Document of The World Bank FOR OFFICIAL USV! ONLY Report No. 6146-STP STAFF APPRAISALREPORT SAO TOME AND PRINCIPE COCOA REHABILITATION PROJECT flay 29, 1987 Western Africa Projects Department Agriculture D This document bas a resticted ditibution and may be used by recipients only in the performance of thewr official duties Its contents may na* othrise be disdosed without Wodd Bank authorzation. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFFICIAL USV! ONLY
Report No. 6146-STP
STAFF APPRAISAL REPORT
SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
flay 29, 1987
Western Africa Projects DepartmentAgriculture D
This document bas a resticted ditibution and may be used by recipients only in the performance ofthewr official duties Its contents may na* othrise be disdosed without Wodd Bank authorzation.
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CURRENCIES
Currency unit : Dobra (Db)1985 1986 1987 a/
Average exchange rate: US$1.00 = Db 40 36 58
WEIGHTS AND MEASURES
Metric System
ACRONYMS AND ABBREVIATIONS
AFVP Association Frangaise des Volontaires du Progres (FrenchNational Association of Volunteers for Progress)
BADEA Banque Arabe pour le Developpement Economique de l'Afrique(Arab Bank for Economic Development in Africa)
BNSTP Banco Nacional de Sao Tome e Principe (National Bank of SaoTome and Principe)
CCCE Caisse Centrale de Cooperation Economique (Central Fund forEconomic Cooperation, France)
ECOMEX Empresa de Comercio Externo (Foreign Trade Organization)ECOMIN Empresa de Comercio Interno (Internal Trade Organization)EEA Empresa Estatal Agro-Pecuaria (State Enterprise for
Agriculture and Livestock)FAC Fonds d'Aide et de Cooperation (Aid and Cooperation
Fund, France)ICE Instituto de Cooperacao Economica (Portuguese Institute for
Economic Cooperation)IFAD International Fund for Agricultural DevelopmentIRCC Institute de la Recherche du Cafe et du Cacao (Coffee and
Cocoa Research Institute)MADR Ministerio de Agricultura e Desenvolvimento Rural (Ministry
of Agriculture and Rural Development)MP Ministerio do Plano e Comercio Interno (Ministry of Planning
and Domestic Trade)OPEC Organization of Petroleum Exporting Countries FundPOTO EstaCao Experimental Agronomica (Agricultural Experimental
Station of POTO)PSU Project Support UnitSTP Sao Tome and PrincipeUSAID United States Agency for International DevelopmentWFP World Food Programme
FISCAL YEAR
Government: January 1 - December 31
a/ Projected annual average.
TOR OFFIUCL USE ONLY
SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
TABLE OF CONTENTS
Page No.
DOCUMNNTS CONTAINED IN THE PROJECT FILE ....................... iii
CREDIT AND PROJECT SUNMARY ....... . .. ** ..................*.. v
I* BACKGROUND I 1
A. Introduction ................. *..... * ******.*,. 1B. The Economy ...................................... IC. Agriculture Sector Issues and Strategy .............. 3
II. THE COCOA SUBSECTOR ..................... 4
A. Historical Context 4............................... 4B. Production Environment ...... ....... ................. 5C. Main Institutions .*........ 6D. Cocoa Subsector Strategy ............................ 7E. Rationale for Bank Involvement ...................... 7
III. THE PROJECT 7
A. Project Objectives and Scope ... n.......*......... 7B. Summary Description ..................... ..... ..... 8C. Detailed Features 9...............................*. 9
1. Plantation Development ...... .................... 92. Support to the Agriculture Sector with Emphasis
on the Cocoa and Food Crop Subsectors ...... s.. 13D. Project Costs and Financing ......................... 18E. Accounts and Audits ............... .............. 20F. Procurement and Disbursements ....................... 21
This report is based on the findings of an appraisal mission undertaken inSeptember/October 1985 by a team consisting of MW. Falloux, Ms. Kawabata,Ms. Morin and Mrs. Mattson (Bank staff), and on the findings of asubsequent mission carried out in November 1986 by Ms. Kavabata, toreassess the viability of the project in the context of macroeconomicmeasures to be taken by Government and to update project information. Thereport was prepared by Ms. Kawabata with the assistance of Mrs. Vali'i1. i;data processing, edited by Mrs. Layton and Mrs. Reza, and typed by Ms dePaula Carvalho.
This document ha a stricd distributin and may be used by rcipents only in the peformaneof thei officia dute. Its contens may not otherwis be dcscked without Word Bank authorizaon.
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TABLE OF CONTENTS (continued)
Page No.
6. Implementation and Organization .................... 231. Preparatory Activities ........................ 232. Project Management and Coordination ............ 233. Nanagement of Bela Vista and Uba Budo EEAs ..... 244. Interim Review .......... 25
R. Production. Markets and Prices ..................... 25I. Financial Results .. ............................. 26J. EconGmic and Social Benefits and Risks ............. 30
IV. AGRZMENTS REACHED AND RECOMNENDATION ................... 32
ASN
1 Typical Organization Chart for a State Enterprise forAgriculture and Livestock (EEA)
2-1 Historical Events2-2 Production Constraints2-3 Main Iustitutions
3-1 Bela Vista EEA3-2 Uba Budo ERA3-3 Main Features of Management Contracts3-4 Technical Production Parameters3-5 Terms of Roderenee for Consultancy Services and Studies3-6 Project Costs Summary3-7 Estimated Schedule of Credit Disbursement3-8 Organizational Arrangements for Project Support3-9 Cocoa Prices3-10 Bela Vista Projected Income Statements and Cash Flow3-11 Uba Budo Projected Income Statements and Cash Flow3-12 Government Cash Flow
MAP: IBRD 19574.
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SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
DOCUMENTS CONTAINED IN THE PROJECT FILE
Code No.
A. Selected Reports and Studies on the Country
Al. Analysis of the World Cocoa Market, by TakamaseAkiyama and Ronald C. Duncan, World Bank StaffCommodity Working Papcrrs No. 8, June 1982. EPDCS
A2. Democratic Republic of Sao Tome and Principe,Recent Economic Developments, Inernational MonetaryFund; October 30, 1984. 228.955
A3. La Recherche Agronomique A Sao Tome et Principe,Rapport de Mission, by Gora Beye; 9-16 Avril 1985. 228.956
A4. Line of Credit for Economic Rehobilitation andModernization; April 17, 1985. P-4028-STP
AS. Sao Tomf et Principe: Revue du Secteur Agricole,STP - Ag. Sector, by C. Agel; August 1985. B/R-Oct. 85
A6. Sao Tome and Principe: Issues and Options in theEnergy Sector, UNDP/World Bank; October 1985. 229.381
A7. Table Ronde des Partenaires du D4veloppement,Consultative Group, Vol. 1 & 2, Ministere de la 228.957Coop4ration; D6cembre 1985. (1+2)
A8. Cocoa Production: Present Constraints and Prioritiesfor Research, by R.A. Lass and GAR Wood, Ed., WorldBank Technical Paper No. 39; 1985. 1 PUBSU
A9. Sao Tome et Principe: Projet de DAveloppement desCultures Vivriares et Frutieres (Prepare par FAO pourBADEA); 7 Octobre 1986. D00795
A10. Sao Tome and Principe: Structural Adjustment Credit -President's Report, World Bank; May 1987. (Corr.)
All. Projet de Developr-ment des Olagineux, FED, undated. 228.958
B. Selected Reports on the Project
B1. Sao Tome et Principe: Rapport d'IdentificationGUndrale 42/84 GV-STP, FAO; 3 Mai 1984. 228.959
B2. Demonstracoes da PosiCao Financeira Pro Forma,Price Waterhouse; December 31, 1984. 228.960
B3. Oferta Tecnica, Price Waterhouse; December 1984. 228.961B4. Sao Tome y Principe: Proyecto de Rehabilitacion del
Cacao - Mision de Preparacion, FAO; February 4, 1985. 226.457B5. Mission pour l'Evaluation de la Pourriture Brune
des Cabosses du Cacaoyer et pour la Connaissancede l'Evolution de lInfection au Champ a Sao Tome,by G. Blaha; 6 May-5 June 1985. 228.962
B6. Mission d'Appui pour l'Estimation des Besoins enEngrais, by P. Jadin; 4 June-3 July 1985. 228.963
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DOCUMENTS CONTAINED IN PROJECT FILE (continued)Code No.
B7. Relatorio Contendo ecomendaCoes sobre ControlesInternos e Procedim%atos Contabeis, Price Waterhouse;June 1985. 228.964
B8. Relatorio da Niasao, Segmento FormaCAo Profissional,by Magalhaes; July 1985. 228.965
B9. Diario da Republica, S. Tome e Principe, ResoluCaoN°1/85, Numero 10; 5 de Setembro de 1985. D00796
BlO. Programme de Recherche en Matiere de Cacaoculture pourle Court, le Moyen et le Long Terme en RepubliqueDemocratique de Sao Tome et Principe, Status de POTO,IRCC; September 1985. 228.966
Bl. Document Technique, by F. Falloux; November 1985. 228.967B12. Relatorio da Deslocacao Efectuada A Republica
Democ-atica de Sao Tome and Principe, Missao deAvaliasao, Instituto Universitario de Tras-os-Montese Alto Douro, Portugal by Antonio Machado; December1985. 228.968
B13. Methodologie et Note Explicative de la Carte desPotentialit6s Agricoles by BDPA; 1985. D00797
B14. Projet de R6habilitation de la Recherche Cacaoyere sur 228.969la Station Agronomique de POTO, IRCC; March 1986. (1+2)
B15. Complemento ao Relatorio da Deslocacao Efectuada aR.D. de S. Tome e Principe, by Alvaro Sousa;April 1986. D00798
B16. Project Uba Budo by SOCFINCO, France - B.D.P.A.;May-July 1986. D00799
B17. Reabilitacao da EEA Bela Vista, R.D. de S. Tome ePrincipe; Fase Preliminar do Contrato de Gestaoby SCFMI; Nay 1986. D00800
B18. Projet Authorization: Trilateral AgriculturalTraining, USAID; September 9, 1986. D00801
B19. Diario da Republica, S. Tome e Principe, ResolucaoN°10/86 (Agricultura de ExportaCao Alimentar ePecuaria); Numero 19; 24 de Outubro de 1986. D00802
B20. Projet de Recherche d'Accompagnement de laCacaoculture en R6publique de S. Tome et Principe,by CCCE; 29 Octobre 1986. bt.O803
B21. Diagnostic Composante Industrielle Empresa Bela Vista,by Vincent, undated. 228.970
B22. Diagnostic Composante Industrielle Empresa Uba Budo,by Vincent, undated. 228.971
B23. Contract and Bidding Documents of Sociedade Comercial,by Francisco Mantero, undated. 228.972
B24. Contract and Bidding Documents of SOCFINCO/JNEPA,undated. 228.973
B25. Recomendacoes para a Continuagao das Accoes do PRPC,by Champeroux, IRCC, undated. 228.974
B26. WFP, Assisted Project Sao Tome and Principe 2757,Rehabilitation of Cocoa Production, Technical Report,March 16, 1987. 228.975
B27. Sistema de Apuracao de Custos, Price Waterhouse,undated. 228.976
SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
CREDIT AND PROJECT SUMMARY
Borrower, The Democratic Republic of Sao Tome and Principe.
Beneficiaries: The Ministry of Agriculture and Rural Development; BelaVista and Uba Budo State Enterprises; smallholders.
Credit Amount: SDR 6.1 million (US$7.9 million equivalent).
Financing Terms: Standard IDA terms.
Cofinancing: Arab Bank for Economic Development in Africa (BADEA),International Fund for Agricultural Developm nt (IFAD),Central Fund for Economic Corporation (CCCE, France),Organization of Petrolcum Exporting Countries Fund(OPEC), U.S. Agency for International Development(USAID) and Portuguese Institute for EconomicCooperation (ICE), World Food Programme (WFP), and Aidand Cooperation Fund (FAC, France) and French NationalAssociation of Volunteers for Progress (AFVP).
ProjectDescription: The project would assist the Government in its efforts
to achieve quick economic recovery through theincreased production of cocoa and in reaching itslonger term objectives for the development of theagriculture sector as a whole.
To achieve these objectives, the project would, first,increase production and improve workers' socialconditions in two cocoa plantations (Bela Vista and UbaBudo), and, second, reinforce STP's agriculture sectorwith emphasis on (i) the cocoa subsector byfacilitating future financing of other plantationspresently not receiving external assistance, andproviding technical support and training; (ii) the foodcrop subsector by creating applied research capacities;(iii) supporting smallholders development; and (iv)addressing other issues through studies and consultingservices. This latter element would assist theGovernment in formulating and implementing itspolicies, in diversifying its agricultural base, and inshifting the status of its state enterprises to that ofmixed-economy enterpris,,.
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Estimated Costs (US$ million):
% of BaseLocal Foreign Total Cost
1. Plantation Devel.pn_ent(a) Cocoa Production
(i) Bela Vista 0.5 4.5 5.0 26(ii) Uba Budo 0.6 6.3 6.9 36
(b) Labor Productivity(i) Bela Vista 0.4 0.6 1.0 5(ii) Uba Budo 1 0.3 0.7 1.0 5
2. Support to the Agriculture Sector(a) Cocoa Technical Support 0.0 1.1 1.1 6(b) Agricultural Training 0.1 0.9 1.0 5(c) Food Crop Development 0.1 0.6 0.7 4(d) Support to Other EREAs 0.1 0.6 0.7 4(e) Smallholders 0.1 0.5 0.6 3(f) Agricultural Studies and PSU 0.0 1.1 1.1 6
Benefitsand Pisks: The immediate benefit of the project would be an increase In
foreign exchange revenues from cocoa sales. There would besocial benefits for some 1,500 workers whose livingconditions would improve because of the project. Theagriculture sector would benefit from project assistanceboth to plantations and amallholders, technical support forcocoa and food crop, training activities and studies.Equally important are the benefits that the project wouldbring in the medium- to long-term by laying the basis for aprofitable cocoa industry as part of a well-diversifiedagriculture sector.
There are no unusual economic or technical risks under theproject. The project's economic viabllity ts moderatelysensitive to a possible drop in cocoa prices, or toIncreases in production costs. Some risk of lower thanexpected yields is involved with the planting of newhigh-yielding hybrids. To reduce this risk, replantingwould be carefully phased and closely monitored by ascientific institution specializing in cocoa. The presenceof foreign management firms would ensure the timlyapplication of incentives in the two plantations andminimize this risk.
Economic Rateof Return: The estimated overall Economic Rate of Return for the
project is about 211.
Mhp: IBRD 19574.
SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
STAFF APPRAISAL REPORT
I. BACKGROUND
A. Introduction
1. The Government of the Democratic Republic of Sao Tome andPrincipe (STP) has requested IDA'3 assistance to finance a cocoarehabilitation project which would support the revival of the cocoaindustry, start the process of reforming agricultural state enterprises,and begin to diversify the agriculture sector. Project cofinancing hasbeen arranged with the Arab Bank for Economic Development of Africa("Banque Arabe pour le Developpement Economique de 1'Afrique" - BADEA), theCentral Fund for Economic Cooperation ("Caisse Centrale de CooperationEconomique" - CCCE, France), the Organization of Petroleum ExportingCountries Fund (OPEC), the International Fund for Agricultural Development(IFAD), the U.S. Agency for International Development (USAID)/PortugueseInstitute for Economic Cooperation (ICE), the World Food Programme (WFP),and the Aid and Cooperation Fund ("Fonds d'Aide et de Coop6ration" - FAC,France) jointly with the French National Association of Volunteers forProgress ("Association Francaise des Volontaires du Progr6s" - AFVP).
2. The project was identified by the Government and the Bank duringan economic mission in January 1984. It was prepared by the CooperativeProgram of the Food and Agriculture Organization (FAO/CP) after a visit toSao Tome in October 1984. The preparation report is in the Project File(No. 226.457). Preparation was completed by .he Bank, and the project wasappraised in September/October 1985 with the participation ofrepresentatives of CCCE and USAID/ICE. Due to a rapid deterioration ofSTP's economy, project processing was suspended until a review of themacroeconomic situation was carried out in November 1986. The Governmentagreed then to take measures that would restore the profitability of thecocoa sector, and it was agreed that the Project would be processedsimultaneously with a Structural Adjustment Credit. Negotiations were heldfrom 13 to 15 May, 1987.
