Document of

The World Bank Cli, py

FOR OFFICIAL USE ONLY

Report No. 3448-CM

STAFF APPRAISAL REPORT

CAMEROON

FORESTRY PROJECT

December 22, 1981

Western Africa RegionAgriculture 2

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Currency Equivalents

A^ US$1 = CFAF 270CFAF 1,000 = US$3.70

r

Weights and Measures

1 hectare (ha) 2.47 acres1 kilometer (km) = 0.624 miles1 kilogram (kg) = 2.205 lbs.1 litre (1) = 1.057 US quarts

Abbreviations

CDC : Commonwealth Development CorporationCellucam : Societe Cellulose du Cameroun S.A.CTFT : Centre Technique Forestier TropicalDEFC : Direction des Eaux et Forets et des ChassesFNFP : Fonds National Forestier et PiscicoleIRA : Institut de Recherche AgronomiqueMINAGRI : Ministere d'AgricultureSEMRY : Societe d'Expansion et de Modernisation de la

Riziculture de YagouaSNI : Societe Nationale d'Investissement

Fiscal Years

FNFP: January 1 - December 31Government: July 1 - June 30

FiO O CICAIL USE ONLY

CAMEROON

FORESTRY PROJECT

Staff Appraisal Report

Table of Contents

Page No.

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

A. Background ............................................. 1B. The Forestry Sector and the Economy. 1

(a) Contribution to the Economy. 1(b) Forest Resources and Industries. 2(c) Financing the Sector. 4(d) Institutions and Training.. 5(e) Objectives, Strategies and Policies. 7(f) Bank and other External Involvement ............... 7

II. THE PROJECT AREA. 8

III. THE PROJECT. 9

A. Objectives .. 9B. Detailed Features .. 10

(a) Edea Plantation .10(b) SEMRY Plantation .12(c) Ngaoundere Plantation .12(d) Tree Seed Production Unit. 13(e) Strengthening FNFP .14(f) Strengthening DEFC .14(g) Studies and Preparation of Possible

Follow-up Project. 14

IV. ORGANIZATION AND MANAGEMENT . . .14

A. General .. 14B. Plantation Arrangements .. 15C. Strengthening FNFP .. 16D. Strengthening DEFC .. 17E. Training .. 17F. Monitoring and Evaluation .. 18G. Seed Production and Liaison with Research . .18

This document has a restricted distribution and may be used by recipients only in the performance oftheir officia] duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (Cont'd)

Page No,

V. COSTS AND FINANCIAL ARRANGEMENTS ..... ....................... 19A. Project Cost Estimates .............. .. ................. 19B. Proposed Financing .................. ................... 21C. Onlending Arrangements .. 21D. Procurement .. 23E. Disbursement.. 23

VI. PRODUCTION, MARKETS AND FINANCIAL RESULTS . . ................. 25A. Production .. 25B. Markets and Marketing Arrangements . .26C. Financial Results .. 27

VII. BENEFITS, ECONOMIC JUSTIFICATION AND RISKS . .29A. Benefits ... 29B. Economic Justification . . 30

(a) Economic Analysis and Rate of Return . .30(b) Sensitivity. 32

C. Risks ... 32

VIII. ASSURANCES AND CONDITIONS .33

ANNEXES

Tables

Table 1: Estimated Schedule of DisbursementsTable 2: Illustrative Government Cash Flow

Edea Plantation, Silviculture Unit Organigram

Table of Contents: Project File

MAP IBRD 15692 - Cameroon, Forestry Project Zones

I. INTRODUCTION

A. Background

1.01 The Government of Cameroon has requested Bank assistance in financinga five-year forestry project in the South Central and Northern Provinces, atan estimated cost of US$35.5 million. The project would include three planta-tion components, an improved tree seed production unit, technical assistancefor Fonds National Forestier et Piscicole (FNFP) which is responsible forGovernnent s reforestation programs, and logistical and technical support forDirection des Eaux et Forets et des Chasses (DEPC) which is responsible fortax assessment and collection from the forestry sector. The project would bethe first Bank assisted project devoted entirely to the forestry sector inCameroon.

1.02 The project was identified by an FAO/World Bank Cooperative Programsector mission in February/March 1979, with a follow-up identification missionin November 1979. The project was prepared by a mission from the CooperativeProgramme which visited Cameroon in May/June 1980. This report is basedon the findings of a Bank appraisal mission comprising Messrs. John Russell,Robert Fishwick, Robert Crown and Christopher Ward which visited Cameroon inJanuary/February 1981. Messrs. Sean Magee and Frank Dorward (CDC) partici-pated in the appraisal of the Edea Plantation Component.

B. The Forestry Sector and the Economy

(a) Contribution to the Economy

1.03 The United Republic of Cameroon extends northward from the Gulfof Guinea 1,200 km to Lake Chad. Covering 475,000 km2, the country embracesa wide range of climatic conditions, from Sahelian in the extreme north totropical rain forest in the south. This permits a well diversified agricul-tural sector and there is presently near self sufficiency in food production.Of this area about 33 million ha are forested. Although the country'sreserves of petroleum and bauxite are to be increasingly exploited, industrialdevelopment is still largely based on agriculture and forestry and involvesdomestic processing of primary commodities, such as cocoa and palm kernels,and the conversion of logs into lumber, veneer, plywood and wood pulp. Foodprocessing industries account for 45% of total industrial turnover. On theother hand, in spite of the size of the forestry resource base, and of thefact that cutting licenses have been issued for 7.7 million ha, in 1977/78,value added in the sector was estimated to be only 8% of agricultural netoutput and 4% of GDP.

1.04 Cameroonian infrastructure investments have included improvement ofthe road network, particularly rural roads critical for the movement ofagricultural produce, modernization of the Trans-Camerounais railway system,

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expansion of port facilities at Douala and plans for crea-ion of a new port atRocher du Loup between Kribi and Campo. These would facilitate the movementof large bulk commodities like forestry products which for the present arestrongly oriented towards export in raw form. On the other hand, developmentof transportation facilities in the south east, which contains many of thecountry-s richest forests, has lagged.

1.05 The population, estimated at 8.3 million in 1979, is currentlygrowing at about 2.3% per year, and over 40% is under 15 years of age. Ofthe adult population of 5.0 million, 74% or 3.7 million, are engaged in therural sector and about 25% are in urban employment. Population densityvaries widely between regions. It is highest in the Western Province andin parts of the Northern Province, where it reaches 200 or more per km2,and lowest in the Eastern Province (3 per km2). Forecasts to the year 2000project a population of 16 million, with almost 50 percent living in towns.This growth will create a considerable demand for building materials and forfuelwood, particularly in areas of rural population concentration where accessto other energy sources is limited and costly.

1.06 The GNP, currently estimated at US$4.4 billion, represents a percapita income .of US$518. GNP grew at about 4.5% per year between 1970-75 and7.1% per year 1975-80. Per capita incomes grew at about half these rates.During 1980/81, however, GNP grew by only 3.5%. The drop is due to a declinein export commodity prices, notably for coffee and cocoa, and to a slowdown ininvestment. The inflation rate, which averaged 6.2% during 1969-73, rose to11.8% during 1974-78 and is now about 12%. Government set itself the objec-tive of re-establishing a 6% growth rate under the Fourth National Plan(1976/77-1980/81) and increased the investment budget during the period froman originally planned CFAF 685 billion (US$2.5 billion) to CFAF 930 billion(US$3.4 billion). During the first four Plan periods only about 14% ofrealized investments (Government and private) have been for agriculture andrural development. However, the proportion has risen to about 16% recently,and the allocation for agriculture is expected to rise still further in theFifth Plan, currently being prepared.

(b) Forest Resources and Industries

1.07 The total forest area of Cameroon is estimated at 33 million ha ortwo thirds of the country. Of this, 18 million ha are dense forest, and 15million ha are savanna and riverain. However, knowledge of the quality andexploitable volumes present in these forests is very limited as only 700,000ha have been inventoried. An inventory of 176,000 ha carried out by the FAOin the Deng-Deng forest indicated that the commercially exploitable volumesmight run as high as 160 m3/ha, and surveys of the wet tropical high forestaround Edea and experience during the st-art-up of the Cellucam mill showedthat the volume usable for the pulp project is about 190 m3/ha. But thediversity of the forest makes small samples unreliable indicators, and currentlogging operations on average harvest only about 10 m3/ha.

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1.08 In 1978/79 an area of 7.7 million ha was licensed for exploitationby some 100 concessionaires working in some 200 concessions concentrated inthe three provinces: Centre-South (3.3 million ha), East (2.8 million ha) andLittoral (1.0 million ha); the remaining 0.6 million ha are in concessions inthe West and Southwest provinces. About half of the concessions were under50,000 ha, which are smaller than average in West Africa, and about 10% of theconcessions were between 200,000 and 250,000 ha which are considered large.About 10% of the forestry enterprises were mixed or Government enterprises.Despite government policy encouraging local participation, 70% of the conces-sion areas are licensed to foreign companies. Production of logs in 1978/79was 1.6 million m3, a substantial increase over the 1.3 million m3 of theprevious year. An annual production of 2 million m3 could be achieved withlittle or no new investment by the industry.

1.09 There is a high degree of vertical integration between logging,processing and marketing, an arrangement promoted by government legislationrequiring holders of cutting licenses for more than 10,000 ha to carry outsome primary processing. Some 75 mills produced about 250,000 m3 ofsawnwood in 1977/78, of which 75,000 m3 was exported. There are two veneerfactories in Cameroon currently operating and a further two are under con-struction. Veneer production in 1977/78 was 40,000 m3, 90% for export.Particle board and plywood production of 30,000 m3 was mainly for thedomestic market.

1.10 In line with government policy for increasing domestic value addedin the sector and with a view to eventually supplying the domestic marketwith paper products, a pulp mill was opened at Edea (Map, IBRD 15692) in1980 by Societe Cellulose du Cameroun SA (Cellucam). Cellucam is a mixedenterprise in which the Cameroon government, through its Societe Nationaled'Investissement (SNI) and 4 smaller agencies is the majority shareholder(67% of equity). The other share-holders include the Banque Islamique deDeveloppement (12%), Voest-Alpine (6%), Societe Luxembourgeoise de Financementpour l'Afrique (5%), Societe Europeenne d'Investissement Industriel en Afrique(3%), and two private individuals (7%). Voest-Alpine (Austria) installed theplant and is providing technical assistance in its operations. SvenskaCellulosa AB, Sweden's largest pulp and paper manufacturer is providingmarketing outlets. The mill has a capacity of producing 122,000 tons ofbleached sulphate pulp per annum, and production is presently based on anatural hardwood concession of 160,000 ha to the north of Edea containingabout 100,000 ha of harvestable forest. Technical aspects of logging andpulping operations have been of high calibre and the plant produced its firstbleached pulp in January 1981. This output has been of acceptable quality inworld markets for short-fibre pulp, and it is likely that Cellucam will beginshowing an operating surplus in 1983 when it reaches 100% of effective capac-ity. However, in spite of its technical strengths and good quality produc-tion, Cellucam has been faced with financing difficulties. Rising costsincreased the level of investment from about US$165 million to US$350 millionby late 1980, the increase being financed through short term supplier andcommercial bank credit. As repayment of these credits will fall due during

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the next five years, Cellucam has recently negotiated refinancing arrangementswith stock-holders and commercial banks. Cellucam's participation in theproposed project would be governed by an execution contract, a draft of whichwas discussed at negotiations (para 4.02).

