnav puriod 30 Yeras 41111ar0I gr ec perlod j15 Yor r */Il;;90 a

- date et u1 t payma 911/2006 . I/19991

s euides ipluamncetion pl1an U873,000 4 Fr 1.100,000 - 07*1 353425*000 (19175 rae>.Se rvice Lé et 0.7SZ oa mue et erédit diabuue.d but me r.nimlun.d.

Ic4

_ 71 _

ADDENDUN

Page 1 of 8

CANEROON

THIRD HEVECAM RUBBER PROJECT

ADDENDUM TO CCCE STAFF APPRAISAL REPORT i/

I. PROJECT COSTS AND FINA' ING ARRANGEMENTS 2/

Project Costs

1.01 The project has the following three major cost components (seeAddendum Tables 1 and 2):

(a) completion of industrial estate development, as discussed inCCCE report paragraphs 4.01 to 4.17, except for public andsocial service activities carried out by HEVECAM on behalfof the Government;

(b) operations carried out by HEVECAM on behalf of theGovernment as described in CCCE report paragraphs 4.18 and4.19 plus the public and social service activities discussedin paragraph 4.15; and

(c) working capital requirements, taking into account the needfor spare parts resulting from the increase in processingand transportation capacities, and liquidity covering fourmonths of operating expenditures.

1.02 The total cost of the project would be CFAF 32.8 billion (US$83.7million) including taxes and contingencies over a four and a half yearperiod. Identifiable taxes account for CFAF 3.2 billion (US$8.2 million)or 9.8% of total project cost, leaving a total net of taxes of CFAF 29.6billion (US$75.5 million). Substantial investments have already been madeunder the first and second projects in heavy equipment, vehicles andmaterials. With the plantation nov entering into the production phase, thethird project vould include a high proportion of local operating costs. andthe foreign exchange component vould only be 35% or CFAF 11.5 billion(US$29.3 million).

1.03 Baseline costs have been estimated by CCCE in mid-1983 prices.To retain consistency with CCCE's appraisal report and working documents,this cost base has been retained here. Thus, price increases since mid

1/ This Addendum has been prepared by the World Bank.

2/ This Part, including Addendum Tables 1 to 4 replaces Chapter VII ofCCCE Report.

_72 _

ADDENDUNPage 2 of 8

1983 have been ïncladed in the contingencies; they have, however, beenverified with actual price developments through November 1984 and have beenfound ta be acceptable. Likewise, cost estimates are based on the exchangerate used bv CCCE of US$1.00 - CFAF 392, prevailing at appraisal. The useof the exchange rate currently applied by the Bank (US$1.00 = CFAF 418)could lead to savings in the loan amount of about 52 which, if materiali-zed, would be cancelled upon project completion. Since Government and theother donors have specifically requested the Bank to respect CCCE's costestimates and financing plan, the former exchange rate has been used inthis report.

1.04 Total contingencies amount to 47% of base costs and 32% of totalcosts. Physical contingencies, estimated at various rates depending on thenature of the operations, average 4% of base costs. Price contingenclesfor local costs vere calculated at 15% for all years of the project, andfor foreign cost at 7.5% for 1983/84 and 1984/85, 7% for 1985/86 and 6% forthe remaining three years of the proJect. The price escalation factorsfollov estimates of annual Cameroonian inflation for local costs andforecasts of international inflation for foreign supplied goods andservices.

Proposed Financing

1.05 The proposed financing plan is shown in Addendum Table 3.External loans would total CFAF 17,100 million (US$43.7 million) or 52Z oftotal costs (58% of project costs net of taxes) vith the balance beingprovided by the Government - CFA 11,400 million (US$29.0 million) or 35% oftotal costs and by HEVECAM - CPAF 4,300 million (US$11.0 million) or 13% oftotal costs. The external loans would apply only to the plantationdevelopment program, in a mixture of parallel and joint financing, whileoperations carried out on behalf of the Government vould be financed 100%by the Governient and vorking capital would be funded by the Governient andBEVECAM's own resources.