B. The Economy
3. General. The Democratic Republic of Sao Tome and Principeconsists of two islands located in the Gulf of Guinea, about 300 km west ofGabon, covering a total area of 1,000 km2. The islands were discov2red inthe late 15th century and colonized by the Portuguese until independence in1975. The island of Sao Tome (857 km2) (Map IBRD 19574) concentrates 95%of the total population, estimated at 100,000 in 1981. The population isfairly urbanized (39%) and encompasses three main groups: indigenous SaoTomeans (85%), Cape Verdeans and Angolans (15%). The country is endowed
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with good agricultural resources, such as soils and microclimates suitablefor the cultivation of almost all tropical products. Arable land totals40,000 ha and a significant unexploited potential exists in fisheries andforestry. The microclimates make production conditions widely differentfrom one area to another even within a plantation. Rainfall varies from990 mm in the northeast of Sao Tome to 7,000 mm in the southeast.
4. A little over a decade after independence, the country faces itsworst economuic and financial crisis. Cocoa production, which had peaked atabout 36,000 tons in 1920, stood at an estimated 10,000 tons a year in1975. Production further declined to 6,000 tons in 1980 and 4,000 tons in1986. Cocoa represents 90% of export revenues, and GDP per capita declinedby an estimated 30% in real terms. Both the Go;arnment deficit and theoverall deficit of the balance of payments have averaged over 40% of GDPduring the 1982-86 period. The debt service ratio increased from 6% in1981 to an estimated 65% in 1986.
5. Although the sharp decline in cocoa production can be largelyexplained by -'actors inherent to the sector, four fundamental policydeficiencies have equally contributed to the present economic difficulties.They are:
(a) an overvaluation of the exchange rate which has maintained importprices artificially low and eroded the viability of domesticproduction and exports, in particular cocoa;
(b) expansionary monetary and credit policies to finance fiscaldeficits, which have led, in the context of official pricecontrols, to the surge of parallel markets and a reduction inreal wages in the state farms, as well as a lack of wage goods;
(c) an oversized public investment program of which only 5% has beenoriented toward the cocoa sector between 1982-86; and
(d) the lack of incentive policies for the productive sector and awage structure that favors civil servants, and where cocoaworkers are often not paid.
6. The fundamental objective of STP development strategy is to raiseper capita income in real terms, first, through the rehabilitation of thecocoa production capacity, and second, through progressive diversificationby developing other cash and food crops. Since 1984, the Government hasdecided to move toward a progressive liberalization of the economy. Worerecently a new investment code has been adopted and the Government has beenactively seeking foreign private investment in various sectors. FollowingIDA's review of the country's economic situation, the Government has alsodecided to embark on a far-reaching program of macroeconomic adjustmentwhich would ensure consistency among the exchange rate, monetary, publicfinance and incentive policies. These measures include a devaluation ofthe currency sufficient to restore the viability of the cocoa subsector.
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7. In an effort to mobilize support for its five-year DevelopmentPlan, the Government organized a UNDP-sponsored Round Sable Conference InDecember 1985, during which the participants noted the Government'sincreasing willingness to tackle macroeconomic issues such as the pricingsystem and the exchange rate policy. The private sector would be given alarger role in development in che coming years through the liberalizationof economic activities. During the meeting, the participants also endorsedthe Government's development strategy which centers on reforming the StateEnterprises for Agriculture and Livestock ("Empresas EstataisAgro-Pecuarias" - EEAs) (organization chart in Annex 1) and on diversifyingcrop production. The Government's .ew approach to obtain loans onconcessional terms from a more diversified group of donors has resulted inidentifying projects with elements complementary to those of the proposedproject.
C. Agriculture Sector Issues and Strategy
8. Agriculture is the mainstay of STP's economy and provides thelivelihood of about 70% of the population, generating approximately 30% ofGDP and 90% of the country's exports. The most important subsector, cocoa,is described in Chapter II. Other cash crops include coffee, palm oil andcoconuts, and food crops. Food production zonsists of bananas, breadfruit,palm oil, root crops, and vegetables grown in the context of the Mesquitapilot project (para 36). Foodstuff imports accounted for over one-third ofthe import of goods in 1986.
9. STP's agricultural history has been marked by the monoculture ofa succession of export crops. Today, STP's established infrastructure isprincipally geared toward cocoa production. However, the cocoa subsectorcollapsed over the last 20 years mainly because of the increasinglydistorted economic environment, lack of management expertise, knowledge ofcrop husbandry, financial resources, labor incentives, and adequateservices to the agricultural sector, as well as weak governmentaladministrative capacity. The Government is reviewing the situation of theEEAs, which a-e presently without financial resources, and is studying thepossibility of opening them to foreign participation.
10. Agricultural production is derived from state enterprises createdat independence by consolidating plantations abandoned by their formerowners. Although such a production structure was probably the onlypractical choice at the time, it is no longer appropriate because it doesnot allow for manaberial and financial autonomy. To attract financialresources and operate the enterprises soundly, the Government isconsidering the conversion of agricultural enterprises into mixed-economyenterprises and has recently promulgated an Investment Code. In the longerterm, a further change in the production structure and accompanying socialreforms might be needed to improve the welfare of the population and createa more balanced structure of society: because of the colonial heritage,most of the work force is employed on the plartations; there are, however,a few independent farmers.
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11. The monocultivation of cash crops has discouraged foodproduction, and emphasis on cocoa has given STP many of the characteristicsof a single-crop economy. The Government recognizes the need fordiversification and, with French assistance, has prepared an AgriculturePotential Map that identifies crops which have the highest productionpotential in each region (Project File No. D00797). STP is also receivingassistance from the European Economic Community (EEC) for the developmentof cash crops, particularly palm oil; from the African Development Bank(ADB) for coffee; from FAC/AFVP (Mesquita Project) for food crops such ascereals and vegetables. It has also received assistance from USAID formaize and pepper.
12. STP's agricultural development strategy aims to:
(a) accelerate the revival of the cocoa industry by reinforcingservices to the cocoa subsector and rehabilitating existingplantations and providing real income incentives to workers onthe cocoa plantations;
(b) promote greater private sector involvement by creating conditionsfor foreign participation in the EEAs, and promote greatersmallholder participation in agricultural production;
(c) diversify the agriculture sector to avoid the risks of asingle-crop economy; and
(d) progressively define and carry out social reforms to improve therural population's standard of living.
The proposed project would assist the Government in implementing thisstrategy, especially in the cocoa subsector. Assurances were obtained atnegotiations that Government would imp!-ment by March 31, 1988, three ofthe most important measures concerning (a) management autonomy for theEEAs; (b) flexible wage system; and (c) flexibility in recruiting anddismissing staff (para 92(a)).
II. THE COCOA SUBSECTOR
A. Historical Context
- 13. The islands of STP were probably uninhabited when discovered byPortuguese navigators in 1471. The Portuguese later developed plantationsin successive crop cycles, initially sugar cane, then coffee and finallycocoa, with slave labor from the African mainland. Cocoa was firstIntroduced in 1850. Production peaked in 1913 at 36,500 tons, representing12Z of world production, but declined steadily until the pre-independenceyears to about 10,000 tons, as marginally productive lands were abandonedand as the Portuguese, anticipating independence, did not replant oldplantations. Historical events are presented in Annex 2-1.
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14. The situation further deteriorated after 1975, due to the reasonsmentioned in paragraph 9. The 15 present EEAs account for the bulk ofSTP's cocoa production, and although their production potential withrehabilitation would be about 20,000 tons/year, they produced only 4,000tons of cocoa in 1986. Exacerbated by the increasingly overvalued exchangerate, production costs far exceeded revenues, and a significant number ofcocoa workers who were unpaid and had little to purchase with whateveiwages they received withdrew from the sector. Similarly, production fromprivate cocoa growers decreased substantially. Production constraints aresummarized below and detailed in Annex 2-2.
B. Production Environment
15. Ecology. STP's soil and climate are varied and provide in manyareas optimal conditions for growing cocoa. However, some areas presentlyplanted with cocoa are of doubtful agronomic value for cocoa, and theproposed project would concentrate on the most suitable areas.
16. Infrastructures. The national road network is dense thoughpoorly maintained, distances to the port are short, and there are noproblems in transporting cocoa to port facilities which are modest and needimprovement. Plantation roads need rehabilitation and agroprocessingfacilities need to be restored. A particularly positive aspect is thatmachinery has been maintained in spite of difficulties in importing spareparts. Buildings and social amenities need substantial repairs, inparticular workers' housing; this has resulted in many workers leaving theplantations (para 19).
17. Production techniques. Due to a general neglect that began inthe 1960s followed by a lack of management expertise and financialresources, production techniques have been inadequate for the last 20years. Cocoa seedling nurseries have been abandoned and new tree plantingand redensification programs have not been carried out; pest control hasbeen neglected, which has led to poor quality of cocoa beans and to areduction in the production potential of the trees; excessive pruning ofcocoa trees has lowered their production potential; and excessive shadecombined with intercropping has reduced yields. This situation isreflected in the low tree density and aged plantations. This decliningtrend could, for the most part, be reversed with a technical packageincluding weeding, pest control and shade management. However, the generalpoor state of the EEAs requires in addition a selective replanting strategyfor all EEAs over periods of various lengths (7 to 20 years), depending onthe specific conditions of each EEA. Under the proposed project, thestrategy would be to replace trees that are too old and to rehabilitatethose that are in better condition.
18. Agroprocessing facilities (fermenting, drying, and grading) needrepair. A study of these facilities carried out during project preparationand focusing on the two plantations to be included in the proposed project,
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indicated that the existing facilities could be economically repaired andimproved. However, the continued use of wood-burning cocoa dryers needs tobe investigated since deforestation could disrupt the ecology in thelong-term. A study on alternative means of drying cocoa would be carriedout together with the forest inventory proposed in the recent energyassessment report on STP (Project File No. 229.381).
19. Human Resources. The labor force of the EEAs dropped by 24%between 1979 and 1984 (14,500 to 11,000), due to poor working conditionsand a drop in real wages which led foreign workers to return to theirhomelands. About 40% of the work force is foreign (mainly Cape Verdeans)and more than half is female. Because of insufficient housing and the poorstate of existing housing, many laborers have moved out of the EEAs. Sincethe transportation system is poor, absenteeism is very high (about 30-40%).Since 1980, production costs have been exceeding receipts and wages areusually paid a few months late. Furthermore, few goods are available instores. With this lack of purchasing power and irregular food supply,laborers work only 4 to 5-hour days but are paid on an 8-hour day basis.The Government has confirmed its intention to modify the salary system forthe EEA workers by introducing a fixed salary plus a bonus for productivityat each EEA (para 12 and 34).
C. Main Institutions
20. Since cocoa production affects all aspects of the economy, mostof the major government institutions are responsible for policies affectingthe cocoa subsector. However, a lack of well defined responsibilitiesamong them has resulted in inefficiencies, with negative effects on cocoaproduction. These institutieas are described in Annex 2-3 and include(a) the Ministry of Agriculture and Rural Development ("Ministerio deAgricultura e Desenvolvimento Rural" - MADR) which is also responsible forthe POTO Agricultural Experimental Station, and the Mesquita pilot project;(b) the Ministry of Planning (MP); (c) the Ministry of Finance which isalso responsible for the National Bank ("Banco Nacional de Sao Tome ePrincipe" - BNSTP); (d) the Ministry of Commerce, Industry and Tourismwhich is responsible for ECOMIN, a public enterprise in charge of sellingkey imports locally, and ECOMEX, a public enterprise in charge of exportsand imports; and (e) the Ministry of Cooperation which is responsible fornegotiating management contracts and foreign financing for the EEAs.
21. A particular institutional constraint has been the lack of EEAs'managerial and financial autonomy. The Government recently announced itsintention to give the EEAs increased management autonomy, including areasonable degree of financial and administrative autonomy in terms ofrecruiting and dismissing staff, salaries, imports of inputs and goods, andexports.
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D. Cocoa Subsector Strategy
22. The Government's cocoa subsector strategy is an integral part ofthe agriculture sector strategy (para 12). Its ultimate objective is toproduce cocoa at an optimal production level where cocoa planting is themost economic use for the land. In the meantime, the Government hasformulaced macroeconomic policies aimed at creating a favorable economicand social environment by restoring the competItiveness of the cocoasubsector at large.
23. Sectoral policy reforms already focus on the role of the privatesector and social issues, including the status of agricultural workers.With the assistance of the project, they would also focus on cropdiversification, types of agro-industrial development, land use andenvironment, financial policies (especially concerning agriculturalcredit). The policy reforms aim at giving the EEAs adequate managerial andfinancial autonomy, at assisting in converting them gradually intomixed-economy enterprises, and at implementing the Investment Code.Services provided by the Government to the cocoa industry would initiallyinclude training and technical assistance, and in the medium-term financialservices and agricultural credit. In carrying out the above strategy, theGovernment vould initially focus on economic recovery by increasing cocoaproduction to generate foreign exchange earnings.
E. Rationale for Bank Involvement
24. Cocoa is of overwhelming importance to STP's economy. Anysubstantial improvement of economic conditions in the country is linked tothe rehabilitation of the cocoa subsector. In addition, the proposedproject would be the first major step in implementing the Government'sstrategy to give its agricultural enterprises true autonomy in theirdecision-making process and in their access to, and use of, resources. TheBank Group, including IFC, has a comparative advantage in attractingexternal financing and private firms to assist the Government in thisundertaking. Furthermore, the project would be implemented in parallelwith a Structural Adjustment Credit, which will provide the macro frameworkwithin which supply responses can be expected to take place and will ensurethe viability of the country's external accounts over the 1987-89 period.
III. THE PROJECT
A. Project Objectives and Scope
25. The project aims at suppozting the Government's efforts toachieve economic recovery by increasing cocoa production and to reach itslonger term objectives for the development of the agriculture sector as awhole. The project would:
1. contribute to increasing production and improving socialconditions for workers in two cocoa plantations; and
2. reinforce STP's agriculture sector with emphasis on (i) the cocoasubsector by facilitating future financing of other plantationspresently not receiving external assistance, and providingtechnical support and training; (ii) the food crop subsector bycreating an applied research capacity; (iii) supportingsmallholders development; and (iv) addressing other issuesthrough technical assistance for the preparation andimplementation of studies and strategies, including that of landdistribution.
B. Summary Description
26. The project would constitute a five-year time slice of along-term rehabilitation program, and would include the followingcomponents:
1. Plantation development in two EEAs (Bela Vista and Uba Budo -Map 19574) including, for each EEA:
(a) rehabilitation and expansion of cocoa production; and
(b) increase in labor productivity.
2. Support to the agriculture sector with emphasis on the cocoa andfood crop subsectors by:
(a) strengthening cocoa applied research and technical supportactivities;
(b) reintroducing agricultural training activities;
(c) introducing food crop applied research and developmentactivities;
(d) assisting other EEAs not already benefiting from externalassistance in developing plans to rehabilitate theirenterprises or restructure their activities if necessary, inorder to attract financing to carry out such plans;
(e) assisting smallholders in increasing production through theimportation of inputs and small tools. as well as technicalsupport and training; and
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(f) undertaking studies and using consultants to assist theGovernment in formulating policies and creating an economicand social environment favorable to the development of itsagriculture sector, particularly the promotion of food cropdevelopment and diversification.
The Government would ensure the pursuit of project objectives beyond thefive-year period, according to a plan which would be submitted to IDA forreview by June 30, 1991. Assurances to this effect were obtained atnegotiations (para 92(b)).
C. Detailed Features
1. Plantation Development
27. Two EEAs, Bela Vista and U a Budo, would be modernized under theproposed project. Their current low production and yield are principallydue to (a) insufficient management capacity and resources to apply modernproduction techniques, and (b) low labor productivity. To correct thissituation two foreign firms with expertise in plantation management havebeen selected by the Government to manage one EEA each and initiate aprogram of rehabilitation and replanting. Emphasis would be placed onincreasing labor productivity by improving workers' conditions,regularizing their salary situation and providing them with incentives(including the introduction of a bonus system), developing food cropproduction, and improving social infrastructure.
