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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 4198

PROJECT PERFORMANCE AUDIT REPORT

MADAGASCAR - FIRST MANGORO FORESTRY PROJECT(LOAN 1065-MAG/CREDIT 525-MAG)

November 24, 1982

Operations Evaluation Deoartment

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

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ABBREVIATIONS

ADTPA - Air Dried Ton per Annum

CTFT - Centre Technique Forestier Tropical

FMG - Franc Malgache

FOFIFA/CENDRADERU - Center for Agricultural Research andRural Development

FANALAMANGA - Mangoro Forest Company (mixed-capital company,currently 100% state owned)

MAI - Mean Annual Increment

OPS - Operations Policy Staff of the World Bank

FOR OFFICIAL USE ONLY


MADAGASCAR - FIRST MANGORO FORESTRY PROJECT(LOAN 1065-MAG, CREDIT 525-MAG)

TABLE OF CONTENTS

Page No.

Preface ............................................................Basic Data Sheet ................................................... iHighlights ............ ............................................. iii

PROJECT PERFORMANCE AUDIT' MEMORANDUM

I. PROJECT SUMMARY .......................................... 1

Il. MAIN ISSUES ................. , 4

A. Tree Growth .......................................... 4B. Bank Involvement in the Mangoro Forestry Development.. 6C. Additional Observations .............................. 9

Annex 1 - Comments from the Department of Forestry and FishingResearch ............................................... il

Annex 2 - Comments from the Ministry of Agricultural Production andAgrarian Reform ........................................ 17

PROJECT COMPLETION REPOR'r

I. Introduction ............................................. 25II. Pre-project Developments ................................. 29

III. Implementation ........................................... 38IV. Operating Performance .................................... 52V. Institutional Performance and Development .... ............ 53

VI. Bank Performance ......................................... 55VII. Environmental Impact ..................................... 57

VIII. Financial and Economic Reevaluation ...................... 58IX. Conclusions .............................................. 59

Annexes 1-6

Maps IBRD 15266 (PCR) Mangoro Forestry ProjectIBRD 15290 (PCR) Project Location

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 WorId Bank authorization.

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PREFACE

This is a project performance audit report of the (first) Mangoroforestry project in Madagascar for which Loan 1065-MAG in the amount ofUS$6.75 million and Credit 525-MAG in the amount of US$6.75 million wereapproved in December 1974. The final credit disbursement was made in Decem-ber 1978 and the loan account was closed in April 1982 after cancellation ofthe undisbursed balance of US$8,838 and after the by one year extended ClosingDate of December 31, 1981.

The audit report consists of an audit memorandum prepared by theOperations Evaluation Department (OED) and a Project Completion Report (PCR)dated April 7, 1982. The PCR was prepared by the Eastern Africa RegionalOffice. The audit memorandum is based on a review of the Appraisal Report(590-MAG) dated December 6, 1974, the President's Report (P-1539-MAG) ofDecember 5, 1974, and the Loan and Credit Agreements dated December 23, 1974.Correspondence with the Borrower and internal Bank memoranda on project issuesas contained in relevant Bank files as well as documentation related to thefollow-on project (Second Mangoro Forestry Project, Credit 1161-MAG, US$20million) have also been consulted and Bank staff associated with the projecthave been interviewed.

A copy of the draft report was sent to the Borrower on September 2,1982. Comments received from the Goverament of Madagascar are attached asAnnexes 1 and 2.

The audit finds that the PCR adequately covers the project's salientfeatures, and the PPAM generally agrees with the conclusions. Some controver-sial points need to be raised, however, concerning the timely estimation oftree growth and the Bank's involvement in the Mangoro forestry development.These issues, as well as a few other points, selected for their relevance forthe follow-on and similar projects, are therefore elaborated on in the PPAM tounderscore ootential lessons for the Bank Group.

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PROJECT PERFORMANCE AUDIT BASIC DATA SHEET

MADAGASCAR - FIRST MANGORO FORESTRY PROJECT(LOAN 1065-MAC, CREDIT 525-MAG)

KEY PROJECT DATAAppraisal Actual Estimate

Item (US$ m) (FMG m) (US$ =) (FMG m)

Total Project Cost 17.2 4,000 20.2 4,601I Cost Overrun 17%% Physical Overrun at Completion 35%Loan/Credit Amount 13.-/a Fully disbursedDate Physical Components Complete

4b December 1979 June 30, 1979

Proportion of Time Underrun 10%Economie Rate of Return 13% 7%Financial Rate of Return 1O0 6%

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS(US$ million)

Credit 525-MAG/Loan 1065-MAG

FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82

Appraisal estimate 1.10 5.70 7.55 9.25 11.15 13.50 - -

Actual - 1.50 2.60 6.20 8.60 11.85 12.26 13.50Actual as Z of estimate - 26 34 67 77 88 91 100

OTHER PROJECT DATA

Item Original Plan Actual

First Mention in Files 1972Government's Application for Loan 10/31/72Negotiations 08/21-27/74Board Approval 12/17/74Loan/Credit Agreement Date 12/23/74Effectiveness Date 03/24/75 07/08/75Closing Date 12/31/80 12/31/81Borrower Malagasy RepublicExecuting Agency FANALAMANGAFiscal Year of Borrower January 1 - December 1Follow-on Project Name Second Mangoro Forestry Project

Credit Number 1161-MACAmount US$20 millionCredit Agreement Date October 29, 1981

MISSION DATA

Date: No. of Manweeks Specializations Performance Types ofMission (Month/'?ear) Persons in Field Represented-/c Rt Trend/e Problems/f

Identification 03//2 3 6Preparation 01/13 4 + 1 17Appraisal 4 12

Total 35

Supervision I 06/15 1 1 FO 2 2 F and TSupervision II 12/15 2 2 FO and AE 2 2 F and TSupervision I1l 07//6 1 1 FU 2 2 F and TSupervision IV 02/17 1 1 FU 2 1 F aoid TSupervision V 10/17 3 6 FO, AE and PPS I 1Supervision VI 09/178 2 3 FO and AE I 1Supervision VII 04/19 2 2 FO and E 1 1Supervision VIII 11/79 1 4 E 1 1Supervision IX 06/80 2 6 FO and E 1 1(and Appraisal

Phase Il)Supervision X 03/31 2 1.5 FO and E 1 1

Total 27.5

CURRENCY EXCHANGE RATE

Name of Currency (Abbreviation) Franc Malgache (FMG)

Average Exchange Rate:Appraisal Year Average 1974 US$ 1 = FMG 240.5

1975 US$ 1 - FMG 214.31976 US$ 1 = FMG 239.01977 US$ 1 - FMG 245.71978 US$ 1 = FMG 225.61979 US$ 1 = FMG 212.71980 US$ 1 = FMG 211.3

Completion Year 1981 US$ 1 = kMG 235.7

/a Credit of US$6.75 million Flus loan of US$6.75 million./b See para. 3.01 and 3.16. Physical targets achieved ahead of time but project unit managed to extend project

period and finance two additional planting seasons (June 1981)./c FO = Forester; AE - Agricultural Economist; E - Economist; PPS = Pulp and Paper Specialist.7d 1 = Problem free or minor problems; 2 - Moderate problems; 3 = Major problems./e 1 Improving; 2 - Stationery; 3 = Deteriorating.7f F = Financial; T - Technical.

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HIGHLIGHTS

The first Bank/IDA supported forestry project in Madagascar financed

a time-slice of a long-term silvo-industrial development program in theMangoro Valle-x. Following pre-investment activities and trial plantationssupported in part by other external donors the project aimed at establishingnew forestry plantations and providing related infrastructure, research andtraining.

Over 47,000 ha of forestry plantations were established, exceedingthe appraisal target by 35%. The targets for road construction and fire-breaks also were significantly exceeded. However, only a fraction of thesmall pasture development component could be realized. Modifications wereintroduced during implementation regarding tree planting operations, construc-tion standards and methods for roads and buildings, and research and expatri-ate consultancy.

The project's production objectives and returns on investment are,however, unlikely to be achieved. Tentative tree growth estimates for allplantations established up to 1981, of which about one-third are pre-projectplantings, averaged orly 5.3m3/ha/year. The yields for project plantingsaveraged 8.0m3/ha/year as compared with 13m3/ha/year anticipated atappraisal. These results, if confirmed under the on-going verification, arejeopardizing the originally envisaged pulp mill development despite the factthat some improvements may be possible in current and future plantings. Theproject's reestimated economic rate of return is 7% compared with 13% esti-mated at appraisal.

A decision concerning investments in silvo-industrial facilitiescould not be reached by the end of the first project phase, mainly due tothe lack of a reliable forestry inventory and the questionable viability ofsuch facilities, particularly for pulp production, and the lack of interestamong potential foreign partners. IDA approved a second-phase project in 1981for implementation over a three-year period.

The following points may be of special interest:

- tree growth estimates becoming available recently indicate verydisappointing results. These crucial estimates, which to a certainextent contradict earlier findings and are still subject to verifi-cation, have appeared at a rather late stage; a lesson to be learnedfrom this experience is that strict monitoring of yields is neces-sary in forestry projects where the type of species planted is notindigenous or clearly proven to adapt adequately (PPAM, paras. 8 and

12-15; PCR, para. 3.20);

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it has not been possible to date to identify the type and organiza-tional arrangement of processing industries for the utilizationof wood produced on project plantations. For this reason, andbecause forestry development is a long-term process, a final evalua-tion of the whole program of which the present project is a partmust await the mnaturing of the plantations in another 5-10 years(PPAM, paras. 16-20; PCR, paras. 3.19 and 6.06);

a follow-on project was approved by IDA in June 1981. The projectwas designed as an interim project to provide an opportunity for anassessment of future investment options but also contains a signif-icant plantation component, rendering it controversial in view ofthe reported poor yields of past plantings (PPAM, paras. 21-23; PCR,paras. 3.19 and 9.01); and

construction standards for roads and houses were lowered duringimplementation, raising the question whether the case points to awider tendency to over-design similar infrastructure components atappraisal (PPAM, paras. 24-25; PCR, paras. 3.13 and 3.26).

PROJECT PERFORMANCE AUDIT MEMORANDUM

MADAGASCAR - FIRST MANGORO FORESTRY PROJECT

(LOAN 1065-MAG, CREDIT 525-MAG)

I. PROJECT SUMMARY-/

1. Beginning in the mid-1960s, the Malagasy Government undertooksurveys and studies, assisted by UNDP, FAO and the Centre Technique ForestiersTropical (CTFT) aimed ai: increasing the country's forestry production. Trialplantations were started in 1968 and a gradually increasing area was plantedyearly thereafter. This project, approved for Bank/IDA financing in 1974, wasdesigned to support a five-year time-slice of a forestry plantation programwhich constituted the basis for developing a silvo-industrial complex in theMangoro Valley. It was anticipated that investment decisions concerningindustrial facilities would be made later, in time for such facilities tobecome operational in the mid-1980s.

2. Total project cost amounted to FMG 4,601 million compared with theappraisal estimate of FMG 4,400 million. However, the US$ equivalent ofactual cost was US$20.2 million, or 17% above the appraisal estimate ofUS$17.2 million. The higher cost overrun in dollar terms resulted from theactual exchange rate during the implementation period having averaged aboutFMG 228/US$ rather than the FMG 255/US$ estimated at appraisal. Costs wereconsiderably higher than anticipated at appraisal for afforestation and thepurchase of vehicles and equipment, about the same for project management, andconsiderably lower for roads, research, training, studies and pasture improve-ment. The IDA Credit and Bank Loan of US$6.75 million each (as planned)together financed about 67% of the project cost rather than 78% as appraised.The balance was financed by the Malagasy Government. The credit and loanbecame effective in July 1975, four months behind schedule due to politicaldevelopments in the country and a delay in setting up the required institu-tions. The Credit was fully disbursed by December 1978. The loan account wasclosed in April 1982, about 15 months behind the original schedule,A/ aftercancellation of the undisbursed balance of about US$8,838.

3. The project, in addition to supporting the establishment of plan-tations, also included the construction of firebreaks and implementationof a fire prevention system, the construction and maintenance of roads,the construction of headquarter buildings, research and staff training,the preparation of a second-phase forestry and other projects, and pastureimprovement.

1/ Adapted from the I>CR.

2/ The original Clos[ng Date of December 31, 1980 was, however, extended toDecember 31, 1981.

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4. An area of over 47,000 ha was planted with trees, exceeding theappraisal target for the project by some 35%, but overall roughly in linewith the original long-term planting program. Significant modificationswere introduced in planting operations, in cooperation with the Bank, toalleviate trace element deficiencies, improve site selection, bring aboutbetter soil preparation for planting, and diversify into more promisingplantation tree species. A total of 2,671 km of roads and track were built.This was 48% above the target in terms of road length, albeit constructionstandards were lowered during irmplementation to achieve this greater expansionof the road network. The standard of houses and buildings also was lowered sothat over 2,000 units, or 78% more than planned, could be constructed. Over1,000 km of firebreaks were established as compared to 250 km envisaged atappraisal. Pasture development, although very successful with the localvillagers, remained nearly 60% below the target due to the high cost. Projectactivities continued about two years beyond the original completion date,largely because agreement could not be reached sooner on a second-phaseproject.

5. Training, executed internally by the project unit, was satisfac-tory. Research was carried out through the agricultural research institute,CENRADERU, now called FOFIFA. A four-year research contract becoming effec-tive in 1976 covered forestry research together with plantation trials andpasture-related agronomic research. A second-phase forestry project wasprepared as required, but pre-investment work for other projects was notundertaken; the latter is not a serious shortcoming as funds and staff ear-marked for that purpose were put to good use elsewhere under the project. Anexpatriate forest adviser assisted project management for only one yearinstead of the originally proposed two, although his performance was verysatisfactory.

6. To implement the project, a special unit, FANALAMANGA, was created.The unit has been competently staffed and has operated quite satisfactorily inmost respects. Its reporting activities and relationship with other agenciesand villagers in the project area have been given high marks. Regular projectactivities and special problems, as perceived by management, were handledcompetently. Initial difficulties with procurement, due to unfamilarity withprocedures, were resolved in due time. FANALAMANGA's performance was lessthan satisfactory, however, in the monitoring of tree development on itsplantations. Its trial inventory was greatly delayed and not fully processed,with consequences which are difficult to assess at this time.

7. Compliance with Loan/Credit Agreement covenants was generallygood. One significant exception was a prefeasibility study undertaken in 1978with UNIDO assistance without consulting the Bank.

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8. Project benefits will derive primarily from wood production as rawmaterial for industrial use. Tree growth was estimated at appraisal at13m3/ha/year mean annual increment under bark (MAI). The estimate was basedon initial growth trials and experience in other countries. With such yields,annual available cutting volume for age class 15 trees would have been 1.17million m3, sufficient to eventually supply a 200,000 ADTPA (air dried tons

per annum) bleached long fibered sulphate pulp mill.L/ However, mainly dueto locational factors (slope, soil quality, rainfall, etc.) an MAI of only 5.3m3/ha/year is estimated to have been achieved for the 12-year pre-projectand project period combined; the estimate for the seven-year project periodwas 8.0 m3 /ha/year.2/ The estimated cutting volume after 18 years (in-stead of 15) ranges only from under 400,000 m3 to 700,000 m3. Some en-couragement can be derived from the fact that yields from pre-project plant-ings are much worse than from plantings established under the project, andthat some further improvements can be expected for current and future plant-ings as experience gained to date continues to be incorporated in culturalpractices applied in the area.

9. Project evaluation at appraisal assumed that a second plantationphase and establishment of a logging industry and a pulp mill would followcompletion of this project. Taking the cost and benefits of the project andrelated follow-on investments into account, the financial rate of return atappraisal was estimated at 10% and the economic rate of return at 13%.

10. Given the continuing, and even heightened, uncertainty concerning

tree growth and, consequently, wood supply for industrial processing, anevaluation of the whole silvo-industrial complex using the appraisal method-ology is problematic at best at this stage. The evaluation in the PCR is thusbased on stumpage rates to avoid speculation about future developments. Usingthis method, the project's financial rate of return has been estimated at 6%and the economic rate of return at 7%.

11. When it became apparent, in the late 1970s, that the viability ofestablishing a pulp mill in Mangoro as originally envisaged was doubtful, theprocessing of a second-phase project was delayed. In June 1981, IDA finallyapproved a second credit to finance continued forestry development expendi-tures over a 3-year period. The Credit (1161-MAG; US$20 million) becameeffective in July 1982. The second phase aims at expanding the planted forestarea by 18,500 ha (17.5% of project costs) and supports studies and projectpreparation to help resolve problems of silvo-industrial development (9.0% ofproject costs). Nearly three-fourths of project costs are related to planta-tion maintenance, administration, and provision of physical infrastructure.

1/ Meanwhile, studies have shown that the economic size of such a plantis larger, requiring about 1.4 million m3 per year.

2/ Tree growth estimates are still subject to verification due to theunderlying low sampling rate (PCR, para. 3.20).

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Since conclusive tree growth estimates were not available at the time of

appraisal of the second-phase project, the assumptions used in the evaluationare similar to those used for the first phase.

Il. MAIN ISSUES

A. Tree Growthl/

12. The central issue of this project is related to the disappointinggrowth of the trees planted in the Mangoro Valley. The first full inventory,undertaken in 1981 but still controversial because of the low sampling rate(0.007% vs. 1.0% recommended), produced an estimate of 5.3 m3/ha/year MAIfor all 72,000 ha planted up to 1981 at Mangoro. This estimate includes25,000 ha of pre-project plantings, most of which have been judged to benon-yielding, and about 47,200 ha of project plantings with an average MAI of8.0 m3/ha/year. The MAI appraisal estimate was 13.0 m3/ha/year. Acombination of factors contributed to the shortfall in yields, including:

(a) planting on steep slopes where, because of erosion, soils havebecome unsuitable for afforestation;

(b) trace mineral deficiencies, particularly of zinc, in most locations,often leading to stunted growth or death of trees;

(c) occasional droughts; and

(d) general adaptation problems of the main species planted, i.e,Pinus kesiya, which continue to manifest themselves in varioussymptoms as the trees grow older.

