Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY ReportNo. P-24l2-KE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF KENYA FOR A SUGAR REHABILITATION PROJECT November 17, 1978 This doeument has a restricted distribution and may be used by recipients only In the performance of their offical duties Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of FILE COPYThe World Bank
FOR OFFICIAL USE ONLY
Report No. P-24l2-KE
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
TO THE
REPUBLIC OF KENYA
FOR A
SUGAR REHABILITATION PROJECT
November 17, 1978
This doeument has a restricted distribution and may be used by recipients only In the performance oftheir offical duties Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
Currency Unit = Kenya Shilling (KSh)KSh 1 = US$0.125US$1.00 = KSh 8.00
(As the Kenya Shilling is officially valued at a fixedrate of 9.66 KSh to the SDR, the US Dollar/K Shillingexchange rate is subject to change. Conversions in thisreport were made at US$1.00 to KSh 8.00 which is closeto the average 1978 exchange rate.)
FISCAL YEAR
Government of Kenya: July 1 - June 30Sugar Companies: January 1 - December 31
ABBREVIATIONS
CBK = Cooperative Bank of KenyaChemelil = Chemelil Sugar Company LimitedEAC = East African CommunityKSA = Kenya Sugar AuthorityMiwani = Miwani Sugar Mills LimitedMuhoroni = East African Sugar Industries LimitedNIB = National Irrigation BoardNSRI = National Sugar Research InstituteRamisi = Associated Sugar Company LimitedRDMF = Roads and Drainage Maintenance FundSBCU Sugar Belt Cooperative Union
KENYA
FOR OFFICIAL USE ONLYSUGAR REHABILITATION PROJECT
LDAN AND PROJECT SUMI4ARY
BORROWER : Republic of Kenya
BENEFICIARIES The Miwani, East African and Associated sugar companieswill receive Loan proceeds directly, the Chemelil companywill benefit from infrastructure investments and generalsector support financed under the project.
AMOUNT : US$72.0 million equivalent
TERMS : Payable in 20 years including 5 years of grace at aninterest rate of 7.35% per annum
RELENDING : US$52.4 million of the proceeds of the loan would beTERMS relent by the Government to the Miwani ($15.4 million),
East MArican ($15.8 million) and Associated ($21.2 million)sugar companies. Relending to the companies would be at10.5% annual interest for 20 years, with 5 years of gracein the cases of East African and Miwani and 8 years ofgrace for Associated.- The foreign exchange risk on thatpart of the proceeds of the loan used for direct foreignexchange expenditures would be borne by the companies.US$3.4 million and US$1.8 million of the proceeds of theloan would be passed on to East African and Associatedrespectively in the form of equity.
PROJECT : The project seeks to reduce Kenya's import dependence inDESCRIPTION sugar and to promote balanced regional economic growth
and errmployment by rehabilitating existing factories,nucleus estates and outgrower areas. The project includes:(a) imiprovement of outgrower and nucleus estate sugarproduction; (b) factory rehabilitation and expansion; (c)provision of modest staff housing plus utilities; (d)road upgrading and construction; (e) drainage; (f) irri-gation; and (g) research. The project would resultin a 109,000 tons per annum increase in sugar productionand related decrease in imports by the mid-1980s savingabout US$30.0 million net foreign exchange annually;income increases of between 25%-190% for some 10,800smalllholder families would result, and incomes to thesugar estates and several hundred large cane producerswould also increase. In addition, some 1,000. wage payingopportunities would be created. The project faces somerisks in that the incremental cane output could be lessthan anticipated if the planned organizational improve-ments in company-outgrower relationships fail to materi-alize or if yield shortfalls occur due to varying soilsand weather conditions. Furthermore, investment in ad-ditional sugar production capacity beyond that currently
This document has a restricted clistribution and may be used by recipients only in the performanceof theif ofcil duties. Its contef may not otherwise be disclosed without World Bank authorization.
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planned could result in a surplus above domestic consumptionwhich might have to be exported at prices below productioncosts. Availability of cane harvest labor could also be aproblem.
ESTIMATED COST: US$ millionLocal Foreign Total
Irrigation 2.7 2.9 5.6Drainage 3.4 3.9 7.3Agricultural Development 19.4 23.0 42.4Sugar Factories 7.6 12.2 19.8Company Management/Administration 2.1 1.7 3.8Roads 3.9 3.6 7.5Housing and other Facilities 6.9 2.8 9.7National Sugar Research Institute 0.4 0.5 0.9Kenya Sugar Authority 0.2 0.4 0.6
APPRAISAL REPORT: Report No. 1887-KE, dated November 1, 1978
MAP: Nos. IBRD 12990; 12991; and 12997R
INTERNATIONAL BAiNK FOR RECONSTRUCTION AND DEVELOPMENT
REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS
ON A PROPOSED LOANTO THE REPUBLIC OF KENYA
FOR A SUGAR REHABILITATION PROJECT
1. I submit the following report and recommendation on a proposedloan to the Republic of Kenya for the equivalent of US$72.0 million to helpfinance a project for sugar rehabilitation. The loan would have a term of20 years, including 5 years of grace, with interest at 7.35% per annum. AboutUS$52.4 million of the proceeds of the loan would be relent to three sugar
companies, the Miwani Sugar Mills Limited (US$15.4 million), the East AfricanSugar Industries Limited (US$15.8 million) and the Associated Sugar CompanyLimited (US$21.2 million). The Government relending to the companies would beat 10.5% interest per anntum for 20 years, with 5 years of grace in the case ofEast African and Miwani, and 8 years of grace for Associated. In addition,the Government would make US$3.4 million and US$1.8 million of the proceeds ofthe loan available to East: African and Associated respectively, as equity. Theremaining US$14.4 million would be used by the Government to implement otherproject components. The (,overnment has also received a loan of US$6.0 millionfrom the African Development Bank which would help finance agricultural devel-opment and workers' housinig at Associated.
PART I - THE ECONOMY I/
2. A report entitled "Economic Memorandum on Kenya" (Report No.1783a-KE, dated December 28, 1977) has been distributed to the ExecutiveDirectors. A summary of social and economic data is at Annex I. A BasicEconomic Report on Kenya is now under preparation--the mission to complete thereport returned from Kenya in mid-November.
Economic Structure and Trends
3. During the first fifteen years of independence Kenya has had conti-nuity in leadership and development strategy. That strategy has been topromote rapid economic growth by means of public investment, encouragement of
both smallholder and large-scale farming, and the promotion of acceleratedindustrialization through incentives for private (including foreign) invest-ment in modern industry. More recently, policy statements have suggested anincreasing emphasis on poverty alleviation measures even at the cost of aslight reduction in the riate of economic growth. With the death of PresidentKenyatta there is inevitalbly some uncertainty about the future, but preliminaryindications are that the main outline of Kenyan development strategy willremain the same.
1/ This section is substantially the same as that of the President's Reporton the Olkaria Geothermal Engineering Project (Report P-2395-KE of October18, 1978).
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4. Kenya is a poor country with an economy still largely dependent onagriculture. Average per capita income in 1977 was US$270 and agricultureaccounted for 29% (constant prices) of GDP on average during the period 1975-77.Agriculture provided over 60% of export earnings in 1977 and remains the majorsource of livelihood for the 90% of the population which lives in rural areas.
5. Growth of the economy since independence has been impressive. From1964-73 total GDP grew at an annual average rate of 6.6%. Manufacturing wasthe most rapidly growing of the major sectors during the period; value addedin manufacturing increased by 8.4% per annum and the share of the manufactur-ing sector rose from 10.4% of GDP in 1964 to 13.6% in 1973. Agriculturalgrowth contributed to the strong overall performance as well. Agriculturaloutput increased by over 50% from 1964-73, or at an average annual rate of4.5%. Marketed production in agriculture grew especially fast (6.0% perannum) but subsistence production also grew faster than population during theperiod.
6. Despite Kenya's impressive post-independence growth record, anumber of problems have emerged which will make it difficult to sustaingrowth and to reduce poverty.
7. The most fundamental problem is the rapid growth of populition inth4 face of limited arable land. Of Kenya's total area (583,000 km ), 520,500km is categorized as potentially agricultural, 13% being regarded as highpotential land, 6% medium and 81% low. Most of the high-potential land isdensely settled. Pressure on the land was alleviated during the years follow-ing independence by the opening up of a large part of the land previouslyowned by Europeans to settlement by Kenyan smallholders. However, withpopulation growing at 3.5% per annum pressure is mounting. This has resultedin increasing subdivision and landlessness in high-potential areas and insettlement in semi-arid areas ill-suited to farming. These problems help toaccount for the slackening in recent years of the previously high agriculturalgrowth rate, which fell from 4.5% per annum from 1964-73 to 2.3% per annumfrom 1973-77.
8. Rapid population growth is felt most seriously through the increas-ing pressure on available agricultural land, but it creates other problems aswell. The non-agricultural formal wage sector (which employs less than 15% ofthe total labor force) is unable to absorb all the new labor force entrantsbecause of its small base. Considerable budgetary pressure has also beencreated because of the growing demand for social services. Finally, effortsto improve the distribution of income are impeded because of the relative lackof access to land and education for the children of the poorest sections ofthe population.
9. A second problem area has developed in the manufacturing sector. Therapid growth of industry in the past has been largely based upon investments
in simple import-substitution industries by multinational companies. To alesser extent manufacturing production has also catered to the export marketin neighboring countries, lparticularly in the protected East African Community(EAC) market. However the scope for further industrialization along theselines is limited as most of the easy import-substitution possibilities havebeen exhausted and the EAC preference for Kenyan goods has been abolished.The past pattern of industrialization has left the industrial sector in-creasingly dependent on imported raw materials, components and spare parts andtherefore vulnerable in case of a shortage of foreign exchange. To maintaingrowth it will be necessary to reorient industry toward increased use ofdomestic inputs and increased production for export. This will be difficult,however, because existing industry has been developing under high protectionand is relatively uncompetitive in world markets.
10. An additional problem is the stagnation of export volume in recentyears. From 1964-72 the volume of exports expanded at an average annual rateof 4.6%. Between 1972 and 1974 export volume increased by an additional 11%but has not risen above the 1974 level. To some extent this is a reflectionof production problems in agriculture and industry, but it is also an indica-tor of the need to direct more resources into foreign exchange earning activi-ties. A combination of slow export growth and continued high import dependencewould leave the Kenyan economy very vulnerable to fluctuations in the terms oftrade.
Developments since the 1974-75 Crisis
11. The Kenyan economy was disrupted by import price increases and bydrought in 1974-75. Marketed agricultural production did not grow at all in1974 and 1975 while total GDP grew at only 1.6% per annum. The value ofimports increased by more than 50% over the 1973 level and the balance ofpayments position deteriorated. The crisis highlighted the extent to whichKenya, with its import-intensive manufacturing and limited domestic energyresources, had become dependent on imports.
12. The Government made several policy changes to deal with the crisis.First, it introduced measures to minimize the loss of foreign exchange re-serves and control domestic demand. These included an increase in salestaxes, credit restrictions, passing on the increases in oil prices to users,and a freeze on Government recruitment. Second, since its Development Planhad been overtaken by events, it formulated a medium-term RestructuringProgram with more modest growth and equity targets. Achieving those targetsrequired restraining consumption in favor of investment, lowering Kenya's highimport dependence and making the economy more export-oriented.
13. There was a marked improvement in the economy in 1976 and 1977,though this was largely due to external circumstances rather than to theeffects of the Restructuring Program, most of whose effects are longer-range.Favorable weather conditions helped agricultural output to grow by nearly 8%during the two years and high coffee and tea prices transformed the balance ofpayments position. The volume of coffee exports increased by nearly 40%
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between 1975 and 1977 while the average price received more than quadrupled.The balance of payments moved into surplus in 1976 and in 1977 there was asurplus on current account, the first in thirteen years.
14. The coffee boom also had numerous secondary repercussions. Highcoffee incomes stimulated activity in manufacturing and other sectors, andalso helped directly and indirectly to finance an investment boom; gross fixedcapital formation rose by 22.6% in real terms between 1975 and 1977. Theeffect on domestic savings was even more dramatic; the ratio of domesticsavings to GNP rose from 12.5% in 1975 to 18.7% in 1976 to 22.7% in 1977.Finally, current revenue of the Government increased by about 50% during thebudget year 1977/78. This was matched, however, by an increase in recurrentexpenditure, while development expenditure increased by at least 40% accordingto preliminary estimates. In real terms total Government expenditure increasedby more than 20%. This increase was greater than anticipated because of unex-pected large increases in defense expenditure and because of heavy investmentin transportation equipment occasioned by the break-up of the East AfricanCommunity.