(a) Rehabilitation, Management and Expansion of Cocoa Production
28. Given the wide difference in the conditions of the two ERAs,(Annexes 3-1 and 3-2), Bela Vista would emphasize rehabilitation and UbaBudo, replanting. The two foreign firms selected by the Government tofully manage one EEA each would have the authority to market directly thecocoa produced in their respective EEA. The management contracts signed onMay 13, 1987 are described in Annex 3-3. A condition of effectiveness ofthe IDA credit is that (a) the conditions of effectiveness of at least oneof the management contracts between either of the foreign firms and the EEAunder its management would be fulfilled (except for its cross-effectivenesscondition with the IDA credit and the down payment for start-up activities)(para 93(a)); and (b) the said EEA would have (i) settled its outstandingdebts with BNSTP; and (ii) established an acceptable accounting system. Acondition of disbursement of IDA funds for the other EEA is that the otherforeign firm and EEA would have complied with the above arrangements (para94).
29. The foreign firms have initiated activities in STP under separateshort-term contracts. They have made a physical assessment of thedelineation of each EEA, soil conditions, existing assets including trees,equipment, machinery, and stock, as well as an assessment of personnelneeds. Each has presented a report from which project costs have been
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established. They have also prepared nurseries and initiated plantingactivities. The firms are also establishing an accounting system to fitefficient management needs. These activities have been financed by theProject Preparation Facility and supplemented by an allocation from theLine of Credit for Economic Rehabilitation and Modernization (Cr.1590-STP). Under the project, the foreign firms would, within the limitsof approved annual work plans and budgets (para 66), initiate a fullinvestment program to modernize the plantations. They would principallyrehabilitate and replant cocoa trees, construct or repair existinginfrastructure, and supervise the construction of new ones (irrigationcanals, plantation access roads, processing facilities, houses and centralbuildings). They would ensure technology transfer by setting upadministrative, financial and management systems, and by trainingcounterparts to the experts (initially a minimum of five). They would alsocarry out several short-term missions from headquarters for specificactivities and general supervision. The management contracts, agriculturalinputs and machinery, civil works, and equipment for the two EEAs vould befinanced under the project. All labor costs and an increasing percentageof other costs would be covered by revenues from cocoa sales (paras 77 and80).
30. Out of Bela Vista's total cultivated area of about 3,200 ha,2,100 ha are planted with cocoa, and the rest consists of about 950 ha ofother cash crops (palm oil, coconuts) and 150 ha of food crops. AlthoughBela Vista is one of the better EEAs due to the long experience of itsgeneral manager in cocoa plantations, production has fallen from 1,100tons/year in 1980 to an estimated 550 tons in 1986. In addition to poorproduction techniques (paras 17-18), the more recent decline of productionis due to disrepair of the existing irrigation network on 1,500 ha (detailsin Annex 3-1). Given the better condition of the trees in Bela Vistacompared to those at Uba Budo, the foreign firm would emphasizerehabilitation.
31. Under the project, about 1,700 ha of cocoa would be rehabilitatedand the remaining area, which is unsuitable for cocoa production, would beallocated to food crops or eventually reforested as appropriate; the areascultivated with other cash crops would be maintained. These activitieswould be managed by the foreign firm selected by the Government ("FranciscoMantero - Agricultura e Com6rcio Internacional, S.A." - FM), a Portuguesefirm with a long experience in plantation management in Sao Tome. Tosatisfy the management contract requirement of effecting liaison with areputable scientific institute specializing in cocoa, FM is associatingitself with the "Comissao Executiva do Plano da Lavoura Cacaueira" (CEPLAC)of Brazil. Under the rehabilitation program, about 200 ha would bereplanted and the rest rehabilitated. These areas could be reduced orexpanded later, subject to a technical review of the detailed plantationdevelopment plans during project implementation. Annex 3-4 provides abreakdown of the planting schedule, expected yields, cost per hectare, andthe expected production in tons.
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32. Uba Budo's total cultivated area of about 3,400 ha covers 2,300ha planted with cocoa, the rest consists of cash crops, food crops,forests, and marginal areas. Production has steadily declined from 400tons in 1982 to 285 tons in 1984 and 165 tons in 1985. Figures for 1986are estimated to be over 300 tons because of favorable weather conditions.(More details are given in Annex 3-2). The mat: causes of Uba Budo'ssituation are lack of management and a r*p4dly depleting labor force. Theforeign firm selected by the Government to manage Uba Budo,SOCFINCO-FRANCE, S.A., a Franco-Belgian firm with worldwide experience inplantation management, would effect liaison with three French entities todraw on their experience and competence in agriculture, cocoa technology,and cocoa marketing.
33. Under the project, about 1,800 ha of cocoa would berehabilitated. Given the particularly deteriorated state of the trees inUba Budo, an intensive replanting schedule for 1,50C ha and arehabilitation schedule for 300 ha have been envisaged (Annex 3-4). As forBela Vista, the planting schedule might be revised after further technicalreview during implementation. Although rainfall is more favorable herethan in Bela Vista, about 200 ha of marginal cocoa producing areas would beirrigated, as well as an area for food crop would be developed by workers.
(b) Increasing Labor Productivity
34. Workers' Situation. The management contracts give the twoforeign firms adequate power to manage their staff efficiently (Annex 3-3),Including the power to distribute incentives, and to recruit and dischargestaff in conformity with existing STP labor legislation and labor rulesthat the foreign firms might want to establish. Assurances were obtainedat negotiations that Government would take all the necessary steps toensure that the payment of salaries to Bela Vista and Uba Budo workers aremade on time (para 92(c)). The foreign firms would re-establish EEAgeneral stores for the sale of basic consumer goods to workers. Shouldthese goods not be available locally, the management firms, afterconsultation with Government, would import them directly using foreignexchange from cocoa sales. Other critical fac... s necessary to improvelabor productivity are food crop development and improved socialinfrastructure, which are discussed below.
35. Food Crop Plots. To supplement workers' monetary compensation inBela Vista and Uba Budo, the successful activities of the FAC-financedMesquita Project on food crop extension (Annex 2-3) would be extended tothese two EEAs. At present workers are randomly cultivating food cropswithout official authorization, Under the project, the workers' rights tocultivate food plots would be officially recognized and an area of 250 hafor 1,000 workers in the two EEAs would be demarcated for this purpose. Ifnecessary, these areas would be expanded during project implementation asthe labor force builds up. Each direct family unit (of which at least onemember must work either at Bela Vista or Uba Budo) would be assigned a plotto be cultivated by family members not working on these EEAs and by EEAworkers outside their regular working hours. Since this activity would not
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meet all their ,ood requirements, the workers would continue to receivefood under a three-year World Food Programme (WFP) in lieu of a third oftheir salary. For an interim period (three to four years) the prices wouldbe subsidized to cushion the shock of devaluation. The Dobra counterpartfunds of the food 4d to the workers would be deposited by the EEA intothe Government's account in BNSTP for social works under the WFP project.(Details are in Project File No. 228.975.) It is expected that these twoelements, combined with some cash purchases, would satisfy the nutritionalrequirements of the EEA workers and their families.
36. This component would be managed by the Mesquita Project ratherthan by the foreign firms whose task would be to concentrate on industrialcrop activities. A volunteer specialist in food crops and support staffwould be assigned to each EEA to advise workers. The volunteer would workunder the direction of the Mesquita Project but in close cooperation withthe foreign firm. Workers would be initially supplied with tools andinputs free of charge, which would be procured through the MesquitaProject. Thereafter, they would purchase replacement tools and additionalinputs at cost plus 15%. Sales revenues would be deposited into therevolving fund established by the Mesquita Project to assist other farmersto start food plots. These arrangements have proven satisfactory under theMesquita Project. Under the project, FAC/AFVP would finance two AFVPvolunteers and two vehicles equipped with demonstration equipment, and IFADwould finance workers' tools, inputs, and furnishings for the volunteers'houses. Each EEA would provide the necessary housing for its volunteer andthe Government would provide the necessary local support staff through theMesquita Project.
37. Improved Social Infrastructure. The project would improveworkers' living conditions and social environment through the repair ofexisting buildings and social amenities and the construction of additionalhousing. Because a substantial part of existing housing and collectivefacilities is of low standard and in severe disrepair, many workers havemoved to town and absenteeism is high. The problem is aggravated by theoccupancy of the facilities by many retirees and relatives of workers whodo not work on the two EEAs. Assurances were obtained at negotiations thatby December 31, 1987, the Government would, after consultation with IDA,regularize the housing situation by establishing rules to determine whowould be housed on the two plantations and by relocating others accordingto a plan acceptable to IDA (para 92(d)). This component would include theimprovement of existing day-care facilities and schools to assist femaleworkers who provide most of the field labor. Specifically, the projectwould: (a) ensure the transportation of those workers who live in nearbytowns; (b) rehabilitate and improve housing in the two EEAs, includingwater supply, sanitary facilities and electricity; (c) build, renovate andenlarge social 4nfrastructure where necessary, particularly the existingday-care centers and schools; (d) initiate a program of self-helpconstruction of houses within the framework of the Government's neworientation toward promoting this activi:y. Under the self-help
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construction program, workers who do not live in repairable houses on thetwo EEAs would be given time, and provided with the necessary materials, tobuild their own houses.
38. A consultant would be recruited to assess the situation,including the need for new housing, most appropriate design and legalimplications of the self-help construction program. The local costs forcivil works would be financed by the Government from funds available underthe WFP project, complemented if necessary by budgetary funds. OPEC wouldfinance the foreign exchange costs, i.e., the consultant fees and importedmaterials for civil works. The foreign firms would be responsible for thepreparation of plans based on the consultant's recommendations, and for theexecution of the construction program. The Project Support Unit (PSU)(para 63) would coordinate with MADR, which is responsible for the WFPproject, and would ensure that funds for local costs would be available indue time.
2. Support to the Agriculture Sector with Emphasison the Cocoa and Food Crop Subsectors
39. In line with the Government's strategy to strengthen theagriculture sector (para 12) and diversify its agricultural base, theproject would strengthen STP's agricultural support services in the areasof cocoa technical support, agricultural training and food cropdevelopment. The project would also facilitate the Government's efforts inseeking external financing for the other EEAs. Furthermore, it wouldpromote the establishment of additional services, such as the developmentof an agricultural credit system, and initiate an agriculturaldiversification program. Because of disarray in the institutions in chargeof applied research (POTO Station) and training (CATAP), institutionalchanges would be brought about in two phases: a first phase with immediateeffect during which small independent units would be established, usingexisting staff and facilities; this first phase is described in thefollowing paragraphs. In a second phase, institutional reforms toestablish sustainable applied research, training and agricultural serviceswould be carried out. Preparations for these reforms would be made by theGovernment during project implementation with the assistance of consultantsand in consultation with IDA. A specific plan to implement these reformswould be discussed during the project's Interim Review (para 68).
(a) Cocoa Applied Research and Technical Support
40. At present the agriculture sector receives minimum technicalsupport from the Agricultural Experimental Station at POTO, whichfunctions as a department of the Ministry of Agriculture and RuralDevelopment. Most of its staff (about 70%Z have no defined functions, areunderqualified, and have low morale due to poor working conditions. Afeasibility study, financed under the PPF, concluded that a fullreorganization and rehabilitation of the POTO Station would entail majorinvestments in time and capital costs which would not be justified inrelation to the present level of production and the urgent need for
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Improving technical support to the cocoa subsector (Project File No.228.965). The Government agreed, therefore, that in the initial stage asmall Cocoa Applied Research and Development Unit would be established atthe POTO Station to monitor and provide technical support to the EEAs. Theunit would associate scientifically with the Station to benefit from itswork, but would be administratively and financially independent. Therewould be a scientific committee, consisting of members from IRCC, theparticipating EEAs and the MADR, to review the results of applied researchand to decide on a course of action.
41. An initial work plan has been developed whereby in the firstphase the main areas for development would be (i) optimization offertilizer use, (ii) trials and optimization of defense systems(particularly against black pod), and (iii) monitoring of new plantingmethods such as the no-shade technology. In a second phase, other programssuch as the production of hybrid seeds and the use of vegetable materials,introduced to STP as well as those present in the POTO Station, could bedeveloped. As an on-going activity, the unit would also provide technicalsupport, in particular to those EE&s being rehabilitated under externalfinancing. This support would include the training of personnel duringfield visits by specialists, as well as specific seminars to be organizedwith them by the training unit. One cocoa specialist from IRCC would bestationed at POTO to head the unit for 3 years. He would be assisted by aFrench National Service Volunteer and periodic missions from consultantsfor specific areas. Six staff members would be chosen among existingpersonnel at POTO for the posts of team chief (1), agricultural workers(4), and secretary (1). Further details on this component within the POTOStation are in Project File No. D00801. Under the FPF, IDA has financedthe feasibility study for this componeut and the planting of a nursery(para 62). The French CCCE would finance technical assistance, equipment,inputs and training and FAC would fin4nce the volunteer.
(b) Agricultural Trainin
42. The project would also help to develop a three-phase nationaltraining capacity in agriculture. First, the foreign firms would trairnational personnel of Bela Vista and Uba Budo EEAs in plantation managementand the application of technologies, and send key staff abroad forspecialized training so they could gradually replace expatriate staff.Second, the technical assistance teams of the applied cocoa and food cropresearch components would train counterpart personnel locRlly or abroad toensure their ability to replace expatriate staff at tha end of the project.Furthermore, the teams would provide in-plantation training, asappropriate, during their field visits. Third, a small training unit wouldbe established at Bela Vista to train initially foremen and administrativepersonnel, principally those in ERAs which have the potential of beingrehabilitated either under external financing or through privatization. Ata later stage, private smallholders could also be trained. Training wouldprimarily focus on cocoa production, including administrative skills
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related to supervising workers and to handling physical and financialresources, as well as on more technical courses In production methods, andmaintenance and repair of machinery.
43. During the preparatory phase, the reestablishment of the C&TAPtraining center (closed since January 1985) was studied by USAID and theInstitute for Economic Cooperation (ICE) of Portugal, but was abandonedbecause of lack of trained national staff, funds for the rehabilitation ofthe center, and absorptive capacity for structured training in theagriculture sector. The unit would be headed by a resident trainingadvisor, assisted by a national counterpart already nominated by NADR, anda secretary. Consultants would be recruited for-training in specifictopics. Most of the training would be on site and only an office and smalltraining room would be rehabilitated at Bela Vista. There would be aTraining Committee consisting of the resident training advisor, hisnational ceunterpart, representatives from the participating EEAs and theMinistry of Agriculture. The Committee would meet periodically to (i)analyze general training needs in the agriculture sec:or; (ii) reviewcourse selection; (iii) assist in participant selection; (iv) monitorcourse implementation; and (v) assist in the post-training phase. A fulldescription of this component is in Project File No. D00801 and detailswere worked out with MADR and participating EEAs during the USAID/ICEmission in February 1987. The timing of this component is not critical tothe project. The training unit will be financed through a trilateralagreement with USAIDIICE and the Government of STP. Under the agreement,USAID and ICE will finance one technician in Tropical Crops/AgriculturalEducation for three years and thirty months of short-term specialists,fellowships, vehicles, furnishings and training materials.
(c) Food Crop Applied Research and Development
44. Although the cocoa subsector is the most important source ofrevenue for STP, it is in STP's long-term interest to reduce its dependenceon monoculture and, therefore, take the necessary measures to assure asteady increase of domestic food production. STP is heavily dependent onfood aid for its domestic consumption. In addition, one-third of exportrevenues in 1986 was spent on food imports. In the last six years, STP hasbeen receiving technical and capital assistance for the production of, andextension services for, food crops (FAC/AFVP, UN Emergency Fund and USAID).However, there is no applied research and development program for food cropdevelopment. The project would create a Food Crop Development Unit at theMesquita Site (Annex 2-3, para (g)) which would be responsible forintroducing, selecting and testing seeds in order to identify the varietiesthat would be most adaptable to the conditions of the country, as well asfor adapting the cultural techniques that must accompany them. It wouldwork together with the Mesquita Project and build on its practicalexperience.
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45. An expert in the selection and production of seeds would berecruitad for 3 years to head the Unit. He would be assisted by a nationalcounterpairt and three agricultural workers. Consultants would be recruitedfor specialized training for the existing and newly recruited extensionstaff and field technicians. A study would be carried out after the firstyear to assess the feasibility of developing a center for seed productionand ..mproved vegetable material. IFAD would finance the technicalassistance, construction of an office, laboratory, a small warehouse,housing for the expert, and inputs and equipment to carry out the experiments.The Government would supply a national counterpart and three workers. Theimplementation of this component would be based on annual work programs tobe approved by IDA/IFAD. The first year's work program was discussed indetail with the Government at negotiations.