13. An alarming aspect of the problem is that forestry experts arenot able to clearly attribute the degree of retarded growth to individualfactors. Furthermore, adverse effects which were not observed earlier,occur as the trees grow older, reducing the prospects of enhanced growthtowards the end of the growing cycle, even of those trees originally wellestablished. While progress has been made in reducing new planting innon-yielding areas, i.e., areas where harvesting would not be worthwhilebecause of the poor stands, such areas to date have not been eliminatedcompletely. The latest survey shows most of the pre-project plantings asbeing in non-yielding areas compared with 19% for the project period.

1/ This point is also extensively covered in the comments received fromGovernment (Annexes 1 and 2).

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14. Timing of Tree (:rowth Estimate. It is disconcerting that firmindications of likely poor yields did not become available earlier. Oneexplanation, namely that yields in young trees are difficult to determine,carries considerable weight considering the fact that many internationalexperts visited the young plantations without being overly alarmed by signs ofstunted growth. However, since the difficulties in judging tree growthare well known to foresters, special efforts to carefully monitor yieldsthrough extensive sampling would have been required. FANALAMANGA staffwas not successful in carrying out these responsibilities. In fact, the 1979inventory results, delayed as they were, blurred rather than clarified thepicture and, to some extent, misled authorities as they failed to direct thenecessary attention to this key problem area. Bank supervision failed toprovide the necessary pressure and guidance and thus may have contributedindirectly to creating the information gap.L/ Together with project manage-ment, supervision staff concentrated mainly on areas planted as successindicators and not enough on monitoring yields. One clear lesson to belearned from this experience is that the Bank should insist on strict moni-toring of yields in forestry projects where the type of species planted is notindigenous or clearly proven to adapt adequately.

15. Actual vs. Ant:;cipated Tree Growth. Plenty of expert advice wasobtained during the late 1960s and early 1970s and, generally, the findingswere positive and encouraging. Surveys and experiments were conducted andtrial plantations were established, leading up to the formulation of theBank/IDA project. The question can be asked how was it possible that amajority of the pre-project plantations must now be considered to havebeen established in unsuitable areas and how it happened that yield prospectshave been so disastrously misjudged.2/ The yield problem is a fundamentalone and not just a result of initial silvicultural mistakes which can beeasily corrected. The trees simply do not grow sufficiently in many parts of

1/ The Region comments as follows: "Although the 1978 trial inventory wasnot a success, this was due in part to the fact that FANALAMANGA did notfollow Bank guidance (PCR, para. 4.04). In addition, the trial inventorywas followed shortly thereafter by the decision to carry out a full-fledge inventory by experts with professional skills. Thus, we do notbelieve there was much scope for improving Bank supervision. However,if a clear or comprehensive monitoring system had been designed at theoutset to face the risk of a delayed start-up of the follow-on project,many significant delays would have been avoided and the supervisionmission's pressure and guidance would have been more effective."

2/ These statements are based on the findings of the latest availableforestry inventory. Regional staff caution that, since the inventoryfindings are still somewhat controversial and subject to verification,the statements may be premature.

the project area no matter how well they are cared for.lI Even today, with

more than 12 years of experience, there is doubt that large-scale new planta-

tions with acceptable yields can be established in the vicinity of the project

area; smaller pockets of suitable locations have been located, however. With

hindsight, it can be said that the pro,ject might have benefitted from a

larger research and consultancy inputS- Research activities carried out

under the project produced some good results with respect to disease control

but were less successful in clarifying fertilizer response and in promoting

other measures aimed at enhanced tree growth. The amount spent for research

and training was below th.e levels anticipated at appraisal. Moreover, if the

expatriate consultaney had been prolonged rather than cut short, the tree

growth problems might have come into sharper fOcus at a more appropriate

time. The last, alheit overoptimistic, yield estimate produced by the expatri-

ate forestry expert dates back to mid-1976 and it is conceivable that the 1979

inventory would have been more successful had he been available to assist.

Extreme caution must thus be exercised in the future when expert opinion

regarding forestry yields, not backed up by long-term practical results under

field conditions, is being used to justify a massive forestry investment

program.

B. Bank Involvement in the Mangoro Forestry Development

16. Forestry-based industries are a new development in the M4angoro

Valley, hence, investment planning has been an exceedingly difficult task. In

addition ta unproven yields, the long growing period of trees, as is the case

with forestry investments, has aggravated problems related to determining

appropriate end uses of wood and forecasting associated production costs,

markets and prices. Consequently, when a decision was made in the early 1970s

to establish large-scale plantations, alternative development models were

discussed but, understandably, no decisions and investments related to

wood processing were made. It was expected that information becoming avail-

able during the 1970s would facilitate the planning of transport and proces-

sing infrastructure so that by the time raw material would become available in

the mid-1980s, the infrastructure would be in place.

1/ See footnote 2/ page 5.

2/ The audit considers the research and consultancy inputs made available

under the project as highly beneficial to the project. It wishes to

emphasize, therefore, that an expansion of these inputs beyond appraisal

levels could reasonably have been expected to be fruitful. Instead,

there was a regrettable shortfall in spending for these purposes below

appraisal targets.

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17. In retrospect, events did not occur as expected. A viable proces-sing industry has not been identified, partly because of the uncertaintyabout tree growth and partly for reasons related to adverse world marketconditions. Furthermore, it has not been possible to bring prospectiveforeign partners into the discussions on future development, nor are theprospects for future involvement of essential foreign partnerships promisingin Madagascar. The original target date for logging and processing operationsto begin in 1985 has thus become illusory, and even the revised date of 1988will not be met unless essential investment decisions, e.g., on the type ofend product to be produced, are made soon. Although the follow-on projectprovides support for investment planning, it has suffered delays and isencountering ojerational difficulties (para. 21).

18. Initial Bank Involvement. It is appropriate to distinguish betweenthe circumstances facing the Bank at the time the decision to participate inthe project was made, and the experience gained to date on the basis of whichan interim assessment of that decision might be attempted. The Bank faced asituation in the early ]97 0s when forestry development ranked high in Govern-ment priorities and, given the paucity of development projects in the Madagas-car agriculture and forestry sectors, it was not foregoing more attractiveproposals by considering this project. The appraisal, though having to workfrom a scanty factual basis, did take into account the results of experimentalplantings and the investigations undertaken with the assistance of UNDP/FAOand CTFT, a French bilateral research organization. Available market studiesindicated international market potential. With the assumptions underlying theappraisal analysis, pacticularly a potential yield of 13 m3/ha/year, theproject was judged to be viable.

19. There undoubtedly were substantial risks associated with the pro-ject. Government's strategy, in supporting such a relatively large, long-termand capital intensive venture with sizeable maintenance and follow-on invest-ments, in itself constituted a high risk factor. The technical risks associa-ted with converting existing grassland on extremely poor soils into commercialforests, using species without extensively documented local growing history,were especially high. The risky nature of Malagasy forestry development wasalso evident from the poor performance of other plantations in the country andfrom the absence of an experienced wood products export industry.!/ Proposedmeans to alleviate those risks included research and continued experimentationto promote tree growth, and the possibility to adopt alternative end uses ofthe harvest from the plantations in the event of changed market conditions.

1/ The Region does not agree "that managerial and economic risks wereevident from the poor performance of other plantations in the country.There are many excellent plantations in other parts of Madagascar".

20. Eight years after the appraisal the results look disappointing.The project's risks turned out to be formidable and the means to cope withthem not quite adequate. In retrospect, the yields of non-project plantingswere completely misjudged and yields of project plantings overestimated by40%, according to currently available, but tentative, inventory data. Theforeign investment climate is not as favorable in Madagascar as originallyanticipated, and world market prospects are more uncertain. Decisions onsilvo-industrial investments have proven intractable so far. While the auditfinds these adverse circumstances to be of great concern, it recognizes thatforestry development is a long-term process and that final evaluation of thewhole program has to await the maturing of the plantations in another 5-10years.

21. Continued Bank Involvement. The project was supposed to be comple-ted in late 1979, with a second-phase planting (and possibly mill investment)project to follow. In fact, the essential physical targets (afforestation,roads, fire breaks and buildings) were achieved on schedule. The processingof the second phase ran into difficulty, however, as a result of disagreementsbetween the Bank and Government about plans for silvo-industrial development.A UNIDO study (1978) indicated that, under changed market conditions, a pulpmill, to be viable in Mangoro, would have to be somewhat larger than origi-nally proposed and Government wanted to proceed on that basis. The Bank,however, refused to endorse plans for the construction of a larger pulp mill,for good reasons, as can be seen now. When an IDA credit was finally approvedin 1981, it was a compromise stopgap measure designed to gain further time(i.e., 3 years) for assessing tree growth and conducting studies related tothe processing industry to be established.L/ However, additional plantings(18,500 ha) were also included.

22. In retrospect, the second-phase project appears correct in principlebecause it has served to keep the dialogue going with all parties concernedand to preserve, for the time being, the existing forestry institutions. The

1/ The Region considers this ".....an interim project designed to give theGovernment an opportunity to undertake a systematic and thorough assess-ment of the future investment options." Specifically, it is a conditionunder the project that a "Feasibility Study" be carried out under anexisting agreement with UNDP (Document No. MAG/80/002/C/01/12, datedOctober 3, 1980), with FAO acting as the executing agency. While noIDA Credit funds are involved, IDA obtained assurances that the consul-tants employed for the study will be satisfactory to IDA, reports andinformation will be provided, views exchanged, and meetings held with IDAparticipation. The study is to be completed by June 30, 1984.

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planting of completely new areas at this stage, however, must be questioned.l/There is no guarantee that tree growth in the new areas will be better,nor will this additional area generate sufficient wood supplies for whatexperts believe to be the minimum viable size of a pulp plant; for majoralternative uses, existing stands are already adequate. Had the results ofthe tree growth survey been available at appraisal, the follow-on projecteither would have been designed differently or not approved at all.

23. The audit concludes that, in the follow-on project, even greateremphasis should have been given to the design and expeditious execution ofend use studies for wood produced at Mangoro and the consolidation of existingplantations.2 / The latter includes the disposal of trees in non-yieldingareas and the salvaging of threatened stands. While the project still can(and probably will) be modified in the direction indicated, the loss of timesince achieving the initial planting target in 1979 and the controversiessurrounding the tree lnventory and, of late, the on-going silvo-industrialstudies, have hampered forestry development at Mangoro. To avoid recurrenceof the experience with the First Mangoro Forestry Project in the future, theBank ought to require more rigorous monitoring standards than were appliedthere and set stricter intermediate planning targets for time-slice forestryprojects for which (a) crucial information is to be generated during theinitial years of the project, and (b) the planning process for all relatedinvestments has not been completed when beginning project implementation,i.e., the prevalent case.

C. Additional Observations3 /

24. The project exceeded its physical targets by 48% for roads and78% for houses and buildings. It is explained in the PCR (paras. 3.13 and3.26) that cost savings were achieved for these components by (a) undertakingconstruction by force account instead of by contractor, and (b) acceptingdeviations from the appraisal norms, i.e., switching to lower-grade standards.The audit has reservat:ions about attributing cost savings to force accountactivities vis-a-vis zontractor work without a detailed explanation. Of

1/ OPS advises: "The forestry related issue should be resolved beforeproceeding further with the industrial studies and [IDA] should obtainsome independent assurance that, if properly maintained from here on,the plantations will grow on to produce logs of merchantable size.Some consideratiokn needs to be given to appropriate thinning schedules.If such assurance is not forthcoming, planting should be stopped alto-gether."

2/ OPS states: "The impact on economic viability of the Mangoro Projectneeds to be re-assessed on the basis of both lumber and pulp productionalternatives." The focus of the on-going studies may thus turn out tobe too narrow.

3/ Further remarks on this point are also included in Government comments(see Annex 2).

- 10 -

particular interest would be to know whether the method of accounting used bythe organization undertaking the construction work accurately attributes allcapital and overhead costs to the tasks performed and what the actual savingsachieved by not employing contractors were, both financial and economic.

25. The feature of lowering construction standards during implementationwould imply that either the project was overdesigned at appraisal or qualityor safety were being compromised during implementation. There is no evidencethat the latter is the case. This experience suggests, therefore, that therecould be a tendency in similar projects to overdesign infrastructure compo-nents and evaluations and audits should focus on this aspect more closely inthe future.

26. A final observation concerns the use of residual Bank loan funds.In the last (eighth) year of disbursement, about US$1.6 million was disbursedfor the purchase of vehicles and equipment, accounting for 47% of totalexpenditures for vehicles and equipment and resulting in overdisbursement forthis purpose compared with appraisal estimates of 62%. Since these expendi-tures were not needed to achieve the immediate planting targets, which werealready exceeded by about 20% at that time, such disbursements at the end ofthe implementation period must be viewed with skepticism.L/ Theoretically,the equipment could have been used for non-project related purposes or evensold after the closing date of the Loan. The practice is of less concern inprojects where progress is satisfactory, follow-on investments are contem-plated and the risk of controversies developing around any of the investmentphases is minimal.

1/ In the Region's view: "Although such skepticism would normally be quitejustified, in this case the heavy disbursement at the end of the projectperiod was made so as to enable the project entity to continue, in spiteof Madagascar's very difficult foreign exchange situation, operating andmaintaining its existing assets until Phase II could be effective. Whenproject requirements were assessed during the appraisal of Phase II theexistence of the recently purchased equipment was taken into account.Madagascar's foreign exchange situation had deteriorated drasticallyduring the project period - and the apparent [over-disbursement] atthe end of the project, when Phase II had already been agreed on, repre-sented a conscious shift in resources, undertaken with the agreement ofthe supervisory staff. In retrospect, in our view, the decision seemsreasonable and appropriate."

- ll - Annex lPage 1

October 27, 1982E-407/83French (Madagascar)OEDJCB:cc

CO1êMENTS RECEIVED FROM GOVERNMENT

The Democratic Republic of MadagascarFOFIFADepartment of Forestry and Fishing Research

No. 362-MPARA/CEN/DRFP/10Tananarive, October 14, 1982

Mr. Shiv S. KapurDirector, Operations Evaluation DepartmentWorld Bank

Dear Mr. Kapur:

Thank you for your letter of September 2, 1982.

Attached plea:,e find my comments on the reports, together with some

production figures in our possession that have already been included in our

final report.

Thanking you for demonstrating so much confidence in us.

Yours, etc.

/s/ A. Rakotomanampison

- 12 - Annex 1Page 2

FANALAMANGA PROJECT - COMMENTS ON THE PROJECT PERFORMANCE

AUDIT AND COMPLETION REPORTS

I have the following comments to make on the above reports:

The main point at issue in the Mangoro project is that of the

production of the established plantations. The various estimates made in

this connection have all been inaccurate since there has been no proper

inventory to furnish reliable data. Because of this lack of data, of which

no one was really aware until the information was actually needed, errors

have been made all round, a fact that unfortunately did not become obvious

until the mill feasibility study was undertaken.

The inventory now in progress will provide a more accurate picture,

but we should point right away that the findings of the Department of

Forestry and Fishing Research are not all that optimistic. On the oldest

forest parcels, production figures vary between 30 - 190 m3 per ha. It

should be stressed that the various treatments considered involve a number

of techniques (soil preparation, planting density, fertilization, etc.)

which should be taken as a whole and not broken down according to the

different factors involved.

There is little doubt that Mangoro soils are poor. The serious

lack of trace elements, such as zinc, is but one of a number of deficiencies

in the area. But we feel that once these deficiencies have remedied, the

soils can be used for reforestation. This Department has carried out a

number of trials on different soi" types, with a view to devising the proper

fertilizer formula. We are putting forward a formula that has proven

satisfactory on the parcels and now has to be confirmed by geographic

diversification trials. It should be stressed, however, that fertilization

and planting density have to go hand in hand if a stand is to be productive.

-13 - Annex 1

Page 3

With respect to production levels, the extent to which the low

yields gives cause for concern depends on which original estimate was used.

At the time of the Forest Inventory Project (MAG 8), a forestry economics

expert indicated that a production of 13 m3/ha/year over barkwas feasible and

desirable if the projeci: was to show a good return. During the MAG 29

studies, another expert gave 13 m3/ha/year under bark as acceptable in the

light of the various plantations already existing in Madagascar, although it

is true that those plantations are located on soils and in ecological

conditions very different from those found at Mangoro.

Another point 1:o emphasize is that in any forestry operation the

final results cannot be determined until the trees reach maturity. Where

Fanalamanga is concerned, the oldest parcels are now 13 years old. While

our findings are provis:ional, it is guaranteed that they will be repeated,

both in time and in space.

Lastly, with such a vast reforestation program, unforeseeable

problems are very likely to arise, from time to time, problems that cannot

be solved.from one day 1:0 the next. To handle these situations, we need

more scientific resourceis in terms of research personnel and facilities.

Since the researchers have to follow the development of the plantations

virtually from day to day, they would thus be able to concentrate their

research on the most essential aspects of the program. This strengthening

of the research element would have repercussions on efficiency of outside

consultants and experts.


FERTILIZATION AND PLANTING DENSITY

SUMMARY OF FINDINGS

I. A number of trials have been carried out at FANALAMANGA, the most

significant being:

Trial No. 1 - Fertilization (Factorial P-K-CaMg) with the basic

formula 38 g PS05 - 24 g K20 and 100 g dolomite per

sapling.

Trial No. 3 - Density trial, same formula

Trial No 5 - Phosphorus quantity trial. O - 30 - 37 - 60 and 120

g P205 per sapling tested in sub-blocks with

potassium (24 g K20) or dolomite (150 g)

Trial No. 17 - Fertilizer quantity trial: O - 70 - 135 and 200 g

of PK 21-18.

Trial No. 26 - Fertilizer trial (Factorial NPK) on 4 species.

Basic fertilizer 52 g PS205 and 24 g K20.

Trials Nos. 32 Trace elements trial with 30 g PS05, 24 g K20

and 33 and various trace elements.

The findings from these trials, which were carried out on a wide

variety of soils, served as the basis for the following starter fertilizer

formula for Pinus kesiya saplings:

30 g P205

30 g K20

02 g Zn

Leaf tests, and measurements taken up to the age of 12 years,

reveal that the use of this fertilizer results in proper growth rates on

most of the reforested sites.

- 15 -

Annex 1Page 5

When the fertilizer used contains approximately these proportions,

we may expect a production at 10 years of 130 m3 - 240 m3/ha of wood (over

bark).

Production decreases when less fertilizer is used: in trial 17 the

following results were obtained (at 9 years):

no fertilizer 100 m3/ha

75 g of 21-16 105 m3/ha

130 g of 21-165 140 m3/ha

200 g of 21-16 180 m3/ha

In Trial 2 (souil preparation) a production of 30 m3 per ha at 10

years was obtained without fertilizer.

