Report No 466a-TA FILE COPY Appraisal of the CIRCULATING COPY KilomberO Sugar Project TBE RETURNED TO REPORTS DESK T RETURN TO July 30,1974 REPORTS DHIN General Agriculture Division W1THIN Eastern Africa Region ONE W E K'R L Not f or Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. Io m not bea r Sponshed Y quoted or cited without Benk Group authorization The Bank Group does not accept rep for the accuracY Or cOmpleteness of the report. CURRENCY EQUIVALENTS US$1.00 = Tanzania Shilling (Tsh) 7.14 US$1.00 = Dutch Guilders (f) 2.8 US$1.00 = Danish Kroner (DKr) 6.00 1 DKr = Tsh 1.2 1 f = Tsh 2.6 WEIGHTS AND MEASURES Note: Tanzania is gradually moving over to metric units of measurement. In the 5-year transition both metric and imperial units are used. In this report the measures used by Tanzania in drawing up the Kilombero Sugar Project have been retained. Metric measures used are: 1 kilogram (kg) = 2.2 lb 1 metric ton (m ton) = 1 ,000 kg = 2,204.6 lb = 0.98 long ton 1 kilometer (km) = 0.62 mile 1 millimeter (mm) = 0.039 inch 1 liter (1) = 0.204 US gallons ABBREVIATIONS CPM a Critical Path Method EAAFRO = East African Agricultural and Forestry Research Organization GEFCO = General Foods Company HVA = H.V.A. International b.v. (Amsterdam) K I = Existing Kilombero Sugar Company factory and estate K II = Project factory and estate KDDC = Kilosa District Development Corporation KILIMO = Ministry of Agriculture and Cooperatives KSC = Kilombero Sugar Company Ltd. NAFCO = National Agricultural and Food Corporation NSB = National Sugar Board SDC = Sugar Development Corporation TAC = Tanzania Audit Corporation TCD = (Metric) Tons of Cane per Day TPC = Tanganyika Planting Company Ltd. TRDB = Tanzania Rural Development Bank FISCAL YEAR KSC May 1 to April 30 Government July 1 to June 30 MILLING SEASON Approximately June 1 to December 20 (200 days) TANZANIA KILOMBERO SUGAR PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ...................... i - iii I. INTRODUCTION ........ ..... ........... 1 II. BACKGROUND .... ............ ......... 2 A. Agriculture in the Economy of Tanzania ....... 2 B. The Sugar Industry ..r........u r................ 3 III. THE PROJECT AREA ...... ........................... 5 IV. THE PROJECT ....... ............................... 7 A. General Description . . .. 7 B. Detailed Features .... ....................... 8 C. Project Costs . ............................. 13 D. Financing .................................. .. 15 E. Procurement ......... O-**. .................... 16 F. Disbursement ..t. . . . . . * . . . . . .... 17 G. Accounts and Audit Procedures ... ............. 17 V. ORGANIZATION AND MANAGEMENT ..... ................. 18 VI. PRODUCTION, MARKETING AND FINANCIAL RESULTS ...... 20 VII. ECONOMIC BENEFITS AND JUSTIFICATION .... .......... 23 VIII. AGREEMENTS REACHED AND RECOMM¢NDATION ............ 24 This report is based on the findings of an appraisal mission to Tanzania in November/December 1973 composed of Messrs. J.H. Cleave, H. Malik (part- time), (IDA); J. Duyverman, T.G. Haworth and H. Idehara (Consultants); and accompanied by R. Stern -(Loan Officer). TABLE OF CONTENTS (Cont'd) ANNEXES 1. Kilombero Sugar Company Ltd. (KSC) Table 1 - Operating Results Since Incorporation Table 2 - Balance Sheets, 1970-1973 2. Current Price Formula for Sugar (set February, 1974) 3. Supply and Demand Projections Table 1 - Estimated Population, per Capita and Total Sugar Requirement and Production Table 2 - Estimated Sugar Production 4. Rainfall in mm, Period May 1961 - April 1973 5. Land Development and Cane Production Table 1 - K II: New Land Development Schedule Table 2 - K II: Cane Production Schedule (at Average Yields) 6. Outgrowers Development and Returns Table 1 - Outgrowers Development Schedule Table 2 - Labor Requirement over a Year Table 3 - Subsistance Rice Requirement per Family Table 4 - Model Ujamaa Farm Budget Table 5 - Estimated Average Costs, Yields and Cash Income from Farmers Table 6 - Kilosa District Development Corporation (KDDC) Farm Budget 7. Machinery Costs and Requirements Table 1 - Tractor Capacities Table 2 - Unit Cost of Tractors and Implements Table 3 - Land Clearing, Preparation and Mechanical Cultivation Costs Table 4 - Estate Cropping Operations Tractor Hours Table 5 - Estate Cropping Operations Costs in Tsh Table 6 - Total Tractor Requirement for Caneland Table 7 - Implements Needed for Crop Maintenance and Replanting Preparations Table 8 - Total Equipment, Quantities and Costs for Clearing, Preparation, Crop Maintenance, and Harvesting 8. Training Requirements Table 1 - Training-Factory Staff TANZANIA KILOMBERO SUGAR PROJECT SUMMARY AND CONCLUSIONS i. Tanzania's development strategy puts emphasis on increased agricul- tural production, and aims at self-sufficiency in crops such as sugar which can be home-grown efficiently. However, following recent increases in sugar consumption, demand has outstripped domestic supply, thus resulting in sub- stantial imports; in 1973 these imports had a foreign exchange cost of over US$18.0 million. Due in part to the recent drought, imports of other food commodities have also increased, and a combination of these and several other factors has resulted in serious balance of trade difficulties. ii. The proposed Project is designed to help alleviate this situation by providing for increased domestic production of semi-refined sugar. The Project would include the development of a cane sugar estate and outgrowers land, as well as the erection of a 2,400 TCD factory capable of producing 45,000 m tons of sugar a year. Also included would be provision for ancillary facilities, training of factory and field staff, an increase in adaptive re- search, and a survey to identify future sugar developments. iii. The Project would approximately double the production of the Kilombero Sugar Company (KSC) which is a wholly owned subsidiary of the re- cently formed, parastatal, Sugar Development Corporation (SDC) and has an existing factory, estate and outgrowers adjacent to the Project area. About 45% of the 7,300 acres of Project estate land would be under irrigation, and 40% of total cane area would be farmed by outgrowers, comprising ujamaa vil- lagers, a small estate owned by the local District Development Corporation, and private growers. Overall Project execution and management would be by KSC, with the guidance of HVA International b.v. (HVA) who have been retained as managing agents since 1965. The factory would be supplied and erected by a Dutch/Danish consortium under the supervision of HVA operating under a separate contract: field development, including outgrowers' land, would be by KSC. Although the existing factory and estate (K I) and the new develop- ment (K II) would operate as entities, they would share experienced senior management, factory, and agricultural personnel. iv. External financing of the Project would be in parallel by the Bank Group and by Danish and Dutch bilateral aid funds, together accounting for 84% of the total cost of US$55.8 million. It is proposed that Bank Group funds, consisting of an IDA Credit of US$9.00 million and a Bank Loan of US$9.00 million, would finance Part I of the Project; this would comprise land development (estate and outgrowers), non-factory ancillaries including community facilities, and the training, research and survey components. The Credit and Loan would represent 78% of Part I costs. Bilateral aid funds would be committed to Part II of the Project comprising the factory and its ancillaries, and supervision of construction, and would represent 86% of Part II costs. The proposed Credit would be on standard terms to Government - ii - and the Loan would be for 25 years including 5 years of grace. The Dutch loan would be on the same terms as the IDA Credit, and the interest free Danish loans would be part repayable over 25 years with 7 years grace, and part over 35 years with 10 years grace. Bank Group funds except for the cost of the sugar survey which would be a grant to SDC would be onlent to KSC at 9% per annum. Bilateral aid funds covering Part II of the Project would be passed to KSC through SDC in such a way that not less than 30% nor more than 50% of the proceeds would represent an equity contribution. v. Equipment in Part I of the Project, mostly for land development, irrigation and cane transport (about US$9.0 million) would be procured by international competitive bidding in accordance with Bank/IDA guidelines. In evaluation of bids local manufacturers would be allowed a 15% preference, or the existing rate of import duties, whichever is the lower, and bulked orders of less than US$30,000 would be procured in accordance with Govern- ment procedures. The survey would be by consultants chosen in accordance with Bank Group guidelines. Civil works construction (totalling about US$2.0 million), would be subject to international competitive bidding with local firms given a 7-1/2% preference in assessed bids over any foreign con- tractors bidding. KSC would undertake land preparation, and road and rail bed construction. East African Railways would procure and lay rail-line under their standard procedure. vi. By 1980 the Project would result in incremental annual sugar pro- duction of 45,000 m tons, as well as 16,000 m tons of molasses; together these would be worth nearly US$17.0 million at 1974 values. The annual net saving or foreign exchange earnings would be nearly US$14.0 million. Per capita net incomes of outgrowers in ujamaa villages would increase from present levels of about US$40 c:o over US$140 after the seventh year when all development charges would have been met. vii. In order to recover costs and give an acceptable return on capital employed, it would be necessary to increase the KSC sugar price. At present costs, the price would increase from the current price of Tsh 1,080 per m ton to over Tsh 1,450; this would compare with a 1980 import substitution projected price of Tsh 1,765 per m ton. viii. The internal economic rate of return of the Project is estimated at 13% over twenty years. In this calculation all costs are included and foreign exchange costs and benefits are shadow priced at 140% of the offi- cial exchange rate. Without shadow pricing the return would be about 11%. A delay of one year in bringing the sugar factory into operation would only reduce returns by 2%, largely because the existing factory could handle much of the excess cane. A drop in sugar prices of 20% below forecast would re- duce the return to 7% but prices 20% above forecast would raise the return to 18%. - iii - ix. Six IDA credits and one Bank loan totalling US$83.1 million have previously been approved for Tanzania agricultural projects in agricultural credit, livestock (2), tobacco, tea, cotton and cashew. In addition an Education Credit provided US$3.3 million for agricultural education, and part of a US$6.0 million Credit to the Tanzania Investment Bank is for agri- cultural development. Performance on projects has been mixed, with problems particularly arising in management and the rate of participation of farmers. x. The Project is suitable for an IDA Credit and a Bank Loan each of US$9.0 million to the Government of Tanzania. TANZANIA KILOMBERO SUGAR PROJECT I. INTRODUCTION 1.01 Increased agricultural production and development of rural areas are given great emphasis in the Tanzania Second Five-Year Plan now in its final year. Crop priorities are set, based on production possibilities, market prospects and a goal of country self-sufficiency. Production is variously organized, but because of the country's socialist philosophy, private estates and individual farming are being discouraged in favor of production by subsidiary companies of parastatal organizations, by state farms, through local District Development Corporations and at the smallholder level, through ujamaa villages. One of the crops set for self-sufficiency is sugar. Projected production increases for sugar have not been achieved, and domestic demand has increased beyond anticipated levels; the increased demand has been largely due to increased per capita consumption, although this is still low by international standards, however. This has led to sub- stantial sugar imports reaching a foreign exchange cost of US$18 million in 1973. In view of the recent deterioration in Tanzania's balance of pay- ments - in which increasing food imports, partly caused by the recent drought, have been a significant factor - import substitution, where practicable, has become even more imperative. 1.02 The proposed Project is the most advanced of four sugar develop- ments planned by Tanzania and which, in combination, could help the country achieve self-sufficiency in sugar by 1977. By 1980 (its 6th year), the Project would result in incremental sugar production of 45,000 m tons, thus leading to foreign exchange savings of about US$14 million a year. The increase would represent 43% on present production, and is nearly one-third of projected expansion by 1980. 1.03 Six IDA Credits and one Bank Loan totalling US$83.1 million have been approved so far for agricultural projects in Tanzania. These comprise one for agricultural credit, two for livestock, and one each for tobacco, tea, cotton and cashew. In addition, an Education Credit in 1971 provided US$3.3 million for agricultural training, and part of a 1974 Credit of US$6.0 million to the Tanzania Investment Bank (TIB) is for agricultural purposes. Progress in implementing these projects has been mixed. The agricultural credit project has been fully disbursed: it experienced difficulties due to the weakness of the credit institution - now the Tanzania Rural Development Bank (TRDB) - which has since been reorganized. Although the project is now operating well, its recovery rate remains disappointing. The first livestock project has been completed successfully and the second project has only re- cently become effective. The development of the tobacco project has been slower than expected mainly due to inadequate services (principally water) in the new settlement areas and pressure to cultivate collectively. The project has been rephased, a better water system provided, and most project farmers are being allowed to farm individual tobacco plots within ujamaa villages. The smallholder tea project is also facing problems with farmer recruitment, and the planting program is two years behind schedule. Weak management and other difficulties have slowed progress, and it is expected that the project will be rephased. Construction under the agricultural train- ing program is not now expected to be completed on schedule due to delays in tender procedures; however, all contracts for construction of various insti- tutions have been awarded. The cotton project only became effective in April 1974. The Kigoma Rural Development Project is scheduled for Board presentation on August 6, 1974. 1.04 The application to the Bank Group was prepared on behalf of the Government of Tanzania by HVA International with assistance from the Regional Mission in East Africa (RMEA). This report is based on the findings of an appraisal mission to Tanzania in November/December 1973 composed of Messrs. J.H. Cleave, H. Malik (part-time), (IDA); J. Duyverman, T.G. Haworth and H. Idehara (Consultants); and accompanied by R. Stern (Loan Officer). II. BACKGROUND A. Agriculture in the Economy of Tanzania 2.01 With a per capita income of only US$110 Tanzania is one of the world's poorest countries, but one which is making determined efforts to develop as a self-reliant society. Of the total population, estimated in 1973 at 14 million, about 90% are dependent on agriculture for their living. The population is growing at about 2.8% a year, but with the exczeption of a few areas where soils and climate are particularly favorable, there is little land pressure and the overall density is under 15 per km2. Agri- culture contributes 80% of commodity exports and 40% of total GDP, but in the period 1968-1972 has had a disappointing real growth rate of 2.4% which can be attributed to a combination of poor commodity prices and low invest- ment in farming. There are only limited prospects for non-agricultural exports or import substitution developments and with agricultural exports sluggish at a time when development efforts were making major demands on foreign exchange, the country has recently incurred a serious deficit in its external trade balance. More recently, unexpectedly high prices for sisal, coffee, tea and cotton improved this picture but foreign exchange resources were drained in 1973 by imports of other foods including sugar (US$18.0 million) and maize and wheat (each about IJS$5.0 million). 2.02 Tanzania's development policy aims at reducing inequalities in in- come distribution through State control or ownership of important industries, services, and large-scale agricultural enterprises, and through emphasis on a communal smallholder agriculture within the framework of the ujamaa village (para. 3.06) in wlich families group themselves to receive increased levels of Government services. Major responsibility for many development programs - 3 - has been decentralized to the 18 Regions of the country and within these to 63 Districts; nationalized enterprises are typically run as subsidiary and associate companies of parastatal organizations. B. The Sugar Industry Production Units 2.03 Tanzania's sugar is grown by four estates, all small by interna- tional standards: the Tanganyika Planting Co. (TPC), at Arusha Chini; Kagera Sugar Co. Ltd. in West Lake District; Mtibwa Sugar Estates in Morogoro Dis- trict; and Kilombero Sugar Campany (KSC), in the Kilombero Valley. TPC, op- erating since 1936 and still privately owned by Danish interests, is respon- sible for over half the country's production. All cane is irrigated, mostly estate grown, and a long milling season helps make this the most efficient plant in Tanzania. Plans call for a 60% expansion in production by 1978. Kagera, formerly a private estate and factory which opened in 1958, is prin- cipally growing rainfed cane. Government has recently acquired a 70% in- terest and is planning participation in a factory expansion, to start up in 1978, and scheduled to exceed 60,000 m ton/sugar a year by 1983. Current production is 8% of the national total. Mtibwa, privately built in 1960/61, is now an associate company of the Sugar Development Corporation (SDC) (para. 2.05) which holds 50% of the capital: the balance is private. Cane is supplied by both estate and outgrowers. The factory supplies about 7,000 tons (6% of production), but this is planned to expand to nearly 50,000 m tons by 1985. Kilombero Sugar Company (KSC) 2.04 KSC is the newest of Tanzania's sugar plants, first producing in 1962. The principal investors, including IFC, sold out to Goverrnent in 1969, following a move by Government to reduce the assured ex-factory price of sugar from a level which it regarded as including a subsidy to KSC. The company had, in fact, experienced considerable problems in its development and earned a profit in only two of its first seven years of operation. A previously unknown cane disorder, "yellow wilt", had depressed cane yields and was only eradicated after drainage improvements were effected and new cane varieties introduced. On the management side, poor cost control and inadequate tractor maintenance were problems, but following a 1965 managing agency agreement with HVA International (a Netherlands company), these have been overcome. Except for a set-back in 1972 when a newly installed diffuser led to excessive down-time, KSC has recently been operating efficiently, as is reflected in its operating results (Annex 1). Sugar Development Corporation (SDC) 2.05 A Sugar Development Corporation was established in February 1974 with powers to develop the sugar industry in Tanzania; to engage in sugar growing, processing and marketing; and to manage the affairs of any company in which it -4- holds a controlling interest. A General Manager was appointed on the creation of the Corporation, but regulations governing its mode of operation are still to be published and its staffing and structure to be decided. The Corporation has taken over the sugar sub-department of the National Agricultural and Food Corporation (NAFCO) from which it has also inherited investments in KSC, Mtibwa and Kagera. It may be expected later to directly participate in marketing and thus take over the present functions of the National Sugar Board (NSB) and General Foods Company (GEFCO). Marketing Organization and Price Policy 2.06 The National Sugar Board is responsible for controlling and re- gulating the production and marketing of sugar on the Tanzania mainland, as well as for handling imports. NSB employs GEFCO, also a parastatal agency, as its marketing agent. For a fixed fee GEFCO distributes sugar to 132 depots where it is sold to wholesalers - in nearly all cases Cooperative Unions - who in turn sell to retail outlets, usually private shopkeepers. 2.07 Prices are set by Government at factory, wholesale and retail levels. Pricing policy is flexible and more pragmatic than it was at the time IFC and other investors relinguished their holding in KSC, and the factory price varies according to the assessed needs of each plant. Thus, because it is in the development stage, Mtibwa receives a higher ex-factory price than the other producers (Annex 2) and an appropriate formula would be worked out for KSC with the addition of the new factory and estate expansion (K II). Uniform wholesale and retail prices are set for the depots, although the retail selling price may be increased by the amount of transport costs for sales away from depots. The retail price was raised 25% in June 1972 when it was discovered that at the previous level smuggling to neighboring territories was taking place; a further 50% increase was put into effect in March 1974 in the face of high import prices. The present price (Tsh 3.00/kg) covers all costs of domestic production, meets the full cost of imports, and allows for a reserve for the future development of the industry to be built up. The varying margin between ex-factory prices and the uniform retail price is offset by varying the per ton levy paid into a reserve held by NSB. In April 1974 the fund was in deficit by about US$11.0 million equivalent, as it was used to purchase imported sugar when the levies were lower. It is however estimated that by 30 June 1974 the deficit will be reduced to US$4.8 million. The development fund levy should at that time total US$3.0 million. Supply and Demand Situation 2.08 For historic reasons all four Tanzania mills produce semi-refined sugar, a higher grade than is found in many underdeveloped countries, but for which production costs are little different from those of "mill-white" sugar, the less refined grade. Between 1962 and 1972 production increased from 37,000 m tons to nearly 90,000 m tons annually, but it has since stagnated 5- around this level with existing factories operating at close to capacity. However, consumption has increased rapidly, and in 1968 Tanzania beg,an im- porting sugar. In 1973 it imported 50,000 m tons, or 37% of natior.al con- sumption, at a foreign exchange cost of Tsh 131.0 million (US$18.0 million). The increase in consumption was partly due to population growth, but there was also an unprecedented increase in per capita consumption averaging 1 kg or 15% per year between 1970 and 1972. This has been attributed to income growth and its more equitable distribution, urbanization, increased industrial use, and smuggling from Tanzania at a time of relatively low retail prices. The high growth rate did not continue in 1973, but with per capita consumption still only 10 kg per head a year 1/, continued growth in demand can be ex- pected. Assuming an annual increase in per capita consumption of 0.6 kg, and population growth continuing at 2.8%, and with this Project and other plans for expansion effective, further sugar developments will need to be operational by 1981 if expanded domestic demand requirements are to be met (Annex 3). Research 2.09 Sugar research in East Africa is coordinated by the East African Agriculture and Forestry Research Organization (EAAFRO) which has its head- quarters at Maguga in Kenya, the plant quarantine center. The main EAAFRO sugar research station, responsible for the introduction and selection of foreign varieties and breeding of new varieties, is at Kibaha in Tanzania. Pest control research is based in Uganda. National research is the respon- sibility of the Ministry of Agriculture (Kilimo) but only limited selection and variety trial work has been carried out on its research station at Katrin, and most applied research has been carried out on sugar estates; even this has been inadequate in quantity and quality, however. KSC main- tains two agronomists who run field trials including variety selection for commercial planting under a program prepared in cooperation with HVA. This research program and staffing should be stepped up (para. 4.13) and EAAFRO and Kilimo urgently need to improve the coordination and output of their work programs. III. THE PROJECT AREA 3.01 The Project area is in the Kilombero valley, in Kilosa District, Morogoro Region. It covers some 37 square miles, located to the north of and next to the existing Kilombero (K I) estate, which has similar topography and climate. It is confined on the west by the Migomberama mountains, to the south by the Great Ruaha River and the K I estate, and on the east by Selous Game Reserve (Map). It is linked to Dar-es-Salaam by a railway and 370 km of all-weather road. 1/ Compared with annual per capita consumption in 1972 of 16.6 kg for Kenya, 14.8 kg for Uganda and over 50 kg for the U.S.A. and U.K. (Annex 3). -6- 3.02 The mean annual rainfall is 1,550 mm, varying in 12 years from 1,050 mm to 2,480 mm. Nearly 85% of the rainfall occurs in the 6 months from December through May (Annex 4). The area is drained by a network of small rivers, tributaries of the Great Ruaha. Parts are subject to seasonal inunda- tion, but this can be readily overcome by clearing existing streams and pro- viding some additional drainage. 3.03 The Great Ruaha River would be the source of water for the factory and for irrigation. In its upper reaches the river is used for the Kidatu Power Project (Loan 715-TA), the reservoir for which is due to be filled in 1975. KSC has abstraction rights for 212 cusecs of water from the river, a quantity well in excess of the needs of K I and the Project factory (K II) combined, about 40% of the lowest recorded river flow. This quantity would continue to be available during the filling of the reservoir and after comple- tion of the Kidatu Project. 3.04 About 95% of the area consists of neutral sandy to loamy alluvial soils with micas. There is a deep topsoil, rich in organic matter. It has fair to good structure, and is equally suitable for hand or mechanical cul- tivation. The physical and chemical properties of the soil are favorable for cane growing, and are generally better than those in the K I area. The Project area is covered by open low secondary forest and bush with patches cleared for shifting cultivation. Land clearing should present no difficulties. 