1.11 When project plantings reach maturity, Cellucam would purchase thewood produced. This would offer Cellucam several advantages over the continuedpulping of mixed tropical hardwoods which would include having a supply ofwood of uniform density and sizes, standing within reasonable distances froiathe mill, growing in regular patterns. With such plantations, the cost ofharvesting and transporting wood to the mill could be reduced by about 33% S

relative to costs of harvesting the natural forest, and processing costs perton of pulp would be reduced by about 20% as a result of lower processing timeand chemical requirements. In addition, the proposed plantations wouldproduce pine which is not found naturally in the tropical forest and which i'sa source of long-fibre pulp. Long-fibre pulp is essential for paper productionand is sold in world markets at an 8% premium over short-fibre pulp such asthat which Cellucam currently produces. Therefore, the policy of Cellucam'seventually using plantation grown wood instead of natural forest wouldincrease domestic value added, and would be consistent with Government'ssectoral strategy (para 1.19).

(c) Financing the Sector

1.12 In general, funding for forest enterprises has been readily avail-able in the private sector and to date, exploitation has been dominated byforeign companies. The SNI has, however, made equity investments in a numberof wood processing companies in addition to its investment in Cellucam.Projected investment in forestry during the five-year plan, 1976/77-1980/81,was CFAF 21.7 billion (US$80 million), of which 80% was provided by theprivate sector. Government's contribution was mainly for reforestation andenrichment plantation executed by FNFP.

1.13 Revenues are recovered from the forestry sector by Governmentthrough: (i) two annual taxes assessed on concessionaires to support localGovernment (redevence communale) and reforestation (redevence de reforesta-tion); (ii) a licencing fee for issuance or renewal of concessions (chargescodifiees); and (iii) royalties charged per m3 of wood either exported, orprocessed further within the country. Of these taxes, 100% of the reforesta-tion taxes and licencing fees and 55% of the royalties charged on cut wood areearmarked by law to support Government's reforestation effort. However, whilethe size of the forestry industry--in terms of the number of concessionnairesand hectarage in concessions--has remained relatively constant since 1977,and the volume of wood processed and exported has increased, taxes and royal-ties collected from the sector have declined. This has been due to poorassessment of royalties on wood being cut which has left as much as half ofthe harvest unrecorded for tax purposes, and poor administration of annualand five-year tax and licencing regulations. As a result, by June 30, 1980,about CFAF 1.5 billion (US$5.6 million) of the assessed taxes and royaltieswere unpaid. This is an amount approximately equal to the revenue actually

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collected in 1979/80, and is about double the arrears as of June 30, 1978.Moreover, over 64% of the outstanding amount was owed by the one-third ofconcessionaires with concessions in excess of 100,000 ha. This situationarose since legal sanctions open to Government to collect arrears were notvigorously pursued. Moreover, lack of material and financial resourcesfor tax and royalties assessment and collection efforts, and cumbersomeadministrative procedures also reduced the effectiveness of the responsibleagencies. Since April 1981, however, Government has made a determined effortto recover arrears and by the time of negotiations, had recovered about CFAF500 million (US$1.9 million). Moreover, government is in the process ofestablishing new administrative procedures and lines of authority which wouldprevent the recurrence of such a state of arrears. During negotiationsGovernnent agreed to take all necessary actions to collect by December 31,1982 the remaining taxes and royalties that were overdue as of July 31, 1980.They further agreed to ensure that in future appropriate actions would beundertaken so that forestry taxes and royalties would be properly assessed andcollected within 12 months of their respective assessment. Financing would bemade available to a strengthen the Direction des Eaux et Forets et des Chasses(DEFC) logistically and materially (para 3.13). Covernment would employconsultant specialists if necessary to further strengthen the application ofthe new procedures, and to continue to employ a senior DEFC officers soleyresponsible for the assessment and collection of forestry taxes and royaltiesin each of the five provinces where major forestry exploration occurs.

(d) Institutions and Training

1.14 The Ministry of Agriculture (MINAGRI) is responsible for all policyformulation and surveillance of the forestry sector. It exercises its respon-sibilities through two agencies: (i) DEFC which is a governmental departmentis responsible for sector planning--including overall direction of replanta-tion programs, for management of state forests and for supervision of allforestry exploitation. Although DEFC is charged with assessment and collec-tion of sectoral taxes and royalties, it depends on annual government budgetallocations to fund its recurrent costs, and on FNFP to fund its investmentbudget. This leaves DEFC chronically short of operating funds and with littlescope for improving its material support. It has a staff of 880. The head-quarters in Yaounde comprises three services: Studies and Programs (dealingwith planning and statistics), Production and Forest Industries (maintainingday to day supervision of production and assessing and collecting taxes androyalties) and Wildlife and Environment. Considering its overall responsi-bilities, DEFC headquarters is insufficiently equipped and housed, whichaccounts in part for its lack of fiscal control of the sector. DEFC is beinggiven appropriate authority to assess penalties for late payment of taxes androyalties. DEFC is represented in each province. The lowest echelon inthe structure is the Poste Forestier, manned by a technical agent with oneyear's training, being responsible for measuring and marking logs leaving theconcessions. Normally, there is one post per arrondissement. This, however,does not provide adequate coverage in areas where several concessions areoperated. Posts are grouped into sections headed by technicians with twoyear's training, which broadly coincide with departments, each with about

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eight concessions on average. The Section Head s respsib1L for gatherin,gand tabulating information from the concessions on the volume of wood beingtaken. However, Section Heads lack the means of transportation necessary tovisit and verify, on-site, the volumes of wood being reported by the post/concessionaire, which results in poor control. At the provincial level, theDEFC office--headed by the Provincial Conservator--is responsible for moni-toring the work of the Section Heads, calculating the taxes and royaltiespayable on the harvested wood, and monitoring their payment. However, pro-vincial headquarters have neither the means for travel, nor facilities to beable to function efficiently. Measures to be undertaken under the projectwould rectify this situation (para 3.13).

1.15 (ii) FNFP is responsible for carrying out the replantation program.Constituted as an autonomous public entity, it receives about 90% of itsfunding directly from the taxes and royalties collected from the conces-sionaires by DEFC. FNFP has a Board of Directors of which the Director ofDEFC is a member, but FNFP operates with considerable autonomy. The structureof FNFP is largely regionalized under the direction of a small Yaounde headoffice, dividing the country into chantiers, which correspond largely toprovinces. In each chantier, a regional chef de chantier supervises a numberof chefs de bases who are responsible for actually carrying out the plantingprograms. FNFPs planting program has, to date, been modest in scope, around2,500 ha per annum, of which 60% has been enrichment planting in the tropicalhigh forest. The balance of its plantations have been established in thesavanna zone. The technical performance of FNFP has been poor, as shown inhigh rates of loss recorded in new plantations, low levels of maintenanceundertaken and generally slow and high cost work. The slump in revenuesreceived from taxes and royalties, from a peak of CFAF 1.1 billion (US$4.1million) in 1978 to CFAF 0.7 billion (US$2.6 million) in 1980 has also causedsevere budgetary problems for FNFP. However, with the proposed reinforcementof its technical, financial and administrative capabilities (para 3.12), FNFPis expected to become an effective instrument for executing Government-sregeneration policies.

1.16 Within both DEFC and FNFP there is a serious shortage of manpowerwith field experience at the professional and technical level, which con-strains efficient administration and development of the sector. Professionalstaff education needs are being supplied by the Ecole Nationale SuperieureAgronomique at Nkolbisson. This school has the capacity to produce 16graduates a year, which is sufficient for Cameroon's future requirements.At the technician level, the college at Mbalmayo currently produces 10 tech--nicians a year which is also adequate to meet foreseeable needs. However, theneed is to offer these graduates--as well as those already employed--theopportunities to participate in practical and technically well-managedoperations, which would be one of the objectives of the proposed project.

1.17 Some production of hybrid pine and eucalypt seed is currentlycarried out within research trials and plantations. However, there is pres-ently no institution with overall responsibility for importing, certifying,selecting and multiplying tree seed of good quality. As a result, the vigor

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of presently available hybrids is beginning to weaken as the best provenancesof exotic trees are not being found and spread. The proposed project wouldbegin to centralize this responsibility in FNFP.

1.18 The interests of the forestry exploitation industries are repre-sented to Government by a trade federation, the Syndicat des ExploitantsForestiers, which participates in regular information meetings with DEFC,and MINAGRI.

(e) Objectives, Strategies and Policies

1.19 Government objectives in the forestry sector, as defined in lawspassed in 1973 and 1974, are:

- to extend the area of gazetted state forest;

- to ensure rational planned exploitation of forests;

- to regenerate forests by enrichment planting in the dense forest andby reforestation in the savannas; and

- to increase domestic value added through processing.

These goals are considered reasonable given the present state of forestryindustries and resources. However, there has been only mixed success inattaining them. Gazetting of new areas is progressing slowly, the rate offorest regeneration is less than half of targets, and survival rates are low.The percentage of domestic value added is 20% below desired levels. Theseachievements are all the more disappointing since the targets themselves havebeen modest and the budgets committed to their attainment have been consider-able. The principal factor that is now perpetuating this situation is ageneral lack of field-level, technical expertise in the FNFP cadres who shouldorganize and monitor the execution of programs.

(f) Bank and Other External Involvement

1.20 The proposed project would be the Bank's first direct involvementin Cameroon s forestry sector in a project exclusively for the sector.However, two rural development projects--Western Highlands Rural Develop-ment Project (Cr. 784-CM), and Northern Province Rural Development Project(Cr. 1075-CM, Ln. 1919-CM)--have forestry components with the objectives ofpromoting small-scale reforestation and erosion control. The Western High-lands programs have been progressing well, and the Northern Province re-forestation component is just beginning. The proposed project is in linewith the Bank-s Forestry Sector Policy Paper which confirms the view thatindustrial-scale wood plantations, such as those proposed here, have an equalplace with small-scale social forestry components in countries overallforestry strategies, and that strengthening sectoral institutions is vital.

