Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 5017-PNG

STAFF APPRAISAL REPORT

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

October 11, 1984

Projects DepartmentEast Asia and Pacific Regional Office

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

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CURRENCY EQUIVALENTS(as of April 1984)

Currency Unit = Kina (K)KL = US$1.18US$L = K 0.85

WEIGHTS AND MEASURES

1 kilogram (kg) = 2.2046 pounds (lbs)1 metric ton (ton) = 2,204.6 pounds (lbs)

= 1.1023 short tons (2,000 lbs)= 0.9842 long tons (2,240 lbs)

1 kilometer (km) = 0.6214 miles1 square kilometer (sq km) = 100 ha = 0.3861 square milesl hectare (ha) = 2.4711 acres

GOVERNMENT OF PAPUA NEW GUINEAFISCAL YEAR

January 1 - December 3L

GLOSSARY OF ABBREVIATIONS

DOF - Department of FinanceDPI - Division of Primary Industry (Agriculture)DWS - Department of Works and SupplyHQPC - Headquarters Project CoordinatorHQPCC - Headquarters Project Coordinating CommitteelASER - Institute of Applied Social and Economic ResearchLDP - Less Developed ProvincesLGC - Local Government CouncilNPEP - National Public Expenditures PlanNPO - National Planning OfficeOPC - Office of Project CoordinationPC - Project CoordinatorPMT - Provincial Management TeamPNC - Papua New CuineaPSC - Public Service CommissionSOE - Statement of ExpendituresVDC - Village Development Center

FOR OFFICIAL USE ONLYPAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

STAFF APPRAISAL REPORT

Table c' Contents

Page No.

Loan and Project Summary ..................................... . iii

I. BACKCROUND ..o....................................... .......... ........... 1

A. Introduction ..... ..... ................ 0........ ....................... 1B. Structure of Government .............. ............. ...... 1C. Development Objectives and Less Developed Provinces ...... 2D. Bank Financed Agricultural Projects ....................... 3

II. THE PROJECT AREA .......... .. ................................... ... 4

A. Physical Characteristics ................. ................. 4B. The West Sepik People........... .......................... 4C. Agricultural S........... .................... ... ....... 5D. Provincial Economy ...... ............. ........ .......... . 7E. Government Structure ..*. ** * ..................................... 8F. Public Services .... *... ... .......... . .......................... O...... . 8

III. THE PROJECT ................... ............................... 11

A. Objectives and Scope . .... ..... . .................. .. .. .. . 11B. Detailed Features ..... . ...... .. ................... . ....... . 13C. Implementation Period and Status .......... o .............. 24

IV. PROJECT COST AND FINANCING ......... .... .......... ...... . 25

Ao Cost Estimates ..... ........... O.....,..... O........................ 25B. Financing ......................................0...................... . 26Co Procurement . 27D. Accounting and Auditing ........ . ........................ . ....... . 28E. Disbursements ....... .................... ............. .0. ............... 28

V. PROJECT IMPLEMENTATION, ORGANIZATION AND MANAGEMENT ....... . .. 29

A. Implementation Responsibility ............................ 29B. Management, Coordination and Reporting .................. o. 29C. Project Staffing ...... . ... ...... o..o ................ .. 32

This report is based on the findings of an appraisal mission comprisingMessrs. A. Hasan, J. P. Baudelaire, D. Parbery, F. Iqbal, and Ms. C. Clark(Bank) which visited PNG in November 1983. The report was reviewed byMr. K. Sengupta (Bank).

This document has a restricted distribution and may be used by recipients only in the perrormance oatheir offil duties. Is contents may not otherwie be discloed without World Bank authorization.

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Page No.

VI. BENEFITS AND JUSTIFICATION ........ ........................... 32

A. Nonquantifiable Benefits ................................. 33B. Quantifiable Benefits and Economic Analysis ............. . 33Co Farm Incomes ............. 35D. Agricultural Production and Marketing ................... . 35E. Fiscal Impact . .................................... 36F. Environmental Impact ............................................. 36C. Risks ............................... 36

VII. AGREEMENTS REACHED AND RECOMMENDATIONS ....................... 37

A. Conditions of Loan Effectiveness ......................... 37B. Agreements ... ................................. 37

ANNEXES

1. Tables 1. Provincial Population and Land Distribu*ion2. Subsistence Systems in West Sepik3. Project Roads4. Implementation Schedule: Key Indicators5. Incremental Staff and Recruitment

2. Tables 1. Project Cost Sulmmary (by Component)2. Project Cost Summary (by Category)3. Procurement Arrangements4. Disbursements Schedule

3. Tables 1. Implementation Responsibility

4. Table 1. Economic Costs and Benefits: Long-TermAgricultural and Roads Investment Program

2. Costs and Benefits of Highlands VegetableSubproject

3. Farm Incomes

5. Selected Documents Available in Project File

CHARTS

World Bank 25784 Provincial Government Organization ChartWorld Bank 25944 Implementation Schedule: Project Components

MAPS

IBRD 17935 AgricultureIBRD 17936 Social Infrastructure and Road Network

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PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Loan and Project Summary

Borrower: Papua New Guinea (PNG)

Beneficiary: West Sepik Provincial Government

Amount: US$9.7 million (including capitalized front-end fee)

Terms: The loan would be for a term of 20 years, including a graceperiod of 5 years, at the standard variable rate.

ProjectDescription: The proposed project would constitute the first five-year

phase of a long-term effort to accelerate social and econo-mic development in West Sepik, one of the poorest provincesin Papua New Guinea. The objective of the project is tostrengthen the human, agricultural, institutional andphysical resource base to enable directly-productive andmarket-oriented activities to be carried out now and in thefuture. Specifically, the project includes: (a) agricul-tural development comprising subsistence agriculture, cashcrops including tree crops and vegetables, strengthening ofsupport services and special studies to investigate andprepare future agricultural projects; (b) infrastructuredevelopment through road upgrading and rehabilitation,airstrip upgrading and wharf construction; (c) health andnutrition services development including malnutritionresearch in the Lumi district, a school niutrition program,and training and supervision of primary health careworkers; (d) education and training improvement comprisingestablishment of central community schools, boardingfacilities, an in-service training center, and vocationaltraining; and (c) institution building through upgrading ofthe provincial management, financial and staff developmentfunctions.

Benefits: It is expected that quantifiable benefits of higher family

incomes would accrue to about 90% of the 114,000 peopleliving in the West Sepik Province over the long-term as aresult of the development program, of which this project isa first phase. Many unquantifiable benefits such as morebalanced diets, improved health and nutrition, improvededucational coverage and quality, and improved services areexpected.

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Risks: The main project risks are: (a) the likely delay inrecruiting the professional staff required to help imple-ment the project cwing to procedural problems; (b) poten-tial management and coordination problems arising from theproject's relacive complexity and remote location; and(c) poor participant response and the possibility of intro-ducing culturally inappropriate practices. The recruitmentrisk would be minimized by the appointment of key projectstaff before project initiation. A Project Coordinatorwould be appointed to ensure coordination of the variousproject components. The risk of low response has beenreduced by proposing modest modification in the farmingsystem, requiring low but adequate levels of skills andtechnology, and directing the project to areas whereacceptance is likely to be high. Also, a monitoring andevaluation officer would be appointed to assess amongothers the socioeconomic appropriateness of, and responseof the participants to, project activities.

Estimated Cost: Local /a Foreign Total

- 1 milijo…) Agricultural development 2.1 1.7 3.8Infrastructure 1.1 1.7 2.8Health and nutrition 0.3 0.2 0.5Education and training 0.5 0.4 0.9Lumi special program 0.1 0.1 0.2Institution building 0.7 0.6 1.3Unappraised component 0.8 0.5 1.3LDP planning studies 0.4 1.1 1.5

Base cost estimate 6.0 6.3 12.3

Physical contingencies 0.4 0.5 0.9Price contingencies 1.8 1.6 3.4

Total Project Cost 8.2 8.4 16.6

Front-end fee on Bank loan - 0.02 0.02

Total Financing Required 8.20 8.42 16.62

Financing Plan: Local Foreign Total

IBRD 1.28 8.42 9.70Government 6.92 - 6.92

Total 8.20 8.42 16.62

EstimatedDisbursements: FY85 FY86 FY87 FY88 FY89 FY90 FY91

--------------- Fs m million)-n

Annual 0.4 0.8 2.4 1.8 1.5 1.7 1.1Cumulative 0.4 1.2 3.6 5.4 6.9 8.6 9.7

Rate of Return: 16Z on a representative agricultural subproject. Given thenature of the project no overall rate of return has beencalculaced.

Staff AppraisalReport: Report No. 5017-PNC dated September 1984.

/a Including $0.4 million for taxes and duties.

I. BACKGROUND

A. Introduction

1.01 The Government of Papua New Guinea has requested Bank assistancefor the initiation of a development program in the West Sepik Province, whichis one of the least developed and poorest provinces in the country. The pro-posed project constitutes the first phase of the development program. Projectcomponents include subsistence farming and cash crop development, nutritionimprovement measures, health system upgrading, road improvements, educationand training, and the strengthening of provincial administration. The WestSepik Provincial Government was responsible for project preparation withassistance from the national Government.

1.02 General. Papua New Guinea (PNG) is a mountainous country endowedwith reasonably good soils, abundant rainfall, considerable mineral resources,and forestry and fishery resources with commercial potential. It has a landarea of about 500,000 sq km and a population of only about three million. Theeconomy is highly dualistic, with about 15% of the population employed in themodern monetary sector (mining, government, small manufacturing and services)and about 85% largely living as subsistence farmers in traditional societiesin sparsely populated rural areas where economic opportunities are limited,productivity is low and local services generally poor. The population in manyparts of the country has only recently come into contact with the outsideworld. Although GNP per capita in 1983 is estimated at $800, the imputed percapita income of subsistence farmers was only about $240.

1.03 Besides providing employment for a majority of the population, theagricultural sector contributes about 35% of GDP and 50% of total exports. In1982, the main cash crops (practically all for export) were (in metric tons):coffee (41,000), cocoa (29,000), copra (74,000), palm oil (77,000), and rubber(4,500). The main subsistence crops are sago, sweet potatoes, bananas andtaro. Responsibility for development of the agricultural sector, includingforestry and fisheries, rests with the Department of Primary Industry at thenational level which is responsible for overall policy and planning, operationof agricultural colleges and research stations and provision of specializedtechnical assistance. At the provincial level, the Division of PrimaryIndustry (DPI) handles extension, farmer training and imilementation ofagricultural development programs. Provincial DPI are under the control ofthe provincial governments.

B. Structure of Government

1.04 PNG has a parliamentary system of government which is highly decen-tralized in recognition of the diversity of people in the country. In all,there are 19 provinces each with an average population of about 160,000.Primary provincial responsibilities include local government councils andcourts, primary and nonformal education, housing, regulation of trade (otherthan banks), cultural activities and public entertainment. Concurrent (orshared) responsibilities which allow provincial governments considerablelatitude in matters exclusively affecting the province, include agriculture,

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health (excluding hospitals), secondary education, and roads (excluding mainhighways). To discharge the above responsibilities the provinces have publicservice departments with their own bylaws and staff transferred from thecorresponding national units.

1.05 Provinces are allowed to charge a head tax as well as fees and taxeson retail sales, trading licenses, public entertainment, and land. Thenational government provides the provinces with funds to cover all recurrentcosts, and development expenditures. In addition, the national governmentalso refunds to the provinces the proceeds of certain taxes collected in theprovinces and 1.25% of the value of goods produced in and exported from theprovince (derivation grants). Locally generated revenues of the provincialgovernments contribute only about 6% of their expenditures, with 94% beingprovided by the national government. The provincial contribution is lowmainly because of the limited tax base and the low level of market activity inmost provinces. One consequence of decentralization is that heavy demandshave been placed on provincial governments to provide and expand the servicesoriginally provided by national departments. This has adversely affected ser-vices because the provinces lack adequately qualified and experienced staffand there is insufficient coordination between national and provincialefforts.

C. Development Objectives and Less Developed Provinces

1.06 Tte main development problem confronting the country is how toachieve growth with equity in a dualistic setting in which the bulk of theeconomy is geared to subsistence. Little surplus is produced for investmentand few channels exist for marketing what surplus there might be. "Enclave"development is taking place (through plantations and mines) but while this hasthe advantage of earning much-needed foreign exchange it also has the drawbackof not spreading benefits widely or evenly. For equitable growth to occur,more of the population needs to benefit directly from projects designed toimprove their health, nutrition, and education, and increase their incomes andaccess to government services and markets.

1.07 Government, through its four-year National Public Expenditures Plan(NPEP), is addressing a wide range of development objectives throughout thecountry, including the development of the nine less-developed provinces(LDPs). Of particular significance for the LDPs are the objectives ofincreasing growth in the smallholder sector by strengthening agriculturalsupport services, and improving physical infrastructure and human resourcesthrough investment in roads and education. The major aim of agriculturalintervention is to diversify food production and consumption to improve nutri-tion, and to increase incomes from cash crops. Recognizing the inadequacy ofthe road network - the majority of the population remains isolated andinaccessible except by foot or air - the Government has begun to move awayfrom its former emphasis on major road construction towards greater emphasison feeder roads for smaller population centers and rural areas. At the sametime, Covernment attaches great importance to the provision of education; itspolicy objectives are to expand enrollment particularly for females, correctthe imbalances of educational opportunities among provinces, and improve thequality of education. Nonformal education is also gaining increased

attention, especially in rural areas which are generally bypassed by theformal school system. For the LDPs, the Government is attempting to achievethe above objectives through multi-sectoral provincial projects. Three suchprojects are currently underway, two with financing from the Bank and one withfinancing from the Asian Development Bank.

D. Bank Financed Agricultural Projects

1.08 In line with PNC's agricultural development strategy, the Bank groupis supporting the following three types of projects: (a) tree crop develop-ment through a site specific nucleus estate project (Popondetta Oil PaLmProject, Ln. 1333-PNG, $20 million) and on a national basis through a creditproject (Agriculture Credit II Project, Cr. 1149-PNG, $15 million). ThePopondetta project is assisting 1400 smallholders at Popondetta establish oilpalm blocks. The credit project supports PNG Developnent Bank's lending fortree crop development by smallholders; (b) support services development atthe national level (Agricultural Support Services Project, Ln. 2276-PNC,$14.1 million). This project would strengthen research, extension, planningand quarantine services at the national level; and (c) provincial agriculturaldevelopment as part of multi-sectoral projects in less developed provinces(para. 1.09). The efforts of the first two types of projects complement theagricultural interventions under the provincial projects.

1.09 The two provincial development projects supported by the Bank Groupare: (a) the Southern Highlands Rural Development (SHRD) Project: (Cr. 841-PNG, $20 million); and (b) the Enga Provincial Development Project: (Ln. 2125/Cr. 1227-PNC, $6 million Loan, $2 million credit). The SHRD Project aims todevelop the Southern Highlands Province by investments in infrastructure andcash crops and by supporting health, education and applied research pro-grams. The Enga project is part of a multisectoral provincial developmentprogram for the Enga Province; it includes provincial institution building, avariety of agricultural, forestry and livestock developments, and investmentsin infrastructure, health, education and community development.

1.10 The SHRD project is expected to be completed satisfactorily inmid-1985. Most components of the Enga project are being well implemented;delays in staff recruitment have adversely affected two of the agriculturalsubprojects. Efforts are underway to resolve these problems. The followingmajor lessons have been learnt during implementation of these projects:(a) before project start-up aLl procedural matters relating to staff recruit-ment should be settled and recruitment of kev staff should be ensured; (b) inview of the complexity of these projects and the need for good interdepart-mental coordination within and among national and provincial departments,there should be a strong project coordination system at both the national andprovincial levels; (c) project coordination, management and implementationshould be integrated into provincial administrative procedures; (d) the lag of12-18 months between expenditures and reimbursement should be reduced;(e) projects should include measures (e.g., studies, land evaluation, etc.) toidentify and prepare directly productive agricultural and commercial venturesfor follow-up projects; and (f) staff from key national departments should beclosely involved in project preparation and appraisal. These lessons havebeen incorporated into the design of the proposed project.

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II. THE PROJECT AREA

A. Physical Characteristics

2.01 West Sepik Province covers a land area of about 36,000 sq km (7.2Zof PNC's land area). It has three broadly defined zones: a high mountainousregion to the south, the Sepik River Basin in the middle, and a low coastalmountain range and narrow littoral strip to the north (IBRD Map No. 17935).Average annual rainfall varies from 2,000 mm in the eastern part of the pro-vince to 3,400 mm in the western part. A drier season is experienced in mostareas from May to September, but soil water deficiency in not a problem. Soiltypes range from sandy (in coastal areas) to moderately developed entisols onthe alluvial plains. The predominant vegetation is rain forest with patchesof grassland. Preliminary studies indicate about 300,000 ha of land suitablefor tree crops.