(d) Support to Other EEAs
46. Since the Government intends to rehabilitate the other EEAs, theproject would assist in determining their needs and seeking financing by(i) making a quick assessment of their key constraints and immediatemanagement and technical needs; (ii) when appropriate, preparing apre-feasibility level rehabilitation plan including an estimate of thefinancing needed to carry it out; and (iii) preparing a detailed actionprogram to finalize any required studies and carry out the plan. Thisassistance would be provided by the PSU assisted by short-term consultantmissions. In a first scage, a consultant would define the methodology tocarry out these assessments and train PSU staff, and subsequently makeregular visits to provide further guidance. Upon recommendation from theMinister of Agriculture and Rural Development, the Government would attemptto arrange financing when appropriate.
47. Some agricultural inputs would be made available through theproject to support urgently identified needs. Technical support would beprovided by the cocoa applied research and development unit at POTO (para40). It is also expected that the management techniques of the foreignfirms in Bela Vista and Uba Budo would have a demonstration effect on theother EEAs, and that the foreign firms' know-how would be made available tothem if so requested.
(e) Assistance to Smallholders
48. As a result of 400 years of colonial rule, smallholdings are nota tradition in STP (para 10). About 3,500 independent farmers cultivateabout 2,600 ha, of which half is planted with cocoa. To support governmentpolicy to stimulate agricultural production by the private sector (para12), technical guidance would be made available under the cocoa technicalsupport (para 42) and food crop development (para 44) compone.nts. Theproject would also facilitate access to inputs, small tools anrd achineryby smallholders. Initially, these items would continue to be imported byMesquita and sold on a cash or a credit basis to the farmers for food cropdevelopment. Cocoa producing smallholders will have access to the foreignexchange generated by their exports for imports of inputs, equipment and
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machinery. They woald be free to request the agricultural enterprises,ECOMEX or any other private importer, to import the necessary inputs ontheir behalf. In the meantime, a consultant would be recruited to confirmthe feasibility of establishing a credit secheme and establish criteria foreligibility and conditions of lending to far1ezes and a system to processand monitor these loans.
49. Assurances were obtained at negotiations that these imports wouldbe made accessible to smallholders initially through the Mesquita Project,and that after the first year of implementation, but not later thanDecember 31, 1988, a review would be made by the Government in consultationwith IDA and IFAD to determine the most appropriate system for futureimport and sale of the inputs, tools and machinery (para 92(e)). IFADwould finance technical assistance, training, inputs, tools and machinery.
(f) Studies and Consulting Services on the A8riculture Sector
50. The proposed project would include studies and consultingservices to assist the Government in formulating and implementing policiesin the agriculture sector (paras 12, 22 and 23). These studies andconsulting services would fall into three main groups. First, consultingservices would assist Government to rationalize its on-going landdistribution programs by (i) identifying appropriate land and crops fordiversification and private smallholder development using the FAC-financedAgricultural Potential Map; (ii) improving land tenure through thedevelopment of a mechanism and corresponding procedures for granting landtitles to individuals and of a legal framework for issuing land titles.Second, a study would be made to develop a strategy to attract foreigninvestors in response to the Investment Code.
51. Third, studies and consulting services would be carried out toanswer more specific questions on (i) cocoa marketing; (ii) the status ofSTP's ecology and ecological effects of the proposed rehabilitation programand diversification of crops on STP's unique flora and fauna; (iii)fuelwood needs for cocoa dryers and their effect on deforestation, togetherwith a forest inventory as proposed in the energy assessment report (para18); (iv) role, organization, manpower planning and training needr of MADR;and (v) ways to prepare future projects and respond to particularsituations which might arise during project implementation. MADR'sPlanning Department would be responsible, in liaison with the PSU, forpreparing terms of reference end for supervising the execution of most ofthese activities, and the PSU would be responsible for their monitoring andcoordination. Terms of reference for the principal studies and consultingservices were agreed upon during negotiations (Annex 3-5). The PSU wouldbe responsible for ensuring the preparation of the remaining terms ofreference which would be subject to approval by the Minister of Agricultureand Rural Development. The recommendations of the studies and action plansfor the implementation of strategies would be submitted to IDA not laterthan September 30, 1988. Assurances to this effect were obtained atnegotiations (para 92(f)). About 10 man-months of consultancies andUS$450,000 for studies would be financed under the project.
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D. Et21st Costs and Financing
1. Project Costs
52. Total project costs, over a five-year period, are estimated atUS$21.8 million equivalent, with a foreign exchange component of 87X(Annex 3-6). This amount only includes incremental costs and itplicittaxes on locally procured items which are marginal, but excludes taxes andimport duties on direct imports since the Government has indicated thatthey would be waived. Cost estimates are based on December 1986 priceestimates and include physical contingencies of 10% on all costs exceptnanagement fees (which are fixed under the terms of the contracts betweenthe foreign firms and Government), local labor (at 0) and technicalassistance (which carries 5Z). Price contingencies have been calculated onforeign costs according to Bank procedures, which have been estimated at3.01 for 1987, 1.01 for 1988-1990, and 3.5Z for 1991. There is no accuratemeasure of inflation rate in STP but it is assumed that periodicdevaluations will take place under the new exchange rate system to beestablished under the Structural Adjustment Credit which will offset forthe differential between domestic and international inflation.Nevertheless, some lag in adjustment is assumed and price contingencies fordomestic costs have been estimated at 8.1Z for 1987, 6.3% for 1988-1990,and 8.51 for 1991. Total contingencies are equivalent to 142 of base costestimates, or 121 of total costs.
2. Finanv1
53. External financing would amount to US$19.7 million, whichrepresents 901 of project costs. IDA's contribution would amount toSDR 6.1 million (US$7.9 million equivalent) including refinancing ofadvances under the PPF totaling US$1.5 million. IDA financing would covermainly the management contracts and part of the agricultural investmentcosts of the Bela Vista and Uba Budo plantations, and studies andconsultancy services for the agriculture sector and cocoa subsector. BADEAhas approved a contribution of US$6.0 million for the agriculturalinvestment costs of most Uba Budo plantation and some Bela Vistaplantation. CCCE has confirmed its intention to finance cocoa technicalsupport activities for an estimated US$1.0 million. OPEC has expressed itsintention to finance US$1.1 million for the agricultural investment costsof Bela Vista. IFAD plans to finance US$1.9 million for components relatedto food crop development, private smallholders, and studies ondiversification. USAID has approved a contribution of US$0.9 million, fortraining activities through its trilateral agreement with Portugal and STP.WFP would contribute US$0.6 million equivalent in food for the socialinfrastructure component. FAC/AFVP would contribute US$0.3 million forfood crop development activities in the two plantations and for cocoaapplied research. The Government's contribution of about US$2.1 millionwould cover incremental staff, and operational and maintenance costs,mostly paid from the cocoa revenues of the two EEAs. The cofinancingsituation is summarized below.
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FINANCING PLAN (US million):
FoodUSA!! Support to FACand Laborers and Total
IDA BR IFAD COCE OPEC Portumal WFP AFVP OVT. Coets
54. USAID, Portugal, FAC, APVP, and WmP contributions would be in theform of grants to the Government. IDA, BADRA, CCCE, OPEC, and IFADcontributions would be in the form of credits on standard terms. Delays inimplementing the components cofinanced in parallel would have little effecton project implementation and would not substantially reduce benefits. Thefulfillment of conditions precedent to the effectiveness of the BADEA andOPEC loans is a condition of effectiveness of the management contracts(Annex 3-3). Cross-effectiveness clauses linked to the managementcontracts are given in paragraph 28. Under these circumstances, directcross-effectiveness conditions of the IDA credit with the BADEA and OPECloans are not necessary. On the basis of the cofinancing arrangements, thepresent IDA credit of SDR 6.1 million (US$7.9 million) would finance about362 of total project costs.
55. Funds would be passed on from the Government to the EEAs asequity. Because of the precarious financial situation of the EEAs(para 57), it would be premature to burden them with debt. Receiving fundsas equity would enable the EEAs to build up a sound financial base thatwould permit them in the medium-term to borrow, and possibly, ifcircumstances warrant, to diversify their equity base. Funds to otherproject public institutions would be passed on as grants. Since fundsadvanced under the first two PPFs were Insufficient to cover start-upexpenses, a supplement equivalent to US$500,000 was allocated from theagricultural component of the Line of Credit for Economic Rehabilitationand Modernization (Cr. 1590-STP). Funds were exhausted again by February1987 and additional financing was made available through a third PPF.
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E. Accounts and Audits
56. Each separate entity under the project would maintain accounts toprovide adequate and timely information about its operations. The projectbeneficiaries would include: (a) the two EEAs, Bela Vista and Uba Budo,which are revenue-earning entities; and (b) other entities which would notearn substantial revenues, including the Project Support Unit, theresearch, training and food crop development units, the project-relatedcomponent of the Mesquita Project, and the project-related component of theWFP project. Project-related activities would be identifiable separately.Financing for the annual audits has been included in the project supportcomponent. the accounts, together with statements of expenditures whererelevant (para 61), would be audited annually by internationally recruitedindependent auditors acceptable to IDA. Annual accounts would be submittedto IDA within four months, and audited accounts within six months, of theend of each fiscal year. Assurances on these accounting and auditingarrangements were obtained at negotiations (para 92(g)).
57. A Statement of Financial Affairs prepared in 1985 revealed thatnone of the ERAs, including Bela Vista and Uba Budo, is financially sound,that reliable accounting practices have not been followed and that accuratefinancial figures for the EEAs are not available. (Details are in ProjectFile No. 228.960.) Prior to disbursing IDA funds to any of the ERAs,acceptable accounting systems would be prepared (para 28). It was agreedduring negotiations that if a satisfactory valuation of the assets of BelaVista and Uba Budo is not available at the time of the first audit,Government would be responsible for employing consultants to furnishpromptly an acceptable valuation of assets' report to IDA.
58. The Government would open three foreign exchange accounts(special accounts) at BNSTP: one upon IDA credit effectiveness andGovernment request, i.e., a special account (revolving fund) to be managedby PSU (para 63), in which IDA would deposit initially US$50,000representing the equivalent of about three months of cash expenditures inthe project components other than the Bela Vista and Uba Budo ERAs. Eachof the two other accounts would be opened upon compliance with IDAconditions of credit effectiveness and disbursement (para 28): one in thename of Bela Vista and the other in the name of Uba Budo, in which IDAwould deposit US$100,000 as initial working capital, i.e., the equivalentof about three months of expenditures, except items that would be paiddirectly to suppliers. Other accounts would be opened for eachcofinancier. The Government's contribution (out of revenues from BelaVista and Uba Budo) would be deposited in two fore3gn currency accounts andtwo local currency accounts according to agreements reached with the twoforeign firms (Annex 3-3).
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F. Procurement and Disbursements
1. Procurement
59. Procurement arrangements are summarized below, with figures inparentheses showing the respective amounts to be financed by IDA.
Reimbursement of PPP 1.5 +cJ 1.5- - ~~~~~~~(1.5) 1)
Total -1.5 X .
a/ Government invited firms from several countries to submit proposals and signed contracts with twoforeign firms.
b/ Includes cofinancing subject to cofinanciers' procedures._/ Contracts of less than US$100,000 would be made through International shopping or under force
account as appropriate.d/ Bidding documents for contracts estimated at more than US$100,000 equivalent would be subject to
prior review by IDA.el Technical assistance, training and studies would be procured following Bank guidelines.T/ Paid by the Government.i/ Start-up activities by the two foreign firms.
Procurement will be subject to Government regulations governing local competitive bidding, whichwould be reviewed and amended as necessary to ensure acceptability by IDA.
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2. Disbursements
60. Disbursements of the IDA credit of SDR 6.1 million(US$7.9 million equivalent) is shown over an 7-1/2-year period startingJuly 1, 1987 (Annex 3-7), according to Bank guidelines. Projectdisbursements follow the standard profile, but start at a higher levelbecause of a US$1.5 million reimbursement of the PPF in the first year.The project disbursement period has been reduced to 7-1/2 years from thestandard period of 8-1/2 years because the foreign firms managing the twoplantations Bela Vista and Uba Budo (which account for 662 of total projectcosts and 84% of IDA financing) have been in place and started replantingactivities since March 1986 under PPF financlng. Retroactive financing ofup to SDR 250,000 would be available for expenditures relating to the twomanagement contracts between June I, 1987 and the date of signing thecredit agreement. The closing date of the Credit would be December 31,1994. The proceeds of the IDA credit would be disbursed as follows.
3. Su rt to Aricultural Sector: TechnicalAssistance, Traintig, Studes, Audit(a) Other EeAs and Smallholders 0.1 100 100(b) PSU, Studies, and Consultants 0.4 100 100
Sub-total Supp. to Agric. Sector 0.5
4. Equipment and Supplies for the PSU 0.1 100 100
5. Reimbursement PPF 1.5
6. Unallocated 1.0
Total Disbursements LS
at These percentages represent the percentage of the eligible costs that IDA would disburse.
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61. Disbursements against management fees, inputs, machinery,vehicles, equipment and consultancies would be made upon applications bythe project coordinator (para 63) and fully documented; disbursements forlocal purchases below US$20,000 equivalent and work on force account wouldbe against statements of expenditures. For Bela Vista and Uba Budo EEAscertification of local purchases and work done on force account would bemade by their general managers. Other purchases would be certified by theproject coordinator. Full documentation would be retained by the ProjectSupport Unit and the Bela Vista and Uba Budo EEAs for review by auditorsand IDA supervision missions.
G. Implementation and Or&anization
1. Preparatory Activities
62. In December 1984, February 1986 and March 1987, IDA approvedthree PPF advances totaling US$1.5 million to carry out project preparationactivities and finance a program of start-up activities. They includedhousing for foreign experts expected to arrive at the beginning of theproject, preparation of implementation studies and start-up activities bythe two foreign firms for Bela Vista and Uba Budo (para 65), short-termconsultancies to carry out a feasibility study, soil analysis and theplanting of imported high-yielding cocoa hybrids in a pilot-scale nursery(para 41), and other short-term consultancies for detailed projectpreparation and start-up activities. The two foreign firms had eachprepared nurseries while awaiting project approval to ensure early projectstart-up and quick realization of benefits. When project processing wassuspended in June 1986 because of the rapid deterioration of the economy,an extension of their contracts was financed by the remaining PPF andUS$500,000 from the Line of Credit to plant the seedlings. Since IDAdecided to process the Structural Adjustment Credit and the CocoaRehabilitation Project simultaneously, a third PPF was approved to maintainthe presence of the two foreign firms until full funding would be madeavailable upon effectiveness. Visible progress in the rehabilitation ofthe two EEAs has facilitated dialogue with the Government on macroeconomicissues, since it appreciated IDA's active interest in the country'sdevelopment, and the urgency of taking measures to revitalize the cocoasubsector.
2. Project Management and Coordination
63. A Project Support Unit would be established under the project tostrengthen the Government's capacity to plan and monitor activities in theagriculture sector, initially emphasizing the cocoa subsector. PSU wouldbe situated in MADR (Annex 2-3) and headed by an internationally recruitedproject coordinator, who would also be the project coordinator for the Lineof Credit; it would include a national deputy project coordinator and atleast one support staff who will execute the functions of accountant andsecretary. PSU, through the project coordinator, would be fullyaccountable to the Minister of Agriculture and Rural Development, who would
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provide general directions and government position on policy issuesconcerning the project. and would assign responsibilities to carry outspecific actions. The obganlzation, staffing and functions of the PSU andthe terms of reference of the Project Coordinator and his deputy wereagreed upon at negotiations (paras 92(h) and 92(i) and Annex 3-8). Theestablishment of the PSU and employment of a project coordinator and deputycoordinator are conditions of effectiveness (para 93(b)). The projectcoordinator would be financed for the first two years from the Line ofCredit. It would be determined at the interim review (para 68) as towhether the national deputy coordinator would assume the position ofproject coordinator or further financing would be required for thecontinuation of the internationally-recruited project coordinator for thefull project duration.
