Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 15189

PROJECT COMPLETION REPORT

MALAYSIA

SARAH LAND SETTLEMENT AND ENVIRONKENTAL MANAGEMENT PROJECT(LOAN 3039-MA)

DECEMBER 22, 1995

Agriculture and Environment Operations DivisionCountry Department 1East Asia and Pacific Regional Office

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 EQUIVALENT

Malaysian Ringgit per US$

Year Exchange Rate

1988 (Appraisal) 2.60

1989 2.71

1990 2.70

1991 2.75

1992 2.55

1993 (Completion) 2.57

ABBREVIATIONS

BINA - Felda Construction Corporation

DOE - Federal Department of the Environment

EMP - Environmental Management Plan for the Dent Peninsula

FELDA - Federal Land Development Authority

ffb - Fresh Fruit Bunches of Oil Palm

GOM - Government of Malaysia

GOS - Government of the State of Sabah

KWR - Kulamba Wildlife Reserve

MTED - Sabah Ministry of Tourism and Environmental

Development

PWD - Public Works Department

SCS - Sabah Conservation Strategy

SWD - Sabah Wildlife Department

TWR - Tabin Wildlife Reserve

UNDP - United Nations Development Program

WWFM - World Wide Fund for Nature, Malaysia

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLYThe World Bank

Washington, D.C. 20433U.S A

Office of the Director-General December 22, 1995Operations Evaluation

MEMORANDUJM TO THE EXECUTIVE DIRECTORY AND THE PRESIDENT

SUBJECT: Project Completion Report on MalaysiaSabah Land Settlement an(d Env'ironmental Man:-gement Project (Loan 3039-MA)

Attaclhed is the Project Completion Report (PCR) on the Malaysia Sabalb Land Settlement andEnvironmental Managemenit project (Loan 3039-MA, approved in FY89). Parts I and Ill were prepared bythe East Asia and Pacific Regional Office and Part 11 by the Borrower.

The pro.ject area consists of about 400,000 hia on the Dent Peninisula. a remote and sparselvpopulated part of the State of Sabah. Both the Federal and Saball State Governments wished to promotesome economic development and poverty alleviation in thie area, mucIh of which remilainis forest covxered. butsubject to logging. About 100,000 lha suitable for oil palm cultivation was earmaraked for development illland settlement schiemes by the Federal Land Developmenlt AutIlolrity (FEIDA). A furtiler 170,000 ha wasset aside as wildlife and forest reserves. The project was to finance a folur-year time slice ( 1988-92) ofFELDA's agricultural developmenit program. including inifrastrluctuile for settlemenit villages. aiid to providesupport to the newly establislhed Sabali Department of Tourisimi and Envir-onimilental Developmeit. Thelatter included technical assistance and staff training ancl the lincremeinital staffing and infrastructLiralrequirements related to the wildlife reserves in thle peninsuila.

The agricultural development program was carried out on sclhedule, and about 61.000 lha wasplanted. Yields are in line with forecasts. lHowever, little interest was shown by the rural populationi ofSaball in the settlement scieme. Only 925 families were settled during the project period, compared to aplanned 3,500. The bulk of the land developed is being operated as an estate by FEL DA using hirecd labor.Performance of the environmental component was fully satisfactory. Relevalit legislation was passed,infrastructure for the forest and wildlife reser-ves on the peniisuIla constricted, a managemalernt plan prepared,and t'ie staff of the Wildlife Department increased and ti-ained. Local NGOs were closely involved in theseactivities and provided some techinical assistance. Institutional development is rated as substantial. Thieproject fully net all its phiysical objectives but, because of the decline in the price of palm oil sinceappraisal, the re-estimated ERR is only 7 percent, compared to 25 percent estimated at appraisal. I-owever,the ERR does not take the regional developmenit benefits into account. Sustainability is rated as likely, andproject outcome as marginially satisfactory. In its Part 11, the Borrower supports the findings of the PCR andemphiasizes the contribLtioln of local NGOs in planning aicl iinpleelineitiig the environimilenltal component.The completion report provides an aclequiate accoulit of project implementation.

An audit is planined.

CcCAttacliment

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

FOR OFFCIAL USE ONLY

PROJECT COMPLETION REPORT

MALAYSIA

Sabah Land Settlement and Environmental Management Project (Loan 3039-MA)

Table of Contents

Preface . . . . . . . . .

Evaluation Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE . . . . . . . . . . . . 1

Project Identity . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Project Objectives and Brief Description . . . . . . . . . . . . . . 4

Sahabat Settlement Complex . . . . . . . . . . . . . . . . . . . 4Dent Peninsula Environmental Management Plan . . . . . . . . . . 4

Project Design and Organization . . . . . . . . . . . . . . . . . . . 6

Project Implementation . . . . . . . . . . . . . . . . . . . . . . . 7Project Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Project Sustainability . . . . . . . . . . . . . . . . . . . . . . . 15

Bank Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Borrower Performance . . . . . . . . . . . . . . . . . . . . . . . . 15

Project Relationship . . . . . . . . . . . . . . . . . . . . . . . . 15

Consulting Services . . . . . . . . . . . . . . . . . . . . . . . . . 16

Project Documentation and Data . . . . . . . . . . . . . . . . . . . 16

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . . . . . . 17

Review of the Environmental Component by the Government of Sabah . . 17Comments from FELDA . . . . . . . . . . . . . . . . . . . . . . . . . 21

PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 24

Related Bank Loans . . . . . . . . . . . . . . . . . . . . . . . . . 24

Project Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Cumulative Estimated and Actual Loan Disbursements . . . . . . . . . 26

Project Implementation . . . . . . . . . . . . . . . . . . . . . . . 27

Project Cost and Financing . . . . . . . . . . . . . . . . . . . . . 29

Project Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Status of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 31

Use of Bank Resources . . . . . . . . . . . . . . . . . . . . . . . . 33

MAPS IBRD 20966 and 27173

Ths document has a restricted distribution and may be used by recipients only in the performance of theirI official duties. Its contents may not otherwise be disclosed without World Banlk authorization.

Project ComPletion Report

MALAYSIA

Sabah Land Settlement and Environmental Management Project (Loan 3039-MA)

Preface

This Project Completion Report (PCR) reviews implementation of the Sabah

Land Settlement and Environmental Management Project in Malaysia, for whichLoan 3039-MA in the amount of US$71.5 million was approved on April 25, 1989.

The Loan closed on June 30, 1994, six months behind schedule. The last

disbursement was made on July 19, 1994, and the undisbursed balance of US$0.53

million was cancelled on that date.

The Evaluation Summary and Parts I and III of the PCR were prepared by

the Agriculture and Environment Operations Division of the Country Department

I, East Asia and Pacific Region. Preparation of Parts I and III by the Bank

was based, inter alia, on the findings of a PCR mission carried out in October

1993 and a follow-up PCR mission in February 1995 to review the environmental

component of the project; data on land settlement and agricultural developmentfurnished by the Federal Land Development Authority (FELDA) and that on the

environmental component by the Ministry of Tourism and Environmental

Development (MTED) of the Government of Sabah, Malaysia; the Staff Appraisal

Report No 7381-MA dated March 30, 1989; the Loan and Project Agreements datedJuly 18, 1989; correspondence between the Bank and the Borrower; and Bank

supervision reports and project files. Part II of the PCR was prepared by the

MTED, Sabah, and FELDA, the main implementing agencies for the project.

The Bank wishes to thank the officials of the MTED and the management

and staff of FELDA and Sabah Public Works Department for their cooperation and

assistance in preparing this PCR.

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PROJECT COMPLETION REPORT

MALAYSIA

SABAH LAND SETTLEMENT AND ENVIRONMENTAL MANAGEMENT PROJECT (LOAN 3039-MA)

Evaluation Summary

Project Obiectives

1. The project, located in the eastern part of Sabah, called the DentPeninsula, involved consolidation of agricultural development and settlementof some 61,000 ha, and implementation of an Environmental Management Plan. Theproject envisaged a four-year time-slice financing (from January 1989 throughDecember 1992) and included support to the following components in progress in1989 or to be initiated during the project period: (a) for the SahabatSettlement Complex, crop development and early maintenance of about 51,150 haof oil palm and coffee; construction and rehabilitation of agricultural andaccess roads; development of four settlement villages; construction of onepalm oil mill; and provision of vehicles and equipment; (b) for the DentPeninsula Environmental Management Plan, implementation of actions to enhanceconservation and management of the Tabin and Kulamba Wildlife Reserves,including provision of staff and other resources to the Sabah WildlifeDepartment (SWD); provision of infrastructure facilities and equipment for thewildlife reserves; provision of technical assistance, including: (i) twotechnical advisors for the SWD; and (ii) consulting services for thepreparation of a Sabah Conservation Strategy; and establishment of anEnvironmental Coordination Unit in FELDA to ensure enhancement ofenvironmental protection practices during agricultural development of theSahabat area and in future FELDA land settlement projects. About 8,600 settlerfamilies in the long term and 3,560 families during the project period were tobenefit from the project.