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1.21 The Cameroon forestry sector has also benefited from bilateralassistance in the training of forestry engineers at Nkolbisson, and inforestry research. An ongoing pilot forestation program in the SEMRY zone(Map, IBRD 15692) is providing valuable experience and identification ofspecies on which the proposed project would build in the same region.Under another bilateral agreement, technical assistance is being providedin forestry sector policy, aerial photography for forestry survey, classifi-cation and inventory work which would complement the proposed project.

II. THE PROJECT AREA q

2.01 Location: The proposed project would involve tree planting in threeseparate, ecologically different areas, and reinforce improved forest treeseed production on four sites. Project plantings would cover 11,000 ha.Of this 8,800 ha would be planted at Edea in the south-west to supply theCellucam pulpmill with plantation grown pulpwood. Another 1,000 ha would beplanted for utility timber and transmission poles near Ngaoundere in theAdamaoua Plateau to complement an existing 600 ha plantation; and 1,200 hawould be planted near Maga in the north, as a continuation of the fuelwoodplantation of 600 ha already being established by SEMRY (para 1.21). In bothof these latter zones, land is available for aforestation and considering thescarcity of wood in the region, aforestation is an economically desirable useof land. All the proposed sites, indicated on the map (IBRD 15692) are servedby good quality roads, regular internal flights to the Ngaoundere and Maga(Maroua) areas and regular communications.

2.02 Topography and Soils: Each of the three areas have distinctivetopographies and soils. The terrain at Edea is about 75% plantable, theremainder being rocky hills, swamps or steep river and stream banks. Theforest soils are deep and well-drained,. frequently highly leached and acid.At Ngaoundere, the terrain of the 1,500 m high plateau is gently undulatingwith occasional rocky valleys. The soils are generally deep with occasionaloutcrops of granites from which they are derived. At Maga, the sites are flatand before the construction of the control dike by SEMRY, the area had beenfrequently inundated during the rains, except for occasional islands on whichvillages were sited. The soils vary from heavy compacted silts overlyingsands to sandy areas overlying compacted silts.

2.03 Vegetation: The southern Edea area carries evergreen tropical highforest which has been selectively exploited. The Ngaoundere vegetation istree savanna with an undergrowth of perennial tussock grasses. At Maga, theflood plains carry only annual grasses, with a very sparse tree savannavegetation on islands of higher land.

2.04 Climate: At Edea, the annual rainfall amounts to an average ofover 2,500 mm with high humidities and a dry season of only two months.Ngaoundere has an average annual rainfall of about 1,600 mm with a six monthdry season. Maga has about 750 mm rain annually, with a six month dry season.Temperatures do not limit vegetative growth. Maximum mean annual temperaturesvary from 400C at Maga to 240C at Ngaoundere. The lowest relative humi-dities are recorded at Maga with 10% at the height of the dry season.

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2.05 Infrastructure: All three plantation areas are located close toexisting facilities. At Edea, the Cellucam logging roads, workshops, officesand social and other services would be utilized (para 4.02). At Ngaoundere,the FNFP nursery, store and offices would be upgraded under the project. AtMaga, the existing SEMRY workshops and services are of good standard, and theexisting nursery would be maintained (para 4.05).

2.06 Population: Edea has a population of about 55,000 and there aremany villages on the outskirts of the 160,000 ha Cellucam concession area.The town of Ngaoundere has a population of about 45,000. At completion ofSEMRY II, it is expected that about 60,000 people will be living in newvillages within the area. Cellucam has been able to date to recruit suffi-cient labor from the Edea labor pool at the industrial wage rates it isrequired to pay. The additional 525 man-years of local labor required forproject plantations, which would account for about 33% of the total Cellucamlabor force at peak implementation periods, would also be paid at the indus-trial wage rate, and would be available. There would be adequate laboravailable at Ngaoundere and Maga for the proposed planting programs.

III. THE PROJECT

A. Objectives

3.01 As its principle objectives, the project would:

(a) expand the contribution of the forestry sector to the nationaleconomy through the establishment of plantations of about 11,000 haof pine and eucalypts not found natively in the country; and

(b) enhance the capabilities of the responsible Government agencies tomaintain continuous regeneration of the forests through an improve-ment of their technical capacities to execute reforestation andtheir abilities to recover revenue by the efficient application ofexisting forestry tax and royalties regulations.

3.02 Plantations would be of two types: the first would involve refore-station of the areas of natural high forest cut by Cellucam for its pulpingoperations to allow this enterprise to take advantage eventually of plantationgrown wood (para 1.11); the second would be afforestation of areas in thesavanna regions where wood is in short supply, both in block plantations, andin pilot village woodlots.

3.03 Institutional development would be closely linked to the executionof the plantations proposed. The improvement of Government's technicalcapacity would be achieved, in part, through the participation of FNFP (para1.15) operating staff in the reforestation programs which would give theminservice experience, and the establishment of improved tree seed gardens.Capacity would also be raised through direct reinforcement of FNFP head-quarters operations, planning, and monitoring capabilities. The improvement in

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Government's ability to recover taxes and royalt;es from the forestry sectorwould be achieved through a direct reinforcement of the operational capabili-ties of the DEFC (para 1.13) which is responsible inter alia, for thesefunctions. This reinforcement would focus on the immediate improvement ofDEFC's ability to assess and collect taxes and royalties.

3.04 Over five years, project finance would be provided for:

(a) establishment of a plantation of about 5,200 ha of pines and3,600 ha of eucalypts in the Edea project site. This wouldbe done by Cellucam as contractor and supervised by FNFP, with theaim of providing uniform, high-quality pulpwood for the pulpmill;

(b) establishment of a plantation of about 1,000 ha of eucalyptsin blocks of between 50 ha and 200 ha, and 200 ha in pilot villagewoodlots near Maga (SEMRY). This would be undertaken by SEMRY forthe eventual use as household firewood and building poles;

(c) establishment of a plantation of 750 ha of pines and 250 ha ofeucalypts at Ngaoundere by FNFP, for eventual use as utilitysaw-logs and transmission poles;

(d) establishment of a unit within FNFP responsible for setting-upIl ha in four sites as improved tree seed production gardens;

(e) provision of 16 man-years of specialist services not currentlyavailable in Cameroon in areas of plantation management and finan-cial control for FNFP and SEMRY;

(f) provision of necessary logistical, material, and operationalsupport for DEFC to improve its tax and royalties assessmentand collection capacity; and

(g) provision of funds to undertake specialized studies, includingpreparation of a possible follow-up project, and to support appro--priate overseas training of selected personnel.

B. Detailed Features

(a) Edea Plantation

3.05 The 8,800 plantation program at Edea would establish pine andeucalypts in the tropical forest zones logged out by Cellucam for its

pulping operations. Cellucam would, thus, complete primary land clearing,and establish basic roads which would be later used in plantation work. Thecosts of windrowing and burning of residues not suitable for pulping would befinanced under the project. This would be done with appropriate mechanicalmeans, leaving a plantation site equal to about 85% of the area originallylogged. Preparation and replanting would follow with a minimum time delay to

minimize the cost of removing natural regrowth of weedy species. The joint

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logging, land clearing and preparation, and planting program over the five-year period would be as follows:

PYl PY2 PY3 PY4 PYS Total-- (ha)…

Logging (not financed by project) 2,200 3,000 3,000 3,000 3,000 14,200

Clearing and Preparation 1,350 1,500 2,200 2,500 1,250 8,800

Planting 800 1,100 1,900 2,500 2,500 8,800

Maintenance (including 400 haplanted earlier, cummulative) 1,200 2,300 4,200 6,700 9,200 9,200

Appropriate weeding would require a cumulative maintenance program as shown in

the schedule. A nursery would be established to provide seedlings.

3.06 The pines selected for planting would be Pinus caribaea, var

hondurensis, which, in the environment of Edea, is expected to show a mean

annual increment (m.a.i.) of 18 m3 over bark (o.b.) per ha, and reach

cutting size in 14 years. The eucalypts would be Eucalyptus urophylla, which

regenerates from its own root following cutting (coppices), and has shown a

m.a.i of 25 m3 o.b. per ha in trials at Edea. This variety would be har-vested after nine years. Variations in m.a.i between 15 m and 29 m3 per

ha have been measured at Edea for P. Caribaea and have risen as high as

40 m3/ha for E. urophylla depending on provenances. Provenance trials

would continue as part of the regular planting program.

3.07 Project financing would cover the purchase of heavy equipment for

supplemental land clearing, preparation, plantation maintenance equipment, and

vehicles; construction of incremental offices and equipment for nurseries;maintenance of logging roads, and the hiring of labor. To avoid duplicating

installation of support infrastructure such as garages, repair workshops, and

stores for spares, these services would be hired from Cellucam on an actualcost basis. FNFP plantation section heads and work team foremen would be

assigned to Edea, to work under Cellucam's general management. They would

receive in-service training in plantation site and work team management in a

program conducted by Cellucam, modeled on a program already in use for train-

ing logging site managers and work team foremen (para 4.09). Cellucam would

receive payment for this service, and for general management services includ-ing inter alia overall management of the plantation program, personnel manage-

ment, coordination of plantation with logging operations, and procurement.Government and FNFP would enter into a contract, acceptable to the Bank,

with Cellucam specifying these arrangements. Points to be included in thiscontract were discussed with Government and Cellucam during appraisal, and a

further draft was discussed at negotiations. Signature of this contract would

be a condition of loan effectiveness (paras 4.02, 4.03).

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(b) SEMRY Plantation

3.08 The project would include a program for planting 1,000 ha of sui-,table eucalypt (E. camaldulensis) and other species in blocks, over thefive-year project planting program, on non-irrigated land within the SEMRYII project zone, expanding the results of a successful pilot program begunwith bilateral assistance (para 1.21). Sufficient funds would be made avail-able under the project to provide for incremental equipment and operatingexpenditures required track-making, land preparation (sub-soil tillage) andnurseries to execute the program. Personnel would include an internationallyrecruited forester with experience in arid-zone plantation establishment todirect block plantations and execution of a pilot village woodlot program(para 3.09). Other executory personnel would be seconded from FNFP. Althoughthe SEMRY project zone contains sufficient land for both forestry, irrigatedfoodcrops and rain-fed foodcrops, a detailed soil survey on a scale of 1:20,000would be financed to assure proper final siting of forestry, within a land useplan to be made by SEMRY following the survey.