64. The PSU would: (a) ensure exchange of information between thevarious entities and individuals concerned with the project; (b) act as acentral point in project administration; and (c) monitor and evaluate theprogress of the project. In particular, the project coordinator would beresponsible for collating progress reports concerning the project and forpreparing consolidated reports to be submitted to the Minister ofAgriculture and Rural Development, IDA and other concerned agencies, inaddition to other reports which would be issued directly by specificproject entities. Decision-making powers concerning internal policy issuesand approval of annual work plans and budgets of Bela Vista and Uba BudoEEAs, and concerning research, food crop development, and training unitswould be vested in the respective Boards or Committees. Day-to-daymanagement decisions would be the sole responsibility of the generalmanagers or directors of the above entities, on the basis of annual workplans and budgets approved by their Supervisory Committee.
3. Management of Bela Vista and Uba Budo EEAs
65. Recognizing that one of the underlying causes for the EEAs' poorperformance was the lack of management capability, the Government invitedin June 1985 reputable firms from several countries to submit proposals tomanage the Bela Vista and Uba Budo EEAs. The Government awarded thecontracts to two foreign firms to manage one plantation each. Although itwould have been financially less costly if one firm had managed both EEAs,these two plantations would be the first of a series to be managed byforeign firms, and the Government wanted to maintain competition and alevel of comparison between the two firms. This agreement was made withthe understanding that should additional financing be available during thenext three to five years, each firm could take charge of an additional EEA.The contracts were negotiated in December 1985 and IDA's comments werediscussed and finalized with the Government prior to IDA creditnegotiations. The management contracts were signed on May 13, 1987.Preparatory activities by the foreign firms are underway and financed underthe PPF and supplementary financing from the Line of Credit. The mainfeatures of the contracts are described in Annex 3-3; two important onesare that (a) part of each firm's remuneration would be linked toperformance, and (b) the foreign firms would train local managers for the
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two EEAs so that they could gradually assume greater responsibilities andultimately be able to manage the EEA. The two EEAs would be managed atleast for 9 years by internationally recruited management firms whoseexperience and terms and conditions of employment would be satisfactory toIDA.
66. The two EEAs, Bela Vista and Uba Budo, would each be under thedirection of a Supervisory Committee according to procedures spelled out inthe management contracts. Each Committee would include representativesfrom MADR and other concerned government ministries or institutions, theforeign firm, and possibly foreign partners. The Committee would normallymeet at least twice a year. It would review the work plans and budgets forthe following year submitted by the EEAs' general managers. The firstannual work plans and budgets are being prepared by the foreign firmsunder PPF financing. On the basis of these plans and budgets, the generalmanagers would have full authority to manage their respective EEAs.Assurances were obtained at negotiations that by September 30 of each yearthe EEAs would furnish to IDA their draft work plans and budgets for thefollowing year and projections for the subsequent year, as well as anupdate on the five-year investment programs (para 92(j)).
67. Although the management contracts would provide an acceptablelegal framework for EEA operation in the short-term, statutes should beprepared to operate the EEAs legally and to open opportunities to findinvestors in the future. Assurances were obtained at negotiations that, byDecember 31, 1987, the Government would submit to IDA for its review andapproval, draft statutes for the Bela Vista and Uba Budo EEAs and thatthese statutes once approved would not be amended without IDA's priorapproval (para 92(k)).
4. Interim Review
68. An interim review would be made by IDA, the Government and keyproject beneficiaries by December 31, 1989 to (a) assess progress in theproject components; (b) discuss and agree on steps to take to resolveproblems encountered during implementation; (c) assess the possibilities ofextending the role of the foreign firms to other EEAs; (d) discuss andagree on a plan to carry out institutional reforms in applied research,training and agricultural services; and (e) review whether theinternationally recruited project coordinator would be retained for thefull project duration. Agreement was obtained during negotiations on theobjectives and scheduling of the interim review (para 92(1)).
H. Production, Markets and Prices
69. Technical Aspects. The planting schedule would include acombination of rehabilitation of those areas in Bela Vista and Uba BudoEEAs where existing trees are in fairly good condition. Other aroas wouldbe replanted with high-yielding Upper Amazon hybrids. Given the positiveresults experienced in other countries, the richness of STP soil, and the
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presence of foreign experienced firms managing the EEAs., a yield of 1,500kg/ha in Bela Vista and 1,620 kg/ha in Uba Budo is projected by the 9thyear in the replanted areas, 900 kg/ha in Bela Vista EEA and 800 kg/ha inUba Budo EEA by the 6th year in the rehabilitated areas. A summary tableof the technical parameters used is presented in Annex 3-4 and details arein Project File No. 229.376.
70. Markets and Prices. Although cocoa represents 90% in value ofall exports, STP only supplies 0.2% of the world market. The Government'sstrategy to increase production to 7,000 tons by 1990 and 12,500 tons by1995 would have no effect on world prices. Under the project, theproduction of Bela Vista and Uba Budo ERAs would increase from an estimated850 tons in 1986 to about 2,100 tons in 1993 and level off at 4,000 tons in1998. Should additional financing become available over the 1988-90period, production under this project can be expected to increasesignificantly by 1995. At present all the cocoa produced is sold FOB SaoTome and its principal buyers are intermediaries. Traditionally theNetherlands has been the largest importer of STP cocoa, representing 45% oftotal export in 1984 and since, 1982, the Democratic Republic of Germanyhas been importing a substantial amount (32% of total export in 1984) undera barter arrangement.
71. Future prices and revenues to be received by STP, however, dependan the state of the world market. The Bank forecasts an increase in worldsupply of 1.7% p.a. and in world demand of 1.9% p.a. from 1985 to 2000,i.e., a rough long-run balance between supply and demand. With the v:srketcurrently in an oversupply position, however, prices appear to becontinuing on the downward trend that started after the boom of the late1970s. This trend was interrupted during the last three years, as pricesrose due to shortfalls in Western Africa production, but prices areexpected to continue falling until ai. .n4 1990, when they should riseagain. In constant 1986 cents/kg., ... e price is expected to drop from 207in 1986 to 184 in 1990 and rise to 202 in 1995.
72. Producer Price. From 1979 to 1984, producers received a fixedprice from ECOMEX of 60 Db/kg which was raised to 65 Db/kg in 1984 and 71Db/kg in 1986. Government has confirmed its intention to abolish fixedprices. The effects of cocoa-related taxes on the financial viability ofthe two plantations would be monitored during project implementation (para83). STP cocoa price projections are in Annex 3-9.
I. Financial Results
1. Introduction
73. The present section analyzes the expected financial results afterdevaluation of the two revenue-earning entities supported under theproject, respectively the Bela Vista and Uba Budo EEA.. Subject to theinvestments and reforms proposed under the project, the two ERAs would be
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financially viable and self-sustaining, although the present institut-onalsetting is not optimal. The latter point, in particular the recommendationof changing the statutes of the EEAs from state enterprises tomixed-economy enterprises, is discussed in para 23. The other main factorsaffecting the financial results of the two EEAs are (a) the quality of itsmanagement and its ability to operate independently, and (b) cocoa prices.
2. Past Performance and Present Position
74. Since 1980, the EEAs have been incurring losses and haveaccumulated extensive debts from BNSTP. As of November 24, 1986, BelaVista owed about Db 65 million to BNSTP and Uba Budo owed about Db 69million. The settlement of these debts, or their eventual conversion toequity or quasi-equity, is important to ensure the long-term financialviability of the two EEAs and to ensure that the debt service coverageratio would be low enough to attract lenders and investors. Conditions ofeffectiveness and disbursement related to the settlement of outstandingdebts are described in paragraph 28, and other financial covenants aredetailed in paragraph 83.
3. Future Financial Performance
75. In these analyses, it was assumed that all external financing forthe two EEAs would be passed on by the Government as equity. Themanagement contracts would ensure that if loans were undertaken, theforeign exchange required for the timely repayment of these loans would beretained in the foreign exchange account of the EEAs (Annex 3-3, page 5).In this case, the financing plans for both Bela Vista and Uba Budo would beappropriately modified, with IDA's approval (para 83).
76. Other Assumptions. Assumptions concerning cocoa prices are givenin para 70. Revenues from cocoa sales accruing to the EEAs were takenafter direct agricultural taxes, which amount to about 19% of FOB prices.Capital and operating costs are based on realistic estimates, includingphysical contingencies of 10% on capital costs. These costs comprise allcosts directly imputable to cocoa production, except workers food cropdevelopment and social infrastructure investments, since they areconsidered part of the general social expenditure program that theGovernment is implementing for the country. The costs and revenues fromother crops have been excluded because of lack of data, but the financialanalysis shows that the EEAs would be viable on cocoa production alone.Labor costs were based on estimates of days worked, including provisionsfor incentives (para 34). Prices were converted into dobras equivalent atthe exchange rate expected to prevail after devaluation in the first halfof 1987 (US$1-Db 76.55). Forecasts were made for 25 years, which coverproject implementation (5 years) and provide enough time to demonstrate theimpact of the project. They are shown in constant 1986 terms. This doesnot introduce distortions in the analysis because (a) differential effectson changing cocoa prices and inflation in STP are not expected to be
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significant due to expected periodic adjustments in the exchange rate, and(b) no long-term loans repayable during the forecast period are assumed inthe financing plan. Finally, taxes on income have not been taken intoaccount.
77. Financial Forecasts - Bela Vista. Detailed projections of incomestatements and fund flows are in Annex 3-10. No balance sheet has beenprepared as no value for existing assets is available (para 57). Projectedfinancial indicators (rounded, in 1986 constant terms) are shown below:
78. A cash build-up occurs in the projections because they do notinclude provision for dividend payments and do not assume majorreinvestment of surpluses in the form of future investment expenditures.Based on the above assumptions, the financial rate of return (FRR) oninvestments in Bela Vista, calculated over a 25-year ptriod in constant1986 terms, would be about 18%. The EEA would be financiallyself-supporting from PY4 (1990).
79. There are few financial risks. A break-even analysis was carriedout on cocoa revenues, capital and production costs, using an opportunitycost of capital of 10%. The additional cocoa revenues (up to 15% abovemarket price) that would be obtained from Improved quality have not beencalculated because of the many factors involved in their realization and,therefore, the difficulty in quantifying them. The FRR would be reduced to10% if, each year over the projection period of 25 years: (a) cocoarevenues decreased by 171, or (b) capital costs increased by 21%. Foreignexchange risks are low because practically all revenues would be derivedfrom the sale of exported cocoa and would be borne by the EEA.
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80. Financial Forecasts - Uba Budo. Detailed projections are inAnnex 3-11 and have been prepared under the same general assumptions as forBela Vista. Although satisfactory, the financial results are lesspromising than for Bela Vista because Uba Budo is a more degradedplantation and would need to be substantially replanted. This increasesthe relative investment costs and delays benefits. Projected financialindicators are shown below.
81. The same assumptions for Bela Vista (para 78) have been appliedfor Uba Budo and the FRR on investments in Uba Budo, calculated over a25-year period in 1986 constant terms, would be about 12%. Becausebenefits would take longer to materialize, the EEA would be financiallyself-supporting in PY8 (1994).
82. As in the case of Bela Vista a break-even analysis (para 79) wascarried out on cocoa revenues, capital and production costs, using anopportunity cost of capital of 10%; the additional cocoa revenues fromImproved quality has not been incorporated in the calculations. The FRRwould be reduced to 10% if, each year over the projection period of 25years: (a) cocoa revenues decreased by 11%, or (b) capital costs increasedby 12%. The same foreign exchange risks for Bela Vista applies for UbaBudo. Since Bela Vista's and Uba Budo's financial viability is sensitiveto price fluctuations, assurances were obtained at negotiations thatGovernment would monitor cocoa taxes, which are currently 19% of cocoarevenues, and ensure that they would not be raised beyond current levels inorder not to affect the viability of the project (para 92(m)). The currentcocoa tax system would be reviewed under the structural adtustment programand a flexible system which would ensure that both Government and producershare the burden of fluctuations of world prices would be established.
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83. Financial Covenants. To safeguard the financial integrity of theBela Vista and Uba Budo EEAs, assurances were obtained from the Governmentat negotiations (para 92(n)) that, for each of the two ERAs:
(a) no dividends would be paid without IDA's prior agreement beforeDecember 31, 1994 to ensure that adequate funds have beenretained in the EEAs to meet their financial needs, includingoperations and replacement of equipment;
(b) the ERAs would not contract any debt above US$100,000 equivalentduring any 12-month period before December 31, 1996, except forshort-term credit, without IDA's prior approval; and
(c) the EEAs would not make any new investment unless such investmentis technically, economically and financially justifiable. Anyinvestment above US$100,000 not approved under the annual EEA'sinvestment program would require IDA's prior approval.
84. Government Cash Flow. The Government cash flow, shown inAnnex 3-12, would always be positive. The net foreign exchange earningsafter debt service (if it were to remain full owner of the two EEAs and toreceive all surplus revenue as dividends) would average US$0.7 million inyear 5, US$2.3 million in year 10, anid US$3.9 million from year 15 onwards,in 1986 constant prices.
J. Economic and Social Benefits and Risks
85. The economic rate of return (ERR) on the project's investmentsover 25 years is estimated at 21X, and is based on the production-relatedcosts and benefits for Bela Vista and Uba Budo, which account for 66% oftotal project costs. Costs were estimated on the basis of economic costs(production and investment costs excluding taxes). A shadow exchange rateis not taken into consideration since the recent devaluation of the dobraeliminated much of its previous overvaluation. Requirements for furtherexchange rate adjustment would be monitored under the structural adjustmentprogram. In parallel, agricultural workers' wages have been increased by30%, which is the level acceptable to IDA under the proposed StructuralAdjustment Credit after devaluation. The net present value at 102opportunity cost of capital is about US$960,000 equivalent, and theswitching value at 10% is -311 for benefits and +44% for costs. Theeconomic benefits have been taken from tL2 value of production at farmgateprice of the cocoa, excluding taxes. As with the financial analysis, thecosts and other benefits of the other project components have not beenincluded since it would be difficult to quantify their benefits althoughbenefits are expected from the sales of coprah and oil palm. The resultsare summarized below:
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SUMNARY OF ECONOMIC ANALYSIS(thousand dobras)
Switching ValueEconomic Rate of Net Present at 10%
Return (t) Value at 10% Benefit Cost
Bela Vista 29 480,000 -33 49Uba Budo 18 480,000 -28 40
Total 21 L62LQ02 4
86. About 1,500 workers working in Bela Vista and Uba Budo wouldbenefit directly from the project. The improvement of socialinfrastructure would give them better living conditions. Workers wouldbenefit financially from the new bonus system that they would receive inaddition to their salaries. Furthermore, with technical and financialassistance to develop food crops, they would save on the purchase of foodand their overall nutrition would Improve. Workers would have access tobasic consumer goods through the general stores to be re-established by theforeign firms, and other stores which would be supplied through Importsfinanced under the proposed Structur_' Adjustment Credit (para 34).Employees of the other EEAs and up to 400 private producers would benefitfinancially from the increased revenues resulting from the project. Inadditiov, considerable indirect benefits could be expected from productionincreases in other crops grown on these plantations and from qualityimprovements in cocoa production elsewhere on the islands. Finally, abasis would be established for increased privatization in STP.
87. Risks. There are no unusual risks in the project. Althoughworld cocoa prices have recently increased in dollar terms, they areconsiderably lower than those in the early eighties. Nevertheless, thesensitivity analysis shows that even with a 10% lower projection of pricesover the whole life of the project, the project's ERR would still be 17Z,and with a 20% decrease the ERR would be 14%. If costs should increase by10%, the ERR would still be 18%, and with an increase of 20%, the ERR wouldbe 15%.
88. A possible technical risk would be the use of high-yieldinghybrid varieties for replanting. Although they have been successful inother countries (yields of up to 2.2 tons/ha in Papua New Guinea comparedwith 1.6 tons/ha assumed under the project), they have not been tested on alarge scale in STP. During project preparation, soil analyses carried outby IRCC (para 62), showed that STP soil is very rich and should be highlyreceptive to the hybrids. A nursery was prepared under PPF financing andthe seedlings were planted in December 198F. The trees are adapting well.Only one EEA (Uba Budo) would undargo extensive but carefully phasedreplanting. The total replanted area under the project would representless than 10% of the cocoa production area in STP and would be consiLderedon a pilot scale. As many of the trees are old and more and more countries
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adopt the new hybrids, this may be the only alternative for STP to becompetitive on the world market. The new technology does require intensivemanagement and increased inputs since the trees are grown without shade andare more susceptible to diseases. To minimize this risk, the managementcontracts with the foreign firms are fcr 9 years with an option for afive-year renewal.