Implementation Experience

2. Project implementation was generally problem-free. However, settleremplacement was disappointing (para. .) and progress of the environmentalcomponent was slower than expected at appraisal, given the weakness of theSahab Wildlife Department at that time and the significant legislative andadministrative changes involved. The Bank loan closing date was extended byonly six months to June 30, 1994, and the loan was almost fully disbursed.

3. A. Sahabat Settlement Complex. Agricultural and infrastructuredevelopment targets were substantially achieved. Compared to 61,000 haexpected at appraisal, about 65,000 ha had been planted through 1993,including cocoa areas (later converted to oil palm) and plantings before 1984not financed by the Bank loan. The Bakapit-Tungku access road rehabilitationcommenced in June 1992 and was completed in November 1994. The internalaccess road network was also completed as envisaged at appraisal (exceptmetalling of about 20 km linking Village C to Tungku, which is expected to becompleted by mid-1995). The targets for the village infrastructure were met,except for settler houses, which were greatly reduced in numbers due to the

-iv-

limited emplacement of settlers (para. 5). The palm oil mill was completed

and commissioned in early 1992 and has already reached its 60 ton of ffb/hour

design throughput.

4. B. Dent Peninsula Environmental Management Plan. Overall,implementation of the Plan was satisfactory, although delays were experienced

in technical assistance recruitment, and legislative and administrative

reforms. The UNDP funding of the TA component was very helpful and World Wide

Fund for Nature, Malaysia (WWFM), a local NGO, played a key role in

preparation and implementation of the EMP.

Results

5. Overall project results were satisfactory. As regards the Sahabat

Settlement Complex, the economic development objective of increasing

agricultural production and exports of Sabah was achieved. The rehabilitation

of the Bakapit-Tungku access road has cut down by two-thirds the travel time

from Bakapit to Sahabat. However, achievement of the project's social

objective of rural poverty alleviation by providing land to poor farmers was

disappointing, as only 925 settlers were emplaced (on about 5,700 ha),

compared to 3,560 expected at appraisal. About 90% of the Sahabat area isbeing managed by a FELDA subsidiary as a commercial plantation utilizingimmigrant labor and hired Sabahan workers. Given the relatively small

population of Sabah, the remoteness of the Sahabat area, and the perceived

reluctance of poor Sabahans (mostly shifting cultivators and fisherfolk) to

adopt permanent settlement and farming conditions, the risk was specifically

recognized at project appraisal that there may not be a sufficient number of

families willing to settle in the project area. To ensure settler

availability, FELDA, in close cooperation with the Sabah State Government, was

to carry out an aggressive promotion and recruitment campaign. However, those

efforts did not prove very successful.

6. As regards the Dent Peninsula EMP, the project results were

unquestionably significant and the institutional impact was substantial. Key

objectives have been attained or are about to be attained: (a) full-time

staff of the Sabah Wildlife Department are now based at Tabin Wildlife Reserve

with responsibilities covering the Kulamba Wildlife Reserve. A management

plan has been completed for Tabin. Licensed logging in Tabin ceased in 1992

and illegal logging has been reduced to occasional incursions. Illegalhunting is also much better controlled. Aerial and other surveys in 1994 show

significant regeneration of logged-over areas and an abundance of wildlife;

(b) an amendment to strengthen existing legislation for wildlife sanctuaries

was transformed into a more comprehensive and functional Wildlife Conservation

Enactment, which is ready for consideration by the Sabah Cabinet prior to its

being tabled at the State Legislative Assembly later this year. The Enactment

is very comprehensive and is generally regarded as a model for conservation

legislation in developing countries; and (c) the Sabah Conservation Strategy

has provided guidelines and an operational framework for the sustainable

management of Sabah's natural resources and is now being implemented at the

sectoral level.

7. The experience with FELDA's Environmental Coordination Unit was notsuccessful. The Unit was never very active and it has now been dissolvedsince FELDA's new land development has come to a stop and no role for the Unit

was envisaged for the mature phase of plantations.

8. Project Benefits. The project's main benefits are increased production

and exports of palm oil and kernels and improved environmental management inSabah. The total production of ffb in schemes 1 to 35 in 1994 was estimatedat about 884,000 tons (equivalent to about 185,650 tons of crude palm oil and31,000 tons of palm kernels). Peak yields of 24 tons ffb/ha projected atappraisal are unlikely to be attained, except in about 10% of the area. Forover 90% of the area, peak yields are likely to be about 21 tons ffb/ha. Thislower yield is partly a reflection of the problems on about 10-12,000 ha

(about 20% of the total project area) of calcareous (coral) soils in theeastern part of Sahabat, where the peak yields are unlikely to exceed 18 tons

ffb/ha. These calcareous forests and swamps should have been preserved for

environmental reasons. The number of settler beneficiari-s (925) is much less

than that expected at appraisal (3,560) due to the problems encountered in

settler recruitment (para. 5). With the high palm oil prices prevailing in1994, net monthly settler incomes in Sahabat schemes averaged RM1,450

(US$580), which is higher than the appraisal estimate of RM1,320 for 1994(RM1,035 in 1988 constant terms).

9. Economic Rate of Return. The economic rate of return (ERR) of the project

at completion is estimated at 7%. The ERR is lower than that at appraisal

(25W) principally due to a steep decline in projected palm oil prices: the

Bank's projected prices in years 2000 and 2005 (in 1994 constant terms) are

27% and 35% lower than the price assumed at appraisal. The other relatively

minor reasons are the lower expected yields of oil palm (para. 8) and a one-

year lag in production benefits. If the prices projected at appraisal had

materialised, the ERR at completion would have been about 21%.

Sustainabilitv

10. Although FELDA and its subsidiaries are well-established and relativelystrong institutions and their management, production and marketing systemshave proven to be successful, the sustainability of the Sahabat SettlementComplex in financial terms will mainly depend on the level of world palm oilprices. If the current high prices continue for a few years, there should beno problem in ensuring the profitability of the Complex. However, if theprices quickly decline to the levels projected by the Bank for the long term,

serious financial problems might surface. With the strengthening of the Sabah

Wildlife Department under the project and the continuing strong commitment ofthe MTED to environmental improvement in Sabah, the results obtained under theenvironmental component of the project are expected to be sustained.

Findings and Lessons Learned

11. The main findings and lessons learned are as follows:

(a) Employment of local NGOs, who have a proven track recordand who are acceptable to the Government, can be the

-vi-

ideal way to prepare and implement environmental projects(PCR, para. 5.4).

(b) Adequate environmental safeguards should be ensured inland development operations: the clearing of calcareousforests and swamps in the eastern part of Sahabat shouldhave been avoided (PCR, paras. 5.23 and 6.4).

(c) Settler emplacement problems should not be underestimatedand land development activities in settlement projectsshould be consistent with settler availability (PCR,para. 6.1).

(d) A well-prepared environmental management plan with adequateGovernment commitment and technical support can have a significantimpact within a relatively short period of time (PCR, para. 6.2).

PROJECT COMPLETION REPORT

MALAYSIA

SABAH LAND SETTLEMENT AND ENVIRONMENTAL MANAGEMENT PROJECT (LOAN 3039-MA)

PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

1. Project Identitv

Name Sabah Land Settlement and Environmental Management Project

Loan Number 3039-MARVP Unit East Asia and Pacific Regional Office

Country MalaysiaSector Agriculture, Infrastructure and Environment

2. Background

2.1 Acariculture in Sabah. Sabah is one of the two East Malaysian

States. It accounts for about 22% of the total area of the country, but the

population is only 1.3 million, or 8% of the country's total. In the late

1980s, forestry, agriculture and fisheries contributed about 40% of theState's GDP and 50% of exports, with forestry being the largest contributor.

About 2.15 million ha or 30t was suitable for agriculture, but less than one-

third (600,000 ha) was under cultivation in 1986. As in Peninsular Malaysia,Sabah's climate and soil conditions provide a strong comparative advantage for

tree crops, in particular oil palm and cocoa. About 75% of Sabah's population

lives in rural areas, and they are mostly indigenous peoples. Traditionally,they have been shifting cultivators, hunters and fishermen. In 1984, it was

officially estimated that about 33% of the whole Sabah population was below

the poverty level. There is a continuous influx of labor from neighboringIndonesia and Philippines, most of which is employed in tree crop plantations

on the East Coast.

2.2 FELDA. The Federal Land Development Authority (FELDA) was

established in 1956 as a Statutory Body attached to the Ministry of Lands.

Since its inception, FELDA played a mdjor role in addressing the Government's

poverty alleviation program through the development and planting of Statelands principally with rubber and oil palm for settlement by poor rural

families. FELDA's integrated program involved land development andsmallholder settlement in group farming schemes that included community

organization, management, roads, village infrastructure, water supply

facilities, agricultural extension, inputs, credit, processing, marketing and

other services. For its development services and downstream activities (suchas palm oil fruit processing, transport and marketing) FELDA established

several subsidiary corporations and entered into joint venture arrangementswith the private sector. To construct access roads and village

infrastructure, which are financed by Federal grants, FELDA relied on thePublic Works Department (PWD).