3.05 The sparse population in the Project area is mostly engaged in trad- itional agriculture. Local crops are rice, cassava, maize, sweet potatoes and beans grown for subsistence. Few farmers grow significant amounts for sale; the only cash crop in the area is sugar cane, of which some 2,200 acres are cultivated by outgrowers presently supplying K I. Local families also provide labor for K I, but the skilled cane cutters tend to be seasonal migrants especially from Nbeya District. There would be no shortage of such labor for K II. Ujamaa Villages 3.06 A major instrument of Government's rural development strategy is the encouragement of production on communal lines in ujamaa villages, typ- ically of 60-70 families. Although the objectives of the ujamaa program are political and social, Goverment recognizes the need for the villages to be economically viable and encourages them to participate in new market- crop ventures. There are already six ujamaa villages in the Kilombero valley growing cane collectively for K I, and two of these - Kitete and Kidogobasi - are in the Project area. These two presently have 120 acres under cane grown under a strict schedule laid down by KSC. They still have difficulty keeping to harvest schedules, however, and it would be important to monitor the capacity of the villages in their early years with the new crop and to maintain flexibility in the outgrower development programs. -7- Kilosa District Development Corporation (KDDC) 3.07 The District Development Corporation (DDC) concept was launched in the mid-1960's as the local counterpart of the centrally organized parastatals. A DDC is a limited company and is, in effect, the commercial wing of the Dis- trict Development and Planning Committee. Its objectives are to stimulate commercial activity in the District by participation in viable enterprises. KDDC was established in February 1973 with Tsh 500,000 capital. It is cur- rently operating a petrol station and plans to take up new land in the Proj- ect area and operate as an outgrower to the Project. In conformity with national practice, Government would make a 25% grant contribution (about USS197,000) towards KDDC's development expenses. Land Tenure 3.08 Land rights in Tanzania are vested in Government. The land required by the Project has already been earmarked for the various categories of growers. There are under 2,000 families in the Project area, including two small ujamaa villages and an outgrowers sugar estate. Some families have had to move from or within the Project area: they have resettled successfully, some joining ujamaa villages where they will take up cane growing; others moving to the roadside where they are trading and are a potential source of labor for K II and KDDC. Government has paid compensation for buildings and permanent crops to the families who have had to move. IV. THE PROJECT A. General Description 4.01 The Project would over five years (1974-1978) comprise two major elements: Part I, the development of a new sugar estate and outgrowers land adjacent to the existing Kilombero estate, which it is proposed would be financed with assistance from the Bank Group; and Part II, the provision of a new factory mainly financed by bilateral aid funds. By 1982 the Project would increase the annual production of semi-refined sugar by 45,000 m tons. 4.02 Specifically Part I of the Project would comprise: (a) Land Development: (i) development of a 7,300 acre sugar estate, partly under irrigation, and provision of cultivation equipment, roads and cane transport; (ii) development of 2,400 acres of new, rainfed land for outgrowers, (comprising the Kilosa District - 8 - Development Corporation (KDDC) and farmers settled in ujamaa villages); and (iii) expansion of about 2,200 acres of existing out- growers land for K I to replace outgrowers whose production would be diverted to K II; (b) Non-factory Ancillaries: provision of staff housing, water supply and com- munity facilities, and a rail link; (c) Training and Research: (i) on-the-job and overseas training for factory and field personnel; (ii) provision to increase adaptive research at KSC; and (iii) provision for the identification and preparation of feasibility studies on further sugar developments in Tanzania. Part II wfould comprise: (d) the erection of a 2,400 TCD (tons of cane per day) sugar factory complete with ancillaries under a fixed-price turnkey contract; and (e) supervision of construction under a separate contract. 4.03 The Project would be executed by the Kilombero Sugar Company (KSC), initially under the direction of its managing agents, H.V.A. International b.v. (HVA) who would also undertake the construction supervision of the factory in Part II under a second contract. B. Detailed Features Land Development 4.04 The Project would provide for the purchase of equipment to clear and develop 7,300 acres of land north of the Great Ruaha River in the Kilombero valley for a sugar estate. This equipment would also be used to develop land for outgrowers who would, at full development, manage 4,600 acres of cane. Most of these would be new outgrowers in the K II area where relatively thick bush would be cleared mechanically; others, in the Msolwa area (Map), would be outgrowers currently supplying K I. The latter would increase their acreage -9- to offset the transfer to K II of existing outgrowers situated in the K II area. In order to bring the factory to full capacity operation as quickly as possible it is proposed that most land be cleared, prepared and planted in three dry seasons (Annex 5). The land development program is summarized below (figures in acres): Final Use 1974/75 1975/76 1976/77 1977/78 Total Nursery and irrigated estate 100 2,700 700 - 3,500 Rainfed estate 2,060 /1 220 760 760 3,800 New outgrowers, K II - 960 960 480 2,400 Outgrowers, K I /2 600 600 500 500 -27200 Total 2,760 4,480 2,920 1,740 11,900 /1 Of which 1,400 acres for nursery and milling cane would be irrigated by portable pumps in the first year. /2 Extension of existing areas, mostly hand-cleared. Once the normal cycle was established, all cane land (estate and outgrowers) would be cropped in a 5-year rotation comprising one year of plant-cane and 4 ratoons. 4.05 Estate. To ensure an even supply of cane for milling, 3,260 acres of the estate milling cane, about 45% of the total, would be put under sprinkler irrigation. The 240 acres of nurseries would also rotate in the irrigated area. Estate development would include building 87 km of roads laid out on a 500 m square grid; construction of bridges and culverts; the improvement of natural drainage; and construction of about 22 km of drains. For the irrigation system a pressure pump station with a 1,470 1/sec. ca- pacity would supply permanent underground mainlines feeding terminals from which portable sprinkler lines would deliver water to the fields. A portable sprinkler system has been operated successfully by KSC for some years. 4.06 Outgrowers (Annex 6). Outgrowers, who would work 40% of the cane area producing one-third of total milling cane, would consist of: (a) Kilosa District Development Corporation (KDDC) (1,560 acres); (b) three ujamaa villages with a total of 240 families (960 acres); (c) two existing estates and about 120 smallholder farmers growing in total about 2,080 acres of cane and currently supplying the - 10 - K I factory. Their supplies to K I would be made up by expan- sion of production by about 520 families and 4 small estates in the Msolwa valley, south of the river (Map). 4.07 Provision would be made for providing these outgrowers with exten- sion services. The land would be developed by the Project up to planting and would then be handed over to the outgrowers. The little new land clearing needed in Msolwa would be by hand. Subsequent land preparation services for new outgrowers, except KDDC, and cane transport would be by KSC. The full cost of development and subsequent services carried out by KSC would be re- covered from outgrowers by deductions from cane sales (paras. 5.08 and 6.07). 4.08 Land Allocation. Although the areas for estate and outgrower devel- opment have been designated, it has been agreed by Government that the pro- gram could be revised in the interests of a viable sugar operation. Specif- ically, if the rates at which ujamaa villages expand and at which KDDC proved able to operate its cane land were slower than anticipated, KSC would develop and operate the fields until the outgrowers were ready to take over the de- veloped areas. This arrangement would be at a negotiated price reflecting the costs and any returns to KSC of the development. At negotiations Govern- ment confirmed this arranaement. Equipment Requirement (Annex 7) 4.09 Tne rate of cane-land development is critical to the achievement of target sugar production and the land development schedule is, in turn, dependent on the timely procurement of necessary machinery; this would in- clude 31 crawler and 41 wheeled tractors, which with other equipment for land development and preparation are estimated to cost nearly US$3.0 million. Detailed requirements and a procurement timetable are at Annex 7, Table 6. As labor availability is limited, cropping operations on tile estate, with the exception of cutting, would be mechanized. Cane transport would be by tractor-drawn side-loading carts on to which the cane, piled by the cutters, would be pulled by wheeled tractors - a system currently operating satisfac- torily on the K I estate. A further 146 haulage tractors, loaders, trailers and implements valued at about US$2.0 million would be needed for harvesting and cane haulage. Non-Factory Ancillaries 4.10 Supporting investments under Part I would consist of: (a) construction of an access road and a rail siding to the factory; (b) provision of two deep wells for potable water; (c) development of housing areas including roads, water and elec- tricity supplies, and construction of 47 senior and 120 junior staff houses, and housing for permanent and seasonal laborers; - 11 - (d) construction of a guest house, community center, sports field, shopping area, primary school, and police station. Construction would be by local contractors under KSC supervision. The rails would be laid on a KSC built rail bed by East African Railways. Training and Research 4.11 An on-the-job training program supn emented by compulsory work-time classes would be instituted for field and factory staff of KSC. This would be supported by training in Tanzania and abroad for selected managerial and technical posts. Training would not only aim to provide staff for K II but also to facilitate the eventual localization of all of KSC staff as well as the transfer of trained personnel to new sugar developments as they take place. 4.12 To allow for training time, the factory and field staff of K I would be over-staffed at supervisory and trainee levels, starting a season prior to the opening of K II and thereafter as needed (Annex 8). Provision for a full- time training officer, for his accommodation, for classrooms and equipment, and for 15 man-years of overseas fellowships and 60 man-years of training in Tanzanian technical schools would be included in Part I of the Project. In addition, nurseries included in Part II w;ould cover five man-years of train- ing in the Netherlands. The Training Officer would prepare training curri- cula for both K I and K II, and would supervise senior and supervisory staff responsible for training. This person would have long experience of training in the sugar industry. At negotiations assurances were obtained that this appointment would be made by KSC only after consultation with the Bank Group as to the candidate's qualifications and experience. 4.13 An increased program of adaptive research into irrigation and drain- age, field mechanization, smut and nematode control, and cane quality of new varieties appropriate to the Project area is needed if KSC is to continue to improve its performance. Provision would be made for two additional qualified agronomists and two assistants to join the research division (cur- rently under the Agricultural Manager) to undertake this program, as well as for the necessary supporting equipment. Future Sugar Developments 4.14 To avoid continued piecemeal growth of the industry, the Project would include provision for a countrywide survey of sugar potential which would identify possible development areas and include preparation of detailed feasibilitv studies. Provision would be made for forty man-months of inter- nationally recruited consultants' time for the survey and report preparation, and for support staff and travel. The survey team would consist of an agri- culturalist with sugar and irrigation experience, a sugar processing specialist, an agricultural economist, and a financial analyst. Draft terms of reference for the study are at Annex 9. Because of the long lead time involved, and - 12 - particularly as pilot growing areas would need to be established, priority should be given to an early start to this study. At negotiations assurances were obtained that Government would ensure that SDC would obtain Bank Group approval on its proposals for organizing the study prior to finalizing the selection of consultants. Sugar Factory 4.15 Part II of the Project would include the construction, in the new sugar growing area, of a sugar factory for producing semi-refined white sugar. The factory would be supplied under a fixed-price turnkey contract 1/ which includes the cane mill and refining plant, steam and power generation plants, factory and tractor workshops, warehouses and storage tanks, offices, pump stations and canals for factory and irrigation water supplies, a telephone system, and spare parts for the factory equipment (Annex 10). Part II of the Project would also include provision for supervision of the construction under a separate contract: the factory would be operated by the existing KSC manage- ment and most senior posts would be common to K I and K II (para. 5.01). 4.16 The factory would be a standard plant with off-the-shelf components. It would be capable of milling 2,400 m tons of cane/day (TCD) and producing 45,000 m tons of sugar in a 200-day gross milling season 2/ at an outturn of 10.5% sugar/cane. It would be located at the SW corner of the new estate and outgrowers development area. The size of the plant is restricted by the availability of proximate sugar land. The plant could, however, handle up to 10% more cane if yield improvements made this volume available, and the proposed factory layout and its design factors are such that if sugar prices permit haulage of cane over a greater distance, the plant could be expanded to 3,000 TCD to produce 60,000 m tons of sugar a year. The milling season is dictated by the influence of the rainfall pattern on cane ripening and harvesting conditions: over the last 12 years the average period of suitably dry weather has been 234 days and only once was the weather so wet that the net milling days could not have been achieved. The influences on the location of the factory are building and access costs and cane transport costs. Trans- port costs would be minimized by a central site which would, however, involve greater investment for water, power and a rail-line than a site closer to the river and railway. The SW corner site, now agreed upon, involves US$2.2 million less in investment costs and slightly increases the rate of return on the Project despite higher haulage costs over a central location. The proposed process, scale and location of the factory are discussed in Annex 11. 4.17 Start up of the K II factory is scheduled for July 1976; achieving this target would be important if the first cane crop - estimated to require 158 days to process including 15% down-time - is to be milled. It is es- timated that the factory would take 26 months to complete from the date of 1/ Signed on April 5, 1974. 2/ This allows for 10% down-time on the plant over the net milling require- ment of 181 days. - 13 - contract effectiveness (April 26, 1974). The irrigation water supply system and the tractor workshops would be needed early in 1974/75 for use by KSC in the development of the estate. Immediate implementation would also be needed for the factory access road and preparation of a rail bed, and early completion of staff and labor housing would reduce the need for temporary accommodations. 4.18 A critical path analysis which brings together the interrelated estate, factory and ancillary developments is at Annex 12: the critical paths are shown as a heavy line on the diagram and key dates are indicated. Although the development program is tight, the factory construction schedule is the subject of the signed turnkey contract, while preliminary work already in progress at June 1974 indicates that the timetable for the estate and outgrower cane development (in part interchangeable (para. 4.08)) should be capable of achievement. The existence of some established facilities and management in K I should help facilitate this implementation. C. Project Costs (Annex 13) 4.19 Total Project cost is estimated at Tsh 398 million (US$55.8 million), of which US$43.7 million or 78% would represent foreign exchange requirements. Details are summarized in the following table: Proportion Foreign Local Foreign Total Local Foreign Total of Total Exchange (Tsh million) (US$ million) % Part I Development Costs Land development, transport, and irrigation equipment 3.2 45.6 48.8 0.4 6.4 6.8 12 94 Other land development costs 11.0 6.7 17.7 1.5 1.0 2.5 4 38 Non-factory buildings and equipment 9.6 4.4 14.0 1.4 0.6 2.0 4 32 Water and electricity supplies 0.9 1.6 2.5 0.1 0.3 0.4 1 65 Community facilities 1.7 0.6 2.3 0.2 0.1 0.3 1 25 Access Railway and Road 1.7 2.7 4.4 0.2 0.4 0.6 1 60 Sub-total 28.1 61,6 89.7 '3.8 8.8 12.6 23 69 Research and Training 3.1 3.0 6.1 0.5 0.4 0.9 1 49 Sugar Survey 0.5 1.6 2.1 0.1 0.2 0.3 1 73 Kilosa District Development Corp. 0.5 0.2 0.7 0.1 - V 0.1 - 3/ 29 Total 32.2 66.4 98.6 4.5 9.14 13.9 25 67 Contingencies Physical 3.8 7.4 11.2 0.6 1.0 1.6 3 4 66 Price 18.3 35.5 53.8 2.5 5-0 7.5 13 5/ 66 Total Part I 514.3 109.3 163.6 7.6 15.4 23.0 41 67 Part II Factory (Tamkey contract including plant, machinery, freight insurance and local transport) 32.2 195.2 227.4 4.5 27.3 31.8 5 7 86 Factory supervision - 6.9 6.9 _ 1.0 1.0 2 100 Total Part II 32.2 202.1 234.3 4.5 28.3 32.8 5 9 83 Total Project Cost 86.5 311.4 397.9 12.1 43.7 55.8 100 18 1/ Including contingencies. 2/ Less than US$100,000. 3/ Less than 0.5%. v 3% on total Project cost and 11% on Part I base cost. §/ 16% on total Project cost and 54% on Part I base cost. - 15 - The taxation component of Project cost is estimated at less than l'S$0.2 million. Costs are based on the signed contracts for the turnkey factory, on the proposal for the supervision contract, and on appraisal estimates for ancillary items. Physical contingencies of 10% have been app'ied to all Part I items, and to these same items cumulative price contingencies averaging about 21% in year 1, 13% in year 2, 12% in year 3 and 11% in years 4 and 5 have also been applied to both local and foreign exchange costs. (Annex 13, Table 1). With the exception of freight and insurance (for which price con- tingencies have been added) the price agreed for the factory is firm for the duration of the contract and includes adequate built-in provision for con- tingencies (Annex 10). D. Financing 4.20 Financing of Project costs would be shared as follows: Dutch Danish Govt. Govt. IDA Bank Tanzania Total ---US$ (million)-------------------- Part I (estate and ancillaries) - - 9.00 9.00 5.00 23.00 Part II (Factory) 11.00 17.30 - - 4.50 32.80 Total Financing 11.00 17.30 9.00 9.00 9.50 55.80 =, =._ Percent of Total 20 31 16 16 17 100 The Tanzania contribution includes KSC self-generated funds of about US$4.0 million (para. 6.08) and the Tanzania budgetary contribution is thus expected to be reduced to about US$5.5 million, 10% of total Project costs. 4.21 The proposed IDA Credit of US$9.00 million would be on standard terms and the proposed Bank loan of US$9.00 million would be for 25 years including five years in which interest only would be paid. Proposed Bank Group financing represents 78% of Part I costs including all foreign exchange costs and about 34% of local costs. The Dutch loan would be on the same terms as the IDA Credit. The Danish contribution representing parts of three loans to Tanzania would be part repayable over 25 years with 7 years grace and part over 35 years with 10 years grace, all at zero interest. For both Dutch and Danish aid funds, 75% of expenditure must be used for goods or services originating in the lending country. The composition of supplies for Part II takes this into account and tne bilateral financing is expected to be available as needed under the terms of the turnkey contract (Annex 10, Table 1). Evidence of firm commitments of the funds by the Dutch and Danish Governments would be a condition of effectiveness of the proposed Loan and Credit. The Danish loan is part of a larger commitment to Tanzania which is - 16 - not tied specifically to this Project. At negotiations, Government assurances were obtained that it would commit not less than the equivalent of US$17.3 million of Danish loan funds to the Project. 4.22 Apart from funds required for the sugar survey (which would be a grant to SDC), Bank Group finance conmitted to Part I of the Project would be on-lent to KSC at 9% per year interest. The proceeds of both the Loan and Credit would be.repayable by KSC over 25 years including 5 years in which interest only would be payable. Danish and Dutch aid would cover Part II of the Project and an assurance was obtained that not less than 30% nor more than 50% of the total proceeds,would be passed to KSC through SDC as equity capital. The Tanzanian contribution, other than that derived from KSC's self-generated funds, would be passed to KSC as a 9% loan or equity as appro- priate. The execution of financing agreements between Government and KSC acceptable to the Bank Group would be a condition of Loan and Credit effective- ness. 4.23 In order not to delay the start-up of the factory, preliminary work on land clearing and development, access roads, rail bed preparation and site clearing are already being undertaken. To meet such costs incurred between May 1, 1974 and Project effectiveness, provision would be made in the IDA al- location for a sum not exceeding US$0.7 million from which expenditures on equipment and civil works may be met by retroactive financing. E. Procurement 4.24 Procurement from the proceeds of the Loan and Credit would be as follows: (a) orders for vehicles .and related.e.quipment for land clearing and preparation, for cane transport, and for administrative and service staff, irrigation, potable water and electricity transmission equipment (US$7.4 million) would be bulked to the maximum extent,possible. Procurement would be by inter- national competitive bidding in accordance with Bank Group guidelines unless the bulk order was less than US$30,000 in which case procurem!ent would be in accordance with Government procedures which are satisfactory. Any items retroactively financed,would have had to meet these criteria. In evaluation of.bids local manufacturers would be allowed a 15% preference or the existing rate of import duties, whichever is lower. The sugar survey and feasibility studies would be by con- sultants appointed in accordance with Bank Group.guidelines; (b) civil works construction (US$2.3 million) would also be procured by international competitive bidding except for small individual items costing less than US$30,000. Prequalified local firms would be given a 7-1/2% preference in the evaluation of their bids; - 17 - (c) land preparation, road construction, rail bed construction, and installation of irrigation equipment (US$2.6) would be by KSC which has an established organization able to undertake this work. Rail line would be procured and laid by East African Railways under their standard procedures. Potable water and electricity would be installed by KSC or by local contractors. Assurances that the above procedures would be followed were obtained at negotiations. F. Disbursement (Annex 14) 4.25 Disbursements would be made first from the Credit account and then from the Loan account on the following basis: (a) 100% of foreign expenditure or 85% of local expenditure for land clearing and preparation equipment, other tractors, trailers and vehicles, irrigation equipment and potable water and electricity supply equipment and materials, furniture and equipment for non-factory buildings (US$8.4 million); (b) 75% of expenditure on construction of houses, the community center and school and other non-factory buildings, railway, road and bridge construction, and land clearance and preparation equipment (US$4.2 million); (c) 100% of foreign expenditure or 75% of local expenditure for the sugar survey and feasibility study and for research and training (US$1.1 million). Disbursements would be fully documented. Any funds remaining in the accounts at the completion of the Project would be available for reallocation at the discretion of the Bank Group. G. Accounts and Audit Procedures 4.26 Separate accounts reflecting the income and expenditure of K II, and normal commercial accounts geared to cost control and management information related to all operating departments would be kept by KSC. Current accounting systems need strengthening (Annex 1), and to this end KSC intends to recruit an experienced Financial Controller. Assurances were obtained at negotiations that such a person would be recruited. Accounts would also be kept by KSC for the cane-growing operations of the ujamaa outgrowers, and KDDC would be required to keep normal commercial accounts of its sugar operation. Assurances - 18 - were obtained at negotiations that the accounts maintained by KSC would be audited by independent auditors acceptable to the Bank Group and that the accounts and auditors reports would be submitted to the Group within 6 months of the close of their fiscal year. KDDC accounts would be audited by the Tanzania Audit Corporation (TAC). V. ORGANIZATION AND MANAGEIENT 5.01 The K II factory and estate would be an integral part of KSC, which is itself wholly owned by SDC (para. 2.05). KSC - with the guidance of HVA, its managing agents since 1965 (para. 5.04) - would have overall responsibil- ity for organizing and managing the Project. KSC has the capacity and ex- perience to undertake both functions. Existing management staff of KSC and senior factory, agricultural and administrative posts would be common to the K I and K II estates and factories. The 18 joint posts are identified in Annex 15. However, except in such cases as a mill breakdown when cane from one estate or its outgrowers may be transferred to the other factory for processing, the day-to-day running of K I and K II would be separate and most field, factory and administrative personnel would be identified with one of the plants. Twenty-six new management posts, of which 12 are expected initially to be filled by expatriates, are also shown in Annex 15. Project Construction Organization 5.02 The agricultural development program - estate and outgrowers - would be handled directly by experienced KSC staff of the Agricultural Services Division using additional machinery and equipment included in the Project. Most of the construction of housing and community facilities would be by local contractors. The factory development program, including ir- rigation water supplies, would be handled as a turnkey package with equipment provided by, and civil works undertaken by, a Dutch/Danish consortium of reputable firms with experience in the sugar industry. Supervision of the construction, equipping and testing of the factory would be by HVA under a contract to be signed with KSC. 5.03 HVA's proposal for staff under this contract, and the specifications, terms and conditions of the turnkey contract (para. 4.15) were reviewed by the Bank Group and suggestions made to Government prior to signing. Progress on construction would be checked by Bank Group supervision missions which would include a qualified consultant engineer: these progress checks would be purely advisory to Government. This arrangement is designed to meet some conflict of interest arising from the close links in the Project between those responsible for supply, supervision and execution, without the division of responsibility for Project development which would occur if a third party with executive powers were introduced as supervising engineer. Bank Group interest in all aspects of the turnkey package, other than to offer Tanzania - 19 - impartial technical assistance, would be solely concerned with the extent to which it would affect the overall viability of the Project. The Project organization at Annex 16 shows the composition of the supply consortium. Management 5.04 Under a management agreement with KSC, HVA provides an experienced General Manager and Factory Manager, as well as technical and management supervision from Amsterdam, and is responsible for recruiting other senior personnel. The current 3-year agreement has been extended pending a renewal which would be back-dated to May 1, 1974. A condition of Credit and Loan effectiveness would be that the new agreement had been signed and that its terms were acceptable to the Bank Group. This agreement would extend only through the first season of operations for K II, but it is anticipated that it would be further renewed in 1977. At negotiations assurances were ob- tained that KSC would obtain the prior approval of the Bank Group to the terms of any renewal of this agreement or to any alternative arrangements to be made. 5.05 Factory Management. Under the joint Factory Manager, the Project factory would be organized into two departments. The Technical Department, headed by a Chief Engineer, would be responsible for cane handling and juice extraction, steam and power generation, and factory maintenance. The Process Department, under a Chief Chemist, would be responsible for juice and sugar processing, sugar storage, and quality control. Initially, of some 20 senior posts in the two departments, 10 including the Chief Engineer and Chief Chemist, are expected to be filled by expatriates. An organization chart with initial staffing proposals is at Annex 15, Chart 2. The senior staffing of the Technical Department makes allowance for expatriate staff whose primary role is training local staff and dealing with start-up problems. Reductions by one first engineer and three shift engineers may be anticipated after two years. 