89. Possible delays in implementing Government's reforms appropriatefor promoting an economic environment favorable to investment (para 23) areother risks. The initial devaluation would make the cocoa sector viable.The proposed Structural Adjustment Credit, which would be implemented inparallel with the project, would carefully monitor the implementation ofthe measures to restore macroeconomic equilibria (para 24).
90. Environmental Aspects. The project would be implemented with dueregard to the environment and to occupational health. An Imminentenvironmental problem could arise from the use of agro-chemicals and fromtheir concentration in streams.
91. To minimize these risks, the Government would (a) refrain fromusing chemicals considered by IDA to be detrimental to the environment;(b) before September 30, 1988, submit to IDA for its review and ai.lroval aplan to monitor and control chemical residues in streams and other parts ofthe biosphere; and (c) at all times, cause the foreign firms to trainworkers in Bela Vista and Uba Budo on the safe use of chemicals.Assurances on the above were obtained at negotiations (para 92(o)). Inaddition, a study concerning the overall status of STP's ecology would becarried out under the project (Annex 3-5).
IV. AGREEMENTS REDACHED AND RECOMMENDATION
92. Agreements were reached at negotiations regarding:
(a) implementation of measures ensuring that the EEAs have (i)management autonomy; (ii) flexible wage system; and (iii)flexibility in recruiting and dismissing staff (paras 12, 21, 34and 72);
(b) the pursuit of project objectives beyond the five-year period(para 26);
(c) the timely payment of salaries to workers (para 34);
(d) the workers' housing situation (para 37);
(e) review of the system of import and sale of inputs and equipmentto smallholders (para 49);
(f) terms of reference for studies and consultancy services(para 51);
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(g) the submission of accounts and audit reports to IDA (para 56);
(h) the functions of the PSU (para 63);
(i) terms of reference for the project coordinator and deputy projectcoordinator (para 63);
(j) the submission of EEA draft work plans and budgets (para 66);
(k) statutes for the Bela Vista and Uba Budo EEAs (para 67);
(1) objectives and scheduling of an interim review by December 31,1989 (para 68);
(m) monitoring of cocoa sales tax rates (para 82);
(n) financial covenants (para 83); and
(o) the reduction of environmental risks (para 91).
93. Conditions of effectiveness would concern:
(a) the effectiveness of the management contract with one of the twoforeign firms, except for its cross-effectiveness condition withthe IDA credit and the down-payment for start-up activities, thesettlement of outstanding debts, and preparation of an acceptableaccounting system of the EEA concerned (para 28); and
(b) the establishment of the Project Support Unit and employment ofits coordinator and deputy coordinator (para 63).
94. Conditions of disbursement would be that the other foreign firmand EEA would have met IDAts conditions of credit effectiveness (para 28and 93(a)).
95. With the above agreements, the project would be suitable for anIDA credit of US$7.9 million equivalent.
WAPADMay 1987
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SAO TOME AND PRINCIPECOCOA REHABIUTATION PROJECT
TYPICAL ORGANIZAMON CHART FOR A STATE ENTERPRISE FOR AGRICULTURE AND UVESTOCK (EEA)
* UMSNU PMDVSUOU
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WAPADFebruary 1987 WORLO BANK 30339C
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- 37 - Annex 2-1
SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
HISTORICAL EVENTS
1471 The Portuguese arrive on the islands.
1501 Introduction of sugarcane. Between 1511 and 1520, the price ofsugar doubled on the European market.
1644 End of sugar boom. Massive departures to Brazil.
1855 Introduction of cocoa on Sao Tome.
1857 Introduction of tobacco, then cotton (1860), bread fruit (1862),cinchona (1869), millet and pepper (1870).
1875 April 29: Abolition of slavery. Importation of workers.
1880 Production: 1,718 tons of coffee and 467 tons of cocoa. Cocoa isplanted on a large scale. Population: 21,000 inhabitants on thetwo islands.
1907 International debate on forced labor in Sao Tome. Cocoa boycott.
1908 The largest British chocolate producer goes on a fact-findingmission to Sao Tome. Production: 23,000 t of cocoa and 1,100 tof coffee.
1913 Sao Tome is the world's largest cocoa producer: 37,000 tons.
1919 Production: 35,000 t of cocoa and 400 t of coffee.
1960 Production: 10,200 t of cocoa and 250 t of coffee.
1970 Production: 10,000 t of cocoa.
1972 Foundation of the Movement for the Liberation of Sao Tome andPrincipe (MLSTP).
1975 July 12: IndependenceDecember 12: The Constitution becomes effective.
1977 September 8: Monetary reform. Establishment of officialcurrency: the Dobra, pegged to the SDR.
1978 STP becomes member of IMF/World Bank.
1985 STP holds a Donors Round Table Conference and presents itsDevelopment Plan (1986-1990). Donors pledge coordinated supportto STP's development efforts.
Source: Ministry of Cooperation, December 1985.
WAPADMay 1987
-4 l
i ~-4
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39 Annex 2-2
SAO TOME AND PRINCIPE
COCOA REHAILITATION PRQJECT
PRODUCTION CONSTRAINTS
Two types of technical constraints (short- and medium- tolong-term) would be addressed under the project by strengthening themanagement of the EEAs, training local management staff and providinglaborers with incentives.
Short-Term Constraints
Inefficient maintenance of the plantations results in trees andshoots competing with weeds, and in brush encroachement starting a fewmeters from the feeder roads. Depredator insects multiply and provideinfectious niches, especially for Phytophtora, in the unpicked rotten pods.Since all plantations grow under high forest canopy, shade is notcontrolled. Irregular sunlight spots favor weeds and depredator parasites.However, the most severe problem is excessive cocoa pruning which resultsin a lack of auto-shading for soil protection and photosynthetic activity.
The insufficient sucker removal leads to the growth of manyshoots, notably during blossom and fruit setting time, which in turn leadsto the occurence of numerous parasites and difficult harvest. TheInefficient plant protection is due to insecticides and pesticides appliedwith old and disrepaired equipment which does not provide adequatecoverage, and also tractor-mounted spraving equipment used only alongfeeder roads. Protec. on against black pod is inadequate. Chemicaltreatment is not efficient due to few sprayings and the inappropriateapplication of fungicides.
The lack of support to private smallholders has forced them topractice cropping without inputs, plant protection products, and equipment(sprayers). Nevertheless, plantations are well maintained, andavailability of these Items and, technical support would some enable themto increase their production significantly.
Medium- to Long-Term Constraints
The insufficient tree density (400-900 instead of 1,000), thereduced production due to the old age of rilantations (25-60 years), and thegenetic disparity of trees which results in heterogeneous products wouldjustify the replanting of all plantations. The cost and hardship ofcropping on steep slopes justify the elimination of cocoa trees from theseareas. The diversification of some plantations toward bananas, plantainsand tarot cultivation calls for a rural rezoning within the EEAs andclearly defined procedures concerning the allocation and utilization oflaborers' food crop plots. These recommendations are included in theproposed project.
Further details on production constraints are given in ProjectFile No. 228.967.
WAPADMay 1987
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Annex 2-3Page 1 of 3
SAO TOME AMD PRINCIPE
COCOA REHABILITATION PROJECT
MAIN INSTITUTIONS
The Ministry of Agriculture and Rural Development (NADR) is themain institution in charge of the agriculture sector whose production comesmostly from the EEAs. Since cocoa production affects all aspects of theeconomy, other government institutions are also responsible for policiesaffecting the BEAs. Rowever, a lack of well defined responsibilities amongthem has resulted in inefficiencies, with negative effects on cocoaproduction.
The functions of the main institutions responsible for the cocoasubsector are as follows:
(a) The Ministry of Agriculture and Rural Development is responsiblefor the overall development policy in agriculture (exceptfisheries), for the administrative and technical supervision ofthe EEAs, and for the provision of equipment, spare parts andinputs to the plantations (MADR's Organization Chart is on page 3of this Annex).
(b) The Ministry of Planniag which is in charge of the country'soverail economic planning the revenues from cocoa sales is a keydeterminant In the planning process.
(c) The Ministry of Finance and the National Bank of STP isresponsible for financial planning and its State Enterprises'Finance Division supervises the EEAs. It monitors revenues andexpenditures, advises on accounting procedures, and controlscompliance with the planning targets of production, expendituresand Investments for the only bank in the country which operatesas the Central Bank, the Treasury, and a comercial anddevelopment bank. At the commercial level, it deals with credit,external debt and the current accounts of the EEAs, which itoccasionally assists financially.
(d) The Ministry of Commerce, Ind-tstry and Tourism is alsoresponsible for ECOMIN, which sells imports purchased from ECOMEXat officially set prices, and for ECOMEX, which is in charge ofexports and imports.
(e) The Ministry of Cooperation is responsible for all STP's foreignpolicy and diplomatic activities, as well as for dialoguing withbilateral and multilateral development organizations and seekingtheir financing for development projects in STP.
T
- 42 -Annex 2-3Page 2 of 3
(f) The Agricultural Experimental Station of POTO was established in1960 and functions as a department of MADR. It is responsiblefor applied research and technical support to the sector. ItsImpact has been limited. It has received some technicalassistance from FAO and laboratory equipment from the DutchGovernment. However, little other investment has been made andthe administrative building and annexes of technical offices andlaboratories are in poor condition and lack equipment. Atpresent there are some 70 positions staffed with underqualifiedpersonnel, and morale is low due to poor working conditions andlack of funds to carry out the work.
(g) The Mesquita Project for food crop extension, which is notformally established, falls under MADR's responsibilitye It is,however, expected to become a permanent center for food cropextension In 1987. Since its Inception in 1981, FAC/AFVP hasdisbursed FF 12.1 million for the development of 100 ha ofvegetables, provision of seedlings, inputs and tools for smallfarmers, and technical assistance for extension services. Afurther FF 2.2 million has been approved to extend the projectthrough the beginning of 1987. A third phase is in the processof being approved to cover a three-year period (1987-89) toincrease extension activities, particularly to work with thoseplantations receiving external assistance (Uba Budo, Bela Vista,and Santa Margarida). It will also start some agriculturalexperimentation and multiplication of seeds.
Note: There has been frequent reorganizations of the ministries and theabove composition represents the latest reorganization(January 19, 1987).
The Bela Vista state enterprise is located in the northeasternpart of Sao Tome, about 6 km from the capital (Map IBRD 19574). The soilis generally fertile and the topography is rather flat, with a few peaks inthe southwest. It is one of the larger enterprises of the country, coveringabout 4,000 ha, of which the 3,200 ha under cultivation consist of 2,100 haof cocoa, 500 ha of oil palm, 450 ha of coconut and a little over 150 ha offood crops. Although Bela Vista was the largest cocoa producer until 1982,it ranked only fifth by 1984, because of rainfall shortages that year andthe breakdown of its irrigation system.
Before independence, Bela Vista was under Portuguese ownershipand management. The plantations were young, well-irrigated and drained,and their density vell-controlled. Irrigation is being used again since1984, thanks to the new manager whose 20 years of experience in STPplantations familiarized him with the adverse effects of deficientrainfalls (droughts of 1982-84) on Bela Vista production.
An analysis of production data for 1980-84 shows that:
(a) In 1980, Bela Vista was the largest cocoa producer of all theEMAs, with 1,077 tons (or about 15Z of STP production) and anaverage yield of 512 kg/ha, compared with disparate averageswithin the enterprises of 220 kg/ha in the Gratidao dependencyand over 1.000 kg/ha in the Vale Flor dependency.
(bl During 1982-84, when rainfall shortages were not compensated withirrigation, Bela Vista production plummeted, especially in thelowlands (Vale Flor, Praia Nazare) here rain deficits were mostsevere.
(c) Production in rugged zones (Gratido, Santarem) is low due to soilerosion, low maintenance levels, and difficulty of access;therefore, these plantations should be eliminated, as recommendedunder the project.
Bela Vista production is hindered by the same constraints facingother EEAs, such as insufficient management capacity and lack of funds topurchase inputs and machinery. It is particularly affected by (a) themarginal rainfall level, and (b) the low productivity of the labor force.Rainfall shortages can be resolved at minor costs by rehabilitating thegravity irrigation system. To alleviate these problems the project wouldfinance a foreign firm to undertake the management of Bela Vista and alsithe investment program. Labor productivity is low due to the present lackof Incentives (2.5 ha of cocoa and 3.8 ha of plantations per laborer). Tostimulate productivity, the project would provide monetary and socialincentives to workers to improve their standard of living.
More details on the Bela Vista state enterprise are given inProject File No. 228.967.
WAPADMay 1987
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SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
THE UBA BUD0 STATE ENTERPRISE
The Uba Budo state enterprise is located in the eastern part ofSao Tone, south of the capital (Nap IBRD 19574). The soils are fertile andthe topography has more relief than In Bela Vista. Uba Budo is the secondstate enterprise in the country in terms of area under cultivation, i.e.,almost 3,400 ha, of which 2,300 ha of cocoa, 450 ha of oil palm, 400 ha ofcoconuts, and 250 ha of food crops and other cash crops. Its cocoaproduction is below average (130 kg). Although rainfall is more favorableto cocoa production than In Bela Vista, simple irrigation systems could beconsidered in the lowlands as recommended under the project.
Unlike Bela Vista, Uba Budo was divided into many enterprisesbefore independence. Their merging in 1975/76 resulted in a more dispersednetwork of dependencies, production systems and infrastructures.
A recent analysis of Uba Budo's area, production and yields for1983 shows that cocoa plantations have somewhat deteriorated. In 1983,only three dependencies had an average yield above 200 kg/ha. In fourothers the average yield was below 100 kg/ha, probably due to deficientmaintenance and insufficient plant protection.
Technical constraints are the same as in Bela Vista, except forthe more severe labor shoz-tage (4 ha of cocoa and 6 ha of plantation perproductive laborer). The project would finance a foreign firm to undertakethe management of Uba Budo and the investment program to rehabilitate theplantation. It would provide the same incentives for laborers as in BelaVista.
More details on the Uba Budo state enterprise are given inProject File No. 228.967.
WAPADMay 1987
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- 49 -Annex 3-3Page I of 8
SAO TOME AND PRINCIPE
COCOA REHABILITATION PROJECT
MAIN FEATURES OF THE MANAGEMENT CONTRACTS
Two separate management contracts were negotiated in December 1985signed on May 13, 1987 between the "Francisco Mantero - Agricultura eCom6rcio Internacional, S.A." and the Government of STP for Bela Vista ERA,and between SOCFINCO-FRANCE, S.A., and the Government of STP for Uba BudoEEA. The contracts are between the foreign firms and the respective EEAswith a guarantee from Government. Initially, the original version of thecontracts Included a preparatory phase of five months to be effective inMarch 1986, and a full phase of ten years. But since IDA could not endorsethe draft contracts while the financing package remained Incomplete, andthe macroeconomic distortions in the country unresolved, separateshort-term contracts have been prepared between the same parties and arebeing financed under the PPF and supplemented by the Line of Credit forEconomic Rehabilitation and Modernization (Cr. 1590-STP); activities havestarted as scheduled. The main features of the contracts of thepreparatory phase and those of the full-term contracts incorporating IDA' acomments are described below.
First Preparatory Phase Contract
This five-month contract was not interpreted by either party as acommitment to enter into the full phase contract. Under this contract theforeign firm:
1. prepared and presented a full implementation study of theproposed rehabilitation and modernization program of the EEA,which included a full assessment of the existing trees,infrastructure, equipment and personnel, and a work program forthe following five years;
2. prepared and presented a detailed work plan and budget for thefirst year of the project;
3. based on the review of existing personnel and future needs, helddiscussions with the Government on the course of action requiredto ensure the employment of the necessary number and rightcategories of staff at the start of the full scale project;
4. in the case of Bela Vista, obtained an endorsement of thetechnical proposal by a reputable scientific Institutespecializing in cocoa, acceptable to the Government;
5. established a nursery which would cover the needs of the firstyear requirement for replanting.