2.3 As of December 31, 1988, FELDA had settled 111,728 families in 441settlement schemes comprising about 752,000 ha, with a total area in

production of about 540,000 ha. Until 1978, FELDA's program was limited to

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Peninsular (West) Malaysia. However, with increasing scarcity of suitable

land in the peninsula, FELDA began operations in Sabah in 1979 and in Sarawakin 1987. Under the Fifth Malaysia Plan (1986-90), FELDA intended to develop

175,000 ha and emplace 30,000 settler families, with a total investment of M$

2.7 billion (US$ 1.06 billion), about one-third of which would be in Sabah.

However, during the first three years of the Plan, budget allocations and

government outlays were lower than projected and implementation had fallen

behind target.

2.4 FELDA's long-term Sabah program consisted of three projects with a

gross target area of 119,600 ha: Umas (9,700 ha), Kalabakan (6,900 ha) and

Sahabat (103,000 ha). Land development and planting of the first two

complexes had been substantially completed. Agricultural development andinfrastructure works in the larger Sahabat program were still in progress, and

settler emplacement was starting in 1988.

2.5 Pro-ect Area. The project area comprised the Sahabat Land

Development and Settlement Complex and the Tabin (TWR) and Kulamba (KWR)Wildlife Reserves, located at the eastern end of the Dent Peninsula in the

State of Sabah. A 65-km gravel road from Lahad Datu to Tungku, of which a 35

- km section between Bakapit and Tungku was in poor condition, provided accessto the Sahabat area.

2.6 A. The Sahabat Settlement Complex. FELDA's long-term program forSahabat (gross area of 103,000 ha) included development and planting of about90,000 ha and settlement of about 12,700 families. The Sahabat Complex was

divided into 54 schemes, which in turn were to be grouped into 13 villages (A

through M), with an average production area of 7,000 ha per village. The

long-term program included construction of roads, water supply works, housing,

offices and other buildings, palm oil mills, an "industrial complex" including

palm oil bulking installations and a jetty, and a palm oil refinery at a laterstage. By end - 1988, some 61,000 ha had been cleared in schemes 1 to 35 and39,300 ha planted. Although considerable infrastructure had been completed in

the area, harvesting and transport of oil palm on about 13,700 ha already inproduction was seriously hampered by an almost total lack of agricultural

roads and an incomplete access road network.

2.7 B. Wildlife Reserves. The Tabin Wildlife Reserve(TWR) (120,000

ha) is the largest forest area in Sabah (and in Borneo) established

specifically for the protection of wild breeding populations of the Asian

elephant (Elephas maximus), the Asian two-horned rhinoceros (Dicerorhinus

sumatrensis) and the wild cattle (Bos iavanicus), known locally as banteng or

tembadau. Gazetted in March 1984 under forest legislation, TWR had previouslybeen commercial forest reserve selectively logged for large dipterocarp trees

for export. After gazettement, commercial logging had continued in all parts

of the Reserve except in a "Core Area" of 8,616 hectares, which had no special

legal status but was retained as a sanctuary for rhinos and other mammalsdisplaced by logging in surrounding areas, as well as a source of plants and

animals to regenerate neighboring forest after logging. With the development

of the adjacent Sahabat area, the importance of TWR had increased, since itwould have to provide sanctuary to wildlife displaced by land clearing and

agricultural development within the Sahabat scheme. Also located in the Dent

Peninsula north of Tabin are the Kulamba Wildlife Reserve (KWR) (20,682 ha),

the Kuala Segama and Kuala Maruap Forest Reserve (24,000 ha), and the nipa

swamp state land set aside for fisheries. Tabin and Kulamba are the only

wildlife reserves in the State of Sabah.

2.8 Until 1987, wildlife conservation and management was the

responsibility of the Sabah Forestry Department, through its Wildlife Section.

In 1987, this Section was transferred to operace as a Department under the

State Ministry of Tourism and Environmental Development (MTED). The new

Department was still weak and needed considerable strengthening to be able to

develop and implement the required management and conservation policies and

programs.

2.9 The transfer of the Wildlife Section had led to ambiguity in

responsibility for management of the wildlife reserves. Since the reserves

were gazetted under forest legislation, responsibility for management of the

fauna and flora within them rested with the Forestry Depa-tment. Under State

legislation, there were no conditions attached to the status of the Tabin

Wildlife Reserve--logging could, therefore, continue without reference to the

new Sabah Wildlife Department (SWD). An amendment to the Fauna Conservation

Ordinance (Sabah's wildlife) conservation/management legislation) had placed

responsibility relating to wild animals (except fish) with the Wildlife

Department. However, as the distribution and abundance of wild animals

depends primarily on habitat, the Forestry Department effectively retained

control over all wildlife in the reserves. Furthermore, forest legislation

existing in the late 1980s was such that any kind of management activity

prescribed by SWD for animals required the support of the Forestry Department.

Thus, additional amendments to the then existing provisions were necessary to

ensure that wildlife habitat was protected and the SWD was empowered to

enforce its protection. The Government of Sabah (GOS) had indicated its

commitment to pursue these amendments and to strengthen the newly-established

SWD. The proposed project was to support this endeavor.

2.10 Bank Involvement and Project Origin. Bank staff first reviewed the

Sahabat settlement complex development program in 1985 during preparation of

the Palm Oil Mills Project (Loan 2530-MA), which included two mills in

Sahabat. At that time it was determined that the Federal and State

Governments were committed to implementing this project. It was also felt

that since the project involved land clearance of some 100,000 ha of secondary

rain forest and wildlife would be lost or displaced, Bank involvement could be

instrumental in bringing about wildlife and other natural resource protection

measures. Thus, after initial discussions with FELDA and the central

agencies, a preparation mission visited Malaysia in July 1986 and agreed with

FELDA on the scope and timetable for a Preparation Report (PR) and terms of

reference for an environmental impact assessment (EIA). FELDA issued the PR

in June 1987 and the ETA was completed in February 1988. A follow-up

Environmental Management Plan for the Dent Peninsula (EMP) was completed in

May 1988 by the World Wide Fund for Nature, Malaysia (WWFM), which was

contracted for this assignment. Project appraisal took place in May 1988.

Sahabat's progress and future implementation targets were updated in February

1989.

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3. Project Obiectives and Brief Description

3.1 Proiect Obiectives. The project aimed to assist the Government inthe implementation of the Sahabat settlement program in the eastern part ofSabah, called the Dent Peninsula, thereby contributing to rural povertyalleviation and economic development of the State of Sabah, and at the sametime to implement an Environmental Management Plan for the Dent Peninsula,with emphasis on strengthening management and protection of the Tabin andKulamba wildlife reserves, and on institution-building. The project involvedconsolidation of agricultural development and settlement of some 61,000 ha, byproviding infrastructure and agricultural inputs and services. This wasexpected to raise incomes and living standards of about 8,600 families in thelong term and 3,560 families during the project period, increase agriculturalproduction and exports, and contribute to the creation of employment inproject-related services and processing industries.

3.2 Project Description. The project was to consis- of a four yeartime-slice financing (from January 1989 through December 1992) of the Sahabatprogram (para 2.6) and the Dent Peninsula Environmental Management Plan andwas to include support to the following components in progress in 1989 or tobe initiated during the project period:

A. Sahabat Settlement Complex

(a) Crop development and early maintenance of oil palm and coffee andconstruction of about 5,000 km of agricultural roads;

(b) Rehabilitation of 35 km of the project area main access road,bituminous treatment of 36 km and construction of 44 km of internalaccess roads;

(c) Development of four settlement villages (A to D), includingconstruction of village roads, water mains and reticulation works,settler houses, offices and staff houses;

(d) Construction of one palm oil mill; and

(e) Provision of vehicles and equipment, salaries and other operatingexpenditures for field management and operation of the schemes.

B. Dent Peninsula Environmental Management Plan

(a) Implementation of actions to enhance conservation and management ofthe Tabin and Kulamba Wildlife Reserves, including provision ofstaff and other resources to the Sabah Wildlife Department,

(b) Provision of infrastructure facilities and equipment for thewildlife reserves;

(c) Provision of technical assistance, including: (i) two technicaladvisors for the SWD; and (ii) consulting services to assist GOS in

the preparation of a Conservation Strategy for the State of Sabah;

and

(d) Establishment of an Environmental Coordination Unit in FELDA toensure enhancement of environmental protection practices during

agricultural development of the Sahabat area and in future FELDA

land settlement projects.

3.3 Crop Development and Maintenance. Excluding the areas developed

with cocoa, the project was to support: (i) completion of planting of 18,300

ha of oil palm and 300 ha of coffee in 1989 and 1990; and (ii) early

maintenance of 51,155 ha, including 32,555 ha of oil palm and coffee planted

from 1984 through 1988 and 18,600 ha to be planted in 1989 and 1990.