5.06 Agricultural Management. The organization of the Agricultural Services would follow that successfully operating in K I, under which the Project shares the services of the Agricultural Manager and a team of agronomists responsible for research and disease control (para. 2.09). Operations would be divided between a Field Department, headed by a Field Manager responsible for the cane areas, and a Mechanization Department, headed by a Tractor Workshop Manager assisted by four qualified engineers responsible respectively for irrigation, cultivation, harvesting, and general equipment and vehicles. The two Managers would be persons with considerable experience in their respective fields; it is anticipated that initially they would need to be recruited internationally. Other posts in the two depart- ments are expected to be filled by Tanzanians (Annex 15, Chart 3). - 20 - Outgrowers 5.07 An assistant field manager and section manager would be responsible for supervision of, and assistance to outgrowers. They would prepare an annual planting program for the ujamaa outgrowers, and would also provide technical advice to ensure that outgrowers received optimum returns and that their production fitted factory schedules. The planting program, based upon an average of 4 acres of cane per family, could be modified in the light of ex- perience. KDDC would also initially receive technical and managerial advice from Project staff as it has no experience in land development or sugar cane growing, but would, as soon as possible, maintain its own field staff trained by KSC. Ultimately, KDDC would employ an estate manager, accountant, and field officers; would hire labor on its own account; and would enter into contracts with KSC for land preparation, mechanical cultivation, planting and cane transport. 5.08 Outgrowers would be provided mechanical services and seed cane at cost. Contracts for purchase of milling cane would be signed annually. It is envisaged that KSC would recover the cost of establishing outgrowers sugar areas through loans ranging from 6-11 years at 9% interest annually which, together with the cost of cane transportation, would be recovered from cane proceeds. At negotiations it was agreed that the proposed agreements would reflect a full recovery of KSC costs. VI. PRODUCTION, MARKETING AND FINANCIAL RESULTS Cane and Sugar Yields and Production 6.01 The average cane yield projections for irrigated cane and outgrowers have been derived from the experience of KSC with the K I estate and outgrowers. The rainfed estate cane yields have been based on the records of the better- managed K I outgrowers actually situated in the K II area. The risk of a recurrence of yellow wilt which reduced yields drastically (para. 2.04) is considered slight, while the five-cutting system, based on results of field trials carried out by KSC, is the system used in K I. Trials are continuing and the system could be altered in the light of new results or if cost/price ratios change. The cane yield assumptions are: - 21 - Estate Cane Outgrowers Cane Cutting Irrigated Rainfed Rainfed -m ton/acre…-------- Plant Cane 60 40 33 1st Ratoon 50 44 35 2nd Ratoon 45 37 30 3rd Ratoon 40 32 27 4th Ratoon 30 27 25 Average 45 36 30 Cutting takes place on average at 12-month intervals. 6.02 The cane/sugar ratio at KSC has varied in recent years between 9.1% and 11.0% and averages 10.5%. With growing and processing conditions essentially similar, it is assumed that the latter figure would be achieved in K II. 6.03 Project cane and sugar production is estimated to develop as follows: 1975 1976 1977 1978 1979 1980 1981 onward Cane Production('000 m tons) 143 322 409 436 425 419 422 Irrigated Estate 47 125 161 157 150 143 147 Rainfed Estate 30 99 116 135 134 137 137 New Outgrowers - 32 65 78 74 73 72 Existing Outgrowers 66 66 66 66 .66 66 66 Sugar Production at 10.5% ('000 m tons) 15 34 43 46 45 44 44 Milling Days Required 66 149 189 201 196 194 195 Cane harvested in 1975 would be milled in the existing K I factory which would have adequate capacity at that time. The milling days required, within the 200-day season, allow for 10% downtime: performance should be significantly better than this. Markets 6.04 Sugar produced under the Project would be consumed within Tanzania in substitution for imports. Most would go to the retail market which, on the basis of anticipated increases in population and per capita consumption and in view of existing plans for expanding production, is unlikely to be satisfied from domestic sources in the next decade (para. 2.08). Molasses, a by-product, would be exported. - 22 - Prices 6.05 By 1980 the price of sugar on the world market, expressed in 1974 constant dollar terms, is expected to be around 8.7 USE lb., raw, f.o.b. Caribbean, compared with 19.3 USA lb. in the first quarter of 1974 and an average for the 5 years, 1969 to 1973 of under 6.0 USA lb. (Annex 17). Constant term import substitution prices are used for evaluation. The 1980 price is the equivalent of about Tsh 1,765 per m ton c.i.f. Dar-es-Salaam for refined sugar, comparable with a current net ex-factory price of Tsh 1,370 per m ton for Mtibwa and Tsh 1,080 per m ton for KSC, TPC and Kagera (Annex 2). Under an agreement proposed with a private company (United Molasses Trading Company), the minimum price for molasses through 1981 would be Tsh 70.00 per m ton; a price of Tsh 150 per m ton is expected, however. 6.06 For cash flow purposes, from 1976 onward an ex-factory price of Tsh 1,450 m ton has been assumed for KSC as an entity, including the K II expansion (Annex 18). This implies the payment of the full long term im- port substitution price to K II and an increase of Tsh 55 m ton, to Tsh 1,135 m ton to K I. Even at present levels of operating costs (Annex 1), a need for at least this increase is required to give a reasonable return on the investment. At this level and with a debt/equity ratio of 50%, KSC would be able to service its debt and pay a dividend averaging about 9% on equity (Annex 18). 6.07 At negotiations Government agreed that, in recognition of the need to cover all costs, it would set an ex-factory price for KSC sugar which would give a return on all capital employed, taking one year with another, of about 9%: at present costs this would amount to between Tsh 1,450 and Tsh 1,500 per m ton. Retail prices will need to be reviewed regularly in the light of such factors as production costs and import prices (para. 2.08). At negotiations assurances were obtained that Government would undertake such reviews. A price of Tsh 50.00 m ton for outgrowers cane de- livered to the factory weighbridge has been used in projections. This is an increase over the present price to outgrowers of Tsh 42.50 and is necessary to cover costs and give farmers an incentive to grow cane (Annex 19). The cane price to be paid to outgrowers was discussed at negotiations and an assurance was obtained that KSC would keep under review the price payable for outgrowers cane and would adjust this as necessary to ensure the maintenance of production incentives. Government Budget and Foreign Exchange 6.03 Tanzania would finance US$9.5 million (about 17%) of the total Project cost (para. 4.20). At least US$4.0 million of this sum would be available from KSC self-generated funds whose net surplus after taxation in the 5 years 1973/74 to 1977/78 is expected to total about US$10.0 million (the balance mainly arises in the Project's final year). In the same period Government would expect to receive a further US$4.0 million in excise duty - 23 - on the incremental sugar from K II. There are no significant external costs imposed on Government by the Project, and from 1978/79, the Project's sixth year, Government is expected to show a positive net cash flow exceeding US$5.0 million a year (Annex 20). VII. ECONOMIC BENEFITS AND JUSTIFICATION 7.01 The Project would improve Tanzania's foreign exchange position by substituting domestic production for sugar currently imported. From 1979 the Project would result in an average annual incremental production of sugar of 45,000 m tons and 16,000 tons of molasses together worth US$16.8 million on the world market. The annual net saving or earning of foreign exchange would be nearly US$14.0 million equivalent. The impact of the Project on foreign exchange reserves is shown in Annex 20, Table 2. The Project would provide a cash crop for nearly 800 farm families mostly organized in ujamaa villages, and give a recently formed District Development Corporation a valuable enterprise to operate. Economic Rate of Return 7.02 The internal economic rate of return (IER) on the Project is estimated at 13% over 20 years (Annex 21). In this calculation foreign exchange costs and earnings were shadow priced at Tsh 10.00 per US$1.00 (140% of the official rate of Tsh 7.14 per US$1.00) to reflect the economic value of foreign exchange to Tanzania. Without shadow pricing the return would be 11%. All other costs and benefits are taken at long term market prices, in 1974 terms, less taxes and excise. The estimate of 13% is lower than it would be if it had been possible to define and omit an element of price contingencies included in the fixed price negotiated for Part II of the Project. Normally such contingencies would be removed for IER calculation. Sensitivity Analysis 7.03 The Project could be adversely or favorably affected by several factors and the influence of these on the internal rate of return have been tested (Annex 21). Risks faced in the Project are, in particular, unforeseen delays in land development and factory construction, lower than anticipated sugar prices, and yields below estimates. The consequences of the K II fac- tory not coming on stream for the 1976 season (para. 4.17) would not be critical because part of the cane could be processed in K I and the rest left in the field until the 1977 season at relatively small loss in yield and sugar content: the delay would reduce the return to 11%. A drop in sugar price of 20% would reduce the return to 7%, and yields consistently 20% below estimates would result in a return of 9%. Falls of this magnitude are unlikely. The Project return would be less sensitive to variations in costs of estate development, and factory and estate operating costs. - 24 - Employment and Income Benefits 7.04 Direct paid employment benefits would arise from estate and factory operations and from KDDC offering training and up-graded jobs as tractor drivers, cane cutters and about 200 supervisory and technical posts. There is virtually no labor displacement involved; the farmers who have been dis- placed in the estate area are expected to continue working either as members of an ujamaa village or in paid work on sugar or ancillary services. 7.05 Outgrower ujamaa farm families would earn an annual net farm income including subsistence of around US$275 (US$55 per person) from the second year and average about US$725 (US$145 per person) once development costs are paid off (Annex 6, Table 4). The current average agricultural income, including subsistence, of a rural family in Tanzania is estimated at US$215 (US$43 per head) and incomes in the Kilombero area are below the national average. Ecological and External Effects 7.06 Non-toxic liquid residue from sugar processing would be discharged into the Great Ruaha River. It would contain some 200 tons/day of filtermud, a dilution of solids to water equivalent to only 2 parts to 10,000 by weight of the lowest daily average river flow recorded in any month in 15 years. The river flows through an uninhabited game reserve for 170 km immediately after leaving the Estate and the effluent would not have any deleterious environmental effect. The application of irrigation water and fertilizer would be carefully controlled, taking place on estate land only: no build up of salts, no contamination of human drinking supplies, and no erosion problems are anticipated. VIII. AGREEMENTS REACHED AND RECOMMENDATION 8.01 During negotiations agreement was reached on the following points: (a) that Government agreed that in the event that outgrowers are unable to meet the schedules laid down for them, their land may be developed and operated by KSC until the outgrowers are ready to take over the developed areas (para. 4.08); (b) that KSC's appointment of a Training Officer would be made only after consultations with the Bank Group (para. 4.12); (c) that Government would ensure that SDC would obtain the approval of the Bank Group on its proposals for organizing the sugar study prior to finalizing the selection of consultants (para. 4.14); - 25- (d) that Government would commit not less than the equivalent of US$17.3 million of Danish loan funds to this Project (para. 4.21); (e) that not less than 30% nor more than 50% of the total proceeds of the Dutch and Danish aid would be passed to KSC through SDC as equity capital (para. 4.22); (f) that the procedures detailed in paragraph 4.24 for procurement under the Project would be followed (para. 4.24); (g) that an experienced Financial Controller for KSC would be, recruited (para. 4.26); (h) that the accounts maintained by KSC would be audited by independent auditors acceptable to the Bank Group and that the accounts and auditors reports would be submitted to the Association within 6 months of the close of their financial year (para. 4.26); (i) that prior approval of the Bank Group would be obtained to the terms of any renewal of the managing agency agreement due to become effective on May 1, 1974, or to any alternative arrangements which may be made (para. 5.04); (j) thit Government would set an ex-factory price for KSC sugar wliich would give a return on all caipital employed, taking one year witlh anothler, of ahout 9% (para. 6.07); (k) that retail prices for sugar would be reviewed regularly in the light of such factors as production costs and import prices (para. 6.07); and (1) that KSC would keep under review the price payable for outgrowers cane and would adjust this as necessary to ensure the maintenance of outgrowers production incentives (para. 6.07). 8.02 Conditions of effectiveness of the Credit and Loan would be: (a) receipt by the Bank Group of satisfactory evidence of firm commitments by the Dutch Government to provide the equivalent of US$11.0 million and the equivalent of US$17.3 million by the Danish Government, to meet the cost of the turnkey factory and supervision (para. 4.21); (b) the execution of financing agreements, acceptable to the Bank Group, between Government and KSC (para. 4.22); and - 26 - (c) that a new managing agency agreement had been signed between KSC and HVA on terms acceptable to the Bank Group (para. 5.04). 8.03 Subject to the above conditions, the Project is suitable for an IDA Credit of US$9.0 million and a Bank Loan of US$9.0 million to the Government of Tanzania. ANNEX 1 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Kilombero Sugar Company Ltd. (KSC)-' History 1. The Kilombero Sugar Company was formed in 1960, with IFC as one of its shareholders. The other initial investors were the Commonwealth Develop- ment Corporation (CDC), the Nederlandse Overzeese Financierings-Maatschappij N.V. (NOFC), and Verenigde Klattense Cultuur Maatschappij, followed later by Rubber Cultuur Maatschappij Amsterdam and the Standard Bank (East Africa) Ltd. The initial mill was rated at 1,300 tons cane per day, which it achieved in the 1964 season. It was expanded to 1,750 tons cane per day in 1965 and 1966, and to 2,150 tons cane per day in 1972. 2. KSC's early years were not profitable, partly due to operational problems, and partly because the price fixed by Government to be paid for sugar was inadequate to cover costs of production. At April 30, 1968 accumu- lated losses amounted to Tsh 10 million. On September 1, 1968, Tanzania Government reduced the price paid for sugar from Tsh 1,100 to Tsh 920 per long ton--that paid to the Tanzania Planting Company. Although substantial progress had been made in improving KSC operations, the principal investors and the Board of Directors concluded that KSC could not be viable at that sugar price; Government then indicated it would be receptive to an offer by the principal investors to sell their interests, and an agreement to that effect was signed on February 3, 1969. IFC's write-off was about US$200,000, which represented 28% of its cash investment in KSC equity. Investments at that time of the takeover were: (Tsh Million) Shares Loans Income Ordinary Preference Debentures Notes Total IFC 6.5 - 8.7 14.3 29.5 CDC 17.2 - 7.2 6.2 30.7 NOFC 6.2 - 3.0 3.3 14.2 Standard Bank (E.A.) 4.1 - - - 4.0 Tanzania Government 6.0 - - - 6.0 Rubber Cultuur Maats. Amsterdam 2.5 - - - 2.5 Public - 0.8 - - 0.8 42.5 0.8 18.9 23.8 87.7 1/ Financial years end April 30. Milling seasons are usually complete by December 31; i.e., "The 1972 season" is that which takes place in the financial year ended April 30, 1973. ANNEX 1 Page 2 3. In the four years since Government acquired the capital, KSC has done slightly better than break even, but with a low return on capital. There have been two reasons for the improved position. First, with the technical problems solved, sugar production increased and per ton operating costs fell by considerably more than would have resulted from the mere eco- nomy of scale. Second, a financial reconstruction took place in 1970 to convert loans to equity and to write off past losses; this removed the burden of interest charges from net income. Thus, profitability was achieved despite the 1968 reduction in the price payable for sugar. For the year ended April 30, 1974, a net profit of Tsh 4.6 million is estimated, repre- senting 7-1/2% return on invested capital: this results from a further considerable increase in sugar production and from restoring the sugar price to its pre-September 1968 level. This improved position will be difficult to maintain without an increase in the ex-factory sugar price as unit costs of production have now started to rise. Present Constitution, Shareholders and Board 4. On the departure of the overseas investors all KSC's capital was held by the Tanzania Treasury. The financial reconstruction, as well as writing off accumulated losses, created a capital structure of Tsh 36 million ordinary shares and Tsh 36 million 7% non-cumulative preference shares. Treasury transferred the former to NAFCO in 1972 and NAFCO to SDC in 1974. Under the present Articles of Association, the preference shares have the same voting rights as the ordinary: a conversion right expired in 1970. However, these Articles are in several respects unsuitable to the present circumstances of KSC, and Tanzania Legal Corporation is currently drafting a replacement for submission to a General Meeting of the company. Estate Operations 5. Planting started in the 1961 season of an irrigated 7,500 acre estate, which was substantially completed in 1965. At average yields at that time of around 35 m tons cane per acre, harvested cane amounted to 250,000 m tons per year. Outgrowers then produced about 60,000 m tons cane (20% of the cane milled), though at considerably lower yields. Cane yields were low in the middle 1960's due to a severe disease problem, yellow wilt, which affected estate and outgrowers from 1964 to 1970. Despite research by KSC, neither cause nor cure has been definitely explained, but its reduction has been achieved partly by abandoning the more susceptible cane varieties and partly by closer control of overhead irrigation and improved drainage. An unfortunate result of yellow wilt is excessive reliance on a single cane variety, NCo376 (in which, however, KSC is by no means alone), but its adoption has undoubtedly been one of the causes of the increases in cane yields to 49.5 m tons per acre, 60% above their lowest point in 1968-69. Sugar yields too have improved from an average of 9.6% in the six years to 1967-68, to 10.6% in the five subse- quent years. ASNEX 1 Page 3 6. In the period 1965-1971, estate cane production stayed steady, while outgrower production doubled to 136,000 m tons (37%). It fell to 126,900 m tons, following the fragmentation in 1971 of the Kilombero Cooperative Society into ujamaa villages, and this drop in production was made up by the estate. The targets for 1973-74 set estate cane production to rise 50,000 m tons (22%) to 280,000 m tons, and outgrowers 13,000 (10%) to 140,000 m tons, in order to provide enough cane following the 1972 factory expansion; unfortu- nately, the target estate production is unlikely to be attained due to late rains which delayed the start of the milling season. Unfavorable weather also resulted in late closes to the seasons and hence low milling efficiencies in both the 1966 and 1967 seasons. In 1968 poor cane yields from yellow wilt but good harvesting weather resulted in an early end to the season; the three following season to 1971 all lasted about 210 days at a reasonable average of 90% milling efficiency, and there were few stoppages for lack of cane. 7. The estate is irrigated by water from the Great Ruaha river. The system is of open canals, from which mobile diesel pumps supply portable sprinkler lines. The water distribution system has become more effective over the years, and the impeded drainage of the fields furthest from the mill, where the gradient is less than 1.2%, is no longer important following the decrease in estate acreage. S. The growing period in the estate is approximately eleven months. Five crops--plantcane and four ratoons--may be taken from a plant; however, planting is often done after the third or fourth crop. Cane is burnt the evening before cutting, which is manual. Cane cutters stack their cut into bundles; these are either winched on to side-loading trailers, or, less commonly, on to back-loaded trailers. The side-loaders carry 3-1/2 tons cane apiece and are hauled by 65 hp tractors in trains of three. The back-loaded trailers also carry 3-1/2 tons; they are self-contained units with their own winches on the tractors. The side-loading trailers are more effective and they will be used on the K II estate. 9. Plantation costs per acre fell from 1967 to 1971 due mainly to reducing the amount of irrigation and to mechanizing the cultivation pro- cesses. Harvesting costs per m ton cane likewise fell over this period; the most important causes were replacing an aged tractor fleet and a decrease in the average distance to be hauled as the estate was reduced. Since 1971 both plantation and harvesting costs have risen with the increases in cost of all factors of production. Outgrowers 10. Sugarcane was being grown in the Msolwa valley for the production of jaggery at the time of KSC's formation. The outgrower fields have increased from 1,400 acres of rainfed cane in 1966 to 5,300 acres in 1973. Most of the development is south of the Great Ruaha river, immediately East of the Gologolo mountains whose influence on rainfall makes this the wettest part of the cane-growing region supplying KSC. However two estates, one of approximately ANNEX 1 Page 4 900 acres and the other of 450 acres, grow cane in the Project area north of the Great Ruaha river, and although over a mile from the mountain range have the highest cane yields per acre of the outgrowers; this indicates that a lower rainfall can be offset by good husbandry on good soils. A few individual growers and an ujamaa village have recently started growing cane in the Project area. 11. Outgrowers contract with KSC for the sale of cane. Under the current contract the grower agrees to supply fixed quantities of cane up to three years ahead. If he delivers less than 90% of his quota, KSC may reduce his quota for the following year by the amount of the shortfall; the company may also make such a reduction during the season itself. In practice the KSC field staff agree the quotas each-year with the growers, following inspection of their cane fields; the only limit from KSC's point of view.on the amount of cane a grower may plant, is that which he can cultivate and harvest. Short-falls are rare, the most significant having taken place following the break-up of the Kilombero Cooperative. The cane price is fixed by the Ministry of Agriculture, on a scale-which depends on the percentage of sugar in the cane; below 8.5% sugar the company may reject the cane. The current price is Tsh 41.50 per m ton cane at 10% sugar. The steady increase in outgrower cane supplies indicates.a profitable activity, but projections made in the course of Project appraisal suggest that the new growers (particularly KDDC) will need Tsh 50 per-m ton at 1974 prices to cover costs and service capital. Proceeds of cane are paid to growers firstly as an advance of Tsh 30 per m ton on delivery, and the balance at the.end.of the season (Annex 21). 12. KSC has no obligation under the contract to provide extension service to the growers. It does have the-right to inspect growing and cutting of cane, and imposes obligations in that respect on the grower. However, a small-scale extension service is.being provided. Outgrowers are otherwise normally self-reliant, providing -their own,.tmchinery' and labor for land- clearing, cultivation and cane transport; the re,latively large. size of most of the growers has.made it unnecessary.for KSC to supply these services (in 1973 75% of the cane was supplied by 7-estat4es, 20% by individuals or associa- tions of individuals, and 5% by ujamaa villages). Factory Operations 13. The expansion to 2,150 m ¢tons cane per day which was undertaken for the 1972 season involved replacing-two:of :the six existing mills with a De Danske Sukkerfabrikker (DDS) type diffuser, designed to give high sugar ex- traction and increased molasses production. Many start-up problems arose, and over 20% down-time was recorded. As a result, the season,was extended to a record 256 days, with unavoidable stoppages in the latter part.due to the difficulties of hauling cane in wet conditions. Further engineering work was carried out in the offcrop and into the 1973 season, which started one month late. The required capacity rating has now been achieved, but milling efficiency, at 84%, is still low. The extra costs of putting the new diffuser in working:order,.which included the salaries of several expatriate technical ANNEX 1 Page 5 experts for many months, were reflected in a 50% increase in per ton mill costs in 1972 over the previous year; in 1973 to date they have fallen, with the cessation of such activities, to levels which reflect inflation, but not the full economies of the expansion, which are expected next season. Sugar Sales 14. Sugar is sold to the National Su.:r Board (NSB), whose agents now are General Foods Company Ltd. (Annex 2). The price currently paid at the mill gate for 99.7 degrees polarization and 0.1% maxinr.u moisture sugar in 50 kg or 100 kg bags is Tsh 1,080 per m ton. Shipments are made against orders by NSB, and ownership passes with loading onto trucks in the railway siding; NSB however pays 8% per annum interest on the selling price of stocks held by the factories at any time in excess of one-twelfth of a year's production. Molasses 15. Until recently, molasses was used for road maintenance in the estate, and occasionally on the fields themselves. Contracts are about to be signed between KSC, Mtibwa Sugar Estates Ltd., SDC and United Molasses Trading Company Ltd. (tM.4), a subsidiary of Tate and Lyle Ltd., for the shipment of molasses through Dar-es-Salaam. UM has formed a company, Tanzania Tank Storage Ltd. (TTS), in which it has 40% equity interest; Tanzania Planting Company holds 40% and SDC 20%. TTS will erect storage facilities in the port of Dar-es-Salaan with a capacity of 8,500 m tons molasses; the cost has been estimated at Tsli 3 million, and storage rental charges would be such as to give a return of 15% on invested capital. TTS will sign contracts with UM for the supply of molasses and with KSC and Mtibwa for its purchase. Under these contracts, the estates will receive the USDA New York-New Orleans average price for molasses at date of shipment from Dar-es-Salaam, less deductions for storage rental loading, and freight from Dar-es-Salaam to Gulf/East Coast USA. Tne minimum price to be paid by TTS to the producers would be Tsh 70 per m ton delivered at the storage terminal. KSC and Mtibwa are to garantee to deliver to TTS 140,000 m tons molasses in the seven years from July 1, 1974; this would be possible with an average joint annual sugar production of 60,000 m tons, provided none was used for animal feed or other local production in Tanzania. If these uses of molasses were to become economically more desirable than their export, the manufacturers would be able to terminate their contracts on or after July 1, 1977 on payment of Tsh 36 per m ton as compensation for the shortfall on 140,000 m tons. Operating Results 16. Table 1 shows KSC's operating results from incorporation to April 30, 1973 and the estimated figures for the year ended April 30, 1974. Table 2 shows balance sheets for the years ended April 30, 1970 through 1973. 