- 50 -Annex 3-3Page 2 of 8
Second and Third Preparatory Phase Contract
Since the project processing was suspended because of t:e rapidlydeteriorating situation of the economy and the need to review themacroeconomic situation of the country, two extensions of six months eachfor the preparatory phase contracts were approved. Under these contractsthe foreign firms are required to:
1. clear the land, plant the seedlings and maintain planted areas;and
2. set up an accounting system which would be acceptable toexternal financiers by July 1987.
Full Phase Contract
Subject to the satisfactory completion of the preparatory phaseand availability of financing, the main features of the full-lengthcontract are described below.
Objective
Rehabilitation of the agroindustrial complex of the EEA and itsoptimal exploitation on a sustainable basis.
.Duration of Contract
The contract is of 9-year duration with an option for a 5-yearrenewal.
Activities
The principal activities for the foreign firm to reach theobjective described above are:
1. to rehabilitate and modernize the plantation (including theimprovement of existing infrastructures, renovation of existingones and purchase of new equipment), using technologies which aremodern and most appropriate to the plantation and Saotomeanconditions;
2. to provide technical assistance and training;
3. to rehabilitate and replant cocoa;
4. to study, recuperate and plant other parallel or complementaryerops and food crops as appropriate, using socioeconomiccritieria; and
5. to market the production of the plantation.
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Annex 3-3Page 3 of 8
Obligations of the Foreign Firm
The foreign firm's obligations are:
1. to take full management responsiblity of the ERA and execute thespecific sub-activities encompassed in the activities describedabove;
2. to transfer technology through technical assistance and trainingso that the ERA staff will be progressively in a position tooperate the plantation and market the cocoa efficiently;
3. to take into account at all times the environmental aspects oftheir activities; and
4. to enter int. a formal agreement with a reputable scientificinstitute specializing in cocoa, and to obtain information on themost advanced and appropriate technology to apply to the EEA.
Obligations of the Respective ERAs
The principal responsiblities of the EEA are:
1. to ensure that all the nscessary funds specified in, and approvedunder, the annual budget for the execution of the work plan willbe made available (in an account In the name of the EEA at BN$STP)to the foreign firm to utilize in the name of the EREA;
2. to ensure that at least 302 of the value of sales of the ERA inconvertible currency will be made accessible to the foreign firm(the mechanism for this is described below under foreignexchange);
3. to ensure, to the extent possible. that payments from externalfinanciers will be made directly to the foreign firm and to theexternal suppliers as appropriate; and
4. to provide at all times relevant and necessary information andassistance (particularly In the selection of local staff) for thesuccessful execution of the activities of the foreign firm.
Authority of the Foreign Firm
The ERA will entrust the foreign firm with all the necessarydirect authority to manage the plantation efficiently and withoutInterference from the Government in its day-to-day operations. For theprocurement of contracts funded by external financiers, the foreign firmwill be bound by the regulations of the financiers concerned. Within thebounds of these regulations, the foreign firm will give preference to localsuppliers. The foreign firm will have the right:
- 52 -Annex 3-3Page 4 of 8
1. to market all the cocoa produced directly in the name of the EEA;
2. to recruit and discharge personnel at all categories, assigntheir duties, set the conditions of employment and remunerationincluding the establishment of a bonus system. Also, exercisethe authority to discipline personnel in conformity with existingSTP labor legislation and with labor rules that the foreign firmmay establish;
3. to make purchase orders and collect rent in the name of the EEA;
4. within the limits of the approved budget, to purchase directly ortransfer goods and other items, namely (but not limited to)equipments, materials, inputs and petrol;
5. to open, make deposits, and withdraw from bank accounts foreseenin the contracts in the name of the ERA; and
6. to receive all sums due to the EEA and make payments in the nameof the EEA within the duration of the contract.
Remuneration of the Foreign Firm
The contract is divided into an investment phase of 4 years andan operational phase of 5 years. The fees payable are broken down asfollows:
1. The Investment Phase
(a) a fixed annual fee on a declining scale (this was set underthe assumption that the number of permanent expatriate staffwould decrease as they are gradually replaced by trainednational staff);
(b) a variable fee which is set at a fixed sum payable perhectare planted or rehabilitated (the definitions of what isconsidered planted and rehabilitated are spelled out in thecontract); and
(c) a bonus payment in one contract and a withholding of aportion of the fee in the other contract have been included,which will be payable only at the end of the fifth year uponthe satisfactory performance of the foreign firm (thedefinition of satisfactory performance is spelled out in thecontract);
~ 53 ~ Annex 3-3Page 5 of 8
2. The Operational Phase
(a) 32 of the FOB value of sales over the incrementalproduction, with the base year being 1986.;
(b) 10% of gross profits calculated before depreciation,financial charges, reserves and taxes; and
(c) a minimum that would be payable if the sum of (a) and (b) isbelow that minimum.
3. Miscellaneous
(a) relocation costs of the expatriates; and
(b) housing and transportation for the expatriates.
Marketing
The foreign firm will be fully responsible for the marketing ofthe production of the EEA. For this purpose:
1. it will seek at all times the buyer with the highest rate, obtainGovernment's previous approval, and process all the necessarytransactions to complete the sale;
2. it will receive a commission of 1.8% of the FOB sale price; and
3. it will be required to report and record the transactionimediately after it has been made, and these records will besubject to periodic audits.
Foreign Exchange
A portion of the proceeds from sales will be deposited into theaccounts of the ERA, in BNSTP and another portion in an account abroad,according to the follvwing conditions:
1. at least 302 of the value of sales would be deposited in a freelyconvertible currency in an account abroad;
2. if there is continued lack of consumer goods from local channelsfor the workers, a specified amount (to be previously agreed uponby the Supervisory Committee in consultation with Government),will be retained in this account for the import of these goodsdirectly by the foreign firm under EEA's name;
3. if the EEA undertakes a eommercial loan, the required amount fortimely debt service will also be retained in this account;
- 54 -Annex 3-3Page 6 of 8
4. the foreign firm should abstain from any gains that could beobtained by associating itself with banks abroad;
5. the deposited value will be designated for the exclusive use ofthe project; and
6. the foreign firm will have to submit annually to BNSTP thestatements from the account abroad, so that BNSTP can monitor theforeign exchange flow.
Local Personnel
The following applies to the foreign firm:
1. it will not be responsible for the continuing employment or forsettling past claims of personnel actually employed on theplantation;
2. it will choose, following objective criteria, those staff andworkers who should continue in the service of the EEA and otherswho would be recruited;
3. it will pay the personnel in the name of the EEA;
4. it will have access to obtaining, in the name of the ERA,necessary supplies locally and abroad if the conditions specifiedin the above section on foreign exchange (point 2) prevail, whichwill be sold to workers through a general store that would bere-established;
5. it will not hare the authority to expel retirees presently livingon the plantation, without the express authorization of thecompetent authorities; and
6. it will establish a personnel policy that will be adequate toimprove the qualitative and quantitative production andproductivit!y through incentives, while observing the minimumlegal limits.
Internationally Recruited Staff
The following are obligations of the foreign firm with regards toexpatriate staff:
1. in order to properly manage the plantation, the foreign firmwill be required (within the fees payable to it) to employ atleast five management staff (general manager, plantation manager,director of industrial and mechanical sector, director ofadministration and finance, and supplies and procurement chief).
- 55 -Annex 3-3Page 7 of 8
At least eight supervision missions by adequately qualifiedpersonnel from the firm's headquarters will be made per yearduring the first four years, and at least five supervisionmissions per year for the remaining five years;
2. the foreign firm will select at least one counterpart for each ofthe management staff who will be trained to eventually replacethem;
3. the foreign firm will submit the curriculum vitae of theircandidates for the approval of the EEA's Supervisory Committeeand the financiers;
4. the foreign firm and its management staff will be prohibited fromengaging in any other professional activities not specified underthe contract without specific authorization from the SupervisoryCommittee;
5. if for any reason a management staff prematurely terminates hiscontract in STP, the firm will be responsible to fill that postwithin 60 days with a candidate of equivalent qualificationswhose CV will have to be submitted to the Supervisory Committee;and
6. the Supervisory Commitee will have the righc to request thesubstitution of any employee of the firm vho has been found to beacting against the morals, good customs, and laws in force or tobe incompetent.
Reporting Requirements
The foreign firm will be required to provide full documentationand reports on all its activities. This will include quarterly and annualprogress reports.
Supervisor_ Committee
A five-member Supervisory Committee will be established in eachENA (three designated by the Government and two by the foreign firm) and achairman will be elected. The Committee will meet at least twice a yearand will have authority to:
1. review and give its opinion on the annual work plan and budgetsubmitted by the foreign firm;
2. at the end of each year, assess the performance of the foreignfirm against the approved work plan and budget approved for thatyear; and
3. review and advise on any issue that may arise on policiesInternal to the EEA.
- 56 -Annex 3-3Page 8 o8
Termination Clause
The following are conditions for the termination of the contract:
1. in the case of "force majeure", the concerned party willImmediately notify the other, and a meeting of the SupervisoryCommittee will be held to seek an acceptable solution to bothparties;
2. if either party fails to meet its obligations under good faith,the faulty party will receive written notice from the other partyand will have to remedy the situation (in 60 days in the case ofthe foreign firm and 90 for Government); its failure to do sowill be considered suff'cient grounds for cessation of contract;
3. either party may turn to the International Center for theSettlement of Investment Disputes in Washington for arbitrationif an amicable solution cannot be found by the parties concerned;and
4. the foreign firm may transfer some of its rights and obligationsto a third pirty, subject to written agreement by the EEA andprovided that the foreign firm remains solely responsible for thegood execution of the project.
Conditions of Effectiveness of the Contract
The following are conditions of effectiveness of the contract:
1. delineation of the territory of the EEA;
2. obtention of adequate financing for the proposed investmentprogram in the EEA; and
3. official publicatioa of the legal instrument approving thecontract.
replaastg 29 300 240 140 - _ * - . - _ _ - _ -Total Productim a 3 i *1 g iff 14 1.W 12 21 32 La 2* 3d 3dM 3.3W 26i 3.32
WAPADFebruary 1987
Ill
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Page 1`of 10
SAO TOME AND PRINCIPE
COCOA REAUIITATION PROJECT
TERMS OF REFERENCE FOR CONSULTANCY SERVICES AND STUDIES
A4ricultural Credit
Summary Background
At present. there is only one banking institution in Sao Tome andPrincipe (STP), the Banco Nacional de SIP (BNSTP). It serves as thecountry's Central, Cowmercial, and Development Bank. Among its objectives,the project would seek to promote the restructuring of the AgriculturalState Enterprises to operate as Independent entities paving the vay fortheir eventual partial or total privatization and encourage private farmersin investing In agriculture. Government has taken steps towards this withthe promulgation of an investment code in March 1986. A further step wouldbe to develop an agricultural credit system to serve the investment needsof the agricultural enterprises and private farm4rs. An agriculturalcredit study would be undertaken under the project for this purpose.
Objectives
The study would:
(a) examine the role that credit could play in the development of theagricultural sector and identify the sub-sectors and tyrpe ofpotential recipients for agricultural credit;
(b) formulate objectives for the short, medium, and long term for anagricultural credit program, and indicate the priorities attachedto these objectives;
(c) assess the need for establishing a mechanism for providingagriculture credit, such as the establishment of an agriculturalcredit section In BNSTP;
(d) prepare a detailed proposal concerning the organization of themechanism recomended in (c), specifying the hierarchichal andfunctional linkages, and the personnel needs for the next fiveyears;
(e) Identify and prepare a training program for the personnelrequired to implement the proposed agricultural credit program;
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Page 2 of 10
Revlew the current marketing process including the timing andcost involved in each of the steps indicating:
(a) in general terms the procedures which would be followed for thefunetioning of the agricultural credit program (in particular thearialysis of loan requests, the monitoring and control ofoperations, and the recuperation of debts);
(b) the criteria for granting loans to different types ofbeneficiaries (agricultural enterprises and private farmers), theinterest rates, the reimbursement period, the guarantees thatwould eventually be demanded of the borrowers, appropriations offoreign exchange to finance imports, and of local currency tofinance local expenditures;
(c) the technical assistance necessary (with the terms of referencefor the principal experts proposed), during the next five years,in order to permit the agricultural credit section to operatesatisfactorily and train its personnel;
(d) an estimate, over the next five years of the expenses linked tothe reinforcement and the functioning of the agricultural creditprogram, including the technical assistance, the local personnel,training, the renovation and equipping of the office andoperational costs; and
(e) a calendar of actions proposed.
Qualifications
An agricultural credit specialist with proficiency in Portugueseor with working knowledge of Portuguese with proficiency in Spanish orFrench.
Duration
It is estimated that:a total of 7 weeks will be required, with 4weeks in STP and the remainder for r-avel and report writing.
Reporting
The consultant should provide fifteen (15) detailed final reportcovering all the above points to the Project Coordinator who will dispatchthem to the appropriate recipients.
WAPADMay 1987
- 61 -Annex 3-5Page 3 of 10
Cocoa Marketing
Suumary Background
At present ECOMEX, which is -n.der the MiniiAry of Foreign Trade,is in charge of all aspects of cocoa marketing. It purchases the cocoa ata fixed price from the Agricultural State Enterprises. It is responsiblefor the transport, storage and phytosanitary protection, sales to theforeign buyers, placement at customs, and shipment of cocoa. Given itsmarginal position in the cocoa market and its isolation, STP might not bereceiving the optimum price for its cocoa in terms of grading, stock level,invoicing, timing of sales and choice of buyer. A study would leundertaken under the project that would assess the present rarketingprocess of cocoa in STP and review the options available in each if thesteps involved for improving revenues from cocoa sales.
Objectives
Review the current marketing process, including the timing andcosts involved in each of the steps indicating:
(a) how and by whom cocoa is graded at the time of bagging both withthe Agricultural Enterprises and private farmers;
(b) when and how the sales transactions are made with ECOMEX, andtheir form and timing of payments to the enterprises and privatefarmers;
(c) how transportation arrangements are made, who makes them, whatare the costs, and how are they accounted for;
(d) the condition of storage facilities, at what level stocks aremaintained and how they are regulated, how phytosanitarytreatment is applied and what chemicals are used, what are thecosts of storage and treatment, and how they are accounted for;
(e) the state of the port facilities and their efficiency andcapacity in the handling of cocoa, how cocoa is transported, andloaded on to the ships, what are the costs, and how are theyaccounted for; and .
(f) how ECOMEX negotiates prices with traders, what the terms ofpayment are, how the invoicing is done, how the funds arecredited.
Government has agreed to permit the free marketing of cocoa.Under the proposed management contracts with the two foreign firms managingBela Vista and Uba Budo, each firm would be responsible for the marketingof the cocoa of the plantation under its charge. The study should revieweach firms' plan on how it intends to market the cocoa from the plantationunder its charge. The study should provide recommendations to Governmentas to how it could monitor the transactions and ensure that maximumbenefits are retained by the country. The study will examine:
- 62 -Annex 3-5Page 4 of 10
(a) how the two firms plan to market the cocoa;
(b) what arrangement would be most feasible in terms of ensuring thatthere is no under-invoicing or sub-grading;
(c) whether the foreign firms should continue to utilize Governmentservices for transportation, storage and port facilities, and, ifso, what would be the appropriate charges;
(d) how to minimize deterioration in quality and loss in the internaltransportation, storage and port handling;
(e) how Government can set up a system of quality control, trainpeople to be supervisors, and ensure that the cocoa exported isof uniform quality, meets internationally accepted norms, andthat cocoa in storage is properly fumigated;
(f) whether the other plantations and private farmers should selltheir cocoa production to the two foreign firms if they offer abetter price, than to other competitors including ECOMEX and, ifso, how this should be done;
(g) the possibility of private traders establishing themselves in STPand the advantages and disadvantages of this to the country;
(h) the optimal procedures for financial transactions to maximizeactual cash receipts to the country; and
(i) any other relevant cocoa marketing issues for STP.
Requirements
It is estimated that an expert in cocoa marketing would berequired for a total of 8 weeks with 4 weeks in STP and the remainder fortravel, gather external information, and for drafting the report.
Qualifications f
At least 10 years experience in cocoa marketing internationally,and experience in all the steps involved in the cocoa marketing process.
