Document of The World Bank FOR OFFICIAL USE ONLY Report No. 13700 PROJECT COMPLETION REPORT ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III (CREDIT 1437-ZA) NOVEMBER 10, 1994 Agriculture and Environment Division Southern Africa Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III (CREDIT 1437-ZA) CURRENCY EQUIVALENTS Currency Unit = Zambian Kwacha (K) Exchange Rate at Appraisal = US$ 1.00 = K 1.40 Exchange Rate at Credit Effectiveness = US$ 1.00 = K 1.80 Exchange Rate at Completion = US$ 1.00 = K 650.0 FISCAL YEAR Government of Zambia = 1 January to 31 December ZAFFICO = 1 April to 31 March World Bank = 1 July to 30 June ACRONYMS CP FAO/World Bank Cooperative Programe FINNIDA Finnish International Development Agency GRZ Government of The Republic of Zambia IPD Industrial Plantations Division ICR Implementation Completion Report MD Managing Director PCR Project Completion Report (ICR pre-1994) PPF Project Preparation Facility TA Technical Assistance ZAFFICO Zambia Forestry and Forestry Industries Corporation Limited ZIMCO Zambia Industrial and Mining Corporation Limited THE WORLD BANK Washington, D.C. 20433 FOR OFFICIAL USE ONLY U.S.A. Office of Director-General Operations Evaluation November 10, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT Subject: Project Completion Report on Zambia Industrial Forestry Project (Credit 1437-ZA) Attached is the Project Completion Report on Zambia-Industrial Forestry Project Phase III (Credit 1437-ZA), approved in 1984. Parts I and III were prepared by the Africa Regional Office and Part H1 by the Borrower. The project was the third phase of Bank support for forestry in Zambia. Phases I and I had supported extensive development of forest plantations, and Phase 11I aimed to improve the management of plantations and industrial forestry. Project components comprised silvicultural management, log transport and handling, sawmilling, workshop improvement, and provision of vehicles. The project aimed to achieve many of its objectives by strengthening a newly-established public corporation, the Zambia Forestry and Forest Industry Corporation (ZAFFICO), through large injections of technical assistance, consultancy, and training. The project has attained its objectives only in part. Where physical targets were met, however, the quality of implementation was often unsatisfactory. Weak performance resulted from several factors. Notably, the institutional design wrongly placed responsibility for management in the hands of consultants, overwhelming and demoralizing ZAFFICO's regular staff, and failing to contribute effectively to institutional development. In addition, ZAFFICO encountered financial difficulties from the outset of implementation, which were compounded by the Bank's suspension of disbursements to Zambia from May 1987 to March 1991, and from September 1991 to January 1992, when the country failed to comply with structural adjtistment conditionalities. Lack of Bank and counterpart funds led to implementation discontinuities. While the amount of logging increased, the quality of forest management declined. In June 1992, a fire destroyed the newly-established sawmill, placing further stress on ZAFFICO. At project completion, ZAFFICO remained in difficulty. The quality of the PCR is generally satisfactory. However, the PCR's estimate of a 14 percent ERR is not a valid reflection of project results. The outcome is rated unsatisfactory because the project failed to meet most of its relevant objectives. Institutional development has been negligible and sustainability is unlikely. An audit is planned. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE m (CREDIT 1437-ZA) TABLE OF CONTENTS Page No. PREFACE ....................................................... i EVALUATION SUMMARY ............................................ ill PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE ................. 1 1. Project Identity ............................................ 1 2. Background .............................................. 1 3. Project Objectives and Description.................................. 2 4. Project Design and Organization .................................... 3 5. Project Implementation .......................................... 4 6. Project Results and Impact........................................ 9 7. Project Sustainability ........................................ 10 8. Bank Performance.............. ............................ 11 9. Borrower Performance ....................................... 11 10. Project Relationship ..... ................................... 12 11. Consulting Services and Studies ................................... 12 12. Project Documentation and Data ................................... 12 PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE ............ 13 1. Comments on Part I, the Bank's Perspective .......................... 13 2. Evaluation of Bank Performance and Project Relationship .................. 14 3. Project Documentation and Data ................................. 15 4. Conclusion ............................................... 15 PART III: STATISTICAL INFORMATION 1.................................16 Related Bank Loans ............................................ 16 Project Timetable 1.............................................17 Credit Disbursement ........................................... 17 Project Implementation . ......................................... 18 Project Costs and Financing ...................................... 20 Project Results ............................................... 21 Status of Major Covenants .......................................24 Use of Bank Resources 2.........................................25 ANNEXES 1. Project Cost Tables and Financial Statements .......................... 26 2. Output of Wood Products and Roundwood Inputs ....................... 35 3. Note on Financial and Economic Analysis ............................ 44 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  1 PROJECT COMPLETION REPORT ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III (CREDIT 1437-ZA) PREFACE This is the Project Completion Report (PCR) for the Industrial Forestry Project - Phase m in Zambia, for which Credit 1437-ZA in the amount of SDR 21.5 million (US$ 22.4 million) was approved in January 1984. The credit became effective on September 12, 1984 and was closed on September 30, 1993, after two extensions for a total period of two years. The undisbursed balance of SDR 3.5 million was cancelled on May 20, 1994. The report (Evaluation Summary, Parts I and III) was prepared by a mission from the FAO/World Bank Cooperative Program (CP), which visited Zambia in January 1994. Part II was prepared by the Borrower. Preparation of the PCR is based, inter alia, on the Appraisal Report, the President's Report, the Development Credit Agreement, the Project Agreement, supervision reports, correspondence between the Bank and the Borrower, internal Bank memoranda and on discussions held with the relevant institutions in the country. 煙 iii ZAMMIA INDUSTRIAL FORESTRY PROJECT - PHASE M (CREDff 1437-ZA) EVALUATION SUMMARY Introduction The Industrial Forestry Project - Phase III (Forestry III) was a follow-up to the previous two Bank financed projects which established some 36,000 ha of plantations. The objective of Forestry III was to improve the utilization of the forest plantations while continuing their management. Project support, therefore, focussed on improving logging, transport and sawmilling with a view to reducing wastage and expanding production capabilities. Before the start of Forestry Ell, the mana ement of the plantations as well as their exploitation was transferred from a ministerial body - the Industrial Plantations Division (IPD) - to a newly established public corporation, the Zambia Forestry and Forest Industry Corporation Limited (ZAFFICO). Ile staff of the IPD were transferred to ZAFFICO, and this arrangement was expected to lead to commercial type of management, if the corporation was strongly supported. The project envisaged to achieve this transformation by providing conspicuous levels of technical assistance and training. Ihnplernentation Implementation started with some difficulties related to poor financing and management. Ibis was compounded by some friction between senior staff of ZAFFICO and the long-terni consultants as the former resented the managerial role played by the consultants. Tle managerial and financial difficulties of ZAFFICO, which persisted throughout the implementation period, were further compounded by the Bank's suspension of disbursement to Zambia, from May 1987 to March 1991. The suspension was invoked as a result of Zambia's non-compliance with structural adjustment conditionalities. This situation had forced the project to re-arrange its plans by diverting more fiuids to the logging and sawmflling components at the expense of forest management, workshop development and long-term training. 'Me reduction in forest maintenance costs meant foregoing necessary silviculture works, and has been particularly damaging as it has reduced the country's potential to produce high value logs. For the same purpose, about 32,000 ha of forest plantations have been converted into pulpwood management circle, although there were no firin plans for establishing a pulpmill. In June 1992 the newly established major sawmill was destroyed by fire, placing major stress on the financial resources of ZAFFICO. As a short-term measure ZAFFICO borrowed 5 small mobile circular saws from the Forestry Department, while at the same time acting to replace the burnt sawmill. The replacement mill has just been completed, but this was accomplished at the expense of adequate management of the plantation forests. Currently, ZAFFICO is still in the middle of serious financial and mana erial difficulties and it is generally believed that its condition will not improve significantly without a substantial capital injection and managerial support. The Government has scheduled ZAFFICO to be privatized during Tranche 8 of the privatization program, some five years away from now. iv Results The project has partly attained its objectives in strengthening logging, transportation and sawmilling in that log extracted and timber produced have increased, albeit slightly below appraisal estimates. The poor management of the plantations has not permitted the production of big logs thereby not helping to improve sawmilling recovery. Future log supply might even be worse in that the effect of the neglected management will be felt more in the coming years. Though replantings of 4,775 ha over a period of 9 years exceeded appraisal target by about 1,000 ha, this was offset by the fact that the target of 1,500 ha of new planting did not materialize. There was also a high incidence of fire, as 2,045 ha of plantations have been destroyed mainly due to poor fire protection measures. Because of poor data, the estimates of the project's financial and economic rates of return represent orders of magnitude rather than precise figures. At completion, the project's financial and economic rates of returns have been estimated at 18% and 14%, respectively, as compared with 24% and 25% assessed during project's appraisal. Sustainability Sustainability of the activities supported under the project is difficult to determine, given the prevailing uncertainty about the Corporation's future. The present trend of inadequate attention to forest management is likely to lead to inefficient use of forest products. However, if the financial and managerial difficulties are resolved soon, as a result of privatization or other means such as joint venture, sustainability could improve. In this regard the continuing dialogue and good relations between ZAFFICO management and the Bank could lead to positive results. Lessons Learned The following are the main lessons: a. Large amounts of TA if not carefully planned, are likely to undermine project sustainability, rather than improve management. Generally, TA personnel should not be placed as managers by substituting for local staff unless special care is taken to reach understanding between TA and local staff regarding their respective roles. b. It is unrealistic to assume that Government departments and their staff will immediately abandon their previous work methods and become corporate managers by simply incorporating them into a public corporation, albeit with strong technical assistance and training. c. Full Government support in terms of funding must be ensured throughout the project period. d. Public corporations cannot operate on commercial basis if the Government controls major decisions such as pricing of their products. e. Components which are based on follow-up programmes, should be designed only where the latter are firmed up to a reasonable extent. In the case of this project, V plantations should not have been managed as pulpwood in the absence of a firm plan for a pulpmill or knowledge of market potential for the pulpwood.  -1- PROJECT COMPLETION REPORT ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III (CREDIT 1437-ZA) PART I: PROJECT REVIEW FROM THE BANK'S PERECTIWE 1. Project Identity Project Name : Industrial Forestry Project - Phase m Credit No. : 1437-ZA RVP Unit : AF6AE Country Zambia Sector : Agriculture Sub-sector : Forestry 2. Background 2.1 About half of Zambia's total area was classified as forest land in the early eighties. However, the forests consisted mainly of slow-growing and low yielding trees with twisted stems. Furthermore, the easily accessible forests have been significantly reduced by clearing for cultivation, for fuelwood and for other purposes. This situation, coupled with the continuous growth in domestic demand for timber, had been leading to increased imports of sawnwood. In 1980, Zambia's imports of sawnwood amounted to about 12,500 m or 15% of total demand. Most of the country's requirements for wood-based panels and paper products were also imported. Since the demand for these products was projected to grow in the future, the Government of Zambia (GRZ) gave high priority to the development of forest resources with the objectives of: achieving self-sufficiency in sawn timber and other wood-based manufactured products as well as conserving soils and water. 