Report No. 1364-CM FILE COPY Appraisal of Second SOCAPALM Project Cameroon March 16, 1977 Western Africa Projects Department FOR OFFICIAL USE ONLY M Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without Worid Bank authorization. CURRENCY EQUIVALENTS US$1 = CFAF 245 CFAF U = US$0.0041 CFAF 1,000,000 = US$4081.63 WEIGHTS AND MEASURES (Metric System) I hectare (ha) = 2.47 acres 1 kilometer m 0.624 miles 1 kilogram = 2.204 pounds 1 metric ton = 2,204.6 pounds I liter - 1.057 U.S. quart ABBREVIATIONS CAMDEV - Cameroon Development Corporation CEC = Coastal Etates Company FONADER = Fonds National de Developpement Rural IIEVECAM = Societe Hevea - Cameroun PAMOL = Societe Pamol Cameroun (Unilever Group) SAFACAM - Societe Africaine Forestiere et Agricole - Cameroun SOCAPALM = Societe Camerounaise de Palmeraies FISCAL YEAR July 1 to June 30 FOR OFFICIAL USE ONLY CAMEROON SECOND SOCAPALM PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-vi I. INTRODUCTION .......................................... 1 II. BACKGROUND ............................................ 2 A. General .......................................... 2 B. The Agricultural Sector .......................... 2 C. The First-Stage Project .......................... 5 III. THE PROJECT ................................... . 6 A. The Project Areas ................................ 6 B. Summary Project Description ...................... 8 C. Detailed Features ................................ 8 D. Organization and Management ...................... il IV. PROJECT COSTS AND FINANCIAL ARRANGEMENTS .... .......... 14 A. Project Costs .................................... 14 B. Financial Arrangements ........................... 16 C. Procurement and Disbursement ..................... 18 D. Accounts and Audit Arrangements .... .............. 19 V. YIELDS AND OUTPUT, MARKETS AND PRICES .... ............. 20 A. Yields and Output ................................ 20 B. Markets and Prices ............................... 20 VI. FINANCIAL RESULTS ................ .. ................... 22 A. Outgrower Benefits ............................... 22 B. Financial Results for SOCAPALM ................... 22 C. Financial Impact on Government and Participating Public Agencies .................... 23 VII. ECONOMIC BENEFITS AND JUSTIFICATION ................... 23 VIII. AGREEMENTS REACHED AND RECOMMENDATION ...... . ......... 25 This document has a restrictcd distribution ad may be usod by recipients only in the performance of their official duties. lIa contents may flot oth.rwist be discloeed without World Bank authoritution. TABLE OF CONTENTS (Cont'd) ANNEXES 1. Project Entities SOCAPALM FONADER COASTAL ESTATES CENTER Table 1 SOCAPALM Balance Sheet: June 31, 1976 Table 2 First Project's Economic Rate of Return Table 3 Costs to Complete Dibombari Table 4: Resources and Outlays of FONADER 2. Technical Features Development of the Southwest Region Techniques Table 1: Planting Schedule Table 2: Timetable for Estates Establishment Table 3: Yields - Oilpalm Outgrowers Table 4: Yields - Estates Table 5: Personnel Requirements for Kienke Estate 3. The Outgrowers Program Organization and Management Credit Agreements Table 1: Cost of Credit Table 2: Recommended Producer Price Table 3: Illustrative Cash Flow - 1 ha Table 4: Outgrower Credit: Cash Flow of FONADER Table 5: Outgrower Credit: Cash Flow and Rate of Return to Government 4. Project Costs Table 1: Project Costs Summary Table 2: Kienke Estate - Field Establishment Table 3: Kienke Estate - Vehicles, Plant, and Equipment Table 4: Kienke Estate - Construction Table 5: Kienke Estate - Oil Mill Investment Table 6: Kienke Estate - General and Administrative Overheads Table 7: Outgrowers - Field Establishment Table 8: Outgrowers - Extension Service Costs Table 9: Outgrowers - Supervision Costs Table 10: M'Bongo and Eseka Estates - Completion Costs Table 11: M'Bongo Estate - Extension Costs Table 12: Douala Complex TABLE OF CONTENTS (Cont'd) ANNEXES 5. Proposed Financing Plan 6. SOCAPALM Cash Flows Table 1: Project and Consolidated Cash Flow Table 2: Cash Flow Without Project Table 3: Projected Income Statement- Kienke, M'Bongo Extension and Outgrowers Table 4: Forecast of Operating Results- Existing Plantations 7. Estimated Schedule of Disbursements 8. Market Outlook and Prices Table 1: Prices for Selected Fats and Oils Table 2: World Production of Selected Oilseeds, Fats and Oils Table 3: Total Country Actual and Projected Palm Oil Production by Source Table 4: Total Country Production, Consumption and Export Projections of Palm Oil 9. Economic Rates of Return Table 1: Economic Rate of Return - Kienke Estate Table 2: Economic Rate of Return - Outgrower Program Table 3: Economic Rate of Return - M4'Bongo Extension Table 4: Economic Value of Palm Oil Table 5: Economic Value of Kernel MAPS IBRD 12428 - Cameroon IBRD 12429 - Southwest Project Area CHART IBRD 17055 SOCAPALM's Organizational Structure CAMEROON SECOND SOCAPALM PROJECT SUMMARY AND CONCLUSIONS Background i. The Government of Cameroon has asked the Bank to help finance a project which forms part of a continuing program of development of the southern parts of the country based on estate/smallholder tree crops. The project was prepared mainly by SOCAPALM, a state-owned oil palm development agency. This report is based on the findings of an appraisal mission, com- posed of Messrs. G. Losson, A. Osei and T. Winston, which visited Cameroon in June 1976. Project Concept ii. Cameroon has suffered from an overall deficiency in edible fats, despite a good potential for crops such as oil palm. Palm oil deriving from wild groves has long been a basic food staple for the peoples of southern Cameroon, an important source of edible oil in other parts of the country, and the basis for a small but growing soap and detergent industry. However, the traditional sector had never treated oil palm production as a cultivated crop, its production of palm oil had been haphazard, and it could therefore hardly be counted on to bring about the desired production increases rapidly. Therefore, in the 1960's the Government decided to develop industrial estates which could rapidly increase production but also serve as demonstration as well as provide nucleus infrastructure and services for sound smallholder oil palm development. iii. To carry out this strategy, Government created two state-owned corporations, CAMDEV and SOCAPALM. These two have developed some 32,000 ha on five estates/oil mill complexes, foreseen to become nuclei for smallholder plantations. All these estates are in the western and south-central parts of the country, close to the main population and industrial centers. There is also a good potential for tree crops in the sparsely-populated and relatively undeveloped southwestern region, and Government is elaborating a long-term development plan for rubber, coconut and oil palm. A state-owned company, HEVECAM, is developing a rubber estate partly financed by the Bank loan (574-CM). The proposed project would have three objectives: (i) help meet a rising domestic demand for palm oil; (ii) inaugurate a smallholder development program; and (ii) carry forward the recently begun development of the southwest region. iv. The Bank assisted the first stage of SOCAPALM's development with a US$7.9 million loan in 1969 and a supplemental loan of US$1.7 million in 1973. The original project was modified in 1972 when mechanical land clearing proved more expensive than expected and when one of the sites proved partly unsatisfactory. The revised project included i) the establishment of 6,000 ha of oil palms at M'Bongo and 2,500 ha at Eseka, to be concluded in the 1976 planting season and ii) construction of a palm oil mill for each estate and - ii - relevant infrastructure investments. Slippage in project implementation from the nine to 13 years estimated at reappraisal has been caused by occasional lack of planting material, temporary labor shortages, and severe loss of young plants to rodents. The management of SOCAPALM has been strengthened, however, so that these problems are now under control. Although cost estimates are now some 29% over reappraisal estimates, increases occurred largely during the sudden increase in world inflation in the post-reappraisal period. A loan and credit to CAMDEV for a total of US$18 million, the first Bank Group operation in Cameroon, financed planting of oil palm, plus planting or replanting of rubber, tea and pepper on a total area of 10,500 ha. The objectives of the project have been largely attained and it can also be considered a success. Project Areas and Summary Project Description v. The new Kienke estate would be established in the southwest, north- west of the HEVECII rubber concession, and would form part of the long-term tree crop development program for that region (para iii). Other investments would be made on the M'Bongo and Eseka estates which are in the south-central parts of the country. The smallholder program would also be centered on these estates. vi. Over a five-year development period, the project would comprise: (a) clearing about 6,850 ha and planting 6,000 ha with high-yielding selected oil palm trees on Kienke estate and maintaining these plantings during the five-year project period; and providing infrastructure to create an estate complex, including the first phase of a processing factory; (b) establishing 2,000 ha of smallholder oil palm plantations under an outgrower program on land cleared by the farmers; and pro- viding credit, management and extension services; (c) clearing 1,000 ha and planting 1,330 ha (including 330 ha of land already cleared) of oil palm on M'Bongo estate; providing both M'Bongo and Eseka estates with harvesting equipment and staff housing; and expanding the processing mill at M'Bongo; (d) providing for management and administration of Kienke, and admin- istrative cost related to the immature areas at Eseka and M'Bongo estates; and (e) providing a headquarters service complex in Douala, including office space and facilities such as a vehicle park, garage, and warehousing, that would be jointly owned by several estate- owning companies. The project would only provide for maintenance of all the estate plantings during the five-year project period. Maintenance thereafter and necessary processing and collection equipment and certain infrastructural investments would be provided for under SOCAPALM's future investment program. - iii - Project Execution vii. All project components, with the exception of the Douala complex, would be managed by SOCAPALM, which is owned by the Government - 58.5%, the public-owned Societe Nationale d'Investissements (SNI) -- 10.5%, and the cocoa and coffee stabilization boards -- 17% and 14% respectively. Although a publicly-owned company, SOCAPALM operates on commercial lines with a Director-General responsible to a Board of Directors consisting of representatïves of Government, local business, and the farming community. In order to strengten S_CAP_S, Sjnamnagement capabilities for this project, a qualified chief accoqnta nt -and the Kienke Estate manager would be appointed. A list of qualified and possible candidates for the post of Executive Control- ler would also be assembled with a view to filling that post not later than February 28, 1978. The two other estates have experienced managers who have proved themselves capable of handling day-to-day affairs including on-the- job training for the estate cadre. These managers report to the Director- y General through a Field Manager (Inspecteur des Plantations) based at head- quarters. Kienke estate would have five sector chiefs for field development. viii. Smallholder development is the responsibility of The Fonds National de Developpement Rural (FONADER), the government agency responsible for pro- viding short and medium-term credit to the rural sector. Individual farmers and farmers' groups (including cooperatives) are eligible for such credit. As it has no regional offices, FONADER operates through other government agencies which have field staff. For the outgrower component of the pro- posed project, credit funds and such allowances provided by Government would be passed through FONADER, which would use SOCAPALM as its agent in managing the proposed component. ix. The outgrower program would be the responsibility of a special- ized outgrower development service (Service des Plantations Villageoises -- SPV) to be established within SOCAPALM. In the field, SPV personnel would opérate independently of estate management, in sectors which would be attached to a mill and be under an experienced sector chief. Each out- grower would have an individual contract with SOCAPALM setting out the participants' obligations and the terms of the credit. Outgrower produce would be collected and bought by SOCAPALM. x. The main tree crop companies in Cameroon intend to establish an interagency central organization to provide common services. The expected benefits would be increased specialization and efficiency and lower over- heads. A 2.5 ha site in the Douala industrial zone has been granted to SOCAPALM by Government for a central service complex, which would entail construction of an office building, a vehicle park and garage facilities, and warehouse space. SOCAPALM plans to share these facilities with the other oil palm and rubber plantation companies. The legal form is expected to be a Coastal Estates Center company. The establishment of a satisfactory charter for this corporation and the conclusion of a subsidiary loan agree- ment, satisfactory to the Bank, between Government and this Coastal Estates Center company would be a condition of disbursement for the Douala complex. - iv - Cost Estimates and Financing Arran'ements xi. Total project cost would be USS38.5 million lncTdlng sales and excise taxes of about US$4.7 million: ibaport taxes on items expressly imported for the project would be walved by Government and have therefore been excluded from project cost estimates. Yoreign expenditures are expected to account for US$25.0 million or 65% of total project cost. Expected price increases occurring aLter the November 1976 base period would be US$9.1 million or 31% of base cost estimates plus phvsical co.ntingencies. xii. Two Bank Icans totalling US$25 million would be made to Government and finance 74% of project cost net of taxes, equivalent to the Ëôréeig exchange component. The First Loan of US$18.0 million would have a 20-year term, including a 4-1/2 year grace period and an interest rate of 8.5%. A US$7.0 million Third Window loan would be for about 23-1/2 year-term with first repayment on January 15, 1983. The loans would be disbursed pari passu in the ratio 18:7 and be merged by Government before being passed on to the project entlties: to SOCAPALM for plantation development and the out- grower program and to the Coastal Estates Center Company (CEC) for the Douala complex. Funds thus received by SOCAPALM on account of extension and supervi- sion of outgrowers would be a grant from Government; otherwise both SOCAPALM and CEG would repay Government at the interest rate applIcable to the First Loan. The balance of project net of tax cost (US$8.8 million) together with financial charges and working capital requirements during the development period (US$5.4 million) would be met by Government (US$10.5 million) and SOCAPALM self-generated funds (US$3.7 million). To maintain a satisfactory equity investment ratio above 30%, a part of Government contribution to SOCAPALM (US$8.2 million) would be an increase in equity investment, and the balance would be a loan for a 10-year term including a five-year grace period during which interest, at 9%, would be capltalized. Government would make a grant to FONADER equivalent to US$1.2 million to cover credit and cash grants for the outgrower program. xiii. Credit in kind to outgrowers provided by FONADER (US$334/ha) would be for a 13 year term with a grace period of 6 years during which interest at 9% would be capitalized. Cash grants (US$198/ha) would be made only to outgrowers who derive more than 75% of their income from agriculture. Repayment by farmers would be at the time of collection of outgrower fresh fruit bunches by SOCAPALM, which would also deduct its actual processing, collection and supervision costs related to the outgrower program. Procurement xiv. Except for items specified below, procurement would be through in- ternational competitive bidding (ICB) following Bank guidelines. Goods and services subject to ICB -- largely machinery, vehicles and equipment, ferti- lizer and some construction work (Douala complex) -- are estimated to cost US$20.6 million. Contracts not exceeding US$100,000 would be let under competitive bidding procedures advertised Locally and satisfactory to the Bank. Most land clearing, estate road building, plantation work and minor estate construction, estimated at US$10.9 million, would be done on force account using equipment owned by SOCAPALM. The remaiîing project costs (US$7.0 million) would be mostly for staff and labor costs and operating expenses. Disbursements xv. Disbursements of the two Bank loans in combined disbursements at the ratio 18:7 would cover 67% of total expenditure for: (a) vehicles, equipment and machinery for the development of the oil palm estates (US$7.4 million); (b) civil works and construction foi the development of the oil palm estates (US$3.8 million); (c) estate field development, including land clearing, fertilizers, planting materials and other supplies and palm planting and maintenance (US$6.7 million); (d) administrative cost of Kienke estate (US$1.1 million); (e) civil works, vehicles, equipment and operating costs of SOCAPALM for the development of the outgrower program (US$0.6 million); and (f) vehicles, equipment and civil works for the Douala complex (US$1.4 million). US$4.0 million would be unallocated. Disbursements for (c) and (d) and operating costs included in (e) would be against certificates of expendi- tures, the documentation of which would be retained by SOCAPALM for inspection by Bank project supervision missions. Disbursements for (a), (b) -- except for small construction work to be done by force account --, (e) -- except for operating costs --, and (f) would be fully documented. An estimated schedule of disbursements is at Annex 7. Markets and Prices xvi. Present per capita consumption of palm oil in Cameroon is 9.4 kg and growing at an estimated 4.5% per year. This domestic market would absorb about 85% of the project-produced palm oil (about 29,000 t per annum at full development). There is a large and growing market for oil palm products in Nigeria, Cameroon's more affluent neighbor to the west; furthermore, indus- trial products of Cameroonian origin enjoy preferential tariff treatment in the Central African Customs Union (UDEAC). Project-produced palm kernels (about 6,000 t per annum at peak production) are assumed to be exported, or crushed locally when domestic crushing capacity is expanded. In summary, project-produced oil and kernels should find a ready market at reasonable prices. - vi - Financial and Economic Benefits and Justification xvii. The direct benefit from project-financed investments would consist of increased palm oil production mostly to meet local demand which would b6therwise have to be satisfied through imports or not at all. There would also be an increase in kernel production for honme consumption or export. The ex-harbor value of incremental oil and kernel production at peak production would be some US$11.0 million equivalent per annum, of which about 55% would represent domestic value added. xviii. Smallholders participating in the outgrower program would stand to benefit from much higher cash incomes than otherwise. It takes some five years for palms to enter into production; after that, net cash incomes would grow per manday worked from about US$1.80 initially to US$11.20 in Year 8. xix. For SOCAPALM's shareholders, the investments would show a healthy return. On the basis of current revenue and cost projections, the annual cash return to Government and other public agency investments in SOCAPALM would be some US$16.3 million by 1996 from project plantings alone and about US$28.5 million from existing plantings. xx. The economic rates of return for the main project components are as follows: 14% for the Kienke estate which represents 62% of total project costs excluding price contingencies; 23% for the Outgrower Program which is 6.5% of total costs; 17% for the extension of M'Bongo which accounts for 8% of total costs; and 14% on the M'Bongo and Eseka estates the completion of which accounts for 17% of total project costs. The weighted average rate of return is about 15%. If costs were to be 20% higher than estimated, the overall rate of return as well as the rates of return for individual compo- nents would fall by 2-3 percentage points. The risk that the project would not meet its objectives is small. Recommendation xxi. With the major assurances and conditions outlined in Chapter 8, the project is suitable for a Bank and a Third Window loan amounting to US$25 million. I. INTRODUCTION 1.01 The Government of Cameroon has asked the Bank to help finance an oil palm development project that would: (i) help to meet a rising domestic demand for palm oil; (ii) inaugurate a smallholder development program; and (iii) carry forward a recently begun development of the southwest region. 1.02 The proposed project essentially would cover a five-year tranche of a long-term program to develop estate/outgrower plantings of perennial tree crops under the management of the state-owned Societe Camerounaise de Palmeraies (SOCAPALM). Since 1968, SOCAPALM has developed three oil palm estate complexes in Eastern Cameroon; two of these estates were partially financed by the Bank (Loans 593/886-CM), and the third by the European Community. The proposed project would finance: (i) the first 6,000 ha of a fourth estate; (ii) estate plantings of 1,330 ha and necessary investments, including processing facil- ities, to continue the development of the two estates covered by the first- stage Bank project (Loans 593/886-CM); (iii) a headquarters service complex that SOCAPALM would share with other companies in the estate sector; and (iv) 2,000 ha of smallholder plantings attached to SOCAPALM estates. Such small- holder development is the responsibility of FONADER, the Government's agricul- tural credit agency, which would entrust management of this project component to SOCAPALM. 