D_cumont of The World Bank FOR OMCIAL USE ONLY Repwt No. 5769 PROJECT CONPLETION REPORT ZAMBIA INDUSTRIAL FORESTRY PROJECT PHASE 11 (LOAN 1424-ZA) June 25, 1985 Eastern and Southern Africa Projects Department Southern Agriculture Division agnm _ a *mhoo _iteui mm be _Wb relpo ad in mec pslmo of tmree dud lb Po^ 1- llntsaw e lbdabgd witwt WeMd BP _dwmi. PRINCIPAL ABBREVIATIONS AND ACRONYMS USED FAO - Food and Agriculture Organization FD - Forest Department FINNIDA - Finnish Development Agency GRZ - Government of the Republic of Zambia IFC - International Finance Corporation INDECO - Industrial Development Corporation IPD - Industrial Plantations Division MILNR - Ministry of Lands and Natural Resources RMEA - Regional Mission in Eastern Africa UNDP/SF - United Nations Development Program/Special Fund ZAFFICO - Zambia Forestry and Forest Industries Corporation . FOR OMCIAL USE ONLY ZAMBIA INDUSTRIAL FORESTRY PROJECT PHASE II (LOAN 1424-ZA) PROJECT COMPLETION REPORT Table of Contents Page No. Prebface .......................... ........................... _ Basic Data Sheet ................................ . ii Highlights . , . . ................ iii I. INTRODUCTION Forestry Sub-Sector . .............. .... ..... . .. . ......... 1 Forestry Policy .................................. . 2 Institutions ........................................... 2 Phase III ..... ........................................ . 3 II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Identification and Preparation .................. 3 Appraisal .................................................... 4 III. IMPLEMENTATION Effectiveness and Start-Up ...... .................. . 6 Afforestation, Reafforestation and Maintenance ......... 6 Pruning and Thinning ....... ...................... 7 Fire Protection ........................................ 8 Logging and Transportation ...... ................... 9 Disbursement ....................................... . 9 Training ............................................... 10 Cost ................................................... 11 Saw Mill ............................................... 11 Accounting, Auditing and Progress Reporting ............ 11 Procurement ............................................ 12 IV. FINANCIAL AND ECONOMIC RE-EVALUATION ................... 12 V. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT .... .......... 13 VI. CONCLUSIONS ...................... ...................... 14 Thi docunent ha a icted distribution and may be ud b recipients oil in tde perforumae of their oficial du Its comeumy not otherwi be Amcknd wihout World Dak aut*om. TABLES 1 - Achievement of Physical Targets 2 - Fire. Occurrence Damage 1978-1982 3 - Project Cost 4 - Schedule of Actual Disbursement 5 - Financial Rate of Return 6 - Economic Rate of Return 7 - Financial Rate of Return for Single Sawmill 8 - Adjusted Project Cost at 1982 Prices ANNEX 1 - Borrower's Comments MAP - Project Location (IBRD No. 12526) ZAMBIA - INDUSTRIAL FORESTRY PROJECT PHASE II (Loan 1424-ZA) PROJECT COMPLETION REPORT Preface This is a project completion report (PCR) of the Industrial Forestry Project Phase II in Zambia, for which Loan 1424-ZA was approved on May 17, 1977 in the amount of US$16.8 million and closed March 2, 1984, * after cancellation of US$0.1 million. The PCR was prepared by the East Africa Regional Office and based on the appraisal Report (No. 1429-ZA) dated April 20, 1977, the President's };e,ort (No. P-2012a-ZA) dated April 29, 1977, the Loan Agreement, project files and data gathered during the aDpraisal of the follow-on Phase III Project. The project was not selected for audit by OED as it is the second of a series of forestry projects, similar in nature, in Zambia. The first project (Loan 562-ZA) was completed in 1975, audited by OED in 1977, and generally considered to be successful. The PCR was sent to the Borrower for comment on April 16, 1985. Comments received from Zambia Forestry and Forest Industries Corporation (ZAFFICO) have been taken into account in the final report, and are attached as Annex 1. The assistance provided by the Government of Zambia and the staff of the project executing agencies is gratefully acknowledged. - ii - ZAMBIA Industrial Forestry Project Phane II (Ln 1424-ZA) Project Completion Report Basic Data Sheet Key Project Data Appraisal Actual or Actual - Z of Expectation Current Estimate Expectation Total Prolect Cost (U5$ million) 34.5 40.5 117 Underrun or Overrun (2) Loan/Credit Amount (US$ million) 16.8 -- Disbursed 16.8 16.7 99.4 Cancelled - .1 -- Repaid to [BRD 2.7 IJ - Cutstanding to IBRD 14.0 T/ Date Physical Components Completed Dec. 82 Dec. 83 Proportion Completed by Above Date (Z) 100 85 Proportion of Time Underrun cr Overrun (2) - 20 Economic Rate of Return (Z) 20 IS Financial Performance Fair Poor Instituttonal Performance Fair Poor Other Project Data 2, 2/ Orij4 aal Plan Revisionu Actual or Eat. Act. First Mention in Files or Timetable -- - 01/05/73 Government's Application - - Negotiatlons - 04/06/77 Board Approval --- 05/17/77 Loan/Credit Agreement Date - 06/08/77 Effectiveness Date - 11/15/77 Closing Date -- - 02/03/84 Borrower The Republic of Zambia Executing Agency Industrial Plant. Division Fiscal Year of Borrower January 1 - December 31 Follow-up Project Nase Industrial Forestry Project Phase III Loan/Credit Number Cr. 1437 mount (USS million) 22.4 Loan/Credit Agreement Date 3/16/8b Mission Data Mission Data No. of3t No. of Sent by Month/Yr Weeks Persons Manweeks 4/ Date of Report Identification FAO/CP 1/73 2 Preparation FAO/CP - -- -- -- Preappraisal IBRD) 38 Appraisal IBRD) 7/76 17 4 68 4/77 Total 106 Supervision I IBRD/CDC 11/77 2 3 6 12/77 Supervision 11 IBRD/CDC 8/78 2 3 6 9/78 Supervision III IBRD 3/79 2 1 Z 5/79 Supervision IV IBRD 2/80 3 3 9 3/80 Supervision V IBRD/C0C IZ/80 4 3 12 2/81 Supervision VI IBRD 4/81 3 1 3 5/81 Supervision VII [BRD 1/82 3 3 9 3/82 Supervision VIII IBRD 8/82 2 2 6 9/82 Supervision IX IBRD 8/83 1 1 2 9/83 Total 22 55 Country Exchange Rates ?nme of Currency (Abbreviation) Zanbia Kwacha (ZK) Year: Appraisal Year Average Exchange Rate: USSI - KOC80 Intervening Years Average USSI - KD.88 Completion Year Average USSI - K1.23 1/ As of December 84. 2/ No information available. 7/ No. of 5 day week shown in the mission report plus travel time, except in the case of appraisal where elapsed time is shown. 4/ No. of weeks timen No. of persons. - iii - ZAMBIA INDUSTRIAL FORESTRY PROJECT PEASE II (Loan 1424-ZA) PROJECT COMPLETION REPORT Highlights The project's main components were the planting of 15,000 ha of pine and 2,500 ha of eucalyptus, replanting of 2,000 ha of eucalyptus; maintenance of the new and existing plantations established under the previous-phase; doubling of logging and transportation capacity from 60,000 m3 per year; construction of a sawmill of about 40,000 m3 per year sawn wood capacity; staff training; and experimentation and research aimed at reducing land clearing costs by developing efficient charcoal production methods. The major part of the project was the afforestation component, the appraisal targets for which were exceeded. However, on the institu- tional and managerial aspects, the project had not been able to reach the expected maturity. As a result, the staffing, training and general produc- tivity of the project were affected. Institutionally, the most significant problem was the four-year delay in incorporating the project's Implementing agency, the Industrial Plantations Division (IPD), into a commercial entity. This compelled IPD to continue to function within the restrictive civil service rules. In addition to the institutional problem, the project seems to have suffered from a design shortcoming, in that Phase II had not given sufficient consideration to all the operations of IPD and thereby not encouraging evaluation of IPD as a total organization during supervision/ implementation. Since the industrial operations of IPD other than the proposed sawmill were not included, no proper evaluation or follow-up of the training needs or its engineering efficiency was carried out during supervision. There was about a 17Z overrun on the cost of the Project. The afforestation costs turned out to be higher than the appraisal estimates owing to escalated land clearing costs and higher costs of labor arising mainly from a general salary increase. The construction of the sawmill was also delayed by four years resulting not only in inflated costs but also in lost revenue. The higher costs were not fully offset by the higher prices that IPD charged for its products. Additionally, the Project was affected adversely by the worsening economic conditions (e.g. financial and foreign exchange crisis) that GRZ faced during the last three years of the Project. The economic rate of return of the project is now estimated to be 15% as against 20% at appraisal. - iv - Over 99% of the loan was disbursed, and the Project exceeded its targets in the afforestation component. The general progress of the Project was considered reasonable, and it formed the framework for involvement by the Bank/IDA in a further phase. On balance the project is considered to have been reasonably successful. The following points are of particular interest: - although the funds were fully utilized for the training component, the program as carried out was not satisfactory; a proper assessment involving a systematic analysis of the Skill gaps was not carried out as expected by the Bank In the early years of the Project (paras. 