B. The West Sepik People

2.02 The province is one of the last areas to be brought under theCovernment's administrative control, and has had sustained contact with theoutside world for onLy about 40 years. The population of the province isabout 114,000, with an average family size of six. Population density aver-ages 3.1 per sq km, but can range between about 30 and 0.1 per sq km (Annex 1,Table 1). It is one of the most rural provinces, with about 94% of the popu-lation living in rural areas; the remainder live in government centers, thelargest of which is Vanimo with a population of about 3,000. Population isgrowing at about 2.5Z p.a., and is likely to increase in the future, given thehigh proportion of young people, improvements in health services, thedeclining use of traditional birth spacing practices, and low emigration.

2.03 Social Organization. West Sepik is perhaps the most hewerogeneouslinguistic area in the world; a total of about 95 languages are spokec, witheach language representing a distinct cultural group. Pidgin has been adoptedthroughout the province as the lingua franca. Despite their links with theoutside world and some involvement in the cash economy, most of the peopleremain a clan-based subsistence-oriented society with a very rudimentarystandard of hygiene, clothing and shelter. There is little political integra-tion beyond the clan, which constitutes the basic unit of land tenure.Although clan lands have recognizable boundaries, they are often subject todisputes. Each family has access to land for food gardens, but gardening andhunting rights are very complex and vary among the clans. In general, foodproduction is at the sole disposal of the family, while incomes from cashcrops and wage employment are often shared within subclans. Men undertake,generally collectively, the heavy tasks of clearing and preparing the land aswell as fencing, hunting and gathering, while women tend the gardens andprovide food for subsistence and sale. Men devote a fair part of their timeto ceremonies and rituals.

2.04 Sago is the most important element in the diet of all except thepeople of the highland areas where sweet potato and taro are dominant. In

both cases the diet is supplemented by grubs and small animals which form themain source of protein. The inadequacy of protein intake (bush game isscarce) and the overwhelming reliance on starchy foods makes for generallypoor nutrition. High malnutrition, especially among children, exists in someparts ot the province.

2.05 Despite the traditional nature of the West Sepik people, there isevidence of a general desire for socio-economic development. In someinstances, villagers have been known to put up school buildings (of bushmaterial) in the hope that the Covernment would feel compelled to provideteachers. In other instances, entire villages have shifted so as Lo be closeto a church mission or a road in the hope of benefiting from the services(C.g., 4CCess to markets) typically associated with missions and ronds. Avegetable growing project, started with modest means and even more modesthopes in Telefomin District in 1979 has been remarkably successful in attract-ing participants; in Aitape and Nuku Jiistricts, where road access is fairlygood, about 50% of the population is engaged (part-time) in cocoa and coffeeproduction. Overall, about 30X of the provincial population is involved, tosome extent, in cash cropping of either tree crops or vegetables. In general,local attitudes and customs do not pose an insurmountable barrier todevelopment and change. Moreover, although the land tenure system is complexand individual families do not own land, this complexity does not appear toinhibit cash cropping as evidenced by the high proportion of people engaged inthis activity.

C. Agri.cultural Sector '

2.06 Suosistence System. Subsistence agriculture comprises varyingcombinations of food gardening, food gathering, hunting and fishing. Thereare two broad divisions of subsistence agriculture (IBRD Map No. 17935):(a) in the higher altitudes and some coastal areas the main activity isgardening; (b) elsewhere, the people rely principally on cultivated and wildstands of sago. Gardening is of low intensity and taro, sweet potato, yam,and bananas are the principal crops. Hunting and gathering are common to allrural people to a greater or lesser extent. In general, the size of sub-sistence production by each family is determined by family needs, reciprocityin form of gift--exchanges, planned feasts, redistribution to social groups,need to safeguard against natural hazards and for sale in local markets.Considering the complexity of subsistence activities, it is difficult todescribe a typical socio-economic unit. Some variatioas within the subsist-ence system are described in Annex I, Table 2 for indicatiie purposes.

2.07 The subsistence system based on sago is inadequate in tworespects. It does not provide good nutrition and, in certain areas, it is notproductive enough to feed the population. Since there is no reason to believethat the population pressure will abate in the near future it is important to

1/ In general, information (e.g., yields, production and land tenure) onfood production systems (gardening, hunting and gathering) and cashcropping is sketchy. A baseline survey would be undertaken in 1985(para. 5.07).

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consider ways of increasing food production now. Mere expansion of the sub-sistence system would not be an adequate solution since it provides a poordiet. What is needed is a diversification of the system to include new foodcrops with better nutritional value. At the moment, the development of foodcrops is constrained by weak extension services and lack of adaptive researchon suitable crops and technologies.

2.08 Tree Crops. In 1982 the production, planted area and familiesinvolved in the major tree crops are as follows: coffee 90 ton , 320 ha,3,000 families; cocoa 30 tons, 380 h, 2,000 families; rubber 2 150 ha, 500families; copra 800 tons, 3,600 ha.3 Because of complex land tenurearrangements, the estimate of number of families should be considered indica-tive. Average holdings are very small ranging from 0.15-0.3 ha. Provincialproduction of cash crops represents less than 0.25Z of national cash crop out-put. To increase smallholder plantings, DPI has a seedling distributionprogram, which presently enables new planting annually of about 15 ha ofcoffee, 5 ha of hybrid coconut, 20 ha of rubber and 10 ha of cocoa. For mostcrops this program started in the late 1970s, and experience indicates thatfarmers generally tend to plant small areas (around 0.1 ha) initially andgradually expand to 0.2-0.3 ha over 3-4 years; this planting pattern reflectsthe farmers' desire to minimize labor and cash costs and expand area asfamiliarity with the crop increases. Income from these crops is very lowbecause of low yields and poor quality of the product. Inadequate supply ofgood seedlings, poor cultivation and harvesting practices, and lack of exten-sion have all contributed to the unsatisfactory yields and production.Further, the poor road network and marketing infrastructure have inhibitedmarketing, and consequently production. However, simple changes in husbandry(better pruning, weed control, spacing, etc.) could quickly and substantiaLlyincrease productivity, and with good demonstration efforts, effective agricul-tural extension and increased supply of good quality planting material, thepotential for 4xpanding smallholder cocoa, rubber and coffee cropping isconsiderable.4/

2.09 Commercial Vegetables. In 1983 a total of about 6?5 tons of vegeta-bles and 80 tons of spices and chilies were marketed in the province, mainlyat government centers and towns. DPI has encouraged production of thesecrops. As a result of strong DPI support - extension, planting material andmarketing assistance - a successful vegetable project has been in operation inthe Telefomin-Oksapmin area supplying vegetables to the Ok Tedi mine in theneighboring province. Vegetable production has increased from about 50 tons

2/ In 1984, about 5 tons of rubber are expected to be produced.

3/ In the case of coconut, smallholder production mainly originates from oldand abandoned plantations which have been given back to clans.

4/ In the coastal areas, the smallholders' response to ongoing coconutseedling distribution program has been modest, because of their access tolarge coconut plantations and relatively greater availabiity of off-farmincomes. The current level of the program is adequate and therefore notbeing expanded under the project.

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(1978) to 675 tons in 1983. Vegetables are purchased at small market housesin rural centers and flown out by church or commercial aircraft. With theassistag7e of DPI and church staff, the producers have formed two businessgroups;) both are operating successfully. Demand is growing rapidly at OkTedi with present annual consumption of about 1,600 tons, which is expected todouble within 10 years. About 80% of future demand at Ok Tedi and the coastaltowns will be met by the incremental production of the project. Efforts areneeded to increase the supply base and improve existing marketing infrastruc-ture. It is pertinent to note that recent research in PNG shows a positivecorrelation between the spread of cash cropping and improvements in childnutrition.

2.10 Others. (a) Livestock and Fisheries. Except for pigs, livestock isnot of great importance. However, introduction of poultry (chicken, ducks andgeese) and livestock (cattle and goats) into the farming system could providea substantial source of protein and a substitute for dwindling bush game.Both DPI and church groups have been encouraging their introduction. Experi-ence in some parts of the province and elsewhere in PNG indicates that farmershave responded well to producing poultry and livestock for home consumption;in many instances local markets have developed for these products. Fishing isstill primarily for subsistence, although DPI, with limited success, has beenencouraging commercial development of small-scale coastal fishing, salted fishand crocodile hunting for skins; (b) Forestry. There is significant forestrypotential in the province and the Government is seeking joint venture partnersfor a largc logging and timber processing project (100,000 ha) in the Vanimodistrict.

D. Provincial Economy

2.11 Owing to the nature of the socio-economic system and limited devel-opment efforts so far, the provincial economy is characterized by lack of adeveloped monetary sector as well as a limited number of commercial activi-ties. Thus, of the province's total estimated value of output in 1983(K 24 million), the subsistence sector accounts for about 95% (nationalaverage is only 15Z), cash crops about 1% and government expenditures theremaining 4%. The province is rich in natural resources including commer-cially exploitable forests covering about 9,000 sq km, and several ore bodieswith sizeable deposits. There are almost no employment opportunities outsidethe Government and the church organizations.

2.12 With respect to level of development, the National Planning Of;ice's(NPO) composite development index ranks West Sepik last among the 19 prov-inces. The specific ranks by key socio-economic categories are: (a) percapita agricultural income of about K 200 - 18th; (b) land transport (based onthe value of road transport investment per capita and per unit area) - 16th;(c) health status (based on life expectancy, child mortality and child malnu-trition) - 19th; (d) education status (based on adult literacy and enrollment

5/ In PNG it is quite common for clan members to get together and formbusiness groups for purposes of operating tradestores, developing clanland and marketing produce.

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rates) - 14th; and (e) government staffing (based on staff numbers in provin-cial departments per thousand of provincial population) - 15th. The provinceis one of three provinces in PNG where subsistence production made up over 50%of the total provincial GDP. Value added, employment, wages and salaries inthe province's non-government sector are all the lowest among the provinces.

E. Government Structure

2.13 Background, Organization and Management. West Sepik was part of theSepik District until 1966 when it too was granted district status. It becamea province in 1978. The province has a cabinet comprising a premier, deputypremier and seven ministers, all of whom are elected members of the provincialassembly. There is a provincial secretariat with staff that are politicalappointees, and which is responsible for policy and planning and administra-tive support to the provincial cabinet. In addition, there is the Departmentof West Sepik, responsible for public administration in the province andorganized in sectoral divisions such as health, education, and agriculture.This dual structure creates considerable tension. Most provinces have amalga-mated the provincial secretariat with the Department. An amalgamated struc-ture (Chart 25784) for West Sepik has been approved by the public servicecommission and is expected to be fully implemented by March 1985. Total staffof the Department of West 6 epik is about 1,050 (including 470 teachers), ofwhich 41 are expatriates.- Almost all staff belong to the national publicservice. The Department is headed by a Secretary, who reports to the provin-cial cabinet. Coordination among all provincial divisions and other govern-ment agencies within the province is effected through the Provincial Manage-ment Team (PMT), which comprises the Secretary and all divisional heads.

2.14 Local Government Councils (LCC). These are elected bodies responsi-ble for rural improvement programs, local road maintenance and fosteringpolitical integration and nation building at the grass-roots level. Thecouncils receive revenues from the provincial government and from local taxes.As elsewhere in the country, performance of LCCs in West Sepik has not beensatisfactory because of mismanagement and lack of expertise. The nationalgovernment is reviewing measures to increase effectiveness of LGC operations.

F. Public Services

2.15 Overview. West Sepik is one of the least developed provinces interms of access to public services (para. 2.12). While most public servicesare provided by the Government, various church groups perform a useful role inproviding social services and vocational training. A substantial infrastruc-ture program is required to enable West Sepik to catch up with the other prov-inces. Moreover, its short administrative history, remote location, poor anddifficult internal communications, rapid localization, inadequate management

/6 25 volunteers and 16 contractual; 22 expatriate staff are in theEducation Division.

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skills and staff training have all contributed to the ineffectiveness ofgovernment services in West Sepik.

2.16 Roads. West Sepik's transportation system is rudimentary and expen-sive t; use. Access to the provincial capital, Vanimo, is by air and seaonly, and both the airfield and wharf are of limited size. The provincialroad network is fragmented, and concentrated around Vanimo and the largervillages in Aitape and Nuku districts and does not provide intra-provincialconnections (IBRD Map No. 17936). Light aircraft play a major role in theprovincial passenger and freight traffic. Walking remains the principal modeof travel for the majority of the people. West Sepik has a road network ofapproximately 620 km comprising 280 km of national highways, 100 km of provin-cial roads and 240 km of district roads. The coastal and Sepik highways are,in general, adequately maintained by the provincial branch of the Departmentof Works and Supply (DWS) through equipment-intensive methods. The DWS isalso responsible for the construction and maintenance of provincial roads onbehalf of the province. The LGCs are responsible for the district roads andgenerally construct and maintain them manually; many provincial and most ofthe district roads are in bad condition partly for lack of adequate main-tenance funds, and partly because of weaknesses and lack of adequate controlat LGC level. As a result, many roads are impassable and require upgradingand rehabilitation over large sections. At present the allocation for roadmaintenance is inadequate. A substantial increase of funds would be requiredto maintain the roads built under the project to a reasonable level. It isalso necessary that all roads improved under the project would be maintainedunder the overall supervision of DWS.

2.17 Agricultural Support Services. DPI is responsible for extension(including input supply and farmer training), and marketing support. It has astaff of 80, organized along functional lines - fishery, livestock, crops, andforestry. Staff are located at some 18 district and subdistrict centers whichprovide accommodation, offices, and produce and storage sheds of varyingstandard. The ratio of district extension staff to farm families is1:2,000. At each district and subdistrict center, DPI has about 3-5 ha avail-able for the propagation of planting material, demonstration of crop and live-stock husbandry techniques, the holding of livestock for distribution, andobservation trials of new crops or varieties. With varying degrees of suc-cess, DPI has been promoting production of rice, chilies, vegetables, cocoa,rubber, coffee and hybrid coconut - mainly through distribution of seeds andplanting material and technicai advice. To meet the current level of seedlingdistribution program for various tree crops (para. 2.08) DPI operatesnurseries for coffee (10 nurseries), cocoa (3) and rubber (2). Coconutseedlings are obtained from another province; DPI also has 5 trial plots forhybrid coconut.

2.18 The extent and success of DPI's activities vary greatly with theinterest and capabilities of supervisory staff. In general, crop extensionhas been inadequate, and little effort has gone into food crops or small live-stock. Moreover, the effectiveness of extension has been limited because ofthe concentration of extension staff in the Larger district centers, poorstaff mobility due to the widely dispersed population, rudimentary and expen-sive transportation network and limited travel funds, and inadequate

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experience, supervision and training. Moreover, nursery operations are notvery satisfactory (losses are high and seedling quality poor) and also thereis currently no regular farmer training program or adaptive research of anysignificance in the province. Because of these deficiencies, the operatingstyle of DPI has been passive rather than active. Services are provided upondemand to those who come to DPI centers and ask for assistance; they are notgenerally extended through visits to villages. Measures to strengthenextension services are included in the proposed project.

2.19 The marketing of food surpluses in the rural areas is often one ofthe few means people have to earn some money; food is usually sold to Govern-ment and church staff at the district and subdistrict centers where marketsare run by the LGCs which collect a small gate fee from the sellers to pay forupkeep of the facilities. Marketing arrangements vary according co locationand accessibility. Private traders operate only in the areas with road accessand sizeable volume of production, such as for copra and cocoa in the Nuku andAitape Districts. DPI acts as a buyer of last resort in remote areas with lowproduction volumes. DPI's intervention ranges from buying and selling to pro-viding storage, arranging transportation, encouraging private buyers, andorganizing sales. In 1982, the private sector bought K 208,000 worth of pro-duce, mainly copra, compared to DPI's purchase of about K 31,000. The lowvolume of produce handled, however, is somewhat misleading as to DPI's trueimpact. In some cases (e.g., the successful development of vegetable produc-tion in Telefomin District), DPI has been instrumental in organizing themarketing system. In general, marketing remains a major constraint to cashcrop development in certain parts of the province which are otherwise wellsuited to such development - examples include rubber at Amanab, vegetables atTekap and Bemin, and cocoa, coffee in the Nuku/Seim region. Because of accessprobLems and low output volumes, the private sector does not present a solu-tion at present. To provide the initial impetus, DPI would have to step in.However, organizational strengthening is needed to improve DPI's existingmarketing activities.

2.20 Health. In terms of health status, the province is the worst amongPNG provinces para. 2.12). This is partly a consequence of local dietarypractices and partly of the inadequacy and poor quality of health servicesavailable in the province. There are at present 25 health centers and sub-centers and 115 aid posts, generally of poor quality, lacking both properequipment and adequately trained staff. Improvement of the skills and know-ledge of aid post orderlies is needed, considering the substantial potentialthey have as agents of change in villages given their day-to-day contact withvillagers and the respect in which they are generally held.

