Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 9601

PROJECT COMPLETION REPORT

GUYANA

UPPER DEMERARA FORESTRY PROJECTS(LOAN 1623-GUA/CREDIT 1555-GUA)

MAY 30, 1991

Agriculture Operations DivisionCountry Department IIILatin American and the Caribbean Regional Office

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

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Currency Equivalents

Currency Unit = Guyana Dollar (GS)Appraisal Exchaige Rate US$1 = GS2.55

Average 1989 Exchange Rate US$1 = GS10.00

Fiscal Year

Government of Guyana = 1 January to 31 DecemberWorld Bank = 1 July to 30 June

Weights and Measures

The metric system is used tbroughout the report

Abbreviations

AHT Agrar und rIydrotechnikCIDA Canadian International Development AgencyDWL Demerara Woods Ltd.,EDF European Development FundEEC European Economic CommunityEIB European Investment BankGOG Government of GuyanaIBRD International Bank for Reconstruction and DevelopmentIDA International Development AgencyIDB Inter-American Development BankSAR Staff Appraisal ReportTSA Timber Sales Agreement

THE WORtD BANK FOR 0MC4L USE ONLYWashington, D.C. 20433

U.S.A.

Opomens i o"tuOpmuww twaIaaou

May 30, 1991

MEMORANDUM TO THE EXECUTIVE DIRECTORS.AM) TEE PRESIDENT

sUBJECT: Project Completion Report on GUYANAUvper Demerara ForestrY Proiects (Loan 1623-GUA. Credit 1555-GUA)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on Guyana - Upper Demerara Forestry Projects (Loan 1623-GUA, Credit 1555-GUA)" prepared by the Latin America and the CaribbeanRegional Office with Part It of the report contributed by the Borrower. Noaudit of this project has been made by the Operations Evaluation Departmentat this time.

Attachment

This document ha a retricted disambution and maY bc used by redpienu only in the performanceof their omcial duties. its contents may not otherwie be disckoswd without World Bank autboriation.

FOR OFFICIAL USE ONLY

PROJECT COMPLETION REPORT

GUYANA

UPPER DEMERARA FORESTRY PROJECT(Loan 1623-GUA/Credit 1555-GUA)

Table of Contents

Page No.

PREFACE *-*e-¢@@+@*-@-*@vv*-**@*-*vv iEVALUATION SUMMARY ... ............. *....... ili

PART I - PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

1. Project Iden-ity ............................................ 1

2. Background .o3. The Project ............... ........................................................... 23. The ProJect ..... 24. Project Objectives and Description 35. Project Costs and Financing .... o.o. oo........ 36o Project Design and Organization.......... 47. Project Implementation 5.... ...... 58. Project Results ................. **.*. 69. Project Sustainability ......... 710. Bank Pe-zformance 711. Borrower Performance 812. Project Relatictiships 813. Consulting Services 914. Environmental Impact 915. Project Documentation .. *........*... ...... .. ... 9

PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ................ 11

PART III - STATISTICAL INFORMATION ... .................. ... ............. . 17

ATTACHMENT I - Commento from European Investment Bank ............... 33

ATTACHMENT 2 - Comments from Int-r-American Development Bank ........ 35

MAP - IBRD 22826

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

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PROJECT COMPLETION REPORT

GUYANA

UPPER DEMERARA FORESTRY PROJECTS(Loan 1623-GUA/Credit 1555-GIUA)

PREFACE

This is the Project Completion Report (PCR) for the Upper DemeraraForestry Project in Guyana, for which Loan 1623-GUA and Credit 1555-GUA inthe amounts of US$10 million and SDRs 8.7 million were approved on October1978 and August 1984 respectively. The Loan was closed in January 1985,the Credit in September 1987. The Loan was disbursed in April 1985, theCredit in May 1987.

The PCR was jointly prepared by the Agriculture OperationsDivision of the Latin America and the Caribbean Regional Office (Preface,Evaluation Summary, Parts I and III) and the Borrower (Part II).

Preparation of this PCR was started during the Bank's finalsupervision mission of the project in May 1987, and is baeed, inter alia,on information gathered at the Georgetown offices of the European EconomicCommunity, the Inter-American Development Bank, the Bank of Guyana andDemerara Woods Ltd., on the Staff Appraisal Report, the Loan, Guarantee,and Project Agreements, supervision reports, correspondence between theBank and the Borrower, and internal Bank memoranda.

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PROJECT CONPLETION REPORT

GUYANA

UPPER DEtERARA FORESTRY PROJECT(LOAN 1623-GUA/CREDIT 1555-GUA)

EVALUATION SUMMARY

Obiectives

1. The Upper Demerara Forestry Project was the first forestry project to befinanced by the World Bank in Guyana. The project, a logging and sawmillingoperation, aimed at increasing the exports of sawnwood products, promoting theuse of lesser-known species on international markets, improving the supply oflumber for domestic construction, developing the largely uninhabited hinterlandof the country and providing employment. To manage the project an independentstate-owned company, Demerara Woods Ltd. (DWL), was created.

2. At appraisal, project costs over 4 years (1978-81) were estimated atUS$30.5 million, US$22.7 million of which was to consist of foreign exchange.The Bank (IBRD) loan was to total US$10.0 million, sufficient to cover 33 percentof total costs and 44 percent of foreign exchange costs. The project was to becofinanced by the European Development Fund (EDF) (US$7.0 million), the EuropeanInvestment Bank (EEB) (US$5.0 million), and the Government of Guyana (GOG)(US$5.0 million). In 1985, due to cost overruns, the Bank (IDA) providedsupplementary credit of US$8.8 million. Additional funds were also provided bythe EDF, IDB and GOG. By the time the mill become operational in 1986, costs hadrisen to US$46.2 million, and eventually reached US$52.5 million. In August1986, all Bank disbursements to GOG were suspended, leaving an undisbursedbalance to the project of USS3.8 million.

Implementation Experience

3. The project encountered serious problems throughout. The constructionschedule proved to be over-optimistic. Tendering and bidding were to take sixmonths, but, in the event, they took two years, and cost overruns resulted. Toreduce costs, parts of the project were scaled down and the mill redesigned. Theconstruction of the mill was also slower than anticipated--instead of beingcompleted in 1980 it was not completed until 1984.

4. To power the sawmill, a US$10.0 million, 4.8 megawatt wood gassificationplant (EEC funded) was installed. Not orly was the plant too big (the totalpower requirement at the project area is about 1.3 megawatts) it was alsoinnovative and was largest of its kind in the world. It was a continuous sourceoi problems and never supplied more than 20 percent of the sawmill's powerrequirements. Sawmill design (EEC funded) and layout were also poor, the balanceof machines was inadequate, items of essential equipment (e.g., gantry crane)were omitted, the underground waste disposal system clogged-up and flooded during

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heavy rains and, having a single hydraulic system, the entire mill was often putout of action because of relatively minor faults with the hydraulics.

5. Management of the project was al.so weak, mainly because of the difficultiesof obtaining skilled personnel in Guyana. The situation was exacerbated by thedifficult living conditions at project site (Mabura) which is over 150 km. fromthe nearest major settlement (Linden) and has very limited social facilities(shops, schools, entertainment). Because of this, management was split betweenNabura and Georgetown and this served to weaken an alrsady weak structure.