3.15-3.18); and - IPD's staffing problems were partly due to civil service rules to which it was subject and partly to lack of management action (paras. 5.01-5.04); almost all of the staff are civil servants with little experience in private sector operations (para. 6.08). ZAMBIA INDUSTRIAL FORESTRY PROJECT PHASE II (LOAN 1424-ZA) PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 This project is a follow-up to the Industrial Forestry Project Phase I (Loan 562-ZA) which was the Bank's first involvement in the long-term industrial forestry program of Zambia. Phase I was coTpleted in 1975 and was generally considered to be a successful project. Phase II was approved by the Board in May 1977 and the loan was closed in February 1Q84 after disbursing over 99% of the loan. A third phase project was approved by the Board in February 1984. This PCR is based on material gathered during appraisal of Phase III and on information obtained from the Bank's files and updates received from the Borrower. Forestry Subsector 1.02 The forestry resources in Zambia consist of natural (indigenous) forests and man made plantation forests. About 370,000 km2 or nearly half of the total land area of Zambia are covered by two main types of natural forests, firstly the closed forests, typified by the Zambia teak forests situated in the Southern and Western parts of the country and secondly open woodlands of which the miombo' woodlands are the most extensive. Only slightly more than 7 million ha of a total of 37 million ha of indigenous forests are gazetted and nominally under the protection of the Forest Department (FD). About 70Z of the gazetted forests have some management including concessions for felling of timber or firewood. However, the Government -.as very little control over these areas because of chronic =arrpower a.d budget co.s:raints. The average yield of commercial sawiogs in these forests varies between 5 and 13 m3/ha and about 50 m3/ha of poles and firewood. 1.03 The indigenous forests are a declining resource and are slow to regenerate. In the easily accessible areas, mainly close to cities and along the line-of-rail, they have been exploited for a long time and are now virtually depleted. Increasing transport distances and lower yields would make it difficult to exploit the remaining forests economically in the future. On average, the indigenous forests take about 50 to 60 years to produce sufficient sawlogs with appropriate diameters, while eucalyptus would provide similar dimensions in about 12 years and pine in 25 years. 1.04 To solve the problems of long gestation periods and difficult commercial exploitation associated with the indigenous species, the Government decided to embark on a long-term industrial forestry program. The FD started growing pines on the Copperbelt, at first on an experimental scale near Ndola, and then on an increasingly larger scale around Ndola and west of Kitwe. To implement this program, an Industrial Plantations Division of the FD was created in 1962. 1.05 A Bank loan of US$5.3 million was provided to finance a first phase (Loan 562-ZA) of the long-term afforestation program. The first phase was completed by 1975 but at a cost over the estimated amount owing mainly to inflation, and its target of 16000 ha was reached in seven years as against eight as envisaged at appraisal. The actual exploitation of wood in Zambia continued to be only a small fraction of the potential, due to ineffective utilization of the wood processing capacity. The Phase II project was designed to continue the government's long-term planting and maintenance program, expand longing and sawmilling capacity and conduct studies designed to lead to economical and efficient land clearing and charcoal production. 1.06 By the end of Phase II about 36,000 ha of pine and 7,500 ha of eucalyptus plantations had been established in the Copperbelt in the four major plantation areas at Ndola, Chati, Lamba and Ichimpe. The main species are Pinus kesiya, Pinus oocarpa, Eucalyptus grandis and Eucalyptus cloeziana. The age structure of these plantations mainly reflects IPD's plantation program followed in the last five years, during which period about 50% of total plantations were established. Their annual roundwood production potential (sustained yield) is currently estimated at 200,000 m3 of pine and eucalyptus sawlogs, with another 120,000 m3 in small logs. Forestry Policy 1.07 The Government's major policy objectives for the forestry sub-sector are: (i) conservation of indigenous forests through conventional measures (e.g., forest protection and controlled exploitation), and (ii) protection of forest reserves in the water shed or river flow areas against soil erosion and river silting; and (iii) promotion of a viable forestry sub-sector through appropriate research, extension, reafforestation and wood processing programs. Institutions 1.08 Responsibility for forestry policy, management, extension, research and training rests with the Forest Department, which is part of the Ministry of Lands and Natural Resources (MLNR). The Department is headed by the Chief Conservator of Forests, and comprises two main divi- sions, one for field staff and the other for specialists. The Industrial Plantations Division (IPD), which is now incorporated as Zambia Forestry and Forest Industries Corporation (ZAFFICO), was originally a branch of the Forest Department. IPD was responsible for implementing both Phases I and II. FD's responsibility for management includes the management of the gazetted forest estate, and control of the processing of wood products from gazetted forests for domestic and industrial use. Its extension and publicity work includes advisory services to private woodlot owners and the maintenance of a network of nurseries. Forestry research consists of (a) forest research on indigenous and exotic species; and (b) forest products research including charcoal kiln testing and timber preservation, seasoning and structure testing. The training function of the FD includes the training of Forest Rangers and Foresters in lower and higher level courses respectively at the Zambia Forest College at Mwekere near Kitwe. There are no facilities in the country for graduate training for forestry profes- sionals. Short-term training on-a number of technical subjects is provided by a Forest Workers Training Center at Chati, owned by IPD. 1.09 During the Phase I project it became clear that a properly coor- dinated approach towards forestry and forest industries was vital for the rational development of the sector. The ensuing discussions between GRZ, FD and Industrial Development Corporation (INDECO) were aimed at accom- plishing this objective. Previously, statutory responsibility for planta- tions rested with the FD, but INDECO under the Ministry of Mines and Power had responsibility for exploitation of forests for industrial use. In 1976 INDECO became answerable to MLNR for its subsidiaries' dealing in importa- tion and processing of sawn wood and other wood products. This arrangement was a major step towards establishing a coordinated approach toward forestry and it brought under MLNR all of the forestry related activities except the construction of a pulp and paper mill, the responsibility for which was to continue with INDECO. Phase III 1.10 The Phase III Project (Cr. 1437-ZA) was presented to the Board in February 19B4 and was made effective in Septemher 1984. The Project is estimated to cost USS42.5 million with IDA providing financing up to US$22.4. The Project has been designed: (a) to improve the utilization of existing forestry investments in plantations and handling and processing facilities, with a view to increasing production and improving the quality of ZAFFICO's wood products and product mix to meet revealed market prefer- ences and to reduce imports; (b) to improve and strengthen linkages between investments in forestry resources and wood-based industries; and (c) to strengthen the management and improve operational efficiency of ZAFFICO as a whole, with special reference to its operations in logging, sawmills and supporting services. These Project's objectives are consistent with the Government's sectoral objectives as well as its overall long-term policy objectives of economic growth and diversification. In particular the Project would address the training requirements of ZAFFICO staff consisting of in-service, long-term and on-the-joh training involving about 900 project related personnel, improvements in logging and transportation, fire protection and Management Information Systems. II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Identification and Preparation 2.01 Towards the latter part of the Phase I project