1.03 The project was prepared mainly by SOCAPALM. The appraisal mission, composed of Messrs. G. Losson, A. Osei, and T. Winston, visited Cameroon in June 1976. 1.04 The SOCAPALM first-stage development project -- namely, the East Cameroon Oil Palm Project -- involved two loans, one of US$7.9 million in 1969 (Loan 593-CM) and, following reappraisal, one of US$1.7 million in 1973 (Loan 886-CM); the main change was to reduce plantings from 9,000 to 8,500 ha; the project was satisfactorily completed in June 1976. More details are in para 2.12 and Annex I. 1.05 The Bank Group has also assisted the CAMDEV oil palm and rubber plantation project (Loan 490-CM for US$7.0 million and Credit 100-CM for US$11.0 million in 1967). This project has been satisfactorily completed. In addition, the Bank Group has given assistance to four other agricultural projects in Cameroon: the Semry rice project (Credit 302-CM for US$3.7 million in 1972); a livestock project (Loan 978-CM for US$11.6 million in 1974); a cocoa project (Loan 1039-CM for US$6.5 million in 1975); and the Niete rubber project (Credit 574-CM for US$16.0 million in 1975). Thg Semry project has been satisfactorily completed, and all of the other projects are progressing satisfactorily. Two new projects, Plaine des-M'Bo and Technical Assistance, were approved by the Board in December 1976. -2- II. BACKGROUND A. General 2.01 Cameroon hag a population of about 7.3 million (mid-1975) and covers an area of 475,000 km . Average per capita income is US$270. Since 1971, growth of real GDP has been less than 3% per annum. This was caused by factors largely outside Cameroon's control, such as falling prices for its exports, drought, and rapidly rising import prices. The Government reacted by stepping up public investment, which increased by 50% to reach annual averages of about US$190 million in constant 1974 dollars during the Third Development Plan (1972-76). At the same time, greater emphasis has been placed on agricul- tural output. Under the Fourth Plan (1977-81), it is anticipated that growth of GDP will be 5-6% per annum in real terms, slightly lower than achieved during the 1960s. However, if the Government can maintain a high volume of public investment and further expand and diversify the country's production base, more satisfactory rates of growth can be obtained in the early 1980s. B. The Agricultural Sector 2.02 Agriculture plays a major role in the Cameroon economy, providing a livelihood for about 85% of the population and accounting for 35-40% of GDP and over 75% of the value of exports. The farming sector can be divided into traditional agriculture and industrial plantations. The traditional subsector accounts for over 85% of agricultural output. It comprises some 1 million smallholders cultivating plots averaging about 2 ha each, using family labor. Smallholders produce food crops for subsistence and for the local market, and cocoa, coffee, cotton and groundnuts for export. The industrial plantation subsector comprises several large government-owned and a few private industrial estates (foreign-owned), producing palm oil (mainly for domestic consumption) and rubber (for export). Output of cocoa and coffee increased considerably during the 1960's, at annual rates of about 3.5% for cocoa, 5.5% for robusta coffee and 9% for arabica coffee. Additionally, the country has vast forestry resources which are only partially tapped, and there is good livestock poten- tial in the north. 2.03 Cameroon is largely self-sufficient in foodstuffs, with production expanding at an annual rate of 3-3.5%, ahead of population growth. This expansion results from a rapid growth of non-traditional foodstuffs, espe- cially vegetables, beans and potatoes. However, Cameroon has been deficient in edible fats and there is a serious stagnation of output of traditional staples (plantains, millet, sorghum, maize and cassava), resulting from factors such as lack of adequate supporting services to smallholders, all- weather transport, and marketing organization (which, however, is reasonably well organized for export crops). - 3 - 2.04 Farm incomes and services to farmers are unevenly distributed. The highest income areas are the central savannah and the western and coastal lowlands (US$130-140 per capita); the poorest areas are the northern plains and the western highlands (US$70-80), which are densely populated. The weakness of extension and credit services is particularly evident in the lowest income areas. However, prospects are good for developing smallholder agriculture and Government now intends to increase its support for the smallholders by making available to this subsector more investment funds as well as improving institutions involved with the preparation, implementation and monitoring of projects in this subsector. 2.05 In agriculture, the Bank has been able to help the Government fur- ther diversify production by financing its oil palm and rubber plantations in the east and west, and rice irrigation and livestock in the north. The ongoing cocoa project is helping modernize cocoa growing by smallholders and \ raise rural productivity in atéas south and west of the capital. The rubber project approved in June 1975 will develop the southwest coastal region. Preparation work for rural development projects in populated but poor regions is underway with the assistance of the Bank. The Plaine des Mbo Rural Devel- opment Project, recently presented to the Board, will help finance studies and three-year trial activities required before a full-scale rural development `program can be launched. Preparation of the Zapi East Integrated Rural Develop- ment Project is nearly completed and the project is scheduled to be presented to the Board during FY78. Also scheduled for presentation is a tree crop estate and smallholder development project in the west, a follow-up of the Bank Group-financed CAMDEV I project. Field appraisal of the Rural Develop- ment Fund Project was completed in November 1976. Besides promoting much needed foodstuff production, increased Bank Group lending for agriculture will support the Government's effort to focus on rural development in order to improve income distribution and to achieve a better balanced regional development. Development of Rubber and Oil Palm 2.06 Historically, the major source of palm oil for the domestic market has been collection of fruit from wild palms. But productivity per tree is low (less than a fourth that of organized plantings) and the oil produced is of poor quality; thus, the traditional subsector has proved unable to satisfy a growing demand for vegetable ails and is now rapidly losing ground to cultivated oil palm. Whereas in 1970 collection from wild palms contrib- uted about 62% of the cauntry's total palm oil production, by 1975 it pro- duced 38%, and its share is projected to be about 5% in 1985. 2.07 The main estate crops are oil palm and rubber: about 78,000 t of palm oil (including that from wild palms) and 20,000 t of rubber were produced in 1975. The existing estate plantations are: the state-owned CAMDEV (14,000 ha, rubber; 16,000 h, oil palm) and SOCAPALM (15,500 ha, oil palm); and the private SAFACAM (6,000 ha, mainly rubber) and PAMOL (9,000 ha, mainly oil palm). A third state-owned company, HEVECAM, was recently established. At present the estate crops are being developed mainly byf-these large -4- state-owned companies. A joint Coastal Estates Center is being set up, in- cluding both private and public companies (para 3.32). 2.08 The proposed project would be the second step, following the Niete rubber estate project underway (Credit 574-CM), of a large program for the sparsely populated southwest region. Preparation of a master plan for de- velopment of the area is being financed under the rubber project. SOCAPALM will initially develop oil palm and coconut, and HEVECAM the rubber sector. Institutions 2.09 SOCAPALM was established in 1968 to implement the East Cameroon Oil Palm Project (Loans 593/886-CM), which financed the creation of two estates, M'Bongo (6,000 ha) and Eseka (2,500 ha). This first-stage project, now completed, is discussed in para 2.14. A third estate at Dibombari (6,500 ha) was established under a parallel project financed by the European Economic Community; investments still required at Dibombari and the proposed financial arrangements (separate to the project appraised in this report) are detailed in Annex 1. As SOCAPALM has only recently begun commercial operations, it is not yet a fully mature enterprise but its present management is fully qualified to carry forward the corporation's development. 2.10 SOCAPALM is passing through a difficult financial phase as oil palm development requires a long-term gestation period. From the beginning of its activities in this sector, SOCAPALM investments have been secured by equity contributions from Government, grants, and long-term borrowing from external sources (FED, BEI, IBRD, CCCE). Because of factors largely outside its control, rapid price inflation, adverse exchange rate variations, and higher interest rates, the costs of its program have exceeded estimates (para 2.14); and as a result SOCAPALM ran into financial difficulties in 1976 which resulted in a shortfall between available long-term funds and investments temporarily financed with short-term bank facilities (Annex 1, Table 1) of CFAF 217 million (US$0.9 million) in September 1975 and of CFAF 870 million (US$3.6 million) in February 1976. 2.11 However, SOCAPALM now has secured adequate financing to replenish its working capital and to insure the financing of its investment program (US$11.1 million) and debt service (US$7.8 million) until 1981, when self- generated funds would be sufficient to meet future financing requirements. From 1977 to 1980, SOCAPALM is to receive US$3.8 million in grant and loan funds from FED to complete the Dibombari estate; US$5.2 million from BEI to finance the Dibombari oil mill; and US$1.2 million from CCCE to cover invest- ments at Eseka and M'Bongo not included in the proposed project. In the same time period, operating surpluses would amount to US$11.1 million. A cash flow analysis is at Annex 6. -5 - 2.12 FONADER (Fonds National de Developpement Rural) was created in 1973 primarily to provide credit to the rural sector. It is financed mainly from funds provided by the Price Stabilization Fund and some allocations from the central budget. FONADER acts as the bulk purchaser for most fertilizer im- ported by Cameroon; it also buys pest control products, with pest control measures executed by the Ministry of Agriculture. Operating under the gen- eral supervision of the Ministry, FONADER has been given responsibility for smallholder development. However, since FONADER has no regional offices, it operates through existing institutions, as would be done under the proposed project. 2.13 \_esearch, technical advice and oil palm seed were until recently, provided by IRHO (Institut de Recherches pour les Huiles et Oleagineux) a French research institute which is well staffed and operates on an inter- national scale. However, the Cameroon station, La Dibamba, has been taken over by the new National Research Organization, ONAREST: the arrangements appear reasonable'bùt, as a firm judgment cannot yet be made, research will be kept under constant review. Teçhnical advice in practice is provided by an IRHO Agent under contract with SOCAPALM, and this contract would be continued& under the project. A new oil palm seed garden was recently established, under IRHO supervision, on CAMDEV's Mondoni oil palm estate, and seed for the proposed project would come from this source. C. The First-Stage Project 2.14 The East Cameroon Oil Palm Project, which covered the first stage of SOCAPALM's development, is analyzed in Annex 1, the main points being taken from a Completion Report dated August 16, 1976. As appraised in 1969, the first-stage project consisted of: (a) the establishment of 4,500 ha of oil palms each at M'Bongo and Eseka estates, and (b) the construction of a palm oil mill at each of the estates, as well as roads, buildings and other infra- structure. After mechanical land clearance proved more expensive than expected and the site at Eseka proved partly unsatisfactory, a reappraisal took place in May/June 1972. As a result, additional planting areas were identified at M'Bongo and a reduced area at Eseka was scheduled for hand clearing. The revised project included (i) the establishment of 6,000 ha of oil palms at M'Bongo and 2,500 ha at Eseka, to be concluded in the 1976 planting season; and (ii) proportionate adjustments in the infrastructure. At the time the second-stage project was appraised, some 330 ha of cleared land remained to be planted and some complementary investments such as housing for estate workers had not been completed, nor had some other essential investments such as pro- cessing facilities considered premature in the first-stage package. Total project implementation is expected to take 13 years instead of nine estimated at reappraisal. The slippage has been caused by occasional lack of planting material, teiporary labor shortages, and severe loss of unprotected young palms to rodents--- 1,200 ha had to be replanted. All of these problems, aided by a strengthening of estate management, now are under control. The latest cost estimates are about 68% and 29%, respectively, over appraisal and -6- reappraisal estimates. Considering that reappraisal took place before an unexpected upsurge of world inflation, the project's cost performance since reappraisal is reasonable. The economic rate of return on the reappraised project is expected to be adequate (about 14%). As a general conclusion, it seems clear that SOCAPALM management has shown its ability to cope reasonably well with the inevitable problems which arise in any new enterprise, and this augurs well for the future. The first-stage project was based on established principles governing such undertakings, and the second-stage project would follow those same principles. III. THE PROJECT A. The Project Areas The Kienke Estate Concession Area 3.01 The new Kienke estate, in the southwest region (para 2.08), would be established within an area extending northwest from the boundary of the Niete Rubber Estate concession, in the Lobe River basin. The concession of 22,300 ha is comprised of two zones separated by the Kribi-Ebolowa road; a corridor along this road about 2 km wide is excluded to allow for future settlement. The northern zone covers 6,900 ha, the southern zone 15,400 ha. The concession boundaries are shown on Map 12429. The concession would be provided to SOCAPALM by a presidential decree under existing legislation governing such matters, that would make ownership by SOCAPALM provisional upon the concession property being successfully developed. An assurance was received that Government would promptly make the land available to SOCAPALM. 3.02 The concession is very thinly populated, and the predominant vegetation is light forest on logged-over land. Climatic and soil condi- tions are suitable for oil palm. There are some seasonally flooded and marshy areas that would not be planted. It is estimated that 50-60% of the concession area is plantable to oil palm. Details are at Annex 2. 3.03 Communications and Utilities. The estate s two planting zones would be connected to the national road network, and thus to each other, by a short access road to be built under the project. The estate headquarters would be very close to the existing Kribi airfield, which would be used for purposes of the project. Transport links to the Douala-Yaounde transport corridor, and also the network within the southwest region, are to be re- viewed in 1977 in the light of a major study of the corridor nearing comple- tion. As the palm oil output would not by itself justify such infrastruc- tural investments, the external transport needs of the proposed project would be subordinate to the overall development program foreseen for the region (including evacuation routes for forestry schemes in the southeast). Since the Bank is actively involved in Cameroon's transport sector, and - 7 - since a Government assurance was obtained under the Niete rubber project (Credit 474-CM) that it would take all measures necessary to improve the roads and bridges to assure year-round through traffic between Douala and Kribi, transport is unlikely to be a problem. The national railway - which owns an existing limited-load rail/road crossing over the Sanaga River - will be requested to grant crossing permission for essential loads of over 10 tons; a similar arrangement exists for the First Project. Most palm oil produced on the estate would be transported by large cistern trucks to Douala, for local customers. An outside supply of electricity would not be essential for the project. The estate headquarters and factory would be located in close proximity to a permanent and adequate water supply. 3.04 Labor and Social Services. HEVECAM has been more successful than expected in recruiting its initial workforce in the area, and SOCAPALM should be able to do the same. However, most of the estate labor force would have to be recruited in the more populated regions of Cameroon. Some of the established estates elsewhere in Cameroon have done so, and the same supply areas could be tapped (Annex 2). Wages would be attractive, and there would be provision for social infrastructure to serve the needs of the resident laborers and their families: villages, schools, hospital facil- ities, and housing for staff would have to be provided; and a range of social activities such as sports and cinema would have to be organized. It is fore- seen that SOCAPALM would share the hospital facilities constructed under the adjacent rubber estate project under a common services agreement with HEVECAM (para 3.3i). 3.05 All salaries and wages paid by the estate would be subject to rele- vant Government legislation. The minimum legal wage (presently CFAF 325/day - US$1.32) would be the predominant wage during the planting period. In later years, there would be substantial employment of skilled workers. The Outgrower Project Areas 3.06 The outgrower plantings would be in the vicinity of the existing estate complexes at M'Bongo/Edea and Eseka, and thus would have growing conditions that have been thoroughly investigated and proved suitable for oil palm. As individual land tenure rights are traditional and not codi- fied, assurances have been obtained that each outgrower would have a per- sonal usufruct on his plantings when they are completed. The outgrower development areas are within the command zone of the Douala - Yaounde "transport corridor" (para 3.03). Aside from small-scale food crop farming, the main economic activities in these areas are the SOCAPALM estate/oil mill complexes, commercial forestry exploitation, collection of fruit from wild palm, aed some cocoa production. Rural population densities are in the 5-10/km range, but are much higher in the vicinity of passable roads along which outgrowers would be recruited (para 3.16). Surveys in these areas have identified some 500 farmers who are interested in becoming outgrowers, and this pool of potential candidates bodes well for success of the project. -8- B. Summary Project Description 3.07 The project would finance planting of a total of 9,330 ha with oil palm. It would have two major physical objectives: (a) to initiate a program of smallholder development in the tree crop sector, in conjunction with established estates; and (b) to establish the first phase of a new oil palm estate, to be called Kienke, which would eventually expand to 12,000 ha with additional surrounding outgrowers. The project would be carried out by the Socie*té Camerounaise de Palmeraies (SOCAPALM), excepting part (e) to be implemented by a Coastal Estates Center company (para 3.32). Specifically, the project would comprise a five-year investment period involving: (a) clearing about 6,850 ha and planting 6,000 ha with high-yielding selected oil palm trees on Kienke estate and maintaining these plantings during the five-year period; and providing infrastruc- ture to create an estate complex, including the first phase of a processing factory; (b) establishing 2,000 ha of smallholder oil palm plantations under an outgrower program on land cleared by the farmers; and providing credit, management and extension services; (c) clearing 1,000 ha and planting 1,330 ha (including 330 ha of land already cleared) of oil palm on M'Bongo estate; providing both M'Bongo and Eseka estates with harvesting equipment and staff housing; and expanding the processing mill at M'Bongo; (d) providing for management and administration of Kienke, and admin- istrative costs related to the immature areas at Eseka and M'Bongo estates ; and (e) providing a headquarters service complex in Douala, including office space and facilities such as a vehicle park, garage, and warehousing, that would be jointly owned by several estate-owning companies. The project would only provide for maintenance of all the estate plantings during the five-year project period. Maintenance thereafter and necessary processing and collection equipment and certain infrastructural investments would be provided for under SOCAPALM's future investment program; an assur- ance to this effect was received (para 4.05). All oil palm estates involved in the project would be owned by SOCAPALM. The outgrowers program would be managed by SOCAPALM under a contract with FONADER (para 2.12). C. Detailed Features Kienke Estate 3.08 Planting Program. The planting season would begin in March-April. The 6,000 ha of project plantings would be divided into five sectors. Plantings -9- would begin in the southern zone (para 3.01), close to where the estate center would be located, and in the fourth year the plantings would shift to the northern zone. Plantings the first year would cover 750 ha; the yearly rate would then accelerate to 1,750 ha. After three years, there would be three sectors, averaging 1,400 ha each, in the southern zone. 3.09 For land preparation, the project would follow the precedent of the Niete rubber estate project in the same region, where the option of mechanical clearance on force account was adopted because of lower costs and technical advantages. Therefore, 20 heavy duty tractors and supporting equipment would be provided under the project. The technical features of land preparation, planting, protection against rodents, and maintenance requirements are outlined at Annex 2. 