2.2 To achieve the above objectives, the afforestation programmes which had been initiated before independence were stepped up using fast growing exotic species. In this endeavor the Government sought and obtained Bank's assistance in two phases, from 1968 to 1982. The first phase project, which was approved in 1968, established about 16,000 ha of pine and eucalyptus over an eight-year period. The second phase, which was approved in 1977, established another 20,000 ha of forest plantations over a five-year period and provided for some improvement in logging, transportation and timber processing. By 1982, Zambia's plantation forests amounted to about 50,000 ha of pine and eucalyptus. -2- 2.3 In spite of the availability of plantation forests, however, their utilization was too low to make full use of the resource. This was mainly due to weak institutional and managerial base on the one hand, and lack of adequate logging, transportation and processing facilities, on the other. A third phase project, known as Industrial Forestry Project - Phase III (Forestry I), was therefore conceived as a follow-up to the two projects to address these issues, along with the establishment and replanting of some plantations. In order to improve the management of industrial forestry, GRZ established in 1982 a public company, the Zambia Forestry and Forest Industries Corporation Limited (ZAFFICO), by incorporating the Industrial Plantations Division (IPD) of the then Ministry of Lands and Natural Resources. The project was prepared in 1982 by the government with the assistance of the FAO/World Bank Cooperative Program (CP) and appraised by the Bank in the same year. It was negotiated and approved in September 1983 and in January 1984 respectively. The project, to be co- financed by the Bank and the Finnish International Development Agency (FINNIDA), on a parallel basis, was signed in March 1984 and declared effective in September 1984, about two years after project appraisal. The credit closing date, originally scheduled for September 1991, was extended to September 1993. 3. Project Objectives and Description 3.1 The project aimed at increasing the production of high quality timber by improving log transport, handling and processing facilities; improving forest roads; developing further the existing plantations, and by establishing new plantations. Project components comprised: (a) Silvicultural management of about 43,000 ha of existing plantations; establishment of about 1,500 ha of new pine plantations; replanting of 2,100 ha of eucalyptus and 1,700 ha of pine; improvement of fire protection practices; and construction and maintenance of forest roads. (b) Improvement of log transport and handling through the provision of power saws, skidding and log transport equipment. (c) Support to ZAFFICO's sawmilling operations by providing new equipment and spare parts to improve the obsolete lines at KITE and Dola Hills; and provision of necessary infrastructure and additional equipment to upgrade Kalibu sawmill. (d) Workshop improvement by up-grading facilities at Kafubu and Dola Hills and by establishing a new central workshop at Kalibu. (e) Provision of 38 man-years of technical assistance (TA) in the fields of management, sawmilling, fire protection, training, logging and transportation; and 76 man-months of short-term consultancy for preparing engineering designs and tender documents for the rehabilitation of log handling and processing facilities as well as for training and silvicultural research. (f) Staff training consisting of in service and external training in engineering, wood technology, accountancy and management; and provision of on-the-job training for most of ZAFFICO's staff. -3- (g) Administrative support to ZAFFICO through the supply of twelve passenger cars, two four-wheel drive vehicles, one bus, one micro computer and office furniture. 3.2 The project, estimated to cost K 59.55 million (US$ 42,53 million), was to be implemented over a period of six years. It was to be implemented by ZAFFICO under the overall control and guidance of the Zambia Industrial and Mining Corporation Limited (ZIMCO) in the areas of policy, management and finance. ZIMCO is the public holding company which owns ZAFFICO. 4. Project Design and Organization 4.1 The emphasis Forestry III was on improving the management and the utilization of the forest resources, unlike the previous two projects which stressed the establishment of plantations. Accordingly, project design aimed at establishing an efficient management information system and strengthening the logging, handling and sawmilling operations of ZAFFICO. The support to ZAFFICO in these areas was justified, because almost the entire softwood sawmilling industry was in its hands, and supporting ZAFFICO was expected to contribute immediately to improved domestic supply of sawn timber. 4.2 Project components were consistent with the rationale of the project in that all were geared to improve ZAFFICO's management capabilities and to increase the quality and quantity of wood products. Project design took account of the future pattern of sawlog supply in determining sawmilling areas to be strengthened. For instance, given the anticipated large future supply of pine sawlogs from the Ndola plantations, Kalibu sawmill was expanded to handle larger logs. Because of its central position within the plantation area, the project has rightly designated Kalibu to become ZAFFICO's major repair workshop. 4.3 However, in retrospect, it can be said that some components were overdone. This is the case with TA, where 38 man-years of long-term and 76 man-months of short-term consultancies was provided for. At appraisal, this large TA was justified as being necessary to strengthen and support the young organization, ZAFFICO. However, the risk that such a magnitude could overwhelm ZAFFICO was overlooked. Lack of such considerations during appraisal did not facilitate the planning of this input to become the vehicle for improving ZAFFICO's management level, and can be considered one of the weakness of project design. The persistent managerial deficiency of ZAFFICO indicates the failure of the TA component in raising the corporation's efficiency. 4.4 Organizationally, the project was planned along simple lines. ZAFFICO, together with its mother organization, ZIMCO, (para. 3.2) were responsible for implementing the project. The idea was to avoid all the conventional government bureaucratic committees. The Managing Director (MD) of ZAFFICO was responsible to the Board of Directors for implementing the project and was to be assisted by four divisional managers for Plantation Management; Logging and Processing Operations; Engineering, Construction Services and Finance; and by a Corporate Secretariat and Administration. The Marketing Manager was to be directly responsible to the MD for the execution of ZAFFICO's marketing operations. ZAFFICO's Board consisted of ten members and is headed by a ZIMCO representative. The Ministry of Environment and Natural Resources, which is the Ministry responsible for the country's forestry development and protection, is one of the members of the Board. The project provided managerial responsibilities to the long-term consultants and this created friction between the senior Zambian staff and the consultants (para. 5.1). In hindsight, this arrangement has been found to be damaging as ZAFFICO's senior staff felt that they have been side- -4- tracked as they saw their positions being taken over, and their roles being played by consultants. Most of the senior staff now explain that they were not part of the major decisions taken while the consultants were managing the project, albeit under the MD. 4.5 In retrospect, the most serious flaw in project design was the assumption that being a public corporation, ZAFFICO would be operated on a commercial basis. This assumption was unrealistic because none of the public corporations were then running on a commercial basis. To the contrary they were strictly controlled by Government, particularly in the pricing of their products. It can be said that the persistent refusal by the Government to increase timber price in the eighties has been one of the causes for the financial difficulties of ZAFFICO. In addition, they were dependent on permission from their mother institutions, such as ZIMCO, albeit through their respective boards, for any major decisions, including the reduction of personnel and business travel abroad. During the eighties, it was next to impossible to obtain permission from the Government to reduce personnel of public corporations or parastatals, on account of business restructuring. This explains ZAFFICO's over-staffing situation. Another expectation which did not materialize was the change of IPD staff, who are government civil servants, into corporate managers when they operate under ZAFFICO. Deep rooted attitudes and practices can not be expected to die overnight. 5. Project Implementation a. General 5.1 Implementation of the project had commenced before the credit was declared effective, since considerable preparatory work, such as the tendering for technical assistance and some equipment was already in an advanced stage. These activities were financed under the Bank's Project Preparation Facility (PPF). However, project execution gained momentum only after the arrival of consultants who initiated the development works in their respective components. Soon after the arrival of the long-term consultants, it became apparent that there was a difference in interpretation of the role of the consultants in the management of the project. The latter, following the staff appraisal report, sought to manage their sections with full responsibility under the overall supervision of the MD. The Zambian counterpart staff did not accept this interpretation as they believed the consultants were there to assist them. This resulted in friction between the senior ZAFFICO staff and the consultants, which lasted for about a year, until the latter decided to adopt a modus operandi that left the consultants do the managerial work with some input from the Zambians when it was deemed necessary. Such an arrangement enabled project implementation to move, and substantial progress was recorded in the procurement of equipment and training until the project was hard hit by the Bank's suspension of disbursement to Zambia in May 1987 as a result of Government's reversal of policy reforms and the stoppage of most external debt service including the Bank. 5.2 The suspension of disbursement, which lasted until March 1991, put a brake on the implementation process forcing the project to modify the course of implementation. A number of components particularly in the areas of plantation establishment and management, logging and transportation as well as workshop development, have been curtailed or eliminated. Project management opted to complete the strengthening of ZAFFICO's processing facilities as a priority with whatever funds they were able to find. Fortunately the FINNIDA component was progressing unencumbered and was completed successfully, although the lack of Bank funds to procure some equipment, such as loaders, has posed problems to its optimal operation. After the resumption of disbursement by the Bank, some US$ 7.6 million of accumulated funds were disbursed. However, -5- most of these funds were retained by the Ministry of Finance and not passed on to ZAFFICO. This has created difficulties to the corporation which had hoped to complete the necessary work using these funds. GRZ has yet to provide ZAFFICO with SDR 1 million as part of the agreed equity contribution. The project's momentum was further disturbed by a second Bank's suspension of disbursement to Zambia from September 1991 to January 1992. 5.3 In addition to these setbacks, the major Kafubu sawmill complex2, was burned to the ground in June 1992. This again obliged ZAFFICO to review its plans by putting high priority on the replacement of the burned sawmill. Because of these events, and the resulting changes in plans, ZAFFICO's benefit from the two successive one year extensions of the project was minimal. Implementation details for each component are given below. b. Afforestation Program 5.4 Silvicultural Management. The project was to provide for the silvicultural management of the existing plantation estate. Unfortunately due to a combination of financial stringency, poor management and a compulsion to put most effort into sawmilling production and revenue generation, the plantation silviculture has been neglected. The short term aim has been to cut costs. The long term price to be paid is poor plantation productivity, increased fire incidence and future timber shortages (paras. 5.8 and 5.9). 