15. As a result of these generally expansionary conditions a short-termmacro-management problem has emerged. The total supply of money and quasi-money expanded by 46.8% during 1977. Consumer price increases accelerated,with price increases in 1977 ranging from 13.5% for the Nairobi Middle IncomeIndex to 21.0% for the Nairobi Lower Income Index. Imports also grew rapidlyduring the first few months of 1978 at the same time as coffee prices declinedwell below the level of early 1977. The full effect of past monetary expan-sion has probably not yet been realized and continued pressure on domesticprices and import demand can be expected. In order to restore domestic andexternal stability, it may be necessary to pursue more restrictive monetaryand budgetary policies in the near future.
16. Of more long-term significance is implementation of the Restructur-ing Program. The Government has made good progress but there are some areasin which further action is needed. In the fiscal field, it has introducedprocedures to ensure better control of expenditure and increased expenditurein directly productive activities. However, as noted above, unanticipatedexpenditures have temporarily put renewed pressure on the budget. The Govern-ment has also emphasized agricultural sector development and taken a varietyof measures to improve performance in this sector (see para. 30). Periodicproducer price increases and a strong wages policy have helped to shift theterms of trade between agriculture and manufacturing in favor of agricultureby over 100% during the past three years after a long period during which theyhad moved in favor of manufacturing; even if coffee is excluded the improve-ment was close to 50%. However, the Government has been slow to formulateand implement badly needed new policies in the industrial field. While itintroduced duties on hitherto duty-free imports of intermediate and capitalgoods as steps towards a more rational protection system, increased the salestax on luxury goods, introduced an export subsidy of 10% to stimulate the ex-port of manufactured goods and certain commodities, and devalued the shillingin October 1975 to make manufactured exports more competitive, a comprehensivepolicy package to eliminate the disadviantages under which export-orientedindustries operate remains to be formulated.
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Development Plan FY79-83
17. Background studies are now under way to analyze major economic and
social issues in preparation for the Fourth Five-Year Development Plan. The
major objective for the next Plan period will be alleviation of poverty
through the creation of income earning possibilities and by providing for
basic needs in nutrition, health, education, housing and other social services.
Thus, while the Plan would provide for a large degree of continuity in Kenya's
development strategy, there would be greater attention paid to social
objectives as compared with the ongoing Restructuring Program and the Third
Plan. At the Government's request, the Bank is providing assistance in
developing strategies in urban development and resource mobilization.
External Debt
18. The current low overall debt service ratio of about 5% (including a
notional 50% share of the debt of the East African Community Corporations)
is expected to rise to about 11.5% by 1985. Including this share of EAC debt,
the IBRD is presently holding 29% of Kenya's outstanding external debt and IDA
11%; the IBRD share is expected to rise to 33% and the IDA share to 12% by
1985. Debt service payments to the Bank are about 30% of total debt service
payments; IDA share is about 1%. These two figures are projected to be about
the same by 1985. Kenya has seen a gradual switch by other donors from loans
to straight grants (including conversion of some loans to grants 1/) or toloans on very concessional terms and the Govermnent has pursued a rather
conservative commercial borrowing policy in recent years. Despite the recoveryof Kenya's overall savings performance to a notable 18% of Gross Domestic
Income, it is projected that Kenya's development program will require substan-
tial finance in excess of public savings and available non-Bank Group external
capital combined and we therefore expect to continue our practice of financing
a substantial proportion of total project costs, including some local costs
when necessary.
Impact of the De Facto Dissolution of the East African Community (EAC)
19. Recent developmients of the East African Community were outlined
in a report to the Executive Directors dated December 29, 1977 (R 77-312).
The de facto breakup of tlhe EAC has had some impact on Kenya's budget. The
establishment of national corporations to replace the former East African
Community Corporations required investment outlays as well as operating
subsidies from the Government, but the burden on the Government budget will
hopefully be temporary, as the Corporations are expected to become self-
financing. The closure of the border with Tanzania will have some effect
on trade -- Tanzania was a large customer for Kenyan manufactured goodsand new markets will have to be developed. As Tanzanian exports to Kenyawere small replacing these should not be a major issue except in specific
commodities (i.e. tobacco and cotton). The border closure has also had a
slightly negative impact on tourism, although Kenya is expected to overcomethis by developing beach resorts and game parks within Kenya.
1/ Since the amounts involved so far have been relatively small, theimpact of these conversions on the debt service ratio and on the
Bank's exposure has been marginal.
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PART II - BANK GROUP OPERATIONS IN KENYA
20. Hitherto, Kenya has received 29 Bank loans, including three onThird Window terms, and 25 IDA credits amounting to US$752.1 million, sup-porting 46 operations. In addition, Kenya has been one of the beneficiariesof 10 loans totalling US$244.8 million which have been extended for thedevelopment of common services (railways, ports, telecommunications andfinance for industry), operated regionally for the three Partner States of theEast African Community. Annex II contains summary statements of Bank loansand IDA credits to Kenya and to the East African Community Corporations, andnotes on the execution of ongoing projects as of October 31, 1978.
21. The Bank has assisted the Government in its efforts to restructurethe economy. In addition to increasing lending in directly productive sectors(particularly agriculture), a US$30 million program loan was approved in 1975to provide direct assistance to the Government for implementing its Restructur-ing Program (paras. 12 and 16). While recent sector and economic work hasalso focused on the adjustments which Kenya must make to deal with the changedinternational economy, the upcoming Basic Economic Report is expected tocomprehensively address the issues of income distribution, population growth,and appropriate long-term agricultural and industrial policy.
22. Significant progress has been made in giving the Bank's lendingprogram a rural focus, and in concentrating on employment and income distri-bution objectives. Projects approved since July 1977 include the firstIntegrated Agricultural Development Project aimed directly at small subsistencefarmers; the Rural Access Roads Project supporting labor-intensive infrastruc-tural developments; and an Irrigation Project which will open up significantnew areas for settlement. The Bank also supported the tourism sector in Kenyafor the first time -- an effort intended to help Kenya conserve its wildlifeand exploit its foreign exchange earning potential. The industrial lendingprogram included a third loan to the Industrial Development Bank and a SmallScale Industry Project. Recently a Fourth Education Project, a Water SupplyProject for Nairobi, a Second Urban Project and an Engineering Project (OlkariaGeothermal) were approved. Negotiations for an Agricultural DevelopmentProject for Narok district and a Rural Water Supply Project have also beencompleted. In the near future, further support to the agriculture sector isexpected to include a smallholder coffee improvement project, a second inte-grated agricultural development project and a pilot scheme for development ofarid and semi-arid areas. In addition, a telecommunications project, ahighway sector loan and a further power project are contemplated.
23. Overall, project implementation performance is satisfactory. Onemajor exception was the Second Livestock Development Project which was suf-fering from inadequate beef prices as well as organizational difficultiesreflecting in part the complexity of the project. The Government has recentlyincreased beef prices substantially and prospects for utilizing the credithave now improved. Progress on the Group Farm Rehabilitation Project has alsobeen slow due to administrative difficulties and reluctance of group owners toparticipate. Finally, Kenya has experienced serious cost overruns, most
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notably on the Nairobi Airport Project and road construction projects. The
Government of Kenya has made funds available to complete these projects.
International Finance Corporation (IFC)
24. IFC has committed a total of US$36.8 million for four companies in
Kenya: Pan African Paper Mills, Ltd.; Kenya Hotel Properties, Ltd.; Tourism
Promotion Services (Kenya) Ltd.; and Rift Valley Textiles (Ltd.). A creditline for medium- and small-scale enterprises was extended to the Commercial
Bank of Kenya. As of October 31, 1978, IFC held for its own account US$28.4
million comprising US$20.4 million of loans and US$8.0 million of equity. A
summary of IFC investments in Kenya as of October 31, 1978 is included in
Annex II.
PART III - THE AGRICULTURAL SECTOR
Background
25. In spite of the rapid expansion of manufacturing in Kenya, agri-
culture remains the most important sector of the economy. As noted above, it
provides the livelihood for some 12 million people (90% of Kenya's population),comprises about 29% of GDP :Ln constant prices, and generates over 60% of
export earnings. The average 1974-75 GNP per capita of the rural population
was about US$70, less than one-third of the national average; 40% of thesmallholder population earned less than US$50 per capita.
26. Subsistence produce, consumed directly by farmers and their families,
makes up over 50% of total agricultural output. Maize is the major subsistence
crop, although it is produced on a commercial basis as well. Other subsistence
crops include millet, cassava, potatoes, plantains and bananas. Commercialproduction for export focuses on coffee, tea, sisal, pyrethrum and wattle.However, cashew nuts, pineapples, castor beans, coconuts and wool are becoming
increasingly important. Wheat, rice, sugar and cotton are produced largelyas cash crops, but are almost totally consumed within the country. While meat
and dairy products continue to be significant in subsistence agriculture, a
growing proportion of the livestock produced is marketed domestically orexported.
27. At the time of Independence, agricultural production in Kenya was
dominated by large-scale ho:Ldings and Government agricultural services were
geared towards servicing these farms. Since then, far greater emphasis has
been placed on promoting smallholder agriculture. Presently, there are about2,700 large agricultural enterprises and about 1.5 million smallholdings(holdings of up to 20 ha) and smallholder production now matches or exceeds
large farm production in terms of gross marketed value. The average small-holding is about 2.3 ha, but some 30% of the holdings are smaller than 1.0 ha.
The majority of holdings are owner-operated and about 25% are managed by
women.
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28. Agricultural development is the responsibility of a large number ofGovernment organizations and semi-public bodies. The Ministry of Agricultureis primarily concerned with setting overall policy, including pricing policyand providing general support services (such as research, extension and train-ing). It also exercises control over a wide range of specialized productionand marketing boards and agencies. Other ministries, including Lands andSettlement, Cooperative Development, Tourism and Wildlife, Natural Resources,and Works, are responsible for providing a variety of services to the agricul-tural sector.
Agricultural Development Strategy
29. Over the past decade the Government has made impressive progressin introducing cash crops to smallholders; over one-third of these can now becharacterized as relatively progressive. However, as noted above, averagerural income remains significantly below nationwide average income and evenwithin the small farm sector wide income disparities exist. Rapid populationgrowth has exacerbated the problems in the rural sector, particularly theshortage of arable land, and has caused increasing migration to the cities.In addition, the falling prices of Kenya's major agricultural exports, coupledwith the increased costs of farm inputs, reduced net farm incomes in theearly seventies.
30. The Government adopted a three-pronged approach to address theseproblems. First, it has improved production incentives through higher producerprices. Second, it is attempting to strengthen the support institutions,particularly the Ministry of Agriculture, the Ministry of Cooperative Develop-ment and numerous marketing boards. Finally, it is improving basic infrastruc-ture (water supplies, rural roads and health facilities) in rural areas toreduce the gap between rural and urban service levels. The Government hasmade relatively good progress in implementing its strategy: adequate produc-tion incentives have generally been established; the planning capacity of theMinistry of Agriculture has been strengthened, and a number of projects arebeing implemented which are aimed at improving the income and living conditionsof the rural poor. The Bank Group has supported the Government's pricingpolicy and institution building efforts and is focusing a major portion of itslending on projects that address the needs of the rural poor (para. 22 above).
The Sugar Subsector
31. Background: The commercial production of sugar in Kenya beganin the 1920s with the establishment of privately-owned factories at Ramisinear the Coast and at Miwani in what is now the Sugar Belt of the NyanzaProvince. As the production at Ramisi and Miwani fell increasingly short ofdomestic demand, and the cost of importing sugar escalated, other factories,majority-owned by Government, were established in Muhoroni (1966) and Chemelil(1968) in the Sugar Belt and in Mumias (1973) in Western Province. Newfactories at Nzoia and in South Nyanza (the latter supported by Ln. 1389-KE)are now under construction and are expected to become operational in late 1978and 1980, respectively. While the Sugar Belt factories rely heavily onoutgrowers for their cane supplies, in Ramisi the factory's nucleus estatecomprises 85% of the cane area.
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32. Organization: The Ministry of Agriculture has overall responsi-bility for sugar industry development and, through its representation on the
Boards of most factories, oversees the operation of a major part of the
industry. Under the Ministry, the Kenya Sugar Authority (KSA) was established
to promote the development of the sugar industry and to give advice to Govern-
ment. The National Irrigation Board (NIB) is responsible for large-scale
irrigation projects, including a pilot cane production project in the Sugar
Belt (para 58).
33. The Ministry of Commerce and Industry determines import requirements
of sugar for household consumption, makes purchases abroad, and is responsible
for domestic distribution of both Kenyan production and imports throughthe Kenya National Trading Corporation. This Corporation handles the physical
distribution of sugar to regional wholesale depots; local distribution is inthe hands of the private trade. Although this marketing system functionedreasonably well in the past, improvements will be necessary, as recently
emerging marketing and storage problems will increase with higher domestic
sugar production. These problems were identified in connection with the SouthNyanza Sugar Project (para. 31 above) and under that project the Governmentagreed to submit a plan for improving the marketing and distribution system tothe Bank by December 31, 1978. This plan is presently under preparation.