3.10 Utilities, Housing and Amenities, and Infrastructure. Under the project, construction of the central village would begin in PY 1 and pro- vide accommodation for managerial staff and labor; offices and stores; an infirmary; initially one school; water supply and generating equipment. The factory, located at this site, would have its own generating capacity because steam in large quantities is required for processing purposes; factory byproducts, fibre and shell, would provide the fuel. Four satel- lite villages, also constructed under the project, would have basic utilities, a market and shops, and a social meeting hall. Amenities for staff would include one club house built under the project. 3.11 The estate center would have good initial access to most parts of the concession via existing logging trails. About 360 km of plantation roads would be built under the project, including the main access road (para 3.03); these roads would be built to minimum standards, and upgraded in later years. 3.12 Processing Equipment. The proposed project would finance the first 20 ton/hour capacity of a scheduled 40 ton/hour palm oil processing factory. The first line would come into operation in about 1982/83, the second year of production (the first year's small production could probably be used by the Estate's commissariat -- para 3.13). The second line would need to be con- structed in 1984/85 -- i.e. ready for use in 1985/86 -- and the third line constructed in a satellite shed in 1986/87. Harvesting and collection equip- ment would have to be provided in keeping with this schedule. 3.13 Labor Recruitment and Food Supply. The oil palm estate labor re- quirement would reach a plateau of about 1,100 field workers in PY 4. Labor supply would require an organized recruitment effort. There would also have to be an organized effort to provide the estate workers and their families with a steady supply of food by a commissariat operation. Both of these functions probably would be organized jointly with HEVECAM, as there would be no advantage to competitive, uncoordinated efforts. - 10 - Outgrower Development 3.14 Under an assurance given with the first-phase SOCAPALM project, Government finanPed,studies that recommended smallholder development be based on outgrower arrangements. These studies outlined an initial program for oil palm covering a total of 10,000 ha, over about 15 years, in three sectors: the Eseka Area, 2,000 ha; the Dibombari Area, 4,000 ha; and the M'Bongo-Edea Area, 4,000 ha. An additional smallholder component for the Kribi area, in conjunction with Kienke estate, should be possible within this time span as the local rural population increases. The recommended rate of development would be 200 ha/year for each sector, based on experi- ence in other countries. To spread overhead costs, the three sectors ready for development would be initiated at the same time. Outgrower develop- ment in the Dibombari area, however, would be under a separate project that FED has been asked to finance. The project proposed for Bank financing would cover 1,000 ha of smallholdings in the Eseka area and 1,000 ha in the M'Bongo area. An estimated 1,000 smallholders would be involved by the end of five years. 3.15 Outgrower plantings would be confined to a radius of 25 km from the relevant oil mill complex and limited to existing passable roads; farms would be within 500 m from a chosen road. All participants would be quali- fied farmers, who would agree to follow, throughout the development period, the technical advice provided by SOCAPALM (para 3.27). 3.16 Land would be cleared by the participating farmers, either in- dividually or by a cooperating group (para 3.31). Planting material and maintenance would be as described in Annex 2. Seedlings, cover crop seed, and fertilizer, would be supplied on credit by SOCAPALM; cash advances based on labor requirement would also be made available either as a grant or on credit depending on farm family income (para 4.06); protection against rodents would be provided by the farmer. SOCAPALM would supervise all operations. Since this would be an inaugural outgrower program, the project would provide for the housing and equipment of SOCAPALM's outgrower extension service. Douala Complex 3.17 A suitable site is available in the Douala industrial district for location of a functional service complex. The project would provide for con- struction of an office building, a vehicle park and garage facilities, and warehouse space. SOCAPALM would share these facilities with the other oil palm and rubber plantation companies (CAMDEV, SAFACAM, HEVECAM and PAMOL -- para 2.07), under a separate corporate arrangement, and substantial savings could be achieved through the spreading of overhead costs. Construction would be under the present project for reasons of convenience. Completion of M'Bongo and Eseka Estates 3.18 As discussed in para 2.14, the proposed project would provide for the replanting of 330 ha damaged by rodents at M'Bongo estate which had been cleared under the first-stage project. For M'Bongo and Eseka (para 2.09), the - il - proposed project would provide for harvesting and collection equipment, and some staff housing not provided for under the first-stage project. The collecting equipment would comprise eight tractors with special crane attach- ments, six heavy trucks, and ancillary equipment. The project would also finance the final line to complete the 40 ton/hr oil mill at M'Bongo. Extension of M'Bongo Estate 3.19 The expansion of M'Bongo estate from the original 6,000 to 7,000 ha is justified in view of the improved capability of the M'Bongo estate manage- ment, available land, and the expanded capacity of the M'Bongo processing factory. Under the proposed project, the planting schedule would be 500 ha each in PY 2 and 3. The marginal cost of this expansion would be low (e.g. no additional staff housing would be required). Methods and procedures, including maintenance requirements, would be essentially those described in Annex 2. Five tractors and ancillary equipment would be provided under the proposed project. D. Organization and Management Societe Camerounaise de Palmeraies (SOCAPALM) 3.20 SOCAPALM is a development corporation owned 58.5% directly by the Governnent, and the balance by three public agencies: the Societe Nationale d'Investissement (10.5%), and the cocoa and coffee price stabilization funds (17% and 14%, respectively). SOCAPALM's 11 directors were selected to pro- vide a blend of Government, local business, and farmer representatives. The present Chairman is the Minister of Agriculture. The General Manager is appointed by the Board of Directors on the recommendation of the Minister of Economy and Planning and is responsible, under the control of the Board Chairman, for day-to-day management. His performance has been satisfactory. Second in command is the Field Manager. 3.21 To date, SOCAPALM has relied on a minimum cadre of high level staff, mostly men with multiple talents. The company plans to evolve along the lines of the conventional organization structure shown on Chart 17055. 3.22 Except for the participation of a Government Commissioner in its affairs, SOCAPALM functions as a normal commercial entity, subject to the Cameroon Investment Code. As already agreed, the Commissioner's legal right to suspend action on corporate decisions while referring the matter to the responsible Ministry would be restricted to cases that might increase the obligations of Government under the Loan Agreements; details are in Annex 1. 3.23 Estate Management and Training. All existing SOCAPALM estate managers are experienced oil palm specialists who have proved their capacity to control day-to-day management. On Kienke Estate, the field organization would comprise five sector chiefs, each in charge of about 1,200 ha of oil - 12 - palm. There is satisfactory evidence throughout the estates sector that a pool of experienced Cameroonian cadre is being established through on-the-job training. A qualified Cameroonian is now being sought for the post of Deputy Director. It would be a condition of effectiveness that the Kienke estate manager and the Chief Accountant had been appointed, and that a list of qualified and possible candidates for the post of Executive Controller had been established; an assurance was received that this post would be filled by February 28, 1978. To consolidate this effort, the Government is currently organizing, with the assistance of consultants, a training program for agri- cultural staff that would augment the on-the-job training programs of the individual companies. 3.24 Key Posts. Management personnel essential to the project's success would be the Director General, Deputy Director General, Field Manager, Execu- tive Controller, Chief Accountant, Kienke and M'Bongo estate managers, and the manager of the outgrower program (see below). An assurance was received at negotiations that these eight key posts would be filled at all times (including the Deputy General Director's post after it is activated - para 3.22) by persons with qualifications and experience acceptable to the Bank. Management of the Outgrower Program 3.25 SOCAPALM would be the managing agency, on behalf of FONADER, for outgrower development in the areas commanded by its oil mills (para 3.06). An outline agreement covering both the FONADER/SOCAPALM and the subsidiary SOCAPALM/Outgrower relationship was discussed and agreed at negotiations. A guiding principle would be to make the project a training ground for FONADER in undertaking its responsibility for smallholder development. It would be a condition of disbursement against this component that a satisfactory credit administration agreement had been signed by FONADER and SOCAPALM. 3.26 For the outgrowers program, SOCAPALI would establish a specialized service, Service des Plantations Villageoises (SPV). At the headquarters level, SPV would have technical and administrative divisions. In the field, SPV would work independently of the estates, and be organized initially in three sectors, each attached to an existing mill. SPV chiefs would be trained in oil palm work by SOCAPALM personnel, and this practical training would include participants from FONADER. There would be one controller for about 80 outgrowers and about 300 ha of palm, a coverage designed to ensure the effective use of funds provided for outgrowers. As far as possible, the SPV would seek to intensify the plantings in each sector to improve control efficiency and lower harvest transport costs. These arrangements are similar to those which have proved successful in Ivory Coast. Outgrower Selection, Size of Holdings and Credit Arrangements 3.27 Based on a survey made during preparation (para 3.06), SOCAPALM would have a good choice of candidates in the initial phase of outgrower development covered by the project. In keeping with experience elsewhere in - 13 - Uest Africa, it is assumed for the proposed project that initial plantings would average about 1.5 ha of oil palm. In later years, it is expected that satisfied outgrowers would increase their plantings to about 4 - 4.5 ha on average without exceeding family labor availability when palms are in bear- ing. There would be a minimum of 1 ha and maximum of 10 ha per participant. It is expected that 90% of the farmers selected to participate in the program would derive 75% of their income from agricultural activities. The balance of 10% would be people with land rights whose principal activity is non- agricultural but who have nevertheless retained a close association with the village. 3.28 Prospective participants would complete, with the assistance of SOCAPALII agents, a form giving prescribed data on their farming operations, family situation, and references. For suitable candidates, the selection procedure would involve an enquiry as to the farmer's reputation, and an examination of the planting site. Participation would be dependent upon the potential outgrower becoming associated with a group of farmers (para 3.30). An assurance was received that the contract to be entered into by participating farmers with SOCAPALM would follow a model satisfactory to the Bank. 3.29 Prior to January 1 of each year, SOCAPALM would prepare a report for FONADER on its outgrower development program for the upcoming campaign. This report would be reviewed by FONADER and lead to a mutually agreed pro- gram; an assurance was received that the Bank would be given an opportunity to comment on this report until all trees are in bearing. On the basis of this program, FONADER would provide SOCAPALM with the funds and/or goods (e.g. fertilizer) required for the establishment of outgrower palms. SOCAPALM would deliver inputs, maintain credit accounts, and provide processing and marketing services. Outgrowers under contract would receive long-term financ- ing in cash and in kind to cover establishment costs, and once production begins, the outgrowers' produce would be sold to SOCAPALM. Terms of the credit arrangements are outlined in para 4.06. 3.30 Outgrower Groups. While each outgrower would have an individual contract and account with SOCAPALM, membership in an outgrower group with a minimum of five members would be required. Voluntary groupings would be arranged by each SOCAPALM agent among the available candidates. Members would have co-responsibility for the group's plantings. The main initial function would be to provide a means for group efforts, for instance in land clearing. Details are at Annex 3. Coastal Estates Center 3.31 The main tree crop companies in Cameroon (para 2.07), with the active support of the Bank, intend to establish a Coastal Estates Center (CEC) to provide common services and functions of common interest. The expected benefits would be increased specialization and efficiency, and lower overheads. The organization is described in Annex 1. Arrangements would be tailored to each common service fcr any combination of conpanies. For the central service complex, the legal form is expected to be a co-owned - 14 - real estate corporation (Societe Immobiliere). The establishment of satis- factory charter and the conclusion of a subsidiary loan agreement, satisfac- tory to the Bank, between the Government and the new corporation would be a condition of disbursement against the Douala common services complex. Other common services might be: port clearance; estate medical services; recruit- ment of estate labor; food supply; a pool of experts, such as for project preparation and technological advice; air transport; statistical services; land clearing; and radio communications. IV. PROJECT COSTS AND FINANCIAL ARRANGEMENTS A. Project Costs 4.01 Project costs are based on November 1976 prices, and over the five years investment period, are estimated at CFAF 9.5 billion (US$38.5 million), of which the foreign exchange component would be CFAF 6.1 billion (US$25.0 million) or 65%. 4.02 It is the intention of Governinent to exempt from duties all items imported expressly for the project; such duties are therefore excluded from project cost estimates. Cost estimates include indirect taxes of about US$4.7 million; therefore, project costs would be US$33.8 million net of taxes. The following contingencies have been computed: a) physical contingencies of 10% on base cost estimates; and b) price contingencies, based on the expected rate of general inflation in Cameroon, have been calculated on base cost estimates plus physical contingencies in each year, compounding estimated price increase factors in prior years and one-half of the price increase factor in the year concerned. Effective compound rates are 6.8% in 1977, 18.1% in 1978, 27.6% in 1979, 37.8% in 1980 and 48.8% in 1981. Total contingencies calculated on the foregoing basis amount to 31% of the total project costs or 44% of base-line cost estimates. Detailed cost esti- mates are in Annex 4. A summary is presented in the table on page 15. - 15 - PROJECT COST SUMMARY % of Total Project Local Foreign Total Local Foreign Total Cost CFAF Million US$ Million 1. Oil Palm Estate Development Field Establishment 975 1041 2016 4.0 4.2 8.2 Constructions 266 493 759 1.1 2.0 3.1 Vehicle, Equipment 159 901 1060 0.6 3.7 4.3 Oil mills 251 1303 1554 1.0 5.3 6.3 Management/Administration 227 128 355 0.9 0.6 1.5 Subtotal 1878 3866 5744 7.6 15.8 23.4 60.9 2. Outgrower Program Extension/Supervision 155 55 210 0.6 0.2 0.8 Field Establishment 102 101 203 0.4 0.4 0.8 Subtotal 257 156 413 1.0 0.6 1.6 4.1 3. Douala Complex Construction 142 214 356 0.6 0.9 1.5 Vehicle, Equipment 6 54 60 0.2 0.2 Subtotal 148 268 416 0.6 1.1 1.7 4.4 Total base cost 2283 4290 6573 9.2 17.5 26.7 69.4 Contingencies Physical 228 429 657 1.0 1.7 2.7 Price 825 1409 2234 3.3 5.8 9.1 1053 1838 2891 4.3 7.5 11.8 30.6 Total Project Cost 3336 6128 9464 13.5 25.0 38.5 100 - 16 - B. Financial Arrangements 4.03 The project would be financed by the proposed Bank loans, SOCAPALM self-generated funds, and Government. The proposed financing plan is detailed at Annex 5 and Annex 6, Table 1, and summarized below, after having allocated part of the contingencies to each project component. Proposed Financing Plan (US$ million) SOCAPALM IBRD Government SOCAPALM Total a) Project Cost Plantation development 19.0 9.3 28.3 Outgrower program 0.6 1.2 1.8 Douala complex 1.4 0.7 2.1 Contingencies 4.0 2.3 6.3 Subtotal 25.0 13.5 38.5 b) Working capital requirement 0.7 0.7 c) Financing Charges 1.0 3.7 4.7 Total Financing Requirement 25.0 15.2 3.7 43.9 4.04 Two Bank loans totalling US$25 million would be made to Government and would finance the foreign exchange expenditure -- 74% of project cost net of identifiable taxes. A US$18 million First Loan would be for a 20- year term including 4-1/2 year grace period and bear interest rate at 8.5%. A US$7 million Third Window loan would be for about 23-1/2 year term with first repayment on January 15, 1983 and the last on January 15, 2001. The loans would be disbursed pari passu in the ratio 18:7 and passed on to the project entities: to SOCAPALM for plantation development and the outgrower program and to the Coastal Estates Center Company for the Douala complex. Funds received by SOCAPALM on account of extension and supervision of out- growers would be a grant; otherwise these recipients would repay Government at the single interest rate of 8.5% (on terms similar to the Bank Loans). The balance of project costs (US$13.5 million) together with financial charges and working capital requirements during the development period (US$5.4 million) would be met by Government (US$15.2 million) and by SOCAPALM self-generated funds (US$3.7 million). - 1 7 - 4.05 SOCAPALM's self-generated funds would be devoted to meeting finance charges in the course of the development period. Government's contribution would be passed on to project entities as follows: (a) an increase in equity investments in SOCAPALM of CFAF 2 billion (US$8.2 million) in order to allow SOCAPALM to maintain a satisfactory equity to total capitalization ratio of 30%; (b) a loan of CFAF 1.2 billion (US$4.7 million) to SOCAPALM which would have a 10 year term including a five year grace period during which interest, at 9%, would be capitalized. Funds provided in (a) and (b) above would complement Bank loans and SOCAPALM's self-generated funds in meeting invest- ment requirements, servicing debt and increasing working capital in respect of estate operations financed under the project; (c) a grant of CFAF 97 million (US$0.4 million) to SOCAPALM to cover part of extension and supervi- sion cost for the outgrower's program during the development period; (d) a grant of CFAF 292 million (US$1.2 million) to FONADER which would be passed on to smallholders in the form of credit and cash grants. Smallholder credit would be on the terms and conditions outlined in para 4.06. These conditions are reflected in the cash flow analysis in Annex 3 and Annex 6; and (e) finally a contribution to the capitalization of the Coastal Estates Center in the form of equity amounting to CFAF 184 million (US$0.7 million) which together with part of the proceeds of the Bank loans would cover the construction and equip- ment for the Douala complex. Assurances have been obtained from Government that it would provide, or cause to be provided, finance for the above requirements and that it would guarantee any funds in excess of the amounts specified in this report required for the completion of SOCAPALM's investment program. SOCAPALM has agreed, under a Government guarantee, to maintain its liquid assets at a level equivalent to its cash expenditures during the three preceding months or CFAF 450 million, whichever is more, or such other level as shall be established from time to time by agreement with the Bank. 4.06 The Bank loans would be deployed as follows: (a) US$19.0 million would go for SOCAPALM investments in its own estates; (b) US$0.6 million would go to SOCAPALM's newly-established outgrower development unit, SPV, to finance - 18 - extension and supervision costs for the outgrower program; (c) US$1.4 million would be for the Douala common services complex; and (d) US$4.0 million would be unallocated. Outgrower Program Costs and Cost Recovery 4.07 To ensure the success of the first phase outgrowers program, Govern- ment has decided to provide outgrowers with both credit and grants. Credit over the five year development period would be about CFAF 82,000 (US$335) per ha in constant 1976 prices and would cover planting material, fertilizers, a set of hand tools for harvesting. Interest would be at 9% per annum to be capitalized over a six year period. Principal and capitalized interest would be recovered at the time fresh fruit bunches (ffb) are collected by SOCAPALM for each outgrower over 7 years. A cash advance of CFAF 48,600 (US$198) per ha in constant 1976 prices would cover the equivalent of 80% of the labor cost required for plantation development. This cash advance would be on a grant basis to smallholders earning more than 75% of their income from agricultural activities but on a credit basis on the same terms as above for others (see para 3.27). The extension and supervision costs would be about CFAF 295 million (US$1.2 million) over the 5 year development period and financed by a Government grant to SOCAPALM and part of the proceeds of the IBRD loans. Subsequently, extension and supervision costs would be re- covered via the annual bareme together with processing and transport costs. These arrangements are satisfactory since they insure adequate revenues to outgrowers (see para 5.05) and to Government which would effectively recover development cash grants from the sales taxes on outgrowers' oil palm products. Details of the outgrower program, including cost and cost recovery arrangements are at Annex 3. During negotiations, assurances were received that credit arrangements to be provided in the credit administration agreement between FONADER and SOCAPALM would be acceptable to the Bank. C. Procurement and Disbursement 4.08 Except for items specified below, procurement would be through international competitive bidding (ICB) following Bank guidelines. Goods and services subject to ICB -- largely machinery, vehicles and equipment, fertilizer and some construction work (Douala complex) -- are estimated to cost US$20.6 million. Contracts not exceeding US$100,000 would be let under competitive bidding procedures advertised locally and satisfactory to the Bank. Most land clearing, estate road building, plantation work and minor estate construction, estimated at US$10.9 million, would be done on force account using equipment owned by SOCAPALM. The remaining project costs (US$7.0 million) would be mostly for staff and labor costs and operating expenses. 