Z0o+A1 61 6W L.Optv I - World Bank...Z0o+A1 61 6WL.Optv I RESTRICTED Report No. PA-31aThis report was prepared for use within the Bank and its affiliated organizations. They do not

Z0o+A1 61 6WL.Optv I

RESTRICTED

Report No. PA-31a

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

SECOND JENGKA TRIANGLE PROJECT

MALAYSIA

April 29, 1970

Agriculture Projects Department

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CURRENCY EQUIVALENTS

US$1.00 = Malaysian $3.06M$l = 100 cents = US$0.33M$1,000,000 = US$327,000Can$1.00 = M$2.85M$1 = Can$0.35M$14,000,000 = Can$350,000

WEIGHTS AND MEASURESEhglish System

1 acre (ac) = o.4o5 ha1 square mile = 259 ha1 mile (mi) = 1.609 m = 1.6 km1 long ton = 2,2240 pounds (lbs) = 1,020 kg1 timber ton = 50 cubic feet = 1.4 cu m

ABBREVIATIONS

FLDA = Federal Land Development AuthorityMARA = Majlis Amanah RalayatSJSB = Sharikat Jengka Sendirian BerhadRRIM = Rubber Research Institute of MalayaMARDI = Malaysian Agriculture Research and

Development InstituteADB = Asian Development BankPAS = Public Administration ServiceCDC = Commonwealth Development Corporation

MALAYSIA


TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS - -- - - - - - - - - - - - i

I. INTRODUCTION - - - - - - - - - - - - - - - - - - - - - 1

II. BACKGROUND - - - - - - - - - - - - - - - - - - - - - - 2

A. General - - - - - - - - - - - - - - - - - - - 2B. Land Settlement - - - - - - - - - - - - - - - 4

The Federal Land Development Authority(FLDA) - - - - - - - - - - - - - - - - 4

The Jengka Triangle Program - - - - - - 4

C. Forestry - - - - - - - - - - - - - - - - - - 5

Majlis Amanah Ra'ayat (MARA) - - - - - - 6

D. First Jengka Triangle Project (Loan 533-MA) - 6

The Project - - - - - - - - - - - - - - 6Comparison of Forecast with ActualPerformance - - - - - - - - - - - - - 6

Costs, Loan Disbursements and Financing- 7Project Administration - - - - - - - - - 7General - - - - - - - - - - - - - - - - 7

III. THE PROJECT AREA - - - - - - - - - - - - - - - - - - - 7

IV. THE PROJECT - - - - - - - - - - - - - - - - - - - - - - 8

A. Project Definition - - - - - - - - - - - - - 8B. Detailed Features - - - - - - - - - - - - - - 10

Regional Center and Other Towns - - - - 11Processing Facilities - - - - - - - - - 11Planting Material - - - - - - - - - - - 12Crop Diversification - - - - - - - - - - 12

(Continued)

This report is based on the findings of an appraisal mission comprisingMessrs. Whyte, Gold and Willems (Bank) and Rowe (FAO) which visited Malaysiain August/September 1969.

Table of Contents (Continued)

Page No.

C. Cost Zstimates and Proposed Financing - - - 13

Cost Estimates - 13Pro-poesd winascing -15Procuremaent - - - - - - - - - - - - - 17Di buzSement - - - - - - - - - - - - - 17

V. ORGANIZATION AND MNAGEEMNT - - - - - - - - 18

A. Land. 1Se tlement Project - - - - 18

FMIAt -- 1 8Jiekngka Division - - - - - - 18Research and Training - - - - - - - - 19Settlement Procedures - - - - - - - - 20

LDA's Finances and Accounts 22Audit - - - - - - - - - - 23

B. Forestry Proect - - 2 - - - - - - - - - - 23

Finances, Accounts and Audit - - - - - 25

VI. PRODUCTION, MARKETS, PRICES AND OPERATING RESULTS - - 26

A. Yields and Production - - - - - - - - - - - 26

Land Settlement - - - - - 26Forestry - - - - - - - 26

B. Markets a,na Prices - - 26

Oil al - - - - - 26Rubber - - - - - - - - - - - - - - 27Forest Products - - - - - - - - - - 28

C. Settlers Income - - - - - - - - - - - - - 29D. Government Revenues - - - - - - - - - - - - 30

VII. BENEFITS AND JUSTIFICATION - - - - - - - - - - - - - 30

Land Settlement - - - - - - - - - - - 30Forestry - - - - - - - - - - - - - - 31

'VIII. RECOMMENDATIONS - - - - - - - - - - - - 32

(Continued)

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Table of Contents (Continued)

ANNEXES

Land Settlement

1. The Federal Land Development Authority (FLDA)2. The Jengka Triangle Master Plan3. Project Development Charts - Stage 14. Schedule of Forest Clearing and Planting - Stage 25. Schedule of Village and Infrastructure Development - Stage 26. Unit Development Cost Estimates7. Project Cost and Disbursement Estimates8. Jengka Division Organization Chart9. Settlement Operation and Administration10. Jengka Balance Sheet11. FLDA Sources and Application of Funds re Jengka12. Yield Estimates13. Market Prospects for Palm Oil and Palm Kernels14. Market Prospects for Rubber15. Settlers' Income16. Government Sources and Application of Funds17. Economic Rate of Return

Forestry

18. Log Removal, Export and Area Statistics19. Majlis Amanah Ra'ayat (MARA)20. Equipment Schedule21. Project Cost and Disbursement Estimates22. Project Organization Chart23. Project Personnel24. Income Statements25. Sources and Applications of Funds and

Economic Rate of Return26. Balance Sheets27. Market Prospects for Forest Products

MAPS 1. Second Jengka Triangle Project2. Forestry Project

MALAYS IA


SUMMARY AND CONCLUSIONS

i. This report appraises a project for the further development ofland settlement, and the creation of a forest industries complex in theJengka Triangle. Loars totalling US$21.5 million equivalent are proposed,of which US$13 million equivalent would be for land settlement and US$8.5million for forestry. The Jengka Triangle, which lies approximately in thecenter of West Malaysia, is the subject of Malaysia's first regional devel-opment program. Under this program about 93,000 acres would be cleared offorest, planted with crops - mainly oil palms and rubber, divided intoholdings of about ten acres each, and allotted to some 9,000 families.A full physical and social infrastructure would be established in theTriangle, including three urban centers. A forest Industries complex wouldbe created to utilize timber removed in the course of land clearing, andthe timber in those areas that would remain under forest in the Triangleand adjacent forest reserves. A Bank loan of US$14 million equivalent(533-MA) was made to Malaysia in 1968 to finance the first stage of landsettlement in the Triangle; this project, which covered 33,000 acres, isbeing carried out efficiently and its target of settling 2,800 families by1972 should be achieved. In the agriculture sector two other Bank loanshave been made to Malaysia, of US$45 million and US$10 million equivalent;these were for irrigation development, principally for rice production.Progress on these projects has been satisfactory.

ii. The Second Jengka Triangle project consists of two sub-projects -the Second Jengka Land Settlement Project and the Jengka Forestry Project.A forest industries complex was not included in the First Jengka Triangleproject since arrangements for logging had already been made. The complexis required now for the best use of the forest resources located on land tobe developed under both the Second Jengka Triangle project and the envisagedthird and final stage.

iii. The proposed land settlement project includes the clearing ofabout 32,000 acres of forest and the planting of about 16,800 acres ofoil palms, 13,600 acres of rubber and 700 acres of other crops, and thesettlement of some 3,000 settlers with their families. The proposedforestry project would be the first to be financed by the Bank group inAsia. It would also be the first integrated forest industries operationin Malaysia. The project would consist of the establishment of a modernlogging and timber processing complex. Besides itself providing valuableeconomic benefits and employment opportunities, it could lead, by its ex-ample, to better utilization of Malaysia's large forest resources.

iv. Total project costs are estimated at US$41.0 million equivalent,including interest, of which US$28.6 million would be for land settlement

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and US$12.4 million for forestry. The proposed loan of US$13 million equiv-alent for land settlement would assist in financing costs during the period1970 through 1976 and disbursements would amount to about 45% of totalproject costs including interest during the disbursement period. Remainingcosts would be met by the Government. The loan would include some US$5.8 mil-lion of local costs. The proposed loan of US$8.5 million for forestry wouldfinance the foreign exchange costs excluding interest. Remaining forestryproject costs would be met by equity contributions by Majlis Amanah Ra'ayat(MARA), a statutory corporation, and out of earnings. Procurement for bothland settlement and forestry would be on the basis of internationalcompetitive bidding, although it is anticipated that local suppliers andcontractors would be the successful bidders for land settlement suppliesand works.

v. The land settlement project would be implemented, apart fromGovernment infrastructure works, by the Federal Land Development Authority(FLDA) a statutory Government corporation. FLDA is satisfactorily manag-ing both the first stage Jengka project and some 80 other smaller settle-ment schemes. Its financial management has not, however, kept pace withits rapid expansion and certain steps will be taken, including the appoint-ment of a Finance Director, to improve financial administration andprocedures.

vi. The forestry project would be carried out by Sharikat JengkaSendirian Berhad (SJSB), a subsidiary of MARA and would be managed byCantrans Services (1965) Limited under a four-year management agreement.

vii. The project as a whole should make a significant contribution toMalaysia's economy, to its foreign exchange earnings and to alleviatingunemployment. All production from the land settlement project and a sub-stantial proportion of that from the forestry project would be exported.Net foreign exchange earnings are estimated at about US$160 million fromthe land settlement project and US$32 million from the forestry project.Annual foreign exchange earnings would be about US$6 million from the landsettlement project, and about US$3 million from the forestry project. Theeconomic rate of return on the land settlement project, based on currentestimates of long-term commodity prices, would be over 18% from oil palmsand over 11% from rubber. A sensitivity analysis shows that it is unlikelythat these returns would fall to below 9% for each crop. The rate of re-turn on the forestry project is estimated at about 29%. The two projectswould provide employment for over 4,000 persons.

viii. The project is suitable for two Bank loans to Malaysia totallingUS$21.5 million. The Land Settlement loan would be for a period of 25 yearsincluding 7 years grace and the Forestry loan for 12 years including 4 yearsgrace. Malaysia would on-lend the loans to FLDA and SJSB on the same terms.

MALAYSIA


I. INTRODUCTION

1.01 The project appraised in this report consists of two sub-projects,the Second Jengka Land Settlement Project and the Jengka Forestry Project.The first would be the second stage of the Jengka Triangle Land SettlementProgram and would be carried out by the Federal Land Development Authority(FLDA). The second would be the establishment of a modern forest indus-tries complex in the Jengka Triangle. It would be carried out by SharikatJengka Sendirian Berhad (SJSB), a subsidiary of Majlis Amanah Ra'ayat (MARA),and would be managed by Cantrans Services (1965) Limited (Cantrans).

1.02 The Jengka Triangle Program is based on a comprehensive study ofthe region by consultants (Tippetts-Abbett-McCarthy-Stratton and HuntingTechnical Services Ltd.). This was completed in 1967 and was financedpartly by a Bank technical assistance grant. The Master Plan preparedby the consultants recommended the exploitation of the Triangle's forestresources through a modern logging system and the establishment of timberprocessing facilities, the planting of about 93,000 acres of oil palmsand rubber and the settlement of some 9,000 settlers with their families.

1.03 In April 1968 the Bank approved a loan of US$14 million to financethe first stage of the settlement program (Loan 533-MA). Progress on thisproject has been generally satisfactory. Exploitation of the Triangle'sforestry potential was, on the other hand, poor but in September 1969an agreement was signed between MARA and Cantrans providing for the manage-ment and operation by Cantrans of logging and timber processing in theTriangle. In April, 1970 SJSB was incorporated to carry out the project.In future the forestry and land settlement projects combined should producesubstantial economic and social benefits.

1.04 This report is based on the findings of a mission in August/September 1969, consisting of Messrs. Whyte, Gold and Willems of the Bankand Rowe of the FAO/IBRD Cooperative Program.

1.05 The Bank has made two loans for Malaysian agriculture besidesthat for the first Jengka Triangle Project. They were of US$45 million in1965 for the Muda irrigation scheme (434-MA) and of US$10 million in 1967for the Kemubu irrigation scheme (500-MA). Progress on these projectshas been satisfactory.

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II. BACKGROUND

A. General

2.01 Malaysia's economy depends heavily on agriculture -- a sectorwhich generates about 30% of GDP, gives employment to over 50% of thepopulation in West Malaysia (and over 75% in East Malaysia) and providesabout 60% of export earnings. The dominant commodity in agriculture isrubber, which alone provides 15% of total GDP, 55% of all agriculturaloutput and about 40% of total export earnings. Despite the importance ofthe agricultural sector, agricultural products still make up nearly one-quarter of the country's imports. Rice is now the major agriculturalimport, and an average of 380,000 tons annually were imported in the period1964-1967. Annual production had reached 700,000 tons by 1967 and devel-opments in drainage, irrigation, double-cropping and new varieties mayeliminate imports by the early 1970's. Agricultural production as a wholehas been growing at an annual average rate of around 5.5%, which compareswith a population growth rate in Malaysia of about 3% per year.

2.02 The present area under rubber is some 4.4 million acres, ofwhich about 1.7 million acres are commercial estates, 2.6 million acresare owned by smallholders and 130,000 acres are in FLDA settlement schemes.Projections up to the year 1975 indicate there will be an increase in rub-ber acreage of some 200,000 acres, which would raise the total area underrubber cultivation to 4.6 million acres by that date. This change willtake place mainly as a result of increases in FLDA and smallholder culti-vation. Because higher-yielding clones 1/ are now being planted, totalproduction is estimated to increase from the level of about 1.1 milliontons of rubber at the present time to about 1.5 million tons by 1975. Ofthe latter figure, estates are expected to produce about 725,000 tons,smallholders about 710,000 tons and FLDA schemes about 65,000 tons.

2.03 Malaysia's heavy commitment to rubber production has led toincreasing efforts to bring about diversification of production withinthe agricultural sector. Diversification into crops other than rubberwas emphasized in the First Malaysia Plan (1966-1970), in which the majoragricultural targets were identified as follows:

(a) an expansion of crops whose production would increase foreignexchange earnings;

1/ High yielding rubber trees possessing other satisfactory character-istics are selected and reproduced vegetatively. Consequently theplanting material, the clone, produced in this way possesses thecharacteristics of its single parent, unlike seedling material whichinherits the characteristics of both a male and a female parent incombinations not controllable by the plant breeder.

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(b) an expansion of rice production in order to reduce riceimports;

(c) the diversification of agriculture through the establishmentof new crop and livestock enterprises;

(d) the opening up of virgin land, now in jungle, which couldserve the joint purposes of adding to productive land andreducing current levels of unemployment.

2.04 Current estimates of future agricultural production begin toshow the effects of this interest in diversified agriculture. For ex-ample, there will be a significant increase in oil palm acreage and pro-duction - total acreage under oil palm is expected to increase fromabout 500,000 acres at present (of which FLDA schemes have 125,000 acres)to over 800,000 acres by 1975, when FLDA schemes would account for about307,000 acres, or 38% of the total. Production of palm oil is expectedto increase from 300,000 tons annually at present to over 750,000 tonsper year by 1975. FLDA schemes should be producing about 300,000 tons bythe latter date, which would make FLDA and its settlers the largest singlesource of oil palm produce in the world.

2.05 The Plan authorities estimate that the value of agriculturaloutput as a whole has been growing at an annual average rate of 5.5% duringthe First Plan period 1966-1970, although trends for individual productshave been appreciably different from those envisaged in the Plan. Forexample, production of palm oil, fish and timber are ahead of Plan proj-ections, while production of rice, copra and tobacco have fallen behindthe projections.

2.06 Although the dependence of the Malaysian economy on rubber andincreasingly on oil palms is recognized, a significant degree of diversi-fication has not been achieved. The main reason is that Malaysia has theskills and growing conditions to produce these two crops more efficientlythan other countries and should, therefore, continue to produce them in sub-stantial quantities. Also, tree crops, which protect the soil from ero-sion and facilitate the maintenance of soil fertility, are well suitedto the high rainfall and broken topography in West Malaysia. However,extensive studies and experimentation are being carried out by variousbodies in Malaysia such as the Department of Agriculture, the RubberResearch Institute of Malaya (RRIM), the Malaysian Agricultural Researchand Development Institute (MARDI), the Economic Planning Unit, commercialfirms and FLDA. Substantial yield increases have been achieved in maize,sorghum, soya bean and tapioca but only on small scale experiments. Someplantation companies have diversified successfully on a commercial scale,particularly into cocoa inter-cropped with coconuts on the west coast ofMalaysia.

2.07 The element of diversification in the proposed project, while ofconsiderable importance, is not large in the physical sense (para 4.15),but Bank assistance to diversified agricultural projects in Malaysia is

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increasing. In 1965 and 1967 Bank loans of US$45 million and US$10 mil-lion were made for the Muda and Kemubu irrigation schemes. These two proj-ects should eventually increase rice production by over 500,000 tons ayear. The Bank is assisting the Government in developing a short termcredit system to provide production credit facilities for the Muda andKemubu projects and this could lead to assistance for longer term agricul-tural credits in Malaysia generally. In addition, a livestock project isnow being prepared under the FAO/IBRD Cooperative Program.

B. Land Settlement

2.08 Unemployment is estimated to be as high as 13% in the urban areasof West Malaysia, and an unestimated but very high level of underemploymentexists in rural areas. With population increasing at an estimated 3%annually, the need to create employment, bring about a more equitable dis-tribution of incomes and promote economic growth has led to increasingemphasis on agricultural development through land settlement schemes.These schemes are carried out both by State Governments and by the FederalGovernment through FLDA; in the period since it was established in 1956,FLDA has been the main instrument for land settlement in West Malaysia.

The Federal Land Development Authority (FLDA)

2.09 FLDA was established in 1956 as an independent statutorycorporation with the duty and powers to "... promote and assist the in-vestigation, formulation and carrying out of projects for the developmentand settlement of land within the Federation." FLDA in practice enjoysa fairly high degree of autonomy in the implementation of land settlementschemes. A full description of the Authority is contained in Annex 1.

2.10 Table 1 of Annex 1 shows that up to 1963 FLDA developed 80,000acres of rubber and oil palm and that over the next six years the acreagetripled to some 257,000 acres, comprising 130,000 acres of rubber and 127,000acres of oil palm. To date some 16,000 families have been settled and thesettler population on FLDA schemes is now over 100,000. Future plans callfor continuous expansion and Table 1 shows the estimated increase in FLDA'splanted acreage up to 1975.

The JenRka Triangle Program

2.11 As shown in Map 1 the Jengka Triangle is in the State of Pahang,about 120 miles northeast of Kuala Lumpur and close to the geographicalcenter of West Malaysia. It covers some 300,000 acres of which 160,000acres are being or will be developed, the remainder being occupied or re-served for other uses.

2.12 The Bank has been closely involved with the development of theTriangle since the plans were first conceived. In 1963 a Bank mission re-viewed the potential and development plans of the Triangle and in 1965 the

Bank made a technical assistance grant of US$507,000 to the Federal Gov-ernment to help finance the preparation of an integrated regional develop-ment plan. The plan, published in 1967, is described more fully in Annex 2.In April 1968 the Bank made a loan of US$14 million (533-MA) to help fi-nance the first stage of the program covering some 33,000 acres. Progressunder the loan is described in paras 2.18 to 2.24.

2.13 The second stage of the Program would bring the total plantedacreage in Jengka to about 58,000 acres leaving some 35,000 acres for thethird and last stage which is expected to begin in 1972.

C. Forestry

2.14 The total forested area in West Malaysia is nearly 33,000 sq mi,or 65% of the total land area. Man-made plantations have not as yet beenestablished on a commercial scale. In recent years there has been a rapidincrease in the demand for logs, sawn timber and plywood in both domesticand export markets. Log removals from forest reserves and state landsincreased from 1.2 million tons in 1958 to 3.6 million tons in 1968, andexports of logs amounted to Just under 960,000 tons in that year. By mid-1968 there were 449 sawmills in operation which produced 1.4 million tonsof sawn timber in 1968; nearly 600,000 tons of this was exported. In thesame year 16 plywood mills produced nearly 225 million sq ft of which 150million sq ft was exported. Details of production and export of logs sawntimber and plywood are shown in Annex 18.

2.15 Despite its importance and potential, development of forestry,andforest industries is still being carried out haphazardly and inefficientlywithout regard for the sustained yield management of the forests or thecountry's future timber needs. The Federal Forest Department has noexecutive control over the exploitation of forests and State Governmentsdo not adequately supervise logging and processing activities. Much ofthe merchantable timber (between 60 and 80 percent in many cases) hasbeen wasted in lands cleared for settlement; the issue of annual licensesto individual loggers without relation to the processing industry hasled to a proliferation of undercapitalized and inefficient wood process-ing operations and there have been substantial losses to the economythrough the export of logs and unmanufactured forest products instead ofprocessed timber.

2.16 The Federal Government has recently shown, however, that it isaware of the need to improve the exploitation of forest resources. TheGovernment has asked States to prepare plans for forest exploitation andthese plans will be reviewed by the Government. The Federal Governmentplayed a large part in concluding the agreement between MARA and Cantransfor management of the forest resources of the Jengka Triangle (para 5.28).

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Mailis Amanah Ra'avat (MARA) 1/

2.17 MARA was established in 1966 as an independent statutorycorporation with the duty and power to ".... promote, stimulate, facilitateand undertake economic and social development in the Federation and moreparticularly in the rural areas." It is run by a council and executivecommittee appointed by the Minister of National Rural Development, who atpresent is also the Chairman of the Committee. It is organized into divi-sions, each of which is under the control of an Executive Director. Asshown in Annex 19 MARA's activities are diverse. Their general aim is tobring about greater participation of the Malay section of the community incommerce and industry, but many of its activities are non-commercial (e.g.training). MARA was made responsible for developing the Jengka Triangle'stimber resources in 1966. No formal agreement with the State Governmentwas signed, however, and the MARA subsidiary 2/ responsible for the operationuntil Cantrans took over logging in early 1970, worked on annual licenses.

D. First Jengka Triangle Project (Loan 533-MA)

The Proiect

2.18 The project financed by Loan 533-MA was the first stage of landdevelopment in the Jengka Triangle, and is confined to land settlement only.The loan provides funds for the clearing of some 33,000 acres of tropicalrain forest, the planting of 23,000 acres of oil palms and 4,200 acres ofrubber, the settlement of 2,800 families, and the provision of a physicaland social infrastructure for the project area together with the necessarycrop processing facilities. The project is being developed over the period1967 through 1974 and is being carried out by FLDA.

Comparison of Forecast with Actual Performance

2.19 Bar charts in Annex 3 compare actual performance with forecastsat the time of appraisal. Although delays have occurred in a number ofschemes, the problems which caused these delays have been largely overcome.'In Scheme V, the one scheme where felling and clearing operations sufferedmore serious delays due to a poor contractor, planting began in April andis expected to be completed before the end of 1970.

2.20 Delays in village, settler housing and infrastructural develop-ment have followed the delays in planting. This lag has not created prob-lems but efforts are being made to avoid such delays in the future andsupervision missions are checking progress carefully. Settlers began toarrive on the project in April, 1970.

:L/ This cannot be translated literally. It means, however, an organiza-tion devoted to the economic improvement of the people. In practiceMARA's activities are aimed at the economic development of the Malaypeople, who, in contrast with the Chinese people have played, so far,a minor role in the business and industrial sectors of Malaysia.

_/ Sharikat Kebangsaan Kayu Kanan Berhad.

Costs, Loan Disbursements and Financing

2.21 Unit costs have proved to be within estimates, despite a generalslight rise in costs in Malaysia. Loan disbursements totaled M$5.3 million(US$1.8 million equivalent) at March 31, 1970. Disbursements against fur-ther expenditures to December 31, 1969 are estimated at about M$2 millionthus bringing total disbursements in respect of the period to the end of1969 to about M$7.3 million. This compares with M$9.4 million estimatedat the time of appraisal. Lower than forecast disbursement reflects thedelay in non-agricultural works. FLDA has experienced no problems inobtaining funds from the Government for project purposes.

Project Administration

2.22 FLDA has appointed adequate numbers of qualified staff to carryout the project. The last senior position, that of Settler DevelopmentOfficer, was filled in April 1970 to coincide with arrival of the firstsettlers.

2.23 Project accounts are satisfacorily maintained and are audited byindependent auditors (Peat, Marwick, Mitchell & Co.) acceptable to theBank. The audited balance sheet for 1968 is shown in Annex 1, Table 2.

General

2.24 The project is proceeding satisfactorily, no problems have arisenin reporting and procurement, and the cooperation of the project authori-ties with the Bank has been excellent. It was envisaged, however, that theBank would use the opportunities provided by loan 533-MA to effect improve-ments in FLDA's overall administration, particularly in financial affairs,and settlers lease and loan arrangements. Progress has been slow in thesematters and the proposed loan provides for further and quicker improvement.These are explained in Chapter V.

III. THE PROJECT AREA

3.01 The project area comprises the northwest section of the JengkaTriangle, and the Tekam, Tekai and Berkelah forest reserves lying to thenorth and northeast of the Triangle respectively (see Maps).