5.5 Planting and replanting. No new planting was carried out, but 4775 ha of pine area have been replanted, generally with inadequate care, and 2,000 ha of eucalyptus have been coppiced without aftercare management. At Chati, in January, pine planting seed was of poor quality and eucalyptus were being planted into 30 cm high grass, with little chance to flourish. Prescriptions recommended planting trees into weed free ground and up to 6 machine weedings and complementary spot hand weedings in the first year of growing. However, actual weeding has been reduced to 1. The lack of attention to eucalyptus felled areas by neglecting weed control, gap planting and singling of coppice is resulting in indifferent growth and quality of trees as well as poor productivity. Nursery production fared better, and a total of 5.6 million trees were produced over the 10-year period. 5.6 Fire protection. In spite of the previous plantation losses due to fire and the dire warnings about fire control voiced in the 1985 PCR of the Phase II Forestry Project, very little has been done in the last decade to maximize plantation fire protection. During Forestry II (1978 - 82) 1,330 ha were killed by fire. During Forestry III a further 2,045 ha were killed by fire. Of these, almost 2,000 ha remain to be replanted. Under Forestry III, trucks trailers and fire fighting vehicles were purchased, but the proposed fire tower and the 35 km of firebreak and access roads were not constructed. The plantations are reported as being completely early burned in every year. Project consultants observed that these "controlled fires" often cause severe crown scorching and thus loss of vigor and increment. Grading and clearing of existing firebreaks is well below planned levels of maintenance due to non availability of machines. 2 The Kafubu sawmill complex consisted of a new frame mill, established with the assistance of FINNIDA and a Metex mill. The cause of the fire was not clearly known, but it is presumed to be of accidental nature. -6- 5.7 Pruning. Pruning of eucalyptus has been abandoned. Work in pine was scheduled for 17,000 ha of first pruning (age 5 years to 2.2 m), 19,500 ha of second (age 8 years to 3.7 m) and 15,000 ha of third pruning (age 11 years to 7.5 m) between 1983 - 1989. Drastic changes were made to this schedule. In 1986, ZAFFICO acknowledged that 50,000 ha of plantations were costing too much to maintain. Hence, to save money, it proposed to split the plantations into two silvicultural working circles: 18,000 ha under sawn timber circle for quality wood production and the remaining 32,000 ha under a low cost silvicultural regime for pulp and small dimension wood production. This was expected to save about 50% of plantations operating costs. The Bank supported these proposals. All plantations in the plantings 1980 - 86 (12,330 ha) have been designated as part of the pulpwood working circle, even though there was no pulpwood production, where pruning is confined to access pruning only (2.2 m). The second change in pruning schedules has been to increase the pruning height of second pruning to 4 m (age 8 years) and to reduce the 3rd pruning height to 6.2 m (age 11 years). Costs have been further reduced by delaying the pruning to such an extent that, there is currently, a backlog of 8,000 ha of 2.2 m pruning and 15,000 ha of higher pruning. Delay of pruning and thinning have had a disastrous effect on the quality and volume of the utilizable growing stock. 5.8 Thinnings. Particular stress was placed on carrying out 1st (at age 11 years), 2nd (at age 14 years) and 3rd (at age 18 years) thinnings in pine plantations to favor high quality sawlog production. However, this has not been adhered to. Studies' carried out recently have expressed concern for the neglect of thinning and its effect on future sawlog supplies both in terms of quality, size and consequent sawnwood recovery. The total area to be thinned should normally be some 4,800 ha per year in total. In 1993 the backlog of thinnings was 10,572 ha of which 2nd thinning was 6,156 ha and 3rd was 2188 ha. The status of the "pulpwood working circle" should be reviewed with the need to bring it back to the timber working circle, since there is no market for pulpwood in the country. No silvicultural research was carried out or thinning trials set up, as envisaged at appraisal. It is disturbing to observe that the old Chati forest research plots of provenance trials, planting espacements and some seed orchards for pine and eucalypt species have been ill protected, and many are being destroyed by fire and others being clearfelled. These plots were a reference point and a genetic source that should have been preserved for future use. 5.9 Clearfelling. It was envisaged that pine plantations would be clearfelled at 25 years of age or older, while eucalyptus would be at any age according to the market for the product, but sawlog production would be on a minimal 12 year rotation and a 3-coppice system. In eucalyptus the result has been an exploitation of some 2,000 ha of plantation area without subsequent silvicultural care. The resulting coppice has not been thinned to one or two shoots per stool and fire has been prevalent. The next crop is thus condemned to be poorer than the first one. Pine plantations have been felled by contractors with axes and extracted by oxen. This method has resulted in losses due to high stumps (30 cm - 84 cm) and abandonment of large logs. This may explain part of the low sawlog figures per unit area reported in some places. 3FINNIDA circular sawmill study (1992) and NORDIC privatization study (1993) -7- c. Logging and Transportation Improvement 5.10 General. The production of roundwood was expected to rise from 110,000 m(r) to 177,000 m'(r)/year in line with the wood processing capacity. Apart from 1986/87, the overall trend in logging has been an annual increase in volumes logged till 1991/92 when the felled volume was 314,000 m', the extracted volume was 299,400 ml and the amount transported to the processing unit was 205,000 m, in that year. After the destruction of the Kafubu mills by fire, the logging totals have declined. The 40% average annual discrepancy between felled and transported volumes has been noted, and it was recommended that cost centers should be set up at stump, on roadside and millgate to control wastage and loss factors at each stage. So far the reasons for the discrepancy are not clearly known. In addition to lop and top, large logs and poles are often not extracted due to their weight/size (para 5.9). For sawlogs, the tree length system has been abandoned in favor of the shortwood system adding to wastage. Some 12% difference is recorded in overbark/underbark measurements. 5.11 Felling and extraction. Most of the equipment for felling and extraction was purchased as planned, and up to 1988/89 the logging operations were mainly mechanized. Logging costs were high due to low equipment utilization and high breakdown. Thus mechanized logging was gradually reduced. By the end of 1993, about 80% of the felling and extraction was done by piecework contractors using axes and animal skidding. 5.12 Loading and unloading. Loading in the forest was carried out by boom loaders (poles) and wheeled loaders (sawlogs). A controversy over unloading at Kafubu with cranes versus wheeled loaders was settled in favor of the latter. However, this has not improved the yard conditions which become a moraas of mud and debris during the rains, reducing efficiency and productivity. 5.13 Transportation. Most transportation was done by truck and trailer (capacity range 20 m' - 25 m' per load) on the short wood system. Eight lorries were available in 1993. However, utilization of lorries was generally low and maintenance a problem. Transportation remains the main weakness of the harvesting process. Contractors carry out some transportation of poles and logs for their own use, such as smelter poles. 5.14 Roads. Road conditions are not of a good standard. Equipment for proper road construction and maintenance is lacking. Two graders for road maintenance were purchased in 1985/86 to maintain the logging roads and must be considered for replacement, though hours of use are not recorded. d. Sawmilling Programme 5.15 General. Sawmilling operations consist of log conversion, wood processing into poles, posts and sawtimber and some secondary wood processing. Sawmill output was to increase from 20,400 m' to 52,000 m' in 4 years. Apart from 1986/87, the project increased sawmill output annually to a peak production of 46,100 m' sawnwood in 1989/90. Production dropped to around 40,000 m/year for the next two years till the disastrous fire in June 1992 that destroyed both the Kafubu mills, which represented 70% of ZAFFICO's milling capacity. The sawmill recovery programme after the fire consisted of borrowing 5 portable circular sawmills (total capacity 10,000 m' per year) and starting the construction of a new circular sawmill at Kafubu, with a total capacity of 20,000 m' per year output. -8- 5.16 Three sub-programmes were planned at appraisal for the sawmill programme: (i) immediate improvement by providing spares to Kafubu and Dola Hill mills; (ii) rehabilitation of Kafubu mills, especially log handling, log conversion and waste disposal; at Kalibu mill the provision of utilities seasoning and storage sheds and transport for workers; at Dola Hill semi mechanization of the log yard; (iii) improvement programme at Kafubu, including a new frame sawmill 16,000 m capacity, drying kilns, timber handling and upgrading, finger jointing, a new impregnation plant and civil works; at Kalibu the log yard was to be mechanized, kilns of 20,000 m per year capacity constructed, waste handling and timber upgrading introduced and the central workshop established. 5.17 Immediate improvement. Practically the whole investment of this sub-programme was spent on spares for the frame and Metex mills which were completely destroyed in 1992. Some spares were provided to the Kafubu and the Dola Hill sawmills and helped to improve production of those mills. 5.18 Rehabilitation. The Kafubu mechanical log deck and the extension sorting line and waste handling were not undertaken. Power and water utilities were built up in Kalibu, and adequate timber storage sheds established. Instead of building more houses at Kalibu, bus transport was provided to transport Kalibu workers from Kitwe on a daily basis. 5.19 Improvement programme. A new frame mill and double treatment plant were built at Kafubu as well as finger jointing plant, improvement of drying kilns, lumber upgrading. However not much was done on civil works and hard yard standing. At Kalibu the log yard and waste disposal systems remain unimproved. The 20,000 m' per year of drying kilns are in operation. The sawmill is currently undergoing rehabilitation work. e. Workshop Improvement 5.20 A major boost to mechanical repairs and services was to be provided by the construction, staffing and equipping of a new central workshop at Kalibu to carry out major overhauls of the project's mobile and stationary equipment and machinery. At the same time the subsidiary workshops at Kafubu and Dola Hill were to be upgraded and improved to cope with the large amount of routine maintenance and minor repair work of the project machines. Shortage of funding and poor organization has resulted in the construction of a shell of the central workshop at Kalibu which lies empty, unequipped and not staffed. The workshops at Kafubu and Dola Hill have had minimal improvements. Two mobile workshops were put into service. Repair and maintenance have remained a weak point in ZAFFICO's operations reducing effective productivity in all fields involving machines. f. Technical Assistance 5.21 Long-term technical assistance. A total of 40 man years of TA was provided under the project. Of this, FINNIDA and ILO provided 6 man years and 4 man years, respectively. Twenty four man years of TA was provided by a private firm in forest management, logging, engineering and construction, workshop management and sawmilling. FINNIDA provided expertise in sawdoctoring and ILO conducted the training programmes. A Financial Director and a Marketing Manager were also directly contracted by ZAFFICO for a total of 6 man years. The effectiveness of the TA was hampered by poor relationship between the consultants of the private firm and the senior ZAFFICO staff (para 5.1). Some ZAFFICO staff expressed the view that some of the TA personnel were not qualified enough to carry out their tasks. -9- 5.22 Short term consultants. Some 72 man-months of short-term consultancy was utilized by the project. These were mostly employed under contract with the ILO in the fields of worker training, workstudy and mechanical training. Short-term consultants have also undertaken an inventory of the plantations in 1986 (para. 11.2). The overall performance of the consultants was satisfactory. g. Training Programme 5.23 Long-term training. The long-term training plans were changed in 1988 from 61 staff-years to about half, to reflect the difficulties caused by the suspension of disbursement of credit and the reduced level of ZAFFICO's senior and middle management personnel by half in 1988. In the end, only two people benefitted from the long-term training, and efforts were concentrated instead on training courses in Zambia and on worker training at Chati Training Centre. 5.24 Short-term training. ILO conducted training for radio workshop management, mechanical workshop management, workstudy, purchasing and supply, sawmilling, logging, production management, management development, personnel management, export management and training of trainers. Training of other staff in institutes in Zambia included Forestry Diplomas, Forest Rangers Certificate, Automotive and Electrical Craft Certificates, Security, Secretarial and Management Development. These internal and external training courses as well as the fellowships abroad have improved the performance of staff generally from what was a rather low level of commercial experience. Every worker also attended a training course at Chati covering the range of forestry activities including fire protection, clerical, marketing, mechanics, chainsaw use, stores management, labour supervision, kiln use, logging, security, safety and first aid and accounting. h. Project Administration 5.25 The project provided all the vehicles and office equipment that was planned for the management and administrative staff. 