3.4 Agricultural Roads. The project included realignment, regrading

and 100% graveling of existing road tracks and construction of bridges and

culverts in schemes 1 to 35. Average agricultural road density was to be 90

m/ha.

3.5 Access Roads. The project was to support completion of the Sahabat

area main access road, and schemes 1 to 35 internal access road network,

including: (a) rehabilitation of the Bakapit-Tungku 35 km main access road,

and construction of a weighbridge; (b) asphalt pavement of 36 km of the

Tungku-Village D road; and (c) ongoing works (8 km) and additionalconstruction (26 km) of the eastern ring to village I and 10 km of the

diagonal road (to scheme 13).

3.6 Village Infrastructure. The project was to include infrastructure

development of four villages (A through D). Each village would group on

average four settlement schemes. Basic village infrastructure included in the

project consisted of roads, water mains and household connections, settler

houses and office buildings. Each village was to require about 24 km of

roads, for a total of 96 km for the four villages in the project.

3.7 Palm Oil Mill. The project included construction of one palm oil

mill at scheme 22. This was to be the third palm oil mill in the Sahabat

Complex and was to be ready for opera'ion by late 1992. The mill was to

consist of two lines of production, each of 30 tons of fresh oil palm fruit

bunches per hour (ffb/hour) nominal throughput.

3.8 Vehicles, Equipment and Operating Costs. The project included

first time purchases and replacement of vehicles and equipment, and management

and operating expenditures of the schemes during the first six years after

planting. Some 21 vehicles and 9 tractor/trailers were to be purchased during

the project period.

3.9 Dent Peninsula Environmental Management Plan (EMP). Environmental

actions under the project included:

(a) Legislative and Administrative Actions. To enhance conservationand management of Tabin and Kulamba wildlife reserves, the project

was to support GOS plans to: (a) amend existing legislation so as

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to define wildlife reserves as areas set aside for the conservation

of wildlife and wildlife habitat and to eliminate commercial forest

exploitation therein, and give responsibility for the management ofwildlife reserves to SWD; and (b) provide the SWD with the staff

and resources necessary to carry out its responsibilities, in

particular, the management and protection of TWR and KWR.

(b) Infrastructure and Equipment. The project was to provide for the

construction of a TWR Headquarters building. Access to theHeadquarters was to be through 30 km of existing plantation roads

which were to be upgraded to the agricultural roads standards ofthe Sahabat area. The project also provided for vehicles and

equipment for operation of the Reserve.

(c) Technical Assistance. The project provided for two technicaladvisors who were to assists SWD, each for a period of 30 months

starting not later than September 30, 1989. One of the advisorswas to be attached to the office of the Director of SWD and was to

assist in developing objectives, policies and programs, and inassessing staffing, staff training and other resource requirements

for the operation of the Department. The second advisor was to

assist the manager of the Tabin and Kulamba wildlife reserves, andwas to assist the SWD in developing a long-term operational and

research program, in staff training, and in the initial operation

of the reserves. Also, some 18 person-months of consulting

services were provided under the project to assist GOS in the

preparation of a Conservation Strategy for the State of Sabah.

Funding for all TA was to be by UNDP, with counterpart funds

provided by the Government of Sabah (GOS).

4. Project Design and Organization

4.1 Overall, the project concept and objectives were clear, and thedesign and scope of project components were appropriate to the conditions

prevailing in Sabah in the late 1980s. For the component relating to the

Sahabat Settlement Complex, as Bank experience with FELDA's development

approach had been very satisfactory i: the past, the project did not attempt

to introduce major planning, technical or managerial changes. From the

planning perspective, it was designed to accelerate the construction of basic

infrastructure required to bring about agricultural benefits and provide

suitable conditions for settler emplacement. Technically, the project focused

on enhancing design and construction standards for infrastructure andencouraging land development practices which alleviate environmental damage,

particularly through the establishment of an Environmental Coordination Unit

in FELDA (which was to be established by September 30, 1989). For the

component relating to the Dent Peninsula Environmental Management Plan,

project design appropriately provided for technical assistance and significant

legislative and administrative changes, considering the weakness of the Sabah

wildlife Department at that stage. Prior to loan negotiations, the GOS

furnished to the Government of Malaysia and the Bank a letter dated March 15,

1989 outlining its environmental policies and confirming its intentions and

timetable to implement the Dent Peninsula EMP. Project preparation, which

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spanned a period of two years, was adequate. Project processing took somewhatlonger than anticipated to allow for more detailed preparation of theenvironmental management component. Bank staff and consultants were involved

in project preparation and appraisal.

4.2 Organization. The project implementation responsibility was

divided among FELDA, Sabah Public Works Department (PWD), and the Government

of Sabah.

(a) Development of the Sahabat Settlement Complex was the

responsibility of FELDA and its subsidiary corporations in linewith the long-established land development and settlement approach.

Planning, design and construction of internal access andagricultural roads and buildings were the responsibility of FELDA'sEngineering Department assisted by FELDA Construction Corporation(BINA). Agricultural roads maintenance was to be carried out by

BINA under contract. Access and village roads after constructionwere to be gazetted as Federal roads and maintained by PWD-Sabah

with annual Federal budget allocations specifically earmarked for

this purpose.

(b) Engineering design and construction of the Bakapit-Tungku mainaccess road was to be carried out by PWD-Sabah with the help of

consultants and contractors. After construction, the road was tobe gazetted as a Federal road and maintenance funds were co be made

available from the Federal Government to PWD-Sabah for thispurpose.

(c) Primary responsibility for implementation of the EMP was to rest

with the Sabah Ministry of Tourism and Environmental Development

(MTED). The main State executing agency was to be the Sabah

Wildlife Department (SWD) of MTED.

The above organizational arrangements were maintained over the life of theproject and worked well. The road maintenance arrangements have also beenimplemented.

5. Project Implementation

5.1 Project implementation was generally problem-free. However,settler emplacement was disappointing (see further para. 6.1) and progress ofthe environmental component was slower than expected at appraisal, given theweakness of the Sabah Wildlife Department at that time and the significantlegislative and administrative changes involved. Compared to RM583.3 million(US$216.0 million equivalent) estimated at appraisal, actual project cost wasRM765.8 million (US$287.1 million equivalent), with the Sahabat time-sliceexpenditure amounting to RM760.2 million and the EMP expenditure to RM5.6million (including the UNDP TA of about US$0.98 million or RM2.6 million).The increase in total costs was due mainly to the inclusion of 1993expenditures, whereas the appraisal estimates were for 1989-92. Excluding1993, project costs would be RM629.8 million (US$234.2 million equivalent).The cost overrun over 1989-92 was due primarily to land development and

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infrastructure costs being higher than those anticipated at appraisal. There

was a minor amendment in the Project Agreement between FELDA and the Bank in

June 1991, and an amendment in the Loan Agreement between Malaysia and theBank in October 1992 (reflecting changes in the Subsidiary Loan Agreement

between the Government of Malaysia and FELDA). The Bank loan closing date wasextended by only six months to June 30, 1994 and the loan was almost fully

disbursed.

5.2 A. Sahabat Settlement Complex. Project time-slice financing of the

Sahabat Settlement Complex was completed in 1992, at which time agricultural

and infrastructure development targets had been substantially achieved. Crop

development and maintenance were largely in line with appraisal expectations.

Compared to 61,000 ha expected at appraisal for schemes 1 to 35 in the SahabatComplex (schemes 36 to 54 had not been cleared at that stage), about 65,000 hahad been planted through 1993. This included cocoa areas (later converted to

oil palm) and plantings before 1984 not financed by the Bank loan. Planting

and maintenance financed by the Bank loan is estimated at 18,800 ha of oilpalm and 350 ha of coffee, compared to 50,350 ha and 800 ha, respectively,

expected at appraisal. Changes in crop composition in the Sahabat Complexafter the start of the project included the clearing and replanting of

virtually all the original cocoa areas (not financed by the Bank) of about3,500 ha with oil palm due to the gloomy price prospects for cocoa, the

conversion of 1,290 ha of oil palm inter-cropped with cocoa into oil palm mono

crop, and the replanting to oil palm of about 200 ha of coconut on sandysoils. Of the total 65,000 ha planted in schemes 1 to 35, only about 5,700 ha

(less than 10% of the total area) has been allocated for settlers under the

block ownership system (block land titles rather than individual titles) andthe rest is operated as an estate by FELDA Plantations Sdn. Bhd. (a FELDA

subsidiary incorporated in early 1992) through contractors making use of

immigrant labor and hired Sabahan workers. About 4,550 km of agricultural

roads to serve the crop areas were also completed, compared to the appraisal

estimate of 5,000 km.

5.3 The Bakapit-Tungku access road rehabilitation commenced in June

1992 and was completed in November 1994, at an estimated cost of RM50 million

(including detailed engineering, survey and construction supervision costs).