2.21 Education. The province's enrollment ratios are about the same asthe national average; enrollment rates are 56% at the community (primary)school level and 121 at the high school level, compared to 60% and 13% nation-ally. The main problem lies with educational standards which are low andralling, particularly in isolated community schools which are affected by highabsenteeism, poor teacher quality, inadequate teaching materials, poor facili-ties and high attrition. These isolated community schools serve scattered andremote populations with pupils often having to walk several hours to get tothem. The provision of education (in both quantity and quality terms) varies

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widely from district to district in accordance with physical accessibility andsocioeconomic conditions. To improve the efficiency of education and redressthe inequality in its distribution are major aims of the provincial govern-ment. To address community school problems, the provincial government hasstarted (in 1984) a pilot program (Central Community School Program) to closesome isolated schools, upgrade and expand centrally located schools, andprovide these with boarding facilities. This program will be evaluated in1986 by the University of PNG's Education Research Unit and if found satisfac-tory will be incorporated into the project.

2.22 Government Revenues and Expenditures. In 1983, total provincialgovernment revenues are estimated at about K 9.7 million, about 97% of whichare transfers from the national budget, with the remaining coming from theprovince mainly as derivation grants, sales taxes and head taxes. While mostprovinces rely heavily on nationaL government financing for development andrecurrent expenditures, the situation in West Sepik is particularly severe asthe low Level of market activity sharpLy limits the scope for local revenuegeneration. Furthermore, per capita expenditures are among the lowest in thecountry. In 1983, per capita expenditure was K 80, compared with the averagefor all provinces of K 100. There is concern that West Sepik deserves and canutilize more resources. The proposed project is viewed by the NationalCovernment as a vehicle to channel greater resources to West Sepik and toensure that incremental expenditures are in line with development priorities.

2.23 In 1983, revenues were allocated as follows: infrastructure (40%),education (20X), health (14%), administration (16%), agriculture (8X), andothers (2%). About 60% of expenditures was for provincial government operat-ing costs, 18% for road maintenance, and the remaining 22% for capital works,mainly road upgrading, schools and health facilities. The pattern of expendi-tures in the past has been generally similar and reflects the priority givenby the provincial government to social services and infrastructure. As aresult of the project, expenditures on agriculture will increase to about 20%.

III. THE PROJECT

A. Objectives and Scope

3.01 Provincial Development Objectives. The major economic and socialdevelopment goals of the province are to: (a) enable the people to make anorderly transition from an isolated way of life involving hunting and shiftingcultivation to a more integrated and modern way of life and settled form ofagriculture; (b) increase productivity and production in subsistence agricul-ture and cash cropping in order to increase incomes and improve nutrition;(c) improve the availability and effectiveness of government services; and(d) increase the provincial revenue base. Change is desired by the provincialpopulation which realizes that others in the country are more "modern" andthat from this modernity stems an improved standard of living. Their mostfrequently articulated wants are better roads, health services, schools andopportunities to iaicrease cash income.

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3.02 Project Scope and Objectives. The project involves:

(a) agricultural development comprising subsistence agriculture, cashcrops including tree crops and vegetables, strengthening of supportservices and investment studies to investigate and prepare futureagricultural projects;

(b) infrastructure development comprising road upgrading and rehabilita-tion, airstrip upgrading and wharf construction;

(c) health and nutrition services development including malnutritionresearch in Lumi district, a school nutrition program, and trainingand supervision of primary health care workers;

(d) training and education improvement comprising establishment ofcentral community schools, boarding facilities, an in-servicetraining center, and vocational training; and

(e) institution building comprising the upgrading of the ProvincialPlanning and Coordination Division, the Provincial Finance andManagement Services Division and the establishment of a ProvincialStaff Development Unit.

3.03 The project represents the first five-year phase (1985-89) of along-term program (30-40 years), to meet provincial development objectives.The project covers all of West Sepik, and is a pioneering effort at acceler-ating the building of a technological, manpower, entrepreneurial, infrastruc-tural and institutional base which could effectively hasten economic andsocial development. By seeking to improve the physical and human resourcebase, the project would begin to address the minimum necessary conditions ofdevelopment. A positive feature of the project is the involvement of localleaders, technocrats and provincial inhabitants in its preparation. Inaddition, the project concentrates on improvement and expansion of existingactivities, and avoids the introduction of many new activities, in recognitionof the provincial government's limited organizational capability. Some newinitiatives are proposed, particularly in agriculture and education, to filldeficiencies which limit development. Also, particular attention was given inproject design to ensure that the components and the envisaged pace of changeare feasible in the provincial sociocultural setting. Project activities arephased over the five years to make the workload compatible with implementationcapacity.

3.04 When viewed in the context of the constraints, priorities and limi-ted options available to the province, the project concept is sound. Theproject design reflects the poor development base and the difficulty of induc-ing change in a society emerging from relative isolation. About 60% of proj-ect funds are directed at human and physical resource development - invest-ments in infrastructure, health, institution-building and education. Thisrelatively large investment in productive support components is needed at WestSepik's present stage of development. The very low level of commercialactivity in the province and the inadequate economic base limit the scope forproductive investments in the near term.

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3.05 The project's main development effort aims to increase marketed andnon-marketed agricultural output (and consequently family incomes) throughencouraging farmers to increase cash crop plantings and diversifying foodproduction. The strategy employed is to strengthen support services andimprove transport thereby enabling farmers to have access to markets,technical advice, planting material and inputs. The project's agriculturalcomponents will entail modest changes in production (and consumption), and toimplement these, the farmers will be expected Lo allocate more time to culti-vation and less to hunting, gathering and rituals. On a per househoLd basis,it is estimated that 50 man-days would be needed to increase and diversifyfood and cash crop production so as to achieve an increase of about 10% infamily household income (para. 6.06). Such a re-allocation of time appearsfeasible because: (a) it amounts to only a small proportion (12%) of theavailable man-days per household; (b) the workload is increased gradually overa number of years; (c) traditional food procurement activities are becomingmore difficult as bush game has become scarce and sago sources near settle-ments are being depleted; and (d) there is a general desire among the popula-tion to increase cash incomes. Moreover, the envisaged activities should fiteasily into existing production patterns. Thus, while hunting and sagogathering are predominant, some gardening is common to most parts of theprovince and, where concerted efforts have been made by church grcups or DPIstaff, people have expanded and developed their gardens. Vegetable gardeninghas been very successful in the Highlands area. Also, small amounts ofcoffee, cocoa, and rubber are aLready grown in some areas. What is requiredfor further development is advice on methods to increase yields, diversifycrops and gain access to markets.

3.06 The Government attaches high priority to the LDP program which sup-ports development of human and physical resources, and of subsistence agricul-ture for the rural poor. The Bank's involvement in the LDP program has had anoteworthy impact on the design of projects under the program, in particularmeasures to ensure that the projects are appropriate on social, financial andeconomic grounds and sound on technical and implementation aspects. Thisproject is also suitably designed and its nature and thrust is in line withthe Bank's country assistance strategy for PNG. An important contribution ofthe project would be promoting provincial institution building and initiatingdevelopment of new subsistence farming technologies and approaches - lessonslearned from these efforts would benefit other provinces. Given the limitedresources available to the Government, the Bank's participation is crucial toimplementation of the proposed project.

B. Detailed Features

Agricultural Development ($3.82 million; 31%) 71

3.07 The agricultural component would focus on developing subsistenceagriculture and cash crops, strengthening support services and undertaking

7/ Dollar figures in parenthesis indicate baseline costs excluding contin-gencies, while percentage indicates these costs as percentage of totalproject baseline costs.

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special studies (Working Paper No. 1). The implementation is phased over fiveyears to match the capacity of DPI. By the end of the project period it isexpected that the agricultural efforts will: (a) assist about 2,000 familiesin increasing and diversifying subsistence food production from gardens, andbring under garden-type cultivation on some 100 ha of additional land;(b) increase area under cocoa by 160 ha by providing seeds, extension, andmarketing advice to about 800 new families; (c) assist about 1,000 existingcoffee/cocoa growers in improving present operations; (d) increase by 300 ha,the area under commercial vegetables for about 2,000 families in fourdistricts of the province; and (e) assist about 300 farmers to plant 100 ha ofrubber and 500 existing producers to market their rubber.

3.08 Subsistence Agriculture ($0.45 million). Traditionally, DPI hasconcentrated on cash cropping and has applied few resources to subsistencefarming. The project would establish a Food Crops Section in the DPI with theobjectives of increasing and diversifying subsistence food production andexpanding vegetable marketing (para. 3.13). The Food Crops Section wouldconsist of a team of two horticulturists - an expatriate food crops officerand a national counterpart. The team would be located in Vanimo and workunder the supervision of the assistant secretary in charge of the DPI. Theproject would finance the team's expenditures including housing, vehicles, andincremental salaries, travel and subsistence allowances, and operatingcosts. The improvement of subsistence farming would be province-wide, butspecial attention would be focussed on Lumi and Amanab districts where malnu-trition is high. The team would, through the field extension staff: (a)promote simple technological changes such as stronger protective gardenfencing; mulching and composting of crop residues to enhance soil fertility,reduce erosion, and fallowing; (b) establish nurseries in selected districtsfor the distribution (free of charge) of better varieties of staple crops,vegetables and fruit trees; (c) promote establishment of small gardens aroundthe villages for nutritionally higher value food production; and (d) encouragefarmers to use simple tools to increase productivity. The team would provideoverall guidance, and training to the field extension staff, and with theassistance of the Staff Development Unit (para. 3.42) it would train fieldextension staff on advising farmers on subsistence farming improvements andappropriate extension skills.

3.09 The Food Crops team would form the core group for conducting fieldtrials and adaptive research to develop improved varieties and cultural prac-tices. During 1985, the Research Director in the national Department ofPrimary Industry (appointed under the Bank-financed Agricultural SupportServices Project), would review ongoing research on subsistence agricultureand propose provincial research projects as part of a national program onsubsistence farming research. For West Sepik, it is expected that adaptiveresearch on lowland subsistence farming would be initiated by 1986 and fundshave been set aside for this purpose (para. 3.43).

3.10 The team would assist the Provincial Planning Division (para. 5.07)to survey subsistence farming practices throughout the province to establishbaseline data. It would also assist and encourage community and high schoolsto establish food gardens to improve student nutrition (para. 3.28); and would

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collaborate with the Divisions of Health and Education on nutrition and foodeducation matters within the province.

3.11 Work by the DPI team would result in, among others, improved produc-tivity of subsistence systems, increased yieLds, diversification of food pro-duction, and improved soil management. By the end of the project period it isexpected that about 2,000 families would be reached and garden areas wouldincrease by about 100 ha.

3.12 Cash Cropping ($1.82 million). This component aims to augmentfamily incomes by increasing production of cash crops through improving accessto suitable areas ag providing the farmers in these areas with extension,planting materiaLs - and marketing services; production gains would come fromadditional planted area and improved productivity. Specifically, productionwould be expanded of temperate vegetables mainly at higher eLevations in theprovince (para. 3.13), rubber cultivation around Amanab and coffee and cocoaproduction nearer the coast (para. 3.15). The choice of crops for the differ-ent areas is based on agroclimatic conditions, access to markets and existingpattern of cropping; in almost all areas income from these crops wouLd repre-sent the predominant source of cash income. Crops would be grown on clanland, and the existing pattern of cropping in these areas suggests thatfamilies are abLe to get access to clan lands for commercial cropping pur-poses. All farmers with access to suitable land and living within reasonabledistance from marketing points, would be encouraged and assisted by DPI toplant cash crops. The specific individual subcomponents are detailed below.

3.13 (a) Vegetable Production and Marketing ($0.76 million). This activ-ity wouLd be implemented by the Food Crops Section with the assistance of theMarketing Section (para. 3.17), mostly in the folLowing areas: (i) High-lands. Planted area under vegetabLes would be expanded and infrastructureimproved in the Telefomin and Oksapmin areas to meet increasing demand fromthe Ok Tedi mine and the government centers in the district. Under the proj-ect seven additional extension workers, six for food crops and one for fores-try, would be recruited to staff six outstations; distribution of plantingmaterial and seed supply would be increased through additionaL nurseries;existing market houses/cool rooms would be expanded and a new one constructed,and three small airstrips would be upgraded. Besides promoting production,the extension staff would support practices that reduce soil erosion and main-tain soil fertility, such as composting and rotational planting of leguminoustrees to replenish soil nitrogen since little commercial fertilizer is appliedin the area; (ii) Lumi and Vanimo. To meet the rising demand for vegetabLesin the coastal urban areas and the anticipated demand of the Vanimo loggingproject, the project would support initiation of vegetable production and mar-keting in these two areas. DPI outstation and market houses and cool roomswould be constructed and nurseries established. Existing DPI staff wouldimplement this activity, and be responsible for marketing until private groupscould provide the service. Resulting from the project, an additional 300 haof vegetables would be planted by about 2000 farmers.

8/ Planting material for cash crops would be distributed free of charge.

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3.14 The project would fund buildings and houses, equipment and vehicles,incremental staff salaries and wages, travel and subsistence aLlowances,materials and supplies, utilities, vehicle operating costs and producepurchase funds.

3.15 (b) Tree Crops Development ($1.06 million). A major thrust of theproject is to expand production and productivity of tree crops in areas withgood road access, and where these crops are already established. The develop-ment approach is based an keeping the development costs and the farmer's laborand input requirements minimal - low cost, low technology approach - andlimited use of agro-chemicals. The farmers are likely to plant about 0.1 hainitially and gradually increase the planted area to 0.5-0.7 ha over a periodof 3-5 years. The projected average size per farmer is higher than present(0.15-0.3 ha) as it is envisaged that farmers will cultivate Larger plot sizesas a result of project efforts to improve access to markets and better exten-sion and follow-up. The project would support the foLlowing two initiatives:(i) Cocoa and Coffee ($0.79 mill.on): Cocoa plantings would be increased,existing coffee blocks upgraded and cocoa/coffee marketing improved in themain cocoa and coffee producing areas of Aitape, Lumi, and Nuku districts.There has been little change in area or output of these two crops since theearly 1970s. The project would provide farmers witu good quality cocoa plant-ing material. Existing nursery operations would be improved and new nurseriesestablished for expanding pLanting material distribution. The farmers wouldbe advised on site location, planting density, shade requirements, weed anddisease control, and better upkeep, pruning and harvesting techniques. Whereappropriate, growers would be advised to plant cocoa under coconuts in theexisting coconut pLantations. Assistance would be provided in processing(e.g., supply of coffee pulpers) and marketing; and growers would beencouraged to form business groups to undertake marketing and processing wherethese services are not available. Given the importance of tree crops develop-ment in the province and with the establishment of a separate food crops unit,the existing provincial agriculture officer would be redesignated as a treecrops officer; he would work on a full time basis on tree crops and supervisefield staff associated with tree crops development. Two national staff, acocoa nursery officer and a coffee/cocoa extension officer, would berecruited. Five DPI outstations would be established and two upgraded. Theseoutstations would have cocoa nurseries for supplying planting material andfacilities for storage. Existing field staff would be relocated to thesestations and camping allowances increased. As a result of these efforts,about 160 ha of cocoa are expected to be planted by 800 families and about1,000 existing coffee/cocoa growers assisted in improving present operations;(ii) Rubber ($0.27 million): Since DPI started its seedling distributionprogram in the Imonda, Amanab and Green River areas, farmers' response hasbeen generally good (para. 2.08). Nurseries are maintained by DPI at threeoutstations and tapping of trees at Amanab has just begun. Under the project,an extension officer and two field staff would be recruited and two new DPIoutstations and storage facilities estabLished. The extension staff wouldestablish new, and upgrade existing, rubber nurseries for improving andincreasing production of clonal planting material and its distribution tofarmers; also farmers would be advised on siting of rubber trees, plantingdensity, pest and disease control, rubber tapping and supplied with tapping

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tools.91 The project would enable about 100 ha of rubber to be planted by 300families, and assist about 500 existing producers market their rubber. Rubberwould be marketed as cup lump. Rubber deveLopment would be encouraged inareas with good road and river access to the processing factory in EastSepik.2 °- The project would finance civil works, vehicles, nurseryestablishment, materials and supplies, processing and other equipment,incremental staff salaries, travel and subsistence allowance, producepurchase, and other operating costs.

3.16 Other Agricultural Support Services ($0.65 million). The projectwould strengthen other agricultural support services within the province asdetailed below.

3.17 (a) Cash Crop Marketing ($0.27 million): An expatriate marketingspecialist (Provincial Economies and Marketing Officer) and a local counter-part would be recruited to strengthen DPI's marketing organization. Theywould provide marketing assistance on both food and tree crops and encourageestablishment of business groups among producers. Wherever commercialmarketing services are unavailable, DPI would provide marketing services. TheProvincial Marketing Officer would oversee DPI's overall marketing operations,undertake marketing surveys as necessary, establish a suitable marketinginformation system and supervise the buying and selling of produce. Roadsidebuying would be done by DPI field staff. Backhauling produce on governmentvehicles and planes would be utilized by DPI, as far as feasible.