several discus- sions were held between GRZ and the Bank on the possibility of a Phase II project. It was clear at this time that the Bank's involvement was conditional upon GRZ accepting a coordinated approach towards the develop- ment of forests and forestry industries. Several studies were conducted by GRZ under the UNDP/SF Forest Industries Feasibility Study project which was executed by FAO. Within the frame work of this project, FAO engaged the services of Sandwell & Co (consultants) to determine the economic and technical feasibility of establishing units of appropriate type and size for the manufacture of sawnwood, wood panel products, and pulp and paper. Sandwell's reports on the feasibility of wood products and pulp and paper were issued in 1971. In 1974 with encouragement from the Bank and finan- cial assistance from Finland, GRZ employed Jaako Poyry (JP) a firm of consultants to carry out another set of forest industries pre-investment - 4 - and market studies. This set of studies which updated most of the Sandwell and FAO data, recommended the establishment of the following plants: an unbleached pulp and paper mill of 55,000 TPA capacity by 1979-80, a parti- cle board mill of 15,000 m3 p.a. capacity by 1977-78, a new sawmill of 20,000 m3 per annum capacity by 1983-85. However, further details as to the feasibility of individual projects was required before a determination could be made as to the size, species composition and phasing of a future industrial plantation program. For instance Eucalyptus grandis (EG), which was grown at an early stage of the plantation program and whfch was going to be available in large quantities, was expensive to saw, its waste factor was high and contrary to previous expectations the mines were reluctant to use EG for pit props, yet these were considered suitable for pulp and paper and particle board. Eucalyptus cloeziana on the other hand was considered better for the mines but not so suitable for pulp and paper. Decisions on these matters had a two way linkage on the existing and the planned planta- tion program and had to be considered before the Bank could set out to finance a Phase II. 2.02 The main parties to the continuing discussions on the project were INDECO, FD, MLNR, Ministry of Finance, Bank staff from Eastern Africa Projects and Programs Departments, Industrial Projects Department and staff from IFC. Since these parties represented different interests and special- ization it was difficult to focus on the issues leading up to a coherent project proposal resulting in prolonged discussions during the preparation. The construction of a pulp and paper mill was the main preoccupation of INDECO and was in the forefront of all discussions. Based on the informa- tion available the Bank's view at this stage was that the pulp and paper mill would not be technically and economically viable owing to the market situation and therefore should be postponed. The question still had to be settled, as to whether in the face of uncertain prospects for increased wood utilization what components a Phase !I operation should include. The Bank believed mistakenly that the Government agreed with its proposal to postponing the pulp and papermill, but later discovered that INDECO was persistent in its desire to have the mill built early. The Bank then reassessed the market conditions and with advice of consultants agreed that a pulp and paper mill would be feasible for Zambia in 1982/83. However, the issues to be resolved prior to any investment in the pulp and paper project were the verification of the market size and the securing of a technical and a financial partner. At this time there appeared to exist a general consensus between the Bank and other institutions involved that the pulp and Paper mill could in fact be slipped until its feasibility could be clearly established. With these developments the Bank was ready for the appraisal of a Phase II project. Appraisal 2.03 Despite prolonged discussions on the various aspects of the forest industry there was no specific project proposal available, but instead there existed bnly a collection of technical and market studies and feasibility reports. The Bank decided to send a mission to pre appraise or appraise a second phase project depending on the information available. All feasible configurations involving increased sawmilling and logging capa- city, particle board mill, the extension of industrial plantations and the growing of firewood were to be considered during the pre-appraisal - 5 - appraisal. The mission, comprising two Bank staff and two consultants arrived in Zambia June 1976 and was presented with a comprehensive shopping list of all connected forestry activities that GRZ wanted financed. After its field work the mission selected the following activities to recommend to the Bank's management for funding over a five year period, (1) annual planting of 4,000 ha; (2) doubling the logging capacity to 120,000 m3; (3) new sawmill with a 20,000 m3/yr sawnwood capacity; (4) fiber board mill; (5) charcoal production by FD; (6) study on the technical and economic feasibility of wafer board production; and (7) fellowships and training. 2.04 During the review process it was suggested that the Bank was not ready to participate in a pulp and paper venture until further studies relating to its market potential were carried out. Thus the plantation proposed in Phase II hau to be economically justified with or without the pulp and paper mill. Further analysis was carried out and this confirmed that an economic rate of return of not less than 10% could be realized by the project based on sawmilling only and without the pulp and paper mill. 2.05 After further discussion within the Bank, a Phase II Project was designed to finance: (a) about 3,500 ha of new plantations annually, of which about 3,060 ha would be pine and about 500 ha Eucalyptus (totals for the Project period: Pine 15,000 ha; Eucalyptus 2,5U0 ha); (b) replanting annually approximately 400 ha of clearfelled planta- tions with Eucalyptus (total for the Project period: 2,000 ha): (c) maintenance of (a) and (b), together with all existing IPD plan- tations; (d) doubling of IPD's logging and transportation capacity from about 60,000 m3 to about 120,000 m3 roundwood per year; (e) construction and equipment of a sawmill of about 40,000 m3 a year sawnwood capacity; (f) staff training and fellowships to facilitate (a) to (e) above; and (g) research, experimentation and studies designed to improve land clearing, and charcoal production methods. 2.06 The total cost of the project was estimated to be K27.5 million with financing to be provided from the following sources, Bank (49%) Commonwealth Development Corporation (18Z) and Government (33%). III. IMPLEMENTATION 3.01 The implementation of this phase was generally successful, with respect to the forest plantation establishment program, for which most of the appraisal targets for nursery production, land preparation and planting were surpassed. The maintenance of forest plantation, however, remained far below appraisal targets, while only 707 of the established logging and transportation capacity was achieved during the project period. The slip- page in the construction and operation of the new saw mill and the incorpo- ration of IPD into a commercial entity adversely affected the project financiallv and organizationally. The limited success of some of these activities is traceable to a combination of staffing, funding and institu- tional drawbacks experienced during the implementation of the project. Effectiveness and Start-up 3.02 The date of effectiveness specified in the Loan Agreement was September 8, 1977, suhject to the additional condition that GRZ and IPD enter into an arrangement to make the proceeds of the loan available to IPD. These arrangements were formalized in a subsidiary loan agreement between GRZ and IPD on November 10, 1977. The agreement provided that adequate budgetary allocations he made annually from 1978 to 1982 for IPD's programs. However, except for the first two years there were no adequate budgetary allocations made to the project. The Loan was declared effective on November 15, 1977, two months after the specified date. 3.03 A two-year gap between the first and second phase projects had already left several IPD operations with insufficient budgetary support from GRZ. The gap resulted from the early conclusion of the Phase I project, having achieved its planting targets one year ahead of schedule and the slippage in the start of the Phase II. The negative impact of the time gap between the two phases on funding made it difficult to continue the recommended silvicultural practices during the early stages of Phase II. The constraints on funding further weakened the equipment maintenance program which was already poorly managed. A lesson to be learned is that preparation of Phase II projects and assurance of timely appraisal are key areas in which the Banks own performance could be improved. 