Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 4527-ZA

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE III

November 22, 1983

Eastern Africa Projects DepartmentSouthern Agriculture Division

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

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CURRENCY EQUIVALENTS

Currency Unit = Zambian Kwacha (ZK)US$1.00 = ZK 1.40ZK 1.00 = US$0.71SDR1.00 = US$0.96SRD1.00 = ZK 1.46

WEIGHTS AND MEASURES

1 meter (m) = 3,3 feet1 cubic meter (m 3 ) = 35.3 cubic feet1 hectare (ha) = 2.47 acres1 kilometer (km) = 0.62 miles1 square kilometer

(km2) = 0.39 square miles1 kilogram (kg) = 2.2 lb

1 metric ton (ton) = 1000 kg = 2,2041bm3(r) = cubic meter of roundwoodm3(s) = cubic meter of solid woodm3(r), ub = cubic meter of roundwood under bark

ABBREVIATIONS

APM = Assistant Plantation ManagerCA = Chief AccountantCCF = Chief Conservator of ForestsCDC = Commonwealth Development CorporationFM = Finance ManagerMLP = Manager of Logging and ProcessingMPM = Manager of Plantation ManagementFA = Financial AccountantFAO/CP = Food and Agricultural Organization/Cooperative

ProgramFD = Forest Department

FINNIDA = Finnish Development AgencyFY = Financial YearGDP = Gross Domestic Product

GRZ = Government of the Republic of ZambiaICB = International Competitive BiddingIDA = International Development AssociationINDECO = Industrial Development CorporationIPD = Industrial Plantations DivisionKITE = Kafubu Industrial and Timber EnterprisesMAT = Mean Annual IncrementMAP = Manager Administration and PersonnelMAWD = Ministry of Agriculture and Water DevelopmentMD = Managing DirectorMLNR = Ministry of Lands and Natural ResourcesMM = Marketing Manager

LCB = Local Competitive BiddingPPF = Project Preparation FacilityPTA = Preferential Trade AgreementZAFFICO = Zambia Forestry and Forest Industries

CorporationZIMCO = Zambia Industrial and Mining CorporationZSBS = Zambia Steel and Building Supplies Limited

ZAFFICO'S FINANCIAL YEAR

April 1 - March 31

FOR OFFICIAL USE ONLY

TABLE OF CONTENTS

Page No

I. BACKGROUND .............................................. 1

A. Project Background .................................. 1B. Economic Setting .................................... 1C. The Agricultural Sector ............................. 2

II. THE FORESTRY SUBSECTOR .................................. 4

A. Resources ........................................... 4B. Institutions ........................................ 5C. Production, Processing and Marketing .... ............ 7D. Forestry Policy and Strategy ........................ 10E. External Assistance ................................. 10F. Review of Phase I and II Projects ................... 11

III. THE PROJECT ............................................. 14

A. Project Rationale and Design ........................ 14B. The Project Area .................................... 17C. General Description ................................ 18D. Detailed Features ................................ 19

(a) Afforestation Program . ......................... 19(b) Logging and Transportation Improvement .... ..... 21(c) Sawmilling Program ........ ..................... 23(d) Workshop Improvement ....... .................... 26(e) Technical Assistance ....... .................... 27(f) Training Program ......... ...................... 28(g) Administration Support ...... ................... 30

E. Project Costs ...................................... 30F. Financing ....................................... 31

IV. PROJECT IMPLEMENTATION .............. .................... 32

A. Organization and Management .......................... 32B. Procurement ............ .................... 35C. Disbursements ................. ..................... 36D. Accounts, Audit and Reporting ........ ............... 37E. Environmental Impact ........................ 37

This report is based on the findings of an IDA appraisal mission comprisingMessrs. B.K. Zegge, H. Wagner, R. Ranasinghe and A. Bose and Ms. D. White(IDA) and Mr. K. Kehr (Consultant), who visited Zambia in October/November,1982.

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.

Page No.

V. PRODUCTION, MARKETS AND PRICES .......................... 38

A. Production .......................................... 38B. Markets and Marketing Strategy ........... ........... 40C. Prices .............................................. 44

VI. BENEFITS AND JUSTIFICATION ..... ......................... 45

A. General ....................... ...................... 45B. Financial Analysis ............... .. ................. 46C. Economic Analysis ................................... 49

VII. ASSURANCES AND RECOMMENDATIONS .......................... 51

ANNEXES

ANNEX 1: Table 1: Summary of Project Costs by TimeTable 2: Plantation Establishment and Replanting CostsTable 3: Nursery CostsTable 4: Fire Protection and Silvicultural Management CostsTable 5: Logging and Transportation CostsTable 6: Sawmilling and Processing Capital CostsTable 7: Sawmilling Processing Operating CostsTable 8: Workshop Improvement CostsTable 9: Technical Assistance and Training Program CostsTable 10: Training CostsTable 11: Project Administration CostsTable 12: Disbursement Schedule

ANNEX 2: Table 1: IPD's Summary Income StatementsTable 2: IPD's Summary Balance SheetsTable 3: Pine per Hectare ModelTable 4: Eucalyptus per Hectare ModelTable 5a: Project Financial Rate of ReturnTable 5b: Financial and Economic Rates for Pine PlantationsTable 6: Project Economic Rate of ReturnTable 7: ZAFFICO's Income Statement ProjectionsTable 8: ZAFFICO's Sources and Applications StatementsTable 9: ZAFFICO's Balance Sheet ProjectionsTable 10: Price Structure of Sawntimber, Poles and RoundwoodTable 11: Import Price Equivalent of Standing WoodTable 12: Price Structure for Poles

ANNEX 3: Table 1: National Supply and Demand for Industrial RoundwoodTable 2: Supply and Demand Projections for SawntimberTable 3: Demand Projections for Sawntimber by End-UseTable 4: Demand Projections for Poles and Wood Panels

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Table 5: ZAFFICO's Forestry Plantations' Harvesting PotentialTable 6: Sawmills in Zambia 1976Table 7: ZAFFICO's Production PatternTable 8: Output and Capacities of Existing ZAFFICO SawmillsTable 9: Estimated Volume of Sawlogs with Butt Diameter of 55 cm

ANNEX 4: Selected Documents Available in the Project File

Charts and Maps:

Chart C-1: Proposed ZAFFICO OrganizationChart C-2: Project Implementation ScheduleChart C-3: Proposed Layout of Production Complex at KITEMap No. IBRD 17030.

I. BACKGROUND

A. Project Background

1.01 In July 1982, the Government of the Republic of Zambia (GRZ)requested the Bank to consider financing the third phase of their long-termindustrial afforestation program which aims to increase the supply ofindustrial wood to meet the increasing domestic demand for sawn timber,roundwood, paper and other wood products, and to thereby supplementindigenous forest resources in meeting such needs. A first phase projectfor which a US$5.3 million loan (Loan No. 562-ZA) was approved in October1968, established about 16,000 hectares of pine and eucalyptus over aneight-year period. The second phase project was financed with a loan ofUS$16.8 million (Loan No. 1424-ZA) which was approved in May 1977. Thesecond phase project consisted of a planting and replanting program,plantation maintenance, expansions in logging and transport capacity,establishment of a new sawmill, staff training and charcoal trials. Atotal of about 20,000 hectares of forest plantations have been establishedand replanted under the second phase. The second phase project wascompleted in December, 1982. The physical implementation of both phases ofthe project have generally been successful particularly within theafforestation program where planting targets have been exceededsignificantly. However, the Project's logging and sawmilling operationshave been less successful and have suffered from weak management,inappropriate equipment and shortage of trained and experienced staff aswell as from inadequate support services (accounting and engineering).

1.02 Until September 1982, the Industrial Plantations Division (IPD)of the Forest Department (FD) within the Ministry of Lands and NaturalResources (MLNR) was responsible for the implementation of both projects.Since then IPD has been incorporated into a public corporation under theCompanies Act and it is currently operating as Zambia Forestry and ForestIndustries Corporation Limited (ZAFFICO), a company which was registered onSeptember 24, 1982. ZAFFICO is fully owned by the Zambia Industrial andMining Corporation Limited (ZIMCO), a public holding company to which most

parastatal companies in the country are associated. However, ZAFFICO willoperate as an independent legal and financial entity as provided for underthe Companies Act.

1.03 Assistance to the GRZ in the preparation of the third phase wasprovided by the Food and Agricultural Organization/Cooperative Program(FAO/CP). The Bank Group provided guidance during preparation. Thisreport is based on the findings of an IDA appraisal mission comprisingMessrs. B. K. Zegge, H. Wagner, A. Bose, and R. Ranasinghe and Ms. D. White(IDA) and Mr. K. Kehr (Consultant), which visited Zambia in October/November 1982.

B. Economic Setting

1.04 The Republic of Zambia has two major disadvantages: itssituation as a landlocked country with long distance (1,500-2,000 Km)communication lines to the coast, and a large internal regional imbalancedue to the contrast between a highly industrialized and agriculturally welldeveloped zone in the central, eastern and southern regions and extensiveunder-developed rural areas in the north and west of the country.

1.05 In 1982, an estimated 6.2 million people lived in an area of752,614 Km2. About 43% of the population lives in an urbanized zone(Livingstone-Lusaka-Kitwe) 40 Km wide on both sides of the 'line of rail',with a density of 35 people per Km2; the rest of the country is very thinlypopulated, averaging two persons per Km2. Historical and geographicalreasons for regional imbalance and high urbanization of the country are theconstruction of the railway lines early this century, from Southern Africa,via the higher central and tsetse fly-free plateau of Zambia towards thecopper mines of Zambia and Zaire. This led to the rapid development ofcopper exploitation in the 'Copperbelt' area, and to the settlement ofwhite farmers on the fertile soils along the railroad. Today Zambia is oneof the most urbanized African countries south of the Sahara with an urbanpopulation which has greatly increased especially since independence in1964. Zambia is the world's fifth largest producer of copper and thenational economy is heavily dominated by this export commodity. Nearly 95%of the country's exports consists of refined copper and some other metals(zinc, lead, and of fast increasing importance: cobalt) which areresponsible, with fairly large variations over the years, for aboutone-third of the GDP and over half of government revenue. The slump incopper prices, rising production costs and inflation, and the geographicaland political problems of copper export, have severely eroded the role ofthe copper industry in the Zambian economy, while growth in the entireeconomy stagnated during the 1970's. Views on the role and future ofagriculture have changed in Zambia as a result. While in the pastagriculture has been viewed as a sector playing a supplementary role, thereseems now to be general agreement within the Covernment that a good part ofthe potential for future economic growth lies within agriculture, given itspotential, in terms of land resources, climate and water resources, forcrop and livestock production. However, this realism has not yet beenreflected in the Government's strategy for future economic development.Thus, the challenge facing the Government right now is how to formulatethis strategy and implement it. The Bank, through its sector work programfor the next three years (1983 - 85) is helping the Government to meet thischallenge. To this end, an agricultural import substitution and exportstrategy study has been recently carried out jointly by the Bank andGovernment.

C. The Agricultural Sector

1.06 There has been limited structural change and diversification ofaggregate production in the Zambian economy since independence. While theshare of the copper sector has declined, the share of agriculture hasremained constant and the sector has actually stagnated since 1965.Agriculture, providing a living to about 60% of the total population,contributes only 15% of GDP, indicating the low levels of ruralproductivity and incomes. Moreover, within the agricultural sector, themajor two components, the commercial and the traditional farmers, appear tohave grown disproportionately. While the commercial sector, consisting ofabout 26,000 large and medium scale farmers, has doubled its contributionto GDP in the period 1965-80, the share of the traditional sector,consisting of about 600,000 households, has gradually declined. Thus, theless than 2% annual growth rate in agricultural output recorded during1970-80 was apparently confined to the commercial agriculture sector.

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Until recently, research as well as extension and training, have beenoriented mainly towards production on the large, capital intensivecommercial farms that occupy the most fertile land and are well served bytransport and other infrastructure. Research and extension, therefore,have been largely commodity-oriented, with a heavy emphasis on a few crops,particularly hybrid maize. Consequently, little is known about traditionalcrop production and the farming systems practised in less favorable, oreven marginal, agricultural areas.

1.07 Government's stated long-term objectives in the agricultural andrural sector have consistently been stated as: (a) to achieve a moreequitable distribution of income and increase rural employment; (b) tobecome self-sufficient in major foodstuffs and in some agriculturalproducts; (c) to diversify the economy and widen the export base byproducing and selling abroad agricultural surpluses. However, theGovernment has been less specific and unclear as to the means of achievingthese objectives. As a result, some of the policies and Government actionshave not been fully consistent with each other or with the stateddevelopment objectives.

1.08 The poor agricultural performance described in the foregoingparagraphs has been caused by a number of interrelated factors, including(a) inadequate planning and implementation capacity within the Ministryresponsible for agricultural development and within the institutionscharged with the management of the sector's development, which hascritically inhibited policy analyses and decision making which arenecessary for specifying alternative strategies for achieving long-termobjectives; and (b) the following other three major problems which havecollectively and independently inhibited implementation capacity within thesector. First, marketing and pricing policies have given rise to severedistortions in producer incentives leading to less than optimal resourceallocation in the agricultural sector. During much of the period sinceIndependence, a variety of government-controlled marketing agencies hasbeen created and vested with monopoly rights to purchase and sell specifiedagricultural commodities in the country. The operational efficiency ofthese institutions has been poor. During the same period, Governmentpricing policy has been tilted against producers in favour of consumerinterests, resulting in implicit taxation of producers in the agriculturalsector and massive subsidies to mainly urban consumers. Second,Government's budgetary allocations for productive purpose withinagriculture have been inadequate, reflecting in part Government's planningshortcomings and its failure to accord agriculture its rightfulimportance. Specifically, inadequate recurrent budgets have createdspecial problems in managing and maintaining agricultural services,particularly research and extension. A Bank study in 1981 found thatagricultural services were underfunded by 40% and that only 20% of MAWD'srecurrent budget was spent on providing agricultural services to farmers,while 80% of its budget was utilized to finance subsidies to parastatalshandling agricultural marketing, input delivery and credit. InadequateGovernment investments in agricultural services partly explain the

persistent stagnation in Zambian agriculture, especially in traditionalagriculture. Third, the effects of inadequate Government investments inkey agricultural services have been made worse by the weakness ofagricultural credit institutions in the country.

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1.09 In the agricultural sector, a development strategy needs to beformulated to identify specific areas of growth potential and define keypolicies and instruments needed to achieve as efficiently as possible thestated objectives of the Government. The issues involved iLn theformulation of such a strategy are currently being examined under an ImportSubstitution and Export Development Strategy Study, which is beingundertaken jointly by the Bank and the Government.

1.10 Todate Bank Group assistance to agriculture has involved nineprojects (two for industrial forestry, two for livestock/dairy development,two for tobacco production one for coffee production and two area-basedproject for crop production. The first livestock loan was cancelled in1973 at GRZ's request because of pricing problems and poor management. Thedairy project which aims at improving milk production by smallholderproducer was approved in 1982 and is having initial implementation problems(especially inadequate funding). The first and second industrial forestryprojects were relatively well executed. The two commercial tobacco farmingprojects were completed, but were unsuccessful in meeting their respectiveobjectives of training and establishing Zambian commercial tobacco farmersand hence raising tobacco production. The projects encountered majormanagerial problems and pricing policy issues. The coffee project is beingexecuted satisfactorily, although it has faced cost overruns and shortagesof foreign exchange and Government funds. The two area-based agriculturaldevelopment projects have just become effective and are facing inadequateGovernment funds and pricing issues, which are likely to constrain theattainment of their major objectives of increasing production. Assistanceto agriculture has also been provided through projects in other sectors.The Fourth Education Project, for example, had a major component tostrengthen the training of extension staff and farmers; lines of credit tothe Development Bank of Zambia have financed the provision of medium andlong-term finance to commercial farmers.

II. THE FORESTRY SUB-SECTOR

A. Resources

2.01 Zambia's forestry resources consist of natural or indigenousforests and man-made plantation forests. The proposed Project would beconcerned with the latter, which principally produce industrial wood.Zambia's climate is characterized by a warm and wet season from November toApril and a cool and dry season from May to September. Average annualrainfall is about 800 mm in the central region and 1,300 mm in thenorthwest.

Natural Forests

2.02 Most of the forest areas are in a high plateau lying between1,000 m and 1,500 m above sea level. About 370,000 km2 or 50% of the totalland area is covered by forests which can be divided in two inain types.First are closed forests, of which the Zambia teak forest in the Southernand Western parts of the country is the most important. It consists of twocommercial species: Baikiaea plurijua (teak) and Pterocarpus angolensis(mukwa). Second are open woodlands of which the "miombo" woodlands are the

most extensive, dominated by Brachystegia, Isoberlinia and Julbernardia

speciies, and containing a number of commercially valuable species such asAfselia quenzensis, Allizia spp., Burkea africana, Ectando plerggena spp.,Khaya niasica and Pterocarpus angolensis. Only slightly more than 7million ha of a total of 37 million ha of indigenous forests are gazettedand nominally under the protection of FD. About 70% of the gazettedforests have some sort of management and concessions for felling for timberor firewood. The average yield of commercial sawlogs in these forestsvaries between 5 and 13 m3/ha (in the northwest, as high as 38m3/ha), whileabout 50 m3/ha of poles and firewood is obtainable. The indigenous forestsare a declining resource. The easily accessible areas, mainly close tocities and along the line-of-rail, have been exploited for a long time andare now virtually depleted. Increasing transport distances and loweryields would make it difficult to exploit the remaining forestseconomically in future. The indigenous forests are slow to regenerate. Onaverage, it takes about 50 to 60 years to produce sufficient sawlogs withappropriate diameters in indigenous forests, while eucalyptus would providesimilar dimensions in about 12 years and pine in 25 years.

Plantation Forests

2.03 With exploitation of indigenous forests becoming increasinglyuneconomic, the Government launched in 1962 a long-term industrialreafforestation program, carried out by the former Industrial PlantationsDivision (IPD). Since then about 36,000 ha of pine and 7,500 ha of

eucalyptus plantations have been established in the Copperbelt area. Thereare four major plantation areas belonging to the former IPD, at Ndola,Chati, Lamba and Ichimpe. The main species are Pinus kesiya, Pinusoocarpa, Eucalyptus grandis and Eucalyptus cloeziana. The age structure ofthese plantations reflects IPD's plantings in the last five years whenabout 50% of total plantations were established. Their annual roundwoodproduction potential (sustained yield) is currently estimated at 200,000 m3

each of pine and eucalyptus sawlogs, with another 120,000 m3 in smalllogs. Actual exploitation has been a small fraction of this potential, duepartly to insufficient or ineffective wood processing capacities.

B. Institutions

2.04 The Forest Department, the former Industrial Plantations Divisionnow Zambia Forestry and Forest Industries Corporation (ZAFFICO) and anumber of wood-based industries are the main institutions directly involvedin the forestry sub-sector. The Zambia Industrial and Mining CorporationLtd. (ZIMCO), the sole shareholder of ZAFFICO, is the apex holding companyfor most of the Government's investments in state enterprises.

Forest Department

2.05 The Forest Department, which is part of the MLNR, hasresponsibility for forestry policy, management, research, extension andtraining. The Department is headed by the Chief Conservator of Forests,and is comprised of two main divisions, one for field staff and the otherfor specialists. Until the establishment of ZAFFICO, IPD was also adivision of the Forest Department. The head office of the Department is inNdola, the capital city of the Copperbelt Province.

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2.06 The major spheres of operation of the Forest Department are: (i)management of the gazetted forest estate, consisting of productionreserves and protection reserves (in water catchment areas and areas ofspecific botanical or wildlife interest); (ii) control of production ofwood products from gazetted forests for domestic and industrial use; and(iii) extension and publicity, including advisory services to privatewoodlot owners and a network of nurseries. Insufficient staff and budgetresources prevent the FD from exercising effective control over the forestestates.

2.07 Forestry research consists of (a) forest research, on indigenousand exotic species; and (b) forest products research including charcoalkiln testing and timber preservation, seasoning and structure testing.

2.08 The Zambia Forest College at Mwekera near Kitwe is under theauthority of the Forest Department, and trains Forest Rangers andForesters at lower and higher level courses, respectively. There are nofacilities in the country for graduate training for forestryprofessionals. Short-term training on a number of technical subjects isprovided by a Forest Workers Training Center at Chati, owned by ZAFFICO.

IPD/ZAFFICO

2.09 IPD was the national agency responsible for industrial forestryplantations development and, in this capacity, had implemented two projectsin this sub-sector supported by the Bank. On September 24, 1982, IPD wasincorporated as a public limited company under the Zambian Companies Act,as the Zambia Forestry and Forest Industries Corporation, Ltd. (ZAFFICO),as a wholly owned subsidiary of ZIMCO. (IPD will be referred to indiscussions of past activities in this report.) ZAFFICO's statute gives itwide powers including land acquisition, establishment and management ofplantations, sawmilling, raising funds and manufacture of pulp and paper.

ZIMCO

2.10 ZIMCO was established in 1970 under the Zambian Companies Act asthe holding company for most of GRZ investments in state enterprises.After a process of acquisitions and changes, most recently in 1979, ZIMCOnow has over 100 direct or indirect subsidiary companies, themselves set upunder company law, in virtually every sector of the economy: mining,industry, agriculture, finance, trade, hotels, transport, energy, etc. InFY81, the aggregate turnover of the ZIMCO-affiliated companies was K2.2billion (however, gross profits totalled only K57 million), andconsolidated balance sheet value of assets was K4.4 billion. Thesecompanies employ over half of the industrial work force, wilh more than125,000 employees in March 1981.

2.11 The 1979 reforms were intended to improve the businessorientation and decision-making capacity of ZIMCO companies,, and toovercome a pattern of common problems including undercapitalization,eroding equity, caused mainly by inappropriate pricing, operationalinefficiencies and severe weaknesses in management. For ZIMCO, the majorreforms were the appointment of a full-time directorate and management("executive directorate") with wide powers, reconstruction of its Board,

and the abolition of ZIMCO sub-holding companies, with two exceptions (onebeing the Industrial Development Corporation, Ltd., or INDECO). Theprevious system of responsibility of the companies to relevant Ministriesor Government departments was abolished. The chairmen of boards ofsubsidiary companies are now selected from among ZIMCO executivedirectorate members. ZIMCO now has powers, increasingly exercised, toapprove budgets and corporate plans of subsidiary companies, appointdirectors and managers, set standard terms and conditions of service andapprove price changes of products. It has recently introduced a new salarystructure and terms and conditions of service for all staff ofZIMCO-affiliated companies, which are an improvement over those of thepast; the salaries are 15% to 25% higher than that for staff in comparablepositions in the civil service.

2.12 Other than ZAFFICO, ZIMCO-affiliated companies in the woodprocessing sub-sector are the Zambezi Saw Mills Ltd., Mining Timbers Ltd.,and the Zambia Steel and Building Supplies Ltd. (ZSBS), all INDECOsubsidiaries. The former operates two saw mills and a wood-workingfactory. ZSBS is a distributor of imported and local building materials(including sawn timber) and manufacturer of blockboards and timber doors.

Wood-based Industries

2.13 Sawmilling dominates the wood processing industry. There aresome 15 sawmills in the country, the majority of which are operated byquasi-government companies. There are four private sawmilling firms.Aside from ZSBS, there is a privately-owned plywood factory in Chingola.The Zambezi Paper Products Ltd., a private firm, operates the only papermanufacturing factory, based on waste paper and imported pulp, in Ndola.There is also a match factory, based on plantation pine, in Kitwe. About50 public and private firms are estimated to be operating in the furnitureand joinery industry.

C. Production, Processing and Marketing

2.14 In recent years domestic production of wood products in Zambiahas met only part of the estimated demand, while imports have lagged due toforeign exchange shortage. Domestic production has been inadequate bothquantitatively and qualitatively, although the total rated sawmillingcapacity in the country has been adequate in relation to estimated demand.The problems are thus of capacity utilization and improved wood quality.It is estimated that the current aggregate potential supply of wood fromdomestic forests (under sustained management) is considerably in excess ofdemand in the foreseeable future (Annex 3, Table 1).

Wood Supply and Demand

2.15 Indigenous forests in Zambia continue to be the main source ofsawn timber, poles and mining timber, in addition to fuelwood, despiteprogressive depletion. At present, about 7 million m3 of fuelwood,equivalent to the output of 135,000 ha, is cut annually from miomboforests, much of which is converted into charcoal. Both the use of woodand its conversion into charcoal have been inefficient, to the extent thatup to an estimated 40% of wood could be saved with more efficient stoves

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and charcoal kilns. The Forest Department, together with the Bank,prepared a fuelwood project for Lusaka, a major charcoal consumptioncenter, with eucalyptus plantations as a long-term replacement forindigenous wood; the project also envisaged establishment of means tobetter control and price exploitation of public forests. However, theprevailing economic difficulties in Zambia led to a reassessment of theGovernment's most immediate development priorities and consequentpostponment of its plans to invest Government resources in the fuelwoodproject.

2.16 The estimated annual utilization of domestic wood in recentyears, based on wood products sold (excluding firewood) have been about231,000 m3 roundwood equivalent, with the following break down (see Annex3, Table 1): sawlogs from natural forests 120,000 m3, sawlogs fromindustrial plantations 40,000 m3, wood for poles 40,000 m3, wood for panels23,000 m3 and match billets 8,000 m3. This was converted intocorresponding products, including e.g., 56,000 m3 and 16,000 m3 of sawnwoodfrom natural and industrial forests, respectively. To arrive atconsumption figures, imports have to be added to the above, consistingmainly of: wood panels, raw materials for the local paper factory andsawn timber, which translates into an estimated annual roundwood equivalentof 40,000 m3 for panels and 100,000 m 3 for paper; and 106,000 m3 ofsawlogs, although these figures have varied sharply due to importrestrictions. Small diameter logs from thinnings in domestic forests arenot utilized, in the absence of a pulp mill.