3.18 (b) DPI Pasi Station ($0.14 million): Many farmers in the provincehave difficulty in obtaining reliable supplies of young livestock, such asgoat kids, piglets, chicks, ducklings, goslings, and young cattle. Theproject would upgrade the Pasi station to provide young stock by breeding,although cattle weaners would have to be purchased from outside since thestation lacks the space to support a cattle breeding herd. Livestock andpoultry would be distributed to all interested farmers through the fieldextension staff, who would also provide technical assistance for small villageprojects. By year 5, about 5,000 ducks and chickens, and 300 pigs, goats andcattle would be distributed annually. These items will be sold at a costsufficient to cover direct production costs (excluding salaries and over-heads). Poultry and livestock distribution would improve nutrition andprovide a source of cash income.

9/ No charge would be levied for tapping equipment (about K 20/family),because of lack of adequate cash earning opportunities to pay for thesesupplies.

10/ As part of its border development program for 1984-87, the Government hasearmarked about K 3 million for upgrading the Sepik River-Imonda road andhas purchased a barge for plying the Sepik River, to provide social ser-vices and transportation to people living along the river. In addition,the factory has a barge which collects rubber from smallholders along theriver. Until cup lump production in West Sepik reaches a large volume itwill be marketed by DPI.

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3.19 (c) Field Staff Supervision and Training ($0.13 million): Fundswould be provided to enable specialist extension staff from national Depart-ment of Primary Industry and provincial headquarters to visit field staff on aregular basis. This would allow closer supervision of field staff, moreeffective monitoring of DPI projects, and better field training.

3.20 (d) Farm Supplies ($0.11 million): Because of dispersed and smallpopulation centers, the supply of agricultural inputs is limited in remoteareas. The project would finance the purchase of a range of agricultural in-puts including tools, impl IT? nts, fencing wire, feedstuffs, which would bestored and sold (at cost) - through selected DPI district and subdistrictstations. The supplies would be bulk procured by provincial DPI. The Provin-cial Marketing Officer would supervise implementation of this subproject.

3.21 For the above agricultural support activities, the project would fi-nance capital expenditures including civil works (buildings, housing, fencing,and water supply), equipment, vehicles, and livestock and incremental opera-tional costs including DPI staff travel and subsistence allowances, wages,materials and supplies.

3.22 Investment Studies ($0.9 million). The project would finace thefollowing studies: (a) Land-Use Studies T$0.8 million) aimed at establishingmedium to large-scale tree crop development schemes in the province. Threepotential areas would be investigated: (a) the Bewani plain located inlandand linked to Vanimo by a provincial road; (b) the Aitape coastal area linkedto the port of Wewak by a national highway; and (c) the Amanab-Creen Riverarea which will be linked to the West Sepik river barge after the constructionof the Imonda-Sepik River provincial road (para. 3.15). These three areashave a potential for tree crops, such as rubber, oil palm, coconut and cocoa,and have been identified by the Government on the basis of existing maps (atscale 1/250,000) and preliminary field observations. The studies wouild becarried out in two phases. Phase I would include the preparation of a pre-feasibility study of about 20,000 to 25,000 ha gross (at scale 1/50,000) foreach of the Lhree areas to identify basically the land capabilities and landtenure situation (Ceneology surveys). Depending on the results of Phase Istudies, a full feasibility (pre-investment) study, at scale 1/10,000, wouldbe undertaken for one of the areas for a smaLlholder/estate type scheme ofabout 5,000 ha to be established in a follow-on project. These studies wouldbe undertaken by the land-use division of the national Department of PrimaryIndustry and the project would finance vehicles, equipment, survey costs,incremental salaries and operating costs; and (b) Fishery Resource SurveYs($0.1 million) aimed at assessing the coastal fishing potential of theprovince to develop small-scale artisanal fishing projects. The project wouldcover incremental operating costs of the national Department of PrimaryIndustry's research vessel for survey time in West Sepik, travel costs ofstaff for field investigation and project preparation work resulting from thesurveys. Agreement was reached at negotiations that the Government wouldsubmit to the Bank for its comments an outline of the scope and cost of thestudies prior to their initiation.

11/ Selling costs would cover DPI's purchase costs.

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Infrastructure Development (S2.79 million; 23%) L2/

3.23 Road Upgrading and Rehabilitation ($2.19 million). Four provincialroads totalling about 56 km and six district roads totalling 68 km would beupgraded or rehabilitated under the project (IBRD Map No. 17936). All ofthese roads are included in the Provincial Government's road development planwhich is directed at linking population centers with the main government andtrading centers. The project roads are located in areas with potential forexpanding cash crop production. The rural population would thus be offeredimproved opportunities to participate in the cash economy and to gain easieraccess to government services. In addition, the roads would improve the poli-tical and administrative integration of the province. These roads would bene-fit about 362 of the provincial population; Annex 1, Table 3, provides a listof these roads.

3.24 The provincial roads were identified in 1981 by the Provincial RuralTransport Study carried out under the Third Highway Project (Ln. 1856/Cr. 1030-PNG). The district roads were identified by the provincial authori-ties during project preparation. The major provincial road, located in thehighlands, has been studied in detail by consultants while the other provin-cial and district roads have been costed on the basis of similar road worksundertaken through the Road Improvement Project (Ln. 2265-PNG). A conditionsurvey (to prepare detailed scope of works and final costs) for the two roads(38 km) to be constructed in 1985 is underway and expectd to be completed byend-1984. The provincial roads would be upgraded to the penetration standardwhich corresponds to all-weather village roads with continuous gravel pave-ments (4.5 m wide) and short span timber bridges and culverts for river andgully crossings. The upgrading cost of these roads varies between K 20,000and 40,000/km depending on the topography, and the rehabilitation costs areabout K 10,000 to 15,000/km. The district roads would be upgraded to four-wheel drive standard which provides seasonal access to individual villages.These roads comprise a gravel pavement (4.5 = wide) only in sections where itis required for stability, log bridges and fiords for river crossings and aminimal number of culverts. The upgrading cost of the district roads would beabout K 10,000/km and their rehabilitation costs about K 5,000/km. The pro-vincial branch of DWS would be responsible for implementing the road subcompo-nent by force account, using local hired plant and equipment. It would alsobe responsible for constructing (through force account or contract) the build-ings and houses for all other project components; these works would be con-structed according to standard designs. To assist the provincial branch ofDWS carry out project activities, a roads engineer and two works supervisorswould be assigned by the national DWS.

3.25 The maintenance of provincial and dlstrict roads is Inadequate(para. 2.16). The Government has agreed to provide promptly adequate fundsfor malntenance of the roads which would be improved and upgraded under theproject. The level of funds will be reviewed and revised periodically to takeinto account inflation and other changes In condition and usage of individualroads. It was also agreed that district roads improved under the project

12/ Details in Working Paper No.2.

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would be maintained by LGCs under the overall supervision of DWS. This leveland means of maintenance would ensure the adequacy of the road system, whichis crucial to the proposed development program.

3.26 Other Works ($0.60 million). The project also includes houses foradditional DWS staff, the upgrading of three airstrips for the Highlandsvegetable subproject, and the construction 'f a wharf at Tipas for landing ofthe Sepik River barges.

Health and Nutrition ($0.51 million; 4%)

3.27 The project would improve the quality and coverage of health andnutrition services (Working Paper No. 3).

3.28 School Nutrition Program ($0.17 million) would focus on improvingdiets of high school and community school students: (a) High Schools: Foodfarms, including vegetable gardens, poultry and small livestock, would beestablished at each of the province's six high schools in order to improvediets and reduce food procurement expenditures. Farms would be establishedand looked after by the staff and students. Funds would be provided fortools, fencing, sheds, young livestock, seeds and other inputs. Suitable landis available at three high schools and, for others, will be made available bythe local community. On a per student basis the project expenditures amountto K 25 per year (recurrent and production costs); at present the schools arespending about K 150 per year per student on food purchases. The farm outputwould reduce these purchases by about 40X thereby generating cash savings forthe schools. (b) Community Schools: Many community school children in theprovince are seriously handicapped by poor health and malnutrition. Under theproject, the Community School Agriculture and Nutrition Program developed bythe ongoing East Sepik project, would be introduced into about 38 of theprovince's community schools. The program involves teachers, students andparents in the development of school vegetable gardens (about 1 ha), andinstruction in good nutrition and gardening practices. Prior to start of theprogram in a district, selected community school teachers and the districteducation officers would attend a training course in East Sepik. Vegetablesfrom the school garden would be used for a school lunch program. In additionto improving nutrition, this intervention is expected to spread improvedtechniques and seed varieties beyond school gardens to village agriculture,and to develop in the students an appreciation for better subsistencepractices. The project would finance planting material, cooking utensils,tools and training costs of teachers. The community and high schools willimplement these programs with assistance of the district education officers,provincial nutrition specialist, church groups and DPI's Food Crops team andfield staff.

3.29 Training and Supervision of Primary Health Care Workers ($0.34 mil-lion). This component would aim at improving the quality of primary healthcare delivery by: (a) establishing a training school for aid post orderliesat a church-operated Health Center in Lumi district. Funds would be providedfor the renovation of facilities at the Health Center, purchase of trainingmaterials and supplies, salaries of one additional training staff, andoperating costs. The school would provide both pre-service and in-service

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training to about 15 orderlies annually; and (b) recruiting a Health ExtensionOfficer for six Health Centers to increase the Level and effectiveness ofsupervision of aid posts. Funds would be provided to cover the costs ofhouses, incremental salaries, travel allowances and other operating costs.These extension officers will regularly visit aLl aid posts within their area.

Education and Training ($0.94 million; 8%)

3.30 The project would improve the efficiency and coverage of the formaleducation system and expand vocational education by supporting the followingactivities (Working Paper No. 4).

3.31 Establishment of Central Community Schools ($0.19 million). Underthe project, eleven selected community schooLs would be expanded, starting in1987, into Central Community Schools which differ from standard communityschools in having boarding facilities. NationaL Covernment (and consequentlyBank) funding is conditional on satisfactory evaluation of the pilot program(para. 2.21). The Government has agreed that inclusion of subproject forfinancing under the project would be subject to the Bank's approval. Fundswould be provided for the construction of basic boarding facilities and addi-tional classrooms to accommodate the expected increased enrollment due toboarders.

3.32 Education Resource Center ($0.32 million). To improve educationalquality, an in-service training center would be established in Lumi to trainWest Sepik teachers. The main function of this center would be to organize20 one-week courses for teachers each year. The facilities of the centerwould also be made available to other line divisions for their in-servicecourses. The project would finance staff salaries, materials and supplies,and the travel costs of about 360 teachers during the life of the project; inaddition, it would finance civil works needed to convert an unused existingHealth Center into the proposed Training Center.

3.33 Lumi High School Boarding Facilities ($0.21 million). It has becomenecessary for the Lumi High School to operate as a boarding school becausemore than 84% of its students live over two hours' walk away. The projectwould finance construction of boarding facilities, for approximately 200 stu-dents, based on standard DWS design. Construction would be phased over twoyears.

3.34 Vocational Training. ($0.22 million). Two vocational centers wouldbe supported: (a) Telefomin Vocational Center ($0.16 million) would be estab-lished by a church group to provide training in carpentry, construction andwoodworking skills. Area youth would thus be given an opportunity to benefitfrom employment opportunities arising from major resource development projectsin the neighboring province. By 1989, total enrollment would be around 25,with 20 boarders; and (b) Aitape Vocational Training Institute ($0.06million). The level of skills training at the successful Aitape Boys' Voca-tional Center would be upgraded, and opportunity for more trainees to gainpractical knowledge would be increased. The project would upgrade theexisting workshop, provide staff houses and accommodations for 20 trainees.In addition, a small carpentry unit would be set up -which would build the

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desks and chairs necessary for the province's schools. Enrollment is expectedto total 80 by 1989, from 30 presently. For both vocational centers, theproject would finance civil works, materials and supplies, vehicles,incremental salaries and operating costs.

Lumi District Special Program ($0.20 million; 2%)

3.35 Lumi District is a particularly disadvantaged area in the provincein terms of poverty and nutrition. In addition to the province-wide programsfor food and cash crop development which would benefit the Lumi people, theproject would support specific programs (described below) in the district toimprove the welfare of the people and delivery of government services (WorkingPaper No. 5).

3.36 Village Development Center - VDC ($110,000). A VDC would be estab-lished at Lumi where meetings and training sessions in agriculture, health,family planning, adult education, business opportunities and other topics ofinterest to the population would be organized with assistance from relevantdivisions. The VDC would undertake: (a) demonstration activities ingardening, building, animal husbaindry and sanitary waste disposal; (b) short-term skills and leadership training for villagers; (c) in-service training toimprove the management and delivery of district extension services; and(d) support for small-scale village-based agricultural projects (e.g., poultryand fish farms). In addition, the VDC would serve as a general social centerfor gatherings, reading, and video/film viewing. The VDC would be establishednext to an existing vocational school which would enable staff of the schoolto assist in VDC activities. Being a new initiative, the VDC's impact wouldbe evaluated after three years (para. 3.38). Based on this evaluation, VDCscould be established in other districts under future projects. The VDC wouldbe managed by the district program coordinator (para. 3.37). The projectwould finance civil works, vehicle and incremental operating costs.

3.37 District Administration Strengthening ($60,000). In view of thelarge number of project activities in the Lumi District, a district coordi-nator has been reciuited to provide assistance to government implementingdivisions and the district administration. The district coordinator wouldwork with the district officer, and would supervise and manage the VDC. Fund-ing of the coordinator's salary and vehicle operating costs from 1985 onwardwould be provided under the project.

3.38 Studies: (a) Malnutrition Research ($18,000) would investigate thecauses of child malnutrition and be undertaken by staff of the PNC Instituteof Medical Research. Over a period of two years, intensive investigationswould be undertaken on child growth, child feeding habits, nutrient composi-tion of food, and attitudes about weaning. Subsequently, recommendationswould be made on corrective programs. The project would finance the Insti-tute's direct operating costs on this research; and (b) Socio-EconomicMonitoring and Evaluation ($17,000). A comprehensive socio-economic surveyis being undertaken in five representative Lumi villages by a team from theEducation Research Unit of the University of PNG. Data are being collected onsubsistence systems, cash incomes, life-styles and attitudes, access to socialservices, demography and ethnography, linkage between nutrition and health and

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social services, morbidity, and health indicators. The team would periodi-cally visit these villages to monitor changes resulting from project interven-tions. Survey work was started in late 1983 and funding from 1985-88 would beprovided under the project and would cover direct costs of the team on thisproject work.

Institution Building ($1.27 million; 10%)

3.39 Administrative responsibility for West Sepik was transferred fromthe national to the provincial government in 1978. However, the planning,management and other support staff which carried out these duties at thenational level were not transferred. This has strained the province's upper-level administrative staff and has led to a deterioration in the province'sability to effectively plan, implement and monitor provincial development.The project would upgrade the province's planning, management and accountingcapabilities, support staff development and training (Working Paper No. 6).

3.40 Provincial Planning and Coordination ($0.64 million). The projectwould upgrade the newly created Planning and Coordination Division, within theDepartment of West Sepik, by providing four additional staff - a Project Coor-dinator (PC) and a Monitoring and Evaluation officer (both expatriates) andtwo counterpart national staff. The Division would be responsible for coor-dinating project planning and assisting the provincial line divisions withimplementation; strengthening the provincial planning, management andreporting systems; establishing a project monitoring and evaluation system(para. 5.07); assisting the line divisions with preparing sectoral plans, andreviewing and processing proposals for inclusion in future NPEPs. The moni-toring and evaluation officer (a rural sociologist) would also provide feed-back to project management on the sociocultural appropriateness of projectactivities (para. 5.06). The project would finance housing, incremental staffsalaries, vehicles and operating costs.

3.41 Finance and Accounting Services ($0.15 million). The project wouldupgrade the provincial Finance and Management Services Division by providingthe services of an expatriate project finance officer and a counterpartnational accountant. The finance officer would be responsible for accountingof all project expenditures; in addition, he would assist with strengtheningof the provincial accounting and internal control system and the financialreporting system.