3.02 Land settlement would be carried out in the northwest section ofthe Triangle. This area is undulating and the distribution of its soilscomplex, thus requiring careful selection of the crop to be planted. Cli-mate, with uniform temperature and plentiful and well-distributed rainfall,is well suited to both rubber and oil palms, and these would be the maincrops established under the project.

3.03 Forest exploitation would take place in some 70,000 acres ofpermanent forest in the Triangle itself, 65,000 acres of Tekam, 96,000acres of Tekai, and 139,000 acres of Berkelah Reserve forests, and on

land to be cleared for settlement (see Map 2). Detailed inventories havebeen made of the Jengka forests, and the remaining reserves are being in-ventoried under the FAO/UNDP Forestry and Forest Industries DevelopmentProject. Inventory results are expected to be similar to those of Jengka.The Jengka inventories show the presence of hundreds of timber producingspecies, including more than 120 species considered to be of commericalimportance. About 50% of the tree counted consist of species currentlyused in the Malaysian timber industry. The remainder, mainly the mediumand heavier hardwoods, comprises tree species whose timber is not atpresent generally used by the local industry but which, if processed, isconsidered to have a high commercial value in the world market. With fullutilization of commercial species under the project, yields of about 18tons of timber/acre are expected, and the total commercial timber contentof the project area is estimated at more than 7.0 million tons.

3.04 The project area has good access to the national road and railsystem with connections to Kuala Lumpur, Port Swettenham Kuantan andSingapore. However, as stated in para 6.04, expansion of port and trans-portation facilities will have to keep pace with development in the regionand elsewhere.

IV. THE PROJECT

A. Project Definition

4.01 The project would comprise two interrelated sub-projects - a landsettlement project and a forestry project. It would be carried out withinthe framework of a program for the integrated regional development of the470 sq mi of land which form the Jengka Triangle. The forestry projectwould utilize timber in permanent forests in the Triangle and adjacentforest reserves, and would also enable the most economic use of timberstanding on land to be cleared for the land settlement project. Conse-quently such land clearing operations would be coordinated with the devel-opment of the logging and timber processing units which would form part ofthe forestry project.

4.02 Land Settlement. The land settlement project would comprise theclearing of about 32,000 acres of land and its settlement by about 3,000families. The project includes:

- the clearing of about 32,000 acres of forest and theplanting and maintenance until 1979 of about 16,800acres of oil palms, and about 13,600 acres of rubber;

- the reservation of approximately 1,400 acres for thedevelopment of a Regional Center;

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- the provision of villages, houses, offices and storesto accommodate settler families and management andsupport staff, together with appropriate roads, watersystems and educational, health and other social services;and

- the construction of a palm oil mill with an initialcapacity of 24 tons ffb (fresh fruit bunches) per hourand the expansion of this capacity to 42 tons ffb perhour;

- the use of about 700 acres of the FLDA Research Center,Tekam, for crop diversification trials on a commercialscale.

4.03 Each settler would be provided with 10 acres of planted oil palmsor rubber, a house and a house lot of one-quarter acre. Settlers wouldrepay the costs of development as explained in para 5.14. The project wouldbe developed as seven schemes numbered 8 through 14 (schemes 1 through 7being those in the first Jengka Project). Each scheme would have a villagecontaining some 430 settler families together with a small number of FLDAand government officials and would be supplied with treated water, roads,health clinic, primary school, etc. Each village would also have a postalagency, police post and telephone communication. Secondary schools wouldbe provided for every two or three villages.

4.04 Forestry. The forestry project would comprise a forest industriescomplex adequate to efficiently extract, process, and market timber from theTriangle, and the Tekam, Tekai and Berkelah forest reserves. The complex,further details of which appear in Annex 20, would be established on 150acres at the Regional Centers, and would include:

- a mechanized logging unit with an annual extractivecapacity of 175,000 tons of logs;

- a sawmill with an annual capacity of about 42,000 tonsof sawn timber (68,000 tons of roundwood equivalent),and ancillary drying kilns, planer mill and impregna-tion plant;

- a plywood mill with an annual capacity of about 60million sq ft (41,000 tons of roundwood equivalent);

- steam generating plant, machine shop equipment, watersupply and other necessary facilities, and the construc-tion of houses, offices and other buildings for manage-ment and labor.

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B. Detailed Features

4.05 Land Clearing and Crop Establishment. The table below summarizesthe proposed schedule of clearing and planting which is detailed in Annex 4.Mlarketable timber totaling some 430,000 tons would be extracted from allareas prior to clearing. Of this the logging unit to be set up under theproject would handle about 330,000 tons, the remainder having been loggedby other contractors.

Land Clearing and Planting (Rubber and Oil Palm)

1969 1970 1971 1972 Total…Acres - - - - - - - -

Forest Clearing 4,830 14,020 13,570 - 32,420

Oi.l Palm Planting - - 13,130 3,650 16,780

Rubber Planting - 4,540 - 9,070 13,610

4.06 Clearing of Scheme 8 of 4,800 acres, which would be planted withrubber in 1970, has begun. FLDA's standard, and well-proved practice ofusing contractors to clear the land, plant the rubber and oil palms andmaintain the plantings for up to twelve months after planting, would con-tinue. Sufficient private contracting capacity exists for project purposes.

4.07 Development of Villages and Infrastructure. A schedule of villageand infrastructure development is given in Annex 5. Settlers would arriveoni the schemes 12 to 18 months after planting and would be used as labor onimmature areas until the plantings come into bearing. Village areas wouldbe cleared and houses constructed by contractors employed by FLDA. Provi-slon of water supplies and construction of roads would be the responsibilityof the Public Works Department of the State of Pahang. Adequate privatecontracting capacity is available for the clearing and building programs andwith assistance from the Federal Department of Public Works, the State Gov-ernment of Pahang would be able to execute its part of the program. Fol-lowing the initial phase of village development, other departments of bothFederal and State Governments would be responsible for providing the educa-tional, health, postal, police and other community facilities and socialservices.

4.08 Forestry. The logging unit of the forestry project is now beingestablished. It will be able to handle 90,000 tons in the first year ofoperation ending October 1970 and 175,000 tons in the second year. Theunit will be established and operated by Charnell International ConsultantsLtd., a Canadian firm of forestry consultants with overseas experience inTaiwan, Peru, Fiji, and Guyana, under the terms of the management agreementbetween MARA and Cantrans (para 5.29).

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4.09 The processing facilities would be established over the nextfour years by S.G. Gardiner Engineering Ltd., a Canadian forest engineer-ing firm, under the Cantrans agreement. The saw mill would have an outputof 20,800 tons in 1970/71, 33,300 tons in 1971/72 ,and 41,700 tons in 1972/73.The plywood mill would have an output of 36 million sq ft (1/4 inch basis)in 1971/72 and 60 million sq ft in 1972/73.

4.10 Initially the raw material needs of the forest industries complexwould be met from timber extracted from land required for the land settle-ment project. Forest exploitation schedules have been prepared which aregeared to land clearing schedules. Following utilization of timber re-quired for both second and third (and final) stage land settlement proj-ects, the complex would be supplied for two or three years from an area ofabout 52,000 acres which would be retained as protective forests in theTriangle. Thereafter these forests would be managed on a sustained yieldbasis. The timber resources of the Triangle itself would be depleted bythelate 1970's, and subsequently the complex would depend upon log sup-plies from the nearby Tekam, Tekai and Berkelah reserves. The arrangementsfor ensuring such supplies are discussed in para 5.27. The reserves shouldbe able to provide the complex's raw material needs for 20 to 30 years.

Regional Center and Other Towns

4.11 Under the first Jengka Triangle loan assurances were receivedthat a site for a Southeast town, one of the three towns (Southeast andSouthwest towns and a Regional Center) proposed in the Master Plan, wouldbe identified and reserved. Land has been reserved but no further devel-opment has taken place since no demand has yet arisen. Meanwhile, it hasbeen decided that FLDA should be responsible for the development of aRegional Center which would be situated in a central position at the inter-section of the north-south and east-west highways (Map 1). About 1,400acres have been reserved for the Regional Center; the forest industriescomplex, Jengka Division headquarters, light industries and commercialservices would be established there in due course. Cantrans has earmarked150 acres on which it would establish the forest industrial complex. Inthe meantime, progress so far in the development of the Jengka Triangle hasalready stimulated commercial activities in the villages and towns on theperimeter of the project area.

Processing Facilities

4.12 Oil Palm. A single mill would be constructed near the RegionalCenter. This would open at a capacity of 24 tons of ffb 1/ per hour in1974 and would be expanded to a capacity of 42 tons per hour in 1977. This

1/ ffb - the product of the oil palm, is a cluster of individual fruits.Each fruit consists of a nut, which contains the palm kernel, sur-rounded by oily flesh from which palm oil is extracted.

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would be sufficient to meet the processing requirements of the project.Any ffb produced prior to 1974 would be processed at the Ulu Jempol Millclose to the project area. This is already in operation.

4.13 Rubber. Rubber processing facilities for the second stage of theproject would not be required until 1977 and are not included in the project.Until 1977 the small amount of rubber produced by the project would be pro-cessed by other FLDA factories near the project area.

4.14 As required under Loan 533-MA, FLDA engaged a palm oil mill con-sultant to advise on mill designs and specifications and to supervise con-struction and operation of project mills. Assurances were obtained duringRegotiations that FLDA would employ consultants acceptable to the Bank todesign and construct the rubber factories required in 1977 and to adviseon their operation, as well as to carry out construction of the oil millrequired for the project.

Planting Material

4.15 FLDA will begin producing its own oil palm planting materialin 1970. However, breeding experts on the FLDA Research Committee, andelsewhere, consider that further investigation into the yield potentialof this material is necessary before it can be accepted for planting on alarge scale. Consequently, assurances were obtainted during negotiationsthat this material would not be used for the project planting unless it hasbeen proven under adequate field trials. Rubber planting material used forthe project would be Clonal material approved by the RRIM.

Crop Diversification

4.16 Since successful diversification is essential for the future agri-cultural development of Malaysia and for FLDA settlement plans (paras 2.06and 2.07), the project would include the establishment of 700 acres for com-mercial scale diversification trials at the Sungei Tekam Research Centre.These trials would be administered by FLDA, which would receive technicalassistance from such bodies as MARDI, RRIM and others who have been workingon crop diversification. A feature of the trials would be the use ofmlnimum soil disturbance techniques on which development work has been donerecently in Malaysia by a Louisiana State University team sponsored bythe Ford Foundation. The use of these techniques would be the key toachieving diversification into non-tree crops, other than rice, in WestKalaysia. It is anticipated that the crop rotations used over 50 acresand upwards for any one planting would begin with a legume, such as soybean,and be followed by a grain crop, either maize or sorghum. Other cropstested would include groundnuts and cassava. All these crops are in domestic

demand.

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C. Cost Estimates and Proposed FinancinR

Cost Estimates

4.17 Land settlement project costs over the full period of development,1969-1979, are estimated at M$77.8 million (US$25.4 million) excludinginterest. About 51% of project costs are for agricultural development;and are calculated on the unit cost estimates shown in Annex 6. These arebased on maximum costs for representative conditions which allow between5 and 10 percent contingencies. Therefore no specific contingency hasbeen included in project costs other than for palm oil mills and staffsalaries for which 10 percent has been allowed.

4.18 Excluding social infrastructure, but including project area roads,total development costs per settler family would be approximately M$25,000.This compares with an estimated average cost of approximately M$22,000 ofproviding similar employment opportunities on commercial oil palm and rubberestates. While FLDA's development and procurement policies result inrelatively low costs in clearing, planting and crop establishment, itscosts of upkeep of immature areas are rather higher than on commercialestates due to the need to pay subsistence to a larger number of settlerlabor than would be needed on a commercial estate where the labor force ismore closely related to upkeep requirements.

4.19 Forestry project costs are estimated at M$38.1 million (US$12.4million). The costs are based on estimates supplied by Cantrans and in-clude a contingency allowance of 15 percent on plant, equipment and build-ings.

4.20 The following table summarizes the local currency, foreign ex-change and total costs for the settlement and forestry projects. Furtherdetails are given in Annexes 7 and 21 respectively.

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SUMMARY PROJECT COST ESTIMATES

...M$(million) . ..... .... US$(million) ..... X

Local Foreign Total Local Foreign Total Foreign___.__._ Exchange

Land Settlement

FLDA

Agricultural Development 35.4 4.6 40.0 11.6 1.5 13.1 11.5Settlers Housing 4.9 - 4.9 1.6 - 1.6 -Processing Facilities 1.4 3.5 4.9 0.4 1.2 1.6 75.0Management 10.7 0.4 11.1 3.5 0.1 3.6 2.8Contingencies 0.9 0.3 1.2 0.3 0.1 0.4 25.0

Sub-total 53.3 8.8 62.1 17.4 2.9 20.3 14.3

GovernmentRoads and Water 7.0 3.3 10.3 2.3 1.0 3.3 30.3Social Infrastructure 4.8 0.6 5.4 1.6 0.2 1.8 11.1

Sub-total 11.8 3.9 15.7 3.9 1.2 5.1 24.8

Technical Services 0.4 0.2 0.6 0.1 0.1 0.2 33.3(Finance Director) _ _ _ _

Total Land Settlement 65.5 12.9 78.4 21.4 4.2 25.6 16.5

Forestly

Logging and road construc-tion equipment, build-ings and vehicles 1.1 5.9 7.0 0.4 1.9 2.3 84.3

Processing equipment,buildings, power plant 6.3 12.5 18.8 2.0 4.1 6.1 67.2

Working Capital /1 3.1 - 3.1 1.0 - 1.0 -Management Fee - 4.8 4.8 - 1.6 1.6 100.0Contingencies 1.6 2.8 4.4 0.5 0.9 1.4 63.6

Total Forestry 12.1 26.0 38.1 3.9 8.5 12.4 68.2

Total Project 77.6 38.9 116.5 25.3 12.7 38.0 30.0

Interest on Bank Loan(Land Settlement Project) 9.2 9.2 - 3.0 3.0 100.0

Total ForeignExchange Costs 48.1 15.7

/L Working capital consists of inventories of raw materials, goods and suppliesrequired for the initial level of operations and subsequent expansion.

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Proposed Financing

4.21 Because of the different nature of the two projects, the dif-ferent terms proposed for the two loans, and because they would be carriedout by different authorities, a separate Bank loan would be made for each.This would also facilitate disbursements and project supervision. It isproposed that the two loans would be made to the Government rather thandirectly to FlDA and SJSB. The grounds for this are that, in the case ofFLDA, it is not financially autonomous and requires Government subsidiesfor its operations; it is not possible therefore to establish conclusivelythat it would be able to directly repay the proposed Bank loan. In thecase of SJSB, the forestry operations should be profitable and enableSJSB to build up a strong financial position. But considering the newnessof the industry and the fact that SJSB is a subsidiary of MARA, which isfinanced mostly by Government appropriation, it is preferable for the loanto be made to Government. Both loans would be on-lent to FLDA and SJSB onthe same terms and conditions as the Bank loan.

4.22 Land Settlement_Proiect. A Bank loan of US$13 million (M$39.8 mil-lion) would be made to the Government for the settlement project to assist infinancing project costs in the period 1970-76. About M$17.7 million (US$5.8million) would be for local currency costs. The loan, equivalent to about45% of total project cost, would be sufficient to bring about necessary im-provements in project organization and management. The loan would be for aperiod of 25 years including a grace period of seven years, during which linterest estimated at M$9.2 million (US$3.0 million) would be financed by theloan. The Government would on-lend to FLDA on the same terms. The period ofthe loan is based on the settler's loan repayment periods, which would end22 years after clearing in the case of oil palms and 24 years after clearingin that of rubber.

4.23 The remaining project costs would be met by the Government. Man-agement costs would be met by Government grants unless, as explained in para5.18, produce prices are at a level which would permit settlers to contributeto scheme management costs. Development costs, which are repayable by set-tlers, would be met by Government loans to FLDA on the terms set out in Annex1, para 11. The Government would also meet the costs of roads, water supplyand social infrastructure, such as schools and health centers.

4.24 The following table summarizes the contribution to project finan-cing to be made by the Bank and the Government:

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Summary of Land Settlement Prolect Financing(M$ million)

...... .Government .Bank Z Loans % Grants % Total

FLDA Expenditures 30.3 49 21.7 35 10.2 16 62.1Government Expenditures - - - - 15.7 100 15.7Technical Services 0.3 50 _ 0.3 50 0.6

Sub-total 30.6 39 21.7 27 26.2 34 77.4

Interest on Bank loan 9.2 100 9.2

Total 39.8 45 21.7 25 25.9 30 87.6

4.25 Forestry Project. A Bank loan of US$8.5 million (M$26.0 million)would be made to the Government for the forestry project. Because themanagement contract had to be concluded and work begun on procuring equip-ment for the project without delay if valuable timber were not to be lostin land settlement clearing operations, an estimated total of US$450,000will have been paid in management fees and some US$3 million committed onequipment contracts, of which some US$300,000 will have been paid, beforethe loan is signed. Retroactive financing of these amounts is included inthe proposed Bank loan. This equipment is being procured according to BankGuidelines. Since the project should generate sufficient cash to repay theloan over a short period, the loan would be for a term of 12 years includinga grace period of four years to cover the period of disbursement. The Gov-ernment would on-lend to SJSB on the same terms. The proposed Bank loanwould finance the foreign exchange costs of the forestry project amountingto 68 percent of total project costs. Interest on the loan would not befinanced by the Bank as cash earnings from the project should be sufficientto meet interest payments from the first year of operation. The statementof sources and application of funds in Annex 25 shows that because of theheavy incidence of expenditure in the first two years, additional financingestimated at M$10.0 million would be required. This would be provided byequity from MARA and Pahang State Government (para 5.33) and the remainderwould be met out of earnings. The following table shows the proportions tobe met by the Bank loan, equity, and earnings:

Summary of Forestry Project Financing

M$ million %

Proposed Bank Loan 26.0 68

Equity 10.0 26

Earnings 2.1 6

38.1 100

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Procurement

4.26 Land Settlement. Tendering for contracts for land clearing andplanting, buildings and housing construction would be on the basis of inter-national competitive bidding. It is probable that, as in the first stageproject, local contractors would be the successful bidders for these works.Palm oil mill machinery and construction and other equipment and materialswould also be procured through international bidding. Much of the palm oilmill machinery and other goods are produced in Malaysia and a margin ofprotection of 15% or the customs duty, whichever is less, would be allowedto local industry.

4.27 Forestry. Tendering for equipment and buildings for the forestryproject would also be on the basis of international competitive bidding.Cantrans would be responsible for preparing specifications, tender documentsand contracts and for evaluating bids. Apart from buildings and smallermachinery items which could be manufactured locally, most of the equipmentwould be imported.

Disbursement.

4.28 Land Settlement. A schedule of estimated Bank disbursements isgiven in Annex 7. Disbursements would be made against FLDA expendituresonly and would follow the same procedures as Under Loan 533-MA. Thus, foradministrative convenience disbursements of 100% would be made against pay-ments to contractors for land clearing and planting, planting and othermaterials, buildings and house construction and palm oil mill construction.The total is estimated at about M$25.4 million (US$8.3 million) includingcontingencies. Disbursement would be made against shipping documents forequipment, materials and supplies or, if procured locally, against 70% ofthe on-site cost. The total is estimated at about M$4.8 million (US$1.6million). Disbursements would also be made against recruitment costs andsalary for a minimum of two years of a Finance Director estimated atM$300,000 (US$100,000). Any surplus funds remaining in the loan accountshould be cancelled.

4.29 Forestry. A schedule of estimated disbursements for the forestryproject is given in Annex 21. The Bank would disburse 100% of the cif costof imported equipment and vehicles against normal documentation, i.e.suppliers invoices and evidence of payment and shipment. Disbursementswould also be made against the foreign exchange cost of the management feepaid to Cantrans. Any surplus funds remaining in the loan account shouldbe cancelled.

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V. ORGANIZATION AND MANAGEMENT

A. Land Settlement Project

FLDA

5.01 FLDA's organization chart is shown in Annex 1. The Authorityhas a Board of thirteen directors including representatives of Ministries,private concerns and the Commonwealth Development Corporation. The Chair-man of the Board is the Chief Executive Officer. The next in line is theGeneral Manager. Since these are key positions, assurances were obtainedduring negotiations that the Bank would be informed and given an opportunityto comment prior to any changes in them.

5D02 Recently FLDA has undergone reorganization. This included theestablishment of eight departments including a Finance Department. Pre-viously the Authority's financial affairs were combined with general admin-istration under the then Deputy Chairman (Finance and Administration). Asexplained in paras 5.21 to 5.25, the financial administration has beendeficient in certain respects and as a result both of FLDA's own recognitionof the need to improve its financial management, and of the Bank's continuedemphasis on this need, FLDA is to recruit a suitably qualified and experi-enced Finance Director. UNDP agreed to help find a candidate and finance.Lis salary but responses to UNDP's advertisements were unsatisfactory. FLDA

is therefore trying to recruit a candidate by other means and the costs ofrecruitment and salary for a minimum of two years are provided for underthe proposed loan. The initial appointment would be a condition of effec-t.Lveness of the loan and would be subject to the Bank's agreement. Assur-ances were obtained during negotiations that subsequent appointments wouldbe made in consultation with the Bank. While FLDA is experiencing problemsin its administration and financial management, largely due to its rapidgrowth, the standards of its field operations remain satisfactory both interms of quality and cost control.

Jengka Division

5.03 The Jengka Division was created to implement the Jengka TriangleProgram and has a large measure of autonomy and maintains its own accounts.It has been responsible for carrying out the first stage project and it willalso carry out the second stage project. An organization chart of theJengka Division is shown in Annex 8.

5.04 The Jengka Division is headed by a Director who is responsible tothe Jengka Management Comwittee. The latter comprises the Chairman andGeneral Manager of FLDA, representatives of the Ministry of Finance, Minis-try of National and Rural Development, MARA, the Pahang State Governmentand the Public Works Department. The Division Director is also a member.The Management Committee is responsible for policy decisions concerning theTriangle's development and for implementation of the project agreementsbetween FLDA and the Bank.

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5.05 The Director is supported by a Senior Administration Officer anda staff of specialists at Division headquarters. They are organized in fivedepartments - Administration, Lands, Planting, Settler Development andEngineering. The Division also draws on specialist staff and advisers atFLDA headquarters. The Senior Planting Officer is responsible for manage-ment of the first stage of Jengka and a Second Senior Planting Officerwill be appointed in 1971 to manage the second stage. Assurances wereobtained during negotiations that the initial appointment of the secondSenior Planting Officer would be satisfactory to the Bank and that the Bankwould be consulted before any subsequent changes in the appointment.

5.06 At scheme level a similar system of organization is employed, ashas proved very effective on other FLDA schemes with the difference thata Settler Development Officer is attached to each scheme. These officersand the Division's settler development department will train settlers inagricultural and community development and operation.

5.07 At present Jengka Division headquarters are in Temerloh whereoffice accommodations and temporary housing have been obtained. Permanentheadquarters are being constructed over the period 1969-1972 at SungeiTekam, on the northern boundary of the project area.

Research and Training

5.08 The FLDA Research Center is located at Sungei Tekam. The mainresearch priority at present is the development and production of oil palmplanting material (para 4.15). Experiments are being carried out on cropdiversification, and the project provides for commercial scale trials (para4.16). The Research Center will provide FLDA with soil and foliar analysesand other technical services. In March 1970 there were six full time re-search officers and this number will be increased as the center develops.

5.09 FLDA recruits cadet managers direct from university, trainee assis-tant managers from Serdang Agricultural College, and field assistants atsecondary school certificate level. The latter receive training at theFLDA training centre. There are ample recruits at all levels and no diffi-culties are foreseen in keeping up with future expansion. However, therate of development of FLDA has strained its sources of experienced manage-ment. Cadet managers require a minimum of two years of in-job training andassistant managers about five years before they are considered qualified tobecome managers. For its program of 50,000 acres development each year,FLDA requires 10 managers, 20 assistant managers, and 100 field assistants.Potential managers for the next five years, therefore, should already bein employment. Over the next two or three years, experienced managers arelikely to be in short supply, but steps are being taken to gear recruitmentto long term requirements. Current plans are based on a 1969 report by anFAO consultant on FLDA's training needs. 1/ FLDA has a training divisionwhich is responsible for running the Authority's existing training center.

1/ Assessment of Staff and Settler Training Needs of FLDA (FAO ref. TA 2724)by Dr. M. M. Elgabaly.

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It will shortly establish two more centers. The Jengka project has beenassigned staff of satisfactory calibre.

5.10 In addition to project management training there is also a needto improve settler training. FLDA has experienced difficulties in main-taining husbandry standards in cases where settlers, with little or noagricultural experience, take over the running of their individual rubberholdings. The greatest danger to the project from inexperienced settlers;is in the exploitation of rubber bark reserves. This problem is receivingclose attention from FLDA management and is watched carefully by Banksupervision missions. Its solution is the training of settlers to appre-,ciate the dangers of uncontrolled exploitation of bark reserves, andthis would be done by the Settler Development Officers.