34. The Sugar Belt Cooperative Union (SBCU) provides credit to farmersin the Sugar Belt through financing from the Cooperative Bank of Kenya (CBK).
However, in this activity SBCU has accumulated substantial debt which now-threatens its financial viability. As a step toward rectifying the situation,
the Government would review jointly with CBK and SBCU all of SBCU's loans tofarmers more than one year in arrears; subsequent to this review the Governmentwould cause SBCU to take whatever steps are necessary to recover those loans
from farmers when payment iis feasible (either directly or through a reschedul-ing) and in those cases where the Government and SBCU conclude that repaymentis impossible, the Government would cause SBCU to write off the loans, SBCU's
debt to CBK would be correspondingly reduced and the Government would indemnify
CBK for their loss (Section 4.05(a) of the draft Loan Agreement). The Govern-ment would also ensure thal: SBCU would be adequately staffed to conduct thisreview and that all necessary follow-up action would be completed by March 31,1979 (Section 4.05(b) of the draft Loan Agreement).
35. Government Development Strategy in Sugar: In 1974 the Governmentcommissioned a sugar survey, financed by UNDP with the Bank as executingagency, to formulate a strategy for the sugar subsector. Given this survey s
conclusion that sugar can be produced for the domestic market in Kenya atcompetitive prices, the Government adopted a long-term policy of achieving a
balance of domestic supply and demand. To accomplish this the Government hasdecided to embark on a number of investments in new factories and to rehabi-litate existing ones; while the South Nyanza Sugar Project is a major element
of the new investment program, the proposed project would finance the Govern-ment's rehabilitation program.
36. With the projects which have already been approved by the Government
(which includes the rehabi]Litation program), it is projected that there willbe a small surplus of sugar production over consumption from the mid to late
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1980s. In view of this projection, and as studies have indicated that Kenyacould not be competitive with major sugar exporters, it is critical that thetiming and content of any further investments in sugar capacity in Kenya beclosely examined. The Government therefore intends to keep the projectedpro&'ition c"1 oorsumption of sugar in Kenya under continuous review and tofurnish the Bank a report covering both the results of this review and itsplans for any further investments in sugar over the subsequent three yearperiod; the first report should be available by December 31, 1979 and sub-sequent reports would be furnished annually until December 31, 1988. Inaddition, the Government would inform the Bank promptly of any plans topromote or invest in any substantial sugar milling facilities and afford theBank an opportunity to comment on such investments (Section 4.11 of the draftLoan Agreement).
37. Pricing Policy in Sugar. All prices and margins for sugar andsugarcane are fixed by the Government upon the recommendation of KSA and aspart of an annual agricultural price review.
38. To provide production incentives to farmers and factories, theGovernment increased sugarcane prices to KSh 133 per ton and ex-mill pricesto KSh 2,800 per ton in 1977. Under the South Nyanza Sugar Project, theGovernment also agreed to adjust these prices by 6% in real terms in 1978 and1979 to gradually reach the agreed 1977 target price of KSh 150 (Section3.12(c) of the Loan Agreement for the South Nyanza Project). However, inpractice, this covenant has proved inappropriate: the Bank and the Governmentrecently reviewed sugarcane prices and came to the conclusion that presentsugarcane prices provide adequate production incentives to farmers. Reflect-ing this experience and because the necessary rise in the price of sugarcane,ex-mill sugar, wholesale sugar and retail sugar in the future cannot bepredetermined, the previously negotiated pricing clause would be replaced by aclause reflecting the Government's intention to set producer and consumerprices so that: (i) producers supply enough cane to ensure adequate capacityutilization; (ii) the factories can earn reasonable profits after tax assumingefficient operation; (iii) the margins allowed wholesalers and retailers areadequate to earn reasonable profits assuming efficient operation; and (iv) thedemand for sugar is equated to domestic supply plus an acceptable level ofimports, provided that in setting ex-factory prices the Government will useas a benchmark an appropriate average of the costs of importing sugar (Section4.10(a) of the draft Loan Agreement). The Government also intends to discusswith the Bank how the criteria should affect existing prices before eachannual agricultural price review of sugar prices (Section 4.10(b) of the draftLoan Agreement).
39. Overall Performance and Bank Experience in the Subsector: Theperformance of the sugar industry has been below the Government's expecta-tions for the past several years. A variety of general problems face theindustry: there have been inadequate support services, the labor supply hasbeen a problem, there have been severe transport difficulties, etc. Untilrecently, low cane prices also discouraged farmers. In addition, the foursugar companies to be supported under the project have faced the specificproblems associated with aging physical facilities; most of the proposedproject's investments have been designed to address the bottlenecks
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facing these four sugar companies, and their operations should improve markedly
as a result of its implementation. Furthermore, the project includes general
sector support to KSA and the National Sugar Research Institute (NSRI) which
should lead to generally improved operations in the subsector as a whole.
Most important, however, the South Nyanza Project and this project have
provided an opportunity to discuss with the Government a number of issues
facing the entire sugar sector and agreements have been reached on measures to
address them. Examples of this are the steps required to solve SBCU's finan-
cial problem (para 34 above). Other general measures to improve sugar
operations are reviewed in Part IV of this report (paras 48 and 55).
40. In March 1977, a loan of US$25.0 million (Ln. 1389-KE) was approved
to finance the South Nyanza Sugar Project. That project supports the develop-
ment of a 34,100 ha nucleus estate and 9,000 ha of outgrower land, a sugar
factory and related infrastructure. The loan was declared effective in
November 1977; senior project staff have been recruited and initial physical
progress has been satisfactory. The Bank Group has also been involved in
the sugar sector through a number of other projects. The first such involve-
ment was under the Agricultural (Sugar) Roads Project (Cr. 104-KE); this
project involved construction of about 790 km of sugar roads and was satis-
factorily completed by the end of 1971. Under the Fifth Highway Project
(Ln. 932-KE), the component providing for construction and improvement of 338
km of Mumias sugar roads was completed in 1975. There were initially some
problems with regard to maLintenance of these roads, but this matter has now
been satisfactorily resolved. The Bank Group is also providing support to the
sugar sector through a sub-project approved under a loan to the Industrial
Development Bank (Ln. 1438-KE); implementation of the sub-project, which helps
finance establishment of aL new sugar factory at Nzoia and provision of support-
ing infrastructure, is almost completed.
PART IV - THE PROJECT
41. As noted above (para. 35), the rehabilitation of Kenya's sugar
sector was one of the priority investments recommended in the UNDP study.
As a result this proposed rehabilitation project was prepared by consultants
with the cooperation of the four sugar companies involved. The appraisal of
this project took place in April 1977, with post-appraisal missions in October
1977 and April 1978. Negotiations were held in Nairobi in October 1978 with
Mr. S. Gathiuni, Permanent Secretary of the Ministry of Agriculture, leading
the Kenyan delegation. A Loan and Project Summary is given at the beginning
of this report. An Appra.isal Report entitled "Sugar Rehabilitation Project"
(No. 1887-KE of November ]L, 1978) is being distributed separately.
Project Objectives and Description
42. The proposed project would support the rehabilitation and expansion
of four major sugar companies in Kenya: Miwani Sugar Mills Limited in the
Miwani zone (Miwani), Chemnelil Sugar Company Limited in the Chemilil zone
(Chemelil), East African Sugar Industries Limited in the Muhoroni zone
- 12 -
(Muhoroni), and Associated Sugar Company Limited in the Ramisi zone (Ramisi).While Miwani is 100% privately owned, Chemelil and Muhoroni are majorityGovernment owned. Presently, the shares of Ramisi are privately held, howeverin connection with the project Government is expected to acquire a substantialminority interest. The first three companies are located in the Sugar Belt inNyanza Province and Ramisi is located in the Coast Province. The rehabilita-tion effort to be financed comprises an important component in the Government'sprogram for achieving self-sufficiencv in sugar production by the mid-1980s.Project production would represent over 20% of Kenya's total sugar productionin the mid-1980s, resulting in significant foreign exchange savings, the fullutilization of the sugar factories of the four companies, more balancedregional growth, and increased employment and farmers incomes.
43. The program of rehabilitation would include the agricultural develop-ment activities needed to ensure adequate cane production (including irrigationand drainage infrastructure); rehabilitation and expansion of the factories ofthree of the sugar companies; the reorganization of and technical support forthe management of all four companies; and the infrastructure required by thefour sugar companies. In addition, the project would finance a number ofsupport activities of the National Sugar Research Institute (NSRI) and theKenya Sugar Authority (KSA) thereby aiding overall development of the sugarsubsector in Kenya.
Project Details
44. Agricultural Investments: This component of the project wouldcomprise a number of irrigation works including the establishment of run-of-the-river schemes of 2,000 ha in the Miwani, Chemelil and Muhoroni zones(including a small research scheme at Kibos); the conversion of 770 ha of anexisting irrigated rice area to irrigated sugarcane at Ahero; and the rehab-ilitation of 370 ha and establishment of an additional 400 ha at Ramisi.It would also finance the construction of drainage and related investment for15,000 ha of nucleus estate and outgrowers' land in the Sugar Belt. Finally,this project component would include substantial financing for agriculturaldevelopment activities, including the rehabilitation of existing cane landsand establishment of new cane areas, improvements in cane harvesting andtransportation, and strengthening of the sugar companies' agriculturalresearch and training.
45. Factory Rehabilitation and Expansion: The project would rehabili-tate and expand three of the four project factories (the Chemelil factory hasrecently been rehabilitated and expanded and its present capacity is adequateto handle its projected cane supplies under the project). This componentwould include rehabilitation of existing facilities to ensure long-termoperational reliability and expansion of capacity to handle the projected canesupplies. The capacity of the Miwani factory would be increased by 10%,while Muhoroni's capacity would be increased by 20% and Ramisi's by 55%.
46. General Management and Administration: At present, the Chemelil,Muhoroni and Ramisi sugar companies are operated by management firms, andimplementation of the parts of the project assigned to the companies would be
- 13 -
within the scope of existWing management agreements. Miwani is presentlyoperated by appointed management staff, and this arrangement would continue.The sugar companies' general management and administration would bestrengthened through provision of office machines, equipment and furniture anda total of 65 additional staff, 23 of whom would be at senior managerial andadministrative levels. Provision would also be made to cover part of the feescharged by the firms supplying company management.
47. Infrastructure: The road network in the project area would beimproved and expanded under the project. The civil works constructionactivities would include: tarmac surfacing of 24 km of classified roadsand of the factory access roads at Miwani, Chemelil and Muhoroni; upgradingof about 200 km of classified roads and 54 km of unclassified roads; andnew construction of about 160 km of unclassified roads and 275 km of tracks,bridges and crossings. lHousing and related infrastructure would be providedfor about 3,200 company staff. Other facilities to be constructed would in-clude a dispensary and workers' club at Muhoroni and Ramisi, and other build-ings for offices, storagie, garages, etc. at Miwani, Muhoroni and Ramisi.
48. Sugar Sub-Sector Support: The National Sugar Research Institute(NSRI) would be reorganized and strengthened under the project through provi-sion of additional personnel, equipment and facilities. A national canebreeding program would be re-established at Mtwapa Research Station; liaisonand coordination with the sugar companies would be improved; a fully-equippedagricultural training center would be established at Kibos to provide coursesfor personnel of the sugar companies, cooperative societies and unions, andFarmers Training Centers; and six NSRI staff, who would serve as instructors,would attend training courses abroad. The Kenya Sugar Authority (KSA) wouldbe the executing agency for four studies. These studies would determine theviability of the extension of sugarcane production into the Nandi Hills,complete the soils investigation in all project areas, conduct a groundwaterinvestigation in and around the Ramisi project area, and undertake topo-graphical mapping of the entire Kano plains. The studies would be carried outby consultants in cooperation with staff of KSA and the various Ministriesconcerned. The project would also provide agricultural and extension trainingabroad under KSA auspices.
Project Costs and Financing
49. Total project costs are estimated at US$138.0 million equivalent;net costs excluding taxes and duties are approximately US$128.4 million. Theproject's foreign exchange component would total US$71.8 million, 56% of esti-mated net costs. Details of project costs are presented in the Loan andProject Summary at the beginning of this report.
50. The external financing of the project, consisting of a Bank loanof US$72.0 million and a US$6.0 million loan from the African DevelopmentBank would finance 61% of project costs net of taxes and duties, including allthe foreign exchange costs and about US$6.2 million equivalent in local costs.The African Development Bank Loan would be for 15 years including 6 yearsof grace at 8.5% interest per annum (including both interest and the AfricanDevelopment Bank's statutory commission) and would finance the cost of agri-cultural machinery and workers' housing at Ramisi.