4.09 Disbursements of the two Bank loans in combined disbursements at the ratio 18:7 would cover 67% of total expenditure for: - 19 - (a) vehicles, equipment and machinery for the development of the oil palm estates (US$7.4 million); (b) civil works and construction for the development of the oîl palm estates (US$3.8 million); (c) field development, including land clearing, fertilizers, planting materials and other supplies and palm planting and maintenance (US$6.7 million); (d) administrative cost of Kienke estate (US$1.1 million); (e) civil works, vehicles and equipment and operating costs of SOCAPALM for the development of the outgrower program (US$0.6 million); and (f) vehicles, equipment and civil works for the Douala complex (US$1.4 million). US$4.0 million would be unallocated. Disbursements for (c) and (d) and operating costs included in (e) would be against certificates of expendi- tures, the documentation which is not submitted for review but would be retained by SOCAPALM for inspection by Bank project supervision missions. Disbursements for (a), (b) -- except for small construction work to be done by force account -- (e) -- except for operating costs -- and (f) would be fully documented. An estimated schedule of disbursements is at Annex 7. D. Accounts and Audit Arran&ements 4.10 Since the company has been largely in a development phase, account- ing has been mainly concerned with capital expendîtures. However, as plant- ings are now beginning to produce, it is essential that SOCAPALM be capable of providing accurate data in a timely manner to interested parties, including IBRD. A start has been made in this direction, through: (a) the appointment of a Chief Accountant (para 3.23), and (b) the installation of a financial reporting system, based on the practices of established estate mangement companies. With these two changes, SOCAPALM's accounting and auditing pro- cedures would satisfy the requirements of the project proposed here. 4.11 The outgrower credit program for oil palm production, however, is new to SOCAPALM and to the country. The success of this program will depend critically on keeping proper accounts, because the management company would have to operate on a small margin between the price paid for outgrower ffb and the realized prices for oil and kernels. The recommended method of calculating the producer price is outlined in Annex 3, Table 2. The separate smallholder accounts would be designed by SOCAPALM and be the object of a separate opinion of SOCAPALM's external auditors. The auditing of all of - 20 - SOCAPALM's accounts would be by independent auditors as at present; and the reports of such audits would include a separate opinion on the smallholder program and would be submitted to the Bank annually within six months after the close of SOCAPALM's financial year. An assurance to this effect was .eceived. Perpetuation of Estates 4.12 An oil palm estate is normally expected to replace its plantings just as much as its machinery and equipment. SOCAPALM has agreed to adopt a policy that recognizes the future budgetary need to replant its estates on a regular basis as from 1988. As agreed during negotiations, such replanting would cover an average of 4% per year of the area in bearing, the generally accepted target among long established estates. V. YIELDS AND OUTPUT, MARKETS AND PRICES A. Yields and Output 5.01 Expected yields are in line with the experience of the first-stage project and relevant experience elsewhere: for ail palm outgrowers, an average ffb yield of 13 tons/ha when their oil palm are at peak production, nine years after planting; and for estates, 15 tons/ha. The oil extraction rate and kernel content are forecast respectively at 21.5% and 4.5% of ffb from fully mature palms on estate and smallholder plantations alike. Total production from all plantings financed under this project would amount to some 29,000 t of oil and 6,000 t of kernel by 1990/91. B. Markets and Prices 5.02 As a result of the rapid expansion of oil palm acreages in Malaysia, Indonesia and the Ivory Coast during the sixties, which will account for the bulk of palm oil supplies that will come on the market between now and the early eighties, the Bank's commodity analysts project that palm oil will increase its share in the international trade of fats and oils from 3.7% in 1975 to 22.9% in 1985. 5.03 The demand for soft vegetable oils (soybean and cottonseed oil) is projected to increase faster than the demand for hard oils (palm oil, coconut oil) and animal fats. At the same time production of hard oils will expand rapidly. Oil palms produce more oil per unit of land than any other oil crop, at low production costs, and thus have a competitive advantage over other oils and fats. However, although hard oils compete with soft oils in many end uses, the potential market for soft oils is considerably larger than that for hard oils. Continued expansion of hard oil supplies, mainly - 21 - palm oil, will therefore depress their prices relative to those for soft oils. Thus, in 1976 constant dollars, the price of soya bean oil is projected to increase from US$376/ton in 1976 to US$482/ton in 1985 whereas the price of palm oil is expected to increase only very slightly from US$370/ton in 1976 to US$390/ton in 1985. The real price of palm kernels is forecast to increase from US$170/ton in 1976 to US$281/ton in 1985 (see Annex 8). 5.04 Historically, palm oil production in Cameroon has been predominately for the domestic market with minor quantities being exported in surplus periods. During the 1960's an average of 8,000 tons per annum was exported representing 18% of estimated production. In the period 1970 to 1975 exports averaged 7,000 tons per annum or 11% of production and ranged from a high of 18,000 tons in 1974 to lows of about 1,000 tons in 1972 and 1971. A similar situation is expected to hold during the 1980's. Gross consumption which has increased during the last decade by about 4.5% per annum is expected to continue to increase at about the same rate. Total production, including the ongoing and Government proposed future developments of oil palm estates is projected to grow at about 6% per annum attaining 105,000 tons in 1980 and 138,000 tons by 1985. These figures compare with consumption forecasts of 85,000 tons in 1980 and 106,000 in 1985 representing margins for export of 20,000 tons and 31,000 tons respectively or exports as percentages of produc- tion of 19% and 23%. Allowing for incomplete realization of Government ex- pansion plans, an average future export margin of about 15% for palm oil is considered a realistic estimate and this has been used in the financial and economic calculations for this project. No difficulties are anticipated in finding a market for any production which is surplus to domestic requirements. Demand in adjacent west African countries is growing rapidly and Nigeria is expected to require imports in excess of 140,000 tons by 1985. Further de- tails on Cameroonian production, consumption and trade of palm oil are at Annex 8, paras 41 to 45. Palm kernel oil is used in the domestic soap manu- facturing industry, and processing facilities for kernel oil will probably be expanded. However, in the financial and economic analysis it is assumed that all palm kernel output is exported. 5.05 In the financial analysis, SOCAPALM's revenue (net of taxes) per ton of oil is assumed to be CFAF 96,000 (between the export value and the present official price for domestic sales); for kernels the corresponding revenue per ton is CFAF 46,000, based on export prices (Annex 9). Assurances were obtained that Government would set the producer price for ffb at a level which would provide for the recovery of processing, collection and extension service cost incurred by SOCAPALM when the palms come in bearing; and, further, would consult the Bank prior to changing this price. Government has indicated that the outgrower would receive the actual difference between the net value of ffb and actual costs incurred by SOCAPALM and credit charge. At full development the price paid to outgrowers could be about CFAF US$16 per kilo of ffb (before credit repayment). However, farmers' cash flow are based on a conservative price of CFAF 12 per kilo of ffb with the remainder to be distri- buted subsequently as a bonus. - 22 - VI. FINANCIAL RESULTS A. Outgrower Benefits 6.01 An illustrative farm budget, in constant 1976 prices, is at Annex 3, Table 3, which incorporates the following assumptions: (a) yields as at para. 5.01 above; (b) producer prices of CFAF 12/kg of ffb based on the "bareme" or cost schedule calculated at Annex 3, Table 3, and (c) credit terms as outlined in para. 4.06 above. In the first year of production (fifth year after plant- ing), net cash income would be about CFAF 19,600 (US$80) per ha or CFAF 450 (US$1.80) per manday. This is in line with wages earned by unskilled workers on industrial estates and higher than returns from the alternative cash crops of coffee and cocoa at comparable stages of development. At peak production, some eight years later when the developnent credit would have been repaid, net cash income would climb to about CFAF 2,750 (US$11.20) per manday. This rate compares favorably with other crops such as coffee and cocoa (about US$2.50/ manday). B. Financial Results for SOCAPALM 6.02 The investments to be financed by the proposed IBRD loan would complement other investments that SOCAPALM plans to make over the next five years, particularly on its Dibombari estate. At the end of this five-year period, viz by 1981, only some 63% of SOCAPALM's total oil palm hectarage would be in production and, because of lower yields in earlier years, ffb production would be only 50% of what would be forthcoming from these same areas when total production reaches its peak in about 1986. Consequently, the company's cash generation capability through 1981 would be below its financing needs and external financing would therefore be required. 6.03 The proposed project would ultimately consolidate the financial situation of SOCAPALM. The PCR of the first project indicates that the financial rate of return on that investment would be about 9.5%. With the investment proposed under the project, the overall financial rate of return would increase to about 13.4%. The rate of return on the marginal invest- ments made to expand SOCAPALM would be about 18%. 6.04 A cash flow analysis for the project (Annex 6) shows operating surpluses from project-financed activities beginning in 1982 and reaching a peak in 1990, when all project plantings would be at full production. By 1984, SOCAPALM's operating surplus from project plantings would be adequate to meet investment costs related to the project. Project-related debt ser- vice obligations and capital expenditures would be about CFAF 1,300 million (US$5.3 million) by 1986 when incremental operating surplus would be CFAF 1,315 million (US$5.4 million). In 1990, at peak production, such operating surplus would amount to about CFAF 2,100 million (US$8.6 million) in constant 1976 prices. - 23 - C. Financial Impact on Government and Participating Public Agencies 6.05 The ownership of SOCAPALM is split between the Government and three of its financial agencies. Including the financing proposed in this report, ,equity investments by these entities in SOCAPALM would total CFAF 3,200 mil- lion (US$13.0 million) (excluding the book value of estate land) by the end of 1981. The returns on this investment would be, first, the operating profits of SOCAPALM. In addition, the federal treasury would benefit from export and domestic sales taxes on SOCAPALM-produced oil and kernels as well as income and turnover taxes to which SOCAPALM would become liable after its standard tax-exemption privileges run out. Although the basic revenue and cost projects are necessarily tentative, it is expected that by 1996 the sum of such returns to public agencies annually would be about CFAF 4 billion (US$16.3 million) from project plantings alone, and about CFAF 7 billion (US$28.5 million) from existing plantings. 6.06 Government expenditures for the outgrower program would consist of funds passed through FONADER to smallholders as cash grants and/or credit as well as grants to SOCAPALM to cover extension and supervision costs during the development period. In addition to credit repayments, Government would recover these funds through export and sales taxes on oil and kernel derived from smallholder produce. The financial rate of return to Government would be about 9% but would be over 18% if Government keeps the margin between the producer price and the value of oil and kernel from smallholder produce (para 5.05). 6.07 FONADER which would act as the channel for the credit operation would receive capital grants from Government to constitute an oil palm small- holders development fund. As outgrower oil palms enter production and their credit repayments start, these funds would be available for further expansion of smallholder oil palm development. After 1985, these funds could finance credit to smallholders for an annual program of about 500 ha on the basis of present cost and credit arrangements (Annex 3, Table 5). VII. ECONOMIC BENEFITS AND JUSTIFICATION 7.01 At peak production the project would produce about 29,000 tons of palm oil and 6,000 tons of kernel per annum. It is estimated that about 85% of the palm oil would be consumed domestically and that, with the ex- ception of minor quantities of kernel oil used locally for soap manufacture, kernels would be exported. (Annex 8 para 45 provides trade projections for Cameroon). At peak production the total ex-harbor value of palm oil import savings and of kernel and palm oil exports would amount to about CFAF 2.8 billion (US$11.5 million) per annum in 1976 terms, of which an estimated 55% would be domestic value added. 7.02 With the assumptions given below, separate rates of return were calculated for the Kienke estate, the M'Bongo estate extension and the Outgrower program, and a combined rate of return for all three components. These three components represent 76% of the project base costs. The esti- mated rates of return of the various components are as follows: - 24 - Percent of Total Pro- Rate of Return ject Cost /a Component % X Kienke Estate 14 67 Outgrower Program 23 7 Eseka and First Stage M'Bongo Estate development /b 14 18 Extension of M'Bongo 17 8 Total Project /c 15 100 /a Excluding Douala Complex. /b Rate of return is the overall rate of return for the entire investment on M'Bongo and Eseka estates(See para 7.04). /c Weighted overall rate of return for the combined Kienke estate, outgrower program and M'Bongo extension project components. 7.03 Major assumptions used in the rate of return calculations are pre- sented below. Further details on output prices and analytical assumptions, and the economic cash flows are presented in Annex 9. (a) Benefits: Yields, production and milling percentages for oil and kernel are as in Chapter V. Kernel and oil values are based on the treatment of 85% of palm oil production as import substitutes and the remaining oil and all kernel as exports; prices are based on the average of 1980 and 1985 expected world market prices in 1976 constant dollars. No separate benefits are attributed to social infrastructural investments on oil palm estates. (b) Costs: All development and operating costs, including physical contingencies but excluding identifiable taxes, have been taken into account. Prices are based on those ruling as of November 1976. (c) Project Life: Taken at 30 years; the estimated economic life of an oil palm plantation. (d) Foreign Exchange: The exchange rate used is CFAF 245 US$1.0, which reflects the market rate as of November, 1976. 7.04 Rates of return for the Douala complex and the M'Bongo/Eseka com- pletion have not been calculated. The Douala complex which represents 6.5% of project costs (excluding price contingencies) will be shared by a number of companies. The overall rate of return on the M'Bongo and Eseka estates was calculated in the SOCAPALM I project completion report (August, 1976) to be 14%. The incremental rate of return on the completion of these estates can be expected to be higher but would be difficult to estimate accurately in view of - 25 - the problem of allocating an appropriate share of benefits to the additional investments. An incremental rate of return for the M'Bongo/Eseka completion has therefore not been calculated. The M'Bongo/Eseka completion would re- present about 17% of total project costs (excluding price contingencies). .; Sensitivity and Risks 7.05 Sensitivity tests are presented in Annex 9. As concerns the as- sumptions inducing a reduction in the rate of return: a 20% increase in costs or decrease in benefits would induce a fall in each rate of return of about 3 percentage points, and if all the palm oil is valued at export equivalent prices the rates of return would fall by between 1 and 3 percentage points. Yields and costs are based on previous SOCAPALM experience and are considered realistic particularly when related to the strengthening of SOCAPALM management proposed under this project. Market access is not considered a problem. The risk that the project would not meet its objectives is small. Other Benefits 7.06 Other benefits, not easily quantified, would accrue from project investments, especially the social infrastructure investments on plantation workers' villages. Direct employment of 1,100 workers would be provided, mostly coming from the poorer regions of the country (paras 2.04 and 3.04) where basic social amenities such as schooling, and medical and social facilities as provided by the project are sometimes entirely lacking. In addition, SOCAPALM management would gain valuable experience in developing a high priority subsector of the economy, and training Cameroonian cadre for this subsector. The Douala complex would also allow for better communi- cation and coordination between the various corporations in the tree crop sector. Finally, the involvement of FONADER in the project would provide a useful lead in for the future involvement of FONADER in the provision of credit to tree crop farmers. VIII. AGREEMENTS REACHED AND RECOMMENDATION 8.01 The following points were agreed upon during negotiations: (a) Government would promptly make the land required for the Kienke estate available to SOCAPALM (para 3.01); (b) each outgrower would have a personal usufruct on his plantings when they are completed (para 3.06); (c) the post of Executive Controller would be filled by February 28, 1978 (para 3.23); (d) the six key project posts would be filled at all times (with the exceptions noted) by persons with qualifica- tions and experience acceptable to the Bank (para 3.24); - 26 - (e) the contract to be entered into by participating farmers and SOCAPALM would follow a model satisfactory to the Bank (para 3.28); (f) the Bank would be given an opportunity to comment on the annual program report that SOCAPALM would prepare for FONADER (para 3.29); (g) Government would provide or cause to be provided financ- ing in the amounts and on the terms outlined in para 4.05 and that it would guarantee any funds in excess of the amounts specified in this report required for the comple- tion of SOCAPALM's investment program (para 4.05); (h) SOCAPALM would maintain its liquid assets at a level equiv- alent to its cash expenditures during the three preceding months or CFAF 450 million, whichever is more, or such other level as shall be established in agreement with the Bank (para 4.05); (i) the Credit Administration Agreement between Government, FONADER and SOCAPALM would be acceptable to the Bank (para 4.07); (j) auditing of SOCAPALM's estate accounts and of its small- holder program accounts would be by independent auditors as at present; and the reports of such audits would include a separate opinion on the smallholder program and would be submitted to the Bank annually within six months after the close of SOCAPALM's financial year (para 4.11); (k) SOCAPALM would adopt a policy for replanting a mutually agreeable percentage of the total hectarage each year beginning in 1988 (para 4.12); and (1) Government would set the producer price for fresh fruit bunches (ffb) at a level which would provide for the recovery of processing, collection and extension service costs incurred by SOCAPALM, and would consult the Bank prior to changing this price (para 5.05). 8.02 A condition of effectiveness would be that an additional quali- fied estates manager and the Chief Accountant, acceptable to the Bank, had been appointed, and that a list of qualified and possible candidates for the Executive Controller post had been assembled (para 3.23). 8.03 A condition of disbursement against the smallholder component would be that a satisfactory Credit Administration Agreement had been signed by FONADER and SOCAPALM (para 3.25). - 2 7 - 8.04 A condition of disbursement against the Douala common services complex would be the establishment of a satisfactory charter tor the Coastal Estates Center and the conclusion of a subsidiary loan agreement, satisfactory to the Bank, between Governnent and this new corporation (para 3.31). 