3.42 Provincial Staff Development Unit ($0.48 million). A StaffDevelopment Unit, reporting to the Deputy Secretary, would be established toassess the training needs of departmental staff and organize and implement anin-service training program. Special attention would be given to the trainingof provincial agricultural field staff in collaboration with the national DPItraining unit and training needs of district staff at Lumi. Training wouldfocus on supervisory and extension techniques, technical matters, financialcontrol, planning and budgeting, and management reporting. The Unit would bestaffed by an expatriate provincial staff development officer, a counterpart,and secretarial staff. The project would finance houses, vehicles, equipment,incremental staff salaries, and operating costs. The Government has agreedthat the Unit would prepare the following reports for submission to the

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Provincial Management Team (para. 5.02) and the Bank: (a) a preliminaryreport, by December 31, 1985, outlining the training needs and detailing thefirst year's training program; and (b) a final report, by December 31, 1988,evaluating the training program, with recommendations for future programs.

Unappraised Component ($1.30 million; 10%)

3.43 Although appraised components form the bulk of the project, fundshave been set aside for unappraised components, such as: (a) subprojects(e.g., strengthening of business development activities, expansion of healthand education facilities) linked to the Vanimo logging project, which isexpected to start in 1986; and (b) subprojects (e.g., road upgrading, adaptiveresearch on subsistence systems (para. 3.09), artisanal fishery development,nutritional programs in other districts) which are likely to be identifiedthrough project-funded studies. Before these activities are included in theproject, they would have to undergo the National Planning Office's rigorousreview procedures and have to be included in future National Public Expendi-ture Plans (NPEP). The high quality of the preparation report for thisproject is indicative of these requirements. Agreement was reached atnegotiations that before any new subproject costing more than $75,000 isincluded in the NPEP for financing under the project, the Bank would reviewand approve it.

Less Developed Provinces' Planning Studies ($1.45 million; 12%)

3.44 The project would finance the national government's Less DevelopedProvinces' (LDP) Studies Fund through which the NPO assists less developedprovinces to prepare development plans. Preparation of this project and thetwo ongoing Bank-financed provincial development projects was funded throughthe LDP Fund. A team of specialists, recruited by the NPO in consultationwith the province, would work with the provincial planning staff for a periodof 2-3 years in preparing development plans. As needed, the team would besupplemented by short-term consultants. Studies are expected to be carriedout for the Western and Gulf Provinces (each costing about $0.4 million) andfive district-level studies in other provinces (each costing about $130,000);the study for the Western Province is expected to start in late-1984. Theproject would finance salaries, travel and operating expenditures for the teamand consultant fees. The Government has agreed to submit to the Bank for itscomment an outline of the scope and cost of the studies prior to theirinitiation.

C. Implementation Period and Status

3.45 Project implementation would cover a period of six years, 1984-89.Timely implementation of project is closely linked to recruitment of staff ontime. Therefore to help ensure prompt start of project, initiating steps forstaff recruitment are underway. All positions have been approved, recruitingfirm for employment of overseas staff has been engaged and first year posi-tions of local staff are expected to be advertised before March 1985. Keystaff is expected to be selected in early 1985 (para. 5.09), which is thecondition of loan effectiveness. Adequate provision has been made in FY85budgets for the construction of initial housing stock. Schedules for project

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implementation (Annex 1, Table 4 and Chart No. 25944), and staff recruitment(Annex 1, Table 5) are attached. These schedules were discussed at negotia-tions and agreement reached that the project would be carried out in accord-ance with these schedules, and that the Bank would be consulted if theschedules are substantially revised.

IV. PROJECT COST AND FINANCING

A. Cost Estimates

4.01 Total project costs are estimated at about $16.6 million, includinga foreign exchange cost of about $8.4 million or 512. Taxes and duties amountto about $0.4 million. Base costs refer to July 1984 prices; unit prices forequipment, materials and supplies, salaries and civil works are based onstandard costs used by NPO and actual costs under similar ongoing projects.Physical contingencies amount to about 7% of base costs and include 20% onroads, and 10X on houses, materials and equipment. Price contingencies amountto 28% of base costs plus physical contingencies, and have been calculated asfollows: (a) 3.5% in 1984, 8% in 1985, 9% in 1986-88 and 7.5% in 1989 forforeign costs; and (b) 8% in 1984-85, 9% in 1986-88 and 7.5Z in 1989 for localcosts. Project costs by component are summarized in Table 4.1 with detailedcosts in Annex 2, Tables 1 and 2 and Working Paper No. 7.

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Table 4.1: PROJECT COSTS

ForeignLocal Foreign Total Local Foreign Total as X of--- (K million) ---- (S million) --- total

Agriculture 1.7 1.5 3.2 2.1 1.7 3.8 46Infrastructure 1.0 1.4 2.4 1.1 1.7 2.8 60Health and nutrition 0.2 0.2 0.4 0.3 0.2 0.5 50Education and training 0.4 0.4 0.8 0.5 0.4 0.9 45Lumi special program 0.1 0.1 0.2 0.1 0.1 0.2 51Institution building 0.6 0.5 1.1 0.7 0.6 1.3 46Unappraised 0.7 0.4 1.1 0.8 0.5 1.3 36LDP planning studies 0.4 0.8 1.2 0.4 1.1 1.5 70

Base Costs 5.1 5.3 10.4 6.0 6.3 12.3 51

Physicalcontingencies 0.3 0.5 0.8 0.4 0.5 0.9 60

Price contingencies 1.5 1.3 2.8 1.8 1.6 3.4 46

Total ProjectCosts 6.9 7.1 14.0 8.2 8.4 16.6 51

Front-end fee on - 0.02 0.02 - 0.02 0.02 100Bank loan

Total FinancingRequired 6.90 7.12 14.02 8.20 8.42 16.62

B. Financing

4.02 The proposed Bank loan of $9.7 million, including the capitalizedfront-end fee of about $24,200 would finance 60% of project cost, excludingtaxes. The loan would cover the total foreign exchange requirement of $8.4million plus local costs equivalent to $1.3 million. Local cost financing isjustified in view of the current financing constraints in PNG and the highpriority attached by Government to the socio-economic development of LDPs.The remaining $6.9 million would be provided by Government. To help assurethe prompt start of the project, various activities would commence prior tothe project period, including recruitment of key project staff, constructionof houses and procurement of vehicles for such staff; in addition an LDP studywould also start (para. 3.44). To cover such project expenses prior to loansigning, retroactive financing of up to $400,000 is proposed for eligibleexpenditures (salaries, vehicles, operating costs and civil works) afterMarch 31, 1984.

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4.03 All project funds would be allocated under the NPEP for 1984-89 13/and financed by the National Government out of annual budget appropriations.Funds would be released on a quarterly basis in accordance with normal bud-getary procedures. At the close of the quarter, a budget review would be con-ducted by a team from the national government (para. 5.04), to review expendi-tures in the prior quarter and authorize release of the next quarter's funds.

C. Procurement

4.04 Procurement arrangements are summarized below and are given inAnnex 2, Table 3.

4.05 Civil Works ($5.7 million). Project works would be undertakenmostly by force account. In West Sepik (as in other provinces and for similartypes of projects), the Department of Works and Supply (DWS) undertakes mostcivil works including roads, houses and buildings by force account, but usinghired plant wherever possible. Force account is justified since there islimited local contracting capacity and it is unlikely that contractors fromother provinces, let alone foreign firms, wouLd be attracted in view of theremote location of the province and the dispersed and small-size of theprogram. Only plant hire and small-building contractors are availablelocally. All building works range from $30,000 to $100,000, and would be doneby force account if suitable contractors are not available. Most road worksrange from $75,000 to $300,000 and would be done by force account.

4.06 Vehicles, Equipment and Furniture ($0.3 million). These would beprocured using standard government procedures which are considered satisfac-tory. DWS procures all vehicles for government agencies, maintains andrepairs them and leases them for a fee. Procurement of vehicles, officesupplies, etc., is done under "Period Contracts" which are advertised locallyfor services or materials to be supplied regularly over a period of one year,with options for extensions. Specifications are not written for any onebrand. Given the large number of international companies represented in PNC,these procedures are efficient and competitive. Under the project, about 10vehicles, 6 motorcycles and one tractor (total cost about $140,000) would beprocured over five years. Procurement procedures for minor equipment andfurniture are also satisfactory, being based on period contracts, or the threebid method if goods are not available from government stores; total costs ofthese goods are about $160,000 over five years. For plant hire, tenders areadvertised every year and contractors who wish to participate tender theirplant details and hourly rate; based on these rates, a priority number isawarded to each item and as plant is needed, contractors are given theopportunity to supply in order of priority. Because civil works and equipmentcontracts are expected to be of small size, Bank prior review is notconsidered necessary.

13/ The NPEP approved for 1984-87 includes K 7.5 million (constant 1984prices) for the project.

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D. Accounting and Auditing

4.07 Project expenditures would be processed in accordance with regulargovernment accounting procedures which are sound and consistently applied.Project accounts would be consolidated on a quarterly basis by the ProjectCoordinator (PC) with the assistance of the project finance officer. Theaccounts would be audited by independent auditors acceptable to the Bank.Agreement was reached at negotiations that: (a) copies of these auditedaccounts would be submitted to the Bank not later than six months after theend of the fiscal year; and (b) such audit reports would contain a separateopinion on the compLiance of expenditures with the purposes of the project,accuracy of the statement of expenditures, and the procedure and controls usedfor preparation of claims.

E. Disbursements

4.08 The Bank loan would be disbursed at the following rates:

(a) 80X for civil works, vehicles, equipment and furniture, technicalassistance and consultant services; and

(b) 60X for incremental operating costs for applications received beforeDecember 31. 1982 40Z for applications before December 31, 1988 and30% thereafter.-

Bank fylds would be disbursed quarterly on a Statement of Expenditure (SOE)basis. The SOEs would be prepared by the PC from the consolidatedquarterly project accounts. Detailed documentation supporting the SOEs wouldbe retained at the PC's office, and would be made available to the Bank forinspection during project supervision.

4.09 Retroactive financing of up to $400,000 is proposed to financeexpenditures incurred after March 31, 1984 (para. 4.02). Disbursements areexpected to be completed by December 31, 1990. An estimated disbursementschedule is given in Annex 2, Table 4. This is based on the disbursementprofile for agricultural projects in PNG; however the disbursement rate isfaster (six ys disbursement period for the project compared to seven forthe profile) - taking into account the simplified disbursement procedure,recruitment of key staff before start of project and experience gained byappropriate DOF staff in disbursement procedures.

14/ The correspondence of the disbursement categories to Government'saccounting codes is given in Annex 2, Table 3. Operationg costs include,among others, national salaries, travel, utilities, vehicle hire,materials and supplies, etc. Amounts withdrawn under SOE are unlikely tobe less than $100,000 per quarter.

15/ Those activities (para. 3.45) which are being done before start of theproject under this project, were implemented in the first year for mostprojects in the profile.

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V. PROJECT IMPLEMENTATION, ORGANIZATION AND MANAGEMENT

A. Implementation Responsibility

5.01 The Department of West Sepik would be the implementing agency forthe entire project except the LDP and investment studies components. Thevarious project components would be implemented by existing provincial divi-sions, the provincial branch of DWS, and church groups (Annex 3, Table 1).The project's implementation arrangements incorporate the national and provin-cial governments' desire that the project shouLd complement existing provin-cial programs and should not be implemented at the expense of such programs.Its management should be integrated into and strengthen the provincial admin-istrative structure, and its implementation procedures should be consistentwith regular government procedures. With the additional staffing and coordi-nation assistance provided under the project, and efforts towards staffdevelopment, all divisions are expected to be capable of implementing theirrespective components. The LDP studies would be implemented by NPO's AreaPlanning Division; the land-use studies and fishery resource surveys would beundertaken by national Department of Primary Industry's Land-Use Division andthe Fishery Research Division respectively, with assistance from provincialDPI.

B. Management, Coordination and Reporting

5.02 Provincial Level. Overall responsibility for project implementation(excluding studies) would rest with the Secretary of the Department of WestSepik. Coordination among the implementing divisions would be effectedthrough the existing Provincial Management Team (PMT) which meets monthly.The team consists of heads of all provincial divisions and provincial branchesof national departments, and is chaired by the Secretary. With the initiationof the project, the PMT will also include the PC and the Monitoring and Eval-uation officer. The PC would be responsible for coordinating and facilitatingthe various divisions in implementing the project components, monitoring theproject's progress, assisting divisions in producing progress reports, coord-inating quarterly reviews, assisting the project finance officer in prepara-tion of the quarterly financial reports, and day-to-day liaison with nationalgovernment departments in matters relating to the project. The PC wouldreport to the First Assistant Secretary for Planning and Coordination of theDepartment of West Sepik. The PMT possesses the requisite authority andinfluence to ensure coordination of project work among the various divisionsto be involved.

5.03 National Level. The existing coordination mechanism at the nationallevel, established for the ongoing provincial development projects, would alsobe used for the proposed projecl as follows: (i) an officer from the Officeof Project Coordination (OPC) _ within the Department of Finance would serve

16/ OPC is mainly responsible for liaising with external agencies with regardto externally funded projects, including matters relating to disburse-ments, reporting, etc., and ensuring that implementation of such projects

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as Headquarters Project Coordinator (HQPC) for the project. He would renderassistance to the Project Coordinator in matters that are difficult to dealwithin the province and to liaise with, and request action from, nationalgovernment departments and agencies on his behalf, assist with quarterlyreviews (para. 5.04) and submit loan withdrawal claims. The HQPC would not befully occupied on this project as he would have responsibilities for otherprojects; (ii) a Headquarters Project Coordinating Committee (HQPCC) would beestablished as soon as the project activities start and would serve as theoverall facilitating mechanism at the national level. Members of the HQPCCwould be heads of national7 ljepartments involved in the project, includinginter alia DOF, NPO, PSC,- Primary Industry and DWS. The HQPC would be anonvoting member of this committee with OPC acting as the committee'ssecretariat.

5.04 Progress Review. In accordance with established government practicefor all NPEP projects, quarterly financial and physical reviews of this proj-ect would be undertaken jointly by NPO and OPC, to authorize release of funds,to ensure that funds are being spent in the right manner, and that terms andconditions laid down by the national government and the Bank are being met bythe implementing agencies. As in the case of the Enga project, the existingprocedures would be strengthened for the purposes of this project as follows:(a) at the provincial level, the PC would conduct a quarterly review afterwhich he would submit a report to the PMT and the HQPC; (b) at the nationallevel, for one of the four quarterly reviews the NPO/OPC would send asupervision team to the field, consisting of sectoral specialists from NPO,and technical specialists from national technical departments such as DWS,Primary Industry, Education and Health. These specialists would undertake adetailed physical and technical review to assist provincial line divisions inidentifying and solving implementation problems and provide general technicalassistance. The NPO would coordinate field visits and prepare a summaryreport for submission to PMT and HQPCC, which would highlight key problems andsolutions. The Government has agreed that the project would be supervisedalong the above lines.

5.05 Reporting, Monitoring and Evaluation. Monitoring of the project'sphysical and financial progress would be conducted on a day-to-day basis byconcerned officers in provincial implementing divisions, under guidance oftheir respective divisional heads and with support of the PC. In line withestablished government practice, these officers would prepare quarterlyprogress reports using the standardized NPEP report format, which would bereviewed by the PC and National Government's review team (para. 5.04). Basedon these quarterly reports, the PC would prepare quarterly progress reportsfor submission to the Bank through OPC. The summary report of the NationalGovernment's review team (para. 5.04) would also be attached to the relevantquarterly progress report. Agreement was reached on these reportingrequirements.

17/ PSC - Public Services Commission.

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5.06 An ongoing review of socio-cultural appropriateness and effective-ness of project activities, particularly the new initiatives, would be under-taken by the Monitoring and EvaLuation officer (para. 3.40). The main purposeof this review would be to make recommendations to project management onmodifications to these activities so that they may be better adapted to theneeds and characteristics of the people, especially women in view of theirimportant role in subsistence activities. This officer (preferably a woman)would focus specifically on the response to nutrition programs and new crops,vocational training, and community school boarding, and would periodicallyvisit project sites and hold meetings with project participants. In the LumiDistrict, she would be assisted by the Education Research Unit team(para. 3.38).

5.07 The Provincifi,Planning and Coordination Division (para. 3.40), withassistance from IASER,_ would be responsible for establishing and managingthe project's monitoring and evaluation system which would enable evaluationof the overall success of the project as well as achievements of each projectcomponent in relation to its objectives and where feasible estimation ofquantified benefits. The planning and coordination division would:(a) design and implement a data gathering and evaluation system which wouldenable satisfactory monitoring and evaluation of project performance; and(b) complete a baseline survey of the province's agriculture sector including,inter alia, data on crop yields, cropped area, cultivation practices, marketedand nonmarketed production. This work would be completed by June 30, 1986;agreement was reached at negotiatons to this effect. Lack of relifie data onfarming in the project area create a need for the baseLine survey.- Inrecognition of the small size of this project, and to prevent overburdeningprovincial staff, the data gathering and evaluation system would be on amodest scale, focusing on key parameters for the main activities, and relyingto the extent possible on the existing provincial data system. Also, in viewof the nature of the project, a mid-term evaluation would be undertaken at theend of the first two years to make necessary adjustments in the pE8 iect inlight of implementation experience and response of beneficiaries.- Theplanning and coordination division, with assistance from the HQPC, wouldprepare the project completion report. Agreement was reached at negotiationsthat the Government would submit to the Bank the project completion reportaccording to Bank guidelines, no later than six months after completion of theproject.