3.04 The Project's staffing position was poor with key senior manage- ment positions remaining unfilled, some for periods of over one year. Most of the other key positions were occupied by expatriates whose contracts were about to expire. There was an immediate need to fill these vacancies early so as not to interrupt the ongoing activities of IPD, but it was difficult to fill these vacant posts and as a result staffing continued to be one of the major problems throughout the project. Both the Bank and IPD believed that the transformation of IPD into a fully commercial entity would resolve most of its staffing, financial and management problems but such a transformation did not take place till 4 years later. Afforestation, Reafforestation and Maintenance 3.05 The project's annual target for new planting were 3,500 ha, of which 3000 ha were to be pine and about 500 ha eucalyptus. An additional 2,000 ha of clearfelled area was to be replanted with eucalyptus during the project period bringing the total to 19,500 ha. As part of afforestation, other activities, including land clearing, seedling production, planting, weeding, pruning and thinning were csrried out by the project. 3.06 Land clearing - During appraisal, it was found that landclearing by IPD was done mainly through contractors, who were both expensive and unreliable. Provision was therefore made in the project that IPD would (1) equip the landclearing unit so that it would take over all the land- clearing operations (2) commence a trial charcoal production program to find a means of mitigating the cost of landclearing as well as furthering the development of improved charcoal production. Landclearing was slow but did not affect the planting program. IPD was able to equip it second landclearing unit and operate independently of the contractors only by the fourth year of the project. The charcoal trials, which were provided in order to absorb the rising land clearing costs, were not carried out till the final year of the project, mainly owing to delays in selecting the right type of kiln followed by procurement problems. The cost per hectare for land-clearing which was estimated at the time of appraisal to be about K200 rose to K540 by 1982. Ironically, the equipment that the project owned by the end of the project period gave it a much greater capacity than it was going to need in Phase III, because the demand and utilization studies carried out had indicated only a modest planting program. 3.07 Seedling Production Program proceeded without major problems and it was able to supply all of the requirements of the planting program. Nursery costs however increased during the project from about K10 per thousand to K25 per thousand seedlings owing to increased labor costs. 3.08 Weeding - As a result of a shortage of equipment and spare parts before the project, the weeding program was in arrears from the start. The supervision missions had estimated that the overall progress during the early years averaged around 28Z of the required weeding of newly planted areas. Early supervision missions repeatedly drew the attention of IPD to the potential for fire hazards resulting from the unsatisfactory weeding program. The then Director of IPD in his comments on the PCR agrees that there was a reduction in weeding intensity at the beginning of the project, but feels that tha avera!a weeding in the first two years was around 70Z. He maintains that the area which were subject to fire hazards were given special attention (Annex 1). By 1979 weeding was more or less on schedule although there was more mechanical and less manual weeding than estimated at appraisal. On balance, the weeding program had been carried out reasonably well. Pruning and Thinning 3.09 Again owing to the prevailing budgetary constraints, both these operations were considerably behind schedule early in the project period. The backlog on pruning was cleared as the seasons progressed, but thinning continued to be behind schedule. Although lack of equipment had been one of the causes for slow progress in thinning, the lack of incentive to thin pine, especially the first thinnings, caused a further delay, particularly since a high percentage of the produce from the first thinning was unsale- able. The supervision mission of October 1981 recommended a revision in the thinning progran when it discovered that the thinning based on volume per acre rather than on basal area was too high, making it doubtful that the final yields given in the appraisal could be achieved. The mission suggested that thinning intensity and frequency based on basal area would be preferable since the growth potential of a stand is easier to monitor with the basal area method. IPD agreed to these suggestions. The former IPD management have stated in their comments that it is now expected that parts of the plantation will be managed for specific end uses, e.g., some of the unthinned areas may be turned into pulpwood areas and others that are younger be managed for sawnlogs. Fire Protection 3.10 The project was expected to carry out the main fire protection measures, namely, controlled burning of fiiebreaks, building of 15m wide external firebreaks, maintaining of all firefighting vehicles, equipment and fire towers and manning the fire crews. These were not very well carried out and the Phase II project experienced a high incidence of fires (Table 5) owing to (a) irregular control burning which frequently got out of hand because of strong winds, dry weather and too much burning material on the ground, (b) inadequate maintenance of fire breaks, (c) inadequate equipment, (d) poor organization of fire prevention and firefighting. The appraisal mission estimated that 17,000 ha (half the average size of the plantation) would be subject to control burning annually, making a total of 85000 ha during the period of the Project. The actual area subject to control burning during this period was only 32,313 ha. Project management maintained that some areas did not require control burning because they were situated too far away from the settlement. Therefore, some judgement was made as to which were the priority areas. Ironically many of the fires were started owing to badly supervised controlled burning. These preven- tive measures were not very well understood by those involved in fire control. On those occasions when control burning had led to serious fires it was discovered that staff had not paid attention to the elementary steps that were needed to be taken in these exercises. The equipment and the crews had not been properly organized to meet such situations arising out of control burning. On the maintenance question, the shortage of equipment was one of the major reasons for the project's inability to carry out preventive measures, like grading of firebreaks and weeding. During the project period, the establishment and maintenance of firebreaks represented only about 20% of appraisal targets. Apart from the preventive aspects of fire protection, IPD's ability to deal with the suppression of fires was also weak. Inspite of the project providing financing for the firefighting equipment the delays in procurement turned out to be very costly for the project which had to face several fires without such equipment. During the project period there had been nearly 300 fires affecting about 6000 ha and completely destroying about 1300 ha with an estimated loss of about KO.5 million. Phase III has provided for measures to improve fire protection by establishing new external fire breaks, maintaining existing ones, con- structing a fire tower and providing additional equipment. The lesson from Phase II is that in addition to providing the hardware and designing a program of fire protection and control, close monitoring of the preventive and maintenance program by top management should be made a priority and the Bank should take stronger action to ensure that forestry protection measures are enforced in a timely manner. The former IPD management in its comments had stated that in analysing the causes of fires they found that those arising out of control burning were few. nowever, steps have now be?n taken to deal with the major causes by instituting a disciplinary mechanism and holding the relavent staff more accountable for such occurences. -9- Logging and Transportation 3.11 The project did not propose any substantial modification of the IPD's existing logging methods but instead aimed at a reinforcement of its capacity through replacement of worn-out equipment and provision of additional equipment and labor to enable the logging section to handle 120,000 m3 instead of the existing 60,000 m3. 