2.17 Non-availability of reliable consumption data makes it difficultto estimate aggregate demand of wood and wood products. Using per capitaconsumption of sawnwood in past years when there were no import controls,in conjunction with recent consumption, the current annual demand isestimated at 90,000 m3 of sawnwood, equivalent to 257,000 m3 (r) of sawlogs. Adding this to the consumption figures in para 2.16 as well asimports, probably gives a rough approximation of the current annual demand,at about 460,000 mi (r) equivalent. Thus, demand is presently more thantwice the actual supply from domestic sources. However, the aggregatepotential supply of industrial wood, estimated at 770,000 m3 (r) in 1981including 250,000 m3 (r) from natural forests, is again considerably higherthan estimated demand. Aggregate projections for supply of and demand forroundwood (Annex 3, Table 1) indicate that the supply surpluses woulddecline from 264,000 m3 in 1985 to only 61,000 m3 in 2000 and supplydeficits are likely to emerge in the early 2000s. Given the long-maturityof pine trees (25 years), this suggests that modest plantings to cover thelikely gaps should be initiated now. There are thus two types ofimbalances in the industrial forestry sub-sector: inadequate andinefficient domestic processing capacity to meet internal demand andoverproduction of industrial forestry resources in relation to bothdomestic wood processing capacity and to national demand for wood and woodproducts.

Wood Processing

2.18 Zambia's wood processing industry has a limited range of productsconsisting of sawn timber, plywood, blockboard and poles, and is largelybased on indigenous forests (Annex 3, Table 2). It is dominated by saw

mills. These sawmilL's !"a profile of which is summarized in Annex 3, Table6) can be divided into the following four distinct groups:

(a) Four mills opperatIng in the teak forests of the WesternProv-nce' t'0 pcubliic and two private, with installedcapacities of 20.000 m3 (s) and 7,000 m3 (s), respectively.The majoir Droducts of these mills are teak and mukwasawnwood. Their actual production was only about 50% of thecapacity iI i981, largely due to operational inefficiencies.

(b) Five circular saw mills in the Copperbelt producing sawntimber for the copper mines from several indigenousspecies. Their total production was about 25,000 m3 of sawntimber in 1981, as against an installed capacity of 40,000m3 . The major products include pitprops, sawnwood, railwaysleepers, smelter and refinery poles for mines.

(c) Several very smali mills based on indigenous forests in.arious other parts of the country, with installed capacityestinac2d at 17,000 m3 (s).

(d) Mills based on ndustrial forest plantations within theCopperbelt area consist of ZAFFICO's five sawmills and twosmall c-'rcular mills belonging to furniture companies.Their toral capacity was estimated at 33,000 m3 ofsawn timber and purlins in 1982, but actual production wasonly 24,000 m3. Another new circular mill, with a ratedcapacity of 20,000 i 3 , i-s being installed by ZAFFICO atKalibu and will become operational in 1983.

2.19 ZAFFICO produces telegraph and power poles by preservativetreatment of eucalyptus roundwood, with a capacity of 15,000 m3, andsmelter poles for copper refineries. Mining Timbers Ltd., produces miningpoles mainly from indigenous species. Other wood products includeblockboard and plywood, both of which are produced by ZSBS, mainly fromimported raw materials, as locally produced sawn timber is usually toosmall in diameter and has high moisture content. ZSBS capacities are 8,400m3 of blockwood and 3,600 m3 of plywood, but production is at about half ofthese levels, due to Lrequent lack of imported polyester glue. A privateplywood plant, established in 1980 with a capacity of 9,000 m3 , hasrecently started production, using indigenous species, but with plans tolater use plantation wood. The Zambezi Paper Products Ltd., uses importedwaste paper and pulp. The firm has a plan to establish a 6,000 ton pulpplant which could use plantation wood in future, but Government approvalhas not been forthcoming to date.

Marketing and Prices

2.20 Zambia has been a net importer of all kinds of paper and paperproducts, wood panels and sawn softwood. All the production of sawn timberand wood-based paneL industry described in the foregoing paragraphs isgeared to meet domestic consumption. The present marketing system of woodand wood products consists of direct sales from IPD/ZAFFICO mills toconsumers, while wood products and production from non-IPD/ZAFFICO mills,

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including imports, are mainly marketed through private small merchants,ZSBS and Mining Timbers Limited. The industry is protected by importduties of 30% on sawnwood and on wood panels; nevertheless imports ofsawn timber from low cost producers in neighboring countries do effectivelycompete with domestic production (para 2.21).

2.21 If adjustment for quality differential is made, market prices fordomestic sawn timber are considerably higher than those of imports. Acomparison of domestic and imported pine sawn timber prices; revealed, forinstance, that Swazi or South African seasoned pine sawn timber of mediumquality was priced at K233/m3 net of tax, compared to K290/m3 for IPD pinesawnwood (16mm x 25mm) in Lusaka. IPD was able to charge such high pricesbecause of inadequate supply of sawn timber relative to domestic demand.However, due to improved efficiency and productivity during Projectimplementation, the average ex-factory price for treated sawn timber fromthe Project is estimated at K209 per m3 compared to the c.i.f. border priceof K233/m3 for imported Swazi timber. Thus the Project would becompetitive even under free trade conditions.

D. Forestry Policy and Strategy

2.22 The Government's major policy objectives for the forestrysub-sector are stated as: (i) conservation of indigenous forests throughconventional measures (e.g. forest protection and controlled exploitation),and through planting of fast growing exotic species; (ii) protection offorest reserves in water shed or river flow areas against soil erosion andriver silting; and (iii) promotion of a viable forestry sub-sector throughappropriate research, extension, reafforestation and wood processingprograms. However, the Government has been less specific in defining themeasures to achieve these objectives. Hence the major challenge facing theGovernment is to design a long-term development strategy for the forestrysub-sector that would address key issues regarding (a) adequate supply offuelwood, as the major source of energy, to the rural and urban poor whocannot afford alternative sources; (b) establishment of appropriateindustries to utilize existing and future forestry resources; (c) the roleto be played by the public sector vis-a-vis the private sector in thefuture development of the forestry sub-sector; and (d) the improvement ofproductivity and efficiency in the sawmilling and wood-based industries.These issues will be addressed in a proposed Forestry Sub-sector Develop-ment Study which has been agreed upon by the Bank and Government, and whichis expected to be carried out before the end of 1983. The proposedProject, primarily a rehabilitation program designed to increase domesticwood production and improve productivity and wood quality, would meet partof the major gaps in domestic supply of wood products, as well as partiallyaddress the issue of productivity and efficiency in the public sector.Therefore, the project would not prejudice the outcome of the forestrystudy, but is viewed only as one immediate step among the various stepslikely to be identified in the study for the resolution of the issuesindicated.

E. External Assistance

2.23 The Industrial Forestry Plantations Project Phase I (Loan No.512-ZA) and Phase II (Loan No. 1424-ZA) were projects financed by the BankGroup. The Commonwealth Development Corporation (CDC) also participated in

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the financing of the second phase. These phases were primarily aimed toexpand industrial forestry plantations to meet the country's futurerequirements of timber and wood products, although components for woodutilization, particularly log transportation and sawmilling, were includedin the second phase. The proposed Bank loan for the third phase Projectwould continue Bank Group assistance to the industrial forestry developmentprogram.

2.24 Over the years, the Government of the Republic of Zambia (GRZ)has also received technical and financial assistance from the Governmentsof Finland, United Kingdom and Sweden, particularly in sawmilling, forestryresearch and extension. At present only Finland, through the FinnishDevelopment Agency (FINNIDA), maintains an active assistance program. Mostof this aid would be for ZAFFICO, to procure sawmilling equipment for thethird phase project, while a small part of it would assist the ForestDepartment to strengthen its research, extension and training for theperiod 1983-88. FINNIDA's assistance to ZAFFICO would be fully coordinatedwith IDA's assistance.

F. Review of Phases I and II Projects

Phase I Project

2.25 The first phase project was part of GRZ's long-term industrialplantations program primarily aimed at meeting the mining industry's demandfor roundwood and sawn timber. It provided for annual planting of 1,000hectares each of pine (mainly P. Kesiya) and eucalyptus (mainly E. Grandis)over the period 1969-1976. The project was managed by IPD, which operatedalmost independently and on a self-accounting basis. The total plantationtarget of 16,000 hectares was reached in seven years instead of eight but,based on reassessment of wood requirements, the ratio of pine to eucalyptusplanted was 72:28 instead of 50:50 at completion of the project. Thesechanges were made with the Bank's agreement. However, GRZ rejected a Bankrecommendation to create a Forest Industries Board in 1970 to manage theimplementation of the industrial plantations program because it did notshare the Bank's judgement that such a Board was necessary. Total projectcost amounted to K15 million as against the appraisal estimate of K8million, equivalent to a cost overrun of 90%, which was wholly financed bythe Government. The cost overrun was due largely to an inflation ratewhich was higher than the appraisal mission's assumptions. However, actualincreases in the value of sawn timber were large enough to offset thehigher costs, and a 10% rate of return was estimated in the Bank's AuditReport of the project. Although the project was generally successful inachieving its physical targets, insufficient attention was given to thetraining of senior Zambian staff, and consequently part of the second phaseproject was designed to redress this shortcoming.

Phase II Project

2.26 The second phase project was designed to continue IPD's long-termplanting and maintenance program, expand logging and sawmilling capacityand conduct studies designed to lead to more economical and efficient landclearing and charcoal production. It provided for, over a five year period(1978-1982): (a) new plantings of 15,000 ha of pine and 2,500 ha of

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eucalyptus; (b) replanting 2,000 ha of clearfelled areas with eucalyptus;(c) maintenance of (a) and (b), together with all existing IPD plantations;(d) increasing IPD's logging and transportation capacity from about 60,000m3(r) to 120,000 m3(r) per year; (e) establishment of a sawmill with acapacity of about 40,000 m3 of sawnwood per year (double shift); (f) stafftraining and fellowships; and (g) research, experimentation and studiesdesigned to improve land clearing and charcoal production methods. Totalproject costs were estimated at K27.5 (US$34.5) million. IPD wasresponsible for project implementation, although provision was made toconvert IPD into a commercial company by December 31, 1978. However, thisdid not happen until September 24, 1982.

2.27 The second phase loan is not yet fully disbursed but the projectis virtually completed. The Project's Closing Date is December 31, 1983,after which the PCR would be prepared. On the basis of an implementationreview, this phase is judged to have been successful with respect to theproject's forest plantation establishment program, for which most of theappraisal targets for nursery production, land preparation and plantinghave been surpassed. About 20,500 ha of plantations (17,000 ha of pine and3,500 ha of eucalyptus) are expected to be established by completion, thusachieving 13% for pine and 40% for eucalyptus above appraisal targetswithin the original cost estimates. However, the replanting program wasless successful, partly due to IPD's preferential resource allocation forplantation establishment and partly by bottlenecks in sawmilling operations(e.g. capacity underutilization) which led to a reduction in clearfelledareas relative to appraisal assumptions. Similarly, IPD's performance inforest plantation maintenance (consisting of weeding, pruning, thinning andfire protection) was less successful and far below appraisal targetsbecause of project management's preoccupation with plantationestablishment, a sharp increase in labor costs in 1981 and lack of animmediate market for first thinnings. The proposed Phase III would, amongother things, attempt to refocus management's attention on silviculturalaspects of the project. Furthermore, for a variety of reasons includingdelayed procurement of equipment and civil service regulations, performancewas below appraisal targets in (a) road construction and maintenance, (b)fire protection roads and compartment roads, (c) staff training and (d)research and studies.

2.28 Phase II continued IPD's logging and transportation methods,consisting of systems for tree length (mostly for eucalyptus) and for shortlogs (mostly for pine). IPD established a 110,000 m3(r) logging andtransportation capacity, but its utilization has been only about 70% due toa variety of reasons, including inability to utilize the short-logtransport system for tree-length logs during slack periods in theformer,l/ lack of spares, inadequate maintenance, sawmilling bottlenecksand weak management. These problems have rendered the existing logging andtransportation system expensive and less effective. The proposed thirdphase project would address these problems.

1/ For instance, in FY82 the short-log transportation capaciity had only55% capacity utilization, while the tree length transport capacity was130% utilized.

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2.29 The construction and operation of the Phase II new sawmill at

Kalibu has been delayed by over four years largely due to procurementdelays. Installation of the mill was completed in the first quarter of1983 and test runs are underway. The CIF cost of mill equipment plusinstallation exceeded by about 33% the appraisal figure of US$1.2 million.As appraised and tendered for, it is now apparent that the sawmill does notinclude all the needed handling facilities, adequate electric power andwater supply, sawn timber seasoning facilities (drying kilns or yard), drysawn timber sorting and chipping sheds, fuel conveyor system, wastedisposal slabs and office buildings. Without these facilities, it isinconceivable that the mill's installed capacity of 20,000 m3 of sawntimber can be attained and that its product mix would be in line withdomestic market requirements. Phase III would provide for removing thesedesign shortcomings.

2.30 IPD's operations of sawmills was unsatisfactory. Both millproduction and productivity have been low in relation to installed capacityand potential performance. Most sawn timber produced is of low-to-mediumquality and unseasoned. Total IPD installed capacity (excluding the Kalibusawmill) is about 31,000 m3 of sawn timber, but only 60% of this capacitywas utilized in 1981/82. The average sawmill recovery rate was about 40%in the same period compared to the average potential recovery rate of about45%. The major operational problems behind this poor performance includelack of well trained and experienced technical staff to operate andmaintain the mills, weak management at the operational level, inadequateengineering services, obsolete and inappropriate equipment for processing,design deficiencies in the relatively new Metex mill, poor coordinationbetween mills and the ineffective logging and transportation system.

IPD Financial Situation and Profitability

2.31 IPD's financial statements for the period FY78 through FY82 arepresented in Annex 2, Tables 1-2. These statements indicate that theoverall financ-al situation of IPD was not satisfactory. As of March 31,1982 IPD's assets totalled K51.7 million, of which K45.7 million wasrepresented by plantations. Assets were financed almost wholly by longterm loans, a common feature of the resource structure of most parastatals,which thus have no share capital as such and whose equity consists only ofretained earnings and grants. It was envisaged that with the incorporationof IPD by December 31, 1978, a proper capital structure would emerge, butsince incorporation was delayed by almost four years, IPD continued with afinancial structure unusual for a commercially-oriented entity. Meanwhile,the interest burden on loans became very heavy, e.g., K3.2 million in FY82,although interest on GRZ loans (which constituted most of IPD's long termloans) has not been paid since FY80, pending its capitalization during theformation of ZAFFICO. IPD's sales have fluctuated widely as between itsdifferent products, mainly due to problems in harvesting and in sawmilling. Underutilization of capacity was reflected in relatively lowsales volumes, which did not reach K3 million per year until FY81, but roseto K3.8 million in FY82. IPD's profits declined rapidly in recent years,with losses incurred in FY80 and FY81, although it made a profit in FY82when sales increased. Apart from relatively low production levels, otherfactors contributing adversely to IPD's efficiency have been high physicallosses between logging and production, low efficiency of log conversion,

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excessive fire damage and increasing selling expenses and bad or doubtfuldebts. A comparison between IPD's actual profitability and the appraisaltargets is made difficult by the delay in the construction of the newsawmill since this affected both the revenue and cost assumptions containedin the appraisal report. However, after taking this into account, IPD'ssawn timber production and sales performance significantly exceeded theappraisal targets, particularly in FY80 and FY81, although operatingprofits were far below appraisal targets and they were certainly notcomm.ensurate with the actual sales achi-eved, A similar comparison on otherfinancial aspects of IPD cannot be made because no financial forecasts(apart from income statements) were prepared for IPD during appraisal.IPD's liquidity (net working capital) situation has been deterioratingrapidly, so that at the end of FY82, it had a net negative balance of K3.8million, largely represented by non-payment of agreed funds by theGovernment. The financial policies and covenants proposed under the thirdphase Project should reverse this deteriorating financial situation andensure that ZAFFICO is founded on a sound and viable financial basis (paras6.06 and 6.09).

III. THE PROJECT

A. Project Rationale and Design

3.01 The proposed Project would mainly produce sawn timber,transmission poles and agricultural posts. In recent years, the supply ofsawn timber has generally been inadequate to meet domestic demand largelybecause domestic production, particularly that of hardwood sawn timber, hasbeen constrained by various inefficiencies, while imports have beencurtailed by the serious shortage of foreign exchange. The hard woodprocessing industry, which is exclusively based on natural forests,consists of small sawmills operating with obsolete equipment, shortage ofspares and of skilled manpower, and inadequate logging and transportcapacity. The exact nature of these issues and their possible solutionswould be the subject of the proposed forestry development strategy study.The problems relating to the softwood sawmilling industry, which is almostexclusively in the hands of ZAFFICO, are addressed in this report.Supply/demand forecasts (Annex 3, Table 2) indicate that the currentdomestic supply deficit of about 18,000 m3 of sawn timber would increase toabout 52,000 m by year 2000, even aftEr the third phase project has beenimplemented, implying that the proposed Project would only have moderatingeffects on the shortage of sawn timber in the country. It is thereforeobvious that future investments in the sawmilling industry, both withinZAFFICO or the softwood sawmilling operations and in the hardwoodprocessing industry, would be required to cope with domestic demand forsawnwood. IDA support for the proposed Project vis--a-vis aliternatives(such as improved fuelwood supply or private sawmilling) is justified bythe Project's significant contribution to improvement in domestic supply ofsawn timber which is an important input in such key sectors of the economyas mining and construction. The inadequate supply of sawn timber to thesesectors in recent years has adversely affected growth, particularly in theconstruction sector, indicating the high opportunity cost of sawn timberwithin the Zambian economy. Prospects for Zambia's foreign exchangesituation are that it will continue to be tight and more increasingly

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constrain imports, including sawn timber, than hitherto. Despite theongoing rapid depletion of indigenous forests for fuelwood, Zambia has notyet reached a situation (and will probably not do so in the next ten years)whereby overall shortages of fuelwood have started to act as a majorconstraint to growth in those sectors which are dependent on it. Thus, ona priori grounds, domestic production of sawn timber would appear to havehigher opportunity costs than investments in the production of fuelwood inZambia today. Furthermore, investments in fuelwood and in privatesawmilling would require hard policy decisions and improvements which mightrequire long time to implement. In particular, a clear Government policywith regard to the role of private investment in the future development ofthe wood processing industry would be necessary before incremental privateinvestments can be made. For this reason, relatively little privateinvestments has taken place in the country's wood processing industry inthe past. In view of this, private sawmilling in Zambia does notconstitute an immediate and real investment option at present. This maychange after the proposed study on forestry sub-sector development strategyhas been completed and its recommendations accepted by the GRZ.

3.02 The hardwood sawmilling industry accounts for nearly 42% ofdomestic demand for sawnwood, while ZAFFICO output's share of sawnwood isabout 30%, and the rest is represented by either imports or unsatisfieddemand. In recent years, due to foreign exchange problems, only about 60%of the sawn timber supply deficit of nearly 18,000 m3 per annum has beenmet by imports. The bulk of the imported sawnwood consists of mediumquality of softwood, mostly Swazi timber, which is largely used in theconstruction industry and, to a less extent, in the mining industry. Thepresent and medium-term economic prospects in Zambia (para 1.05) indicatethat the forecast domestic sawn timber supply deficits (para 3.01) wouldnot be covered by imports for lack of foreign exchange. The Project hastherefore been designed not only to increase the supply of sawn timber butalso to improve product quality and to diversify the product mix in orderto replace imports of sawn timber in the construction and miningindustries.

3.03 At the Project level, a roundwood harvesting potential analysis(Annex 3, Table 5) indicates that the supply of good quality sawlogs wouldincrease from about 70,000 m3(r) in 1982 to 547,000 m3(r) in 1999 and thatthe composition and sources of supply would change dramatically during theperiod 1984-99. At present, 66% of the sawlog supply is made up of pinesawlogs and 34% of eucalyptus sawlogs. In 1999 the sawlog supply isforecast to consist of 84% pine sawlogs and 16% eucalyptus sawlogs. Whileat present about 55% of sawlogs (mainly eucalyptus) is obtained from theIchimpe forest plantations and the other 45% (mainly pine logs) from theNdola plantations, it is expected that in 1999 about 54% of the supply ofsawlogs would derive from the latter group and only 46% would come fromIchimpe. The increasing availability of high quality sawlogs and thechanges in both pattern and sources of sawlog supply would have an impacton both future location and technology for additional wood handling andprocessing facilities. Increased size of sawlogs and the dominance of pinesawlogs have influenced the choice of both logging and processing equipmentproposed in the Project. The Project has also been designed with thenecessary flexibility to take account of the foreseen changes in thepattern of sawlog supply. The future dominance of the Ndola plantations inthe supply of pine sawlogs implies that the Kalibu Sawmill should primarily

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be designed to process pine sawlogs to avoid long distance and costlylogging to KITE. Since, however, the Ndola plantations' output wouldoutstrip the demand of the Kalibu Sawmill in the nesar future, seriousconsideration should be given to expanding the mil:L through installation offrame saw lines, which would be more efficient than the existing circularsaws in the mill, by i990. The Kalibu Sawmill's production would becentered around the processing of good quality pine sawlogs, and this wouldrequire that the mill be provided with adequate facilities for handlinglarge sawlogs and for further processing of sawn timber.2 /

3.04 The bulk of the wood processing industry in Zambia, in generaland within the Copperbelt area in particular, continues to be based on theindigenous forests (hardwood), or imported wood-based materials, despitethe increasing availability of plantation softwood from ZAFFICO (para2.15). Due to lack of facilities for furt.her processing of sawnwood,ZAFFICO's sawmilling, in the past and at present, has been restricted tothe production of a joinery grade which is extensively used in the domesticfurniture and joinery industry. ZAFFICO should soon embark on theproduction of a structural grade of sawn timber which is extensively usedin the domestic construct_on industry and in the mines. This wouldfacilitate integration or linkages between the Project and other wood-basedindustries in the country. The third phase Project would thus emphasizeimprovement in the quality of sawnwood through the establishment ofappropriate sawmilling and timber upgrading facilities.

3.05 Since improvement of ZAFFICOs performance is also criticallydependent on the management factor, which in the past has been quite weakin handling logging and sawmilling operations of ZAFFICO (para 3.30), anexternal team of skilled and experienced specialists would be provided tostrengthen ZAFFICO's management and to set commercial and managementstandards. A training program would also be provided to supplement thetechnical assistance program and to improve long-term individual staff andinstitutional performance.

3.06 In summary, the third phase Project has been designed: (a) toimprove the utilization of existing forestry investinents in plantations andhandling and processing facilities, with a view to increasing productionand improving the quality of ZAFFICO's wood products and product mix tomeet revealed market preferences and to reduce imports; (b) to improve andstrengthen linkages between investments in forestry resource- andwood-based industries; and (c) to strengthen the management and improveoperational efficiency of ZAFFICO as a whole, with special reference to itsoperations in logging, sawmills and supporting services. These Projectobjectives are consistent with the Government's overall long-term policyobjectives of economic growth and diversification and of improving thecountry's future balance of payments situation through sensibleimport-substitution. Similarly, the Project objectives are in line withthe Government's objectives in the agricultural sector which includeincreased output for domestic use and export, and increased ruralemployment and incomes. The Project objectives are also consistent with

2/ Further processing of sawn timber consists of seasoning, grading,square cutting of ends, cutting to length specifications, resawing,jointing and pressure impregnation.

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the policy dialogue the Bank has been pursuing with the Government ofZambia which has emphasized the need to diversify the economy away fromcopper dependency toward greater agricultural and manufacturing output inthe long-term.

B. The Project Area

3.07 The Project is situated in the Copperbelt area close to theborder with Zaire (Map No. IBRD 17030). The four main plantation blocksare grouped around Kitwe. East of Kitwe are the Ndola existing plantationsconsisting of about 18,000 ha and a semicircle of plantations stretchingfrom southwest to link with the Lamba blocks containing 4,500 ha. West ofKitwe are the Chati blocks consisting of nearly 11,000 ha; while anotherblock with 10,000 ha is in the Northwest. The expansion of thereafforestation area by 1,500 ha under the third phase Project would bemainly in the Lamba and Ichimpe areas and would bring the total plantationarea belonging to ZAFFICO to about 45,000 ha.

3.08 It is a practice in Zambia that forest plantations are onlyestablished within areas gazetted as Forest Reserves which are categorizedas State Land. There is, however, the need for the project and relatedplantation land to be formally transferred to and licensed under ZAFFICO.For this purpose, it was agreed during negotiations that ZAFFICO wouldobtain site licences, titles or rights in property under the Forest Act forits plantations. Furthermore, surrounding the Project area are abundantarable lands and there is consequently no pressure to use Forest Reservelands for agricultural purpose. The plantations have been established ingenerally well drained deep soils with a well balanced nutrient supply.However, there are local differences in the suitability of the soils andamount of rainfall for pine or eucalyptus. The Ndola area seems to have a20% higher yield for pine than the other areas, while Chati has anexceptionally good growth rate of eucalyptus, which may not be reached inother areas. The land is generally flat, very gently undulating andvarying in altitude from about 1,500 m in the north to about 1,200 m in thesouth. Average annual rainfall in the Project area lies between 1,200 and1,300 mm, occuring mainly from late October to early April. Meantemperatures are 15°C in winter and 23°C in summer.

3.09 ZAFFICO's main forestry operations are being carried out in theCopperbelt area around the towns of Kitwe, Kalulushi, Ndola, and Mufulira.The area is well served by public and forest roads and a railway line.Living conditions in these and other urban centers have, until recently,been significantly better than in rural areas. However, the effects ofdeclining copper prices and output, rapid inflation, declining formalsector employment, and shortages of consumer goods have reduced thestandard of living of both the urban and rural population. Nevertheless,the region still contains the greatest concentration of population,industrial development and wealth, and represents the greatest potentialmarket for the Project's products. In view of the continuing high levelsof urban unemployment, it is expected that both unskilled and semi-skilledlabor for the Project would continue to be readily available from thesemining cities.

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C. General Description

3.10 The proposed Project would be the third phase of Zambia'slong-term industrial forestry development program. It would provide forthe further development of forest plantations established under previousphases, for establishment of a few new plantations and replantings, for theimprovement and maintenance of infrastructure and forest services withinthe Project area, as well as for improvements and expansions in existingwood handling and processing facilities to increase wood production and toimprove product quality and product mix. The Project would be carried outby ZAFFICO over six years3 / and would consist of the following components:

(a) An Afforestation Program consisting of silviculturalmanagement of about 43,500 hectares of existing plantations;establishment of about 1,500 hectares of new pineplantations; replanting of about 1,700 hectares of pine andabout 2,100 hectares of eucalyptus; improved fire protectionpractices; construction of new access roads, logging roads,compartment roads and maintenance of existing plantationroads.