13/ IASER - Institute of Applied Social and Economic Research, an autonomousgovernment body. It is undertaking similar work for the three ongoingprovincial projects. Funds for IASER's work are included in theProvincial Planning and Coordination subproject.

191 DPI, Food Crops Team and rASER would assist with this work.

20/ Similar evaluation was conducted for the SHRD project and was found to bevery useful; a mid-term evaluation for the Enga project is underway.

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C. Project Staffing

5.08 Over the six-year project period, 21 additional staff (11 profes-sional, 20 semi-professional and clerical) - would be recruited, includingcounterpart staff (Annex 1, Table 5); of these, 23 would be nationals, 7expatriate contract officers and 3 volunteers supplied by volunteer agencies.Twenty-one staff would occupy permanent positions, continuing after theproject. The shortage, both in the province and in PNG, of trained nationalswith experience in implementing area development projects necessitatesrecruitment of expatriates for the PC and other key technical positions. Toenable nationals to take over the permanent positions after the expatriatesleave, qualified national staff would serve as counterparts to the expatriatestaff for a period of about 3 years. The expatriates would train and preparethe counterparts. Expatriates (excluding volunteers) would be recruitedthrough international advertisements, and engaged at standard government termsand conditions for expatriate staff.

5.09 Agreement was reached at negotiations that the terms of reference,qualifications and experience of the following seven key specialists would besatisfactory to the Bank: Project Coordinator, Rubber Extension officer, Pro-vincial Economics and Marketing Officer, Provincial Food Crops Officer,Project Finance Officer, Monitoring and Evaluation Officer, and ProvincialStaff Development Officer. Project Coordinator has been selected and isexpected to take up his duties by November 30, 1984. To ensure timely imple-mentation, the condition of loan effectiveness as agreed during negotiationswould be (a) offer of empLoyment to seven persons listed as key specialistsabove; and (b) advertised employment notice in the Government gazette forpositions of a cash crops extension officer, a nursery manager and two exten-sion officers for vegetables.

VI. BENEFITS AND JUSTIFICATION

6.01 Several special features of the project have a bearing upon itsevaluation. First, the project is set in an extremely underdevelopedcontext - extreme isolation, little systematic settled agriculture and poorroads, education, and nutrition. Second, the project is multisectoral innature - comprising agriculture, health, education, infrastructure and insti-tutional components. Third, it is designed to be the first phase of a long-term program of investments; the first in a series of provincial developmentprojects. Consequently, project justification has to be viewed in a long-termcontext and has to accommodate the fact that a sizeable portion of the bene-fits will be nonquantifiable.

21/ College graduates are classified as professionals, and high schoolgraduates with technical skills as semi-professionals.

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A. Nonquantifiable Benefits

6.02 Important nonquantifiable henefits of the project include: (a) morebalanced diets resulting from increased consumption of more nutritional food,including vegetables, fruit, poultry, and livestock; (b) better health andnutrition from improved delivery of health care services, school lunches andnutritional education; (c) higher quality, more and better distributed educa-tion from subprojecLs designed to reduce wastage in formal education, improveteacher quality, expand enrollment in remote areas and provide vocationaLtraining; and (d) improved government services, through the strengthening ofGovernment's planning, implementation and evaLuation capability. Overall, theproject would accelerate Ehe process of nation building and assist people inmaking a transition trom an isolated setting to a more "modern" way of life.

B. Quantifiable Benf its and Economic Analysis

6.03 Quantifiable benctits - higher family incomes - would result fromthe long-term (30-40 years) program to strengthen agricultural support ser-vices and upgrade roads; the long-term program would comprise a series of pro-jects which would include. among others, agriculture' and roads componentssimilar to those in the proposed project which constitutes the beginning ofthis program. As a result of this program it is expected that an adequatelystaffed and effective extension service would be operating in the entireprovince, and that most people would have reasonably good access to supportservices and markets because of the upgrading of the road network. Theseagricultural and roads development tfforts would increase family incomesthrough increased production and diversification of agricultural commodities(vegetables, rubber, cocoa, coffee, livestock, etc.) as a result of anincrease in planted area, productivity gains and introduction of higher valuefood crops and livestock.

6.04 The specific in-pact of the project is difficult to assess forseveral reasons. First. some underlying technical coefficients and parametersof the subsistence system needed to estimate incremental benefits are notknown with suf ticient accuracy. Second, achievement of objectives depends onmany factors such as the accuracy and efficiency of exter.- ion recommendations,the degree and speed of uptake of recommendations by farmers, which are diffi-cult to anticipate. Third, there is a lack of sufficient experience in termsof tarmer response under similar projects dealing with isolated and subsis-tence societies. Moreover since the project initiates the long-term program,its impact, particularly on development of subsistence sy -ems, is difficultto separate from the impact of the long-term progrcm. In view of the abovereaseas. no overall estimates can be made of the project'! effects. Instead,for indicative purposes, two calculations have been made to supplement _nequalitative evaluation of the project. In the first case (Case A) t'e minimumincrease in familv inLomes (or agricultural output) needed to yield a 10Zeconomic rate of return (ERR) for a 30-year program of complementary invest-ments in agriculture and roads has been estimated, and judged for feasibil-ity. In the second case (Case B) a conventional rate of return has beencalculated for one agricultural component (the Highlands vegetable subproject)for which the necessary data were available.

- 34 -

6.05 Economic Analysis: Case A: Long-term Agricultural and RoadsProgram. The key assumptions for evaluating the long-term program are asfollows: (a) Costs of the program include total agricultural and road costsfor the series of projects over 30 years. (i) The agricultural costs in thefirst five years amount to K 3.5 million which represent the total costs ofall the agricultural components (including physical contingencies) in theproposed project. For years 6-30, i.e., success;%e projects, an annualinvestment (incorporating capital and recurrent usts) of about K 0.5 millionis assumed which equals the average annual agricultural costs (excluding thestudies component) in the first five years. (ii) Road costs include upgradingcosts for project roads and another 20 km/year of the provincial road/tracknetwork (assumed to be improved over years 5-30), and incremental maintenancecosts for the entire provincial network during the 30 years. The assumedaverage annual total expenditures for roads and agriculture, from years 6-30,amount to about K 1.0 million of which about K 0.4 million represents recur-rent costs of the proposed project's roads/agricultural component and K 0.6million capital and recurrent costs of such components in successive projects.(b) Benefits of the program are the incremental family incomes. Ci) Thepresent average family income is estimated to be about K 1,200 and is imputedfrom value of per capita subsistence production and consumption and assuaiing afamily size of six members. (ii) In arriving at the program's total benefits(incremental family income of farmers reached) it is assumed that, in linewith expansion of the road and extension network, it will take 30 years toreach 90% of the families and six years (after first contact by extensionworkers) for one family to attain full incremental incohn.

6.06 Through an iterative process it is estimated that for each of thefarmers reached, per family income would need to increase by about llZ (K 130)to yield a 10 Economic Rate of Return (ERR) for the combined agricultural androads investment package (Annex 4, Table 1). To obtain incremental agricul-tural production equivalent to 72 130, a family would need to increase its homegarden area by about 0.05 ha,- cash -rop (vegetables, coffee, cocoa, orrubber) area by about 0.15 ha- and increase meat (poultry, livestock, etc.)production by 0.5 kg/week. The additional annual workload on the family tocultivate the incremental cropped area and raise livestock would be about 50man-days or 12% of available labor (420 man-days). The K 130 increase inincomes appears quite feasible considering that the additional planting andlabor requirements are modest and take place over 6 years.

6.07 Moreover, sensitivity analysis of the base case (para. 6.06) indi-cates that the minimum increase required in family incomes is not very sensi-tive to size of successive projects, i.e., long-term program. Thus, if annualinvestments in agriculture and roads were only 50% of the base case(K 0.5 million) in years 6-30, and as a result only 50% of the base casepopulation was reached and affected over 30 years, per family income wouldneed to increase by about 14% to yield a 1OZ ERR on the roads and agriculturepackage.

22/ Presently subsistence garden areas per family generally range from 0.2-1.0 ha; cash crops area, for those farmers cultivating these crops, rangefrom 0.15-0.3 ha.

- 35 -

6.08 Case B: Highlands Vegetable Subproject. This subjproject wouldincrease family incomes in the Telefomin/Oksapmin area by encouraging farmersin the area to plant small gardens (about 0.1 ha) of commercial vegetablesfor seLling, primarily, to the Ok Tedi mine (para. 6.11). By strengtheningagricuLtural support services and upgrading roads and associated airstrips,this subproject woul enable project farmers to have access to markets andextension services.- This subproject has an ERR of 16% (Annex 4, Table 2)under the following set of key assumptions: (a) Investment Costs. These-include capital and recurrent costs (over 30 years) of activities financed inUile Highlands area under the subproject, i.e., road and airstrip upgrading,agricultural extension services strengthening and improvement of marketinginfrastructure; (b) Participants. Nine hundred farmers (30% of total familiesin the area) are presently growing commercial vegetables. As a result of theproject the number of participating families would increase to 3,200 in tenyears (70% of families); (c) Without Project Production is assumed to remainat 1983 level (675 tons), as expansion is unlikely because of extension,infrastructure and marketing facility constraints; (d) Technical Parameters.The assumptions for key technical parameters - average garden area, yieLds,production costs - are based on estimates of these factors for existingproducers. Thus, average garden size is assumed to be about 0.1 ha perfamily, yields are expected to be 7.5 tons/ha for mixed vegetables, and pro-duction costs are expected to be K 280 per ton. The production costs comprisecash costs of inputs, harvesting, packaging and transportation to markets;'e) Farmgate price is assumed to be K 500/ton and equals the current pricepaid to existing producers by the mine company; (f) Shadow Wage Rate isassumed to be K 1/day (40% of stipulated minimum wage) and equals the wagespaid by LGCs to labor for rural works programs.

C. Farm Incomes

6.09 Annual cash incomes for a family are expected to average about K 96for cocoa producers, K 112 for rubber producers and K 165 for vegetable pro-ducers; returns per man-day would be about K 4.8 for cocoa, K 3.2 for rubberand K 4.1 for vegetables (Annex 4, Table 3). These estimates are however verytentative considering the lack of reliable data. However, considering thatalternative cash earning opportunities (mainly working as a laborer on ruralworks program) yield about K 1 per day, the returns from cash crops would besufficiently attractive to encourage participation.

D. Agricultural Production and Marketing

6.10 Incremental production at full development (year 30) (based on CasesA and B) is expected to be about 9,000 tons of home garden produce, 5,700 tonsof vegetables, 3,600 tons of cocoa, 2,200 tons of rubber and 150 tons ofparchment coffee (Annex 4, Table 1). The average yield (kg/ha) is expected tobe about 360 for cocoa (dry bean), 450 for rubber (DRC) and 600 for coffee(parchment); average yields for smallholders in PNG are about the same asthese yields.

23/ This subproject is representative of other cash crop subprojects in thatthe underlying development strategy (support services strengthening androad upgrading) is the same for all cash crop subprojects.

- 36 -

6.11 Marketing of cash crops would be handled by private buyers or by DPIin cases where private buyers do not operate. Incremental production of treecrops in West Sepik would not be significant (in national terms) so that nomarketing problems are anticipated. Moreover, no problems are foreseen inmarketing vegetables because incremental production would be absorbed mainlyby the Ok Tedi mine and the district centers. The highlands area wouldincrease its market share of Ok Tedi demand from about 50Z at present to about80% in ten years. Such an increase is feasible considering the proximity ofthe market and the fact that project production would replace imports.

E. Fiscal Impact

6.12 After the project period, the annual incremental operating and main-tenance costs of the project would amount to about K 0.8 million ($1.0 mil-lion) or 8Z of the provincial government's existing expenditures. Given theprovince's limited r N7 nue generation, these funds would be provided by theNational Government.-

6.13 Given the nature of this project and the poverty of the provincialpopulation, no cost recovery is expected. The national government would bearthe full cost of the project which is of modest scale and well within themeans of the country. However, the project does represent a significantincrease in the National Government's development expenditure for WestSepik. During the project period, the average yearly project expenditureswould be about K 1.8 million (1984 prices) or less than 0.3% of the nationalbudget for 1984. This amount translates into an annual per capita expenditure(capital and recurrent) of about K 16/capita ($19) for the West SepikProvinc5 With this transfer, total per capita expenditures in West Sepik(K 96)' would reach the present average in the country. In the short run,revenues from the project would be negligible. However, over the long run,revenues should accrue to both the National and Provincial Governments in formof sales taxes, export duties, etc., particularly from large-scaleagricultural and forestry ventures and as the market economy expands.

F. Environmental Impact

6.14 The proposed project would have a positive environmental impact.The agricultural component would contribute to soil conservation and improvedcultivacion practices. The health component would improve health and nutri-tion in the province.

G. Risks

6.15 There are three main risks associated with this project. The firstinvolves recruitment of staff, the second concerns the effective coordinationand management of the project, and the third involves the cultural acceptance

24/ In line with current practice, these funds would be allocated through theNPEP and be part of the second phase project.

25/ Current level is K 80 per capita (para. 2.22).

- 37 -

of project activities. Considering that recruitment has already been initi-ated well ahead of project start, the recruitment of both local and expatriatestaff could be achieved on time. By the time of loan effectiveness all keystaff would be appointed. These measures should reduce the staffing risk toan acceptable level.

6.16 The coordination and mavagement risk arises from the broad scope ofthe project and the untested performance of the provincial administrativestaff. While the project is modest in terms of funding committed and thephysical volume of work, there are several components to monitor. The projecttherefore provides for the strengthening of the Planning and CoordinationDivision which is expected to improve management and coordination of the pro-ject. At the national level (para. 5.03) the Headquarters Project Coordinatorwould deal with problems, mostly recruitment and budgetary issues, that cannotbe handled in the province. These arrangements should reduce coordinationrisks to a manageable level.

6.17 When new technologies are introduced into a traditional society thathas only recently come into contact with the modern world, it is unavoidablethat modern methods will violate long-standing traditions. Attempts to intro-duce new farming or dietary practices could be unsuccessful for this reason.To minimize this risk, local leaders and technocrats have been involved indesigning the project and the proposed changes have been kept modest andrequire low levels of skills and technology. Also, project targets have beenset low. Further, the Monitoring and Evaluation Officer would assess, amongother things, implementation, including the socio-cultural implications ofchange, and provide feedback to the PMT. This measure is designed to overcomethe risk of introducing inappropriate technology and to ensure that changescan be introduced during implementation that will enhance the impact of thedevelopment effort.

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

A. Conditions of Loan Effectiveness

7.01 Offer of employment to seven persons listed as key staff, and adver-tised employment notice in the Government gazette for four national positionsare conditions of loan effectiveness (para. 5.09).

B. Agreements

7.02 During negotiations, agreement was reached with the Government onthe following principal points:

(a) Government would submit to the Bank for comments an outline of thescope and cost of the following studies prior to their initiation:

Ci) investment studies (para. 3.22); and

(ii) LDP studies (para. 3.44).

- 38 -

(b) It would annually provide adequate maintenance funds for provincialand district roads improved and upgraded under the project andmaintenance of district roads would be under the overall supervisionof DWS (para. 3.25).

(c) Before the following subprojects are included in project, they wouldfirst be be reviewed and approved by the Bank:

(i) Central Community Schools Program (para. 3.31); and

(ii) new subprojects costing more than $75,000 (para. 3.43).

(d) The staff development unit would prepare for submission to the Bank,a preliminary report by December 31, 1985 and final report byDecember 31, 1988 (para. 3.42).

(e) The project would be carried out in accordance with the agreedimplementation and staff recruitment schedules, and the Bank shallbe consulted when changes are made to these schedules (para. 3.45);

(f) Project accounts, including statements of expenditure, would beaudited annually by independent auditors acceptable to the Bank andtheir audit report submitted to the Bank no later than six monthsafter the end of the fiscal year (para. 4.07);

(g) Progress review would be undertaken quarterly as indicated inpara. 5.04;

(h) The provincial Planning and Coordination Division would complete abaseline survey and establish a data gathering and evaluation systemby June 30, 1986 (para. 5.07);

vi) The folLowing reports would be prepared and submitted to the Bank.

.i) quarterly progress report and a summary report of theNational Government's review team as an attachment of therelevant quarterly progress report (para. 5.05); and

(ii) project completion report within six months of completion ofthe project (para. 5.07); and

(j) Terms of reference, qualifications and experience of seven keyproject staff would be satisfactory to the Bank (para. 5.09).