17. At April 30, 1973 KSC had Tsh 36 million tax losses and allowances to carry forward. Under the 1973 Income Tax Act these and future losses and ANNEX 1 Page 6 allowances must be used within three acounting years from their generation or from January 1, 1974, whichever is the later. Management 18. Until 1965, KSC was managed by staff seconded or recruited by the investors, particularly by CDC. In 1965, KSC entered into a management contract with EVA International b.v. (HVA), a firm of sugar consultants and managers based in Amsterdam. The contract was extended, pending a 3-year renewal, on May 1, 1974. Under it HVA acts as Managing Director of KSC, provides the General Manager and Factory Manager on secondment, and makes available whatever services-such as engineering or agronomic advice, and recruiting--may be needed on a visiting or an overseas arrangement. 19. Until the departure of the overseas investors in 1969, CDC provided an accountant. EVA has since recruited expatriates, mainly from the Nether- lands, for technical positions in the factory and on the estate. KSC has trained Tanzanians where possible for staff jobs, and the number of expatriates has slowly declined over the years; however, Tanzanians are not available to fill all senior posts in the agronomic and factory departments (Annex 16). Government has recognized this as a general situation throughout Tanzania, and in October 1973 the Prime Minister issued a directive designed to speed up procedures by which parastatals can acquire necessary expatriate staff. Offsetting this realistic approach, however, is the effect of the 1973 Income Tax Act which has imposed tax increases that will deter many expatriates from working in Tanzania; for example, a field manager earning Tsh 200,000 per annum would now pay over 60% in tax, a 20% increase on his previous tax, unless exempted from the recent increase. 20. Management and accounting systems were instituted by the original investors. Each department submits monthly or twice-monthly operating reports to the General Manager. The Accounts Department prepares monthly cost comparisons with estimates, which constitute a regular report to KSC Board. Unfortunately, they present cost information rather than management information, they do not relate to the reports of the operating departments, and they are frequently rather late. The higher-level employees in the Accounts Department lack both the time and the experience to do much more than deal with routine transactions and complete monthy and annual accounts. Recently, an Internal Auditor was appointed to take care of systems work; this was made necessary by the change in auditors to National Audit Corporation, who themselves are not able to provide the systems reports provided by their predecessors. However, the Internal Auditor is responsible to the Chief Accountant, and most of his time is spent on routine accounts department work. 21. In May 1968, IFC issued to KSC a report on its accounting and report- ing systems. None of IFC's recommendations for improvements were acted on. The report describes the analyses of transactions into cost elements and cost centers (the latter correspond to the various functional departments) and ANNEX 1 Page 7 points out that certain costs were understated due to defects in the alloca- tion methods. In particular, depreciation was not allocated to cost centes and hence it is not possible to determine from the cost statements whether, for instance, mechanization programs have paid off. Interest on investments in fixed assets is likewise not allocated to functional departments. IFC also commented that although the analyses of transaction information is very fine (for example, cost data are available for each field in the estate), neither its use nor its retrieval is satisfactory. 22. A somewhat unsatisfactory situation was therefore inherited from the original investors, but there is little doubt that it has deteriorated since 1969. KSC recognized the problems and plan to appoint an expatriate Financial Controller. The most important tasks of the new Financial Controller would be to examine and improve systems and internal control and to introduce more meaningful management reporting. It is desirable that both would be completed before the K II factory opens; KSC might consider appointing financial con- sultants familiar with the sugar industry to assist in the second task. Conclusion 23. KSC is currently profitable. HVA's presence as Managing Director, and the continuing service of several key expatriate technicians, are important to KSC's continuing recovery and to the success of the Project, even though improvements are desirable in the conduct of certain functions. Cost increases will rapidly erode margins over the next few years, and the continuing profitability of K I, on which the Project depends for part of its finance, will depend on regular reviews of the price to be paid for its sugar and on the immediate implementation of the necessary increases (para. 6.07). July 16, 1974 TANZANIA KILOMBERO SUGAR PROJECT Kilombero Sugar Company Limited: Operating Results Since Incorporation Season 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Year Ended April 30 1963 i964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Estimates 1974 Estate Cane Fields - Acres 1,816 2,827 4,562 5,352 7,087 6,8io 6,861 6,502 5,520 5,251 5,102 5,600 Tons of Cane 105,280 144,61o 172,550 207,136 243,288 248,502 211,558 246,549 231,131 222,535 231,891 280,000 Tons of Cane per Acre 58 51.2 37.8 38.7 34.3 36.5 30.8 37.9 41.9 42.4 45.5 50 Tons of Sugar 9,570 11,020 17,700 20,598 21,303 24,582 21,985 26,265 25,931 23,796 23,153 29,140 Tone of Sugar per Acre 5.3 3.9 3.9 3.8 3.0 3 6 3.2 4.o 4.7 4.5 4-5 5.2 Percent Sucrose in Cane 9.1 7.6 10.3 9.9 8.8 9.9 10.4 10.7 11.2 10.7 10 10.4 Outgrosers Cane Fields - Acres - - - 2,803 3,085 3,948 4,734 5,019 5,152 5,529 Tons of Cane 17,230 19,910 27,400 40,300 55,176 65,887 62,110 95,320 123,881 135,708 126,924 140,000 Tone of Cane per Acre - - - . - 23 5 20.1 24.1 26.2 27.0 24.6 25.3 Tons of Sugar 1,458 1,670 2,797 4,215 4,8oo 6,168 5,991 9,776 13,163 13,590 12,395 i4,56o Tons of Sugar per Acre - - - - - 2.2 1.9 2.5 2.8 2.7 2.4 2.6 Percent Sucrose in Came 8_5 8.4 10.2 10.5 8.7 9.4 9.6 10.3 io.6 10 9.8 1o.4 vill Milling Season - Days (gross) 221 140 182 209 223 239 n.a. 211 208 214 256 (say) 217 Percentage Milling Efficiency 63% 89% 83% 86% 86% 75% n.a. 90% 91% 89% 66% (say) 90% Tons Cane per Milling Day 928 1,085 1,333 1,382 1,555 1,769 n.a. 1,777 i,849 1,848 1,882 2,150 Tons Sugar Made 11,028 12,690 20,497 24,813 26,103 30,750 27,976 36,041 39,093 37,386 35,548 43,700 Inome Statements (Ton million) Revenue Sugar Sales 29.1 34.2 28.5 32.9 35.5 34.o 32.2 - 45.5 Other Revenue 0.2 0.1 0.3 0.2 0.4 °.-3 4 0.2 Total Revenue 29.9 3 3.1SU7 5.7 Direct Costs, (costs) Plantation (Tesh 1,000 per acre) (1.16) (1.04) (o.86) (0.78) (0.80) (0.92) 104) (1.29) Total 8.2 7.1 5.9 5.1 4.4 4 5.3 7.2 Harveetirg (Tsh per ton cane) (13.6) (16.7) (17.4) (16.4) (15.0) (14.8) (15.6) (13.4) Total 3.3 4.2 3.7 4.o 3.5 3.3 3.6 3.8 Cane Purchases (Tsh per ton case) (36 67) (36.59) (37.75) (39.33) (39.92) (38.90) (37.83) (39.50) Total 2.0 a.4 -2.3 3.7 4.9 5.3 4.8 5.5 Mill (Tsh per ton sugar) (217) (198) (198) (171) (155) (180) (249) (245) Total 5-7 6.1 5.5 6.2 6.o 6.7 8.9 10.7 19.2 T977 17 19.0 O2 72 Other Costs (Tsh million) Overheads 6io 7.4 8.4 8.3 7.2 6.1 6.3 7.7 Depreciatioci 4.o 4.2 4.3 4.2 4.2 4.2 4.7 5.7 Amortization 0.5 0.5 0.5 0.5 0.5 0. 5 5*5 Financial 2.2 2.2 1.7 Total Costs 31.9 34.1 32_3 32.0 30.7 30.9 41.1 - Net Income/(Ln..) per year (Tsh million) ( 7.6) 0.2 (3.5) 1.1 5.2 3.4 (1.4) 4.6 June 13, 1974 ANNEX 1 Table 2 TANZANIA KILOMBERO SUGAR PROJECT Kilombero Sugar Company: Balance Sheets, 1970-1973 (Tsh '000) 1970 1971 1972 1973 Capital Equity 422496 42,496 36,000 36,000 Preference Shaxes 770 770 36,ooo 36,000 Capital Reserves 4,973 4,973 11,087 10,950 Profit & Loss Account (11 563) 6134 1, 914 41,934 86,2 24T Deferred Creditors Loans 18,857 18,857 2,800 2,686 Inccme Notes 23,868 23,868 -_ - 7g,01 84,6529 89,224 87,578 Assets Fixed Assets 84,167 83s672 85,034 102,674 Less Depreciation L28779) .(30,955) (34,091) (38,022) 7- 5 38 52,717 64, 652 Work in Progress 63 3,888 14P828 197 554565 64..5L749 Current Assets Plantation 4,1o4 4,494 5,109 5,404 Sugar in Store 1,510 395 452 1,704 Stores 5,366 5,276 6,179 6,896 Debtors 1,220 i,884 1,857 1,495 cash 4 523 8 472 5,453 2,588 1U72-3 20,521 19,050 1b,067 Current Liabilities ( 5 305) ( 4 168) ( 3,268) ( 2 518) ___ _ 1 16,353 15,782 15,569 IntangibUe Assets 3,838 3,519 - Development ETpeftditure 12,785 12,785 12,785 12,785 Less amourts writteh cf ( ff091) ( 4,603) ( 5,114) ( 5 625) 11,701 7,671 7,160 Net Assets 084,659 _89,224 87,578 May 14, 1974 ANNEX 2 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Current Price Formula for Sugar (set February, 1974) Prices at ex-factory, wholesale, and retail at main wholesale centers are set by Government. The current price formula is as follows: Tsh/m ton KSC, TPC, /1 Mtibwa Kagera Average- Ex-factory/Export 1,370 1,080 1,700 Excise/Duty 413 413 413 Ex-factory (gross) 1,783 1,493 2,113 Sugar Reserve Fund /2 (a) basic 230 230 230 (b) balance 337 627 7 Development Fund Levy 300 300 300 Administrative Expenses 18.70 18.70 18.70 Distribution Cost 70 70 70 Marketing Agents Commission 13.30 13.30 13.30 Board Handling Charge 60 60 60 Total On-Costs 1,029 1,319 699 Price to W4holesalers 2,812 2,812 2,812 Wholesale Margin. 65 65 65 Price to Retailers 2,877 2,877 2,877 Retailers Margin 123 123 123 Retail Price /3 3,000 3j300 /1 The average price is derived from imported needs and domestic sugar from the new (Mtibwa) plants, and the older established factories. /2 The basic reserve is for application to sugar developments. The balance represents transfers to meet the cost of imports which are currently 2-3 times the domestic price. /3 At main centers. June 12, 1974 ANNEX 3 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Supply and Demand Projections 1. Between 1962 and 1972 sugar productica in Tanzania increased from 37,000 m ton to 90,000 m ton but has stagnated around this level for the past 5 years with existing factories close to capacity utilization. Sugar consump- tion was growing on the average at the rate of 0.2 kg per head of population annually during 1953-69. However, between 1969 and 1972, this rate accelerated resulting in an annual average increase in consumption of about 0.8 kg of sugar per head; it slowed down somewhat in 1973. This increase has been attributed to income growth and more equitable income distribution, urbaniza- tion, increased industrial use and also smuggling from Tanzania at a time when the domestic wholesale price was below that in neighboring countries. An increase in the controlled price in mid-1972 helped to rectify this situation, and distribution difficulties caused by a shortage of railway wagons also reduced consumption in 1973 but it remained well above domestic production. 2. Although until recently self-sufficient, Tanzania, therefore, has had to import large quantities of sugar since 1970. The following table shows recent consumption, production, import quantity and costs and changes in per capita consumption (excluding Zanzibar): Consump- Annual Per Capita Import tion Consumption Consump- Produc- Costs Increase Increase Year tion tion Imports (million Tsh) p.a. Kg Kg % --------…'000 m ton-------- 1960-62 54 32 22 16 - 5.3 - - 1966 70 70 - - 3 6.1 0.2 2 1967 72 72 - - 3 6.1 - - 1968 80 81 5 3 11 6.5 0.4 6 1969 85 92 3 2 6 6.8 0.3 5 1970 100 87 4 3 18 7.8 1.0 15 1971 117 96 27 26 17 8.8 1.0 13 1972 133 89 50 72 14 9.8 1.0 11 1973 /1 136 105 50 131 2 10.0 0.2 2 /1 Estimates. 3. Some increase in Tanzania's per capita GNP at current market prices can be anticipated and Government's economic policy is aimed at a more even income distribution. Sugar has a high income elasticity of demand at the income level found in Tanzania and demand tends to be price inelastic. Con- tinuing expansion in per capita consumption can, therefore, be expected- ANNEX 3 Page 2 probably above the rate of the 1960's but not at the exceptionally high rate experienced in 1969-72. Tanzania's per capita annual consumption of 9.2 kg in 1972 was less than adjacent countries: in Kenya it was 16.6 kg, in Uganda 14.8 kg and in Zambia 14.9 kg. All of these are low by international stan- dards however (e.g. UK 52.3 kg, USA 50.3 kg, Japan 30.4 kg) and it seems reasonable to assume that the trend of per capita consumption will be a steady rise in the immediate future. Constant absolute increases have, therefore, been assumed in Table 1. 4. Government is actively pursuing finance for enlargement of Kagera: work is in hand on Mtibwa and new investment is scheduled at Arusha Chini. The timing of expansion plans for these existing sugar factories is, however, uncertain. The assumptions for future production shown in Table 2 are ten- tative and possibly optimistic. On the basis of these and with an annual per capita consumption increase of 0.4 kg, there would be a small surplus from the domestic sugar production between 1976-84, but at higher level of annual increase in per capita consumption of 0.8 kg a considerable shortfall will occur. A position between these two levels may be expected with an annual increase in per capita consumption of about 0.6 kg and given the estimated increase in sugar production, the country would have a deficit in most years between 1973 and 1984 (Table 1). June 12, 1974 TANZANIA KILOMPERO SUGAR PROJECT Estiaated Population. Per Capita and total Sugar Requirement and Production 1/ A. With per capita consumption increase B. With per capita consumption increase C. With per capita consumption increase at 0.4 kg per annum at 0.6 kg per annum at 0.6 kg per annom Per capita Total Surplus Per capita Total Surplus Per capita Total Surplus Population 2/ Production 3/ Consumptien Requiresient Deficit Consumption Requirement Deficit Consumption Requireaent Defidit Year (million) ('000 a tona) 0 a tontg) (kg) ('000 m tons) ('000 m tons) (kg ('000 a tons) ('000 m tons) 1973 13.62 105 10.0 136 -31 10.0 136 -31 10.0 136 -3 1974 14.00 115 10.4 146 -31 10.6 148, -33 10.8 151 -36 1975 14.39 123 10.8 155 -32 11.2 161 -38 11.6 167 -4C 1976 14.79 171 11.2 166 5 11.8 175 - 4 12.4 183 -12 1977 15.20 184 11.6 176 8 12.4 188 - 4 13.2 201 -17 1978 15.62 224 12.0 187 37 13.0 203 21 14.0 219 5 1979 16.05 234 12.4 199 35 13.6 218 16 14.6 237 - 3 1980 16.49 245 12.8 211 34 14.2 234 11 15.6 257 -12 1981 16.95 255 13.2 224 31 14.8 251 4 16.4 278 -23 1982 17.42 264 13.6 237 27 15.4 268 - 4 17.2 300 -36 1983 17.90 272 14.0 251 21 16.0 286 -14 18.0 322 -50 1984 18.40 275 14.4 265 10 16.6 305 -30 18.8 346 -71 1985 18.91 278 14.8 280 - 2 17.2 325 -47 19.6 371 -93 11 Exluding Zanzibar. 21 Estimated increase at 2.8°. per annum. 3/See Annex 3,Table 2. ,Tune 12, 1974 ANNEX 3 Table 2 TANZANIA KILOMBERO SUGAR PROJECT Estimated Sugar Produotion ('000 m tons) -------------- Existing Factories ----------- -- New Factories -- Arusha Grand Year Chini Kilombero I Mtibwa Kagera Total Kagera Kilombero II Total 1973 50 44 X 7 105 105 1974 56 45 7 115 - - 115 1975 60 45 11 7 123 - - 123 1976 66 45 19 7 137 - 34 171 1977 76 45 23 7 151 - 33 184 1978 80 45 26 - 151 30 43 224 1979 80 45 29 _ 154 36 44 234 1980 80 45 33 _ 158 43 44 245 1981 80 45 37 162 49 44 255 1982 80 45 38 _ 163 56 45 264 1983 80 45 -.42 _ 167 60 45 272 1984 80 45 45 _ 170 60 45 275 1985 80 45 48 _ 173 60 45 278 June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT Rainfall in mm, Period May 1961 - April 1973 at the site of Kilombero Sugar Estate 12-Year 1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 Mean May 124 87 45 48 73 129 27 135 102 23 118 241 11.5 Jun 55 6 58 5 1 33 52 68 18 7 23 - 27 Jul 75 9 5 4 15 3 56 - 7 7 38 8 19 Aug 7 54 1 18 12 5 14 - 4 5 - 4 10 Sep 37 15 1 1 33 15 71 10 - 47 - 115 29 Oct 1.87 38 18 22 49 22 .52 .9 14 9 26 .24 39 Nov 253 40 393 9 10.8 95 9.9 151 87 - . 41 303 140 Dec 7 115 776 62 224 66 I67 122 15 153 102 -1 172 Jan 277 186 207 216 112 92 172 94 436 121 108 198 1 Feb 146 196 196 194 193 128 119 126 230 82 244 171 169 Mar 278 490 367 316 207 167 294 164 250 .228 . 324 .142 .269 Apr 293 356 388 284 298 298 658 658 216 385 344 4o5 382 2,207 1,592 1,797 179 1,325 1,053 2 kii 1,537 1,379 1,067 1,368 1,752 1,556 Source: Kilombero Sugar Estate Reports. Months during the normal milling season when rainfall exceeded 150 mm are underlined. June 12, 1974 ANNEX 5 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Land Development and Cane Production 1. The agronomic conditions of the Lower Ruembe Valley are good for cane growing, even better than the area of the existing Kilombero Sugar Estate (K I). The Project estate (K II) will grow 3,500 acres of irrigated cane and 3,800 acres rainfed, and cane will be milled from 2,200 existing outgrowers' cane as well as 2,400 acres of new outgrowers' cane. K I will replace its old outgrowers' land by development of 2,000 outgrowers' acres in the Msolwa valley, S and SW of its own area. 2. The Project area is shown on the map. Sections B, C are assigned to the new estate. Most of Section B will be irrigated from the Great Ruaha River, Section C, parallel to the western border will be developed for rain- fed cane. It receives in general a little more rainfall than the remaining valley area. The outgrowers' land in Section D will be developed as a com- pact cane area for the Kilosa District Development Corporation. It should have a layout similar to K II's cane area in order to optimalize land use, extention services, yields and cane transport. Areas A, E, F and G are allocated to outgrowers who will devote part to food-crop production. Yield Capacity of the Planned Cane Land 3. Based on mean cane yields of K I the new cane area is expected to produce the following quantities of cane per year, after full expansion, excluding 240 acres of nurseries: 3,260 acres (28%) of irrigated cane x 45 tons cane/acre - 146,700 tc (35%) 3,800 acres (33%) of rainfed cane x 36 tons cane/acre - 136,800 tc (32%) 4,600 acres (39%) of outgrower cane x 30 tons cane/acre - 138,000 tc (33%) 11,660 Total 421,500 tc Sugar outturn is expected to average over 10.5% at which production of sugar would be 44,300 tons. This outturn can be achieved by the 2,400 TCD capacity factory, working 7 days a week, in 176 days, or 193 allowing for 10%. down- time. The milling days available depend upon: (1) the ripening period of the cane, and (2) harvesting conditions. ANNEX 5 Page 2 Both factors are defined by climatic conditions, particularly rainfall. Rain- fall figures are given in Annex 5 (it is reasonable to assume the existing and the new areas, 7.5 km apart, have similar characteristics). The biological and operational influences of monthly rainfall are difficult to guage objec- tively, but ripening data and harvesting experience at K I indicate that a mean monthly rainfall of 150 mm does not hamper the ripening process or delay har- vesting operations at all and, depending on the rainfall pattern, only short delays occur in months with rather higher rainfall. Only in 2 out of 12 recorded years were the May figures for rainfall higher than 150 mm, and this is the normal month to start milling. November is wetter 5 times out of 12 and December 3 times out of 12, but only twice in the 12 years was there less than 6 full months with rainfalls below 150 mm. Experience on K I has been that adequate ripening and milling days will be found in the 234 day-period May 1st - December 20th: a period which gives a 33% margin over the needs of a 2,400 TCD factory. 4. The new factory is targeted to start its first milling season by September 1, 1976. Up to that date all cane grown in the Project area will be milled at K 1. To achieve this, in 1975/76 K I would have to increase its milling capacity to 2,250 TCD or rely on an abnormally long milling season. This increase is, however, under 5% and is expected to be readily achievable by an established factory. (If there were a shortfall in the target, cane would be left for harvesting until the following season: the loss in sugar content would be at least offset by increased cane yields and the delay in obtaining returns would not have significant effect on the returns to the operation). For the milling season 1976/77, K II's first season of operations, a harvesting area including existing outgrowers of 7,540 acres is expected, which would produce 323,000 tons of cane. This can be handled in 148 days, allowing for 10% downtime. 5. It is planned, after the first milling season, to increase cane production as quickly as possible. This would necessitate a crash pro- gram for land clearing and preparation, followed directly by the planting of cane. The projected schedules of land clearing and preparation for milling cane, cane planting, harvesting, and sugar yields in the Project area are shown in Tables 1 and 2, and are summarized below: ANNEX 5 Page 3 Crop Year 74/75 75/76 76/77 77/78 78/79 79/80 80/81 81/82 82/83 Clearing & preparation acres 2,160 3,880 2,420 1,240 Milling cane acres 2,200 3,660 7,540 10,320 11,660 11,660 Cane yields ('000 m tons) 66 138 323 410 439 415 415 418 426 Sugar yields ('000 m tons) 7 15 34 43 46 44 44 44 45 Milling days 31 62 135 171 183 173 173 174 178 Land Clearing and Preparation Schedule 6. The land clearing and preparation schedule allows for: (a) a program enabling the estate to develop 11,660 acres of millable cane land and 240 acres of nurseries: a total of 11,900 acres in four years; (b) the development of equal acreages for the 5 cuttings within each kind of estate cane as follows: 5 blocks of 700 acres for irrigated estate cane of which 240 would be in nurseries = 3,500 acres 5 areas of 760 acres for rainfed estate cane 3,800 acres within 5 years. (c) the development of equal acreages for the 5 cuttings of out- growers' cane, incorporating the existing 2,200 acres and adding 2,400 acre new fields, resulting in 5 x 920 acres = 4,600 acres of cane within 5 years; (d) with (a) above, land clearing and preparation, started in the dry season (May-Sept.) of 1974/75 will be finished in 1977/78. To ensure timely land clearing and preparation and the planting, these will be executed by the estate on behalf of the outgrowers at cost. Starting in 1978/79 all the outgrowers' planting will be done by the estate annually. 7. Tractor and equipment requirements for land preparation and cane operations are set out in Annex 7. July 16, 1974 TANZANIA KILOMBERO SUGAR PROJECT K II: New Land Development Schedule (acres) 197V475 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 Irrigated Estate Nursery* 2410 I240 40 - Plant Cane 46 0 0466 - - Cutting II _ Tro 2,70 / 700 700 /700 - Cutting I - - 1 00 1 700 - Cutting IV - - 1 7 Cutting V- - _ _ - }/ - 1 700 - Uprooted 700 700 700 Rainfed Estate Plant Cane- C7760) ( 6CJD 760 760 60 Cutting II _ 70o 70 /760 760 Cutting- III - - 2,060 220760 ! 760 760 Cutting IV _ _ 220 ! 760 760 Cutting V _ - - / 1,300 220 760 Cutting VI _ _ - X 540 - Uprooted 760 760 760 Rainfed New Outgrowers Plant Cane - 480 ,0 480 Cutting II I1.80 4 480 Cutting III - _ _ _ 96 96o 11.80 / 480 Cutting IV . _ _ - 480| 960. 480 Cutting V - _ - 48 Uprooted - 1480 0BO 140 * Allows for 1 acre seed cane for every 7 of planting in first 3 years, and thereafter 1:10. C) - new land. Arrows indicate treatment of land in subsequent years.' June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT K II: Cane Production Schedule (at Average Yields) (a tons) 197M/76 1976/77 1977/78 1M/79 1979/80 1981/82 1982/83 Irrigated Ext te Plant Cane 46,800 120,000 21,600 27,600 27,600 27,600 Cutting II - 5,000 135,000 35,000 35,000 35,000 Cutting III - - 4l500 94,500 31,500 31,500 Cutting IV - - - - 56,000 28,000 Cutting V _-__ - 21,000 Total 46,800 125,000 161,100 157,100 150.100 1143,100 43,100 Ranfed Eatate Plant Cane 30,400 8,800 30,400 30,400 30,400 30,400 Cutting II - 90,640 9,680 33,340 33,440 33,440 Cutting III - _ 76,220 8,140 28,120 28,120 Cutting IV - - - 65,920 7,040 21,320 Cutting V - - - - 35,100 5,940 Cutting VI _ - - _,880 Total _ _ 99,440 116.300 137.800 134,100 134,100 1314,I00 Rinfed, New Outgr=aero Plant Cane - 31,680 31,680 15,840 15,840 15,840 15,840 Cutting II- - - 33,600 33,600 16,800 16,800 16,800 Cutting III - - - 28,800 28,800 14,400 14,400 Cutting IV i _ - - 12,960 25,920 12,960 Cutting V _ _ _ _ - - 12,000 Total _ 31,680 65,280 78,240 74,4W 72.960 72,000 EWisting Outgrorers 66,ooo 66, 66, ooo 66,ooo 66,ooo Total Cane 3,2oo 322,120 408,680 439,140 4214 600 416,160 415,200 H Sugar Production (at 10.5%) 15,000 33,800 42,900 46,100 44,600 43,700 43,600 June 12, 1974 ANNEX 6 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Outgrowers Development and Returns 1. Sugarcane would be grown on 4,600 acres by Project outgrowers in Ruembe valley. Outgrowers would consist of (a) 3 ujamaa villages with 240 families, farming 960 acres; (b) Kilosa District Development Corporation (KDDC), farming 1,560 acres; and (c) 122 individual families and 2 estates, cultivating 2,080 acres (Table 1). Of the total area to be farmed, 2,400 acres would be developed over three years under the Project, and 2,200 acres are now under sugarcane grown by (a) 126 ujamaa families in 2 villages farming about 120 acres, and (b) 122 individual families and 2 estates growing 2,080 acres of sugarcane. This latter cane is milled by K I, and the diversion of cane to K II would be offset by expansion of acreages of existing outgrowers in Msolwa valley. 2. Under the Project, Kilombero Sugar Company (KSC), would be respon- sible for providing extension services and drawing up of annual planting pro- grams. It would clear and prepare land, plant and replant cane for ujamaa villages and KDDC at cost. It would supply to all outgrowers seed cane and would provide all cane transportation to ujamaa villages and KDDC, and for about 50% of cane produced by other outgrowers excepting the two existing estates. KSC would purchase all cane produced in accordance with the annual planting programs. It would also construct roads and drains in the new outgrowers areas. Appropriate agreements including delivery schedule, prices to be paid, and charges for services rendered by KSC would be executed between KSC and the outgrowers. UJamaa Villages 3. The two existing ujamaa villages, like other ujamaa villages, are communally organized for farming, storage, marketing and other activities. Each of these has an elected Chairman, a Secretary and a Treasurer with various committees viz. Executive, Planning, Works, Trading, Education, Health and Concilliation. A Primary School Teacher and a Medical Dresser reside in each village. Food crops produced communally by a village are shared according to the needs of all the families including the teacher and the medical dresser, and proceeds from marketable surplus if any and of cash crops are distributed to the families according to their labor input for such crops. A portion of the sale proceeds is used to pay the teacher and the medical dresser who also sometimes help in farming operations. The rest goes to a reserve fund which may be used to meet communal needs of villages such as purchase of a grain husking machine, expansion of a school building or establishment of a village hall. Ujamaa villages when fully developed are to be registered as multi- purpose cooperative societies. ANNEX 6 Page 2 4. The two ujamaa villages - Kitete, with a population of 71 families, and Kidogobasi, with a population of 55 families - have about 120 acres of sugarcane. The other principal crops are rice and maize and pulses. These two villages, together with another village to be established, would have a total of about 960 acres of sugarcane, of which 840 acres would be developed under the Project. Each village on an average would have about 80 families growing about 320 acres of sugarcane as a cash crop and 160 acres of rice (4 acres of cane and 2 acres of rice per family). It would be possible for a family of 2 adults and 3 children to care for 4 acres of sugarcane and 2 acres of rice (Table 2). Two acres of rice would meet the stable food re- quirement of a family (Table 3). 