3.12 At the start of the project, all the lorries in the logging section were over five years old, many of them in need of constant repair, making the saw log supply to the mills erratic. The lorries obtained under Finnish aid during the second year of the project helped remedy this situa- tion until the logging and transport equipment financed by the Project arrived. The project financed equipment was held up owing to procurement delays. The situation was compounded by weak management. Felling and logging were nct properly coordinated and the log and lumber yards iere poorly organized. Inadequate supervision and poor record keeping has worsened the problem in the logging section and prevented IPD from fully understanding the problem and finding a suitable solution. There were major discrepancies in the volumes felled and transported. The January 1982 mission stated that in 1980, according to IPD data, out of 133000 m3 felled only 87000 m3 were logged to the next road and of these only 68000 m3 were transported to the mills. Even with allowances for normal harvesting losses (15X) and the small diameter logs from thinning, left in the forest (20%) the volume transported to the mills was still around 75% of the net logged wood. Such discrepancies occurred during the entire project. No satisfactory explanation has been given by IPD management for these gaps. Training of the staff engaged in logging operations had not been carried out in a systematic manner, the training courses held at the Chati Workers Training Center, which were attended by IPD staff engaged in logging had not proved to be of much benefit. The daily productivity of those engaged in logging has decreased during the project period. The rate of extracted wood per machine per day had dropped from 20 m3(r) in 1975 to 12.2 m3(r) by 1982 a decline of about 40% in productivity. The corres- ponding figures on productivity for a manday are7.5 m3(r) in 1975 and 5 m3(r) in 1982, which is an overall decline of about 30%. 3.13 The lesson to be derived from the experience of Phase II is that, since no plausible explanation could be offered by IPD on the logging discrepancies, the Bank should have taken a far more serious view of the lack of accountability. At the earliest opportunity during Phase III, the Bank should request the auditors to study and comment on this problems as a matter of urgency and recommend corrective action including a system of record keeping.for logging and transportation. Disbursement 3.14 This project was disbursed from RNEA. The rate of disbursements were slow for the first year but from the latter half of the second year remained at about 90% of the estimated level (Table 4). At the very early stages, IPD staff were unfamiliar with both the procurement and disburse- ment procedures of the Bank, as a result, considerable time was spent in familiarizing them on the procedures and documentation necessary for procurement. This was provided during early missions by disbursement staff from RMEA. The arrangement of disbursing from RMEA proceeded reasonably - 10 - well, but due to the separate geographical location of project staff and disbursement staff communication on disbursement matters was problematic on occasions. In the case of the saw mill tender, an advance was paid to the supplier based on the telex sent to IPD by the Washington Office approving their rece-mendation to award the bid. This was not an approval of the contract but of the recommendation, and at this time the Bank had not received a copy of the final contract. The Loan Agreement Schedule 4(d) specified that before delivery to the Bank of the first withdrawal applica- tion two conformed copies of the contract should be furnished. Adherence to these requirements was not verified at the time the advance was paid. This payment however did not present a major problem but demonstrated the possibility of misunderstandings when staff work from two locations. On the whole disbursements were carried out well, and the present staff of ZAFFICO appear to be familiar with the Bank's procedures relating to disbursements. Training 3.15 The main objective of the training component of the project was to train Zambians to replace expatriate staff who were on short-term contracts and holding positions in the accounting marketing, engineering, logging, sawmilling and marketing sections. During the appraisal of the project an assessment of the staffing requirement and the related training needs were broadly identified. However, Project financed training formed only a part of the total project related training the balance of the training being left to the sponsorship of the ongoing bilateral assis- tance. The amount provided under the project was US$130,000. 3.16 The other sponsors for training, besides the Bank and GRZ, were the British Overseas Technical Assistance and FINNIDA. Under British sponsorship one IPD candidate attended a course in Project Planning at the Bradford University, two candidates attended the Planning and Management course at tlle University of Oxford and two for the Higher National Diploma in Engineering and for the Agricultural Mechanics course in the UK. The Bradford and Oxford University course participants were already in mana- gerial positions as acting Marketing .lanager, and as Conservators. Under FINNIDA sponsorship, foresters were crained in sawmilling. The Government sponsored training -was mainly carried out at the Chati Workers Training Center. 3.17 According to project staff, the candidates under training financed by project funds are as follows: one at the Oklahoma State University, two in the UK following a course for the diploma in Marketing, and six students who followed the BSc course in Forestry at the University of Da-r es Salaam Facility of Agriculture and Forestry in Morogoro. IPD continued to have difficulties in carrying out training in the non forestry fields such as engineering, accountancy and technical skills. Firstly, being a part of the civil service, IPD was constrained by its rules to recruit candidates directly for overseas training in accountancy and engineering. Even when permission was obtained from the Government after lengthy procedures, IPD was unable to recruit suitable candidates. Secondly, on the job training for skilled work was overlooked in the design of the component. The project related training in Phase II was therefore constrained by both institutional and design drawbacks. Phase III examined this component critically. - 11 - 3.18 Although the early supervision missions discovered shortcomings in the training program there is no evidence that the Bank took serious issue with IPD on the continuing poor staffing and training situation. Schedule 2 part H of the Loan Agreement specified that IPD carry out a training program satisfactory to the Bank. Although the funds were fully utilized under this component the program as carried out was not satisfac- tory as evidenced by the shortage of skilled personnel and the drop in productivity of the general labor force. In retrospect it appears that the Bank should have strongly urged that a proper assessment involving a syste- matic a- lysis of the skill gaps be carried out in the early years of the Project. Cost 3.19 The actual project expenditures amounted to K34 million as against an appraisal estimate of K27.5 million. A significant overrun ir. the costs were recorded in the Plantation component, due to volume and price variations. Land clearing costs continued to rise during this period, the trial charcoal production program, which was intended to absorb some of the rising costs of land clearing, failed to yield any benefit owing to its delayed installation. The delay in installing the sawmill also resulted in having to incur higher than estimated costs. A further factor in the general rise in expenditure was the higher labor costs caused by a wage increase granted in 1981 for government employees. Saw Kill 3.20 The project included the construction and operation of a saw mill designed to produce 20000 i3 of sawnwood annually on a single or 40000 m3 on a double shift basis. she sawmill was installed only in the fourth year of the project, instead of the first year as proposed during appraisal, due to procurement delays. The site for the sawmill was changed from Chati to Kalibu, the future location of a pulp and board mill. After its installa- tion it became apparent that the saw mill package, as included in the project, did not adequately provide for all of its needed handling facili- ties, its complete electricity and water supply requirements, timber sorting and chipping sheds, fuel conveyor systems and waste disposal slabs and office buildings. It is now thought to be impossible to achieve the target production of 20000 m3 without rectifying these deficiencies. These have now been included in the financing of Phase III at a cost of about K0.6 million. Accounting Auditing and Progress Reporting 3.21 The Project had a consistently good record of producing timely financial statements and submitting audited accounts. Progress reporting too was generally satisfactory. The reporting format was changed once by the January 82 supervision mission to enlarge the scope of the report, IPD responded well to the format and continued its timely reporting. 