Results

6. The project has achieved limited success only. On the positive side it hasprovided access to an otherwise inaccessible area, it has established a logharvesting operation in the area together with a sawmill complex, it hasestablished a town for 1,500 people and has provided permanent employment forover 400 persons per year. However it has not est6bl4shed a port facility, ithas not established a wood-fired power facility capabl. of meeting the needs ofthe project area, it has not undertaken research into the most appropriatemethods for forest management and production and exports have fallen far shortof expectations. The most succeseful component of the project has been logharvesting; this has been well managed and a long-term harvesting plan is inplace, it has been continually producing sawlogs, piles, poles and posts and islargely responsible for what small income the project has realized. The sawmill,for reasons outlined earlier, has never achieved move than 37 percent of itstheoretical installed capacity (41,000 m3 per annum) and has rarely attained morethan 25 percent of export targets. However, even without breakdowns it isprobable that it would not have met its targets--mainly because the mill asdesigned could not easily produce the type of lumber (2" x 4", 9" and 3" x 12")required by the market.

Sustainabilltv

7. During 1990 DWL's debt-equity ratio had reached 300:1 and the company/project appeared to be heading for collapse. On the other hand most largeprivate sawmills in Guyana have continued to produce during the last decade andmany have prospered despite the difficult country economic situation, and despitenot having had access to the rich forest resources similar to those available tothe project. With better mill design, a convenxtional power plant and bettermanagement (private ownership) the project could have been very successful.

8. The GOG now recognizes that the successful management of DWL is beyond itscapacity and, under its program of divestment, hopes to dispose of the companyearly in 1991.

Findinfts and Lessons Learned

9. The principal lessons to be learned from the project are:

(a) large-scale innovative technology should never be incorporated intoprojects;

(b) in sawmilling projects detailed attention needs to be paid to milldesign and technical specifications of equipment and machinery;

(c) unless a clear precedent exises, it should be assum6d that state-owned sawmilling enterprises are unlikely to succesdS

(d) great *are needs to be taken to ensure that adequate human resourcesare available to %mplement a project (in Guyana a lack of humanresources was apparent at time of appraisal), and whero seriousproblems exist it cannot be assumed that project support trainingvill necessarily solve the problem (the trained personnel simplymove on elsewhere);

(e) wher, a project is to be cofinanced by several agencies, one agency,preferably with a resident representative, must adopt a lead rolefrom time of preparation to ensure that the whole package is sound.

PROJECT COMPLETION REPORT

GUYANA

UPPER PEMERARA FORESTRY PROJECT(LOAN 1623-GUA/CREDIT 1555-GUA)

PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Project Identity

Project Name Upper Demerara Forestry Project

Loan No. : 1623 GUA

Credit No. : 1555 GUA

RVP Unit LA3AG

Country : Guyana

Sector : Agriculture

Sub-sector : Forestry

2. Background

2.1 Eonr.nc Overview. During the period 1980-90 Guyana's economy hasbeen in a state of s .ady decline. Between 1981-83 ODP showed a cumulative declineof 21% after which it has rarely shown significant posidve growth; in 1988, for example,growth was down by 4.1% compared to 1987. During the same year the production ofits pnrncipal commodities, sugar, rice, bauxite and timber declined by 24%o, 12%o, 6% and35% respectively.

2.2 As a result of weak economic performance, investment as a percentage ofGDP has declined steadily since 1981; it stood at 21% in 1985 compared to 33% in 1981.

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The deciine resulted from a worsening fiscal situation, a lack of foreign exchange and adrop in external project-related public and private inflows. Private investment has beenstagnant since 1981. As a result of foreign exchange shortages, productive activity inGuyana is substantially below capacity. The country's econoniic ills have been worsenedby emigration which has been taking place at the rate of 1% per annum in recent yearsand this has reduced the population from around 800,000 in 1990 to around 600,000 in1991

2.3 Sector Deveiopment Objectives (at tirm.e of appraisal, 1978). Despite the factthat forests covered 83% of Guyana's territory the forestry sector contributed less than1% to GDP and the country was a net importer of forest products (US$5.6million/annum). Exports were declining and employment in the sector was stagnating.The Government of Guyana's (GOG) development objective in the sector at that timewas to increase production of sawn timber both for domestic production and for export.This it was to do by investing some US$39 million over 3 years in public sector forestryenterprises. Development of the private sector was to be encouraged through financeprovided through the Guyana Agricultural Development Bank.

2.4 Polia Conlext. In view of the insignificant part played by the forestry sectorin economic development, the GOG's policy with regard to forestry was to promote theuse of lesser known species both at home and abroad, stimulate the development of thepublic and private sector wood using enterprises, increase exports and strengthen thecapacity of those government institutions responsible for forestry.

2.5 Linkages Between Project. Sector and Macro Eolicy Objective .Conceptually, the project strongly complemented the GOG's sector objectives. It alsosupported the GOG'S macro policy objectives to increase exports, diversify the economy,develop the uninhabited hinterland of the country, intensify state involvement in theindustrial sector, and provide employment.

3. The Project

OrigiD

3.1 The Upper Demerara forestry Project originated in mid-1971 when the GOG,following a forest inventory carried out earlier that year by FAO/UNDP, asked the Bankto exs'mine the feasibility of a forestry project in the Upper Demerara area (Map 1). AnFAO/CP identification mission visited the country in late 1971 and proposed a loggingand sawmiUing operation with a sawnwood output of about 41,000 m3, much of whichwas to consist of lesser known spe-ies. By the end of 1972 the Bank had reviewed theFAO/CP proposal, and a marketing study had been carried out by CIM A. At the sametime the GO initiated construction of the 130 km access road to the p -. ject area (Map1). In 1973 the GOG contacted a well-established Canadian forestry products company,(McMillan Bloedel Ltd.,) to ascertain its interest in a joint venture operation. TheCompany and GOG carried out a joint feasibility study on the project (which wasdoubled in size) but after lengthy negotiations no agreement was reached and McMillanBloedel eventually withdrew.

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3.2 Project proposals were scaled back to theii original size in late 1976 with niillproduction during the early years being concentrated on marketable species; lesserknown species were to be introduced gradually in response to market demand. Theproject, which had a period of 4 years, was appraised in September 1978 and the loanbecame effective in May 1979.

4. Project Objectives and Description

A1 rQect Objectives. Project objectives were to increase exports of easilymarketable wood products, promote the use of lesser known species on intemationalmarkets, improve the suipply of lumber for domestic construction, particularly housing,develop the, hinterland and provide employment. About 80% of output was intended forexport with the remainder being absorbed by the domestic market. The mill's output wasintended to consist of 95% primary (marketable) and 5% lesser known species, with theproportion of the latter increasing in step with the GOG's efforts to market them.

4.2 Proiect Components. The project had 6 major components, namely (a)vehicles and equipment to log 93,500 m3 of roundwood per year; (b) a sawmill,including repair shops and transport fleet, with an annual double shift output capacityof 41,000 m3 of lumber; (c) power facilities, with an installed capacity of 6,000 kW-ased on waste wood fuel; (d) a town for about 1,500 people, including 500 employeesand their families; (e) port facilities with 13 km of access road; and (f) a researchprogramme to develop an appropriate forest management system for the type of forestto be harvested. The project also provided for consultancy services in engineering,construction, supervision, and mill management.