6. Project Results and Impact 6.1 In spite of the extended project implementation period the project met only part of its objectives set at appraisal. It has largely achieved its objectives in replanting, improving logging, transport and sawmilling operations, albeit, with considerable difficulties. However, it did not succeed to manage the plantations by applying the necessary silvicultural practices and to establish new plantations. Improvement in the quality and recovery of the sawntimber is also less obvious, due to the reduced availability of big diameter logs. 6.2 An exception to this trend is the improved production of treated poles. Under the project the quality and quantity of treated poles have increased markedly, giving ZAFFICO an aperture for some profit earnings. In recent years exports of poles within the region have also provided the Corporation with some foreign exchange income. 6.3 Overall, the project's impact has not been significant. The heavy TA inputs did not contribute to improving ZAFFICO's management, or human resource capacity. The organizational and operational levels of efficiency in the plantations and processing areas remain low. The concept of cost centers is practically non-existent and the management information system has not been developed (para. 12.1). - 10 - 6.4 Certainly the project's impact on the existing plantation has been negative. This is because, by focusing on logging, transport and sawmilling activities, the management of the forests has been neglected. Furthermore, in order to reduce maintenance costs, a large size of the plantations has been left to be managed for pulp, although no pulp factory was envisaged (para. 7.3). This forest circle is a source of economic wastage as it cannot be used for pulp, and only part of it can be converted to produce sawlogs after heavily thinned. 6.5 The project had made little beneficial impact environmentally. The disposal of chemicals at the pole treatment plants is inadequate. Recent studies have warned of the risk of contamination to the water supplies at both Kafubu and Kalibu. 6.6 Although it was difficult to assess the financial and economic impact of the project as a result of poor availability of data, tentative calculations indicate that the project provides acceptable returns, albeit less than what had been expected at appraisal. This is to be expected in a situation where the implementation period has been protracted for about 9 years and production performance had only marginally improved. At appraisal, the financial and economic returns of the project were estimated to be 24% and 25%, respectively as opposed to 18% and 14% estimated at completion (Annex 3). 7. Project Sustainability 7.1 The sustainability of project activities is negatively affected by the weak management. As discussed earlier, the neglect in adhering to sound silvicultural practices has compromised the potential production of quality sawn timber. Newly replanted areas are declining and on top of that young plants appear to suffer from weeds. Within the sawlog circle, deferred pruning and thinnings are every year reducing the potential for producing quality sawlogs. Within the pulpwood circle, on the other hand, plantations are left to grow as if they are going to be used for pulp, although there is no pulp mill in the area, nor are there plans to establish them in the near future or to sell the product elsewhere. 7.2 If the plantation resources continue to suffer, they will produce only small- diameter logs, hence a low-value timber. Therefore, the very rationale of strengthening the sawmilling capabilities would be defied and the investments would have been wasted. Current trends appear to lead to a vicious circle of poor management, poor quality logs and poor quality timber. 7.3 Fortunately, however, there is still time to be able to reverse the trend if ZAFFICO's management is strengthened and a new plan to improve management is undertaken. The plan should aim to introduce the prescribed silviculture practices on those plantations which lend themselves to producing still high-value logs. At the same time it will aim to restructure the entire corporation to make it cost effective at every cost centre. 7.4 The Privatization Study and the Corporate Recovery Plan have shown that ZAFFICO can still be made profitable if high level management is installed to manage it on commercial basis and if some funds are given to it to implement restructuring programmes. Since there is little chance that ZAFFICO will obtain funds from GRZ or from commercial banks to acquire the required management skills and to cover other costs related to restructuring, the only hope it has is to be privatized. Indeed ZAFFICO is in the list of parastatals to be privatized. However, it has been included in Tranche 8 which is some 5 years down the road before the privatization takes place. By that time, there is a risk that ZAFFICO's viability might be irredeemably compromised, making the - 11 - project unsustainable. GRZ should, therefore, review the privatization schedule of ZAFFICO by bringing it forward to the Tranche 1 or 2 (1 year). Otherwise, not only the corporation and its processing complex will be compromised, but also the forest plantations which have been successfully established since the sixties, before ZAFFICO came into being. 8. Bank Performance 8.1 Forestry M was a logical follow-up to the two past projects (Phase I and II) which established forest plantations. Therefore, the emphasis placed at appraisal on strengthening logging, transportation and sawmilling, without neglecting forest management, was correct. However, the Bank's concurrence with ZAFFICO on reducing forest maintenance costs in order to utilize the saved funds for other components, has been short-sighted. In particular, to agree to a pulpwood management circle, in the absence of any pulpmill or a firm plan to establish one, should be considered a poor judgement. Bank's experience in this matter in next door Malawi, where large plantation areas are standing idle because the proposed pulpmill has never materialized, should have been a guide. 8.2 It was envisaged at appraisal that the newly incorporated institution, ZAFFICO, would operate on a commercial basis given the support of consultants under TA component. This was too optimistic because: (a) the staff of ZAFFICO were civil servants of the IPD and it would take time, if at all, for them to operate as modem corporation managers; (b) as a public corporation, ZAFFICO was still subject to controls by GRZ, particularly in prices; and (c) the way the consultants were envisaged to operate under the TA component was more as managers doing the job themselves rather than training the senior staff. These points did not facilitate the strengthening of ZAFFICO's managerial capabilities and should have been acknowledged by the appraisal mission or by the supervision missions and dealt with. 8.3 The Bank sent 16 missions to supervise the project. The composition of the supervision missions was adequate in that it included the specialization mix required by the project. The frequency of the missions was also satisfactory, about 2 missions per year, although this frequency was reduced starting from 1989. The Bank continued to field missions even when disbursement was suspended, where reception by ZAFFICO could not be expected to be particularly warm. In general the supervision missions were keen in resolving problems that arose and proposed suitable remedial actions. The inability of these missions to induce improvements in ZAFFICO's management and the omission of a thorough mid-term review can be considered as their main shortcomings. The supervision mission's failure to take strong actions could be attributed, in part, to the suspension of disbursement, as this must have defacto reduced their leverage. 9. Borrower Performance 9.1 Borrower's compliance with most of the conditional ities should be read as its strong commitment to the project. This includes establishing ZAFFICO to manage the plantations and to produce timber under the project, rather than under a ministerial department. On the other hand, the lack of strong support to the project in funding when disbursement was suspended by the Bank should be an indication of reduced commitment. GRZ could have advanced funds to the project and recovered the advance when disbursement resumed. Instead, not only it did not accomplish that, but it continued to retain SDR 1.00 million that should have been given to ZAFFICO as equity. The Borrower also remained detached from ZAFFICO's problems when the Kafubu sawmill was burned. - 12 - 9.2 The delay in privatizing ZAFFICO to Tranche 8 can also be regarded as an oversight by GRZ. This decision can be attributed, perhaps, to the lack of appreciation by GRZ of the implication of the corporation's situation on the forest plantations. It does not seem obvious to GRZ that the forest plantations could be compromised beyond remedy if the privatization of ZAFFICO is delayed further. Because it is only when the latter is privatized, or action on its privatization is initiated, that the fate of the forest plantations will be decided. 10. Project Relationship 10.1 The relationship between GRZ and the Bank were initially cordial, but became tense when the Bank suspended disbursement to Zambia. Cordial relationship resumed after the suspension was lifted. Some disappointment was expressed by GRZ Officials when the Bank decided not to extend the credit for the third time. But this has not made any serious impact on the relationship between the Bank and GRZ. 11. Consulting Services and Studies 11.1 As indicated in paras. 5.21 and 5.22, about 40 man-years of long-term technical assistance and 72 man months of short-term consultancy were provided under the project. The performance of the long-term consultants is reported to have been mixed: generally satisfactory in carrying out their implementation tasks but less satisfactory in transferring technology and managerial capability to counterpart staff. 11.2 It was envisaged at appraisal that the project was to carry out two studies: (i) a five-year wood harvesting and processing plan based on inventory data of plantation; and (ii) design of a silvicultural research programme and silviculture management plan. The first study was carried out in 1986, where consultants carried out an inventory of the plantations, although there was no follow-up. The second study was never undertaken, consequently no proper forest management plans or silvicultural research plans have been made. However, about 12 major and minor studies were carried out during the implementation period (Table 6C). The recent studies concentrated on re-organizing ZAFFICO to make it financially viable. The Privatization Study, the FINNIDA Study on the New Sawmill and the ZAFFICO Corporate Recovery Plan are useful in depth studies on how to strengthen ZAFFICO. 12. Project Documentation and Data 12.1 ZAFFICO was fully involved in the preparation and appraisal of the project. Hence, the main objectives of the project were clearly understood by the senior and professional staff, as outlined in the project documents. Initially, the latter have been a good guide for the implementation of the project, and activities were properly documented. But this was not the case as implementation progressed, because ad hoc measures were taken without being adequately documented. During the ICR mission, it became apparent that important project information had not been systematically recorded. For instance, separate project expenditures were not readily available and performance records of all the sawmills were not kept systematically for the whole implementation period. Data given for the past 9 years to the ICR mission were assembled from different divisions of the ZAFFICO in that moment, instead of being stored centrally in the Corporation's computer. This indicates ZAFFICO's failure in improving its management information system under the project. The corporation was also not always prompt in having its accounts audited timely. - 13 - PROJECT COMPLETION REPORT ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III (CREDIT 1437-ZA) PART H: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 1. Comments on Part I, the Bank's Perspective 1.1 We have perused through the draft report and have found it to be a fair reflection of the project's vicissitudes and a balanced view of the impact of various factors that came to bear on the project's implementation programme. The analysis of the lessons learned is, in ZAFFICO's view, well placed. 1.2 The Report has highlighted a number of shortcomings in terms of implementation, results and sustainability. In discussions with the Mission, various explanations and rationale were advanced by ZAFFICO, some of which are duly reflected in the draft. However, some of these require further elaboration here. 1.3 First, the most important and basic is the disruptions in the funding, following the Bank's suspension of disbursements to Zambia. The suspension had nothing to do with ZAFFICO's nonperformance, although the suspension had the most disastrous effects on the project. It is worth noting that credit suspension came just over two years into the project cycle and disbursement resumed only six months to closing date - to be followed up by another suspension. The project went into funding complications just after beginning to scratch the problems it was designed to solve. 