The internal access road network was also completed as envisaged at appraisal(except metalling of about 20 km linking Village C to Tungku, which is

expected to be completed by mid-1995). The targets for the village

infrastructure were met, except for settler houses, which were greatly reduced

in numbers due to the limited emplacement of settlers (para. 6.1). The palm

oil mill at scheme 22 was completed and commissioned in early 1992 and hasalready reached its 60 ton of ffb/hour design throughput. The extraction rates

are about 21% for crude palm oil and 3.5% for palm kernels, the highest among

the four mills in operation in Sahabat as of February 1995.

5.4 B. Dent Peninsula Environmental Management Plan. Overall,implementation of the Plan was satisfactory, although delays were experienced

in technical assistance recruitment, and legislative and administrative

reforms. The UNDP funding of the TA component was very helpful and a key

contributor to the success of the EMP. WWFM, a local NGO, played a valuable

role in preparation and implementation of the EMP.

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5.5 (i) TWR and KWR: (a) Management. A 5-year Management Plan forTabin Wildlife Reserve was completed in October 1994 by the Chief TechnicalAdvisor to the project and officers of the Wildlife Department. It reviews

the regional context of the Reserve and its resources and socio-economic

pressures and details management objectives, including administration and

maintenance. Many protection actions have been initiated, including

systematic patrolling, boundary demarcation, and twice monthly aerialreconnaissance to monitor illegal logging. Research, surveying and monitoringactivities have been started and it is expected they will be consolidated andgiven better direction with the establishment of a new laboratory and the

implementation of a Memorandum of Understanding on a 10-year cooperative

program of research and training signed by the SWD and the University

Kebangsaan, Malaysia. An Ecotourism Plan for Malaysia under the 7th Plan,

being developed by WWF-Malaysia, proposes to introduce tourism into the Tabin

Wildlife Reserve in 1997 following establishment of appropriate

infrastructure.

5.6 Completion of boundary demarcation has not been completed along the

southern portion of Tabin but there is financial provision for this under the7th Plan. Patrolling has been enhanced through the use of two guard houseswith a third to be sited in the northwest corner of the Reserve. Since the

threat of poaching and illegal logging is greatest in the northeast corner, a

boat has been purchased to step up the effectiveness of patrolling in thisarea and the Kulamba Wildlife Reserve.

5.7 Using the experience of work on the Tabin Wildlife Reserve, a WWF-

Malaysia Advisor and Trainee Scientific Officer to the Wildlife Department are

preparing a Management Plan for the Kulamba Wildlife Reserve. The final

report is expected in June 1995. This will investigate arrangements to makethe Tabin and Kulamba reserves contiguous over State nipa swamp forest andthereby to manage such land as a unit. In parallel, the Land Survey andForest Departments will survey the proposed contiguous area. However, itshould be noted that investigations and management of much of this area arelikely to prove daunting as the area has a high security risk.

5.8 Staffing of the Tabin Wildlife Reserve currently consists of a

Manager (graduate level), eight range:s and three laborers; an additionalposition has been approved by the Public Services Commission. The TechnicalAdvisor to the Tabin and Kulamba Reserves was not replaced after completion ofa 15-month assignment, his duties being entrusted to the Chief TechnicalAdvisor to the Wildlife Department. This meant delayed preparation of themanagement plan and reduced level of support to on-site management andtraining. In addition to formal courses, on-the-job training has taken placeon such topics as: survey and habitat analysis of arboreal animals; fieldresearch; and telemetry. A course on surveying large animals is anticipatedfor 1995 and a "Wildlife Field Research Conservation Training Manual" used forinstruction at Tabin is currently being translated into Bhasa Malaysia forcountry-wide application. Visits by government officers were made to Kenyaand India to review protected areas management, including revenue sharing.

5.9 Despite these training initiatives, more needs to be done,especially at the ranger level. As a beginning, a clear training program

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should be established targeting staff (officers and rangers in MTED andrelevant sectors), categorizing types of training, and stipulating budgets andresource persons. The program should be linked to university curricula, andDanum Valley and other research activities. In this context, it is

encouraging that a co-operative program of research and training has beenagreed between the SWD and University Kebangsan, Malaysia. The WildlifeDepartment should take full advantage of scholars visiting Sabah; indeed,training of Reserve staff should become a condition of permitting the

scholars' research.

5.10 The current practice of maintaining confiscated caged animals at

Tabin headquarters is consuming valuable time and budget and not contributing

significantly to the management of the Tabin Wildlife Reserve. This activityshould be phased out as soon as possible (it was reported that these animalshave to be kept as evidence as long as the court cases are pending) and the

animals released before they become too domesticated.

5.11 (b) Infrastructure. Construction of 10 km of the access road from

the southwest corner gate of the Tabin Wildlife Reserve to the headquarter

building was completed in September 1993 and, save for 3 or 4 local spots

suffering landslides and slippage, is in good condition. However, as urged by

Bank missions, the MTED should approach the Public Works Department (JKR) to

ensure necessary long-term maintenance. Construction of an additional 20 kmfrom the Lahad Datu-Tungku road to the southwest gate of the TWR, envisaged at

appraisal, was not considered necessary during implementation because good

access had been arranged through private plantation roads.

5.12 Construction of the office building, and houses for the manager andfour senior staff have been completed. Initial design oversights have beencorrected by Sabah Parks, which was contracted to supervise construction.

5.13 Actions recommended to improve the management of Tabin and Kulamba

Wildlife Reserves are the following: (i) ensure adequate funding of the nextphase of management of the new Wildlife Sanctuaries, giving priority to the

implementation of the management plans for Tabin and the Lower Kinabatangan;(ii) complete boundary demarcation promised under the 7th Plan and establish

and stock a third guard post in the ncrthwest corner of Tabin Wildlife

Reserve; (iii) complete and implement a management plan for the KulambaWildlife Reserve, including arrangements for contiguity with the TabinWildlife Reserve; (iv) develop a suitable training program to ensure long-term

conservation management of Sabah's biological resources; this should betargeted at field staff and integrated with courses run byuniversity/research institutions; (v) develop staff skills in conservation

planning and management by phased increase in specific positions; and (vi)

consolidate a wildlife research program with a balance between the

conservation of habitats and ecosystems and globally endangered species.

5.14 (ii) TA to the Wildlife Department. The UNDP's TA project was

amended twice and financing increased from US$0.50 million at appraisal to

US$0.98 million eventually. While the contract for the advisor/manager forTabin was not extended after the initial 15-month period and thus fell short

of the 30 months envisaged at appraisal, the services of the Chief Technical

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Advisor (CTA) to the Wildlife Department were very much appreciated and he

continued in his job for almost 45 months until October 1994. He assisted in

drafting policies, management plans and field training. Principal outputs

include: "Wildlife Research in Sabah"; and "A Management Plan for TabinWildlife Reserve". Many of the actions outlined in these outputs have been

initiated during the project. However, some await funding or legislative

action. The CTA also helped develop in-situ wildlife management techniquesand procedures, provided some training, and gave support to the drafting ofconservation legislation.

5.15 Recommendations on research activities were submitted by the CTA to

the Wildlife Department in a report "Wildlife Research in Sabah" in December,

1993. Following this, a proposal for "Sabah Wildlife Research and Monitoring"

is before the State Development Office, the Federal EPU and the FAO having

agreed in principle to its funding. The proposal envisages the return of the

former Chief Technical Advisor to the Wildlife Department to further developand implement its objectives which include: (i) establishing a research and

monitoring capability within the Wildlife Department; and (ii) strengtheningthe conservation of globally endangered species in Sabah.

5.16 The TA for the preparation of the Sabah Conservation Strategy

(financed by the UNDP) was satisfactorily completed (18 months as envisaged at

appraisal). The Wildlife Department increased its staff from 48 to more than

124 envisaged at appraisal, but has only eight graduate officers to manage71,000 km2 of land under its jurisdiction. This is likely to prove a

management constraint in the future.

5.17 (iii) Legislation. Substantial progress is being made in

strengthening wildlife conservation through enactment of new State laws. In1992, the State Assembly approved Enactment No. 1 of 1992 amending theForestry Enactment of 1968. This included provisions that: (i) re-defined

Class VII Wildlife Reserve (such as Tabin) for protection of wildlife; (ii)

classified the Tabin core area as Class I Protection Forests; and, (iii)

banned forest concessions in Forest Reserves Class I, VI and VII (which

includes Tabin and its core area).

5.18 A legal consultant has prepared a draft Bill for Wildlife

Conservation Enactment. The Bill would: (i) strengthen the authority of the

Wildlife Department; (ii) establish two categories of protected areas underthe Department's authority, i.e, State Conservation Areas and Wildlife

Sanctuaries (Tabin, Kulamba and Kinabatangan); and (iii) enhance protection ofplants and animals. A Steering Committee comprising the MTED, Wildlife and

Forestry Departments, the State Attorney General and the State Department ofNatural Resources has reviewed the draft and a paper recommending enactment of

legislation is ready for the Cabinet. The Attorney General has already

cleared the draft and it is expected that the Bill will go before the StateLegislative Assembly in August 1995. In the meantime, a Legal EnforcementUnit of some 23 staff has been established to ensure enforcement of wildlifelegislation, particularly related to poaching.