Lansuages
Fluency in Portuguese preferred, otherwise French or Spanishrequired; English recommended in addition.
WAPADMay 1987
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Page 5 of 10
Crops Diversification
Summary Background
At present STP's economy is overwhelmingly dependent on cocoawhich represented about 90% of export revenues in 1985. Food production isprincipally limited to bananas, bread fruit, palm oil and root crops.There is a small but increasing amount of vegetables grown by individualswith the assistance of a pilot project (Mesquita) financed by the FrenchAid and Cooperation Fund (FAC). Foodstuff imports accounted for about onethird of all imports in 1983, excluding food aid which also represents athird of all imports. FAC has also financed the preparation of anagricultural potential map which has identified the best crops that couldbe grown in the different ecological regions. A study would be undertakenunder the project that would identify potentially profitable crops for STPto diversify into. It provides recommendations to be followed.
ObJectives
Review and assess the existing situation with regards to thesupply and demand of food and cash crop production, both locally and forexports. The study should focus on the following:
(a) analyze the existing production pattern in terms of type ofculture, production techniques used, and procedures forcommercialization;
(b) taking into consideration the agricultural potential map, compareexisting production patterns with potential ones, and theirrelative cost of production, and identify those crops with themost potential for development;
(c) for those crops identified in (b) above, assess the actual andpotential demand for the crops locally and abroad, and STP'scomparative advantage in producing these crops;
(d) socio-economic consequences of the possible changes in productionpattern for the individual farmers.
Based on the coaclusions of the abbve analysis, recommendationsas to how to proceed with a diversification program. This should includean identification of crops which have potential for savings through importsubstitution or export earnings and promote them. The study shouldidentify:
(a) research and training which will be required to improve existingproduction and develop new crops;
(b) the need for extension service through the Nesquita project, Potoresearch station, etc; and
(c) how to improve marketing potential, both domestically andinternationally.
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Logistics
Organization. The team of consultants will report to theDirector of the Planning Department of the Ministry of Agriculture andRural Development. They will also work closely with the national directorof the Mesquita project and the French technical assistance team, therepresentative of FAC in STP, and the research team from IRCC at Poto. Theywill keep the Project Coordinator informed at all times of their work plansand activities.
Personnel. The study is estimated to require expertise in thefollowing areas:
Report. In addition to writing up the findings andrecommendations referred to above, the report should briefly identifydevelopment projects, indicating project scope, timetable, organization andfinancing required. The consultant team should prepare a brief report ofkey findings immediately after completion of field work. A full finalreport should be be submitted to Government (15 copies) and to IDA (5copies) no later than 3 months after the initiation of the study.
The report should include an annotated bibliography of theexisting reports used in the study.
The s_lected consulting firm would be required to provide thefollowing within the negotiated fees: external and internal transport,lodging, communication and the report preparation costs.
WAPADMay 1987
- 65 -Annex 3-5Page 7 of 10
Forest Assessment and Woodfuels Supply/Demand Studies
Introduction
The Government of the Democratic Republic of Sao Tome andPrincipe hereby requests the assistance of the International DevelopmentAssociation (IDA) In order to carry out a preliminary forest assessment anda study of woodfuel supply/demand patterns, pricing structures andcarbonization methods.
Background and Justification
Sao Tome and Principe (STP) is endowed with a dense and variedforest cover composed of both indigenous and exotic species. On the twoislands combined forest and agio-forest is estimated to occupy about 80% ofthe total landmass of 1,000 Km but no comprehensive forest inventory hasyet been carried out. An inventory is required before any land useplanning for woodfuel production or other purposes are undertaken. Basedon aerial photographs, records dating from Portuguese colonial times andsoil maps completed in 1971, present patterns of land occupation aretentatively estimated to be as follows:
Data on the pattern and level of compensation of woodfuels byhouseholds and cocoa plantations has never been collected systematically inSTP. Activities of fuelwood dealers are not registered. Charcoal isproduced by an unknown number of dealers who are believed to usetraditional earth kiln methods. The principal source of tuelvood takes theform of free gathering of wood for which no records are kept. The mainestimable sources are from logging and sawmill wastes and woody biomassresulting from agro-forestry clearing operations. Estimates of householdconsumption of woodfuels have been based upon parameters currently appliedto low-income developing countries in the tropics having similarsoclo-economic characteristics. No firm data is available on supplynetworks of pricing and no study of carbonization methods has been carriedout. In view of the need to eliminate fluctuations in woodfuel supply andin retail prices in the market place, a study of the supply/demand networkis required. In order to make recommendations on improvements in charcoalproduction methods, data is also needed on current carbonization methods.
The cocoa sector uses wood intensively in the drying process.Given the planned increase In production of the sector, it is alsoimportant to determine the impact on supply and demand of woodfuels afterincreased cocoa production, as well as the environmental implications ofthis process.
- 66 -
Annex 3-5Page 8 of 10
Objectives
- establish an up-to-date assessment of STP's forest cover(including farm trees);
- prepare terms of reference for a forest inventory tobe carried out on selected forest areas which are promisingfor timber and/or fuelvood production;
- determine average consumption levels of woodfuels in STPhouseholds;
- determine average consumption levels of woodfuels perton of cocoa, and project voodfuel needs based on plannedproduction increases in the sector;
- create a meaningful data base on the supply/demand networkand pricing structures for use in the planning of futurewoodfuels supply;
- determine whether there are alternative and appropriatetechnologies for increasing the efficiency of woodfuel use bythe cocoa sector;
- determine whether there are alternatives to woodfuel forefficient cocoa drying; and
- collect data on charcoal production for recommendations ofimproved techniques.
Description of Tasks
(d) The forest assessment will:
(i) retrieve all existing information on STP forests, includingmaps, field observations, statistical data from ministriesand agricultural ezkterprises;
(ii) plot major forest areas;
(iii) identify various formations (national parks for ecologicalprotection purposes, reserves, production forest for timberand fuelwood);
(iv) draw up terms of reference for a detailed forest inventorydescribed above under "Objectives";
(v) determine rates of deforestation, taking into account theprojected increase in demand resulting from growth in thecocoa sector.
- 67 -Annex 3-5Page 9 of 10
(a) The etudy of woodfuels supply/demand patterns, pricing structuresand carbonization methods will:
-carry out a detailed longitudinal study of about 50representative households to analyze fuelwood and charcoalinput;
- carry out study of woodfuel use by cocoa farme;
- study production/supply network to determine reasons forfluctuations in supply and in retail prices;
- research current carbonization methods and establishfeasibility of improved charcoal kilns;
StaffIng Requirements
(a) A team of international consultant experts will comprise:
- one forestry expert/statistician to assess the presentstatus of the forests and prepare terms of referencefor selected forests inventory (two man-months);
- one social scientist for the household consumption andcharcoal survey (one man-month);
- one energy planner for the supply/demand study (oneman-month);
(b) A Government-appointed working group, composed of collaboratorsfrom the Ministries of Agriculture and Livestock, on the onehand, and Industry, Transport, Fisheries and Tourism, on theother hand, will be formed.
The members of the working group will participate in the work ofthe consultants and assure the-cooperation of ministries, state enterprisesand other concerned agencies.
At the beginning of the consultants' field work, the workinggroup will hold a briefing session in STP with all concerned parties andwill provide the consultants with any existing reports or information thatmay be relevant to the study activities. Working group members will alsoaccompany the consultants on their visits to state enterprises and willprepare background reports on enterprises or issues for the consultants asrequired. The working group will work closely with the consultants durlagthe entire implementation period of study and will participate in thediscussions of draft reports.
- 68-Annex 3-5Page 10 of 10
Reporting Requirements
(a) Forest Assessment
The forest expert/statistician will prepare and present a draftreport for discussion to the Government and to IDA at the end of theactivity. The finalized report will be presented approximately one monthlater after comments have been incorporated. The report should contain anoutline of the input and results expected from the forest inventory to becarried out at a later date.
(b) Woodfuels Supply/Demand Study
The social scientist and energy planner will prepare and submit ajoint draft report for comment to both the Government and IDA at the end ofthe activity. A final report, incorporating revisions, will be presentedno later than one month after the Government and IDA review.
WAPADMay 1987
LAO TUHEEPIINCM - 69 - Annex 3-6PC TOM E 69 Table Ico =ACTow Page 1 of 2
Dobt* 4uiofi) 4USS 'CoO) I Total__ 2 Iforeisl 8m
Lwcal Forign Totl Local foreign Total Excimm Costs
MA9. VISTA
t. PNTATION DnEOPNT ILA VISTA 42 354 36 532 4,502 034 St 262. FM CROPEMA VISTA 1 11 13 19 142 161 88 13. SOCIAL IRTC T MAE VISTA 25 3t 64 315 499 314 61 4
*-ToLeZ BELA VISTA 68 404 472 867 SIU43 6,009 86 31. PLANTATiON GEOELMPIENT UWA IU3O
I. VU PWTATION IEUIIFIOT 49 494 543 624 6.295 691o 91 362. FOOD IC. VIAJ I 11 12 10 142 152 93 13. SOCIAL INFRASTRjCTH F tisA 25 39 64 314 496 810 61 4
b-total PLnTATNm DKEamP0T UtA l 75 544 61 949 6.s23 7.872 B8 41. SIIPORT TO AtRICtLTURE SECTOR
Total OET COSTS 218 .497 1.715 2,748 19,043 2t.8t1 S7 114VMC= mum z - 2 m annum22 ZERSm UNVURaun a
'.w4
t' Pi tw 6 mt oW t t1 US 96 I1836 la'I 111 rn tfg9 m 6SW opgq= woja1 t r - 9 - - .- a - s
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mot VI 06 't 0U t 91 o ot IN 6ol 319 11t , l - E3 Mu11Im
* Vo mu't - - - - - - - a -' N - - W U U *0e 01? 90?'? e9 - - t Ut at - S t - OK '11 31A3961A iUyh '2
°K t * OU 'It - R 1 - - - . e - - 'A I W 3W az roet 491 - la OK - 2 - cajll- a i SO= 31OulMI *5Oil rot "tot Us it lo am is P " is 1S MM -W 1SI t S314t1ft ' IlMtl '3
13 *4§t gq - - - -1 - 63 - 964 - 609t 13P1AI2In VW OM 016 du 6" SNPA~~~~~~~~~~~~~~~~~~~~~~~~11 1?ISW IV
tg - -m a ma m - m mm mas t - a a w o 1
.OAW z Mo Losi MM OMun, aiu m urn mum imus mu u mu mdmamu m Wmne Lw vine VWSA- 438115~~m 1315 ID1 m 6306 WI1W TMI=m W3UIam ZIUuS? Il is61911 3? 2110111 VW3 IilIo3S
Mates 1/ IDA Nhtern africa gion profile for perennial O -crop frojects; Septeber 1M. 1909 1009 Ison 1811 1102 1110 1694 liii 1990IRA Fiscal Years July I - Ju 30.Project rer July I - Jun 30. IDA Fiscal YeaTarget Dtes Negotiations Nlay 197.
Effetivenss Seteebe 1987.2V Project profile differs fro region profile
becuse of PmF isbrueent of US0 1.5 eillion at crediteffectiveness and stat-p activities initiatingone ywr before credit effectiveness.
WaD 1987
I --
H -V v~c? r--~lft
- 73 -Annex 3-8Page 1 of 5
SAO TONE AND PRINCIPE
COCoA REHABILITATION PROJECT
Organizational Arrangements for Project Support
Since agriculture and particularly cocoa is an integral part ofthe economy as a whole. the project activities will be supervised directlyby the Minister of Agriculture and Rural Development. He will:
(a) set general directions and make recommendations on Governmentposition on policy issues concerning the project;
(b) provide guidanta and support to the Project Support Unit inensuring that Government counterpart responsibilities are timelymet;
(c) on the basis of reports from the Project Support Unit, monitorthe implementation of the project and provide feedback to IDA onthe project's impact on the economy;
(d) inform IDA of changes in Government policies that would haveimpact on the project;
(e) ensure that the rest of Government is abreast of the projectactivities; and
(f) serve as mediator for the Government if differences occur betweenproject personnel and other Government entities.
A Project Support Unit (PSU) would be established. It would beheaded by an internationally-recruited project coordinator who would beassisted by a deputy coordinator and at least one support staff to provideaccounting and administrative services. The coordinator would also be thecoordinator for thet Line of Credit for Eeonomic Rehabilitation andModernization, according to the terms of reference shown at Appendix 1.The terms of references for the Deputy Project Coordinator at Appendix 2.PSU would be responsible for: --
(a) coordinating and monitoring the implementation of the differentcomponents of the project;
(b) ensuring that all administrative procedures and requirements forIDA and the cofinanciers are being properly followed (e.g.,disbursement requests and accounts are maintained for eachcomponent);
(c) ensuring that IDA and other cofinanciers are fully informed atall times of the progress of the project through preparation andsubmission of periodic progress reports and communication of anymajor changes in the project if and when they occur;
- 74 -Annex 3-8Page 2 of 5
(d) ensuring that Government is informed of the progress of theproject through the Minister of 1ADR and facilVtatingdecision-making when necessary;
(e) when applicable, coordinating the procurement process of civilworks, goods and services for the different components andensuring that IDA and cofinanciers' guidelines are properlyfollowed (procurement for the Agricultural Enterprises financedunder the projecq would be handled directly by theseEnterprises); an4
(f) coordinating the various studies that would be carried out duringproject Implewentation.
WAPADMay 1987
- 75 -
Annex 3-8Page 3 of S
ProJect Coordinator
Position: Project Coordinator
Agency: Project Support Unit
Duration: 2 years renewable
Reports to: Minister of fgi-tculture and Rural Development(NADR)
Functions: He would head the Project Support Unit to beestablished under the proposed project, andwould be responsible for the following:
(a) coordinating project activities so thatthe different project entities keep upto date on project development, thusensuring complementarity of projectactivities;
(b) monitoring project activities bymaintaining a timetable of scheduledactivities, and reporting slippages tothe Minister of MADR;
(c) collating quarterly progress reportsconcerning the project and preparingconsolidated reports to be submitted toministries, IDA, and other concernedagencies, in addition to other reportswhich may be issued directly by specificproject entities;
(d) assisting Government in defining thepriorities for studies to be made on theagricultural sector, the elaboration oftheir terms of reference, and therecruitment of consultants;
(e) when applicable, supervising theprocurement process of civil works,goods and services and ensuring that IDAand cofinanciers' procedures, whereapplicable, are followed (procurementfor the Agricultural Enterprisesfinanced under the project would behandled directly by these Enterprises);
- 76 -Annex 3-8page 4 OF 5
(f) resolving where possible problems thatmay arise and affect projectimplementation; and
(g) transfering know-how in the area ofproject management.
Qualifications: advanced degree or equivalent experience inagronomy and/or administration and management ofdevelopment projects.
Experience: at least ten years of experience in project work,substantially in agriculture, preferably withcocoa and including at least five years experiencein project management and administration inconditions similar to those in Sao Tome.
Languages: Portuguese essential; Eiglish or French preferable.
WAPADMay 1987
- 77 -Annex 3-8Page 5 of 5
Deputy Coordinator
Position: Deputy Coordinator
Agency: Project Support Unit
Duration: 4 years
Reports to: Project Coordinator
Functions: The deputy coordinator would be appointed by Governmentand work in the Project Support Unit. He would reportdirectly to the Project Coordinator on all mattersconcerning the Cocoa Rehabilitation Project. Hisfunctions would include the following:
(a) assisting the project coordinator inexecuting the responsibilities of theProject Support Unit (see TOR for theProject Coordinator);
(b) undertaking or ensuring the execution ofthose activities delegated to him by theproject coordinator; and
(c) substituting the project coordinator inhis absence.
Qualifications: Technical degree in Agriculture desirable. Extensiveknowledge of public administration and laws in STPrequired.
Experience: At least five years in public sector management andadministration related to agriculture. Must befamiliar with Government administrative and legalprocedures and with dealing with senior Governmentofficials.
a S World Bank haif-yearty revisoio of Comodity Price Forecasts - September 1986b_I Percentage over FOE prite increases pcrt handling chargesc; Erowex's fixed prices avernged 54sftO1Dl/ton it 195i (65DB/kg for prisary grade and 45DB/kg for secondary grade
Note: Totals co not add due to rounding.
WAPADFebruary 1987
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