8.05 With the above assurances and conditions, the proposed project is suitable for Bank loans totalling US$25.0 million -- a First Loan of US$18 million and a Third Window Loan of US$7 million. ANNEX 1 Page 1 CAMEROON SECOND SOCAPALM PROJECT PROJECT ENTITIES A. Societe Camerounaise de Palmeraies General 1. The Corporation was established in 1969 under the name of SOPAME -- Societe des Palmeraies de M'Bongo et d'Eseka -- to execute the Bank-financed project called East Cameroon Oil Palm Project. This was in effect the first- stage development project for the successor corporation, SOCAPALM -- Societe Camerounaise de Palmeraies. The objects of the company include the creation and operation of oil palm enterprises, the processing and selling of oil palm and kernels, and assistance to smallholders engaged in growing oil palms in the vicinity, including provision of processing facilities. The first nucleus oil palm estates were developed at M'Bongo and Eseka, the areas after which the initial Corporation was named. The addition of a third area, Dibombari, led to the change in name. 2. Initially, the Government owned 48% of the equity; the remaining shares were subscribed by Societe Nationale d'Investissement - SNI (12%) and the cocoa and coffee price stabilization funds (20% each). Following aug- mentations of capital, the ownership has become 58.5% Government, 10.5% SNI, 17% cocoa fund, and 14% coffee fund. This percentage breakdown ignores the nominal value of the estate land which is ascribed to Government's share- holding. 3. SOCAPALM is a Development Corporation, and therefore is subject to the following provisions of the D.C. Act: - At least 20% of the share capital must be held by the state, public bodies and/or other development corpora- tions. - Authorization may be given by decree for the inclusion of a development corporation under the Investment Code of the Cameroon or the granting of industrial and/or commercial monopolies. - The corporation is bound by the commercial code of the Cameroon. ANNEX 1 Page 2 - State control is exercised through the Minister of Agri- culture through the appointment of a Government Commissioner for the corporation. 4. The articles of association provide for administration by a Board of Directors consisting of 9 to 12 members. The Board currently consists of 11 directors, including 4 senior government officials, the Director General of SNI, the Chairmen of the Chambers of Commerce and Agriculture, who also have other local business interests, and two representatives from the manage- ment committees of the cocoa and coffee price stabilization funds. The Board appoints a Chairman, and if required a Vice-Chairman from among its members. The General Manager is appointed by the Board of Directors on the recommenda- tion of the Minister of Agriculture. The General Manager's powers are deter- mined by the Board of Directors. 5. The Government Commissioner participates in directors' and other meetings in an advisory capacity. All documents for, and minutes of such meetings, are submitted to the Commissioner, who also has power to inves- tigate company records and premises. If, as in the case of SOCAPALM, the Government holds more than 50% of the share capital, the Government Commis- sioner would have the power to suspend action on decisions made at general and other meetings to enable him to refer to the Minister of Agriculture for approval or reconsideration of the decision. To ensure that the Commis- sioner's powers of suspension would not hamper the effective operation of SOCAPALM, or affect the day-to-day management of the company, assurances were obtained from the Government under Loans 593/886-CM that the right of suspension would be limited to decisions on general policy matters which might increase the charges and obligations of the Government under the Loan Agree- ment (e.g., decisions relating to new investment, indebtedness, etc.). 6. As required by law, 5% of new profits are allocated to a reserve fund until the total reserve fund is equal to one-tenth of the total share capital. The company statutes provide for a non-cumulative dividend on paid-up capital of 6%, after allocation (if any) to the reserve fund, but payment would be subject to cash requirements and availability. Further distribution of profits would be subject to recommendation by the directors and approval by the shareholders. The First-stage Project and its Implementation 7. The SOCAPALM first-stage development project -- namely the East Cameroon Oil Palm Project -- involved two loans, one of US$7.9 million in 1969 (Loan 593-CM) and following reappraisal one of US$1.7 million in 1973 (Loan 886-CM). The project was jointly financed by the Government, the Bank, the Caisse Centrale de Cooperation Economique (CCCE, France), and the Fonds d'Aide et de Cooperation (FAC, France). 8. The project originally consisted of the establishment of 4,500 ha of oil palms at M'Bongo and 4,500 ha at Eseka; the construction of a palm oil ANNEX 1 Page 3 mill at each of M'Bongo and Eseka; and roads, buildings and other infrastruc- ture. As field work progressed at Eseka, it became evident that, because of swamps, ravines and numerous small streams, land clearing would be too costly and that the original objective of planting 4,500 ha at Eseka would not be attainable. The mechanical land clearing method recommended by the consul- tants was also too expensive. Reappraisal took place in May/June 1972. As a result, an additional suitable area was identified at M'Bongo to offset the area not suitable for planting at Eseka and some 1,500 ha were retained for hand clearing. The revised project included inter alia (i) the establishment of 6,000 ha of oil palm at M'Bongo and 2,500 ha at Eseka and (ii) an adjust- ment in the capacity of the oil mills to be built at each estate to reflect the respective change in planted areas. Other features were maintained. 9. The project objectives consisted mainly in increasing the estate production of oil palm products in Cameroon and in laying the foundations for" smallholder schemes. These objectives are in tune with the Government's development strategy and are well on the way to being met. 10. By the end of June 1976, some 8,280 ha of oil palms had been planted and another 380 ha was scheduled for planting during 1976/77, for a total of 8,660 ha. The last plantings will thus start producing only in 1980/81 and total project implementation will take 13 years instead of 9. The major factors having contributed to this slippage since reappraisal are occasional lack of planting material, temporary shortages of labor, and severe loss of unprotected young palms due to rodents -- 1,200 ha had to be rèplanted. Inadequate planning, weak estate management and insufficient supervision of individual estates have been largely responsible for these problems in the past, except for labor shortages which were mostly beyond the control of management. All of these problems are now under control. 11. Supervision of Estates. The General Manager, Plantation Inspector, and the general administrative and accounting services are located at Douala. In the early years of the project, there was an imminent question as to whether the General Manager should reside on one of the estates. This question has been reduced in importance by the improvement of estate manage- ment -- i.e., all of the existing estate managers are well qua idfied in- dividuals. The more fundamental question regarding supervision of estates is the need for reliable communication between the estates and between these and the administrative centers of Douala and Yaounde. The proposed second-stage l project would provide for a reasonable amount of light aircraft usage; further, an air service is one of the activities envisaged for the common services organi_atiorn-d-is_ussed&later in this annex. The joint radio facilities envisaged-by that organization would also be of considerable benefit. Since there is adequate evidence that the past problems of estate supervision are under control, the Bank has no objection to the General Manager residing at Douala. ANNEX 1 Page 4 12. Perpetuation of Estates. An estate is normally expected to replace its plantings just as much as its machinery and equipment. To ensure that this would be done, che Loan Agreement required the Borrower "... to establish and maintain a replanting fund at such a level as shall be necessary to carry out the replanting ... of the estates included in the Project...". However, it seems that the high level of inflation which prevailed at the time of reappraisal made the fund impractical, and the fund was not set up. As the fundamental reasons for replanting an estate have not disappeared, an adequate mechanism should be installed. An approach favored by long estab- lished estate companies is to aim at replacing an average of about 4% of the total hectarage every year. A timetable for phasing into such a program cannot be specified, as factors such as relative performance of estate manage- ments, planting block productivity, and old versus new varieties cannot be predicted. SOCAPALM has agreed that, at the latest in 1988, budgetary allo- cations would be made for a replanting program. 13. Cost at Completion. Since its formation in 1969, SOCAPALM has prepared cost-at-completion reviews three times, namely before reappraisal in 1972, in July 1974, and in June 1976 during the Completion Review Mission of the Bank. During the proposed project implementation these would be performed at least once a year. 14. The June 1976 estimate of the project cost at completion amounts to CFAF 5,760 million; it is made up of CFAF 4,196 million of expenditures actually incurred up to June 30, 1976 and CFAF 1,564 million, or 27% of total, of expenditures to be incurred after June 30, 1976. The latter will be needed to plant the last 330 ha of oil palms during 1976/1977 to bring existing plantings to maturity up to 1979/80, and provide the necessary oil processing capacity. The estimate of future expenditures includes contin- gencies as per Bank Guidelines. 15. The latest cost estimates at completion are about 68% and 29% respectively over appraisal and reappraisal estimates. Considering that reappraisal took place before the world petroleum crisis and the ensuing accelerated period of inflation, the project's cost performance since reap- praisal is reasonable. It should be noted that the cost elements as presented in the appraisal and reappraisal documents do not correspond to the accounts and budgets of the Borrower; consequently, comparisons should only be viewed as a broad indication of cost variances. 16. The actual/forecast cost difference of CFAF 1,282 million since reappraisal is due roughly 24% to net foreign exchange losses actually in- curred through June 1976, 40% to increased labor rates, 5% to destruction of young palms by rodents, and the remainder to general price increases. 17. Yields and Production. Current aE3umptions as to yields and the projected production of ffb, oil and kerlels during the life of the project are slightly less favorable than forecast at reappraisal. At full production, yields are estimated to be 15 tons/ha. Production at M'Bongo reached 20,000 tons in 1975/76 and at Eseka reached 6,000 tons. ANNEX 1 Page 5 18. Rates of Return. The completion review mission estimated the financial rate of return at 9.5%, compared with 10% at reappraisal. The economic rate of return was estimated at about 14%; this compares with a rate of 12% calculated on a similar basis at reappraisal. 19. General Conclusion. The difficult tasks of setting up a new company/ and developing its first plantations are behind. SOCAPALM management has shown its ability to cope reasonably well with the inevitable problems which i arise in any enterprise, and this augurs well for the future. Project implementation occurred in a period of high inflation but, on a conservative basis, the financial and economic viability of the project seems to be assured. The Completion of Dibombari Estate 20. The Dibombari estate complex consists of a 6,295 ha oil palm plan- tation, partly financed by the Fonds Europeen de Developpement (FED), and an oil mill, partly financed by the European Investment Bank (EIB). This estate is owned by SOCAPALM and managed on an integral basis with its other estates, M'Bongo, Eseka, and Kienke (in the future), which are partially financed by the Bank. 21. Implementation of the Dibombari program began in 1972, under a first FED-financed project, and the first phase ended with the 1975/76 fiscal year. For the estate to be completed, plantings must be maintained to maturity, processing and collection equipment provided, and the trees put into production. Over the next five-year period, 1976-81, total funding of CFAF 2.8 billion (US$11.6 million) will be required. Financing has been arranged as follows: (a) From FED, a U.C. 2.5 million (CFAF 650 million) "Pret a conditions speciales", at 1% interest rate and 10 years grace and reimbursable over 25 years. (b) From EIB, specifically for processing facilities, a "Pret sur capitaux a risque" of U.C. 2.3 million (CFAF 600 million), at 2% interest during the investment period and 6.5% thereafter, with four years grace, and reimbursable over 10 years. (c) From Government, CFAF 800 million, as equity. (d) The balance, CFAF 802 million, would come from self-gen- erated funds. Completion of the estate will require four further years, and additional funding of CFAF 700 million. A year by year breakdown by category, is given in Table 4. ANNEX 1 Page 6 B. FONADER 22. The Fonds National de Developpement Rural (FONADER) was created in 1973 to provide short and medium term credit to the rural sector and to implement and operate on its own account projects of general interest in the agricultrual sector (such as processing facilities). It is financed mainly from funds provided by the price stabilization funds and some allocations from the central budget (Table 5). FONADER finances the purchase of fertilizers by farmers (short term credit), but only for programs involving subsidized fertilizer. It also acts as the bulk purchaser for all fertilizer imported by Cameroon, irrespective of whether it extends credit to the ultimate user or not. FONADER buys pest control products with funds provided by the price stabilization funds; the pest control measures are executed by the Ministry of Agriculture. FONADER is operated under the general supervision of that Ministry. 23. FONADER gives credit to individuals, to pre-cooperative grfups like the Groupements d'Agriculteurs Modernes (GAM) and to cooperatives. dredits made to the cooperatives may be passed on to individual members; i1ythis case, however, cooperatives remain liable for repayment. Until June 1976, credits amounting to about CFAF 1.4 billion (US$5.6 million) had been ap- proved, of which about two-thirds had been disbursed. In the future, FONADER expects to be able to extend credits of about CFAF 1 billion annually but the necessary finance has not yet been secured. 24. For 1976/77, FONADER plans a large water supply credit program; 114 wells are to be developed, in several parts of the country, both for human consumption and for pastoral uses, and 26 pipe-borne water systems are to be constructed. Execution will be entrusted to the Genie Rural. 25. FONADER's basic weakness is that it has no regional offices and thus relies entirely, for both the appraisal and the supervision of credits, on local staff of the Ministry of Agriculture or the Delegation Provinciale, which are ill equipped for this task. Furthermore, decisions are made at the central office on Yaounde only, which leads to long delays in the processing of requests. FONADER is about to attach at least an accountant to each of the Provincial Delegations for current administrative purposes but this does not alleviate the problems concerning credit appraisal and supervision in the field. 26. FONADER is aware of these structural problems. Since these cannot be overcome in the short run, FONADER is anxious to operate through existing development institutions to ensure the efficient use of its funds. ANNEX 1 Page 7 C. COASTAL ESTATES CENTER General 27. A cooperative organization for the tree crop development corpora- tions has already been proposed, under the aegis of CAMDEV and including PAMOL and SOCAPALM as founding members, with these initial objectives: (a) the exchange of _information on the cultivation, pro- cessing, sale and distribution of oil palm products; (b) representation of the industry in consultations with the government or its agencies on matters of national importance relative to the industry; and (c) a sharing of information on market opportunities. To qualify for membership in this organization, it was proposed that a mini- mum of 1,000 ha of oil palms and an oil mill producing palm oil be required. The statutes of this group have been drawn up, but not yet officially approved. To better meet the needs of Cameroon's estate sector, it has been agreed that all companies with industrial perennial plantations (e.g. rubber and coconuts) would be eligible for membership. This would bring in SAFACAM and HEVECAM. Types of Common Services Activity 28. Joint Offices and Facilities. SOCAPALM needs to build an office since it is still only renting temporary accommodations. Because CAMDEV's activity at Tiko in Western Cameroon has diminished, and ships call there only very infrequently, this company would benefit from a unit in Douala for customs clearance and transit purposes. HEVECAM is also renting tem- porary office space, and needs to find accommodation for its Douala unit. And SAFACAM will need to establish permanent office space in Douala in the near future. Under these circumstances, it would be logical to con- struct a building specifically designed to meet the needs of all the com- panies after completion of their expansion plans. 29. A central radio service for all the plantations could be set up in this Douala complex, as a single radio network would be more economical than three or four poorly equipped individual networks. Another important component of the Douala complex activities would be a joint purchasing service with a single customs clearance and transit warehouse. 30. Product Sales. The concerted promotion of product sales on the domestic market would improve distributional efficiency and reduce marketing overheads. For exports, volume operations should lead to sizable shipping discounts; the organization of a quality control system also would be possible with quality labeling. ANNEX 1 Page 8 31. Medical Services at Plantations. There are two clear cases where joint hospital services should be established. The hospital at Dizangue (SAFACAM) was too big initially, and is now closed in favor of using medi- cal facilities at Edea. It would be advisable to reopen the hospital to serve Dizangue, which is now reaching a planted area of 8,000 ha, and also M'Bongo (SOCAPALM), which has 6,000 ha located nearby. With staffing paid jointly by the two estates, better services would be available at an accep- table unit cost. Likewise, a joint medical service with a resident physician is the logical solution for the Kribi region, with SOCAPALM and HEVECAM sharing the costs. 32. Recruitment. Most of the plantation companies, as they develop, will need to recruit labor from densely populated regions. The best way to avoid recruitment problems would be to have a joint recruitment organiza- tion. In this way, people could be grouped together by place of origin, if desired. A sociologist with a good knowledge of the problems involved in transporting people and other attendant problems should be included in such an organization. 33. Food Crop Production. The production of food crops to meet the needs of the estate labor forces and the development of protein sources should be organized jointly in the Kribi region, where experiments are being carried out under Loan 574-CM. A similar effort could be planned in the Edea region, to meet all the food crop requirements at Dizangue (SAFACAM) and M'Bongo (SOCAPALM), which often are met only erratically. 34. Technical Cooperation. With the development of large estate com- panies in Cameroon, highly competent technical specialists will be required for efficient operation of the estates sector. Experienced technicians are in short supply and are expensive. It would be difficult and costly for each group to employ the exclusive services of a complete team of agricul- tural, industrial and research specialists. Furthermore, for the state- owned companies, there would be substantial benefits from coordinating pro- cessing and planting policies. For example, CAMDEV's Mondoni oil mill and SOCAPALM's mill at Dibombari are only a few kilometers apart and are sepa- rated only by the Mungo river. As they are roughly the same size and have the same type of equipment, they should pursue the same management and main- tenance policies. Technical specifications for much of the equipment re- quired by the various companies should in fact be determined by jointly em- ployed technicians, who also would know the specific needs of each of the companies. This would make it possible to maximize the standardization of equipment and spare parts inventories. 35. Land Preparation. Land clearing for estate development is highly specialized work requiring heavy and costly equipment, together with mainte- nance equipment and a large stock of parts, etc. In the Kribi region, for example, two companies -- HEVECAM and SOCAPALM -- will be planting for 20 con- secutive years at an annual rate of approximately 2,500 ha each. A single mechanized unit, employing qualified (and therefore costly) engineers who ANNEX 1 Page 9 would be responsible for preparing the 5,000 ha each year, would normally be more effective and less costly than two parallel organizations, each work- ing on 2,500 ha, with their own engineers, maintenance stocks, and workshops. 