5. KSC would develop sugar land and plant cane for ujamaa villages, to which it would be handed over after planting. In an average ujamaa village with about 320 acres of sugarcane, about 130 acres would be developed and planted with cane in Year 1 (1975-76) and Year 2 (1976-77) and the remainder in Year 3 (1977-78). The initial operations would consist of treedozing, clearing, levelling, ripping, heavy duty and shallow harrowing, furrowing, supply of seed cane, planting and first uphilling. 1/ For these operations, and road and drain construction, KSC would charge the full cost estimated at Tsh 2,450 per acre in 1973-74. These costs will be met by a 6 year loan with interest at 9% annually and deductions would be applied to cane deliveries which would come to Tsh 27.50 per ton for 48,000 tons of sugarcane. In cases where land would be handed over later, proportionate deductions from the charges would be made based on the profit accrued to KSC from such land. KSC would perform annual mechanical uphilling operations at a 1973-74 base price of Tsh 43 per acre. At replanting, KSC would prepare land and plant cane (stubble and deep ploughing, harrowing, furrowing, planing, hilling, seed cane and planting) at a base price of Tsh 1,716 per acre. KSC would provide cane transportation for which the base price is estimated to be Tsh 10 per ton. All the charges would be deducted by KSC at the time of advance payment for cane delivered. The rest of the operations viz. weeding; clearing ditches, internal roads and trash removal; pushing cane; cutting and loading, would be performed by ujamaa villages. All operations for rice would be the villagers' responsibility. Tsh 8,000 would be provided to purchase farm tools for an ujamaa village of 80 families (Tsh 100 per family) as a short-term loan by the Tanzania Rural Development Bank (TRDB) at 8-1/2% interest p.a., payable in 3 years with capital repayment in the 3rd year. 6. At full development i.e. from the eighth year (1982-83), an average ujamaa village of 80 families would have an annual net disposable income of some Tsh 346,810 prior to deductions, including a contribution of 10% to a fund reserved for communal needs. Thus, at full development, annual net cash farm income of an ujamaa family would be about Tsh 4,340 in addition to the value of subsistence consumption of rice of about Tsh 570 and Tsh 250 for other farm produce viz. pulses, eggs, milk and meat (Table 4). The income from sugarcane compares favorably with the present income of a farm family in 1/ The process of re-shaping ridges. ANNEX 6 Page ` the area growing mainly rice or rice and maize. Calculated on the basis of mandays, also, it would be more profitable to grow sugarcane. Average net income per manday from sugarcane would be over Tsh 14.20, fro-m rize Tsh 3.00 and from maize Tsh 2.00 (Table 5). 7. The two existing ujamaa villages, one of which has applied for regis- tration as a cooperative society, and the new one to be established would require considerable guidance in the maintenance of cane fields and harvesting. Provision, therefore, has been made for two extension officers in KSC, who under the guidance and control of KSC's field department would provide necessary extension services to ujamaa villages and other outgrowers. Development of these villages will have to be carefully watched and their production capa- bility evaluated before it is decided to expand the three ujamaa villages and/or to establish more villages which would take over additional sugarcane land developed by KSC. Kilosa District Development Corporation (KDDC) 8. In accordance with Government's policy for development of District Government operated organizations to run commercial enterprises, including agricultural estates for selected estate crops like sugar, the Kilosa District Development Corporation (KDDC) was established by the Government as a limited Company in February 1973 with a share capital of Tsh 500,000. The objectives of the company include crop, livestock and fish production, establishment of abbatoirs, small industries, processing plants and cold-storage facilities, road and river transportation and assistance to cottage industries in estab- lishing markets. KDDC is currently operating one petrol station and proposes to establish a goat ranch and, in partnership with adjacent district develop- ment corporations, introduce a rural bus transportation service. 9. Over a period of 3 years (1975-76 to 77-78) KSC would develop 1,500 acres of sugar land for KDDC (Table 1). It would clear and prepare land, supply seed cane and plant sugarcane. For these operations and road and drain construction, KSC would charge the full cost estimated at Tsh 2,410 per acre. In accordance with standard policy towards DDCs, twenty-five percent of these costs would be borne by the Government as a grant and the balance provided as a long-term loan by KSC. Deduction in respect of this loan would be applied to cane deliveries: on the basis of a 9% annuity over 11 years this would come to Tsh 12.30 per ton for 468,000 tons of sugarcane. KDDC would be responsible for all other operations (weeding, uphilling, clearing ditches, internal roads and trash; inter-row cultivation, pushing cane, cutting and loading). KSC would also perform subsequent land preparation and re-planting operations (stubble and deep ploughing, harrowing, planning, furrowing, hilling, supply of seed cane and planting) estimated at 1973-74 price of Tsh 1,716 per acre. KSC would provide cane transportation at a cost of about Tsh 10 per ton. All charges would be deducted by KSC from the advance payment to be made at cane delivery. KSC would draw up annual planting programs, schedule of harvesting and provide extension services free of charge. ANNEX 6 Page 4 10. Office building, store, and houses for the staff and 50% of labor would be constructed for KDDC under its supervision and a vehicle provided. 25% of these costs would be borne by Government as a grant and the remainder would be borrowed from TRDB as a long-term loan repayable in 10 years with a 4 year grace and an interest rate of 7-1/2% per annum. Working capital would be borrowed as a short-term loan from TRDB with-an annual rate of interest of 8-1/2%. 11. At a price of Tsh 50.00 per ton of cane with 10.5% sucrose content the rate of return to KDDC would be 22%. At a cane price of Tsh 45 per ton the rate of return would be 12%. An income statement and cash forecast for KDDC is at Table 6. 12. KDDC has a Board of Directors which has appointed a Managing Director, a Secretary and an Accountant. The sugar estate would be operated as a self-contained unit with its own staff, including a Manager, an Account- ant, Field Officer, other staff and laborers. Constraints and Safeguards 13. District Government operated commercial enterprises, especially in the field of estate development, is a new venture. Lack of experience in such operations has prompted KDDC to obtain KSC's assistance in initial land clearance and preparation and planting of cane seeds and subsequent land preparation and planting at the time of re-planting. KDDC would receive KSC's technical and managerial advice when necessary and its field officers would be trained by KSC. Special attention is required to proper maintenance of accounts and close supervision of its operations should be given by District and Regional authorities. Existing Outgrowers 14. Other than the existing outgrowers in the two ujamaa villages, about 122 families and two estates, Nahdi Kidodi and Riva Saw Mills, would continue to grow sugarcane on about 2,080 acres. The families belong to Kidodi Cane Growers Association, Kidogobasi Group Farmers Association, villages Maarifa Sukari and Saidi Legeza. KSC would draw up their annual planting program. All cultural operations would be performed by the outgrowers. KSC would continue to follow the present practice of providing transportation at cost to outgrowers needing it - expected to be all except the two estates. Price and Payment Procedures 15. Cane would vary with sucrose content. The 1973-74 price used for projections is Tsh 50.00 per ton with 10.5% sucrose. Advances equivalent to about 85% of the price less deductions for services by KSC would be paid by KSC to the outgrowers at the time of delivery; the remainder of the price would be paid monthly after analysis and processing. July 16, 1974 TANZANIA KILOMBERO SUGAR PROJECT Outgrowers Development Schedule (acres) Uiamaa Villages Kilosa District Development Corp. New New Planted Re-planted Ratoon Planted Re-planted Ratoon Existing Outgrowers Cane Cane Cane Total Cane Cane Cane Total Outgrowers Total 1975-76 336 - - 336 624 - - 624 2,200 3,160 1976-77 336 - 336 672 624 - 624 1,248 2,200 4,120 1977-78 168 - 672 840 312 - 1,248 1,560 2,200 4,600 1978-79 - 168 672 840 - 312 1,248 1,560 2,200 4,600 1979-80 - 168 672 840 - 312 1,248 1,560 2,200 4,600 1980-81 - 168 672 840 - 312 1,248 1,560 2,200 4,600 1981-82 - 168 672 840 - 312 1,248 1,560 2,200 4,600 1982-83 - 168 672 840 - 312 1,248 1,560 2,200 4,600 1983-84 - 168 672 840 - 312 1,248 1,560 2,200 4,600 1984-85 - 168 672 840 - 312 1,248 1,560 2,200 4,600 0 June 12, 1974 ANNEX 6 Table 2 TANZANIA KILOMBERO SUGAR PROJECT 1. Labor Reauirement over a Year (per acre) - ----- Sugarcane ----------- ------------ Rice ----------- Months Item No. of man-days Item No. of man-days Jan/Feb Clearing trash 5.0 Cultivation 40.0 Inter-row cultivation 2.0 - Weeding 6.0 Pushing cane 0.5 13.5 40.0 March Clearing ditches 3.0 Weeding 5.0 April - Weeding 5.0 May/June - Harvesting & 35.0 threshing Nov/Dec Cutting 15.0 Loading 15.0 Clearing ditches 3.0 Clearing roads 0.5 33.5 Total No. of man-days 50.0 Total No. of man-days 85.0 2. Labor Requirement and Availability over a year for Sugarcane & Rice -------------- Man-days Required -------------- Man-days Available Months Sugarcane (4 acres) Rice (2 acres) Total (1 family) 1/ Jan/Feb 54 80 134 144 2/ March 12 10 22 60 April - 10 10 60 May/June - 70 70 120 Nov/Dec 134 - 134 144 2/ 11 1 family consists of 2 adults and 3 children (3 children 1 adult). 2/ In a busy month an adult can work 24 days a month. Normally he would work about 20 days a month. June 12, 1974 ANNEX 6 Table 3 TANZANIA KILOMBERO SUGAR PROJECT Subsistance Rice Requirement per Family (2 adults, 3 children) Requirement Adults 16 oz. clean rice per day 16 x 2 = 32 oz. Children 10 oz.clean rice per day lOx 3 = 30 oz. 62 oz. (say 4 lbs.) Total daily requirement = 4 lbs. = 1.81 kg Total amount requirement of clean rice (1.81 x 365) = 661 kg Production Yield of paddy rice per acre 560 kg Yield from 2 acres 1,120 kg Seed requirement (40 kg per acre x 2) - 80 kg 1,040 kg Less husk (337%) -344 kg Total clean rice available 696 kg June 12, 1974 TANZANIA KiILOMBERO SUGAR FROJECT Modal US Q-- Fare Bodget 1/ (Income Statement and Cash Forecast.) (Tah) Unit 1975-76 1976-77 1977-78 1978-79 1979-80 19NO-81 1981-82 1982-83 1983-84 1984-85 Unit Cost No. Coat No. Coat Na. Coat No. Coat No. Coat Na. Cost Na. Coat No. Coat Na. Cost Na. Cast V AWE OF FRODi7CT IONS Sogaroans - 27g,784 635,392 700,800 700,800 700,800 700,800 700,800 700,800 700,800 RiNc 2/ 49,260 49 260 49 280 49,280 49,280 49,280 492 49 .280 49280 49 280 Other achaiataceo ptoductian 3/ 20.000 20.000 20.000 20.000 20 000 20.000 20 000 20.000 20.000 20.000 Total 69,280 348,064 704,672 770.080 770,080 770,080 770,080 770,080 770,080 770,080 OP8RATtNG Co8TS Face tools Family 100 80 8,000 - - - - - - Land preparation.. asd c nend - 64 160,896 64 160,896 64 160.896 64 160,896 64 160,896 64 160,896 64 160,896 pl.aatri charge far na-plantin8 4/ 50 A ...al aphilitag charge S/ ae - 128 7,296 256 16,128 320 20.160 320 20,160 320 20,160 320 20,160 320 20,160 320 20,160 320 20,160 C.n_ traaspo-tatian 6/ ton 2 34.12a 521.56 134.1400 134,40 134,400 134,400 134 400 134 400 134,400 Rio-aaad j/ 2r27 55,0 3,520 352 -50 30 5005 S03 Total Operatitg Coat. 11,520 65,728 141.504 318,976 318,976 318,976 318,976 318,976 318,976 318,976 Gross ear8ia 57,760 262,336 563,168 451,104 451,104 451,104 451,104 451,104 451,104 451,104 CASH INFLOW Groan -acgia 57,760 282,336 563,168 451,104 451,104 451,104 451,104 451,104 451,104 451,104 Lass behiternca -ceon ptioo Sl 65 760 6.5760 65,760 65.760 65.760 65.760 65 760 65 760 63.760 65.760 Net cach incote (8,000) 216,576 497.408 385344 35,3444 5 3344 3.4.385.344 385.344 383.344 Iaa fto land dmvs1opaent9/ 128 379.776 128 417,792 64 229,760 - lanfr rfaro tool. 150/ A nn - - - - - Total Caah InElea 379,776 634,368 727,168 385,344 385,344 385,344 385,344 385,344 385,344 385,344 OUTFLOW L.nd deve-Ip.ect .o.t 11/ 128 379,776 128 417,792 64 229,760 _ _ _ _ _ Debt sectitiog for land developantt 12/ _ 116,160 239.360 264.800 264,000 264,000 172A80 _ _ Debt sarvicing far hort-tera loan 17 - 660 8,680 Total C..h OGtfloc 379,776 534,632 477,800 264,000 264,000 264,000 172,480 - - - Nat Cash Flos liosti-o - 99,376 249,368 121,344 121,344 121,344 212,864 385,344 385,344 385,344 INCOME Ujia. village net ac.h iacoee - 99,736 249,368 121,344 121,344 121,344 212,864 385,344 385,344 385,344 Rea fvoted 14/ - .73 2493 2. 12.1412.14 21.26 3.3 3 .51 34 38.534 Uja ia vIllage cot dipaaabla taah lace inc8e9 - 69.763 224,431 109,210 109,210 109.210 1 346;810 346 10. 3468 0 Ujeaa famIly cot each taco lccoane 15/ - 1,122 2,805 1,365 1,365 1,365 2,395 4,335 4,335 4,335 Vale, af Uje f-ily aebhitaant 16g/ 822 822 822 822 822 822 822 822 822 822 NLot Ujaa. fatily face incore 822 1,944 3,627 2.187 2,187 2,187 3,217 5,157 5,157 5,157 1/ For a village of 80 familis. Oath fomily -auld Srot 4 acros of ega-c.ans and 2 cres of rice. Total- c-oage of crop: 3ogarcane 320 at, rice 160 *c 2/ Total rite atrt:5e- 160; Average Yield @ 560; price @ Tah 0.55 par kg of onheshed eite. 3/ Other sheblatanca prodaction inclodea sane poleco, meat, egga aed ailk at abont Teh 250 per fa=ily. 4/ Base prece per ocre (73-74) - TSh 1,716. With 10% p.s price totrenaeupto 77-78, priom per acre ftoo 78-79 -old be Tah 2,514 5/ eace price per acre (73-74) - T,h 43; with 107 ps. price Ocreaspto 77-78, peit per acre in 76-77 wuld be T.h 57 and icon 77-70 ocaseds 5,4 63. 6/ BseC prIce per toe in 1973-74 - TBh 10; itch 107 pa. prico incceaoenpto 77-78,pri-e per acre ic 76-73 could he T.h 13 and ftro 77-78 a Toards Th 14. 7/ @ 40 ki per Itro; prien T1h 0.44 kg (for 160 acre,) 8/ @ 1,040 kg of hchukked rice sqoivolent to 696 kg of cl..n rite pcr faily (See ..610 3), at 50k 372 pet Gully (Tek SS/hg of unkoeked rice) *nd other produce oi 0000 poleoe, us-t eggc aed =ilk ot 0bout Tsh 250 per faily (Tah 50 per per.on) 9/ Laos for landoevelopaonc cost (inItIal land tloeceg, preporotlon, cooc soed, plantIng, first uphilling, -ooda end bridge. ). See f--otote 11 end ;2 10/ Borroved fro= TRDB vith at Intecest rare of 8ly p.o. (taco cools replaced cvery eleventh yaaas) 11/ Operatio.e perforted by KSC ot Teh 2,967 (75-76), 3,264 (76-77), 3,590 (77-78) pot acr-; bs.. price it 73-74 - T5h 2,452 per acr-. Prio i-ncre..e 9 10. p..a upto 77-78 12/ For I.od devolep-ec o,It dedo-td by KSC fce prIce of cnonthe boeI of 95. oc-ity ove 6 yea-oIt Tsb 27.50 per Iot lot 40,000 tot of ogr 13/ Rep-id over 3 ye_rs, with flll copitaL repPynect in the 3rd yer. 14/ 107. of village incomt S/ Net vtilage dieoFsable flrm income distributed to 80 fuilis(etch faily of 2 rdolct rnd 3 childrec on I average). 6/ lee footnote 8. 'Tcc L2, 1974 ANNEX 6' Table 5 TANZANIA KILOMBERO SUGAR PROJECT Estimated of Average Costs, Yields and Cash Income from Farmers' Crops per Acre Item Rainfed G,anq Rainfed Rice Rainfed Maize Land development, preparation, seedcane planting/replanting 456 and uphilling Cane transportation 2 300 - - Farm tools 20 20 20 Seed - 22 5 Totai Cost 776 42. 25 Yield/acre 30 tons 560 kg 500 kg Price (Tsh)j/ 50.00/ton 0.55/kg 0.35/kg Gross Income (Tsh) 1,500.00 308.00 175.00 Net Income (Tah) 724.00 266.00 150.00 1Man-days 50. 85 80 Income per man-day 144.8 3.13 1.88 2 At base prices for costs and sugarcamD. June 12, 1974 TANZANIA KIlO3ER0 SUGAR PROJECT Ril.s. Distriet D-velpo.e-c tarnoaration (RDDC) Farm Budvet Ta-coa Statement and Cash Forecast (Tab) 75-76 76-77 77-78 78-79 79-80 80-81 81-82 82-83 83-84 84-85 85-86 86-87 87-8R 86-89 S9-9O INCOORB STATEMENT Ragatosme iscoow,e - 1,359,072 3,097,536 3,416,400 3,416,400 3,416,400 3,416,400 3,416,400 3,416,400 3418,400 3,416,400 3,416,400 3,416,400 3,416,400 3,416,400 OPERATING COSTS Staff Coats 242,409 529,361 779,135 797,881 797.881 797,881 797,881 797,881 797,881 797,881 797,881 797,881 797,881 797,881 797,881 Farm Teals 6/ 10,900 17,820 10,527 1,210 - - - - - 12,100 19,602 10,527 1,210 - Land preparstia, seed ena. and pleating. Conagma ior replantlng. - - - 784,368 784,368 784,368 784,388 784,368 784,368 784,368 784,368 784,368 784,368 784,368 784,368 Crpe t,-an rp1-tnt 1m- /. - *27,898 594,048 852,100 655,200 655,200 655,200 655,200 655,200 655,200 655,200 655,200 655,200 653,200 855,200 Vehicle runming, Mnntoeoamcm sod rmpmOroW 18,150 09,965 22,962 22,962 22,962 22,962 22,962 22,962 22,962 22,962 22,962 22,962 22,962 22,962 22,962 BuIldiog rminte..aoelJ - 37,268 54,505 67,178 8758 67,178 67,178 67,178 67,178 67,178 67,178 67,178 67,178 67,178 67,178 Sundrieis 2,000 3.000 5,008 5.000 0 .880 5.000 5,000 5,000 53.000 5,000 5.000 2,000 5.000 5,000 Total Operating Cfets 273,459 875,110 1,466,177 7,333,799 2,332,589 2,332,589 2,332,589 2,332,589 2,332,589 2,332,589 2,344,689 2,352,191 2,343,116 2,333,799 7,332,589 CAH3 FC8RECAT MIbLOW Gret a Incooe (273,459) 483,962 1,631,359 1,082,601 1,803,811 1,083,811 1,083,811 1,083,811 1,083,811 1,083,811 1,071,711 1,004,209 1,073,274 1,082,601 1,083,811 Oovernmnot grant far land deelopme,t 6/ 454,740 500,292 275,184 - - - - - - - - - - - _ Governaseat grant for b,ildinga, mehimlee & equip. 6t 104,745 43,092 31,682 Lang-tere iloa for land develop_ent 7/ 1,364,220 1,500,876 825,552 Long-term loam fan bailding, vehicle & eqeipmeat 8/ 314,235 129,276 95,046 - - - - - - - - - - - - Shart-term loan (working cepical) 9/ 340,000 - - Total Cabh Inflow 2,304,481 2,657,498 2,858,823 1,082,601 1,083,811 1,083,811 1,083,811 1,083,811 1,083,811 1,083,811 1,071,711 1,064,209 1,073,284 1,082,601 1,083,811 OUTFLOW Load Developmeot IQ/ 1,818,960 2,081,168 1,100,736 - Buildings 372,680 172,368 126,728 Offie f£uraitare & sqoip-nt 10,080 - - - - - - 14,000 Vehicle 1i/ 36,300 - - - - 43,980 - - - - 43,900 Inoeae Tea - - 365,990 192,610 193,184 193,184 193,184 193,184 193,1S4. 193,184 188,344 264,557 418,6Z1 422,340 422,832 Debt ServicIng Land d-velopmn,t 1f - 253,282 521,914 575,640 575,640 575,640 575,640 575,640 575,640 575,640 575,640 376,085 Buildina & eqitpment 13/ 23,568 33,264 40,392 40,392 92,765 110,383 120,680 113,995 107,215 100,493 41,379 17,029 Short-term loam (orkinig capital) 4t 28,900 28,900 38,00-- - Tatal Cash Cotflow 2,290,408 2,488,982 2,524,660 808,842 861,589 923,107 889,504 882,819 876,039 869,307 863,263 657,671 418,621 422,348 422,832 Cash Basanes 14,073 168,516 334,163 273,959 222,222 160,704 194,307 200,992 207,772 214,504 208,448 406,538 654,663 6417,253 660,979 I/ Form tools with bane price at Tsh 100 per anit it 1975-76 bith 107 i-creasa p.a. apta 77-78, mao-toet th-rnaiter. 109 Suits io 75-76 amd 85-86; 162 anita im 76-77 and 86-87; 87 omits in 77-78 and 87-88 amd 10 units in 78-79 and 88-89. 2/ BRoe price per acre (73-74) - Tah 1,716; aith 107 p... incanrean opt 77-78, ptner per acee foma 78-79 enwands would be Tab 2,514. 3/ 000e price per tee (73-74) - Tah 10, aith 10% p.a, i-crease auto 77-78, prior per toa in 76-77 would be Tsh 13, sod from 77-78 onwarda weald be Tah 14- 4/ At Tah 10,000 ic 73-74, and increa- e rt 707% p.a. opta 77-78, ceonstat thbrsafter. 5/ At 10% eapital casts. 6/ 25% capital coats baree by Go-ernmeat .e grant. 7/ Loan advauca by KSC for laod dae-elp-nt tO be repaid with 92 ittereat p... ever 11 years to be dedoctod fr=- cane price. 8/ Loan free TRDs at 741 inWeters pa raps.id cen 10 years aith 4 ya-re gr.er for capital repayer,,t 9/ Barrowed from TRODB at 847. inte-ent p.a. repaid acer 3 yearn; capttal repaid is third year. 10/ Base price (73-74) - Tah 2,409 per acre, mith 10X inerease p.d. upte 77-78, pric- per a-te is 75-76 would be Toh 2,919, in 76-77 TFh 3,207 and ft 77-78 Tah 3,528. 11/ Co.t af coo -ehicle. Base pric-of oe. enhirle TCh 30,000 Ic 73-74 and 100, ltreane p.c. upto 77-78, -omota-i tharnafter, 02/ Dedacted by KSC free canr price en the basis =f 9X anouity aver 11 yearo at Tab 12.30 per ton for 468,000 tees of ougaro-ce. 13/ I..n frat TRDB at 7iiX iintrect p.a.,repaid over 10 yaar- wrth 4 y-as grace Cor capital repay.met. 147 Rrroewnd ftme TRIO at 80% i,teer-t p.a.,repaid meet 3 ye-rs; capital repaid ia third year. June 32, 7974 ANNEX 7 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Machinery Costs and Requirements Tractors for Land Clearing, Preparation and Planting 1. Land clearing and preparation can only be executed during the dry season. As an average this season runs from 1st May up to 20th December, comprising 234 calendar days. For calculation purposes and to allow for a reduction of days for breakdowns, illness of drivers, down hours in the Tractor Workshop, and interruptions due to rain showers, a month has been taken as 24 working days, the dry season thus comprising about 164 working days. 2. The planting of irrigated cane should be carried out as soon as possible. The planting of rainfed cane has to wait for the onset of the rainy season; the land clearing and preparation for rainfed cane land should be scheduled right before the onset of the rains, to be finished before 20th December. 3. The operational capacities in acres per working day for the various tractor types are given in Table 1. Tractor requirements are summarized below: Fiscal Years 1974/75 1975/76 1976/77 1977/78 180 HP-crawlers (C180) 16 16 16 12 105 HP-crawlers (C105) 2 2 2 2 75 HP-crawlers (C75) 7 7 7 5 75 HP-wheel tractors (W75) 3 4 3 3 The tractors needed in the fiscal year 1974/75 (May-Dec.), should be purchased for delivery as early as possible in the period, or hired, although even with a delay in delivery to 1st October the clearing and planting program for the dry season 1974 could still be achieved. As of June 1974, procurement pro- cedures are well in hand and should permit this schedule to be achieved. 4. Purchase costs of tractors and implements at December 1973 prices are given in Table 2. Tractor hours per acre, cost of operation per acre, and total costs of land clearing and preparation are shown in Table 3. The average total cost per acre is calculated at Tsh 824. Estate Cropping Operations: Tractors Requirement and Working Days 5. The land clearing and preparation operations are directly followed by planting, and crop maintenance of plant cane (starting 1974/75) and ratoons (from 1975/76). The first replanting will be done in 1977/78. All estate operations except cutting are mechanized. From planting on, however, ANNEX 7 Page 2 the outgrowers take care of the maintenance of their crop, as they will do also for all their ratoons. The operational hours are sunmmarized in Table 4 and the operational costs in Table 5. 6. Estimates of tractor requirements for cropping operations have been developed starting from areas to be cultivated, with speed of operations based on K I experience, and climatic limits. Considerations taken into account include: (a) irrigated cane has to be planted early in the dry season and rainfed cane at the onset of the rains in December. For rainfed cane the operations following planting have to be performed in dry spells during the wet months of January and February. This necessitates quick performance calling for extra capacity in tractors and implements; (b) maintenance of nurseries and irrigated cane is carried out during the first half of the dry season, and rainfed cane in the second half of the dry season, so that maintenance operations do not overlap. The biggest number of tractors needed in a cropping year is therefore the number needed by the biggest category of cane. In 1975/76 this would be the irrigated cane and nurseries category; (c) trashraking (on ratoons) chiselling and herbicide spraying can be executed in the dry season, but fertilizing and ratoon reshaping can only be done after the onset of the rains, the latter only after the rains have resulted in new growth of the cane; (d) replanting needs 6 operations from uprooting the cane stools of the harvested 5th cuttings and preparations of the land to replant. The following 5 operations, planting through uphilling, comprise the maintenance of the replanted crop. Experience might result in reduction of some land preparation operations such as deep ploughing, planning and TRCH-Harrowing, but allowance has been made for these. Tractors Needed for All Cropping Operations 7. The total number of tractors needed for maintenance of replantings is given in Table 6. At the end of this table is shown the kinds and quantities of tractors needed per cropping year. Those for 1974/75 should be available at K II at October 1, 1974 at latest. Implements Needed for Subsequent Operations 8. The implements needed subsequently are scheduled for the period 1974/75-1978/79 in Table 7. June 12, 1974 ANNEX -7 Table i TANZANIA KILOMBERO SUGAR PROJECT Tractor Ca acities (Land Clearing and eparation, Flanting, and Cropping) 1/ 2/ Operation Tractorl/ Work Rate Cane Type2 a. Clearing, Preparation and Planting Treedozing C 180 1.00 acres per hour Clearing and Piling C 180 0.34 acres per hour Ripping C 180 0.92 acres per hour Levelling C 75 0.42 acres per hour TRCH Harrowing C 180 1.00 acres per hour Harrowing C 105 2.00 acres per hour Furrowing C 105 2.00 acres per hour Planting W 75 1.00 acres per hour b. Subsequent Operations Trashraking W 65 2.27 acres per hour (R) Chiselling W 47 1.43 acres per hour (F, RI P) Fertilizing W 65 1.43 acres per hour (F R, P) Ratoon Reshaping W 75-HC 1.89 acres per hour (R) Herbidice Spraying W 65-HC 2.86 acres per hour (F, R, P) Uphilling W 65-HC 1.54 acres per hour (F P) Stubble Ploughing W 65 0.70 acres per hour (P) Deep Ploughing W 92 0.55 acres per hour (P) Planing C 105 1.22 acres per hour (P) TRCH Harrowing C 180 1.10 acres per hour (P) Harrowing C 105 1.90 acres per hour (P) Furrowing C 105 2.00 acres per hour (P) 1/ C = Crawler, W = Wheeled, HC = High clearance. Figures are HP. Equivalents used on K I are: C 75 - Caterpillar D4 C 105 - Caterpillar D5 C 180 - Caterpillar D7 W 47 - Massey Ferguson 135 W 65 - Massey Ferguson 165 W 75 - Massey Ferguson 185 W 92 - Massey Ferguson 1080 2/F= First Planting. R = Ratoon P = Replanting June 12, 1974 ANNEX 7 Table 2 TANZANIA KILOMBERO SUGAR PROJECT Uiiit Coat of Tractors and IMplements A. Tractors. For 1974 the purchase costs of the needed tractors, based on December 1973 prices, will be: 16 C 180 crawlers x Tsh 378,000 = Tsh 6,048,000 2 C 105 crawlers x Tsh 248,000 496,ooo 7 C 75 crawlers x Tah 153,000 = 1,071,000 4 W 75 wheel tractors x Tsh 53,000 212,000 Total = 7,827,000 B. Tractor Imnplements For treedozing, 3 treerakes @ Tsh 28,000 = 84,000 For clearing and piling, 8 clearing rakes * Tah 40,000= 320,000 For ripping, 3 rippers @ Tsh 8,000 24,000 For levelling, 7 planers S Tsh 70,000 490,000 For TRCH harrowing, 4 harrows S Tah 55,000 3 220,000 For shallow harrowing, 2 harrows * Tah 100,000 * 200,000 For furrowing, 2 furrowers 0 Tah 7,500 15,000 Additional Stubble ploughs, 2 S Tsh 20,000 40,000 Deep ploughs, 5 0 Tah 10,000 = 50,000 Dozerblades: for C 108, 8 blades @ Tsh 62,000 = 496,000 C 105, 2 blades S Tsh 35,000 - 70,000 C 75, 7 blades S Tah 31,000 - 217,000 Total A9226,000 For Planting 4 caneplanters S Tsh 17,500 M70000 Total Tractors and Implements * Tah 10,123,000 June 12, 1974 ANNEX 7 Table 3 Page 1 TANZANIA KILONEWR SUGAR PROJECT Land Clearing, Preparation and Mechanical Cultivation Costa Clearing and Preparation 1974/75 1975/76 1976/77 1977/78 Total Acres milling cane and nurseries 2,160 3,880 2,420 1,240 9,700 Required Tractor Hours Hours/ Operation Tractor Acre Treedozing C 180 1.00 2,160 3,880 2,420 1,240 Clearing and Piling C 180 2.94 6,350 11,407 7,115 3,647 Ripping C 180 1.09 2,354 4,229 2,638 1,352 Levelling C 75 2.38 5,141 9,234 5,760 2,951 TRCH harrowing C 180 1.00 2,160 3,880 - 2,420 1,240 Harrowing C 105 0.50 1,080 1,940 1,210 620 Furrowing C 105 0.50 1 080 1,940 1,210 620 Total 20,325 36,510 22 773 31,670 Cost in Tsh Tah/hr Treedozing C 180 121 261,360 469,480 292,820 150,040 Clearing and Piling C 180 121 261,360 469,480 292,820 150,040 Ripping C 180 121 261,360 469,480 292,820 150,040 Levelling C 75 85 183,600 329,800 205,700 105,400 TRCH harrowing C 180 162 349,920 628,560 392,0o0 200,880 Harrowing C 105 101 218,160 391,880 244,420 125,240 Furrowing C 105 113 244,080 438,440 273,460 140,120 Total 1.779,840 3,197,120 1,994,080 1,021,760 ANNEX 7 T-able 3 Phge 2 Mechanical Cultivation Tractor Operation -pe Cost/hr Stubble ploughing W 65 23 Deep ploughing W 92 107 Planing C 105 100 TRCH harrowing C 180 162 Harrowing C 1e5 101 Furrowing C 105 413 Planting W 75 24 Fertilizing W 65 18 Herbicide spraying w 65-Hc 2 Chiselling W 47 11 Uphilling W 65..HC 28 Ratoon reshaping W 75-HC 32 Trashraking W65 June 12, 1974k ANNEX 7- Table 4 TANZANIA KILOMBERO SUGAR PROJECT Estate Cropping Operations Tractor Hours Fiscal Year 1974/75 1975/76 1976/77 1977/78 1978/79 Total Acres 2,160 3,880 2,,420 1,240 - 9,7001/ First Planting After Clearing Hrs/Acre Planting 1.00 2,160 3,880 2,420 1,240 - - Fertilizing 0.70 1,512 2,716 1,694 868 - - Herbicide Spraying 0.35 756 1,358 847 434 - - Chiselling 0.70 1,512 2,716 1,694 868 - - Uphilling 0.65 1,404 2,522 1,573 806 - - Acres - 2,160 5,080 5,840 5,840 3,680 Estate Cuttings II-V Trashraking 0.44 - 950 2,235 2,5.70 - - Chiselling 0.70 - 1,512 3,556 4,088 - - Fertilizing 0.70 - 1,512 3,556 4,088 - - Ratoon Reshaping 0.53 - 1,145 2,692 3,095 - - Herbicide Spraying 0.35 - 756 1,778 2,044 - - Acres - _ - 700w' 23801/ - Replanting Estate and Outgrowers Stubble ploughing 1.40 - - - 980 3,332 - Deep ploughing 1.80 - - - 1,260 4,284 - Planing 0.80 - - - 560 1,904 - TRCH harrowing 0.92 - - - 644 2,190 - Harrowing (2x) 0.53 - - - 371 1,261 - Furrowing 0.50 - - - 350 1,190 - Planting 1.00 - - - 700 2,380 - Estate Only Fertilizing 0.70 - - - 490 1,666 - Herbicide Spraying 0.35 - - - 245 833 - Chiselling 0.70 - - - 490 1,666 - Uphilling 0.65 - - - 455 1,547 - 1/ Including nurseries, excluding old outgrowers. 