3.22 The accounting systems are satisfactory in design and mainte- nance, with some exceptions noted by the auditors. These related to stock control, timber work in progress, and strengthening of internal control. The recommendations made by the auditors on the above matters were accepted by management. The accounts section functioned without a Financial - 12 - Controller for over a year until the projects senior accountant was appointed to the post. Considering the expanding nature of the business, some improvements to the system so as to enable IPD to produce integrated financial and cost data would have been beneficial to both vanagement and staff. Although the project had the services of a qualified cost accountant, only ad hoc cost data were produced these were mainly on stumpage and sawn timber production. The support staff situation in the accounts department remained poor with regular absenteeism and general lack of motivation. Owing to these reasons, the senior accounting staff were rarely able to devote time to any form of systems work other than the production of routine financial information. The Cost Accountant usually doubled as the paymaster for the Dola Hills mill and office, a pitiful waste of resources. Both he and the Senior Accountant frequently had to check the work of juniors in addition to their regular functions. With these constraints, it was creditable that the accounts were produced on time. Procurement 3.23 On balance IPD's procurement experience during the project period was satisfactory. Where delays were experienced they were due to IPD's unfamiliarity with Bank's guidelines on procurement. The very first ICB tender specifications submitted for approval by the Bank were too specific and were thought to limit international competitiveness, with the Bank's advice, IPD revised the specifications before the tender. In the subse- quent tenders, except for general delays, the Bank's refusal to either approve contracts or payments were limited to only a few instances. Once, the Bank had to advise IPD to reconsider a decision recommending a supplier who was not the cheapest, although IPD maintained that standardization was the reason for the recommendation, the Bank was unable to accept it. In their comments on the PCR the former management of IPD states that procuring from the cheapest source on the insistence of the Bank turned out to be unreliable and the equipment was more expensive to maintain. On another instance the Bank refused to disburse against the claim for freight costs because that portion of the shipment was carried in a non-member flag carrier. IV. Financial and Economic Re-evaluation 4.01 At appraisal, a financial rate of return (FRR) and an economic rate of return (ERR) were calculated for the Basic Project Model and a single saw mill model. The assumption for the Basic model were that the cost stream would include: the project sawmill, the cost of increasing the logging capacity to 120,000 m3, cost of wood produced under the Phase I project which are ready to be logged and processed, Phase II plantation cnsts and cost of logging and sawmilling of the Phase II wood including the provision of additional capacity. The returns had been calculated for both with and without the cost of the Pulp and paper mill. 4.02 For comparability, the present analysis makes the same assump- tions except that the Pulp and Paper Mill was excluded because the proposal for the mill had not materialized and therefore no up-to-date information is available for it. As compared with the appraisal FRR of 11% (without - 13 - the pulp and paper mill) the present estimate is 8%. This was primarily due to higher than estimated cost of project, the adverse effects on the Project of the country's generally poor economic conditions and the delayed start of the saw mill with the consequent loss of revenue. These factors were not offset by the higher prices which IPD charged. 4.03 The assumptions for the Single Sawmill Model were as follows: an effective life of 15 years for the sawmill, wood planted prior to Phase I charged at import parity cost. At appraisal, a financial rate of return of 11% was estimated on a two shift basis. The present estimate is 9%. The lower estimate is due to the higher than estimated cost for the sawmill (Para. 3.20) which was not offset by the increased prices charged by IPD for its product. A further factor is the non-feasibility of running two shifts, contrary to the expectation Pt appraisal. To maintain a two shift operation a strict program of equipment maintenance and a highly organized logging and transport system are required, a two shift operation carriedout badly could increase the unit cost of production significantly. 4.04 At appraisal, the following assumptions had been made for the economic analysis (a) shadow wage rate for local unskilled labor at 60% of actual; (b) the project's imported inputs valued at 12% higher than the official rate of exchange; (c) sawawood prices to reflect border prices. On similar assumptions the project is now expected to have an ERR of 15% compared to the 20% at appraisal. Using the recommended conversion factors and by applying the recommended shadow wage rate the estimated ERR still remains close to 15%. V. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT 5.01 As a condition of further involvement with Zambia's industrial forestry program, the Bank insisted that the Government follow a coordi- nated approach to forestry and forest industries matters. A framework for such an approach was laid when the Government decided to make MLNR responsible for all activities in forestry and forest indistries with the exception of the pulp and paper mill which was to remain with INDECO. However, further institutional shifts that the Bank would have liked to see adopted during the Phase II did not materialize. The major institutional drawback of IPD was its continuing status as a division of the FD despite an agreement that it would be incorporated into a commercial company in the first year of the project. The incorporation did not take place till three years later. The delay affected many aspects of the project adversely some more than others, these are staffing, training and general management. 5.02 All of IPD's shortcomings regarding staffing matters could not be attributed wholly to the incorporation issue since there were inherent deficiencies in the structure of staffing which even a timely incorporation would not have remedied. For instance at appraisal five out of the seven key managerial positions were occupied by expatriates funded under bilateral aid. These arrangements are not always favorable to the recipients since the determination of how, when and who are to fill such posts are generally dependent on the respective aid programs. There were at least two ways in which IPD was adversely affected; firstly, there were long periods when it could not obtain quick replacements for the expatriate - 14 - staff terminating their contracts and secondly certain staff that IPD received were not of the highest caliber. Regardless of its corporate status at the time, IPD should have, pursued an aggressive policy in having the positions filled through the intervention of government. To some extent thp issue appears to be one of poor management rather than that of a change in the coporate status. However, in the case of recruitment of key staff locally IPD was constrained by the civil service rules to which it was subjected to in the absence of the incorporation. A case in point was the appointment of a marketing manager by the Public Service Commission without consultation with IPD. The candidate was found unsuitable and later had to X removed. In training too IPD continued to have difficul- ties owing to institutional and design shortcomings (para. 3.17). 5.03 During Phase II IPD management was under continuous stress, it functioned as a weak centralized management system with even weaker peripheral support. Since several of its key operating divisions of engineering, production and marketing were not fully staffed, there could be no proper delegation of responsibility to the operating divisions. 5.04 IPD management's poor performance was also evident from the decline in labor productivity and machine utilization during the project. No consideration had been given to long range planning or manpower develop- ment planning during appraisal nor were these suggested during the early supervisions. On-the-job training was briefly discussed during SAR preparation but was not formulated into a monitorable program in the SAR or during subsequent supervisions. During te later supervisions when these shortcomings became obvious it was decided that they would be dealt with in the Phase III design (para. 1.10). VI. CONCLUSIONS 6.01 The project in overall terms had been implemented satisfactorily, the plantation component for which over 80% of the financing was provided exceeded its physical targets. One of the main considerations for the Bank to continue to be involved with the government's long-term forest and forest industries program was the need to ensure that there existed a coordinated approach in Zambia in the development of her forest industries. This focus was achieved during the preparatory stage of this project when MLNR was made responsible for all activities connected with industrial forestry with the exception of the pulp and paper mill. There were other institutional developments within the project which the Bank would have liked to see occur, mainly the change in the status of IPD, but these changes did not take place as expected. However the implementation experience of the Phase II project offers some useful lessons mainly in the areas of appraisal planning, cofinancing arrangements, project costing, management information and supervision, these could be beneficial to both the Bank and ZAFFICO in the implementation of the Phase III project. 