(b) Improvement of Log Transport and Handling Facilities,including provision for power saws and skidding equipmentand machinery; provision for appropriate log transportequipment; provision for new log handling equipment at theKITE and Kalibu sawmills.

(c) A Sawmilling Program providing for new equipment and spareparts to rehabilitate and improve existing obsolete andinefficient production lines at the KITE complex and DolaHill sawmill and for necessary infrastructure and additionalequipment at the Kalibu sawmill.

(d) Workshop Improvement to provide for upgrading of existingfacilities at Kafubu and Dola Hill and for establishment ofa new central workshop at Kalibu to cater for major repairwork for the whole Project.

(e) Technical Assistance, including long-term consultancies ofabout 38 man-years of specialists in management informationsystems, financial and cost accountancy, traiining, fireprotection, sawmilling, logging and transportation; andabout 76 man-months of short-term consultancy services forpreparing detailed engineering designs and tender documentsfor the proposed rehabilitation of handling and processingfacilities, for training, preparation of plans forharvesting and silvicultural research.

(f) A Training Program consisting of in-service long-term andexternal training of Project staff in engineering, woodtechnology, accountancy and management; and provision for

3/ The first Project year would be restricted to the implementation of thefirst stage rehabilitation, detailed engineering designs and plantationestablishment.

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on-the-job training of all semi-skilled and skilled staff,involving about 900 project--related personnel.

(g) Administrative Support, consisting of a supply of sixpassenger cars for replacement of existing vehicles used foradministrative purpose by senior Project staff; twofour-wheel drive vehicles for replacement, a bus fortransportation of staff to work and a micro-computer forimproved accountancy and management information systemswithin ZAFFICO as well as office furniture.

D. Detailed Features

(a) Afforestation Program

(i) Silvicultural Management

3.11 The Project would provide for the silvicultural management of theexisting 43,500 ha over a period of five years. The management activitiesof these plantations would consist of pruning, thinning, replantingclearfelled areas, and fire protection - all of which are necessary for thefull development of these existing forestry resources.

3.12 Pruning, which would be restricted to pines only, would becarried out to produce high quality sawlogs and peeler logs, to reduce firehazard and to facilitate access to pine stands. Pines would be pruned atthe average ages of 5, 8 and 11 years. More than 17,000 ha would requirefirst pruning, about 19,500 ha second pruning and about 15,300 ha thirdpruning. In order to carry out the pruning program, 209 full time ZAFFICOlaborers would be utilized. A foreman would supervise the work of every 20laborers and prepare the field data for records. Since no additional laborwould be envisaged for implementing the pruning program, the Project wouldprovide for the purchase of equipment and tools only.

3.13 Thinnings would be primarily aimed at reducing the number oftrees in a stand in order to produce high quality timber from fewerindividual trees. This would also have cost saving implications forharvesting, transporting and processing. Since delayed thinnings wouldhave unfavorable effects on the eventual quality of sawlogs, it isimportant that Project management assign high priority to thinningoperations and ensure that the thinning schedules are adhered to. Thisimplies that a great deal of thinnings to waste would be done for lack ofdemand for small logs.

3.14 Thinnings of pine stands would be carried out at ages of 11, 14,and 18 years by the logging unit. Thinning to waste would be combined withthe first pruning at the age of 5 years. The average labor force forthinning to waste would be 42 persons every year and two foremen. Markingtrees for thinning would require from 14 man-years in 1984 to 22 man-yearsin 1989. This would be done by about 20 forest rangers full time eachyear. Thinning of eucalyptus stands for sawlog production would beselective when trees reach the required commercial size. In order to dealadequately with issues relating to commercially optimal silviculturalpractices in the future, ZAFFICO would hire a competent silviculturist, whowould assist, for pine stands, in establishing (i) a minimum thinningschedule for implementation to assure quality log production (the Project

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would provide for his employment); (ii) long term thinning trials in orderto optimize timing and intensity of thinning; (iii) a compilation of allinformation available on yield, mean annual increment (MAI) etc., elsewherein Eastern Africa.

3.15 Clearfelling would be done in all pine stands of 25 years ormore, although there might be no need to cut down all stands at this age.In eucalyptus plantations, clearfelling would be carried out at any age,depending on the final utilization of the product. For sawlog production aminimum age of 12 years is required. Since the end-use of the productwould determine the length of the cutting cycle, a system that allows atleast three uniform coppicing (vegetative regeneration) should be adoptedin the future. The current practice of having thinning regimes ineucalyptus plantations would be limited to high quality sawlog production.Assurances to this effect were obtained during negotiations. Furthermore,in order to determine harvesting priority, location and work program,ZAFFICO would prepare a medium-term plan consisting of annual cuttingbudgets, logging and transport plans and, on the basis of these plans,determine the need for improvement of the infrastructure, especiallyroads. Assurances were obtained during negotiations that such plans wouldbe prepared by December 31, 1984.

(ii) Plantation Establishment

3.16 In view of the uncertainty surrounding the data on wood supplyfrom natural forests (para 2.17) and the need to cover the supply deficitsof roundwood in the early 2000s as well as of the need to utilize theProject's existing planting capacity (in terms of skilled workers andcapital stock) in the initial year of implementation, the Project wouldtherefore provide for the establishment of about 1,500 ha of' new pineplantations. In addition, replanting 1,700 ha of pine and 2,100 ha ofeucalyptus would be done in areas which would be clearfelled for harvestingor due to damage by fire. Replanting in clearfelled areas would consist of1,100 ha of pine while replanting in fire damaged areas is estimated at 600ha of pine.

3.17 The 1,500 ha of new plantations would be established, in the firstyear of the Project, utilizing part of the existing land clearingcapacity. However, in the second year, all afforestation activities wouldbe scaled down to replanting of about 700 ha per year. The plantingprogram would not require the existing 9 bulldozer capacity of the landclearing unit, instead, only 3 bulldozers would be required for theplantation establishment program in the first year. Thus the extraequipment (6 bulldozers) would be sold and the workforce would betransferred to silvicultural activities (pruning and thinning) in thesecond year of implementation. The Project would therefore neither providefor capital costs nor labor costs of the plantation establishment andreplanting programs. The Project would, however, provide funding for thecosts of operating the machinery for the purpose of the reduced remainingafforestation program. The reduced program would also mean the closure oftwo of the four nurseries. The Project would require a capacity of 3million seedlings, instead of the existing capacity of 6.5 millionseedlings, in the first year and one million seedlings per yearthereafter. About 60% of the seedling production would be pine. TheProject would provide for the production of seedlings under the

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afforestation program. About 1O tractors would be required for ploughing,harrowinv and weeding and 2 bulldozers, 1 loader, 1 tipper and I graderwould be required for road corstruction under the afforestation program.The existing equipment and machinery capacity of ZAFFICO is adequate forthis purpose and no new tractors, equipment and machinery for plantingwould be purchased under the Project, Only the cost of operating theequipment and rachinery in plantation establishment and redevelopment wouldbe provided under the Project.

(iii) Fire Protection and Control

3.18 In recent years IPD/ZAFFICO plantations have been plagued withmany forest fires. In, the period between t976 and 1982 about 5,014 ha ofpine were damaged by fire, out of which 1,572 ha were completelydestroyed. The major reasons for the poor fire record are: (a) inadequatecontrolled burning whi ch frequently got out of hand because of strongwinds, dry weather and too much burning material on the ground; (b)inadecuate maintenance of fire breaks; (c) inadequate equipment; and (d)inadequate organization of firefighting. Improved fire protection andcontrol unlder the Project would comprise the following measures: (a)establishment of new external firebreaks which would be established toprevent bush fires from entering into the plantation area; the Projectwould also provide for about 35 km of external firebreaks in the newplantations; (b) maintenance of existing fire breaks totalling about 1,100km to keep them free of vegetation through annual ploughing or grading; onetractor with ancillary equipment would be able to plough most of thefirebreaks and no provision for new equipment would be made under theProject; (c) construction of one large fire tower (30m high) in the newplantation area of 1,500 ha; and (d) provision of fire fighting equipment,(in additior, to the existing equipment consisting of three fire engines and8 light fire tenders) to strengthen and improve the ZAFFICO's fire fightingcapacity, 7 heavy fire tenders, 12 light tenders and for spares and theiroperating costs. It was agreed during negotiations that ZAFFICO wouldprepare and implement a fire protection and control program satisfatory toIDA by September 30, 1984.

(b) Logging and Transportation Improvement

3_19 The Project would provide for improving the existing logging andtransportatior system consisting of five major operations: felling,extraction, loading, transportation and road construction, with a view toinc-reasing efficiency, productivity and/or production in these operations.Durirng the Project period the production of roundwood would be increasedfrom its present level of almost 110,000 m3(r) to 177,000 m3(r), in linewith the Project's envisaged wood processing capacity (para 3.28).

3.20 Felling. The felling cycle is determined by species, age andtype of desired product. However, in both pine and eucalyptus plantations,fell.ng for thinnings as well as for clearfelling, delimbing and buckingwould be done with power saws. Since felling techniques, workers' skillsand on-site supervision are still poor and are a primary source of lowproductivity and high costs in the logging operations, the Project, underthe proposed training program (para 3.49), would provide for on-the-jobtraining in proper felling techniques for 80 felling workers, and in

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proper felling planning and organization for supervisory staff. This, plusthe use of power saws, should raise average productivity from its currentlow level of 5.39 m3(r) per manday to 6.67 m3(r) per manday by 1985/86. Inorder to cope with the increased requirements for roundwood by theprocessing facilities, felling and extraction would increase from 650 m3(r)per day in 1983 to about 800 m3(r) per day in 1986 and thereafter stayconstant throughout the Project period. A total of 190 power saws would beprovided under the Project. No incremental labor or staff to the presentnumber of 80 workers would be necessary.

3.21 Extraction. At present the logs from thinnings are extracted(transported from the stumping area to a roadside or a landing area) byskidding, using agricultural-type tractors fitted with a logging "A" frameand a 10 ton truck. At the roadside or landing area, the logs are loadedand ':lransported to the conversion centers by logging trucks. Since landingareas are usually not constructed, this unnecessarily increases the cost ofskidding. In order to improve skidding performance and logging, atree-length logging method would be used. In 1982 the average dailyextraction productivity stood at about 12.2 m3(r) per machine and 4.9 m3(r)per man. These figures indicate the extremely low productivity for bothequipment and labor, which is largely accounted for by (a) the adoption ofthe short-wood logging system for pine and (b) the unsuitability ofequipment, namely the use of inadequately equipped and powered farmtractors with one winch and a low winding-on speed. In order to overcomethese constraints, the Project would provide for 11 additionalwheel-tractors (80 HP), mainly for skidding in thinning areas, and for 3additional articulated wheel-skidders (120 HP) and 3 additional clambunkskidders (80 HP), both for use in clearfelled areas. For skidding oftree-length logs in thinnings, a double winch-type tractor with 5-tondraw pull on each winch would be provided.

3.22 Loading. The Project would also provide for improved log loadingat roadside landings and off-loading at log conversion sites. For thispurpose, two additional wheeled log loaders (120 HP) would be provided.

3.23 Transportation. At present log transportation equipment ispoorly designed, and its use is inadequately organized and managed. Duringthe implementation of the Project all roundwood would be transported to theconversion sites in tree-lengths to ensure maximum utilization of payloadcapacity of trucks and flexibility of organizing or managing logtransportation. Multiple length logs would be loaded upon a "bed" oftree-length logs which would make maximum use of the length of the trucks.The Project would provide for ten additional 40-ton trucks each withloading crane and a tandem-trailer which would be transported as piggy-backon empty return trips. These trucks would be self-loading. The existingfleet of 8 logging trucks with tandem-trailers would initially be used forthis purpose, while the other trucks, currently used for short-wood wouldbe used for sawn timber transport and for other needs as and when they arereplaced by the new transportation system. The new transportation systemwould provide a total capacity of 75 m3(r) per day and this would besufficient to meet the envisaged mills' requirement for sawlogs.

3.24 Logging Roads. The plantation areas are divided intocompartments averaging 10 ha, which are usually separated by all-weatherforest roads capable of carrying heavy logging trucks. However, these

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roads would have to be upgraded to acceptable logging road standardsthrough grading and drainage work prior to the start of extractionactivities. The Project would therefore provide for two graders (125 HP),since existing equipment currently used for land clearing operations istechnically unsuitable for this purpose.

3.25 Logging Operating Costs. The Project would also provide forincremental operating costs associated with increased logging operations.The major operating cost items are shown in Annex 1, Table 5, and includecosts of fuel, oils, lubricants, and spares for logging equipment andmachinery. The Project would not provide for direct wages and salariessince no increase in the present labor force or local staff strength isenvisaged under the Project.

(c) Sawmilling Program

3.26 Sawmilling operations in the Project would consist of logconversion, wood processing into poles, posts and sawntimber and thefurther processing of these products. At present ZAFFICO has a logconversion plant at KITE and operates five saw mills.

3.27 Log Conversion. Roundwood would be converted in sawlogs, poles,posts and match billets at the log conversion plant at KITE and at themechanized log yards at Kalibu and Dola Hill. At present, logs deliveredto the Dola Hill sawmill in short-lengths are fed directly to the mill witha log loader. At KITE all logs and poles are handled by log loaders, whichare equipped with log forks and clamps. KITE has also a log conversionplant which is currently inoperable and obsolete. The Project wouldtherefore provide for equipping every sawmill complex under the Projectwith a mechanized log conversion facility to reduce log handling costs andto facilitate optimal utilization of transport equipment through the treelength logging system. The Project would also provide for a log conversionplant capable of handling 200,000 m3 tree length logs at KITE per annum; amechanized log yard with a 50,000 m3 tree length log capacity per annum atKalibu; and a mechanized log yard with an annual capacity of 9,000 m3 treelength logs at Dola Hill.

3.28 Sawmilling. The Project would provide for increasing ZAFFICO'ssawmilling production from about 37,000 m3(s) in 1983 to 52,000 m3(s) in1986 (Annex 3, Table 7). At present, the maximum log size that can bemilled in the existing ZAFFICO sawmills is about 55 cm of diameter. Thisis equally true for the new circular sawmill at Kalibu, which has abreak-down capacity for logs with diameters not more than 45 cm. However,about 5,000 m3(r) of logs with butt diameter of more than 55 cm would besupplied annually at normal felling cycle (Annex 3, Table 5). It is alsoevident that the felling cycles of eucalyptus and pine would increasesignificantly in the near future, due to the plantation's overproductionin relation to the projected processing and market capacities (Annex 3,Table 5). This would lead to larger amounts of logs with diameters of morethan 55 cm at the butt end. At the same time, the substitution by theProject of the imported, high-quality construction timber would imply thatboth the seasoning of sawnwood and the production of boards with widths ofup to 30 cm would be necessary. Other problems in ZAFFICO's sawmillingactivities include the sawn timber handling and waste disposal systems.

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Roundwood in the foreground of the mills and sawn timber and residuesbehind the mills are handled by varicus equipment such as loaders, forklifts, trucks, tractor-trailers and by hand. Most of this work isinadequate from the viewpoint of optimal production flow and performance onone hand and from the maintenance, repair and operating cost considerationson the other hand. Electrically driven equipment like conveyors and craneswould be considered in future layouts to be developed to replace the use ofvehicles with combustion engines (Chart C-3). At present, sawmill residuedisposal is high cost and has insignificant benefits. The annual volume ofresidues would increase during the Project period from a total of about36,500 m3/solid in 1982 to 74,500 m3/solid in 1986 and remain constantthereafter. The total annual volume of sawdust is estimated at about10,650 m3 solid or 7,425 t at 80% moisture content or 4,130 t bone-dry.The Project would make provision to utilize part of the sawdust as fuel forseasoning plant boilers.

3.29 The Project also operates two vacuum pressure treatment plants atKITE, by using Tanalith AG and CT 106 in one and creosotte in the otherplant. Annual production averages about 6,000 m3 of treated poles fortransmission and telegraph lines and small poles for rural constructionpurposes. Both plants are badly maintained and a general overhaul isnecessary. Moreover, the salt treatment plant cannot impregnate poles withlengths of more than 12 meters, which are particularly required astransmission poles. Because of its high PCP content, the use of creosettewould be discontinued under the Project.

3.30 Rehabilitation and Improvement Program. In order to remove theabove constraints in the sawmilling operations of ZAFFICO, provision wouldbe made to carry out a three-stage rehabilitation and improvement programfor the log conversion, sawmills and further wood processing facilities.The first stage would consist of immediate rehabilitation of the existingmills through the purchase of urgently required spare parts in 1983/84 andthe carrying out of detailed engineering design work for the proposed woodhandling and processing facilities under stages two and three of thisprogram. The second stage would basically involve investments which wouldaim to enable the mills to utilize fully their respective installedcapacities and would be implemented during 1984/85. The third stage wouldconsist of the introduction of appropriate equipment and facilities forimproving the quality and value of ZAFFICO output and would be carried outafter 1985. The capital investments to be made in each stage are detailedbelow.

3.31 The major purpose of the first stage rehabilitation program wouldbe to improve or maintain the production of existing mills at theirrespective 1982 production levels. This stage would provide for spares inthe existing sawmills to replace the worn-out resaw of the circular sawmilland to carry out a general overhaul of the frame sawmill, both at KITE.The technical specifications for the spares and works to be carried underthis stage were determined during the detailed engineering design studies,carried out before negotiations. This rehabilitation stage would beentirely financed by Finnish aid which has been agreed upon, in principle,by the Government of Zambia and the Finnish Development Agency (FINNIDA).

3.32 The second stage wouLd be started immediately after Creditapproval by the Association and be completed at latest by the end of 1984.It would aim to reach the installed production capacity of the existingfive mills and maintain it until the production of the proposed newfacilities under the third stage come on stream (para 3-37).

3.33 At KITE the second stage rehabilitation program would consist of(a) the Metex sawmill in which the following provisions wo-uld be made:the mechanization of the log deck, the extension of the sorting line andt'ae extension of the waste handling system; (b) overhaul of the two vacuumtreatment plants and the establishment of a new log conversion plant; (c)improvements in civil works, especially upgrading of foundation work andalterations in existing sawmill buildings; and (d) increase in the logconversion plant capacity to 200,000 m3 roundwood/year.

3,34 At Kallbu the second stage rehabilitation program would providefor the completion of the semi-finished infrastructure and buildings, forexpansion in water and electric power supply, and for construction of shedsand office buildings. These works have been stopped practically by thelack of provision in the second phase project. An additional electricaltransformer, water supply and sewerage and a waste handling system would beincluded. In addition, one pick-up, one sedan car and two 60-seater buseswould be provided. The purchase of the two buses has been provided toreplace a more expensive housing program at Kalibu. It is expected thatworkers would rent houses in Kitwe, Luanshya or Ndola and would have to betransported daIly by buses to the mill, which is only 3 km from Kitwe and30 and 4C km from Luanshya and Ndola respectively.

3.35 At Dola Hill provision would be made for the installation of asemi-mechanized log yard. The log yard would be designed to handletree-length and multiple length logs for conversion into sawlogs, peelerlogs, and match billets. In addition, civil works for foundation andtimber work for log conversion and storage sheds would be provided. Thecapital investment under the second stage rehabilitation program would beco-finaniced by the Bank and FINNIDA on a parallel basis, with FINNIDAproviding for equipment required for the rehabilitation of the frame millsat KITE only.

3.36 The purpose of the third stage would be to diversify ZAFFICOsproduct mix through the production of high quality sawnwcod and timberproducts, in order to meet the needs of the domestic construction andmining industries, which are largely dependent on imports for their supplyof soft sawn timber, Also processing industries such as furnituremanufacturers could be provided with seasoned sawnwood, thus enabling themto produce improved quality furniture. Furthermore, the capacities of oldmills which are operating with obsolete arnd inefficient equipment wouldhave to be replaced by a new framesaw mill of a heavy duty type capable ofhandling and processing sawlogs with diameters of up to 80cm.

3e37 At KITE the proposed new frame sawmill would be installed with aninitial capacity of 16,000 m3 sawnwood per year, consisting of twoproduction lines in 1985/86 to replace the three old mills (see Annex 3,Table 7),. Mechanized log deck, roller and cross conveyors, trimmingstation, green and sorting chain and a waste handling system would be

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provided for the new mill. The location of the new mills, the existingMetex mill and the proposed wood in relation to the processing and handlingfacilities are shown in Chart C-3. Drying kilns with a capacity for30,000 m3 sawnwood per year would be provided. The steam boiler and fuelhandling system would be designed to cater for the kilns' capacity. Thefuel would consist of residues from the KITE mills. A green timber yardarea of about 6,000 to 7,000 m3 would be provided.

3i38 At Kalibu, provision would be made for a finger-jointing andglulam (glue-laminating) plant with a capacity of 4,000 m3 per year, andwoul'd be principally used for the production of planed sawnwood andmotuldings respectively. Thus provision would also be made for a planermill for the production of mouldings. Provision would also be made forfacilities to be established around" the new circular sawmill (a) toperw t full attainment of the installed capacity of 20,000 m3 of sawnwoodper year through the provision of a mechanized log yard capable ofconverting about 50,000 m3 roundwood p.a. and of a waste handling systemand (b) to upgrade sawn timber by providing dry-kilns with a capacity of20,000 m3 of sawnwood per annum and by cutting and quality control. Thesefacilities were not provided in the initial design of the new mill asfinanced under the second IPD project. Furthermore, civil works forfoundations and buildings would also be provided under the improvementprogram. Drying kilns would be served by a steam boiler and a fuelhandling system using wood residues (sawdust).

3.39 Provisional technical specifications for the proposed equipmentand facilities for wood handling and processing have been prepared;recommendations for the final specifications are available followingdetailed engineering studies (para 3.46). The capital costs of the thirdphase program would be co-financed by the Bank and FINNIDA on a parallelbasis, with the latter mainly providing for machinery and equipment for theKITE mills.

3.40 The Project would also provide for incremental and directoperating costs associated with wood handling and processing suchas maintenance and repair of equipment, supplies of materials and spareparts and electricity as well as for the salaries and wages of 33incremental laborers in sawmilling and about 42 incremental laborers inother wood processing activities during the Project period (Annex 1, Table7). These would be incremental inputs associated with the implementationof the Project.

(d) Workshop Improvement

3.41 Equipment in the Project's two workshops at KI[TE and Dola Hillis in extremely inadequate for major overhaul work and for normal sawmillrepair. Organization and management of stores and spare supplies is poorand, quite often, hinders preventive maintenance of equiprment. Presentrepair and maintenance procedures are time consuming and highly inefficientand are adversely affecting the operation of ZAFFICO. Maiintenance servicescover almost every aspect of the Project from maintenance of plantationequipment, and civil works to maintenance of logging, transportation andmill equipment. The technical competence of existing staf-f is reasonably

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good and could be further improved through on-the-job training byexperienced and skilled supervisors and technicians with specialisttraLning in the maintenance of the diverse Project equipment and machinery(para 3.48).

3.42 The Project would provide for the upgrading of the existing smallworkshops serving the sawmills at KITE and Dola Hill through the purchaseof new and appropriate equipment as well as through the improvement oftheir management and organization and through on-the-job training ofsemi-skilled and skilled staff. Furthermore, the Project would provide forestablishment of a new Central Workshop at Kalibu for major maintenance andworks of the Project's mobile and stationary equipment and machinery. Theworkshop would be equipped with the basic and standard machinery andequipment. The Project would also provide for a mobile workshop unit forservicing mobile ecitipment at site of operations and processing plantsother than Kalibu. This unit would be attached to and run as an integralpart of the Central Workshop. In addition, the Project would provide forthe establishment of a small joinery workshop with basic machinery, toolsand benches at KITE to provide services to the existing joinery andfurniture unit.

3.43 The Project would not provide for salaries and wages since noincrease in the present staff strength of 35 is envisaged under theProject. The Project would also not provide for materials and otherconsumables that would be required for the operation of the workshops sincethese would be charged to the operating departments or units using theequipment. The detailed specifications of the workshop equipment would bedetermined during the detailed engineering design work.

(e) Technical Assistance

3.44 The improvement and expansion of ZAFFICO's processing facilitiesand the introduction of new operations and technologies for drying,planing, finger-jointing and glulam production would present new challengesin which existing ZAFFICO management has practically very little experienceand training. In addition, the need for overall improvement in theperformance of ZAFFICO operations in the future, coupled with the lack ofcommercial experience of the present management of ZAFFICO, would maketechnical assistance imperative. The Project would therefore provide forstrengthening ZAFFICO's management through employment of experienced andcompetent specialists in a variety of fields and through short-termconsultancies to carry out specific studies or assignments.

3.45 About 38 man-years of long-term consultancy would be required,and expected to be met by international recruitment, consisting of: (i)Processing and Engineering (18 man-years): Manager of Logging andProcessing, Assistant Managers of sawmilling and processing, and of loggingand transportation; Senior Sawdoctor, Manager of Engineering andConstruction, and Central Workshop Superintendent; (ii) Finance (5 man-years): Finance Manager, (iii) Planning (6 man-years): Corporate PlanningManager and Systems Analyst (iv) Management Auditor (3 years) (iv)Marketing (3 man years): Marketing Manager; and (v) Training Specialist(3 man years). Assurances were obtained during negotiations that therecruitment of the specialists under the Technical Assistance program wouldbe in accordance with the Bank/IDA "Guidelines for the Use of Consultants",

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and that all technical specialists in logging, transportation, processing,engineering and marketing filled through international recruitment would bethrough a single technical services contract already signed with amanagement consulting firm. The specialists in finance, auditing,accounting ar,d training would be recruited directly by ZAFFICO by June 30,1984, as well as the Corporate Planning Manager whose appointment would beeffected before March 31, 1984i The terms of reference of all technicalassistance staff were agreed during negotiations.