Settlement Procedures

5.11 A full description of settlement operation and administration isgiven in Annex 9.

5.12 Settler Selection. Settlers are selected from all parts ofM4alaysia though 50% of Jengka settlers must come from the State of Pahangprovided they have the minimum qualifications which include being a Malaysiancitizen, married, healthy, between the ages of 18 and 35 and the owner ofless than two acres of land. Selection is in two stages - settlers areEirst interviewed in their home district and a final selection is then made

at FLDA headquarters on the basis given in Annex 9.

5.13 Settlers' Agreements. On arrival at a scheme, the settler signsthe first part of his agreement under which he agrees to work under thedirection of FLDA on the development of the scheme. At the end of thefEifth year after palm planting, or the seventh year after rubber planting,the settler, provided his performance is satisfactory, signs the secondpart of his agreement, which changes his status from, in effect, an employeeof the Authority to a smallholder. In the case of rubber, he is allocateda specific 10 acre lot and is registered as an occupier in expectation oftitle. In the case of oil palms, the settler is allocated a specific 10acre lot after five years of production, and he may then choose whetherto work individually or participate in a number of lots on a cooperativeor communal basis. When a rubber or oil palm settler has paid off hisloan, the State will alienate the holding to the settler on a 99-year lease,less the period elapsed.

5.14 While the settler's loan is outstanding, his holding is adminis-tered by FLDA.- The settler must sell all latex or ffb to factories ormills specified by the authority and he receives payment from the Authorityafter deductions have been made for transport and processing costs, his loanand other charges. Each settler's loan account is debited with the cost ofhis house, the development of his holding and any subsistence payments orother charges, e.g., for tools. Interest at 6-1/4%, the standard rate onall FLDA schemes, is charged and capitalized during the development period.

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This interest rate, which falls between the interest charged by the Gov-ernment at 5-1/2% and the current interest rate on Bank loans, is lowerthan the present commercial cost of money in Malaysia of about 8%. Theloans are repayable over fifteen years commencing in the sixth year afterpalm planting and the eighth year after rubber planting. Tables 1 and 2of Annex 9 show the buildup of typical loan accounts. Other charges in-clude land rents which are transmitted to the State Government, a replant-ing cess and a management charge.

5.15 The settlers' agreements which were approved under Loan 533-M4Arequired that Jengka settlers bear the full management costs incurred byFLDA in both the development and operating phases of the project eventhough incremental export duties and cesses would more than covermanagement costs. Wlen these arrangements were agreed between the Bank,FLDA, and the Government, price projections then being used indicatedthat Jengka settlers would be able to meet these costs in full and retainadequate incomes. Since that time, forecast palm produce prices haveweakened, and indications are that if Jengka oil palm settlers pay manage-ment costs in full, resulting incomes would give inadequate incentives.Rubber settlers could not directly pay full managenent costs if the pricesfor rubber forecast by the Bank obtain, and if duties and levies are main-tained at present levels.

5.16 Because of the new circumstances, the method of recovery ofmanagement costs has been changed. Instead of a fixed charge on settlers'production, which was to be levied on Jengka settlers only, assuranceswere obtained during negotiations that FLDA would, by September 30, 1970,levy a cess at a level acceptable to the Bank on all settlers. This cesswill be geared to settlers' incomes and will vary with produce prices andthe size of settlers' holdings. It will also take into account the Govern-ment's policy that settlers should receive an average annual income of notless than M$3,600 after meeting all charges and loan repayments.

5.17 The method of applying the cess and the rates to be charged wereagreed during negotiations. For settlers on 10-acre holdings, the oil palmlevy would start at M$1/ton of ffb at a palm oil price of M$440/ton FOB(M$498 or US$166/ton CIF) and would increase by M$1/ton up to a maximum ofM$9.34/ton of ffb. The rubber levy would start at 1 M cent/lb at a rubberprice of 65.4 M cents/lb FOB (69.4 M cents or 23.1 US cents/lb CIF) andwould increase by 1 M cent up to a maximum of 6 M cents/lb.

5.18 With the future prices for palm products and rubber assumed inthis report, no cess will be payable (at present prices, oil palm but notrubber settlers would pay the cess). However, as Annex 16 shows, the Gov-ernment would indirectly recover all project costs, including managementbut excluding social infrastructure, through export duties and cesses onproject production, loan repayments and import duties and other taxes.

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FLDA's Finances and Accounts

5.19 Jengka. The arrangements under Loan 533-MA included the estab-lishment of separate accounts for Jengka and the preparation of quarterlyand annual accounts for the project. These accounts are satisfactory andAnnex 10 shows the audited balance sheet as at December 31, 1968. FLDA'sestimated sources and applications of funds for the second Jengka projectare shown in Annex 11. At the end of the period from the commencement ofthe project until settlers' loans are repaid, 1969-1995, there should be acash surplus from the project of about M$7.8 million, which is the approx-imate amount required to meet repayments after 1995 on Government loans.

5.20 FLDA. FLDA's overall financial position is described in Annex 1in which Table 2 shows the summarized balance sheets for 1964 through 1968.FLDA's expenditures are financed in two ways - by Government loans (in-cluding relending of Bank loans) for settlement development and by Govern-ment grants for administration costs. The terms of current loans, whichvary between oil palm and rubber schemes, are given in Annex 1, para 11.FLDA accounts to the Government for its expenditures on loan and admin-istration accounts and the Government provides funds for both by way ofbudget allocations. No difficulties have been met in obtaining fundsfrom the Government promptly.

5.21 Two balance sheets are prepared, one for administration account(grants from Government for FLDA administration) and one for loan account(loans from Government for settler development which eventually will berepaid by settlers). Separate balance sheets are prepared for each scheme.The form of FLDA's annual accounts hitherto has not clearly shown eitherits financial position or expenditure on its activities. Expenses havenot been allocated properly and amounts recoverable from settlers have notbeen separated from other development expenditures. The delay, discussedbelow, in completing settlers' loan accounts has prevented showing theloans made to settlers, and these will be shown when settlers' accountsare completed.

5.22 So that FLDA's annual accounts show clearly its financial positionand operating results, assurances were obtained during negotiations thatFLDA accounts would be prepared in a form satisfactory to the Bank. Infuture:

(a) An annual consolidated balance sheet will be prepared showingFLDA's overall financial position;

(b) Amounts due from settlers will be shown when settlers' ac-counts are completed;

(c) The annual accounts will show the results of FLDA's activi-ties for the year, including proper allocation of expensesand the profit or loss on self-contained operations suchas palm oil mills, rubber factories, and retail shops.

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5.23 There have been prolonged delays in preparing settlers' accountsfor schemes other than Jengka and only a few are completed although a nunmberof schemes are in production. This has been due in part to delays in complet-ing the scheme accounts on which settlers' accounts are based. The annualaccounts for FLDA have also been late in preparation. To bring settlers'accounts up-to-date as quickly as possible, FLDA is employing its auditorsto assist in accounting and clerical work, and assurances were obtainedduring negotiations that settlers' accounts for all areas for which settlershad begun loan repayments by December 31, 1968, would be completed accordingto a timetable agreed with the Bank, and that other settlers' accounts wouldbe completed promptly thereafter.

5.24 A further important deficiency in ELDA's accounting system is theabsence of management accounting and budgetary control procedures. One ofthe first duties of the new Finance Director (para 5.02) would be to in-troduce such procedures and then, on the basis of expenditure budgets andestimated receipts from settlers, prepare cash flow forecasts so as toassess FLDA's future financial position. Assurances were obtained duringnegotiations that such forecasts will be submitted to the Bank by June 30,1971.

5.25 Although as indicated above, much remains to be done to improveFLDA's financial management, the Authority has made progress in this respectsince the last loan was appraised. Early in 1968 FLDA appointed PublicAdministration Service (PAS) of Chicago to review its financial and generaladministration. As a result of the PAS recommendations, the accounts de-partment was reorganized and with assistance from PAS computerized processingof settlers' accounts has been introduced. These measures together withthe appointment of a Finance Director, and the emphasis now laid by FLDA'ssenior management on improving the financial administration, should lead toconsiderable improvement.

Audit

5.26 The FLDA audit is carried out by Azman, Wong, Salleh & Co., aKuala Lumpur firm. The audit arrangements are satisfactory but the scopeof the work carried out has been limited in the past in that it did notinclude some of FLDA's activities such as mill, factory and shop operations,and included only a short form of report. These activities are now beingaudited by Peat, Marwick, Mitchell & Co., and assurances were obtained duringnegotiations that the audit report would be in a form satisfactory to theBank. Assurances were also obtained that the auditors would be acceptableto the Bank. Under Loan 533-MA independent auditors satisfactory to theBank were required to be appointed for the Jengka project and Peat, Marwick,Mitchell & Co. were appointed in September 1969.

B. Forestry Project

5.27 A new company, Sharikat Jengka Sendirian Berhad (SJSB), has beenformed to carry out and operate the forestry project. Annex 22 shows SJSB's

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organization chart. The Board of Directors will have not less than 3 ormore than 15 members. Fourteen directors have been appointed; they includerepresentatives of MARA, Ministry of Rural Development, Treasury, PahangState Government, Pahang Development Corporation, and FLDA. A former MARAofficial has been appointed Managing Director. An Executive Committee hasbeen formed to manage the day-to-day affairs of the company; it has 7 mem-bers including the Deputy Chairman and Managing Director of SJSB, and re-presentatives of the Treasury, Pahang State, MARA and FLDA.

5.28 The project will be carried out and operated initially by Cantransunder a management agreement with MARA which was signed in September 1969after two years of negotiations. In return for a management fee of Can$1.7million (M$4.8 million), Cantrans will supply for a period of four yearsstarting October 1, 1969, consulting engineers, project management, purchas-ing, financial and other technical services, and in general establish andoperate logging and timber processing in the project area. Cantrans willalso train Malaysians locally and in Canada with a view to their being ableto take over at the end of the four years.

5.29 As the organization chart shows, Cantrans personnel will fill theimportant executive posts below Managing Director including Project Manager,Financial Controller, Purchasing Officer, and heads of the Logging and Pro-cessing divisions, who will be supplied by Charnell International Consult-ants Ltd. and S. G. Gardiner Engineering Services Ltd., both Vancouver firmsassociated with Cantrans. Cantrans and its associates have carried outsimilar operations in other parts of the world, including Guyana and China,and are well qualified. They have made good progress already in establish-ing the industry. Because of the importance of experienced management,assurances were obtained during negotiations that SJSB would employ consult-ants acceptable to the Bank to carry out and manage the project and that theBank would be consulted before any changes in the positions of ManagingDirector, Project Manager, and Financial Controller.

5.30 As explained in para 2.17, previous forestry operations in theJengka Triangle were on annual timber extraction licenses from the PahangState Government. In order to ensure an adequate supply of timber for theproject, the State Government gave the following undertakings:

(a) No licenses will be issued in the Jengka Triangle other than toMARA or SJSB and licenses will be issued to SJSB as and whenrequired;

(b) About 300,000 acres in the Tekam, Tekai and Berkelah ForestReserves would be set aside for logging operations by SJSB.Licenses for these areas would be issued to SJSB on comple-tion of logging operations in the Triangle.

(c) The forest areas will be adequately policed and supervised bythe Pahang Forest Department.

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Finances, Accounts and Audit

5.31 SJSB's authorized capital is M$20 million of which up to M$13million will be issued for cash subscriptions by MARA (M$10 million) andPahang State Development Corporation (M$3 million). Should the amountrequired be less, the subscribers' cash contributions will be reduced pro-portionately. An additional M$4.5 million will be issued in non-votingshares to 1,800 timber license holders in the Triangle in exchange forlogging rights. These shares will be redeemed at par when SJSB has com-pleted logging operations over 90,000 acres.

5.32 SJSB's estimated operating results, sources and applications offunds and balance sheets for 1970 to 1974 are shown in Annexes 24-26. Theproject is estimated to show an operating profit in the third year and aprofit of M$7 million in 1974. No provision has been made for income taxesin the period since, although SJSB will be liable to tax, the availabilityof tax depreciation allowances and possible pioneer status relief wouldeliminate any tax charge.

5.33 The statement of sources and applications of funds shows anestimated cash surplus of M$24 million by the end of 1974; annual debtservice on the proposed Bank loan would be covered 2.7 times by cashearnings. The estimated balance sheet at the end of 1974 shows that thedebt/equity ratio would be 43:57. These forecasts assume equity contri-butions of M$10 million in cash as this is the estimated amount neededrather than the full M$13 million allowed by MARA and the Pahang StateDevelopment Corporation.

5.34 The act which established MARA, provided that all monies earnedfrom any project financed from funds provided by Government shall be re-tained in a fund to be administered and controlled by MARA. Apart froma general provision that MARA shall ensure that its total resources aresufficient to meet all sums properly chargeable to its revenue account, in-cluding depreciation and interest, MARA can dispose of the fund in anymanner consistent with its purposes under the Act. Therefore, in order toensure that sufficient funds are retained from the operations of theforestry project to finance the construction of the project and meet debtservice obligations, assurances were received during negotiations thatSJSB would not distribute any profits before the Closing Date of the Bankloan without the prior approval of the Bank, and thereafter unless adequateprovision has been made for meeting SJSB's obligations including debtservice. Assurances were also obtained that SJSB would not incur any in-debtedness over US$100,000 in the aggregate without the prior approval ofthe Bank.

5.35 Under the agreement between Cantrans and MARA, Cantrans hasappointed a project controller to set up, control and supervise allaccounts of the project, control all expenditures, manage all bankaccounts, and in general undertake financial direction of the project.He will also prepare, not less than quarterly, comprehensive financialreports on the project. Assurances were obtained during negotiations thatcopies of such accounts would be transmitted to the Bank. Assurances were

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also obtained that the accounts would be audited annually by a firm ofauditors satisfactory to the Bank and that copies of the accounts andauditors' report would be sent to the Bank not later than four monthsafter the close of each financial year.

VI. PRODUCTION. MARKETS, PRICES AND OPERATING RESULTS

A. Yields and Production

Land Settlement

6.01 Project yield estimates are based on current FLDA and commercialexperience. Annex 12 shows the estimated annual yields per acre from oilpalms and rubber. At full production the project would yield some 36,000tons of palm oil, 8,000 tons of palm kernels and 9,000 tons of rubber ayear. These figures compare with estimated total Malaysian production in1975 of 750,000 tons of palm oil and 1.5 million tons of rubber.

Forestry

6.02 The logging unit would have an annual output of 175,000 tons by1970/71 when it would reach full production. Of this approximately 108,000tons would be utilized by the sawmill and plywood mill the remainder beingsold locally or exported. The annual output of the sawmill at full produc-tion would be 41,700 tons and that of the plywood mill 60 million sq ft,1/4 inch basis.

B. Markets and Prices

Oil Palm

6.03 Present FLDA oil palm production is marketed through existingcommercial channels. However, by the time FLDA's current oil palm devel-opment plans come to fruition, it will be the largest producer of palm oiland kernels in Malaysia and the world, and the Authority considers that forcommercial and economic reasons it should market its palm produce indepen-dently. Under Loan 533-MA, it was agreed that FLDA should engage consult-ants to study its palm oil marketing needs and that decisions on marketingpolicy would be taken only following consultation with the Bank on theconsultants' and FLDA's recommendations. The Asian Development Bank (ADB)has agreed to finance the study.

6.04 The ADB is also assisting in the finance of two palm oil millsand the loan agreement with ADB stipulates that FLDA will develop its ownbulk installations and handling facilities at Port Swettenham. Construc-tion is to start in 1970. Port Swettenham is experiencing considerablecongestion problems, and expansion of the port, financed in part by German

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bilateral assistance, is under way. Since the development of transportationto port and port facilities are most important to the project, assuranceswere obtained during negotiations that the Government would consult withthe Bank on any plans for meeting the project's transport and storagerequirements. Similar assurances were obtained for the forestry project.

6.05 The market prospects and expected price trends for palm oil andkernels are discussed in Annex 13. Until recently the growth in supplyrate of palm oil was low compared with other fats and oils amounting toonly 1.3% per annum between 1954/56 and 1965/67. However, current ex-pansion plans are expected to increase the annual growth rate to over 5%between 1965/67 and 1980, and to raise the share of palm oil productionin total fats and oils from about 3% in 1965/67 to 5%. Much of the addi-tional world supplies of palm oil will be exported and absorbed by theinternational market. In the light of expected declining world marketprices for nearly all major fats and oils and the need for palm oil toincrease its share of total usage, it is estimated that palm oil priceswill fall by the mid-1970's from the average 1969 price of US$179per ton into a price range of US$155 - US$165 per ton cif. For cal-culation of project earnings a price of US$160 per ton cif (equivalentto M$480) has been used but returns from the project have been tested forsensitivity at prices ranging from US$110 (M$330) to US$185 (M$555) perton cif, see Annex 17 Chart 1. The demand for palm kernel oil is moreinelastic than for most other fats and oils and although prices will prob-ably fall they are not expected to fluctuate widely. A price of US$136(M$408) per ton cif for palm kernels has been used in this report; thiscompares with an average 1969 price of US$181 per ton.

Rubber

6.06 Present arrangements for marketing rubber through commercialchannels are satisfactory. FLDA is considering the possibilities ofdirectly marketing its rubber produce but in view of the already heavycommitments of FLDA's management resources and the need to evaluate fullyany change in the present arrangements, assurances were obtained duringnegotiations that the Bank would be consulted before any change is made.

6.07 The market prospects and price trends for rubber are reviewedin Annex 14. In the period to 1975, consumption of rubber, natural andsynthetic, outside the Communist countries is expected to grow at 6.5%per annum compared with a rate of 6% per annum from 1950/52 to 1968. Ifnatural rubber is to retain its share of total consumption, prices fornatural rubber will have to become more competitive with prices of syn-thetic rubber. The present cost of producing polyisoprene, which is highlycompetitive with natural rubber, is around 21 US cents per pound but tech-nical developments might result in a reduction in cost to around 12 UScents per pound. It is expected that, based on assessments of future costprices of synthetics, the price of natural rubber could fall to about 16US cents per pound by the mid-1970's from the 1969 average price

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level of 26.2 US cents. Over the longer term the price may continue atabout 16 US cents or fall further to about 12 US cents per pound, but thelatter appears to have low probability. For this report a constant priceof 16 US cents per pound cif (equivalent to 48 M cents per pound) is usedbut returns from the project have also been calculated at prices rangingfrom 12 US cents (36 M cents) to 20 US cents (60 M cents) per pound, seeAnnex 17 Chart 2.

:Forest Products

6.08 Jengka forest products are currently being marketed by EastAsiatic Company (the Malaysian subsidiary of a Danish company) under aninterim agency agreement concluded in March 1970 with MARA. This agree-ment will remain in force until a long-term agreement is concluded. MARAiLssued invitations in March 1970 for provision of long-term marketingservices and MARA's Board of Directors is considering several submissions.Based on the recommendations of a UNIDO expert and Cantrans, the Directors-designate of SJSB have proposed the appointment of East Asiatic. The agree-ment would be for 10 years (with termination earlier on prior notice byeither party) and would provide for the establishment of a Joint MarketingCorporation owned equally by SJSB and East Asiatic. The Marketing Corpora-tion would handle all local sales and East Asiatic itself all export saleson 5% commission. Arrangements satisfactory to the Bank, such as the fore-going, are required to be concluded prior to effectiveness of the Loan.

6.09 The market prospects for Jengka forest products are examined inAnnex 27. Surveys and studies by FAO and other qualified agencies, in-cluding the Bank, indicate an increasing world deficit in industrial wood,particularly of broad leaved tropical hardwoods such as would be producedunder the project. The shortage is expected to result in higher averageprices since it could be met only by exploiting reserves of hardwoodsdistant from convenient shipping points, and by the increased use ofspecies not commonly utilized at present. The Jengka project would benefitfrom this since it would be located close to the national road and railnetwork providing transportation to Port Swettenham and Singapore. Anongoing UNDP financed study of forestry and forest industries developmentin Malaysia concludes that the demand for West Malaysian timber, in bothlog and processed form, from both the domestic market and export marketsin North America, the United Kingdom, Japan and Australia will outstripsupply by 1972. Thereafter exports, which are expected to increase by10% annually to 1972, should decline sharply due to increasing domesticdemand, and a basic shortage of timber.

61.10 In project projections an initial price of M$45/ton and a long-term price of M$48lton have been used for log sales. These are based onexisting prices for Jengka species and are conservative since they take noaccount of the almost inevitable future rise in tropical hardwood prices.EIt is anticipated that disposal in log form will decline as the world deficitin broad leaved hardwoods develops and that the bulk of project sales willbe in the form of sawn wood and plywood. Almost any species yielding satis-factory lumber can be exported as sawn wood provided that volumes are suffi-ciently large, and that steady supplies are available to accustom users to

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the characteristics peculiar to the species. Project operations coveringlarge areas of forest annualy should make even scarce species available inadequate quantity, and some 50% of timber available would be of well acceptedspecies such as Keruing and Red Meranti which now make up about 80% of allMalaysian exports. A broad range of ex-mill prices is anticipated for thespecies found in the project area, and an average ex-mill price of M$196/tonfor both export and domestic markets is used in project calculations. Thisis in line with prices now being obtained for a comparable range of speciesand grades.

6.11 The United States is the largest potential customer for Malaysianplywood and veneer. Canada and the US are the only large customers forveneer at present, but restricted log exports from Southeast Asia couldbring Japan, Taiwan and Korea into the veneer market. A comparativelylarge domestic market, anticipated to run at about 100 million sq ft by1975, the availability of species with adequate technical qualities forplywood and species with the attractive appearance necessary for facingexport plywood should facilitate the disposal of project produced plywood.In this report an estimated ex-mill price for plywood of all grades ofM$200/thousand sq ft has been used. Prices as high as M$260/thousand sqft are obtained currently.

C. Settlers' Income

6.12 Because of fluctuating commodity prices and the difficulty ofprojecting prices over the long lifetimes of the two crops, it is hard toestimate what settlers will actually earn. Settlers' incomes are also deter-mined by the size of holding that the average family can manage efficiently.The maximum size of holdings of either crop that the average family canmanage is about 10 acres and thus there is little scope for improving in-comes by increasing holding size without the employment of non-familylabor.

6.13 Statements of estimated settlers income from oil palm and rubberholdings are shown in Annex 15. At the prices assumed of M$480 (US$160) perton cif for oil palm and 48 M cents (16 US cents) per pound cif for rubber,the settler's income from rubber would be considerably lower than that fromoil palm, and because of the longer development period, the rubber settler'sloan repayments would be higher. Nevertheless, the annual net income fromrubber of over M$1,600 in years 11-19 compares with about M$1,500 earnedby the average estate worker. The estimated income from oil palms wouldbe much higher, with a maximum of M$4,400 and an average over the loanrepayment period of about M$3,500.

6.14 While the difference between estimated settlers' incomes from thetwo crops appears extreme, quite minor price changes could change the pic-ture radically. Thus an increase in the rubber price and a drop in palmoil price of 12.5% in each case from Bank forecast levels would result

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in approximate equality of incomes from oil palms and rubber. At the cur-rent rubber price, a settler's income would be about M$4,200 a year atfull production and settlers are as keen to settle on rubber as on oilpalm schemes. In Malaysia the planting industry, which is vitally concernedwith investment profitablity, considers that a fall in the price of rubberto 16 US cents per pound is less likely than a drop in palm oil price tobelow US$160 per ton. For this reason FLDA and the Government is continuingto include rubber in its settlement programs and the plantation industry isstill undertaking the replanting and new planting of rubber.

D. Government Revenues

6.15 Annex 16 shows that revenues to the Government from the landsettlement project would exceed government outgoings on loans for develop-ment, grants for administration and management, and road construction andmaintenance. Government revenues would mainly comprise loan repaymentsfrom FLDA and export duties and cesses on oil palm and rubber.

6.16 Most of the cash earnings from the forestry project, which areestimated at over M$7.0 million a year after debt service from 1974, wouldaccrue to the Government through MARA. The Pahang State Government wouldreceive revenues through dividends on the Pahang State Development Corpor-ation's holding, and in royalties and premiums which by 1974 would amountto about M$1.8 million a year.

VII. BENEFITS AND JUSTIFICATION

Land Settlement

7.01 The project would produce substantial economic and social bene-fits through the settlement of some 3,000 families and the establishmentof high-yielding crops. It would provide employment and satisfactory in-comes for settlers who would be drawn from the large number of unemployedor underemployed peoples of Malaysia, and would utilize unexploited forestlands. All production would be exported and the total value of exportsover the life of the project is estimated at about US$160 million. Afterall plantings come into bearing the average annual value of productionbased on the prices assumed for the report would be about US$7.2 million- sufficient to cover debt service on the proposed Bank loan over fivetimes.