3.09 A pilot program for establishing 200 ha in village woodlots--toproduce firewood for home use and sale, building poles and leaf-fodder--wouldalso be undertaken as part of the project. The program would be directed topre-cooperative groups of farmers organized in the newly established SEMRYsettlements. Such groups would receive free seedlings (including fruit andfodder-bearing trees) and about 20 ha of prepared land which they wouldsubdivide into individual parcels of between 0.5 and 1.0 ha each. Farmerswould plant and maintain their plots individually. Women would be a speciaLtarget group of this activity. Field work would be organized and supervisedby FNFP staff seconded to SEMRY for this purpose. An agreement specific toeach group's circumstances would be negotiated between SEMRY/FNFP and thefarmers, which would define the rights to the land involved, the duties of thefarmers with respect to planting, maintenance and protection from fires andanimals, and the earliest date at which the wood could be cut. The agreementwould also specify a stumpage fee to be collected by FNFP at the time ofcutting to cover initial land preparation costs. Very little experience ispresently available in Cameroon to guide the evolution of such a programalthough some work is currently underway under the auspices of the WesternHighlands Rural Development Project (Cr. 784-CM) which is partially financedby IDA. Thus, periodic visits would be made by project staff to the WesternHighlands as part of their inservice training. In light of the lack ofexperience in this kind of project, Government agreed at negotiations that noworks would be undertaken for any of the village woodlots until a plan ofaction for carrying them out including contractual arrangements with farmers,had been approved by the Bank (para 8.01a).

(c) Ngaoundere Plantation

3.10 The plantation program to be financed under the project would in-clude five annual plantings of 200 ha blocks, which would be in additionto FNFP's regular annual program of about 50 ha in this area which FNFP

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would continue following the start of the project. As the ongoing planta-tions, project plantations would be established on land classified as forestreserve under usual administrative procedures, and would belong to the State.Project planting would add 750 ha of pines (P. kesiya and P. caribaea) and250 ha of eucalypts (E. grandis and E. cloeziana). Land clearing would bedone mechanically to allow for complete stump removal and adequate soil

* preparation--with FNFP selling the salvage savanna wood (about 4,000 m3 peryear) to private buyers for firewood. Existing nurseries would be expanded toproduce the required seedlings. The plantation would be executed following

annual work plans approved by FNFP and the Bank (para 8.01c). Project fundswould finance the acquisition of required incremental equipment, servicevehicles and nurseries. As the new sites would be increasingly distant fromNgaoundere, modest on-site encampments would be constructed in the plantationsfor staff engaged in maintenance and plantation protection.

(d) Tree Seed Production Unit

3.11 A Seed Production Unit would be established as part of FNFP andwould be responsible for:

- obtaining and registering imported forest tree seed;

- organizing and executing, in close co-operation with forestresearch, a series of provenance trials of all the importantplantation species;

- establishing seed production sites in each major ecological regionof the country for eucalypts and pines. About 11 ha of P. caribaea,P. oocarpa, P. kesiya, E. grandis, E. urophylla, E. deglupta andE. cloeziana would be planted in four sites;

- carrying out a systematic examination of all established plantationsto select superior individuals from which cuttings would be takenfor the establishment of clonal tree seed orchards. Cuttings wouldbe taken from the indigenous species Triplochiton as a trainingexercise for nurserymen and an additional five ha of this specieswould be established for production of clonal material for futureplantations; and

- making use of all existing relevant technology in forestry geneticsand tree-breeding.

This program would take time to execute, and during the five-year projectperiod the seed unit would only initiate work in this area. Training oflocal staff would be an important function of this unit, and the setting upof the unit and its work program would be supported by consultants in thisspecialized field. Normal nursery and plantation establishment techniqueswould be used for the production of plants from seed. The specialized knowntechniques for raising rooted cuttings would also be utilized.

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(e) Strengthening FNFP

3.12 Under the project, FNFP would be provided with about 12 man-yearsof technical assistance and accompanying material support, to reinforce itsoperations in the areas of annual work planning and performance monitoring,financial management, and management of individual plantations. Although all

three aspects require attention to assure a successful project, the need forstrengthened FNFP financial management would be particularly critical toadminister Government's financial interests in the Edea Plantation.

(f) Strengthening DEFC

3.13 Improvements in the operating efficiency of DEFC would be madeby providing finance: firstly for the purchase of vehicles and equipmentto give staff the necessary mobility and to conduct on-site inspection andverification of logging operations and records of wood harvested; secondlyfor the purchase of office equipment and calculators for a more efficientprocessing and monitoring of tax and royalties notices and collections; andthirdly for the refurbishing of offices and rest houses in the field of theassessment and monitoring personnel. In addition, project funds would beprovided for up to 45 man-months of consultancy services to be recruited asnecessary (para 4.08) and for adequate running of vehicles and offices.

(g) Studies and Preparation of Possible Follow-up Project

3.14 Provision would be made under the project for the recruitment of upto 43 man-months of specialists consultancies in various areas relating toforestry growth, protection and utilization, on a needs basis, agreed betweenthe Government, the Bank, and CDC. Terms of reference to guide these consul-tancies are given in the project file. In addition, following a mid-termreview of progress under the project, preparation of a possible follow-upproject could begin, for which financing for up to 12 man-months of consultancyservices would be provided.

IV. ORGANIZATION AND MANAGEMENT

A. General

4.01 Project organization and management would fall within the generalinstitutional structure of the forestry sector (paras 1.14, 1.15); thatis, FNFP and DEFC. These agencies would be appropriately supported tobe able to deal with the added responsibilities created under the project(paras 3.12, 3.13). FNFP would make special arrangements with Cellucam andSEMRY for the field execution of Edea and SEMRY plantations and would executethe Ngaoundere plantation and the Improved Seed Production Unit itself.Technical specification of the establishment and maintenance parameters aregiven in the project file.

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B. Plantation Arrangements

4.02 The Edea Plantation component would be executed by Cellucaam. whîchwould serve as a contractor for the actual planting of trees on the accountof FNFP. FNFP would pass on project funds and provide field-level seconded

* personnel who would be temporarily integrated into Cellucam. Cellucam wouldorganize and perform the planting operations, coordinating them with itspulp-log felling operations. Thus, Government would own the trees planted

- during the five-year program and Cellucam would purchase them at an appropri-ate stumpage fee (para 6.03) when the trees reached optimal pulp-log age.These principles would be the basis of a contract to be entered into byFNFP on one hand, and Cellucam on the other. A draft contract was discussedat negotiations and signing of a satisfactory contract would be a condition ofloan effectiveness (para 8.02 b).

4.03 The agreement between FNFP and Cellucam would also cover detailedexecuting arrangements. A steering committee composed of Cellucam, FNFP andGovernment representatives would review and approve annual work plans andbudgets, the hiring of consultants, staffing appointments to key Cellucamreforestation unit positions, and discuss and make recommendations with regardto any issues or problems arising during the execution of this component.Cellucam would prepare detailed annual work plans and budgets, hire fieldlabor, make procurement arrangements, hold and manage project assets on behalfof FNFP, and prepare quarterly (unaudited) accounts and annual (audited)accounts and progress reports. FNFP would second field management staff toCellucam who would be organized as shown in the organization chart, and wouldmonitor accounts and progress with on-site staff. FNFP would reimburseCellucam for actual costs incurred for the reforestation works its executesunder the project. In addition, FNFP would make periodic payments to Cellucamfor support services, determined on a basis to be specified in the agreement,and payable in proportion to progress made in planting. Such expenditurewould include the share of Cellucam's general overhead and Forestry Departmentmanagement costs attributable to the plantation program. This attributionwould be made on the basis of a formula linking increases in Cellucam-soperating costs and personnel numbers over pre-project levels, excludingmill work. An estimate of the size of the payments to be made to Cellucamfor support services would be included in the annual budget, to be submittedfor the approval of the co-lenders by March 31 preceding the fiscal year ofthe project (para 8.01c). FNFP would nominate an accountant who would beresponsible for monitoring project funds used by Cellucam.

4.04 The SEMRY reforestation components would be executed through theSEMRY Forestry Division. An internationally recruited forester with qualifi-cations acceptable to the Bank would direct the work. He would have two FNFPseconded deputies: one responsible for the block plantation component and theother for the pilot village woodlot scheme. The Forestry Division would beadministered within SEMRY's administration system which would provide regularprogress reports, and financial accounts to FNFP for inclusion in consolidatedproject statements. On the basis of the land use study (para 3.08), the

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Forestry Division would select the sites to be reforested. It would make andfollow annual work plans and budgets, which would be approved by FNFP and theBank (para 8.01 c) and arrange for SEMRY to maintain tracks and hire laborers,and maintain and account for project assets. FNFP would second site and workteam foremen to SEMRY to conduct field work, and would make available thetechnical advice of the Supervising Plantation Manager (para 4.06). Anagreement acceptable to the Bank, specifying inter alia the planting program,its technical specifications, along with the administrative responsibilitiesof FNFP and SEMRY would be made between FNFP and SEMRY. Its signature wouldbe a condition of disbursement for this component (para 8.03). The residualassets from the ongoing bilateral pilot project would be put at the disposalof the proposed project.

4.05 Executing the SEMRY pilot village woodlot component would be flexibleand would emphasize basic principles which have been found successful in otherBank-financed village forestry projects (para 3.09). The services of a short-term socio-economic consultant would be secured to analyse the development ofthe program and to ensure that it could be reproduced and expanded.

C. Strengthening FNFP

4.06 FNFP-s capacity to execute Government-s forestry regenerationprograms would be strengthened: first, through the in-service training ofFNFP engineers and technicians who would be seconded to work in executingproject-supported plantations (para 4.09); and, second, through the reinfor-cement of FNFP Headquarters technical and financial management. An interna-"tionally recruited forestry engineer/manager would be responsible as ProgramOfficer for establishing detailed annual reforestation programs within FNFPfollowing: (i) the broad guidelines established for FNFP; (ii) the limitsimposed by the availability of resources; and (iii) the recurrent needs formaintenance and replanting. He would also initiate periodic site-by-sitemonitoring and recording to verify progress, to identify bottlenecks and serzeas a basis for subsequent annual planning. An internationally recruitedProject Accountant would be responsible for establishing and supervisingfinancial control and reporting for each project component, and for improving,through advice and collaboration with FNFP accounting staff and management,FNFP-s overall financial control and reporting. Lastly, an internationallyrecruited Supervising Plantation Manager, stationed at Garoua, would introduceon a site-by-site basis together with existing FNFP plantation managers,improved techniques, and select species and resources appropriate for thespecific microecologies of the Northern Province. He would supervise theexecution of the new methods. He would also liaise with IRA forestry researchpersonnel to advise on research needs and apply promising results. Allinternationally recruited staff--including the Director of Forestry, SEMRY(para 4.04)--would have qualifications and experience acceptable to the Bank,and would serve for four years, following detailed terms of reference given inthe project file (para 8.01b).

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D. Strengthening DEFC

4.07 Strengthening DEFC-s capacity to assess and collect taxes androyalties from the forestry exploitation sector would be implemented by theDirector of DEFC, through the Service de lExploitation et des IndustriesForestieres. In each of the headquarters in the five provinces where forestryconcessions are now exploited (West, South West, Littoral, Central Southand East) senior officers have been designated as responsible for calculatingand administering tax and royalties assessments within the province, andGovernment has agreed that such persons would be in post throughout theproject investment period (para 8.01d). The head of each provincial armof DEFC (the Conservator) would be responsible for organizing within hisprovince, regular visits by Section Heads to their respective forestry posts

and the concessions in their sections, controlled by regular visits fromheadquarters. Quarterly reports of these field activities would be preparedand submitted to DEFC Headquarters, where the Chief of the Service del'Exploitation et des Industries Forestieres would be responsible formonitoring and control.