- 14 -
51. Most of the Bank loan would be directly passed on to three of the
sugar companies: Miwani, Muhoroni and Ramisi. A large portion of the invest-ments at Chemelil would be internally financed by that company, however
project funds are allocated for infrastructure investments there and it would
bene-it from the project investments in KSA and NSRI. Of the Bank Loan US$57.6
million would be passed on to three sugar companies: Miwani would receive
a loan of US$15.4 million; Muhoroni would receive a loan of US$15.8 million and
an equity contribution of US$3.4 million; and Ramisi would receive a loan of
US$21.1 million and an equity contribution of US$1.8 million. The funds onlent
to the companies would be passed on under subsidiary financing agreements
between the Government and each of the three companies involved; these sub-
sidiary financing agreements would be on terms and conditions satisfactory to
the Bank, including an annual interest rate of 10.5% for 20 years with 5 years
of grace to Muhoroni and Miwani and 8 years of grace to Ramisi (Section
3.01(c) of the draft Loan Agreement). 1/ The companies would bear the foreign
exchange risk on direct foreign expenditures. The disbursement of funds to
each of the three sugar companies would be conditional on the signing of the
subsidiary financing agreement between the Government and the individual
company (Schedule 1, para. 4(b)-(d) of the draft Loan Agreement). In addition,
the disbursements of funds to Ramisi would be conditional on the conversion to
equity of an acceptable portion of both its existing parent company loan and
reserves while the disbursement of funds to Miwani and Muhoroni would be
conditional on the conversion to equity of their reserves (Schedule 1, para.
4(b)-(d) of the draft Loan Agreement). The remaining US$14.4 million in Bank
funds would be utilized by the Government and various government agencies to
finance infrastructure, irrigation at Ahero, research activities and studies;
these funds would be passed on to the relevant authorities on a grant basis.
52. The companies would contribute a total of US$46.9 million equivalent
toward total project costs: Miwani would provide US$8.5 million; Chemelil
US$14.9 million; Muhoroni US$14.3 million; and Ramisi US$9.2 million. The
balance of total project costs would be financed by Government (US$13.1million including taxes and duties).
Project Implementation
53. As project implementation would proceed in parallel with the
companies' ongoing operations, attention has been focused on both project
implementation requirements and necessary operational improvements. The
four sugar companies would be responsible for implementing, in their respec-tive zones, the project's agricultural development, factory and management
investments; company research and training; staff housing and improvement of
unclassified smallholder roads and tracks. The obligations of the companies
1/ Inflation rates in Kenya (defined as increase in the GDP deflator) haverisen from an annual rate of about 13.5% in 1975 to 15.7% in 1976 and
19.6% in 1977. The inflation rate is expected to moderate over the next
three years from about 15% in 1978 to about 10% in 1980.
- 15 -
detailed in Schedule 4 to the draft Loan Agreement would be undertaken by them
in Letter Agreements with the Bank; execution of these Letter Agreements would
be a condition of effectiveness of the Bank loan (Section 6.01 of the draftLoan Agreement). In order to ensure continuation of sound management of thefour companies, it is expected that their present management contracts (para
46) would remain in effect during project implementation, and none of thecompanies would enter into, renew or amend any management contract withoutfirst giving the Bank the opportunity to comment thereon (Schedule 4, para.2(h) of the draft Loan Agreement). In addition, the Bank would be consultedon the appointment or replacement of key staff in the companies directly
receiving loan proceeds (Schedule 4, para. 2(e) of the draft Loan Agreement).
54. Under the project, the organizational structure of the sugar com-panies would be changed to increase their efficiency. In particular, consider-
able attention has been directed at improving company-outgrower relationships.
The general framework of the intended revisions in the company-outgrower rela-
tionship is outlined in Schedule 4, para. 4 of the draft Loan Agreement. In
addition, the project would also support improvements in the relationshipbetween cooperative unions/societies and outgrowers. In order to improve theperformance of the unions and societies the Ministry of Cooperative Development
would provide the training and other assistance required to enable the coopera-
tives to meet their obligations under the project (Section 4.05(c) of the
draft Loan Agreement).
55. Two specific problems which negatively affected cane productionin the past were the uncertain levels of production in areas owned by absenteelandlords in the Sugar Settlement Scheme 1/ and the availability of labor gener-
ally. To address the first problem the Government would: (i) carry out a
census to identify absentee landowners and their interest in entering into
cane growing contracts; (ii) by September 30, 1979 prepare a plan for allocat-ing responsibilities and costs of cultivation in plots owned by absentee
landowners aimed at identifying ways of ensuring consistent and higher levels
of cane production in these areas; and (iii) take whatever action is necessary
to carry out this plan (Section 4.06(a)-(b) of the draft Loan Agreement). The
second problem of labor supply difficulties would be addressed through improved
employment conditions. To provide the basis for this it was agreed that theMinistry of Labor would collaborate with KSA and the trade unions in a studyof the factors influencing the supply of cane labor. In order to ensure an
adequate supply of such labor to each of the companies, a plan of labor supply
acceptable to the Bank would be prepared by December 31, 1979, followingcompletion of the study (Section 4.08 of the draft Loan Agreement). This plan
would take into account such considerations as appropriate wage policies,living conditions, extra lbenefits, etc.
1/ A settlement scheme established at Muhoroni in 1964, covering 21,000 ha
of agricultural land cultivated by some 3,000 settlers; about 5,700ha are planted to cane.
- 16 -
56. Consultants would be employed to design and supervise constructionof housing and social facilities; the design standards and constructionmethods for all the structures involved would be satisfactory to the Bank(Schedule 2, Part F(4) of the draft Loan Agreement). The companies wouldmaintain the sugar roads and drainage works within their zones; an agreementsatisfactory to the Bank would be reached between the Government and eachcompany by December 31, 1979 specifying the infrastructure that would bemaintained and the standards to which it would be maintained (Section 4.07(a)of the draft Loan Agreement). The companies would be reimbursed for themaintenance expenditures on roads and drainage by a Roads and Drainage Main-tenance Fund (RDMF), which KSA would establish. The RDMF would receive fundsfrom a levy on sugar and funds would be disbursed to the companies aftersatisfactory work performance had been certified by the relevant Governmentofficials (Section 4.07(b)-(c) of the draft Loan Agreement).
57. Consultants under KSA would review the rehabilitation and expansionplans and design of each company. No loan funds would be lent to any ofthe three companies for these activities until KSA has approved the relevantplans and designs (Schedule 2, Part D(4) of the draft Loan Agreement).Implementation of the drainage component and the irrigation schemes at Kibos,Chemelil, Muhoroni and Ramisi would be supervised by consultants appointedand supervised by KSA. KSA would also act as executing agency for all thestudies proposed under the project, conduct staff training and oversee theRDMF (para. 56 above). Finally, KSA is working with other involved partiesin redefining the limits of the areas (zones) allocated to individual com-panies for the supply of sugar cane. Because of the uneven expansion of caneproduction in the recent past, the zones supplying individual factories arenot designed for efficient transport. Changes in the factory zones would notbe undertaken without first obtaining the Bank's views on the proposed changes(Section 3.05(b) of the draft Loan Agreement).
58. The conversion of the Ahero pilot scheme to sugarcane would beundertaken by NIB. After construction, NIB would supervise the operationof the Ahero scheme and collect water charges as appropriate. Over a reason-able period of time NIB would endeavor to recover all costs and earn a reason-able return on capital expenditures related to the project's irrigationcomponent (Section 4.09 of the draft Loan Agreement).
59. The Ministry of Works would be responsible for the construction ofnew and upgrading of existing classified roads in all areas, of unclassifiedroads in large-farm areas, of all roads in Chemelil zone, and for the cons-truction of bridges and other major structures. Engineering consultantswould be appointed if the Ministry's staff is unable to undertake these tasks(Schedule 2, Part F(1) of the draft Loan Agreement).
Financial Covenants
60. To ensure that the three companies receiving proceeds directly fromthe Bank loan have adequate financial structures, their financial resources
- 17 -
and future financial requirements were analyzed in detail. From this analysisan assessment was made of acceptable debt/equity ratios and current ratiosfor each of the companies. The commitments to maintain satisfactory ratiosand a number of related financial conditions are described in detail inSchedule 4, para. 3 of the draft Loan Agreement. In addition, while thefinancial analysis indicated that all the companies' annual cash flows willbe adequate during the rehabilitation periods, short-term cash deficits mayoccur. To address this potential problem the Government would arrange forseasonal working capital financing if any of the companies could not securethe funds from commercial lenders (Section 3.01(f) of the draft Loan Agreement).
Procurement and Disbursement
61. Except as described in para. 62 below, materials, vehicles and equip-ment estimated to cost US$100,000 and above (totalling about US$29.0 million)would be procured through international competitive bidding, following Bankguidelines; orders would be bulked to the extent possible. Qualified localmanufacturers would be allowed a preference margin of 15% or the existing rateof duty, whichever is lower, for purposes of bid comparison. Civil workscontracts for the construction of houses and social amenities (US$7.3 million),irrigation and drainage (US$13.2 million) and roads under the responsibilityof the Ministry of Works (US$2.9 million) would be procured through inter-national competitive biddiLng except for contracts or items costing less thanUS$200,000. For purposes of bid comparison, a preference of 7-1/2% would beapplied to bids from qualified local civil works contractors. Contracts formaterials, vehicles and equipment below US$100,000 and civil works contractsbelow US$200,000 would be procured in accordance with local procedures whichare satisfactory to the Bank.
62. Because of their scattered locations, the construction of accessroads and tracks under the responsibility of the companies (US$3.7 million)would be either undertaken by the companies with their own equipment and staffor carried out by local contractors selected under local procurement procedures.In view of the need to relhabilitate and expand the plants at the same time asthey are in operation, the companies would rehabilitate and expand existingfactory equipment and facilities (US$4.5 million) with their own equipment andstaff and local contractors as required. Land preparation, cane plantingoperations, and field maintenance (US$6.0 million) would be carried out by thesugar companies with their own equipment and staff; this is viewed as the mostefficient approach.
63. Under the project a variety of consultants and architects would berequired to assist the companies and/or the Government in project imple-mentation. To the extent they are hired pursuant to the draft Loan Agreementor financed by the loan, they would have qualifications and experience and behired on terms and conditions satisfactory to the Bank (Section 3.02 ofthe draft Loan Agreement). The average cost of consultancy services isestimated to range from US$2,000 to US$6,000 per manmonth depending on thesource of supply and type of service to be provided.
64. The loan would be disbursed over a period of 6 years against thefollowing costs for the relevant sugar companies: (i) 100% of the foreign
- 18 -
expenditures for agricultural vehicles and equipment, office machines andfurniture; 90% of the local cost when purchased locally; (ii) 100% of theforeign expenditures for imported sugar factory machinery and equipment andfactory consultants' fees; 90% of the local cost when purchased or hired'oc:I'y; (iii) 9C&O of total expenditures for irrigation; (iv) 90% of totalexpenditures for houses and social facilities; (v) 90% of total expendi-tures for access roads and tracks in smallholder areas, excluding factoryentrance roads; (vi) 90% of total expenditures for land preparation, caneplanting operations, field maintenance and incremental fertilizers; and (vii)100% of the foreign expenditures for company staff training and incrementalsalaries; 90% of the cost of local staff training and of staff hired locally.
65. For those components to be implemented by the Government of Kenyafunds would be disbursed against: (i) 50% of total expenditures for roads,bridges, and other related structures; (ii) 90% of total expenditures forirrigation at Ahero and Kibos; (iii) 100% of foreign expenditures for vehicles,equipment, furnishings; incremental salaries, staff training; and works-forNSRI; 90% of local expenditures for such items; (iv) 100% of the foreignexpenditures for KSA's staff training and studies conducted locally; 90% oflocal expenditures; and (v) 90% of total expenditures for drainage works, andrelated costs.
66. Retroactive financing of US$4.8 million from the Bank loan isrecommended for specified expenditures incurred after November 1, 1977.These funds would finance some preliminary studies, the purchase of urgentlyneeded vehicles and equipment, and the construction of houses. This longerthan usual period reflects the fact that the project has been delayed toenable the Government and the Bank to review a number of issues (particularlycane and sugar prices and projected production) in detail; during the interimthe companies have been proceeding with investments using short-term borrowings.
Accounts and Evaluation
67. Accounts geared to producing adequate cost control and managementinformation related to all of their operations would be kept by each of thesugar companies. As part of the revised company outgrower arrangements,the sugar companies would also maintain the credit accounts for individualoutgrowers. Accounts would be kept for KSA, NSRI and all other governmentagencies involved in project implementation. The accounts of the sugarcompanies would be audited by independent auditors acceptable to the Bank; theprovisional accounts would be submitted to the Bank within four months and thefinal accounts and audit reports within six months of the close of theirfiscal year (Section 4.03(b) of the draft Loan Agreement). Separate projectaccounts would be maintained by KSA, NSRI and the relevant sugar companies andthey would be audited by independent auditors acceptable to the Bank; theaccounts and audit reports would be submitted to the Bank within six months ofthe end of their respective fiscal years for KSA and NSRI, and within fourmonths for the sugar companies (Section 4.04(c) of the draft Loan Agreement).