5.19 (iv) Sabah Conservation Strategy (SCS). The SCS was satisfactorily

completed by WWFM in March 1992 and a number of actions have been taken by GOS

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to implement its recommendations. The SCS makes comprehensive recommendations

covering multi-sectoral, sustainable use of Sabah's natural resources and the

protection of its biodiversity, including scheduled species. The committee

responsible for preparation of the SCS became the SCS Implementation and

Monitoring Committee. Later, the State Development Planning Committee,chaired by the Chief Minister, approved the conceptual framework of the SCSand established a subcommittee under the Chief of State Natural ResourcesDivision to draft a statement adopting the Strategy and a paper based on this

statement is currently before the Cabinet.

5.20 As a start to implementing the SCS, a land potential map is being

prepared and the Natural Resources Division has completed a State Water

Resources Study. The Ministry of Tourism and Environmental Development (MTED)has retained the services of WWF-Malaysia to assist the Environmental

Development Division in SCS coordination and implementation, and bilateral

support is being sought, including funding for a national coastal zone

management plan and a biodiversity conservation project.

5.21 Actions recommended to support conservation efforts in Sabah are

the following: (i) approval of the SCS by the Sabah State Cabinet; (ii)implementation of specific recommendations of the SCS; (iii) development of

Sabah's protected area network, the passing of relevant legislation,

gazettement of Tabin, Kulamba and the Lower Kinabatangan Wildlife Reserves and

existing Bird Sanctuaries as State Wildlife Sanctuaries, and assignment ofprotection status to the Danum Valley Conservation Area and the Maliau Basin;

(iv) preparation of land use base maps for the processing of land

applications; and (v) upgrading of the Environmental Development Division of

the MTED to an Environmental Conservation and Development Unit.

5.22 (v) FELDA Environmental Coordination Unit and Environmental

Practices. The Unit, originally established under the Department of Budget

and Planning, was transferred to the Engineering Department halfway through

the project. It was staffed with non-specialists who, despite repeatedrequests by the Bank, were never given adequate authority or encouragement to

promote environmental protection practices in FELDA's operations. "Guidelines

for Reduction of Adverse Environmental Impacts" were developed by the Planning

Department but no training or follow-up actions were undertaken at the field

level. Early in 1995, the Unit was disbanded in the process of overall down-

sizing of FELDA since new land development by FELDA has now been completely

stopped and no role for the Unit was envisaged for the mature phase of

plantations.

5.23 Regarding FELDA's environmental practices, Bank missions repeatedly

drew attention to the felling of trees in very hilly areas and poor clearing

activities near rivers or their banks--often in contravention of the Drainage

and Irrigation Department regulations. Concerns were also expressed by the

Bank regarding the felling of the calcareous forests in the eastern part of

the project area and in the Sahabat River catchment. In a move to protect the

upper and middle Sahabat River catchment (especially the forests), the MTED

has approached the District government to stop issuing development permits on

government land within the catchment. Aquaculture has now been proposed for

some 200 ha of calcareous area in Sahabat schemes 23 and 24 but after an EIA

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and cost estimates are prepared, it is unlikely that the scheme will be foundviable. The establishment of a bird sanctuary is proposed as an alternativefor the area. The only remaining swamps in the Sahabat occur in schemes6,7,11 and 35. On the positive side, an electric fence and trench along theeastern boundary of the Tabin Wildlife Reserve has prevented elephantincursions into Sahabat and FELDA's pest management practices haveincorporated a number of environmental safeguards. Moreover, learning fromthe experience of the earlier Jengka projects where elephant entrapmentoccurred as a result of land clearing, FELDA maintained a land clearingpattern in Sahabat from the coast inland in a northwesterly direction toensure the movement of animals to the adjacent wildlife reserves.

5.24 Actions recommended to improve the environment in the Sahabat areaare the following: (i) revision of "Guidelines for Reduction of AdverseEnvironmental Impacts" after a workshop recommended to be held in Kuala Lumpurwith the participation of agricultural agencies, Department of Environment and

relevant NGOs in the next 9-12 months; (ii) action by the Sahabat DistrictGovernment to protect the Sahabat River catchment through control of permits

on government land; and (iii) adequate protection of natural habitat,

especially the remaining calcareous forests and swamps.

6. Project Results

6.1 Overall project results were satisfactory. As regards the Sahabat

Settlement Complex, the economic development objective of increasing

agricultural production and exports of Sabah was achieved. The rehabilitation

of the Bakapit-Tungku access road has cut down by two-thirds the travel timefrom Bakapit to Sahabat. However, the achievement of the project's social

objective of rural poverty alleviation by providing land to poor farmers was

disappointing, as only 925 settlers were emplaced, compared to 3,560 expected

during the project period and 8,600 in the long term. About 90% of the

Sahabat area is being managed as a commercial plantation utilizing immigrant

labor and hired Sabahan workers. Given the relatively small population of

Sabah, the remoteness of the Sahabat area, and the perceived reluctance of

poor Sabahans (mostly shifting cultivators and fisherfolk) to adopt permanent

settlement and farming conditions, the risk was specifically recognised at

project appraisal that there may not be a sufficient number of families

willing to settle in the project area at an average rate of about 950 per

year, although the FELDA package offered a proven and sustainable economic

option. To ensure settler availability, FELDA, in close cooperation with the

Sabah State Government, was to carry out an aggressive promotion and

recruitment campaign, particularly in the western part of Sabah, where the

majority of the poor, shifting cultivators lived. However, those efforts did

not prove very successful and the bulk of the Sahabat area is, therefore,

likely to continue as a commercial plantation.

6.2 As regards the Dent Peninsula EMP, the project results were

unquestionably significant and the institutional impact was substantial. Key

objectives have been attained or are about to be attained: (a) full-time staff

of the Sabah Wildlife Department are now based at Tabin Wildlife Reserve with

responsibilities covering the Kulamba Wildlife Reserve. A management plan has

been completed for Tabin. Licensed logging in Tabin ceased in 1992 and illegal

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logging has been reduced to occasional incursions. Illegal hunting is alsomuch better controlled. Aerial and other surveys in 1994 show significantregeneration of logged-over areas and an abundance of wildlife; (b) anamendment to strengthen existing legislation for wildlife sanctuaries wastransformed into a more comprehensive and functional Wildlife ConservationEnactment, which is ready for consideration by the Sabah Cabinet prior to itsbeing tabled at the State Legislative Assembly later this year. The Enactment

is very comprehensive and is generally regarded as a model for conservationlegislation in developing countries; and (c) the Sabah Conservation Strategyhas provided guidelines and an operational framework for the sustainablemanagement of Sabah's natural resources and is now being implemented at the

sectoral level.

6.3 The experience with FELDA's Environmental Coordination Unit was notsuccessful. The Unit was never very active and it has now been dissolved(para. 5.22).

6.4 Project Benefits. The project's main benefits are increasedproduction and exports of palm oil and kernels and improved environmental

management in Sabah. The total production of ffb in schemes 1 to 35 in 1994was estimated at about 884,000 tons (equivalent to about 185,650 tons of crudepalm oil and 31,000 tons of palm kernels). Peak yields of 24 tons ffb/haprojected at appraisal are unlikely to be attained in large areas under FELDAPlantations, but are attainable in settler areas, which usually consist ofbetter-yielding farms allocated by FELDA. The peak yields in FELDA Plantationsarea are likely to be about 21 tons ffb/ha. This lower yield is partly a

reflection of the problems on about 10-12,000 ha (about 20% of the totalproject area) of calcareous (coral) soils in the eastern part of Sahabat,where the peak yields are unlikely to exceed 18 tons ffb/ha (see para. 5.23for further discussion of calcareous soils). The number of settlerbeneficiaries (925) is much less than that expected at appraisal (3,560) dueto the problems encountered in settler recruitment (para. 6.1). With the highpalm oil prices prevailing in 1994, net monthly settler incomes in Sahabatschemes averaged RM1,450 (US$580), which is higher than the appraisal estimateof RM1,320 for 1994 (RM1,035 in 1988 constant terms).

6.5 Cost Recovery. No direct recovery of investments in basicinfrastructure, including roads, water supply, staff houses and publicbuildings was envisaged under the project. However, agricultural developmentexpenditures, including land development, planting and crop maintenance, andsettler houses would be fully repaid by the settlers and FELDA PlantationsSdn.Bhd. over a period of 25 years. Since FELDA carries out crop processingand marketing through its subsidiaries, repayments due from settlers arededucted from sales revenues.