II. Planting density occurs at severals levels in forestry production.

Our trials at FANALAMANGA yielded the following results:

Trials Nos. 1, 2 and 4 : 2,000 saplings/ha

Trials Nos. 5, 12 and 17 : 1,850 sapliiigs/ha

Trials Nos. 9, 26, 32 and 33: 1,600 plants/ha

The only trial in which lower densities were used was the density

trial. The following volumes were obtained at these trials:

Reference Fertilized MAI

no. 1 190 to 210 m3/ha at 9 years 21 - 23 m3/ha/year

no. 2 150 m3/ha at 10.5 years 14 m3/ha/year

no. 5 240 m3/ha at 10 years 24 m3/ha/year

no. 17 180 m3/ha 10 years 18 M3/ha/year

no. 9 120 m3/ha at 10 years 12 m3/ha/year

no. 1 2000 saplings/ha 144 m3/ha 14 m3/ha/year

1600 saplings/ha 123 m3/ha 12 m3/ha/year



- 16 -Annex 1Page 6

With the appropriate quantities of fertilizer and proper density

(over 1,800 saplings/ha), we may expect a production of over 14 m3/ha/year

over bark.

For the FANALAMANGA plantations, we recommend the following

formulas:

Planting density: 2,000 saplings/ha

Starter fertilizer: 30 g P205

30 g K20

02 g Zn per sapling

This formula is applicable to most of the reforestation soils.

Exceptions will have to be made in just a few areas, the pertinent studies

being under way.


November 10, 1982E-455/83French (Madagascar)Operations EvaluationOTS:ms

Democratic Republic of MadagascarMinistry of Agricultural ]'roduction

and Agrarian ReformOffice of the Secretary General

Antananarivo, October 18, 1982

No. 812/MPARA/SG

Mr. Shiv S. KapurDirector, Operations Evaluation DepartmentWorld Bank

Subject: Project Performance Audit Report,First Mangoro Forestry Project(Loan 1065 and Credit 525-MAG)

Reference: Your letter of September 2, 1982

Dear Mr. Director:

Further to your letter under reference, I have the honor to forward

herewith a memorandum commenting on the Project Performance Audit Report.

Yours, etc.

/s/ Raphael Rabe


COMMENTS ON PROJECT PERFORMANCE AUDIT REPORT

1. TREE GROWTH

Two essential facts have to be borne in mind concerning tree growth

in the project.

(a) Soil fertility

The soils in the Mangoro Valley have been divided into five

fertility classes. Whereas to begin with trees were planted in all five

classes, since 1977 there has been a clearcut trend away from planting on

slopes (fertility classes IV and V) pending the findings of studies under

way.

(b) Choice of species

Since a recrudescence was observed in dieback of Pinus kesiya, a

species initially believed suited to the ecological conditions of Mangoro, a

policy of diversification has been adopted in the light of the results

achieved in the various trials carried out in the project area.

Where the report speaks of poor yields, this statement needs to be

adequately qualified.

2. MISTAKE IN ESTIMATING TREE GROWTH

The yield problem is certainly fundamental, and it was a deficiency

in the management of the project not to have required an inventory of the

old plantations between 1977 and 1981. A pre-inventory of these plantations

was made in 1979 to provide a quick basis for the permanent project forest

inventory system. This permanent inventory is designed with a view to

returning to the same seed spots every three years from the sixth year after

planting onward (6 - 9 - 12 - 15 - 1 Paris) to determine the increments.

The sixth year after planting was chosen as the starting point for

the inventory because:

- 19 -Annex 2Page 3

(a) the increase in volume in the initial years is very small so that

one should wait till it reaches or exceeds 5 m3/ha before starting the

inventory;

(b) depending on the fertility class, the plantation does not really

begin to produce until after three to five years (effective period required

for establishing the plantation).

N.B.

As long as the plantation has not reached the age of maturity, it

cannot be said that the volume achieved at an intermediate age can be

considered a satisfactory estimate of its productive potential.

For young plantations, the calculation can only be based on the

increase in height or on the height reached by the stand at a given age.

The inventory of the plantations established in Phase I is planned for

Phase II.

Regarding the plantations started since 1975, it seems premature to

assert thet "yield prospects have been so disastrously misjudged" and that

"The trees simply do not grow sufficiently in many parts of the project area

no matter how well they are cared for."

Many young plantations are doing quite well, while as regards old

ones which have not been able to benefit from the experience gained and the

findings of trials and research, valid solutions for improving the yields of

part of them are already known and are only awaiting implementation.

The findings of research regarding fertilization and young

plantations and corrective measures for old plantations on certain soils are

most promising.

- 20 -Annex 2Page 4

3. FOLLOW-ON PROJECT

For those who have followed and are familiar with the project, it

is superfluous to point out that the recent plantations are distinctly

better than the older ones (comparison of heights reached by stand, relative

homogeneity); this is thanks to the results of the trials and research and

the adoption [of appropriate measures*] after technical discussions

involving all those with responsibility for the project.

The search for ways and means to improve the mediocre plantations,

and deciding what to do with the poor ones, have been a constant concern for

the different managers, as is evidenced by the orientation given to the

research and trials.

Although the ultimate solutions have not yet been found as we are

still too close to the problem, much has been learned and will continue to

be applied.

4. OTHER COMMENTS

The margins taken by the contractors and the additional expenses

entailed for them by the fact that they come from regions far from the

project area make their costs high compared with those of the company using

its own or locally hired personnel.

The exceeding of the appraisal targets was due to:

- the fact that Phase I lasted longer than planned;

- the abandoning for the time being of the slopes, which has meant

that the plantations have been spread out over a wider gross area.

*Phrase to this effect presumably intended, but accidentally omitted from

French original. (Tr.)

- 21 -Annex 2Page 5

The construction standards adopted in the design stage were far

from ambitious, but unavoidable changes in the project meant that certain

sacrifices that did not compromise safety had to be accepted, examples of

which are:

- accepting certain road gradients at some points;

- avoiding construction of large works;

- using a mix of permanent and semipermanent materials in the

housing: baked and unbaked bricks, mixed plaster instead of

all-cement plaster.

The equipment list for the project took into account the items

passed down from the pre-project phase. These had been fully amortized even

before the end of Phase I (1979).

Certain items acquired during the project are also well on the way

to being amortized.

Moreover, the equipment and vehicles procured new will not only be

used for the new plantations but also for forest inventory maintenance and

fire protection purposes.

- 23 -

MADAGASCAR

MANGORO FORESTRY PROJECT

COMPLETION REPORT

April 7, 1982

Eastern Africa Projects

Central Agriculture Division

- 25 -

MADAGASCAR

MANGORO FORESTRY PROJECT

COMPLETION REPORT

I. INTRODUCTION

Sector Setting

1.01 This report was written by Mr. A. de Largentaye who conducted thecompletion mission which, jointly with the last supervision mission,visited Madagascar in early March 1981 (see Basic Data Sheet). A draftversion of this report was circulated in July 1981, but was finalized onlyin January 1982 to take into consideration recent changes in the estimatesof tree growth (para. 3.20).

1.02 Agriculture dominates the Malagasy economy, contributing about 40%of GDP, accounting for about 80% of export earnings, and directlysupporting over 80% of the population. The forestry sector at presentcontributes a very minor percentage of GDP, but is of importance as asource of domestic fuel wood and charcoal, and potentially, of exportableproducts.

1.03 One of the main objectives of the Malagasy Government over the lastfive years has been the expansion of marketable production of agriculturalcommodities in order, inter alia, to generate foreign exchange resources.Agricultural exports, including exports of forestry products, have aspecial significance in this context, because alternative means of meetingthe country's growing foreign exchange requirements are limited.

1.04 About 17.0 million ha (30% of Madagascar's land area) are classifiedas forest land consisting mainly of indigenous tropical hardwood and somepine and eucalyptus plantations. The table below summarizes in approximatefigures the current forestry resources of Madagascar:

- 26 -

Forestry Resources(1981)

Million Yield Productionha m3/ha million m3

per year per year

"Savoka" (degradedindigenous forests) 4.3 - -

"Productive" indigenousforests 12.4 .4 5

Pine plantations .1 - -

Eucalyptus .2 10.0 2

Total 17.0 10.4 7

Although most of the indigenous forests have low yields, they neverthelessserve an important function in providing domestic fuel and timber andmaintaining water catchment. Pine plantations do not provide wood for tworeasons: (a) a large fraction of the plantations are still young andimmature; and (b) wood industries have not yet been developed to use theavailable supply.

1.05 The man-made forests in Madagascar are mainly pine and eucalyptusplantations. As land clearing and plantation costs are high in naturalforest areas, plantations have been carried out in open grassland areas.The existing eucalyptus plantations have been established for fuel wood,originally mainly for railway use. The 200,000 ha of eucalyptus are mostlyin small stands, often on private land, and are managed under a coppicesystem, providing mainly fuel wood (including charcoal) and poles. Acontinuation of eucalyptus plantation on a large-scale would be justifiedonly as raw material for industrial uses such as pulp and paper or chromitereduction. High-yielding eucalyptus plantations have been successfullyestablished, particularly E. grandis in the Moramanga-Perinet area(para. 3.11), but these require good soils for their best development.

1.06 In various areas with low agricultural potential where soils aredegraded the Government gives priority to the establishment of pineplantations. The availability of such sparsely populated land in largeblocks relatively close to the sea gives Madagascar a comparative advantagefor the industrial production of wood based products for export. There arethree large pine plantations in Madagascar, listed below, and of these

- 27 -

three, the Government has developed mostly the Mangoro forest since 1973.By contrast, the Matsiatra pine forest, started in the early 1960s, has notbeen developed in recent years. Although the Matsiatra forestry projectwas designed to produce pulpwood, water shortages, relatively poor access,and a limited plantation area lead, in 1975, to abandon the idea of apulpmill project in the Matsiatra area. Other pine plantations (see MapIBRD 15290), in particular Haut Onive (only several hundred hectaresplanted) and Antsirabe were virtually stopped in order to concentrate onthe Mangoro project:

Pine Plantations in Madagascar(hectares)

1973 1980

Antsirabe 7,500 10,000Matsiatra 30,000 30,000Mangoro 18,500 65,000Other 9,000 n.a.

Total 65,000 n.a.

1.07 Forest related industry in Madagascar is in an early stage ofdevelopment. The estLmated 7.0 million m3 (roundwood) total annual woodconsumption in Madaga;car is used approximately as follows:

Annual Use of Wood(1981)

Million m3 m3 perUse of wood % capita

Fuel 5.6 80% .60(of whichcharcoal) (1.0) (14%) (.13)

Industrial use 1.4 20% .15

Total 7.0 100% .75

- 28 -

Increasing prices of charcoal in Madagascar indicate that demand isoutstripping supply. This is probably also true for fuel wood generally,especially around urban areas. Regarding sawn lumber, official statisticsshow a declining volume of mechanically sawn wood, from about 100,000 m3

per annum in 1974 to about 20,000 m3 today. There are a variety of reasonsfor this decline, namely lack of trained staff, lack of spare parts,logging and transport problens. On the other hand, handsawing (pit sawing)may still account for about 150,000 m3 per annum 1/. Small volumes ofwood are also used for the production of pulp, hardwood and matches.

1.08 Until 1979, overall responsibility for forest organization andmanagement rested with the Directorate of Water and Forest (Direction desEaux et Forêts) in the Ministry of Rural Development and Agrarian Reform(MDRRA). In 1979 the MDRRA was reorganized with the principal objective ofproviding better support to the regional and local institutions throughdecentralization. The new water and forest service still has control oflnational projects" which are financed with external assistance but has nocontrol of the regional forestry services.

1.09 In the 1980 investment budget, forest operations accounted for aboutFMG 480 million (16% of MDRRA total). These figures do not include theamount of foreign assistance on small specific projects. The Mangoroproject alone has represented more than 44% of total Government investmentcommitments in the forestry sector over recent years.

1.10 Out of a total forestry staff of approximately 500 in the wholecountry, there are 20 professionally qualified foresters (Ingénieurs deseaux et forêts), 46 forestry technicians (Ingénieurs des travaux), about440 forestry assistants (Adjoints techniques et Agents techniques), and 30foremen. Many of the senior officers are not performing forestryfunctions. Forestry training has been inadequate lately. In particular,there have been no new professionally qualified foresters since 1972.

Bank Agricultural Lending Program in Madagascar

1.11 To date, the Bank Group has supported eight agricultural developmentprojects in Madagascar. Credits and loans for three projects are fullydisbursed: the Lac Alaotra Irrigation Project (US $5.0 million), the BeefCattle Development Project (US $2.8 million) and the First Forestry Project(US $13.5 million). Five other projects are under implementation: theMorondava Irrigation Project (US $15.3 million); the First VillageLivestock and Rural Development Project (US $9.6 million); the Mangoky

1/ Demand for sawn lumber is not well known. The appraisal report of thesecond phase Mangoro project, issued in 1981, states that demand ishigh, whereas the preparation report of the first phase project, issuedin 1973, showed a rather limited domestic demand for mechanically sawnlumber (para. 2.13): 48,000 m3 per annum of hardwoods and 6,000 m3 ofpine lumber (supplementary note, p. 5).

- 29 -

Agricultural Development Project (US $12.0 million); a Technical AssistanceProject for the Study of the Plain of Antananarivo (US $2.3 million); andthe First Agricultural Credit Project (US $10.0 million). The SecondForestry Project (US $24.2 million) was approved in June 1981, and a SecondVillage Livestock Project (US $15.0 million) was negotiated in December1981. Several other projects are under preparation, in mixed farming,irrigation, various crop production sub-sectors and agricultural services.A Technical Assistance Project has been appraised. Experience with pastprojects has been mixed. The Lac Alaotra Project was implemented on time,albeit with some problems, but the performance for SOMALAC, the projectimplementation agency, has deteriorated considerably since the completionof the Project *. Production yields are low, and the maintenance ofirrigation infrastructure poor; a rehabilitation project for the region isunder preparation. The Beef Cattle Development Project encountered manyserious problems (para. 2.17); the First Village Livestock Projectencountered very serious delays, principally due to institutional problemswhich required the renegotiation of the credit. The Morondava Project alsoencountered serious problems, mostly managerial. The Mangoky Project isoff to a good start technically, but major institutional problems are nowarising. The First Agricultural Credit Project became effective only inAugust 1981.

II. PRE-PROJECT DEVELOPMENTS

Origins of the Project

2.01 The origins of the Mangoro forestry project go back to themid-1960s. The aims of the Malagasy Government's forest policy in the19 60s were the preservation of existing forests, particularly with a viewto protection of water catchment areas, prevention of soil erosion and theexpansion of forest production. The Government's 1964-68 Development Planincluded a chapter on forest development and aimed at an increase in thevalue of forest industrial production from about $2.0 million in 1960 toabout $7.0 million irn 1968.

2.02 In 1966 the Gcvernment requested UNDP to help it solve two mainissues:

(a) lack of information on the quality and quantity ofeconomically accessible marketable timber in the indigenousforest; and

(b) the need for a thorough technical and economic study of theprospects for establishing a plantation based pulp and paperindustry.

2.03 UNDP responded by financing two FAO projects entitled "Inventory andDevelopment of Certain Forestry Perimeters", Phase I (MAG 8), and Phase II(MAG 29). MAG 8 was approved in January 1966 and was operational from

* The experience of the Lac Alaotra project was reviewed in a 1981 OEDImpact Evaluation Report which identified some important problems inimplementation. A rehabilitation and management strengthening projectfor the region has been appraised.

- 30 -

November 1967 to December 31, 1971, whereas MAG 29 was approved in January1971 and considered operational retroactively from January 1, 1970, toJune 30, 1973. Basically MAG 8 addressed the first issue (para. 2.02) andconsisted of a general reconnaissance of the forest resources, a detailedinventory covering about 450,000 ha, and an evaluation of the economicpotential of these forests including studies of the possibility ofestablishing forest industries and recommendations for the improvement oflog extraction methods and the preparation of a forestry development plan.

2.04 UNDP undertook to address the second issue in three successivestages, leading to project MAG 29:

(a) Preliminary Assessment of the Possibility of a UNDP ForestryProject. In 1966 UNDP recruited consultants who selected fourpossible plantation sites, including the upper Mangoro valley,in addition to the Matsiatra plantations (para. 1.06) wherethe Centre Technique Forestier Tropical (CTFT) 2/ already hada forest research program.

(b) FAO Reconnaissance Mission. In May 1967 an FAO reconnaissancemission, financed by UNDP, determined: (i) that the Mangoroarea was the only viable plantation site; (ii) that only alarge pulpmill could take full advantage of economies ofscale; and (iii) that plantation trials were necessary beforedeveloping the full-scale project.

(c) UNDP Project MAG 29. As a result of the reconnaissancemission, the main objectives of the subsequent UNDP projectMAG 29 were: (i) to carry out a preliminary feasibility studyof the prospects of a plantation-based pulp and paper industryin the Mangoro region; (ii) to make recommendations regardingthe usage of the Matsiatra pine plantations (para. 1.06); and(iii) to initiate trial plantations.

2.05 The preliminary feasibility studies of MAG 29 concluded that asuitable mill site existed on the Mangoro river adjacent to the mainrailway line and highway to the port of Tamatave, now Toamasina (270 km byrail). The studies examined the viability of a 200,000 ton bleached kraftchemical pulpmill, the cost of which was estimated at about US $100million. Gross profitability (i.e. annual gross earnings as a percentageof capital investment) for a mill of that size was estimated to be in theorder of 14%.

2.06 The recommendations of UNDP and FAO regarding the Matsiatraplantations did not support earlier views in favor of a pulpmill. Althoughin 1970 the Covernment, with UNIDO assistance, had already undertaken apreliminary study on the prospects for establishing a pulpmill in the area,

2/ French Research Center for Tropical Forestry.

- 31 -

and concluded that gross prof itability would be 15% or 16%, FAO believedthese figures were tco optimistic. Estimating that other industrialdevelopments (a sawmill or, alternatively, an integrated sawmill,blockboard and wood woolmill) in the Matsiatra area would earn higherreturns (23% and 31%, respectively), FAO concluded that, whether or not theGovernment succeeded in attracting an overseas sponsor for the proposedpulpmill in Matsiatra (which in the end it did not succeed in doing), itwas feasible to proceed with immediate installation of a first phasesawmilling operation which could later either be integrated with a pulpmillor expanded. However, the Government did not follow this conclusion(para. 2.10) and until now the Matsiatra plantations have remainedunder-exploited.