1.4 Second, the suspension forced ZAFFICO to divert funds from other project activities, notably Afforestation, to fill the vacuum. Little wonder then that there is so little done in plantations, in particular. 1.5 Moreover, ZAFFICO had to borrow heavily from the Development Bank of Zambia (DBZ) and the Zambia National Commercial Bank to keep the main IDA components moving: a foreign exchange loan of US$1.7m and two kwacha loans of K85 million were raised to finance boilers and drying kiln and associated works. The servicing of these loans placed additional burdens on ZAFFICO. It was hoped, however, that as and when disbursement resumed, such reimbursements would be used to pay off the loans. (See para 1.6 below) 1.6 The net effect is that by the time the first suspension was lifted in March, 1991, ZAFFICO had spent a total of US$9.5m on the project from its own resources. Unfortunately, although the Bank quickly released these funds for reimbursement to ZAFFICO, the Government decided to hold back the funds. Today, the Ministry of Finance still holds on to US$6.7 million, having released only the equivalent of US$2.8m in August, 1992. - 14 - 1.7 It is a measure of the strength of ZAFFICO that in spite of these complications, it has not collapsed. In our view, any serious assessment of the project's sustainability and the "present financial and management problems" must be seen within this scenario. 1.8 Afforestation Programme. It is acknowledged that control burning in pine plantations is not the best for forest management. However, in the face of the acute shortage of fire fighting machinery and the ever presence of fire hazards, this was considered the best second solution. In retrospect, it is quite clear that if this method was not adopted, fire loss could have been greater. 1.9 The decision to designate 32,000 hectares under pulpwood management circle was indeed arrived at on the basis of cost considerations and the rationale was clearly brought to the Bank's attention in our comments on the draft Phase II Implementation Completion Report. In this respect, it may be pointed out that eualyptus grandis and eucalyptus cloeziana are self pruning and it is only in abnormal circumstances that the stands are pruned. There is, however, no total neglect in this regard. 1.10 The neglect of the Chati Forest Research plot is regrettable, but it must be pointed out that they belong to the Forest Department and not ZAFFICO. 1.11 Sawmilling Programme. It is worth noting that the new Nukor Sawmill installed after the Kafubu fire disaster, has been wholly financed by ZAFFICO's own internal resources at a total cost of US$510,000 excluding local costs. It is regretted, however, that in spite of having subjected the project to international competitive bidding, as demanded by the Bank, through the Zambia National Tender Board and having cleared the tender with the visiting Supervision Mission, the Bank turned down ZAFFICO's application for reimbursement! 1.12 Project Sustainability. While it is not disputed that ZAFFICO badly needs certain management skill inputs, the most urgent thing is for the Government to release the US$6.7m it has held on since March, 1991. With these funds, ZAFFICO can move ahead to implement an effective restructuring programme. ZAFFICO does not need any official hand-outs. 2. Evaluation of Bank Performance and Project Relationship 2.1 Notwithstanding the disbursement suspensions, regrettable as they are, the Bank has, in general, performed well and in support of the project. However, apart from the Nukor Sawmill reimbursement (para 1.11 above) and AMSCO engagement (para 2.15 below) mention must also be made of the failure by successive Supervisory Missions to persuade the Ministry of Finance to pass on to ZAFFICO the accumulated funds released by the Bank (para 1.6 above). 2.2 It is important to stress that ZAFFICO's relationship with the Bank remained warm throughout the project life. In fact, it can be claimed that it became warmer during the suspension. It is largely because of this that both ZAFFICO and ZIMCO went along with the Bank's proposal for the engagement of AMSCO, even though this was not subjected to competitive bidding and in ZAFFICO/ZIMCO view, AMSCO's tract record did not ensure fair value for money. ZAFFICO felt let down when subsequently the Bank stood aside as ZAFFICO and AMSCO disagreed on draft Management Contract and, as a last straw, denied a third extension. In this context, a wrong impression has been created by the draft PCR at Table 6(c) concerning the AMSCO study. The August 1993 AMSCO study was unacceptable, as it contained no financial projections. The subsequent revised draft did not meet the minimum targets previously set by the Board of Directors, - 15 - consequently, it did not receive Board approval. As ZAFFICO management was concerned, the AMSCO one-man team was given all the facilities requested. 3. Project Documentation and Data 3.1 It was true that the improvement in systematic project information system did not develop during the project period. Management could not overcome the inadequate computer facilities and shortage of professional personnel after suspension of funding by the Bank. However, action has since been taken to install a fully fledged computerization program both at centre and all operational areas. To this extent, a dozen PCs have been purchased from own resources and the first training workshop for staff has just been completed. 3.2 The contention in the draft Implementation Completion Report that the accounts of the Corporation were not timely audited is not correct. It may be observed from records that external auditors were engaged every year within 45 days of the annual closing of accounts and Annual General Meetings held to adopt the audited accounts within the stipulated time. 4. Conclusion 4.1 In the face of the problems identified in the draft PCR and those referred to above in this letter, and considering the highly volatile economic environment in the country since project initiation, including changing foreign exchange regimes, high inflation rates, the assessed financial and economic rates of return, at 18% and 14%, respectively, must be considered the project's success point. - 16 - PROJECT COMPLETION REPORT ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III (CREDIT 1437-ZA) PART III: STATISTICAL INFORMATION Table 1. Related Bank Loans Project Title Purpose Year of Status Remarks Agreement Industrial To establish about 1968 Completed The project planted Forestry 16,000 ha of pine in 1976 about 11,500 ha of Plantations and eucalyptus pine and 4,500 ha of Project - plantations eucalyptus Phase I - Loan 512-ZA Industrial To establish about 1977 Completed Established 17,000 ha Forestry 17,500 ha of pine in 1982 of pine and 3,500 ha Plantations and eucalyptus of pine on top of Project - and expand improving logging and Phase H -Loan logging and processing of timber 1424-ZA sawmilling - 17 - Table 2. Project Timetable Item Planned Date Revised Date Actual Date Appraisal October 11- October 11-November November 3, 1982 3, 1982 Negotiations June 6, 1983 September 19-23, 1983 September 19-23, 1983 Board Approval September 27, 1983 October 25, 1983 January 10, 1984 December 15, 1983 January 1, 1984 Credit Signature March 16, 1984 March 16, 1984 Credit Effectiveness September 12, 1984 September 12, 1984 Credit Closing September 30, 1991 September 30, 1992 September 30, 1993 September 30, 1993 Table 3. Credit Disbursement FISCAL YEARS 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Appraisal estimate 1.20 4.90 11.90 15.70 18.70 21.50 22.40 - - - - cumulative (US$ millions) Actual Cumulative - 1.77 5.83 6.70 7.74 7.75 7.77 18.31 20.03 21.13 23.03-d (US$ millions) Actual as % of 0 36 49 42 41 36 35 81 - - Estimates At applicable exchange rates of SDR to US Dollars, actual as % of estimates is considered inapplicable beyond 1991 due to variations in exchange rate. - 18 - Table 4. Project Implementation (2 pages) Indicator Unit Appraisal AtuA Remarkl I Estimates Afforestation Programme . Planting ha 1,500 Nil No new planting of Pine or Eucalyptus - Eucalyptus coppiced . Replanting ha 3,800 4,775 Only pine - Poor standard - weeding & maintenance sub-standard . Management of forests ha 45,000 n.a. Silviculture & thinnings neglected . Nursery seedlings 5.4 million 5.6 million Nursery stock not always satisfactory . Fire breaks km 35 nil New breaks not made - No funds . Fire towers No. 1 nil No funds Logging and Transportation . Power saw No. 188 180 Up to 80% felling done by contractors with axes - poor conversion . Wheel tractor No. 11 16 I Skidder No. 3 1 I Poor maintenance of machinery and lack of spares and funds . Trucks No. 10 18 s caused switch to axe felling and I oxen extraction Road grader No. 2 2 1 Sawmiling Improvement of mills No. 3 3 No lasting improvement to log handling made. Establishment of new mills No. 1 1 The new mill which was commissioned in 1988 was completely burned in 1992 and is now being replaced. Workshop Improvement . Improvement of workshop No. 2 2 Little improvement at Kafubu and Dola Hill 2 Mobile workshops equipped & operating .Establishment of new workshop No. 1 0 The project established only the workshop building at Kalibu. No equipment provided. - 19 - Table 4. Project Implementation (2 pages) Indicator Unit Appraisal Actual Remarks Estimates Technical Assistance . Long-term man/years 38 40 ) Includes 6 man years by FINNIDA. . Short-term man/ 76 72 ) Mainly by LO. months Training . Bac. Engineering Staff/year 25 1 Person did not complete . Wood Tech. & Saw Doctoring Staff/year 16 n.a. . Accountancy Business Adm. & stafflyear 16 1 Person did not complete Marketing . Marketing, mechanical short 87 Various short courses purchasing, sawmilling, logging, course Sum product., etc. No. Project Administration . Passenger cars No. 12 26 . 4-WD vehicles No. 2 9 .Passenger bus No. 1 5 Micro-computer No. I I Increase in Log/Timber Output . Logging e/year 177,000 Av. 203,000 m' felled 121,000 m' transported/yr over 10 yrs. Timber (sawn) n-/year 52,000 Av. 30,000 m'/ yr Poles m'/year 4,000 5,000-11,000 m transmission, telephone & small poles. - 20 - Table 5. Project Costs and Financing A. Project Costs Items Appraisal Estimate Actual Actual as % Estimates Local F.E. Total ..................... (US$'000) ........ % A. Afforestation Planting estab. & replanting 628 437 1,065 2,940 276 Nursery 124 84 209 819 392 Fire prot. & silviculture mgt. 387 1,909 2,296 3,558 155 Sub-total Afforestation 1,139 2,431 3,570 7,316 205 B. Logging & Transportation 1,372 4,070 5,442 33,123 609 Improvement C. Sawmilling Programme 2,077 11,421 13,498 44,959 333 D. Workshop Improvement 149 566 715 1,828 256 E. Technical Assistance 280 2,935 3,215 3,032 94 F. Training 404 1,405 1,809 3,521 195 G. Detailed Engineering - 450 450 - - H. Project Administration 83 253 336 2,785 829 I. Construction of Houses - - - 10,056 - Price and Physical 4,681 8,813 13,494 - - Contingencies TOTAL PROJECT COST 10,190 32,344 42,529 106,620 251 B. Financing Source Planned Actual (US$ million) (% of Total) (US$ million) (% of Total) ZAFFICO 10.13 24 67.2 63 IDA 22.40 53 18.00 17 FINNIDA V 10.00 24 21.42 20 Total 42.53 100 106.62 100 Total FINNIDA expenditures have been FIM 82 million for the period 1984-88 and FIM 21 million for the period 1989-92. Since no detail on annual costs was available, the above costs have been converted into US$ using an average exchange rate of FIM 4.97 and FIM 4.27 for the periods 1984-88 and 1989-92, respectively. Y While the costs indicated under planned refer to incremental costs, those under actual consist of total ZAFFICO costs and include new components, such as the cost of housing for over US$ 10 million. - 21 - Table 6. Project Results A. Economic Impact Item Appraisal Estimate ICR Estimate Economic rate of return 25% 14 B. Financial Impact Item Appraisal Estimate ICR Estimate Financial rate of return 24% 18 - 22 - Table 6. Project Results C. Studies (2 pages) Type of Study Purpose Status Impact/Remarks A. Envisaged under the project 5 year wood harvesting Planned management of Inventory done in 1986 Revealed manage- and processing plan resources but no follow up of ment's uncertainty continuous inventory of the state of the resource Silvicultural Research Optimum productivity Not done. Programme & through the best thinning Silvicultural schedule. Management Plan B. Additional Studies ZAFFICO - Ox To minimize dependence Study completed in May Logging by ox logging efficiency on mechanized logging 1989 and accepted by pairs used study at Kafubu ZAFFICO intensively ZAFFICO - labour To reveal what level of Study completed in Action taken to utilization and sawmill sawnwood production is November 1989 and improve efficiency efficiency at Dola Hill satisfactory provided recommendations to improve efficiency ZAFFICO - An Review the current state Study completed in May Recommended investigation into hand of poor weeding due to 1990 and gave actions have yet to and Mechanical inadequate labour and disturbing state of be adopted. Weeding at Chichele machinery weeding ZAFFICO - To compare oxen Study completed in June No follow-up. Assessment of skidding with mechanized 1990 and revealed pros oxenisation skidders and cons for the two effectiveness at Kafubu systems ZAFFICO - An Assess costs to fell, Study completed in The Corporation investigation into extract and deliver March 1991 and opted for increased current logging sawlogs to mill provided a comparison piece work system. practices in Chichele of piece work to time work ZAFFICO - A report Assessment