6.6 Economic Rate of Return. The economic rate of return (ERR) of theproject at completion is estimated at 7%, compared to 25% expected atappraisal. Since project plantings are almost entirely with oil palm, costsand benefits of only oil palm were included in the economic analysis. Theanalysis excluded the costs of construction and maintenance of access roads,village roads and waterworks, since these infrastructure works generate manyeconomic and social benefits which could not be identified and included in the

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analysis. If these costs are included (as at appraisal), the ERR would benegative. The ERR is lower than that at appraisal, principally due to a steep

decline in projected palm oil prices: the Bank's projected world prices inyears 2000 and 2005 (in 1994 constant terms) are US$350 and 310/ton,

respectively, which are 27% and 35% lower, respectively, than the price of

US$478/ton (US$416 in 1988 constant terms) assumed at appraisal. Translated

into millgate terms, the currently projected price in year 2000 in 1994

constant terms is 48% lower than that projected at appraisal (RM114/ton of ffbcompared to RM219). The other relatively minor reasons for the lower ERR at

completion are the lower expected yields of oil palm (para. 6.4) and a lag inproduction benefits by one year. If the prices and exchange rates assumed at

appraisal had materialised, the ERR at project completion would be about 21%,

including the cost of infrastructure works.

7. Project Sustainability

7.1 Although FELDA and its subsidiaries are well-established andrelatively strong institutions and their management, production and marketing

systems have proven to be successful, the sustainability of the Sahabat

Settlement Complex in financial terms will depend on the level of palm oilprices. If the current high prices continue for a few years, there should be

no problem in ensuring the profitability of the Complex. However, if the

prices quickly decline to the levels projected by the Bank for the long term,

serious financial problems might surface. With the strengthening of the SabahWildlife Department under the project and the continuing strong commitment ofthe MTED to environmental improvement in Sabah, the results obtained under the

environmental component of the project are expected to be sustained.

8. Bank Performance

8.1 Bank performance and contribution to the project were, in general,satisfactory. The Bank devoted special attention to the environmental

component of the project and kept close cooperation and coordination with theUNDP to ensure implementation of the technical assistance for the

environmental improvement measures envisaged under the project.

9. Borrower Performance

9.1 Both FELDA and Sabah-PWD are strong organizations and theirperformance under the project was satisfactory. The MTED also gave its full

support to the environmental component of the project and undertook thenecessary legislative and administrative actions.

10. Project Relationship

10.1 Working relations among Bank and UNDP staff on the one hand andstaff from the Federal Treasury, Government of Sabah, FELDA, and PWD werealways very positive and cordial. Differences of opinion were dealt with in aprofessional manner, and agreements satisfactory to the various parties wereusually reached.

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11. Consulting Services

11.1 Sabah PWD employed local surveyors and engineering consulting firmsto design and supervise construction of project works, includingrehabilitation of the Bakapit-Tungku road. The consultants and contractorsperformed satisfactorily.

11.2 Of the two technical advisors employed by SWD (para. 3.9(c), theChief Technical Advisor made important contributions in drafting policies,procedures and management plans, and assisting in the formulation of the SabahConservation Strategy.

12. Project Documentation and Data

12.1 The SAR and legal documents provided an adequate framework for theproject. Project reporting by the MTED, FELDA and Sabah PWD includedcomprehensive information on the project's physical and financial progress.The information provided by the MTED, Sabah PWD and FELDA for this report wasadequate.

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PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

A. REVIEW OF THE ENVIRONMENTAL COMPONENT BY THE GOVERNMENT OF SABAH 1/

1. Evaluation Summary. Overall, implementation of the EnvironmentalManagement Plan for the Dent Peninsula (EMP) is rated as a success. All keygoals have either been achieved or are clearly on the way to being implementedthrough actions that have been initiated. Several lessons have been learned,amongst which the most notable are the following:

(a) Selection of an ideal organizational arrangement for projectimplementation is inherently difficult because of the diversity ofsectors and governmental agencies involved in environmental issues.A pragmatic, case-by-case approach is recommended. In the case ofMalaysia, for example, the State Government must play a key rolebecause the State has power over land and forest matters.

(b) In the EMP, there was some indication that a powerful andsuccessful organization which has been long-established was lessamenable to innovations suggested in the EMP than were newer,smaller organizations.

(c) The roster of experts capable of undertaking environmentalconservation work still appears to be limited on United Nationslists. Although there was no constraint during this project onrelevant local Government agencies seeking for themselves theirpreferred technical advisors, it would possibly be useful in futureprojects to invite host governments to propose specific names, ifavailable, and subject to World Bank endorsement, and to cast awider net in seeking possible candidates (e.g. through the WorldConservation Union, IUCN).

(d) Employment of local non-governmental organizations (NGOs), whichpossess a proven track-record and which are acceptable togovernment, can be an ideal way to implement environmentalconservation. Apart from providing consultancy services ofadequate standard, local NGOs may possess other advantages whichcan contribute to the smooth running and success of projects. Forexample, local NGOs may have an intimate knowledge of localconditions in general, and may feel freer than outside consultantsto suggest innovative ways to enhance output as the projectproceeds. It is also possible, as was the case in the EMP, that asa result of working on a project, a competent local NGO will beable to continue follow-up work which will contribute to the longterm success of projects. However, careful examination is requiredat the earliest stages to ensure that potential NGOs do possessadequate and competent manpower.

i/ Prepared by the Ministry of Tourism and EnvironmentalDevelopment (MTED), Government of Sabah, Malaysia, in May1994.

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(e) Expectations of success in environmental projects tend to be toohigh, especially in terms of speed of implementation. This does notapply to infrastructure development, but is most pertinent wherepolicy changes and legal amendments are proposed. However, thisshould not be taken to imply that recommendations in futureprojects are to be more modest. On the contrary, it is veryimportant that, if justifiable, recommendations concerning theenvironment should be stringent and, where appropriate, bold.Environmental conservation needs all the support it can get, mostespecially from organizations such as development banks. This isimportant because, even in present times of heightenedenvironmental awareness, there remains a strong tendency to dismissenvironmental concerns as exaggerated if they are voiced only byenvironmental departments or NGOs.

(f) In the EMP, the Steering Committee for the Sabah ConservationStrategy was found to be an active, useful and EAccessful tool, interms of guiding the work of consultants and getting inputs fromgovernment agencies for the final product. A similar arrangement isrecommended, where appropriate, for future projects involving thedrawing up of environmental plans by consultants for government.

2. Background. The project concerned a Federal Land DevelopmentAuthority (FELDA) settlement scheme at Sahabat on the end of the DentPeninsula in eastern Sabah, involving the clearance of more than 100,000hectares of logged natural forest adjacent to a Wildlife Reserve. Developmentof the settlement scheme started in the early 1980s. In 1987, FELDAcommissioned an environmental impact assessment (EIA), which identifiedseveral environmental concerns in relation to the scheme. However,implementation of the EIA recommendations required the identification ofspecific actions and an investment plan. Subsequently, the World Bank (WB)contracted the World Wide Fund for Nature, Malaysia (WWFM), to assess allenvironmental aspects of the FELDA scheme and provide the Bank with specificrecommendations in the form of an "environmental management plan". Theserecommendations were taken up by WB as components of a loan agreement withFELDA, for the development of infrastructure in the Sahabat scheme.

3. Organizational Arrangements. Overall, the organizational aspectsof the project proved to be satisfactory. Matters relating to land and forestscome under the purview of the State Government. Hence, aspects of the EMPoutside the FELDA settlement area were left to GOS. On the other hand, once aspecific land area has been allocated to a specific party for agriculturaldevelopment, it is conventional practice in Malaysia for that party to carryout the development accordingly. Monitoring and enforcing the laws on theirdevelopment is difficult due to lack of manpower. Thus, decisions on EMPrecommendations relating to land inside the scheme were made by FELDA in somecases with input from GOS.

4. In the context of the established Malaysian governmentorganization, the selection of a senior civil servant in GOS as NationalProject Director for the EMP was appropriate.

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5. The arrangements proposed or implied in the EMP were followed inall essentials, yet the project was characterized by sensible flexibility. Oneexample was the use of Sabah Parks, a financially-autonomous agency underMTED, to select consultants for construction of infrastructure at TabinWildlife Reserve and to disburse payments for that work. This procedureallowed MTED to run the project on behalf of GOS, without the need tointroduce additional agencies.

6. Implementation. Tabin Reserve infrastructure and vehicles werefinanced by grant by GOM from part of the WB loan for the Sahabat LandSettlement Scheme. The technical advisor to the Wildlife Department (45months), Tabin manager (15 months) and preparation of the Sabah ConservationStrategy (18 months) were funded by UNDP. Local staff salaries and generalmaintenance expenses for Tabin were borne by the GOS.

7. Implementation of the EMP started about one year after thecommencement time originally envisaged and took somewhat longer than expected.There were various causes of delays in commencing, including the fact that theproject's environmental measures were new to all parties concerned, and thatthe project contained aspects requiring the approval of State and FederalGovernments.