- 19 -
Ecology
68. All project activities would be carried out with due regard tothe environment. In partic:ular, all factories are in the process of install-ing additional effluent treatment facilities to comply with Govern-ent stand-ards. The development of new cane areas and construction of roads andhousing facilties is not excpected to have any adverse environmental effects.However, because of the more rapid evacuation of rainfall from the projectarea as a result of the drainage scheme to be developed under the project,the effects of the periodic temporary floodings near Lake Victoria couldbe marginally aggravated. While this is judged not to pose an unacceptablerisk, to lay the framework for dealing with the Kano plains flooding problemthe Government would prepare, before June 30, 1982, a regional drainage anddevelopment plan for the wlhole Kano plains (Schedule 2, Part H(4) of the draftLoan Agreement).
Benefits and Justification
69. The proposed project would reduce Kenya's dependence on importedsugar and, by developing areas which have been neglected or underutilized,would generate employment for smallholders, raise the incomes of governmentand privately controlled sugar companies and promote balanced regionaleconomic growth. The 109,000 metric tons per annum increase in sugar pro-duction under the project at full development (and related decrease inimports) would save Kenya over US$30.0 million in net foreign exchange annu-ally. The project would increase incomes for about 10,800 smallholder familiesby 25% to 190% as well as incomes of a number of larger farmers. The sugarfactories' return on their existing investments would also be improved and onethousand wage paying employment opportunities would be created.
70. The financial rates of return to project investments would rangefrom 16% at Ramisi to 34% at Miwani. The project's overall internal economicrate of return is estimated to be 33% over a 25-year period; if benefitsaccruing to non-Kenyans from their share of equity ownership in the fourcompanies were deducted, the rate of return would be 29%. All project costsexcept 25% of the costs of roads and tracks, 60% of the cost of the NSRIcomponent and 65% of the cost of the KSA component have been included in thesecalculations (the excluded costs represent about 5% of total project cost).The economic rate of return for the individual factories is estimated at 39%for Miwani, 37% for Chemelil, 35% for Muhoroni and 24% for Ramisi. The rateof return attributable to drainage would be 38%; and the rate of returnattributable to new irrigation in the sugar belt would be 46%.
Risks
71. Existing problems in the sugar subsector have led to underutilizationof past sugar investments. In addition, there is a potential risk if theGovernment or private investors make further investments in sugar beyond thisand ongoing projects: because additional investment could lead to a surplus
- 20 -
over domestic demand and Bank analysis indicates that Kenya would not be com-petitive as a major exporter, the Government could face the difficult decisionof having either to subsidize exports or discourage production through loweringcane prices; the latter alternative could jeopardize project investments.
72. Measures would be taken to address these risks. Considerable efforthas gone into improving company-smallholder relations; steps will be takenunder the project to increase the ability of the companies to assist outgrowers,to clarify the arrangements under which outgrowers operate and to strengthenthe institutions assisting the outgrowers. In addition, measures will betaken to deal with the issues of absentee owners and the labor shortage. Inrespect to further investments, the Government has informed us that it hasmade no firm commitment to any additional sugar investment and that it willconsult annually with the Bank on its plans in the future. The steps takenappear to address the potential risks adequately.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
73, The draft Loan Agreement between the Republic of Kenya and theBank, draft Letter Agreements between the Bank and each of the sugar companiesand the Report of the Committee provided for in Article III, Section 4(iii) ofthe Articles of Agreement are being distributed to the Executive Directorsseparately.
74. Features of the draft Loan Agreement of special interest are givenin Section III of Annex III to this report. Execution of the Letter Agree-ments between the Bank and each of the sugar companies would be a conditionof effectiveness (Section 6.01 of the draft Loan Agreement). Conditionsof disbursement for the individual companies would be: (i) signing of anagreement between the Government and the company concerned covering investmentand onlending terms; and (ii) conversion into equity of all or part of theexisting parent company loan at Ramisi and reserves at Miwani, Muhoroni andRamisi (Schedule 1, para. 4 of the draft Loan Agreement).
75. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.
PART VI - RECOMMENDATION
76. I recommend that the Executive Directors approve the proposedloan.
Robert S. McNamaraPresident
AttachmentsWashington, D.C.November 1 7 , 1978
ANNEX I-21-
ENA - SOCIAL INDICATORS DATA SHEET
REFERENCE GROUPS (ADJUSTED AVERAGES
LAND AREA (THOUSAND SQ. Km.) - MOST RECENT ESTIMATE)TOTAL 582.6 SAME SAMN NEXT HICHERAGRICULTURAL 99.2 MOST UCENT CEOGRAPHIC IJCOME INCOME
1960 1b 1970 Lb ZSTIMATE jb REGION 14 GROUP Id GROUP Le
GNP PER CAPITA (US$' 100.0 160.0 270.0 223.6 182.9 432.3
ENERGY CONSUMPTION PER CAPITA(KILOCRAMS OF COAL EQUIVALENT) 143.0 135.0 174.0 86.7 88.9 251.7
POPULATION AND VITAL STATISTICSTOTAL POPULATION, MID-YEAR
(MILLIONS) 8.3 11.2 14.4URBAN POPULATION (PERCENT OF TOTAL) 7.3 9.9 13.0 13.6 15.0 24.2
POPULATION DENSITYPER SQ. KM. 14.0 19.0 25.0 18.4 46.8 42.7PER SQ. KM. AGRICULTURAL LAND 84.0 113.0 145.0 53.6 254.1 95.0
POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 46.0 .L,,t 48.4 46.5 44.4 43.6 44.9
15-64 YRS. 49.2 ,g 48.0 50.9 52.7 53.3 52.865 YRS. AND ABOVE 4.8 A 3.6 2.6 2.8 2.9 3.0
POPULATION PER PHYSICIAN 101S4.01lf-h 7810.0Ž 5800.0 ti,h 21757.5 13432.7 9359.2POPULATION PER NURSING PERSON :290.O/f ,h 1470.0h 1300.0 /fh 3473.8 6983.3 2762.5POPULATION PER HOSPITAL BED
POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)
UP.AN .. .. 122.0 108.8 88.5 155.9
RURAL .. .. 93.0 74.1 71.9 97.9
ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)
URBAN .. .. 144.0 124.4 100.8 143.7
RURAL .. .. 78.0 59.6 42.0 87.3
IST IMATED POPULATION BELOW POVERTYINCOtfE LEVEL (PERCENT)
UR8AN .. .. 25.0 26.8 46.0 22.9
RURAL .. .. 60.0 47.6 48.0 36.7
got availableNot applicable.
VOTMS
/a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extremevalues of the Indicator and the most populated country in each group. Coverage of countries aong the
Indicators depends on availability of data end is not uniform.
/b Unles. otherwise noted, data for 1960 refer to any yeer between 1959 and 1961; for 1970. betveen 1969
and 1971; and for Most Recent Estimate, between 1973 and 1977.
/c Africa South of Sahara; L/ Low Income ($280 or less per capita. 1976); le Lwer Middle Incom(9281-550 per capita. 1976); f 1962; JA B^asd an complete enumerstion of non-Afrtcan population,
and on a 10 percent sample of rural African population age 0-14, 15-59 & 60 years and over respectively;
ah Registered, not all practicing in the country; A 1972; /I Including teacher training at the
third level; 1k Labor force age 15-50 yeara; A Labor force age 15-50; In staff estimate;
1n urban only.
September, 1978
- 23 - ANNEX I
DEFINITIONS OF SOCIAL INDICATORS
Sot: The adjuoted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the mostcc l.J- n, roa group. Loerago of countries among the indicators depends no availability of data and is not uniform. Doe to lack of data,
fr . -- avera ge- ,rt Capital Surplus Oil Exporters and indic.ators of access to water and excreta disposal, housing, income distribution and poverty aresimple papulatcon-weighted geometric moons without the exclusion of extreme values.
1r ND M1_'A (thousan.d st . m) Population per hospital bed - total, urban, and rural - Population (total,Iteral otal our-.ce area omaprisir.g land area and island waters. urban, and rural) divided by their renpective nusber of hospital bedsdgricaitural - Most recent estimate of agricultural area used temporarily available in public and private general and specialized hospital and re-
or permanently for crops, pastures, market and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed by1ie f.lllow. at least one physician. Establishments providing principally custodial
care are not included. Rural hospitals, however, include health and medi-GNP fER CAFPTA (USS) '- GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a medical as-
calculated by same c-nversion netiod 0s World Baok Atlas (1975-77 basis); sisant., nurse, midwife, etc.) which offer in-patient accommodation and1960, 1970, and 1977 data. provide a limited range of medical facilities.
Admissions per hospital bed - Total number of admissions to or dischargesENERGY CONSUMPTION PER CAPITA - Annual consumption of comm:ercial energy from hospitals divided by the number of beds.
(coal and lignite, petroleum, natural gas and hydro-, nuclear and geo-thermal electricity) in kilograms of coal equivalent par capita. HOUSING
Ave-ge siee of household (persons per household) - total, arbas, and rural-POPULATION AbD VITALSTATISTICS A household consists of a group of individuals who share living quarters
Total population, mid-year (millions) - As of July 1; if not available. and their main meals. A boarder or lodger may or may not be included inavarage of twa end-year estimates; 1960, 1970, and 1977 data. the household for statistical purposes. Statistical definitions of house-
Urban population (percent of total) - Ratio of urban to total popula- hold vary.tion; different definitions of urban areas may affect comparability Average number of persons per room - total, urban, and rural - Average num-of data among countries. ber of persons per room in all, urban, and rural occupied conventional
Population density dwellings, respectively. Dwellings exclude non-permanent structures andPer _q. km. - Mid-year population per square kilometer (100 hectares) unoccupied parts.of total area. Access to electricity (percent of dwellings) - total, urban, asd rural -
Per sq. km. agriculture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters as percentageonly. of total, urban, and rural dwellings respectively.
Population age structure (percent) - Children (0-14 years), warking-age(15-64 years), and retired (65 years and over) as percentages of mid- EDUCATIONyear population. Adjusted enrollment ratios
Ponulutirn growth rate (perceot) - total, and urban - Compound annual Primary school - total, and female - Total and female enrolloent of all agesgrowth rates of total and urban mid-year populations for 1950-60, at the primary level as percentages of respectively primary school-age1960-70, and 1970-75. populations; normally includes children aged 6-11 years but adjusted for
Crude birth rate (per thousand) - Annual live births per rhousand of different lengths of primary education; for countries with universal eds-mid-year population; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed 100 percent since some pupils are below or1970 and five-year average ending in 1975 for most recent estimate. above the official school age.
Crae death rte (per thousand) - Annual deaths per thousand of mid- Secondary school - total, and female - Computed as above; secondary educa-year population; ten-year arithmetic averages ending In 1960 and 1970 tion requires at least four years of approved primary instruction; pro-and five-year average ending in 1975 for most recent estimate. vides general vocational, or teacher training instructions for pupils
Grons reproduction rate - Average number of daughters a woman will bear usually ot 12 to 17 years of age; correspondence courses are generallyin her normal reproduotive period if she experiences present age- excluded.specific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocational institutions in-1970, and 1975. clude technical, industrial, or other programs which operate independently
Family planning - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions.acceptors of birth-control devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Total students esrolled inplanning program. primary and secondary levels divided by numbers of teachers in the corrt-
Family planning - users (percent of arried women) - Percentage of spending levels.married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - Literate adults (able to read and write) asdevices to all married women in same age group. a percentage of total adult population aged 15 years and over,
FOOD AND NLITRITION CONSUMPTIONLidexoo toad production per capita (lY70-iOo) - Index number of per Passenger cars (per thousand population) - Passenger cars comprise motor cars
capita annual production of all food commodities. seating less than eight persons; excludes ambulances, hearses and militaryPer capita supply of calories (percent of requirements) - Computed from vehicles.
energy equivalent of net food supplies available in country per capita Radio receivers (per thousand population) - All types of receivers for radioper day. Available supplies comprise domestic production, imports less broadcasts to general public per thousand of population; excludes unlicensedexports, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in years when registration of radio sets was inquantities used in food processing, and losses in distribution. Re- effect; data for recent years may not be comparable since most countriesquice.ents were estimated by FAO based on physiological needs for nor- abolished licensing..al activity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to generaweights, age and se. distributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in coun-cent for waste at household level. tries and in years when registration of TV sets was in effect.