7.02 Annex 17 shows the calculation of the economic rate of return ontypical oil palm and rubber schemes. Using CIF prices of M$480 per tonfor palm oil, M$408 per ton for palm kernels and 48 N cents for rubber,the returns are estimated at 18.3Z for oil palm and 11.1% for rubber. Thefinancial rates of return are about 16% and 9% respectively. The differencebetween the two returns appears high but the decision to plant rubber isjustified by the following considerations:

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- sub-optimum yields would be obtained from oil palmsplanted on the areas scheduled for rubber since thesoils of these areas are not suited to oil palms,and the consequent rate of return from oil palmswould be about the same as that from rubber;

- while the rubber areas could be left under forest,no returns would be obtained from this land duringthe next 50 years or so - the time needed for theforest to regenerate a commercial volume of timberfollowing the exploitation envisaged under theforestry project;

- Government plans for settling large numbers of un-employed or underemployed persons on the land couldnot be achieved if rubber were excluded from settle-ment programs;

- experience on other FLDA schemes has shown that rubberis well suited to the capabilities of settlers andmethod of settlement.

7.03 To test the sensitivity of the rates of return to variations inprices, the returns have been calculated at prices ranging from US$110(M$330) to US$185 (M$555) per ton for palm oil and from 12 US cents (36M cents) to 20 US cents (60 M cents) per pound for rubber. The returnsare plotted in the charts to Annex 17 and are summarized below:

Oil Palm Rubber

US$/ton % US cents/lb Z

110 9.8 12 7.8135 14.4 14 9.3160 18.3 16 11.1185 21.2 18 12.7

20 14.0

Forestry

7.04 The forestry project would yield substantial economic benefits,would provide employment for about 1,200 people, would systematically andefficiently exploit the forest resources in the project area and wouldprovide net foreign exchange earnings estimated at US$32 million over theperiod to 1980. Furthermore, the establishment of an efficient and profit-able forestry complex in the Jengka Triangle together with the developmentof markets for Malaysian forest products could lead through its demonstra-tion effect to better utilization in future of Malaysia's other forestresources.

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7.05 The calculation of the economic rate of return on the project,which is similar to the financial rate of return is shown in Annex 25.It is based on project earnings for the period to 1980, by which time theprocessing machinery would be near the end of its useful life, and on theprice assumptions given in paras 6.10 and 6.11. The rate of return isestimated at 29.2%.

VIII. RECOMMENDATIONS

8.01 The project is technically, economically and financially sound andsuitable for Bank loans totalling US$21.5 million, US$13 million being forthe Second Jengka Land Settlement Project for a period of 25 years including7 years grace, and US$8.5 million for the Jengka Forestry Project for 12years including 4 years grace. The main assurances obtained during negotia-tions were:

(a) Land Settlement Project

(i) that the Bank would be informed prior to any changesin positions of Chairman and General Manager (para5.01) and Finance Director (para 5.02);

(ii) that FLDA would, by September 30, 1970, levy a cess onall settlers at a level acceptable to the Bank for re-covery of scheme management costs (para 5.16);

(iii) that FLDA would prepare and submit to the Bank a forecastof its cash flows by June 30, 1971 (para 5.24).

(b) Forestry Project

(i) that SJSB would employ consultants acceptable to the Bankand inform the Bank before any changes in the positionsof Managing Director, Project Manager and Financial Con-troller (para 5.29);

(ii) that SJSB would not distribute any profits before the Clos-ing Date without the prior approval of the Bank and there-after unless adequate provision has been made to meet itsobligations; also that SJSB would not incur debt over$US100,000 in aggregate without the prior approval of theBank (para 5.35);

8.02 The following would be conditions of effectiveness of the Bankloans:

(i) Land Settlement Project. Appointment of a Finance Directorsatisfactory to the Bank (para 5.02);

(ii) Forestry Project. Conclusion of long-term marketing arrangmentssatisfactory to the Bank (para 6.08).

AflXEX 1Page 1

MALAYS IA

SECOND JETIG11h TRIAITGLE PROJECT

THE FEDERAL LAND DEVELOPmENT AUTHORITY

BACKGROUND

1. The Federal Land Development Authority (FLDA) was established underthe Land Development Ordinance of 1956 with the duty to "promote and assistthe investigation, formulation and carrying out of projects for the develop-ment and settlement of land within the Federation."

2. From 1957 through 1960 FLDA's functions were twofold. First, itmade available Federal resources, principally financial, to State Governmentsfor approved land development schemes, of which 114 were financed by FLDA inthis period. Second, the Authority itself undertook the development of 15schemes totalling some 15,000 acres on which 2,900 settler families had beensettled by the end of 1960.

3. Partly because of difficulties of coordination between the manyState and Federal departments and agencies responsible to their severalministries, progress was slow. However, many important lessons were learnedand, when in 1961 the Federal Government launched its development programunder the 1961-1965 five-year plan, in which the highest priority was givento rural development, FLDA was chosen as the chief agency for planning andimplementing settlement schemes. Thus FLDA abandoned the role of "loansboard" for State Corporations and became directly responsible for the planning,development, financing, and administration of schemes and for coordinatingthe work of all Government agencies associated with it in settlement develop-ment. The FLDA organization was strengthened by the addition of technicaland administrative staff, the reorganization of head office sections and theestablishment of a regional office in each of the States of West Malaysia.

4. FLDA's performance since its reorganization has been impressiveand Table 1 shows the rapid increase in planted acreage to a total of 257,000at the end of 1969. The Authority's administration, particularly financial,has not kept pace with this growth, but a recent reorganization together withthe appointment of a Finance Director and the attention now being paid byFLDA's top management to its administrative and financial problems should leadto an early improvement. In all the FLDA is fulfilling a vital role inagricultural development, the settlement of people, and the creation of jobs.

ORGANIZATION

5. FLDA's new organization is shown in Chart 1. Previously therewere two Deputy Chairmen, one responsible for Development and the other forAdministration (including Finance), who reported to the Chairman. In practice,however, some departments tended to report directly to the Chairman. The new

ANNEX 1Page 2

organization should be more efficient through increased delegation, and moreclearly defined functions and functional responsibility.

6. The Ministry of National and Rural Development is responsible forFIDA. The Board of FLDA numbers 13 and includes representatives of appropriateministries, private concerns and the Commonwealth Development Corporation.There are three committees which help guide the Board: (a) technical in-vestigation and planning, (b) finance and (c) establishment.

7. The Chairman is the chief executive officer. The present Chairmanhas been in the post for over 10 years. NIext in line to him is the GeneralManager under whom there are nine departments - Finance, Administration,Projects, Settlement, Planting, Processing, Marketing, Research, and theJengka Division. Directors have been or will be appointed to all but Admin-tration, Projects, and Processing, which in the meantime work to the GeneralManager.

8. Also reporting to the General Manager are the Regional Offices, ofwhich there are eight. N6minally the Regional Secretaries, assisted byGroup Managers, are responsible for the schemes in their regions but inpractice the schemes are controlled by FLDA headquarters. FIDA intends toincrease the powers and responsibilities of the regional offices in future,probably on the pattern established for Jengka.

FINANICE

9. Finance for FLDA is obtained, except for the on-lending of Loan533-MA and an initial loan from CDC, from Governmient budget allocations. Inaddition, funds are allocated, for roads and water supply for example, whichare not within FLDA's accounting but which are expended by the Governmentagency concerned wsith the agreement of FIDA. The Government budget allo-cations to FIDA are made in two forms - grants for Administration and loansfor Settlement Development.

10. Summarized audited balance sheets for the five years 1964-68 areshown in Table 2. As at December 31, 1968, the Government loan accounttotalled M$185.7 million and the administration account M$52.1 million. FIDA'stotal capital, accumulated net income and reserves were M$277.8 million,nearly three and a half times the total at the end of fiscal year 196k.

11. The terms of Government loans are as follows:

(a) Schemes in existence at December 31, 1968:

- Interest at 5%;- Interest free for first four years after drawing;- Simple interest for next six years;- Repayment over next 15 years.

(b) Nlew oil palm schemes after January 1, 1968:

- Interest at 5 1/2%;- Interest free for first fcur years after drawing;- Simple interest for next two years;- Repayment over next fourteen years.

ANNEX 1Page 3

(c) New 'rubber schexis after January 1, 1968:

- Interest at 5-1/2%;- Interest free for first four years after drawing;- Simple interest for next six years;- Repayment over next fifteen years.

12. The loan from CDC was signed in 1958 for an amount of M$5.1million. Interest is at 6-3/4% and repayment is over 25 years commencingin March 1970.

13. M$ 5.3 million was drawn under Loan 533-MA up to March 31, 1970.Interest is at 6-1/41O and repayment is over 12 years after 5 years grace.

14. The terms of loans to settlers are detailed in Annex 9. Interestis at 6-1/4% and repayment is over 15 years from the 6th year after plantingof oil palms and the 8th year after planting of rubber.

ACCOUNTING ORGANIZATION AND SYSTEX

15. FLDA's accounts are split between administration and loan items,the basic difference being that administration is paid for by Government grantswhile loan items, which include the costs of clearing, planting, upkeep,house-lot clearing, house construction and subsistence loans, are financedby Government loan and are repayable by the settlers. The loan account isa consolidation of all development costs charged to schemes, and separateaccounts are kept for each scheme.

16. FLDA's accounting organization and procedures failed to keep pacewith its rapid expansion and it was not until recently that FLDA began toappreciate the need for a proper system of accounting and financial control.Early in 1968 FIDA appointed Public Administration Service (PAS) of Chicagoto carry out a "General Reconnaissance of the Financial and General Adminis-tration of FLDA." The PAS report, subrni-.ted in January 1969, concluded thatthe financial administration was inadequate to handle SPLDA's present and futurefinancial and accounting problems. The principal shortcomings were:

(a) the breakdovm of bookkeeping procedures for current work onsettlerst accounts, e.g., loans for housing and subsistenceand loan repayments;

(b) the lack of progress in allocating development costs tosettlers and in establishing settlers loan accounts;

(c) the delay in preparation of scheme accounts;

(d) the lack of a costing and budgetary control system forFIDA as a whole, mills and factories, development, etc.

ANNEX 1Page 4

17. As a result of the PAS report, FIDA's own growing awareness ofthe problem and successive reports and recommendations from Bank missions5FLDA has taken the following steps to improve its financial administrationand accounting system:

(a) With the assistance of a member of PAS staff, it developeda system for computerization of the accounts. The accountswill be processed by International Computer Leasing Kuala Lumpur.

(b) The financial functions were separated from administrationand placed under the responsibility of anewly created positionof Finance Director.

(c) The accounts department was reorganized along the functionallines recommended by PAS.

(d) A timetable was drawn up and agreed with the survey departmentand the auditors for completion of FLDA schemes and settlers'accounts. According to this timetable, the audited FLDAaccounts for 1969 will be completed by the end of August, 1970.The audited scheme accounts for 1968 will be ready by July 1,1970. FIDA has also undertaken that settlers accounts for areasin respect of which settlers had by December 31, 1968 begunloan repayments will be completed according to a timetable agreedwith the Bank and that settlers accounts will be completedpromptly thereafter.

18. These steps should lead to a considerable improvement in FIDA'sfinancial administration and accounting, but much will depend on the appoint-ment of the Financial Director. The Finance Director will be responsiblenot only for bringing the financial accounting, including settlers' accounts,up-to-date but for developing and implementing a management accounting systemand financial planning procedures.

Audit

19. The accounts of FIDA and schemes other than Jengka are auditedby Azman, Wong, Salleh & Co., a local firm. The Jengka accounts are auditedby Peat, Marwick, Mitchell & Co. Hitherto, the FLDA audit was not sufficientlycomprehensive in either the work carried out or the scope of the report andthe form of the final audited accounts could be improved considerably. How-ever, all FLDA's activities, are now being audited and the scope of the auditreport has been improved.

ANNEX 1Table 1

MALAYSIA

2ND JENGKA TRIANGLE PROJECT

FLDA PLANTED ACREAGE

Year Oil Palm Rubber Total

1957-1963 9,000 71,087 80,087

196b 17,000 93,b85 110,485

1965 27,000 101,960 128,960

1966 b1,000 116,402 157,b02

1967 59,000 125,5h16 18h,546

1968 90,000 127,890 217,890

1969 127,000 129,890 256,890

PLANNED

1970 157,000 1b9,090 316,090

1971 186,000 166,090 352,090

1972 217,000 185,232 tb02,232

1973 207,000 210,232 457,232

1974 277,000 235,232 512,232

1975 307,000 260,232 567,232

April 15, 1970

ANNEX 1

Table 2

MALAYSIA


FEDERAL LAND DEVELOPMENT AUTHORITY

Summarized Balance Sheets(M$ million)

As at December 31 1964 1965 1966 1967 1968(at June 30)

ASSETS

Development Schemes:Loan Account 45.4 72.0 106.4 138.9 180.6Administration Account-/ 16.7 25.7 - - _Interest Capitalized 8.7 18.2 17.8 26.5 38.1

Total 70.8 115.9 124.2 165.4 218.7

Fixed Assets (Net) o.6 0.9 4.9 5.1 5.7Accumulated AdministrationExpenditure 1/ 3.5 5.8 26.3 36.6 47.2

Current Assets (Net) 6.5 5.8 9.8 7.8 6.2

TOTAL ASSETS 81.4 128.4 165.2 214.9 277.8

LIABILITIES

Capital:Government Loan Account 43.9 69.6 107.9 139.0 185.7Government AdministrationAccount I/ 23.9 36.2 37.7 47.1 52.1

Comm. Dev. Corp. Loan 5.1 5.1 5.1 5.1 5.1Government Loan (ex IBRDLoan 533-MA) - - - - 0.7

Total 72.9 110.9 150.7 191.2 243.6

Sundry Funds 0.8 0.5 0.2 1.9 2.3Accumulated Net Interest 7.7 17.0 14.0 21.1 30.5Unappropriated Revenue - - 0.3 0.7 1.4

TOTAL LIABILITIES 81.4 128.4 165.2 214.9 277.8

2/ As from 1966 Administration a'xpenditure was consolidated as one item.

April 8, 1970

MALAYSIA: SECOND JENGKA TRIANGLE PROJECTFEDERAL LAND DEVELOPMENT AUTHORITY

ORGANIZATION CHART

MINISTER OF NATIONAL AND RURAL DEVELOPMENT|

TECNICL IVETIGATION AND PLANNIGCMMTEFINANC COMMITEE F L D A 3 0 A R D

ESTABLISHMENTDCOMMITTEE . JENGKA MANAGEMENT

COMMITTEE

|C H A I R M A N

i ~~~~~~~AUDIT INSPECTORATE

PERSONNEL AND MANA- SETYPROCESSING MGARKETINGGEERONTDELPANTMENT FINANCE DEPARTMENT PROJECTS DEPARTMENT DEPARTMENT PLANTING DEPARTMENT DEPARTMENT DEPARTMENT FLDA RESEARCH CENTER JENGKA DIVISION

PERSONNEL AND MANA- FINANCE DIRECTOR SETTLEMENT DIRECTOR PLANTING / PLANTING HEAD OF MARKETING RESEARCH DIRECTOR JENGKA DIRECTORPEERSNN ELCAND FAN-DIRECTOR /ADVISER

PLANNING RUBBER DIVISION RUIBrB FAg-o.o.y & Soils -Ad. i.Dept.

M'MENT DIVISION ACCOUNTS DIVISION PLANNING UNIT LANDS DIVISION RUSSER DIVISION SURUEE DIVISION RUBBER DIVISION P|thology - L-d Dept.IT E~~~~~~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~t-trcpj.y Rop~i-ee;ng Dept.

Ag,i-olku,oI Ecocorics -Plcsotiep Dept.| I . l | Livestock l_ Settle, Dept.

P|_FLDA Etd Sect. - Geerl Accosnting Sect. SURVEY UNIT SETTLEMENT DIVISION OIL PALM DIVISION OIL PALM DIVISION -OIL PALM DIVISION MSls

Gec. Admin.Sect. -Cost Accoo.tict... G '- dPub. Relations Sect. Fi-oociol Analysis Sect.

- Pytol Icd Settlers' ENGINEERING UNI eEt e Affoirs Sect. Mi Sect.A ... * nting Sect* I I I Settle, Dev. Sect. Bulkiog Iostolloticos.

- SpecaIl Accoucting Sect. World Food Pnogram Sect.III Field Accountin Sect. I

'1 PERSONNEL DIVISION PROCUREMENT UNIT SHOPS DIVISION

LPetsoonel Sect. l-Contract Sect.LTroiciog Sect. LFPrchosing Soot.

| KEDAH l l PERAK l l SELANGOR NGR MA MACLA N JOHORE |SOUTH JOHORE WEST PAHANG EAST PAHANG TRENGGANU

REGIONAL REGIONALREGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL SECRETARY SECRETARY REGIONAL

SECRETARY SECRETARY SECRETARY SECRETARY SECRETARY SECRETARY VISITING VISITING SECRETARYVISITING VISITING VISITING VISITING VISITING VISITING MANAGER MANAGER VISITING

MANAGER MANAGER MANAGER MANAGER MANAGER MANAGER SETTLER DEV. SETTLER DEV. MANAGERSETTLER DEV. SETTLER DEV. SETTLER DEV. SETTLER DEV. SETTLER DEV. SETTLER DEV. OFFICER OFFICER SETTLER DEV.

OFFICER OFFICER OFFICER OFFICER OFFICER OFFICER ENGINEER ENGINEER OFFICER

___________________________________________________________________________________ SURVEYOR SURVEYOR t >

- Zs

'E xIBRD-4625 |

AT19IFX 2Page 1

MALAYSIA

SBCOND JENGKA TRIANGLE PROJECT

The Jengka Triangle Master Plan

1. The project proposed for Bank financing is the second sta.e of aprogram for the development of the Jengka Triangle, the Master Plan for whichwas completed by Tippetts-Abbett-McCarthy-Stratton and Hunting Technical Ser-vices (TAMS3-Hunting) and was partly financed by a technical assistance grantfrom the Bank. The first stage of the program is being financed in part by aBank loan of US$14 million which was signed in April 1968.

2. The Jengka Triangle is in the State of Pahang, about 120 miles north-east of Kuala Lumpur in West Malaysia. It lies between the towns of Jerantut-Maran-Temerloh near the Pahang River and near the railway from Kota Bahru toSingapore (see Map). It covers some 300,000 acres (470 square miles) of whichabout 136,500 acres are occupied or reserved in some way. The remaining163,500 acres available for development and being developed consist largely ofundulating land divided by many streams and valleys. The climate is typicalof West Malaysia with an abundant and evenly distributed rainfall of about 90inches per annum and mean daily temperature between 77°F and 800 F.

3. The undeveloped part of the Triangle is mainly under natural rainforest which has been exploited haphazardly and inef'ficiently (para 2.15 ofmain report). Rubber is produced on the periphery by smallholders and fourrubber schemes are being developed by FLDA near the Triangle. Oil palms aregrown on the east side of the Triangle at an FLDA scheme and on an adjacentestate.

4. Limited commercial and social services are provided at the townsof Jerantut in the fioZth and Maran in the southeast. Temerloh in the southwestis larger and is a centre of local government and urban services. Prior to itsdevelopment, the Triangle itself had no settled population.

5. The land capability assessments made by TAMS-Hunting indicated thatabout 93,000 acres would be suitable for either oil palms or rubber. Some71,000 acres are definitely suitable for oil palm and the remainder, becauseit has poorer soil and steeper slopes, would be more suitable to rubber. Thedecision on which crop to plant also takes into account the price forecastsfor each. The consultants' study and the appraisal for the first Bank loanwere based on considerably higher prices for palm oil than are now ccsideredlikely (Annex 13), and the original land use recommendations will not now befollowed. In addition to the main tree crops, fish ponds, rice, orchard andgarden crops will be developed by the settlers with technical assistance fromFLDA and as part of the Stage II Project about 700 acres will be used at theResearch Center, Tekam, for commercial scale trials of other crops, including..animal foodstuffs such as maize and sorghum.s

6. The Master Plan provides for the phased development of the JengcaTriangle during the 12-year period 1966 to 1977 by means of FLDA supervisedsmallholder development supported by the provision of rural and urban infra-structure and services. Under Stage I, a total of 33,110 acres have beencleared of which some 23,800 acres will be oil palms and 4,200 acres will berubber (the original project consisted entirely of oil palms but on soil,topographic and price considerations, the last scheme consisting of 4,200

ANNEX 2 - p. 2

acres was changed to rubber). The develcpment of 30, 390 acres under theproposed Stage II Project would leave some 35,000 acres for a further stageor stages.

7. It is estimated in the Master Plan that the population of the JengkaTriangle would total some 105,000 people distributed by occupation as follows:

(a) Settlers and families on new land 59,000

(b) Settlers and families on existing FLDAschemes being developed and which couldeventually be administered as part ofthe Triangle Program 13,000

(c) Rural support (FLDA staff, health) etc.) 12,500

(d) Towns (Government and FLDA staff, commer-cial, forest industry workers, etc.) 20,00

104l500

8. Proposed educational and medical facilities were based on the Con-sultants recommended village size of 100 family units, whereas the Governmentand FLDA decided that, in conformity with other FLDA schemes, the villageswould be of 400 family units. Each village will contain a primary school,midwife clinic, community centre, religious building, recreation field, healthsub-centre and police post. There will be a secondary school for groups oftwo to three villages and it is also expected that upper secondary schools, ateachers' training college and a hospital will be added. There will also bea full range of public services and utilities, including water supplies, sani-tation systems, power, telecommunications, and government administration insupport of planned development.

9. Full development of the Triangle as specified in the Master Planwould require capital expenditure of about M$345 million (US$115 million) ofwhich FLDA's share would be about M$240 million (US$80 million). Experienceon the first two stages indicates that actual expenditure should approximateto these totals.

April 15, 1970

MALAYSIA

SECOND JENGKA TRIANGLE PROJECTJENGKA STAGE I AGRICULTURAL DEVELOPMENT SCHEDULE

1966 1967 1968 1969 1970

J|A|S|O|N|D J|F|M|A|M|J|J|A|S|O N|D JjF!M|A M J J A S|O|N D J F MIA M J J|A SON D J|F|MAM|J|J|A|S|ON

1i77 ~PLANNED |

SCHEME I PHASE I (3600 Ac.) ,t:..ACTUAL

SCHEME 11 PHASE I (940 Ac.) PN

SCHEME I PHASE 11 PLANNED

Felling 2135 Ac.Planting 1935 Ac.

SCHEME II PHASE 11 777777/ PLANNED

Pelling 3718 Ac. PL.LA.L=

Planting 3448 Ac.

SCHEME Il PHASE I P77 / PLANNED

Felling 1153 Ac.Planting 1153 Ac. ACTTu

SCHEME IV PHASE I PLANNED IFelling 1026 Ac. JLAL_

Planting 1026 Ac.

SCHEME IIl PHASE 11 PLANNED

Felling 2575 Ac.Planting 2275 Ac.

SCHEME IV PHASE 11 PLANNED

Felling 3002 Ac. PLANNED

Planting 2702 Ac. -SCHEME Il PHASE III PLANNED

Felling 1110 Ac. -5f/tS sACTUAL:..Planting 1000 Ac.

SCHEME V PHASE 1LANNEDFellinig 4132 Ac. PLANNED.CUL! .- _ __ _ _ __ _ __ _ _

Plcanting 3832 Ac.

SCHEME VI PHASE IFelling 1206 Ac.PLNEPlainting 1206 Ac. ZM OA

SCHEME VI I (Felling 4230 Ac.)SCHEME Ill PHASE III 960 Ac, PLANNED

SCHEME VI PHASE 11 2490 Ac. I

x Z

FELLING OTHER WORKS __IR-42(R -ixPLANTING ESTIMATED IBRD- 4623 (2R)

MALAYSIA

SECOND JENGKA TRIANGLE PROJECTJENGKA STAGE I VILLAGE DEVELOPMENT SCHEDULE

SCHEME 161981969 1970 17SCHEME___ J F FM|A|M|J|J|A!S|O|N|0 D|J FI MJ A|M|J| JAISJ O J FI MA|M| JA|SON D J F|MA|M|JA|SON SF|M| J|J|AlSON

ACCESS ROAD

VILLAGE ROAD

1 WATER SUPPLY .............. ...........

SETTLERS HOUSES

STAFF QUARTERS

ACCESS ROAD

VILLAGE ROAD

11 WATER SUPPLY ,{ SETTLERS HOUSES

STAFF QUARTERS ......

r ACCESS ROAD 00 ...........

j VILLAGE ROAD

IV WATER SUPPLY

SETTLERS HOUSES

L STAFF QUARTERS*

ACCESS ROAD

j VILLAGE ROAD

VI WATER SUPPLY

SETTLERS HOUSES

L STAFF QUARTERS

PLANNED >

ACTUAL

ESTIMATED ............ IBRD - 4612 (R) I w

ANNEX 4MALAYSIA N


SCHEDULE OF LAND CLEARING AND PLANTING PROGRAMME

SCHEME 1969 1]970 1971 1972 Felling VTilTAL Pqanting

---------- acres----------------------

No. 8Clearing 1827 - - - 4827 -

Village 292 - - - 292 -Planting (Rubber) - 4535 - - - - 4535

No- 9Clearing - 3979 - 3979 - -

Village - - 272 - - 272 -Planting (Oil Palm) - - 3707 - - - 3707

No. 10Clearing - 4359 - - 359 - -

Village - - 281 - - 281 -

Planting (Oil Palm) - - 1078 - - - 078

No. 11Clearing - 5681 - - 5681 - -

Village - - 335 - 335 -

Planting (Oil Palm) - - 5349- - - 5349

No. 12Clearing - - 729 - 1729 - -Village - - - 290 - 290 -

Z7lanting (Rubber) - - - 1439 - - 1439

No. 13Clearing - - 3916 - 3916 - -

Village - - - 271 - 271 _Planting (Oil Palm) - - - 3645 _ - 3615

No. 14Clearing - - 932 - 1932 - _Village - - - 300 - 300 -Planting (Rubber) - - - 4632 - 4632

TotalClearing 14827 14022 13577 - 32421Village - 292 888 861 - 2041 -

Planting - 1535 1313h 12716 - - 30385

Total Planting

Oil Palm - - 131314 3645 - 16779

Rubber - 4535 - 9071 - 13606

30385

October 23, 1969

MALAYSIA

SECOND JENGKA TRIANGLE PROJECTJENGKA STAGE II AGRICULTURAL DEVELOPMENT SCHEDULE

1969 1970 1971 1972

O|N|D J F M A M J J A S O|N D J F M A M J J A S 0 N D J F M A M J J A S 0 N D

SCHEME VIIIFelling 4827 Ac.Planting 4535 Ac.