of newly Study completed in May Recommended on logging machine acquired boom loaders 1991 and showed the actions have yet to utilization study at and trucks to establish faults in the logging be adopted Kafubu their productivity system and remedies required to put right - 23 - Table 6. Project Results C. Studies (2 pages) Type of Study Purpose Status Impact/Remarks A. Envisaged under the project ZAFFICO - Research To determine why Study completed in Management have on Eucalyptus coppice coppice poles are of such December 1992 and not heeded the crop performance poor quality for gave poor silviculture warnings transmission poles and care of plantations as reasons for poor results FINNIDA/CTS - Recommendation for Report completed in Mill constructed Feasibility Study on the most suitable replacement December 1992 and and due to begin New Sawmill at mill for the burned mills accepted by ZAFFICO March 1994 Kafubu in June 1992 ZAFFICO - Sawlog Comparison of methods Study completed in Management waste arising from use used to fell trees and February 1993 Planning to of axes instead of report on comparative incorporate chainsaws logging waste methods for reducing wastage Nordic Consulting Study commissioned by Study completed in Highlighted that Group (NCG) - the Zambia Privatization April 1993. Privatization privatization be ZAFFICO Company Agency (ZPA) to indicate presently timed for expedited to Privatization Study options for divestiture Tranche 8 or about 5 prevent of ZAFFICO years time from now deterioration of resource and plant African Management Corporation's recovery Study completed in Study highlighted Services Company by planning sustainable August 1993, but stalled need for urgent (AMSCO) - ZAFFICO exploitation of forest by ZAFFICO action required to Corporate Recovery resource management. rescue ZAFFICO Plan Arrangement in abeyance ZAFFICO - Capacity Assess the performance Study completed in Management assessment of small of the portable mills September 1993. substituting the mills Productivity and portable mills to limitations of the mills boost production. investigated - 24 - Table 7. Status of Major Covenants Agree- Section Original Date Description of Status ment Covenant Credit 3.01(b) (i) not specified Govt. will pass on to A balance of about SDR 1.0 ZAFFICO as equity the million still to be given to first SDR 9.6 million ZAFFICO as equity withdrawn under the credit Project 4.02(a) End of each Submission of audited Complied with, but with fiscal year financial statements delays (b) End of each Submission of audited Not complied with fiscal year report on SOE, Special timely Account 4.05 9/91 Debt to equity ratio to Not complied with be 1:4 - 25 - Table 8. Use of Bank Resources A. Staff Inputs State of Project Cycle Inputs Remarks (Staff-weeks) Through appraisal 43.2 Through negotiations 14.0 Supervision 133.8 B. Missions State of Project Month/ No. of Days in Specialization Ratings Cycle Year Persons Field represented T Avail. Proj. Dev. Status funds Mngt. Impact Preparation 02/82 3 75 E,LS,M - - - - Appraisal 10-11/82 6 132 E,E,FO,FO, - - - - FI,FI Supervision 1 04/84 2 16 FO,T - - - - Supervision 2 10/84 1 10 FO - - - - Supervision 3 02/85 3 12 E,MA,MAt' - - - - Supervision 4 05/85 1 6 FO - - - 3 Supervision 5 10/85 1 6 E 3 3 2 3 Supervision 6 03/86 4 52 FI,FO,FO,MA 3 3 2 3 Supervision 7 12/86 1 8 FI 3 2 2 3 Supervision 8 06/87 2 16 FI,FI 3 3 2 3 Supervision9 11/87 2 24 FI,FO 3 3 3 3 Supervision 10 04/88 2 12 Fl,T 3 2 2 2 Supervision 11 11/88 2 20 FI,FO 3 2 3 3 Supervision 12 07/89 1 7 Fl 3 2 3 3 Supervision 13 07/91 1 - Fl 2 2 2 2 Supervision 14 02-03/92 3 48 FI,FO,MA 2 3 2 2 Supervision 15 08-09/92 1 22 FO - - - - Supervision 16 09/93 1 10 Fl - - - - V E = Economist; LS = Logging/Sawmilling Specialist; M = Marketing Specialist; FO = Forestry Specialist; FI = Financial Analyst; MA - Management Specialist; T = Training Specialist. I = Problem free or minor problem; 2 = moderate problem; 3 = major problems. Preparation carried out by the FAO/World Bank Cooperative Programme. From FINNIDA. - 26 - ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III ANNEX 1 PROJECT COST TABLES AND FINANCIAL STATEMENTS Table 1. Total Project Costs by Component in K'000 Component 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 Total A. Afforestation . Plantation, 387.0 1,143.1 1,649.8 921.0 1,808.4 2,600.6 18,805.8 35,025.6 24,729.4 86,477.2 173,547.9 reptanting . Nursery 153.9 198.1 657.0 1,067.7 489.9 999.8 3,562.9 5,049.5 10,832.0 20,328.9 43,339.7 Fire 395.9 245.0 3,190.1 793.9 1,020.9 15,286.5 13,764.4 21,895.6 58,964.7 108,073.8 223,630.8 protection Sub-total 936.8 1,586.2 5,496.9 2,782.6 3,319.2 18,886.9 36,133.1 61,970.7 94,526.1 214,879.9 440,518.4 Afforestation B. Logging & 364.1 5,889.1 11,485.8 28,564.4 28,191.3 99,869.2 120,731.7 428,585.2 485,597.7 389,962.2 1,599,240.7 Tranisportation C. samitting 1,066.1 4,240.9 13,337.1 26,187.3 70,407.6 33,657.4 86,265.5 1,203,241.2 544,407.5 553,589.6 2,536,400.2 Prograine D. Uorkshop - 335.0 1,973.9 680.1 2,069.0 2,990.2 10,291.4 11,858.3 29,620.1 40,431.5 100,789.5 Iprovement E. Technical 260.1 996.7 3,581.4 4,327.6 4,923.0 5,399.9 8,899.9 13,395.4 - - 41,784.0 Ass istance F. Training 119.9 385.9 1,362.2 3,711.6 6,053.2 7,867.7 19,829.2 19,000.5 40,348.8 61,303.7 159,982.7 Progr G. Detailed -- - - - - - - - - Engineerins H. Project 252.0 497.0 679.6 2,479.4 3,929.2 7,119.5 19,669.7 3,172.97 50,698.6 15,846.6 104,344.5 Administration . Housesy 218.2 - - 32.9 494.8 127,208.2 258.0 - - - 128,212.1 TOTAL COSTS 3,217.2 13,930.8 37,916.9 68,765.9 119,927.3 302,999.0 302,078.5 1,741,224.2 1,245,196.8 1,276,013.5 5,111,272.1 Source: ZAIFFICO. No details available. An added conponent. O 0 Table 2. Project Investment Costs by Component in K000 Component 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 Total A. Afforestation . RepLanting 179.0 198.1 319.0 174.2 246.6 434.7 747.9 2,296.4 4,770.2 33,730.6 43,096.7 . Nursery 14.0 29.0 378.1 863.2 22.2 41.3 43.5 61.7 86.1 90.6 1,629.7 . Fire protection 388.0 223.0 3,020.7 341.4 - 11,501.6 - - - - 15,474.7 Sab-totaL 581.0 450.1.0 3,717.8 1,378.8 268.8.4 11,977.6 791.41 2,358.1 4,856.3 33,821.2 60,201.1 Afforestation B. Logging & 31.0 4,392.9 4,571.3 10,306.2 1,607.85 3,613.3 449.3 62,526.3 103.3 26,939.2 114,540.6 Transportation C. Saumitting 926.0 3,292.1 12,007.0 21,529.8 61,545.6 14,877.6 6,560.4 1,098,207.6 83,917.9 - 1,302,864.0 Programe D. Workshop - 215.2 1,733.8 - 1,319.3 - - - - 3,268.3 Iprovemient E. Technical 260.1 996.7 3,581.4 4,327.7 4,923.0 5,399.9 8,899.9 13,395.4 - - 41,784.1 0 Assistance F. Training 119.9 385.9 1,082.6 2,811.0 3,573.2 3,132.1 2,809.1 1,549.4 637.2 452.7 16,553.1 Prograe G. Detailed - - - - - - - - - Engineering V H. Project 172.0 352.0 441.7 2,074.9 3,284.7 6,260.4 18,472.4 1,586.5 47,650.5 14,624.1 94,919.2 Administration . Houses ki 218.2 - - 32.9 494.8 127,208.2 258.0 - - - 128,212.1 TOTAL INVESTMENT 2,308.2 10,084.9 27,135.6 42,461.3 77,017.2 172,469.1 38,240.5 1,179.623.3 137,165.3 75,837.2 1,762,342.6 COSTS Source: ZAFFICO. No detaiLs available. An added component. O w aq fD co Table 3. Project Operating Costs by Component in K'000 Component 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/9% TotaL A. Afforestation . RepLanting 208.0 945.0 1,330.8 746.8 1,561.8 2,165.9 18,057.9 32,729.2 19,959.1 52,746.5 130,451.0 . Nursery 140.0 169.1 278.9 204.5 467.7 958.5 3,519.4 4,987.8 10,745.9 20,238.4 41,710.2 . Fire protection 7.9 21.9 169.3 452.5 1,020.9 3,784.9 13,764.5 21,895.6 58,964.7 108,073.8 208,156.0 SLh-total Afforestation 355.9 1,136.0 1,779.0 1,403.8 3,050.4 6,909.3 35,341.8 59,612.6 89,669.7 181,058.7 380,317.2 B. Logging I 333.1 1,496.1 6,914.6 18,258.3 26,583.5 96,255.9 120,282.4 366,058.9 485,494.4 363,023.0 1,484,700.2 Transportation C. SamiilLing Programe 140.2 948.8 1,330.1 4,657.5 8,862.0 18,779.8 79,705.1 105,033.6 460,489.5 553,589.7 1,233,536.3 D. Uorkshop Improvemnt - 119.8 240.2 680.1 1,289.7 2,990.2 10,291.4 11,858.3 29,602.1 40,431.5 97,521.3 E. Technical Assistance - - - - - - F. Training Prgrame - 279.6 900.5 2,480.0 4,735.6 17,020.0 17,451.1 39,711.6 60,850.9 143,429.3 G. Detai led Engineering- - - - - - . - . N. Project 80.0 145.0 238.0 404.5 644.4 859.1 1,197.3 1,586.5 3,048.1 1,222.5 9,425.4 Administration . Houses - - - TOTAL OPERATING COSTS 909.2 3,845.7 10,781.5 26,304.7 42,910.0 130,529.9 265,838.0 561,601.0 1,108,033.5 1,200,176.2 3,348,929.7 Source: ZAFFICO. W No details available. 0 Table 4. Totat Project Costs by Coanmt in USS000 Coponent a4s a 86/8 a7/8 8 8990 90/91 91/92 9293 s93/94 Total A. AfferestatIon . Plantation, replanting 216.2 421.8 226.0 103.6 220.0 201.6 648.7 567.4 143.6 191.0 2,939.9 . Nursery 86.0 73.1 90.0 120.1 59.6 77.5 122.9 81.8 62.9 44.9 818.8 . Fire protection 221.2 90.4 437.0 89.3 124.2 1,185.0 474.8 354.7 342.4 238.7 3,557.7 Sud-total Afforestation 525.4 585.3 753.0 313.0 403.8 1,464.1 1,246.4 1,003.9 548.9 474.6 7,316.4 B. Loging & 203.4 2,173.1 1,573.4 3,213.1 3,429.6 7,741.8 4,164.6 6,942.9 2,819.8 861.3 33,123.0 Transportation C. Samilling Programime 573.2 1,402.2 1,763.3 2,879.1 8,440.9 2,523.6 2,902.2 19,391.5 3,161.3 1,222.7 44,260.0 Samitling Processing 22.4 162.7 63.7 66.6 124.5 85.5 73.5 100.5 - - 699.4 D. Uorkshop Improvement - 123.6 270.4 76.5 317.4 231.8 355.0 192.1 172.0 89.3 1,828.1 E. Technical Assistance 145.3 367.8 490.6 486.8 598.9 418.6 307.0 217.0 - - 3,032.0 F. Training Prograime 67.0 142.4 186.6 417.5 736.4 609.9 684.0 307.8 234.3 135.4 3,521.3 G. Detailed Engineering- - - * - - - - - - O H. Project Administration 140.8 183.4 93.1 278.9 478.0 551.9 678.5 51.4 294.4 35.0 2,785.4 Houses V 121.9 - - 3.7 60.2 9,861.1 8.9 - - 10,055.8 TOTAL COSTS: 1 5 1773 1 2348 10 2 2 7,30 2818 106621.4 Source: ZAFFICO. No details available. An added component. OD OD Table 5. Project Investment Costs by Component in USSO000 Cofponent 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 Total A. Afforestation . RepLanting 100.0 73.1 43.7 19.6 30.0 33.7 25.8 37.2 27.7 74.5 465.3 . Nursery 7.8 10.7 51.8 97.1 2.7 3.2 1.5 1.0 0.5 0.2 176.5 . Fire protection 216.8 82.3 413.8 38.4 - 891.6 - - - - 1,642.9 Sub-totat Afforestation 324.6 166.1 509.3 155.1 32.7 928.5 27.3 38.2 28.2 74.7 2,284.7 B. Loging & 17.3 1,621.0 626.2 1,159.3 195.6 280.1 15.5 1,012.9 0.6 59.5 4,968.0 Transportation C. SwmitLing Programe 517.3 1,214.8 1,644.8 2,421.8 7,487.3 1,153.3 226.3 17,790.5 487.3 - 32,943.4 0. Workshoop ovement - 79.4 237.5 - 160.5 - . - - - 477.4 E. Tedwical Assistance 145.3 367.8 490.6 486.8 598.9 418.6 307.0 217.0 - - 3,032.0 F. Training Programe 67.0 142.4 148.3 316.2 434.7 242.8 96.9 25.1 3.7 1.0 1,178.1 G. Detailed - - - - - - - - - . Enginia H. Project 96.1 129.9 60.5 233.4 399.6 485.3 637.2 25.7 276.7 32.3 2,376.7 Administration . Houses ' 121.9 - - 3.7 60.2 9,861.1 8.9 - - - 10,055.8 TOTAL INVSTMENT COSTS 1,289.5 3,721.4 3,717.2 4,776.3 9,369.5 13,369.7 1,319.1 19,109.4 796.5 167.5 57,636.1 Source: ZAFFICO. No details available. An added component. O 0 Table 6. Project Operating Costs by Component in USSO000 Component 8/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 Total A. Afforestation . Reptanting 116.2 348.7 182.3 84.0 190.0 167.9 622.9 530.2 115.9 116.5 2,474.6 . Nursery 78.2 62.4 38.2 23.0 56.9 74.32 121.4 80.8 62.4 44.7 642.3 . Fire protection 4.4 8.1 23.2 50.9 124.2 293.4 474.8 354.7 342.4 238.7 1,914.8 Sub-totat Afforestation 198.8 419.2 243.7 157.9 371.1 535.6 1,219.1 965.7 520.7 399.9 5,031.7 B. Logging & 186.1 552.1 947.2 2,053.8 3,234.0 7,461.7 4,149.1 5,930.0 2,819.2 801.8 28,135.0 Transportation C. Saemitting Programe 78.3 350.1 182.2 523.9 1,078.1 1,455.8 2,749.4 1,701.5 2,674.0 1,222.7 12,016.0 0. Workshop Improvement - 44.2 32.9 76.5 156.9 231.8 355.0 192.1 172.0 89.3 1,350.7 E. Technical Assistance - - - - - - - - - - F. Training Programe - - 38.3 101.3 301.7 367.1 587.1 282.7 230.6 134.4 2,043.2 G. Detailed - - - - * - - - - EngineeringV H. Project 44.7 53.5 32.6 45.5 78.4 66.6 41.3 25.7 17.7 2.7 408.7 Administration Houses - - - - - - - - TOTAL OPERATING COSTS 507.9 1,419.1 1,476.9 2,958.9 5,220.2 10,118.6 9,101.0 9,097.7 6,434.2 2,650.8 48,985.3 Source: ZAFFICO. V No details avaiLable. O M M? 0 Table 7. Sunmary of Balance Sheets for Year Ending March 31 1964 1985 1986 1967 1988 1989 1990 1991 1992 1993 ............................................... (K'000).............................................................. Fixed Assets 72,721 79,756 94,242 141,232 165,339 166,844 450,422 541,551 990,437 2,009,139 Current Assets 6,088 7,447 16,508 26,286 52,631 61,808 110,898 208,503 691,426 1,779,639 Current Liabilities 6,838 11,426 15,206 11,180 21,817 29,568 170,986 343,208 429,546 759,013 Net Current Assets (750) (3,979) 1,302 15,106 30,814 32,240 (60,088) (134,705) 261,880 1,020,626 Total Net Assets 71,971 75,777 95,544 156,338 196,153 199,084 390,334 406,846 1,252,317 3,029,765 Financed by: . SharehoLder's Fund 66,904 67,670 71,686 72,985 128,963 142,820 65,252 85,252 235,461 368,019 - Long-term Loans 5,067 8,107 23,858 83,353 67,190 56,264 325,082 321,594 1,015,856 2,661,746 and others Total Capital EmpLoyed 7 777 955 156_338 196153 ?199084 390_334 4 846 3 029 765 Source: ZAFFICO. OQz 0 00I- Table 8. Summary of Profit and Ls Accounts - Quarter Ended Mardh 31 1984 1985 1986 1967 198 1989 1990 1991 1992 1993 .... 000)............................................................(K ) Total SaLes 6,337 7,458 15,346 27,342 50,668 78,257 177,046 331,134 691,232 1,774,770 Costs of Goods Sold n.a. n.a. 7,763 14,159 31,538 54,625 110,065 220,411 390,584 1,138,738 Gross Profit 7,583 13,183 19,132 23,632 66,981 160,723 300,648 636,032 Total Expenses 5,348 5,768 13,805 23,549 (52,568) 130,036 285,473 654,298 Profit/Loss SamiLLing n.a. n.a. (4,320) 4,555 5,327 83 14,413 22,687 15,175 (18,266) Profit/Loss Plantations n.a. n.a. (2,085) (4,565) 1,237 1,391 217 (4,866) 1,834 7,769 Won Operating Income n.a. n.a. 266 1,309 6,888 9,703 13,703 16,191 23,107 83,036 Profit Before Tax n.a. n.a. (1,819) 1,299 10,978 11,177 28,333 34,012 40,116 72,539 Taxation = 8,500 Profit After Tax 403 766 (1819) 1078 11. 