4.08 Government has made significant strides in improving its tax col-lection performance and is introducing new measures to strengthen this per-formance. In addition, Government agreed that an internationally recruitedspecialist in forestry tax assessment and enforcement would be employed forabout 24 manmonths to assist the Director, DEFC in executing the measuresFinancing a consultation of about 6 months in the area of public administra-tion would also be provided for. Finally, as the enforcement of penalties

could raise legal problems with concessionaires, funds would be made availableto secure up to 15 months of services of legal counsel over the 5-yearproject investment period to assist DEFC as needed in its dealings with theforestry industry. All consultants would have qualifications, experience andterms of reference acceptable to the Bank.

E. Training

4.09 The major element of training local personnel would be in-servicetraining within ongoing plantation operations. A program of rotating second-ments to Cellucam and SEMRY of FNFP site supervisors and work group foremenwould be organized and monitored by the Director of FNFP with the assistanceof the project financed Program Officer (para 4.06). Secondments would befor periods of two to three years depending on the needs of the recipientagencies and FNFP, with the objective of giving all of the 50 FNFP engineersand senior technicians the opportunity of working at either Cellucam or SEMRYduring the five years of the project investment period. Within FNFP, the

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Project Accountant would be responsible for up-grading FNFP-s accountingservices, including the techniques used by FNFP accounting staff, to standardsacceptable for project execution. These standards are described in theproject file. Provision would also be made to finance about 12 man-months ofparticipation of selected FNFP and DEFC personnel in specialized out-of-country short courses.

F. Monitoring and Evaluation

44.10 Within FNFP, the Program Officer (para 4.06) would establish aprocedure of monitoring plantation operations as a basis for annual workplanning and budgeting. This would involve weekly achievement and resource-use reporting by work team foremen to site managers, monthly reporting by sitemanagers to zone managers, and quarterly aggregated reporting by zone managersto headquarters. Each supervisor would be responsible for periodic verifica-tion visits of the services reporting to him. The monthly reports on siteswould also be reviewed by the Supervising Plantation Manager (para 4.06).Monitoring financial flows would be the responsibility of the FNFP Accountsdepartment, which would include an accountant stationed at Edea for the Edeaplantation component.

4.11 Monitoring of the fiscal matters in the forestry sector wouldcontinue to be the responsibility of the DEFC. The Director would institutethrough each provincial Conservator, periodic control and verification visitsof the forestry exploitations made, hierarchically, by forestry technicians,section heads, and the designated officers in the provincial headquarters.

4.12 Periodic evaluation of progress would be part of the responsibili-ties of the strengthened headquarters staff of FNFP and DEFC. In the secondhalf of PY3, a mid-term evaluation of the project would be conducted byconsultants with qualifications, experience and terms of reference acceptableto the Bank. Recommendations of this review would be discussed by Government,FNFP, DEFC and the Bank and used inter alia as a basis for the preparation inPY4 of a possible follow-up project.

G. Seed Production and Liaison with Research

4.13 The seed production unit to be established within FNFP (para 3.11)would build upon the results of the elimination trials successfully carriedout for many years by IRA/CTFT at Mangombe and elsewhere which have identifiedprobable species for Cameroon. The seed production unit would continue,cooperate and exchange information with these researchers. The work programwould be supported through a 3 month consultancy to take place at the beginningof the project; this would be updated annually during subsequent 1 monthconsultancies. FNFP plantation projects near the four sites to be establishedwould provide land, planting services and maintenance.

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4.14 Within each plantation, yield production trials of trees of dif-

ferent provenances would also be carried out as part of the production

components. The FNFP Supervising Plantation Manager and Prcgram Officer would

prepare these trials in conjunction with IRA officials0 Close contact would

be maintained via FNFP headquarters with the research efforts of IRA. This

would particularly apply in the Northern Province where many FNFP sites withconsiderable ecological variation are planted simultaneously. FNFP would also

consult with IRA concerning applied research needs.

V. COSTS AND FINANCIAL ARRANGEMENTS

A. Project Cost Estimates

5.01 Total project costs over the five-year investment period are esti-mated at CFAF 9,602 million (US$35.5 million), of which CFAF 4,374 million

(US$16.2 million) would be foreign costs. Cost estimates include an estimatedCFAF 632 million (US$ 2.3 million) of identifiable taxes. Identifiableimport taxes on items imported for the project have been excluded, since

Goverament agreed to exempt goods purchased for the project from importtaxes. Thus project cost net of taxes amounts to CFAF 8,970 million (US$33.2million), of which foreign exchange represents 49%.

5.02 Cost estimates are based on January 1981 prices and include (i)physical contingencies of 10% on buildings and 5% on all other costs exceptpersonnel, consultancies and the management fee on which no physical con-

tingencies have been calculated; and (ii) price contingencies calculated on

the basis of the following expected rates of price increase:

1981 1982 1983 1984 1985 1986

Local Costs 12 12 12 12 12 12Foreign Costs 9 8.5 8.5 7.5 7.0 6.0

Contingencies are equivalent to 44% of base costs or 30% of total costs.Estimated project costs are summarised in Table 1 below and detailed in

the project file.

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Prolect Cost Estimates

Pcreigu----- CAF Million - ---- US$ Million---- Pchnge

Local Foreign Total Local Foreign Total Z

FNFP Components

Edea Plantations

Vehicles. Equipment and Buildings 68 864 932 0.3 3.2 3.5 91Plantation Investments 2537 1080 3617 9.4 4.0 13.4 30

2605 1944 4549 9.7 7.2 16.9 43

SE!IY Il (Maga) Plantations

Vehicles, Equipment and Buildings 33 108 141 0.1 0.4 0.5 80Plantation Investments 183 si 264 0.7 0.3 1.0 33

216 189 405 0.8 0.7 1.5 47

Ngaoundere Plantations

Vehicles, Equipment and Buildings 7 54 61 - * 0.2 0.2 67Plantation Investments 137 54 191 0.5 0.2 0.7 29

144 108 252 0.5 0.4 0.9 4

Improved Seed Production Unit

Vehicles, Equipment and Buildings 21 27 48 0.1 0.1 0.2 50Plantation Investments 58 27 85 0.2 0.1 0.3 33

79 54 133 0.3 0.2 0.5 4Q

technical Assistance

VehiclesPersonnel, Corsultancies and 1 9 10 - * - * - * 90

Vehicle Operation 5 621 626 - * 2.3 2.3 99

6 630 636 -* Z.3 2.3 99

Sub-Total n,FP Components 3050 2975 5966 11.3 10.8 22.1 49

Technical and Material Suppwrt for DEFC

Vehicles, Equipment and Buildings 98 270 368 0.3 1.0 1.3 77Iacremental Op.Casts & Consultancies 139 216 355 0.5 0.8 L.3 67

237 486 723 0.8 1.8 2.6 6'

TOTAL BASE COST 3287 3402 6689 12.1 12.6 24.7 51

CONTINGENCIES

Physical 49 108 157 0.2 0.4 0.6 67Price 1892 864 2756 7.0 3.2 10.2 31

1941 972 2913 7.2 3.6 10.8 33

TOTAL PROJECT COST 5228 4374 9602 19.3 16.2 35.5 46

* less than $50,000.

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B. Proposed Financing

5.03 The project would be financed by a Bank loan (US$17.0 million),

by a loan from the United Kingdom's Commonwealth Development Corporation(CDC) (US$7.4 million) and by the Government (US$11.1 million). This financ-ing would be applied as shown in Table 2. The Bank loan would finance 72% ofthe project-s foreign exchange cost (US$11.6 million). It would also financeUS$5.4 million of incremental costs of strengthening DEFC and FNFP, which isconsidered justified in face of the critical need to assure the effectiveperformance of these two institutions. Total Bank finance would cover 51% ofproject costs net of tax.

5.04 The Bank loan would be made to Government for a term of 20 years,

including a five-year grace period, at the interest rate prevailing at thetime of Board presentation. The Bank loan would be passed on to FNFP andDEFC in the form of grants. The CDC loan is expected to be on the same termsas the Bank loan and would finance 30% of the estimated costs of the EdeaPlantations component. The fulfilment of all conditions precedent for theeffectiveness of the CDC loan would be a condition of effectiveness for theBank loan (para 8.02 a).

C. Onlending Arrangements

5.05 As agreed at negotiations, Government would make available to FNFPand DEFC all funds necessary to carry out the project, including the proceedsof the Bank and CDC loans, and Government's own contribution, in the form of agrant (para 8.01 e). Although FNFP enjoys the legal status of an autonomousagency, it functions purely to execute Government plantation programs, and isnot commercially motivated. Therefore, making subsidiary loans to FNFP is notwarranted. DEFC is a government department, making subsidiary loans unneces-sary. It would be a condition of effectiveness of the Bank loan that Govern-ment establish separate project accounts for each of the components out ofwhich local operating expenses would be financed, and in order that theProject would commence, it deposit in these accounts not less than: CFAE 400million for the Edea Plantation, CFAF 35 million for SEMRY plantation; CFAF 25million for the Ngaoundere Plantation; CFAF 12 million for FNFP Headquarters;and CFAF 33 million for DEFC (para 8.02 c). The Ngaoundere Plantation accountwould be established at FNFP headquarters and the DEFC funds would be kept inan existing FNFP sub-account for DEFC. These accounts would be replenishedthroughout the year from the proceeds of the Bank and CDC loans, and at thebeginning of the fiscal year with Government's contribution following approvalbudgets for the project components. FNFP would supervise the flow of projectfunds through the five components. In addition to the proposed incrementalGovernment contribution to the Ngaoundere component, FNFP would maintainoperating funds to the Ngaoundere base for the ongoing planting program attheir 1981 level of CFAF 40 million (US$148,000). To minimize supplementalland clearing costs following logging, the proposed reforestation program in

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Table 2

Proposed Financing Plan

(US$ million)

Bank CDC Government Total

Edea Plantations

Vehicles, Equipment and Buildings 2.9 2.2 - 5.1Plantation Investments 7.1 5.2 6.9 19.2

10.0 7.4 6.9 24.3

SEMRY Il (Maga) Plantations

Vehicles, Equipment and Buildings 0.4 - 0.1 0.5Plantation Development and 0.7 - 0.8 1.5

Operating Costs ____

1.1 - 0.9 2.0

Ngaoundere Plantation

Vehicles, Equipment and Buildings 0.2 - 0.1 0.3Plantation Investments 0.4 - 0.7 1.1

0.6 - 0.8 1.4

Improved Seed Production Unit

Vehicles, Equipment and Buildings 0.1 - 0.1 0.2Plantation Investments

0.2 0.3 0.5

0.3 - 0.4 0.7

Technical Assistance to FNFP

Vehicles 0.1 - - * 0.1Personnel, Consultancies and 2.7 - 0.5 3.2Vehicle Operation

2.8 - 0.5 3.3

Technical and Material Support for DEFC

Vehicles, Equipment and Buildings 1.3 - 0.4 1.7Incremental Op.Costs & Consultancies 0.9 - 1.2 2.1

2.2 - 1.6 3.8

TOTAL 17.0 7.4 11.1 35.5

Percentage of total 48 21 31 100

Total finance excluding taxes 17.0 7.4 8.8 33.2

Percentage of total excluding taxes 51 22 27 100

* less than $50,000.