SCHEME IX 1 1 1Felling 3979 Ac.Planting 3707 Ac.

SCHEME XFelling 4359 Ac.Planting 4078 Ac.

SCHEME XI 7 / *I** 1FellIing 5684 Ac.Planting 5349 Ac.

SCHEME XII . P.TNFelling 4729 Ac.Planting 4439 Ac.

SCHEME XIIIlll * lfffffFelling 3916 Ac.Planting 3645 Ac.

SCHEME XIVFelling 4932 Ac.Planting 4632 Ac.

REFERENCE:-FELLING OTHER WORKS PLANTING

IBRD - 4639(R)

ANNEX 5

MALAYSIA


SCHEDULE OF VILLAGE AND INFRASTRUCTURE DEVELOPMENT

1970 1971 1972 1973

SCH]ME 8Settlerst houses 430Wvater supply (reservoir 143,800

capacity) gallonsStore 1Office-cum-store 1Staff quarters 6 23;Village roads (miles) 6.80

SCHEVIE 9Settlerst houses 370Water supply (reservoir 111,100capacity) gallons

Store 1Office-cum-store 1Staff quarters 6 20Village roads (miles) 6.34

SCH3ME 10Settlers' houses 407Water supply (reservoir 121,000capacity) gallons


SCHEI 11Settlers' houses 534Water supply (reservoir 164,800

capacity) g6llonsStore 1Office-cum-store 1Staff quarters 6 26Village roads (miles) 7.80

ANNEX 5Page 2

1970 1971 1972 1973 1974 1975

SCHEIE 12Settlers' houses 420Water supply (reservoir 1h5,000capacity) gallons


SCHEME 13Settlers' houses 364Water supply (reservoir 110,000capacity) gallons


SCHEIE 14Settlerst houses 440Water supply (reservoir 120,000

capacity) gallonsStore 1Office-cum-store 1Staff quarters 6 23Village roads (miles) 6.83

SCHEDULE OF PRIMARY AND SECONDARY ROADS

Primary roads (miles) 2.5 2.5 2.5 2.5 2.5Secondary roads (miles) 1 2.5 4 4 3 2.5

April 15, 1970

MALAYSIA

SECOND JENGKA TRIANGLE PROJECTJENGKA STAGE II VILLAGE DEVELOPMENT SCHEDULE

SCHEME _________ 1970 1971 1972 1973J FM A M J J A S O N D J F M A M J J A SON D J F MA MJJ ASON D J F MTAM J JASON

ACCESS ROAD

VILLAGE ROADS 6.8 MIs.

Vill WATER SUPPLY

SETTLERS HOUSES 430 Units

STAFF QUARTERS

" ACCESS ROAD

VILLAGE ROADS 20.6 MIs.

X WATER SUPPLY


STAFF QUARTERS

ACCESS ROAD

VILLAGE ROADS 18.9 Mis.xi]

XIll WATER SUPPLY


STAFF QUARTERS

> zIBRD-4614

ANNX 6Table 1


Oil Palm Development Costs Per Acre (N)

Year I1/ Year 2 Year 3 Year Total- (9 months) -

Clearing 168 - - - 168

Planting 2/ 12b 30 5 - 159

Legume Cover CropEstablishment In-cluding Fertilizer 58 13 7 - 78

Terracing/Draining 29 - - 1 30

Roads/Bridges 29 2 77 6 U1t

Upkeep IncludingPests and Diseases - 83 8b 60 227

Fertilizing - 23 43 40 106

Total 408 151 216 107 882

NOTE: The above amounts cover labor and materials but exclude settlersubsistence payments which would add M$ 36 per acre to the total.This amount is included in FLDA's total development costs.

1/ The years are the agricultural years from October through September.In the bth year, harvesting begins in the 10th month.

2/ Planting costs include nursery costs and replacing of failuresin the field.

October 23, 1969

TAAL1AY3TA

2\D J_UGTA TRIANGLE PROJECT

Rubber Development Costs Per Acre

Year 1 1/ Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 1/ Total_2TVrmonths --

Clear ng I-9 - - $N)---1nT

Planting 2/ 37 62 2 2 2 _ _ 105

Legume Cover Crop

EstablishmentIncluding Fertilizer 82 18 100

Terracing/Draining 44 - 8 4 3 2 1 62

Roads/Bridges 9 1 _ - 20 - - 30

Upkeep IncludingPests and Diseases - 94 101 122 98 64 45 524

Fertilizing - 9 25 26 32 31 31 154

Total 331 208 136 154 155 97 77 12158

Note: The above amounts cover labor and materials but exclude settler subsistence paymentswhich would add M$ 106 per acre to the total. This amount is included in FlDAt stotal development costs.

1/ The years are the agricultural years from October through September. In the 7th yearstapping begins around the 10th month.

2/ Planting costs include nursery and budding costs and replacing failures in rhe field.

October 23, 1969

ANNEX 7

XUALASIA

2UD JE£1K01 TRImIE PDJE0CT

Project Cost ard D1eab ent Estimates

PIoJECT COST E8TIMATES 1969 1970 1971 1972 1973 1974 1975 1976 2977 1978 1979 Total

F1DA EXPENDITRES

Agricultural Developmeat

Land clearing - payments to contractors 354 2,4994 4,19 3,811c - - - - - - - io,,oo6Fertiliers and paest cides 18 176 680 1,258 1,330 1,551 1,342 647 304 272 7,578Planting materials 4 499 1,047 274 28 9 4 3 - - - 1,864Other FLDA expenditnres - - 1,053 1,790 4,402 3,576 3,554 3,078 1,268 790 225 19,736

Total 354 3.011 6,420 6l558 5,688 4.915 5,109 h,423 1.915 1,094 497 39,984

.o.naing and Eouselots

Land clearing 9 51 108 98 25 - - - - 291House copstruction - - 680 1L967 1,905 - - - - 4,552

Total 9 51 788 2,065 1,930 - - - _ - _ 4.S43

Processing Facilities

Palm oil dll- - - - 1,000 2,091 545 1,000 91 _ _ 4,727A-osing for mill staff - - - - - 100 - 100 _ _ _ 2CO

Tctal - - - - 1,000 2.191 545 1,100 91 - _ 4,927

Management

Vehicles end equipmct 10 122 154 298 326 205 215 249 122 91 24 1,b26Housing and offices - 48 246 592 576 67 67 60 30 21 7 1,71_Salaries and other current costs

during development 13 160 542 965 1,131 1,131 1,131 1,038 637 519 330 7,5S7

23 330 942 18595 2.033 1,403 1,413 1,347 789 631 361 i1,27

Contingencies 1/ _ 17 55 96 213 322 168 204 73 52 33 1,233

TOTAL PLDA EXCID1ING 21TEREST- 386 3,409 8,205 10,574 10,864 8,831 7,235 7,074 2,868 1,777 891 62,114

Interest and comedtm,nt charges financedby Bank loan - 400 600 1,000 1,500 1,700 1,900 2,100 - - - 9.2C

TOTAL FLDA I113C13DIN IUTEBEST / 386 3,809 8,805 11,579 12,36 10,532 9.135 9,174 2,868 1,777 892 71,314

GO TE2NRUET EXPENiTrTUREJS

.rads 30 680 1,050 1,647 1,898 1,208 300 - - - - 6,913Xater supply - 120 540 1,000 940 600 300 - - - - 3,-oSocial infrastrecture 14 84 795 1,507 1,930 469 611 - - - _ 5.41C

TOTAL GOVERNOtNT 44 889 2,385 4.159 9,768 2,277 1,211 - - - 15,723

TOAL FIDA AND G0VE-OMT 430 49693 11,190 159728 17.132 _12808 10,346 9,174 2.868 1,777 691 _ 7._37

-3RD DISB1RSE¶ENT ESTlA.TES (including contingencies)

100% of:

Agri.nItural development - land clearing,payxents to contractors 2,494 4,144 3,814 - - - _ 10,452

Planting materials 499 1,047 274 - - - - 1,320other materiala - - 23 1,047 398 45 136 1,649Housing and houselots 51 788 2,065 1,930 - - - 9,834Processing facilities - - - 1,100 2,400 600 1,200 5,300,anagement hoosing and offices 48 222 550 509 - - - 1,329

Total 3.092 6,201 6,726 4,586 2.798 695 1.336 25,38a

70g of:

Fertilizers and pestIcides 13 123 476 881 931 1,086 939Vehicles and equipment 68 57 103 189 - - - 117

Total 81 180 _9579 1,070 931 1,086 939 .,ZL

Recruitment and Salary of Finance Director 106 100 100 - - - - 306

Interest and commitment charges 400 600 1lo0 1.500 1,700 9 2,1009,200

TOTAL DISBURSMEtTNS 3,679 7.081 8,405 7.1•6 5,429 3.631 4375 39,756

1/ Comprise: Oil 8ll M$473,000; Salaribs $760,000.

2/ Macldaing Technical Services (Fimnee mrector).

April 10, 1970

MALAYSIA: SECOND JENGKA TRIANGLE PROJECTJENGKA DIVISION

O R G A N I Z A T I O N C H A R T

MINISTER OF NATIONAL AND RURAL DEVELOPMENT

|F L D A B O A R Dl

C H A I R M A N JENGKA MANAGEMENT COMMITTEEChairman FLDAGeneral Manager FLDA

DEPUTY CHAIRMAN / GENERAL MANAGER Ministry of National and Rural Development RepresentativeTreasury RepresentativePahang Government RepresentativeMara Representative

F L D A HEADQUARTERS… Director JKRJengka Development Director

TECHNICAL COMMITTEE ON PROCESSING JENGKA DEVELOPMENT DIRECTOR

SENIOR ADMINISTRATION OFFICER

ENGINEERING DEPARTMENT PLANTING DEPARTMENT SETTLER DEVELOPMENT DEPARTMENT LANDS DEPARTMENT ADMINISTRATION DEPARTMENT

Senior Engineer Administration Officer 3/Surveyor AccountantEngineer 1/ 2 Accounts SupervisersPlant Superintendent 2/ 2 Senior Planting Officers 6/ Senior Settler Development Officer 4/ Senior Lands Administrator 4/ 11 Clerks2 Technicians 5/ Agricultural Officer 1/ Settler Development Officer 1/ Land Administrator StenographerDraftsman 3 Typists2 Survey mandores 2 Drivers6 Survey laborers Office Boy

SCHEMES I - XIV ULU JEMPOL MILL, 2nd and 3rd MILLS

Per Scheme, Approx:NOTES: Manager

Settler Development Assistant Per Mill:1/ To be appointed 1970 2 Assistant Managers SeniorMill Engineer2/ To be appointed 1971 6 Senior Supervisers Mill Engineer3/ To be appointed 1972 11 Field Assistants Other Staff z4/ To be appointed 1973 2 Clerks z5/ One to be appointed 1970 4 Drivers x6/ One to be appointed 1971 B

NIiTEX 9Page 1

MAELAYS IA

2ND JENGKA TRIANGTE PROJECT

SETTLE=ENT OPERATION AND ADmINISTRATION

Settler Selection

1. FLDA schemes are intended mainly for rural people who eitherpossess no land or have insufficient land to obtain an adequat'e standardof living. Selection of Jengka settlers would conform to this policy.

2. The Federal Government stipulates that 20% of places in allFLDA schemes will be available to ex-members of the security forces posses-sing the minimum qualifications. In the case of the Jengka Project, theState of Pahang requires that 50% of the settlers (others than ex-service-men) should be from the State of Pahang, provided they possess the minimumqualifications.

3. Selection is in two stages. First, applicants are interviewedin their home districts throughout Ialaysia by FLDA staff and local offi-cials who hnow the district and its people. At this stage the candidates'general suitability is determined and the basic minimum criteria for selec-tion applied. These are that the candidate:-

- is a Nfialaysian citizen;- is married;- has no serious criminal record;- is physically and mentally fit;- is prepared to abide by therules and regulations

established by FLDA;- has less than two acres of land; andis over 18 and under 35 (formerly over 21 andunder 45).

4. Following the interview, points are awarded to each candidate,up to a maximum of 30, on the following scales:-

Age Points Age Points Age Points

18 4 24 10 30 619 5 25 10 31 520 6 26 10 32 421 7 27 9 33 322 8 28 8 34 223 9 29 7 35 1

./.. .

ANNEX 9Page 2

Number of Points Ownership PointsChildren of land

5 and above 5 Under 1/2 acre 54 3 l/2 acre 42 2 1 acre 31 1 1-1/2 acres 2O 0 2 acres 1

Bonus Points - Agricultural Background Points

Rubber 4Oil Palm 4Dusun or vegetable cultivation 1Animal husbandry 1

5. The final selection is made by FIDA Headquarters on theabove points system and the required allotment of places to servicemen.

Development Period

6. On arrival at a scheme - some 2 years after clearing - thesettler signs the first part of the settlers agreement. This providesthat in return for being permitted to settle on the scheme, the settlerworks under the direction of the Authority on the development of thescheme. The settler is paid a minimum of M$ 2.90 per day, about M$ 70a month, for his iwork and if no work is available, he receives a subsisb.ence loan at the same rate. The settler is required to abide by allrules and regulations of the Authority and if he breaks them, or if he isconsidered unsuitable in conduct or behaviofr, he may be required to leavethe scheme.

Post Development

7. At the end of the 5th year after palm planting and the 7thyear after rubber planting the nettler, assuming his performance issatisfactory, signs the second part of his agreement - the SupplementAgreement. This changes the status of the settler from, in effect, anemployee of the Authority to that of a smallholder. He is registeredas an occupier in expectation of title of approximately 10 acres ofrubber or oil palm and a 1/4 acreihouse lot. In the case of rubber,the settler is allotted a specific area but in the case of oil palm,because it is not practical to cultivate oil palms initially as small-holdings, on schemes other than Jengka he is not allocated a specificarea. Once the settler has paid off his loan (see below) the Authoritywill recommend to the State Govern4nent that the State alienate to thesettler, in the case of rubber, tht 10 acre rubber area and 1/4 acre houselot, and in the case of oil palm the 1/4 house lot, on a 99-year lease.The 10 acre oil palm area will be %lienated to a Co-operative Society

./.. .

ANNEX 9Page 3

of which the settler is a member. In the case of Jengka, however,it is provided that after five years of production, the settler wouldbe allotted a specific 10 acre lot and he would then choose whetherto work his lot individually or participate in a number of lots on aco-operative basis.

8. During the period when any loan repayments or charges aredue by the settler to the Authority or the State, the area is managedand administered by the Authority.. At all times the settler is requiredto sell all latex or ffb to factories or mills specified by the Authorityfor which he shall receive the average price received by the Authority(during the current month for rubber but over the preceding three monthsfor palm oil) after deducting transport, processing, distribution, millamortization, etc. In the case Af oil palm, further deductions are madefor upkeep costs and a replanting reserve fund; for rubber the upkeepcosts are borne directly by the settler and a replanting reserve cess isrecovered at export.

9. Under Loan 533-MA, it was also provided that Jengka settlerswould bear the project headquarters and scheme managements costs duringthe development and operating periods. This arrangement has since beenaltered and instead FLDA and the Government will introduce arrangementsto recover FLDA's administration costs from settlers as a who;e (pafa5.16 of main report). The amount of the levy for 10-acre oil palm andrubber holaings is showin in Table 5.Settlers Loans

10. A loan account would be opened for each settler which wouldbe charged with the cost of his house, including clearing the house lotand of developing 10 acres of oil palms or his specific 10 acre rubberlot. At the end of the fifth year after oil palm planting and theseventh year after rubber planting, settlers would be issued with astatement showing the amount of the loan and the repayment due. Thestatements would also include any loans for subsistence, tools, etc.

11. Interest would be charged at 6-1/4% on the loan and would becapitalized over the development period. The attached tables show theaccumulation of the loan account of typical oil palm and rubber settlers.

12. Loans would be repaid by equal annual installments of princi-pal. and interest over a period of 15 years commencing on the first dayof the sixth year after palm planting and the eighth year after rubberplanting. However, during the first two years of repayment on rubberschemes, loan deductions shall be made only in small amounts as willleave the settler with a monthly income of i!$ 100. Loan repaymentswould be deducted at source from payments made by the FLDA owned andoperated mills and rubber factories to settlers for their production.The costs of fertilizers and other inputs would also be recovered inthis way.

MALAYSIA


Loan Account of Trical Oil Palm Settler

Years from Clearing

1 2 3 4 5 6 Total

Field Development Costs 4,080 1,510 2,160 1460 1,730 1,790 12,730

House and Houselot 61 1,535 - - - 1,596

Subsistence Credits - - 31 117 73 142 363

Total 4,141, 3,045- 2,191' 1,577' 1,803 1,932' 14,689

Interest @ 61 259. 465- 631' 769- 922 999. 4,045

Less FFB Sales - - - 135 1,619 3,260 5,,014

Total a,400O 3,510- 2,822. 2,211' 1,106. (329)' 13,720'

Accumulative Total 4,hoo. 7,910' 10,732- 12,943- i4,o4. 13.720' 13,720

October 23, 1969

-3L

MA.LAYSIA


Loan Account of a Typical Rubber Settler(N$)

Years from Clearing

1 2 3 4 5 6 7 8 Total

Field Development Costs 3,310 2,080 1,360 1,540 1,550 970 920 448 12,178

House and Houselot 61 1,535 - - - - - - 1,596

Subsistence Credits - - - 147 37 242 301 337 1,064

Total 3,371 3,615 1,360 1,687 1,587 1,212 1,221 785 14,838.

Interest @ 6V 211 450 563 704 847 975 1,112 1,669 6,531

Total 3,582 4,o65 1,923 2,391 2,434 2,187 2,333 2,45L 21,369

Accummlative Total 3,582 7,647 9,570 11,961 114,395 16,582 18,915 21,369 21,369

November 3, 1969

ANNEX 9Table 3

MALAYSIA


Summaary Timetable of Settler PositionOil Palm Schemes - Jengka

Year from Legal LoanClearing Status Rep aet

1. -) Loan amount increas-2. -) ing with various3. ) ) development expendi-4. ) Works under direction ) tures.5.) of FLDA )6.) )

7. During year,signs settler Loan repaymentsagreement becomes occupier commence.in expectation of title toa share in a large blockof oil palms in common witha group of other settlers.

8/10 Continues as in Year 7. ))

11 During year, becomes )occupier in expectation of ) Loan repaymentstitle to a specific 10- ) continue.acre block of oil palms. )

I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~)12/21 Continues as in Year 11. )

22 Lease granted to settler Loan repaymentsby State. terminate.

Note: On schemes other than Jengka, the settler continues as occupier inexpectation of title to a share in a block of oil palms until Year22 when the lease is granted to a co-operative society of which thesettler is a member.

October 23, 1969

ANNEX

Table 4

MALAYSIA


Sunmary Timetable of Settler Position

Rubber Schemes

Years from Legal LoanStatus Repayment

1. - ) Loan2. -)3. ) ) amounit4. ) Works under )5. ) FLDA direction ) increasing6.) )

with7/8 Signs settler agreement )

becomes occupier in ) variousexpectation of title to ) developmenta specific 10-acre lot )of rubber. ) expenditures

9. Continues as in Year 7. Loan repaymentscommence.

10/23 Continues as in Year 7. Loan repaymentscontinue.

24. Lease granted to settler Loan repaymentsby State Government. terminate.

October 23, 1969

MALAYSIA


MAIL 1 NT LEVIES FOR 10-ACRE HOLDINGS

Average Management Management NetPrice Level Income Increase Annual Income Levy Rate Ley Amount Annual Income

Oil PalmOil Price

(M$/ton FOB) (1$/ton FFB) (M$) (M$/ton FFB) (M$) (M$)

424.80 - 3,600.00 - 3,600.00439.68 3 3,866.58 1 88.86 3,777.72454.59 6 4,133.16 2 177.72 3,955.44469.50 9 4,399.74 3 266.58 4,133.16484.41- 12 4,666.32 4 355.44 4,310.88499.32 15 4,s932.90 5 444.30 4,488.605i14.23 18 5,199.48 6 533.16 4,666.32529.13 21 5,466.o6 7 622.02 4,844.o4544.04 24 5,732.64 8 710.88 5,021.76558.95 27 5,999.22 9 799.74 5,199.48564.02 28.02 6,089.85 9.34 829.95 5,259.90

RubberRSS 1 Price

(M cents/lb FOB) (M cents/ib) (M$) (M cents/lb) (M$) (M$)

65.41 - 3,600. oo - 3,600.0070.30 3 4,013.40 1 137.80 3,875.6072;78 6 4,426.80 2 275.60 4,151.2076.47 9 4,840.20 3 413.40 4,426.8080.16 12 5,253.60 4 551.20 4,702.4085.05 15 5,667.00 5 689.00 4,978.00 ' I

:90.05 18 6,080.40 6 826.80 5,253.60

ANNEX 10

MALAYSIA

SECOND JNiGKA TRIANGLE PROJECT

JENGKA BALANCE SHEET AS AT DECEMB3 31. 1968(M$s 000)

S C H E M E S

Total Head Office I II III IV V VI

ASSETS

Fixed Assets:

Oil Palm Development 3,621 - 2,274 980 182 185 1 _Nursery 694 - 224 394 33 41 1 1Village Areas 45 - 44 1 - -

4,360 - 2,542 1,375 215 226 2 1

Building (site preparation) 30 30 - - - - - -Temporary Staff Quarters 33 - 9 11 6 6 - -

Vehicles 47 - 15 17 7 7 - -

Furniture and Fittings 18 1 5 6 3 3 1 1Equipment 11 1 5 2 1 1 1 1

Total 4,499 32 2,576 1,41 232 243 4 3

Current Assets:

Inventories 12 - 6 5 1 - - -

Receivables 8 - 6 2 - - - -

Cash 31 - 13 10 6 1 1 -

Current Account with FLDA 42 - 71 (29) (6) - 1 5

Total 93 - 96 (12) 1 1 2

Other Development Expenditure:

Salaries, etc. 383 37 70 55 21 20 .5 3Interest on IBRD funds - 171 - - - - - -

TOTAL ASSETS 4,975 240 2,742 1,454 254 264 11 11

IABILITIES

Government Loan 4,227 66 2,481 1,217 228 215 10 10Government Loan (ex IBRD) 642 171 219 188 17 47 - -

Total Loans 4,869 237 2,700 1,405 245 262 10 10

Payables 106 3 42 49 9 2 1 1

4,975 240 2,742 1,454 254 264 11 11

April 6, 1970

MALAYSIA

2PID JENGKA TRIANGLE PROJECT

FLDA Estimated Sources and Applications of Funds

Total Years Total Years1969 1970 1971 1372 1973 1974 1975 1976 1977 1978 1979 1969 - 1979 1980 - 1995

SOURCE

Loans: Government 363 5 1,106 1,971 3,760 3,586 3,978 3,348 2,015 1,094 497 21,723

IBRD - 3,173 6,381 7,305 5,556 3,729 1,731 2,275 - - - 30,150 -

Interest Capitalized!/

Government - - - - - 20 20 111 299 463 590 1,503 3,993

IBRD - 400 600 1,100 1,600 1,800 2,000 2,100 - - - 9,600

Settlers: Loan Repayments - - - - - 282 2,503 4,531 3,003 2,912 3, 475 16,705 72,065

Processing Charge

Capital element - - - - - - 452 882 1,238 1,373 1,450 5,395 16,587

Government Administration Grants:

Development Period 23 231 718 1,298 1,548 1,516 1,526 1,451 853 683 394 10,241 -

Post Development Period - - - - - - - 113 692 858 1,122 2,785 19,937

TOTAL SOURCES 386 3,409 8,205 10,574 10,864 9,113 10,190 12,599 7,801 6,920 6,938 86,999 108,589

APPLICATI0NS

Project Costs: Development 386 3,409 8,205 10,574 10,864 8,831 7,235 7,074 2,868 1,777 891 62,114 ! _

Post Development - - - - - 113 692 858 1,122 2,785 19,937

Loan Repayments: Government2/ - - 50 212 262 31,497

IBRD - - 1,978 3,957 3,957 9,892 61,334

TOTAL APPLICATIOE 386 3,403 8,205 10,574 10,864 8,831 7,235 7,187 5,538 6,642 6,182 75,053 112,768

Cash Surplus (Deficiency) Annual - - - - - 282 2,955 5,412 2,263 278 756 11,946 (4,179)

Cash Surplus (Deficiency) Cumulative _ - - - - 282 3.237 8,649 19,912 11,10 11,9146 11,146 7,767

1/ These are non-cash items and not included in the 7otals.