Per capita supply of protein (grams per day) - Protein content of per Newspaper circulation (per thousand population) - Shows the average circula-capita net supply of food per day. Net supply of food is defined as tion of "daily general interest newspaper", defined as a periodical publi-above. Requirements for all countries established by USDA provide for cation devoted primarily to re-ording general news. It is considered toa mnimum allowance of 60 grams of total protein per day and 20 grams be "daily" if it appears at least foor times a week.of animal and pulse protein, of which 13 grams should be animal protein. Cinema annual attendance per capita per year - Based on the number of ticketsThese standards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cinemas and mobile23 grams of animal protein as an average for the world, proposed by units.PAO in the Third World Food Survey.
Per capita protein supply from animal and subs - Protein supply of food EMPLiYMENTderived from animals and pulses in grams per day. Total labor force (thousands) - EoonomicaIly active persons, including armed
Child (ages 1-4) mortality rate (Per thousand) - AnnuaL deaths per thous- forces and unemployed but excluding housewives, students, etc. Defini-and in age group 1-4 years, to children in this age gioup. tions in various countries are not comparable.
Pemale (percent) - Female labor force as percentage of total labor force.EEALTH Agriculture (percent) - Labor force in farming, forestry, hunting and fishingLife expectancy at birth (yeats) - Average number of years of life as percentage of total labor force.
remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufacturing andand 1975. electricity, water and gas as Percentage of total labor force.
Infant mortality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male, and female - Total, male, andone year of age per thousand live birhts. female labor force as percentages of their respective populations.
Access to safe water (percent of population) - total, urban, and rural - These are LO's adjusted participation rates reflecting oag-seaNumber of people (total, urban, and rural) with reasonable access to stroct-re of tho ppulation. ond long time trend.safe water supply (includes treated surface waters or untreated but Economic dependency ratic - Ratio of population under 15 and 65 and over toun-ontamintaed water such as that from protected boreholes, springs, the labor force in ago group of 15-64 yesos.and sanitary wells) as percentages of their respective populations.In an urban area a public fountain or standpost located not more INCOME DISTRIBUTIONthan 200 meters from a house may be considered as being within rea- Percentage of private Income (both in cash and kind) received by richest 5son.able access of that house. Tn rural areas reasoaable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percentimply that the housewife or members of the household do not have to of households.spend a disproportionate part of the day in fetching the family'swater needs. POVERTY TARGET GROUPS
Access to eacretr disposal (percent of population) - total, urban, and Estimated absolute sorerry income level (iS$ per capita) - urban and rural -roral - Number of people (total, urban, and rural) setved by excreta Absolute poverty income level is that income level below whIch a minimal
disposal as percentages of their respective populations. Excreta nutritionally adequate diet plus essential non-food requirements is notdisposal cay include the collection and disposal, with or without affordabl.treatment, of human escreta aud waste-water by water-borne systems Estimated relativt poverty incom.e level (USS per capita) - urban and rura -or the use of pit privies and similar installations. Relative poverty income lyeal is that income Jevel less than one-third
Poplu'.tion pei phsician - Population divided by number of practicing per capita personal income of the country.phyi,icfns qualified tiro a medical school at university level. Eitimated population below potorty mns level (percentj - urban and rural -
Pulatn per nrsig person - Population divided by number of Percent of population ('.rban and rural) who are either "absolute poor" orpracticing male and female graduate nurses, practical nurses, and "relative poor" whichever is greater.assistant -urses.
Econiric and Social Data Divisi-nEnonomic Analysis and Prci-0ions Department
- 24 -
Annex I
KEhNYA
Erenemic OevlonePert Dat Sheet
Actual P-elimin-y Projectd Averare AnulRaeo C-ut 17
1. Grant Element of Total ComitmentA 45.5 45.4 66.0 23.8 21.02. Av-rago Inter-ct (Percent) 4.1 4.2 2.1 6.7 6.63. Av-rage Maturity (years) 29.2 28.6 36.4 24.6 18.1
1/ Includes finncing of projected balance of paynents defIcit (1977-1990) by .cppliers' credits.R/ epRe.ents disburse-ent *nd repaynent of lomno for EAC projects of which Kenya's share is a notional 507.
3/ Net of araving" end "Repayent by Purchase".4/ Excludes Technical Assistance gronts.5' For 1972-76 reprs.ents a notional 503, of loan .- sitments tor EAC projects.6/ For 1972-76 represents only grant element of Io.n...
EAN, CPI-AFebruary 7, 1978
- 26 -
KeNYA Annex I
Debt and Creditworthiness-/
Actual1972 1973 1974 1975 1976 1977
A. Medium and Long-Term Debt (Disbursed Only)(US$ Million)
1. Total Debt outstanding 1 DOD: End of Period)V 441.6 514.5 602.8 656.8 807.9 1029.82. Including Undisburse 674.3 787.9 958.7 1235.0 1401.0 1537.43 .Public Debt Service 36.3 39.9 42.1 43.0 57.7 82.43.1 Interest 20.2 21.7 24.5 25.9 30.3 41.14. Other M & LT Debt Service
2/B. Debt Burden
1 Debt Service Ratio 6.5 5.7 4.2 4.1 5.0 5.32. Debt Service/GDP 1.8 1.9 1.9 1.9 2.4 2.03. Public Debt Service/Government Revenue 8.9 8.3 7.2 6.4 8.3
C Terms-/
1. Interest on Total DOD/TotalDOD 4.6 4.2 4.1 3.9 3.8 4.02 Total Debt Service/Total DOD 8.2 7.8 7.0 6.5 7.1 8.0
1. IBRD 169.5 25.62. Bank Group 264.1 39.93. other Multilateral 10.3 1.64 Covernments 299.8 45.3
of which centrally planned economies 0.2 -5. Suppliers 35.9 5.46. Financial Institutions 21.5 3.27. Bonds 18.4 2.88. Public debt, n.e.i. 11.8 1.89 Total Public M & U Debt 661.7 100.010. Other M & LT Debt- 146.2 22.111. Total Public Debt (incl. Undisbursed) 1237.1 187.012. Total M & LT Debt (inml. Undisbursed) 1401.0 211.7
1/ Includes a notional 507. share of loans to the EAC.2/ Includes a notional 507. share of debt service on loans to the EAC.T/ Excludes EAC. EACPIA
February 7, 1978
-27 - ANNEX II
TIIE STATUS OF BANK CROUP OPERATIONS IN K'PF4YA
A. Statement of Bank Loans and IDA Credits as of October 31, 1978
US$ Million
oaar, Ayunt (Less C cellations)tr eiv ? Year Borrower Purpose Bank- TW IDA- Undisbursed
Seven (7) Loans and twelve (12) Credits fully disbursed 96.0 74.1224 1970 Kenya Road Maintenance 12.6 1.8826 1972 Kenya Nairobi Airport 29.0 0.6932 1973 Kenya Highways 29.0 6.4946 1973 IDB DFC I 5.0 0.6468 1974 Kenya Population 12.0 1.9477 1974 Kenya Livestock 21.5 17.9993 1974 Kenya Tea Factories 10.4 5.11093 1975 Kenya Group Farm Credit 7.5 7.5537 1975 Kenya Group Farm Credit 7.5 4.71105 1975 Kenya Site and Service 8.0 8.0543 1975 Kenya Site and Service 8.0 1.8565 1975 Kenya Agriculture - Forestry 10.0 3.91132 1975 Kenya Agriculture - Forestry 10.0 6.2 2/1133 1975 Kenya Transportation - Pipeline 20.0 0.31147 1975 TRDC Hydroelectric Development 59.5 14.31148 1975 IDB DFC II 10.0 2.91167 1975 Kenya Mombasa & Coastal Water Supply 35.0 21.91184 1975 Kenya Education III 10.0 9.0650 1976 Kenya Integrated Agri. Development 10.0 8.91303-T 1976 Kenya Integrated Agri. Development 10.0 10.01304-T 1976 Kenya Wildlife and Tourism 17.0 16.5651 1976 Kenya Rural Access Roads 4.0 4.01305 1976 Kenya Rural Access Roads 4.0 4.01389 1977 Kenya South Nyanza Sugar 25.0 23.0692 1977 Kenya Agricultural Credit III 20.0 15.61390-T 1977 Kenya Agricultural Credit III 5.0 5.01438 1977 IDB DFC III 20.0 20.0722 1977 Kenya Bura Irrigation Settlement 6.0 5.51449 1977 Kenya Bura Irrigation Settlement 34.0 34.0750 1977 Kenya Small Scale Industry 10.0 10.01520 3/ 1978 NCC Second Nairobi Water Supply 30.0 30.0791 1978 Kenya Second Urban 25.0 25.01550 1978 Kenya Second Urban 25.0 25.0797 1978 Kenya Education IV 23.0 23.0
Total 467.4 32.0 243.7 374.3of which has been repaid 17.4 - 0.9
Total now outstanding 450.0 32.0 242.6Amount sold 11.8
of which has been repaid 8.6 3.2TOTAL now held by Bank and IDA 1/ 446.8 32.0 242.6
TOTAL undisbursed 218.8 31.5 124.0 374.3
1/ Prior to exchange adjustment.2/ Includes US$3.9 million undisbursed grant participation.3/ Not yet effective.
Note: This table does not include the Olkaria Geothermal Engineering Project for which aloan of US$9.0 million was approved on October 31, 1978 since this loan has not yetbeen signed.
-28 -
ANNEX II
B. Summary Statement of Bank Loans for Common Services Guaranteedby Kenya, Tanzania and Uganda as of October 31, 1978
Amount (less cancellations)Loan No. Year Borrower Purpose Bank 1/ Undisbursed
----- US$ million-----
Five loans fully disbursed 93.4
638-EA 1969 EAHC Harbours 35.0 1.2
674-EA 1970 EARC Railways 42.4 3.1
865-EA 1972 EAHC Harbours 26.5 1.1
914-EA 1972 EAPTC Telecommunications 32.5 5.6
1204-EA 1976 EADB Development Finance 15.0 8.3
Total 244.8 19.3
of which has been repaid 46.2
Total now outstanding 198.6
Amount sold 24.4
of which has been repaid 24.4 0.0
Total now held by Bank 1/ 198.6
Total undisbursed 19.3 19.3
1/ Net of exchange adjustments.
- 29 -ANNEX II
C. Projects in Execution 1/(As of October 31, 1978)
There are currently 26 projects under execution in Kenya.
AGRICULTURAL SECTOR
Loan No. 993-KE - Tea Factories: US$10.4 million Loan of June 5, 1974;Effective Date: September 23, 1974; Closing Date: June 30, 1980
Although international tea prices have dropped from the extra-ordinarily high figures in 1976/77, growers continue to show considerableinterest in tea as a cash crop. The response to the fertilizer credit schemefinanced by the Commonwealth Development Corporation (CDC - the cofinancingpartner) for 1978/79 is slightly better than for the 1976/77 season. Yieldscontinue to rise, and from 1979/80 onwards the appraisal projections arelikely to be exceeded. The project factory building program is behind scheduleand, due to cost escalations, funds will only enable 12 factories to be builtinstead of 17 as originally envisaged. The OPEC Special Fund is consideringfinancing 3 factories under the project, and other sources of funds to financeconstruction of the remaining 2 factories under the project are being explored.However CDC has advanced financing for their Fourth Plan, and by December 1979a total of 15 factories (12 under the project and 3 others) will be operative.The standard of Kenya Tea Development Authority's management continues to behigh, and although the Marketing Department problems are not yet resolved theyare under control. Disbursements are behind schedule due to the delayedfactory building program.
Credit No. 477-KE - Livestock: US$21.5 million Credit of June 5, 1974;Effective Date: December 2, 1974; Closing Date: December 31, 1980
Project implementation has been slow and there have been problemsin organization, cost overruns and pricing. An in-depth review of the projectwas undertaken in March 1976; the review mission's report was presented to theGovernment in September 1976 and a series of discussions have been held sincethat date. The project had been adversely affected by the Government'sfailure to raise certain cattle and beef prices to adequate incentive levels
1/ These notes are desiLgned to inform the Executive Directors regardingthe progress on projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.
- 30 -ANNEX II
but a new and satisfactory livestock price structure was adopted in early1978, removing the most serious constraint to ranch development and viability.Some progress has been made in organization of the pastoralists in the rangedevelopment components, and Government services in ranch water developmentplanning and in the company ranch sector have been improved. However, prob-lems continue in that (a) the poor financial situation of many Phase I andPhase II company ranches continues (although currently under review andreplanning); (b) an effective extension service in the Masai group ranchareas, which is essential if the project's objectives are to be achieved, isstill not developed adequately; (c) currently high prices have to be paid forimmature steers (which are necessary to enable generation of cash flow) dueto a temporary situation of high demand coupled with an unwillingness bypastoralists to sell due to good pasture conditions. The project will con-tinue to be kept under close review.