4.3 The project was to be implemented and operated by an independentgovernment-owned company, Demerara Woods Co. Ltd., (DWL) which was to beestablished for that purpose.

S. Project Costs ar.d Financing

5.1 Project costs were estimated at US$30.5 million (G$77.8 million), the fareignexchange component having been estimated at US$22.7, or 74% of total costs.

5.2 World Bank (IBRD) financing was to total US$10 million sufficient tofinance 33% of total project costs and 440% of all foreign exchange costs (US$22.7million). The project was to be co-financed by the European Development Fund (EDF)(US$7.0 million), the European Investment Bank (EIB) (US$3.5 million), the IIB(US$5.0 million), and the GOG (US$5.0 million). The Bank's contribution was tofinance logging equipment, the township, the port facility, research, consultants, andinterest during construction; the IDB's contribution was to finance the sawmill; theEDFs contribution was to finance the power plant and consultants, and the EIB andGOG's contributions were intended mainly to co-finance the township and port facility.

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6. Project Design and Organisation

6.1 The concept was clear and straightforward in that it intended to mobilizebadly needed financial resources through the exploitation of untapped forest resourceswith proven markets - the extent of which had been carefully assessed prior toimplementation. It was clearly understood by all parties, and with over 75 sawmills inthe country, the project concept was in no way innovative.

6.2 The scope, scale, and timing of tE.e project were appropriate, and the rolesand responsibilities of institutions responsible for the project were clearly defined andunderstood. However project scheduling was extremely optimistic (para 7.2) and theproject suffered from both technical and administrative shortcomings - these arediscussed below.

6.3 To manage the project, a state-owned company (DWL) was created. At thetime of appraisal there was no clear precedent to suggest that a state-owned companycould successfully operate a large sawmilling enterprise successfully in Guyana. In factthe reverse was the case; the only other large state-owned sawmill (Guyana Timbers)was struggling to survive. A further mistake was having management split between theproject site and Georgetown. All management, with perhaps the exception of themarketing director who needed to be in Georgetown to communicate with shippers andbuyers, should have been situated at the project site, (though this might have beendifficult in practice because of the harsh living conditions in If ibura - section 6.6).

6.4 The project, as originally conceived, provided for a steam power plant (EEC-funded). However, during tender evaluation this was dropped in favour of a woodgassification plant, the justification being that the wood gassification process was moreefficient, that there was insufficient water at the site to operate a steanr. plant, an. thatthe water avaiiable was too acidic. The gassification plant which ccost US$10 m wasnever successfully commissioned because of technical problems, and has ':;en a seriousliability. Failure to commission the plant delayed mill start-up by two years, and sincestart-up (1986) the gassifier has never supplied more than 20% of the mill's annualpower requirements. Most power has been supplied by two standby diesel generators,the operating cost of which has been high.

6.5 Mill design, as prepared by the original consultants (EEC-funded) was alsovery poor. The balance of machines was inadequate in that the band headsaw could notkeep the gangsaw fully supplied with lumber. A cross transfer system between the mill'stwo production lines was not included, there was no overhead gantry crane in the millto manoeuvre logs, the entire mill was served by a single hydraulic system which, whenout of order, crippled the whole mill, and the underground waste (sawdust and slabs)disposal system flooded during heavy rains.

6.6 The siting of the wrill also created problems. In theory, locating *he mill andtownship in the forest (Mabura) appeared to make economic sense; but in practice thedifficulties of living in such a remote area with poor amenities (shops, schools,entertainment) proved considerable and the project had difficulties in retainingexperienced staff. Furthermore the site was apt to flood during heavy rains.

7. Project Implementation

7.1 The project was plagued with problems from its early stages. The 2/2 yearconstruction schedule (tendering, bidding, construction and start-up) proved to be overambitious. In fact tenders were not opened until 2 years after appraisal when it wasfound that cost overruns (due to inflation and cost under-estimates) on majorcomponents ranged from 56% for the power plant to 100% for the sawmill (Part III,Table 5). Consequently certain components were either scaled down (town, port facilityand power plant) or dropped entirely (research component) and a lengthy re-tenderingprocess commenced.

7.2 Construction of the mill was also slow and by 1983 works were 45% behindschedule. Slow progress was due to the need to redesign the sawmill and infrastructure(to effect cost savings). This in turn posed problems for the contractor (van Kessel) whowas obliged to increase unit costs to maintain profit margins. The contractor eventuallywithdrew and initiated legal proceedings against DWL (still pending) who had toundertake the work themselves. The mill was eventually completed in 1984, three yearsbehind schedule. However, because of a dispute between the manufacturer of the woodgassifier (Imbert) and DWL, Imbert refused to send a team to conunission the gassifierand DWNL decided to do it themselves. Damage resulted (tar formation) and the plantwas put out of actior.

7.3 Despite having reduced the scale of the project, cost over-runs wereunavoidable and, in 1985, the Bank (IDA) provided supplementary credit of US$8.8 m(Credit 1555) to bring the project into full production. Additional funds were alsoprovided by the IDB, EDF, and GOG, bringing project costs to US$46.2 m. Totalproject costs eventually reached US$52.6 m.

7.4 In 1985, utilising part of the supplementary credit (1555) DWL purchased two425 kW diesel generators to power the sawmill. Production commenced in 1986, fiveyears behind schedule. In August 1986 all Bank disbursements to Guyana weresuspended (due to GOG's failure to meet debt repayments) leaving an undisbursedbalance to the project under Credit 1555 of around US$3.8 m. (Having recently madearrangements to clear its debts the Bank is now considering whether to recommencedisbursements to the project).

7.5 Throughout its operations the project has encountered serious problems.Despite the provision of technical assistance from the EEC all attempts to successfullycommission the wood gassifier (the design of which ;s now suspect) have failed and this,together with poor mill design and frequent breakdowns, have severely limited milloutput. However, even without these problems, it is doubtful whether the mill, asdesigned, could ever have achieved more than 70% of its rated capacity. Additionalproblems were caused by weak management, a general shortage of foreign exchange topurchase spare parts and a shortage of trained, experienced personnel.

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8. Project Results

8.1 The project has achieved limited success only. On the positive side it hasprovided access to an otherwise inaccessible area, it has established a log harvestingoperation in the area together with a sawmill complex, it has established a town for 1,500people and has provided permanent employment for over 400 persons per year.However it has not established a port facility, it has not established a wood-fired powerfacility capable of meeting the needs of the project area, it has not undertaken researchinto the most appropriate methods for forest management ar,d production and exports(see para 83) have fallen far short of expectations.

82 The most successful component of the project has been log harvesting; thishas been well managed and a long term harvesting plan is in place, it has beencontinually producing sawlogs, piles, poles and posts and is largely responsible for whatsmall income the project has realised.