2/ Approximat3ly 1MS7.7 million will remain to b- repaid to the GCveronqent from 1936 - 2004.

November 14, 1969

A1NFEX 12I!ab1e 1

MALAYIA!


Oil Palm Yield Estimates

Years from Year of FFB/Acre % Oil- Ol/Acre % Kernel KernelAcreClearing / Harvesting tons to F?B tons to FFB tons

14 1 O.5 16 0.08 4.0 0.025 2 3.6 18 0.65 1.4 o0166 3 6.3 19 1.2 14.5 0.287 14 8.5 21 1.79 14.8 0.1418 5 9.O 22 1.98 5.0 0,459 6 9.5 22 2.09 5.0 0.47

10 7 9.8 22 2.15 5.0 0.14911 8 10.0 22 2.20 5.0 0.5012 9 9.7 22 2413 5-0 0.4813 10 9.5 22 2.09 5.0 0.47114 11 9.3 22 2.04 5.0 0.4615 12 9.0 22 1.98 5.0 0.4516 13 8.8 22 1.94 5.0 0.4417 i14 8.6 22 1.89 5.0 0.14318 15 8.4 22 1.84 5.0 0.4219 16 8.2 22 1.80 5.0 0.4120 17 8.0 22 1.76 5.0 0.4021 18 7.8 22 1.72 5.0 0.3922 19 7.6 22 1.68 5.0 0.3823 20 7.4 22 1.63 5.0 0.3724 21 7.2 22 1.58 5.0 0.36

25-30 22-27 7.0 22 1.54 5.0 0.35

1/ Planting takes place one year after clearing.

November 14, 1969

ANNEX 12Table 2

MAIAYSIA

2ND JENGKA TRIANGILE PROJECT

Rubber Yield Estimates

Years from Tapping Yield per AcreClearing/ Year Pounds

8 1 650

9 2 1,000

10 3 1,400

11-19 14 -12 1, 500

20-22 13-15 1,14oo

23-25 16-18 1,300

26-28 19-21 1,200

29-31 22-24 1,100

32 25 1 ,000

1/ Budding takes place one and a half years after clearing.

November 114, 1969

Al3W 13

MALAYSIA

SvCOND JENGKA I1RIU0LE PROJECT

MARKET PROSPECTS FOR PAUII OIL AND PALM ERNELS

Palm Oil

1. Trends in supply and demand for individual fats and oils are farmore difficult to judge than those for the total market, particularly sincemost of the major oil products are produced either as joint products orby-products. Thus, as in the case of soybeans, the production of specificoils may be determined, not only by trends in the oils and fats market, butalso by the demand for the joint or related products. Another feature whichalso has to be considered in reviewing the market for a particular oilproduct is the amount of substitution possible between different fats andoils. IJithin a broad range, on technical considerations, one oil can besubstituted for another. Currently, the bulk of palm oil is used in thefood industry. Here it meets its strongest competition from soybean, oil,and fish oil and lard. Fish oils are at a disadvantage compared with palmoil, owing to the high processing costs involved in making them usable forthis purpose.

2, Usually, the associated product of the marine and vegetable oils isa protein-rich cake or meal. The oil palm, however, compared with someof its competitors, produces a very low proportion of protein cake to oiland the cake is the by-product of palm kernel oil, rather than palm oil.The overall ratio of palm and palm kernel oils to cake is about 9:1. Incomparison, the soybean produces oil to meal in the ratio of 1:4 in termsof weight.

3. Palm oil is produced almost entirely in four developing countries:Nigeria, democratic Republic of the Congo, Indonesia and Malaysia. TableI indicates the production situation in these and other countries in recentyears. Compared iLth other major fats and oils (Table 2) the growth ratefor world palm oil production has been low, up to recent years amounting toonly 1.3% per annum. The only really significant expansion took place inMalaysia. However, in a number of countries, particularly Milalaysia, aconsiderable further expansion in production is planned for the future. Someof these plans have already been put into operation. If these developmentsgo according to schedule, total world production will amount to approximately2.5 million tons between 1975 and 1980. This would represent a growth rateof slightly more than 5,, between 1965-67 and 1980, compared with a yearlyrate of increase of 1.3% between 1954-56 and 1965-67. The share of palmoil production on total fats and oils production would increase to approxi-mately 5%, compared with about 3%0 in 1965-67.

A.TTIX 13

Page 2

4. lMany of the developments are export-oriented and a considerableshare of the additional supplies will have to be absorbed by the internationalmarket. Oil palm exports increased very slowly during the last decade, largelyowing to the slow growth in production rather than marketing difficulties.Actually, in the period from 1954-56 to 1965-67, palm oil exports declinedslightly (Table 3). It is estimated that by 1975 palm oil exports will amountto approximately 1.2 million tons, compared with 550,000 tons in 1965-67.Consequently, the share of palm oil exports on total trade will probablyincrease to 9% in 1975, compared with 5.4% in the earlier period.

5. The palm oil economy thus faces two major problems in the future.Firstly, it will have to face declining world market prices, a phenomenonthat is shared by nearly all major fats and oils. Secondly, it will haveto increase its share as an ingredient in the total usage of fats and oils.Considering the fact that palm oil does not have all the quality characteristic3enjoyed by some of the other oils (e.g., coconut oil), this could only beachieved through price declines larger than those expected for some otheroils.

6. It is in food uses where palm oil will have to increase its marketshare. In the past, this was only possible to a certain degree, mainly becauseof limitation in availabilities. Among other factors, this apparently preventedprocessors from undertaking the necessary research into the technical andeconomic difficulcies which would have to be overcome if palm oil is to beincorporated as a major ingredient in food produhicts. One major difficulty,particularly at the relatively high palm oil prices of the past, appears tohave been the disposal at remunerative prices of the inedible portion resultingfrom palm oil processing, which would make large-scale processing feasible.

17. The Chart (IBRD-4905) indicates that palm oil prices have generallyfollowed the trend of all fats and oils prices, declining to a low levelin 1962 and experiencing a sharp fall after the high 1965 prices. Of particulai'importance is the narrowing of the large price difference between soybean oiland palm oil which prevailed in the 1950's. Since 1963, prices for bothproducts have moved closely together, which indicates that their futurefortunes will also be tightly knit.

8. In the second half of 1968, palm oil prices dropped sharply reachinga low point of approximately $140 per ton, compared with $222 per ton in 1967.The steep decline was caused by large shipments of soybeans and soybean oiland unusually large exports of sunflower seed and fish oil. This Tras arelatively short term situation and prices recovered tolwards the end of 1968.The average for the whole of 1968 was $172 per ton and for the first six monthsof 1969, the price averaged nearly $171 per ton. In view of the largeanticipated exports and the technical difficulties mentioned previously, it, isestimated that paIm oil prices will fall Icy the mid-1970's into a price range115§-165 per ton cri.f. 7%rnpe.

Page 3

9. These projections have to be seen in the light of the uncertaintieswhich surround any price forecast and of fats and oils in particular. Forexample, if soybean exports under P.L. 480 are reduced or cease altogetherwithout compensating changes in U.S. production policy, the above price forecastmay prove to be optimistic. On the other hand, if only part of the largerequirements that would be needed to meet the needs of fat deficit develop:n,countries could be turned into effective demand, the forecast may be pessimistlic

Palm Kernels

10. The fruits of the oil palm contain two separate sources of oil: t'.-fleshy and fibrous mesocarp (pulp) from which paLm oil is obtained and a nutkernel in a hard shell from wdhich palm kernel is extracted. The pulp of thefruits deteriorates rapidly after harvest and extraction has to be carriedout in producing areas. Palm kernels, in contrast, deteriorate very slowlyand their processing into oils is usually performed un large crushing mills, inthe importing industrialized countries. Only in the Democratic Republic ofthe Congo have palm kernels have crushed on a large scale and the country'sexports consist almost entirely of oil, rather than kernels.

11. Wild palm fruits have a low proportion of pulp and a high proportilor.of kernels. In plantations now in the process of developmient, however, theratio of pulp to Iernel is expected to increase. Thus; the future expansionin palm oil output wTill not be matched by a crmlensurate increase in palmkernel oil output.

12. Palr,m kernel oil, unlike palm oil, is a lauric oil and as such cleselresembles coconut oil. These types of oils are regarded in many coantries asa desirable ingredient of iaiargarine and shortening, and for use in confectionanryand bakery products. Lauric oils also possess special qualities which makethen an essential constituent up to a certain minim Lun in soap manufacture; theyalso have a w^ide variety of other industrial uses, such as in the manufactureof synthetic detergents.

13. All these factors account for a more inelastic demand greater thanfor most other fats and oils. This became very apparent in 1967-68 wThen pricesof nearly all major fats and oils decreased. Prices of lauric oils, includingpalm kernel oil, renmined high, mostly because of short supplies, but alsobecause of the limited degree of substitutability. Presently, there are someindications that new industrial processes will make it possible to producesynthetically the special component of the lauric acid oils which are the caluweof the inelastic demand. This, of course, would limit the special role theseoils play in the market. However, so far no definite information is availab`which indicates that industrial manufacture of lauric oils wfill be undertaken ota large scale.

14. The price, production and trade situation for palm kernels and pn Imkernel oil are indicated in the Chart and Table 4. It is assumed that palrmkernel oil, in line with other fats and oils, will follow a downward trend fci:-the future, and it is estimated that a price range of $134v-138 per m ton forpalm kernels will prevail in the mrid-1970Is.

ANNEI 13

Table 1

WORLD PRODUCTION, EXPORTS AND IMPORTS OF PALM OILBY MAJOR PRODUCING EXPORTING AND IMPORTING COUNTRIES

AVERAGE 1955-59, ANNUALLY 1963-68

(thousand metric tons)

Average 1964 1965 1966 1967 19681955-59

Production

Nigeria 5]5 530 508 325 350]1Congo, Dem. Rep. - 161 125 147 179 2101Indonesia - 161 165 175 174 180i/Malaysia - 123 150 190 225 280Others - 232 249 255 256 285

World total 1,265 1,196 1,219 1,275 1,159 1,307

E:xports

Nigeria 180 136 152 146 17 4Congo, Dem. Rep. 160 124 79 78 115 159Indonesia 121 133 126 177 131 160Malaysia 62 / 125 141 181 180 267Others 33 53 52 44 52 98

World total 571m 7 MT I9

Retained Imports

EEC 226 279 249 267 252United Kingdom 198 116 117 150 98United States 13 3 3 34 29Japan 20 18 16 20 22Iraq 4 29 50 36 47Others 92 107 76 91 72

World total IT _

LJ Estimated

?/ Excluding trade with Singapore.

Source: U,S.D.A. - Fats and Oils Situation, June 1969; FAO

September 1969

ANNEX 13

Table 2

WORLD PRODUCTION BY TYPE OF OIL OR FATAVERAGE 1954-56 AND 1965-67, OIL oQUIVALENT

Average 1954-56 Average 1965-67Output as Output as Percent Change

Type of Oil Output Percent Output Percent P.A. in Output(1,000 of total (1,000 of total 1954-56 to 1965-67m. tons) Output m.tons) Output

Edible soft oils 10 889 40.3 17 421 45.8 4.4Cottonseed 17.1 2.6Groundnut 2,084 7.7 3,037 8.0 3.5Soybean 2,451 9.1 5,200 13.7 7.1Sunflower 1,118 4.1 2,860 7.5 8.9Olive 1,044 3.9 1,238 3.3 1.5Sesame 541 2.0 582 1.5 0.7Rapeseed 1,601 5.9 1,562 4.1 - 0.2Others V 144 0.5 435 1.1 10.6

Industrial soft oils 1 521 5.6 1 868 4.9 1.9Linseed '97 5 0Castor bean 213 0.8 307 o.8 3.4Tung 103 0.4 112 0.3 0.8Others 250 0.9 407 1.1 4.5

Hard oils 3 479 12.9 3 922 10.3 1.1Coconut 7.4Palm kernel 422 1.6 455 1.2 0.7Palm oil 1,001 3 7 1,157 3.0 1.3Babassu 42 0.2 58 0.2 3.0

Animal fats 10 298 38.0 13,638 35.8 2.6Butter 3 v893 5,063 13.3 vLard 3,549 13.1 4,163 10.9 1.5Tallow 2,856 10.5 4,412 11.6 4.0

Marine oils 857 3.2 1,186 3.2 3.0Whale 4M -7 47Fish 373 1.4 898 2.4 8.3

World Total 27,044 100.0 38,035 100.0 3.2

J Mainly safflower and maize oils.

Source: Based on Unilever statistics.

September 3, 1969

An, EX 13Table 3

Table 3: WO31LD EXPORTS OF FATS AND OILSBY GHOUkPS AND TYPE OF OIL,

AVEaqAUJ 1954-56 AND 1965-67_ OIL WUIVALENT

Ave:rage ) 56 _2Averae 965-:6Exports as Exports as Percent Change

E&ports Percent Exports Percent Per Annum(1,000 of Total (1,000 of Total in Exports

Groups & Type of Oil m. tons) E&ports m. tons) j ports 1954-56 to 1965-67

Soft Oils 2 7 374 50.0 6Edible ,219 41o5 7:9Cottonseed 367 1/ 5,3 263 1/ 2.6 - 3.0Groundnut 754 11.0 1,029 10.1 2.9Soybeans 506 1/ 7.4 10485 l/ 18.1 12.5Sunflower 26 0.4 509 5.0 31.0Olive 101 1.5 158 1.6 4.2Sesame 140 o.6 74 0.7 5.8Rapeseed 47 0,7 341 3.4 19.7

Industrial 623 9.0 674 6.6 0.7Linseed 470 6.8 446 4.4 0. 5Castor bean 108 1.6 183 1.8 4.9Tung 45 o.6 45 0.4 -

Others, n.e.s. 1o6 1.5 188 2/ 1.9 3.5

Hard Oils 2,164 31.4 2 183 21.4 0.1Coconut 1,209 17.6 .I 12.5 0.5Palm kernel 394 5,7 345 3.4 - 1.2valm oil 558 8.1 550 5.4 _ 0.1rabassu 3 - 7 0.1 8.0

Total vegetable 4,734 68.8 7,264 71.4 4.0

Animal fats 12473 21.4 2093 20.6 2Butter L30 6.2 529 1/ 5.2 1.9Lard 320 4.7 288 2.8 _ 1.0Tallow 723 10.5 1,276 12.6 5.3

Marine oils 67 9.8 821 8.0 1.8Whale 484 7.0 2- 1 K. _ IT7Piish 190 2.8 533 5.2 9.8

Total animal 2,147 31.2 2,914 28.6 2.8

World Total 6,881 100.0 10,178 100.0 3.6

1/ Includes U.S. donations,2/ Of which 63,000 tons safflower oil.

Source: Based on Unilever statistics.

ANNEX 13

Table 4

WORLD PRODUCTION, EXPORTS AND IMPORTS OF PALM KERNELAND PALM KERNEL OIL BY MAJOR PRODUCING; EXPORTING AND IMPORTING

COUNTRIES, AVERAGE 1955-59, ANNUALLY 1963

(thousand metric tons)

Average 1963 1964 1965 19661955- 1959

Production :VNigeria 442 420 407 450 422Sierra Leone 57 54 54 51 56Congo, Dem. Rep. 142 91 122 97 102Dahomey 53 51 55 66 49Indonesia 38 33 35 36 36Malaysia 17 31 31 35 .42

Others 157 159 144 158 152World total 906 839 848 893 859

Palm Kernel EaportsNigeria 439 404 400 420 400Sierra Leone 57 54 53 50 56Congo, Dem. Rep. 41 3 1 - -Dahomey 50 51 55 25 6Indonesia 38 31 32 30 32Malaysia 16 16 12 13 23Others 129 120 109 117 155

World total 770 679 662 655 622

Palm Kernel Oil EcportsCongcDem. Rep. 50 32 W4 34 32Others 2 10 5 22 28

World total 52 42 49 56 60

Retained Imports of Palm KeEEG 371 356 381 336 331United Kingdom 301 211 194 307 168Japan 28 26 25 22 23Others 57 71 77 80 6

World total 757 664 677 645 528

Retained Imports of Palm K'ernel Oil-EEC-' 13 7 - 3 32

United States 23 38 39 38 50Others 14 8 8 10 7

World total 50 53 47 51 89

/ Commercial Production.

Source: FAO.

IMPORT PRICES FOR PALM, SOYBEAN, COCONUT OILS AND PALM KERNELS,AND INDEX OF PRICES FOR EDIBLE AND SOAP OILS(U.S. DOLLARS PER LONG TON AND INDEX NUMBERS)

500 I I I I I 1 500

,\vZCEYLON COCONUT OIL, WHITE,. % BULK (C. . F. EUROPE)

400 400

J/~~~~

300 - - ~~~~~~~~~~~~~~~*U. S.SOYBEAN OIL (C.1. F.rUROPE) 30

MALAYSIAN PALM OIL 5%(C. 1. F. U. K.)

200 _ 200

I00 .. .. . . * .. _ (JAN.- Nov.) 100

FAO INDEX OF EDIBLE AND SOAP OILS AND FATS

(EXCLUDING BUTTER)

0 I I I I I I I I 01954 '55 '56 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 1970 o

IBRD- 49 0 5 w

ANNEX 14

MALAYSIA

SECOND JENGKI TRIANGLE PROJECT

MARKET PROSPECTS FOR NATURAL RUBBER

I. INTRODUCTION

1. Natural rubber (NR) is traditionally one of the major primary com-modities traded between developed countries and LDC's. Generating averageearnings of approximately one billion U.S. dollars per annum in the period be-tween 1955 and 1967, it has ranked between fourth and sixth position in impor-tance in foreign trade among all primary commodities traded.

2. Concentration is particularly high in the export trade in naturalrubber compared to other commodities. In the postwar period more than 90% ofall exports have been shipped from four countries in Southeast Asia, i.e.,Malaysia, Indonesia, Thailand and Ceylon. The remainder is exported by agroup of some 15 relatively minor exporting countries, among which the leadersare Viet-Nam and Liberia. The market share of the major exporter group as awhole has changed remarkably little in the postwar period. There has, how-ever, been one rather striking change in market shares within this group in-volving a declining market share for Indonesia which has been taken over al-most entirely by Malaysia, with almost no gain by the other two countries.As a result, as of 1967 nearly 50 percent of all of natural rubber supplieswere exported from Malaysia (Table 1).

3. Ironically, the countries that benefitted most or suffered leastfrom this change in market shares also made the most progress in reducing theirdependence on rubber exports. Despite the remarkable increase in its shareof the market, dependence on foreign exchange earnings from natural rubberexports has been continuously reduced in the case of Malaysia. Earningsfrom natural rubber have also declined in importance for Thailand. In Viet-Nam, Indonesia and Cambodia, on the othBr hand, dependence on natural rubberwas not reduced to any significant extent in the postwar period (Tables2 and 3).

Trends and Prospects

4. Natural rubber is a case of a commodity, whose share in the worldmarket has dropped in the past as a result of substitution by a syntheticrubber and whose price is likely to decline in the future. From 1950-52 to1968 consumption of new rubber (as distinguished from regenerated rubber) inthe non-Communist world rose by an average annual rate of around 6%, but theconsumption of natural rubber increased at the rate of only 2.3%. In thissame period, accordingly, the share of natural rubber in the world market de-clined from 65% to 35% while that of synthetic rubber increased from 35% to65%. Initially this relative drop in natural rubber was due at least partlyto the inelastic supply of rubber in the postwar period, but increasingly ithas been attributable to the ability of industry to produce a wide range of

ANNEX 1h

synthetics at qualities and prices that proved attractlve as compared withnatural rubber.

5. The sirgle most important market for rubber is the transportationequipment industry. Approximately 50$' of all new rubber is utilized in tiresand tire products. Also, aside from tires, automobiles average more than 100lb of rubber per car. Other 'Fnon'tire" uses include a wide variety of indus-trial and consumer goods. Since end products of rubber have a high incomeelasticity of demand, future wJorld denand for rubber should a Priori dependto a large extent on the future rate of income growth and esTecially of growthin manufacturing output. This reasoning is supported by cor-relation analysisbetueen world manufacturing output and world rubber consumption which yieldsa coefficient (referred to hereafter as elasticity of deauand) of 1.1 for theperiod 1951-1967.

6. Table 4 presents a view of the probable course of iworld demand fornew rubber to 1985 based on projections made in the Economics Department. Onthe basis of pro ections of GNP and projections of industrial output in theOECD countries I total world consumption outside the centrally planned countriesis expected to grow at just over 6.5,.; per annum reaching a level of 8.7 millionlong tons per year arcund 1975. Tn addition, net imports of natural rubber intothe centrally planned countries are projected to reach 700,000 long tons as of1975. Of course, deviations in the grow.th rate of GM%P in GECD countries fromthe assumed grow.7th rates as projected would have an effect on the above picture,as would, too, a change in the amount of imports into the centrally plannedcountries, or a chan-e in the assumed elasticity coefficient of demand 2/.The implications of a more pessinistic assumption in tlhese determinants can bequantified by taldng as the growth rate of GIJP in CECD countries, the lowver lItitindicated above, i.e., 4.3j1 p.a. (rounded from 4.25Z), for the period of 1967to 1975. The corresponding gr-owth rate of total newv rubber consumption of 5.5,'p.a. w-ould then yield an estim,ate of total new rubber consumption in the wJorldas of 1975 of about 8.4 million long tons. Estimates of natural rubber importsinto the centrally planned countries range from 600,000 long tons, i;lyingthat any increase in consumption in these countries could be met by expandingoutput of their synthetic rubber industry to 850,000 long tons, which wouldreflect a technical relationship between tire production and natural rubberconsumption similar to that in the rest of the world. A. medium projection oftotal ne-T rubber consum-ption in the Free 7world, representing a grwJth rate of6.$% p.a. would result in 8.7 million long tons as of 1975. Imports into thecentrally planned countries could be assumed at 700,000 long tons as of 1975.

1/ It was assumed on the basis of available projections by OECD, that GNP inall developed countries would groT at a range betwYeen 4.3 to 4.6 p.a. andindustrial production at a range betwreen 4.8 and 5.8 p.a.

2/ It should be noted, however, that the elasticity coefficient of 1.1 heldremarkably strong over the last 16 years.

ANNXE 14ranc 3

7. Potential production from already existing rubber plantings isexpected to increase to 3.5 million long tons in the mid-1970's (wfith furtherincreases to approximately 4.0 millicn long tons in 1980 and 1985 in the absenceof replantings as of 1969). Since it is expected that the centrally plannedcountries would import abcut 700,000 long tons as of 1975, approximately 2.8million long tons of natural rubber would be left for sale in the free worldmarket in the 1970's. If output proceeded at capacity level, therefore,natural rubber would have to retain its share of the grouth in demand. Inessence, this means that between now and the mid-1970's natural rubber's shareof total rubber demand would have to decline more slowly than in the periodbefore 1967. As a consequence it is expected that prices for natural rubberwould have to becormie more competitive Mith prices of synthetic ribber.

8. I1latural rubber prices are likely to decline to about 16 U.S. centsper pound as of the nid-1970's (see chart). This forecast is based on ourassessment of wvhat will happen to the cost price of synthetic rubber. Themajor develomment foreseen in synthetic rubber is ccmnercial production of thehighly competitive stereo-regular rubbers (i.e. polyisoprene and poly-butadiene)besides the more traditional SBR, and a decline in the price of raw>J materialinputs of such rubbers, except for polyisoprene. In assessing the prospectiveprice for butadiene-based synthetic rubber (SBR and PB) the major developmentanticipated is the change in the status of butadiene from being a productprimarily produced for synthetic rubber conversion to a by-product of anothermajor chemical product, ethylene. In the case of polyisoprene, cost reductionin the raw material input is also foreseen, although as a result of expectedeconomies of scale rather than a change in status from major product to by-product. The projected Drice of natural rubber is based on the assumption thlatthe cost/price of PI w,,ill serve as a ceiling since protracted movements ofnatural rubber above that ceiling would lead to an acceleration of capacity inpolyisoprene.

9. Over the longer run-and in particular for the period 1975-85 duringwhich new and replanted rubber would be maturin--it is believed that the priceof natural rubber may either decline somewhato more, to a level say, of approxi-mately 12 U.S. cents per pound, c.i.f. NJew York or stay at 16 U.S. cents perpound. This prognosis is based on the assumption of further technological pro-gress in the synthetic rubber industry. In making a longer term forecast fornatural rubber, the key question is the possible further price developments inpolyisoprene, which fromri the standpoint of quality is the synthetic most likelyto m.ake progress at the expense of natural rubber. There are presently researchefforts by the industry to adjust the petro-chemical production stream so as toderive isoprene, the major raT. material inputs, as a by-product. The history ofsuccess in butadiene-based rubbers suggests that this aim may be achieved. HoTv-ever, the present position is that an approach to such a technical breakthroughhas not yet been fcund. If a breakthrough were to be achieved, it is conceiva-ble that the price of polyisoprene would fall belowT 15 U.S. cents per pound,compared to 21 U.S. cents as of 1968, and both oolyisoprene and natural rubbermight be selling at a level in the order of 12 U.S. cents per pound. A situa-tion such a3 this is within the realrn of possibilities sometimie between 1975 and1985. If isoprene cannot be produced as a by-product, however, prices forpolyisoprene and natural rubber might continue at the projected 1975 level, inreal terms, for the period i975 -1985. According to repeated industry statementsat IRSG meetings, howJever, efficient producers of natural rubber operatinc onreplanted high-yielding acreage should be able to produce rubber profitably atprices as lou as 12 U.S. cents per pound c.i.f. consuwinig countries.