36. Manufacture of Polybags. The overall planting program will require the use of some 8 million polyethylene bags each year. These bags, which are manufactured locally, are currently subject to a tax on the raw materials and a tax on the services provided. The manufacture of these bags by the users themselves as a group, using imported pellets and simple machinery, could lead to a savings of some CFAF 100 million (US$408,000) annually for this relatively minor supply item. 37. Statistical and Data Processing Unit. The only effective way to gather statistical information relating to the plantation sector is through centralization. Data processing could also be included, once the volume of information justifies such a move. It will be some time before this point is reached, but the need for such a system in the long term needs to be recog- nized. The data processing unit would also provide information required for discussions with the authorities regarding problems affecting the plantation sector. 38. Air Transport. A light plane service is needed as soon as possible. With the necessity to commute to the Kribi region, involving a long and te- dious road journey, particularly in the rainy season, such a service is ab- solutely essential. None of the existing plantations is more than 30 minutes flying time from Douala by light plane. Under current conditions, some plan- tations are not visited often enough. Once a central radio service is opera- ting, the air service could also provide emergency ambulance service, espe- cially for the more isolated plantations. Practical Organization 39. The guiding principle should be that taking part in joint activities should be voluntary, thus leaving each company with full responsibility for the management of its own affairs. Coordination of the various joint activi- ties will have to be very flexible. Special agreements governing each parti- cular operations can be drawn up between the companies involved. Thus the principal aim is to facilitate the horizontal development of a series of individual cooperative activities with limited objectives. A centralized organization with a vertical structure, which would inevitable involve a large and therefore costly bureaucracy -- potentially stultifying in its impact -- is a danger to be avoided at all costs. 40. Since at least a minimum administrative infrastructure is needed, there should be regular meetings of the company directors within the frame- work of a joint ownership of the Douala complex to be constructed under the proposed project. Decisions should be taken through a simple majority vote. A Chairman would be elected annually, but the regular scheduling of meetings would reduce the pre-eminence that this position might otherwise carry. A secretary general would be responsible for managing the central joint service ANNEX 1 Page 10 operations. The cost of joint services would be paid for through regular allo- cations of the expenses incurred. 41. Some specialized technicians suitable for common services duty are already employed by companies in the estate sector, for instance under visit- ing contracts covering a certain number of months each year. The administra- tive rights of old and new joint service staff (seniority, insurance, pension funds, etc.) will have to be protected in each case. Regulations and cost sharing will have to be worked out covering such items as flying time, spe- cialist days, hectares worked, tonnages of products transported or handled (in factories or in transit), joint goods purchased, etc. Pragmatism must prevail. 42. Statutes and Objectives. The Statutes could be basically those of a joint ownership real estate company. In addition to the normal defi- nitions given to such a company, objectives could be stated in broad terms, such as: (a) the exchange of information on the cultivation, pro- cessing, marketing, and distribution of oil palm, coco- nut palm and rubber products; (b) the promotion of cooperative activities relating to the cultivation of oil palm, coconut palm, rubber and indus- trial crops in general, including the purchase and apportionment of unprocessed or processed goods, the purchase of real estate, the registering of trade marks, etc. Since operations would be nonprofit, care should be taken in drawing up the statutes to avoid any tax liability with respect to the services provided under the joint activities program or the apportionment of goods. Annex 1 Table 1 CAMEROON SECOND SOCAPALM PROJECT SOCAPALM UNAUDITED BALANCE SHEET (JUNE 30, 1976) (CFAF"ooo) ASSETS 1. Fixed Assets (net of depreciation) Plantations 5,514,988 Buildings 414,630 Industrial Installations 931,765 Vehicles 213,326 Other Assets 3,484 Subtotal 7,078,193 2. Current Assets Prepaid Items 118,357 Inventories 204,092 Accounts Receivable 233,261 Cash Items 103,033 658,743 LESS Short term liabilities 1,027,26o Subtotal (368,517) Net Assets 6,709,676 LIABILITIES Equity Capital 1,824,oo4 LESS Accumulated losses (478,728) Grants 1,078,578 Subtotal 2,432,843 Long term loans 4h,285,833 Total Liabilities 6,709,676 Annex 1 Table 2 CAMEiOON SECOND SOCAPAIM PROJECT Economic Rate of Return - First Socapalm Project Firet Alternative - Second Alternative 2/ Fiscal Year Revenues Fixed Assets Operating Costs Net(Costs)Benefits Fixed Assets Operating Costs Net(Costs)Benefits 1968- 1969 - 243.9 - (243.9) 237.7 - (237.7) 1970 - 339.1 - (339.1) 330.4 - (330.4) 1971 - 479.2 - (479.2) 466.8 - (466.8) 1972 - 636.5 - (636.5) 620.1 - (620.1) 1973 20.3 865.5 30.1 (875.3) 843.2 27.6 (850.5) 1974 96.0 900.6 105.5 (910.1) 877.3 96.9 (878.2) 1975 223.8 673.3 181.4 (630.9) 655.9 166.6 (598.7) 1976 386.1 257.2 296.9 (168.0) 250.6 272.8 (137.3) 1977 764.1 264.9 480.2 19.0 258.0 441.1 65.0 1978 1113.1 210.1 579.3 323.7 204.7 532.2 376.2 1979 1458.8 182.5 703.1 573.2 177.7 645.9 635.2 1980 1785.6 111.4 841.6 832.6 108.6 773.1 903.9 1981 2042.8 423.7 951.7 667.4 412.8 874.2 755.8 1982 2275.7 13.7 1033.2 1228.8 13.4 949.1 1313.6 1983 2426.5 - 1105.3 1321.2 - 1015.3 1411.2 1984 2578.8 - 1162.0 1416.8 - 1067.4 1511.4 1985 2255.9 - 1183.0 1472.9 - 1086.7 1569.2 1986 2632.4 - 1172.5 1459.9 - 1077.0 1555.4 1987 2593.4 - 1155.2 1438.2 - 1061.1 1532.9. 1988 2566.5 - 1143.2 1423.3 - 1050.1 1516.4 1989 2541.9 - 1132.2 1409.7 - 1040.0 1501.9 1990 2525.9 - 1125.1 1400.8 - 1033.5 1492.4 1991 2494.5 - 1111.1 1383.4 - 1020.6 1473.9 1992 2462.4 - 1096.8 1365.6 - 1007.5 1454.9 1993 2442.3 - 1087.9 1354.4 - 999.3 1443.0 1994 2430.0 - 1082.4 1347.6 - 994.3 1435.7 1995 2419.2 - 1077.6 1341.6 - 989.8 1429.4 1996 2395.7 - 1067.1 1328.6 - 980.2 1415.5 1997 2369.8 - 1055.5 1314.3 - 969.6 1400.2 1998 2208.3 - 983.6 1224.7 - 903.5 1304.8 1999 1793.6 - 799.0 994.6 - 733.9 1059.7 2000 1281.6 - 570.8 710.8 - 524.3 757.3 2001 924.1 - 411.6 512.5 - 378.1 546.0 2002 598.2 - 266.4 331.8 - 244.7 353.5 2003 549.0 - 204.3 254,5 - 187.8 271.2 2004 252.0 - 112.2 139.8 - 103.1 148.9 2005 87.5 - 39.0 48.5 - 35.8 51.7 Economie Rate of Return: 13.8% 14.31 1/ Firt alternative: Fixed assets and openrting costs reduced by amount of taxes and 25% of value of labor; foreign exchange component adjusted by factor of 1.35. S Second alternative: Fixed assets and operating costs reduced by amo»unt of taxes and 50% of value of labor; foreisu exchange co ponent adjuated by factor of 1.35. CAMEROON SECOND SOCAPALM PROJECT Costs to Complete Dibombari Estates 1976/77-1984/85 ('000 Current CFAF) 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 TOTAL Maintenance 422,719 364,551 263,527 143,934 65,596 79,618 51,414 - 1,411,359 Equipment 623,721 302,343 141,064 19,546 38,768 71,366 382,586 24,408 15,340 1,619,142 Buildings 145,572 108,576 83,545 72,384 36,879 15X666 16,264 18,264 13,148 _51,953 Total 1,212,012 775,470 488,136 235,864 141,243 166,650 450,919 42,672 28,488 3,541,454 Annex 1 Table 4 CAMEROON SECOND SOCAPALM PROJECT Resources and Outlays of FONADER 1974/75 1975/76 2 (CFAF Million) RESOURCES 4,020.7 4,502.0 Subsidy from stabilization funds - 3,016.7 3,106.4 Subsidy from Government Budget 200.0 200.0 Carry-over funds 550.0 550.0 Reimbursement of loans - 230.0 Sale of insecticides (10 cocoa farmers) 150.0 200.0 World Bank funds (cocoa project) - 122.0 Miscellaneous resources (i.e. forest fund) 104.0 93.6 OUTLAYS 4,020.7 4,502.0 Subsidized operations of which: 2,204.3 2,466.5 - cocoa (capsid control, brown rot (920.0) (930.0) disease, etc.) - arabica coffee (disease control, (272.0) (272.5) regeneration) - robusta coffee (disease control, (315.0) (330.0) regeneration) - fertilizer subsidies (450.0) (450.0) - rural water supplies (wells) (150.0) (100.0) Lending operations of which: 1,022.3 1,154.3 - short term loans (211.7) (239.1) - medium term loans (765.9) (864.6) - Long term loans ( 44.7) ( 50.6) Miscellaneous Aid Operations 258.1 247.0 FONADER equipment and operating budget 536.0 634.2 1/ Actual. 2/ Budgeted. 3/ Including: Cocoa and Coffee Stabilization Funds and Produce Marketing Organization. Source: FONADER. ANNEX 2 Page 1 CAMEROON SECOND SOCAPALM PROJECT TECHNICAL FEATURES A. Development of the Southwest Region General 1. The southwest region extends about 100 km along the southern coast, beginning some 30 km north of Kribi, to the border with continental Equatorial Guinea, and inland about 45 km (see Map 1). The total area of this region is around 500,000 ha. The climate and soils are generally suitable for a range of tree crops including rubber, oil palm, and coconut. The land is flat or gently undulating. The region is almost completely unpopulated. 2. Interest in development of the region was kindled by its choice for location of a large Government-owned rubber estate, preparation of which envisaged 15,000 ha. The first 5,800 ha of this program is being financed as a five year project under Loan 574-CM, which would also finance the prepara- tion of a master plan for the region. Initially, the 15,000 ha rubber estate, being labor intensive, would provide employment to 7,000 employees and their families -- 25-30,000 people in total -- most of them from the poorest regions of Cameroon. Satellite foodcrop production, trade and transport activities would also develop. The successful establishment of other estates and smallholder plantations would ultimately form a whole new agroindustrial complex in the hinterland of the port of Kribi. Development of the area is beginning with estates, as the laborers needed, together with their families, will form the core of a permanent population for this empty but fertile area. A series of second generation projects will encourage outgrowers, once the base for their successful establishment has been laid. This phasing of development is justified because (a) nuclear estates ensure a supply of fruit for processing facilities and are necessary to support the development of infrastructure and the acquisition of agronomic know-how, and (b) outgrower developmen can be accomplished at a much lower cost if postponed until nuclear estates are well established. From now to the turn of the century, it is estimated that successive "rollover" projects could develop some 135,000 ha. At completion of such a program, the region would support some 300,000 or more people and there would have to be substantial development of food, meat and fishery production. The transport requirements for imports and exports would be very large. ANNEX 2 Page 2 Master Plan 3. To take advantage of and preserve the opportunity offered by the Kribi areas, a master plan for development of the area is being prepared under Loan 574-CM. This plan is being based on a land-use survey and in addition should: (a) take account of the need to achieve a balanced develop- ment of industrial estates and outgrowers; (b) consider the creation of a specialized organization for land clearance, which would be required on a large scale; and (c) encompass a study of the long-term infrastructure and transportation needs of the development program. Terms of reference for the necessary studies have been reviewed and found acceptable by Bank supervision missions. The land use survey is proceeding satisfactorily, along with planning for the balanced development of industrial estates and outgrowers. The creation of a specialized organization for land clearance is being considered within the context of an association of estates companies which is being formed, and through which SOCAPALM and HEVECAM could then form a common service for this purpose. The study of long-term transpor- tation needs is now expected to be organized in 1978. 4. Welfare of Pygmies. There are an estimated 3,000 forest-dwelling pygmies in Ocean Department whose way of life might be impinged upon by a large-scale development program. The welfare of the pygmies would be considered in the preparation of the master plan. However, the current expectation is that the pygmies will successfully adjust to the economic development -- with some degree of increased security -- and that no special measures will be needed. Climatic Conditions 5. The chosen site for the oil palm estate is in the same region as the Niete rubber estate financed under Loan 574-CM and the same general climatic conditions prevail. The soil is good, typically ferrallitic, derived from metamorphic rocks, and comprising at various levels and in variable quantities iron oxide concretions. The hydrographic network is not very dense. 6. The site is gently undulated, at altitudes of generally between 10 and 30 meters, with the exception of a few rocky hills which are excluded from the planting areas. The dominant vegetation is dense, moist forest. The climate is typically equatorial, and characteristically hot and humid. There are four seasons, with two relatively dry and two wet seasons annually. The dry periods have less than 100 mm of rainfall monthly, but are not dras- tic since each dry season lasts only for one to two months maximum. Average ANNEX 2 Page 3 rainfall is very well distributed into four more or less distinct seasons according to rainfall: - relatively dry: three months (December-February) - 75-125mm/month - relatively wet: four months (March-June) - 200-400mm/month - relatively dry: one month (July) - lOOmm - wet : four months (August-November) - 300-500mm/month Humidity remains high (above 70%) during the dry periods, thus alleviating the lack of rain. April is the favored month for planting. 7. Average temperature of the area oscillates year-round between 250C and 28 C, in an extremely regular temperature pattern. 8. The climate differs from the climate prevailing in other areas of the Cameroon where rubber and oil palm estates are planned. The other areas are governed by a transitional regime between equatorial and tropical climate, with only one dry and one wet season annually. The Kribi area climate, with its two wet seasons, offers a much greater flexibility for the organization of planting times and is rather similar to the Malaysian climate where rubber and palm growth has been so successful. However, the Malaysian and Indonesian (Sumatra) areas enjoy a relatively higher number of sunshine hours annually than does the West African coast, where overcast skies generally prevail even during relatively dry seasons. Population and Labor Force 9. The popul2tion density in the area, excluding the town of Kribi, is only 3.5 persons/km . This very thin population is distributed almost exclu- sively along the existing roads, mainly the Kribi-Ebolowa route. The interior is practically uninhabited. 10. Except for some small-scale logging by private companies, economic activity in the area is meagre. Some gravel deposits in the interior are being exploited, and there is artisanal fishing along the coast. The town of Kribi itself, on the coast, has a tourist industry. Fishing would have to be promoted by the Estate managements to supply the estates population with fresh fish at low cost. This could be approached along the lines of an ex- tension and marketing service. 11. The existing population belong to various ethnic groups from other parts of the country. The small numbers of crop farmers in the district, and in surrounding areas of the department, are not likely to provide enough labor for the estate needs. Many would probably choose not to become wage ANNEX 2 Page 4 laborers, especially since the existing crop farmers would benefit quickly and substantially through the expansion of food cropping for sale to the estates. 12. It will thus be necessary to recruit the bulk of the estate labor force in overpopulated parts of the Cameroon, essentially the northern area and the higher areas in the west. Other existing estates in Cameroon have been developed with such imported labor, and their experience shows that problems of adaptation can be readily handled provided that necessary efforts are made for a pleasant and warm reception. At nearby Dizangue Estate, a 8,000 ha rubber and palm estate belong to SAFACAM--where conditions of life and work are similar to those anticipated for the southwest estates--no recruiting efforts have been necessary for many years; an adequate choice of recruits is provided by people who come to the estate seeking employment. 13. Recruitment would be organized on a joint basis with HEVECAM, since there would be no advantage to competition in this function. Some people from nearby areas would likely become periodic workers, and thus would form a valuable labor pool. With time, the core of a permanent workforce would be formed by satisfied laborers, especially those established permanently with their families and coming from the farther North. It can be expected that, after a number of years, some salaried employees would wish to establish themselves as farmers, taking advantage of the land availability in the neighborhood; this would be to the overall advantage of the region, and should not be discouraged. The pattern of recruitment and settlement described above is now a classic long-term phenomenon which has been observed following the creation of estates in empty regions. The result is a highly satisfactory form of balanced regional development. 14. Recruitment would be based on the following basic principles: - Recruitment should be done only in rural zones. It is known that laborers who have become familiar with urban life have difficulty in readapting to country work and life. - Preferably, recruitment campaigns should be made during the first quarter of the calendar year, when agricultural work is at a low ebb. - Recruitment in a given area would be made after authoriza- tion of the Ministry of Labor and in cooperation with the Labor Inspector. - Agreement of all local authorities should be obtained (Sous Prefet, village chiefs, municipal counsellor and, eventually, religious authorities). - An information campaign should be undertaken in each vil- lage where recruitment takes place, to explain plantation ANNEX 2 Page 5 work and the type of existence to be expected on the es- tate. The information given must be accurate and realistic to avoid later difficulties due to misunderstandings as to what to expect. - When arriving on the estate, the laborer should find his lodging prepared, with a bed in place, and be given a small cash advance against his first pay. - Several laborers from the same village should be recruited together and put together in the same village to avoid feelings of isolation. - A first contract would be assigned on arrival, normally for two years. Fare for the return trip would be provided by the estate; for married laborers, the cost of travel would include the immediate family (wife and children). Further contracts would be of indeterminate length, with travel at the laborer's expense. - The recruitment effort should be carefully organized from the beginning, as satisfied laborers would be expected to become effective recruiting agents through writing and word-of-mouth contacts with their home villages. 15. Medical Care. The provision of medical care, especially for emer- gencies, is a valuable morale builder for an estate labor force. Dispensary services should be offered 24 hours a day, with a doctor on call. 16. Food Crop Growing by Estate Workers. On Kienke and Niete Estates, as on industrial estates in general, the possibilities for growing subsistence crops are constrained. Firstly, villages are located in the middle of pro- duction blocks serviced by the village labor force, and thus the available land for farming is often rather distant from the village. Secondly, such cropping is often done by women in West Africa. Also on estates, married women often prefer to work on the estate, and thus bring in a second salary, and a proportion of female estate workers are single. At the SAFACAM Dizangue rubber estate, women represent 18% of the labor force, however, Dizangue has been an established estate for a long time. In the early years of development in the Kribi region, a very small proportion of workers are likely to be women. Thus there is not likely to be much subsistence foodstuff cropping. 17. Housing and Social Facilities. As noted above, laborers expect to find on arrival a prepared lodging with minimum facilities such as a source of water, toilet, kitchen, etc. But experience indicates that estate workers are not interested in the luxury of construction material. Sensitive matters include an adequate size of the lodging quarters and the existence of markets, shops, school and other social facilities and activities such as cinema, football teams, etc. The project would provide adequate facilities to meet the expected demand in these regards. ANNEX 2 Page 6 Food Crop Development 18. On the whole, food production in Cameroon is more-or-less balanced. But the Kribi area (Ocean Department) is far from the main food production area. Further, a curtain of towns (Yaounde, Eseka, Edea, Douala) lies between Kribi and the agricultural zones to the North. When the two estate labor forces grow beyond 10,000--corresponding to some 40,000-50,000 people-- it would be difficult and costly to bring in the majority of supplies from distant points. Under the present structure of farming, the expected increase in food production is practically nil (0.2%). 19. The food crop outlet of the existing smallholders in the area could be improved by a better collecting system, an improved feeder-road network, and minimum extension services. But smallholder output will remain small, and probably will not cover more than a small fraction of the necessary tonnage of food for the two estates. Much of the staple supply would come from the Lolodorf area. 20. There is scope for allocating some land within the estate for subsistence food production but on a rather limited scale. Further, there are constraints that would hold down production as discussed in para 16. 