7.03 With the above assurances and agreements, the proposed project wouldbe suitable for a $9.7 million Bank loan to the Independent State of Papua NewGuinea for a term of 20 years including a grace period of 5 years at thestandard variable rate.

- 39 ANNEX 1Table 1

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Provincial Population and Land Distribution

Population /a AreaDistrict Total (sq km) CPD /b

Aitape 19,885 5,014 4.0Vanimo 11,064 4,037 2.7Amanab 19,336 7,522 2.6Telefomin 17,733 11,897 1.5Lumi 24,535 5,141 4.8Nuku 21,566 2,963 7.3

Total 114,119 (100%) 36,574 3.1

Rural 107,702 (94X)Urban 6,417 (6Z)

,'a Population based on National Census of 1980./b CPD - Crude Population Density/sq km.

- a- Table 2

*APUA PW CGUIIMA

WEST SEPTI PROVINCIAL DEVEWPDT PRkJECT

Subsistene Symtema in West Sepik

SpeeificLocation Population/a Main activities Land tenure syste Problems and potential project intervention

Coata1 area. Venimo, 31,000 Sago palm cuttins (by men) The approach to land own- Coffee and cocoa cmn be Coffee and cocoa prod,pc-Attape dietrtcts Pfy272 and precessing (entirely erahip and control uaed to developed cemercially. tion end mrketing are to

by women) Is the dominant be casual but now. because provided good qualtty be Improved through ezpan-eubeistence activity, of the coxmrctal poten- planting matrtal and dad DPI services. Caner-Some gardening Is done and tial of local timber, it extension services are cell timber, large-scalethere is a good supply of baa bcome more conten- available. Timber explol- agriculture, and filhingbananas. sweet potato and ttou. Trin are general- tation has been slow potentilslare to be mtrtaro. Itnting is indulged ly ownd individually end because of land alienatton died.in more for social reason bequeathed to progeny and problems.than for procuring food Sge rights are claimd by

ince gaSe i scarce. local clans.Grub gathering and fishingare tiportent secondaryactivities. Csttle rai_-inX is gaining interest inareas around a cattlsfara-cuma-misson at

Sepik River aSet, and 65,000 Sage cutting and pounding Ownersbip is gnemrally Child malnutrition rates A local road is being irmiddle altitude area; PP-574 (by men) and washing and ill defined but uea are wry high in certain proved to facilitate rub-Anamb, Lumi, NJuku di- cooking (by wmen) is the rights are flexible and area, posibly because of ber production and mrket-tricts meot Important subhistene someties gmbiguou. the heavy reliance on sago ing. Food crop diversifi-

aetivity, followed by the Carden and trees are and the low intake of pro- cation io to be encouragedcultivation of bananas. owned by the indiriduals tdan. Potential for through the provision oftaro and ym_ in omall wvi plant them; game and rubber and lowland coffee aced. gardeoing Instruc-gardens worked by nuclear fsab are ovwd by the clan exists. tions and nutritional i_-families. In the Lumi and otbhr may hunt in formetion. A special Bal-area. sago and tulip are clan tsrritories only by mutrition research projectcultivated rather then invitacion. In the Ll focusing on LAt is envie-gatb-red. Hunting is an area. land is genrally aged.important activity for owed by a few "original-men, but thr returns to it settler" clans.are low end declining.Th greatest share of ani-ml protein in the dietcomwe from the gatheringof sago grubs. wild foulegse. lizards md insacts.Fruits are aio gatheredend contribute signifi-contly to the dist when inseason.

Hlihland areas; 16.000 Croving Seet potatoes. Individually ownd gardens Vegetable growing heas be- The roed and airstripTde-fomIn district PPFI6l legme and vegetables in appmer to be the norm, al- come a successful Income- network Is being improved

gardens of about 0.2 he though families ofte elseo earning actlivty and there to cover a larger numberper nuclear famly; man cnmbinw to make larger is mach potential for as- of housebolds and toclear the bush for the garden. panmion provided the nec- expand vegetmble produc-arden and fee It and esmary infrastructure is tion. Soil conservationwomen plant it, the entire built, Solle are genral- is to be encouragedprocess taking anywArs ly of low fertility and through estbolmfree one tn eli mouths, erosion Is a problem. as- servlces.Dlet is supplemnted by pecielly on the steeperpandeus fruit and emal slopes.insects end grubs. tradi-tionally. hunting us animportent activity. butthe amount of gme nowevailable is too lee tosaLtalo regular huntting;pigs form the ain aouresof sisal protein in theares, but conaumption Issporadlc - linked torituals.

la Population data from Cenue of iP9O.

P- Proportlon of Provinital Populatlon.

ANNEX 1- 41 - Table 3

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Project Roads

PopulationRoads Length benefited Commercial agriculture

(km) ('000) potential/activity in area

ProvincialEdwaki-Tipas 12 4 CoffeeOksapmin-Tekap 21 8 VegetablesNuku-Seim 12 6 CoffeeYangkok-Laiangam 11 5 Coffee

DistrictAitape-Raihu 4 2 CocoaAitape-Yalingi 15 5 CocoaKeibam-Fatima 10 2 CoffeeLumi-Karaitem 12 4 CoffeeOsal-Ossima 11 3 CattleAmanab-Kamberatoro 16 2 Rubber

Total 124 41 (36%)Ja

/a Percentage of total provincial population.

ANN8X I-42 - Tabir 4

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPKENT PROJECT

Implementation Schedule: Key Indicators

Y4T2r

Item Unit 1 1 2 3 4 5

A. INFKASTRUCTIriRElioai(es No. I 15A 2 2 - -t,'ad% km - Ii wD 29 17SC tuols No. - I - - S Airdtrtir No. - 1 2 - - _WIh.arf No. - - I

Eduratiun training c.nters No. - I _ _ -

Health training rceiiters No. - - IVillAe developmrnt center No. - I _ _ _ _

hB. STAPF R8CRU ITlENTOverseas No. I 6

Volunteer No . - 3 1N, tIanA I Ns. - if I) 2 I

C. ALRICJLTURAL UEVI:LI.V1l:NTNurdettre and ntit ions

Food crops nurseries No. - 2 2 2 2rree crop nurmrrter No. - 3 4 4 2DPI outstAt Ions No. - 3 4 6 4lIrkrt atat it.nn/cool rooms No. - I I I - _

Subaistence FootropFarmer. rached /b N. - - 2Uu 400 60O 8UOArea planted /c ha - - I0 20 30 40

Comrclal Veeta bleaFarmers reached Id No. - 20u 300 40*u 500 SoArea planted ha - 30t 45 60 75 90

RubberFarmers resched No. - - SO 75 75 IOUArea planted ha - - 10 20 30 40

CocoaFarwers reached No. - - 100 2U0 200 300Area planted ha - - 10 30 50 70

School GArdensCommiunity schools No. - - 5 10 1( 13High schools No. - - 1 2 2 1

P. REPORTS COiPLETEDBasalIne survey No. I - -

(06/86) eInitial training report No. I

(12/85)Final training report No. - - - - - I

(12/88)Agriculture Investent Studles: No.- Reconnaisance survey (Phase 1) - - I ' -

(06/86) (06/87) (U6/88)- Detailed survey (Phase II) No. - - - - I

(U9/89)- Flshery resource survey No. - - I _ _

(12187)LOP *tudies:- Provincial No. - - - I

(06/87) (09/88)- District No. - 1 2 2

/a Seven houses for key project staff would be completed in first half of the year.T Farwers who have been distributed seedlings, planting materials and other inputE.V New area planted estimated from actual field *islits end volume of seedlings distributed. In case

of tree crops the size of annual area planted (indicated In table) tslus Into account gradualbulldup of lndividual farmere planted area from about 0.1 ha to about 0.5 ha over a 3-5 yearperiod.

/d In Highlands (Annex *. -able 2) and other districts.7e Dates in parenthesi, Indicates expected completion date.

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Incremental Staff and Recruitment

Overseas staffOverseas (0)/ Expected expected Ongoing (Tenp-T)National (N)/ Grade appnt. period after (Per_-P)

Project Designation Volunteer (V) level (mo/yr) (years) project

INSTITUTIONAL BUILDINGPlanning and Program Coordination Project Coordinator 0 CCio 09/84 4 T

Finance Officer (Project Accountant) 0 CC9 02/85 3 TCounterpart Pr. Coordinator N CCS 06185 PMonitoring/Evaluation Officer 0 CC9 02/85 3 T(Rural Sociologist)

Counterpart H A E Officer N CC5 06/85 PStaff Development Unit Staff Development Officer 0 CC9 02/85 3 T

Counterpart Staff Development Officer N CC8 06185 P

AGRICULTURESubsistence Farming Provincial Food Crops Officer 0 CC9/RD04 02/85 4 1

Food Crops Extension Officer N CCa/RD03 06/8S PVegetable Food/Marketing Rural Development Technicians (4) N RDTI (2)06/85-(2)0b/86 P

Rural Development Officers (2)/a V RDOI 06/85 TForestry Extension Agent N CRD3 03/86 P

Cash Cropping - Coffee and Cocoa Cash Crop Extension Officer N RDT2 06/85 TNursery Manager V RDOI 06/85 P

Cash Cropping - Rubber Cultivation Rubber Extension Officer 0 RD03 06/85 3 T

Marketing Provincial Economic/Marketing Officer 0 RDo4/CC9 02/85 3 TCounterpart Economic/Marketing Officer N RDo3/CC8 06/85 P

HEALTHTraining and Supervision of Health Extension Officers (7) N GRDI (3)03186-(2)03/87 PPrimary Health Care Workers (2)03/88

Tutor Sister/Nurse Trainer N CC4 06/85 P

EDUCATIONLuni Education Resource Center Supervisor N E07 03/86 P

Clerk Typist N KB03 03/86 P

Telefooin Vocational Center Manager V E06 06/85 P

LUMI DISTRICT SPECIAL PROGRAMProgranne Co-ordinator N E06 12/85 T

Clerk Typist N KBo3 12/85 T

INFRASTRUCTURE /b Senior Engineer a Ob/85 3 TWork Supervisor (2) N (I)06/85-(1)03/86 T

/a Total Staff Number Is five, three are existing. inlb DWS has agreed to provide staff through transfer from other Projects or Headquarters. t\IW

- 44 - ANNEX Ilable 5Page 2

Incremental Staff and Recruitment

Summary

----- Recruitment ------------- Permanent1984 1985 1986 1987 1988 Total positions

ProfessionalOverseas 1 6 - - - 7National - 4 - - - 4 4Volunteer - - -

Subtotal 1 10 - 11 4

Subprofessional/TechnicalNational - 6 7 2 2 17 14Volunteer - 3 - - 3 2

Subtotal - 9 7 2 2 20 16

ClericalNational - 1 1 - - 2 1

TOTAL 1 20 8 2 2 33 21

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVOPHW PROJECT

Project Cost Sumry(by component)

Base costs (King 'OOO) ToUI (K1I1M 0 (III 1003 K TOtAl--- 4 -Ttw, I~~~~~~~~~~~~~~ Furanbi liw

1994 19 199 I"97 i 19 1 (UiM '00 Lwal Foriln lTtal Local Forezn Tr.tal Excho Costs,3222 2822222121 2 2222 2= 221 222222 2t13122222 2222222 S222 :222222 .3SJL22223 3:223= -ZZ322 3Z2232S S2X232z23 2SSS322

M3IsTErt MIOlTIM 5.0 103.2 13.1 74.0 73.9 73.7 413.6 41.3 207.t 206.0 413.6 245.1 W4^.2 466.3 50 4CFa ClmilZ -USEtEIU5 12.5 1If.5 13.1 109.1 127.3 97.2 629.6 743.4 291.2 331.5 629.6 343.7 39.6 743,4 54 6

CO EIi 0cm i,3 167.0 124.9 109. 109.7 301.6 619.2 732.3 230.9 IV' 3 1?l 326 399.4 731.215 6EAM REM ftiTIVAIION - 60.7 49.2 44.2 39.5 41.5 235.3 277,1 112.4 12221 233.3 132.7 345.1 277.6 52 2

WCU§0 S Et C - FMS TOs SNtGOWES * 24.2 24.2 24.2 24.2 94.6 21143 72.2 24.6 96.0 3 5.2 29.1 114.3 25 1tKt SU T SMI4ES - FI3U J ttl1N it3's 26.1 26.1 26.1 111.7 l1, 55.t 55.9 111.7 65.9 65.9 131.9 50

III ffCI9ICTN t 203.9 3 200 38.0 38.0 05.9 2330. 276.0 113.5 122.3 233.3 131.7 144.4 276.0 5? 2P1a1K¶AL &IWatt IT2AiE3 - 300.0 300,0 200.0 200.0 160.0 760.0 397.3 404.4 265.6 760.0 563.7 333.6 397o3 35 7

ICLLTIM.K UI9 ENIC£5 - PI PAf STATIO - - 52.7 25.6 20.2 20.2 I1. 40.4 64U. 54,1 fI3.9 76.6 63.6 140 4 45 1

Sub-totul AN6tLTIK 23.6 680.3 642.1 51.6 149. 561.0 3,218.9 3,300.3 1.490.7 1,523.2 3.213.9 3.96.1 1304.2 3,300.3 47 33C II"S % 30,0 702.4 66.4 673.4 290,31 11.6 2365.9 2793.3 44.4 1,419.5 24365.9 12117.3 1.676.0 2093.3 60 23

tININ AN VW oF PRIMAT W EAL.h CA US3S 75.6 1n.7 72.2 32.5 312 297.4 339.3 123.1 166.2 297,4 143.0 396.2 339.3 so 3CORItYKMII MJTITION PICT - 11.3 Is,& 26.1 16.1 6.0 67.0 79.1 41.5 25.5 67.0 49.0 30.1 79.1 33 1 N9139 O FOOD P lic1 ""CT - 22,0 37.0 10.0 10.0 79.0 93.3 5J.3 23.7 79.0 5.3 22.0 93.3 30 1 9

Sub-Total N AO T1TON - 67.0 43.3 225.3 86 t.2 433.4 51T.6 219,0 215.4 433.4 257.3 2-4.3 511.6 50 4

CtOM f COIK.I3TV KNIOLS - - 67.5 32,0 12.0 32.0 163.5 139.0 114.5 49.1 163.5 133.1 57.9 193.0 30 2LtW! MUOTION ENICES CENTl 3.0 142.5 42.3 41,6 42.3 - 271.5 320.6 136.3 134.6 271.5 1t1.5 159.1 320.6 50 3LU! 1IO339 KIl OWalINS FM3LIIII 93,0 76;.0 3.3 3.3 175.6 207.3 70.2 305.4 37. 8329 24.4 207.3 60 2TKWMIN YOCA IOIK CENTE 2.5 49.5 37.4 41.2 4.5 134.3 15#.3 99.0 4A.3 334.3 303.9 54.4 353.3 34 1AItAf WATMtK CEfN - 44.9 10.5 - - 55.4 65.4 27.7 27.7 55.4 32.7 32.7 65.4 50 1

Sub-Toteal 1UlA4 31.0 279.1 247.3 111,0 113.6 39,0 300.1 944.7 437.2 363.0 6001 516.2 423.5 144.7 45 3C. LIII1 0I5TAICT SPCIAL PIOM 4.5 50.2 46.3 33.6 33.5 - 168.0 19.13 32.9 r.1 168.0 97.9 100.4 192.3 51 2F. INSIITUTION MIDIK

1In MS MO4 COOEDIATIWI AM UC III 103.3 173.5 102.9 100.3 95.3 96.2 674.0 795.7 352.1 321.9 674.0 4t5.; 380.0 7Y.7 4a 4s1,T KWI.MNT 151T 6.3 109.6 79.3 76.2 78.2 63.7 415.4 4".4 235.0 130.4 415.4 277.4 213.0 4".4 43 4

1*-ToUl 13NtItITIIU IJILIIKS 210.3 203.3 132.2 -73.5 173.5 361.9 1,069.4 2,216.2 57. 501 2.3 1M6. 4 693.1 593.0 3.2162 46 10SoWW3KP MIOSCtS - - - 240.0 560.0 300.0 1,100.0 l,m.7 704.0 396.0 I2300.0 331.2 467.5 19M.7 36 itN. LESS KWWIEJ AS STILI 243.3 24.3 243.3 2431.3 243.3 12.0 1.223.5 1450.4 368 60.9 O. 1P22.5 435.1 11015.3 1I450.4 70 IZ

Total WfINE COSTS 414.7 2,324.4 2,3121.2 2t254.9 ,3. 3,3.42144 2 32A.'3. 5,034. 5,369. 10.404.2 3.944,2 6.339,3 12.211.6 52 100Ph?s,eal Cantinwoin 23.5 244.2 20042 176.3 103.6 27.7 775.5 215.6 346.5 469.0 7755 361.9 553.7 935.6 60 7Price CaftitriO 31.4 246.9 434.0 701.2 893.3 590.2 2.77.0 31.3967 1,544.9 l330.3 217730 19326,3 1.570.4 3?316.7 46 26

Total POECT COSTS 449.7 2,337.4 20765.4 3.334,3 3,334.5 37M5.4 14M05.7 16P595.1 666.2 7,168.5 14,056.7 I.132.5 3.463.4 11.595.6 51 1352TS 32*2222 "222322 3*22222 22222*2*2 3282* 2-2222322 S222S2222 41A22*1t vxSZZ:2 CS2-2,3:2 11122=223:22132222223222 323222323 2,1 22* ar~~~~~~~~~~~~~LIBast#"SSSS1tX-5S5 SSSSStStss * sss _ S=SS#SS-

PAPUA NEW GUINE

VEST S ^ K PROVINCIAL DEVELOPHENT PROJECT

Project Cost Sumaary(by category)

Total incl.Base costs Foreign exchange Cont.