ANNEX 14

10. The foregoing im-licitly assumes that in the late 1970's and the1980's all natural rubber produced at the suggested prices will be absorbed,i.e., that price ccnsiterations will outwyeigh any possible additional tech-nical advantages that synthetic rubber may present to consumers. On thseother hand, if this assumption .wrere considered to be too optimistic, thequestion would arise whether it would be desirable to improve or even main-tain the existing natural rubber capacity.

11. To test this proposition, prospective demand for new rubber in the1980's was compared wi^th natural rubber output that would materialize from aglobal 3,; replanting program in the natural rubber industry (see Table 4). Theproduction implications of such an ambitious program is shovn in line 6 ofTable 4, indicating that the resulting output of natural rubber would in factbe substantially absorbed even if technical substitution against natural rubbercontinued regardless of price. Of course, if low prices for natural rubber,especially any w^zell belowx the future cost price of synthetic rubber resultingfrom new- plantings with high yielding trees were to halt, or even reversesubstitution, then foreseeable supplies of natural rubber might not be sufficientto meet demand even with an accelerated global rate in replanting. The probablemagnitude of the deficit is illustrated in line 5 of Table 4. In other words,the implicit natural rubber shortage seen in the 1950's w-Tould be repeated.

12. In this case new planting in addition to the prograam to improvethe cost competitiveness of natural rubber against synthetic rubber by replant-ing would be reouired. iJoreover, it may be noted that it is far from certainat this point in time that a replanting rate of 3% per annum could be achievedon a global basis. Even if it is achieved, completion of the program wouldrequire between 13 to 29 years. Such a long-term program would be subject toadjustment if the prospects for rubber change over time. The case for newJplanting is further strengthened by the prospects for improvement in thecompetitive position of natural rubber through better preparation of the rawmaterial which w>ould proceed alongside a planting program. Such improvementsinvolving production of new fonas of crude natural rubber such as "block rubber",raise the technical standards of natural rubber and malce possible a reductionin the processing costs of the rubber products manufacturer who is the decisivefactor in deciding the issues of substitution between natural and syntheticrubbers.

AN N :14Table 1

NET EXPORTS OF NATURVIL RUBB:R 1950-19682-7T1000 long tons)

Years Wolrldli PIalaysia Indonesia Thailand Ceylon Others

1950-52 1,808 656 745 106 103 1971955-57 1,822 690 686 132 93 2211960-62 1,956 772 631 180 98 2751962-64 2,067 884 606 196 103 278

1965 2, 270 983 684 213 122 2741966 2,34o0 1,065 680 199 123 2741967 2,558 1,237 726 206 134 2551968 2,452 2/ 1,097 2/ 717 248 143 282

Percentage Share

1950-52 100.0 36.3 141.2 5.9 5.7 10.91955-57 100.0 37.9 37.6 7.2 5.2 12.11960-62 100.0 39.5 32.3 9.2 5.0 14.11962-64 100.0 42.8 29.3 9.5 5.0 13.5

1965 100.0 143.3 30.0 9.4 5.4 12.11966 100.0 45.5 29.1 8.5 5.3 11.71967 100.0 148.4 28.14 8.1 5.2 10.01963 100.0 44.7 29.2 5.8 5.8 11.5

1/ Totals may not add due to rounding.

Source: IRSG, Statistical Bulletin.

2/ Revised basis, not comparable to previous years

Aa-l2Tables 2 & 3

NATURTTAL RUBB]R: VALUE OF =EXPORTS, 1950-1967(US mllion

Other De-Rep. of veloping

Years Malaysia Indonesia Thailand Ceylon Viet-Nam Liberia Countries Total

1950-52 614 681 72 94 49 25 35 1,5831955-57 477 397 76 66 43 30 46 1,1531962-64 497 280 97 57 33 24 49 1,070

1965 498 332 86 64 26 25 44 1,1161966 479 310 90 70 18 26 49 l,o741967 415 276 75 59 13 25 42 923

NATURAL RUBBER: SMARE OF EXPORTS IN TOTAL EXPORT EAENINGS, 1950-1967(Percentage)

Rep. ofYears Malaysia Indonesia Thailand Ceylon Viet-Nam Liberia Cambodia

1950-52 -63.9 29.8 27.5 27.4 44h5 21.4 n.a.1955-57 65.7 42.1 23.7 17.6 66.2 19.2 39.31962-64 43.6 40.7 19.2 15.4 54.9 8.7 27.1

1965 38.7 46.8 15.0 16.0 72.0 21.0 33.31966 38.3 45.6 13.0 20.0 76.0 18.0 37.01967 34.3 43.1 11.0 22.0 81.0 17.0 n.a.

Source: IRSG, Statistical Bulletin.FA-Q, Trade Yearbook, 196.FAO, Commodity Review, 1967 and 1968.IFS, International Financial Statistics, various issues.

wSC 14Table 1

CONSTY12TION i?R0JECTI01S 4'VD rLXLICA.TICUTS OF RPPLAITINGP,ROGRA;S IN 'ORLD _ .TZTU,IJ PtBBEF IDUSTRY

(1,000 long tons)

Actual P r o j e c t e d13r7- 1970 1975 1950 19d5

I. Production of NJatural Rabber(1) 3'. Replanting Program 2,454 2,800 3,500 14,500 5,300(2) iodified Program 2,454 2,800 3,500 4,100 4,50Q

II. Exports to Soviet Bloc - 575 - 650 - 700 - 700 - 700

III. "!orld (ex Soviet) ConquMptionof Total iew P-ubber --b - 5,176 6,200 8,700 11,900 16,300

IV. J1 orld (ex Soviet) Comsumtionof ITatural .iber -

M3) t3% eplonti.ng Program 1,893 2,150 2,800 3,800 4,600

V. Share of INatural Rubber inT.-orld Consunption

M1 377 Replanting Progran 37 34 32 32 28

VI. Surplus (+) or Deficit (-) ofi7,aturil Rubber if Share inConsumption Lemained a' 1967Level (37A~(5) 32, Replanting Program - 230 - 420 - 610 -1,1420

VTII. 3urplus (+) or Deficit (-) ofiatural hiMbber Assu-1wing Shareto Decline btr -, per year(6) 3 epni Proram - 90 - 70 + 180 + 130

1/ Excluding centr -1Ir planned ccuntries.

2/ Projections result in the following gro-tih rates:1967-75: 6.7 percent per annim.;. 1975-85: 6.5 percent per annuma.

3/ 1xcept for 1967, equal to production linus exports to Zoviet Bloc.

ANNEX 14CHART

PRICES FOR NATURAL AND SYNTHETICRUBBER, BY TYPES, 1960-1975(U.S. CENTS PER POUND)

40 I I I I40

35 .35

NATURAL RUBBER(Rss )

30 30

4 tY BPOLYBUTADIENE

25 lst*s--- A 1- 25

20 POLYISOPRENE E 20

20 N,,-' _ _. 20

4~~~~4N

15 5 '

SBR-(OIL-EXTENDED)

(E ST I MATE) J

10 I I l~~~~~~~~~~~~~~~~~~~~~~~~~~~ 10

Ia1of I I I I I _ IIL

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75

Y E A R S

IBRD-491 5

ANNEX 15

Table 1

MALAYSIA


Estimated Income - Oil Palm Settl,r(10-Acre Holding)

in M$

Years from Clearing 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Production: FFB 85 90 95 98 100 97 95 93 90 88 86 84 82 80 78 76 74 72 70Oil 18 20 21 21 22 21 21 20 20 19 19 18 18 18 17 17 16 16 15Kernels 4 4 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 3 3

Value at c.i.f. prices:Oil at M$480 per ton 8,640 9,600 10,080 10,080 10,560 10,080 10,080 9,600 9,600 9,120- 9,120- 8,640 8,640 8,640- 8,160 8,160 7,680 7,680 7,200Kernels at Mi408 per ton 1,632 1,632 2,040 2,040- 2,040 2,040 2,040 2,040 1,632 1,632 1,632 1,632 1,632 1,632 1,632 1,632 1,632 1.224 1.224

Total 10,272 11,232 12,120 12,120 12,600 12,120 12,120 11,6 4 0 11,232 10,752 10,752 10,272 10,272 10,272 9,792 9,792 9,312 8,904 8.424

Less c.i.f. costs at *2G58 per ton 1,276- 1,392- 1,508- 1,508 1,566 1,508 1,508 1,450 1,392 1,334 1,334 1,276' 1,276- 1,276- 1,218. 1,218- 1,160o 1,102- 1,044-

Value f.o.b. 8,996 9,840 10,612 10,612 11,034 10,612 10,612 10,190 9,840 9,418 9,418 8,996 8,996 8,996 8,574 8,574 8,152 7,802 7,380Less:

Duty at 71'% f.o.b. value 675- 738- 796- 796 828- 796 796 764- 738- 706 706 675- 675- 675 643- 643 611- 585 554FFB transport and processing

charge at M$12.72 per ton FFB 1,081- 1,145- 1,208 1,247- 1,272- 1,234- 1,208- 1,183- 1,145- 1,119- 1,094 1,068- 1,043- 1,018- 992- 967- 941 916- 890..1ill amortization at 14$9.20

per ton FFB 7q2- 828- 874- 902- 920 892- 874- 856- 828 810- 791- 773- 754- 736- 718 699- 681- 662- 644Distribution:

Oil - M$25.87/ton 466- 517- 543 543 569 543 543 517 517 492 492- 466 466- 466 440 440- 414- 414 388Kernels - MM.47.50/ton 190- 190- 238- 238. 238 238 238 238 190 190 190 190 190 190 190 190 190- 143- 143

Sales Revenue to Settler 5,802 6,422 6,953 6,886 7,207 6,Q09 6,953 6,632 6,422 6,101 6,145 5,824 5.868 5,911 5,591 5,635 5,315 5,082 4,761Less:

Upkeep costs at 14$77/- p3r acre 770 770 770 770 770 770 770 770 770 770 770 770 770 770 770 770 770 770 770CAC to State Governmert 107 107 107 107 107 107 107 107 107 107 1D7 107 107 107 107 66 66 66 66Replantirg reserve charge at

L45.06/ton FFB 430 455- 481- 496- 506 491- 481- 471 455- 445 435- 425- 415- 405- 395- 385- 374 364 354-

Neb Income Before Loan Repayment 4,495 5,090 5,595 5,513 5,824 5,54h 5,595 5,2B4 5,090 4,779 4,833 4,522 4,576 4,629 4,319 4,414 4,105 3,882 3,571

Loan Repayment 1,436 1,436 1,436 1,436 1,436 1,436 1,436 1,36 1,436 1,436 1,436 1,436 1,436 1,436 1,436 - - - -

Balance to Settler 3,059 3,654 4,159 4,077 4,388 4,1-05 4,159 3,848 3,654 3,343 3,397 3,o86 3,140 3,193 2,883 4,414 4,105 3,882 3,571

November 14, 1969

ANN:EX 15

Table 2.

MALAYSIA


Sstimrated Income - Rubber Settler(10-Acrs Holding)

in P$

Years from Clearing 8 9 10 11-19 20 21 22 23 24 25

Production - lbs. 6,500 10,000 14,000 15,000 14,000 14,000 14,000 13,000 13,000 13,000

Value § 48 M d/lb. C.I.F. 3,120 4,800 6,720 7,200 6,720 6,720 6,720 6,2140 6,240 6,240

Less C.I.F. costs @ 4 M d/lb. 260 400 560 600 560 56, 560 520 520 520

Value F.O.B. 2,860 4,400 6,160 6,60o) 6,160 6,160 6.160 5,720 5,720 5,720

Less: Duty @ 4% F.O.B. value 114 176 246 264 246 246 2146 229 229 229

Research and replantingcesses @ 1 M v & 4½5 M , lb. 358 550 770 825 770 770 770 715 715 715

Processing and distributiono 7 M ,/lb. 455 700 980 1,050 980 980 980 910 910 910

Sales Revenue to Settler 1,933 2,974 4,164 4,461 4,164 4,164 4,164 3,866 3,866 3,866

Less: Upkeep and collection 290 290 290 290 290 290 290 290 290 290

CAC to State Governent 111 111 111 111 111 111 111 66 66 66

Net Income before loan repayment 1,532 2,573 3,763 4,o60 3,763 3,763 3,763 3,510 3,510 3,510

Loan Repaymsnt 2,236 - - - - - -

Balance to Settler - 337 _ _ _ _ _ _ _

Additional Loan to Settlar toprovide M$ 1,200/- inin . income - &63 - - - - - -

Loan repayrent adjusted - 1,373 2,427 2,427 2,427 2,427 2,427 2,1427 -

Balance to Settler 1,532 1,200 1,336 1,633 1,336 1,336 1,336 1,083 3,519 3,510

November 14, 1969

ANNEX 16

1tTALA'TSA

SECOND JENGYA TRINLtOIE PNDJECT (LOND SETTLEMENT)

Gu,er-unt2re and ApplI-tiouo of Fund(M$'0DUO

1995-1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1963 19814 1985 1986 1997 1988 1989 1990 1992. 1992 1993 19914 1995 2003 Total

SOURCES

Loan Repyments frm. 9LDl - - - - - - - - - 50 212 1462 687 1030 1319 1661 1880 2117 2316 21497 26142 2708 2708 2658 21496 22914 2022 7679 391438

Duaties and Ceasoes,

Exportt

Oi1 and Kernels . 3D 317 6146 990 11514 1228 1271 1302 1275 1247 1218 1285 1199 1131 1102 1026 1052 1028 10014 976 9147 921 4779 270146

Robber duty)Rubber cess) - - - - - - - - 161 301 7149 1087 1350 11465 31482 1182 11482 t1482 11482 Th482 1.457 11449 1399 1358 1350 1301 1259 8378 31956

Import,

Vehicles, Fertilizers&Pesaticides I/ 1 14 14, 414 78 60 914 97 99 97 90 87 88 90 91 90 90 87 88 90 91 90 90 87 87 87 ~87 501 2619

Terse;

Persoonl - 1 2 8 15 12 13 12 12 12 12 12 12 12 12 12 12 12 12 12 1.2 12 12 12 12 12 12 - 291

Land - - - - - 33 186 230 305 330 330 330 330 330 330 330 330 330 330 330 330 3214 257 241 206 200 1800 7742

Vehicle. BLDA& 2 6 9 12 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 - 1420

-Other s 9. - - - - - 5 55 105 150 175 195 205 21.0 210 210 200 200 190 190 180 180 175 170 165 160 160 155 875 14520

3 11 25 614 13.0 152 529 1063 1659 2111 2833 31471 3996 14429 14708 5010 5196 53914 5566 5710 5805 5833 57148 5558 5339 50214 14673 214012 1114032

APFLTCATIONS

Loa 363 5110621971 376013586 3978 3348 201510914 1497 - - - - - - - - - 21723

Adolnistration Grants 23 231 718 1298 15148 1516 1.526 15614 15145 15141 1516 1516 1516 1516 156 1516 1516 1516 1516 1516 1516 1516 1i386 8214 658 393 - - 32963

Road Constructioni 30 680 1050 16147 1898 1208 300 - - - - - - - - - - - - - - - - - - - - - 6813

Rood 1Mintem-ne - - 9 21 71 l35 171. 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 177 1593 55140

1416 916 2883 14937 7277 614145 5975 5089 3737 2812 2190 1693 1693 1693 1693 1693 1693 1693 1693 1693 1693 1693 1563 1001 835 570 177 1593 67039

Cash Surplus (Deficit) Annual- dnol (1413) (96,5) (2858) (14873) (7167) (6293) (5446) (14026) (2078) (701) 6143 1778 2303 2736 3015 3317 3503 3701 3873 14017 1432 141140 14185 14557 145014 144514 14496 221419 146993

Cash S-apl.. (Deficit) (43 11)(16 99)(81)(72 38 66 12 5242082474169

1/ 6% of total cuterla1 noot.

2/ 1485000/- par trunk.

APril 10, 1970

ANNEX 17Table 1

2ND JENG1A TRIANIGLE PROJECT

Galculation of Economic Rate of Returr - Typial Oil Palm Scheae (No. 9 of 3707 Acres)

1970 1971 1972 1973 1974 2975 1976 1977 1978 1979 1980-2000

cosirs

CAPITAL - ELDA

Agricultural Development 430 1,262 472 829 615 668 557

Settlers' Housing 7 21 562 - - - -

.flnage ment:

Scheme bo 110 351 160 160 160 4)

Headquarte rs 11 20 31 37 36 36 9

CAPIrAL - GCOVRNMENT

Roads 94 108 115 141 118 9 9

Water Supply - 120 180 100 100 - -

TOTAL GAPlTAL 582 1,661 1,711 1,267 1,029 873 615

CURRcNT - FLDA AND GOVERNMENT

ŽManagement - Scheme and Headquartera 147 196 196 196 4,116

Upkeep Costs - including roads 285 29L 294 29L 6,174

Transport, processing and mill amortization 41 293 512 691 731 772 13, 918

Distribution 11 91 164 244 269 283 5,118

C.1I.E. Costs 22 174 318 473 522 550 9,938

TOTAL CURR3NT 74 558 1,126 1,898 2,012 2,0)5 39,264

BNEFrr s

Production - FFB - tons 1,853 13.345 23,356 31,510 33,363 35,217 63L,461

Oil - tons 297 2,410 L .L8 6.636 7,360 7,748 139,6L6.

Kernels - tons 74 5'3 1,038 1,52) 1,668 1,762 31.6?3

Value - Oil (9 4480 per ton 143 1,157 2,135 3,185 3,523 3,71) 67,023

Kernels C M$40L0 per ton 30 242 42L 620 681 711 12,231

TOTAL 173 1,399 2,559 3,805 L,20L 46, 30 73,960

NiT BENIFITS (582) (1,661) (1,711) (1,267) (930) ( 32) 518 1,907 2,192 2,335 60,696

ZCONO2IIC RAIT OF RErURN: 18.3%

NOl3: 1. Government social infrastructure costs (e.g. schools, police, sedical centers) have been excluded, since these would be providedas a matter of course for any development of this nature.

2. Settlers' labor daring the production period has been eamluded.

November 14, 1969

ANNEX 17

I4ALAYS IA Table 2

2ND J3NGKA TRIANGLE PROJECT

Calculation of Economic Rate Of Return - Typ1cal Rubber Scheme (No. 12 of 4439 Acres)('Mf ' 000 )

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981-2004

COSTS

CAPITAL - FLDA

Agricultural Developmnt 346 1,1h56 732 635 773 609 547 535 243

Settlers' Housing 9 25 673 - _ - - - -

Management:

Scheme 40 297 215 176 176 176 176 176 44

Headquarters 24 37 iU4 1 44 44 44 44 44 11

CAPIrAL - GOVEIRNMENT

Roads 108 135 165 156 57 9 9 9 9

Water Supply - 120 180 100 100 - - - -

TOTAL CAPITAL 527 2,070 2,009 1,111 1,150 838 776 764 307

CURRENT - FLDA AND GOVERNMENT

Management - Scheme and Headquarters 165 220 5,o60

Upkeep Costs including roads 98 137 3,151

Processing and Distribution 152 284 9,967

C.I.F. Costs 87 162 5,695

TOTAL CURR3Nr 502 803 23,873

BENEFITS

Production - '000 pounds 2,166 4,053 142,381

Value @ 48 M cents per pound 1,040 1,945 68,343

NEr BENSFITS (527) (2,070) (2,009) (1,111) (1,150) (838) (776) (764) 231 1,142 44,470

ECONOMIC RATE OF RETURN: U.1%

NOTES: 1. Government social infrastructure costs (3.g. schools, police, medical centers) have been excluded.

2. Settl3rs' labor during the production p4riod has been excluded.

November 14, 1969

ANNEX 17CHART I

MALAYSIA: SECOND JENGKA TRIANGLE PROJECTECONOMIC RATE OF RETURN CALCULATIONS -OIL PALMSCHEME

*8 RATES OF RETURN AT VARYING c.i.f. PALM OIL PRICES555

z

i480-i-

Lii

a.,w

0~

uJ

0

33

O 5 10 15 20 25ECONOMIC RATE OF RETURN-PERCENT PER ANNUM

* Price used for calculations of Project earnings.** Prices used for testing sensitivity of returns from the Project. IBRD - 4615(2R)

ANNEX 17CHART 2

MALAYSIA: SECOND JENGKA TRIANGLE PROJECTECONOMIC RATE OF RETURN CALCULATIONS - RUBBERSCHEME

** RATES OF RETURN AT VARYING c.i.f. RUBBER PRICES60

54

z

m

0a-

w

zw

48

w

6

0

42

36

O 5 10 15ECONOMIC RATE OF RETURN- PERCENT PER ANNUM

fPrice used for calculations of Project earnings.** Prices used for testing sensitivity of returns from the Project. IBRD - 4616(2R)

ARNRI 1 8

MALAYSIA

SECoND JFRGA TRIAMiLE PROECT

Log, Processed Timber and Area Statistics - West Malysia

1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 196d

LOG RESOVALS AND TII8ER PSODUCrION

Log Removals: ('000 tons of 50 cu.ft)Fores. reservesForest Reserves 600 675 720 782 857 955 921 1,157 1,614S:ate Lands 989 888 913 1,123 1,248 1,323 1,771 1,908 1,972

Total 1,152 1,177 1,589 1,563 1,633 1,903 2,105 2,278 2,692 2,965 3,586

3awn Timbar (C000 tons of 50 cu. ft) 502 544 727 710 755 830 934 946 1,07h 1,219 1,116

Plywood and Veneer (million sq ft 3/16" basis) 4.90 4.25 4.59 6.38 11.41 15.94 26.91 59.92 116.66 123.37 22L.77

SXPORrS

Logs:

Singapore - Quantity ( 002 tons of 50 cs. ft) 268 282 305 408 456 574 7L2 737 956- Value (millions of 141) 1L.9 15.4 16.9 23.3 26.5 30.L 10.0 52.9 68.3

Overseas - Quantity ('000 tons of 50 cu. ft) 7 - - 9 7 _ 35 S6 103-Value (millions of i ) o.6 - - 1.0 0.3 - 3.2 6.1 7.6

Total - Quantity ('000 tons of 50 cu. ft) 275 282 305 417 163 574 777 816 259- Value (millions of M4$) 15.5 15.4 16.9 24.3 26.8 30.4 L3.2 59.o 75.9

Sawn Timber:

Singapore - Quantity ('000 tons of 50 ou. ft) 49 38 47 62 77 76 86 91 12L- Value (millions of M$) 6.6 5.1 6.1 8.3 12.1 13.6 11.1 12.3 13.6

Overseas - Quantity ('000 tomn of 50 cu. ft) 169 133 155 187 246 259 263 320 .71- Value (millions of y4) 33.2 23.9 25.1 33.0 h9.5 50.6 1I.9 59.4 95.1

fotal - Quantity ( 000 torn of 50 cu. ft) 218 171 202 251 323 335 346 411 595- Value (millions oE A4$) 39.8 26.0 31.5 41.3 59.6 61.2 56.0 71., 11..7

lywood and Veneer:

"uantity - (million sq. ft 3/16' basis) 0.34 0.92 2.74 4.87 13.94 29.92 51.39 71.73 131.39

Value (milliomn of Yj$) 0.1 2.2 2.6 1.1 2.2 3.9 7.3 12.1 22.5

AR iS (square miles)

Total Area:

,est zM1aslsia - 50,700

Pahang State - 13,873

Forested Land:

West :4alaysia - 33,000

Panang State - 11,700

November 14, 1969

ANNEX 19Page 1

MALA-ISIA


MAJLIS AHANAH RA'AYAT (1ARA)

General

1. Majlis Amanah Ra'ayat (MARA) was established following a resolutionof the Konggeres Ekonomi Bumiputeras (Economic Congress of the IndigenousPeople) held in June, 1965.

2. Section 6 (1) of the Majlis Amanah Ratayat Act provides that it isthe duty of the WIjLis to promote, stimulate, facilitate and undertakeeconomic and social development in Malaysia and more particularly in the ruralareas.

3. The Hajlis shall have powers:

(1) To carry on all activities, particularly the development ofcomnercial and industrial enterprises, including the manu-facturing, assemblying, processing, packing, grading andmarketing of products, research and training.

(2) To promote the carrying on of any such activities by otherbodies or persons, and for that purpose to establish orexpand, or promote the establishment or expansion of, otherbodies to carry on any such activities either under thecontrol or partial control of IAERA independently.