2/ Outgrowers ratoons will be maintained by themselves. C/ Estate's CI and nurseries (460+240)acres. 17/ Including old and new outgrowers land to guarantee a good crop (920acres). ANNEX 7 Table g TANZANIA KILOMBERO SUGAR PROJECT Estate Cropping Operations Costs in Tsh Fiscal Year 1974/75 1975/76 1976/77 1977/78 1978/79 First Planting Acres 2,160 3,880 2,420 1,240 - TBh Cost Operations Tractor Hour Planting W 75 24 51,840 93,120 58,080 29,760 - Fertilizing W 65 18 38,880 69,840 43,560 22,320 - Herbicide Spraying W 65-HC 24 51,840 93,120 58,080 29,760 - Chiselling W 47 11 23,760 42,680 26,620 13,640 - Uphilling W 65-HC 28 60,480 108 640 67,760 34,720 - Total 226 800 54,100 130 200 - Tah/acre 1 1 - Estate Cuttings II-V Acres - 2,160 5,080 5,840 5,840 Trashraking W 65 18 - 38,880 91,440 105,120 - Chiselling W 47 11 - 23,760 55,880 64,240 - Fertilizing W 65 18 - 38,880 91,440 105,120 - Ratoon Reshaping W 75-HC 32 - 69,120 162,560 186,880 - Herbicide Spraying W 65-HC 24 - 51 840 121 920 140 160 - Total - 222,48 523 240 601520- Tsh/acre - 10310. Rbplanting Acres Estate and Outgrowers Stubble ploughing W 65 23 - - - 16,000 54,740 Deep ploughing W 92 107 - - - 74,900 254,660 Planing C 105 100 - - - 70,000 238,G00 TRCH harrowing C 180 162 - - - 113,400 385,560 Harrowing C 105 101 - - - 70,700 240,380 Furrowing C 105 113 - - - 79,100 268,940 Planting W. 75 24 - - _ 16,800 57,120 Estate Only Fertilizing w 65 18 - - 12,600 42,820 Herbicide Spraying W 65-HC 24 - - - 16,800 57,120 Chiselling W 47 11 - - - 7,700 26,180 Uphilling W 65-HC 28 - - - 19,600 66,640 Total _ __ 497 600 16916 Tsh/acre - - - 711 711 June 12, 1974. ANME= 7 Table 6 TANZAI KILOMBERO SU3AR PROJECT Total Tractor Requirement for Caneland Fiscal Year 1974/75 1975/76 1976/77 1977/78 1978/79 Land Clearing and Prepation Tractors C 180 16 16 16 12 C 105 2 2 2 2 C 75 7 7 7 5 First Planting W 75 3 4 3 3 Maintenance first planted estate cane, estate ratoons, land preparation and replanting of estate and outgrowera' land, and maintenance of estate replanted land. c 180 - - - 1 3 G 105 _ _ _ 3 7 C 75 _ _ _ _ * 92 - - - 2 5 W 75 3 4 3 3 4 * 75-HC - 3 5 5 5 w 65 2 8 12 16 18 W 65-Hc 3 5 8 10 11 * 47 2 5 8 10 10 Plant. mach. 3 4 3 3 4 Combined total of tractors for the caneland. C 180 16 16 16 13 3 onward C 105 2 2 2 5 7 C 75* 7 7 7 5 - W 92 - - - 2 5" W 75 6 8 6 6 4 n W 75-HC - 3 5 5 5 W 65 2 8 6 6 4 W 65-HO 3 5 8 10 11 W 47 3 5 8 10 10 Plant. mach. 3 4 3 3 4 " * one to be added for road construction and maintenance. June ip, 1974 ANNEX 7 Table 7 TANZANIA KILOM3ERO SUGAR PROJECT A. I^plements Needed for Crop Maintenance and Replanting Preparations Fiscal Year 1974/75 1975/76 1976/77 1977/78 1978/79 Fertilizer hoppers 2 6 8 8 6 Herbicide sprayers 1 3 6 6 5 Chiselling units 2 5 8 8 WI Uphillers 2 2 2 4 4_i/ Traahrakes - 2 4 4 4 Ratoon reshapers - 3 5 5 5 Stubble ploughs - - - 2 4 Deep plougha - - - 2 5 Levellers 7 7 7 6 2 TRCH harrows 2 2 2 3 3 Harrows 1 1 1 2 3 Furrowers 1 1 1 2 2 B. For Land Clearing and Preparation Operations, Included in A Above Levellers 7 7 7 5 TRCH harrows 2 2 2 2 Harrows 1 1 1 1 Furrowers 1 1 1 1 - C. Dozerblades for Crawlers C 180 8 8 8 6 3 C 105 2 2 2 2 - C 75 4 4 4 2 2 D. For Land Clearing and Preparation Operations (additional to B) Treerakes 3 3 3 2 Piling rakes 8 8 8 6 Rippers 3 3 3 2 1/ Cultivator sets. / Moulding sets. June 12, 1974 ANIZX 7 Tab e TANZAUA KILa4Nno SUGAl PROJECT Total Equipment, Quantities and Costs for Clearinra enation. Crop Maintenance, and Nervesting ____________________________Fiscal Year __i214974 9 1aYe 1977/71 197M/7 9 Unit Price Tsb 1,000 No. Tota-l -No. Cost No. Cost No. CoSt No. Cost No. Cost Crawler Tra-tors c( !o 350 16 5,600 16 5,600 - - C 105 225 7 1,575 2 45- - 3 675 2 450 C 75 140 8 1,120 8 1,120 - _ - - - - Wheel Tractors W 92 98 5 4190 - _ _ _ . 2 196 3 294 W 75 53 8 424 6 318 2 106 - - - - - - W 75-HC 56 5 280 - - 3 168 2 112 - - - - W t,.llC 45 11 495 3 135 2 90 3 135 2 90 1 45 W 47 33 12 396 5 165 2 66 3 99 2 66 - - Total 10,380 7,788 0346 1,027 789 Tractor IrpleoeOts Tr-erakes 28 3 84 3 84 Cl.ariog rakes 40 8 320 8 320 Rippero 8 3 24 3 24 Levellers 70 7 490 7 490 TRCH-Harro-s 55 4 220 4 220 _ - - _ - - - tarrows 100 2 200 2 200 Furro-er- 7.5 2 15 2 15 Stubble pl-ughs 20 3 60 2 410 _ _ _ _ _ 1 20 Deep ploog9h 10 5 50 _ - _ _ _ 2 20 3 30 C.00 planters 17.5 4 70 4 70 F-rtilier hoppers 10 8 80 2 20 4 40 2 20 lerbicide sprayers 15 6 90 1 15 3 45 2 30 Cultivator- 4 8 32 2 8 3 12 3 12 Moulding .eto 10 4 40 2 20 - - - 2 20 Trshralkes 5 4 20 - _ 2 10 2 10 Ratoon reshapers 10 5 50 - 3 30 2 20- TotaI 1,845 1,526 137 92 40 -2 Docerblades For: C 158 62 8 496 8 496 _ _ _ _ _ _ _ _ C 105 35 2 70 2 70 - _ _ _ _ _ _ _ C 75 31 7 217 7 217 - - - _ _ _ _ Total 783 783 Roado and Bridges Gradero 175 2 350 2 350 Roadrollers 50 1 50 1 50 _ _ _ _ _ _ _ _ Rotary cutters 6.5 2 13 2 13 Molasoeo Ta-k 7.5 1 7.5 1 7.5 Total 420.5 420.5 Various Transports- - Icocloader 50 1 50 1 50 _ _ - Joa'oderan 151 125 1 125 - -- -- -- Jumbo -ran. 125 10 1 10 Ceospool emptier 10 1 10 - 1 10 _ _ _ _ Firing trailer 75 1 75 - 1 -D Total 260 175 85 Vehicles and MIotrorycles Pickup cars 38 11 418 8 304 3 114 - Small buse 55 1 55 1 55 Saloon cars 40 1 70 1 35 1 35 _ _ _ _ _ _ 4-Wheel dries cars LB 35 2 70 1 3 1 35 4-Wheel drive cars SB 30 6 120 3 90 1 30 Anbolance 603 5 62 42 6 21 6 21 Motorcycles 3.5 12 . 6 21 665- - mtorriclo 65 1 65 1 65 - -- -- - Tip~pers 73 9 ....572 9 5 ...- Total 1.527 1,327 200 igo tractor 85 25 2,125 - - 18 1,530 7 595 WBo tractor W65 tractor 52 146 7,592 4 208 90 4,680 42 2,164 8 416 2 .14 Lighting units 20 4 80 4 80 - _- - - Sideload units- 24 190 4,56o _ _ 125 3,000 50 1,200 15 360 - - Pullers 10 8 80 - - 6 60 2 20 Frae for pullers 3 8 24 - _ 6 18 2 6 Winches 22.5 6 135 - - 4 90 2 45 Trailers 7.5 12 90 - 7 52.5 5 37 5 Total 14,686 208 9,510.5 4,087.5 776 104 Grand Total (x.clud.s Spares) 29,901.5 12.025 10.362.5 5. 83 943 June 22, 1974 ANNEX 8 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Training Requirements 1. Because of the shortage of suitably trained manpower in Tanzania particularly at technical and higher levels, the Kilombero Sugar Company has experienced difficulties in recruiting adequate staff. The supply of trained personnel will continue to be limited for the foreseeable future and KSC has, therefore, developed a system to upgrade its staff at all levels. This con- sists of in-company training schemes coupled with the provision of fellowships for selected staff at institutions inside and outside Tanzania. These programs need to be expanded and strengthened to meet the training needs of K II as well as to contribute to further demands for skilled manpower resulting from the anticipated expansion of the Tanzanian sugar industry. 2. A study of the training requirements for the Tanzania sugar industry as a whole was prepared by a team of consultants provided under Dutch assistance in 1972. The report proposed the establishment of a Central Training Center (CTC), located near one of the larger existing estates, to be used for training and upgrading middle and lower level supervisory personnel, and for a number of Local Training Centers (LTC) to be established near the estates for train- ing and upgrading of lower level workers. Government has concluded, and the mission agrees, that while the establishment of such a national sugar training scheme could assist the sugar industry in alleviating its manpower constraints, the present system of in-plant training coupled with sponsorship of employees on selected courses in Tanzania and overseas, forms the most suitable training system for the Project and for the needs of the sugar industry in general. Supervised specific on-the-job training coupled with day release classes and the provision of training materials can be made more relevant to middle and lower level jobs on the sugar estate than more formal full-time courses away from the place of work. In addition, more personnel can be released for training at any time. This is of special importance in the case of K II where the operatives, particularly for the new factory, will have to be trained within a short time period. Senior level staff and potential senior staff will, in addition to learning skills from their expatriate counterparts and supervisors, be offered fellowships both in Tanzania and abroad. 3. The present Kilombero Sugar Company training system will have to be made more comprehensive and vigorous to meet the needs of the Project. When the new factory becomes operational, experienced personnel will be divided between K I and K II. New staff will be recruited for on-the-job training well in advance of when they will be required to start performing their duties and trained in K I. A training coordinator/instructor, expected to be an expatriate with experience in training for the sugar industry, will be re- cruited under the Project. He will review and upgrade the present training ANNEX 8 Page 2 courses, curricula and procedures and supervise the senior and supervisory staff who are responsible for such instruction. More supervisory personnel than are strictly needed for management purposes will be recruited in order that they can devote time to training. It is also proposed that compulsory classes during work hours will be introduced (at present, instruction is given after work with the result that many potential participants do not attend and those that do are tired and find it difficult to concentrate) and provision is made for duplicate staffing to allow such release. Provision for training equipment and materials to be located in existing and new workshops and facilities is also provided under the Project, and support for the fellowship program will be made available, and an element has been included in the turn- key package for senior management training. Field Department Personnel 4. Little difficulty is expected in recruiting suitably trained agri- cultural personnel at the Junior management and supervisory levels. Graduates are available from University's Faculty of Agriculture in Morogoro for assist- ant field managers and section managers. Adequate numbers of "certificate" holders, who have undergone two years post secondary school training in agri- culture, are expected to be available for the foremen posts. Personnel will be recruited about one year in advance of when they are actually needed and be given on-the-job training by existing staff. KSC will continue to sponsor selected employees for full-time training at Morogoro Agricultural College. Some employees will be sponsored for certain specialized overseas courses which are not available in Tanzania, e.g., in Agricultural Management at 'lanaga in Swaziland. At the lower levels, headman and semi-skilled workers will be given on-the-job training by the supervisory staff; in the past such training has proved to be adequate. Transportation Department and Tractor Workshops 5. Reflecting the overall country situation, shortages of skilled mechanics and engineers for the tractor and factory workshops are particularly severe. Instruction is presently given by foremen after work hours, some of whom have been sent to specialized overseas vocational training courses. The National Industrial Training Center, which is assisted by UNDP/ILO and located in Dar-es-Salaam, has established a series of trade tests and examiners visit the estates once per year to conduct examinations; however, results so far have not been encouraging. In order to meet the manpower requirements for K II it will be necessary to upgrade and strengthen the present workshop train- ing schemes. The proposed training officer would have to give particular attention to this area. Training manuals need to be developed and compulsory ANNEX 8 Page 3 instruction should be introduced. Provision would also be made for fellowships for technical training in Tanzania and abroad for supervising personnel. No difficulties in recruiting sufficient drivers are expected; special training sessions are held for a few days prior to the commencement of the session. Training of Factory Personnel 6. The new K II factory is in the fortunate position of being developed under the common management of the existing K I factory. Kilombero Sugar Company management will be able both to use the existing factory to train new personnel and also to allocate manpower among the two factories to utilize experienced personnel in key positions for startup and operation of the new K II factory. The training program will include double manning of about 50- factory positions with new personnel and upgrading of existing factory person- nel. A list of positions it would be appropriate to double-man and the train- ing period for K II is shown in Table 1. Over-manning would continue thereafter as needed for new sugar developments. Technical Department 7. In common with the tractor workshop, this department has experienced great difficulties in recruiting and upgrading suitable Tanzanian supervisory staff and skilled and semi-skilled tradesman. On-the-job training schemes have been developed in cooperation with the National Industrial Training Center but these need strengthening. Skilled workers who will be employed in assembl- ing the new factory are expected to be available for employment as operational personnel. The company's sponsorship scheme for students studying for certi- ficate and diploma courses at the Dar-es-Salaam Technical College will be expanded under the Project. Processing Department 8. The processing department has developed a systematic in-house training program with most formal instruction being conducted in the non-milling season. One supervisor devotes most of his time for training. Examinations, which are used as the basis of promotion, are held annually. Provision for overseas training in sugar processing has been included in the Project. Other Departments 9. It is expected that one employee from the Civil Engineering Depart- ment will be sponsored at Dar-es-Salaam Technical College. Employees in Administration will be sponsored for accounting degrees, secretarial and correspondence courses. ANNEX 8 Page 4 10. As a result of the improved training schemes which will be instituted under the Project, the field, administration and processing departments of KSC are expected to become almost completely localized within the Project period: seven or eight of the initial ten senior expatriate posts would probably be filled by Tanzanians. However, although the Dar-es-Salaam Techni- cal College and the newly instituted engineering course at the University are expected to produce an increasing number of engineers, severe country-wide shortage of such personnel will continue for some considerable time. The senior engineering staff of KSC will not, therefore, be fully Tanzanian until well after the Project period. 11. Cost estimates for the training program are shown in Annex 13, Table 5. June 12, 1974 AiMNEX 8 Table 1 P.,ge 1 TANZANIA KILOMBERO SUGAR PROJECT Training-Factory Staff Training in Period May 1975 to Apr. 1976 to Apr. 1976 M4ay 1977 Trainees No. Date No. Date TiCHNICAL D3PARTMENT Administration Clerk 2 1 -May 75 1 - Aug. 76 Draftsman 1 1 - Aug. 76 Asst. PurchasIng Officer 1 1 - Apr. 76 FACTORY Cane House Crane Operators 12 12 - Aug. 76 Cane Table Operators 3 3 - Aug. 76 Headman 3 3 - July 76 YMlling/Diffusion Plant Mill Attendants 9 9 - July 76 Diffuser Operators 3 3 - July 76 Steam Generation Plant Feedwater Station Attendants 6 6 - July 76 Bagasse System Carrier Attendants 3 3 - Aug. 76 Boilers Laborers 9 9 - July 76 Operators 6 3 - May 75 3 - Jun. 76 Power Generation Plant Power House Engine Attendant 3 3 - May 75 Switchboard Opera-tor 3 3 - Jun. 76 Foreman 3 3 - May 75 Pump Station Engine Attendant 3 3 - May 75 ANN1X 8 Table 1 Page 2 Training in Period May 1975 to Apr. 1976 to Apr. 1976 Ma 197 _ _. . Date No. - f- te FACTORY (Cont.) Shift Repair & Maintenance Mechanics 9 9 - July 76 Plant Repair & MainteWnace- Fitters 18 18 - Jul. 76 4elders 4 4 - Jul. 76 Foreman 1 1 - May 76 4ORKSHOPS Stores Laborers 3 3 - Aug. 76 Attendants 1 1 - Jul. 76 Mechanical Worksho? Machine Operatprs 1Q 5 - May 75 5 - Aug. 76 Machine Fore=an 1 1 - May 75 Fitters 10 - Aug. 76 Fitter Foreman 1 1- Aug. 76 'delders 2 - My 75. 2 - Aug. 76 .*elder Foreman -1 1 - y 75 Steel Sawer 1 - Aug. 76 Foundry Molder 2 1 - May 75 1 - Aug. 76 Blacksmith 2 1 - May 75 1 - Aug. 76 Electrical WorkshoQp -Laborers 2 2 - Aug. 76 Electricians 8 3 - May 75 5 - Jul. 76 Foreman 2 1- May 75 1 - Jul. 76 Instrument Workibop Mechanics 2 -May 75 3 - Jul. 76 PAOCESSING DMPARLMwT Administration Chief Clerk 1 1 - Jul. 76 isNEX 8 "able 1 Page 3 Training in Period May 1975 to 4p.. 1976 to Apr. 1976 hay 1977 Trainees No. Date No. Date PROCESSING DEPARTM-NT (Cont.) Cane deighbridge Attendant 4 4 - Aug. 76 Clerk 2 2 - Jul. 76 Laboratory Analysts 6 6 - Jul. 76 Head Analysts 3 3 - May 75 Juice Processing Plant Clarification Station Operator 3 1 - Jul. 76 Evaporator Station Operator 3 1 - Jul. 76 Processing Foreman 3 3 - May 75 Sugar Processing Plant Sugar Boiling Station Sugar Boilers 9 9 - May 75 Head Sugar Boiler 3 3 - May 75 Centrifugal Station Headman 3 3 - May 75 Sugar Bagging and Storage Jute Bag Supply Filter Cloth & Bag Sewer 1 1 - Aug. 76 Sugar Godown Laborers 15 15 - Aug. 76 Headman 1 1 - Jul. 76 Supervisor 1 1 - Jul. 76 June 12, 1974 ANNEX 9 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Terms of Reference for the Development of Sugar in Tanzania A. Background 1. Tanzania currently obtains its domestic sugar production from four estates: Tanganyika Planting Company, Mtibwa, Kagera and Kilombero. Recent production has been about 90,000 m tons per year and 45,000 m tons was imported in 1972 to meet domestic demand. Expansion programs have been prepared and undertaken by the various factories and it is estimated that the results of the current programs will be largely realized by 1978 when domestic production is projected to show surplus of from 5,000 to over 35,000 m tons depending on the rate of growth of consumption. However, it is likely that the surplus production will be short-lived as deficits are likely early in the 1980's. 2. To avoid continued piecemeal growth of the domestic sugar industry, the Kilombero Sugar Project includes provision for a team of consultants for the identification of further developments in the industry. They will conduct a country-wide survey to identify potential sugar areas and prepare detail feasibility studies and programs to permit Tanzania to be self-sufficient in sugar through 1990 and a general program through 2000. B. Objective 3. The objective of the survey will be to prepare a detailed program which will enable Tanzania to meet its internal demand for sugar from 1979 through 1990 and a general program to 2000 at the least cost to its economy. To this end, the survey will provide: (a) an assessment of Tanzania's current and future sugar require- ments, through the year 2000; (b) a detailed program for further expansion and development of existing sugar estates, factories and related facilities if technically and economically justified; (c) a detailed program for the development, if technically and economically justified, of sugar production in new areas including the design of pilot trials of cane cultivation; and (d) a general program of development for the following 10-years through the year 2000. ANNEX 9 Page 2 C. Scope of Services General 4. The consultants shall perform all agricultural, engineering and other technical studies, economic and financial analysis, and field investi- gation work as required to attain the objectives. The consultants shall be responsible for the analysis and interpretation of all data collected or received and for the findings, conclusions and recommendations contained in their reports. Current and Future Sugar Demand 5. The consultants shall examine the markets for sugar, the types and quality required and methods of production and distribution. On the basis of such data and on projections of future population growth and levels of con- sumption, the consultants shall estimate the country's sugar requirements through 1990 and indicate the likely demand through the year 2000. 6. The consultants shall also examine the production and marketing of by-products and end-products. They shall make recommendations as to the disposal of unmarketable products taking into account environmental consider- ations. Cane Production - Existing Areas 7. The consultants shall review existing agricultural practices and cane production. They shall make recommendations for: (a) improvements in method of cultivation and agronomic practices to increase current yields; (b) modification and improvements of outgrower production; (c) irrigation need and usage and improvements to existing systems; (d) modifications and improvements in present cane harvesting and transportation systems to increase efficiencies; and (e) inputs and actions required to implement the recommendations for expansion and for increasing current production. Sugar Production - Existing Areas 8. The consultants shall examine the present factory equipment and production systems and assess the potential for factory expansion based on the evaluation of agricultural estimates. They shall also assess the proces- sing methods based on the type and quality of sugar demand. The consultants shall make recommendation on: ANNEX 9 Page 3 (a) the expansion potential of existing factories with estimates of equipment costs, timing and economic return; (b) the processing method for producing the recommended type and quality of sugar; and (c) the economic handling of by-products and end-products. Cane and Sugar Production in New Areas 9. The consultants shall examine al'l available data to identify possible sites for sugar development in new areas and make a field survey of the sites. They shall evaluate the suitability of each site for sugar production and assign a priority rating to them. On sites where favorable characteristics appear to be present, the consultants shall take steps to identify the area and the extent of suitable land available for cane culti- vation, the appropriate factory capacity and potential sugar production. If economic production appears feasible, the consultants will design pilot treats for cane cultivation which would cover a period of three to four years and detail the personnel, facilities and finances required. The consultants shall also prepare physical and financial projections for a full-scale project with detailed estimates of production, investment and economic returns for the sites which they recommend to meet sugar demand through 1990. They shall prepare general estimates for a program to meet sugar demand through the year 2000. Development Program 10. Based on the forecasts for sugar demand and the analyses and evalu- ation of the existing sugar estates and new cane areas, the consultants shall prepare a phased program for the development of Tanzania's sugar industry. The consultants shall prepare a specific and detailed investment program through 1990 and for the next 10 years in more general form. Project Preparation 11. Within the context of Tanzania's objective to maintain self-sufficiency in sugar, the consultants will prepare a first phase project targeted to achieve results in 1979/80 when production from current expansion programs are expected to fall short of demand. The scope of the first phase project should be sufficient with a reasonable, phased expansion program to maintain self- sufficiency at least through 1985. The project should be prepared in a form suitable for submission for financing by a bilaterial donor or an international lending agency. ANNEX 9 Page 4 D. Costs 12. Projected survey costs are shown in Annex 13, Table 1. Provision is made for: (a) four consultants, an agriculturalist, a processing specialist, an agricultural economist, and a financial analyst; 24 man-months field work 16 man-months analysis and report preparation. (salaries and field living expenses) (b) local support personnel; (c) report preparation and printing; and (d) international and local travel. June 12, 1974 ANNEX 10 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Turnkey Factory 1. A 26-month development period, incl.ding Cold Testing and Trials, is set in the contract for the factory. IncLuded in the turnkey contract are: (1) a complete 2,400 TCD sugar factory for producing semi-refined white sugar including steam and power generation plants; (2) a factory workshop equipped with tools and equipment; (3) a tractor workshop equipped with tools and equipment; (4) a 11,000 m ton capacity sugar warehouse; (5) a general stores warehouse equipped with racks and shelves; (6) a fertilizer warehouse; (7) a main office building for the administrative and agricultural department staffs; (8) a cane weighbridge and cane storage facilities; (9) storage tanks and other miscellaneous items in the factory compound; (10) a river pump station, sedimentation basin, irrigation pump station and canals for factory and irrigation water supplies; (11) a telephone system with 50 telephones; (12) spare parts for the factory machinery and equipment. 2. After completion of construction, the turnkey contractor will super- vise startup and operation of the plant for a 12-week commissioning period during which he will train operators and run performance tests. A commissioning crew of 10 specialists will be provided for commissioning, and a crew of approximately 17 men per shift, consisting of mechanics, electricians, fitters, welders and instrument men will be retained from the erection staff to assist the commissioning crew. ANNEX 10 Page 2 3. Performance guarantees for the K II factory are: (1) 2,400 m tons of cane per 24 hours when supplied with cane with a fiber content not exceeding 15%; (2) when operating at the capacity specified above, reduced extrac- tion of not less than 96.5%; (3) when crushing cane with not less than 15% fiber and under normal processing conditions no extra fuel will be required for the boilers provided that the factory is in continuous operation at 2,400 m tons of cane per 24 hours; (4) the quality of semi-refined white sugar shall be of the following standards or better: (a) reducing sugars, maximum 0.03% (b) ash by conductivity, maximum 0.03% (c) moisture content, maximum 0.05% (d) attenuation indices: at 420 mu, maximum 110 at 720 mu, maximum 35 4. The total cost of the contract is the equivalent of US$31.5 million (Tsh 224.9 million), payable in Dutch, Danish and Tanzania currency as shown in Table 1. Prices, except for Marine Transport, Marine and Local Insurance and Transportation in Tanzania (items totalling US$0.9 million) are firm for the duration of the contract. Provision for contingencies included in the price was a negotiated item. June 12, 1974 ANNEX10 Tablel TANZANIA KILOMBERO SUGAR PROJECT Turnkey Contract - Payment Schedule Month Dutch Florins Danish Kroners Tanz. Shillins Apr./May 1974 1 8,000,000 33,980,000 2,996,825 2 250,000 - 3 250,000 Aug. 1974 4 1,627,000 1,500,000 1o,000,,000 5 250,000 1,500,000 1,000,000 6 250,000 1,500,000 1,000,000 7 246,630 1,500,000 1,000,000 8 1,050,000 5,000,000 1,000,000 Jan. 1975 9 1,050,000 5,000,000 1,300,000 10 1.,250,000 5,000,000 1,300,000 11 2.,050,,000 5,000,000 1,300,000 12 2,504,000 5,000,000 1,300,000 13 2,550,000 6,000,000 2,000,000 14 1,180,690 6,000,000 2,000,000 15 519,000 5,000,000 1,500,000 16 460,000 5,000,000 1,500,000 17 h60,000 5,000,000 1,500,000 18 460,000 5,000,000 1,500,000 19 460,000 5,000,000 1,300,000 20 460,000 614,730 1,300,000 Jan. 1976 21 460,000 780,000 22 460,000 - 780,000 23 460,000 780,000 24 460,000 - 780,000 25 460,000 125,000 700,000 26 260,000 -125,000 351,4Q5 27 260,000 125,000 28 260,000 - 29 _ 7,930 - - 28,415,250 102,969,730 29,968,250 Total = US$31.5 million equivalent or Tsh 224.9 million equivalent June 12, 1974 ANNEX 11 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Scale, Processs and Location of Plant A. Scale of Plant 1. The proposal submitted by Government called for a 2,400 TCD factory with an output of 45,000 m tons of sugar during a 200-day milling season. During appraisal the mission questioned whether a larger (or smaller) scale plant would be more economic, but after evaluation was convinced that the scale proposed was correct. Increased cane production arising from higher than anticipated cane yields could be handled by improvements in the con- servative 90% factory efefficiencies assumed and by extension of the milling season beyond 200 days. At 95% efficiency and a 10% longer milling season the factory out-turn would be 52,000 m tons sugar a year, 15% above rating. 