2.07 MAG 29 also included trial plantations in the Mangoro area whichbegan in 1968. Alongside Government and CTFT research plots, the projectset up about 800 ha of large-scale trial plantations. As trials seemedpromising, UNDP encouraged the Government to begin a pine plantationprogram of about 4,000 ha/year. Thus 18,000 ha were planted by June 1973.

2.08 The pilot trials and studies carried out in Mangoro provided theinformation needed for identification and preparation of a forestindustrial development programme.

Identification

2.09 An FAO/IBRD Cooperative Program identification mission visitedMadagascar between February 22 and March 7, 1972, and identified a projectto establish, as a first phase of the Mangoro afforestation program,48,000 ha of pine plantations. Planting was to proceed at the rate of6,000 ha a year starting during the November rains of 1973. Theidentification report, issued in May 1972, assumed stumpage rates of FMG738 (US $2.8) per m3 and determined the financial rate of return of theplantations alone to be of the order of 7% to 9% and the economic rate ofreturn of the integrated silvo-industrial project (estimated to cost atotal of $142 million) to be of the order of 13%, with a value of annualexport pulp sales of about $35.0 million. The report pointed out that theprof itability of the pulpmill could be improved by increasing its capacityto 300,000 tons per annum. It also recommended technical assistance forthree positions, i.e. a forestry expert, a road engineer and anengineer/workshop manager.

2.10 Four main issues were pending after the identification mission:

(i) Development of the Matsiatra forest zone. The new Governmentincluded in its National Development Plan (1974-77),published in May 1974, the construction of an unbleachedpulpmill at Matsiatra, which could entail overcapacity andunnecessary competition if another pulpmill were developed inthe Mangoro area. For this reason, among others, UNDP/FAO(para. 2.06) and Bank staff favored the development of a

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sawmill project in Matsiatra. As the Matsiatra pulpmillproject was considered unlikely to attract foreign investors,this issue was not considered very serious (para. 2.15).

(ii) Lack of data on the growth rate of species. This issue wasclarified in a further study by the UNDP project staff ofvarious village plots of Pinus kesiya scattered throughoutthe Mangoro region (the eldest of which were about 15 yearsof age) and a comparison with Pinus kesiya data from othercountries, which lead subsequent missions to assume a MAI(mean annual increment) under bark of at least 12 m3/ha,providing adequate soil preparation and fertilization.Pre-project plantations, however, were expected to have a MAIof only 9.6 m3/ha.

(iii) International pulp market. The viability of the projectappeared to depend particularly on the possibility of sellingbleached kraft chemical pulp in the South African market inthe mid-1980s. However, the market studies carried out as aresult of this apparent dependence on the South Africanmarket revealed a growing demand and concluded thatMadagascar would have no difficulty in selling its bleachedkraft chemical pulp on the world market.

(iv) The low rate of return of the plantations alone. Howeverthis low rate of return was accepted because of the higherrate of return of the integrated project, includingplantations as well as the pulpmill.

Preparation

2.11 The Malagasy Government which had been in power since independence(1960) was overthrown on May 13, 1972. The new Government made manychanges, but did not modify policies for the forestry sector. Thus, theformal request for a loan to finance the Mangoro forestry project wasissued on October 31, 1972.

2.12 The FAO/IBRD Cooperative Programme preparation mission lasted fromJanuary 25 to February 22, 1973. The preparation report was published withsome delay in July 1973, because of uncertainty in international pulpprices. Although the socio-economic impact of the project on the localpopulation was not considered by the preparation mission to be a seriousissue, it requested specifîc guarantees from the Government on that aspectof the project (para. 2.17).

2.13 The preparation mission devoted special attention to the economicand market analysis of various industrial alternatives. Most of theprimary forest products which could conceivably be produced in Madagascarfrom the Mangoro plantations were rejected for basic technical and economicreasons, leaving six selected products (see below) for which detailedeconomic and market analyses were carried out:

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Forestry Products Selected by the Preparation Mission(1973)

ProductsCategory Products rejected selected

1. Wood and logs PulpwoodSawlogs

2. Mechanical wood Plywood Sawn woodproducts Part icle board

FibreboardBlockboard

3. Pulp and paper Groundwood or mechanical pulp Bleached kraftproducts Semi-chemical and chemi- pulp

mechanical pulpsBleached and unbleached sulphite

pulpsUnbleached kraft pulp

4. Papers Printing and writing papers NewsprintLinerboard

The analyses confirmed that a large bleached kraft pulpmill was the mostviable industrial deve:lopment. Exporting the output as pulpwood andsawlogs was shown to be highly uncompetitive; nor was sawn lumber a viableoutput, because no domestic market existed to absorb large quantities ofsawn lumber (footnote of para. 1.07) and the export markets for thisproduct were only marg:inally attractive if at all. Production of newsprintand linerboard was not retained because it required an investment as highas a bleached kraft puLpmill but with lower gross earnings. Thepreparation report confirmed that larger bleached kraft pulpmills (220,000and 260,000 TPA) produced higher gross earning rates but conservativelybased its financial and economic assessment on the less attractive 200,000TPA capacity model.

2.14 The financial rate of return of the integrated investment program(plantations plus pulpraill) was 12%, the economic rate of return 13%.Because pulp prices (c.i.f. Rotterdam) had risen by 25% from US$186/ADT 3/ in March 1972 to US $232 in May 1973 (the latter figure wasused in the calculations of the preparation report), and price and marketprospects were favorable, the rate of return of the Mangoro plantations

3/ Air dried ton.

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alone (para. 2.10 (iv) ) was no longer an issue. The pulpmill projectcould purchase the wood at stumpage rates of FMG 800 per m3 under barkensuring a 10% rate of return to plantations and still earn a rate ofreturn of 12.4% for the pulpmill alone.

Appraisal - Negotiations - Board Approval

2.15 The appraisal mission visited Madagascar from November 22 toDecember 13, 1973, and concluded that the project had been well prepared.The mission confirmed that the bleached kraft pulpmill was the mostattractive industrial development. World markets for bleached long fiber(pine) chemical pulp were expected to continue expanding. The prices ofpulp had increased substantially since 1973, and market projectionsindicated a real price increase of about 2% annually up to 1985. Inaddition, the location of the pulpmill for the Mangoro project on a riverand near a main road and railway compared well as against other similarprojects in southern Africa. The mission therefore believed that theindustrial component of the program was likely to attract foreigninvestors. By contrast the Matsiatra pulpmill project was consideredunlikely to attract private investors and was therefore discounted as aserious potential competitor to the Mangoro project (paras. 1.06 and 2.10).

2.16 Based on the June 1974 c.i.f. price Northwest Europe of $340 per ADT(a 47% nominal increase since May 1973) and on the current exchange rate ofFMG 255/US$, the financial rate of return of the overall silvo-industrialdevelopment program (including a second plantation phase, a loggingindustry and the pulpmill costing by itself $140 million) was estimated atabout 10% over 33 years. Net foreign exchange earnings were expected toreach US $42 million at full development. By shadow pricing foreignexchange at 125% (FMG 320/US$) of the current rate (FMG 255/US$) and laborcosts at 75% of the current wage rates, the economic rate of return wasestimated to be 13% over 33 years. Thus, the financial and economic ratesof return appearing in the appraisal report were in line with previousfigures. Although the pulpmill still emerged as the most attractiveindustrial option, the appraisal report included, as a fallback position,the possibility of exporting the project output as roundwood or wood chips,with an economic rate of return of 10%.

2.17 At the request of the preparation mission (para. 2.12), theGovernment of Madagascar had carried out a special study to determine theeconomic activity, the area cultivated and grazed, the attitudes and thenumber of people living in and around the project perimeter, and the stepsto be taken to accommodate local peoples' interests in the project area.The study enabled the appraisal mission to judge that, because theafforestation would not affect agricultural and grazing lands, and subjectto proper consultation with the villagers, especially on plantationboundaries, the project's social benefits should outweigh its social costsand resistance by local people, which had plagued the Beef CattleDevelopment Project (para. 1.11), was not to be feared in this project(para. 6.03). These matters were incorporated in the legal

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agreements 4/. A fulL fire protection scheme was included in the projectdesign and provided an additional safeguard against possible incendiarydamage by local people.

2.18 Although the land for afforestation was unencumbered hy land claimsand therefore, under Malagasy laws, was state property, throughoutpreparation and appraisal, the Bank staff requested, prior to negotiations,a legal title stating the Government's full rights. Already in 1971, theMinister of Rural Development had attempted to obtain such a title for100,000 ha of the project area from the Minister of Finance in charge ofthe state property services ("Service des Domaines"), in conformity withthe seven step procedure stipulated in the laws on the allocation of stateproperty to the public services ("affectation des biens domaniaux auxServices Publics"). By the end of 1973, i.e. two years after the procedurewas initiated, it had only reached the second of its seven steps. Duringthe appraisal, however, the forestry services found a shorter procedure,based on forest law. This procedure remained under the initiative of theMinister of Rural Development and did not require the intervention of thestate property services ("Service des Domaines"), given that the projectarea was state property. At the Bank's request, the Ministry of Justiceacknowledged during the appraisal that this procedure was in conformitywith Malagasy legal and constitutional practices. As a result, theMinister of Rural Development was entitled to sign the decree (arrêté no0701-NDE/FOR of February 28, 1974) including the full project area(190,000 ha) in the National Forestry Reserve under perpetual autonomouscontrol by the Director of Forestry.

2.19 The appraisal mission noted the high technical and administrativestandard of the Malagasy Forest Department which had proved its capacity tocarry out an annual planting program of 6,000 ha per year. However, themission confirmed that the limited number of local forestry professionalswarranted some outside assistance, and a minor provision was made fortechnical assistance (para. 2.23).

2.20 During appraisal, Bank staff had worked on the assumption that theproject would be implemented by a new, separate project unit within theForestry Directorate of the Ministry of Rural Development. The principalobjectives were to ensure that the implementing authority had an autonomousbudget and appropriate authority to procure needed equipment efficiently.During negotiations, some important changes were made in the implementationarrangements, because, as the Malagasy pointed out, if the project entitywas part of the Forestry Directorate, the procurement of equipment would besubject to prior approval by the minister. As a result, agreement wasreached on the creation of a new parastatal agency, entirely separate fromthe ministry, to manage the Mangoro development. In the delegation's viewthe most appropriate legal basis for the entity was that of a Sociétéd'Economie Mixte (para. 3.03), which enabled private interests to

4/ Section 3.08 of the Loan Agreement and Supplemental Letter No. 3.

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participate in the subsequent development of an industrial processingcomplex. Approval by the Bank of the statutes of the project entity wasmade a condition of Board presentation. The statutes were agreed upon inNovember 1974, five weeks before Board approval. The newly created projectentity, FANALAMANGA, was owned by the Governnent, except for 1% of thecapital shares owned by the Central Bank of Madagascar.

2.21 The project was approved by the Board on December 17, 1974.Virtually all the comments made by the Executive Directors during thediscussion were favorable to the project. Ilowever, the question was raisedwhether the Mangoro project was a high priority in the development strategyof Madagascar, given the large investment that the construction of apulpmill would require, and whether Madagascar was not foregoing morefundamental development projects because of the Mangoro project'sfinancing. It was stressed in the answer that, because Madagascar'sdevelopment program unfortunately did not include many projects, thecountry was not giving up any other project. In summary, the Bank wouldgladly have been more involved in Madagascar if the country had developedmore projects for financing.

Project Description

2.22 As approved by the Board, the project included:

(i) Afforestation of 35,000 ha of pine plantations, includingsurveying of the area to be planted, land preparation,establishment of nurseries, fertilization, planting, weedingand disease control.

(ii) Construction of firebreaks and institution of a comprehensivesystem of maintenance and of fire prevention and control forall plantations in the project area.

(iii) Construction and maintenance of service and plantation roads.

(iv) Construction of buildings for project headquarters and threedivisional headquarters.

(v) Research, training and preparation of a second-phase project.

(vi) Preparation of agricultural projects.

(vii) Agro-pastural development in the project area.

2.23 The project was practically unchanged compared to its initialconception. The main differences concerned:

Size: The afforestation programme covered 35,000 ha to beplanted in five years instead of 48,000 ha in eight years assuggested in identification. This resulted from the higher

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planting rate of the forestry services (7,000 ha per annuminstead of 6,000) and the progress of the pre-projectafforestation programme, which totalled 25,000 ha by the endof 1974.

Technical Assistance: The proven competence of the localforestry services explains why only one expatriate positionwas fina]ly retained (for the research component), comparedto three suggested by the identification (para. 2.09) andpreparat:ion missions. It is significant that this positior(forestry expert) was requested by the Malagasy Government,and was rnot proposed by the Bank.

Villager Compensation: The Loan Agreement (Section 3.08)specifically provided that boundaries would be agreed withvillager<; living in the project area. Furthermore, US$100,000 were provided for the improvement of about 2,000 haof pasture through the introduction of stylostanthes, a highyielding legume successfully tested in Madagascar. Finally,Supplemenital Letter No. 3 provided that social infrastructure(health and education) would be put at the disposal of thevillagers and that, in the event of any loss or impairment ofthe villagers' rights caused by the execution of the project,compensation in accordance with the applicable laws andregulations of Madagascar would be given to said villagers.

Cost: The cost of the project, according to the appraisalreport, was US $17.2 million, compared to US $8.5 million(without contingencies) in the preparation report. Theincrease resulted from: (i) the inclusion of contingencies,accountirng for US $4.5 million; (ii) the updating of costs tolast quarter 1974 prices, accounting for US $1 million; (iii)the provision of research, training and consultant fees,costing US $1.2 million; and (iv) higher labor requirements(1,975 workers employed, according to the appraisal report -para. 5.02), than in the preparation report (1,200 employed),accounting for US $1.9 million.

Bank/IDA contribution: At negotiations, the Malagasydelegation requested and Bank/IDA agreed that Bank/IDA wouldincrease their contribution from 76% to 80% of total projectcost, as in the Village Livestock and Rural DevelopmentProject, approved in July 1974, and the Third HighwayProject, approved in December 1973. For the Mangoro ForestryProject, the higher contribution entailed an increase of theCredit and Loan by $250,000 each (from $6.5 million to $6.75million).

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III. IMPLEMENTATION

3.01 On many aspects, the project had an excellent implementationrecord. The project unit FANALAMANGA achieved all physical targets aheadof time, and, despite limited foreign exchange and higher costs of importedequipment than expected, it managed to extend the project period andfinance two additional planting seasons, which is an exceptionalperformance in Madagascar. Recent studies have shown, however, thatFANALAMANGA, as all other forestry specialists involved in the project,were too optimistic on the expected project output.

Effectiveness

3.02 The Development Credit and Loan Agreements set the date ofeffectiveness at March 24, 1975, i.e. three months after signature of thelegal documents. There were two conditions of effectiveness to the LoanAgreement: the establishment of the project entity, FANALAMANGA, and theappointment of its Director General, with qualifications and experiencesatisfactory to the Bank. The Bank postponed the date of effectivenesstwice; first from March 24 to May 31, 1975, in consideration of thepolitical and administrative turmoil resulting from the assassination ofthe head of state on February 11, 1975; then from May 31 to July 31, 1975,because of administrative delays in establishing FANALAMANGA.

3.03 FANALAMANGA was established on June 4, 1975, but, because of changesin its statutes, a draft of which was examined during negotiations, theBank did not give its approval immediately. The major change, a reductionof the amount of Government equity capital from FMG 2,000 million toFMG 500 million, was necessary to enable the Central Bank of Madagascar toparticipate with equity, and thus to establish FANALAMANGA as a Sociétéd'Economie Mixte (para. 2.20) 5/. The reduction in equity was to be madeup by an interest-free loan from Government to FANALAMANGA, later to beconverted into equity. As a result, there would be no increased financialburden on FANALAMANGA. The Bank's Legal Department requested that the dateof the transfer of the loan into equity be specified as not later than theend of the Project Development Period, to conform with the legalagreements. This request was met by the Borrower on July 15, 1975, and theBank declared the Development Credit and Loan Agreements effective on July18, 1975.

3.04 The other condition of effectiveness, the appointment of theDirector General of FANALAMANGA, was met with the nomination of a highlyqualified forester, as reported by the supervision mission which returnedfrom Madagascar on June 7, 1975. The nominee, currently still the DirectorGeneral of FANALAMANGA, was trained at the Ecole Nationale des Eaux etForêts of Nancy, the top French forestry academy, and was previously "chef

5/ The reasons for this change remain unclear.

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de service" in the Department of Forestry and Soil Conservation in theMinistry of Rural Development. The curricula vitae of the senior staff ofFANALAMANGA (plantation director, financial director and workshop engineer)were sent to the Bank at the end of June 1975, within the agreed time limit(Section 4.03 of the Loan Agreement) (para. 5.02).

Start-up

3.05 The main problemn during the start-up period was the scarcity offunds. This resulted in part from the postponements of the date ofeffectiveness, but was made more acute by some errors in procurement.

3.06 Errors in procurement were made in the beginning of the projectalthough the Bank staff had exercised special care to inform the Borrowerof Bank/IDA procurement guidelines. FANALAMIANGA handed two tenderdocuments, one for vehicles and equipment (mainly tractors, bulldozers,graders, etc.) and one for fertilizers and petroleum fuel, to thesupervision mission that visited Madagascar in October 1975. Thesupervision mission report states that the format of documents wassatisfactory. The documents were reviewed by the Projects Division inWashington; however, no formal clearance was transmitted to theGovernment. In March 1976, after the requests for proposals were issued,the Bank received complaints from manufacturers of vehicles and equipmentthat the technical specifications were too restrictive. Bank staff thenfound that the tender documents reviewed in Washington did not include thetechnical specifications which were the subject of complaints. Asrequested by the Bank staff in April, the Borrower issued a statement tothe effect that equivalent equipment to that specified in the tenderdocuments would be considered eligible and that the deadline for receipt oftenders would be postponed to June 30, 1976. The mishandling of theprocurement was due to the inexperience of the local staff with regard tothe Bank procedures at the beginning of the project, and to the difficultyof spotting inaccuracies in detailed technical specifications fromWashington. The resu:Lt was delay in receipt of equipment of about sixmonths. This is an instance of what might have been avoided through closesupervision by experienced Bank staff based in the country (see alsoparas. 3.28 and 6.07).