83 The sawmill, for reasons outlined earlier, has never achieved more than 37%of its theoretical installed capacity (41,000 m3 per annum) and has rarely attained morethan 25% of export targets. However, even without breakdowns it is probable that itwould not have met its targets - mainly because the mill as designed could not easilyproduce the type of lumber (2" x 4", 9" x 9"and 3" x 12") required by the market.Targeted mill output and actual output together with exports are shown below.

Mill Output

__ _ -1 1 S - 1 -4 19 1, 1X,7 1SO 1Mill ouwtp. 10,000 41,000 41,000 41,000 41,000 41,000 41,00 41,00 41,000

Ict PT(m3) . - - -

Min ltpt - 0 0 0 0 117 7,4 1,171 10X91 8,663

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e (VatM)

1381 19U 33 1384 33 136 137 19 139lii- -- _~ -- __ __ - II

Enpai". ? 33,000 33,000 33,000 33.000 33,000 33,000 33,oo0 33,000

Projec Taret (in)) - -- - - - -

.P_P Acual 0 0 0 0 to0 480 5,400 2,400 2,000

8.4 Tbe project's financial rate of return is negative (see Part 3 and Table 6) andit has sustained considerable financial and economic losses. To illustrate the point, if theGOG was to divest itself of DWL. the company would need to be sold for US$80 m togenerate a financial rate of return of 14% (Staff Appraisal Report). If disposed of forUS$40 m the rate of return would be barely positive. The only bid received to date hasbeen for US$3 million. Cumulative net losses for the project total US$140 m.

9. Project Sustainability

9.1 During 1990 DWL's debt-equity ratio had reached 300:1 and thecompany/project appeared to be heading for collapse. On the other hand most largeprivate sawmills in Guyana have continued to produce during the last decade and manyhave prospered despite the difficult country economic situation, and despite not havinghad access to the rich forest resources similar to those available to the project. Withbetter mill design, a conventional power plant and better management (privateownership) the project could have been very successful.

9.2 The GOG now recognizes that the successful management of DWL is beyondits capacity and, under its programme of divestment, hopes to dispose of the companyearly in 1991.

10. Bank Performance

10.1 The Bank has shown a high level of commitment to the project throughoutbut mistakes made early on in the project cycle severely undermined its viabili.{.

10.2 The Bank should not have concurred with the proposal to install a largeinnovative power plant. The plant was the largest of its kind in the world, and thetechnology new to Guyana. Its incorporation in the project was a serious mistake.

10.3 Not enough care was taken to review the work of the sawmill designers (EECfunded). They produced a design which proved to be seriously lacking. The siting of themill at Mabura should also have been given closer examination.

10.4 There being no clear precedent for the profitable operation of a large state-owned sawmilling operation in Guyana, the Bank should have questioned the justificationfor further state involvement in the sector. It should have been clear that a state-ownedcompany had a slim chance of successfully implementing such a large sawmlli&goperation.

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105 No criticism can be levelled at the quality of supervision; the project wasintensely supervised during the early stages (2 missions a year up to 1986) and the majorproblems were clearly identified early on in the project. However, such was the gravityof the problems (gassifier, mill layout, management) that Bank assistance was unable toreverse the downward trend.

10.6 The principal lessons to be learnt from the project are:

(i) large-scale innovative technology should never be incorporatedinto projects;

(it) in sawmilling prc ects detailed attention needs to be paid to milldesign and technical specifications of equipment and machinery;

(iii) unless a clear precedent exists, it should be assumed that state-owned sawmilling enterprises are unlikely to succeed;

(iv) great care needs to be taken to ensure that adequate humanresources are available to implement a project (in Guyana a lackof human resources was apparent at time of appraisal), andwhere serious problems exist it cannot be assumed that projectsupport training will necessarily solve the problem; (the trainedpersonnel simply move on elsewhere);

(v) where a project is to be co-financed by several agencies, oneagency, preferably with a resident representative, must adopt alead role from time of preparation to ensure that the wholepackage is sound.

11. Borrower Performance

11.1 The borrower's commitment to the project has been strong throughout andconsiderably dexterity was shown to ensure that the project did not collapse at an earlystage. However, problems of recruiting and retaining high calibre staff seriously inhibitedthe borrower's ability to properly manage the project. Staff turnover was high and therewere considerable weaknesses in such areas as accounting and financial control.Deficiencies in stores procedures and inventory control were also serious. Theseproblems were due to a general countrywide shortage of skills, low salaries and difficultliving conditions at Mabura. The latter problem not only made it difficult to recruit staffbut also necessitated locating the company head office in Georgetown, thus splitting andweakening management. Added to this, shortages of foreign exchange in Guyana madeit difficult to obtain spare parts.

12. Project Relationships

12.1 Despite the problems encountered by the project, and despite the fact thatBank disbursements to Guyana were suspended in 1986, working relationships betweenthe borrower and the Bank have remained good throughout.

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13. Consulting Services

13.1 The performance of most consultants was good but the performance of Agrarund Hydrotechnik (AHT) was lacking. In 1981 they took over responsibility for projectaccounting, but a year later no system was in place - apparently because of a rapid turn-over of staff - and weak accounting continued to be a problem throughout the project.AHT was also responsible for project management in the early stages, but due to theirpoor performance their contract was terminated in 1983. They were also responsible forthe design of both sawmill and gassifier plant, both of which were poor. Tne competenceof the manufacturers of the gassifier plant (Imbert) - the design of which is suspect - isalso questionable. The problems encountered with the civil enginee:s (K van Kessel)responsible for mill construction were due mainly to the fact that mill design waschanged and this adversely affected their profit margins. They had little choice but towithdraw.

14. Environmental Impact

14.1 The enviromnental impact of the project was to have been monitored underthe research component, but this was dropped in year 2 of the project due to cost over-runs. Because the project has produced very little wood the environmental impact onthe area has been slight. Logging has been selective and there has been no uncontrolledsettlement. In 1987 however, DWL's best year, logging eficiency improved and thedamaging effect on the forest, though very localised, is evident. Had the project achievedits production targets the environmental consequences would have been serious. Theconstruction of the road into the area, however, has led to some fire damage along thisroad south of the Wismar - Rockstone junction (north of the project area).

14.2 With the prospects of divestment to foreign investors, intensification oflogging activities poses a serious environmental threat to the area and the GOG willneed to review the terms of the timber sales agreement (TSA) to ensure that thenecessary environmental safeguards are in place. At present there is no regulatoryactivity in the area to ensure that the provisions of the TSA are being adhered to, andthis will also need to be addressed. A small research area (900 ha) was established in1987 under the Dutch-funded Tropenbos project and this should, during the next 10years, provide valuable information on management of the forests in the area.

15. Project Documentation

15.1 The legal agreements relating to Loan 1623-GUA and Credit 1555-GUAwere adequate; strengthening these legal agreements would not have averted theproblems encountered during project implementation.

15.2 Subsequent developments (cost overruns, delays in implementation, failureof the powerplant, shortage of foreign exchange for the purchase of spare parts, etc.,)meant that the management of the project was exclusively preoccupied with day-to-dayresponses to continual crises, rather than with a longer term programme to achieveproject objectives. The Staff Appraisal Report (SAR) was therefore of limited relevanceto those responsible for project implementation. This was not, for the most part, due to

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deficiencies in the SAR. However, lack of precision on technical aspects of projectdesign (in particular on sawmill layout and wood gassifier) at the appraisal stage mustbe held partly responsible for the problems that were later to bedevil these components.