3.46 Speciaal assign-ments for which short-term consultancy serviceswould be provided to ZAFFICO are: (i) preparation of detailed engineeringdesigns and specifications for wood processing and handling and of tenderdocuments currently being financed under a Project: Preparation Facility(PPF) advance; (ii) specialists to assist ProjeCt management to design afive-year wood harvesting and processing plan based on proper and adequateinventory data of plantations (12 man-months); (iii) training consultantsto train ZAFFICO staff and prepare training manuals for non-equipmentrelated training of ZAFFICO staff (about 30 man-months); (iv) design of asilvicultural research program and preparation of a silviculturalmanagement plan (12 man-months); and (v) other consultancies to coverspecific components as necessary. Terms of reference for (ii) and (iv)above were agreed during negotiations.

3,47 The selection of consultants for these short-term technicalassistance would be in accordance with the Bank/IDA guidelines andassurances to this effect were obtained during negotiations or in case ofpara. 3.46 (i) during the processing of the advance under the PPF.

f,f Training Program

3.48 The Project would also provide for training various ZAFFICOstaff. Since, in qualitative terms, ZAFFICO's staff strength is notsufficient to cope with the present as well as the future workloadanticipated under Phase III, the major objective of the training programwould be to improve the job skills of the staff to enhance theirproductivity. The labor productivity targets envisaged under Phase IIIcanrnot be achieved without ungrading the performance of most of the ZAFFICOstaff. Next to enforcing work discipline, through improved management andsupervision, and the provision of appropriate equipment and tools,-n-service training would be essential for establishing good workingstandards. The second objective of the training program under the Projectwould be to reduce, over time, the shortage of personnel with professionalqualifications in engineering, finance and accountancy, and management.The shortage of such personnel is severely felt at unit executive levels(i.e. manager and technical assistant level) in logging, sawmilling,workshop and accounting.

3049 In view of these objectives, the training program to beimplemented over the Project period would be designed around a trainingstrategy which would emphasize in-service and on-the-job training methods.The in-service approach would require ZAFFICO to recruit persons who havehad technical or professional training and who are able to demonstratetheir technical ability. Such persons would not need to have specific

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xperience for the jobs they would be hired for, since they would acquirethis through the Project's on-the-job training prcgram. The on-the-jobtraining program, which would be applicable to both newly recruited staffand existing skilled and semi-skilled staff at technical and non-technicallevels, would consist of two stages. The first stage would involve shortintroductory courses of up to five weeks, with the actual duration beingdependent on the nature of the job. Secondly, a practical on-the--jobtraining stage of up to two years would immediately follow the firststage. The latter stage would constitute an "apprenticeship" during whichtrainees would work under the supervision of senior staff members orforemen. At the end of this stage, successful trainees would acquireskilled status. Trainers or instructors would consist of experienced staffwho would be occasionally supplemented by instructors from suppliers ofequipmeent or consultants. A total provision of KO.25 million (US$0.18million) has been included for the expenses of accommodation and meals atthe Chati Workers Training Center for the on-the-job trainees.

3.50 Preparation of teaching mnanuals for equipment to be procuredunder the Project would be required in the tender documents and the supplycontracts would include provisions for pre-service and on-the-job trainingfor fully qualified senior staff who would then act as instructors to theon-the-job trainees. The cost of preparing teaching manuals for equipment,and of on-the-job training for instructors would thus be included in thecost of equipment. For the preparation of training for non-equipmentrelated training, separate provision would be made under the Project(Annex 1, Table 10). The Chati Workers Training Center, whose facilitiesare considered adequate, would be used for the purpose of introductorycourses.

3.51 The second component of the training program for the Projectstaff would consist of long-term and external courses, both local andoverseas, for technical and professional staff at high levels such asaccountants, internal auditors, engineers and managers. At the completionof their courses, the trainees would be expected to earn full professionalqualifications in their fields of specialization. The staff selected forsuch courses would be expected to have acquired their basic andintermediate qualifications and worked with ZAFFICO for a reasonableperiod. These Project staff would participate in training and would pursuecourses in management, engireering, accountancy, saw doctoring and woodtechnology (Annex 1, Table 10).

3e52 For the detailed planning, coordination and implementation of theoverall training program, a Training Officer, with experience andqualifications satisfactory to the Association, would be employed byZAFFICO. He will be directly responsible to the Manager of Administrationand Personnel, Furthermore, a draft training program, satisfactory to IDA,has been prepared. Its finalization is a condition of disbursement fortraining expenses. In order to minimize the loss of staff trained by theProject, each staff, trained under the long-term and external trainingprogram, would be required to enter into a bonding contract equal to atleast the length of training. Assurances to this effect were obtainedduring negotiations.

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(g) Administrative Support

3.53 The Project would provide for six passenger cars (replacements)for senior staff transportation at the head office; two four-wheel drivevehicles (replacements) for general and staff transportation; a bus fortransportation of staff to work; a micro- computer for imnproved accountancywork and information management; and for purchase of office furniture forhead office. The salaries and wages of ZAFFICO's headquarters staff do notconstitute incremental expenditures and they will not be provided for underthe third phase Project.

E. Project Costs

3.54 In order to provide an overall perspective of ZAFFICO's financialsit-ation during the implementation of the proposed Project, two sets ofcosts have been estimated: (a) costs for maintenance or operation ofexisting investments in capital and human stocks (non-incremental costs)and (b) costs associated with investments in capital and human resourcesproposed under the third phase Project (incremental costs). The lattercategory of costs constitutes the Project Costs, while both (a) and (b)above make up the Corporate Program Costs. Total Corporate Program costsare estimated at K94.5 million (US$67.5 million) of which K59.5 million(US$42.5 million) or about 63% represents Project costs, while K35.0million (US$25.0 million) or 37% represents non-incremental costs. TheProject costs include K45.3 million (US$32.4 million) in foreign exchangeand K14.3 million (US$10.1 million) in local costs. The Project costs donot include local import duties because imported capital goods are notsubject to taxation and local taxes on operating expenditures arenegligible. Details and phasing of the Project costs are presented inAnnex 1, Tables 1 through 11 and are summarized below.

&ney co ate ard Project Costs

__t________ Project ost _of which l Z

Nonl - 2 of Z ofLocal Foreign Total Increrntal Local Foreign TotaL lxxal Foreign Total. Foreign bam

K'OQO K'(X0) US$'000 heraige CkatAfforestation _ - 1 -1 -- i-

Pliintation Estab. and Rep]anting 879 611 1,490 - 879 612 1,490 628 437 1,065 41 3.7Rirsery 174 118 292 - 174 118 292 124 84 209 41 0.7Fire Prev. & SilvicLutur'al ?igt. 3,880 2,728 6,608 3,394 541 2,673 3,214 387 1,909 2,296 83 7.9

Sub-Tctaj Afforestati0 4,933 3,457 8,390 3,394 1,594 3,403 4,997 1,139 2,43i 3,570 68 121B. LogrtLng m-0 Trnsp. Irprovaeent. 3,9Y+ 5,698 9,632 2,004 1,930 5,698 7,628 1,372 4,070 5,442 75 18.8C. Sav.mling Prrgram 8,059 16,282 24,341 5,445 2,907 15,989 18,8% 2,077 11,421 13,498 35 46.5D. Workshop lIprrovement 1,054 810 1,864 863 209 792 1,001 149 566 715 79 2.5E. Technical Assistanc 415 4,362 4,777 276 391 4,110 4,501 280 2,935 3.215 1 11.1F. TrainiLg Progran 565 1,968 2,533 - 565 1,968 2,533 404 1,409 1,809 78 6.2G. MhrkeLing 3,876 1,050 4,926 4,926 - - - - - -

H. Detailed FlgieeriEg - 630 630 - - 630 639 - 450 450 t0 00 1.5I. Pr(nject dmrdnstration 2,183 375 2,558 2,088 116 354 470 83 253 336 '5 1.2

Tot.al B&eeline Costs 25,020 34,632 59,652 18,995 7,713 32,943 40,657 5,510 23,531 29,035 81 100.0Prysical Contingencies 2,247 5,265 7,512 1,388 1,028 5,096 6,124 734 3 640 4 374 83 15.0Price Cntingerries 19,703 7,641 27,344 14,577 5,525 7,242 12,767 3,947 5,173 9 120 57 31.4

Total Project Costs 46,970 47,538 94,503 34,960 14,267 45,28i 59,548 10,190 32,344 42,529 76 146.4

NUJE: Sum totals nay not add up wing to rniiding.

October 28, 1983

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3.55 Project costs were estimated at prices as of September 1983. Aphysical contingency of 10% has been applied to all costs exceptlogging,sawmilling and workshop equipment for which a physical contingencyof 20% has been estimated to account for possible margins of error in theabsence of detailed engineering specifications. Price contingencies werecalculated on a cumulative basis: for local costs the annual rates were 25%for 1983/84, 20% for 1984/85 and 15% thereafter, while for foreign exchangecosts the annual rates were 8% for 1983/84, 7.5% for 1984/85 and 6%thereafter. Price contingencies total about 46% of Corporate Program and31% of Project base costs.

3.56 Provision has been made for a Project Preparation Facility (PPF)advance of US$450,000 to finance the preparation of detailed engineeringdesigns and bidding documents for the wood handling and processingfacilities proposed under the Project.

3.57 Project costs provide for a total of 38 man-years of long-termconsultancies at an estimated base cost total of US$ 2.6 million, at anaverage cost of US$ 68,400 per man year. This includes the cost ofsalaries, fees, travel and subsistence. Provision is also made for 54 man-months of short-term consultancies for wood processing plan, training andsilviculture (para 3.46) at an estimated cost of US$0.33 million or aboutUS$6,100 per man-month. A lump sum provision of US$0.3 million has beenmade for short-term technical consultancies to be finally determined duringthe preparation of the engineering designs for the implementation ofspecific components including logging and processing. A further lump sumprovision of US$1.8 has been made for staff training. The staff trainingneeds and priorities have been identified by ZAFFICO under its trainingprogram. The Project would also provide for the expenditure on salariesand wages of incremental local staff of about US$0.52 million includingcontingencies.

F. Financing

3.58 The financing plan for the Corporate Program and the Projectwould be as follows:

Non-IncrementalCorporate Program Project Total Percent of

Costs Costs Costs Total

K(m) US$(m) K(m) US$(m) K(m) US$(m)

ZAFFICO 35.0 25.0 14.1 10.1 49.1 35.1 52IDA - - 31.4 22.4 31.4 22.4 33FINNIDA - - 14.0 10.0 14.0 10.0 15Total 35.0 25.0 59.5 42.5 94.5 67.5 100

3.59 The non-incremental costs of the Corporate Program would befinanced entirely by ZAFFICO, as would K14.1 million of Project costs inlocal currency. This financing would be from internally generated funds,which are projected to be adequate for this purpose. GRZ would providefunds to ZAFFICO, if and as needed, to enable it to maintain and operateits ongoing program of investment and development. Assurances to thiseffect were obtained during negotiations.

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3.60 The Association and FINNIDA would co-finance part of the Projectcosts as shown in the financing plan (para 3.58). The proposed AssociationCredit of SDR21.5 million (US$22.4 million) would finance 33% of totalCorporate Program costs or 53% of total Project costs, or 69% of Projectforeign exchange costs. The Association Credit would be made to GRZoni standard terms. FINNIDA would make US$10.0 (SDR9.5) million availableas a grant to GRZ, but the latter would on-lend the funds to ZAFFICO at thesame terms and conditions as those of IDA funds. FINNIDA's financingwould be restricted to providing for sawmilling and timber seasoningequipment and spares at KITE for the rehabilitation and improvementprograms (paras 3.31, 3.33 and 3.37). The Association Credit would bepassed on by the Government to ZAFFICO partly as a loan (SDR12.0 million)and partly as equity capital (SDR9.5 million) to enable ZAFFICO to maintaina satisfactory capital structure during Project implementation (para 6.10).The loan from GRZ to ZAFFICO of SDR12.0 million would be repayable over 15years including a three year period of grace. This loan would carry aninterest rate not less than the interest that would be charged on Bankloans at the time of approval of the Credit plus a 10% mark-up rate.ZAFFICO would carry the foreign exchange risk on all project funds on-lentto it by the Government; for this purpose the repayment schedule in thesubsidiary loan agreement between GRZ and ZAFFICO would denominate both theloan principal and interest in SDRs. Assurances to this effect wereobtained during negotiations. The execution of subsidiary loan agreementbetween GRZ and ZAFFICO reflecting the above terms of fun,ding andsatisfactory to the Association would be a condition for effectiveness ofthe Credit.

3.61 ZAFFICO's capital structure, as agreed with the Associationduring negotiations, constitutes the underlying capital base for thefinancial plan proposed in para 3.58. It has been agreed that theaggregate outstanding Government long-term loans to ZAFFICO (K55.5 million)and accrued interest thereon (K9.7 million) through December 31, 1982 becoaverted into share capital with effect from April 11, 1983. Suchcapitalization has given ZAFFICO a sound capital base and provided adequateleverage for financing the implementation of the Project.

IV. PROJECT IMPLEMENTATION

A. Organization and Management

.0l1 The Project would be implemented by ZAFFICO. Since ZAFFICO, awhoIly-owned subsidiary of ZIMCO, is controlled and guided in areas ofpolicy, management and finance by ZIMCO, the latter would have a role inproject implementation. Thus, the Project Agreement would be executedJointly with ZIMCO and ZAFFICO. The Managing Director (MD), who isresponsible to the Board of Directors for implementation of the Project,would be assisted by four Divisional Managers, each responsible forPlantation Management, Logging and Processing Operations, Engineering andConstruction Services and Finance, and by a Corporate Secretariat andAdministration. The Marketing Manager would be directly responsible to theMD for the execution of ZAFFICO's marketing operations.

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4.02 ZAFFICO's present ten-member Board of Directors is headed by theZIMCO Executive Director responsible for industry and commerce, and hasrepresentatives from the Forestry Department, CDC and the private sector(five). The Board composition, already agreed with the Association, isappropriate in terms of representation of relevant interests includingforestry and business experience. ZAFFICO's Managing Director is theformer Director of IPD.

4X03 ZAFFICO employs about 1,560 people onl a permanent basis. Theoverall structure of ZAFFICO's organization, as discussed and provisionallyagreed between CRZ, ZIMCO and the Association, is shown in Chart C-1 andthe a-nticipated scheduling of implementation of various components is shownin Chart C-24 Assurances were obtained during negotiations that ZAFFICOwouldc be organized as proposed for the purpose of implementing the Projectand that any future changes should be agreed with the Association. Themajor- changes in the management of the Project by ZAFFICO would be theintroduction of commercial/industrial management expertise, throughemployment of a varlety of specialists under technical assistance to theoperations of the mills, harvesting and transport, and engineering andaccounting support services. The major function of this team ofspecialists would be to establish sourd operating procedures and highmanagemnent and technical standards for the young company so that its futureoperations would be based on sound commercial practice and principles.ZAFFICO is in the process of reappointing some of former IPD staff withsatisfactory performance or recruiting new staff to fill vacancies Leftopen by non-reappointment of former staff. Such reappointments andrecruitments would remain substantially unchanged, particularly inplantation management in which the quality of the existing management andsupervisory staff is judged to be satisfactory. However, the filling ofmanagement and technical positions in logging and processing, finance andmanagemnent, engineering and construction, and corporate planning would haveto be done through international recruitment. Potentially promisingZambians with appropriate qualifications, but perhaps without muchexperience, would be appointed or recruited as deputies to each post heldby expatriate staff. Assurances by ZAFFICO to this effect were obtainedduring negotiations. 'In this way, the strategy for effective managementduring the Project period would be to blend the existing plantation-oriented management with contract management having commercial/technicalexpe.:tise and experience, supplemented with intensive on-the-job trainingof counterpart staff and other categories of local staff (para 3.49). Thesuperior corporate salary structure of the ZIMCO companies, as comparedto the civil service salaries, should help to attract better qualifiedZambian staff to ZAFFICO than hitherto. Realistically, however, progresstowards improved management and commercial-orientation would be gradual,since the entire indtustrial sector, let alone the parastatal sector, in thecountry suffers from scarcity of well trained and experienced managementand technical personnel.

4.04 A Corporate Planning Section, headed by a Manager, would beestablished as a "staff" unit responsible directly to the MD for: (i)corporate planning (involving strategic and medium-term planning for allZAFFICO's investments); (ii) establishing an integrated system formonitoring and reviewing the implementation of the corporate plan and

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operations of ZAFFICO (to provide basis for promplt management decisionsparticularly with regard to key indicators, physiaal input-output data, andproductivlty levels, and production or process unit cost data), and (iii)carrying out special studies or reviews at the request of the MD or Board,cA Systems Analyst would assist the Manager in designing and -mplementingsystems analysis procedures and in selecting hard and software forfacilitating the work of both the FA and CA as we:Ll as the maintenance ofan effective management information system by the Corporate PlanningSection. The Company Secretary will be responsib:Le to the MD for allsecretarial work and legal matters as well as for administrative, trairingand personnel matters. He will be assisted by an Assistant ManagerAdministration and Personnel (MAP), who will be directly responsible forestablishing improved and effective administrative, training and personnelmanagement procedures. A Training Officer would be resDocnsible fordesi-ing, planning and organizing the training programn for the Projeccstaff; he would be assisted by a training asststant ald the Principal cfthe Chati Workers Training Center.

41SJ5 The Internal Auditor, who would directly report to the MD, wouldbe responsible for (i) formal internal financial auditing, and (ii)performing management auditing, of ZAFFICO departments and sections.

4.06 The Manager of Plantation Management (MPM) would be responsiblefor implementation of the afforestation program. He would be assisted bythe Assistant Plantation Manager (APM). The APM would have overalloperational responsibility for supervising the implementation of theafforestation program by Senior Plantation Officers who would be in cnargeof implementing agreed activity targets in silvicultural management,plantation establishment, nursery work and fire protection. A SeniorPlantation Officer, under the APM, would be responsible for plantationphysical planning, surveys and inventory and plantation management plansXThne Manager of Logging and Processing (MLP) would be responsible forimplementing the logging and transportation program and wood sawmilling andprocessing program. In implementing the logging and transportationprogram, the MLP would be assisted by an Assistant Manager, who wouldsupervise the implementation of agreed targets by three Senior Logging andTransportation Officers, each responsible for operations in Ndola,Lamba/Chati/Ichimpe and special duties (including contract logging andstaff training). Each of these, in turn, would be assisted by logging andtransport officers and site supervisors. For the implementation of thesawmilling and processing program, the MLP would be assisted by anAssistant Manager who would directly supervise three Mill Superintendents5each responsible for operating sawmills at KITE, Kalibu, and Dola HillThe Mill Superintendents would be responsible for implementing specificagreed production targets with the help of technicians responsible forsupervising sawmilling, log conversion, timber drying and upgrading, andimpregnation of poles and posts.

4.07 The Finance Manager (FM) would be responsible for designing andimplementing a system of improved financial planning, managemen.t andcontrol. In improving and implementing sound financial management andcontrol systems, the FM would rely on the Financial Accountant, CostAccountant and Supplies and Stores Specialist, who would each supervise a

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section. The Financial Accountant (FA) would be responsible to the FM fordesigning and implementing improved financial planning and management,financial control and reporting, while the Cost Accountant (CA) would beresponsible for designing and implementing an improved and effective costaccounting and control system as well as instituting improved corporatebudgeting procedures and control. The Marketing Manager, reportirig to theMD, would be responsible for preparing anid implementing a marketingstrategy that would be based on the use of ZAFFICO's own sales outlets andprivate merchants. He will also be responsible for designing a productpricing policy and for its continuous review. The Manager of Engineeringand Construction Services would be responsible for implementing theinstallation or construction and maintenance program of Project equipment,utilities, roads and buildings. He would be assisted by WorkshopSuperintendents of the Central Workshop at Kalibu and Mill Workshop atKITE, each of whom -would be responsible for planning and supervisingpreventive and curative maintenance of ZAFFICO equipment and mills. Theimplementation of the construction and maintenance of roads and buildingswould be the responsibility of a Civil Engineer. An Electrical Engineerwould be responsible for all installation and maintenance of electricequipment in the Project. An Engineer would be responsible for theinstallation of equipment for wood handling and processing as well as watersupply equipment under the Project. Job descriptions of all the key postswere agreed during negotiations.

B. Procurement

4.08 Procurement under the Project would be in accordance withBank/IDA guidelines. Specifically:

(a) orders for vehicles, tractors, trailers, machinery,equipment and tools and initial spare parts (about US$13.0million excluding contingencies) would be packaged or bulkedas far as practicable. Orders of US$100,000 and above wouldbe procured through international competitive bidding (ICB)from suppliers who maintain or agree to maintain in Zambiaadequate after sales service, training and inventory ofspare parts (for transport vehicles);

(b) orders for vehicles, tractors, trailers, machinery,equipment and tools below US$100,000 would be procured inaccordance with local competitive bidding (LCB) procedures.These orders would not, however, exceed US$500,000 inaggregate; items costing less than US$30,000 would beprocured under local shopping procedures, with a minimum ofthree quotations required;

(c) civil works (total cost US$3.3 million) would be undertakenin accordance with standards and designs determined by thedetailed engineering designs, to be approved by IDA; asthese works would be small and distributed in time and space(individual contracts would not exceed US$150,000), theywould not be suitable for ICB and LCB; and since ZAFFICO hasthe capacity to implement such a program with reasonableefficiency, construction would be mostly by force account;

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(d) the selection and employment of consultants (US$3.2million excluding contingencies) would be in accordance withBank/IDA guidelines. Long term consultancy services wouldbe packaged or made through a single technical servicescontract as far as practicable.

4.09 Cop es of tender documents, to be prepared under the detailedengineer4ing designs consultancy (financed under a PPF advance) and to beapproved by 1DA, against contracts expected to cost: in excess of US$100,000would be submitted to IDA at the same time the invitations to bid areissued. Bid evaluations and recommendations for award would be submittedto the Association for approval before contracts are awarded. In theevaluation of ICB bids for purchase of vehicles, tractors, trailers,machinery, equipment and tools, domestic manufacturers would be allowed apreference of 15% or the existing rate of duty, whichever is lower.Equlipment, machinery, vehicles and tools co-financed through bilateralassistance would not be subject to ICB, unless so specified and agreed bythe bilateral donor concerned. Nevertheless, the technical specificationsof such equiipment, machinery, vehicles and tools would be determined by thedetailed eiigineering design work, as agreed during negotiations.

C. Disbursements

4,10 Funds from the Credit Account would be disbursed on the followingbas s.

(a) 100% of foreign, 100% of local costs (ex-factory) and 75% oflocal costs for other items, for vehicles, equipment,machinery, spare parts and materials US$12.9 million (SDR12.4mdillon);

(b) 90% of total cost of consultancy services and 100% ofoverseas staff training US$4.5 million (SDR4.3 million);

(c) 45% of local costs of civil works US$1.6 millLon (SDR1.5mnillion);

(d) an, unallocated amount of US$3 million (SDR2.87 million)representing physical contingencies of items (a) to (d), andtransferable to them as requested.

4.11 These disbursements are expected to be fully completed by March31, 1990. All disbursements would be fully documented except for localexpenditures under (c), which would be on the basis of Statement ofExpenditures signed by the MD. However, supporting documents in respect ofStatement of Expenditures would be retained by the Project for inspectionby IDA supervision missions.

4.12 A Schedule showing the estimated pattern of credit disbursementis at Annex 1, Table 120 This Schedule is based on the historicaldisbursement profile ol the second phase project, adjusted to take intoaccount a faster procurement of the major equipment and machinery throughthe early preparation and approval by the Association of the tenderdocuments and through improved management of ZAFFICO. Regional andcountry-wide disbursement profiles were thus considered inappropriate forthe Project.

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D. Accounts, Audit and Reporting

4.13 The audited accounts of the seconad phase project, under IPD, havebeen produced in time. However, an improved system for financialmanagement and planning, internal controls and cost accounting would bedesigned and implemented during the implementation of the Project, sincethe current system, though generally sound and acceptable, would requireimprovement to adequately meet Project needs in future. The provisionsmade in the Project for strengthening the finance and cost accountancysections in ZAFFICO would help in improving this situation (para 4.07).Separate records, relating to all expenditures under the Credit, would bekept in accordance with acceptable accounting practices, and reflecting thecomplete operations and financial position of ZAFFICO. All accountsrelating to ZAFFICO, including Statements of Expenditures would continue tobe audited annually by independent and external auditors appointed by theBoard of Directors and whose services are satisfactory to the Association.The audited accounts together with the auditors' report would continue tobe submitted to IDA within six months of the end of each financial year,which currently runs from April 1 to March 31. Detailed annual andsemi-annual reports covering the physical implementation of the Project,sources and use of funds together with the corporate budgets for theensuing year, would be prepared and submitted to IDA. ZAFFICO's tools forfinancial management would comprise of (a) adequate and appropriatefinancial and cost accounting; (b) annual and five-year rolling budgets andfinancial plans; (c) financial projections (including sources and use offunds, income statements and balance sheets) and break-even analyses. Inaddition, ZAFFICO would include in its semi-annual reports, to be submittedto the Association, the following financial indicators: the current ratioof operating profit to equity, ratio of receivables to sales, ratio ofinventory to output, ratio of marketing expenses to sales, and losses toplantations on account of fires. Assurances were obtained duringnegotiations that these accounting, auditing and reporting procedures wouldbe followed.

E. Environmental Impact

4.14 The forest plantations would continue to provide protection tominor catchment areas and the maintenance of soil cover on vulnerable siteswithin the Project area. By providing plantation wood to meet the nationaldemand, the Project would reduce pressure on the environmentally importantindigenous forests. The improvement in sawmilling and waste handlingdesigns and the use of appropriate and modern technology would result inimproved workers' safety from a health point of view. Similarly, thephasing out of the creosette impregnation plant would result in a completeelimination of the risk posed by the use of PCP (6.2%), a chemical agentnormally considered hazardous to human health and the environment ingeneral. The Project would thus have generally positive effects on theenvironment.

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V. PRODUCTION, MARKETS AND PRICES

A. ProductionPlantation Yields

Pine

5.01 Mean average increment (MAI) in the pine stands within the Ndolaplantations have been estimated at 15 m3(r) u.b.4/year/ha and at 12 m3

(r)u.b./year/ha for all other areas. Thus, total production in Ndola wouldbe 375 m3/ha and in the other areas 300 m3/ha in the other areas over arotation period of 25 years.