Credit No. 537-KE/Loan No. 1093-KE - Group Farm Rehabilitation Project:US$7.5 million Credit and US$7.5 million Loan of March 26, 1975;Effective Date: September 30, 1975; Closing Date: December 31, 1981
Cooperation between the various Government ministries and agenciesconcerned with the project has improved. However, farm recruitment overallcontinues to lag because of legal and social problems; only 16 mixed farmsand 9 coffee farms have been recruited so far compared with appraisal targetsfor the third year of implementation of 65 mixed farms and 18 coffee farms.Costs of rehabilitating coffee farms have increased substantially. A studyprepared by consultants on the large farm sector is presently being reviewedby the Government, and may lead to policy changes which could necessitate anin-depth review of the objectives of the project.
Loan No. 1132-KE/Credit No. 565-KE - Second Forestry PlantationProject: US$10.0 million Credit and US$10.0 million Loan of June 27,1975; Effective Date: September 25, 1975; Closing Date:December 31, 1981
The planting program is progressing fairly satisfactorily, but thecumulative total to date is 18% below target, due to unfavorable weather con-ditions in 1975 and 1976, shortage of equipment and, in some cases, of labor(both now remedied). The building and road construction programs are bothconsiderably behind schedule. However, all the backlogs should be made goodduring the last 3 years of the project. Progress has been very slow inimplementing most of the covenants of the Credit Agreement, particularlyregarding the program to improve efficiency and production of the sawmillingsector, the national land use study, and the gazetting of nature reservesand new forest reserves. Although action has now been taken to increasestumpage rates for sawlogs, this action was taken without prior consultationwith the Bank Group. Problems have also arisen with regard to procurementof vehicles and staffing. Accordingly, the project is being kept under veryclose review.
- 31 -ANNEX II
Loan No. 1303T-KE/Credit No. 650-KE - Integrated AgriculturalDevelop,ient Project: US$10.0 million Loan and US$10.0 millionCredit of July 9, 1976, Effective Date: March 15, 1977;Closing Date: December 31, 1981
During the first year of implementation, the focus of the projectchanged towards assisting large numbers of subsistence farmers rather thanprogressive smallholder farners. This change has led to a number of diffi-culties, but the project objective of improving the productivity and incomesof smallholder farmers continues to be met. The rates of credit recovery andloanee reparticipation thus far have been disappointing. Active efforts arenow being made to expand and implement the infrastructure components, in-cluding improvement of input supplies and marketing systems. Some adjustmentto the administrative framework is required, and discussions on this subjectare ongoing. The Annual Work Plan for FY79 is now under review.
Loan No. 1389-KE - South Nyanza Sugar Project: US$25.0 millionLoan of April 15, 1977; Effective Date: November 3, 1977;Closing Date: March 31, 1983
Agricultural implementation proceeds satisfactorily with only minorproblems. Cane yields are higher than anticipated, probably because of excel-lent and well-distributed rainfall during 1977 and the first half of 1978.Building works were delayed due to shortage of cement, but the position hasimproved and the factory should be completed on schedule in October 1979.Recruitment of staff is underway, and training and research programs are underpreparation. A recent Government decision not to increase sugar prices in1978 was reviewed with the Bank, and agreement was reached that the currentprice levels were adequate to provide the necessary incentives to growers.
Credit No. 692-KE/Loari No. 1390T-KE - Third Agricultural CreditProject: US$20.0 million Credit and US$5.0 million Loan of April 15,1977; Effective Date: September 14, 1977; Closing Date:December 31, 1980
The progress of the Agricultural Finance Corporation's (AFC) lendingprogram has accelerated, and both the small scale and medium scale lendinglines are expected to catch up with appraisal forecasts. IDA disbursementsfor medium scale loans have now started since AFC has recruited a Credit Spe-cialist, a precondition for commencement of disbursements under this projectcomponent. Loan recovery from Phase I and II projects is satisfactory andsteps are being taken to improve control of utilization of disbursed loans.The impact of AFC's loans is seen in the diversification of progressive farmsinto dairy, pigs, sugar and other new and expanding enterprises.
Loan No. 1449-KE/Credit No. 722-KE - Bura Irrigation SettlementProject: US$34.0 mil:Lion Loan and US$6.0 million Credit of June 22,1977; Effective Date: June 27, 1978; Closing Date: June 30, 1984
Project implementation has been delayed, predominantly because oflate appointment of consultants. As a result of these delays, some componentsare as much as a year behind schedule. Revised cost estimates indicate thatthe project is likely to encounter serious cost overruns.
- 32 -
ANNEX II
EDUCATION SECTOR
Loan No. 1184-KE - Third Education Project: US$10.0 million Loanof December 31, 1975; Effective Date: March 17, 1976;Closing Date: June 30, 1982
Physical implementation is about two years behind the appraisalschedule, basically due to delays by the various Committees in approvingsketch designs for the 17 primary teacher colleges. The Government'sreluctance to finance technical assistance specialists from the loanproceeds may further delay project implementation. The sessional paperon the report of the National Committee on Educational Objectives andPriorities which was tabled in Parliament in May 1978 is expected tobe discussed in a full Cabinet meeting in the near future. No major changesin the document are expected. The delays in approving sketch designs areexpected to be overcome and the dialogue with the Government regarding thehiring of required specialists is continuing.
Credit No. 797-KE - Fourth Education: US$23.0 million Credit of June 7,1978; Effective Date: August 25, 1978; Closing Date: December 31, 1982
This Credit became effective on August 25, 1978. The Project UnitStaff are benefitting from experience gained in implementing the Third Educa-tion Project. Consultant architects have been appointed for the Faculty ofAgriculture and the thirteen Nomadic Primary Schools. Implementation oftechnical assistance for the Faculty of Agriculture and the Kenya Instituteof Administration has started.
WATER SUPPLY SECTOR
Loan No. 1167-KE - Mombasa and Coastal Water Supply; US$35.0 millionLoan of October 15, 1975; Effective Date: January 13, 1976;Closing Date: June 30, 1980
Physical execution of the major parts of the project is about ninemonths behind schedule, while completion of some of the smaller componentsmay be as much as 15 months late. Delays were due mainly to weak projectadministration by the Ministry of Water Development, particularly in theearly stages. Progress has now improved to an acceptable pace although losttime is unlikely to be recovered. Disbursements have recently improved toabout 80% of the appraisal forecasts. There is an estimated cost overrunof about 10% (expressed in US dollars) to be covered from Government re-sources. Institution building is proceeding slowly due to difficulties inrecruiting staff. Steps are underway to audit the accounts of the CoastProvince Water Branch for the first time. Tariff measures taken by theGovernment have been satisfactory.
- 33 -ANNEX II
Loan No. 1520-KE - Second Nairobi Water Supply; US$30.0 millionLoan of March 27, 1978; Closing Date: December 31, 1982
This loan is not yet effective. Good progress is being made ondetailed design and the preparation of tender documents. The first tendersfor supply of equipment were received in June 1978, and tenders for thefirst civil works contracts to be financed from the loan are expected tobe invited in November 1978.
TRANSPORT SECTOR
Loan No. 224-KE - Road Maintenance: US$12.6 million Credit ofDecember 28, 1970; Efifective Date: March 18, 1971; ClosingDate: December 30, 1978
The project, about a year and a half behind schedule, is now sub-stantially completed, with final completion expected by December 1978. Thedelay was primarily caused by a slow start in construction of the regionalworkshops and camps due to unforeseen difficulties in the acquisition ofsites and procurement of steel. The revised cost estimate of US$16.0 millionis about US$2.1 million below the appraisal estimate because of savings onstaffing costs and equipment and spare parts. There will be a US$1.8 millionsavings from the credit funds. This remaining balance will be used for pur-chase of additional workshop equipment and tools in order to achieve theproject's objectives. A further postponement of the Closing Date toDecember 30, 1979 is likely to be required to allow sufficient time forcompletion of procurement.
Loan No. 826-KE - Nairobi Airport: US$29.0 million Loan of June 2, 1972;Effective Date: July 7, 1972; Closing Date: December 31, 1978
Construction of the new Nairobi Airport was essentially completedin December 1977, and it has been open to traffic since March 14, 1978. Theloan is almost 98% disbursed. The airport is performing up to expectations.The remaining principal problem areas are in hiring and training sufficientstaff for operation and maintenance, both of which are constrained by non-competitive salary scales and a Kenya-wide shortage of skilled personnel. TheClosing Date is likely to be postponed to December 31, 1979 to allow time forcompletion of disbursements against expenditures incurred in connection withthe training program. The project completion report is under preparation.
Loan No. 932-KE - Highways: US$29.0 million loan of September 6, 1973;Effective Date: November 9, 1973; Closing Date: December 31, 1979
Implementation started two years behind schedule due to changes indesign standards by the Ministry of Works and financial constraints. In viewof heavy cost overruns, tenders for the construction of two roads were delayed.Agreement has now been reached to delete the Thuchi-Nbuku (51 km) road fromthe project. The Closing Date, which was postponed from December 31, 1977 toDecember 31, 1979, is likely to be postponed further to allow time for comple-tion of project works. All work is now in progress except for constructionof the Kisii-Mogonga road. Bidding documents for this road are being preparedby consultants and should be completed by December 1978.
- 34 -ANNEX II
Loan No. 1133-KE - Mombasa-Nairobi Oil Product Pipeline Project:US$20.0 million Loan of June 27, 1975; Effective Date: December 31,1975; Closing Date: February 1, 1979
Construction was completed in October 1977 and commercial operationscommenced in January 1978 as originally planned. The oil industry, theRailways and the Kenya Pipeline Company (KPC) have agreed to install centralrailroad loading facilities at KPC's Nairobi terminal. Financing of theUS$1.54 million cost is being arranged. KPC has updated the project cost andfinancial forecast. The final project cost overrun is only US$9.5 millionor 11%. The increase is primarily due to escalation in construction costs.KPC's long-term financial prospects are quite satisfactory although therecould be cash flow problems in the initial few years of operation because ofthe preponderance of short and medium-term loans in the financing package.
Loan No. 1305-KE/Credit No. 651-KE - Rural Access Roads Project:US$4.0 million Loan and US$4.0 million Credit of July 9, 1976; EffectiveDate: October 7, 1976; Closing Date: June 30, 1981
Although the Loan/Credit became effective in October 1976, no fundshave yet been disbursed. The project is slightly more than a year behindschedule, though costs are not expected to increase. Economic evaluationsfor the eight districts in which Bank-financed units would be set up havebeen reviewed and approved by the Bank; five construction units are nowoperating, and start up of the remaining three units is expected by December1978. Through June 1978, 141 km of access roads had been constructed. Laborintensive construction methods are being successfully applied and output andcosts are in line with appraisal targets.
POPULATION SECTOR
Credit No. 468-KE - Population: US$12.0 million Credit of April 1,1974; Effective Date: July 31, 1974; Closing Date: June 30, 1979
The four-year population project forms an integral part of Kenya'sFive-Year MCH/FP program, FY1975-79. All of the IDA-financed componentsof the project are proceeding satisfactorily. All construction work hasbeen contracted and 95% of the facilities completed. Supply of vehiclesand furniture and equipment has been contracted and delivery has commenced.The Nursing Activities study has been completed and the Study of FertilityDeterminants is underway. The program components financed by other donorsand the Government are also moving ahead and are expected to be completed onschedule, although program management needs to be strengthened and the qualityof services improved. A postponement of the Closing Date to June 30, 1979 hasbeen approved to permit completion of construction and procurement.
- 35 -ANNEX II
POWER SECTOR
Loan No. 1147-KE - Gitaru Hydroelectric Project: US$59.5 million Loan -/of July 25, 1975; Effective Date: January 29, 1976; Closing Date:December 31, 1979
Construction of the project was completed satisfactorily in June1978 on schedule and within estimated cost. On the basis of contractsawarded for civil works and electrical and mechanical equipment, present esti-mates show that the project cost in Kenya shillings is likely to be about 1%lower than the appraisal estimate. Due to the devaluation of Kenyan currencyin October 1975, however, the project cost saving expressed in US dollarequivalent will be about 15% of the appraisal estimate. This will result in asaving in the Bank loan of about US$4.0 million, in spite of the increase madeon June 15, 1977 in the percentage of civil works expenditures to be financedunder the Bank loan from 60% to 80%. At the request of the Borrower, US$3.5million of the loan has been cancelled. Consultants' studies on possiblealternatives for future development and a long-term power development planare being reviewed by the Government and the Bank.
INDUSTRIAL SECTOR
Loan No. 946-KE - Industrial Development Bank Project: US$5.0 millionLoan of November 29, 1973; Effective Date: March 26, 1974; ClosingDate: March 31, 1979
The first Bank loan of US$5.0 million to IDB, which became effectiveon March 26, 1974 was fully committed in March 1978, two years behind schedu:Le.This delay is due to the cancellation prior to disbursement of a number ofprojects previously approved. As at October 31, 1978, US$4.4 million of thisloan had been disbursed. The Closing Date has been postponed by one year toMarch 31, 1979.