15.3 In the early years of the project DWL's accounting procedures wereabsolutely deficient and no formal data base was generated. It was a condition ofdisbursement of the supplementary credit that accounting procedures and financialcontrol be tightened. From 1985 accounting was adequate, although project data ingeneral remained deficient. Thus, although audited accounts permit calculation of totalproject costs, the mission was unable to obtain any information on project costs accordingto the expenditure categories envisaged by the World Bank and the other financingagencies.

- 11 -

PART II

PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

- 13 -

GUYANA

UPPER DEMERARA FORESTRY PROJECT

(Loan 1623-GUA)

(Credit 1555-GUA)

PROJECT COMPLETION REPORT

PART IT

A. Demerara Woods Limited considers the factual information contained in PartIII of the Project Completion Report (PCR) to be accurate in all respectsexcept for Table 6C - Financial Impact.

A revised Table 6C is presented hereunder which incorporates correctedfigures for the years 1987, 1988 and 1989 in accordance with our auditedrecords:

Table 6

C. Financial Impact

Project Cash Flow

Cumulative 1989 $ G'OOOCosts Cumulative

FY Revenue Operating Capital Net Flow 1 Net Flow 2 Net Flow

1979 4.90 300.10 5010.10 - 5305.90 - 58806.59 - 58306.591980 .50 1289.20 5656.10 - 6824.80 - 65623.08 - 123929.671981 437.00 3649.20 10669.60 - 13887.80 - 108498.44 - 232428.101982 2367.80 5240.60 33735.40 - 36608.20 - 237715.58 - 470143.691983 4352.00 5969.20 35725.00 - 37342.20 - 210972.88 - 691116.571984 2242.40 3944.70 39392.80 - 41095.10 - 185113.06 - 866229.631985 3580.20 14302.00 33263.20 - 43985.00 - 172490.20 - 1038719.831986 9109.10 99001.60 49215.00 - 49107.50 - 177925.72 - 1216645.551987 39830.40 39088.00 45364.30 - 45221.90 - 127385-64 - 1344031.191988 46570.80 65449.80 17641.50 - 36520.50 - 173630.02 - 1917661.211989 51262.40 61976.30 2388.40 - 34002.30 - 34002.30 - 1451663.51

The constant 1989 $G figures for 1987, 1988 and 1989 have been recomputedin the foregoing presentation using index numbers implicit in Table 6C aspresented in Part III of the PCR. These index numbers are:

1987 281.691988 201.611989 100.00

- 14 -

B. No comment can be made on the values of the actual or implied indexnumbers used in the table as this is beyond DWL's scope. It suffices tonote that the attribution of the source of table's data to DWL is notentirely appropriate.

Demerara Woods Limited is essentially in agreement with Part 1 of theProject Completion Report. The report in several instances, suggests thatthe state ownership status is an intrinsic factor in the lack of successof the project. However, there is nothing in the narrative of Part 1 onwhich such a 'onclusion can be seen to be based. The major design faultspoor mill siting and uesign experimental energy source od the projectcould easily have stymied the efforts of even a private sector company.Admittedly certain Governmental actions and policies in relation toDemerara Woods Limited eg. public sec.tor wages guidelines and regulatoryframework, could possibly have contributed to the company's lack ofsuccess. But what ought to be questioned is the nature of Governmentpolicy in relation to a state-run saw milling enterprise rather than theintrinsic feasibility of a state-run sawmilling enterprise.

Notwithstanding the foregoing, it is arguable that a private sectorcompany may not have placed the great trust placed by the Government, inthe Consultants employed in the engineering design of the project.

An update should be given in relation to exchange rates and the status ofdisbursements, the Van Kessel controversy and the divestment of DemeraraWoods Limiteds

i) the exchange rates at what is termed the 'Cambio' is now almostG$130s US$1.00. Care must therefore be taken in convertingcumulative net losses of the project from Guyana dollars into USdollars as done in section 8.4 of Part 1 of the PCR.

ii) Bank disbursements to the project resumed in mid 1990, and DIWL'sdebts to civil engineers Van Kessel have been fully paid off.

iii) On 16th February 1991, an agreement wan signed under which theassets and undertakings of Demerara Woods Limited will, withinninety (90) days thereafter, be sold to another company.

C. Demerara Woods Limited concurs that 'The Bank has shown a high level ofcommitment to the project throughout'. A great deal of understanding andappreciation of the problems experienced in the project has beendemonstrated by the Bank, along with a willingness to do whatever possibleand plausible to assist in overcoming these problems.

As regards Borrower performance, as alluded to before, the extent of trustand good faith shown by Government while in itself praiseworthy, has ledto the acceptance of recommendations which ultimately did not work infavor of the project. Instances of this are the acceptance of a sawmilldesign consultant inexperienced in mill design, acceptance .-f the projectand sawmill design and acceptance of the novel concept of wood gasificat-ion as the sole source of energy for the project.

- 15 -

The use of a forest expert as Project Hanager during the engineeringdesign and construction stage was probably ill-judged on the part of boththe borrower and lenders. In future projects care should be takeuA toassess their essential component, and subsequently to apply the relevantskills to the specific aspects of the project.

Certain covenants were set out in the loan and project agreements and wereconditions which Government had to comply with for the free ftuctioning ofthe company on a commercial basis. Hore attention could have been givento the operating climate of the company, given the government controls andregulations governing public corporations. Such regulations have inseveral cases, curtailed the 'normal' commercial operation of DWL ascompared to its competitors in the industry. It may be useful to studythe operating climate of state enterprises in future and assess counterproductive regulations; loan/project agreements should then carrycovenants to ensure a relaxation of these regulations so as to bring theoperations of the company more in line with normal commercial practice.

D. The relationship between the Bank and the Borrower has been a most cordialone throughout the evolution and esecution of the project.

E. The performance of the co-financiers has been satisfactory, except thatthe level of bureaucracy has at times been frustrating. Notably there hasbeen some reluctance observed to accept comments form the Borrower or DIL,critical of certain aspects of the project. For the future a morereceptive attitude on the part of lenders, to comments, criticisms andcontributions form the borrowers and executing agencies could bebeneficial at all stages especially the selection of contractors andconsultants.