8. The contractors selected for construction of infrastructure atTabin Wildlife Reserve performed significantly slower than expected due tomany agencies involved in implementing and monitoring the project

9. Project components funded by UNDP started late for a combination ofreasons, including time needed to select technical staff and to processdisbursement of funds. On the decision of GOS, the initial 15-month contractwith the Tabin manager was not extended and, instead, the Department technicaladvisor took over this role as part of his duties. The SCS took 18 months tocomplete, longer than the period envisaged, but reasonable in view of thecomprehensive product which emerged. The component with the fastestimplementation was the increase in Wildlife Department staffing, which was thesole responsibility of GOS and the proosed Kinabatangan Wildlife Sanctuary.

10. Viewed simply, some recommei,dations of the EMP were implementedwhile others were not. An alternative, more positive and accurateinterpretation, however, is that part of the value of the EMP was to initiatea series of actions which cannot necessarily be expected to be achieved withina rather short time frame. A good example was the strengthening of thestatutory protection of the Tabin Wildlife Reserve.

11. Results. The Sabah Wildlife Department staff number, recommendedto increase to 124, has not only been achieved but exceeded through creationof new posts by the Sabah government. The technical advisor to the WildlifeDepartment assisted in drafting policies, species and area management plans,and wildlife translocation techniques.

12. Full-time Wildlife Department staff are now based at Tabin WildlifeReserve, led by a graduate-level officer. The Reserve management plan has beencompleted and incorporated into the overall Wildlife Department Management

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Plan. Licensed logging in the Reserve ceased in 1992, and illegal logging has

been greatly reduced to occasional incursions. Illegal hunting has also been

greatly reduced. Aerial surveys in 1994 show that the logged-over areas withinthe Reserve are regenerating well, and that wildlife is abundant.

13. A necessary legal amendment to prohibit logging in WildlifeReserves was achieved in 1992. A proposed amendment to strengthen the relevant

existing legislation in relation to wildlife sanctuaries was not achieved;

instead, and more usefully, a new wildlife conservation law has been draftedby a legal consultant under the UNDP component of the EMP. The draft law is

being reviewed by a Government working committee. That GOS has publiclyreferred to the draft is an indication of good prospects that it will betabled at the State Legislative Assembly.

14. The Sabah Conservation Strategy (SCS) was completed in March 1992

and adopted by the Sabah Development Planning Committee (the major policy-making agency of GOS other than the Cabinet) in the same rear, subject to a

detailed review by a working committee under the Natural Resources Office of

the Chief Minister's Department. The review was completed and the SCS, with

some amendments, was submitted to the Cabinet for final approval. In the

meantime, some aspects of the SCS, which fall under the purview of MTED, havebeen taken up, while WWF Malaysia has provided the services of a senior staff

member to MTED, to assist in implementation of the SCS pending the Cabinetapproval.

15. EMP Sustainability. Prospects for continued implementation of theEMP appear good. In particular, activities needed to ensure the passage of newwildlife legislation and implementation of the SCS are ongoing. Manpower and

infrastructure needed to ensure protection of Tabin are in place.

16. Bank Performance. The Bank's performance has been entirelysatisfactory throughout the project period. Where actions were not taken by

the GOS, and where implementation was slow, the Bank was encouraging ratherthan critical. This made for a good working relationship which, ultimately,

was effective. In response to changing priorities, the Bank was flexible inagreeing to the changes in the specific purpose for which money was allocatedfor infrastructure development at TabLn.

17. UNDP Performance. The initial process of selection and"processing" of the technical advisor and Tabin manager seemed to be rathercumbersome. Thereafter, however, UNDP performance was entirely satisfactory

throughout the project period. The periodic presence of a UNDP representativeat the SCS Steering Committee meetings was a welcome sign that the progress of

the EMP was being followed closely. UNDP responded positively to requests that

both the period of service of the technical advisor and his scope of work be

extended. As a result, the advisor worked with the Wildlife Department for

nearly four years. UNDP also responded positively to a request for additional

funding to provide a 6-months of legal drafting consultancy.

18. Sabah and Federal Government Performance. Overall reporting was

satisfactory. However, reporting to the World Bank should have been better.

This could not be achieved as too many agencies and authorities were involved

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in approving and monitoring of the project, including FELDA, AttorneyGeneral's Office, Federal EPU, State Development Department, Public WorksDepartment, State Treasury, State Forestry Department, Audit Department,Federal Ministry of Finance, Federal Treasury, Federal Development Department,Federal Ministry of Rural and Land Development, and the State Cabinet.

19. Consulting Services. Consulting services for the EMP may bedivided into three categories: UNDP, WWF Malaysia and consultants for civilworks at Tabin. As noted above, there was some delay in acquiring the servicesof UNDP technical experts but, once underway, no serious problems wereencountered. At the request of GOS, the services of the Tabin manager were notextended beyond the initial 15 months due to unsatisfactory performance.

20. The civil works were barely satisfactory in quality and slower thanexpected. It may be beneficial in future projects to investigate possiblealternative means of employing consultants and contractors in order tomaximize quality and speed.

21. EMP Documentation and Data. The major single document to emergefrom the EMP is the 3-volume Sabah Conservation Strategy. A new wildlifeconservation enactment for Sabah was drafted by a UNDP legal consultant inassociation with relevant government agencies and the UNDP technical advisorto the Wildlife Department. Various other documents have been produced by thetechnical advisor (e.g. Wildlife Department Policies, Tabin Wildlife ReserveManagement Plan, etc.). Data collected under the EMP is available in the SCSand with the Sabah Wildlife Department.

B. COMMENTS FROM FELDA 2/

22. Agricultural Development. Agricultural development had proceededsatisfactorily. A total of 65,300 hectares of land has been developed inSahabat 1-35 comprising 64,950 hectares of oil palm (99.5%) and 350 hectaresof coffee (0.5%). The area under oil palm included some 2,040 hectares ofland which had earlier been planted with cocoa and later had to be replantedwith oil palm due to prolonged unfavorable market for cocoa products. To-date, a total of 55,227 hectares or 84.6% of the oil palm and coffeeplantations are in production.

23. Infrastructure Development. The construction of 58 km of accessroads (excluding Bakapit-Tungku improvement) and 71 km of village roads wascompleted as scheduled. The construction of treatment plants and the layingof reticulation pipes for villages A, B, C and D were completed in time. Theproblem of insufficient surface water source for villages A, B and C wasovercome by constructing a bunded reservoir whilst the same problem forvillage D was solved by constructing tube-wells.

27 Received from FELDA in May 1995.

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24. Four palm oil mills are currently operating, located in Sahabat 4,11, 21 and 26 schemes. The combined milling capacity is 240 tons per hour.

25. Basic infrastructure like roads and water supply system for FELDAprojects in Peninsular Malaysia was usually implemented by the Public WorksDepartment (PWD) of the Ministry of Public Works. However, for FELDA projectsin Sabah, the provision of these amenitiLes was being handled by FELDA throughits subsidiary (FELDA Engineering Services Sdn. Bhd. or FESSB, formerly knownas BINA), as the state PWD was unable to provide the necessary services.

26. Settler/Worker Emplacement. To-date a total of 925 settlerfamilies and 5 workers are settled in villages A to D. Total settlers andworkers target was reduced from about 8,600 families to 6,600 families becauseof the implementation of the estate system in January 1990. Workers'recruitment is based on man:land ratio of 1 family to 12 hectares compared tothe previous system of 1 family to 4 hectares. Experience with workers'recruitment has not been encouraging. However, efforts ar- still being madeto bring in workers.

27. Environmental Component. As a part of the Bank's requirement,FELDA appointed a consulting firm, Minconsult Sdn. Bhd., to undertake theEnvironmental Impact Assessment (EIA) for the Sahabat Complex. The EIA reporthelped FELDA to develop its own conservation strategy. The report recommendedthe establishment of Environmental Co-ordination Unit within FELDA to beresponsible for co-ordinating the implementation of the EnvironmentalManagement Plan (EMP) in Sahabat and monitoring all environmental matters inFELDA. However, the Unit played a passive role because no new landdevelopment was carried out during the Sixth Plan (1991 - 1995).

28. As proposed by the Bank, FELDA requested the Sabah State Governmentto protect the Sahabat river catchment area to ensure a continuous supply ofquality water to the bunded reservoir in Sahabat 4 scheme. However, nopositive response was received from the State Government.

29. Evaluation of Bank's Performance. The Bank made positivecontributions which led to the successful completion of the project. Thefollowing observations sum up the Bank's performance:

(i) The time-slice concept of this loan provided flexibility inproject implementation and greatly expedited loan disbursement.

(ii) The Bank supervision missions extended valuable assistance inimproving project implementation in Sahabat through discussionswith FELDA.

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30. Assessment of Effectiveness of Relationship Between the Bank andGovernment. The relationship between the Bank and the Government has alwaysbeen excellent. The Government was committed to the implementation of theenvironmental and other components for which funds were made available, whilethe Bank was very supportive towar