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the Edea Plantations component would commence in mid-1981. Retroactivefinancing for these activities would be provided for up to US$1.0 million fromthe Bank loan, with contributions of US$0.7 million from CDC and US$0,7million from the Government to cover expenditures incurred after July 1, 1981.

D. Procurement

5.06 Contracts of US$100,000 or more, principally for the purchase ofheavy equipment, would be awarded through international competitive biddingin accordance with Bank guidelines. Goods so purchased are expected to totalabout US$5.2 million (Bank, US$3.3 million). Purchases would be groupedwhenever possible to derive maximum benefits from bulk procurement. Contractsbelow US$100,000 but more than US$50,000 would be awarded through localcompetitive bidding procedure, while those of US$50,000 or less would be onthe basis of quotations from not fewer than three reputable suppliers.Such contracts would be expected to aggregate about US$1.1 million (Bank,US$0.7 million). Land preparation and forest track construction which mustbe closely coordinated with planting operations, do not lend themselves toprocurement through competitive bidding and would therefore be carried out onforce account by the respective project plantation entities (US$2.9 million;Bank, US$0.8 million). Small buildings valued at US$0.2 million (Bank, US$0.1million) at Edea, SEMRY and Ngaoundere plantations would also be built onforce account. However, for the Seed Production Unit and DEFC componentsbuilding contracts valued at US$0.7 million (Bank, US$0.5 million) would beawarded following locally advertised competitive bidding procedures acceptableto the Bank. Contracts for 294 man-months of technical assistance with atotal value of about US$3.2 million (Bank, US$3.1 million) would be placed inaccordance with procedures for international recruitment. All terms ofreference, qualifications and contracts of the specialists to be recruited inaccordance with Bank Group Guidelines would be satisfactory to the Bank.About US$18.2 million (Bank, US$7.0 million) of project expenditures, mainlyconsisting of operating costs and local staff salaries, does not lend itselfto bidding procedures and would be committed in accordance with establishedpractices, which are satisfactory. Payments made to Cellucam for managementservices would be defined in the proposed execution contract with Cellucom(paras 4.02 and 4.03) and would be about US$4.0 million (Bank, US$1.5 million).

E. Disbursement

5.07 The Bank loan would be disbursed over seven years, as shown in AnnexTable 1. This schedule is based on experience in disbursing Bank loans inCameroon. The Bank loan would cover project expenditures as follows:

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Category US$ Million Disbursement %

1. Edea Plantations

Vehicles, Equipment & Buildings 2.3 60Plantation Investment Costs includingLocal Personnel & CellucamExpenditures 7.4 35

2. SEMRY (Maga) Plantation

Vehicles, Equipment & Buildings 0.4 75Plantation Investment Costs includingLocal Personnel 0.6 50

3. FNFP Components

(a) Ngaoundere Plantation

Vehicles, Equipment, Buildings 0.2 75Plantation Investment Costs includingLocal personnel 0.1 35

(b) Seed Production

Vehicles, Equipment, Buildings 0.2 75Incremental Operating Costs 0.1 35

(c) Technical Assistance and Consultancies

Vehicles & operating costs 0.1 60Expatriate Personnel' 2.4 100

4. Technical & Material Support to DEFC

Vehicles, Equipment and Buildings 1.2 75Incremental Operating Costs 0.4 35Expatriate Consultancies 0.4 100

5. Unallocated 1.2

TOTAL 17.0

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Disbursements for civil works, vehicles and equipment, payments to Cellucamfor support services, and consultant services would be fully documented.Disbursements against project planting costs, including local salaries wouldbe against certified statements of expenditures. Supporting documentationwhich would not be submitted with withdrawal applications would be retainedand made available for review by Bank project supervision missions. Properaudit arrangements should be provided for expenditures financed againstcertificates of expenditures.

5.08 The Project Accountant to be recruited for FNFP Headquarters (para* 4.06) would, in addition to his responsibilities for accounting and financial

control of the FNFP components, coordinate the preparation of applications forwithdrawal from the Bank loan for all project components.

5.09 Accounts, Audit and Reporting Requirements. FNFP would ensure thekeeping of records for the FNFP components consistent with sound accountingpractice and adequate to reflect the financial situation of each component andtheir detailed costs of operations. The Edea and SEMRY Plantation componentswould make use of the accounting services of Cellucam and SEMRY. However,separate accounts would be maintained for this purpose. These would besupervised by FNFP. The accounting systems currently used by Cellucam andSEMRY follow cost accounting procedures adequate to produce the statements ofexpenditure and monthly trial balances required by FNFP, and this requirementwould be specified in the executing agreements to be signed for these compo-nents (paras 4.02, 4.05). The Project Accountant at FNFP would also adviseDEFC on improving its accounting and reporting procedures. FNFP would maintainconsolidated accounts for the whole project, summarizing the monthly trialbalances.

5.10 The accounts of the project as maintained by FNFP, would be subjectto an annual audit by an independent auditor with qualifications and terms ofreference acceptable to the Bank. The auditor's report would be furnishedto the Bank within four months after the close of FNFP-s financial year. Inaddition, the auditors of Cellucam would furnish annually a certificatestating the actual costs of services rendered during the preceding year byCellucam to the Edea Plantation.

5.11 FNFP and-DEFC would submit quarterly progress reports to Governmentand to the Bank showing actual and budgeted expenditures, statements ofprogress achieved and objectives for the forthcoming quarter by each projectcomponent.

VI. PRODUCTION, MARKETS AND FINANCIAL RESULTS

A Production

6.01 Production of wood from the plantations would begin following theproject investment period, as shown in the following summary:

- 26 -

Category Project Year Hectares Cut Production in -000 m3

(Annually) (Annually)

Pulpwood15-26 (pine) 520 136

Edea Plantation 15 and 23 1,800 58816 and 24 (eucalypts) 1,800 401

Fuel and Utility Wood

Ynd) 6 - 14 (pine and 440 19SEMRY and Ngaoundere) 15 - 23 eucalypts) )22Plantations )

) 25 - 29 (pine) 150 47

B. Markets and Marketing Arrangements

6.02 Following the plan to convert Cellucam from using natural forest toplantation wood as a raw material (para 1.11), Cellucam would be the marketfor the wood grown in the Edea Plantation. Pulpwood cutting would be con-trolled so that from PY15 to PY26 (1995 to 2006) Cellucam would be able torely on plantation grown wood to meet 100% of its annual long-fiber woodrequirements from pines, and almost 100% of its short-fiber wood requirementsfrom eucalypts. To complete the transition from using tropical high forest toplantation grown woods, and to achieve a production target of 80% short-fibrebleached pulp and 20% long-fiber bleached pulp, Government and Cellucam wouldcontinue planting sufficient eucalypts (about 2,500 ha per year) in PY6-PYll.

6.03 Cellucam would pay a stumpage fee for the plantation grown trees,to be determined following principles specified in the execution contractbetween Cellucam and FNFP (para 4.02). The principles determining the stum-page fee were discussed at negotiations, and it was agreed that they should besufficient to allow Government-s recovery of the full cost of planting andmaintenance, and yield an acceptable rate of return after accounting forinflation. In addition, it was agreed that Callucom should purchase theplantation wood within a specified time frame following maturity of the trees.On the other hand, it was agreed that should the stumpage fee exceed the valueof the wood determined on an import parity basis Cellucom could postpone itspurchase in that year. As an illustration of the cost recovery principaltaking estimated project costs in 1981 terms as a basis, and allowing anarbitrary 2.5% real rate of return on investment, the stumpage fee shouldexceed CFAF 2,820/m3 (US$10.44/m3), which would give a delivered wood costto Cellucam of CFAF 6,120/m3 (US$22.67/m3). This delivered wood cost iswithin a range of costs currently facing pulp producers in many developedcountries (US$15/m3 to $30/m3).

6.04 The wood produced in block plantations at SEMRY would be absorbed inthe Maga market area, which includes the SEMRY zone, where demand is predictedto grow at about 5% per year. Wood is scarce in this market, both because ofnatural population increase and the recent relocation of about 25,000 people

- 27 -

(approximately 4,000 families) into the SEMRY zone. Plantation production

would help satisfy increasing demand in the area which is expected to grow

by 30,00Dm3 by PY5. Given the marketing possibilities, about half of the

wood would be sold as fuelwood and half as building poles. Rights ta cut on

various sized hectarages would be advertised for sale by SEMRY/FNFP and

wood would be sold on the stump to contract cutters. Minimum acceptable

contract prices would be above a minimum stumpage fee for the wood, which

would be at least sufficient to recover the establishment and maintenancecosts, estimated to be about CFAF 1,800/m3 (US$6.67/m3) in 1981 terms, and

which is presently about 15% of the current average market value of standing

eucalypts in the area. Villagers would also pay a stumpage fee for the wood

grown in village woodlots, payable when wood was eut, starting in PY6, to

allow FNFP/SEMRY to recover the cost of land preparation (para 3.09). Based

on estimated project costs, the stumpage fee for villagers would be at least

CFAF 760/m3 (US$2.80/m3) in 1981 terms which would be paid from cash

earned by the sale of a small quantity of wood in local markets.

6.05 The marketing possibilities in the Ngaoundere area indicate that of

the eucalypts produced, 5% could be sold as transmission poles, 25% as building

poles and 70% as fuelwood. For pines, half of the thinnings, taken through

PY7-PY19, could be fuelwood and half building poles. At clear felling, half

of the pines could be saw-logs. Annual consumption of fuel in the Ngaoundere

area is estimated at about 55,OOOm3, and demand is predicted to grow at

about 4.5% per year through to 1990. Thus, the 4,00Dm3 additional savanna

brush wood which would become available from project land clearing, and the

incremental annual production of 8,400m3 available after PY6, would be

readily absorbed. The market for transmission and telephone poles whichcurrently absorbs about 700m3 per year--much of this already supplied from

the FNFP Ngaoundere plantations--is expected to grow by about 15% per year as

further electrical and communications links are installed in the Northern

Province. Projected incremental pole production of 225m3 per year is less

than the additional 85Dm3 required annually after PY6 and would be readily

absorbed. Incremental building pole production of 1,125m3 per year would

also fall below expected incremental demand following PY6 of 6,500m3 per

year. Although there is presently no sawmill at Ngaoundere, no difficulty is

expected in marketing the 48,000mC volume of pine logs available for utility

lumber in PY25, considering that the current consumption of sawn lumber in the

Northern Province exceeds 50,000m3 per year. FNFP would market the planta-

tion wood through local contract cutters as it currently does on behalf of

Government. Stumpage fees are expected to continue to be above the average

levels required for full cost recovery with interest, estimated at CFAF1700/m3 (US$6.30/m3) for pine and CFAF 1,200/m3 (US$4.44) for eucalypts

(para 7.06).