5.02 The average commercial production of pine sawlogs and smalldiamreter logs would be as follows:

Thinnings Clearfellingm3/ha m3 /ha

Sawlogs 48 122Small diameter logs 92 51Total logs 140 173

Eucalyptus

5.03 The eucalyptus timber production would be based on clearfellingoperations, without thinning as presently practised. The MAI foreucalyptus would be about 23 m3(r) u.b., yielding a production of 184 m3

(r) u.b./ha in an 8-year cutting cycle or 276 m3(r) u.b./ha in a 12 yearcutting cycle. Thus one ha of eucalyptus would produce the followingproduct mix, net of forest residues:

Sawlogs Poles Total Prod.m3/ha m3/ha m3/ha

Clearcut 12 years 166 55 221Clearcut 8 years 55 92 169

Roundwood Production

5.04 On the basis of IPD's inventory data of 1982, wiich was modifieddownward during appraisal to reflect the variability in y:Lelds amongst theplantations, the production potential by products of ZAFFICO's plantationswould be as summarized in Annex 3, Table 5. Accordingly, the average totalproduction potential of roundwood would stabilize around 628,000 m3(r) peryear, of which 300,000 m3(r) would be sawlogs and peeler 'Logs. It is alsoevident that nearly 46% of the production potential of the plantationswould be in the form of forest products for which there is presently noutilization capacity in the country, namely pulpwood and iforest residues.On the basis of the existing capacity for sawmilling in the Copperbelt(Annex 3, Table 7) plus the improvement envisaged under the proposedProject, there would appear to be a significant surplus of- sawlogs fromZAFFICO plantations, even under the assumption that all existing and futuresawmilling in the area would be based on the supply of plantation wood.

4/ u.b. = roundwood under bark.

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Under this assumption, the combined requirements of the sawmilling and woodpanels industries in the Copperbelt area would amount to almost 200,000m3(r) of saw logs and peeler logs in 1985, compared to a potential supplyof 238,000 m3(r) from ZAFFICO plantations. If it is further assumed thatthere would be no significant expansions in the utilization capacity forsawlogs and peeler logs, then there would be a substantial surplus ofsawlogs, rising from 38,000 m3(r) per annum during 1985-89 to 155,000 m3(r)per annum during 1995-99. However, aggregate supply and demand estimatesfor sawn timber indicate that demand would significantly exceed supplyduring 1990-2000, mainly as a result of inadequate sawmilling capacity inthe country (para 5.12); investments to optimize the use of plantationforest to meet national requirements for timber should be made as a matterof priority. Also and more importantly, there is no need for thecontinuation of the use of the relatively expensive and decliningindigenous forest resource by most of the sawmills, especially by themajority of the mills owned and operated by the Mining Timbers Limited. Inorder to utilize optimally the increasing supply of sawlogs from ZAFFICOplantations, assurance were obtained during negotiations that ZIMCO, whichowns the Mining Timbers Limited, would carefully review and then provide toIDA by December 31, 1985 an assessment of the possibility of basing part ofthe sawmilling operations of the Mining Timbers Limited on ZAFFICO'sindustrial forestry plantations. The production of poles would be more orless balanced, showing slight deficits after 1989 in relation to theharvesting potential of the plantations, which would be balanced by theproposed replantings with eucalyptus (para 3.17) under Phase III.

5.05 About 200,000 m3(r) or 93,000 tons bone-dry of pulpwood would beproduced every year during 1985-1999, of which 90% would come from pineplantations. At present, there is no pulp and paper mill which couldutilize this enormous resource. A 45,000 ton bone-dry capacity for a pulpand paper mill has been proposed by the Government, while Zambezi PaperMills have proposed a mill with a capacity for about 12,000 ton bone-dry.From a raw material point of view, both mills could easily be accommodatedby the existing ZAFFICO plantations, and there would still be a net surplusof about 36,000 tons of pulpwood. However, the domestic demand for paperand paper products would most certainly act as a constraint (para 5.15).Forest residues would be produced in the range of 93,000 m3(r) or 46,000tons bone-dry per year; this is more than enough to meet the raw materialrequirements for future panel industries such as particle board orfibreboard. A new private company, Wood Processing Industry Limited inNdola, has contracted for the supply a particle board plant with a dailyoutput capacity of 80 m3 of particle boards or about 85,000 m3(r) perannum.

5.06 The overall picture that emerges from the data contained inAnnex 3, Table 5 and from the foregoing analysis is that the productionpotential of existing ZAFFICO plantations would be more than enough to meetthe requirements of existing and future wood-based industries that would beestablished to meet domestic demand in the period 1985-2000, althoughsupply deficits might occur thereafter. In the absence of a deliberatepolicy decision to induce local existing and future wood-based industriesto use plantation wood, the surplus of plantation wood might well be above

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200,000 m3(r) per annum by 1999. The planned forestry sector developmentstrategy would carefully examine the issue of using this excess plantationwood and, where possible, provide alternative solutions to the problem.

Mill Efficiency and Production

5.07 The average mill recovery rate, which indicates the technicalefficiency of the sawmills, currently stands at 40% for all existingZAFFICO mills and is judged to be considerably low in comparison torecovery rates of about 65% in Europe under similar raw materialconditions. In 1981/82 IPD (now ZAFFICO) used only 51% of its sawmillingcapacity. However, the sawnwood production figures in Annex 3, Table 7,are based on a minimum recovery rate of 45% and over 85% capacityutilization. Accordingly, ZAFFICO production of sawnwood would increasefrom about 23,600 m3(s) in 1982 to about 52,500 m3(s) in 1986 against aprojected domestic demand for about 110,000 m3 of sawn timber. ZAFFICO'soutput would thus account for almost 50% of the domestic demand in 1986,but its share would rapidly decline thereafter as demand rises. ZAFFICO'spole output would more or less stagnate at about 40,000 m3(r) per annum in1984 and thereafter and this would be significantly less than the projecteddemand of 45-52,000 m3(r) per annum during 1985-90.

B. Markets and Marketing Strategy

5.08 The major potential consumers of the Project's output ofroundwood would be the existing sawmills within the Copperbelt area (para2.15 (b) and (d)), the two plywood factories, the fibreboard plant and theplanned pulp and paper factory, particle board plant and other futurewood-based industries within the Copperbelt. Prospects fcr the use ofplantation wood by these industries would be contingent upon Governmentpolicy decision as to whether and the degree to which these and futureindustries should continue to be based on the consumption of the decliningindigenous forest resources. In order to cater for the expected growth indomestic demand for wood products, particularly sawn timber and paper andpaper products, expansion in or establishment of these indlustries wouldbecome inevitable in the medium and long-term.

5.09 The major consumers of ZAFFICO's output of sawn timber would bethe construction and building, joinery and furniture and miningindustries. Except for the mining industry, the others are expected toexperience moderate growth, largely because of population increase and asubstantial backlog in meeting real demand as a result of existing economicconditions in the country. In the following paragraphs the marketprospects of each product group and ZAFFICO's marketing strategy arediscussed.

Sawn timber

5.10 The demand projections for sawn timber were performed using bothtrend and end-use analyses. In the former case, since consumption ofsawn timber has been affected by recent structural constraints (lack ofspares, obsolete technology and managerial problems) and general economicproblems in the country since 1978, the average of the actual consumption

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levels for 1970-72 and 1979-81 was taken as the base consumption figure.Thus, the estimated demand in 1982 at 90,000 m3(s) of sawn timber reflects

both supply-constrained and normal consumption. The demand projections, inAnnex 3, Table 2, are based on the assumption that increases in domesticdemand for sawn timber would be due to population increase (about 3.2%p.a.) and little, if any, to rising income in the medium term. The end-useanalysis results are presented in Annex 3, Table 3. This was performed tosupplement the trend analysis and to indicate future consumption patternsof sawn timber and their implications on the Project's product mix. Forthis purpose, average consumption shares of major sawn timber consumingindustries, estimated by Jaako Poyry in 1974, but which could not berevised due to lack of more recent and reliable data, were used tosupplement the data collected during appraisal to construct the consumptionpattern for 1982. A comparison of the results of the end-use analysiswith those of the trend analysis (Annex 3, Table 2) indicates that theresults of the two methods are fairly consistent with each other in themedium-term.

5.11 The construction and building industry as an end-user ofsawn timber includes the use of sawn timber in roof structure, internalpartitions, concrete framework, vehicle bodies, wooden cases and pallets.Present consumption of sawn timber in the construction industry is heavilytilted in favor of hardwoods rather than softwoods, although the ultimateapplication of the various species is basically determined by the end-useproperties. Fine hardwoods (e.g., teak and mukwa) are used mostly forfurniture, joinery, panelling and other decorative purposes. At present, alarge proportion of fine hardwoods is still being used for utilitypurposes, particularly in the mines, as a matter of tradition. Utilityhardwoods (e.g., brachystegia and eucalyptus) should be used for light

construction work, joinery, vehicles, etc. where natural appearance is notso important. Softwoods (pine) are particularly suitable for generalbuilding work (roof structures, doors, windows, door frames and ceilings)and internal joinery. They are also used for shuttering, boxes and otherpackaging purposes. The estimated pattern of sawn timber consumption inthe country during 1982-2005 is given in Annex 3, Table 3. The projectionsof demand for sawn timber in Annex 3, Table 2 assume that this consumptionpattern would be maintained and that there would be no substitution forwood by non-woodbased products in the major end-uses.

5.12 The supply/demand estimates (Annex 3, Table 2) indicate thatdemand for sawn timber would exceed supply by about 22,500 m3 in 1990 andby over 50,000 m3 in 2000, not because of insufficient supply of sawlogs,but due to inadequate sawmilling capacity in the country, On the basis ofthese projections, it should be possible for ZAFFICO to double its 1986sawmilling capacity by 1995, since considerable expansion in the hardwoodsawmilling sub-sector (using natural forests) would be unlikely, given thedeclining trend in supply of the indigenous forest resource. Thus thepresent and projected supply and demand situation reveals that the apparentgeneral deficit of 18,000 m3 of sawn timber in 1982 would increasinglybecome worse, even after the investments envisaged under the Project havebeen undertaken, and it would rise to almost 110,000 by 2005. This impliesthat shortages of sawn timber in the country would become increasinglyacute unless substantial imports or expansions in the sawmilling industrywere envisaged. While the former would certainly be constrained by the

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balance of payments situation, the latter could only take place if based onplantation wood. In order to eliminate the projected supply deficits,expansions in the supply of sawn wood would have to be done at an annualrate equivalent to the projected population increase of 3.2%.

5.13 The projections in Annex 3, Table 3 ind:Lcate that theconstruction industry would continue to account for about 40% the totaldomestic consumption of sawn timber, while the mines' share would declineFrcom about one-third in 1982 to only 15% in the year 2005, largely becausethe mining industry is considered to have reached its production peak andis likely to decline in the future. The furniture and joinery industrywould increase its share from only 19% in 1982 to about 25% in 2005. TheProject's sawmilling production program would take into account thesepossible shifts in consumption pattern in the future. The emphasis onproduct quality and the establishment of timber upgrading facilities shouldenab-e ZAFFICO to gear its sawmilling production program toward meeting therequirements of the relatively discriminating construction industry.

Poles

5.14 At present the major consumers of poles are the mines (ZCCM)which normally use about 25,000 m3 of smelter and refinery poles per annum,supplied by the Mining Timbers Limited mostly from indigenous species, theZambia Electricity Supply Corporation (ZESCO) and the Posts andTelecommunication Corporation (P & TC), which rely on the industrialforestry plantations for their supply of power transmission and telegraphicpoles respectively. Their total annual consumption was 13,000 m3(r) in1981. Other consumers of poles include the agricultural and buildingsectors which respectively require fencing and building poLes,supplied fromboth the indigenous forests and industrial forestry plantations. ZCOM'sdemand for smelter and refinery poles is expected to stagnate at 25,000m3(r) between 1985 and 2005 and its share of the total consumption woulddrop from about 63% in 1981 to only 27% in 2005. On the other hand thedemand for transmission poles by both ZESCO and P & TC would rise from only13,000 m3(r) in 1981 to 33,000 m3(r) in 2005, representing a 6% annual4ncrease (Annex 3, Table 4). This growth rate was derived from theexpansion programs planned by the two corporations. The demand foragricultural and building poles would substantially increase from only3,000 m3(r) in 1981 to 34,000 m3 (r) in 2005, largely as a result of rapidincrease in demand for agricultural poles in line with Government plans tomodernize agriculture and increase its output to meet domestic and exportrequirements. By 2005 agriculture's share of the total poles consumptionwould be 37%. Overall, there are good prospects for ZAFFICO to expand itsmarket share for poles from about 40% in 1981 to over 80% in 2005.

Wood Panels

5.15 The major wood panels consumed in Zambia consist ofparticleboard, blockboard, fibreboard and plywood. These are used in suchindustries as building, furniture, joinery and packaging. Their futuredemand would therefore be dependent on population growth, etconomicdevelopment, availability of supplies, trends in primary end-use industriesand the rate of urbanization. The average consumption of panels during1979-80, estimated by FAO, was used as the base level for demand

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projections. As indicated in Annex 3, Table 4, the domestic demand forpanels products is likely to have a very gradual growth, reflecting theweak prospects for the Zambian economy in the medium and long-term. Takinginto account their close substitutability, the domestic demand for thevarious panel products during 1985-2015 was estimated as shown in Annex 3,Table 4(b). Plywood and particleboard would continue to account for over65% of the total panel market.

Paper and Paperboards

5.16 The domestic demand for paper and paper products, according tothe latest estimates by the Birla Brothers study (1982), was about 25,000tons in 1981 and is projected to reach 35,000 tons in year 2000. Currentdomestic production is negligible and is entirely based on imported rawmaterials and has been affected by shortage of foreign exchange.

Marketing Strategy

5.17 At present ZAFFICO marketing strategy is entirely based on salesthrough its own sales outlets which are located in Kafubu, Kitwe, Mufulira,Ndola, Luanshya, Lusaka and Kabwe. Since almost 75% of the domesticconsumption of sawn timber is accounted for by these major urban centers,ZAFFICO's coverage of the domestic market is substantially high. It is inthese same areas that there are long-established private timber merchantswho normally sale hardwood or imported softwood timber. In addition, ZSBShas a good sales network in these areas. In view of its increasing salesexpenses and of the existence of a combination of private and parastataldistribution system that has so far performed reasonably well, ZAFFICO'sfuture marketing policy should be oriented toward establishing an effectiveand low-cost distribution system through the greater use of the existingprivate and parastatal distribution network in the country. ZAFFICO shouldtherefore concentrate on a wholesale strategy based mainly on ex-factorysales.

5.18 Since very little of ZAFFICO's sawn timber and roundwood havebeen consumed by the major and quality-oriented industries (constructionand mining) in the past, a concerted promotional effort would be requiredto push its products in these markets. Although much of what is consumedin these industries, in terms of quality and sizes, is known, it would benecessary for ZAFFICO to formulate measures to overcome some initialconsumer resistance in these markets. For this purpose ZAFFICO would needto draw up a marketing strategy incorporating (a) actions that need to betaken to effect rapid substitution of imported wood products in the miningand construction industries; (b) measures for facilitating the marketing ofits roundwood to other wood-based industries which are currently based onindigenous species; and (c) a phased action program for utilizing theexisting distribution network provided by independent timber merchants andZSBS. These should constitute the priority areas for the internationallyrecruited Marketing Manager. During negotiations assurances were obtained,that such a marketing strategy would be designed to the satisfaction of theAssociation and that ZAFFICO would implement it by October 1, 1984.

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C. Prices

.1 . I 9 The current stumpage rates charged by ZAFFICO per cubic meter areK24.30 (US821.85) for pine sawlogs, K10.12 (US$8.70) for p:ine small logs(match billets, etc.) and K14.27 (US$12.82) for eucalyptus sawlogs andK7.40 (US$6.65) for eucalyptus poles. Appraisal estimates:, based on perhectare models for pine and eucalyptus (Annex 2, Tables 3 and 4), indicatethat These stumpage rates are adequate to cover the replacement costs ofplantationis and to earn a 10% rate of return on plantation investments.On the basis of projected costs for logging, transportation, these stumpagerates would yield the product price structures shown in Annex 2, Tablei0(a)e These stumpage costs, and hence the product price structures basedthereon, do not take into consideration the fact that about: 46% of pineproducti3n would be wasted for lack of demand (para 5.04). Such wastage,when taken into account, would reduce the utilizable yield of the pineplantations. Since it is almost certain that the industries that would bemajor consumers of small pine roundwood would not be established during theperiod of Project implementation, ZAFFICO should adopt a pricing policywhich also specifically covers the cost of resource waste in its pineplantations. Although the adoption of such a policy would lead to 46%increase in stumpage rates for pine, this would translate into only 10%lnc-rease in final product prices [Annex 2, Table 10(b)].

5,20 ZAFFICO's product prices, estimated on the basis of replacementcosts with due regard to waste in pine plantations, would be as shown inAnnex 2, Table 10(b). These prices would generally be competitive withthose of imported products; contrary to past experience which indicatedthat IPD (ZAFFICO's predecessor), also operating on the basis of costrecovery principle in determining its product prices, proved to be a highcost producer in relation to import parity prices (para 2.21). Theimplementation of the Project would help ZAFFICO to reverse! this historicaltrend and make it a more efficient producer, largely because of significantimprovements in its logging and transportation operations and increase insawmill efficiency (para 5.07). ZAFFICO would determine its productpricing policy in the domestic market to ensure financial viability andpromote satisfactory financial performance and prudent financialmanagement. This means that the major objectives of its pricing policywould consist of: (i) generating income adequate to meet aill financialobligations on a timely basis; (ii) sustaining an adequate level of workingcapital needed for continuous operations; (iii) earning a reasonable return(at least 10%) on investment capital; and (iv) contributing to the renewaland expansion of assets. For this purpose, ZAFFICO would dLetermine itsproduct prices on the basis of the following criteria:

(a) replacement cost which after taking into account resource wastein pine plantations, would be reasonably related to productioncosts under conditions of efficient operation at capacityutilization of not less than 85%;

(b) the levels of import parity prices for imported products whichwould compete with its products in the domestic market;

(c) reasonable contribution (in form of equity contributions andretained earnings) to future investments for expansion ofcapacity.

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During negotiations assurances were obtained that ZAFFICO would base itsproduct pricing policy on these criteria and that such a policy would bereviewed annually in consultation with the Association.

VI. BENEFITS AND JUSTIFICATION

A. General

6.01 The principal benefits from the Project would be the annualincremental production of about 20,000 m3 (s) of sawn timber, 11,000 m3 ofpoles, 1,000 m3 of match billets and small logs; and a total of 500,000 m3

of eucalyptus roundwood from replantings under the Project. Theincremental production of pine roundwood planted and replanted under theProject amounting to 108,000 m3 were not included in the Project benefitsand costs because they would reach sawlog maturity outside the Projectperiod of 18 years. Instead, separate estimation of its financial andeconomic justification was performed. Calculation of financial andeconomic rates of return for the pine plantations demonstrate that theprogram would be viable; the FRR is estimated at 11%, while its ERR is16%. (Annex 2 Table 5(b)). The supply of sawn timber has been recentlyconstrained by structural problems in the sawmilling industry and importshave been curtailed by the foreign exchange crisis in the country. Inaddition, the supply and demand projections for sawn timber indicate thatthere would continue to be considerable domestic supply deficits in thenear future and that these would increasingly become worse in the long-run,if an operational investment program is not formulated and implemented inthe future. Consequently, all Project's output of sawlogs and roundwoodwould be geared to import substitution. The Project's output has thereforebeen valued at its import parity prices. The incremental production ofsawn timber under the Project would stem from expansion in mill capacityand from the increase in sawmill efficiency as a result of the proposedinvestments. It is expected that the overall recovery rate in ZAFFICOmills would rise from the present average of 40% to over 45% in the secondyear of project implementation. Similarly, capacity utilization wouldincrease from 51% in 1981/82 to over 85% in 1986 and thereafter, thusincreasing total mills' output.

6.02 Both financial and economic returns have been calculated for aperiod of 18 years (which is considered to be the life span of the majorcomponents of the sawmill equipment) on the basis of incremental invest-ments for the Project, consisting of 2,100 ha of eucalyptus replantings aswell as the new investments in logging, transportation, log conversions andsawmilling equipments and Project management. In a 'without project'situation ZAFFICO would not be able to obtain adequate foreign exchange tofinance the purchase of spares needed to maintain sawmills output atpresent levels. Similarly, ZAFFICO would continue to be plagued withmanagement problems, resulting in reduced efficiency and production. Undersuch circumstances, it is estimated that ZAFFICO's sawmilling output ofabout 23,600 m3 in 1982 would decline and, possibly, stabilize at 20,500 m3

in subsequent years. There is strong complementarity between the Projectand the investments in the establishment of forestry plantations carriedout under the previous phases. This is largely due to rehabilitationnature of the Project. This is particularly true in the case of invest-ments made in the establishment of forestry plantations, part of whichwould be utilized by the Project; and in the investments in the existingsawmills. Two approaches have been used in this analysis to deal with theproblem of complementarity: (a) the costs and benefits associated with the

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operation and maintenance of exIsting investments in human resources,plantations, logging and sawmills were excluded from the calculation of theProject's economic rate of return; and (b) the costs of establishing theexisting plantations were not treated as sunk costs, instead, they wereappropriately reflected by imputed stumpage rates which were incorporatedin both the economic and financial price structures of each Projectproduct. Since over 75% of the Project costs and benefits are related tosawmilling operations, the estimated overall financial rate of return forthe Project (para 6.04) is largely an indicator of the financial viabilityof the Project sawmilling operations. Hence no separate rate of return ofa typical sawmill has been calculated.

B. Financial Analysis

Financial Rate of Return

6.03 The key assumptions underlying the calculation of the Projectfinancial rate of return presented in Annex 2, Table 5a and ZAFFICO'sfinancial forecasts are as follows:

(a) Market prices, (similar to those based on replacement costs,Annex 2, Table 10b) were used for sawn timber and poles,while imputed stumpage values were used for standing wood tobe produced under the Project.

(b) Production levels were based on increased capacityutilization and higher mill recovery rates (para 6.01).

(c) Repayment to Government of SDR21.5 million of the externalproject financing (the balance of SDR9.5 million of theexternal financing would be provided by the Government asequity) by ZAFFICO, at 12% interest, would be related to theadequacy of the estimated cash flow and debt servicecapacity.

(d) ZAFFICO's initial paid up capital is K65.3 million.

6.04 On the basis of these assumptions, the discounted financial rateof return to the investment in the Project is estimated at 24% before taxesover a 18 year project life. This is a satisfactory returrL that wouldresult from increase in efficiency and productivity of Project operationsand renumerative domestic prices for most of the Project's output,especially sawn timber. The sensitivity of the financial return todifferent possible events indicates that, at an opportunity cost of capitalof 12% per annum, about 43% overall increase in costs or almost 30%reduction in Project output would be required to render the Projectunacceptable. Delayed implementation of the Project by two years wouldreduce the financial rate of return to about 23%. These results show thatthe Project can withstand severe changes in capital costs, raw materialprices, stumpage rates, domestic product prices or even a two-yearimplementation delay without seriously affecting its rate of return. Sincethe entire project output would be sold in the domestic market, theProject's financial rate of return would be sensitive to thLe level of price

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increases in relation to ZAFFICO's operating costs. The assumptionunderlying the financial projections is that domestic prices would remainunchanged in real terms (in line with the replacement cost pricingpolicy). However, it would take a 35% decline in domestic prices tothreaten the Project's profitability and, given the Project's probableprice leadership in the industry (by virtue of its relatively large marketshare), such a decline in price is considered unlikely. Furthermore, theProject as designed, incorporates a number of mechanisms aimed to ensureZAFFICO's sustained and satisfactory financial performance and efficientuse of the proposed investments to forestall a premature rehabilitationprogram. These include: (a) provision for detailed engineeringspecifications of all machinery and equipment for the Project to ensuretheir appropriateness in terms of technical performance and design; (b)provision for technical assistance to establish satisfactory technical andcommercial standards of operations and procedures; (c) provision for atraining program to improve staff and institutional performance in themedium-term; (d) provision for adequate capitalization of ZAFFICO and forsatisfactory financial and pricing policies.

Financial Forecasts

6.05 For the purpose of financial forecasts, product prices andZAFFICO's costs were estimated in current terms by incorporating theappropriate domestic inflation rates (para 3.55). The projected incomestatements of ZAFFICO during the implementation of the Project are attachedas Annex 2, Table 7 and are summarized below:

Table 6.1: Summary of Projected Income Statements(K million)

FY83 FY84 FY85 FY86 FY87 FY88 FY89Sales Revenue (SR) 4.5 5.9 9.9 14.4 15.9 17.5 19.2Operating Income (OI) 0.2 - 0.4 2.0 2.4 4.1 4.5Net Income (NI) 0.2 (0.6) (1.1) - - 1.6 1.9OI/SR % 4 - 4 14 15 23 23OI/Average Equity (%) 0.3 - 0.5 3 3 5 5

6.06 The profit margin on sales (before interest on long-term debt)would improve from 4 ngwee per Kwacha of sales to over 20 ngwee during theperiod of Project implementation. Earnings to equity capital (equity shareand reserves) would not be expected to improve until after 1987, largelybecause of interest payment on long-term debt. In order to strengthen itsequity base, ZAFFICO would not declare dividends if its debt/equity ratiowas thereby rendered unsatisfactory (para 6.10). Assurances to this effectwere obtained during negotiations. Similarly ZAFFICO would be exempt frompaying corporate tax during the Project period, in line with investmentallowance under the corporate tax laws. The financial projections for theProject are based on the continuation of tax legislation.