Loan No. 1148-KE - Second Industrial Development Bank Project:US$10.0 million Loan of July 25, 1975; Effective Date: October 9,1975; Closing Date: July 1, 1979
The second Bank loan of US$10.0 million became effective on October 9,1975. The loan was ful:Ly committed in August 1978 and US$7.1 million had beendisbursed as at October 31, 1978.
Loan No. 1438-KE - Third Industrial Development Bank Project: US$20.0million Loan of June 22, 1977; Effective Date: November 10, 1977;Closing Date: July 1, 1982
This loan was declared effective on November 19, 1977. Two sub-projectshave been approved. As at October 31, 1978, US$5.7 million had been committed.
1/ Net of cancellation; US$3.5 million of the original US$63.0 million Loan wascancelled on October 19, 1978.
- 36 -
ANNEX II
Credit No. 750-KE - Small Scale Industry Project: US$10.0 millionCredit of November 28, 1977; Effective Date: June 26, 1978;Closing Date: December 31, 1982
This loan was declared effective on June 26, 1978. Measures toincrease Kenya Industrial Estates' (KIE) capital have been finalized. Severalkey project staff have been recruited, and efforts are underway to fill theremaining positions. KIE's guidelines for appraisal of sub-projects are nowbeing reviewed.
URBAN SECTOR
Credit No. 543-KE/Loan No. 1105-KE - Sites and Services Project:US$8.0 million Credit and US$8.0 million Loan of May 6, 1975; EffectiveDate: September 25, 1975; Closing Date: June 30, 1980
Infrastructure has been completed for the first 1,000 plots and mostbeneficiaries have constructed satisfactory houses. Infrastructure for anadditional 2,700 plots is under construction with tendering underway forconstruction of infrastructure for the remaining 2,300 plots. Off-siteinfrastructure is nearly completed. Community facilities provision is behindschedule. One primary school is nearing completion. The remaining fiveschools are to be tendered within the next six months. One health center isunder construction, however, the Bank does not plan to disburse against itscosts as its design was too expensive and was not approved by the Bank. Thedesign of the other health center should be submitted for approval soon.Technical assistance components are completed or scheduled for completion inconjuncti-on with the project. Project costs remain close to appraisal esti-mates although minor cost overruns are foreseen for the remaining componentsof the project.
Credit No. 791-KE/Loan No. 1550-KE - Second Urban Project: US$25.0million Credit and US$25.0 million Loan of May 5, 1978; Effective Date:October 3, 1978; Closing Date: December 31, 1983
This Credit and this Loan became effective on October 3, 1978.Nairobi's Housing Development Department is organized and staffed; Mombasaand Kisumu are recruiting staff for their Housing Development Departments.At least one site in each municipality has been acquired, and work can beginimmediately. No major land acquisition problems are foreseen for any of theother sites although minor problems exist in acquiring one site in Mombasa.Consultants for detailed design and engineering for some of the sites havebeen appointed, with the appointment of others in process. Substantialprogress has been made on all 13 technical assistance components of theproject.
ANNEX II
WILDLIFE AND TOURISM SECTOR
Loan No. 1304-KE - Wildlife and Tourism Project: US$17.0 million LoanOjf July 9, 1976; Effective Date: November 10, 1976; Closing Date:June 30, 1982
Preparation for prcject implementation has been considerably slowerthan expected, due largely to, delays in recruitment of personnel for theProject Management Unit (PMU) and the Wildlife Planning Unit (WPU). Projectimplementation should now accelerate as officers have recently been appointedfor the PMU. CIDA has expressed an interest in funding WPU posts, and sec-onded the acting head of the unit for about six months. Preparations forthe Tourism Pricing Study and the Very Large Herbivores Study are proceedingsatisfactorily. A supplementary letter giving more detailed proposals foranti-poaching operations to be financed by the Loan has been negotiatedand signed, and disbursements on this component can now begin. The Govern-ment has largely complied with the terms of the supplementary letter but somedetails remain to be finalized.
East African Community
There are currently five projects in execution in the East AfricanCommunity. 1/
Loan No. 638-EA - Second Harbours Project: US$35.0 million Loanof August 25, 1969; Date of Effectiveness; December 15, 1969;Closing Date: December 31, 1977
Loan No. 865-EA - Third Harbours Project: US$26.5 million Loan ofDecember 18, 1972; Date of Effectiveness: April 16, 1973;Closing Date: June 30, 1978
The Second Harbours project included financing for five generalcargo berths and a single bay tanker terminal for the Port of Dar es Salaam;two general cargo berths and a bulk cement wharf for Mombasa; tugs, lighters,cargo handling equipment, offices, housing and general improvements for bothports. The Third Harbours project included three new deep water berths,modernization of two berths and a lighterage quay, a training school buildingand central repair area for I)ar es Salaam; modernization of several berths anda ligherage quay, construction of a tug berth, cold storage facilities and a
1/ Since October 1, 1977,the East African Community loans (excluding theEast African Development: Bank) have been disbursed on the basis ofseparate national guarantees. The agreed allocation of undisbursedbalances for each loan, as proposed in a report to the ExecutiveDirectors dated December 29, 1977 (R77-312) and approved on January 12,1978, is given in this annex. The Closing Dates for Loans 638-EA,674-EA and 865-EA have passed. However, since the amount allocatedto and guaranteed by each Partner State is clearly identified underthe terms of the agreement signed on January 25, 1978, as proposedin the above report (R77-312), we are continuing disbursements.
- 38 -ANNEX II
training building in Mombasa and improvement of a lighterage quay in Tanga.Construction of all major project elements has been completed. Of theminor project elements, only two are still under construction, namely theimprovement of lighterage facilities in Tanga and reconstruction of shedsim Mombasa. Both are expected to be completed before mid-1978. Because ofshortage of funds under both loans, the following minor project elementshave not been submitted for Bank financing: the second phase of modernizationof the lighterage quay and a training school for Dar es Salaam; and moderniza-tion of the lighterage quay and a training school for Mombasa. Locallyfinanced contracts have been awarded for these project elements with theexception of the modernization of the lighterage quay in Mombasa. Generalcargo throughput has increased above appraisal forecasts for Dar es Salaam,and cargo handling productivity has improved with increasing throughput;however, port labor productivity has stagnated in Mombasa where generalcargo throughput has declined considerably. The ports of Kenya and Tanzaniaare now functioning completely independently of each other. Legislation toestablish a Tanzania Harbours Authority has been enacted, and a Kenya PortAuthority is expected to be established soon. Management of ports in bothcountries is competent. Some US$33.8 million of Loan 638-EA and US$25.4 mil-lion of Loan 865-EA has already been disbursed. The agreed allocation ofundisbursed funds at October 1, 1977 between the countries concerned is givenbelow:
For Loan No. 638-EA (US$ million)
Kenya 0.7Tanzania 0.6
Total 1.3
For Loan No. 865-EA
Kenya 1.7Tanzania 0.3
Total 2.0
Loan No. 674-EA - Third Railways Project: US$42.4 million Loanof May 25, 1970; Date of Effectiveness - October 30, 1970;Closing Date - June 30, 1978
The original purpose of the project was to complete the Railways'1969-1972 Development Program, including track improvement, procurement ofrolling stock and other equipment, and to finance studies of the economicfeasibility of certain railway lines and services. The physical execution ofthe original project has been seriously delayed due to administrative andpolitical problems within the Community. In November 1974, the ExecutiveDirectors approved a reallocation of the uncommitted balance of the Loan to beused for consultant services and emergency investments in track material. Allthree countries have now enacted legislation to establish their own RailwaysCorporations. The agreed allocation of undisbursed funds at October 1, 1977among the various countries concerned is given below:
- 39 -ANNEX II
(US$ Million)
Kenya 2.0Tanzania 3.8Uganda 1.9
Total 7.7
Loan No. 914-EA - Thir(d Telecommunications Project: US$32.5 millionLoan of June 22, 1973; Date of Effectiveness - September 19, 1973;Closing Date - December 31, 1979
The project included provision for procurement of local telephoneexchange equipment, cables and subscriber apparatus, microwave and UHF/VHFsystems and multiplex equipment, interurban cables and wires, automaticswitching and signalling equipment, telegraph, telex and data equipment,and training. All major works other than microwave system construction havenow been completed, despite initial delays caused by staffing and otherproblems associated with the reallocation of the headquarters. Funds dis-bursed to date total US$26.9 million and the balance has been committed forcables and subscriber apparatus, microwave and multiplex telex and tele-graph equipment. Because of the long lead time required for the microwaveequipment, the project is expected to be fully completed by mid-1979. Theagreed allocation of undisbursed funds at October 1977 among the countriesconcerned is given below:
(US$ Million)
Kenya 2.4Tanzania 3.5Uganda 0.1
Total 6.0
Loan No. 1204-EA - East African Development Bank: US$15.0 millionLoan of March 1, 1976; Date of Effectiveness - June 7, 1976;Closing Date - March 31, 1979
Over the last year, the environment within the Community has had anegative impact on EADB operations. Level of operations both for appraisaland supervision has been depressed, and there has been some deterioration inthe state of the portfolio with the arrears affected portfolio rising to 50%as of June 30, 1977. However, EADB has been able to retain nearly all itsstaff who are both adequate in number and technically competent to continuethe operation of the institution and effect some recovery in the portfolio.Some US$6.7 million has been disbursed to date, and the uncommitted balanceamounts to US$3.0 million.
- 40 -ANNEX II
D. STATEMENT OF IFC INVESTMENT IN KENYA AS ATOctober 31, 1978
Fiscal Year Obligor Type of Business Amount in US$ MillionLoan Equity Total
1967, 1968and 1973 Kenya Hotel Properties Hotels 5.2 0.7 5.9
1970, 1974and 1977 Pan African Paper Mills Pulp and Paper 13.1 6.3 19.4
1972 Tourism PromotionServices Hotels 2.4 - 2.4
1976 Rift Valley TextilesLtd. Textiles 6.3 2.8 9.1
1977 Kenya Commercial BankLtd. Capital Market 2.0 - 2.0
Total Gross Commitments 29.0 9.8 38.8less cancellations, terminations,repayments and sales 8.6 1.8 10.4
Total Commitments now held by IFC 20.4 8.0 28.4
Total Undisbursed 2.2 - 2.2
- 41 -
ANNEX III
KENYA
SUGAR REHABILITATION PROJECT
SUPPLEMENTARY PROJECT DATA SHEET
I. Timetable of Key Even ts
(1) Time taken to prepare the project: 17 months
(2) Prepared by: Government of Kenya with Bankassistance
(3) Date of first discussions with May 1975the Bank:
(4) Appraisal Mission: April 1977Post-appraisal Missions: October 1977 and
April 1978
(5) Negotiations: October 1978
(6) Planned Date of Effectiveness: April 1979
II. Special Bank Implementation Actions
No special actions required.
III. Special Conditions
(1) The Government ind SBCU would take all necessary action to recoverSBCU's outstanding loans; the Government would reimburse SBCU forthose loans whiczh cannot be collected or rescheduled (para 34).
(2) Until December :31, 1988, the Bank would be informed of any additionalinvestments beyond this project which would result in increasedsugar milling capacity and provided the opportunity to commentthereon (para 36).
(3) Sugarcane, ex-mill and sugar retail prices would be reviewedperiodically in consultation with the Bank (para 38).
(4) Signing of a Subsidiary Financing Agreement between the Governmentand individual sugar companies would be a condition of disbursementfor each sugar company being financed under the project (para 51).
(5) It would be a condition of disbursement for the individual sugarcompanies being financed under the project that the existingparent company loan at Ramisi and reserves at Miwani, Muhoroni,and Ramisi be converted into equity (para 51).
42 -
ANNEX III
(6) Execution of Letter Agreements between the Bank and eachof the sugar companies would be a condition of effectivenessof the Loan (para 53).
(7) None of the companies would enter into any management contractor permit renewal or amendment of any management contract towhich it is a party, without first informing the Bank and affordingthe Bank the opportunity to comment thereon (para 53).
(8) The results of a census of land ownership in the Sugar Settle-ment Scheme and a plan for allocating responsibilities and costs ofcultivation in plots owned by absentee landowners would befurnished to the Bank by September 30, 1979 (para 55).
(9) The Ministry of Labor, KSA and appropriate trade unions wouldproduce a study by December 31, 1979 of factors influencing laborsupply for cane harvesting (para 55).
(10) A Roads and Drainage Maintenance Fund would be established to ensurethe availability of adequate funds for road and drainage maintenance(para 56).
(11) No funds would be lent to any company for factory rehabilitationuntil KSA had approved the company's factory rehabilitation plansand designs (para 57).
(12) NIB would endeavor to recover all costs related to the irrigationcomponent (para 58).
(13) The Government would arrange for short term financing to thecompanies if the needed loans could not be secured from commercialsources (para 60).
(14) The Government would, by June 30, 1982, prepare a regional drainageand development plan acceptable to the Bank for the Kano plains(para 68).
IBRO 12900
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