C. Financial Results

6.06 Government's financial flows for the plantations and the project

are estimated on the following basis:

- 28 -

(i) costs for project components have been estimated annually, includingprice and physical contingencies, and taxes as in the project file,with the addition of post-project recurring costs;

(ii) revenues include indirect taxes, income from the Ngaoundere andSEMRY plantations estimated at current market prices (para7.06), and income from the Edea Plantation estimated at minimumstumpage fees consistent with full cost recovery plus a nominal rateof return (para 6.03), all in current terms;

(iii) debt service charges were estimated assuming that the CDC loanwould be made on the same terms as the Bank loan (para 5.04); and

(iv) incremental revenues from improved forestry tax and royaltiesassessment and collection generated by the strengthening of DEFCwere excluded from the calculations.

Under these assumptions, the financial results are as follows:

Project, PlusDebt Service

Plantations 1/ Project 2/ Less Taxes

Year of lst positive annual return PY7 PY7 PY14

Payback period (years to lst positivecumulative cash flow) 15 15 16

Cumulative Investment (million) US$28.1 US$34.0 US$30.0

1/ Three plantation components.2/ Plantation, plus DEFC and FNFP.

Details of financial results are given in the project file. Although thepayback period for.Government investment is 16 years, this period would beshortened as Government improves its collection of taxes and royaltiesfrom the forestry sector. An annual increment in revenues of CFAF 1,000million (US$3.7 million)--which would be attainable with improved administra-tive procedures and collection of taxes and royalties on the known woodharvest--would yield additional annual revenues for reforestation, (aboutCFAF 500 million or US$1.9 million) sufficient to finance 7 of the 13 years inwhich Government-s annual cash flow is negative.

6.07 The financial rates of return on the project would be largelydetermined by the stumpage fee to be negotiated between Government and Cellu-cam for Edea Plantation wood. The table below indicates the rates of returnat various possible stumpage fees at Edea between US$12/m3, the approximatefee that would assure Government cost recovery, and US$57/m3, the fullimport parity price (para 7.05). Considering that the cost of harvesting and

- 29 -

transporting plantation wood to the mill is about US$13/m3 (para 6.03),Government would be able to charge up to US$18/m3 stumpage and earn afinancial return of up to 9.8% on total investment, without raising Cellucam'swood cost beyond the range usually faced by efficient pulp producers else-where. Therefore prospects are good that a mutually satisfactory pricingagreement can be made between Cellucam and Government.

FINANCIAL RATE OF RETURN 1/

----------------Financial Rate of Return-------------------Project Plus

Edea Stumpage Plantation Debt ServiceFee Edea SEMRY Ngaoundere Components Less Taxes

(US$/m3) ------------------------…%…--------------------_________

12 5.2 18.0 18.1 8.1 7.118 7.9 10.0 9.824 9.9 11.3 11.830 11.5 12.5 13.248 14.9 15.3 17.257 16.1 16.6 18.4

1/ Net benefit streams were calculated on the same basis as for theGovernment cash flow (para 6.06), but in 1981 terms.

VII. BENEFITS, ECONOMIC JUSTIFICATION AND RISKS

A. Benefits

7.01 Readily quantifiable benefits would result from the 11,000 haproject plantation program: (i) in the form of 19,000 m3 incrementalaverage annual production of wood in PY6-PY14, and 26,000 m3 in PY15-PY29concentrated in the wood scarce Northern Province; and (ii) in the form of the330,000 m3 annually cut in PY15-PY29 at Edea (para 6.01). This wouldallow Cellucam to eventually convert to the exclusive use of uniform-qualityplantation grown woods which would reduce harvesting costs by about 33%,decrease the cost of pulping by about 20%, and yield higher valued short andlong fiber pulp than is presently the case (para 1.11). These developmentswould improve Cellucam's financial performance, which would also be beneficialfor Government as the principal shareholder. In addition, improved eucalyptsseed would be available from project supported seed gardens following PY6, andimproved pine seed following PYIO. This component would provide about half ofthe seed required for future FNFP plantation programs. This is importantsince the availability of good seed which is facing increased world-widedemand could constrain future plantation programs.

- 30 -

7.02 The primary indirect benefit of the proposed project would be itsreinforcement of the two principal forestry sector institutions--FNFP andDEFC. The project would establish the basis for improved longterm monitoringand control of forestry exploitation, and economical and technically soundregeneration programs. An immediate financial benefit would also result frornthe strengthening of these institutions through improved collections of taxesand royalties on one hand, and savings in more cost-effective reforestationprograms to be executed by project-trained staff of FNFP on the other.Finally, the project would provide further experience with village-levelindividual forestry which would hold one of the keys to reversing the continualdegradation of dry-zone forestry resources (para 3.09).

B. Economic Justification

(a) Economic Analysis and Rate of Return (ERR)

7.03 The economic analysis of the project is confined to the three pro-ductive plantation components representing 81% of total project costs--Edea,SEMRY and Ngaoundere--and the technical assistance to FNFP representing anadditional 7% of project costs. Although significant benefits to Governmentwould eventually accrue from the improved seed production unit, these aresimilar in nature to long term research efforts whose benefits and costs arenot quantified for the economic analysis. In addition, the benefits accruingto Government from the improvement in DEFC are financial, and are in the formof transfer payments for which economic value is not imputed. Two analysesare performed on the Edea Plantation: the first on the 8,800 ha projectplantation; and the second, on the 24,000 ha reforestation program which wouldallow Cellucam to convert to plantation grown wood. Variation in the EdeaPlantation's ERR without Cellucam as the market is analysed in the projectrisk section (para 7.11).

7.04 Costs and benefits have been estimated in constant 1981 terms. Allcosts have been taken net of taxes, and all non-labor costs have appropriatephysical contingencies included (para 5.02). The share of capital and non-labor operating costs which represent non-traded goods and services have beenadjusted by a standard conversion factor (SCF) of 0.77 to bring them to borderprices comparable with traded goods and services. Wages and salaries of theskilled labor force working at the Edea Plantations who would be paid followingthe Cameroonian industrial pay scales (SMIC), are also brought to border priceequivalents by multiplying by the SCF of 0.77. Unskilled seasonal laborworking at the Edea Plantations would also be paid at the lowest levelspermitted by the SMIC. However, for the economic analysis, labor is costed atrates comparable to those paid for similar work under comparable conditions in.agricultural plantation projects in the area. Skilled and unskilled seasonallabor working at SEMRY and Ngaoundere are costed at the market wage rate netof taxes, which currently reflects the scarcity value of peak-season labor.

- 31 -

7.05 The value of standing pine at the Edea Plantation has been estimatedbased on the price of imported pine wood chips, delivered to the pulpmill, andaccounting for chipping, and logging costs of plantation wood per m3 . Theresultant economie value of standing pine is US$57 per m3 in 1981 terms.Following recent projections of the future world market situation, this priceis increased at 0.5% per year in real terms. The economic value of eucalyptshas been estimated directly as equal to the reduced cost of harvesting comparedto harvesting the natural hardwood forest, plus the savings in pulping costspossible when using uniform plantation material (para 7.02). The resultanteconomic value of standing eucalypts is estimated at US$12/m3.

7.06 The value of standing eucalypts at SEMRY is estimated at US$53.40/m3.This is the weighted average value of building piles (50%) and fuelwood (50%),derived by reducing market prices by estimated cutting and transport costs.Considering that wood from SEMRY would be marketed locally, in essentiallyunregulated markets, local-market monetary values are taken to be the economicvalues of the wood. Wood eut by owners of plots in village wood-lots has alsobeen valued at this price. The value of standing eucalypts at the Ngaoundereplantation is estimated to be US$44/m3 which is the weighted standing valueof fuelwood, building poles and transmission and telephone poles, derived frommarket prices reduced for cutting and transportation costs. The value ofstanding pine is estimated to be US$10/m3 in PY7 to PYIO, and US$15/m3

between PYll to PY20, as the weighted average prices of fuelwood, poles andsmall sawlogs. When pines are clear cut as utility saw logs between PY25 andPY29, they would be worth US$24.50/m3. Local markets for fuelwood, buildingpoles and saw logs are free of regulation so that local monetary values aretaken as the economic values of the wood. Transmission and telephone poleswould be sold to SONEL--the national electrical utility company--for use inthe Northern Province, at about US$77 each in 1981 terms. This price is takenas a close approximation to an import parity value of wooden, treated poles,which have recently been sold internationally at prices between US$174 andUS$264 each, deducting transportation costs of about 30% of value to establisha CIF Douala price and transportion costs of 50% to establish a local pricesin Ngaoundere. Derivation of the economic prices is given in the projectfile.

7.07 On the above assumptions, the economie rates of return of thecomponents in the project are as follows:

% ofProject Estimated Switching Values @12%

Component Cost ERR % Costs % Benefits %

Edea Plantation (project) 70 13.9 20.9 -17.3Edea Plantation (program) 13.7 15.7 -13.6

SEMRY Plantation 7 19.1 67.7 -40.4

Ngaoundere Plantation 4 19.0 88.1 -46.8

Project (3 plantations plusFNFP Headquarters) 88 13.9 19.0 -16.0

The detailed cost and benefit streams used are given in the project file.

- 32 -

(b) Sensitivity

7.08 The rate of return to the project, overall, is only moderatelysensitive to changes in real costs and benefits. As indicated in para 7.07,a general rise in real cost of 19% or a loss of real benefits of up to 16%would be required to reduce the ERR to 12%--the estimated opportunity cost ofcapital. Moreover, the two arid region plantations--SEMRY and Ngaoundere--show considerable resiliency to changes in benefits and costs. Of particularimportance are the following factors which could influence the ERR of the EdeaPlantation:

(a) Real Price Increase for Pine: In the event that the economicvalue of pine did not increase at the 0.5% per year as projected(para 7.05) the ERR for the project would decline from 13.4% to13.2%;

(b) Lag in Plantation Program: Delays in Cellucam s cutting of thetropical high forest would slow the rate of plantation executionwhich would delay the realization of project benefits. Althoughmany costs could be avoided in such a case, a lag of one year inbenefits relative to project costs is a realistic possibility.Such an occurence however, would reduce the ERR from 13.4% to13.0%; and

(c) Yield Variation: Yield estimates which are the basis for theproposed project are consistent with early evidence from provenancetrials currently being conducted in the Edea area. Nonethelessowing to variation in micro-ecological growing conditions, yieldvariation may occur. A 10% reduction in yield, would reduce the EIRto 13.0% and a yield reduction of 20% would result in an ERR of 12,2%.