Revisions

3.07 There were no major revisions of the Project during implementation.Some relatively minor changes are reviewed below.

3.08 The appraisal report envisaged the organization of the plantationsin three divisions, in which 1,000 to 4,000 ha would be planted each yearin four plantation operational areas. This would have required periodicresiting of laborers' villages, which was contrary to new Governmentdirectives on housing standards. In July 1975, FANALAMANGA thereforeproposed to double the number of operational areas and reduce their size,thus increasing the number of villages and avoiding the necessity to move

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villagers every third year. A favorable side effect was that it would nolonger be necessary to move the nurseries every third year. While theinitial capital outlay on permanent housing and, to a smaller extent, onroad network was expected to be more than envisaged at appraisal, over thelong-term there would be a net saving on housing and nursery establishmentcosts. Although Bank staff had initial reservations on this proposalbecause of the increased cost of housing and road building, the proposalwas examined and approved during the second supervision mission(December 1975).

3.09 Poor growth of trees, recorded on four to six-year-old plantationtrials, created serious concern in 1975, the first year of the projectperiod. Based on FANALAMANGA's findings, the first two supervisionmissions identified the following causes: (i) infertile soils on steepslopes, over 30%, where soils were degraded and low cost mechanical soilpreparation was not possible; (ii) soil preparation: the soil requiredmore thorough preparation than the subsoiling, disc harrowing, and manualloosening of the surface soil, recommended in the appraisal report; (iii)dieback appearing throughout the project on four-year-old Pinus kesiyaplants although only small areas (unquantified) had been destroyed; and(iv) lack of fertilization: by the end of 1975 only 20% of all plantations(totalling about 32,000 ha, with the pre-project plantations) had beenfertilized with binary PK (phosphorus, potassium) and scarcity offertilizers was still delaying fertilizations. The pronounced effect offertilizer and soil fertility on the growth rate of trees is summarized inthe following table (from the terminal report of the expatriate forestryadviser, dated May 31, 1976):

Mean Annual Increment Under Bark Over 15 Years in m3/ha

Pinus Kesiya Planted in 1975 and 1976

Soil preparation Mechanical Manual

Soil fertility classes I Il III IV IV V

Fertilized plantations 19.2 16.2 13.7 10.8 7.9 5.1

(average) (14.3) (6.0)

Unfertilized plantations 13.3 10.7 8.5 6.3 3.9 2.6

(average) (9.1) (3.0)

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3.10 The expatriate forestry expert estimated the mean annual increment(MAI) under bark in mid 1976 to be 10.4 m3 /ha on average for the total areaplanted (37,500 ha). This was below the appraisal estimate of 12 m3 /ha,and somewhat below the average Il m3 /ha expected from both the project andpre-project plantations, given the lower pre-project yields (para.2.10 (ii) ). Consequently, towards the end of 1975, FANALAMANGA undertookthe following measures, recommended or agreed to by the Bank supervisionmissions:

(i) To stop planting infertile steep slopes and plant only flat,fertile sites as from the planting season 1976/1977. (Flat,fertile sites were understood to mean sites with slopes under13%, and steep slopes were all those over 25% correspondingto soil fertility Classes V and VI.) However, moderateslopes between 13% and 25% also continued to be planted inthe hope that late fertilization would compensate the poorfertility of the soils (presumably Classes III and IV). Theforestry adviser pointed out in his terminal report that therestriction of plantations to land under 25% slope would notenable to plant 96,000 ha within the project perimeter andtheref ore plantations would have to be made in areas outsidethe project area. This issue was addressed in relation withthe silvo-industrial development (para. 3.12).

(ii) To improve soil preparation. Although disc-ploughing inaddition to subsoiling was initially envisaged in 1975, thisrequired additional disc-ploughs and more powerfulcrawler-tractors which were expensive and in short supply.To compensate for the shortfall of equipment, the projectmanagement resorted to manual cultivation within a 50 cmradius around each planting spot ("placette de plantation")in addition to the mechanical soil preparation recommended atappraisal. However, the impact of this measure was not'quantified in terms of mean annual increments.

(iii) To undertake research and consult international specialistson the cause of dieback. As a result, this cause wasvirtually identified very quickly (end of 1975). Theforestry research institute determined that dieback was dueto a deficiency in a trace element (zinc) and confirmed thisin 1978 by trials and experiments. Zinc chloride wasprocured and treatment by aerial spraying began in 1979. Atthe completion of the project (end June 1981), about 40,000ha of Pinus kesiya plantations had been treated, leavingabout 7,000 ha ta be treated during the second phaseproject. Beginning in the 1980/1981 planting season, newplantations of Pinus kesiya received zinc chloride along withtheir initial fertilizer dose.

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(iv) To plant other pine species, more resistant to dieback,rather than Pinus kesiya alone. Pinus kesiya had been chosenmainly because seeds were available locally. The projectunit decided to limit plantations of the vulnerable Pinuskesiya to the unexposed southern division and plant moreresistant species in the exposed areas (central and northerndivisions). The proportions to be planted from the plantingseason 1976/1977 would be 30% P. kesiya, 15% P. elliottii,55% P. caribaea, which would have given the followingdis tribut ion:

Actual and Planned Distribution of Pine Species in 1976

(ha)

Species Actual Planned Total

1976/77through

1974/75 1975/76 1980/81

P. kesiya 6,190 5,470 10,683 22,343P. elliottii - - 5,341 5,341P. caribaea - - 19,486 19,486

Total 6,190 5,470 35,510 47,170

Unfortunately, up-to-date figures on the breakdown ofplantations by pine species are not on file (para. 3.21) tocompare with the above planned figures, but, although seedswere received one planting season late (for 1977/78 insteadof 1976/77) (para. 3.32), the program of diversifying speciesappears to have been carried out successfully. The lastsupervision report, for example, states that: "NowadaysP. kesiya constitutes less than 20% of the area planted".

(v) To procure fertilizer urgently through local bidding for theongoing plantations (para. 3.31) and apply late boosterfertilization doses to unfertilized plantations. Fertilizerscould increase mean annual increments by three to five m3/ha,as shown in the table in para. 3.09. However, fertilizersremained in short supply until 1976, when internationallyprocured fertilizers were received. As from the 1976/77planting season, all newly planted trees, except Pinuscaribaea which does not require fertilization according to

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trials arid observations carried out by the forestry researchinstitute FOFIFA, received the dose of fertilization

recommencled at appraisal (100 g of binary P-K). Subsequenttrials appear to have confirmed the adequacy of this dose.Unfertilized plantations were gradually late-fertilized. By

1981 29,450 ha had been fertilized, representing 63% of thearea requiring fertilizer (46,710 ha 6/).

3.11 Because of the poor quality of soils in the Mangoro forest area,

only pine species had been retained for plantation at appraisal. However,

as a result of indications that the size of a viable pulpmill should be

increased, which the supervision mission of November 1977 supported,

plantations of fast grc,wing Eucalyptus grandis, with a higher MAI than

pine, appeared as a possible way of increasing the output of the Mangoro

forest and meeting the requirements of a larger pulpmill. The mission

therefore recommended to extend plantations (para. 3.12), inter alia, to

areas south of the initial project area endowed with good forest soils

appropriate for E. grandis, and suggested planting 18,000 ha of this

species. An eight year felling rotation, with an estimated MAI under bark

of 25 m3/ha, was envisaged based on the results achieved in the existing

plantations at Sandrangato and Perinet, south and east of Moramanga,respectively, of up to 50 m3/ha MAI (under bark) on the best sites

(para. 1.05). FANALAMANGA carried out introductory planting of a few dozen

ha of E. grandis in the south on good forest soils during the last two

years of the project. The second phase project provides for large-scale

trials of 500 ha of E. grandis.

3.12 Modification of the Project Area. The supervision mission of

November 1977 concludecl that plantations too far north would entail

prohibitive log transport costs to the projected site of the pulpmill. As

a result, FANALAMANGA agreed as far as possible not to extend theplantations to the extreme north of the project area and to prospect for

new areas nearer to the projected site of the pulpmill. Survey teamsprospected areas to the east, west and south of the project area during

1978 and identified new (additional) areas totalling over 20,000 ha net to

compensate for the unp].anted northernmost part of the initial projectarea. Like the initial project area, these new areas were unoccupied and

unencumbered by land cdaims, and considered state forestry property.

However there is no evidence that the Bank required specific action, as it

did at appraisal, to include the new afforestation areas in the National

Forestry Reserve (para. 2.18).

6/ Total area planted 72,292 ha

- P. caribaea plantations 19,486 ha

- Slopes 13% and over 6,096 ha

Area requiring fertilizer 46,710 ha

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3.13 A minor revision also occurred on the construction of roads. InDecember 1975 the bids received showed that the estimated cost of roadconstruction by contract had risen from FMG 3.6 million per km at appraisalto FMG 25 million per km. Therefore the Bank accepted, in October 1976,FANALAMANGA's costed proposal to undertake road construction by forceaccount instead of by contract. This had a significant impact on theoverall cost of the project (para. 3.26).

3.14 Because the Borrower considered it expensive, technical assistancewas terminated earlier than expected. At the Borrower's request(para. 2.23), the Loan and Credit Agreements provided for financing of aforestry expert, the idea being to ensure a smooth transition from theUNDP-FAO project, by recruiting one of its staff for two years. Inaddition to initial financing problems, agreement was difficult to obtainbecause the Borrower was reluctant to pay FAO's overhead costs, charged at14% of the specialist's salary. Finally agreement was reached, but for acontract of only one year instead of two.

3.15 A final revision concerned the use of the earthball techniqueinstead of plastic tubes in nurseries. The earthball technique consists intransplanting seedlings into a clay mixture compressed into an oblong ballwithout a container. Provided the technique is correctly carried out, itis less costly in inputs and labor than the techniques of transplantingseedling in plastic tubes. The staff of FANALAMANGA persuaded thesupervision mission in July 1976 that their nursery staff could use theearthball technique with satisfactory results. Hence, the use of plastictubes envisaged in the appraisal was abandoned and the earthball techniquewas applied successfully.

Implementation Schedule

3.16 Overall, the project was implemented faster than expected atappraisal, despite delays incurred during the first three planting seasons(1974/75, 1975/76 and 1976/77) for reasons explained above (date ofeffectiveness, procurement and plantation reorganization) and delays in thelatter years (para. 3.19). Progress on the different components of theproject (para. 2.22) are reviewed below and summarized in Table 3.

3.17 Afforestation (Table 3). By the middle of 1979, with a total of34,635 ha planted, the project target of 35,000 ha had virtually beenattained. At the completion date (June 30, 1981) 47,170 ha were planted,exceeding the target by 35%. However, land preparation was a bottleneckuntil 1976 when equipment was received and the decision was taken not toplant steep unfertile slopes where mechanized land preparation was notpossible (para. 3.10 (i) ). Subsequently, land preparation was carried outexclusively by mechanical subsoiling, exceeding the appraisal targets. Inaddition, manual plant hole preparation, begun in the planting season1974/75, was intensified from 1975/76 with a view to increase yields(para. 3.10 (ii) ). Production of seedlings in nurseries was globallyadequate although the project suffered shortages of certain species during

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two planting seasons. To plant 7,000 ha a year at the rate of 1,400 plantsper hectare and replace 10% failures, 10.8 million new plants a year arerequired. This figure was exceeded from the beginning of the project.However, as a result of the decision to diversify pine species in 1975/76and the difficulty of finding seeds (para. 3.10 (iv) ) there was atemporary shortage of Pinus elliottii and Pinus caribaea until 1977 andeven then, production was limited because of low germination rates.However, adequate supplies of the two species are available since 1978.The fertilization program, as discussed above, fell behind schedule as aresult of the shortage of fertilizer in the early years. At the closingdate of the project (December 31, 1981), there was still a substantialbacklog of unfertilized plantations (para. 3.10 (v) ). Supervision reportsdo not mention the status of weeding operations, which, according to theappraisal report, were to be carried out manually to eliminate grasseswhere heavy vegetation hindered the growth of seedlings. Brushwoodclearing, to eliminate heavy growth of heather where necessary before landpreparation, was carried out over a limited area, as most heather growthoccurred in the northern division where planting was stopped after 1977(para. 3.12). The most specific disease control action was research on andtreatment against dieback of Pinus kesiya, described in paras. 3.10 (iii)and 3.18.

3.18 Other components (Table 3). The appraisal report provides that 12%of the net plantation area should be constructed as firebreaks (in additionto the unplanted valley bottoms which act naturally as firebreaks),representing 840 ha per annum or 84 km per annum of firebreaks 100 m wide.As shown in Table 3, this target has been exceeded since 1975/76. Firewatch towers have also been built in adequate numbers. However recentvisits by FAO-consultants (late 1981) have pointed out that firebreaks wereinsufficiently maintained. Over the past three years fire has destroyedabout 260 ha in 1978, L70 ha in 1979 and 60 ha in 1980, altogether 590 ha.This total represents Less than 1% of the total area planted but, accordingto the last Bank supervision mission, should not be allowed to increasesubstantially. Roads were somewhat behind schedule in the early years but,together, length of roads and tracks exceeded targets by 1979. Thebuilding component was completely rescheduled because of the plantationreorganization (para. 3.08). Project headquarters were completed in 1979(para. 3.34). Research was carried out through the agricultural researchinstitute, CENRADERU, now called FOFIFA, with which a four year contractwas signed in the first half of 1976. This contract covered research inforestry, mainly to determine means of overcoming dieback of P. kesiya andto continue the existirtg plantation trials, and research in agriculture andlivestock to improve local methods of production in relation to theagro-pastural component (para. 2.23). The expatriate forestry adviser(para. 2.23) was also financed under the research component. The projectunit, FANALAMANGA, carried out most of the training actions by itself in atimely way (para. 5.04) as well as the preparation of the second phaseproject (the preparatic,n report was completed in May 1979). No otherprojects were prepared with funds from Credit 525 MAG or Loan 1065 MAG,which were instead reallocated for other expense-items of the project. The

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agro-pastural development component, although very successful with thelocal villagers, remained far below the targets and behind the schedule ofappraisal due to the cost of pasture improvement, which was far higher thanestimated at appraisal (FMG 40,000/ha in December 1975 instead of FMG10,000/ha, mainly because of the increased cost of fertilizer). This didnot have any damaging effect on the attitude of the villagers toward theforestry project. The program of pasture improvement is scheduled tocontinue during the second Mangoro forestry project.

3.19 In the latter years, the project was delayed because ofdisagreements between the Bank and the Government of Madagascar on thesilvo-industrial development (para. 6.06). At appraisal the project wasexpected to be completed in December 1979 and followed by additionalplantations for a possible pulpmill starting to operate in 1985, usingfifteen-year-old trees of the plantation (begun in the 1969/70 plantingseason). Hence, a second phase project was identified in October 1977 andwas to be appraised in May-June 1978. In the meantime, at the Government'srequest, UNIDO/FAO were to start a prefeasibility study on the pulpmillscheme (para. 4.02). Ilowever the magnitude of the investment in a pulpmillbecame an issue within the Bank in early 1978 when estimates pointed to a$250 million pulpmill cost, almost double the appraisal estimate ($139million). Bank staff decided in May 1978 to wait until October and see, inthe light of the UNIDO/FAO report, whether other smaller silvo-industrialinvestment possibilities should be considered. In September 1978, however,the Government repeated its intention to build a pulpmill and stated thatthere was therefore no problem in the utilization of the output of theforest, thereby ruling out the examination of alternative investments tothe pulpmill. Shortly afterwards the FAO/UNIDO mission submitted itsreport, concluding that the pulpmill would cost $387 million but seemed aviable project nonetheless. Discussion between the Bank and the Governmentdid not resume until June 1979 when the Government showed signs of concernover the ways of financing such a large investment, and willingness toconsider alternative possibilities. In October 1979 it was agreed thatplantations should continue by a short three-year second phase projectwhich would give time to determine the most appropriate silvo-industrialdevelopment and to find the financial partners. The second phase projectwas finally appraised in May/June 1980, two years later than was initiallyexpected, with the result that the first phase project had to be extendedfor two additional planting seasons (1979/80 and 1980/81).

Tree Growth Estimates

3.20 Forestry inventories are not mentioned in the appraisal report asthey were to be carried out only during the second phase project. However,the preparation report recommended the establishment of permanent sampleplots to study yields. Thus, FANALAMANGA established sample plots in early1976 and measurements were carried out in 1977 and 1978 leading to estimatethe mean annual increment (MAI) under bark (u.b.) in 1979 at 10.5 m3/ha, onaverage, for the total area planted, with the distribution shown in thefollowing table. This estimate was close to the 10.4 m3/ha estimate of1976 (para. 3.10):

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Estimated Output of the Mangoro Forest Plantations up to March 1979

Plantations as of March 1979(ha)

Estimated ProductionMAI (u.b.) (m3 per

(Mr3/ha) Pre-project Project Total annum)

Slopes over 25% 0 3,426 2,670 6,096 0Slopes 13 - 25% 7 6,088 5,039 11,127 77,889Slopes 13% 13 15,608 26,450 42,058 546,754

and under

Total 25,122 34,159 59,281 624,643

Assuming that most plantations were carried out on flat land after 1976,and that the distribution of the plantation at the completion of theproject is as shown below, the average MAI (u.b.) would remain virtually atthe same level (10.6 m3/ha instead of 10.5 m3/ha):

Output of the Mangoro Forest, as Estimated in 1979,

for Plantations up to 1981

Plantations up to 1981(ha)

EstLmated ProductionMAI ('u.b.) (m3 per

(m:3/ha) Pre-project Project Total annum)

Slopes over 25% 0 3,426 2,670 6,096 0Slopes 13 - 25% 7 6,088 9,816 15,904 111,328Slopes 13%

and under ,3 15,608 34,684 50,292 653,796

Total 25,122 47,170 72,292 765,124

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The first opportunity to verify estimates of MAI (u.b.), disregarding the1978 trial inventory (para. 4.03), was the full inventory carried out byFAO consultants under the second phase project in 1981. The results,summarized in the table below, show substantially lower MAI (u.b.)(5.3 m3/ha) for the overall plantations than previously estimated, althoughplantations made after 1976/77 with a MAI (u.b.) of 10.0 m3 probablyindicate that the corrective measures taken within the project (para. 3.10)were effective. However, there are three reasons why the 1981 estimatesshould still be confirmed. Firstly, the 1981 estimate show a greatdifference with previous yield estimates; secondly the sampling rate of the1981 inventory was very low, .007%, whereas the second Mangoro forestryproject appraisal report provides that forest inventories should be carriedout with a sampling rate of 1%; and thirdly the FAO consultants have foundthat fertilizer has had no effect except on very flat sites, whichcontradicts earlier findings (para. 3.09).