1.06 The contributions of the four externa1 loans and their termswould be as follows:

Amounts X of TermsUS$ CFAF Project Cost Interest Period Grace Period

'000 Million Net of Taxes z (Years) (Years)

Bank 8,300 3,270 11.0 Variable 20 5CCCE 11,800 4,610 15.5 8.6 20 5CDC 11,800 4,610 15.5 9 20 7EIB 11,800 4,610 15.5 8 15 5

Total 43 700 17 100 57.5

The proposed Bank loan of US$8.3 million -would include a capitalizedfront-end fee of US$20,698. All external loans would be made to the

_ 73_

ADDENDUMPage 3 of 8

Government and passed on to REVECAM under a financing agreement agreed uponin draft form at negotiations. The CCCE, CDC and EIB loans would be passedon to HEVECAM at the rates charged to Government. However, in line vithBank policy, Bank loan proceeds would be passed on at a rate incorporatinga premium of one percentage point. The foreign exchange risk would beborne by HEVECAM. A condition of effectiveness would be the signature byGovernment and HEVECAM of the financing agreement stipulating theseon-lending conditions as well as arrangements for the financing andexecution of public and social services activities in the HEVECAN area(Addendum para 2.04(a)). All four loans would be linked by across-effectiveness clause (Addendum para 2.04(b)).

1.07 Parallel financing amounting to US$29.6 million would be arrangedas follows:

(a) CCCE: 100% of light vehicles and equipment and technicalassistance (US$3.1 million);

(b) EIB: 100% of factory (US$11.8 miJlion);

<c) HEVECAM: 100% of the indirect cost of plantation labor(US$1.2 million); and

<d) Government: 100% of experimentation and social serviceoperations for Government's account (US$13.5 million).

Joint financing would be applied to the remainder of the plantationdevelopment program of US$42.6 million in the following shares: Bank 19Z;CCCE 20%; CDC 28%; HEVECAM 6%; and Covernment 27%. Finally, workingcapital requirements of US$11.50 million would be financed jointly byHEVECAM (63Z) and the Government (37Z).

1.08 During negotiations, assurances vere obtained that: (a)Government vould ensure that HEVECAM's liquid assets would at all times bekept at a level sufficient to cover its investment and operatingexpenditures (including its tax liabilities) for a four-month period(Addendum para 2.01(d)); and (b) HEVECAM vould obtain the Bank's agreementbefore incurring any new debt that would raise the ratio of debt to equityabove 2.8 until 1992 and 2 thereafter, and vould increase its annual debtservice to more than hnlf its projected annual revenues (Addendum para2.02(e)).

Procurement

1.09 Items to be financed on a parallel basis amounting to US$29.6million would be procured according to each co-donors' own procurementguidelines (Addendum para 1.07). For all other items financed jointly,procurement arrangements would follow Bank guidelines. Contracts forUS$150,000 or more would be avarded through international competitivebidding (ICB) in accordance vith Bank guidelines. Contracts for goodsbelow US$150,000 but more than US$50,000 would be awarded through localcompetitive bidding procedures (LCB), acceptable to the Bank. For

74 _

ADDENDUM

Page 4 of 8

contracts under US$50.000, aggregating US$5 million, direct procurement onthe basis of at least three quotations vould be allowed. Procurementarrangements are summarized in the table below, with the figures inparentheses 8howing respective amounts to be financed by the Bank.

Procurement Arrangement s(US$'000)

ReservedProcurement Element ICB LCB Procurement Other Total

Civil Works 500 7,400 a/ 7,900(140) (1,400) (1,540)

Vehicles & Equipment 2,200 400 1,100 b/ 3,700(400) (100) (0) (500)

Plantation DevelopmentCosts 2,500 3,800 1,200 c/ 7,800 15,300

(400) (740) (0) (1,600) (2,740)

Management 6 AdministrativeServices 3,500 2,000 dl 14,500 20,000

(650) (0) (2,850) (3,500)

Factory 11.800 e/ 11,800(0) (0)

Other Activities f/ 13,500 13,500(0) (0)

Working Capital 200 1,680 - 9,600./ 11,480(0) (0) (0) (0)