2. Given achievable yields in the area, the size of K II is controlled by land available within economic distance of the factory, and the length of the milling season. Although a milling season in excess of 200 days, up to 225 days is possible in many years' (the season for K I has exceeded 200 days in 9 out of 12 years of operations) calculation on a 200-day basis reduces the risk of lowered productivity encountered when field conditions are affected by rain at the end of an extended period. On the other hand, although a gross area of 20,200 acres of arable land is encompassed by the areas of the Ruembe valley designated as suitable for sugar growing in the Project area, with allowance for rivers, major road areas, patches of poor soil, and areas needed for outgrowers food crops, only some two-thirds of this can be assumed available for planting. Other land is available in the Msolwa valley, South of K I, but at a distance which would make the transport of large quantities of cane uneconomic. 3. The proposed plant could physically be expanded to a 3,000 TCD capacity to produce 60,000 m tons sugar a year, but it is probable that the better approach to a further increase of capacity in the Kilombero valley, should this later be thought desirable, would be to establish a third factory and estate in the Southern area. Soil surveys have not yet covered this potential. However, a larger-scale development in a completely new area is expected to be a more economic solution. B. Description and Evaluation of the Factory Process The Factory Process 4. Estate cane would be transported to the factory by wheeled tractors pulling three single-axle carts each loaded with about 3.5 tons of chain- bundled cane. Outgrower cane would be similarly transported or by trucks or ANNEX 11 Page 2 trailers averaging about 5 tons per unit. Cane transport would be accomplished during two 8 hour shifts during the day and evening. All the cane would be weighed on a weighbridge at the entrance to the factory cane yard. Chain slings will be used to unload the cane from the transport units. The night cane supply would be stored in two cane storage bays. The cane bays would be equipped with overhead travelling cranes which unload the chained bundles of cane from the transport units to either storage or the cane tables. Cane would be conveyed from the cane tables to the main cane carrier which would be equipped with a leveller and two turbine driven cane knives for cane pre- paration prior to juice extraction. 5. Juice extraction would be by pre-pressing mill, diffuser and two bagasse dewatering mills. The extracted juice would be weighed over automatic juice scales and then heated to boiling by pumping through juice heaters. The heated juice would be limed and settled in a clarifier from which the clear juice overflow would pass through a multiple effect evaporator set for concentration into a thick syrup. The muddy underflow from the clarifier would be handled by rotary vacuum filters and the filter cake output would be hauled to the fields. 6. Raw sugar would be boiled from the syrup using a three boiling system of decreasing quality. Continuous centrifugals would be used to separate the raw sugar crystals from molasses in the first two boiling. Sugar from the third and final boilings would be separated from the final molasses by semi-automatic batch centrifugals and would be used as seed crystals for the first two boilings. The final molasses product would be stored for shipment and sale to the Tanzania Tank Storage Co. Ltd., who in turn will sell the industry's molasses to United Molasses Co. 7. Final product semi-refined sugar would be produced from treated raw sugar melt. Sugar produced from the first two boilings of the raw sugar processing system would be melted and treated with milk of lime and sulphur dioxide gas and filtered through filter presses. The clear melt would be boiled into final product sugar using a three boiling system. The filter cake would be hauled to the fields. The semi-refined white sugar would be recovered by automatic batch centrifugals. Runoff from the centrifugals would be boiled back into lower quality boilings. Generally, the sugar from the first and last refinery boilings would be mixed to produce a standard semi-refined product equivalent to sugar from the second boilings. The product sugar would be dried, cooled and screened before transport to a sugar bin. From the sugar bin, the sugar would be weighed and bagged by automatic machines into 50 kg paper bags and 100 kg jute bags. The final semi-refined white sugar product would be transported to storage prior to shipment and sale to the distributor. 8. Final bagasse from the juice extraction plant would be used as fuel for the boilers. During normal operations, the factory would be self-sufficient and generate all of its power requirements from bagasse. Excess bagasse would be stored and reclaimed from storage for use during factory stops. ANNEX 11 Page 3 Evaluation of the Proposed Process 9. About 80% of the current Tanzanian sugar production is semi-refined white sugar, and all imports are refined sugar. For competitive marketing reasons, the new factory would produce a semi-refined quality white sugar product. The semi-refined quality can be classified between plantation or mill white sugars produced by one of several processes, and refined sugar. The melt-sulphitation process proposed for tche new factory is a technically simple process with reasonable operating costs. The double sulphitation- process could be considered as an alternative process if a lower quality sugar is acceptable but it is technically more difficult requiring close process controls. Refined sugar processes were not considered because in all cases capital and operating costs would be higher than the melt-sulphi- tation process. For local marketing conditions and because it is a relatively simple technical process, the melt sulphitation process is suitable for installation in Tanzania. 10. Two alternative juice extraction systems were considered by KSC. The first system is straight milling with a mill train consisting of five 3-roller mills. The second system is milling with diffusion consisting of a pre-press, mill De danske Sukkerfabrikker (DDS) type continuous cane diffuser and two dewatering mills. The selection of the juice extraction system was based on the financial evaluation of the alternative proposals submitted by tenderers and was finalized in the factory turnkey agreement. Typically the two systems have similar cost/efficiencies. 11. Milling has been used for many years while continuous sugar cane diffusers are a more recent development. Cane diffusion systems have, however, been successfully adopted by many sugar factories throughout the world. The existing Kilombero factory installed a DDS type diffuser in 1972 and after some start-up problems, were successfully operating the plant in 1973. Higher sugar extractions expected with the diffusion system would also result in higher non-sugar extraction and therefore greater final molasses production. The boiling house would be equipped to handle the higher non-sugar loads to minimize sugar losses in molasses and to maintain satisfactory boiling house recoveries. C. Factory Site Location Alternative Factory Sites 12. Three locations were evaluated as potential sites for the proposed factory: (1) location alongside the existing Kilombero sugar factory; (2) location on the North bank of the Great Ruaha River; (3) location in the center of the new Ruembe cane growing area. ANNEX 1 1 Page 4 At the time of appraisal, the data available for an economic evaluation indicated that the site in the center of the cane growing area (3), and not the river-bank site (2) assumed in the project submission was most suitable. A detailed survey carried out by consulting engineers after the appraisal showed that soil bearing conditions for the construction of the factory, and for construction of water canals and rail access would considerably increase development costs and on the basis of these figures and in view of potential delays if the site be disputed further the mission endorses the river-bank site. Government has instructed the turnkey contractor to base operations on this location. Criteria for Factory Site Selection 13. From the technical viewpoint, any of the sites could have been selected as the new factory site. Qualitative management and social factors probably favor sites closer to the existing factory and estate but these are not significant since all of the sites are in the same general locality and the distance between the two extreme sites under consideration is only 7 km. Each site provides the opportunity for joint management of both the new and existing estates by the senior management staff of KSC. 14. Among the specific factors evaluated for each site were: (1) cane transport costs; (2) water development costs; (3) land use; and (4) access to existing facilities. 15. In sugar cane operations, transport costs are usually critical because of the quantity of raw material required to produce the final product. For the new factory about 430,000 m tons of cane would be transported to the factory by carts each loaded with 3.5 tons of cane or by trucks and trailers each loaded with 5 tons of cane to produce 45,000 m tons of sugar. Cane transport costs depends on the factory location and the magnitude of the additional transport costs become significant as the factory site is moved away from the center of gravity of the factory's cane growing area. 16. For the three sites, the factory and irrigation water supplies would be developed from the Great Ruaha River. The facilities would include a river pumping station, settlement basin, factory water supply, irrigation water supply, irrigation water pump house and power lines from the factory site to the pumping stations. Capital and operating costs would depend on the site selected for the new factory and were evaluated for each site. ANNEX 11 Page 5 17. It is desirable to locate the factory, housing development and community facilities on agriculturally less suitable or unsuitable land. However, this factor is not significant for the two sites north of the Great Ruaha River when the 250 acres required is compared to over 20,000 acres of arable land available in the Ruembe Valley of which two thirds (13,000) is scheduled as the cane area for the new factory. Land availability in the general area does not impose any significant restrictions for selecting the factory site except for the location alor.nside the existing factory. 18. Access to existing facilities would be limited to connecting the new factory site to the all-weather public road to Mikumi and constructing a spur line from the East African Railways branch line to Kidatu. Construc- tion costs for the access road and connecting rail line would depend on the location of the factory and were evaluated for each site. Evaluation of Location Alongside K I 19. The capacity of the existing factory has almost doubled by several expansion programs over the past years from an initial capacity of 1,300 TCD in 1961 to its current capacity of 2,150 TCD. The congested physical con- ditions in the factory and the layout of the existing plant will not readily permit the magnitude of expansion necessary to handle the projected through- put from the new cane areas. A complete new plant would have to be built alongside the existing plant. Minimal factory costs, if any, would be saved by locating the new factory alongside the existing factory. However, savings of US$1 million to US$1.5 million would be possible in infrastructure develop- ment, such as roads, rail lines, workshops, storage buildings, housing, and community developments. If the new factory is arranged to permit supervision and management by the existing senior staff, annual savings in senior factory staff salaries would also be possible. Water development costs would be about the same as for a factory located in the center of the new cane growing area. Either location would require separate factory and irrigation water systems. 20. The major disadvantage of the existing factory site is its location on the south bank of the Great Ruaha River across from the new Ruembe cane growing area. In addition to long cane transport distances a new bridge will be required to handle the volume of traffic which was estimated at 30 crossings per hour. The existing road bridge is inadequate to efficiently handle public transport together with the projected volume of cane transport as it is only wide enough to handle one way traffic and will add about 10 km per journey over the closest alternative, the river-bank site, to the cane transport distance. The mission's estimate for a new bridge across the Great Ruaha River is about US$0.75 million. The savings in capital costs for factory support facilities and infrastructure development was cancelled by additional costs for water development and a new bridge across the Great Ruaha River. The savings in factory senior staff salaries were more than offset by increased cane transport costs. ANNEX 11 Page 6 Evaluation of Location on the North Bank of the Great Ruaha River 21. This site located on the north bank of the Great Ruaha River about 1.5 km downstream from the existing road and rail bridges was proposed for the new factory in the credit application. The site is located on the southern boundary of the new Ruembe cane growing area. Cane transport costs would be considerably higher than a more centrally located factory. Its water development costs, however, were the lowest of the three sites and investments in electric cable, piping, and rail access would be lower than the central site. An argument for this site was the possible future extension of cane development in the Msolwa area located about 25 km south of the Great Ruaha River. If cane were to be transported long distances from the south, this site would then be centrally located and therefore have a cane transport cost advantage over one in central Ruembe. However, the mission calculated that the proposed development of cane in the Msolwa area for K II was uneconomic (para. 3) and the advantages of the river site for any such expansion made little impact on a DCF analysis because they were so long term. Evaluation of Location in the Center of the New Cane Growing Area 22. Initial economic evaluation showed that a factory which was centrally located in the new Ruembe cane growing area would be more suitable than a factory located on the north bank of the Great Ruaha River. The additional capital costs for a centrally located factory were estimated with agreement of HVA at under US$1 million. Lower cane transport costs offset the higher capital costs to give a 14% financial return on the incremental investment. 23. However, new estimates produced in March 1974 raised this estimate to US82.2 million and the cost of constructing a railway was raised to US$1.3 following detailed survey for a routing. The return to this incremental investment would be only 6.5% over 20 years: i.e., would reduce the return on the Project. An alternative which accepted trucking sugar from factory to rail-side and trans-shipping would have given considerably higher returns (over 10%) but still would not have increased the Project return. Conclusion 24. On the assumption that future transport cost increases would be broadly in line with other cost-increases, the central site would be less favorable than the river-side location despite the fact that this will in- volve over three times the cane transport of the central site. The cramped location and high transport costs preclude a site close to K I. On available data, the river site, as originally proposed, is therefore endorsed as the least cost alternative. June 12, 1974 ANNEX 1l' Page 1 TANZANIA KILOMBERO SUGAR PROJECT Critical Path Analysis 1. The Critical Path Method is a means of scheduling activities which comprise a Project taking account of the sequence of execution of the acti- vities and their interdependence. The Project is represented in a diagram with the activities depicted by arrows. The direction of the arrows shows the flow of execution of the activities. The beginning and end of an acitivity is marked by an event, depicted on the diagram by a small numbered circle. An activity can be referred to by its description or by the numbers of the starting and end events of that activity. A diagram of a complete sequence of activities and events is called a CPM network. 2. Sometimes it is not possible to depict completely the interdepen- dencies of activities of a project by using only activities and events. For this purpose an arrow in broken lines called a dummy is used. The presence of a dummy shows interdependence which would otherwise not have existed. A dummy may also be technically interpreted as an activity which does not re- quire any time to complete. 3. The sequencing logic of the project activities is obtained after lengthy discussions with the project architect who also provides the activity time estimates. In some cases involving delivery times for materials and plant, prospective suppliers are also consulted. The time estimates shown under the activity description in the CPM network are in months of project time. 4. The network is then analyzed by computer to obtain the project schedule. The schedule shows for each activity the earliest times the activity can start and finish and the latest times the activity must start and finish. It also shows which activities have slack or spare time (i.e. where the total available time for the activity is greater than the time it needs to execute the activity), and which activities are tight or have no slack. Activities which have no slack form a path (or paths) from the starting (first) event to the end (last) event of the project. This path is known as the critical path, and activities along the critical path have to be executed strictly according to schedule if a delay in project comple- tion is to be avoided. These activities are therefore the ones which require the strictest supervision. 5. The Kilombero Sugar Project network contains 75 events and 136 activities including dummies. The degree of detail is such that it will be useful at a middle management level. One feature of the network is the way in which the allowable contract period can be compared with the estimated time for execution of the project activities under the contract. The path 5 - 65 - 74 giving the allowable contract period runs parallel to the rest ANNEX 12 of the project contract activities. If upon analysis, this path is not critical while a critical path appears along the project contract activites, then the contract period allowed is not sufficient to cover the execution of the project contract activities, and vice versa. If critical paths are developed at the same time in the two areas, the contract period allowed will exactly equal the estimated time required to execute the project contracted. The network allows a half month head-start to the contractor from the time the contract award is made to the date the contract becomes effective (Activity 5-65). 6. The following critical paths are found in the network: 1 - 2 - 4 - 5 - 17 - 18 - 21 - 24 - 26 - 29 - 33 - 37 - 43 - 44 - 64 - 74 - 75 1 -3 - 4 17 - 41 - 43 5 - 6 - 7 - 10 - 11 - 12 - 74 5 - 65 - 74 The time to execute the project contract activities and the contract period are both equal to 26-1/2 months, assuming contract work excludes plant commissioning. If the effective date of the contract is May 1, 1974, the completion date of the contract should be no later than July 15, 1976. 7. A scheduled date of June 1, 1975 appears at both Events 39 and 73. This is the date when the activities leading to these events have to be completed in order to provide facilities required for sugar cane planting. The analysis shows the following dates for these events: Event Earliest Possible Date 39 July 15, 1975 (6 weeks behind schedule) 73 April 15, 1975 (6 weeks ahead of schedule) There will be no difficulty in meeting the scheduled date for Event 73, but for Event 39 it will be necessary either to crash (reduce) the times of activities before this event in order to meet the scheduled date, or to accept the consequences of failure to meet the scheduled date. In this particular case alternative provision for tractor maintenance has been made in the form of movable temporary workshops in the KII area, backed up by the facilities of KI. This area of Project execution should be closely supervised. 8. As with all kinds of schedules the CPM network should be reviewed regularly during the execution of the project with up-to-date information on actual project progress and more accurate time estimates of uncompleted and unstarted activities. Reviews may bring out anticipated delays in project ANNEX 12 Page 3 completion, so that remedial measures can be taken at an early stage. They may also point out that the critical path has changed and supervision focus may be altered accordingly. June 12, 1974 KILOMBERO SUGAR PROJECT - CPM NETWORK ~6h tso 1/ -… IM97 M9dJ7gdqo S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A,d*otato/*, ~ac _4e 1?74~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4 4 l w 5 \DI A 1974 ! t::4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Nr -\--n* it97 TAN ZAN IA KIDWIKBEIC STJGAR 2ROJECT Summary of DeveloPment Costs (Tsh 'OOO) Foreign Foreign Project Year 1 2 3 4 5 Ecchange Frchange 1973/74 1974/75 1975/76 1976/77 1977/78 Total Amount % Reference Part I Development Costs Land development, transport, and irrigation equipment Table 2 - 12992 27570 5830 2392 48784 45650 94 Other land development costs Table 2 2000 4004 6236 3646 1823 17709 6742 38 Non-factory buildings and equipment Table 4 230 4614 7060 2098 - 14002 4443 32 Water and electricity supplies Table 4 140 1270 700 350 - 2460 1599 65 Comunity facilities Table 4 - 920 1080 300 - 2300 575 25 Access Railway and Road Table 4 1130 2821 482 _ - 4433 2660 60 Sub-total 3500 26621 43128 12224 4215 89688 61669 69 Reyearch and Trainmng Table 5 - 440 2191 2086 1380 6097 2986 49 S,ugar Survey - - Annex 10 - 714 1428 - - 2142 1564 73 Kilosa District Development Corp. - - 419 172 127 718 206 29 Total 3500 27775 47166 14482 5722 98645 66425 67 Contingencies Physical 1/ 150 3614 5354 1504 572 11190 7355 66 Price 2/ 754 11270 26442 10429 4948 .53843 3536 66 Sub-total 204 14884 31796 11929 5520 65033 42891 66 Total Part I 4404 42659 78962 2642i 11242 163678 109316 67 Part II Factory (Turnkey contract including plant, machinery, freight insurance and local transport) 3/ - 131057 81093 15264 - 227414 186731 82 Factory supervision i - 2968 2428 1530 _ 6926 6926 100 Total Part II _ 130 19I771 T Total Project Cost 4404 176684 162483 43205 11242 398018 3023 76 V1 10% physical contingency on all costs except turnkey contract. 2/ On equipment and vehicles: 20% in year 1, 14% in year 2, 11% in year 3, and 7.5% in year 4 and after. On civil wmrks: 24% in year 1, 18% in year 2, 15% in year 3, and 12% thereafter. On all other costs, 20% in year 1, and 10% thereafter. 3/ Negotiated contract price and only factory freight and insurance is subject to escalation of 10% physical contingency and 10% per year compounded price contingency. 4/ Negotiated contract price, not subject to any contingency provisions. June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT Estate Developent 7Tsh '000) Foreign Foreign Project Year 1 2 3 4 5 Total Exchange Exchange 1973/74 1974/75 1975/76 1976/77 1977/78 Amount Unit Cost / Compensation on Land 2,000 2,000 - - - - 2,000 - _ Land Clearing and Preparation Tsh 1,080/acre - 2,925 4,190 2,614 1,339 11,068 5,866 53 Operating Costs Road, and Bridge Construction Tsh 25,260/km - 729 1,417 640 283 3,069 184 6 Drainage Tsh 162/acre - 350 629 392 201 1,572 692 44 Irrigation Equipment - - 13,879 - - 13,879 12,491 90 Vehicles and Equipment2/ - 12,992 13,691 5,830 , 39 2 33,905 9 5 Total 2,000 16,996 33,806 9,476 4,215 66,493 52,392 79 j Apart from the estimated cost of compensation for crops and buildings on land acauired, all unit costs were originally calculated by HVA, based on experience with KI and were later verified and up-dated at appraisal. Land clearance and preparation equipment and vehicles and equipment required to handle the project's annual harvest in year of 200 working days, plus 10% for spares. June 12, 1974 TANZANIA KILQMBERO SUGAR PROJECT Non-Factory Develo2ont Expenditure (TSh w000) Foreign Foreign Project Year 1 2 3 4 5 Total Exchaxge Exchange % Amount Housing l/ 230 4,254 6,390 1,678 - 12,552 25 3,138 Water and Electricity 2 Supplies 140 1,270 700 350 - 2,460 65 1,599 Community Facilities ˇ - 920 1,080 300 - 2,300 25 575 Accees Railway and Road i 1,130 2,821 482 - - 4,433 60 2,660 Office Furniture and Equipment - 360 670 420 - 1,450 90 1,305 1,500 9,625 9,322 2,748 - 23,195 40 9,277 v Permanent housing requirements for 47 senior staff, 120 junior staff, 665 other permanent workers and 296 seasonal workers, and temporary buildings for all grades of staff. / Civil engineering and other capital expenditure connected with supply of water and electricity. ]/ Include a guest house, a comnunity centre, a primary school, police station, shopping centre and sports facilities. v Includes civil works on access road, rail line and bridges. June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT Research and Training Costs (Tsh '000) Foreign Foreign Project Year 1 2 3 13 / Total Exchange Exchange 1973/74+ 1974+/75 1975/76 1976/77 1977/78 Amount Research Agriculturalists - 90 180 180 1301/ 580 435 75 Assistants 70 70 70 245 - - Equipment 1 l)) 30 30 30 245 125 51 27g0 -270- 270- 230 1,070 X 52 Training Training Supervisor / _ 50 100 100 100 350 280 80 Equipment and Materials _ - 300 50 50 4oo 300 75 Local and Overseas fellowships (Junior staff) 2/ - - 800 600 60o 2,000 1,100 55 Senior Staff Fellowshigs / - - 340 500 - 840 798 95 Junior Trainee Wages 3. - Factory - - 300 750 250 1,300 130 10 - Estate - - 4°° 300 150 850 85 10 Senior Staff Trainee Salaries y _ - 30 45 - 75 4 5 - 50 2,270 2,345 1,150 5,815 2,697 46 Sub-total _ 330 2,550 2,625 1,380 6,885 3,257 47 Less: Included in Turnkey Contract - - (359) (539) - (898) (299) 33 Research s nd Training Salaries and Equipment - 330 2,191 2,o86 1,380 5,987 2,958 49 Housing - 110 - - - 110 28 25 Total Research and Training - 44o 2,191 2,o86 1,380 6,097 2,986 49 j One post localized in 1977/78 E Expatriate, in post January 1975. Housing (Tsh 110,000 included in Annex -13 , Table5 ). Annex8. Fifteen man-years of overseas and sixty man-years of local fellowships. y HVA estimates: total 5 man-years of training in the Netherlands. 5 One senior staff house costing Tsh 110,000. June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT Estimated Disbursement Schedule (US7 t0o0) Bank Group Financial IDA Quarterly IDA Cumulative Bank Quarterly Bank Cumulative Year and Quarter Ending Disbursement Total Disbursement Total 1974/75 December 31 450 450 - March 31 1,250 1,700 - - June 30 1,250 2,950 _ _ 1975/76 September 30 1,300 4,250 - _ December 31 1,300 5,550 - - March 31 2,300 7,850 - , June 30 1,150 9 ooo 1,150 1,150 1976/77 September 30 2,050. 