C. Risks

7.09 No major or unusual technical risks threaten the success of theproposed project. Normal risks of fire in the arid zone plantations, andof pathogens, have been adequately dealt with in project design and provi-sions have been made for resources to assure adequate protection. The plant-ing technologies proposed have been used in several West African countrieswith success under similar arid and humid zone conditions. The less-triedtechnique of establishing individual wood-lots (para 3.09) is viewed as apilot project, and the risks which may exist are socio-economic, not technicalrisks.

7.10 Cellucam would be the primary market for plantation grown woodfinanced by the project and a major participant in executing the project,although Government would retain ownership of the wood to be grown and woulddefine principles of establishing adequate stumpage fees in the contract withCellucam (para 8.02b). An analysis of Cellucam-s projected cash flow

- 33 -

indicates that Cellucam would be able to pay stumpage fees allowing costrecovery with interst when the wood is ready to cut. However, in the unlikelyevent that Cellucam was not the market for the project plantation wood, thepine and eucalypts would have markets as wood chips for export, sawlogs forutility lumber, and transmission poles. On the assumption that 20% of thepine was sold as utility lumber and 80% as wood chips for export, and that 5%of the eucalypts were sold as building and transmission poles with 95% sold aswood chips, Government could realize about US$12/m3 in 1981 terms for thetrees planted under the project. This would still be sufficient to allow fullcost recovery and a return of 2.5% on investment (para 6.03).

VIII. ASSURANCES AND CONDITIONS

8.01 During negotiations, Government agreed that:

(a) no works would be undertaken for any of the village woodlots beforea plan of action for carrying out such a program had been submittedto and approved by the Bank (para 3.09);

(b) individuals with qualifications and terms of reference acceptable tothe Bank would be recruited following procedures discribed in the"Guidelines for the use of consultants by World Bank Borrowers andby the World Bank as Executing Agency" for the position of ProgramOfficer, Project Accountant and Supervising Plantations Manager, forFNFP; and Director of Forestry, SEMRY (para 4.06);

(c) the Edea, SEMRY and Ngaoundere plantations would follow annual workplans and budgets submitted for Bank approval by March 31 of theyear preceding the program, (paras 3.10, 4.03, 4.04);

(d) senior officers designated as responsible for the assessment andmonitoring of the collection of taxes and royalties in each of the5 relevent previous would be in part throughout the project(para 4.07);

(e) it would-make available to DEFC and FNFP sufficient resourcesto execute the project, with funds passed on as grants to FNFPwho would maintain separate accounts for each project com-ponent, and to DEFC; and it would replenish these accountsthroughout the year from the procedes of the Bank and CDC Loans, andat the beginning of the fiscal year with its contribution followingapproved budgets for the components (para 5.05); and

(f) it would take all necessary action to collect by December 31, 1982all outstanding forestry taxes and royalties overdue as of July 31,1980, and to assure that henceforth, all forestry taxes and royal-ties would be properly assessed and collected within twelve monthsafter their respective assessment (para 1.13).

- 34 -

8.02 Conditions of loan effectiveness would be:

(a) the fulfilment of all conditions precedent for the effectivenessof the CDC loan (para 5.04);

(b) the signature of a contract between Cellucam and FNFP, acceptable tothe Bank specifying arrangements for the execution of the EdeaPlantation (para 4.02); and

(c) that Government establish separate projects accounts for each of theplantation components and deposit in them CFAF 400 million (US$1.5million) for Edea Plantations; CFAF 35 million (US$0.13 million) forSEMRY; CFAF 25 million (US$0.09 million) for Ngaoundere; CFAF 12million (US$0.04 million) for FNFP Headquarters; and CFAF 33 million(US$0.12 million) for DEFC; which represents about 6 months operat-ing costs for these components (para 5.05).

8.03 A Condition for disbursement against eligible costs of the SEMRYcomponent would be the signature of an agreement satisfactory to the Bankbetween FNFP and SEMRY specifying the arrangements for executing the program(para 4.04).

8.04 Under these conditions, this project is suitable for a Bank loan ofUS$17.0 million.

- 35 -

ANNEX

Table 1

CAMEROON - FORESTRY PROJECT

Estimated Schedule of Disbursements(US$ million)

IBRD Fiscal Years Cumulative % of Loanand Semesters Disbursements Disbursements Disbursed

FY 83

September 1982 0.2 0.2 1December 1982 0.4 0.6 4March 1983 0.4 1.0 6June 1983 0.5 1.5 9

FY 84

September 1983 0.7 2.2 13December 1983 0.7 2.9 17March 1984 0.8 3.7 22June 1984 0.9 4.6 27

FY 85

September 1984 0.9 5.5 32December 1984 0.9 6.4 38March 1985 0.9 7.3 43June 1985 0.9 8.2 48

FY 86

September 1985 0.9 9.1 54December 1985 0.8 9.9 58March 1986 0.8 10.7 63June 1986 0.8 11.5 68

FY 87

C September 1986 0.7 12.2 72December 1986 0.6 12.8 75March 1987 0.6 13.4 79June 1987 0.5 13.9 82

FY 88

September 1987 0.5 14.4 85December 1987 0.5 14.9 88March 1988 0.5 15.4 91June 1988 0.5 15.9 94

FY 89

September 1988 0.3 16.2 95December 1988 0.3 16.5 97March 1989 0.3 16.8 99June 1989 0.2 17.0 100

CAMEROON - FORESTRY PROJECT Annex

Table 2Illustrative Government Cash Flow 1/

(CFAF million)

Investments Project generated revenues Project Surplus/ Project Financing Covt. Net Cash Flow

Plantation Other FNFP DEFC Sub Plantation Indirect sub (Financing Debt

Years Components Components Component Total Components 2/ Taxes 3/ Total Requirement) Loans 4/ Service _/ Net Annual Cumulative

1982 1398 223 400 2021 130 130 (1891) 243 76 168 (1,723) (1,732)

1983 1050 156 126 1332 90 90 (1242) 891 69 822 (420) (2,152)

1984 1605 168 87 1860 122 122 (1738) 1350 162 1,188 (550) (2,702)

1985 1922 240 239 2401 160 160 (2241) 1350 309 1,041 (1,200) (3,902)

1986 1844 44 '00 1988 130 130 (1858) '.134 457 1,591 (267) (4,169)'

1987 252 252 21 21 (231) 810 1,169 (359) (590) 4,759)

1988 238 i 39 39 6299 1,113 (492) (453) (5,212)

1989 389 389 389 189 1,060 (871) (482) (5,694)

1990 452 î452 452 1,009 (1,009) (557) (6,251)1991 532 532 532 957 (957) (425) (6,676)

1992 539 906 (906) (367) (7,043)

1993 145 1.45 1 4 855 (855) (710) (7,753)

1994 358 358 358 803 (803) '445) (8,198)

1995 815 815 815 752 (752) 63 (8,135) W

1996 6968 6968 6968 700 (700) 6,268 (1,867) O

1997 5389 5389 5389 649 (649) 4,740 2,873

1998 1810 1810 1810 598 (598) 1,212 4,085

1999 L356 1356 1356 546 (546) 810 4,8952000 1591 1591 1591 495 (495) 1,096 5,9912001 2011 2011 2011 443 (443) 1,568 7,559

2002 1924 1924 1924 1,924 9,483

2003 1930 1930 1930 - 1,930 11,4132004 6629 6629 6629 6,629 18,043

2005 4601 4601 4601 4,601 22,6432006 2435 2435 2435 2,435 25,078

2007 1000 100() 1000 1,000 26,0782008 862 862 862 862 26,9402009 867 867 867 867 27,807

2010 873 873 873 873 28,680

1/ Costs inflated by appraisal report factors during project development period. Thereafter at 6% for foreign costs and all revenues, and at 12% for local costs

during the investment period (upto 1995 after which plantation components show a cumulative surplus); and in constant 1995 terms from 1996 onwards.

2/ Project file shows the composition of these streams which are shown net.

3/ Idenitifiable indirect taxes on project expenditures; excludes possible tax revenue from forestry sector generated hy DEFC component.

4/ From Table 1 Estimated Schedule of Disbursements (Band loan). CDC loan assumed to be disbursed paripassu with Bank loan.

5/ Prom ProSect File Debt Service.

21st April 1981.

- 37 -

CAMEROON

FORESTRY PROJECT

Table of Contents: Project File

Annex 1 Detailed Cost Tables, By Project Component

(a) General

(b) Edea Plantation

(c) Semry Plantation

(d) Ngaoundere Plantation

(e) Improved Seed Production Unit

(f) Technical Assistance to FMP

(g) Support for DEFC

Annex 2 Financial and Economic Tables

(a) Cash Flows

(b) Cost and Benefit Streams

(c) Economic Prices

Annex 3 Technical Supporting Papers

(a) Seed Production Unit

! (b) Land Clearing Methods

(c) Technical Specifications for Plantations

Annex 4 Terms of reference for short-term Consultants

Annex 5 Terms of Reference for Technical Assistance Personnel

CAMEROON - FORESTRY PROJECT

EDEA PLANTATION

SILVICULTURE UNIT ORGANICRAM

Total

Director-Gcneral PersonnelCategory Cellucam

(a) Staff of Cellucam Director 'Director| Pulpmill l l ~Forestry | l Fnne | |Amnsrto

(b) Profesion .. 1

Foresters of Cellucam Director Director Director DirectorLoggitig Silviculture M obile Logistics

Expats | hief Chief Cef 2

GIOE Nursery (x) Plantations (x) Planning 1

(c) Proiect Staff S Site f District 2 |istrict 3 japigAdministration

(GIOC 1 1 1 3

- Supervisors 1/(G9 1 1 l 1 1 1 6

-Foremen 2/ G8 2 2 3 3 3 3 1 1 18

-Gangers 3/ G7 2 Z 6 6 6 6 1 1 i 31

- Clerical G7 8 8

- Neadmen 4/ G6 7 7 7 7 28

1/ Supervisors are Technicians in charge of a Section (or District in the case of the CTOC cadre)

2/ Foremen are in charge of Tasks (eg. in the nursery, mapping or surveying), orin charge nf one nf the 3 "chantiers" in each of the 3 districts.

3/ & 4/ Cangers and Headmen are in charge of groups of about 10 workers, the difference being seniority to allow for promotion.

16th March 1981.ns,

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