6.02 The negative impact of the time gap between the two phases adversely affected the continuing operations of Phase I as well as the early performance of Phase II. The lesson to be learned is that prepara- tion of follow up projects and assurance of timely appraisal are key areas in which the Banks own performance could be improve. - 15 - 6.03 The project was cofinanced with CDC, but at the time of appraisal CDC had only agreed in principle to finance 18% of the cost of the project. Little else is mentioned about CDC's participation during the supervision stage although a CDC staff member accompanied the Bank's supervision mission on two occasions. Financing being crucial to the capital needs of an enterprise such as the IPD, sources of financing should not have been left tentative. The point that can be gleaned from this experience is that the financing plan has to be formulated in the clearest possible terms. There should also be much closer cooperation and the sharing of information between the cofinanciers on a continuing basis. 6.04 A prerequisite for a firm financing plan, particularly for an ongoing project, would be the existence of a properly costed and quantified program which takes into account all the activities of the project entity. The project is usually identified within this overall program. If this approach had been adopted in Phase II, it would not only have provided the opportunity to systematically assess the financial needs of every operation of the enterprise but in the process would have given sufficient focus to the staffing, training, and management requirements of IPD. 6.05 IPD management did not appear to have been sensitive to the productivity of its equipment and labor (para. 3.12), it failed to monitor the effectivenees of these resources, keep the equipment in good repair and see that the productivity of labor is not allowed to decline. The project had failed to maintain an effective management information system (MIS) which would monitor and measure among other matters labor and machine productivity. Phase III on the other hand has included provision for improving the management information system in ZAEFICO. 6.07 On average, Phase II supervisiors have been carried out every eight months, the space be.ween the earlier missions were even longer. More frequent supervisions, particularly during the early period of the project, should have been carried ot-. Many of the technical aspects of forestry had been well covered durinr these supervisions, however, in the case of fire protection stronger Bank action should tave been taken to ensure that the fire protection measures were enforced in a timely manner. Institu- tional and financial management matters of the project on the other hand received less attention until the later missions. Progress reporting was generally well done although a system of MIS would have served both the IPD management's decision making and Bank's monitoring of key performance indicators well. 6.08 The key to the success of a modern timber industry is the presence of qualified management in positions of authority. Other than the expatriate staff of IPD (now its successor ZAFFICO) alnost all of the staff are civil servants with little experience in private sector operations. Their tendency would be to manage the organization as a department of the government, even with a change in the corporate status of the enterprise this situation would present a continuing problem unless a marked reorien- tation of the top management is achieved. The third phase has already provided ZAFFICO with systems enhancements and corporate planning capability to be used as tools for efficient management, these enhancements are not without costs and will have to be recovered from increased revenue, the efficacy of such improved techniques finally depend on how best they - 16 - are used by management. These aspects have to be carefully monitored during the early stages of the Phase III project not only to see that the systems are in place but more importantly to see that they produce the desired results. Z^H~~~~~~~~ I ZAHN [A IIOUSTRIAI. FORESTBY PLANTATION PROJECT 11 Project Completlon Report Achievement of Physical Targeate SAN Targnt Actual Wfhole Project Year I Yer 2 Year Tear 4 Year S Total 2ParAtionm S Years Average 197H9179 IITi 1971 an1/82 1 7 Yr l-S 1. New Planted Area (Ha) (a) Pine 15.0, I0w3 3,061 1,069 3,578 4,615 2,289 13.612 (h) Eucalyptus 2,500 SW0 .495 691 594 i18 1.204 3,167 Total 11,500 3,500 1,5S6 3,753 4,172 4,796 3.493 19,779 2. opliuiti a (Ila) 2,000 400 256 - -- 211 299 744 1. Road Constructton (1Km) (a) Access Roads 175 35 II IS 22 47 IS 130 (b) Logging Roads 52 10 - -- _61 14 7S (e) Compartwmnt Roads 542 114 Is 20 21 - - - (d) Fire Protection Roads 281 56 -- -- -- - - 4. Road Maintenance (Ku) I/ (a) -lrebreak Roads. 2,137 54'7 -- -- -- +98 440 S13 (h) Access Roads 595 119 _ _ __- - (c) LoNging Rustle 402 8 0 - (d) Compartoenit Roads 1.295 259 -- -- 33 '1 5. lirvesting and Logging (000 1I) (a) Peliling (inc iding thinning) 600 120 83 130 133 III 172 630 (b) Extraction 600 120 71 96 110 79 71 433 (c) Transportation 600 120 70 79 97 39 62 397 6. liouin (Unit) Ji) Low 1bn.ity 12 2/3 1 -- - 3 I S (h) lZediuu.D.rnalty I5 3 2 2 4 - - (c) 3li3i. penalty 350 70 9 68 139 30 28 191 (d) Ablution hlock. 39 I/7 2 -- - - - 2 I/ Records for these activitlee have leen poorly mnintained, where data are available firebreake and compartmmt roads have been mixed up. - 18 - Table 2 ZAMBIA INDUSTRIAL FORESTRY PLANTATIONS II (Loan 1424-ZA) Project Completion Report Fire Occurrences and Damage 1978-1982 Total Number Area Area Loss in Year of Fires Affected Killed Value 1978 54 707 132 50,151 1979 68 - 1,459 294 125,Z() 1980 59 782 280 101,121 1981 51 1,254 155 97,855 1982 55 2,051 460 125,832 Total 287 6,244 1,331 500,168 _~ Table 3 - 19 - ZAMBI Industrial Forestry Project Phase II (Ln 1424-ZA) Project Completion Report (A) Project's Actual Cout Local Foreign Total Local Foreign Total - '000 ---K I'000------ ----us '000--- Plantation 18,595 11,304 29,899 22,128 13,452 35,580 Logging & Transport 586 539 1,125 697 641 1,338 Savailling 1,274 1,575 2,849 1,516 1,874 3,390 Staff Training 19 125 144 23 149 172 Studies Trials - 24 24 - 29 29 Total 20,474 13,567 34,041 24,364 16,145 40,509 (B) Cost Estimates at Appraisal Local Foreign Total Local Foreign Total - -K '000--- --- --------US$ '000-… Plantation 8,600 6,300 14,900 10,700 7,900 18,600 Logging & Transport 100 1,100 1,200 100 1,400 1,500 Saumilling 700 1,500 2,200 900 2,000 2,900 Staff Training 20 80 . 100 30 100 . 130 Studies, Trials 200 100 300 270 100 370 Physical Contingencies 1,000 900 1,900 1,200 1,200 2,400 Price Contingencies 3,600 3,300 6,900 4,500 4,100 8,600 Total 14,220 13,280 27,500 17,700 16,800 34,500 .~ m. - 20 - Table 4 ZAMB IA INDUSTRIAL FORESTRY PLANTATIONS II (Loan 1424-ZA) Project Completion Report Schedule of Disbursements (USS '000) Actual Appraisal Estimate Actual As 2 FY Quarter Cumulative Quarter Cumulative of Estimate 1978/79 September 1,134 1,134 781 781 68 December 1,134 2,268 71 852 38 March 1,144 3,412 284 1,136 33 June 1,145 4,557 340 1,476 32 1979/80 September 598 5,155 6 1,482 29 December 599 5,754 2,572 4,054 70 March 598 6,352 1,&i'3 5,517 87 June 599 6,951 974 6,491 93 1980/81 September 756 7,707 526 7,017 91 December 756 8,463 1,267 8,284 98 March 766 9,229 985 9,264 100 June 767 9,996 831 10,100 101 1981/82 September 766 10,762 95 10,195 95 December 767 11,529 330 10,525 91 March 766 12,295 752 11,277 92 June 767 13,062 2,094 13,371 102 1982/83 September 934 13,996 470 13,841 99 December 935 14,931 563 14,404 96 March , 934 15,865 - 14,404 91 June 935 16,800 497 14,901 89 1983/84 September - - 913 15,814 94 December - - 242 16,056 94 Xarch - - 667 16,723 99 -21 - Table S ZAMBTA Industrial Forestry Project Phase 1I (Lu 1424-ZA) Project Comiletion Report Project's Financial Rate of Return of Project (K '000) Year Cost Benefit Net Benefit 1 5,724 300 -5,424 2 7,637 570 -7,067 3 10,213 1,110 -9,103 4 9,610 870 -8,740 5 6,809 60 -6,749 6 1,110 300 -800 7 1,552 1,768 216 8 2,088 2,652 564 9 3,480 4,420 Q40 10 4,980 4,420 560 11 6,710 12,943 6,233 12 12,730 16,334 3,604 13 11,347 19,099 7,752 14 22,068 32,678 10,610 15 14,905 23,420 8,515 16 16,545 25,897 9,252 17 13,490 21,554 8,064 18 6,691 12,918 6,227 19 7,456 13,890 6,434 20 7,47. 