Total 4,900 9,880 29,600 39,300 83,680=MMn SSmel *SneM_ _a-S mm__e_

(800) (1,630) (0) (5,850) (8,280)

a/ Construction of workers' housing and service buildings vould be mainlycarried out by HEVECAN on force account with a limited amount of localsub-contracting. Past experience shows that such vork is unlikely toattract foreign bidders and suitable local contractors are notavailable in the area. Civil works in Douala, however, would becarried out through LCB (US$0.5 million).

b/ Light vehicles and equipment which have been specifically identifiedin the agreed equipment list, would be financed by CCCE under its ownprocurement guidelines.

c/ Indirect plantation labor costs. financed by HEVECAM.d/ Technical Assistance fron SAFACAM vould be financed by CCCE.e! Factory construction, machinerv and equipuent would be financed by EIB

under its own procurement guidelines.f/ Comprises experimentation and operations for Governnuent's account

(social services, smallholder program, food crops and studies).j! Liquidity provided by Covernment and REVECAM.

75-

ADDENDUMPage5 of 8

Disbursement

1.10 Bank disbursements would be based on the following categories andamounts:

Disbursement Categories of IBRD Loan

Amount Percentage of ExpenditureCategory US$'000 Financed by IBRD

1) Civil Works 1,400 19% of total expenditure

2) Vehicles, Equipment 450 19% of total expenditure

3) Plantation DevelopmentCosts 2,450 19% of total expenditure

4) Management and AdministrativeServices 3,150 19% of total expenditure

5) Front-End Fee 21

6) Unallocated 829

Total 8,300

The Bank would not accept a reimbursement application for less thanUS$50,000 equivalent. Disbursements against category 2 would be fullydocumented. Disbursements against categories 1, 3 and 4 vould be madeagainst statements of expenditure (SOEs). Full supporting documentationshowing costs incurred and work completed would be reta±ned for inspectionby the Bank during project supervision. HEVECAM has a satisfactory costaccounting svstem, and experience under the first and second projects hasshown the SOEs provided to have been accurate. Control would be reinforcedby specific verification provided by the external auditors (CCCE report,para 7.07).

1.11 A schedule of estimated disbursements is given in Addendum Table4. It is estimated that the Bank loan woul- be disbursed over about fiveyears, three years shorter than the Regionwide historical profile for thetree crop sub-sector in West Africa. This shorter disbursement period isrealistic because of the lower probability of delays. First. HEVECAM is anongoing operation not subject to the start-up delays experienced elsewhere.Second, the planting program has been completed and the project does notinclude major investment items that could be delayed. Finally, HEVECAM'sdisburseinent department has an excellent crack record in preparing andprocessing disbursement applications.

76_

ADDENDUNPage 6 of 8

Accounts, Audit and Reporting Requirements

1.12 HEVECAN vould, within the context of its financial accountingsystem, keep records consistent with sound accourting practices andadequate to reflect both its general financial situation and the detailedcosts of its operations. HEVECAM would submit quarterly reports to theGovernment and the colenders containing sunmarv financial information. Thereport would show actual against budgeted expenditures and would alsorelate physical progress achieved to target objectives. In addition tothese quarterly reports, half yearly inspection reports would continue tobe prepared jointly by SAFACAM and REVECAM and vould be submitted to theGovernment and the colenders. HEVECAM's annual operating and investmentbudgets would be made available to the colenders for comments prior tofinal approval bv its Board of Management. Moreover, within six monthsafter the Bank loan closing date, HEVECAM would prepare a completion reportfor submission to the Bank. Assurances regarding the application of thesearrangements were obtained at negotiations (Addendum para 2.02(f)).

1.13 HEVECAM would continue, as under the first and second projects,to appoint independent auditors acceptable to the Bank for the annualauditing of its accounts. The audit report would be submitted to the Bankvithin six months after the close of each financial year, that is, notlater than December 31 of each year. The auditor's opinion on projectexpenditures would include verification whether goods and services financedby the Bank have been procured from eligible suppliers and a specialopinion on HEVECAN's submissions of statements of expenditures. Inaddition the auditor's opinion vould include a verification of HEVECAM'sdebt to equity ratio. Assurances regarding the application of thesearrangements were obtained during negotiations (Addendum para 2.02(g)).