3,200 December 31 1,900 5,100 March 31 500 5,600 June 30 500 6,100 1977/78 September 30 500 6,600 December 31 500 7,100 March 31 0 7,500 June 30 300 7,800 1978/79 September 30 300 8,100 September 30 30 8,4oo December 31 300 8,7 March 31 300 8,00 June 30 June 25, 1974 ANNEX 15 TANZANIA KILOMBERO SUGAR PROJECT Kilombero II: Organization 1. The following three charts show the organization and senior and supervisory staffing of the Project factory and estate as projected for the 1976 season. The assumptions on expatriate staffing are based on expected availability of trained Tanzanians at that date and the presumption that K I would be localized first. The position of Chief Accountant shown on Chart I is expected to be filled by a Financial Controller, probably an expatriate. 2. Expatriate posts are marked * on all charts. Positions with responsibilities in both K I and K II are shown in heavier outline on all charts. Chart 1: Senior Staff Chart 2: Factory Staff Chart 3: Agricultural Services June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT KILOMBERO 11 ORGANIZATION: SENIOR STAFF I~~~~ E ~~~~~GENERAL MANAGER Chiart 1 ASSiSTANT GENERAL MANAGERJ ACCOUNTS PERSONNEL TRAINING MEDICAL CHIEF PERSONNEL TRAINING MEDICAL ACCOUNTANT MANAGER OFFICER OFICER sENI R INTER SOCIAL WELFARE ASSISTANT ASSISTANT SENIOR INTERNAL PUBLIC RELATIONS PERSONNEL NURSING MEDICAL ACCOUNTANT AUDITOR OFFICER OFFICER OFICER OF SENIOR PURCHASING OFFICER AGRIC LTURAL FACIORY SERVICES FACTORY AGRICULTURAL L MANAGER MANAGER (See Chart 2) (See Chart 3) Joint posts shared by * Expatriate in posts at K I and K II start-up (1976) World Bank-8715 TANZANIA KILOMBERO SUGAR PROJECT KILOMBERO 11 ORGANIZATION: FACTORY STAFF FACTORY Chart 2 Factory Manager H;n~~~~~~~~~~~~~~~~~~~~~~~1 7 17I= TECHNICAL DEPARTMENT CvlEgneFisEecralnr.PROCESS DEPARTMENT s ~~~~~~~Civil Engineer First Electrical Engr. Chief Engineer * _ * Chief Chemist * _ *_ - - * First Engineer Instrument Engineer Senior Chemist Shift/Maint. Engrs. Workshops Engr Elect. En. Shift Chemists Lab. Chemist Admin.Chemist * ~ ~~~~~~~ ~ ~ ~~~~~~~~ j i a |Mech. Workso Cane House Electrical Workshop Juice Process Factory Control Factory Repot | Juice Extraction Plant Instrument Workshop Sugar Process Cane \Veighbridge Sugar StockE l Steam Generation Plant Sugar Bagging and Power Generation Plant Storage Shift/Plant Repair & Maint. a a a a a~~~~~~~~~~~~~~~~~~ol Bank80 TANZANIA KILOMBERO SUGAR PROJECT KILOMBERO II ORGANIZATION: AGRICULTURAL SERVICES Chart 3 AGRICLJLTURAL SERVICES Agricultural Manager' MECHANISATION RESEARCH FIELD DEPARTMENT DIVISION DEPARTMENT Tractor Workshops Chief Agriculturaiist, Field Manager' Man aqe g _ Agronomist* h Assistant Agronomist Trartor Workshop 2 Engineer (Irrigation) (Cultivationl 2 Harvesting 3 (General) 4 Assistant Field Assistant Field Assistant Field Assistant Field Manager, Manager, Manager, Manager, Harvesting Irrigation Outgrowers Mechanical Drainage and Cultivation, Roads. Land Preparation . | ~~~Su,oerviso Managetio, h I Section l l Section Section iField Cultivationsl Manager Manager Manager World Bank-8703 ANNEX 16 TANZANIA KILOMBERO SUGAR PROJECT Project Development: Organization The Chart shows the role, under the direction of the Kilombero Sugar Company advised by HVA, of Departments of the existing plant (K I); of the newly created Departments of K II; and of HVA and others in the develop- ment of the Project. The composition of the consortium supplying the turnkey factory package is also displayed. June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT PROJECT DEVELOPMENT: ORGANIZATION .UGAR IEVELOPMENT CORPORATION F-i- r, KILOMOERO I IKI) KILOM8ERO 11 (KII) Et8tittg ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ -%p Pt.k PA'c AEsrie.Itaral Attcill-rv Pacene STORK WERKSPOOR SUGAR General Factory Oe agn OUTGROWER FACTORY AGRICULTURAL AGRICULTURAL HVA SERVICES SERVICES Fetory Con-lt.an-a 5ISH AND PARTNERS z l n ~~~~~~~~~~~~~~~~~~~CrrIl Detragn amyd InspyctrOy STORK WERKSPOOR SUGAR r RUUN AND SORENSEN Pp v Inltl i C nt s uppl 1220C tc1to K{ l } * Stttil T-4ntzg A s *L..and 0leannq and Invelling Turnkey ContraStr - E lyCtrr Suy. Erector *Aqiultnral. d-nlnnon-l (E...l and Ourgenn-rs - Eapansor to ofet Iran Jp A.eon,d roads a trroabon & dr nage_ * Tra-tee ma,tenan-e - Ro8d h beidg% SUPPLY AND CONSTRUCTON OF )M ! * Fleseewth ~~~~~~~~~~~~~~~~~~ ~ ~ ~~~~~~* Plantmn b&CrernPPm p * Fa cl'eyb&ancrllar,ten M Eeytrurc Ii-n & -pp _ Fact ty & lrrtror water OFPpI_ CG JENSEN El . ___ ,_ I _ _ ____ _ .__F _ Cnnstroet-ln_ C G IENSEN CONTRACTOR S 3 D E A RAILWAYS DDS MDLLER t AOCHUMSEN Fna--crpt from 1utch Dannis bi-lral and f-ud. S E __n__ tSer-rcen prn led -n -mdl ,teete by en-eti-t9 ftenty. etate end -ut9twr-__ Wa ad Bbe k d7C4 ANNEX 17 Page 1 TANZANIA KILOMBERO SUGAR PROJECT World Sugar Situation and Price Projection for 1980 Present Situation 1. For the fifth consecutive year sugar prices in the world market known as th. "free market" have increased, and the average price for 1973 was about 5 times higher than that for 1968. Prices in the preferential markets of the United States and the United Kingdom have also risen but not as fast as in the world market (Table 1). Table 1: Sugar Prices in the lWorld Markets (f.o.b. Caribbean) and Indices of Food and Sugar Prices Primary Sugar Price in Sugar Price in Commonwealth Commodity the Free Market/i the US /1 Sugar Agreement Price /2 Year Food Index i/lb. Index Hllb. Index ¢/lb. Index 1965 100 2.02 100 5.80 100 5.82 100 1966 102 1.81 90 6.04 104 5.94 102 1967 101 1.92 95 6.32 109 5.94 102 1968 97 1.90 94 6.54 113 5.10 88 1969 101 3.20 158 6.75 116 5.10 88 1970 108 3.69 183 6.94 120 5.10 88 1971 114 4.50 223 7.39 127 5.10 88 1972 128 7.27 360 7.99 138 6.60 102 1973 140 (est) 9.49 470 8.91 148 5.56 96 1974 n.a. 19.32 956 15.99 276 6.45 111 (lst qtr.) Source: For primary commodities food index: United Nations, Monthly Bulletin of Statistics. For sugar prices: International Sugar Organization, Sugar Year Books, various issues; U. S. D. A., Sugar Reports, various issues. /1 Price for export under U. S. Sugar Act. /2 The decline in 1968 reflects devaluation of the pound in 1967. The exchange rate used for 1972 was E1 = $2.50 and for 1973: E1 = $2.42. ANNNEX 17 Page 2 Since the last quarter of 1973 sugar prices in the world market have continued to climb and in March 1974 reached an all time high level of 214 lb. (f.o.b. Caribbean, raw value). The price spiral is the result of a variety of factors, including lagging production. Since 1964/1965 world consumption has increased by more than 19.5 million tons: in the same period production rose by only 10.5 million tons. Stocks as proportion of consumption have declined since 1970/71, indicative of this tightening supply situation (Table 2). Table 2: World Production, Consumption and Stocks of Sugar (Raw): 1964/65 to 1972/73/1 (million metric tons) World Sugar Stocks World Sugar World Sugar at the end of the Stocks as % of Year Consumption Production Season (8/31) Consumption 1964/1965 59.3 66.8 18.9 31.9 1965/1966 62.8 63.1 19.2 30.6 1966/1967 65.5 65.6 19.3 29.5 1967/1968 65.6 66.4 20.1 30.6 1968/1969 68.2 67.8 19.7 28.9 1969/1970 72.2 74.3 21.8 30.2 1970/1971 74.6 72.8 20.0 26.8 1971/1972 76.2 73.2 17.0 22.3 1972/1973 78.8 77.3 15.5 19.7 /1 The statistics are for a campaign year, September to September. Source: F. 0. Licht, International Sugar Report, various issues. 2. What distinguishes the past three years shortage is its longevity. Periods when high sugar prices have ruled in the past tended to be of short duration as they encouraged an immediate substantial expansion in output. For example, the high prices of sugar in 1963 (averaging about 8.7 US cents/lb.) were followed by a large expansion in production the following two years in the order of 7.5 and 5 million tons respectively. Numerous factors explain the marginal increase in output despite the increasing sugar prices of the past 3 years. In the beet sugar sector most of the countries concerned are either highly developed or centrally planned and land in these is generally at a premium. Sugar is only one of several commodities presently in high demand and is therefore competing for the existing areas cultivated. In the cane sugar producing countries, land is also relatively scarce but in addition the high and increasing cost of establishing new factories and the difficulty of securing financing, pose major obstacles to rapid expansion. Most developing countries do not have sufficient funds of their own to establish new industries, private outside finance is often not available, and their recourse to international public sources has proved to be insufficient. ANNEX 17 Page 3 3. Other important reasons which contributed to the shortage of sugar in the past 2 years other than the rapid increase in demand, include the drought in the USSR during the past two years, and in Cuba during 1972. The USSR became a large importer of sugar from the free market, in addition to imports from Cuba, increasing competition for the reduced available exports. Information received from the Soviet Union indicates that imports will no longer be needed from the world market in 1974 but on the other hand Cuban sugar may not be as abundant for exports to the world market either. Cuba negotiated trade agreements with some of her socialist partners early in 1973: under these her sugar now fetches 11 USI per lb. compared with 6 US4 per lb. under previous agreements. This will presumably lead to a greater emphasis on shipments to East Europe than to other destinations. Medium Range Changes in the World Market 4. Production expansion is projected in several countries: Brazil has plans for continued growth, the proposed five-year plan in India envisages renewed development, and several of the smaller cane producers are hoping to take steps toward self sufficiency. However, there are major obstacles to recovery of the supply situation in the next year or two. First, the effects of the severe drought in Northeast Brazil and some other Latin American countries, which occurred in 1973. Second, toward the end of 1973 the EEC revised its sugar export estimates to about half of the original figure of approximately 800,000 tons, following a new export levy on sugar. Since the world market prices for sugar have already exceeded the EEC prices for some time, any strong incentive to expand exports was in a conflict with the EEC policy of holding its member countries' prices stable. Third, the U. S. will probably encounter a drop in output of sugar produced from sugar beets, and unless there is a change in the relative returns to farm commodities it is unlikely that this situation will be rapidly reversed. As a result the U.S. is expected to increase significantly its import demand for sugar. Its cane sugar production is not likely to make up the shortfalls in beet sugar. 5. At the end of 1973 negotiations to renew the International Sugar Agreement failed and the Agreement expired. The old Agreement, which had been in force since 1968, provided price and quota regulation systems in which participants to the agreement were bound to operate and exporting countries received a fixed price set by the Agreement (the supply committment price). However, at present, with restrictions lifted, sugar prices have soared upward and are not likely to fall until the supply situation improves. A Longer Range Forecast 6. One important factor which will dominate the long run sugar situation is the energy crisis, with its impact on transportation costs. Until 1973, cost of sugar transportation was a minor factor and ranged between 15 and 25 dollars per ton for the most important routes of destination. However, early in 1974 freight rates were at least three times as high as they were a year ANNEX 17 Page 4 previously. These very large increases have been maintained through all sections of the market, from short sea trades to large bulk carriers and time charter. An indication of the phenomenal increase in rates is provided by the nominal Caribbean/UK freight rate, which, commencing at Z6.00, rose constantly throughout 1973, particularly during the last six months, to the year-end level of Z18.00 per ton. Representative rates paid for sugar freight during 1973 were: (US$ton): High Low Philippines - U.S. Atlantic/Gulf $25.00 $14.00 Brazil - Arabian Gulf $55.00 $18.50 Poland - East Africa $51.50 $32.00 Dunkirk - Red Sea $60.00 $18.00 It is likely that firm conditions will continue and that the rates will not fall even when the supply of oil from the Arab states improves. 7. The main implication of the rise in freight rates is the increased incentive to achieve self-sufficiency in sugar production by countries which have the natural conditions to do so. It is estimated that the cost of sugar production at the farm gate in the Caribbean area is approximately US$100.00 per ton, compared with about US$150.00 per ton in the old EEC (when it com- prised the six members). Even if a country could not produce sugar before the hike in freight rates at a cost significantly below the old EEC, and therefore imported, an increase of US$30 to US$40 per ton in the transporta- tion rate, obviously makes self-sufficiency much more attractive. There are other costs changes resulting from the energy crisis which will affect par- ticularly the cost of industrial production. Therefore, also the cost of refining and processing of sugar is likely to rise. It is projected that the price of sugar in the world market by 1980 will be 13.54/lb. in current terms (f.o.b. Caribbean, raw value), equivalent to 8.7i/lb. in 1974 constant prices. Forecasts for 1974 through 1980 are shown in Table 3. Table 3: Sugar Price Forecast for 1974-1980 (US4/lb., raw, f.o.b. Caribbean) 1974 1975 1976 1977 1978 1979 1980 Sugar (World) (Current) 18.0 15.0 12.0 12.0 11.5 12.4 13.5 Index 1967-69 = 100 783 652 522 522 500 539 587 Sugar (World) (Constant 1974 prices) 18.0 13.5 10.1 9.4 8.5 8.4 8.5 Sugar (U.S. Preferential) (Current) 16.0 15.0 16.0 17.0 18.5 20.0 21.5 Index 1967-69 = 100 246 231 246 262 285 308 331 Sugar (U.S. Preferential) (Constant 1974 price) 16.0 13.5 13.4 13.3 13.4 13.5 13.5 ANNEX 17 Page 5 8. Approximate equivalent semi-refined c.i.f. Dar-es-Salaam prices for the samne period would be: Table 4: (a) Forecast Semi-Refined Sugar Price, c.i.f. Dar-es-Salaam, Current Terms 1974 1975 9 76 1977 1978 1979 1980 US /lb. 21.1 18.0 15.0 15.2 14.8 15.9 17.3 Tsh/m ton 3,330 2,830 2,365 2,390 2,330 2,510 2,725 (b) Forecast Semi-Refined Sugar Price, c.i.f. Dar-es-Salaam, Constant (1974> Terms 1974 1975 1976 1977 1978 1979 1980 USI/lb 21.1 16.4 12.7 12.0 11.0 10.9 11.2 Tsh/m ton 3,330 2,575 2,000 1,885 1,735 1,715 1,765 June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT Kilombero Sugar Cmpax Limited: Pro1ected Cash Flow Statement _opY(Tsh' Million) 1 2 3 4 5 6 7 8 9 10 11 12 13 Project Year 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 Sugar Sales at 1450 / per ton 63 63 76 108 124 130 128 127 124 124 127 124 124 molasses sales at 150 / per ton - 1 2 4 4 4 4 5 5 Total Sales 63 64 78 112 128 134 132 132 131 131 132 131 131 Operating Costs Including Depreciation 46 50 59 85 84 101 99 99 100 100 100 100 100 Interest on Government Loan - 7 13 15 15 -1 15 14 13 13 12 11 10 Total Costs 146 57 ~72 100 99 114 113 113 113 112 1ll 110 Net Profit before Ta,2 17 6 6 12 29 18 18 19 18 18 20 20 21 Company Tax at 40o% Y - 7 2 2 5 12 7 7 8 7 7 8 8 Net Profit after Tax 17 (1) 4 10 24 6 11 12 10 11 13 12 13 Depreciation 9 12 13 28 30 30 30 30 31 31 31 31 31 Government Equity for K II / 2 100 98 22 6 - - - - Government Loan for K II / 2 76 64 21 5 _ - _ _ _ - Total Cash Inflow 30 Ii7 x 7 T Ei 7 7T r w ii X 2- 1 Capital Expenditure Development Costs 4 176 162 43 11 Asset Replacements 7 7 8 8 9 13 15 14 15 15 15 15 15 Repayment of Government Loan - Principal only 4 ' _ _ _ 6 6 7 8 8 9 10 11 Incremental Working Capital _/ 15 _ 5 7 - 6 - Total Cash Outflow 26 I7 1 75 -" 21 T n Net Cash Inflov 4 4 4 23 45 11 20 21 18 19 20 18 18 Cumulative 4 8 12 35 80 91 111 132 150 169 189 207 225 i/ Assessed and paid on profit of the previous year. As a loss of Tsh 1.4 million was sustained in 1972/73, no tax is payable in 1973/74, and taxable profit for 1974/75 is reduced by Tsh 1.4 million. | Depreciation is assumed to equal capital allowances. 3 50% of all project costs incurred by KSC. co Five years of grace followed by 15 yearly instalments. 5s Based on 4 months' operating costs. June 14, 1974 ANNEX 1 ) Page 1 TANZANIA KILOMBERO SUGAR PROJECT Pricing Between KSC and Outgrowers 1. This annex outlines the considerations affecting the determination of the price to be paid for outgrowers cane for the purpose of preparing pro- jections of the separate operating units in the Project. While it is not the intention to pre-determine such price or the repayment rates by outgrowers of KSC's development and recurrent expenditures, the price should ensure the maintenance of outgrowers' production incentives and their repayments reflect a full recovery of KSC costs. Land Clearing and Development 2. Machine and implement costs per acre have been computed as in the estate development: they include KSC plantation and transport department overheads. Depreciation and interest have been added. KSC overheads for joint services and administration have been ommitted; they present allocation problems and do not significantly increase the per acre charge, and they will necessarily be incurred in order to develop the K II estate. Pro-rata charges have also been included for roads, bridges and culverts, and for in-field drainage. Field Operating Costs 3. Operation to be carried out by KSC on behalf of outgrowers (ujamaa villages and KDDC) are as follows: Plant cane: Seedcane supply Planting by machine Replanting: Land preparation Seedcane supply Planting by machine In addition all up-hilling operations in cane fields of ujamaa villages would be performed by KSC. The costs have been calculated similarly to those for land clearing and development (para. 2). Transport 4. The cost per ton of transporting cane to the factory has been calculated as cost per tractor/trailer hour (which includes KSC transport department overheads) times the weighted average distance of the entire cane ANNEX 19 Page 2 development from the factory. It has been assumed that all outgrowers will be charged equally for each ton collected rather than by the ton-mile driven, the latter being disadvantageous to growers allocated land more than the average distance from the factory. Depreciation and Interest 5. Depreciation per machine-hour has been calculated on the under- standing that crawlers and their implements would last 12,000 hours and tractors and implements would last 8,000 hours, with zero scrap value. Interest has been allocated on the assumption that these working lives would cover four years. Cane Price 6. The price to be paid for outgrowers' cane delivered to the factory weighbridge must provide a cash flow to cover the outgoings, including loan servicing and machinery replacements, and must further provide a net return to farmers sufficient to give them an incentive to grow cane rather than an alternative crop. The price used in the projections is equivalent to Tsh 50.00 per m ton at 10.5% sugar in 1973-74. This compares with the current price of Tsh 42.50 per m ton. Advances of Tsh 30 are currently paid to outgrowers at the time of delivery, and the balance is paid at the end of the season. A similar arrangement is assumed for K II; it is assumed the advance would be set at 85% of the final price at 10.5% sugar. Amounts charged in respect of the operations described above would be deducted from the cane price advances; the remainder of the price would be paid monthly after analysis and processing. Deductions in respect of initial land clearing and development costs would be applied to cane deliveries and recovered over 6 years for ujamaa villages and over 11 years for KDDC, :L each case at 9% interest annually; this enables a constant figure to be established and known in advance. The longer loan repayment period for KDDC reflects the higher development costs, including paid labor. June 12, 1974 TANZANIA KILOMBERO SUGAR COMPANY Government Cash Flvv From the Projeft _Sh. .0 Project Year 1 2 3 4 5 6 7 8 -9. o 11 12 13 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 Cash Inflow Turnkey Contract - Dutch Loan 22777 40055 14923 785 - - - - Danish -Loan 40750 51-570 31017 185 - Banrk Fnd - - 8211 35343 12138 8586 IDA aund - 21063 43197 - - - - - - _ _ _ Excise on Sugar - - - 14549 17722 18984 18307 18004 18122 1832 18122 18 18 Loan Service from KSC 180 7200 12780 14670 15120 25842 20842 20842 20842 20842 20842 20342 2082 Company Tax from ESC (N II) - - - - 1200 7200 6800 6400 6800 6800 6800 680o Total Cash Inflow 63707 119888 110128 65532 44266 44980 46349 45646 45346 45764 45764 45764 45764 Cash Outflo, Servicing of Dutch loan 28 471 583 589 589 589 589 589 589 589 583 577 571 Repayment of Loans- Dutch - - - T85 785 785 - Danish - - - - - - 4941 4941 4941 4941 4941 4941 4941 Interest and Repaoment of - 482 421 3639 4519 5412 5412 6>47 6>47 6547 6547 6547 6547 Servicing of IDA Credit - 158 482 482 4852 482 1 482 432 482 12M0 1115 1110 Investment in KSC - Equity 2000 100000 98000 22000 6000 - - - - - Loan to KSC 2000 76000 64000 21000 5000 Other Project Expenditure 404 684 483 205 242 - - Total Cash Outflow 4432 177795 163969 47915 16832 6483 11424 112SS 1-6 13965 13954 Net Annual Inflow (Outflow) 59275 (57907) (53841) 17617 27434 38497 34925 33087 32787 33205 31788 31799 31810 Cumulative Inflow (Outflow) 59275 1368 (52473) (34856) (7425) 31075 66000 99087 131874 165079 196867 228666 260476 Tune 25, 1974 TANZANIA KILOMBERO SUGAR PROJECT Foreign Exchange - Receipts or Savings and Payments 1 2 3 4 5 6 7 8 9 - 20 Project Year 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981 through 1993 Kilombero Sugar Company Receipts K II Sales proceeds - - - 86.9 103.3 119.3 119.4 120.3 120.3 K I Sales proceeds from K II cane - - 14.0 - -- Total Receipts - - 14.0 86.9 103.3 119.3 119)4 120.3 120.3 Payments K II: Operating costs - 0.5 3.7 7.8 10.3 11.2 10.9 10.9 10.9 Overheads - 0.4 0.7 3.3 4.7 4.7 4.7 4.7 4.7 Estate development - 2.4 25.7 4.o 1.8 - - Property Plant and Equipment 1.6 125.1 73.6 13.7 2.7 - - - Plant and Equipment Replacement. - - - - - 4.3 6.2 5.4 6.4 Researcb, Survey and Training - 0.6 1.9 1.1 0.8 0.3 0.3 0.3 0.3 Working Capital 1.4 o.6 0.3 0.3 - - - - K I : Processing cost (K II cane) - - 1.2 - - - - _ _ Existing Outgrowers: Reduction in Sale - - 5 5.6 2.1 - Cane Transport Saving - - - (1-1) (1.1) (1.1) ) (1.1) (1.1) Total Payments 3.0 129.6 107.1 34.7 21.3 19.4 21.0 20.2 21.2 Net Foreign Exchange Saving or Receipts (3.0) (129.6) (93.1) 52.2 82.0 99.9 98.4 100.1 99.1 June 12, 1974 ANNEX 21 Page 1 TANZANIA KILOMBERO SUGAR PROJECT Rate of Return and Sensitivity Analysis A. Rate of Return 1. The internal economic rate of return (IER) of the Project over a twenty-year period is estimated to be 13%. The costs and benefits used in this calculation are set out in Table 1. In calculating the rate of return it is assumed that all sugar production would be consumed in Tanzania in substitution for imports from the world market and that molasses production would be exported. The sugar prices used are projections for Gulf/Caribbean, raw (converted to semi-refined at 93%) plus bagging, and freight and insurance, to Dar-es-Salaam at US$42 m ton in 1974 prices (Annex 20, Table 4). Molasses has been valued at a net US$21 f.o.b. Dar-es-Salaam price for 1974. The returns have been shadow-priced at US$1.00 - Tsh 10.00 (140% of the official exchange rate) to reflect the economic value to Tanzania of foreign exchange. 2. All incremental cost elements have been charged including some items such as training and the survey for future developments the benefits of which are only partially attributable to the Project. These have minor impact on the IER. Imported items have been shadow-priced at US$1.00 - Tsh 10.00 but no other shadow prices have been introduced: cane cutters are skilled workers whose marginal return may be assumed to be reflected in their pay, and any adjustments in rates for unskilled labor, certainly nationally in plentiful supply, would not make significant impact on results. Locally there would be little surplus unskilled labor. No costs are attributed to ujamaa family labor which will continue its present subsistence cultivation. 3. Physical contingencies of 10% are allowed on all investment costs except the factory turnkey package for which a fixed price has been negotiated. Costs have been taken as constant at estimated 1974 levels. B. Sensitivity Analysis 4. The sensitivity of the IER of the Project to changes in cost and benefit streams are shown below: they should be compared with a computed Project return of 13%. Variation Rate of Return a. Import Substitution Price of Sugar (i) consistently 20% lower than estimate 7% (ii) consistently 20% higher than estimate 18% ANNEX 21 Page 2 b. Cane Yields (i) consistently 20% lower 9% (ii) consistently 20% higher 17% C. All operating costs ti) 20% higher throughout 11% (ii) 20% lower throughout 14% d. Estate Development Costs (i) 20% above estimates 12% (ii) 20% below estimates 13% e. Factory has first season in 1977 (loss of 2/3 of 1976 sales) 11% f. Estate development delayed one year (factory ready but no throughput) 10% g. Estate development delayed one year, and development and operating costs up 20% 9% 5. As might be expected the Project is sensitive to sugar prices: roughly a 3% change in average import substitution price results in a 1% change in the return to the Project. Because variable costs change in the same direction, cane production variations, which could result from a combination of different yields per acre or area under cane, have a con- siderably smaller impact on the Project. Failure of the factory to meet the 1976 season deadline results in only a small reduction in returns--as was anticipated at appraisal. Delay In estate development which leaves the factory ready but idle is more serious, reducing the return by 2.5%, or one-fifth. 6. Given reasonable accuracy in price forecasts, it seems likely that the IER would be within the range 10-15%. June 12, 1974 TANZANIA KILOMBERO SUGAR PROJECT Economic Cost and Benefit (Tsh Million) 1 2 3 4 5 6 7 8 9 - 20 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981 through 1993 Kilombero Sugar Company Benefits K II Sales Proceeds / - - - 94.4 106.4 112.8 112.1 110.3 111.1 K I - K II Cane - Sugar Sales Proceeds - - 23.4 - - Total KSC Benefits 23.44 106.4 112.8 112.1 110.3 111.1 Costs K II:Operating Costs - 1.5 7.6 21.6 27.8 31.1 30.1 30.3 30.3 Overhead - 0.7 1.1 5.1 6.6 6.6 6.6 6.6 6.6 Estate Development 2.0 6.8 38.8 9.7 4.0 - - - - Property Plant and Equipment 2.4 193.0 115.6 23.6 3.0 - - - - Non-Factory Building 2.1 12.9 11.5 3.6 - - - - - Plant and Equipment Replacement - - - - - 5.0 7.3 6.4 7.5 Research, Survey and Training - 1.5 4.4 2.6 1.7 0.8 0.8 o.8 0.8 Working Capital 3.7 1.2 o.4 o.4 - - - - - K I: Processing Cost - - 2.9 - - _ _ _ _ Reduction in Sales Proceeds due to transfer of Outgrowers - - - 6.2 1.9 - - - - KDDC Labor - - 0.2 0.4 0.5 0.5 0.5 0.5 0.5 KDDC Other Costs - - 0.4 0.2 0.1 - - - - Existing Outgrowers Cane Transport Cost Saving (2.4) (2.4) (2.4) (2.4) (2.4) (2.14) Total KSC Costs 10.2 217.6 182.9 71.0 43.2 41.6 42.9 42.2 43.3 F H KSC Net Benefit (10.2) (217.6) (159.5) 23.4 63.2 71.2 69.2 68.1 67.8 Economic Rate of Return : 12.94 1/ Prices used in economic evaluation are: Sugar: 1976 : Tsh 2000 per m ton 1977 : 1885 " " 1978 : 1735 " I 1979 : 1715 " " 1980 on: 1765 " Molasses: Tsh 150 per m ton throughout. june 12, 1974 IBRD 10889 APRIL 1974 TANZANIA KILOMBERO SUGAR PROJECT RvO - Project area boundary La 0 \'',\'_--' SELOUS GAME RESERVE ---Project division boundaries 4 Proposed KSC factory site (Kll) >Tffl.i,, Existing outgrowers' cane fields Ilrrigable area, = \ Unsuitable and marginal land All-weather roads Railway 0 Villages =Rivers Bridges Mswers o 1 2 3 4 5 0 Kilo.meers - M,Ies ' iT 7r S , 'i C"L\ \ 01~~~~~~~~~~~ K-' X ' 2 / v/ h % ~1 I7 \g\XX\\x -s\su ,< idodi v /, ;\sj.\<<\t /~~~~~~~~" G E,\ . j. .; j\\Li\'xg Kiftinga -72r >> .<'\ )'e .. PROJECT AREA DIVISIONS (Areos and approximate gross acreage) /17\ v / / / U \/ \ * \A 2500 acres Outgrowers, Kitete uiamaa village B 4700 acres Estate, including irrigated cane C 3800 acres Estate, rainfed D 4600 acres Kilosa District Development Corp. --\R 1800 acres Outgrowers 0 ~~~~~~~~~~~~~~~~~F 1200 aicres Outgrowers G 1600 acres Ouitgrowers Mkmb SEOUTGMARSEV z -< ,, - * 4 N 5 a w YZ- ~ o * r MLABANt (ST(~~~~~~~~~~~~~~~AZAI V ) ILLAG E C FACI'ORYMtibao / 6 j S * i - ; \ . 9S>~~~~~~~~~~~~ongan do Dar es Soloo <; V i . ii - ! R k - - ~~~~~~~~~~~~~~.:i-. .......<- ....:,, lt TANZANIA / -. .C - n i. i \ .i> ..... - ... .... / TEz /M.4zilivarcl .hrbve .2 tiliswIIa.,1; /.-- f t- l v,-<< / F S _./zPirtrl \ . , W*rldh li ttld Is anIlvet at ~ :) 4*0.,a