21. A study of food production has already been carried out under the responsibility of SEDA (Societe d'Etudes pour le Developpement de l'Afrique), with finance of CFAF 4 million provided by FAC. This study is being continued by HEVECAM, under Loan 574-CM. The objective is to determine whether to create a food production unit that would supply the village markets with basic staple foods, in sufficient quantity, to complement the local available output plus the laborers' own production. The estate managements would have a double target: In addition to satisfying basic food needs, food production would aim at avoiding large imbalances between supply and demand that would result in excessive price increases and possibly a classic wage-increase/cost- of-living spiral. A qualified technician was recently hired to supervise the food trials study. B. Techniques 22. The techniques used for establishing estate plantations would not be innovative, but rather the classical and steadily successful ones that are followed in most oil palm growing countries. Except for clearing methods, the general procedures hold as well for the outgrower program. Preparation of Planting Material 23. Seeds and Germination. Seeds are initially selected from hand pollinated bunches, with selected father-tree pollen, on selected mother trees in specialized seed gardens. In Western Africa, the main seed gardens were until recently those of IRHO's La Mee Station in Ivory Coast, where the ANNEX 2 Page 7 latest selections are nursed. Under IRHO guidance, a seed garden has been established in Cameroon at CAMDEV's Mondoni estate. For the proposed project, seed would be supplied from Mondoni, although pollen would continue to come from La Mee for some time. Specialized, heated germinators are used for controlled seed germination. As the speed of germination is a first criterion of selection in terms of future productivity, a choice is made at this stage. The chosen germinated seed are then delivered to SOCAPALM's nursery sites. 24. Prenursery. The germinated seed are placed one each in small plastic bags, of about 8 cm diameter and 15 cm height, and packed in close rows under shade. The bags are regularly watered to keep a constant presence of moisture. The seedlings are allowed to grow in this way for about two months - this is called the prenursery stage. At the end of this period, the seedlings generally show two developed leaves, and the small roots begin to need more room. 25. Nursery. The plantlets are then transferred to larger plastic bags, of about 25 cm diameter and 30 cm height. During this transfer a second selection takes place, as only strong plantlets with a thick stem are chosen for transfer. The weaker ones are discarded. The larger polybags are placed on the nursery ground at a spacing of about 50 cm to give each plantlet enough room for its growing foliage to expand. Shade is maintained for at least three to four months, a practice that gives the developing plant a better chance to escape damage from "the blast", a dîsease which can dry a young plant up in a few days. By the end of the three to four month period, the young plant has reached a stage of development where it is less susceptible to the disease. Shade is provided by a palm leafed roof, and the leaves are gradually removed to expose the plant progressively to full sunlight. 26. Transfer to Field. After six months in the nursery, the young plants are strong enough to be transferred to the field. At this time, a final selection is made, and only impeccable specimens are planted. Others are discarded. To provide 143 plants per ha, about 200 germinated seeds are required for the prenursery stage, and to supply these a first selection of 300 seed is put into germination. Thus, from seed to field, a selection of over 50% is made. Land Clearing 27. On the chosen areas for planting, the forest is felled, pieced, and pushed into parallel windrows about 16 m apart. This is to allow plantings on a triangular pattern, each plant at a 9 m spacing. Thus, there are two lines of trees between windrows. In these clearing operations, care is taken to leave the soil intact. The use of scrapping equipment is avoided, as it would push the topsoil into the windrows, leaving bare and not very fertile subsoil in the planting lines. In practice, the delicate clearing operations are better and more cheaply done by hand labor. Unfortunately, in Africa it is difficult to attract a labor force for this work; experienced contractors are practically nonexistent; and experience has proved that sizeable planting ANNEX 2 Page 8 programs require the use of heavy tractors to some extent. Clearance on force account is usually the case in Africa, for reasons of economy as well as control over the clearance practices employed. Weather permitting, the felled wood in the windrows is burned before planting; when the rainfall regime prevents proper burning, the wood is allowed to rot under the cover crop, and most of it disappears within four to five years. Planting 28. Plants are about nine months old when they are planted. They are brought in the polybag with their roots intact, and put in holes previously dug on a 9m x 9m triangular spacing. Protection against rodents is immedi- ately secured through the placement of wire netting sleeves around the base of the plants (alternatively, outgrowers would use bamboo stakes for the same purpose). Pueraria, a legume, is sown in the rows as a cover crop, to protect the soil from erosion, to bring in organic matter, and through root nodules to fix nitrogen. Fertilization 29. Oil palm generally requires fertilization, beginning with a small dose at the prenursery stage; there is a notable need for nitrogen in the early period of growth, shifting to more potash for fructification and oil production. The specific requirements for various elements are determined by regular foliar analysis, and applications of fertilizers are generally made twice a year. Weeding 30. Once planting is completed, weeding is required to keep the ground clear around the plant's base -- a circle as large as the canopy of a full grown tree. This corresponds roughly to the expansion range of the roots, thus providing full benefit from the fertilizer applications and avoiding root competition from the cover crop and adventurous or noxious plants. Expansion of the cover crop can be helped by weeding or slashing debris in the sown areas. At first, the circle weeding is done by hand; from Year Two after planting, chemical spraying is also used to lighten the labor constraint. ANNEX 2 Table 1 CAMEROON SECOND SOCAPALM PROJECT Planting Schedule The Planting Schedule under the project is as follows: Hectares Total 76/77 77/78 78/79 79/80 80/81 Project Estates Kienke Estate 750 1,750 1,750 1,750 6,000 M'Bongo Estate 500 500 1,000 Total Estates 1,250 2,250 1,750 1,750 7,000 Outgrowers /1 Eseka area 200 200 200 200 200 1,000 M'Bongo-Edea 200 200 200 200 200 1,000 400 400 400 400 400 2,000 GRAND TOTAL 400 1,650 2,650 2,150 2,150 9,000 /1 The outgrower schedule is an estimate and possibilities are that yearly hectarage may be transferred from a year to another; the end target over five years should be attained. ANNEX 2 Table 2 CAMEROON SECOND SOCAPALM PROJECT Timetable for Estates Establishment (Kienke 6,000 ha, M'Bongo 1,000 ha) Program 76/77 77/78 78/79 79/80 80/81 81/82 82/83 83/84 Total 1. Vegetal Material Preparation 875 1,250 1,750 1,750 875 7,000 2. Land Preparation Mechanical 600 1,250 1,550 1,550 1,050 6,000 By Hand 175 300 200 200 125 1,000 3. Plantings 1,250 2,250 1,750 1,750 7,000 4. Maintenance Y1 Mechanical Deforestation 6,000 YI Hand Deforestation 300 300 200 200 1,000 Y2 Mechanical Deforestation 6,000 Y2 Hand Deforestation 300 300 200 200 1,000 Y3 Mechanical Deforestation 850 2,050 1,550 1,550 6,000 Y3 Hand Deforestation 300 300 200 200 1,000 ANNEX 2 Table 3 CAMEROON SECOND SOCAPALM PROJECT Yields - Oil Palm Outgrowers I. Yields - ffb/ha Year Yield Per Fiscal Year /1 5 2.25 6 5 7 7.25 8 10 9 12 10 to 16 13 17 to 21 12 22 to 26 11.5 27 to 29 il Average over 25 years = 11.12 T. II. Oil Extraction Rates and Kernel Production Year Oil, % ffb Kernels, % ffb 4 14% 4% 5 15 4.1 6 17 4.2 7 18.5 4.35 8 21 4.5 9 onwards 21 4.5 /1 Technically there is no difference of yield potential between the trees of the industrial estates and outgrowers holdings, but there is family consumption which must be accounted for. ANNEX 2 Table 4 CAMEROON SECOND SOCAPALM PROJECT Yields - Estates I. Estate Yields - ffb/ha Year After Planting Of Exploitation ffb/Tons/ha 4 1 2.5 5 2 6.0 6 3 9.0 7 4 11.5 8 5 12.0 9 to 15 6 to 12 15.0 16 to 20 13 to 17 14.0 21 to 25 18 to 22 13.5 26 to 28 23 to 25 13.0 II. Oil Extraction Rate and Kernel Production Rate - 7 of ffb weight Oil, % Kernel, % 4 16.0 3.5 5 18.0 4.0 6 20.0 4.1 7 21.0 4.3 8 onward 21.5 4.5 ANNEX2 CAMEROON Table 5 Personnel Reauirements for Kienke Estate 1/ 76/77 77/78 78/79 79/80 80/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 Staff Category 2 N and E 1 2 31/2 4 4 41/2 5 41/2 4 4 4 4 4 4 4 Assistants 1/2 1 2 4 5 5 6 6 6 6 6 6 6 6 6 Foremen 1 2 5 9 10 il 17 17 17 18 18 18 18 18 18 Specialists 5 16 25 34 37 291/2 44 47 49 57 58 60 60 60 60 Chauffeurs 8 18 24 30 29 26 31 32 37 41 45 49 49 49 49 Specialized Labor for 8 28 40 40 26 58 202 355 506 513 490 477 462 469 469 Field Operation Specialized Labor (Overh) 3 7 101/2 14 14 141/2 16 161/2 16 16 16 16 16 16 16 Non-special. Labor (Oper) 89 380 730 942 936 629 529 472 470 493 546 586 608 614 614 Nonspecial. Labor 21/2 4 81/2 Il 14 161/2 20 221/2 24 26 27 27 27 27 27 (Overlhead) Headgang 5 21 38 49 49 33 40 47 57 59 60 61 61 62 62 Overscers 2 7 13 16 _16 12 12 14 16 17 17 18 18 18 18 Total 125 486 900 1153 1140 839 922 1035 1202 1250 1287 1322 1329 1343 1343 Increase 125 361 414 253 49 48 37 35 7 14 0 1/ These personnel requirements for the present 6,000 ha project. When as assumed, Kienke estate grows to 12,000 ha, personnel requirements would increase accordingly. ANNEX 3 Page 1 CAMEROON SECOND SOCAPALM PROJECT OUTGROWERS PROGRAM A. ORGANIZATION AND MANAGEMENT Choice of Participants 1. Potential participants would be selected from among farmers who have expressed an interest, have usufruct rights on suitable land not beyond a 25 km radius from the relevant oil mill complex, and within 500 m of a passable road. The reputation of the farmer in his/her community would be taken into consideration. Selected farmers would be required to enter into a contract which would oblige them to follow SOCAPALM's advice on technical matters relating to oil palm establishment. In return they would have the right to receive credit in amounts and on terms outlined below (para 7). 2. Membership in an outgrower group would be required for participa- tion in the outgrower program. Each group would have a minimum of five members. Voluntary groupings would be arranged by SOCAPALM agents among the available candidates. Members would have co-responsibility for the group's plantings and credit obligations; in the case of a credit default, SOCAPALM would turn the grower's dossier over to FONADER, which would invoke the guarantee. The group would have no formal structure, though an evolution toward cooperatives is anticipated. Its main initial functions would be to: (a) provide a means for cooperative effort, for instance in land clearance, and (b) deal with problems. Through the group, pressure would be brought to bear on an outgrower who was neglecting his plantings. In cases of gross negligence or death of a member, the group would be expected to take over management of the affected plantings, with an appropriate division of the proceeds until an heir is put into possession of the holding. Serious pro- blens (for instance, questions of tenure) would be dealt with by the group and village Chief within the tribal decision-making process, or by local admini- strative authorities. This system has proved to be a key to the success of oil palm outgrower programs in other West African countries, and appears to be equally suited to Cameroon. In essence, the group would be a safeguard against risks that are beyond the control of SOCAPALM or FONADER. Management 3. Although FONADER has nationwide responsibility for smallholder credit, it operates through specialized agencies in recognition of the fact that it has not yet developed the capabilities and the personnel to enable it to deal directly with all siallholders. For the proposed outgrower program, FONADER would contract with SOCAPALM for the direct management of all opera- tions. ANNEX 3 Page 2 4. For this purpose, SOCAPALM would organize a separate division, "Division des Plantation Villageoises" whose head would be directly respon- sible to SOCAPALM's Managing Director. The division would be responsible, inter alia, for (i) farmer selection and organization into groups; (ii) the preparation of annual work programs for smallholder development; (iii) the maintenance of all records and accounts relating to smallholder credit; (iv) the delivery to smallholders of all material on credit and cash grants needed for smallholder plantation establishment. B. CREDIT ARRANGEMENTS 5. Government's contribution to smallholder development would be accomplished by a grant to FONADER to be passed on through SOCAPALM to small- holders. Well in advance of the fiscal year, SOCAPALM would present its annual work program and related budget including the bareme (para 9) to FONADER for approval. After approval, SOCAPALM wouldbe provided with funds and inputs for smallholder development. 6. Selected farmers would be required to sign a contract ("cahiers des charges") with SOCAPALII, the terms of which would oblige them to follow all technical advice and in exchange for which they would receive credit as detailed below. Cost of Credit 7. Smallholders (selected according to the criteria and under the conditions contained in para 1) would be given credit to cover the cost of all purchased inputs required in the five years needed to bring oil palms into production and either a cash grant or credit covering 80% of the labor required for land preparation; only those farmers deriving more than 75% of their income from agricultural activities would receive grants. The develop- ment costs for a hectare and the credit requirements are shown in Table 1. The cost per hectare excluding family labor is CFAF 82,000 in constant 1976 prices. Extension and Supervision Costs 8. In addition to these costs of development, SOCAPALII would have to incur costs for the administration and supervision of the outgrower program. p These costs amount to CFAF ;5 million over the five year development period. Detailed costs for the whole program are at Annex 4. Recovery of Credit and of Extension and Supervision Costs 9. SOCAPALM would recover credit and extensiDn/supervision costs as follows: ANNEX 3 Page 3 Credit given in each year would bear interest at 9% per year capitalized over a total six-year grace period (five years for development to maturity plus another year to allow yields to reach a level adequate to support debt service). Repayment would then be in seven annual install- ments to be recovered at the time produce is collected from outgrowers (Table 4). Extension and Supervision costs, initially financed by Government grants, would be recovered during the production period through a "bareme" or tariff established each year and on the basis of which producer prices for ffb would be set (Table 2). 10. SOCAPALM would keep separate accounts for all operations relating to the outgrower program which would be the basis for reaching agreement with FONADER on the budget for the succeeding year and on the bareme. These accounts would also (after outgrowers plantations enter into production) reflect the balance of outgrower credit accounts and of the surplus on out- grower sales available for bonus payments. As the program gathers momentum FONADER would in each succeeding year need only to "top up" the resources accumulated through outgrower credit repayments; after 1985 annual repayment would be adequate to finance an additional 500 ha on the basis of present cost estimates and credit arrangement. Financial Impact of Cost Recovery Arrangements: Government FONADER and Farmers 11. As shown in Table 4, FONADER, which would be the channel of funds for smallholder credit,would accumulate funds which would be devoted to further smallholder oil palm development. Government expenditures for the outgrower program would consist of funds passed through FONADER to small- holders as cash grants and/or credit. Through the collection of export and sales taxes on oil and kernel deriving from outgrower fresh fruit bunches, Government would more than recover these expenditures. The financial rate of return to Government of this investment would be about 9% (Table 5). 12. As illustrative cash flow for 1 ha outgrower oil palm plantation is presented in Table 3. It incorporates the yields shown in Annex 2, Table 3 and the cost recovery and credit repayment assumptions outlined above. Net cash income would be about CFAF 450 per manday in the first year of production which is in line with prevailing rural wages and in excess of returns from the alternative crops of cocoa and coffee at comparable stages of development. At peak production, some eight years later, net cash income would be some CFAF 2,750. These returns provide more than adequate incentives for smallholders to participate in the program. ANNEX 3 Table 1 CAMEROON SECOND SOCAPALM PROJECT OUTGROWERS PROGRAM Cost and Financin (CFAF) Year N N + 1 N + 2 N + 3 N + 4 Total A. CREDIT 1. Cost of Supplies: 1/ha Seedlings 36,570 Transport of seedlings a/ 4,200 Metal-vire (crop 1,500 protection) Cover crop seed 1,500 Fertilizer b! 2,543 4,973 4,410 5,630 4,860 Small tools 550 115 100 100 Harvesting tools 5,750 Replacement seedlings c/ 2,718 Sub-Total 46,863 7,806 4,510 5,730 lo,61o 10% of Physical 4,686 781 451 573 1,061 Contingencies Total Supplies 51,549 8,587 4,961 6,303 11,671 2. Financed by: Farmer 550 115 100 100 - Credit 50,999 8,472 4,861 6,203 11,671 Cumulated value of 78,468 11,953 6,295 7,369 12,721 116,806 credit at beginning of year N + 6 (at 9% p.a.) Equivalent Annuity (over 7 years at 9%) 23,208 Average ffb production in = 10.5 N + 6 to N + 12 (tons) Repayment per ton = CFAF 2218/t B. CASH GRANTS d/ 29,900 6,500 5,200 5,200 - 46,800 N.B. N is year of planting a/ 5 hours per return trip (delivering 150 seedlings for 1 ha x 840 Fr/hour including depreciation of equipment). b/ Including 2 F 50 per kg for transportation; unit rates are respectively 56 F 50 for urea; 40 F 50 each for CK and Kieserite. c/ 10 plants at 271 F 80 each, including transport. d/ For imputed cost of family lab; taken as the total man days required valued at 260 CFAF/mariay (i.e. 80% of estate labor wage). Annex 3 Table 2 CAMEROON SECOND SOCAPALM PROJECT OUTGROWER PROGRAM Recommended Producer Price for ffb (CFAF) A. Oil Per ton Gross Revenue -a 107,290 Selling Costs including Taxes- 11,072 Net Revenue a/ 96,218 Oil content of ffb (%) 21 Revenue in ffb equivalent 20,205 B. Kernel CIF Value b/ 63,822 Export/Selling Costs (including taxes)i/ 17,936 Net Revenue b/ 45,886 Kernel content of ffb (%) 4.5 Revenue in ffb equivalent 2,o64 C. Fresh-fruit Bunch (Total Revenue) 22,269 SOCAPALN COSTS 6,007 Milling Costs c/ 2,350 Collection Costs c/ 2,000 Extension and Supervision d/ 1,482 Finance Charges (at 3%) e/ 175 Available for distribution 16,262 Recommended producer price per ton ffb 12,000 Bonus 4 Žr a/ See Annex 9 Table 4 bj Annex 9 Table 5 c/ Including allowance for depreciation d/ Average annual cost N + 5 et seq. (16,596F/M.a) at average yield of 11.2 T/ha = CFAF 1,482/T e/ On milling, collection and extension costs assumed to be 12% p.a. for 3 months = 3% ANNEX 3 Table 3 CAMER1ON SECOND SOCAPALM PROJECT Outgrowers Program - Illustrative Cash Flow - I ha N + 5 a/ N + 6 N +7 N + 8 N + 9 N + 10 N + 11 N + 12 N + 13 N + 17 N + 22 N + 27 to to to to N + 16 N + 21 N + 26 N + 29 Revenues (Average) (Average) Production (Tons ffb) 2.25 5.0 7.25 10 12 13 13 13 13 12 11.5 il Value (at CFAF 12,000 Ft) 1/ 27,000 60,000 87,000 120,000 144,000 156,000 156,000 156,000 156,000 144,000 138,000 132,000 Expenditures Tools 517 547 617 597 637 637 637 637 637 637 637 637 Fertiliser 6,884 9,314 11.746 17,416 17,416 17,416 17,416 17,416 17,416 17,416 17,416 17,416 Total 7,401 9,861 12.363 18,013 18,053 18,053 18,053 18,053 18,053 18,053 18,053 18,053 Net Income Before Loan Repayment 19,599 50,139 74,637 101,987 125,947 137,947 137,947 137,497 137,497 125,947 119,947 113,947 Loan Repayment d/ - 18,455 21,244 24,652 26,494 26,405 24,533 22,662 - Net Incomne 31,684 53,413 77,335 99,453 111,542 113,414 114,835 137,497 125,947 119,947 113,947 Man-days Required 43.5 45 48.5 50 50 50 50 50 50 50 50 50 Net Income per Nanday (F) 450 704 1,101 1,546 1,989 2,230 2,268 2,296 2,750 2,519 2,399 2,279 1/ At reconended price which excludes potential bonus (Annex 3 Table 2) a/ For first five years, net cash receipts would equal caat credits les purchased hand tools. b/ Only for years N + 10; N + Il and N + 12. c/ For years N + 13, N + 14 and N + 15. d/ See Annex 3 Table 4, Footnote C. ANNEX 3 CAMERDON Table 4 SECOND SOCAPALM PROJECT Outgroiwer Program Outgrower Credit: Cash Flow to FONADER (CFAF '000) Year 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1910 Cumulative Planted Area (ha) 400 900 1,400 2,000 SOURCES 0F FUNDS Governnent Advances (1) 32,360 46,439 51,961 65,617 24,383 17,574 12,677 7,002 Credit Repayments (2) 7,382 17,725 29,710 44,618 48,881 51,053 50,429 39,440 Total Sources 32,360 46,439 51,961 65,617 24,383 17,574 20,059 24,727 29,710 44,618 48,881 51,053 50,429 39,440 APPLICATION OF FUNDS Development Credit to OutIrowers (1) 20,400 28,889 31,681 39,747 15,283 11,854 9,557 7,002 Cash Grants to Farmers (16 11,960 17,550 20,820 25,870 9,100 5,720 3,120 Sub-total 32,360 46,439 51,961 65,617 24,383 17,574 12,677 7,002 - - - - - - Net Cash Flow - - - - - - 7,382 17,725 29,710 44,618 48,881 51,053 50,429 39,440 C&MIEON AN 3 SECOND 80CAPA121 PR08ECT Table 5 0 4R DEVELoPHENT Outaro-ar Cradit; Caah FIns sud Rate of Return to Gover-aent N + 13 N + 17 l + 22 N + 27 Y-ar N N + N +2 N + 3 N + 4 N + 5 N + 6 N + 7 N + 8 N + 9 N + 10 N+11 11 + 12 te te te tn . + 16 N + 21 1 + 26 N + 29 Y7S Productlon (Ton) . -. - . 2.25 5.00 7.25 10.0 12.0 13.0 13.0 13.0 13.0 12.0 il 5s il Ps. 011 O 7. 15 15.9 17.8 19.7 21.1 21.5 21.5 21.5 21.5 21 5 21 5 il 5 T.tdl P l. Oil (t) 0.337 0.795 1.290 1.970 2.532 2.795 2.795 2.795 2.795 2.580 2.472 2 365 Kernel (7.) 