- 17 -

PART III : STATISTICAL INFORMATION

Table 1

Related Bank Loans and/or Credits

None

- 18 -

Table 2

Project Timetable

Item Date Date DatePlanned Revised Actual

Identification 12/71 - 12/71

Feasibility study 11/74 - 11/74

Appraisal 9/78 - 9/'.8

Loan (1623) negotiations 9/78 9/78

Board approval 10/78 - 10/78

Loan signature 12/78 12/78

Loan effectiveness 5/79 - 5/79

Loan closing 12/83 - heldopen

Credit (1555) negotiations 7/84 - 1/85

Board approval 8/84 3/85 3/85

Credit signature 3/85 - 3/85

Credit effectiveness 9/85 - 9/85

Credit closing 3/87 - heldopen

Project completion 9/87 -8/90

- 19 -

Table 3

Loa/Cmdit Dsbunemeaw

a) lEm 1623.GUA (3RD)

Cumulative EaimggD AtILMems

(USS miilion)

_3 1g 11 I- 194 197i

Appasl estimate 1 4.2 83 95 9.9 tO

Revised estimate (Dec 1) S s.8 9.2 310

Actual 0 1.7 2.9 $.1 7 8.4 t_

Actual as pecentage of 0 40 34 54 73 84 100appraisal estimate

Date ot rinal disbutement

Ti'me line 2r p1oland apd, agta ibreet

LIS S rm10

8 =~

4

2-

01978 1970 1980 1982 1983 1984 1988

_- -- Apgtmlaal* lUltMt

*.........Revaedkmate

Acujal

- 20 -

Table 3

b) Cadit L5SS-GUA (MDA)

Cumulative Estimated and Actual Disburs6ments

(SDRs million)

______.________________.____,_ 1985 1986 1987

Appraal esimate 1.5 8.4 8.7

Actual 0.6 5.8 5.8

Actual as percent of estimate 40 69 69

Time line of nianned and actual disburs=em

0~~~~~~

so8fB -- , -,A

//

0 * // ~/ .... e .|

///

//

n r-= F~

/ __,,_

- 21 -

Table 4

Planned and Actual Completion Dates of Components

rec CI_OM ra" AfC.m O Deby

to _sazucm of awmill and intalbtion of equipment April '8t 1984 3/ 36

Constructionof powerue and installation of equipment Apl 1 1984 / 36

Purhm at kbuin equipment Feb 0 Ju 12 / 25

Contuctioo townshp Dec 10 Jm '82 j/ 16

Con_d-inoport fcilitles Dc w -8

J/ Amhougb this component was completed in 1984 the sawmill did not beom pea until t followQyer, wen upplementary eaedit ISSS enabled purchas of two dibsel penet to supply power in viewof the ntdnued non-functioning of the gausifier.

2/ Although the powerhouse was constructed and most equipment AUstaled by 1984 the gassier waerprpedy eommsioned nor fully opemtional.

/ By this date most logging equipment had been purchased, aIthour lowng operations were able to commencIn 1981.

i/ By this date aeommodation was available for projet pesnnl a"hough constructin was not completed.

5/ This component was seely scaled down due to cost omrrunsL

- 22 -

Table S

F-jt Ciw aud Fhaadq

A. F-JMCM (UN V000

- s. Red B.m A .

Loli; nd tnspot 44 2003 2,047 100 9,500 9,00.

S Imu 740 3,729 4,469 1,400 9,200 10,600

Pwe. staic 19 4,617 4,636 700 4,100 9,800

TbwuhIp 3,286 1,478 4,764 6,200 700 6,900

Port aclides 2,242 1,650 3,892 S00 S00

Fot mangment earch 200 200 * 200 200

Conutnus 2,707 2,707 300 4,100 4,400

Wokidug apital . . 1.600

Corstingenus 1,496 4,580 6,076 1,100 1,100

Iaacot s 1,706 1,706 2,200 2,200 6,5143/

Cii Wo*r 16,9S4

Plat and equipment and motor 29,143vehiles

Tal 30,497 46,9001 _______________________ _ _______________________ _____________________ _ . . ,S 6i1.4/

j/ The Revised Conn Estimates were prepafed in 1984 as a basis for supplementary credit 1SSS.GUA. Reasonfor the major est escaations on all components (except Port Facilities which wete severely cut backand Fores Management Research which was ultimately dropped) are discussed in Part 1.

1 As discused in Part 1, (Project Documentation), project data were never, even after improvement ofaccountcy, recorded or presented in such a form as to permit any distinction to be made neitherbetween project cos according to the categories established at appraisal, nor between local costs andforeipn coss

3/ Financal cot, the only category in which direct comparison between estimated and actu; costs isposible, crepond mainly to interest chargs during construction. Ihe esaltion in these costIs duo to the delays in implementation.

J/ It sbould be stesed that the figure of USS32.6 million represents an approximation of ptject costsgen the defectie accounting in the project's early yas

23 -

Table 6

Project ResulL

A. Direc BSllts

Iaditou As PauJat M pi

Sawmll to be at fll capadty Sa_m Podction by Year (m3)by June '8Z produing 41,100 m3 per annum

im iws 137 su

1217 19SI IS,171 1 0,919 ,

10% of prduction to be exponed Expo Slas a Pamentp d Totl Sles byValue

i 1 19116 1937 | 19 191

___________________ 14 16 1 10 24

Product MiL Approdmately SO% of ales to Oreenhe amounts for so 80% of sbe of geenheat. Markets for leor known Remaindr of sales confined to wnll kmospecies to be developed spcies

Direct employment at Mabura for about 500 350 persons employd at Mabuma st Maypersons. I9go.

- 24 -

Tabe S

samue Flamas Ravhad ia(Lua 162inUA) (LA 162inGUA

A C& ISSGUA)

MRD/MDA

Hxperdit categories

Logng and tmsport 19 9.6

Townsip 18 2.6

Port facilities it

Forest Management Rescarch/Wood Technology 02 02Research

Consultants 25 2.8

Sawmill 1.2

Financialcts 15 1.3

Continencies 1.1

Toall MRD/IDA 10 18. 1S /

IIDB S 6.8 72

EXDP 7 9 9

Goaernat I/ 85 12.3 21.4

Total all surcs 30.5 46.9 56

3/ The Govemment's contribution includes the proceeds of a USS4 million European Investment Bank loan.

/ See Table S (A) Footnote 2.

The final figure for IBRD/IDA financing does not include USS3.8 million held in suspension. TheGovemment's contribution would be correspondingly reduced.

25 -

Table 6

B. Economic Impact

Appraisal Estimate Actual

Economic Rate of Return 16% Negative(ERR)

Underlying Assumptions

1. At appraisal the economic life of the project was assumed, for purposes ofcalculating rates of return, to be 25 years. The mission has calculated theERR over a 10 year period. The magnitude of losses hitherto is such that evena dramatic improvement in project performance over the next 15 years would failto generate a positive rate of return.

2. A shadow exchange rate of US$1 = G$3 was adopted at appraisal as against the1978 official rate of US$1 = G$2.55. This shadow exchange rate proved over-optimistic. For several years of the investment period the US dollar sold onthe parallel market at up to 5 times the official exchange rate. Given the pre-ponderance of foreign costs in total project costs and the relatively insignif-icant foreign exchange earnings element, it has not been considered necessary toconvert financial prices into economic prices since the only result would be togenerate an ERR that would be, as it were, even more negative.

3. It was assumed at appraisal that domestic inflation over the investment periodwould average 9% per annum. In the event domestic inflation over the investmentperiod averaged 18%.

4. It was assumed that the ERR would be superior to the financial rate of return inview of the foreign exchange premium and the anticipation that 80% of productionwould be exported. The reverse occurred.