6.07 ZAFFICO's projected statements of sources and application offunds are presented in Annex 2, Table 8 and are summarized below:

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Table 6.2: Summary Sources and Applications of Funds Statement(K million)

FY84 FY85 FY86 FY87 FY88 FY89-internal Sources 2.4 3.4 6.6 7.1 9.0 9.7Borrowings/Equity 5.7 9.1 20.6 3.9 2,2 3.8

Total Sources 8.1 12.5 27.2 l:l.0 11.2 13.5~ap taI Expenditure 7.4 9.4 23.8 2.9 3.7 7.0Working Captl.Changes (0.4) 0.4 0.5 3.4 2.4 0.7Debt Service 1.i 2.7 3.9 4.7 5.1 5.8

Total A-plications 8.1 12.5 27.2 11.0 11.2 13.5Debt Service Coverage(at 55%) 2 1.3 1.7 :1.5 1.8 1.7Debt Se.rvice Coverage(at 65%) 2 1.2 1.3 1.0 1.0 0.8

608 .ZAFFICO operations would generate enough funds to meet itsoperating requ 4 rements including interest payment on its long-term debt.Throughout the period of implementation, ZAFFICO would have surplus networking capital as a result of its strong cash generation from productsales and exemption from paying corporate tax and dividends. Its debtservice coverage would be satisfactory throughout the period of Projectimplementation, although this would decline to unsatisfactory levels ifZAFFICO's capacity utilization fell below 65%.

6.09 The projected balance sheets are presented in Annex 2, Table 9and are summarized below:

Table 6.3: Summary of Balance Sheets(K million)

FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89Net Current Assets (3.8) 3.4 2.9 3.4 2.9 6.3 8.7 9.4Net Fixed Assets 9.8 9.4 12.1 15.9 31.7 26.5 22.5 21.3Plgntation inFormation 45.7 54.0 56.4 58.9 62.2 65.6 68.5 71,5Total 51.7 66.8 71.4 78.2 96.8 98.4 99.7 102.2

Long-term loans 49.9 - 5.2 13.1 17.7 19.3 19.0 19.6Reserves & Equity 1.8 66.8 66.2 65.1 79.1 79.1 80.7 82.6Total 51.7 66.8 71.4 78.2 96.8 98.4 99.7 102.2

Ratios:Debt/Reserves & 1/Equity 1:.03 - 1:13 1:5 1:5 1:4 1:4 1:4

Debt/Reserves &Equity 2/ - - 1:3 1:2 1:1 1:1 1:0.9 1:0.9

1/ Based on injection of K14.0 million as equity in 1986.2/S Assumes that K14.0 million is passed on to ZAF'FICO as a long-term loan

in 1986,

6.10 The debt/equity ratio would improve after the capitalization ofZAFFICO through the conversion of Government long-term loans and accruedinterest into share capital in FY84 (para 3.61). In order to determine anappropriate financing structure and debt ratio for ZAFFICO during and

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after Project implementation two major risks inherent in the forestryinduastry have been carefully considered: (a) the risk associated withextremely long-term asset fixity for the bulk of the company's investmentsin plantations and sawmill machinery; and (b) the risk associated with therevenue generating capacity of ZAFFICO, given the high capacity utilization(85%1) assumed. Low capacity utilization could be caused by a continuationof the general economic recession in the country during the implementationof the Project or by cyclical developments, both of which would depresssales and hence revenue. A decline in capacity utilization to 65%, forexample, would result in losses of between KO.3 and K3.2 million on incomestatements of FY84 and FY89 respectively; these would substantially erodeZAFFICO's liquidity as its debt service coverage would continuallydeteriorate from 2 in FY84 to slightly less than one in FY89. Thiswould not provide a satisfactory cushioning of creditors' claims. Theexistence of these risks suggests that ZAFFICO must initially have a soundequity capital base and that this must be maintained through a prudentfinancial and investment policy. The initial capitalization of K65.3million is considered adequate for this purpose. However, with increasinginvestments, financed through borrowing during Project implementation,additional equity capitalization of K14 million would be required in orderto maintain a satisfactory debt ratio of 1:4. This ratio might appearexceptionally low, but this is only apparent rather than real. ZAFFICO'sassets in form of plantations make up over 65% of the company's totalassets; these plantations would not be realizable in case of liquidationand would not therefore represent a real cushioning against creditors'claims. The "real" debt ratio should therefore be based on the company'sassets net of the value of plantations; this turns out to be 1:1.6(Annex 2, Table 9). The consequences of not increasing ZAFFICO's equity inand after FY86 as proposed above would be higher "apparent" ratios in theorder of 1:2 which would translate into "real" ratios of 1:0.9 by the endof Project implementation. Such higher ratios would be unsatisfactory froma variety of points of view: (a) they would not be consistent with therisky nature of the industry; (b) they would increase the company'sdependence on Government loans or loan guarantees since most private andpublic lenders would be unwilling to provide loans at such high exposure;and (c) they might encourage speculative investment expansions (financedthrough internally generated funds) contrary to the objectives of a prudentfinancial and investment policy. Assurances were, therefore, obtainedduring negotiations that ZAFFICO's additional capitalization would becarried out as proposed and that ZAFFICO should not incur any debt, ifafter the incurrence of such debt the resulting ratio of debt to equitywould exceed 1:4.

Economic Analysis

6.11 The major specific assumptions used in the calculation of theeconomic rate of the Project are as follows: (a) Shadow Wage Rates forskilled, semi-skilled and unskilled labor were estimated taking intoconsideration the characteristics of each segment of the labor market inZambia as follows: (i) the shadow wage rate for skilled labor was estimatedat 54% of the market rates to reflect the phenomenon that these workersconsume a lot of imported goods which are highly taxed because they aregenerally considered as luxury items and that the market wage demanded and

50 -

obtained by ski1led workers i.s hig-her than it would be in th e absence ofthis taxation policy; (ii) the shadow wage rate for semi-skilled labor,which 's largely Zambian and has lower wage rates than for skilled Labor,was estimated at 67% of the market rates to reflect the relative scarcityof semi-skilled labor and the relatively small tax incidence on its marketwage since their consumption pattern has a less import component; (iii) theshadow wage rate of unskilled labor was estimated at 85% of the market wagerates to reflect its relatively low tax incidence and the phencraenon thatjob creation iil a situation of combined open urban unemploymerit andrural-urban Uigration is associated with complex changes in consumption inboth the urban and rural sectors; (b) the Project inputs, which wouldprimnarily consist of imported equipment were valued at their appropriatecei.f border prices while all loca'l costs of domestically produced andtraded (e.g. petroleum products, fertilizers and cement) were convertedillto domestic border prices 'by the use of a standard conversion factor of0080 (which is the average of the specific conversion factors for fuel,fertilizer construction materiaLs and road transport ; a conversion factorof 0.75 was used to derive domestic torder prices for non-traded inDutssuch as uater a_d electricity; (c) fu rther adJustnents were made for thecal-cuaticn of tne economic rate of returin by excl.uding the be-nefits andcosts of the nine af forestation program (para 6.01); (d) since theProject's output would be intended for import-substitution, import parity5order pri ces of the iTdi vidual products at 1983 levels were -used (Annex 2,Tables 11 and 12). All border pri'ces were estimated as c.i.f. LusaKa.

6412 On the basis of the above assumptions, the interna'l economic rateof return for the Project was estimated at 25% (Annex 25 Table 4). Thisrelativel-y high rate of return stems from the rehasbilitationcharacteristics of the Project which would lead to optimal utilization ofcurrently underutilized stocks of human and capital resources. Theseestimates do riot include the benefits of reducing depletion of indigenousforests and other non-quantifiable, environmental benefits which theProject would have nor the long-term impact on institutional development ofthe tecihnical assistance and training programs which would certainlybenef it subsequent cperations or projects of ZAFFICO or other sectors inthe economy. Ihus t.he rate of return analysis indicates that projectswhnichn help o,timal utilization of underutilized resources, phase out oldand inefficient machinery and equipment to increase operational efficiencyand improve product auality and are geared to import substitution based onexploitation of existing domestic resources, are likely to be economicallysornd. TLhis confirms the judgement of the Government which would probablyundertake other projects of a similar nature if this Project were notundertaken.

Sensitivity Analysis

6a13 Assuming an opportunity cost of capital of 10% per annum, about

57% increase in costs or almost 36% reduction in Project olatput would berequired to render the Project unacceptable. Delayed impleBmen-tation of thethifd phase Project by two Years would reduce its internal economic rate ofreturn to about 24%. Thus the Project is only slightly sensitive tochanges i levels of costs or benefits.

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Project Risks

6.14 The major risks of the Project relate to the relatively highcapacity utilization and recovery rates of the sawmills assumed in thecalculation of both the financial and economic rates of return, given IPD'sexperience in the past. The achievement of the minimum targets of 85% formill capacity utilization and 45% for recovery rates would be criticallydependent on the management of the logging, transportation and sawmillingoperations of ZAFFICO. The envisaged strengthening of ZAFFICO's managementin these critical operations and the staff training program provided underthe Project to improve individual staff performance, would minimize therisk of failing to achieve the targets for capacity utilization andrecovery rates. In any event, both the financial and economic sensitivityanalyses (paras 6.04 and 6.13) indicate that the Project would be onlyslightly sensitive to reduction in sawn timber production that could becaused by Project management's failure to meet the assumed productiontargets.

6.15 Another risk for the Project would be, in view of the currentforeign exchange crisis in the country, the problem of spare parts supplyfor the Project's machinery and equipment which is dependent on imports.Protracted shortages in spare parts supply would adversely affect theProject's production program. The Project has been however, designed, asfar as possible, to minimize the need and use of spares through improvedstaff competence and performance through training (para 3.49); improvedplanning and management of workshop services for preventive maintenance ofmachinery and equipment (para 3.42); and improved supervision andmaintenance of sawmill equipment through the provision of specialisttechnical assistance (para 3.45).

VIII. ASSURANCES AND RECOMMENDATIONS

7.01 Assurances were obtained during negotiations that:

(a) ZAFFICO would obtain and maintain licences and titles or rightsin property under the Forest Act for its forest plantations (para3.08);

(b) ZAFFICO would phase out thinning regimes in its eucalyptusplantations and adopt a three coppicing system in iuew plantationsand replantings (3.15).

(c) ZAFFICO would prepare a medium-term plan consisting of annualcutting budgets, logging and transport plans, and, on the basisof these plans, determine the need for improvement ofinfrastructure, especially roads, by December 31, 1984 (para3.15);

(d) ZAFFICO would, by September 30, 1984, design and implement aneffective fire protection and control system (para 3,18);

(e) the recruitment of the specialists under the long-term technicalassistance program would be in accordance with theBank/IDA guidelines for the use of consultants (para 3.45);

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(f) all technical posts in logging, transportation, processing,engineering and marketing filled through internationalrecruitment would be through a technical services contract.(para 3.45);

(g) the selection of short-term consultants would be in accordancewith Bank/IDA guidelines (para 3.47);

(h) ZAFFICO would fill directly the posts of Finance Manager,Management Auditor, Systems Analyst and Training Officer byJune 30, 1984 and the post of Corporate Planning Manager byMarch 31, 1984 (para 3.45).

(i) ZAFFICO would execute a bonding contract with the respectivetrainees for long-term and external training courses (para 3.52);

(j) the Government would provide funds to ZAFFICO, if and as needed,to finance non-incremental costs for the Corporate Program (para3.59);

(k) the repayment schedule in the subsidiary loan agreement betweenthe Government and ZAFFICO would denominate both the loanprincipal and interest in SDRs (para 3.60);

(1) ZAFFICO would be organized as proposed in chart C-2 for thepurpose of implementing the Project (para 4.03);

(m) ZAFFICO would appoint Zambians with appropriate qualifications asdeputies to each post held by expatriate staff (para 4.03);

(n) Procurement under the Project would be in accordance withBank/IDA guidelines (para 4.08);

(o) the technical specifications of equipment, machinery, vehiclesand tools financed under bilateral aid would be as specified inthe detailed engineering designs (para 4.09);

(p) ZAFFICO's accounting, auditing and reporting procedures would beas specified (para 4.13);

(r) ZIMCO, to which Mining Timber Limited is affiliated, wouldreview, and then provide to the Association by December 31, 1985an assessment of the possibility of basing part of the sawmillingoperations of Mining Timbers Limited on ZAFFICO's forestryplantations (para 5.04);

(s) ZAFFICO would design a marketing strategy, satisfactory to IDA,and implement it by October 1, 1984 (para 5.18);

(t) ZAFFICO would determine its product pricing policy on the basisof criteria which include: replacement costs which take intoaccount forest waste in pine plantations, level of the company's

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operational efficiency and changes in import parity prices ofsimilar products, and need for future investment expansion; andthat such a policy would be reviewed annually in consultationwith the Association (para 5.20);

(u) ZAFFICO would not declare dividends unless its debt/equity ratiowas satisfactory (para. 6.06).

(v) ZAFFICO's additional capitalization would be carried out asspecified and that the company would not incur any debt, if afterthe incurrence of such debt the resulting debt/equity ratio wouldexceed 1:4 (para. 6.10).

7.02 The execution of a subsidiary loan agreement acceptable to IDAbetween GRZ and ZAFFICO would be a condition for credit effectiveness (para3.60).

7.03 Subject to the above assurances and conditions, the Project wouldconstitute a suitable basis for a Credit of SDR21.5 million.

ANNEX ITable 1

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ZAMIBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

Project Component bg Time(KW '000)

Base Costs Total

83/84 84/85 85/86 86/87 87/88 88/89 KW (USS '000)

A. AFFORESTATION

PLANTATION ESTAB. AND REPLANTING 984.4 117.4 117.4 90.4 90.4 90.4 1,490.3 itO64.5NURSERY 41.8 42.5 89.8 39.2 39.8 39.2 292.1 208.6FIRE PREVENTION AND SILVICULTURAL MANAGEMENT - 1,786.0 101.8 101.8 132.9 1,092.0 3P214.6 2P296#1

Sub-Total AFFORESTATION 1,026.2 1,945.9 309.0 231.4 263.0 1,221.5 4,996.9 3,569.2B. LOGGING AND TRANSPORTATION IPROV. 1,729.6 2,037.9 1,934.6 706.8 609.6 609.6 7t628.1 5,448.7C. SAWMILLING PROGRAM 2,439.3 1,637.0 13,179.4 529.5 547.0 564.5 18,896.8 139497.7D. WORKSHOP IMPROVEMENT - 741.2 65,0 65.0 65.0 65.0 1001.2 715.1E. TECHNICAL ASSISTANCE - 1,481.2 19343.2 1,343.2 166.7 166.7 4,501.1 3,215.1F. TRAINING PROGRAM - 608.5 592.5 544.9 437.9 349.2 2,533.1 1,809.4G. DETAILED ENGINEERING 630.0 - - - - - 630.0 450.0H. PROJECT ADMINISTRATION - 173.5 43.5 79.2 43.5 129.8 469.5 335.4

otal BASELINE COSTS 5,825.0 8,625.3 17,467.3 3,499.9 2,132.? 39106.4 40,656.8 299040.5Physical Contingencies 937.9 1,195.4 3,127.5 352.4 206.9 304.2 6,124.4 4,374.5Price Contingencies 380.2 1,622.3 5,567.5 1,546.0 1,364.0 2Y287.1 12,767.2 9,119.4

lotal PROJECT COSTS 7,143.1 11,443.0 26,162.3 5,3?8.4 3,703.8 5,697.8 59,548.3 42,534,5

Foreign Exchange 5,691.0 9,O71.7 20,609.3 3,884.9 2,246.8 3,778.1 45,281.8 32,344.1

:.ve-ber 10, 1983 11.17

ZAMBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

PLANTATION ESTABLISHMENT AND REPLANTING COSTDetailed Cost Table

Base Costs Totals Includinm ContingenciesQuantity (KW '000) (KW '000)

------------------------------------------- Unit Cost ------------------------------------------ -------------------------------------------Unit 83/84 84/85 85/86 86/87 87/88 88/89 Total (KW) 83/84 84/85 85/86 86/87 87/88 88/89 Total 83/84 84/85 85/86 86/87 87/88 88/89 Total

I. INVESTMENT COSTS

A. PLANTATION ESTABLISHMENT /a

1. MACHINE OPER./LABOR lb

LAND CLEARING /c HA 1,500 - - - - - 1500 441 661 - - - - - 661 785 - - - - - 785TRACTOR (PLOUGHING/HARROWING) /d HA 1,845 686 686 686 686 686 5,275 61 112 42 42 42 42 42 321 133 57 64 71 79 88 492TRACTOR (WEEDING) /e HA 1,845 686 686 686 686 686 5.275 22 40 15 15 15 15 15 114 47 20 23 25 28 31 175ROADS KM 30 - - - - - 30 1,300 39 - - - - - 39 46 - - - - - 46

Sub-Total MACHINE OPER./LABOR /b 853 57 57 57 57 57 1,136 19012 77 87 96 107 119 1,4982. WAGES AND LABOR /f

FOREMAN /g MYRS 5.7 1.9 1.9 - - - 9.5 1,300 7 2 2 - - - 12 9 4 4 - - - 17CASUAL LABOR /h MYRS 136 83 83 48 48 48 446 702 95 58 58 34 34 34 313 118 88 103 69 79 91 548DRIVERS /i MYRS 11.5 - - - - - 11.5 2,500 29 - - - - - 29 36 - - - - - 36

Sub-Total WAGES AND LABOR /f 132 61 61 34 34 34 354 163 92 108 69 79 91 601

Sub-Total PLANTATION ESTABLISHMENT /a 984 117 117 90 90 90 1,490 1,175 169 194 165 186 210 2,099

Total INVESTMENT COSTS e 984 117 117 90 90 90 1 490 1,175 169 194 165 186 210 2 099

Total BASELINE COSTS 984 117 117 90 90 90 1,490 lt175 169 194 165 186 210 2,099= === = = = === == = == === == == === = == = = == = == = === == == = == = =,= == == = == == = = == = == = == == =

/a EXISTING EQUIP. TO BE USED/b PLANTATION PROGRAM INCLUDES 1500 NEW HA AND 345 REPLACEMENT FOR CLEARCUTTING AND FIRE DAMAGE IN YR 0 AND 686 REPL. HA IN YRS 1-5/c 2 OF 300 HP (@K 82.68/HR). 1 OF 200 HP (ZK 73.91/HR) BULLDOZERS (K240/HA) AT 1.7 HRS/HA AMOUNTS TO K407/HA/d REOUIRES .75 HRS/HA PLOUGHING1I.5HRS/HA HARROWING OR 1,25HR/HAN K25/HA (K56.25/HA)/e .8 HR/HA e ZK25/HR ZK20/HA/f IN YRS 2-6 CAS. LAB. FOR PLANT., WEED. 686 HA 48 HY, ADDITIONAL 35MY FOR 2ND 3RD WEED. OF 1500HA IN YRS 1,2 ONLY (ALSO SEE H)/g L CLEARING .08 DAYS/HA, PLOUGHING AND HARROWING .30 DAYS/HA PLANTING .23 DAYS/HA WEEDING .20 DAYS/HA , TOTAL .81 DAYS/HA (TOTAL YR 0 1845 HA IS 5.7 MYRS, YRS 1-5 EXCL. L CLEAR. 686 HA IS 1.9 MYRS)/h L.CLEAR.35,HARROW. .8 PLANTING,12 WEEDING 6 TOTAL 19,15 D/HA (FOR 1845 HA 136 MY ALSO SEE F)/i .20 DAY/HA LAND CLEARINGS .80 DAY/HA PLOUGHING AND HARROWING, I DAY/HA WEEDING (TOTAL 3000 DAYS FOR 1500 HA) 11.5 MYRS

October 26, 1983 13:45

1<

ZMIBIAINHUSTRIAL FORESTRY PROJECT - PHASE III

IIURSERY 1aDetailed Cost Table

Base Costs Totals Including ContingenciesDuantity (KU '000) (KW '000)

-- -…--- -------- --------------------------------- Unit Cost ----------------------- -------- -----------------------------------------Unit 83/B4 84/85 85/86 86187 87/88 88189 lotal (081 83h84 /4185 85/86 86/87 87/88 88/89 Iotal 83/84 84/15 85/86 86/87 87188 88/89 lotal

1. INVESTMENT COSTS

A. WAWS. VEHICLES AND EQUIPMENT

TRUICK/PICKLP NO - - 2 - - _ 2 25,300 - - 51 - - - 51 - - 69 - - - 69

Sub-Total NURS. VEHICLES AND EQUIPMENT - - 51 - - - 51 - - 69 - - - 69B. OTHER COSTS /b

IRRIGATION PPIW/PIPES SUL - - - - - - - - 3 - - - - 3 - 4 - - - - 4CHEMICALS/FERTILIZER /c SUN - - - _ _ _ - I I I I I 1 7 1 2 2 2 2 3 12SEEDS Id KS 12 12 12 12 12 12 72 64 1 1 1 1 1 1 5 1 1 1 1 2 2 8TOOLS/e 5181 - - - - - - - - I - - I - I - 1 - - I - 2SOIL AI SMAD /t TONS 630 630 630 630 630 630 3,780 3 2 2 2 2 2 2 11 2 3 3 4 4 5 22POLY BAS 100TH 9 9 9 9 9 9 54 427 4 4 4 4 4 4 23 5 5 6 7 8 8 39

Sub-Total OTHER COSTS /b a 11 8 8 8 8 50 9 15 12 14 17 18 86

Total IIHESTNENT COSTS 8 11 58 8 8 8 101 9 15 81 14 17 18 155

11. RECURRENT COSTS

A. NRSERY OASES

FOREHII STF YRS 4 2 2 2 2 2 14 1,300 5 3 3 3 3 3 18 6 4 5 5 6 7 33SKILLE LA80R STF YRS 4 4 4 4 4 4 24 990 4 4 4 4 4 4 24 5 6 , 7 8 9 11 46CASUAL LABOR /g STF YRS 11.2 11.2 11.2 11.2 11.2 11.2 67.2 702 8 B 8 8 8 8 47 10 12 14 16 18 21 91

Sub-Total NMSERY WAkES 17 14 14 14 14 14 89 21 22 26 29 34 39 171B. MIiS. VEHICLES MAINTENANCE

TRiC /h HRS 900 900 900 900 900 900 5,400 8 7 7 7 7 7 7 44 9 10 11 12 14 15 71PICKUP /i KM 24,000 24,000 24,000 24,000 24,000 24,000 144,000 0 9 -9 9 9 9 9 55 4 1 12 14 15 17 19 89UTILITIES sum - - - I 1 1 1 1 1 4 1 1 1 1 1 1 A

Sub-Total NURS. VEHICLES NAINTENANCE 17 17 17 17 17 17 102 20 23 26 29 32 36 167

Total RECURRENT COSTS 34 31 31 31 31 31 192 41 45 52 58 66 75 337

Total BASELINE COSTS 42 42 90 39 40 39 292 51 61 133 72 83 93 492

/a COSTS FPR 2 MRSERIES CAPACITY .45H EACH TOTAL .9H SEEDLINGS/b WANTITIES 681EN FOR 2 NMSERIES/c 9 LITERS OF IKSECTICIIES, HERBICIDES I FUNGICIDES (27 LIT,PK12/LTIFOR EACH NURSERY AHD 225K6 PER JURSERY e El.20/KS/d 50K PINUS KESIA SEEDS/KG 500K EUCAL, SEEDS/KG -REQUIRED 6KG PRE AURSERY/e 2K 300 PER NURAERY/t 315 TONS PER MiSERY/5 DAS FILLING 400/DAY,SEEDLIBG PACKING BOO/DAY TOTAL H/DAYS REQUIRED PER NURSERY 1446K/DAYS AT 260 H/DAYS/YR 5.6 H/YRS,RZK 2.70/DAY ZK 702/YR/h 450 OP. HRS. PER TRUCK PER l/URSERY/i 12TH KM PER TRUCK i .35/AN -TOTAL ZK 4200/TRUCK

Ortober 26, 1983 13:45'ox

ZAIBIAINDUSTRIAL FORESTRY PRJECT - PHASE III

FIRE PROTECTION AND SILVICILTURAL nANAGEnENTDetailed Cost Table

Base Costs Totals Including ContingenciesIuantits (KU '0001 (KE '000)

------------- --- -----…-------… ---- unit Cost --------- …_________________________________ _________-_-_____________________-_________LInit 83/84 84/85 85/86 8B/87 87188 88/89 Total (WI 83/84 84185 85/86 86187 87/88 888S9 Total 83/84 54185 85/86 86/87 87/88 88/89 Total

1. INVESTMENT COSTS

A. EUIPIMENT FIRE PRMT.

SEl TRAILER NO - 4 - - - 4 8 80,500 - 322 - - - 322 644 - 405 - - - 540 945HOG TRAILER NO - 8 - - - 8 16 28.750 - 230 - - - 230 460 - 289 - - - 386 675TRUCK NO - 2 - - - 2 4 92,000 - 184 - - - 184 368 - 231 - - - 309 540PICKUP NO - 4 - - - 4 8 21.850 - 87 - - - 87 175 - 110 - - - 147 25748D9EOICLES No - 5 - - - 5 10 21,050 - 109 - - - 109 218 -131 - - - 183 321SPARES /a No - 1 - - - 1 2 57.500 - 57 - - - 57 115 - 72 - - - 97 169NOTOR CYCLES No - 15 - - 15 - 30 2.070 - 31 - - 31 - 62 - 39 - - 49 - 88

Sub-Total E°UIPIENT FIRE PRMT. - 1.021 - - 31 990 2,042 - 1,284 - - 49 1,662 2,9948. TOUERS I FIRE BREAKS

FIRE BMEKS lb K - 35 - - - - 35 620 - 22 - - - - 22 - 31 - - - - 31FIRE TNERS No - - - 1 18.600 - 19 - - 19 - 27 - - 27

Sub-Total TON: I FIRE BREAKS - 40 - - - - 40 - 58 - - _ - 58C. ROA 8A18N, EDUIP.