Taxes 3/

1.14 Ideally, HEVECAM's present tax exemption status should beextended until 50Z of the planted area reaches full production (approxi-mately in 1993). International agreements between UDEAC countries (CustomUnion of Central African Countries) and national laws, however, precludethe adaptation of tax arrangements to the long gestation period of a rubberplantation. The Government has formally agreed to extend these taxexemptions urtil the end of project execution (lune 30, 1989). Thereafter,and depending on HEVECAM's projected cash flow requirements, tax levieswould be either reimbursed ex post, or compensated by operating subsidiesor capital increases so as to maintain an acceptable level of liquidity.To that effect, an understanding was reached at negotiations.

31 Modification of CCCE Report, para 8.08.

_ 77_

ADDENDUMPage 7 of 8

II. CONDITIONS AND RECOMMENDATIONS 4/

2.01 During negotiations, the Government agreed to undertake thefollowing:

(a) to submit for the Bank's review, before December 31. 1985,proposals tovard the long-term management and organizationalarrangements for the plantation sub-sector satisfactorv tothe Bank, and a timetable for their implementation (para1.05);

(b) ta ensure the regular maintenance of the Edéa/Kribi and theKribi/Niété roads (para 3.10);

(c) ta make adequate financing available to FONADER forfinancing outgrower credit under the program (para 4.20);and

(d) to ensure that HEVECAM's liquid assets would at all timeshave to be kept at a level sufficient to cover itsinvestment and operating expenditures (including its taxliabilities) for a four-month period (Addendum para 1.03).

2.02 During negotiations, HEVECAM agreed to undertake the following:

(a) to enter into a credit agreement vith FONADER acceptable tothe Bank by June 30, 1985 (para 4.20);

(b) to continue the present arrangements for the SAFACAMmanagement and proposed marketing contracts during the lifeaf the project and to consult vith the Bank before anytermination, suspension or amendments of the SAFACAMmanagement and marketing contracts (para 5.03);

(c) to employ at all times, a General Nanager, a Deputy GeneralManager, a Financial and Administrative Manager, a TechnicalManager, an Industrial Manager, and a Field Manager vithqualifications and experience acceptable to the Bank (para5.06);

(d) to provide adequate incentives to staff (para 5.09);

(e) to obtain the Bank's agreement before incurring any newmedium or long-term debt which vould raise the ratio of debtto equity abo.e 2.8 until 1992 and 2 thereafter, and would

4/ This section replaces Chapter X of CCCE Report.

_ 78 _

ADDENDUMPage 8 of 8

increase its annual debt service to more than half itsprojected annual revenues (Addendum para 1.08);

(f) to submit draft annual investment and operating budgets tothe Bank for review, and vithin six months after the loanclosing date, prepare a completion report for subaission tothe Bank (Addendum para 1.12); and

(g) to continue the present arrangements for accounting,documenting, reporting and external auditing (Addendum para1.13).

2.03 Conditions of Effectiveness vould be:

(a) the signature of an acceptable financing agreement betweenGovernment and REVECAM stipulating on-lending conditions asveil as arrangements for the financing and execution ofpublic and social services activities in the HEVECAX area(Addendum para 1.06); and

(b) effectiveness of the CCCE, CDC and EIB loans (Addendum para1.06).

WAPADDecember 1984.

_ 79 _ d,d

Table 1TlIRD EKWI Rm ORJECT

TDLE 1: PWEET COUT SUI

toeAF llilii < IUS * Ilillini_ FGRE161 Z TOTAL

LCL FiEtS1 TOTAL LOL FOREIGN rOTAL ERC116E DiSE C;STi

A. INCILTURIAIL illESTRENT CmSIS

SENIOR iPA16iEJOT 2950.4 733.0 3733.3 7.5 2.0 9.5 21 17£MMID TEEMICU. SERVICE a96.2 238.6 1135.0 2. O. 2.i 21 5TEOIICA. SERIIIŒ 121.3 495.0 06. 3 0.3 1.3 1.6 i9 ;DIU A6RIULTIAIL CDSTS 1990.1 1in.7; a-M.9 5.1 4.8 9.9 ,e Ul