- 26 -

Table 6

C. Financial Impact

Appraisal Estimate Actual

Financial Rate of Return 14% Negative

.G.j cash HoG lo

p1' Rnvenu Operating Capital Net Flow I Net Flow 3 Qamulativre Flow

1979 4.90 300.10 5010.70 -5305.90 -58306.59 .S830659

1980 12050 1289.20 56S6.10 -68243.0 65623.08 -123929.67

1981 431.00 3649.20 10669.60 -13887.80 .10849.44 -23242810

1982 236780 5240.60 33735.40 -660"20 -23771.58 -470143.69

1983 4352.00 S969.20 35725.00 -3734220 -210972A8 .691116S7

1984 2242.40 3944.70 39392.80 4109S.10 -185113.06 486632963

198S 358020 14302.00 3326320 4398.00 -172490.20 -1038719.83

1986 9109.10 9001.60 49215.00 49107.50 *174S.72 -1216645S5

1987 39830.40 39879.90 45364.30 45413S80 -12792620 -1344S71.75

1988 4657.80 5965250 2095250 -34234.20 6902036 -1413592.32

1989 51720.60 70716.60 2297M.40 41969.40 41969.40 .145556172

Represnts 1979 costs (Net Flow 1) conenred to 1989 values.

Sounec: DWL Accounts

FPrl ImpL No taxhus been paid by DWL beue i is GOG practice to grant newcompanies a fe-year tax holidayand becatuthe proect did not enerte suffcient euannp to pa yL As can be seen from the proect cash Raw, revenue only execded operatingexpanes (leing ade debt repymnents due and inesment cot), in 2 yeas mubted los total the equivalent of USS140

ldWo DWL has been unable to repay either interest or prndpal on its debt to 000. lbe only posive fiscal impact of the projectha been the repayment to the Guynee Forety Commision of Iyties totalling 0S2 8 milIon (about USS280,000 at previlingat of exchan).

Cmeam Me cats of the prsect dastrous performance hae aIready been dicused in Section 1. In financial tems, and inorder of prioity we ould summauise the main ron for Its failure as

1. Sawmill outpu evn in the best year of the project naer exceeded 37* of instaled capacdty. and overthe yea sce 19S5 aversged about 20*

2 The combineti of a substantial delay in benefits and an increas in costs;

I Shorta of foign exchange for the purchase o sparo parts

- 27 -

Table 6

D. Studies

Studies Purpose as Deflned Status

Forest management To devise an appropriate Not carried out due toresearch development long-term strategy for cost overrunsprogramme forest management in the

project area andelsewhere

Comment. The decision to drop this study due to cost overruns was ill-conceived, giventhat the savings incurred thereby were relatively insignificant. No long-term strategy forforest management in white sand areas yet exists, nor has any reliable understandingbeen gained as to the ecological impact of timber extraction in such areas. Littleattention was paid at appraisal to the ecological impact of a successful project. It might,paradoxically, be argued that the financial and economic failure of the project constitutesan environmental benefit.

- 28 -

Table 7

Compliance with Covennts

L.a (L) or Proje Amu Repont D of Covmt l t Satu(P) Aproteat Secliw/

A Effecdvehm

L-S.01 (a) Para 8.03 Project Agreement duly authorized Complied with.or ratified.

LOS.1 (b) and 5.02 (b) Par"S 4.07 and 8.03 Subsidiary Loan Agmeement Complied withbetween Goernment and DWLduly authorized and ratified.

LWS.01 (c) Parms 4.03 and 8.03 Contracts for the employment of Complied withthe consultants to be signed.

L-S.01 (d) Paras 4.07 and 8.03 The IDB Loan Agreement the EDF Complied withLoan Agreement and the EDFGrant Agreement to be signed.

EB Coditioof Dduuamt

L-3.01 (d) Parms 4.07 and 8.01 The Borrower shall provide Complied with late but exceeded.| (c; Demerara not later than March 31, GOG provided USSI.2 m in '79-80

1979, with an amount of not less and US$1.7 m in '81. Late pay-than the equivalent of two million ments due to fact that procur-dollars ment for project was delayed'due

to slow Floject start-up.

C. Other

L-2.04 ao.ing date shall be December 31, Held open.19S3.

L.3OI1 (b) Paet 4.06, 8.01 (d) (i) an amortization period of 20 GO was not able to repay debtsand 8.04. years including S year' grace to Bank in the period 19I4989

period as to principle; (ii) interest due to the economic situation.at the rate of ten percent per Repayments have been resumed,annum; (iii) assumption of the risk however, as of July 1990.of fluctuation in the values ofvafious currendes by Demerra.

L-3.02 Pan 5.11 and 8.01 'Th borrower shal, not later than Not comolieg with. Guyana(f) December 31, 1980, prepare and Timber Export Board was

fumish to the Bank for its approval, dissolved in 12/81. It was never ina pmgramme for the tfaining of the a sition to catty out its ttspons-staff of the Expon Board in the ibiities due in large pan to stafffield of export marketing, and shall, problems. The responsibility was intherefore, put said programme into 1986 transfermd to DWLeffet

L-3.03 Pa 6.14 and 8.01 The BortoeVr thaU. not later thn Complied with.(g) July 1, 1979, make available to

Demerara all each land and rightsin respect of land for theconstruction and opeation of thepon facilities

- 29 -

L3.04 ParM 4.02 and 8.01 (i) Maintain the Project Unit for a Not complied nth. This covenant(b) period of one yer after the ha no meaning since the project is

completion of Part (b) of the now In the hands of the Board ofProject. Directots of DWL and no lonpr

with the Mlnisty of Enery andNaturnl Resources. i.e., there is noneed for a project unit.

1,405 Paras 4.04 and 8.01 Establish, not later than Januaty 31. Partialv cornslled with. The(C) 1979 a steering committee within steeing committee Wa set up but

MENR. responsble for the newr Impkemnted a trainingpreparation and implementation or programme aie thee W noa progmme for the training in taff to train. MENR no kloerlogging and sawuilling. haa the responsbilty for the

L-3.06 Pares 6.15, 8.01 (h) Export Board to enter, not later Export Board wu dolhed inand 8.02 (g) than January 1. 1981. into a 12/81. DWL and the Makeding

marketing agreement with Unit of the Guyana FoattyDemerara for the marketing of the Commission (GFC/MU) siped anentire exportable timber output of agreement in September. 1964.Demerara.

P.2.02 (a) (b) Patas 4.03 and 8.02 Employment of qualified Complied with.(e) consultants and experts satisfactory

to the Bank.

P-2.05 (i) Paras 3.22 and 8.02 Maintain records and procedures Partially comalied witb. Account-: (a) adequate to record and monitor the ing and financial control stems

progress of the project (including were wholly inadequate until 198S.its cost and the benefits to be Their strengthening was aderived from it). to identify the condition of the supplementarygoods and services financed out of IDA Credt. Accountancythe proceeds of the Loan, and to improved signifiantly from 1986.disclose their use in the Project. though not to the enent of

distinguishing berteen the costcomponents establidsed atappriul.

P-2.05 (iii) Paras 3.22 and 8.02 Furnish to the Bank at replar See above.(a) intervals all such information as the

Bank shall reasonably requestconceming the Project, its cost and,where appropriate, the benefits tobe derived from it, the expendituresof the prmceeds of the Loan andthe goods and services financed outof such proceeds.