29 2,512 4 Source: ZAFFICO. 0 - 35 - ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III ANNEX 2 OUTPUT OF WOOD PRODUCTS AND ROUNDWOOD INPUTS - 36 - ANNEX 2 Page 1 of 8 OUTPUT OF WOOD PRODUCTS AND ROUNDWOOD INPUTS Production of Sawn Timber 4.2 The pre-project output of all mills was 20,400m'. Annual sawmilling production was expected to increase to 52,500m'/yr by 1986. Recovery was planned to be 40 - 45%, 35% and 37% in Kafubu, Dola Hill and Kalibu mills, respectively. During implementation, production rose to a peak of 46,100ml in 1989/90 and declined since (Table 1). The disastrous fire at Kafubu, effectively reduced Zaffico's rated sawmill output capacity from 82,000m' per year to 29,000ml per year. At all mills, log handling and waste disposal was supposed to have been improved by means of overhead cranes and /or hard standing around the mill sites. Instead, wheeled loaders continue to handle logs, poles, sawnwood and waste, turning the mills into a morass of mud in the rainy season and reducing productivity. Sawlogs supplied to the mills have been generally below expectations in diameter size and quality. The sawnwood sizes cut vary in thickness from 19mm - 75mm, in width from 38mm - 200mm and length from 3m - 6.2m. The most popular sales have been 50mm thickness, 125mm width and 4.5m length. Sawn timber recovery from logs is about 35% overall for all mills. 4.3 The circular (NUKOR) mill, newly constructed at Kafubu, to replace the burned mills has a rated capacity 20,000m' per year. It is expected to begin production in 1994 and would build up to a peak by 1996/97. Rehabilitation of the Kalibu mill, currently underway, and Dola Hill mill would increase Ndola group production to 37,000m3 per year by year 2000. Rehabilitation of the mills should include improvement of log/wood handling by cranes/hard standing to ensure smooth flows of products at all times. 4.4 Wood supplies and mill locations are currently unbalanced. There will be a shortage of pine sawlogs in Kafubu group for the next 5 years, necessitating an increase in eucalyptus sawing to fill the gap and using the new circular sawmill at Kafubu. In Ndola there will be an adequate supply of pine sawlogs for the next 10 years, provided silvicultural thinnings and fire protection are assured. It is planned to kiln dry 60% of sawnwood production in the recently installed kilns, reducing drying time from 4 months to two weeks. Pole Production 4.5 The preproject output was 4,000ml. Production was to increase to 15,000m per year by project year 3 and remain at that level thereafter. During implementation, however, production fluctuated with the supply of treatment chemicals but reached a peak with 1 1,000m' in 1991/92 (Table 1). Treated pole production is all concentrated at Kafubu and dimension of major products are as given below. Transmission lengths from 9 m to 16 m and top dia. 12.5 - 17.5 cm .Telephone " " 7mto 12 m and top dia 9 - 12.5 cm Poles/posts 1.5m to 4.5m and top dia 2 - 15 cm ANNEX 2 - 37 - Page 2 of 8 4.6 A steady increase of production of transmission and telephone poles is forecast from 10,000m in 1994/95 to 15,000m3 in year 2001 (Table 1). These poles require the top quality trees and are generally selected by creaming off the eucalyptus crop before clearfelling. Concern is being expressed about adequate supplies of quality poles in the next 4 years. Proper silviculture and replanting of eucalyptus is needed now to ensure future supplies. Recovery of pole from tree is about 50% by volume. Poles and posts can be produced to fill the capacity of the treatment plants and would require extra capacity after 1997. Raw material is in plentiful supply. 4.7 At appraisal untreated roundwood was expected to consist of: Mining timber 25,000m3 Eucalyptus roundwood Pine roundwood } 9,000m3 Match billets Mining timber is eucalyptus smelter poles 6m - 9m length and 45 - 56cm butt diameter. Supply has fluctuated but has been around 12 - 15,000m' per year. Size and soundness is required, not quality, for these poles. They are the logs remaining after selecting transmission poles, telephone poles and sawlogs. Eucalyptus roundwood is sold to sawmillers and plywood manufacturers on the Copperbelt (Kitwe). Up to 6,000m3 a year has been supplied. For peeling large logs are required. Pine roundwood is sold to furniture manufacturers and these are thinnings or residues from clearfelling. About 4,000m/year has been sold. However in 1992/93 some 23,400m, of pine logs were sold to other sawmills because of the loss of the Zaffico mills to fire. Match billets requiring short length and large diameter logs are sold at about 4,000m' per year. 4.8 Future production of smelter poles are likely to remain at 15,000m0 per year. The demand for eucalyptus and pine roundwood is likely to increase towards the end of the century as more private sawmills expand. The forest should be producing sawlogs from 3rd thinnings which will become available if proper silviculture is carried out. According to the Forestry Department, private sawmillers in Ndola and Kitwe produced 20,000m' from plantation logs in 1991, and are said to have produced 42,000m3 in 1993. The private millers plan to increase this amount pending availability of raw material. The match producers will likely increase their production gradually from 5,000m per year to 7,000m' per year by the year 2000 (Table 2). Sawmill Capacity 4.9 Kafubu group draw roundwood from Chati, Lamba and Ichimpe plantations, 21,591 ha, while Kalibu and Dola Hill draw roundwood from Ndola plantations, 19,417 ha. -8 - ANNEX 2 Page 3 of 8 Type of mill Rated capacity 1992 Rated capacity 1994 - Remarks before price damage 2002 .......... ........................'000m ...................... KAFUBU / KITE Group Frame 35.0 Destroyed in fire June 1992 Metex 18.0 - Destroyed in fire June 1992 Circular 4.5 4.0 Kara (5) (10.0) Borrowed from Forest Dept. after fire damage Circular (NUKOR) 20.0 Due to begin March 1994 KALIBU / NDOLA Group Kalibu 25.0 25.0 Dola Hill 6.5 6.0 Other mill 6.0 Total 89.0 61.0 The sawnwood demand is expected to be about 75,000m' in 1994/5 and rising to 85,000m' per year by 1999/2000. Thus capacity limitations will be felt soon in the country, unless the private sector is involved in sawmilling on sustainable basis. Raw Material Supply and Plantations Sustainability 4.10 Inadequate plantation maintenance and failure to implement thinning regimes together with erratic annual plantings and poor silviculture have created imbalanced plantations with poor stem quality and the associated risk of supply shortages and/ or interruption in future years. Wild fires have killed large areas of the plantations and over 2,000 ha of the eucalypt working circle have been coppiced without subsequent management being implemented. 4.11 The potential gross growth rates for pine and eucalyptus have been calculated as 20m' per ha per year and 30ml per ha per year, respectively when all silvicultural prescriptions have been followed. These prescriptions have been laid down after many years of research work and practical plantation implementation. In a bid to save current expenditure, the silviculture has been neglected. As a result, incremental growth of many plantations are estimated to be below 12m' per ha per year and 18m' per ha per year for pine and eucalyptus respectively. The plantation area is approximately 50,000 ha of which pine is 40,000 ha and eucalyptus 10,000 ha. The rotation is 25 years for pine and 12 years for eucalyptus. The theoretical annual area and the potential annual gross yield is: pine 40,000 ha x 20m' or 800,000 m' per year Annual coupe 1600 ha eucalyptus 10,000 ha x 30m' or 300,000 m' per year Annual coupe 833 ha total 1,100,000m3 per year ANNE X 2 - 39 - Page 4 of 8 Because thinnings have been delayed or not done there is little production of sawlogs from 2nd or 3rd thinnings - and more seriously the diameter increment for 25 year old clearfelling trees is considerably reduced from expectations. Sawlog volumes from clearfelling should be some 175m' per ha or more at 25 years or in excess of 50% of total clearfell volume. Instead, they vary between 60 and 100ml per ha. As a result the sawlog volumes available for the next 5 to 10 years will be unbalanced from the expectation. 4.12 The location of mills and the transport distance from plantation to mill will also have a bearing on the log supply Sawlogs (i) At Kafubu group there will be a potential mill capacity for 24,000m sawnwood output or a 69,000m per log input, but available pine logs from Kafubu group for 5 years 1994 - 1998 will be only about 40,000ml per year of a gross felling of 200,000m. The remaining 10,000m of output will come from eucalyptus working circle. After 1998 the pine log position will improve to give higher quality sawlog yields per ha from thinned stands and increased areas - some 80,000 to 100,000ml from a gross volume of 500,000m per year (Table 3). (ii) At Ndola group there is a potential mill capacity for 37,000m per year output or 106,000m' input of pine logs. For the next 5 years 1994 - 1998 there will be a gross overproduction of 442,000m per year of which 88,000ml are sawlogs which should be corrected by reducing the annual cut to the normal rotation area giving 70,000n? per year of sawlogs (Table 3). Areas thus carried forward and the incidence of 3rd thinnings yields will ensure sufficient sawlogs of improved quality/size in the following 5 years 1999 - 2003. Poles (iii) At Kafubu group the potential yield of high quality stems for transmission and telephone poles is probably no more than 10% of the final crop, giving concern for supplies in the next 5 years, 1994 -1998. The following 5 years will produce adequate quantities of quality poles provided the plantations are not creamed for poles before then. What is of great concern is that the 0 - 10 year plantations are not being properly regenerated and silviculturally managed and future supplies of poles and logs will be in jeopardy. Table 1. Output of Wood Products and Roundwood Inputs (1984/85 - 1993/94) Item Pre-project Year 1 2 3 4 5 6 7 8 9 10 1983/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 Existing Plantation Output 1. Production of sawn timber v?#000 10.4 Est.20.0 24.1 20.3 35.3 29.4 46.1 40.7 39.2 31.1 35.2 of which eucalyptus 10.0 Est.(10) (13) (7) (9) (7) (18) (15) (14) - - 2. Production of treated poles a0'00 - Transmission poles )Est.2.5 )Est.3.5 3.3 6.2 3.9 3.6 2.5 4.2 6.6 7.4 4.8 - Telephone poles )Est.1.0 )Est.1.0 1.0 - 0.4 2.4 0.5 1.6 1.6 0.6 0.8 - Small poles )Est.0.5 )Est.1.5 0.6 2.8 4.1 4.2 2.0 2.1 2.8 1.1 1.0 Sub total poles 4.0 Est.6 4.9 9.0 8.4 10.2 5.0 7.9 11.0 9.1 6.6 3. Untreated roundwood W'000 - Smelter poles 8.5 8.5 8.4 12.0 15.2 12.6 10.4 12.9 12.7 15.0 13.4 - Eucalyptus roundwood - 6.9 5.1 3.2 4.8 5.8 4.3 3.3 2.8 4.2 5.0 1 - Pine roundwood ) 0.8 - 2.4 3.6 3.7 4.9 4.9 23.9 7.6 - Match billets ) 8.0 2.3 - 2.8 3.1 2.7 4.1 5.3 4.1 4.3 5.6 1 Sub total untreated wood - 18.5 13.5 18.0 25.5 24.7 22.5 26.4 24.5 47.4 31.6 Total alL wood sales m3 '000 - 44.5 42.5 47.3 69.2 64.3 73.6 75.0 74.7 87.6 73.4 Roundwood logging, extract and transp. 1. Felling m3'000 (r) - 122.6 159.5 107.7 202.2 221.4 249.6 282.5 314.5 283.6 79.7 2. Extraction n?1000 (r) 92.5 121.3 104.6 151.6 164.1 231.8 225.0 299.4 203.8 71.0 3. Transportation m'000 (r) ) 98.0 65.7 92.1 75.6 124.8 145.5 146.4 167.3 205.1 130.6 58.8 O 0 00 K Table 2. Production of Sawnwood and Poles and Roundwood Requirements (1984/85 - 2001/02) (m '000) Item Cap./yr Yr 1 2 3 4 5 6 7 8 9 10 Total 184/85 8--5/86 86/87 87/88 88/8 89/90 90/91 9/2 92/93 93/94% yr 84/94 1. Kaftu New frame 35,000 Est 9.6 ) 13.4 ) 6.7 ) 14.4 ) 11.8 ) 30.0 ) 24.9 ) 23.5 ) x x )158.8 Metex 18,000 ) ) ) ) ) ) ) x ) Circular ) ) ) ) ) ) ) 57,500 )16.3 )8.2 Kara x 5 10,000 Nukor circular 20,000 Sub total Kafubu 9.6 13.4 6.7 14.4 11.8 30.0 24.9 23.5 16.3 8.2 Ys yr. Ouput pine Output euc. 2. Katibu 25,000 3.0 9.4 12.3 17.9 14.4 12.9 11.9 10.6 9.9 6.0 108.3 4 3. Dola Hil( 6,500 Est 1.0 1.3 1.3 3.0 3.2 3.2 3.9 5.1 4.9 3.4 30.3 1 Other Mitts Sub total Ndola group 4.0 10.7 13.6 20.9 17.6 16.1 15.8 15.7 14.8 9.4 138.6 Total Saunwood output Est 13.6 24.1 20.3 35.3 29.4 46.1 40.7 39.2 31.1 17.6 297.4 Total Roundwood transported 65.7 92.1 175.6 124.8 145.4 146.4 167.3 205.1 130.6 58.8 Fire destroyed New frame & Metex mitts. On-loan from forest Department till Nukor circular milt is in production. Circular mitt built and due to operate 1994. 0 0 Table 2. Production of Sawnwood and Poles and Roundwood Requirements (1984/85 - 2001/02) (cont'd) (m '000) Item Capacity/yr Yr 11 12 13 14 15 16 17 18 94/95 95 96/97 97/9 9W/99 99/00 00/01 01/02 1. Kafu New frame 35,000 x x x x x x x x Metex 18,000 x x x x x x x x Circular 4 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 57,500 Y - - - - - - . Kara x 5 10,000 5 Nukor 20,000 7.0 15.0 20.0 20.0 20.0 20.0 20.0 20.0 Sub total Kafubu 16.0 19.0 24.0 24.0 24.0 24.0 24.0 24.0 Ouput pine 12 12 12 24 24 24 24 24 Output eue. 4 7 12 - - - - . 