IUIEEr SIIcILDIAL CMS!! 251.à 64.à 323.2 *.7 0.2 a.a 2r IFACTr 1661.2 13J2.o :M99.a 4.2 3.4 7.e 45 13NOIIU1 115.0 ,j9.5 1447.5 1.e 6.7 3.- 29SERVIOE ILDIM 432.6 112.G 544.o 1.1 *.3 1.4 21 2VERILE5 1M3.2 540.à .i1.7 (1.3 1.4 1.7 80 3EfDlIPtIIT ID NATEILS al.9 247.a 329.. 0.2 2.e .e . 75 EIPINEMTATION 3 149.1 5I A.3 l.à *.4 1.4 3

511-TCI ASICULTRILI. CR51T If03.6 6129.3 !el?3.4 25.7 15.7 41.4 ;6 72

e. EMTIONS FOR 6VERUEF'S ACCOUNT

OCIAL SEiVICES 1186.3 36i.1 _ 55. 3.0 2.2 5.2 42 ?W-6ROGER FRPIOGI -45.1 1.3.4 -is.4 0.6 3.4 1.0 4 L

F00: CPiP DEYELOFIEIT J;7.6 34.4 1;2.i v.4 O.1 *i.4 20 IRUIDERDEVaPEŒIT I F 130.; 211.0 391.9 0.5 0.5 !.à 54 2

5119-TOTAL OPERATIOS 1749.2 I_ i.i ;02;.7 4.5 3.3 .7 42 14

C. OiiINI CAPITALi-lOt -:5.2 3dù.i 47o. *2 l.u i.2 t 2,

CMSH REIUIEElET 74;.3 I )9?. 113.Il 1.? 2.7 4. 59 aSA FIINCINE REIUIREHENT 321.0 i 52.ù 2.1 G 2.1 O 4

i09-TOTAL lORKINS CAPITAL 1t59.5 145v.5 3110.u 4.2 ;.; 7. 4; 14

TOTAL BdSE CRTS 1J472.3 ii95.; i _30.P 34.4 L 2.o 57.ù 40 !ô6PIYSICRL C.IiTIE1ECIES 47;.0 i97.3 975.^ 1.2 1.0 2. 45 4FRIOE CDUTINlIIES 73i9.3 :1i0.7 9597.0 J.a 5.e .4.5 23 43

TOTAL PPDEBr COST S 213ra.7 11464,2 32;O3.5 54.4 :9.3 93.7 35 147t.flS 23sS33 SU=sS8S =sU3=fl s3Laf USSU- * S SZf =-3

_ _ N_ _ __ _ __P_ _ _ _ _ _ _ _ _ _ _ _ _

09,7i9

CM _ 80_ ian

THI* SVECM MU PIOJECT T z

TAIIIIE 2: PECT CMIfTS nY YUl

iCFAF Million)

TOTALamSE COITS

94/15 5/16 96197 V7I a11J9 CFAF mil1lion

a. azuuu. muNoES a CaT

iENIOR _NAEMIST ,.1.7 1031.5 947.5 .53.6 469.0 3i33.3 9.5CONNU TECMIrA. SERICES 223.1 301.5 262.4 205.2 140.7 1135.0 2.9IIIIMICAIL SERVIES 150.3 142.4 114.0i 12.9 79.i .06.3 1.oBIRECT AIRIElNTIRAL CMTS 6a3.3 1031.4 982.2 742.7 529.3 3965.9 9.INDIECT EICILTIJ CUSTS 75.7 a5.3 b9.a 55.3 37.1 323.2 0.9FICTORY 129.2 929.. 357.7 1165.7 393.6 tS93.7 7.lHUISlus 44.5 21;.2 379.4 461.9 345.4 1447.5 3.7SERVIE NUILDIXES 336.3 16.9 11.4 15.5 15.5 544.6 1.4VEiiCEES 120.0 1_5.5 127.2 166.9 14L1 6U1.7 1.7EgUIPNDBT aM NAEIAs 30.4 4.4 61.6 144.3 44.9 329.6 0.9EiPEMIÇTATION 50.4 112.0 113.4 123.6 12S.9 5d9.3 1.4