Output of the Mangoro Forest, as Estimated in 1981 by FAO Consultants

Plantations (ha)

EstimatedMAI (u.b.) 1976/77 After Production

(m3/ha) and before 1976/77 Total (m3 per annum)

0 28,100 2,000 30,100 06 10,000 2,100 12,100 72,600

12 7,700 14,400 22,100 265,200

45,800 7/ 18,500 64,300 337,800(Not included in inventory) 8,000 42,400

72,300 380,200

Reporting

3.21 Reporting by FANALAMANGA has been consistently satisfactory. Inaddition to the usual provisions on reporting requirements included inSection 3.06 of the Loan Agreement, specific reporting requirements weresuggested by the Bank staff in a letter dated May 26, 1976, to cover the

7/ This figure is, in fact, 3,000 ha more than reality (see Annex,Table 5).

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following items: (i) highlights, technical and administrative; (ii)staffing; (iii) plantations (area broken down by species, area and age);(iv) progress in all fi.elds during the period examined and cumulative; (v)inventories (vehicles, equipment, stocks); (vi) finance (including claimson the Bank); and (vii`) miscellaneous. FANALAMANGA followed theserecommendations, except: in the plantation area breakdown by species andage, which would have been useful (para. 3.10 (iv) ), and usually submittedall the required half-5'early and yearly reports in time.

Accounts and Audit

3.22 Throughout the project, FANALAMANGA presented complete and accurateaccounts, which, after 1977, were reviewed periodically by Bank staff fromRMEA. Auditing was performed satisfactorily by a local auditor,Ms. Madeleine Ramoholimnihaso. However, some accounting statements aremissing in the Bank's files (para. 3.25).

Costs (Table 1)

3.23 Total expenditure on the Mangoro forestry project expressed in US$exceeded by 17% the project costs as estimated at appraisal (Table 1).However, considering that actual areas planted exceeded project targets by35% (Table 3), the project achieved 8% lower costs than anticipated($451/ha achieved compared with $491/ha at appraisal).

3.24 This result is the more remarkable given the cost-inflationexperienced during the implementation period. Table 4 shows that the costof fertilizers and 4 Wl) vehicles increased in real terms during the projectperiod. The same is no doubt true of fuels and lubricants (although pricedata is not recorded in the project file for these items) given that theproject began shortly ifter the first oil price hike of late 1973 andlasted beyond the second one of 1979. Cost increases were also suffered onhouse construction as a result of the reorganization of FANALAMANGA(para. 3.06).

3.25 Table 1 shows that most of the cost overruns occurred inafforestation, which cost 331% of the appraisal estimate. Although theaccounts that would enable to understand such a large cost overrun are noton file (para. 3.22), a partial explanation lies in: (i) 35% physicaloverrun of the area planted; (ii) inflation which was presumably severe infuel and lubricants, a large cost factor in soil preparation; (iii) theFANALAMANGA reorganization, which increased the cost of nurseries; and (iv)the unforeseen cost of the zinc treatment and the higher cost ofinternationally procured seed.

3.26 On the other hand, major savings were achieved by: (i) undertakingroad construction and house building by force account instead of bycontractor (para. 3.13), which explains the cost overrun on vehicles andequipment in Table 1; and (ii) accepting deviations from the appraisal

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norms (wattle and clay houses rather than cement houses, tracks instead ofsecondary roads). These two initiatives, which the Bank's supervisionmissions agreed on, enabled the project to exceed the appraisal's physicaltargets for houses and roads (see Table 3). Other savings were made byreducing physical targets. For example, physical targets were not attainedfor fertilization (para. 3.10 (v) ). In the case of pasture improvements,the project improved only 875 ha of pastures, instead of 2,000 ha(para. 3.18). Savings were also achieved on consultants for research andtraining and preparation of agricultural projects, by relying more heavilyon the services of the Government forest research institute CENRADERU, nowcalled FOFIFA, and the staff of FANALAMANGA.

3.27 The shrewd cash management of foreign expenditures, especiallytowards the end of the project period, when shortage of foreign exchangeresulted from delays on the decision to start the second Mangoro forestryproject (para. 3.19), was one of the features of the good performance ofFANALAMANGA. Although overall expenditure was in excess of 17%, theproject did not run out of the foreign currency provided by the IDA Creditand Bank Loan despite the extension of the project period by two plantingseasons. As mentioned earlier, this was made possible by substitutinglocal for imported products and consultants, and by ensuring that theforeign currency provided by IDA and IBRD was available for importedgoods. In this manner, the overall expenditure overrun could be covered bythe Government alone in local currency, and indeed the Government'scontribution to the project, which actually totaled FMG 1,528 million, wasfar beyond the FMG 944 million (including contingencies) expected atappraisal.

Disbursement

3.28 Disbursements began only in 1976, one year behind schedule; theypicked up in the second half of 1977 as a result of large procurementorders and were slowed down again after June 1980, as shown in the BasicData Sheet. In addition to the errors made in the procurement ofequipment, the initial delays in disbursement were partly caused by somelack of coordination between the Government's Trésor, in charge ofsubmitting claims to the Bank, and FANALAMANGA, who prepared the claims.Also, claims were sent by mistake to headquarters when they should havebeen sent to RMEA in Nairobi until this was discovered by the Bank's staffon December 2, 1975. All these delays could probably have been avoidedwith closer supervision on disbursement matters in the early stages of theproject (see also paras. 3.06 and 6.07). Subsequently, however, thedisbursement procedures were well understood and, overall, were carried outsmoothly. The slow disbursement during the latter part of the project isthe result of FANALAMANGA's effort to conserve the foreign currency for theextended period of the project (para. 3.27).

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Peformance of Consultants, Contractors and Suppliers

3.29 The performance of the expatriate forest adviser who stayed one yearwith the project was very satisfactory. He was requested by the Governmentto ensure continuity with the work previously performed by UNDP/FAO in theMangoro forestry zone. He assisted the Director General in planning theplanting program, especially the reorganization of the plantation layout(para. 3.08), ensured relations with the research institute CENRADERU, madea correct diagnosis of the physiological origin of the dieback ofP. kesiya, and initiated the forest inventory, pointing out the low rate ofgrowth of trees planted on slopes, where soils were degraded (para. 3.09).His termination report is a valuable document. There can be no doubt thatthe expatriate adviser's qualification and experience with the previousUNDP/FAO Mangoro projects proved useful. The same must be said of thelocal staff, especially of the Director General of FANALAMANGA and theDirector of CENRADERU, as well as of the three Project Division Chiefs (incharge of the Northern, Central and Southern Plantation Divisions), who hadbeen closely involved in the pre-project operations in the Mangoro zone,and whose competence compensated for the early departure of the expatriateforest adviser (para. 3.14).

3.30 There were no problems with suppliers. In fact, the localrepresentatives of Catierpillar and Mercedes were judged so effective by theDirector General of FAlNALAMANGA, that he did not accept a supervisionmission's recommendation to grant FANALAMANGA the statute of directimporter for fear of losing the suppliers' maintenance and repairservices. In the latter period of the project (1980 and 1981) FANALAMANGAexperienced difficulties with the increasingly stringent price revision andpayment conditions imposed by suppliers. The period for which prices werefixed were not long enough to enable to respond to bids and the paymentconditions required the use of letters of credit with a financial cost.

3-31 Fertili7-rq were urgently needed in the early stages of the projectimplementation (para. 3.10 (iv) ). Consequently the Bank agreed to allowFANALAMANGA to make the first order directly from a Government supplier.Subsequently, however, international competitive bidding rules were appliednormally. The second contract was won by a local importer (CPCM) and thethird by a West German supplier. The large quantities purchased requiredthe construction of a special warehouse. One problem encountered wasripped bags; future orders will request double packing. There were alsolocal transport probleins, for which the railways were responsible, not thesuppliers.

3.32 There were no problems in the procurement of zinc chloride fortreatment of the P. kesiya dieback (para. 3.10 (iii) ).

3.33 With Bank approval, the procurement of seeds of P. elliottii andP. caribaea was not submitted to international competitive bidding. Aproblem arose when the two expected suppliers of P. elliottii seed,Mauritius and South Africa, were no longer available (para. 3.10 (iv) ).

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The Bank staff helped in finding new suppliers. In 1976 a first order wasplaced with a Dutch firm, SETROPA, but it could not guarantee the origin ofits seeds nor their germination rates, which proved unsatisfactory. In1978 purchases were from four other firms, but germination rates sometimesremained disappointing. There is now the possibility of obtainingP. elliottii seed from Zimbabwe and P. caribaea seed from Fiji.

3.34 There was two contractors involved in the project. Firstly,CENRADERU, now FOFIFA, conducted forestry trials (fertilizer, soilpreparation, tree density) through a four year contract with FANALAMANGA(para. 3.18). FANALAMANGA and CENRADERU had very close working relationsand FANALAMANGA as well as Bank supervision missions were very sattisfiedwith CENRADERU's research work. In the case of dieback, CENRADERUcontributed possitively to finding the appropriate remedy quickly(para. 3.10 (iii) ). However, if the recent low yield estimates(para. 3.20) are confirmed, some of the research findings, especially onthe effect of fertilizer which CENRADERU studied carefully, may have to befurther scrutinized. The other contractor was employed in the project forbuilding the project headquarters in Antsirinala and performed quitesatisfactorily. The headquarters were completed one month ahead ofschedule (para. 3.18).

IV. OPERATING PERFORMANCE

4.01 The operating performance of FANALAMANGA was overall very goodalthough it cannot avoid being clouded by the results of the recent forestinventory (para. 3.20). If confirmed, these results may lead to questionthe sampling methods of FANALAMANGA, which throughout the project appearedreliable and consistent with the findings of the forest adviser(paras. 3.10 and 3.29).

4.02 That said, the quality of FANALAMANGA's half-yearly and annualreports on physical and financial progress reflect a high standard ofself-monitoring. Special mention should also be made of FANALAMANGA'srelations with the research institute CENRADERU or FOFIFA (para. 3.34) andwith villagers. Regarding villagers, the senior staff of FANALAMANGAdevoted the necessary time and effort to ensure that, through the openingof roads, pasture improvement and employment of the local population, thelatter received sufficient benefits and became supporters of the Project;hence, there was no case of resistance to the project from the localpopulation.

4.03 Most covenants in the Loan Agreement were complied with. Inaddition to the standard covenants on contractors (no problem), insuranceof imported goods (no problem), and reporting (good performance), thefollowing covenants (with reference to the section number of the LoanAgreement) were complied: Section 4.03 (b) - recruitment of senior staff;Section 3.03 - consultants, indeed the qualification of the local staff

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made this covenant almost irrelevant; Section 3.07 - monitoring of Mangororiver water. Section 3.07 also contained a covenant requiring that theBank be informed of any arrangements concerning the construction of theplant. The only instance of non compliance occurred in 1978 when theGovernment requested a large prefeasibility study from UNIDO on thesilvo-industrial development of the Mangoro program without informing theBank (para. 3.19). To the extent that this study confirmed theadvisability of an enlarged pulpmill (270,000 tons per annum capacity) andthereby supported the Government's reluctance to investigate smallersilvo-industrial alternatives, this non compliance contributed indisrupting and delaying discussions with Bank staff on the second Mangoroproject (para. 6.06), and entailed financial difficulties for FANALAMANGA(para. 3.27).

4.04 Only in two minor cases did FANALAMANGA show signs of clumsiness:the first procurement bids and the trial inventory of 1978. The first caseis discussed in para. 3.06. The trial inventory took three years toprocess and produced very scanty results (para. 3.20). However,FANALAMANGA did not have the trained capacity to carry out a full inventoryand used the opportunity of a trial inventory to train its personnel, whichwas appropriate. The full inventory, after all, was to be carried outduring the second phase, not during the first phase project. In addition,much of the delay occurred because of very slow computer processing in theUniversity of Madagascar, outside FANALAMANGA. Admittedly, however, hadFANALAMANGA followed the Bank supervision missions' advice to hire areliable foreign firm rather than use the overloaded computer facilitiesavailable locally, the delays could have been avoided. On the other hand,the supervision missions were probably right to accept FANALAMANGA'sdecision given the trial nature of the exercise and the scarcity of foreignexchange in the latter years of the project.

V. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT

5.01 The good institutional performance of FANALAMANGA is the moreoutstanding as institutional problems are the common rule of almost allother agricultural projects in Madagascar (para. 1.11). FANALAMANGAquickly established a full set of departments and engaged a qualif ied staffto carry out its operations effectively. The four main reasons andfeatures of the rapid establishment and good institutional performance ofFANALAMANGA are reviewed in the following paragraphs.

Staff ing

5.02 In addition to the employment of the Director General ofFANALAMANGA, which was a condition of effectiveness (para. 3.04), thesenior staff of FANALAMANGA, including a local workshop engineer, aqualification rare in the country, were recruited by June 1975, within theagreed time limit. In addition, FANALAMANGA was staffed with personnel

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from the pre-existing governmental operations in Mangoro. As a result,staffing in June 1976 was almost complete, as shown in the following table:

June 1976 Appraisal

Senior staff 7 9Technicians 32 38"Agents de maitrise" 160 190

(foremen or supervisors)Specialized workers 371 395Workers 1,300 1,380

Total 1,870 2,012

Statutes

5.03 During negotiations, the Malagasy delegation proposed that theproject be carried out not by a project unit within the Ministry of RuralDevelopment, as discussed during the project appraisal, but by a Sociétéd'Economie Mixte, a corporation comprising both Government and privateinterests (para. 2.20). As a separate entity from the Ministry of RuralDevelopment, FANALAMANGA has a separate budget, and the authority to handlelarge procurement orders on an independent basis, conditions which the Bankconsidered important at appraisal. The results of the project have shownthat FANALAMANGA made reasonable and effective use of its autonomouspowers.

Training

5.04 Performance of FANALAMANGA was good practically from the beginning.Hence, as there was virtually no need to develop the institution or improveits performance, the training activities were simply geared to maintainingthe high level of performance. The training activities consist of: (i)fire protection - every year, one month before the high fire risk period,the fire personnel (about 120 people) receive refresher training; (ii)workshop refresher training - every year about ten of the forty workshopworkers receive refresher training in Antananarivo from the main suppliersof vehicle and equipment; (iii) forest inventory personnel receive withinFANALAMANGA ten day refresher courses twice a year on topography, photointerpretation and cartography; and (iv) accounting courses - in 1980 thefinancial director organized a three week seminar for 15 members of hisstaff at the project headquarters. In addition one accountant was sent fora one month long accounting course in a specialized public trainingcorporation outside the institution.

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Lack of Political Interference

5.05 Compared to other projects in Madagascar, the implementation of theMangoro forestry proje,t seems to have benefitted from the lack ofpolitical interference. There are several reasons for this, an importantone being the mentality of the senior project staff and the seniorforesters of the Foreslry Directorate of the Ministry. Another importantreason is that the impLementation of the project required relatively littleinterference with potentially disrupting socio-economic forces. Forexample, the project dîd not have a direct impact on a large number offarmers, nor did its irmplementation include any form of marketing. Inshort the project implementation was essentially technical. By contrast,difficulties appeared when the project required a political decisionregarding silvo-industrial project development (para. 3.19).

5.06 Of the four reasons explained above (staffing, statutes, training,and lack of political interference), the key factor for FANALAMANGA's goodinstitutional and operational performances was the high standard of itssenior staff, in particular of the Director General. Because of thegrowing shortage of highly qualified staff in Madagascar, the replacementof the senior staff is now a potential problem. There have been no newprofessionally qualified foresters (Ingénieurs des Eaux et Forêts) since1972. The workshop engineer and the financial director could easily earntwice their current salaries outside FANALAMANGA. Many of the key officersappear to be retained niostly by the team spirit existing amongFANALAMANGA's staff and the satisfaction resulting from the project'sachievements.

VI. BANK PERFORMANCE

6.01 The basis of the analysis of Bank performance outlined below isfirstly identification and resolution of issues, and secondly, projectsupervision.

Issues

6.02 Did the Bank foeus on the right issues? In retrospect, there werefour main issues: (i) the support of the local villagers; (ii) landtenure; (iii) the creation of a separate project entity; and (iv) thedevelopment of a silvo-industrial complex to process and market the projectoutput. Tree growth should not be considered an issue but rather a wellrecognized risk, as mentioned in the appraisal report, para. 7.07 (see alsoparas. 2.10 (ii) and 8.01 of this report). The four issues were correctlyidentified at appraisal, and, as the following comments will show, three ofthem were adequately solved at an early stage, while the fourth slowed downthe progress of the project, not because of poor Bank performance, butbecause it had a highly political connotation.

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6.03 Support of Local Villagers. As a result of the Bank's unfortunateexperience in the Madagascar Beef Cattle Development Project (see' OED

Report No. 1559. ADril 11. 1977). the preparation missionrequired a socio-economic study from the Government as part of thepreparation of the project (para. 2.17). However, conditions in theMangoro forestry zone were more favorable than the conditions prevailing inthe Beef Cattle Development Project area. The Mangoro forestry zone issparsely populated (11,000 people living in 2,000 households in 1973) andthe villages are concentrated in the valleys. It might therefore appearthat, given the more favorable conditions, the Bank was overcautious onthis issue. However, the completion mission believes the Bank was notovercautious, and bases its opinion on the observation that the projectdirector was highly aware of the issue and spared no effort to ensure thepopulation's support, devoting the necessary time to maintaining goodrelations with the village chiefs and notables, in addition to the roads,health and education benefits which the project provided to the localpopulation. Thus, it is the mission's view that the good relations betweenthe project and the local population fully justify the Bank's precautions.

6.04 Land Tenure. The Bank staff was successful in obtaining that theafforestation zones be gazetted before starting the project (para. 2.18),although the issue was granted much less significance when plantations werecarried out outside the initial perimeter (para. 3.11).