GRADERS NO - 1 - - 1 135,355 - 135 - - - - 135 - 170 - - - - 170

Sub-Total RO3D IAINT. EWIIP - 135 - - - 135 - 170 - - - 170P. SILVICELTURAL AMASENENT CAP,

RESEARCH S1 --- 215 - - - - 215 276 - - - 276INENTORY SN -- 272 - - - - 272 - 349 - - - - 349

Sub-Total SILVICULTURAL NANAEENT CAP, - 4B7 - - - 407 - 625 - - - 625

Total INVESTMENT COSTS - 1.684 - - 31 990 2.705 - 2,137 - - 49 1,662 3,847

11. RECURRENT COSTS

A. MINT. EQUIP,. TOWERS

NAINT, EOUIP, SUN - 54 54 54 54 54 271 74 83 92 102 114 464NAINT, TOiERS SW - -……… - 11 11 11 11 11 54 - 15 17 18 20 23 93ERADERS HRS -500 500 500 500 S 2. 500 74 - 37 37 37 37 37 184 - 50 56 63 69 77 316

Sub-Total MIANT. EOUIP,. TOWERS - 102 102 102 102 102 509 - 139 156 173 192 214 873

Total RECURRENT COSTS - 102 102 102 102 102 509 - 139 156 173 192 214 873

lotal BASELINE COSTS - 1,786 102 102 133 1,092 3,215 - 2.275 156 173 241 1,075 4,721

/a MAINLY SPARES FMR EXISTING RADIO/TELEPHONES/b AT RATE IF 2308/IOOOHA OF NEU PLANTATION

October 26, 1983 13:47

ZAMBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

LOGGING ND TRANSPORTATIONDetailed Cost Table

Base Costs Totals Including Continlenciesguantita (KW '000) (KW '000)

----------------------------------------- Unit Cost --------------------------------------------- -------------------------------------------------Unit 83/84 84/85 85/86 86/87 87/88 88/89 Total (KW) 83/84 84/85 85/86 86/87 87/88 88/89 Total 83/84 84/85 85/86 86/87 87/88 88/89 Total

I. INVESTMENT COSTS

A. MACHINERY AND EQUIPMENT

POIIER SAW NO 26 30 33 33 33 33 188 805 21 24 27 27 27 27 151 26 33 39 42 45 49 235IHEEL TRACTORS B8HP NO 2 4 5 - - - 11 50,830 102 203 254 - - - 559 128 279 377 - - - 784ART. IHEL SKIDD. 120HP ND - I I 1 - - 3 88,320 - 8S 888 8 - - 265 - 121 131 141 - - 393CLAN BUNK SKIDDERS 80HP NO I 1 1 - - - 3 179,860 180 180 180 - - - 540 226 247 267 - - - 740LOSLOADER NO - I I - - 2 140,875 - 141 141 - - - 282 - 193 209 - - - 40240 TON TRUCKS/TRL. 250HP NO 3 4 3 - - - 10 180,435 541 722 541 - - - 1,804 680 990 804 - - - 2,474ROAD GRADERS 125HP NO 2 - - - - - 2 135,355 271 - - - - - 271 340 - - - - - 340

Sub-Total MACHINERY AND EQUIPMENT 1,114 1,358 1,231 115 27 27 3,872 1,401 1,862 1,828 183 45 49 5,368B. MACH. EWIP. SPARES - - 111 136 123 11 3 3 387 129 171 168 17 4 4 494

Total INWEST)ENT COSTS 1,226 1,494 1,354 126 29 29 4,259 1,529 2,034 1,996 200 50 53 5,862

11. RECURRENT COSTS c

A. INCREKENTAL WORKING CAPITAL

POIIER SAIS TN HRS 22.8 26.4 29 29 29 29 165.2 3,575 82 94 104 104 104 104 591 97 129 159 176 196 217 973WHEEL TRACTOR TH HRS 11.9 13.2 14.5 '14.5 14.5 14-5 83.2 8,179 97 108 119 119 119 119 680 115 147 182 202 224 249 1,119ART IWHEEL SKIDD TH HRS 3.3 3.3 3.3 3.3 3.3 3.3 19.8 19,836 65 65 65 65 65 65 393 78 89 100 111 123 137 639CLAN BUNK SKIDDERS SOHP TN HRS 3.3 3.3 3,3 3.3 3.3 3-3 19,8 17,279 57 57 57 57 57 57 342 68 78 87 97 108 120 557LOG LOADER 120HP TN HRS 2.6 2.6 2.6 2-6 2.6 2.6 15.8 16,412 43 43 43 43 43 43 260 51 59 66 74 82 91 42340 TON TRUCK 250HP TH KM 105.6 118.8 132 132 132 132 752.4 1,248 132 148 165 165 165 165 939 156 202 252 280 311 345 1,546ROAD GRADER 125 TH HRS 1.8 1.8 1.8 1.8 1.8 1.8 10.6 15,578 27 27 27 27 27 27 165 33 37 42 47 52 57 268

Sub-Total INCREMENTAL IORKING CAPITAL 504 544 580 580 580 580 3,369 598 741 888 986 1,095 1,217 5,525

Total RECURRENT COSTS 504 544 580 580 580 580 3,369 598 741 888 986 1,095 1,217 S,525

Total BMSELINE COSTS 1,730 2,038 1,935 707 610 610 7,628 2,127 2,774 2,884 II86 19144 1,270 11,387

October 26. 1983 13:48

Hn

ZAKBIA ~~- 5 - ANNEX 1INDUSTRIAL FORESTRY PRDJEC - PNR8E III Table 6

SAUIILLI4s MD PRDCESSING CAPITAL COSTSDetailed Cost Table

BDse Costs Totals Including Contiraencies

rWantoto (KW 'TOO) KR '006)S-------------------------------o-C------- Ln ost -

(nit 83/84 a4/85 05/86 86/87 87/88 88/89 Total (OR) 83/84 84105 85/06 86/87 07/88 8J8s9 Total 83/84 84/85 85/86 86/87 87/80 88/89 Total

I. IKVESTHENT COSTS

A. IMMEDIATE INVESTMENTS

1. KAFUBU/KITE

METEX - SPARES Sun 72 - - 72 90 - - - - - 90FRAME SK - OVERHAUL SUm 351 351 440 440FRA0E SK - SPARES SUm …l - - - 8l 102 - - - - - 102CIRC. SA - RESAWSGHP Sun …31 31 39 - - - - - 39CIRC, SM - SPARES sm- 29 - - - - - 29 36 36

Sub-Total KAFUJU/KITE 564 - - - 564 706 - - - - 7062. DOLA

DULA HILLS SK - SPARES SINK - - - - - 15 19 19

Sub-Total NDOLA 15 - - - - - 15 19 - - - - - 19

Sub-Total IMMEDIATE INVESTMENTS 579 - - - - - 579 725 - - - - - 725B. REAADILITATION

1. KAFUU0/KITE METEE

nECHANIZED LOG DECKS SR --- 47 - - - - 47 - 64 - - 64

EXTENSION SORTING LINE sun - 30 - - - - BO - 109 - - - - 109EXTENSION RASTE DLING sun - -- -- 83 - - - - 83 - 113 - - - - 113LOG CONVERSION PLANT sun 1,622 - - - - - 1,622 2,031 - 2,031

hEED 2 tC. TREAT. PLANT su5 - 162 - - - - 162 - 220 - - - - 220CV.WKS. (FW DNATISN, BLDG.) sU 238 - - - - - 238 313 - - - - - 313

Sub-Total KAFUBU/KITE METEX 1.860 373 - - - - 2,233 ,344 506 - - - 2,8502. KITWE-KALIBU Sn (RB)

WATER SUPPLY sun - - - - - - - -- 52 - - - - 52 - 71 - - - - 71POWER SWPPLY sunm - -- ---- - 35 - - - - 35 - 47 - - - - 47SHEDS sum -N… … … … … …- 190 - - - - 190 - 292 - - - - 2nO 8FFICE 8UILDINGS suN -… - - … … … … - 53 - - - - 53 - 0l - - S0

ROD PAVEMENT sum -… - - … - …… - 105 - - - - 105 - 162 - - - - 16260SEATER BUSES NO 2 - - - 2 81,083 - 162 - - - - 162 - 220 - - - - 220

PICK UP HARD TOP YO I 1 20,850 - 21 - - - - 21 - 28 - - - - 28SEDANCAR NO - I - 1 15,058 - 15 - - - - 15 - 20 - - 20

--- ---- -_ - -- -- - -- - - - - - - - - - -- - - - - - -- - --- --- -- ---- -- -- - - _ - - - --- - - -- -

Sub-Total KITWE-KALIBU SN IB) - 633 - - - - 633 - 923 - - - a3

BENI KECH. LOS YARD SM -- 261 - - - - 261 - 354 - - - - 354CWDRKS (FOIND.D KMS) su0 - 34 - - - - 34 - 52 - - 52

Sut-Total 4DOL0 - 294 - - - - 294 - 406 - - - - 406

Sub-Total REHABILITATION 1,860 1,300 - - - - 3,161 2,344 1,835 - - - - 4,179C. IYPRIENT PRO8R0M

1. KAFUBU/KITE

NEW FRAME Sl6000 3/YR su - - 4,286 - - - 4,286 - - 6,271 - - - 6,271

R.TINMR YD S HA. ED, sum - - 168 - - - 168 - 246 - 246DRYlNG KILNS I BOILER, TC. SUN - 950 950 1,390 1,390

TRYLULO UPSRAD. EOUIP. sum --- - 130 - - - 130 - - 190 - - - l90FIGER JOINTIYNGPLRNT 508-…- - 1,243 - - - 1,243 - - 1,819 - - - 1,819SALT CINM S PLANT sUm - - 440 - - - 440 - - 644 - - - 644CV.WS (FOUNDATION 1 8LD8) s - - -- - 1,344 - - - 1,344 - - 2,359 - - - 2,359mpR. EXIST,HRTER USP. mmn - 52 - 52 - 76 - 76

ImRf EXIS.PER 8UWP. Sn35 35 51 51IMPR. EXIST.ROADb PVE. sum - - 338 - 338 - - 593 - - - 593PPR. EXIST,RAVE1 PAVE. su4- 264 - - - 264 - - 463 - 463

Sut-Total KAFUBMITE - - 9,249 - - - 9,24S - - 14,101 - - - 14,1012. KITUE K0LIBU Sh 18W)

NECK. LD8 Ys-…- - 811 - - -e1l - - 1,106 - - - 1,106DRY KILNS ETC. 2000D N3/YR su0 0a- -- - - - 866 1- - ,268 - - 1,260WASTE HWN, SYSTEO s - - -- - 53 - - - 53 - - 78 - - - 78DL EN UPs. PKG./CRDME sumn -- - 130 - - - 130 - - 190 - - - 190CENTRRL KHP sWn W -- - 1,031 - - - 1031 - - 1,508 - - 1,508CV.WGRKS (FOUND,IBLDG) SIun!- - 527 - - - 527 - - S26 - - - 926

Sub-Total KITYE KALIBU sn (10) - - 3,419 - - - 3,419 - - 5,156 - - - 5.156

Sub-Total IMPROVEMENT PORAMn - - 12,667 - - - 12,667 - - 19,257 - - - 19,257

Total INVESTMENT COSTS 2,439 1,300 12,667 - - - 16,407 3,069 1,835 19,257 - - - 24,161

Total BASELINE COSTS 2,439 1,300 12,667 - - - 16,407 3,069 1,835 19,257 - - - 24,161ctober-------- 26- 13 13 4 9 _-_ ==== = === = == ====

October 26, 1983 13:,49

ZAMBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

SAUMILLING AND PROCESSING OPERATING COSTSDetailed Cost Table

Base Costs Totals Including Continsencies0uantitY (KW '000) (KW '000)

------------------ -- ---- --------------- Unit Cost ------------------------- ------------------------------------------Unit 83/84 84/85 85/86 86/87 87/88 88/89 Total (KU) 83/84 84/85 85/86 86/87 87/88 88/89 Total 83/84 84/85 85/86 86/87 87/88 88/89 Total

I. RECURRENT COSTS

A. INCR, WORKING CAPITAL

LABOR SAWMILLING (INCR.) ZK - 5 28 28 28 28 117 1,258 - 6 35 35 35 35 147 - 9 57 65 75 86 292LABOR OTH. u PROC,(INCR) ZK - - 42 42 42 42 168 1,316 - - 55 55 55 55 221 - - 89 102 118 136 445MAINTENANCE COST INCR ZK - 3 3 3 3 3 15 - 148 204 204 204 204 964 - 182 270 287 305 323 1,367SUPPLY(TOOLS CHEM)INCR ZK - 3 3 3 3 3 15 - 82 109 127 144 162 625 - 101 145 179 215 256 896ELECTRICITY (INCR) ZK - 3 3 3 3 3 15 - 100 108 108 108 108 532 - 124 143 152 161 171 750 c

Sub-Total INCR. WORKING CAPITAL - 337 512 530 547 565 2,490 - 416 703 786 874 972 3.750

Total RECURRENT COSTS - 337 512 530 547 565 2-490 - 416 703 786 874 972 3,750

Total RASELINE COSTS - 337 512 530 547 565 2,490 - 416 703 786 874 972 3,750

October 26, 1983 13:51

(D I >

ZAMBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

UORKSHOP IMPROVEMENTDetailed Cost Table

Base Costs Totals Including ContingenciesQuantity (KW '000) (KW '000)

----------------------------------------- Unit Cost ------------------------------------------ ---------------…-Unit 83/84 84/B5 85/86 86/B7 87/88 88/89 Total (KW) 83/84 84/85 85/86 86/87 87/88 88/89 Total 83/84 84/85 85/86 86/87 87/88 88/89 Total

I. INVESTMENT COSTS

A. VEHICLES AND ECUIPMENT

4 WD VEHICLES - 2 - - - - 2 21,850 - 44 - - - - 44 - 60 - - - - 60WORKSHOP ECUIPENT SUN - - - - - - - - 57 - - - - 57 - 79 - - - - 79CENTRAL WORKSHOP SUN - - - - - - - - 460 - - - - 460 - 631 - - - - 631HOBILE WORKSHOP SU" - - - - - - - - 115 - - - - 115 - 158 - - - - 158

Sub-Total VEHICLES AND EQUIPMENT - 676 - - - - 676 - 927 - - - 927

Total INVESTMENT COSTS - 676 - - - - 676 - 927 - - - - 927

II, RECURRENT COSTS

A. INCR. WORKING CAPITAL - 20 20 20 20 20 100 3,250 - 65 65 65 65 65 325 - 89 99 110 123 136 557

Total RECURRENT COSTS - 65 65 65 65 65 325 - 89 99 110 123 136 557

Total BASELINE COSTS - 741 65 65 65 65 1,001 - 1,016 99 110 123 136 1,484 |

October 269 1983 13:51

ZAMBIAINDUSTRIAL FORESTRY PROJECT - PHASE 1i1

TECHNICAL ASSISTANCEDetailed Cost Table

Bzse Costs Totals Issludins i tontir fitosguantits (KW '000) (KA '000)

-- wlit Cost ---------------- _____- - -Soit 83/84 84/85 85/86 86/87 87/88 88/89 Total (KU) 83/84 84/85 85/86 86/87 87/88 88/89 Total 83/84 84/05 85/86 86/87 87/88 88/89 Total

1 IWNESTHENT COSTS

A. TECHNICAL ASSISTANCE

1. CORPORATE PLANNING

CORPORATE PLN, MANAGER STF YRS - I I I 3 928000 - 92 92 92 - - 276 - 116 125 135 - - 375FINANCIAL ANALYST STF YRS - 1 1 _ 3 82,800 - 83 83 83 - - 248 - 104 113 121 - - 338TRAINING SPECIALIST STF YRS - I I I - - 3 82,800 - 83 83 83 - - 248 - 104 113 121 - 338

Sub-Total CORPORATE PLANNING - 258 258 250 - - 773 - 324 351 377 - - 1,0512, FINANCE AND OTHER

DIRECTOR FINANCE STF YRS - 1 1 1 1 1 5 110,400 - 110 110 110 110 110 552 - 139 150 161 173 185 809SYSTEHS ANALYST STf YRS - I I I - - 3 82,800 - 83 83 83 - - 248 - 104 113 121 - - 338rARKETING ANAOER STF YRS - I I I - - 3 92,000 - 92 92 92 - - 276 - 116 125 135 - - 375

Sub-Total FINANCE AND OTHER - 285 205 285 110 110 1,076 - 358 388 417 173 185 1,5223, ENOINEERING PROCESS. AND CONST,

DIRECTOR E_NEERN _ E_ ST. STE RS -

DIRECTOR EN61NEERIN8 I CONST, STF YRS - I I I - 3 110,400 It Ito Ito11 - - 331 - 139 ISO 161 - - 450DIRECTOR LOG, AND PROCESSING STF YRS - I I I 3 110,400 - 110 110 118 - - 331 - 139 150 161 - - 450CENTRAL WORKSHOP NANA8ER STF YRS - I I I 3 92,000 - 92 92 92 - - 276 - 116 125 135 - - 375SR SAN DOCTOR STF YRS - I I I - - 3 02,800 - 83 83 B3 - - 248 - 104 113 121 - - 338 mNANAGER SANIL, AND PROC. STF YRS - 1 1 - - 3 92,000 - 9 92 92 - - 276 - 116 125 135 - - 375NAA8ER LO, AND TRANSP STF YRS - I 1 1 - - 3 92,080 - 92 92 2 - - 276 - 116 125 135 - - 375

Sub-Total ENGINEERING PROCESS. AND CONST. - 580 580 580 - - 1,739 - 728 789 848 - - 2,365

Sub-Total TECHNICAL ASSISTANCE - 1,122 1,122 1,122 110 110 3,588 - 1,411 1,528 1,641 173 105 4,9380, SHORT TERN CDHSULTANTS

HARVESTING /a INITHS - 12 - - - - 12 5.750 - 69 - - - - 69 87 - - - - 87TRAINING SPECIALIST nnTHS - - - - - -- 106 106 106 - - 317 - 133 144 155 - - 432SIL9ICULTURAL SPECIALIST NNTHS 12 - 12 5,750 - 69 - - - - 69 - 87 - - - - 07OTHER CONSULtANCIES /b NTHS - - - 115 115 115 56 56 458 - 145 157 160 88 95 652

Sub-Total SHDRT TERN CONSILTANTS - 359 221 221 56 56 913 - 451 301 323 88 P5 1,257

Total IH9ESTNEHT COSTS - 1,481 1,343 1,343 107 167 4,501 - 1-862 1,820 1,964 261 280 6,195

Total BASELINE COSTS - 1,481 1,343 1,343 167 167 4,501 - 1,862 1,820 1,964 261 280 6,195

/a DESIGN OF 0O1 NAR9ESTING AND PRUNING PLANTlb NAINLY TO C8ERCONSLTANCIES FOR INPLETIN6 SPECIFIC CONPOHENTS INCLUDING L086IN6.PROCESSIN2

October 28, 1983 14:10 0

ZAMBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

TRAININGDetailed Cost Table

Base Costs Totals Including ContingenciesOuantity (KU '000) (KW '000)

----------------------------------------- Unit Cost ------------------------------------------ ------Unit 83/84 B4/85 85/86 86/87 87/88 88/89 Total (KW) 83/84 84/85 85/86 86/87 87/88 88/89 Total 83/84 84/85 85/86 86/87 87/88 88/89 Total

I. INVESTMENT COSTS

A. LONG TM AND EXT. TRAINING /a

BSC ENG. (KECH) STF YRS - 2 4 4 4 3 17 14,000 - 28 56 56 56 42 238 - 35 74 79 84 66 337

BSC ENG. (ELEC) STF YRS - - 1 1 1 1 4 147000 - - 14 14 14 14 56 - - 19 20 21 22 81

BSC ENG. (CIVIL) STF YRS - - I 1 1 1 4 14,000 - - 14 14 14 14 56 - - 19 20 21 22 81

WOOD TECHNOLOGIST STF YRS - - 2 2 2 2 8 144000 - - 28 28 28 28 112 - - 37 39 42 44 162

CHARTERED ACCOUNTANCY STF YRS - 2 2 2 2 - 8 11,667 - 23 23 23 23 - 93 - 29 31 33 35 - 127

BUSINESS ADM STF YFS - 1 1 2 2 - 6 14,000 - 14 14 28 28 - 84 - 17 19 39 42 - 1i7

SAW DOCTORING STF YRS - 2 2 2 2 - 8 11,667 - 23 23 23 23 - 93 - 29 31 33 35 - 127

SHT, MARKETING COURSE NO - I 1 - - - 2 11,667 - 12 12 - - - 23 - 14 15 - - - 30

OTHER TRAINING /b SUm - - - 308 308 308 201 201 1,327 - 387 419 451 315 338 1,911

Sub-Total LONG TM AND EXT. TRAINING /a - 409 493 495 388 299 2,083 - 511 663 713 594 493 2.974

B. ON THE JOB TRAINING

CHATI TRG CENTER /c - - - - - - - - 50 50 50 50 50 250 - 76 89 102 117 135 518

TRAINING MANUALS ETC - - - - - - - - 150 50 - - - 200 - 227 89 - - - 316

Sub-Total ON THE JOB TRAINING - 200 100 50 50 50 450 - 303 177 102 117 135 834

Total INVESTMENT COSTS - 609 593 545 438 349 2,533 - 814 841 815 711 628 3,808 52

Total BASELINE COSTS - 609 593 545 438 349 2,533 - 814 841 815 711 628 3,808

/a UNiT COST IS THE ANNUAL COST PER STUDENT PER YEAR/b TO BE DETERMINED/c ACCOMMODATION AND MEALS FOR PLANTATION, FINANCE ADN., SAWMILL LOGGING AND WORKSHOP STAFF

…----- ----- -- ---- -- -- -------------- -------- ----- - -- -- -- ---- -- - - ------ _-…-----_ -- ---- ----- ---- ---- -------- -- - - ----- - -- -- ---- -- _ - - -- - -- -- -_--- ---- -- -- ------- -- -- -- - -- -- -- -- _ -_ -__ -__ -__

October 28, 1983 14:01

ZAtiBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

PROJECT ADM1INSTRATIONDetailed Cost Table

Base Costs Totals Including ContingenciesGuantity (KW '0001 (KW '000)

…--------------------------------------- Unit Cost --------------------------------------- -----------------------------------------Unit 83/84 84/85 85/86 86/87 87/88 88/89 Total (KW) 83/84 84/85 85/86 86/87 87/88 88/89 Total 83/84 84/85 85/86 86/87 87/88 88/89 Total

I. INVESTMENT COSTS

A. VEHICLE AND EQUIPHENT

PASSENGER CARS /a - 6 - - - 6 12 14,375 - 86 - - - 86 172 - 108 - - - 145 2534 WD VEHICLES - 2 - - - - 2 21,850 - 44 - - - - 44 - 55 - - - - 55PASSENGER BUS - - - 1 - - 1 269450 - - - 26 - - 26 - - - 39 - - 39MICRO COMPUTER - - - 1 - - 1 9,200 - - - 9 - - 9 - - - 13 - - 13OFFICE FURNITURE - I 1 1 1 1 5 3,450 - 3 3 3 3 3 17 - 4 5 5 5 6 25

Sub-Total VEHICLE AND EQUIPMENT - 133 3 39 3 90 269 - 168 5 57 5 151 386

Total INVESTMENT COSTS - 133 3 39 3 90 269 - 168 5 57 5 151 386

II. RECURRENT COSTS

A. INCREMENTAL WORKING CAPITAL

4-UD VEHICLES ZK - 2 2 2 2 2 10 47875 - 10 10 10 10 10 49 - 13 15 17 18 20 84PASSENGER BUS ZK - 1 1 1 1 1 5 5,417 - 5 5 5 5 5 27 - 7 8 9 10 11 46PASSENGER CARS 7K - 5 5 5 5 5 25 49333 - 22 22 22 22 22 108 - 30 33 37 41 45 186OFFICE EQUIPMENT ZK - 1 1 1 1 1 5 3,250 - 3 3 3 3 3 16 - 4 5 6 6 7 28

Sub-Total INCREMENTAL WORKING CAPITAL - 40 40 40 40 40 200 - 55 61 68 76 84 344

Total RECURRENT COSTS 40 40 40 40 40 200 55 61 68 76 84 344 rD

Total BASELINE COSTS - 173 44 79 44 130 470 - 222 66. 125 81 235 729

/a ONE CAR TO BE ALLOCATED FOR MARKETING AND MARKET RESEARCH WORK

October 28, 1983 14:01

DETAILED COST TABLE 32 PROCESSED.

- 65 - ANNEX I

Table 12

ZAMBIA

INDUSTRIAL FORESTRY PROJECT PHASE III

Estimated Schedule of Disbursements(US$ '000)

Bank FY/QtrEnding In Quarter Cumulative

1983/84 June 1,200 1,200

1984/85 September 900 2,100December 900 3,000March 900 3,900June 1,000 4,900

1985/86 September 1,000 5,900December 2,000 7,900March 2,000 9,900June 2,000 11,900

1986/87 September 1,000 12,900December 1,000 13,900March 1,000 14,900June 800 15,700

1987/88 September 800 16,500December 800 17,300March 700 18,000June 700 18,700

1988/89 September 700 19,400December 700 20,100March 700 20,800June 700 21,500

1989/90 September 900 22,400

The schedule has taken into consideration the bulky sawmilling eauipmentagainst which quick and heavy disbursements would need to be made. Theschedule also relies on Phase II experience in disbursements in additionto the country and regional sector disbursement profiles.