(3) To give assistance to such bodies or persons appearing to!ARA to have facilities for the carrying on of any suchactivities including financial assistance by the takingup of shares or loan capital or by loan or otherwise.

(4) To carry on any such activities in association with otherbodies or persons (including departments or authorities ofthe Government of the E-ederation of Ialaysia) or as managingagent or o-therwise on its behalf.

(5) To purchase, underwrite or otherwise acquire any stock andshares in any public or private company and to dispose ofthe same on such terms and conditions as 1MRA may determine.

(6) To establish and maintain training institutions.

4. MARA is organized into seven Divisions, each of which is headed bya Director.

AMMEX 19Page 2

5. MLARA's activities are confined to bringing about greater parti-cipation of the people, particularly the Bumiputeras, in the commercial andindustrial life of the country and it is now in the process of implementingan elaborate plan of activities which can be classified into the followingcategories:

(i) Provision of Training

(ii) Provision of supervised credit facilities

(iii) KIanagement and advisory services

(iv) Carrying out directly managed projects and participating injoint ventures, and

(v) Purchasing of shares reserved for Bumiputeras.

Training Facilities

6. MAA is now undertaking an extensive training programme to providetraining opportunities and facilities for Bumiputera entrepreneurs, studentsand youth desiring to prepare themselves for careers in commerce and industryand also for careers for its own staff. HiAA 's largest single training projectat present is the 4RA College of Business and Professional Studies in PetalingJaya, near Xuala Lumpur. This is a post-secondary residential College offeringbetween 2 and 3 years courses in business and professional subjects to youngBumiputeras. Those students selected for admission into the College will begiven financial aids covering free tuition, full board and lodging, andtravelling expenses to and from their home-towns.

Credit Finance

7. One important activity of 1MARA is its credit finance programme whichprovides credit facilities for enterprises in the industrial and commercialsectors, to assist in their expansion and modernization. iYIARA operates itscredit finance programme very much on similar lines as a development bank and theprincipal objectives of the programme is to aid economic development by makingcapital, enterprises and managerial and technical advice available to theprivate sector, more particularly the Bumiputera sector of the economy. Withinthis framework, the credit finance programme of MARA is intended to be animportant instrument in promoting, stimulating and facilitating greater part-icipation of the Bumiputera in commerce and industry.

Directly Managed Projects, Joint Ventures and Purchase of Shares

8. MARA will aslo participate directly in commerce and industry andtake part in joint ventures with local and overseas groups in commercial andindustrial activities and buy shares reserved for Bumiputera in private andother companies, with a view to handing over ultimately such ventures orshares to Bumiputera entrepreneurs.

ANNEX 19Page 3

Industry and Commerce

9. Specifically, the objectives and the activities of the Industryand Commerce Division are as follows:

(1) To provide centres for the display and sale of the productsof the cottage and other small scale industries;

(2) To undertake the establishment of pilot projects in order totest the commercial viability of any undertaking;

(3) To purchase raw materials or finished products for sale toproducers, where such bulk purchases can lower cost andassure regular supplies;

(k) To build shophouses which can be rented out to Bumiputerabusinessmen;

(5) To participate directly in commerce and industry and to takepart in joint ventures with local and/or overseas groups incommercial and industrial activities, where ncessary anddesirable, with a view to handing over ultimately such ventures,or IHRA's shares in them, to Bumiputera;

(6) To collect statistical data pertaining to Bumiputera enterprisesin commerce and industry for planning purposes;

(7) To collect technical information which can be published perio-dically in iuhlay and English for general dissemination;

(8) To undertake market surveys of parLicular products and feasi-bility studies of specific industries, either on its ownor with the assistance of professional firms, where there isa need for such surveys and studies.

Advisory Services

10. The objective of the Advisory Service Division is:

To provide free or for a small fee the technical and professionaladvisory services that will make Bumiputera enterprises viable, and to assistin modernization and expansion programmes, with particular emphasis, initially,or enterprises which are receiving I&RA loans.

ANIEX 20

Page 1

IMA LAY IA


FORESTRY PROJECT

PRINCIPAL EQUIPMENT ITEMS

LOGGING UNIT

logging

40 power saws; 6 crawler tractors; 12 wheel skidders; 2 front-end loaders;yearder-loader; 6 logging trucks; sundry vehicles.

Road Construction

Large and medium bulldozers; grader; hydraulic how; 2 compaction rollers;crusher, compressor and drill; front-end loader; h dump trucks; 2 powersaws; sundry vehicles.

Support and Viscellaneous

Sundry vehicles; fixed and mobile radios; low bed trailer; generatingset; shop equipment; buildings.

PPOCESSING

Sawmill

Log bucking equipment including log deck and loader; infeed rolls; buckingsaw system; transfers and conveyors.

Saw mill equipment including 7 ft band mill; pony rig band mill and equip-ment; edger; two-saw trimmer; compressor; conveyors; weigh scales; 3 loghandling machines; lumber carrier; lift truck.

Drying Facilities

Pre-dry equipment including electronically controlled heating system; airventilation system; automatic electronic controller-recorder for ventilationand humidity control system.

Dry kiln equipment including heavy duty fans; electronic automatic temp-erature and humidity recording and controlling; kiln doors and hardware;steam spray and air supply pipes; portable band saw; triple beam balance;automatic electronic drying oven; hygrometers.

ANNEX 20Page 2

Planer-sticker mill equipmenL including planer; treating chamber, two-sawtrinmmer assembly; trim saw; lift trucks; lumber carriers.

Impregnation plant equipment including vacuum tanks; mixing tank; storagetank; pumps, pressure controls and valves.

Plywood I-Till

Veneer equipment including lift trucks; steam vats; 8 ft lathe; two-linecontinuous dryer; veneer and core clippers; dollies; conveyors; wastedisposal system.

Preparation and Gluing equipment including core and face stock jointersand gluers; hot presses; lift trucks; patcher; dollies.

Finishing equipment including skin and trim saw, pressure system andconveyors; lift truck panel packaging; test equipment.

Other Plant, Buildings. etc.

Steam generating plant; machine shop equipment; water supply; buildingsfor plant, offices, garage/warehouses; rail siding.

ANNEX 21

MALAYSIA

SECOND JENGKA TRIANGLE PROJECT (FORESTRY)

COST AND DISBURSEMENT ESTIMATES(Ms$' 000)

Year ending September 30 1970 1971 1972 1973 Total

PROJECT COST ESTUVATES

LoggingLogging Equipment 3,100 1,030 720 - 4,850Road Construction Equipment 1,650 - - - 1,650Spares 22 22 - - 44Buildings, Vehicles andOther Equipment 450 48 _ - 498

Working Capital - Materials 1,300 900 - - 2,200Management Fees 673 566 425 1o6 1,770Contingencies 978 300 108 - 1,386

Sub-total 8,173 2,866 1,253 106 12,398

ProcessingManufacturing Equipment 2,527 8,813 1,281 - 12,621Buildings and Sitepreparation 1,970 2,836 - - 4,806

Power Plant 1,364 - - - 1,364Working Capital - Materials - 555 305 - 860Management Fees 1,170 985 740 185 3,080Contingencies 879 1,831 238 - 2,948

Sub-total 7,910 15,020 2,564 185 25,679

TOTAL PROJECT COST 16,083 17,886 3,817 291 38,077

IBRD £DISBURSEMENT LSTD4IkATES100 of Foreign &cchange Costs:

LoggingLogging and Road Construction

3quipment, Buildings andVehicles 4,200 l,0OO 680 - 5,880

Management Fees 673 566 425 106 1,770Contingencies 630 150 100 - 880

Sub-total 5,503 1,716 1,205 106 8,530

ProcessingProcessing Equipment, Buildingsand Power Plant 3,574 7,803 1,136 _ 12,513

Management Fees 1,170 985 740 185 3,080Contingencies 536 14170 171 - 1,877

Sub-total 5.280 9,958 2,047 185 17,470

TOTAL DISBURSEMINT 10o783 11, 674 3.252 291 262ooo

April 6, 1970

MALAYSIA

SECOND JENGKA TRIANGLE PROJECT (FORESTRY)ORGANIZATION CHART

SHARIKAT JENGKA SENDIRIAN BERHAD MARKETING COMPANY

BOARD OF DIRECTORS_ BOARD OF DIRECTORS

EXECUTIVE COMMITTEE GENERAL MANAGER

MANAGING DIRECTOR

ff | ~~~~~~~~~~~COORDINATOR|| SAE

FINANCIAL CONTROLLER PROJECT MANAGER(CANTRANS) (CANTRANS)

MARA COUNTERPART MARA COUNTERPART

_

FOREST MANAGER PURCHASING OFFICER PROCESSING MANAGER L--. PRODUCTION COORDINATOR

(CHARNELL INTERNATIONAL) (CANTRANS) (GARDINER ENGINEERING)

MARA COUNTERPART MARA COUNTERPART MARA COUNTERPART MARA COUNTERPART

LOGGING SUPERINTENDENT PROCESSING SUPERVISOR

MARA TRAINEES MARA TRAINEES Z

x

IBRD 4914

ANNEX 23

MA LAYS IA

2ND JENGKA TRIANGLE PROJtMT (FORESTRY)

PERSONNEL TO BE SUPPLIED BY CANTRANS FOR CARRYING OUT

THE FORESTRY PROJECTMonths

OV ERALL MNWNAGEMENT

Proj ect ;anager 48par"OSiIlg Representative 36Instaallation Supervisor 24Controller - Accountant 36Book-keeper 36Secretary 36Clerk 36

LOGGING DIVISION

acecutive Forester 20Forest Manager 48Forest Engineer 30Mechanical Superintendent 24Logging Superintendent 20Logging Foreman 18

PROCESSING DIVISION

Resident Manager 24Accountant 12Production Superintendent - Sawmill 24Production Foreman - Sawmill 12Dry Kiln Foreman 12Production Superintendent, Plywood 2Green &nd Foreman 12Reparation and Glue Foreman 12Finish End Foreman 12Mechanical Engineer 12m ectrical Engineer 12

November l4, 1969

M 2EX4

MALAYsIA

SECOND JENlK TRIANiBLE PROJECT (FORESTRY)

SHARILAT JEGKA SDDIRIAN BERAD (SJSB)

FORECAST INCOME AND EIPINDITURE STATEMENT 1970-74(IRtOOO)

Year ending September 30 1970 1971 1972 1973 1974

Logging Division:

Production - tons log 90,000 175,000 175,000 175,000 175,000Sales - FOB Yard 1/ 4,eso 7,875 ,'ONO ,400 ,400Less: Direct and Indirect Costs 2/ 2,700 4,725 4,375 4,375 4,375

Royalties and premia 3/ 922 1,795 1,795 1,795 1,795

Profit before depreciation and interest 428 1,355 2,230 2,230 2,230

Manufacturing Division:

Production - tons lumber 20,850 33,350 41,700 41,700

Sales - FOB Yard @ N#196

/ton 4,087 6,537 8,173 8,173

Less: Cost of Logs @148/ton 1,620 2,591 3,240 3,240

Sawmill costs: tonnage as aboveLabor 300 500 600 600Maintenance and supplies 46 78 92 92Power 136 180 192 192

Overhead 114 160 170 170

Total 596 918 1,054 1,054

Dry Kiln costs: tonnage as aboveLabor 142 212 242 242

Maintenance and supplies 28 42 59 59Power 40 40 40 40

Total 210 294 341 341

Planer Mill - production 10,000 18,000 25,OO 25,000Labor 55 114 158 158

Maintenance and supplies 14 22 30 30Power 28 42 45 45

Total 127 178 233 233

Impregnation Plant - production 3,000 8,000 12,000 12,000Labor 20 45 53 93-Maintenance and supplies 17 51 79 79Pas er 11 11 12 12

Total 48 107 144 144

Total Costs 2.601 4,088 5,012 5,012

Profit before depreciation, taxes, etc. 1,486 2,449 3,161 3,161

Plywood Division:

Production - K sq ft 36,00o 60.000 60,o03Sales - FOB Yard @ ?t20O/sq ft 7.200 12,000 12,000Less: Cost of logs @1M48/ton 1.166 1 94 1,944

Labor 1,312 1,8S4 1,854Maintenance and supplies 810 1,299 1,299Power 231 288 288Overhead 170 170 170

Total 2,523 3,611 3,611

Total Costs 3.689 5,555 5,555

Profit before depreciation, interest, etc. 3.511 6,445 6,445

Total profit before depreciation, interest, etc. 428 2,841 8,190 11,836 11,836

Less: Depreciation i/ 700 2,800 3,000 3,000 3.000

Net Profit (Loss) before interest (272) 41 5,190 8,836 8,836

Interest 190 1,160 1,690 1.810 1,810

Net Profit (Loss) after interest (462) (1,119) 3,500 7,026 7,026

1/ 145/ton for 1970/71 and M$48/ton afterwards.

2/ 1*30/ton for 1970, N$27/ton 1971, M$25/ton afterwards..

3/ 0110.25/ton.

i/ Average of 10% per annum on buildings, equipment, and plant on straight-line basis.

NOTE: It is assumed that no taxes would be payable in the first five years because of tax allowance for capital expenditure and depreciation.Furthermore, the industries may be eligible for Pioneer Status relief.

April 6, 1970

amI 25

3100lD MU " ROaCT MITu )

StUZa J'1 81 UXA IID tB1

FaWAST SOtRC A=D APF0IOI O F0M 1970-T4

TotalYear ending September 30 1970 1971 192 13 1974 1970-74

SOUJRCES

Net Profit (loss) befcre interest perincome and ecpenditure statement (272) 41 5,190 8,236 8,836 22,631

Add: Depreciation 700 2.800 3.000 3.000 3.000 12.500Ca.h inoce b928 2,Sbl ,190 4I,o36 l,S36 35,131

Equity 5,500 4,5O0 - 1 - 0,00

Borrowing: QGovernment (ex proposed IBED) loan 10.783 11.674 3.252 291 - 26,000

TOTAL SDCNCYS 16.711 19.015 u. 442 12.127 11,836 7113

APPLICATION8

Project Costs per Annew 21

Logging 8,173 2,866 1,253 106 _ 12,398Processing 7,910 15.020 256 185 - 25.679

Total 16.083 17.886 3.817 291 - 38,077

Debt Service,

Interest on Government (e- IB8D) loan 190 1,160 1,690 1,810 1,810 6,660A-oortisation on Govereusnt (ex IBEW) lean - - . - 2.544 2.544

Total Debt Service 190 .160 i 169 1.810 4,35. 9.20k

TOTAL APPLICATIOS 16.2T3 19.01.6 5.507 2,101 W4,354 .7.281

Cash surplus (deficit) 1 - anual (438) (31) 5,935 10,026 7,482 23,850Cash surplws (deficit) - cualative (438) (407) 6,342 16,368 23,850

1/ The deficit in the first two years would be oevered by cshrt ters borrowngs.

ECONOMIC RATE RElUER CAILCULATIONf(in' 000)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

BENEFrIS

Cash income 428 841 8,190 11,836 11,836 11,836 11,836 11,836 11,836 11,836 11,836Add: Royalties and presl 922 1,795 1,795 1,795 1,795 1.795 1,795 1,795 1,795 1,795 1,795

Total 1,350 2.636 9,985 13,631 13,631 13,631 13,631 13,631 13,631 13,631 13,631

COSTS

Proiect costs and replacement 16.083 17,886 3.817 291 _ 5.200 1.100 700 -

NIET BE1EFITS (4,733) t15.250) 6.168 13.,340 13.631 13.631 8,431 12.531 12,931 12,621 13,631

Rate 0r Returan 29 .2

April 6, 1973

'NNEX 26

MALAYSIA

SECOND JENGKA TRIANGLE P.ROJECT (FORESTRY)

SHARIKAT JENGKA SENDIRIAN BERHAD (SJSB)

FORECAST BALANCE SHEETS 1970-74(M$ t000)

Year ending September 30 1970 1971 72 1973 1974

ASSETS

Fixed Assets:

Timber Rights 4,500 h,500 4,500 4,500 4,500

Buildings, Plant and Equipment 14','761 31,170 34,682 34,973 31t1973

Less: Depreciation 700 3,500 6,500 92500 12,500

Net Fixed Assets 18,561 32,170 32,682 29,973 26,973

Current Assets:

Materials and Spares 1,322 2,799 3,104 3,10h ,3,]04

Cash 438 407 6,342 16,368 23,850

Net Current Assets 1,760 3,206 9,446 19,9472 26, 54

TOTAL ASSETS 20,321 35.376 42,128 49,445 53,927

LIABILITIES

Share Capital 1/ 14,000 14,500 14,500 14,500 14,500

Surplus (Deficit) (462) (1,581) 1,919 8,945 15,971

Total Equity 9,538 12,919 16,419 23,445 30,471

Debt: Government (ex IBRD) oan 10,783 22,457 25,709 26,000 23,456

TOTAL LIABILITIES 2021 35,376 42,128 53,927-L -L7 -22 -944 -53,2

1/ M$10 million for cash subscribed by MARA and Pahang State Government; M$4.5 millionfor timber rights to Pahang Development Corporation on behalf of 1,800 licensees inJengka Triangle.

April 6, 1970

ANNEX 27Page 1

MALAYSIA

2ND JENGK. TRIANGLE PROJECT

MARKET PROSPECTS FOR FOREST PRODUCTS

A. West Malaysia Log SuMply and Demand

1. Over the past few years there has been a rapid increase inWest Mlalaysia demand for logs. The demand stems from the needs of sawmilling,plywood and veneer industries in export and domestic markets, and fromlog exporters.

2. Log removal increased from 1.2 million tons in 1958, to 3.6million tons in 1968. Exports of logs, mainly to Singapore and Japanincreased from about 276,000 tons in 1960 to just under 960,000 tonsin 1968.

3. In 1968 about 449 West M1alaysian sawmills produced some 1.4million tons of sawn timber, consuming some 2.4 million tons of logs in theprocess.

4. In 1968 about 16 plywood mills produced nearly 225 million squareft of plywood and veneer (3/16 inch basis) and accounted for the balanceof the countryts log production.

5. 4Marketing studies carried out as part of the ongoing UNDP/FAOForestry and Forest Industries Development Project (Malaysia) indicatethat demand, particularly in North America, the United Kingdom, Japan andAustralia for Malaysian logs, sawn timber and plywood will continue tooutstrip supply. The quantity of processed timber available for exportwill probably be restricbd after 1972 by log shortages and by increasinglocal demand. Projections indicate that to 1972 the annual increases inexports are likely to be at the rate of 10 percent for logs and 5 percentfor sawn timber, plywood and veneer; and that thereafter exports willdecline sharply.

6. In the light of an anticipated deficit in log supplies anefficient forest industries complex established in the Jengka triangle withits assured supply of logs would be in a highly competitive position.

7. Prices. The weighted average price for Jengka Triangle logsis expected to be M$ 48 per cubic tons at Jengka, based on representativeranges of existing prices for Jengka species.

./...

ANNEX 27Page 2

B. Sawn Timber MHarkets

8. ERports* Exports of sawn timber from West Malaysia amountedto nearly 600,000 tons in 1968. Keruing and Red Meranti currently make upabout 80 percent of all exports, although many other species are exported.Prospects for future exports are excellent; European, United States andJapanese imports are expected to increase rapidly. West Malaysia's parti-cipation in world markets for sawn timber will be restricted after 1972,mostly by a shortage of logs and to a certain extent by domestic needs.Total exports are expected to increase by 5 percent annually to 1972(reaching a maximum of about 750,000 tons) and then to decline sharply.

9. Almost any species yielding satisfactory lumber can be exported.It is essential, however, to have a fairly large volume available and asteady supply, so that users can become accustomed to characteristicspeculiar to various species. Operations in the Jengka Triangle and Tekam andBerkeleh reserves, covering very large areas annually, should make evenscarce species available in adequate quantity.

10. There are opportunities for increasing exports of kiln-driedtimber and for applying further processing such as planing and moulding(most exports are rough, air-dry lumber).

I1. The most important customers for sawn timber are expected tobe Australia, the United Kingdom, Western Europe and the United States.Japan is expected to become a major importer of MIalaysian hardwoods.

12. Domestic. The domestic market for lumber accepts a widerrange of species, sizes and grades, and a higher moisture content than doesthe export market. MAuch of the lumber used locally must either be naturallydurable or be treated with preservatives.

13. The prefabrication of housing components is growing, and current-ly uses about 8,000 tons per year. Building components are used domesti-cally and in East Malaysia, and are exported to other Southeast Asiadestinations. There is an opportunity in this field to use species andgrades that are not readily saleable as lumber.

14. Total domestic consumption is now estimated at about 800,000tons; it is expected to rise to about 1,000,000 tons in 1975.

15. Prices. A broad range of ex-mill prices for the species found inthe Jengka Triangle is expected and average export and domestic salesprices and forecast at M$ 196 per ton (1N$ 226 fob for export timber).

.1.. .

JINEX 27Page 3

C. Plywood and Veneer I4arkets

16. Exports. Plywood and veneer exports reached 150 millionsquare feet m S. Substantial future increases are expected in theimport requirements of the industrial areas of the world (the UnitedStates, Europe, Japan).

17. Exploitation of potential export markets by West Malaysiawill be restricted by log shortages and by increasing local plywooddemands. It is estimated that West Malaysian exports will increaseto a maximum of about 210 million square feet per year by. 1972 and thendecline gradually.

18. The United States is by far the largest potential customerfor Malaysian plywood and veneer. Canada and the United States are theonly large customers for veneer at present, but restricted log exportsfrom Southeast Asia could bring Japan, Taiwan and Korea into the veneermarkets.

19. Quarter inch and 3/1 6 -inch plywood face increasing competitionin the world market; they are supplied in large quantities by Japan,Korea, Taiwan and the Philippines, as well as by a few West Africancountries. Better opportunities may lie in manufacturing thicker panelsfor export and selling thinner panels locally.

20. Species are relatively unimportant in finished plywood,provided that technical qualities are adequate. Panels faced with speciesresembling Red, White or Yellow M4eranti should have no market resistance;panels faced with other species will have to present an attractive appear-ance (e.g.Sepetri); otherwise they will have to be used where appearanceis unimportant (e.g. concrete forming).

21. Veneer exports may initially have to be restricted to accept-able species such as IMengkulang or Meranti. New species can be intro-duced, but for export it is necessary to ensure consistent quality andadequate and dependable supply so that users do not have to vary produc-tion techniques frequently.

22. Domestic. Plywood-is used locally for interior panelling,concrete forming and furniture. Total domestic consumption of locallyproduced plywood was 74 million square feet (3/16-inch basis) in 1968.Tentative forecast domestic consumption is 100 million square feet by1975.

23. Prices. Plywood prices vary with thickness, colour, type ofglue used, and grade of face and back veneers. A conservative pricerange, based on white species and on a low-grade face, is given below.

./.. .

ADNEX 27Page 4

Expected Plywood and Veneer Prices 1 FOB Port

(M$ per Thousand Square Feet)

Thickness (inches) Interior Glue Exterior Glue

Panels:3/16 126 1531/4 149 1623/8 280 3061/2 298 2981-1/8 687 810

Veneer: i1/6 90;

/ Concrete forming material.

D. Other Forest Products

24. Present market conditions, economies of plant size, and char-acteristics of the Jengka timber indicates that it would not be practicalto consider the manufacture of pulp, fibreboard or particle board in theJengka Triangle. Other products such as poles, charcoal, and fuel woodwould consume only small quantities of logs and sales for these uses arenot included in the estimates of this report.

E. Conclusion

25. Markets exist that could readily absorb Jengka's forestproducts. However, their disposal to these markets particularly in theearly years of operation will necessitate a carefully planned salesprogramme under the direction of experienced marketing managers. Satis-factory marketing arrangements wuld be provided under the project.

MAP 1

'- = -'Nf

AM!>~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~7f

TRIANGLE

2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Pn KUALA w$

< ThG. NEREK14SG =

STAGE_ RMR RA5 TAE 1 ,

0,! PaI, 17 7 cr PLSNM

C ~ MILES -. , - FthEsT COMPLEXSINGAPORE

MALAYSIA~>SECOND JENGKA

ULU JEMF TRIANGLE PROJECTPHASING OF CLEARING:

OCT-E 1966

O.-.-O 1969

r, ~~~~~OrTO... 1970

3 . . . . . .~~*o.oS-TAE 05, SC-EMES I TO 7

....... STA.E T-O. SCHEMS 8 T.14

V.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~K

Oil P,1~~~~~ 23, 500 A ces~~M RA

- P-IA- ROA-, STASES I S I

op O.L PAL S'CH..EM

0 I 2 3 4-FO.ES. I I.-OTR C--LE

MILES

OCTOBER 1965 ISRO 2715

MAP 2

FORESTFOESRY

g~~~ ~H JENGK TRINGL

~~~~~~~~~~~Foet r Eserves

Jerantut 2 t 5 f~~~~~~~~~~~~~Mra

xuazJ z FOREST (FO ESTRY

APRIL 170 THEJENGKATRIANGLE

APRI 1970 IB 23

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Z0o+A1 61 6W L.Optv I - World Bank...Z0o+A1 61 6WL.Optv I RESTRICTED Report No. PA-31aThis report was prepared for use within the Bank and its affiliated organizations. They do not