P-2.05 (c) Paras 3.22 and 8.02 Demerara shall prpare and fumish Pendin(C) to the Bank a Completion Report.

P,3.02 Pare 3.22 Demerafs shall maintain its Partially comolied witlh Seefinancial position, all in accordance throughout this PCR.with appropriate business andfinancial principles and practiceand under an experienced andcompetent management.

P.3.03 PaRs 4.02 and 8.02 Demerara shall, not later than Comn1lied with.(d) December 31, 1978, apooint, in

consultation with the Bank. aproject dimector, a project officer.an accountant and a secretary.

P-3.04 (br Paras 4.03 and 8.02 Demer shall, upon completion oft gmlied t In so far as possble(e) the term of employment of the within the Guyanese human

consultants, appoint and therafter tesource context.employ experienced persons to thepositions of managing director.chief accountant. chief engineer andmill manager.

- 30 -

PlQ05 Demertra shall take out and Cmlied with.mnintain with reaponible insurersor make other poisionsstisfctowy to the Bank fot,insurance against sch riss and insuch amounts as shtll be consistentwith appropriate p ctice.

P-107 (b) Parn s 6S and 8.02 Maintain the product mix specified Not comglied wih.(g) for a period of six year after the

commencement of operation of thesawmill provided under Part (b) ofthe ProjecL

P.4.01 Pari 3.22 and 8.02 Demertra s!WU establish, and Partally comolied with. See P-2.0S(b) thereafter maintain, cords (i) above.

adequte to reflect in accordancewith conssently maintainedapptopriate accounting practices, itsoperations and financial condition.

P.4.02 (i) Pari 3.22 and 8.02 Hae its accounts and financial Complied wilh(b) statements audited for each fiscal

year.

P4.02 (ii) Paris 3.22 and 8.02 Furnish to the Bank not later than CnopiD with though late.(b) 4 months after the end of each year

(A) certified copies of its financialstatements for such year as soaudited, and (B) the report of suchaudit by oid audito, of wchcope and in such detail as the

Bank shall have reaonablyrequested; and

P4.02 (iii) Pars 3.22 and 8.02 Furnish to the Bank such other ComIDiUd. with.(b) infomation concerning the

accounts and finanel statements ofDemerait and the audit themeof asthe Bank shall from time to timereaonably request.

P4.03 (a) Paras 4.07 and 8.02 Demerara shil not incur, without Not comied wih. DWL's(f) prior concurrence of the Bank. any debt/equity ratio is now vastly in

debt if or if a aeult of such excess of 70.30incurrence. Demeftrn's debt/equityratio would exceed 70:30.

- 31 -

Page 1 of 2Table B

&a ff -o

MIboa N.. Doe No. df Sta Eqie Slahm Trad,/ TypPem dej is _opad

keM

tdstficatlo 1 16/711 4 ? Ag. FO, BC

psjeptof/ 2 11/74 ? * .

esibilty, 3 2/7S 6 100 PO,PA,8C,WVL

Appaisal 4 11/77 6 120 , .

Suprvision S 6/79 1 4 Ag 1 1 0

* . 6 10/79- 1 4 Ag 1 1 0

| * 7 6/80 1 6 Ag 1 2 M

| * 8 11/80 1 8 Ag 2 2 MF

9 3/81 1 9 Ag 2 2 MF

* 10 8/81 1 8 Ag 3 2 MPE

* 11 3/82 2 10 Ag PA 3 2 MFT

* 12 6/82 2 10 Ag PA 3 3 MFI

* 13 12/82 2 13 PA. TM 3 3 MPT

* 14 4/84 2 18 PA. PO 3 1 MFT

. IS 10/84 1 3 FO 3 2 MFT

* 16 6/8S 1 3 FO 3 2 MF

* 17 10/85 2 3 FO, ES 3 2 MFT

* 18 S/86 1 6 FO 3 2 MF

* 19 2/88 1 10 PO 2 1 MFT

* 20 3/89 1 10 PO 3 3 MFT

Project Completion 21 6/90 2 26 PO, EC 4 3 MPT

f £mExfefis Ag Agriculturalist, PA Financial Analyst, TM Tlmber Markednrg O ForsterES Energy Spwcalist, EC Economist, WL Wildlife.

2/ Status 1- Problem Free 2. Minor Problems 3- Moderate Problems 4- Major Problems

3/ n I - Imprwving 2- Stationary 3- Deteriorating

J/ MMgeLMPleMu M - Management P - Fmnncial T - Technial

- 32 -

TABLE 8Page 2 of 2

B. USE 0 BANK RESOURCES

A. STAFF INPUTS_______________

STAGE 0FPROJECT CYCLE PLANNED 11 REVISED ACTUAL CONNENTS

Through Appraisal 83.0

Appraisal through 110.6Board Approval

Board Approval 65.0ThroughEffectiveness

Supervision 86.9

Total----------------------------3----------5---------------__--------Total 345.5----------------------------------------------------------------- __---

- 33 -

ATTACHMENT 1

COMMENTS FROM EUROPEAN INVESTMENT BANK

TELEX dated 4/4/1991

Attention Mr. Graham Donaldson, Division ChiefAgriculture, Infrastructure and Human ResourcesOperations Evaluation Department

Subject: GuyanaUpper Demerara Forestry Project(Loan 1623-GUA/Credit 1555-GUA)

Many thanks for your letter dated 15 March 1991 which included the draftProject Completion Report for the captioned project.

The Bank did not undertake a Project Completion Mission for this particularproject and we are therefore not in a position to provide a detailedopinion on its completion.

We were however informed on the serious problems that the projectencountered during its completion. As far as we can judge, we feel thatyour draft PCR gives a good and fair assessment of the developments.

Best regards,

J.R. Loasby / J-PH de JongEuropean Investment BankLuxembourg

- 35 -

ATTACHMEN 2

COMMEN'S FROM INTER-AMERICAN DEVELOPMENT BANK

FAX DATED 5/2/91

TO: Mr. Graham Donaldson, ChiefAgriculture, Infrastructure and Human ResourcesOperations Evaluation Department

FROM: Marc J. Dourojeanni, Chief ENVInter-American Development Bank

SUBJECT: Upper Demerara Forestry Projects (Loan 1623-GUA/Credit 1555-GUA)

Informal observations prepared by the industries staff of the IDBresponsible of the technical follow up of the Upper Demerara ForestIndustry Projects:

We have reviewed the document mentioned above and we agree with the WorldBank that the investment project had a poor design and very weakmanagement.

The power plant manufactured by Imbert never operated satisfactorily andits design is questionable. Also the mill was very sophisticated for aproject located in an area lacking adequate infrastructure and trainedpersonnel to operate it.

The consulting firm Agrar und Hidrotechnik (ART), that was responsible forthe mill and power plant designs and sta t-up of the operations neversucceeded to manage the project prope'rly.

We also agree with the World Bank that large-scale innovative technologyshould be avoided in this kind of projects and that state-owned savmillingenterprises are unlikely to succeed. It is not clear how the cumulativenet losses of the project estimated at US$140 million was calculated.

We would like to receive the final report of the project execution when itis available.

IBRD 22826

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