2. Katibu 25,000 18.0 18.0 18.0 20 22.0 22.0 25.0 25.0 3. Dota Hilt 6,500 4.0 5.0 6.0 6.0 6.0 6.0 6.0 6.0 Other Mitls 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Sub total NdoLa group 28.0 29.0 30.0 32.0 34.0 34.0 37.0 37.0 Total Saunwood output 44.0 48.0 54.0 56.0 58.0 58.0 61.0 61.0 Roundwood sawLogs req.Kafubu (46.0) (54.0) (69.0) (69.0) (69.0) (69.0) (69.0) (69.0) Ndota (80.0) (83.0) (86.0) (91.0) (97.0) (97.0) (106.0) (106.0) Treated poles Tx, teL Kafubu 10.0 10.0 10.0 13.0 13.0 13.0 13.0 15.0 Roundwood req. Tx, tel poles (20.0) (20.0) (20.0) (26.0) (26.0) (26.0) (26.0) (30.0) Kafubu Smelter poles 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 Small poles 6 8 8 10 12 12 15 15 Roundwood req. small poles (12.0) (16.0) (16.0) (20.0) (24.0) (24.0) (30.0) (30.0) Eucalyptus logs (pLywood) 5.0 5.0 6.0 6.0 7.0 7.0 8.0 8.0 Sub-total Kafubu roundwood (98.0) (110.0) (126.0) (136.0) (141.0) (141.0) (148.0) (152.0) Match billets Ndola 5.0 5.0 6.0 6.0 6.0 7.0 7.0 7.0 Sub-totaL Ndota roundwood (85.0) (88.0) (92.0) (97.0) (103.0) (104.0) (113.0) (113.0) Total Rourmhood Transported 183.0 198.0 218.0 233.0 244.0 245.0 261.0 265.0 Kara mitts returned to Forest Department. - 0 - 43 - ANEX 2 - Page 8 of 8 - 0 0 w 08 -~ 0 fl - 11 - 44 - ZAMBIA INDUSTRIAL FORESTRY PROJECT - PHASE III ANNEX 3 NOTE ON FINANCIAL AND ECONOMIC ANALYSES - ANNEX 3 Page 1 of 8 NOTE ON FINANCIAL AND ECONOMIC ANALYSES General 1. As appraised, the project aimed at increasing the production of sawn wood and poles and at improving the recovery of sawn timber. During implementation a number of events such as the suspension of credit disbursement, the destruction of the sawmill, the use of small portable saws and the neglect of plantation management have modified the accrual of project benefits. Production of wood products has increased but less than what has been expected at appraisal, while the expected improvement in timber recovery has not taken place due to the lack of large size logs and to the lower than expected performance in sawmilling. Production 2. Given the plantation age structure (Annex 2), ZAFFICO's management level as well as sawmilling and pole production capabilities, the mission estimates output at full development to be as follows: Output of Sawn Wood and Logs m Without Project At Completion At Full Development Sawn Timber 25,500 31,100 50,000 Untreated round logs 20,700 28,200 30,000 Treated poles 4,450 8,000 15,000 Treated small poles/posts 625 11,000 15,000 V Refers to pre-project production levels. The above production levels have been used in both financial and economic analyses. Project Costs 3. Separate and detailed unit costs were not readily available with ZAFFICO. Therefore only two cost streams could be identified: investment and an aggregate of all other recurrent costs. Hence for all the implementation period these two costs have been used in the analysis, while for the remaining period unit costs have been estimated and used as following: ANNEX 3 - 46 - Page 2 of 8 Detailed Cost Estimates in December 1993 Prices K/m' Pine logs 7,820 Eucalyptus logs 7,820 Sawmilling and Kilning ' 45,000 Pole treatment V 17,500 Marketing and overheads 5,000 - Based on one ha model. - Based on prevailing costs. ' Mission estimates based on information provided by manufacturers. -Mission estimates based on information provided by ZAFFICO. 4. Because of lack of adequate replacement schedule for the different equipment and machinery it has been assumed that total annual investments will be replaced in year six. This would be about right for vehicles, to long for some equipment with short operational life, such as power saws, and to short for the heavy equipment. However, in the absence of reliable data, replacement in year six has been assumed to average the replacement needs of equipment and machinery. Market and Prices 5. The bulk of ZAFFICO's products are sold domestically although some transmission and telephone poles are being exported within the region. The exports are associated with some development projects and are likely not to be sustainable. Presently the demand for sawn timber is low because of the depressed economic situation in the country, particularly that of the construction sector. However, prices of sawn timber do not reflect the depressed demand because ZAFFICO has a monopoly in the supply of softwood sawn timber. Prices are, therefore, determined by ZAFFICO regardless of the demand levels. The trend in the last three years has been for ZAFFICO to increase markedly its prices to compensate for its reduced volume of sale (Table 1). This is facilitated by the liberalization of the economy where there are no more price controls by the Government. On the contrary, ZAFFICO appears to export its poles lower than the domestic price in order to obtain badly need foreign exchange for its business. 6. ZAFFICO price lists are issued periodically by type of produce and dimension of timber and poles. In December 1993, the price of average size and quality has been as indicated in Table 1. As can be seen from this table, price increases in the last few years has been substantial, mainly justified as a measure to counter losses due to inflation. The main reason could, however, be the fact that the Corporation requires substantial income to survive and to service its debts. As can be seen from the financial Table 7 of Annex 1, ZAFFICO's indebtedness has risen sharply in the past two years. Financial Analysis 7. A financial analysis has been carried out for the project over an 18 year period. The analyses are based on December 1993 prices. Investment and operating and maintenance costs for the implementation period are based on data provided by ZAFFICO (Annex 1, Tables 1-6), while from ANNEX 3 Page 3 of 8 year 11 on-wards unit costs shown in para 3 have been used. Output prices obtained from ZAFFICO (Table 1) have been used to value output of past years, while the December 1993 prices have been used for the remaining years of the project's life. 8. Project costs and benefits related to the period before completion have been re-instated to 1993 prices using the Consumer Price Index. Replacement of equipment and machinery has been included in the analysis using the assumption made in para 4. 9. Based on the above assumptions a financial rate of return (FRR) has been calculated for the project over 18 years. The resulting FRR is 18%. This is lower than the rate calculated at appraisal of 24% (Table 3). The main reason for the difference is the extended implementation period, higher than anticipated costs and lower production levels. As mentioned earlier, the costs provided by ZAFFICO are total costs instead of being incremental project costs, because separate project expenditures were not readily available. Economic Analysis 10. An economic analysis has also been carried out for the project by adjusting the financial costs and benefits of the project. The adjustments consisted in converting local costs to boarder prices using a conversion factor of 0.8. Foreign exchange component has been assumed to be 76%, following the estimate made at appraisal. With the exception of sawn timber, for which import parity price has been calculated in line with the appraisal assumptions, all other output have been priced at their financial values after they have been converted to boarder prices using the standard conversion factor. The sawn timber import parity price has been used for the period covering 1993/94 and onwards, while for earlier years financial prices have been applied after they have been adjusted by a conversion factor of 0.8. The analyses are based on December 1993 prices, and all past costs and benefits have been re-instated to 1993 prices. Assumption on replacement is as followed in financial analysis. 11. The adjusted economic costs and benefits have been used to compute an economic rate of return (ERR) for the project. This has yielded an ERR of 14% which is less than what has been estimated at appraisal i.e., 25% (Table 4). The reason are as given above in the case of the FRR explanation. Table 1. Prices of Average Size of Timber and Poles K'000/e Wlithout tl I TH P R 0 J EC T projet 84/85 85/86 86/87 87/88 88/8 89/90 90/91 91/92 92/95 93/94k Sam Timber . Pine 0.58 0.58 0.58 1.98 1.98 1.98 4.13 5.62 16.08 60.42 130.72 . Eucalyptus 0.55 0.55 0.55 1.35 1.35 1.35 2.95 5.020 16.52 60.87 97.2 Untreated Roundtogs - Pine 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.60 3.90 4.80 - Eucalyptus smelter 0.08 0.08 0.08 0.17 0.17 0.17 0.34 0.34 1.02 4.99 9.90 - Eucalyptus veneer 0.08 0.08 0.08 0.17 0.17 0.17 0.34 0.34 1.02 4.99 14.80 Treated Poles - Transmission 0.40 0.40 0.40 1.55 1.55 1.55 3.40 4.50 15.61 46.67 95.97 Telephone 0.50 0.50 0.50 1.68 1.68 1.68 3.40 4.50 15.47 47.87 67.11 Small poles/posts 0.24 0.24 0.24 0.70 0.70 0.70 3.40 4.00 12.50 47.19 47.19 Source: ZAFFICO. Refers to pre-project situation. ' Prevailing prices in December 1993. o Table 2. Import Parity Price of Pine Sawnwood Unit Unit Price Price FOB mill Swaziland Us/m3 140 Transport to Ndola USS/0? 35 CIF price Ndota K/nm 113,750 Transport to mill K/i 3,500 Price of sawnuood at ZAFFICO milt K/x? 117,250 M0z 0 0_h - 49 _ ANNEX 3 Page 5 of 8 a sena ass a a 9 a a as ang•, a a as a klo X&C- a a 9 as a a9 323- a I a * - i vi sa a la ae•, as* 0 s ss - 0 23 a22 s 9a· a e a 313 --*A.ffi * gf-:l - -r : -l-* - Table 3: Financial Analysis - Page 2 (K'000) ............................................................................ 12 13 14 15 16 17 Is .................................................................................... GROSS EEFITS Value of prodction/Wi 7537060.00 8173380.00 8406170.00 8515350.00 8520150.00 8676520.00 8868460.00 Value of prodctioniu 18326.00 18326.00 18326.00 16326.00 18326.00 18326.00 18326.00 Incra. benefits 7518734.00 8155M054.0 8387844.00 8497024.00 8501524.00 8658194.00 8850134.o CPI Deflator 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Increm. benefits (1993) 751734.00 1155054.00 8387644.00 697024.00 8501824.00 8658194.00 8850134.00 INVSTNENT COSTS Investments - . Agr. operating costs/WO -909.20 *909.20 *909.20 *909.20 -909.20 *909.20 -909.20 U Aggr. operat. costs/WI 1/ - - - . . . 0 Operat. A Naint. costs 2/ 4384560.00 4822560.00 4750660.00 4648500.00 4869500.00 5005760.00 5062600.00 Replacements 36240.50 1181931.50 147250.20 102972.80 42461.30 77017.20 71017.20 Total costs 4421891.30 6003582.30 4897001.00 4950563.60 4911052.10 506166.00 5158106.00 Total costs (at 1993 pr.) 4421891.30 6003582.30 4897001.00 4950563.60 4911052.10 5061866.00 5158706.00 NET INCREIMETAL KIEFITS Net benef its 3096642.70 2151471.70 3490643.00 3546460.40 3590771.90 3576326.00 3691426.00 4/6/1994 16:53 01P Operating and mintenance costs as recorded by ZAFFICO. Q*> Future operating and mintenance costs based on current unit costs. O Table 4: Economic Analysis - Page 1 (k'000) 1 2 3 4 5 6 7 8 9 10 11 GROSS ENEFITS Value of production/W1 12041.60 13261.20 40121.20 62103.60 56000.00 153432.40 208712.40 656286.40 1948891.60 4792443.20 6123248.00 Value of production/W 14660.80 14660.80 14660.80 14660.80 14660.80 14660.80 14660.80 14660.80 14660.80 14660.80 14660.80 Incren. benef Its -2619.20 -1399.60 25460.40 47442.80 41339.20 138771.60 194051.60 641625.60 1934230.80 477782.40 6108587.20 CPI Deflator 271.10 94.49 32.44 16.77 8.00 3.51 2.28 1.55 1.00 1.00 1.00 Increm-ec.benefits (1993) 710065.12 -132248.20 825935.38 795615.76 330713.60 487088.32 442437.65 994519.66 1934230.80 4777782.40 6108587.20 INWSTMENT COSTS Investments 2192.79 9580.65 25778.82 40338.23 73166.34 163845.64 36328.47 1120642.13 130307.03 72045.34 - U1 Aggr. operating costs/UO -863.74 -863.74 -863.74 -863.74 -863.74 -863.74 -863.74 -863.74 -863.74 -863.74 -863.74 Aggr. operat. costs/tl 1/ 86.74 3653.41 10242.42 25023.66 40764.50 124003.40 250646.10 533520.95 1052631.82 2280000.00 - Operat. & mint. costs 2/ * - - * - . * * - - 3841534.00 Replacemnts - * - * 2192.79 9580.65 25778.82 40338.23 73166.34 163845.64 Total scen. costs 2192.79 12370.33 35157.50 64496.16 113067.10 289178.10 295691.49 1679078.16 1222413.35 2424347.94 4004515.90 Total costs (at 1993 pr.) 594465.37 1168872.48 1140509.46 1061634.14 904536.80 1015015.13 674176.60 2602571.16 1222413.35 2424347.94 4004515.90 NET INCRNEETAL KENEFITS Net benefitsecon *1304530.49 -1301120.69 -314574.09 -286018.39 -573823.20 -527926.82 -231738.95 -1608051.48 711817.44 2353434.46 2104071.29 ............................................................................................................................................ 4/6/1994 16:53 <)> operating and maintenance costs as recorded by ZAFFICO. 4b Future operating nd maintenance costs based on current mit costs. OQz 0 M1 Table 4: Economic Analysis - Page 2 (k'O00) ............................................................................ 12 13 14 15 16 17 18 ................ ................................................................ nS MFITS Vatue of proaction/U 6549282.01 7071012.00 7358636.00 7445980.00 7449120.00 7574916.00 772848.00 Value f pro tio/1 14660.0 . 14660.80 14660.80 14660.80 14660 .80 14660.80 Inerm. bonefIts 6534621.20 700351.20 7343975.20 7431319.20 7435159.20 73055.20 7713107.20 CPI Dflator 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Inc~r.c.benef It* (1993) 6534621.20 7056351.20 7343975.20 7431319.20 7435159.20 760255.20 7713807.20 INESTMENT COSIs Investenta - - AggUr. perating costs/M -863.74 -863.74 .863.74 -863.74 -863.74 -863.74 -863.74 Aggr. ert. costs/VI 1/ - - Operat. 6 mint. costs 2/ 4165332.00 4581432.00 4513127.00 4606075.00 4626025.00 4755472.00 41182470.00 Replaccownts 36328.47 1122834.92 139887.69 97824.16 40338.23 73166.34 73166.34 Total @con. costs 4200796.73 5703403.18 4652150.95 4703035.42 4699.49 4827774.60 4900772.60 Totat coste (et 1993 pr.> 4200796.73 5703403.18 4652150.95 4703035.42 466499.49 4827774.60 4900772.60 MT INCKEMITAL §gaFl* get benaffts-en 2333824.46 1352948.01 2691824.25 2728=.79 2769659.70 2732480.60 281304.60 4/6/1994 16:53 1> Dperating and «Intae costs m recordd by ZAFFICO. <2> Future aprating ud =intac costs based en currnt sit costs. 00 cooU