ANNEX 2- 66 - Table 1

ZAMBIA

INDUSTRIAL FORESTRY PROJECT-PHASE III

IPD's Summary Income Statements

FY77 FY78 FY79 FY80 / FY81 /------------------------in K'000------------------------

Sales Revenue 2/ 2,337.6 2,464.2 2,276.0 3,495.8 3,861.3Profit on Sales -3/ 466.2 305.7 211.6 38.1 706.7Operating Profit - 411.6 255.5 (84.0) (500.1) 172.3

Ratios:

Profit on Sales/Sales (%) 19.9 12.4 9.3 1.8 18.3Operating profit/Sales (%) 17.6 10.4 (3.7) (14.3) 4.5

1/ Financial year before FY80 was January 1 to December 31, but in FY80 and afterbecame April 1 to March 31

2/ This is profit before loss due to fire damage and disease3/ This is profit net of loss due to fire damage and disease

- 67 - ANNEX 2Table 2

ZAMBIA

INDUSTRIAL FORESTRY PROJECT-PHASE III

IPD's Summary of Balance SheetsK 000

FY77 FY78 FY79 FY80 FY81

Current Assets 5,156.5 7,486.9 5,591.1 4,957.2 5,010.1Fixed Assets 3,254.7 4,644.2 8,093.3 9,595.9 9,821.9Plantation information 20,811.2 24,672.0 29,319.0 37,282.0 45,687.0

Total 29,232.4 36,803.1 432003.4 51.835.1 6g.519.0

Current Liabilities 1,104.5 3,354.0 3,004.7 6,047.6 8,825.8Long-term Loans 27,255.0 32,255.7 38,822.7 43,923.7 49,922.7Reserves and Quasi-Equity 872.9 1,194.1 1,176.0 1,864.8 1,770.5Total 29 232.4 36 803.1 43X0O3.4 512836.1 60X591.0

Ratios:

Current Ratio 4.67 2.23 1.86 0.82 0.57Long-term Debt/Reservesand Quasi-Equity(Grants) 97:3 96:4 97:3 96:4 97:3

- 68 - ANNEX 2

Table 3

ZAMBIA

Industrial Forestry Project - Phase III

Pine per Hectare Model

(K/ha)

Period Costs Output Value(m3)

1 744

2-3 64

4 49

5 94

6-7 49

8 74

9-10 49

11 309 45 1,035

12-13 49

14 294 60 1,380

15-17 49

18 294 50 1,150

19-24 49 _

25 49 183 4,209

1,332Total NPV at 10% 1,339 1,332

Price K23.32/m 3

February 17, 1983

ANNEX 2

- 69 - Table 4

ZAMBIA

Industrial Forestry Project - Phase III

(a) Eucalyptus per Hectare Model (12 year cycle)

(K/ha)

Period Cost Output(m3) Value

1 7052 1483-5 1276-11 5712 57 221 302313 8014-23 5725 57 221 3023

25 8026-35 5736 57 221 3023

Total NPV at 10% 1369

Price K 13.68/mr3

(b) Eucalyptus per Hectare Model (8 ear cycle)

Period Cost Output (m3 ) Value

1 7052 1483-5 1276-7 578 57 169 16909 8010-11 5716 57 169 169017 8018-23 5724 57 169 1690

Total NPV at 10% 1335

Price K 10.00/m 3

- 70 -ANNEX 2Table 5a

ZAMBIA

INDUSTRIAL FORESTRY PROJECT -- PHASE III

Project Financial Rate of Return(K '000)

1~

Project Sawn ReplantedYear Cost Timber Poles Eucalyptus Total Revenue

1 6,763 2,152 2,203 4,3552 9,821 3,227 2,424 5,6513 20,601 5,379 2,424 -- 7,8024 3,852 5,379 2,424 -- 7,8025 2,340 5,379 2,424 -- 7,8026 3,411 5,379 2,424 -- 7,8027 3,010 5,379 2,424 -- 7,8028 1,773 5,379 2,424 -- 7,8029 2,954 5,379 2,424 -- 7,80210 3,285 5,379 2,424 -- 7,80211 3,093 5,379 2,424 -- 7,80212 3,866 5,379 2,424 4,143 11,94613 1,803 5,379 2,424 4,143 11,94614 1,628 5,379 2,424 4,143 11,94615 1,670 5,379 2,424 4,143 11,94616 1,854 5,379 2,424 4,143 11,94617 4,433 5,379 2,424 4,143 11,94618 3,385 5,379 2,424 4,143 11,946

Internal Rate of Return: 24%

1/ Includes physical contingencies. Years 7 through 18 are maintenance and capitalreplacement costs.

October 26, 1983

- 71 -ANNEX 2Table 5b

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE III

Financial and Economic Rates for Pine Plantations

Financial Financial Economic EconomicPeriod Costs Benefits 11 Costs 3/ Benefits 2/

1 744 5952-3 64 514 49 395 94 75

6-7 49 398 74 59

9-10 49 3911 309 665 247 1,002

12-13 49 _ 3914 294 886 235 1,336

15-17 49 _ 3918 294 1,923 235 2,900

19-24 49 - 3925 49 7,038 39 10,612

FRR= 11 ERR = 16

1| Based on price of K14.77 (m3 for small logs and K38.46 (m3 for sawlogs(Annex 2, Table 10b)

2/ Based on price of K22.27 for small logs and K57.99/m3 for saw logs(Annex 2, Table 11)

3/ As SCF of 0.80 was used to convert domestic costs into economic borderprices.

ANNEX 2ZAMBIA Tab1e 6

Industrial Forestry Project- Phase III

ProjecL Economic Rare of Return(K '000)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18

1) Sawnwood 1840 3140 4 331. 4331 4331 4331 4331 4331 4331 4331 4331 4331 4331 4331 4331 4331 4331 4331

2) Poles - 1138 1251 1251 1251 1251 1252 1251 1251 1251 1251 1251 1251 1251 1251 1251 1251 1251

3) Roundwood/(IocalypLus) ___ _______ _______ _______ ________ ____ 4421 4421 4421 4421 4421 4421 4421

Economic Benefits 1840 4278 5582 5582 5582 5582 5582 5582 5582 5582 5582 10.003 10,003 10,003 10,003 10,003 10,003 10.003

Increm,ental Economic Costs 3919 6325 13920 2470 1874 1849 1495 1495 1495 1495 1495 1495 1495 1495 1495 1495 1495 1495

Incremental Net Benefits -2019 -2041 -8338 3112 3108 3133 4081 4087 4081 4087 4081 8508 8508 8508 8508 8508 8508 8508

IERR - 29%

Assumptionis:

Sawrnwood prices/u3

- 216.53 (Annex 2, Table 10)Pole, price/Oe - 113.81 (AnneK 2, Table 12)Roundwood price/rn

3- 51.99 (Annex 2, Table 1

May 18, 1983

ANNEX 2Table 7

ZAMBIA

INDUSTRIAL FORESTRY PROJECT -- PHASE III

ZAFFICO Income Statement Projection

(K million)

83/84 84/85 85/86 86/87 87/88 88/89

Operating Reveue (OR) 5.9 9.9 14.4 15.9 17.5 19.2

Operating CostsProduction SellingAdmin. & General Exp. 4.1 7.2 8.6 '.7 9.5 10.5

Depreciation 1.8 2.3 3.8 3.8 3.9 4.2

Operating Income (OI) -- 0.4 2.0 2.4 4.1 4.5

Interest 0.6 1.5 2.0 2.4 2.5 2.6

Net Income (NI) (0.6) (1.1) -- -- 1.6 1.9

Op. Income/Op. Rev. / -- 4 14 15 23 23

Net Income/Op. Rev. % (9) (10) -- -- 4 10

1/ All projections have been made on current terms.2/ To allow for down time during the rehabilitation period it is estimated that only 85%

of the production capacity will be realized.3/ All long term loans advanced to IPD upto 31 December 1982 along with accrued interest

have been converted to equity. The amounts transferred to ZAFFICO hy GRZ are treatedas long term loans.

4/ Direct Costs are based on Logging Sawmilling and Engineering costs.5/ Plantations in formation include direct and operating costs, a share of overhead

expenses net of clearfelling costs.

October 28, 1983

- 74 -ANNEX 2Table 8

ZAMBIA

INDUSTRIAL FORESTRY PROJECT --- PHASE III

ZAFFICO Sources and Application of Funds Statement(K million)

Sources of Funds

Internally Generated 83/84 84/85 85/86 86/87 87/88 88/89

Net Income (0.6) (1.1) -- 1.6 1.9Add

Interest 0.6 1.5 2.,0 2.4 2.5 2.6Depreciation 1.8 2.3 3.8 3.8 3.9 4.2Plantation Cost Amortized 0.6 0.7 0.8 0.9 1.0 1.0

Total Internally Generated 2.4 3.4 6.6 7.1 9.0 9.7

DeductDebt Service 1.1 2.7 3.9 4.7 5.1 5.8Net Internally Generated 1.3 0.7 2.7 2.4 3.9 3.9

BorrowingsGRZ Loan 5.7 9.1 6.6 3.9 2.2 3.8

Equity -- -- 14.0 -- -- --

Total Sources 7.0 9.8 23.3 6.3 6.1 7.7

Application of FundsProject Assets 7.4 9.4 23.8 2.9 3.7 7.0Incr. (Decr.) Working Capital (0.4) 0.4 (0.5) 3.4 2.4 0.7

Total Application 7.0 9.8 23.3 6.3 6.1 7.7

Debt Service Coverage 2 1.3 1.7 1.5 1.8 1.7

October 26, 1983

- 75 -ANNEX 2Table 9

ZAMBIA

INDUSTRIAL FORESTRY PROJECT -- PHASE III

ZAFFICO Projected Balance Sheets(K million)

83/84 84/85 85/86 86/87 87/88 88/89

Fixed Assets 12.1 15.9 31.7 26.5 22.5 21.3Plantation 56.4 58.9 62.2 65.6 68.5 71.5Net Current Assets 2.9 3.4 2.9 6.3 8.7 9.4

Total 71.4 78.2 96.8 98.4 99.7 102.2

Share Capital 65.3 65.3 79.31/ 79.3 79.3 79.3Long-term Loan 5.2 13.1 1 7.7T/ 19.3 19.0 19.6Reserves 0.9 (0.2) (0.2) (0.2) 1.4 3.3

Total 71.4 78.2 96.8 98.4 99.7 102.2

Ratios:Debt Equity 2/ 1:13 1:5 1:5 1:4 1:4 1:4Debt Equity 3/ 1:2.9 1:1.5 1:1.9 1:1.7 1:1.6 1:1.6Debt Equity 4/ 1:13 1:5 1:2 1:2 1:2 1:2Debt Equity 5/ 1:2.9 1:1.5 1:1.1 1:1 1:0.9 1:0.9

1/ K14.0 million transferred to equity capital2/ Ratio assumes assets include plantations in formation.3/ Ratio with assets net of the value of plantations on the

assumption that trees would be difficult to realize in case of liquidation.Includes an equity injection in 1985/86 of K14.0 million.

4/ Assumes no increase in equity in 1985/86 and assets same as in 2/.5/ Assets net of the value of plantations same as in 3/ but without equity

injection in 1985/86 of K14.0 million.

October 28, 1983

-76 - ANNEX 2Table 10

ZAMBIA

INDUSTRIAL FORESTRY PROJECT-PHASE III

ZAFFICO's Product Price Structure in 1986(K/mJ in 1983 prices)

1/(a) Based on Current Pricing Policy -

Stumpage Logging & Conversion/ Ex-Factory c.i.f.Product Equivalent Transport Processing Price Price -

Sawntimber (pine) 54.00 33.25 106.70 193.95 233.00Sawntimber (eucalyptus) 31.71 33.25 106.70 171.66 -Poles (Salt-treated) 7.40 33.25 84.00 124.65 133.81Pine Roundwood (delivered) 10.12 33.25 10.00 53.37 58.00

(b) Based on Suggested Pricing Policy -/

Sawntimber (pine) 78.84 33.25 106.70 218.29 233.00Sawntimber (eucalyptus) 31.71 33.25 106.70 171.66 -Poles (Salt-treated) 7.40 33.25 84.00 124.65 113.81Pine Roundwood (delivered) 14.77 33.25 10.00 58.02 58.00

t/ Based on current pricing policy which doe not take into resource waste inplantation

2/ Based on recommended pricing policy which takes into account a 46% resource- waste in pine plantations.

3/ Net of a 30% customs duty.

- 77 - ANNEX 2Table 11

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE III

Import Parity Price of Standing Sawlogs (1983)(K/mr)

BorderEconomic -

Price c.i.f. Livingstone 216.53 -

Transport and distribution costs -/ 13.81

Price c.i.f. Lusaka 230.34

Logging and processing costs -/ 85.36

Price of sawnwood after conversion 144.93

Roundwood to sawnwood ratio 2.05

Price of standing roundwood before conversion 57.99

1/ Based on 1982 landed cost at Livingstone for Swazi sawntimber2/ Lusaka is assumed the center of consumption for sawntimber and

would be transported by rail, but does not include trade margins3/ Estimated costs for sawmilling under the Project4/ An SCF of 0.80 was used to convert domestic costs into economic

border prices.

May 25, 1983

- 78 - ANNEX 2Table 12

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE III

Price Structure for Poles (1983) 1/(K/m3)

Border 2/Economic -

Stumpage 6.21

Logging and transportation 26.59

Processing and conversion 67.20

Transportation and distribution 13.81

Trading margin

113.81

1/ These are eucalyptus poles and the major consumption centeris assujed to be Lusaka

2/ An SCF of 0.80 was used to convert financial prices intoeconomic border prices

May 25, 1983

ZAMBIA

INDUSTRIAL FORESTRY PROJECT-PHASE III

NATIONAL APPARENT SUPPLY AND DEMAND FOR INDUSTRIAL WOOD

[000m3(r)j

Apparent Demand Potential Suvply

Pulp

and Wood Total Total Surplus/

Year Sawnwood Paper Panels Poles Demand Potential Supply Supply Deficit

ZAFFICO Other_/

(Actual)- 257 100 63 40' 460 520 250 770 310

1985 300 117 80 4i 541 555 250 805 264

1990 357 137 92 52 643 649 250 899 256

1995 414 160 110 61 745 680 250 930 185

2000 426 187 129 74 817 628 250 878 61

2005 577 219 154 92 1,042 780 250 1,030 (12)

1/ Based on estimated average consumption for 1981.

2/ Includes indigenous forest sources which have been assumed constant.

o z

-80- Annex 3

Table 2

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE III -/

Supply and Demand Projections for Sawntimber

[000 m3 (s)

Imports/Supply Unsatisfied

Year Domestic Demand2 / IPD Other Total Supply Demand

Actual 3/ 90.0 16.0 56.0 72.0 18.0

1985 105.0 52.5 55.0 107.5 (2.5)

1990 125.0 52.5 50.0 102.5 22.5

1995 145.0 52.5 45.0 97.5 47.5

2000 149.0 52.5 45.0 97.5 51.5

2005 202.0 52.5 40.0 92.5 109.5

1/ nasea on Trend-analysis

2/ Assumptions: (a) per capita consumption remains constant at 0.015 m3 (s).

(b) population growth rate of 3.2 p.a.

3/ Based on average consumption for 1970-72 and 1979-81.

February 17,1983

ANNEX 3Table 3

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE III

Demand Projections for Sawntimber by End-Use 1/

[000 m3 (s) ]

End-use Actual 2/1985 1990 1995 2000 2005

Construction & Building 3/ 32.0 37 44 50 58 68

Mines 4/ 25.0 25 25 25 25 25

Furniture & Joinery 5/ 16.0 19 24 29 34 41

Other 6/ 11.0 13 17 20 23 28

Total Use 84.0 94 110 124 140 162

1/ Based on end-use analysis2/ Average consumption for 1974 and 1979-81 industry sales by

IPD and ZSBS.3/ Assumed growth rate is 3.2% (equal to population growth rate).4/ Assumed growth rate is 0.0%.5/ Assumed growth rate is 3.7% (population growth rate 3.2% plus

0.5% per capita income).6'/ Assumed growth rate is 3.7% (population 3.2% plus 0.5% per

capita income).

February 17, 1983

- 82 - ANNEX 3Table 4

ZAMBIAINDUSTRIAL FORESTRY PROJECT - PHASE III

Projected Demand for Poles and Wood Panels

(a) Poles (000 m3(r) u.b.)

Smelter and Transmission Agricultural TotalYear Refinery Poles Poles & Other Poles Demand

1981 (actual) 24 13 3 401985 25 15 5 451990 25 19 8 521995 25 23 13 612000 25 28 21 742005 25 33 34 92

(b) Wood Panels [000 m3(s) ]

Year Particleboard Blackboard Fibreboard Plywood Total Demand

1979-80 (actual) 5.6 3.5 2.6 6.0 15.71985 7.2 3.5 2.8 6.4 19.91990 8.5 3.5 3.4 7.8 24.31995 10.4 3.5 4.1 9.4 27.42000 12.2 3.5 5.0 11.5 32.22005 14.8 3.5 6.1 14.0 38.4

February 18, 1983

-83 - ANNEX 3-83- Table 5

ZAMBIA

INDUSTRTAL FORESTRY PLANTATION PROJECT - PHASE III

ZAFFICO'S Forestry Plantations' Harvesting Potential I/('000 m3 roundwood per year)

Products Period Harvesting Project ExcessPotential Requirenents

Saw logs 2/ 1985-89 238 137 101

Poles 48 40 8

PulpvaDd 3/ 188 -- 188

FOrest residues 4/ 81 - 81

Total (%) 555 (100) 177 (32) 378 (68)

Saw logs 1990-94 308 181 127

Poles 37 44 - 7

Pulpwool 208 - 208

Forest residues 96 - 96

Total (%) 649 (100) 225 (35) 424 (65)

Saw logs 1995-99 355 238 117

Poles 32 48 - 16

Pulpwocd 192 - 192

Forest residues 101 - 101

-iotal (%) 680 (100) 286 (42) 394 (58)

Saw logs 1985-99 300 185 115

Ploles 39 44 - 5

PulpExxod 196 - 196

Forest resiaui-s 93 - 93

Total 628 (100) 229 (36) 399 (64)

1/ Areas to be planted after 1982 are not considered7/ Diameter over 20 cm, includespeeler logs with dianeter over 28 cm3] Diameter between 7 and 19 cm4] Diameter of 6 cm and less

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE II

Sawmills in Zambi4 - 1976

Name and Location of Pill Ownership Species Estimated Estimated Products CommentsSavn Sapacity Production 1976

m per year m3 per yer

1. Kafubu Industrial Timber State Eucalyptus 12,000 (2 shifts) 10,000 Sawnwood Approaching fullEnterprise (KITE), Chati IPD (FD) and Pine 5,000 5,000 T'urlins c-aacity

2. Dola Hill Sawmill, Ndola State Pine 6,500 (1 shift) 2,000 Sawnwood .-ecently started supply.IPD (FD) ,rotlems

Fining Timbers Ltd.: Parastatal3. Mill at Funda (RUCOM- Indigenous 10,000 5,000 (1 shift) Pitprops, '.nnSement problems and4. Mill at Kipupu INDECO) Indigenous 8,750 6,750 (1 shift) sleepers, :-tdated equipment. 05. Mill at Luanshyn Indigenous 6,500 5,000 (1 shift) and, hiew mill planned.6. Mill at Chisa;-ea Indigenous 10,000 6,000 (1 shift) sawnwood

Zsmbesi Sawmills Ltd.: Parastatal7. Mill at Mulobesi (RUCOM- Indigenous 10,000 2,500 sawnwood out of order throughout8. Mill at Sesheke INDECO Indigenous 10.0r" 2,500 sawnwood _vst of 1976.

9. Mkusi Sawmills, Sesheke Private Indigenous 7,000 (2 mobile 7,000 sawnwood Efficient full capacitysawmills)

10. Makumbi Sawmill, E. Province Private Indigenous 5,000 2,000 sawnwood .-art of year only.MAnagement problems

11. Furneoz Sawmill, Ndola Private Indigenous 4,000 3,000 sawnwood 7ot licensed.-. riable supplies <

Source: Chief Conservator of Forests, Forest Department, Republic of Zanbia. F-

February 22, 1977

ZAMBIA

INDUSTRIAL FORESTRY PLANTATION PROJECT-PHASE III

ZAFFICO'S PRODUCTION PATTERN, 1983 - 1989

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

1982/83 19$3/84 1984/85 1985/86 1986/87 1987/88 1988/89

Sawnwood (m )K.I.T.E.: Metex Mill 8,892 11,000 13,000 13,000 13,000 13,000 13,000

Frame Mill 5,466 8,000 8,000 8,000 - - -

Cir. Mill 4,610 5,000 5,000 5,000 - - -

Mobile Mill 1,418 1,500 1,500 1,500 - - -

WB Frame Mill - - - 4,000 16,000 16,000 16,000

Subtotal K.I.T.E. 20,386 25,500 27,500 31,500 29,000 29,000 29,000

Dola Hill Mill (Ndola) 3,196 3,500 3,500 3,500 3,500 3,500 3,500

Kalibu Mill (Kitwe) -_8.000 12,000 20,000 20,000 20,000 20,000

Total Sawnwood 23,582 37,000 43,000 55,000 52,500 5T5TU0 7525U0

3Roundwood (m ub)K.I.T.E.: Sawmilling -51,000 64,000 61,000 70,000 64,000 64,000 64,000

Mining Timber 25,000 25,000 25,000 25,000 25,000 25,000 25,000 1

Poles 2/ 4,000 14,000 15,000 15,000 15,000 15,000 15,000 c

Subtotal K.I.T.E. Group - 80,000 103,000 101,000 110,000 104,000 104,000 104,000

Dola Hill: Sawmilling 3 / 10,000 10,000 10,000 10,000 10,000 10,000 10,000

Match Billets &

small log 4 8,000 8,000 9,000 9,000 9,000 9,000 9,000

Kalibu Mill: Sawmilling - _.- 22,000 32,000 54,000 54,000 54,000 54,000

Subtotal Ndola Group 18,000 40,000 51,000 73,000 73,000 73,000 73,000

TotaL Roundwood 98,000 143,000 151,000 183,000 177,000 177,000 177,000

3>

1/ Recovery = 40% in year 0, = 45% from year 1 onward

2/ K.I.T.E. groups = Lamba, Chati, and Ichimpe

3/ Recovery = 35%4/ Recovery = 37%

April 7 198i

Z A M B I A

INDUSTRIAL FORESTRY PLANTATION PROJECT - PHASE III

Output and Capacities of Existing ZAFFICO Mills

(m3 SawnwOod)

Output Capacities 1/

K.I.T.E./Kafubu 1980 1981 1982 2/ IPD Rating Recommended Rating

Metex Sawmill 4,090 5,974 8,892 20,000 13,000

Frame Sawmill 4,785 3,838 5,466 8,000 8,000

Circular Sawmill 2,884 2,600 4,610 4,000 5,000

Mobile Sawmill 586 862 1,418 1,000 1,500

Ndola 1

Dola Hlill Sawmill 2,860 2,588 3,196 3,500 3,500

15,205 15,862 23,582 36,500 31,000

1/ On a single shift basis and 260 working days per year

2/ Output April to September 1982 (see Annex 2, Table 3 - IPD Sawnwood

Production Volume and Recovery Rates), projected on 12 months.

December 30, 1982

INDUSTRIAT, FORESTRY PLANTATION PROJECT - PHASE III

Estimated Volume of Sawlogs with Butt Diameter of 55 cm and over

(Normal Felling Cycle)

Eucalyptus Average Volume 0.21 m3 Pine Average Volume 0.41 m3 Total

No. of Logs Volume in3 No. of Logs Volume m3 No. of Logs Volume m

1983 13,340 2,80Q0 3,520 1,443 16,860 4,243

1984 12,760 2,680 880 360 13,640 3,040

1985 13,195 2,770 3,960 1,624 17,155 4,394

1986 8,265 1,735 5,720 2,345 13,985 4,080

1987 1,740 365 12,320 5,050 14,060 5,415

oc

Source: IPD Planning

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(D X4

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- 88 -

ANNEX 4

ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PHASE III

Selected Documents and Data Availablein the Project File

A. Report Relating to the Project

Food and Agriculture Organization/Cooperative Programme,Rome: "Zambia: Industrial Forestry Project, Phase III", a set ofworking papers constituting the preparation document, April 1982.

B. Selected Working Papers

(1) Working Paper 1: Silvicultural Management of Plantations(2) Working Paper 2: Logging, Transportation and Log Conversion(3) Working Paper 3: Sawmilling Operations

Cl.vrr C-I

ZAMBLATNDUSTRAL FRoESTRY Pr oJEcT - PHASE A1l

PsoposOd OrgoflOtIo br WARPCO

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ZAMBIA

INDUSTRIAL FORESTRY PROJECT - PILASE III

Implementation Schedule

(Calendar Year)

1983 1984 1985 1986 1987 1988

1 2 1 2 1 2 1 2 1 2 1 2

Negotiations 0Board Presentation 0Effectiveness oDetailed Engineering Design xxxxxx

Sawmilling & Processing

Immediate Investment xxxxxxxxxxRehabilitation xxxxxxxxxxxxxxxxImprovement Program I xxxxxxxxxxxxxxxxxCivil Works xxxxxxxxxxxxxxxxxxxxxxxxxxxx o

Vehicle and Equipment IProcurement -----X- --xxxxxX--- xxxxxxxxxxxxxxxxxxxxx

. ~~~~~~~~~~~~~I I I ! I I I I I ITechnical Assistance xx--XXXXXxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

I I t I I I I ! I ITraining xxxxxxxXXXXX xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Plantation Estab. xx-xxxxxx

Replanting xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

I I I I I I I I INurseries xxxx- xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xx

I I I I I I i I I I

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e j X \/ d'o |* t o | D~~~~~~~~~~~~- Fl~~~~~~~~~~~~~-~~~~0 II~~.g

> 5~~~~~~~~~~W Proposed Lyoyuk of sowm illing and sownwood

_________ _ __ [ l t i t 1 1_!__i_tu4u / T_

_~~~~~~~~~~~~ _._ - - --- ~-~__=__Anx2

I B R D 17030

TANZANIA IToCrngvo/ TvMvfrr \o TMuf ,ZMI MARCH

LAME~~~~~~~~~~~~~~~~~~~~~~~~~ZMI

Z AIREv ¢ytu X ll 0 9 > ' '5/ i ) X INDUSTRIAL FORESTRY PROJECT, PHASE Ill

ANGOLA I T--tk ' 1g/06u- 0 \ yX / / \ PROJECT PLANTATION AREASANGiOLA )

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/4 - l '\ \i\ A ; -. \"/ \ /- /\ < ' Eucalyps"s PlansutiL EyPa

ZAEA_),\r _Land Available for Future Plantations

- '= t MSADWn < g \ Sawmils |~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Sumil

ZA M BIA>Mbaossh, ipe-9 Eucalypts Platations naton

Paved Roads-- --- t & I 'st / t > / z\ C)Other Roads

/, I' /. F!bo1et , ; :, > / : ( X 0 F V_; T a ; Buvlt -up Areas

I 7 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Rivers

'-F ilode--~ ~ ~ ~ ~ ~~ 4 O

|i- | 0 x t 0 d S - A f Kal h .. .....

A~~ ~ ~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~tC\i / - / 'SUyo,tt

0 5 10 11 25 30~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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