4 4.1 4.3 4.5 4.65 4.7 4.7 4.7 4.7 4.7 4.7 4 7 Total Se-ai 0.09 0.205 0.311 0.450 0.558 0.611 0.611 0.611 0.611 0.364 O 340 O 517 Production Peried Sals. Ta Peo 01 oila/ 3,063 7,226 11,726 17,907 23,015 25,406 25,406 25,406 23,452 23,452 22,470 21,498 Expert Tas - Yema lb/ 470 1,073 1,628 2,356 2,921 3,199 3,199 3,199 2,953 2,953 2,826 2,706 Repay.ent nf Principal - Dveloppnt Credit ni 7,943 11,447 15,885 19,156 20,791 20,791 20,791 - - - Intereat Repayan.t . Sevelop..ent Cradit ci 10,512 9,797 8,767 7,338 5,614 3,742 1,871 - - - - Deduorione for euparvlefon and Extension Coat d/ 3,334 7,410 10,744 14,820 17,784 19,266 19,266 19,266 19,266 17,784 17,043 16,302 Total Inflov - - - - 6,887 34,164 45,342 59,735 70,214 74,276 72,404 70,533 45,761 44,189- 42,339 60,506 OUTFlSZWS Devele.pmnt Periad Supervision nd Extension 23,920 22,289 17,650 19,597 18,225 Cash Advencee c/ 29,900 6,500 5,200 5,200 - Cradit S/ 50,999 3,472 4,861 6,203 11,671 Production Periad Supemvisinn sud Extension Cnst Si - - - - - 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 Total Outflone 104,819 37,261 27,711 29,658 29,926 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 16,596 NEt Infloni (104,819) (37,261) (27,711) (29,658) (29,926) (9,709) 17,568 28,746 43,139 53,618 57,680 55,808 53,937 29,165 27,599 25,743 23,910 a/ Wdightd average tax of CFAF 9098/t on export/local sales ta proportions of 15 85 b/ CFA» 5236/t an kernel xporte Finncial Rate nf Raturn: 9.353 c/ Anas 3 Table S; Rpapeyent calculsted as fll1-e: esar Proaprti.n te PrIncipal Interest (9% on principal Total be repai (d) outstanding at begînnieg of psriod N + 6 6 8 7,943 10,512 18,455 N + 7 9 8 11,447 9,797 21,244 N + 8 13 6 15,885 8,767 24,652 N + 9 16 4 19,156 7,338 26,494 N + 10 17 8 20,791 5,614 26,405 N + Il 17 8 20,791 3,742 24,533 N + 12 17 8 20,791 1,871 22,662 dl Coat estlarets are baesd on A-nex 4 plus phys.ial conting .c.oes anA *s. e ali. ni f 3,000 h. nf oil pal.s to support upervision . et in developeent perid. Ia production parind projeat extension stff vill caver 3,000 ha instead of 2,000 ha and me.ts are rmsvrred as per Annex 3 Table 2. e! Seasanal oredit is repayabla in 6 menthe et n interest rate equivalent te 9% per year. Although exoluded hers, it vo rld morase net inflave and 40k. for an aven higher fin-nciel rats f raetur. A1.1 4 Table 1 SECOND SOCAPAU4 PEOJECT PIOJECT COSTS SUNiA (CFAF 0001 1976/77 1977/78 1978/79 1979/80 1980/81 Total Taxs Foreign Exchanga A. KIEI ESTATE 1. Field Establishment 47,901 222,784 366,676 414,3J5 1 343,531 1,395,267 291,152 674,950 2. Construction 51,575 70,500 148,272 133,622 53,872 457,841 82,411 297,597 3. Vehicles Plant and l8qnipment 255,135 277,285 207,110 33,430 17,485 790,445 - 671,878 4. oil Mill Investments - - 30,000 355,800 715,000 1, lm,800 68,850 895,095 5. General and Administrative 18,601 47,044 79,932 103,264 105,982 354,823 70,966 127,738 Total Before Contingencies 373,212 617,613 831,990 1040,491 1,235,870 4,0",176 513,379 2,667,258 B. OUTGN3WER DEVELOPMNT 1. Field Establishmaent 20,224 39,315 47,263 57,851 38,532 203,185 1,812 100,962 2. Extension Costs 43,492 21,492 21,492 25,032 21,492 133,000 25.850 30,330 3. Supervision Costs 28,552 15,902 15,902 17,552 77,908 15,910 25,050 Total Before ContinSencies 63,716 89,359 84,657 98,785 77,576 414,093 42,572 156,342 C. COHPLETZION: M8BONGO-ESgKA 1. Field Establishment 159,450 116,624 62,261 20,830 - 359,165 89,793 233,455 2. Construction 46,000 38,500 46,000 49,500 - 2 °0,000 32,400 117,000 3. Vehicles and Equipment 25,520 26,470 60,830 25,520 138,340 - 117,588 4. Mill Investments - - - - 453,000 453,000 - 407,700 Total Before Contingencies 230,970 181,594 169,091 95,850 453,000 1,130,505 122,193 875,743 D. EXTENSIDN: M'BONGO 11. Field Establisament 31,932 98,868 81,038 27,126 23,049 262,013 51,071 133,220 2. Construction 68,150 53,000 - - - 121,150 21,807 78,747 3. Vehiclea & Equipçt 53,810 48,450 13,100 - 16,220 131,580 - 111,308 Total Before Contingencies 153,892-- 200,318 94,138 27,126 39,269 514,743 72,878 S23,275 TOTAL BASE COST 821,790 1,088,884 1,179,876 1,262,252 1,805,715 6,158,517 752,022 4Q22,4118 Physical Contingencies 82.179_ _Ioa,QU 117,988 126,226 180,572 615,852 75,202 402,262 Price Contingencies a/ _ L62.67à_ __16,l96 358,155 524,765 969,308 2,130,694 247,340 1,323,039 TOTAL CONTINGENCIES 143,849 325,684 476,143 650,991 1,149,880 2,746,546 322,542 1,725,301 TOTAL PROJECT 0OSTb 965,639 1,414,568 1,656,0191,913,243 2,255,595 8,90SD6 i1.74.564 5.747 97 a/ Coepound rates as follows: 1976/77: 6.8%; 1977/78: 18.1%; 1978/79: 27.6%; 1979/80: 37.8%; 1980/81: 48.8% b/ Excluding Douala Complex. Annex 4 Tabla 2 CA1ANIIo Preject Coat - Kienke Eatate Yield Eutablishunt (CFAI 000) Year Unit Coat- 1976/77 1977/78 1978/79 1979/80 1980/81 Total Tax % Total Taxas Poraitg Total CEAI/ha Exehage Foreai Area Planted (ha) - 750 1,750 1,750 1,750 I. Labor Costa Nursery 2/ 11,518 4,319 14,397 20,156 20,156 10,078 Lad Preparation 2/ 17,014 4,210 18,375 29,775 29,775 19,950 Estate Roada - Construction 3/ 402 100 434 703 703 471 Planting 12,404 - 9,303 21,707 21,707 21,707 Maintenance 4/ N+1 14,575 - - 10,931 25,506 25,506 N+2 11,651 - - - 8,738 20,390 N+3 9.214 - - - - 6.910 _ Total - Labor 8,629 42,509 83,273 106,585 105,012 346,008 15 51,900 - - Il. Supplies and Materials Fert ilizer - Nursery / 1,272 477 1,312 1,670 1,670 835 - Planting 539 - 405 944 944 944 - Maintenance N+- 9,638 - - 7,229 16,867 16,867 N+2 10,718 - - 8,038 18,757 N+3 8.350 - - 6.263 _ - Total - Fertilizer 477 1.717 9.843 27.519 43.666 83.222 - - 80 66.578 Insecticides. Herbicides - Nursery 2/ 256 96 320 448 448 224 - Maintenance N+1 1,095 - - 821 1,916 1,916 N+2 1,095 - 821 1,916 N+3 135 -oi _ _ _ lO_ _ Sub-Total - Insecticides 96 320 1,269 3,185 4,157 9,027 - - 80 7,222 Wire Netting 5,005 - 3,754 8,759 8,759 8,759 Caver Plant Seeds 5/ 1,750 - 1,125 2,813 3,063 2,625 Sprinkler System (Nursery) 2/ 1,224 459 1,530 2,142 2,142 1,071 Polythene Bage (Nursery)2 / 7,557 2,834 9,446 13,224 13,224 6,612 Palm Seedlings (Nursery) 2/ 7,840 2,940 9,800 13,720 13,720 6,860 Sub Total - other Supplies 6,23S 25,655 40.658 40.908 25.927 139.381 25 34.845 50 69.690 Total Supplies and Mat 6,806 27,692 51,770 71,612 73,750 231,630 34,845 143,490 III. Other E.tabliahment Costs Nursery 2/ 4,598 1,725 5,748 8,046 8,046 4,023 Lad Preparation 3/ 78,945 19,539 85,261 138,154 138,154 92,563 Estate Roada Construction 3 45,260 11,202 59,744 79,205 79,205 53,067 Planting 2,440 - 1,830 4,270 4,270 4,270 Maintenance 4/ N+1 2,611 - - 1,958 4,570 4,570 N+2 2,577 - _ - 1,933 4,510 N+3 2.355 - - - 1766 Sub-Total Other Llevelopieet Costs 32.466 152.583 231.633 236.178 164.769 817.629 25 204.407 65 531.460 TOTAL FIELD ESTA3LISbNENT 47,901 222,784 366,676 414,375 343,531 1,395,267 291,152 674,950 1/ Per ha planted. 2/ S07, of cact in year N-1 and SO7 in year NO 2/ 33% of coat in year N-1 and 67% in year NO 4/ Includes maintenance of roads. 5/ 16.6% of coat is for replacement in year N+1. Rast in year NO. NB. NO is year of planting etc. Annen 4 Table 3 SECOND SOCAPAL% PDJECT Proaet Cnet - Vaicl.. Plant nd Etqip_nt (ienke Ect-teS TAX For.iga Enchance Unit Coot 1/ T TOTAL T TOTAL (CPAF/ha) 1976/77 1977/78 1978/79 1979/80 1980/81 TOTAL Area plantsd (ha) 500 500 A. FIELD ISTABLISMENT COSTS I. Labor Cnet. Nursnty 2/ 11,518 2,879 5,759 2,879 - - 11,517 - - - - Land Preparation 3/ 3/ 17,014 2,807 8,507 5,700 - - 17,014 - Estate Rosds - Construction 402 66 201 135 - 402 - - - - Plînting 12,404 - 6,202 6,202 - - 12,404 - - - - Maintenance 4/ N+1 14,575 - - 7,287 7,288 - 14,575 - N+2 11,651 - - - 5,825 5,826 11,651 - - - - N+3 9,214 - - - - 4.607 4.607 - - - - Tels Labor 5,752 20,669 22,203 13,113 10,433 72,170 15 10,825 - - II. Sepplien and Materials Fertilizer Nursery 2/ 1,272 318 636 318 - - 1,272 - - planting 539 - 270 270 - - 540 Maintenance N11 9,638 - - 4,819 4,819 - 9,638 N+2 10,718 - - - 5,359 5,359 10,718 - - - - N+3 8,350 - - - 4.175 4.175 - - - - Subtetal 318 906 5,407 10,178 9,534 26,343 - - 80 21,074 Inecticiden & Herbiciden Nursery I/ 256 64 128 64 - - 256 - - Maintenance N+l 1,095 - - 548 548 _ 1,096 N+2 1,095 - - 548 548 1,096 - - - - N+3 135 - - - - 67 67 - - - - subtotal 64 128 612 1,096 615 2,515 - - 80 2,012 Wire Netting 5,005 - 2,502 2,503 - - 5,005 - - C-ont Crep Seedn 5/ 1,750 - 730 875 145 1,750 Sprinkler Synte- 2/(Nursery) 1,224 306 612 306 - _ 1,224 Polythene 8ags 2/(Nursery) 7,557 1,889 3,779 1,889 - - 7,557 Pair SOedlingn 2/(Nursery) 7,840 1,960 3,920 1,960 - 7,840 subtetal 4,155 11,543 7,533 145 - 23,376 25 5,844 50 11,688 Total Supplies and Materi-ls 4,537 12,577 13,552 11,419 10,149 52,234 - - - - III. Other Estsblishent Cost, Nursery 2/ 4,598 1,149 2,300 1,149 - - 4,598 Land Preparatien 3/ 3/ 78,945 13,026 39,472 26,447 - - 78,945 Eltote Ro-ds - Cenntructien 45,260 7,468 22,630 15,162 - - 45,260 Planting 2,440 - 1,220 1,220 - - 2,440 Maintenaece 4/ Nil 2,611 - - 1,305 1,306 - 2,611 N+2 2,577 _ _ - 1,288 1,289 2,577 - _ _ _ Ni43 2,355 - - - - 1,178 1,178 - - - - Tetal Other Entablishant Conts 21,643 65,622 45,283 2,594 2.467 137,609 25 34,402 65 89,446 TOTAL FIELD ESTABLISEDNT COSTS 31,932 98,868 81,038 27,126 23,049 262,013 - 51,071 - 133,220 B. VEHICLES AND EOUIPMENT Bulldozers 40,700 1 40,700 1 40,700 - - 81,400 Mechanical Saws 105 50 5,250 - 50 5,250 - - 10,500 Truck (8 T) 5,300 1 5,300 - 1 5,300 - - 10,600 - - - - 4-WD Vehicle 2,210 1 2,210 - - - - 2,210 Metorcycles 175 2 350 - - - - 350 Tractor-Trailer 3,875 - 2 7,750 - - - 7,750 Harvesting Treck 8,110 - - - - 2 16,220 16,220 Tr..ta r 40-itP 2,100 - - 1 2,100 - - 2,100 Spr-ying Equipnent 450 _ _ 1 450 - - 450 TOTAL VEGICLES AND EOUIPIIENT 53,810 48,450 13,100 - 16,220 130,950 - - 85 111,300 C. BUILDINCS AND CIVIL WOELS Ho.n.ng - Supervisory Staff 5,750 1 5,750 - - - 5,750 - - Foreuse Grade 2,000 2 4,000 1 2,000 - - - 6,000 Laborers 6/ 1,500 20 30,000 20 30,000 - - - 60,000 Sanitary BI.ck (Laborers) 1,000 10 10,000 10 10,000 - - - 20,000 Office Building, 87 5,750 1 5,750 _ - _ - 5,750 Shop 1,650 1 1,650 - - - - 1,650 - - _ - Water Supply 7/ 11,300 5,650 5,650 - - - 11,300 Eleetrieity Supply 7/ 10,700 5,350 5,350 - - - 10,700 TOTAL BUILDINGS ANL1 CIVIL WObXS 68,150 53,000 - - - 121,150 18 21,807 65 78,747 GRAND TOTAL H80NGO EXTUNSIOII 153,892 208,318 94,138 27,126 39,269 514,743 - 72,878 - 323,275 1/ Pet ha plantd. 2/ 50% of cent i. year N-1, 50% in year NO. 3/ 33% of cent in yesr N-1, 67% in year NO. 4/ Includes rend. ,nninteoaoce 5/ 16.6% fer replacennt in ynnr N+1; test in ysar NO. 6/ I. blecks of 4 coite eah. 7/ Ceupleted in tw years. 8/ Including Store and Infirnary. Annex 4 Table 12 CAMERDOON SECOND SOCAPALM PROJECT PROJECT COST: DOJAIA COMPLEX (CFAF 0001 1977 1978 1979 TOTAL TAX FOREIGN EXCHANGE I. CIVIL WORKS AND CONSTRUCTION Office Building 10000 110000 125000 245000 Warehouse - 30000 20000 50000 Garage 3000 3250 6250 Lodgings for Resident Workers (11) 6000 10000 6000 22000 Sanitary Facilities - 2000 1000 3000 Utilities Connections - 17000 13000 30000 Sub Total 19000 172250 165000. 356250 64125 213750 II. EQUIPIMENT Switchboard and Other Office Equipment 5000 10000 10000 25000 Conveyor Belt - Warehouse - 7000 7000 14000 Rolling Crane - Warehouse - 2000 5000 7000 Fuel Pu-p and Storage - Garage - 2000 4000 6000 Sub Total 5000 21000 26000 52000 - 46800 III. VIO9ICLES Pick-Ups (2) 1120 1120 - 2240 Fork Lift (4) 2450 2450 - 4900 Motor cycles (4) 350 350 - 700 Sub-Total 3920 3920 - 7840 - 6665 rotal Before Contingencies 27920 197170 191000 416090 64125 267215 Physical Contingencies Z792 19716 1910Y 41608 6412 16722 l'rice Contingencies 2088 39256 52987 99331 15316 63770 GRAND TOTAL: DOUALA COMPLE.X 32800 256142 26B087 557029 85853 347707 AM=I 5 CAMEROON SECOND SOCAPALM PROJECT PROPOSED FINANCING PLAN (US$ Million) PROJECT ITEM IBRD GOVERDMENT SOCAPALM TOTAL COST % Total % Total % Total I. Oil Palm Estate Development Field Establishment 67 6.7 33 3.2 9.9 Civil Works 67 3.8 33 1.8 5.6 Vehicles, Equipment, 67 7.4 33 3.6 11.0 Mill Machinery Management, Adminis- 67 1.1 33 0.7 1.8 trative Costs Sub-Total 19.0 9.3 28.3 II. Outgrower Program Extension and Supervision 67 o.6 33 0.2 0.8 Field Establishment - - 100 1.0 1.0 Sub-Total O.6 1.2 1.8 III. Douala Complex Civil Works 67 1.2 33 o.6 1.8 Vehicles, Equipment 67 0.2 33 0.1 0.3 Sub-Total 1.4 0.7 2.1 IV. Contingencies 4.0 2.3 6.3 V. Working Capital 0.7 0.7 VI. Finance Charges - 1.0 3.7 4.7 TOTAL 57 25.0 35 15.2 8 3.7 43.9 CAMENDON ANNEX 6 SECOND S0C&PALM PP0JECT Table 1 sccapals Estates: Consolidated Cash Flows (Current Ter) (CFAF Million) 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 SOURCES OF FUINDS Increase in Equity 1/ 400 400 400 400 400 Self-Genersted Fonds (i) Project 2/ (3) 65 293 686 1302 (ii) On-going activitias 3/ 4 15 218 257 412 1191 2094 3199 3441 3665 IRED Loan Disbarseseats 4/ 450 800 1000 1200 1500 620 Governruent Loan 5/ 500 250 150 100 750 Total Sources 1354 1456 1768 1957 3062 1808 2159 3492 4127 4967 APPLICATION OF FUNDS Estate Developn,.nt - Projeet 7/ 890 1298 1536 1763 2828 451 364 211 120 77 Debt Service IBRD Subloan - Service Charge 6/ 38 32 25 16 4 IBRD Slbloan - Intereat 6/ 38 106 191 293 412 448 425 402 380 357 3rd Windov - Capital Repayment 67 67 67 67 IBRD Losa - Capital Repay.snt 100 200 200 200 200 200 Government Lac - Interset *nd Capital 5/ 612 612 612 612 612 Sabtrtal 966 1434 1752 2072 3244 1711 1667 1492 1379 1313 ret Cash Flo- 388 31 16 (115) (182) 97 491 2000 2748 3654 Cu-anulstive Cash Flo. 419 435 320 138 235 726 2726 5474 9128 1/ To be provided by preseat shareholders as per agreed schedule 2/ Armex 6 Table 3 3/ Accex 6 Table 4 4/ Equivalent to 67% of Estate Developr.ent expenditures itcludifg physical and price contingencies 5/ Repayabls in 5 equal annual ifstailns.r *fter 5 years of grace during which interert (9%) La capitaliasd 6/ Service Oharge and Interest are on bath Bank Loan snd 3rd Windo, allowing Goverrest to accrue a usall margin on the 3rd Windov Loan. 7/ SOCAPALM's other project espenditures in the develapment period (for estension services and eupervision nf Ootgrcwer's Progr) vould be provided by Govsrcctenr rhrough pasfing on part cf Bmnk financin8g and through direct grants After palm enter production, such costs wuld be recovered through deductions fros the value of outgrosr'l ffb AmnM 6 Table 2 SEC0IM 80soPAD< PFiCJECr SOCAPALX: C80 11 WITHOIIT PROJECI (C727A Million) Fiscal bYar 1977 1978 1979 1980 1981 1982 1993 1984 1985 1986 SOURCES OF FUNDS Opera_tig ltninm (Ettintig Estate.) ./ 171 394 820 1267 1790 2454 3222 4057 4303 4514 FED Grant C i-abreentn b/ 76 99 69 44 CEI Loanc Dibaono .ta 1/ 666 10 - - - _- -_ FED Grant D-a-oosemnntn c/ 7 294 256 93 8IE Loan Sinbornettntn cl 268 203 129 CaIsse Centrale boas Dtsbocsntnntn cl S5 157 49 41 loorease ia Short Tea Debt 750 150 - llorking Capital Begfnfnig of Feriod (368) - - - - - - - - Total loorcen 1625 1307 1323 1445 1790 2454 3222 4057 4303 4514 ALP~IlCAT I(N OF FI/NID Eqoipmont R-net1 - Other Eitnaet 128 142 153 165 178 191 202 214 226 237 Iniestment Conts (Dibo.boci) 1212 776 488 236 141 167 451 43 28 Total Applications 1340 918 641 401 319 358 653 257 254 237 Net Cash Flo- Before Dobt Ionien 285 389 682 1044 1471 2096 2569 3800 4049 4277 _E7~TISERICE IB7D I aid Il 147 162 199 222 222 221 222 220 222 221 C"lase Ceocrala I a-i Il 27 64 102 102 110 98 97 9 92 9 bI. I ani II 29 44 59 59 149 151 156 286 294 301 Local Baah 78 104 104 404 578 435 - otal Debt S-nvic- 281 374 464 787 1059 905 475 601 608 612 TNt C-b Flot, 4 15 218 257 412 1191 2084 3199 3441 3665 o! A-nea 6 Tabla 4 R/ odnhootlny portlon of a Sl.c.ag fanag.cnng acnnoaîn s' Reoentl 1T egoolote flcancclng. See Annea I Annen 6 Table 3 CAMEEOON SEGOND SOCAPALM PR0JECT Prclented Incrne Stateent - Kienke. M'Bongo Extenaton and Qongrovera (CFAF .000) 1981/82 1982/83 1983/84 1984/85 1985/86 PRODUCT ION 0il (t) - Kenke 300 1,450 3,575 6,852 10,625 - M'Bong Ext. 206 691 1,255 1,917 2,634 Outgrowera 126 458 1,028 1,920 3,000 Total oil 632 2,599 5,858 10,662 16,259 Kternel (n) - Kieke 80 380 910 1,670 2,500 - MBonge Ext. 55 180 311 448 590 - outgrewere 36 128 270 4B2 710 Total Kernel 171 688 1,491 2,600 3,800 REVENUES ('000 CFAF) oil b/ 60,110 250,070 563,645 1025,876 1564,408 Ke>ctl 7,846 31,569 68,416 119,303 174,367 Total 68,656 281,639 632,061 1145,179 1738,775 In Correct CFAF 89,802 384,156 911,431 1725,784 2724,660 OPERATING COSTS d/ Purchese cf ffb e/ 14,640 50,856 106,164 186,662 267,187 Maintenance e/ 27,003 73,357 109,863 152,323 161,007 Hoerveting n/ 12,469 42,884 76,515 111,747 131,140 Milling 7/ 3,781 15,234 32,402 54,648 76,893 Selling Cogtn 2,583 10,917 24,807 44,370 66,538 Total 60,476 193,248 349,751 549,750 702,765 Lt Conrent CGAY 93,375 319,245 618,709 1039,577 1422,396 Net Oper-ting ee Ioco,e (outrent Te-ue) (3,573) 64,911 292,722 686,207 1302,264 Counoletlve Operaticg-fl Incoren e/ At 96218E/T Il 284 4 80 368 26 4 30 r338) 83 216 20 161 397 123 19 142 3255 8 118 18 257 393 305 46 351 (42) 83 9 64 27 319 418 581 85 666 256 86 18 39 51 367 457 905 126 1033 576 87 11 209 39 408 656 1218 166 1364 778 88 17 18 46 436 500 1470 196 1666 1166 89 )3 7 49 449 505 1610 Zll 1821 1316 90 14 52 453 SOS 1649 216 1865 1360 91 n 67 453 52G 1649 216 3865 1345 92 (b 58 453 S11 1649 216 1865 1354 93 17 86 453 539 1649 216 1863 1326 94 18 74 451 525 1636 215 1831 1326 95 19 72 448 520 1602 21 12812 1292 96 20 57 445 502 1572 206 1778 1276 97 21 66 442 508 1538 202 1740 1232 98 22 64 442 506 1538 202 1740 1234 99 23 68 441 509 1532 201 1733 1224 2000 24 57 439 496 1517 199 1716 122C 01 25 70 438 508 L306 197 1697 11i 02 26 67 436 503 .13 194 1677 1174 03 27 52 43e 488 _o3 194 .77 1189 04 28 46 436 482 _78 193 1671 1189 05 29 47 434 481 1461 192 1653 1172 06 30 26 431 457 1444 164 1608 1151 bcosoreto Rate of RStco - 14.057 Annex 9 Table g CAMfEROON SECOND SOCAPALM PROJECT Economic Rate of Return Calculation - outgrower Progrrx, DEVELOPtlENT COSTS OPERATING COSTS TOTAL ECON. VALUE OF VALUE OF TOTAL BEIEFITS MDT BElEFITS Year py Labor Other Labor 0ther COSTS OIL KERNEL 1976/77 1 - 61 61 (61) 78 2 15 68 83 (83) 79 3 22 60 82 (82) 80 4 25 73 9 (<98) 81 5 32 42 74 (345 82 6 17 14 31 10 2 12 (19) 83 7 13 13 6 38 70 37 6 43 (27) 84 8 10 10 13 39 72 84 13 97 25 85 9 7 4 21 48 80 157 24 181 101 86 10 30 64 94 246 35 281 187 87 il 31 63 94 329 44 373 279 88 12 32 67 99 396 52 448 349 89 13 32 72 104 437 56 493 389 90 14 32 67 99 447 57 504 405 91 15 32 67 99 447 57 504 405 92 16 32 72 104 447 57 504 400 93 17 32 67 99 447 57 504 405 94 18 32 67 99 441 57 498 399 95 19 32 72 104 432 55 487 383 's6 20 32 67 99 423 54 477 378 97 21 32 67 99 413 53 466 367 9b 22 32 72 104 413 53 466 362 99 23 32 67 99 410 52 462 363 2n0o 24 32 67 99 405 52 457 358 (1 25 32 72 104 401 51 452 348 02 26 32 67 99 396 51 447 348 03 27 32 67 99 396 51 447 348 04 28 32 72 104 392 50 442 338 05 29 32 67 99 388 50 438 339 06 30 32 67 99 384 49 433 334 Economlc Rate of Return: 23.1% Annex 9 Table 3 CAMEROON SECOND SOCAPALM PROJECT ECONOMIC RATE OF RETSUN - eNGo EXTrmSION DEVELOPMENT COSTS OPERATING COSTS TOTAL COST ECON. VALUE OF EOIN. VALUE TOTAL NET Year lY Labor other Lœho Other O_I OP ir KPPNFT. BENEFITS BENEFITS 1976/77 1 5 127 132 (132) 78 2 17 109 126 (126) 79 3 19 95 114 (114) 80 4 il 13 24 ( 24) 81 5 9 12 21 (21) 82 6 4 5 9 37 55 17 2 19 (36) 83 7 19 49 68 63 8 71 3 84 8 19 59 78 122 15 137 59 85 9 19 67 86 179 22 201 115 86 10 19 75 94 231 29 260 166 87 il 19 81 100 265 33 298 198 88 12 19 83 102 275 34 309 207 89 13 19 83 102 275 34 309 207 90 14 19 83 102 275 34 309 207 91 15 19 83 102 275 34 309 207 92 16 19 83 102 275 34 309 207 93 17 19 83 102 275 34 309 207 94 18 19 82 102 267 33 300 199 95 19 19 81 100 256 32 288 188 96 20 19 81 100 256 32 288 188 97 21 19 81 100 256 32 288 188 98 22 19 81 100 256 32 288 188 99 23 19 80 99 252 31 283 184 2000 24 19 80 99 247 31 278 179 61 25 19 80 99 247 31 278 179 02 26 19 80 99 247 31 278 179 03 27 19 80 99 247 31 278 179 04 28 19 80 99 243 30 273 174 05 29 19 80 99 238 29 267 168 "b 30 19 80 99 238 29 267 168 Economic Rate of Return = 17.05% Annex 9 Table 4 CAMEROON SECOND SOCAPALM PROJECT ECONOMIC VALUE OF PALM OIL 1980 Averaee 1985 A. Import Substitution Value 1/ F.O.B. (Abidjan) (CFAF/t) 2/ 80530 83380 Freight and Insurance to Douala 3000 3000 Unloading and Terminal Handling 1389 1389 Value ex-harbor 84919 87769 Average 1980/1985 86344 B. Export Value C.I.F. Europe $ 378 390 CFAF 90270 91935 93600 Insurance 1805 1872 Freight 10000 10000 Loading 1069 1069 Terminal Handling 250 250 Value ex-harbor 77146 80409 Average 1980/1985 3/ 78777 Weighted Average Economic Value 85209 C. Financial Value (CFAF/t) 1. Domestic Selling Price 110,000 Taxes 10,000 Net Revenue 100,000 2. Export Sales Selling Price - c.i.f. 91,935 Selling Costs 13,157 Taxes 3,988 liet Revenue 74,790 3. Weighted Average Net Revenue- 06,218 to SOCAPALM 1/ Based on IBRD projections of C.I.F. Europe and Sodepalm Costs to C.I.F. quoted in IBRD: IVC Fourth Oil Palm Project; June 1976 2/ Mission Estimate 3/ 85% imtport substitute and 15% export Annex 9 CAMEROON Table 5 SECOND SOCAPALM PROJECT ECONOMIC VALUE OF KERNELS (Constant 1976 Prices Per Ton) 1980 1985 CIF Europe t$) 240 281 CFAF 58800 68845 Less Insurance 1200 Freight 10000 Loading 1500 12700 12700 Economic Value of Kernel (Ex Harbor) 56145 Average 1980 and 1985 51122 Less Taxes 5236 Net Revenue to SO4PALy 45886 IBRD 1242B M A LI OCTOBER 1976 N I G E R C H A D SUDAN A CHAO UPPE(. j . CUd +,N G E R 1 A J/\t _,R N GERIA ~ J CENTRAL AFRICAN CAMER0ON11, 1 ,Or.nez OE ` /C00,sO j NGO Z R A p R\ UNITEOD REPUEBLIÇ OF CAMEROON SOCAPALM SECOND STAGE DEVELOPMENT PROJECT 27.2 lnhob,toots per Squ..re kiometer 10- 201 -50 ~Inhobitants per,( 501~-100 ~squ.are kîloo-ter 100.1-150 « \ \\0 More thon isj Sooth..Eet Dveolopment gC.- i Eoîsting Rubber ond Oil Palm statest Aren Roondury - Pc ed Ronds G HEVECAM E Gote1 Rodso oneioi ----Eortht Roods*% \ \\ 'ŽŽ \, la SOCAPALM -Hvr Conotosor -90- Ioolyets nmilliroeters Add,tional o-Division Bo-dahries Projert Arecs -Lntermtional boundories EX~~~~~~~~~~~~~~IE os I - N k~~~~~~~~~~~~~~~ NTR r~~~~~~~~~~~~ ~ ~~~~~~~~ F R! 1 C Ai N OCFA/ XEQUARIALAGUINEAj 12- le To Edea To Lolodorf CAMEROONOON SOCAPALM SECOND STAGE KRIBI DEVELOPMENT PROJECT p n -- ZONE BOUNDARIES 4 8 KIENKE PROJECT ZONES C RESERVE ZONE Lobe Pogo * KIENKE CENTER AND OIL MILL | MAIN ROADS I > Yana°0 MOTORABLE TRACKS ng,ale~.- - - - FOOT PATHS k Adjap RIVERS MabenongaP - C f _ .. ( } ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~To Akok, îpko Chcd . , N / r ) - 0 / '~~(.HAD ,S |)ZnuToAkok NtGERFA i HE. EAM L Bifo,/ ." /< S- .< O 4 8 )12 .