1984 1985 1986 1987 1988 1989 Total 2 Aaount (USS '000)

INVESTMENT COSTS,

Item 1 - Salaries 68.5 226.2 295.7 388.1 472.4 302.5 1,753.4 60.0 1,052.0 2,694.0Item 2 - Travel 5.2 23.3 77.4 75.8 76.6 66.2 324.5 50.0 162.3 504.6Item 3 - Utilities 3.0 8.2 13.3 14.8 14.8 14.3 68.4 60.0 41.0 115.6Item 4 - Materials ani Supplies 14.9 57.3 92.5 99.2 97.4 64.4 425.7 60.0 255.4 711.6Item S - Vehicle Hire 4.0 27.7 70.7 72.9 72.9 72.2 320.6 80.0 256.4 546.4Item 6 - Special Services 4.0 74.2 100.2 98.7 93.7 97.9 468.7 15.0 70.3 726.1Ite 7 - Capital Assets 7.8 75.8 56.9 20.7 15.4 15.4 192.0 80.0 153.6 296.5 >Item 8 - Grants - 69.0 155.0 104.4 81.2 42.0 451.6 32.5 146.6 748.7Item 9 - Other - 81.3 113.6 333.2 513.0 327.0 1,368.1 20.0 273.6 2,211.1Item 10 - Emoluments - 37.3 74.9 58.9 73.5 56.8 301.4 0.0 0.0 470.3Item 11 - Capital Works 64.0 1,402.8 827.7 741.3 377.8 61.3 3,474.9 60.0 2,084.9 5,706.1Item 12 - Mlccellaneous La 243.3 243.3 253.3 248.8 248.8 17.5 1,255.0 69.6 873.2 1,864.8

Total Investment Costs 414.7 2,326.4 2,131.2 2,256.8 2,137.6 1,137.4 10,404.2 51.6 5,369.4 16,595.8

Physical contingencies 23.5 244.1 200.2 176.3 103.6 27.7 775.5 60.5 469.0 -Price contingencies 11.4 246.9 434.0 701.2 893.3 590.2 2,877.0 46.2 1,330.1 -

Total Project Costs 449.7 2,817.4 2,765.4 3,134.3 3,134.5 1,755.4 14,056.7 51.0 7168.5 16,595.8

Foreign exchange 293.8 1,600.5 1,471.0 1,592.0 1,475.5 735.4 7,168.5 0.0 0.0 8,463.9

/a Mainly Less Developed Areas Studies: when studies are initiated. costs would bebroken down by ttess 1-11. i|

ANNEX 2Table 3

- 47 -

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Procurement Arran- nts(USS mlllion)

Procurement methodICB LCB Other N.A. Total cost

Civil works /b - 0.32 5.33/a - 5.65- (0.26) (4.26F7 - (4.52)

Vehicles, equipment - 0.28 - - 0.28and furniture /c - (0.22) - - (0.22)

Technical assistance and - - - 2.80 2.80consultant services /d - - - (2.24) (2.24)

incremental e./f - - - 7.86 7.86operating costs - - - (2.72) (2.72)

Total - 0.60 5.33 10.66 16.59 /f- (0.48) (4.26) (4.96) (9.70)

/a Force account.

tb Corresponds to Item 11 in go8ernment budget.

tc Corresponds to Item 7 in government budget.

/d Corresponds to Items 1 (expatriate salaries only) and 6 of governmentbudget.

/I Corresponds to Items I (national staff salaries only), 2, 3, 4, 5, 8. 9,and 10 of government budget.

Jf Excluding front-end fee.

Note: Figures in parenthesis are the respective amounts financed by the Bankloan, Including front-end fe.

ANNEX 2

- 48 - Table 4

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Disbursements Schedule(USS million)

IBRD FY & Profilesemester Semester Cumulative Z PNG /b Region /c

FY85Second 0.4/a 0.4 4 0

FY86First 0.3 0.7 7 5 2Second 0.5 1.2 12 6

FY87First 0.8 2.0 21 14 11Second 1.6 3.6 37 17

FY88First 0.9 4.5 46 32 24Second 0.9 5.4 56 32

FY89First 0.7 6.1 63 50 40Second 0.8 6.9 71 48

FY90First 0.9 7.8 80 68 57Second 0.8 8.6 89 65

FY91First 1.1 9.7 100 81 72

/a Includes retroactive financing and front-end fee.

/b Agricultural Projects in PNG.

/c Area Development Projects in AEP Region.

ANNEX 3-49 - Table 1

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Implementation Responsibility

Agency Responsibility

National DepartmentsOPC (Department of Finance) Project coordination at national

level; staff recruitment; submissionof withdrawal claims.

DWS (provincial branch) Roads, buildings, houses and civilworks for all components; vehicleprocurement, maintenance and leasing.

Department of Primary Industry- Land Use Division Land use studies.

- Fishery Research Division Fishery resource surveys.

IASER Assistance with baseline survey, andevaluation

Department of West SepikDivision of Planning and Project coordination, SOE prepara-Coordination tion, provincial planning and

budgeting, assistance to linedivisions, baseline survey andmonitoring and evaluation.

Division of Primary Industry All agricultural components.

Division of Health APO and health supervision componentand assisting with nutrition com-ponent.

Division of Education Formal and vocational education, LumiSpecial Program, School nutritionprogram.

Nongovernmental OrganizationsEvangelical Church Telefomin vocational center.

Christian Mission Church APO training center.

All church groups Assisting with food crops andnutrition program.

ANNEX 450 ~ Table 1

Page 1 of 3

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Economic Costs and BenefitsLong-term Agricultural and Roads Investuent Program

Value of Incremental costs Value ofNumber of incremental Agricul- net

Project beneficiary benefits /b tural /c Roads /d Total benefitsyear households /a - - ----- (000 kina)

1 200 5 785 878 1,663 -1,6582 500 16 654 787 1,441 -1,4253 800 35 713 807 1,520 -1,4854 1,500 68 718 348 1,066 -9985 2,500 126 595 340 935 -8096 4,000 217 475 340 815 -5987 6,000 349 475 360 835 -4868 8,000 519 475 380 855 -3369 10,000 728 475 400 875 -147

10 12,000 967 475 420 895 7211 14,000 1,229 475 440 915 31412 16,000 1,502 475 460 935 56713 18,000 1,775 475 480 955 82014 20,000 2,048 475 500 975 1,07315 21,500 2,310 475 520 995 1,31516 23,000 2,560 475 540 1,015 1,54517 24,500 2,798 475 560 1,035 1,76318 26,000 3,026 475 580 1.055 1,97119 27,500 3,242 475 600 1,075 2,16720 29,000 3,447 475 620 1,095 2,35221 30,000 3,640 475 640 1,115 2,52522 31,000 3,822 475 660 1,135 2,68723 32,000 3,993 475 680 1,155 2,83824 33,000 4,152 475 700 1,175 2,97725 34,000 4,300 475 720 1,195 3,10526 35,000 4,436 475 740 1,215 3,22127 36,000 4,573 475 760 1,235 3,33828 37,000 4,709 475 780 1.255 3,45429 38,000 4,846 475 800 1,275 3.57130 39,000/e 4,982 475 820 1,295 3,687

ERR - 10%

See footnotes on next page.

ANNEX 4Table 1

- 51 - Page 2 of 3

/a The number of beneficiary households is calculated from the total numberof households in the province by assuming that roughly 10%, 45%, 85% and90% of the population of households are brought Into the program by the5th, 10th, 20th and 30th years, respectively. Total population as wellas the number of households are assumed to grow at 2.5% p.a. over theperiod of the program.

/b The stream of benefits shown here was arrived at via an iterative processand satisfies two conditions: it produces an ERR of 10% for the programand it provides full benefits to participants only after six years ofparticipation. The stream selected implies that a beneficiary householdwill have its annual income (or Income equivalent) raised from K 1,200(without program) to K 1,330 after six years of partUcipation in theprogram, an increase of 11%. Note that these benefits are incremental inthe sense of being net of any producers' costs incurred and also beingabove and beyond any benefits that might accrue without the program.

/c The agricultural costs stream is derived as follows: for the first fiveyears of the program which coincide with the present project, the costsrepresent capital and operating costs under the project; thereafter, itcomprises: (i) about K 250,000, which represents the recurrent costs ofthe project's agricultural component, and (ii) K 225,000 which representscapital and recurrent costs of successive projects and would enableexpansion of the extension and input supply network services to reachmore farmers. Costs in the first five years add to K 3.5 million whichare the baseline costs of the agricultural component (R 3.2 million) plusphysical contingencies of K 0.3 million.

/d Road costs include: Ci) capital costs of project roads and upgradingcosts of another 20 km/year of the provincial roads/track network assumedto be upgraded from years 5-30; and (ii) incremental maintenance costs ofall upgraded roads. In economic terms, these upgrading costs amount toaverage of K 12,000 per km and incremental maintenance amounts to averageof K 640 per km. The costs of project financed airstrips/wharf are alsoincluded in the first four years. Total costs for the first four yearsadd to K 2.8 million and represent total baseline costs of K 2.4 millionplus physical contingencies of 20% of the infrastructure component.

/e Based on this number of beneficiaries, and assuming 0.5 ha of tree crops(for 75% of families), 0.1 ha of commercial vegetables (for 25% offamilies), and 0.05 ha of home garden for each family, total incrementalarea planted and production (by year 30) is as follows:

ANNEX 4Table 1

- 52 - Page 3 of 3

TotalArea Average yield production(ha) (ton/ha) (tons)

House garden and commercialvegetables 3,000 4.5 - 7.5 14,700Tree crops

- Rubber 5,000 0.45 (drc) 2,230- Cocoa 10,000 0.36 (dry bean) 3,600- Coffee (improved produc-

tivity; present yieldabout 0.3 tons/ha) 500 0.3 (incr.) 150

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Costs and Benefits of Highlands Vegetable Subproject

District Number Total number Total output Incremental Value of Coat of incre- Subproject Value ofProject popula- of house- of producing of vegeta- out ut incremental /f mental output /f cost /R net benefitsyear tion La holds /b households /c bles /d (tons) (tons) Id output (K'OOdU (K 000 (K'000T (K'OOO)

1 20,063 3,349 1,100 825 150 75 42 513 -4802 20,565 3,427 1,400 1,050 375 188 105 368 -2853 21,079 3,513 1,700 1,275 600 300 167 363 -2304 21,606 3,601 2,000 1,500 825 413 230 193 -105 22,146 3,691 2,300 1,725 1,050 525 293 143 896 22,700 3,783 2,600 1,950 1,275 638 355 143 1407 23,267 3,878 2,750 2,063 1,388 694 387 143 1648 23,849 3,975 2,900 2,175 1,500 750 419 143 1889 24,445 4,074 3,050 2,288 1,613 807 450 143 21410 25,056 4,176 3,200 2,400 1,725 863 481 143 23911 25,682 4,280 3,350 2,513 1,838 919 513 143 26312 26,324 4,387 3,450 2,588 1,913 956 534 143 27913 26,983 4,497 3,550 2,663 1,988 994 555 143 29614 27,657 4,610 3,650 2,738 2,063 1,032 575 143 31415 28,349 4,725 3,725 2,794 2,119 1,059 591 143 32516 29,057 4,843 3,800 2,850 2,175 1,088 607 143 33817 29,788 4,964 3,876 2,906 2,231 1,116 622 143 35118 30,528 5,088 3,925 2,944 2,269 1,135 633 143 35919 31,292 5,215 3,975 2,981 2,306 1,153 643 143 36720 32,074 5,364 4,025 3,029 2,349 1,172 654 143 37521 32,876 5,479 4,025 3,019 2,394 1,172 654 143 37522 33,698 5,616 4,025 3,019 2,344 1,172 654 143 37523 34,540 5,757 4,025 3,019 2,344 1,172 654 143 37524 35,403 5,901 4,025 3,019 2,344 1,172 654 143 37525 36,289 6,048 4,025 3,019 2,344 1,172 654 143 37526 37,196 6,199 4,025 3,019 2,344 1,172 654 143 37527 38,126 6,354 4,025 3,019 2,344 1,172 654 143 37528 39,079 6,513 4,025 3,019 2,344 1,172 654 143 37529 40,056 6,676 4,025 3,019 2,344 1,172 654 143 37530 41,057 6,893 4,025 3,019 2,344 1,172 654 143 375

ERR - 162

/n In 1985 (Year 1), population Is projected to be 20,063 based on 1980 data. Population is assumed to grow at 2.5: which has been the growthrate for rural West Sepik over 1971-80.

/b Average family size assumed to be six persona and to stay constant over the period of analysis.7Ec In 1984 about 900 households are expected to be growing vegetables. During the first six years of the subproject, the number of beneficiary

households is assumed to Increase by 200 (year 1) and 300 each year subsequently on account of road, airstrip and marketing development;thereafter, the increment in beneficlaries becomes smaller and smaller until the beneficiary population stabilizes at 4,025 households inthe 20th year of the project. At present each family cultivates about 0.1 ha and bas a yield of about 7.5 ton/ha of mixed vegetables.

/d In 1985, output is projected to be 675 tons (1983 level) and in assumed to remain constant at this level without project, because ofinfrastructure and marketing constraints.

/e Based on average buying prlce (ex-market) of K 500 per ton paid presently by Ok Tedi mine to growers.7T Producers' costs of K 279 per ton estimated as follows:

Cultivation and harvesting: labor = K 45.3; cash cost u K 41.4; total - K 86.7.Transport to market center: K 3 per 20 kg load; total * K 150.00.Marketing agency costs: packaging - K 18.94; seed a K 13.36; labor - K 10; total = K 42.30.

/L These include 1002 of capital and recurrent costs of the Highland Vegetable Subproject, associated road and airstrip costs.

- 54 -ANNEX 4Table 3

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Farm Incomes /a

Average Ave. farmgcte Plot size Ave. manday Total income Return peryield /b price per famlly required per famlly mandaykg/ha K/ton ha per ha K K(1) (2) (3) (4) (1)x(2)x(3) (1)x(2)t(4)

Cocoa 900 213/e 0.5 40/c 96 4.8(wet bean) (wet bean)

Rubber 900 250/e 0.5 70/c 112/k 3.2(cup lump) (cup lump)

Mixedvegetables 7,500 221/f 0.1 400/d 165 4.1

/a Because of lack of reliable data on yields, plot sizes, and tlme likely to be spent on cashcrops, detailed farm models have not been prepared. Instead a rough estimate has been madeof likely average annual Income during the production cycle, based on likely averageyields.

lb Average yield during years 4-20 for cocoa and 6-20 for rubber.7c Average nandays required for harvesting, maintenance, and upkeep during production, taking

into account the needs of a low technology productlon system.id Average mandays required for land preparatior, planting, harvesting, maintenance from

planting to harvest./e Details in Working Paper No. 1.

Tf For vegetables the gross Income to farmers is K 500/ton; production, transport andmarketing costs are K 279/ton; net income is K 221/ton. For detall see footnote 'g' InAnnex 4, TabLe 2.

ig The farmers only costs are his labor. There are no cash costs for the farmers. In case ofrubber, the tapping knives, la:ex cups. buckets, etc., (K 20/family) are provided free ofcharge under the project.

- 55 - ANNEX 5

PAPUA NEW GUINEA

WEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

Selected Documents Available in Project File

Background Reports

1. West Sepik Provincial Government/ West Sepik Development:National Planning Office Background and Recommenda-

tions

2. Consultant Study Socio-Cultural Aspects ofWest Sepik Project

Staff Working Papers

No. 1. AgricultureNo. 2. IrfrastructureNo. 3. Health and NutritionNo. 4. Education and TrainingNo. 5. Lumi District Special ProgramNo. 6. Institutional DevelopmentNo. 7. Detailed Cost Tables.

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- 57 -

PAPLI NEW GUINEAWEST SEPIK PROVINCIAL DEVELOPMENT PROJECT

IupLementation Schedule: Project Components

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PAPUA NEW GUIN4EA ! PROVINCIAL DEVELOPMENT PROJECT I

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