6.05 Creation of a Separate Project Entity. In retrospect, theeffectiveness of FANALAMANGA's management is sufficient evidence that theestablishment of a project entity with a separate budget and authority forprocurement was appropriate. The Bank's legal services contributed indrafting the statutes which were agreed in early November, therebysatisfying in time a condition of Board presentation. The establishment ofFANALAMANGA, a condition of effectiveness, occurred late, on June 4, 1975,but this was due to political turmoil beyond the Bank's control.

6.06 Silvo-industrial Complex. The issue of the development of asilvo-industrial complex had been thoroughly examined during thepreparation (para. 2.13), but it was raised again in 1978 as part of anearly consideration of IDA support for the next phase of the program(para. 3.19). Although it caused considerable delay in the preparation ofthe second phase of the project, these delays were undoubtedly justified bythe magnitude of the investment at stake and the necessity of convincingthe Government to examine options other than a pulpmill. Did the Bank givethe wrong impression that it was fully supporting the idea of a largepulpmill and thereby contribute to commit the Government to this idea?Clearly, the Government was already strongly attached to the idea of apulpmill before the Mangoro project was even started, as evidenced by thestatements in the 1974-1977 Development Plan providing for a pulpmill atMatsiatra (para. 2.10). Bank staff, in the appraisal report, did notexclude the option of exporting wood chips and roundwood as a fall backposition to the pulpmill (para. 2.16). Subsequently, the rising cost ofthe pulpmill led the Bank to point out to the Government that other

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investment options to foLlow-up on the forestry project should also beconsidered. The difficulty in reaching agreement with the Government wasthe main cause of the delays incurred in the latter part of the project(para. 4.02).

Supervision

6.07 The Bank's performance in project supervision was overall verysatisfactory, and made relatively straightforward by the thoroughpreparation of the project, the competence of the Director General ofFANALAMANGA, as well as good understanding and collaboration between theBank and project staff. The continuity of Bank staff was one factor ofsuccess. The Bank also showed open mindedness and flexibility in severalcases of problem resolution mentioned in the report, including theprocurement of fertilizer under conditions of urgency (para. 3.31), thereorganization of the plantation layout (para. 3.08), and the use ofearthballs rather than plastic tubes in the nurseries (para. 3.15).However, as mentioned in paras. 3.06 and 3.28, one difficulty arose forlack of bank assistance in preparing the first procurement document.Despite the project director's best efforts to act in accordance with theBank's written guidelines, mistakes resulted from the fact that the projectstaff was not well acquainted with Bank procedures at the beginning of theproject. Assistance frcm locally based Bank staff could probably haveavoided these predicable mistakes.

6.08 The good standard of the Bank's supervision performance is notdiminished by recent yield estimates (para. 3.20). Indeed, the supervisionmissions took the necessary steps to monitor tree growth adequately, asreflected in the following actions: (i) measures recommended at an earlystage (para. 3.09) effectively improved yields, as shown by the higheryields of the younger plantations (para. 3.20); (ii) adequate monitoring ofsampling, which were carried out on schedule (para. 3.20); and (iii) properadvice concerning the computer data treatment of the trial inventory(para. 4.04). Therefore, although the recent yield estimates are creatingdoubts on previous yielcl forecasts based on the samplings, the completionmission believes that these estimates do not bring into question thequality of the Bank's supervisions which relied confidently, and withreasons, on FANALAMANGA's technical capacities.

VII. ENVIRONMENTAL IMPACT

7.01 The Project was beneficial to the environment of the MangoroValley. Tree cover reduces erosion and improves soil fertility and waterretention. Special care was taken to avoid land use conflicts(para. 2.23). However, the ultimate environmental impact of the Mangoroafforestation program will depend on the nature of the silvo-industrialdevelopment program stiLl to be decided.

- 58 -

VIII. FINANCIAL AND ECONOMIC REEVALUATION

8.01 The financial and economic evaluation models used at appraisalincluded the whole industrial development, which was assumed to be a largepulpmill, and showed a financial rate of return of 10% and an economic rateof return of 13% (by shadow pricing the exchange rate and wage rates at125% and 75%, respectively, of their official and market values). However,it would now be meaningless to use the same model, given the expected lowoutput of the forest (para. 3.20) and the consequent unlikelihood ofestablishing a large pulpmill. It is also too early to judge what otherindustrial developments are posssible, although this should be known in thecourse of 1982. For the time being it is therefore only possible to carryout the economic and financial reevaluation of the project by disregardingthe subsequent industrial development and considering the plantationsalone. This required developing a model based on stumpage rates (Annex).

8.02 The table below shows the rates of return of the plantations alone,at appraisal and at completion, based on actual costs. Two stumpage ratesare used: FMG 710/m3 (US $2.78), the stumpage rate used at appraisal,which gives a low rate of return; FMG 1,550/m3, based on an opportunitycost of capital of 10%, assuming appraisal cost estimates. The actualrates of return are considerably lower, not because of costs, which in factare lower on a per hectare basis (para. 3.23), but because of the loweroutput of the forest (6.8 million m3 after 18 years of tree growth insteadof 10.0 million m3 after 15 years, as assumed at appraisal) reflecting thepessimistic 1981 estimates on yields (Annex, Table 5, and para. 3.20). Toobtain a financial rate of return of 10%, the stumpage rate would now haveto be FMG 3,000/m3 in 1974 FMG, equivalent in 1981 to FMG 5,710/m3 or US$22.00/m3. This is considerably above the level of reasonable stumpagerates for pulpwood today (approximately US $5.00 to US $10.00).

Rates of Return (RR) of Plantations Alone

Stumpagerates

(in 1974FMG) 710 1,550

Financial Economic Financial EconomicRR RR RR RR

At appraisal 3 % 5 % 10 % 12 %

Actual 1 % 2 % 6 % 7 %

- 59 -

IX. CONCLUSION

9.01 The 1981 forest inventory showing poor yields will no doubt requireconfirmation, as explair.ed in para. 3.20. If the poor yields areconfirmed, the forest output will be substantially lower than expected atappraisal and many possible downstream developments will be in jeopardy,including the developmernt of a bleached kraft pulpmill, and possibly eventhe continuation of plantations. Low yields were considered one of themain risks at appraisal and are not, as this report has shown, the resultof any apparent shortcomning in project implementation. However, if pooryields are confirmed, future Bank missions will probably want to look intomore details and determijne why the project sampling and research findingswere so misleading.

9.02 That a project imaplemented with great efficiency should yield suchpoor results would indeed be very disappointing. Many experienced visitorsagreed that the accomplishments of FANALAMANGA were outstanding, even byinternational standards. The Governnent showed great commitment to theproject and the project entity responded with imagination, competence anddiligence to a host of varied problems described in previous paragraphs ofthis report, reflected Un relatively higher yields for trees planted duringthe project, despite the poor performance of the pre-project plantations.

9.03 One fundamental question should be answered in conclusion to thisreport: should a forestry project be undertaken with uncertain informationon the expected yields? It is the mission's opinion that the risk ofobtaining disappointing yields can never be completely eliminated. Theappraisal mission, having noted the risk, could only rely on the studies ofmany highly qualified foresters who worked in the pre-project phases andshowed that the project was worth the risk. Therefore, with theinformation available in 1974, the Bank was probably right to undertake theproject.

- 61 - Table/Tableau 1

Page 1

MADAGAS CAR

Mangoro Forestry Project Projet Forestier Mangoro

Project Cost and Financing Coûts et Financement du Projet(in US$ 17) (en $E.U. 1/)

ActualAppraisal estimate/ % of

Estimation de l'évaluation Total appraisalactual cost /Effectif %

Foreign/ /Total coût évaluationComponents Local Devises Total effectif 2/ Composantes

Afforestation 2 4 .8 3.2 10.6 331% Boisement

Roads 1.3 .5 1.8 ) ) Routes1.3 ) 49%

Fire protection 1.0 .1 1.1 ) ) Lutte contre l'incendie

Project management Gestion du ProjetAdministration 1.9 .1 2.0 1.8 90% AdministrationBuildings and housing 1.7 .2 1.9 2.5 132% Bâtiments et logements

Vehicles and equipment .6 1.3 1.9 3.5 184% Véhicules et équipements

Research, training Recherche, formationand studies .3 .5 .8 .3 38% et études

Pasture improvement .1 - .1 .2 200% Amélioration des pâturages

Sub-total 9.3 3.5 12.8 20.2 158% Sous-total

Cont ingencies: Imprévus:Physical .2 .2 .4 PhysiquesPrice 3.1 .9 4.0 Prix

Total 12.6 4.6 17.2 20.2 117% Total

Financing: Financement:a) Bank/IDA 13.5 13.5 100% a) BIRD/IDAb) Borrower 3.7 6.7 181% b) Emprunteur

Sources: Appraisal Report and Table 1, Page 2/Rapport d'Evaluation et Tableau 1, Page 2.

1/ Exchange rates used: FM4G 255/US$ at appraisal and FMG 228/US$ for actual costs/Taux de change utilisés:FMG 255/$E.U. à l'évaluation et FMG4 228/$E.U. pour coûts effectifs.

2/ For comments please see para. 3.23 in text/Pour commentaire veuillez lire para. 3.23 du texte.

February 11, 1982 le Il février 1982

- 62 -Table/Tableau I

Page 2

MADAGASCAR


Actual Project Expenditures by Fiscal Year Dépenses Effectives du Projet par Année Fiscale(FMG million unless otherwise indicated) (FMG millions sauf indication contraire)

Nov. 741 Estimate/ TotalJune 761 1980/81 US$/nov. 74/ Estimation Total Total

Components juin 76 1976/77 1977/78 1978/79 1979/80 1980/81 FMG $E.U. Composantes

Afforestation 343.7 227.2 363.2 509.0 484.4 495 2,422.5 10.6 Reboisement

Construction deRoads and fire routes et lutte

protection 18.1 42 7 65.6 60.1 59 285.4 1.3 contre le feu

Administration 45.1 50.5 58.9 72.7 95.3 83 405.5 1.8 Administration

Construction et entre-

Buildings and tien des logementshousing 6.7 46.4 85.8 185.1 132.3 117 573.3 2.5 et bgtiments

Equipement, véhicules,

Vehicles and entretien et piècesequipment 71.6 15.5 292.2 12.3 32.3 376 799.9 3.5 détachées

Research, training Recherche, étudeand studies - 9.8 11.4 23.8 3.1 30 78.1 .3 et formation

Pasture improvement - .6 7.8 14.8 11.2 2 36.4 .2 Amélioration de pâturage

Total 485.2 392.9 859.0 883.3 818.7 1,162.0 4,601.1 20.2 Total

Exchange rate Taux de change(FMG/US$) 231.6 242.4 235.7 219.2 212.0 235.7 228.1 (FMG/$E.U.)

Total in US$ 2.1 1.6 3.6 4.0 3.9 4.9 20.2 Total en dollars E.U.

Source: Annual report of FANALAMANGA and last IBRD supervision report/Rapports annuels de FANALAMANGA et dernier rapport desupervision BIRD.


- 63 -

Table/Tableau 2

MADAGASCAR

Mangoro Forestry Completion Report Projet Forestier Mangoro

Project Organization and Objectives Organisation et Objectifs du Projet

Appraisal/ Actual/Evaluation Réalité

Project objectives or focus: Objectifs ou cible du projet:Afforestation (ha) 35,000 47,170 Boisement (ha)

Project organization and performance: Organisation et résultat du projet:Project unit (FANALAMANGA) New/Nouveau Good/Bon Bureau du Projet (FANALAMANGA)

Institution building: Recruitment of Achieved/ L'Institution:Focus of effort senior staff/ Réalisé Priorité

Recruitementdes cadres

Means Condition of Fulfilled/ Moyenseffectiveness/ Satisfaite

Condition d'en-trée en vigueur

Wider sector effort None/Aucune None/Aucune Visée sectorielle

Consultants use and performance: Emploi et performance desconsultants:

Identification Good/Bon IdentificationPreparation Good/Bon PréparationAppraisal Good/Bon EvaluationProject executives Good/Bon Cadres du ProjetProject adviser Good/Bon Conseiller du ProjetSpecial studies None/Aucune Etudes spécialesResearchers Good/Bon ChercheursFocus of effort Tree growth/ Priorités

Croissancedes arbres

Means Pre-project Moyensplantations/Plantationsde l'avant-projet

Achievement of objective Poor/Maigre Réalisation de l'objectif

February 11, 1982 le 11 février 1982

Table/Tableau 3

Page I

MADAGAS CAR

Mangoro Forestry Project - Phase 1 Completion Report Projet Forestier hangoro - Phase I Rapport d'Achèvement

Physical Work Schedule of the Project 1/ Réalisations Physiques du Projet 1/

Key Indicators Principaux Indicateurs

Actual %

Sub-total appraisal/

2/ /Total Evaluat ion

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 partiel 1979/80 1980/81 Total réalisé en Z

Planted area (ha) Surface plantée (ha)

Appraisal - 7,000 7,000 7,000 7,000 7,000 35,000 - - 35,000 - Evaluation

Actual - 6,190 3/ 5,470 1/ 6,200 4/ 7,995 8,780 34,635 6,935 5,600 47,170 135 Z Réalisé

Roads (ha) Routes (ha)

Appraisal: Service roads 19 37 - - - - 56 - - - - Evaluation: Routes de service

Primary/secondary 56 168 168 168 168 112 840 - - - - Principales/Becondaires

Plantation tracks 60 182 182 182 182 122 910 - - _ _ Pistes

Total 135 387 350 350 350 234 1,806 - - - - Total

Actual: Service roads - - - - 5.5 12 17.5 9 21 47.5 - Réalisé: Routes de service

Pritsary roads - 34 165 21 16 3 241 64 60 365 - Routes principales

Secondary roads - 34 79 70 42 78 303 62 - 365 - Routes secondaires

Plantation tracks - 130 293 184 448 574 1,629 265 - 1,894 - Pistes

Total - 200 537 275 511 667 2,190 400 81 2,671 148 Z Total

Firebreaks (km) Pare-feu (km)

Appraisal 20 58 58 58 58 38 250 - - - - Evaluation

Actual - 34 256 179 51 88 608 247 243 1,098 379 Z Réalisé

Buildings and houses Bâtiments et logements

Appraisal: Exploitation 8 15 - - - - 23 - - - - Evaluation: Bâtiments

Houses: Logements:

Hard 15 29 44 - - Dur

Prefabricated 370 740 - - - - 1,110 - - - - Préfabriqué

Total houses 385 769 - _ _ - 1,154 - _ _ _ Total logements

Actual: Exploitation: Réalisé: Bétiments:Brick and concrete - - - 2 4 10 16 5 3 24 ) Dur

Waffle and clay - - - 3 10 3 16 6 - 22 ) 200 Z Semi-dur

Houses: Logements:

Brick and concrete - - - - 41 162 203 147 30 380 - Dur

Waffle and clay - 156 624 34 101 9 924 103 56 1,083 - Semi-dur

Prefabricated - 41 485 - - - 526 29 - 555 _ Préfabriqué

Total - 197 1,109 34 142 171 1,653 279 86 2,018 175 Z Total

Table/Tableau 3Page 2

Actual %

Sub-total appraisal/

2/ /Total Evaluat ion

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 partiel 1979/80 1980/81 Total réalisé en X

Pasture improvement (ha) Amélioration de pâturages (ha)

Appraisal - 400 400 400 400 400 2,000 - - 2,000 - Evaluat ion

Actual - - 14 55 362 248 679 203 1 883 44% Réalisé

Survey (ha) Reconnaissance (ha)

Appraisal 2,330 7,000 7,000 7,000 7,000 4,670 35,000 - - 35,000 - Evaluation

Actual - 7,000 7,000 7,000 11,400 14,200 46,600 10,500 6,000 63,100 180 Z Réalisé

Plants (millions) Plantes (millions)

Aooraisal 3.6 10.8 10.8 10.8 10.8 7.2 54.0 - - 54.0 - Evaluation

Actual - 11.4 13.9 11.9 . '5.1 67.3 ô .9 G.G0 ^ 157 I R i

Land preparation (ha) Préparation du sol (ha)

Mechanical (sub-soiling): Mécanique (sous-solage):


Actual - 4,130 4,310 7,445 7,815 10,500 34,200 6,700 3,215 44,115 180 Z Réalisé

Manual (hole-pitting): Manuelle (trouaison):

Appraisal 700 2,100 2,100 2,100 2,100 1,400 10,500 - - 10,500 - Evaluation

Actual - 1,200 1,270 - - - 2,470 35 2 2,507 24 7 Réalisé

Total: Total:


Actual - 5,330 5,580 7,445 7,815 10,500 36,670 6,735 3,217 46,622 133 Z Réalisé

Mechanical bush clearing Débroussallage

Appraisal 700 2,100 2,100 2,100 2,100 1,400 10,500 - - 10,500 - Evaluation

Actual - 700 560 460 1,395 - 3,115 245 930 4,290 41 Z Réalisé

Manual plant hole preparation Placettes


Actual - 2,860 5,170 5,990 5,900 8,580 28,500 6,430 2,230 37,160 152 X Réalisé

Fertilization Fertilisation

Appraisal - 7,000 7,000 7,000 7,000 7,000 35,000 - - - - Evaluation

Actual - 400 1,650 6,900 7,250 4,850 21,050 3,300 5,100 29,450 84 Z Réalisé

Zinc treatment (actual) - - - - - - - 5,650 19,050 24,700 - Traitement zincique

1/ Source: FANALAMANGA, iBRD/IDA Phase I and Phase Il appraisal reports. Reporting periods '! Source: F.\NALAMANGA, BIRD/ADI et rapsorts d'évaluation des projets Phase I et Phase 11.

are July I - June 30. Figures from the Phase I appraisal report referred to calendar Les périodes d'activité vont du ler juillet au 30 juin. Les chiffres du rapport

years aod have been adjusted in the table to correspond to FANALAMANGA reporting periods. d'évaluation Phase I correspondent aus années calendaires et ont été ajustés dans ce

tableau pour correspondre ana périodes d'activités de la FANALAMANGA.

2/ Activities started in November 1974. 2/ Les activités ont commencé au novembre 1974.

3/ Below target because of old equipment ln insufficient numbers, difficulties in spare parts 3/ En-dessous des objectifs à cause de la vétusté et de l'insuffisance e- nombre de

supply and reorganization of FANALAMANGA. l'équipement, la difficuilté d'obtenir des pièces détachées et la réorganisation de la

FAN ALAMANGA .