13,915 6,439 21 5,236 15,490 10,254 22 11,242 14,278 3,036 23 5,726 7,082 1,356 24 2,500 3,366 866 25 32,743 41,854 9,111 26 32,319 41,278 8,958 27 35,094 44,643 9,549 28 50,171 64,186 14,015 29 21,865 27,772 5,907 FRR - 8Z - 22 - Table 6 ZAMBIA Industrial Forestry Project Phase II (Ln 1424-ZA) Project Completion Report Project's Economic Rate of Return Year Cost Benefit Net Benefit 1 5,037 360 -4,677 2 6,721 684 -6,037 3 8,987 1,332 -7,655 4 8,457 1,044 -7,413 5 5,991 72 -5,919 6 968 360 -608 7 1,366 2,121 755 8 1,837 3,182 1,345 9 3,062 5,304 Z,242 10 4,142 5,304 1,162 11 5,905 15,532 9,627 12 11,203 19,601 8,398 13 9,985 22,919 12,933 14 19,420 39,213 19,793 15 13,116 28,104 14,988 16 14,559 31,077 16,517 17 11,871 25,865 13,994 18 5,889 15,502 9,614 19 6,562 16,669 10,107 20 6,579 16,698 10,119 21 4,608 18,588 13,980 22 9,893 17,134 7,241 23 5,039 8,498 3,459 24 2,200 4,039 1,839 25 28,814 50,225 21,411 26 28,441 49,533 21,902 27 30,882 53,571 22,689 28 44,150 77,024 32,873 29 19,242 33,326 14,084 ERR - 15% - 23 - Table 7 ZAMBIA Industrial Forestry Prolect Phase IT (La 1424-ZA) Project Completion Report Financial Rate of Return for Single Saw Kill (K. wuilion) Year Cost Benefit 2/ Net Benefit -1 2.90 -- (2.90) 2 2.12 1/ 1.62 (0.50) 3. 2.15 2.42 0.27 4 3.58 4.04 0.46 5 3.58 4.04 0.46 6 3.58 4.04 0.46 7 3.58 4.04 0.46 8 3.58 4.04 0.46 9 3.58 4.04 0.46 10 3.58 4.04 0.46 11 3.58 4.04 0.46 12 3.58 4.04 0.46 13 3.58 4.04 0.46 14 3.58 4.04 0.46 15 3.58 4.04 0.46 16 3.58 4.54 0.96 PRR - 92 1/ Includes required rehabilitation K0.6 million to reach capacitv 2/ Single shift operation of 20,000 m3 per year. -24 - Table 8 ZAMBIA Industrial Forestry Project Phase II (Ln 1424-ZA) Project Completion Report Adjusted Project Costs at 1982 Prices ZK '000 Total Foreigul/ Adjusted Local Adjusted AdJ~.tsted Project Foreign Infla. 1982 Local Infla. 1982 1982 Cost Cost Factor For. Cost Cost Factor Loc. Cost Total Cost 1978 3,569 1,719 1.35 2,320 1850 1.84 3,404 5,724 1979 5,254 2,511 1.13 2,837 2,743 1.75 4,800 7,637 1980 8,427 4,168 1.03 4,293 4,259 1.39 5,920 10,213 1981 10,356 2,081 -1.07 1,935 8,275 1.29 10,675 12,610 1982 6,435 3,088 -1.02 3,027 3,347 1.L2 3,782 6,809 Total 34,041 13,567 14,412 20,474 28,581 42,993 1/ Obtained from Unit Value Index of Hanufactured Exports Ahms 1 -25 - Paw 1 ZAMBIA FINEETRT AlD FOIEST IIDUSTlRES CIRPOKATISE LIMITED HEAD OFFICE P.O. OX 71 U NDOLA PHONE 3224/5 46 TELEX ZA30000 Your Ref. ...... ....... ... ....._.D. I.41C/499 Our Ref........... .... .............. 4th June, 1985 Mr. Y. Watanabe, Director, Operations Evaluation Department, The World Bank, 1818 H Street, N.W., Washington DC 20433, U.S.A. Dear Sir, Industrial Forestry Project Phase II (Loan 1424-ZA) Project Completion Report (Draft) Thank you for your letter of 16th April, 1985 in which you enclose the Draft Completion Report for our comments. The report is a fair reflection of what happened and the successes and failures of Phase II project are clearly highlighted. The project on the whole as indicated was a success. The main cause of the design short coming highlighted in the summary is that there was no project preparation for phase II and the economic realities of the country were not taken into account. Governments contribution to the project was taken for granted as in Phase I without due consideration to Governments own ability to support the project from its normal budget. This support was not as forthcoming as in the Phase I Project. Industrial Plantations operations were fragmented, and this created problems not only for the supervision missions but also for project staff. The other problem was the lack of co-ordination among the financing institutions i.e. CDC and IBRD. 2/... A Member of ZIMCO -26- _Ams I III IMPLEMENTATION 3.02. The agreement with Government specifically provided for adequate budgetory allocation to be made annually from 1978 to 1982. There was no mechanism of ensuring this was done. As a result only for two years did the project have adequate funding. 3.08. Weeding The reduction in weeding intensity at the beginning of the Project was a result of shortage of equipment and late land preparation which resulted in the planted areas being cleaner than expected. The fire hazard aspects was known and in those areas that required special attention this was given. The average weeding in the 1st two years is around 70%. Thelowest is year 4 with about 50%. 3.09. Pruning and Thinning The non-availability of a market for the small wood from 1st thinnings made management delay the thinnings in the hope that a market will be available by 1981/82. This did not happen and now the backlog is a lot more than anticipated. It is now expected that parts of the Plantation will be menaged for specific end-uses. Thus some of the older unthinned areas may be turned into pulpwood areas and others that are younger and can be thinned will be managed for sawlog output. 3.10. Fire Protection The fire protection methods that were adopted were adequate if all the necessary equipment had been available. There were inadequate firefighting vehicles, the communication system was poor although a new system was designed it could not be totally installed because of funding problems. The high incidence of fires can only be appreciated if the causes of these fires are looked at. Of the 297 fires reported during the fire years 175 of them or 59% are attributed to incendiarism, hunters, and thieves accounted for 56 or 19%. Own workers caused 25 -fires or 8%. :deallythere should be no reason why our own workers should start these fires. The fires started by our workers fall into two categories as follows 3/... -27 An- hI Pap 3 a) Fires started as a result of cooking fires left unattended after lunch in the field. These constitute the majority and do very little damage because of the early attack on them. b) Fires resulting from poor cont-rol Of boundery or early burning. During the period there were three of these fires. So it is not true to say many of the were started owing to badly supervised controlled burning. The disciplinery mechanism for dealing with the situation was not available. This has now been rectified and there is a lot more accountability on the part of the fire officers and the plantation superintendents. Although adequate rinancing for fire-tighting was provided under the project, there was disagreement between the Bank and Project Management on the type Of equipment to be procured. By the time there was agreement some of the equipment procured did not stand up to expectation. It is only hoped that both the Bank and the project management have learnt some lesson from this. The main remedial measure is to have adequate equipment available when required. Logging and Transport 3.12. The record keeping in the logging section has been improved. It would appear the Bank mission did not listen to the practical field explanation on the differences between the volume felled extracted and transported. The volume felled shows the total tree volume. At extraction there is an automatic loss of volume through loss of tops and because extraction is normally behind the volume extracted will be lower and there will still be some wood in the forest awaiting extraction. The same goes for transport. There is no physical loss in volume other than by way of tops. The differences in volumes is due to different capacities for each of the operations. The drop in output in machinery is reflection of poor availability of the equipment which was also due to For maintenance. Although -the Operators and Workers had gone through the Workers' Training Centre, there was no follow up to see that the Workers performed their work properly as per instruction. This is now 4/... - 28- Annex being corrected by the recruitment of a Training Specialist. Training Having been part of the Forest Department all the training were handled by the Department. However it was realized by the project management that this was not satisfactory and the organization took on all training not directly related to Forestry. As far back as the Phase I period the organization made a start at sponsoring students to take up automotive, mechanical and electrical engineering at the Northern Technical College. Because of poor salaries on completion the students even though bonded left for y greener pastures who were prepared to reimburse IPD the expense on each of the people concerned. The financing of training through loan funds was not favourably looked upon by Government at the beginning of the Phase II project hence the meagre allocation. This position has since changed. Accounting 3.22. The level and calibre of supporting staff in the accounts office remained poor for the project period but we are not aware of the regular absenteeism being referred to. Procurement 3.23. The refusal by the Bank to accept managements reasons for choosing a supplier who was not the cheap- est led not only to delays in procurement but when the equipment that was cheapest was bought it turned out to be unreliable and more expensive to maintain. From this the lesson to be learnt is that the procurement of equipment should not be based on price as the major factor as the Bank had insisted. We hope the above comments will be of some assistance in the preparation of the final report. Yours sincerely, ZAFFICO LIMITED., F. B. Nduna Managing Director FBN:jcn. 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