SUD-TTAL AGILTIUAL COSTS 2575.9 4199.7 3226.i 3i75.6 2326.2 16193.1 41.4

9. OPERATIOIIS FR YEDRNIT'S ACCDUWT

CIIAL SERVICES 349.4 324.7 ;O1.o 479.6 552.v 2055.3 5.2OUTROMER PRERA 54.5 ;.3 96.3 97.0 7i.7 400.4 1.0Fous CROP DEELPRENIr _1.1 38.7 9. 1 ii.; 3i.9 1;2.0 . 451315 IEVELOPNENY POIRAIN 71.3 117.3 97.5 57.6 55.2 391.9 l.à

SUE-TOTAL OPERATIN1 495.i 573.5 c.3.5 ..0.4 o94.9 S327J. i.;

C. VMISl WITAL

ST=OC: 49.0 7I.i Z5.0 il9.0 143.0 47.0 1.2C1 REiUIREJIENT 102.0 2i5.0 406.0 514.;J 554.0 113.0 4*.-5 FINANCINE REDUIPET u 5:0.0 0 152.0 141.v d2.0 L.1

SUD-TOTAL SINÎ, CAITAL 150.0 926.0 503.uJ 705.d i64.0 31106à 7.i

TOTiL adSE cOTS 321.4 5558.3 4333.2 5321.0 3967.1 23.9 57.0PYSICAL INTI9E1CIES 12?.0 212.9 Ioi.; 220.9 146.1 95. à 2.2PRna CNTINENIES 412.3 1493.3 1751.; 0U53.7 H55.9 9597-. 24.5

rOTAS. FROJET W2STS-7.3 '94.5 951.9 hO!.5 eaf9.û 32503.5 9s3.

âlaEs 425.1 725.5 3iZ.4 i25.1 :i9.4 3227.5 9.2rARE16N EfHIRNIE 1311.3 2447.4 i3!i. i 3h-3t.5 235é0.0 1144.5 27.3

APAID09,7,94'1

81- - w -~~~~~~~~~~~~~~"dm~

um~~~~ Tabla 3

PM co MM FDICIM US M '00

CF|' UN * IU CCCE cIc IEI IREVU 90o Tllilli '0

J, PMUiS IIÆETIgNT al$TS

A. FIEUL FII001 1100l1

CCCE ight Yuhidan, Eqai_t 430 1100CCCE T niual huista» e00 2000

Sa-Total CCC 1230 3100 3100EI Factury 4610 1111N 11000GavmrnamntZlapoelritatiom 920 2100 2100NDEEM:Iadirct %ric.Comt 490 1200 1200

Si-Total Parliîm finacing 7140 10200 310 11000 120 2100

3. JOIfT FINIUIIN6

smioe ahn ut 5420 13910 26 2920 3820 010 3680Coea. Tuchaical SevicH 1650 4200 020 60 1160 250 1110Direct Agicultaral Cotu 5540 14t20 2740 2300 3910 m0 3760Humia; 2400 6120 I'» 1250 1700 360 1620Simvic iiildings 700 100 350 370 50 100 410Otlr Y.hîcinu,Equipa,t 1000 2550 5001 520 710 150 670

Sue-Ttal Joint Ficancinq 16710 42600 920 9700 11900 0 2500 11320Parcmtqe Joint Finacinq 100 10 20 2l i 27

SDI-TOTAL PROERAI INSlIIET CMDT 23950 60U0 9O 1100o 1INO lI0O 3700 13420

Il. OPEPATION FOR S6YEET'S ICCOUIT 4460 11400 11400

Il. MOIIRKIN CAPITAL-Spare pats 740 190o-Cash 375 9600

SUR-TOTAL M ING CAPITAL 4490 11400 7300 4190

TOTAL PROJECT COSTS 32500 930; M290 11100 11900 l1S90 11000 29000FRONT EU FEE 20 20

TOTAL FINANCIN6 13700 9300 11800 I1190 1190O 11000 29000

Pacmntq 100 10 14 14 14 13 i5

PROJECT COST NET OF TAIES 29576 75480 9300 1190 l90 110 11000 20900Percuntaq 100 il 15.5 15.5 15.5 14.5 29

091071/4

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