4/ Below target because of delays in obtaining equipment. 4/ En-dessous des objectifs à cause des délais d'obtention de l'équipemet.

February 11, 1982 le il février 1982

- 66 -

Table/Tableau 4

MADAGASCAR

Mangoro Forestry Completion Report Projet Forestier Mangoro

Prices Prix(Expressed in 1974 US$ 1/) (Exprimés en $E.U. de 1974 1/)

Inputs/Moyens de Production 2/

4 Wheel driveStumpage station wagon Zinc Pinerates/ glass/ chloride/ seeds/Prix Véhicules à 4 Fertilizer Chlorine Semences

sur pied Bulldozer roues motrices /Engrais de zinc de pins

Units m3

solid wood 150 HP 1 unit/ 1 t 1 t 1 t Unitésunder bark/ 1 unité (PK 21-16)m

3de bois

plein sousécorce

Estimated at Estimation àappraisal l'évaluation(1974) $ 2.80 $ 84,000 $ 7,130 $ 198 n.a. n.a. (1974)

Prevailing pricesat completion Prix à l'achève-(1981) $ 3.55 3/ $ 73,700 $ 8,375 $ 246 $ 558 $ 63 ment (1981)

1/ 1974 prices are obtained by dividing the price in FMG by the prevailing exchange rate, FMG 255/US$. 1981 pricesare expressed in 1974 US$, first, by deflating the price in FMG according to the Madagascar consumer price indexwhich was 258.3 in March 1981 and 144.2 in 1974, and then by applying the exchange rate of FMG 260/US$ prevailingin 1981/Les prix 1974 sont obtenus en divisant le prix en FMG par le taux de change applicable, soit FMG 255/$E.U.Les prix de 1981 sont exprimés en $E.U. de 1974, obtenus d'abord en ajustant le prix en FMG d'après l'indicedes prix de détail de Madagascar qui était de 258,3 en mars 1981 et de 144,2 en 1974, et ensuite en appliquant letaux de change applicable en 1981, soit FMG 260/$E.U.

2/ Input prices are obtained from the appraisal report of the first phase project and the working papers of theappraisal report of the second phase project/Le prix des moyens de production est tiré du rapport d'évaluation dela première phase et des documents de travail du rapport d'évaluation de la deuxième phase du projet.

3/ Based on stumpage price studies for Kenya/D'après des études du prix sur pied au Kenya.



MADAGASCAR


Project incrementai Timber Production PiuducLbiûL de Bois ppiémentaira Rfsultant d- Pr-c- t

Pre-project 1974 (Appraisal year)/

Avant-projet 1974 (Année de l'évaluation)

Yield (m3

under barkCropping Area /ha) per

Area intensity cropped annum/

development (ratio) (ha)/ Rendement Output Price Value

(ha) /Taux Superficie (m3 sous ('000 m3)/ (1974 US$)/

/Superficie d'abattage abattue écorce/ha) Production Prix Valeur

(ha) (proportion) (ha) par an ('000 m3) (1974 $E.U.)

1. Without project 1. Sans projet (estimation

(appraisal estimate) 24,600 - - 13 - 2.8 - de l'évaluation)

2. Without project 2. Sans projet (estimation

(completion estimate) 24,600 - -- - 3.6 - à l'achèvement)

3. With project 3. Avec projet (estimation

(appraisal estimate) 24,600 - - 13 - 2.8 - de l'évaluation)

4. With project 4. Avec projet (estimation

(completion estimate) 24,600 - -- - 3.6 - à l'achèvement)



MADAGASCAR


Project Incremental Timber Production Production de Bois Supplémentaire Résultant du Project

1981 (Completion year) 1//1981 (Année d'achèvement) 1/

Yield (m3

under barkCropping Area /ha) per

Area intensity cropped annum/development (ratio) (ha)/ Rendement Output Price Value

(ha) /Taux Superficie (m3 sous ('000 m3 )/ (1974 US$)/ a,/Superficie d'abattage abattue écorce/ha) Production Prix Valeur C

(ha) (proportion) (ha) par an ('000 m3 ) (1974 $E.U.)

1. Without project 1. Sans projet (estimation(appraisal estimate) 24,600 - - 13 - 2.8 - de l'évaluation)

2. Without project 2. Sans projet (estimation(completion estimate) 24,600 - - - - 3.6 - à l'achèvement)

3. With project 3. Avec projet (estimation(appraisal estimate 1/) 59,600 - - 13 - 2.8 - de l'évaluation 1/)

4. With project 4. Avec projet (estimation(completion estimate) 72,300 - - 5.3 - 3.6 - à l'achèvement)

1/ Completion year was estimated to he 1979, n ot 1981, at a ppraisal/L'année d'achèvement devait être 1979 et non pas 1981, d'aprèsl'évaluation.



MADAGASCAR


Project Incremental Timber Production Production de Bois Supplémentaire Résultant du Project

Full development (1990s)/Développement complet (Années 1990)

Yield (m3under bark

Cropping Area /ha) per Age ofArea intensity cropped annum/ trees

development (ratio) (ha)/ Rendement (years)/ Output Price Value(ha) /Taux Superficie (m

3sous Age des ('000 m

3)/ (1974 US$)/

/Superficie d'abattage abattue écorce/ha) arbres Production Prix Valeur(ha) (proportion) (ha) par an (années) ('000 m3

) (1974 $E.U.)

1. Without project 1. Sans projet (estimation(appraisal estimate) 24,600 7% 1,640 13 15 320 2.8 896,000 de l'évaluation)

2. Without project 2. Sans projet (estimation(completion estimate) 24,600 - - - - - 3.6 - à l'achèvement)

3. With project 3. Avec projet (estimation(appraisal estimate) 96,000 7% 6,400 13 15 1,248 2.8 3,494,400 de l'évaluation)

4. With project 4. Avec projet (estimation(completion estimate) n.a. 6% n.a. 5.3 18 n.a. 3.6 n.a. à l'achèvement)


- 71 -

Annex/AnnexePage i

MADAGASCAR

Mangoro Forestry Project

Model for tile Calculation of the Financial and Economic Rates of Return

The model was built to calculate and compare the financial andeconomic rates of return of the project as they appeared at appraisal andat completion. The benefits of the project are the volume of unfelledtrees resulting from the pre-project and project plantations. Pre-projectplantations were included in the benefits as in the appraisal report.Costs are those incurred during the project, plus the costs of maintainingthe plantations after t:he project until the trees are sold, assuming nofurther plantations are made. Pre-project costs are considered sunk costs,as in the appraisal report. Post-project maintenance costs are estimatedon the basis of costs incurred during the project period (Appraisal Report,Annex 3, Table 1). Un:Less otherwise indicated, the following figures givethe percentage of average annual project costs retained as annualmaintenance costs for t:he post project period. The percentage of foreignexchange (F. E.) indicated was used in shadow pricing for the economicevaluation (completion mission estimates).

Annual Mainl:enance Costs as % of Annual Project Costs

Afforestation: Only one year of weeding after thecompletion of the project.

Roads and fire control: 47% (20% F.E.).

Administration: 50% (5% F. E.).

Building and housing: 20% (10% F. E.).

Vehicles and equipment: 15% (67% F. E.).

Research training and studies: 25% (60% F. E.).

Pasture improvement: 60% (0% F. E.).

Physical contingencies: 10% on roads (other than serviceroads), buildings and housing,vehicles and equipment(50% F. E.).

- 72 -

Annex/AnnexePage 2

Post project maintenance costs are gradually reduced as the forestis sold.

For calculating the economic rate of return, shadow pricing wasapplied based on the appraisal report scenario, i.e. 125% on foreignexchange and 75% on labor 1/. As a result, total costs are increased by 2%during the project period. Post project economic costs are thereforeobtained by increasing financial costs by 2%. The output is consideredexportable and therefore increased, like the exchange rate, by 25%.

1/ The labor component is obtained from the appraisal report, Annex 2,Table 3, assuming that the indicated man-days per ha should be appliedto 7,000 ha per annum, that there are 250 man-days in a man-year andthat the average annual wage was FMG 78,350 in 1974 (Appraisal Report,Annex 3, para. 2).

February 11, 1982

- 73 - Annex/AnnexeTable/Tableau- 1

?1ADAGASCAR

Mangoro Foiestry Project Projet Forestter Mangoro

Plroject Financial aud Economic Evaluation Evalulation Financière et Economique du Projet

(Based on Appiaisal Estimates) (D'après les estimations de l'évaluation)(1974 FltG million) (million de FMG aux prix de 1974)

Incremeutal benefits Incremental benefits/Re-néfices Net /Bénéfices Net

Costs/CoGts supplémentaires economic supplémentaires econiomicFinancial kenefits/ Financial benefits/

1/ cash flow/ Bénéfices 1/ cash flow/ BénéficesFinancial/ Economic/ Financial/ Economic/ Trésorérie économiques Financial/ Economic/ Trésorérie économiquesFinanciers Economiques Financiers Economiques financière nets Financiers Economiques financière nets

(Sl.umpage rate: MIG 710/m3

unler bark) (Stumpage rate: FMi 1,550/m3

unïer bark)(Pr x sur pied: FMG 710/m

3sous écorce) (Prix sur pied: FMG 1,550/m

3sous écorce)

1974 319 339 (319) (339) (319) (339)1975 1,356 1,468 (1,356) <1,468) (1,356) (1,46S)1976 473 465 (473) (465) (471) (465)1977 443 427 (443) (427) (443) (427)

1978 455 439 (455) (439) (455) (439)1979 328 304 (328) <309) (328) (309)

Total 3,374 3,447

1980 179 183 (170) (I1P) (179) <183)1981 176 180 (176) (180) (176) (IR0)1982 176 180 (176) (180) (176) (180)1983 176 180 (176) (180) (176) (180)

1984 176 180 (176) (180) (176) (180)1985 176 180 466 5S3 290 403 1,019 1,273 842 1,0931986 176 180 520 650 344 470 1,136 1,420 960 1,2401987 176 180 555 694 370 514 1,21? 1,515 1,036 1,3351988 176 180 766 958 590 778 1,672 2,090 1,496 1,9101989 100 103 782 97R 682 875 1,708 2,135 1,608 2,0321990 100 103 792 90n 692 887 1,728 2,160 1,628 2,0581991 100 103 801 1,001 701 898 1,74g 2,185 1,648 2,0821992 36 36 811 1,014 775 978 1,769 2,211 1,733 2,1751993 36 36 819 1,024 775 988 1,789 2,236 1,753 2,2001994 36 36 803 1,003 775 967 1,753 2,191 1,717 2,155

Rates of Return/ Rates of Return/Taux de Rentabilité Taux de Rentabilité

Financial:/ Economic:/ Financial:/ Economic:/Financière: Economique: Financière: Economique:

3% 5% 107 12I

1/ The physical output is shown in the Appraisal Report, Annex 6, Table 2/La production en volume est indiquée dans le Rapport

d'Evaluation, Annexe 6, Tableau 2.


MADPA C.ASCA R

Mangoro Forestry Project Pro ject Forestier M1angoro

Oetailed Project Costs (Appraisa1 flsti.ates) Détail des Coûts do Projet (Estisatiua d, lvlaln

(1974 PMG illlion) (en million de PFMG as. pris de 19743 e

Fina.tt.1 co.ta ol hich: ttoscoCsts//Coûts finascière dont: Coûts icooosiqses

Roads asdlire B.tldings Vehic1es Research,Contro1/ and asd traising Posture

Roates et ho.sing/ eq.ip.ent! and st.diesl improvement/ Physicallotte Bâti-,ets Véhicales Recherche, Aê,lior.tios costisgecices Foreign Foreig.

Afforestatlos/ castre et et Sormattos des /I.prêv.s es-h.sge (Sages)! (Oth.r)/ exchasge (Wages>!Bois.e.et lioteodie Administration Iogeentst equtpeseot et études pèt,arages physiqoes Totl1 IDfle.îe (Salatres) (Astres) /Dlevises (Salaires) Total

Project Perisd!Pêrlode do Projet

1974 28.5 93.4 3 3 .3 98.6 10.2 37.0 2.0 15.5 318.5 (79.9) (238.6) (99.9) 3 3 9.51 97 5 164.4 286.0 104.3 309.0 3 54 .7 53.7 5.0 90.2 1,356.3 (572.03 (127.2) (657.1) (715.03 (95.4) 1,467.51976 164.4 92 .7 103.7 22.0 31.9 53.7 5.0 - 47 3. 3 (95.5) (127.2) (250.6) (119.4) (q5.4) 465.4197 7 164.4 98.6 99.0 22.0 31.8 2 3 .4 5 .0 -4431. 2 (62.8) (127.2) ( 2 53 .2) (78.5) (95.4) 427.11978 164.4 108.0 100.4 22.0 31.3 23.4 5.0 -455.0 (64.3) (127.2) (263.5) (90.4) (95.4) 4 39 .31979 135.0 73.9 63.6 15.4 21.2 15.5 3.0 -32 7 .6 ( 53.6r) (127.2) (146.9) (47.0) (95.43 309.2

Total 821.1 7 52 .6 503.3 488.0 481.5 206.7 25.0 95.7 3, 37 3.9 (929.1) (636.0) (1,909.9) (1,160.2) (477.0) 3 ,4 47 .0

Foot Proj.ct Period(l.ia tena-ce)

Aprês Projet( Pt at eten)

1980 2.8 70.0 50.0 20.0 15.0 10.0 3.0 9.0 179.8 - - - - - 183.01981 - 70.0 50.0 20.0 15.0 10.0 3.0 8.0 176.0 - - - - - 180.01982 - - - - - - - - 176.0 - - - - - 190.01983 - - - - - - - - 176.0 - - - - - 190.01984 - - - - - - - - 176.0 - - - - - 180.01985 - - - - - - - - 176.0 - - - - - 180.0

Fost Froject Period(MaIntenance andSel ling)

Aprè Projet(Ent ratieset veste)

1986 - - - - - - - -176.0 - - - - - 180.019A7 - - - - - - - - 176.0 - - - - - 180.01988 - - - - - - - 176.0 - - - - - 182.01989 - - - - - - - - 130.0 - - - - - 1n3.n1990 - - - - - - - - 100.0 - - - - - 103.01991 - - - - - - - 100.0 - - - - 103.01992 - - - - - - - - 36.0 - - - - - 36.01993 - - - - - - - 36.0 - - - - - 36.01994 -------- 36 .0 - - - - 36.0


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- 77 -

Annex/AnnexeTable/Tableau 5

MADAGASCAR


Estimated Outpur of Plantations Production en Volume des Plantations(Based on 1981 rield estimates) (D'après les estimations de rendement de 1981)

Area yielding 6 m3 Area yielding 12 m3per annum/ per annum/Superficie Superficie

produisant 6 m3 produisant 12 m3

par an par an

Total area Non-Season planted yielding Total

of (ha)/ area (ha)/ outputYear of planting/ Superficie Superficie Area Output Area Output (`000 m3 )/

felling/ Campagne plantée à (ha)/ ('000 m3)/ (ha)/ ('000 m3)/ ProductionAnnée de totale rendement Superficie Production Superficie Production total

d'abattage plantation (ha) nul (ha) (ha) ('000 m3) (ha) ('000 m3) ('000 m3)

Pre-project/Avant-projet

1988 1969/70 3,200 3,200 - - - - -1989 1970/71 5,400 5,400 _ - - - -1990 1971/72 3,900 3,900 _ - - - -1991 1972/73 5,800 5,800 - - - - -1992 1973/74 6,700 6,700 - - - - -

Total 25,000 25,000 - - - - -

Project/Projet

1993 1974/75 6,190 1,300 4,000 432 890 192 6241994 1975/76 5,470 900 3,000 324 1,570 339 6631995 1976/77 6,200 900 3,000 324 2,300 497 8211996 1977/78 7,995 1,430 905 98 5,660 1,222 1,3201997 1978/79 8,780 1,430 900 97 6,450 1,393 1,4901998 1979/80 6,935 1,430 900 97 4,605 995 1,0921999 1980/81 5,600 1,425 900 97 3,275 707 804

Total 47,170 8,815 13,605 1,469 24,750 5,345 6,814

Grand Total 72,170 33,815 13,605 1,469 24,750 5,345 6,814

February 11, 1982 le Il février, 1982

X=, N] rA.s'flR-:r4 -

-~~~, J

42 4- â 4 50

-12' MADAGASCAR o12

MANGORO FORESTRY PROJECT tnseronanoPROJET FORESTIER DU MANGORO +

PROJECT LOCATIONLOCALISATION DU PROJ-ET

17 Mongoro Forestry Prolect area PoVel roads N.,Zone du Projer Morgtor Pao/ts goudronnses NOSO8Other forestry ond related projects _ AII-oeather rocds f _ (. VohrrrorrAutres pro/ets oresesers Routes accessibles en toute saison e

A Savoko ka Ralrays r1 Savkok Chenr,n de fer

2 Coshewnut plontoatons Airpr-ts .l Xl,` LW Plantations anacardes r A4 erAoorits 1 14'Chron,,le t,e.tment - plontat,o R,,e,s > \

3J rrctement fero-chrom-pton = onPrères << Somoo

Troasn,iss,on poles and roilwoy ties-SIl Forents eno4 Poteaux et troaerses Forûis_ Cinchono Forit,ny boundarres Anoloho o

QCinqun n Limites des FarianyL +Train,ng centers Othir on-nodeipine plantations Antloha

6l0 Centres de foration roAuts plontations de pins<>$t / Q~~~~~~~elondr air

MohûjançaX t 040~~~~~~~~~~~~~M roontsouioMahoj nqa -. Pr e

KILOMETERS 0 50 100 150 200

MILES O 50 100 ô1 S g4 < \ r (r 16--Cf-n) C<~~~~Maroinor Mornor1kony M 4ononoro

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S fS r | 1 >!1p_ iS7i ~~~~~~~~~~~~~ancinjary

V. THIS MAP IS BASSO ON IBRD 15290,SEPTEMBER 1980,o F-- cTIT-LE H/AVE BEEN CHANGEO AND PROJECT

INFORMA TION ADOEO.

-22' 22'-

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iOCEAN

X Taolor~~~~~~~~~~~~~lonro OCEANY f P ,.o,nrvot

MADAGASCAR

412- 44- 46 48- o

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