Document of

The World Bank FILE COPYFOR OFFICIAL USE ONLY

Report No. P-2805-PO

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

REPUBLIC OF PORTUGAL

FOR A

FORESTRY PROJECT

May 5, 1980

This document has a restricted distributon and may be used by recipients only in the performance of |their oficial duties. Its contents may not otherwise be disclosed without World Bank authoriation.

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CURRENCY AND EQUIVALENTS

Calendar 1979 January 1980

Currency Unit - Portuguese Escudo (Esc.) Esc.

$1 - Esc. 48.9 49.8Esc. 1 = $0.020 0.020

Exchange rate used in the Staff Appraisal Report: $1 - Esc. 50

FISCAL YEAR

January 1 - December 31

GLOSSARY OF ABBREVIATIONS

baldios Communal lands or lands owned jointly by a group of communitiesHDGFF MAP Directorate for Forest DevelopmentDGOGF MAP Directorate for Forest ManagementEC European CommunitiesEEC European Economic CommunityEFTA European Free Trade AssociationEIB European Investment BankIFADAP Agricultural and Fisheries Development

FundMAP Ministry of Agriculture and FisheriesPBI(s) Participating Banking Institution(s)PORTUCEL Empresa de Celulose e Papel. de PortugalSt Stere (unit used for measuring volume of

roundwood)ub Underbark (excluding bark)

FOR OFFICIAL USE ONLY

REPUBLIC OF PORTUGAL

FORESTRY PROJECT

Loan and Project Summary

Borrower: Republic of Portugal

Beneficiaries: Ministry of Agriculture and Fisheries (MAP); Empresa deCelulose e Papel de Portugal, E.P. (PORTUCEL), theState pulp and paper company; and Instituto Financeiro

de Apoio ao Desenvolvimento da Agricultura e Pescas(IFADAP), the Agricultural and Fisheries Development

Fund.

Amount: $50 million equivalent

Terms: 15 years, including 3 years of grace, at 8.25 percent

per annum.

Relending Terms: The Government would: (i) on-lend about $19.2 million of

loan proceeds (including contingencies) to PORTUCEL at a

rate of interest of 10 percent per annum for 15 years,including 3 years of grace and with PORTUCEL bearing the

foreign exchange risk, to help finance PORTUCEL's expanded

afforestation program; and (ii) on-lend about $1.3 millionof loan proceeds to IFADAP on the same terms and condi-

tions as the proposed loan, to help finance the pilotcredit scheme. The Government would bear the foreign

exchange risk, except on the loan portion on-lent toPORTUCEL.

ProjectDescription: The proposed project would increase outputs of forest

products by introducing a long-term forest developmentstrategy, modernizing management practices of existing

forest lands and increasing the areas under forest to meet

long run demand from forest based industries, thereby

increasing foreign exchange earnings and promoting eco-

nomic growth. The project would support these objectives

by: (i) the establishment of about 150,000 ha of new

plantation forest by expanding on-going afforestationprograms; (ii) providing credit for pilot scale integrated

extraction, forest management and marketing operations by

associations or cooperatives of small private forestowners; and (iii) providing technical assistance and

training to: (a) establish a forest extension service and

train forest extensionists; and (b) carry out an in-depthstudy of the forestry subsector to improve existing

private and baldios (communal lands) forests and to helpdefine a long-term strategy for the development of forestsand forest based industries. Project implementation would

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

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be coordinated by a Project Coordination Unit, which is tobe fully staffed as a condition of effectiveness. Theproject faces no special technical risk, although itstimely implementation depends on the Government taking thenecessary measures to make the loan effective, to maintainadequate organizations in the forestry sub-sector, toenable MAP and PORTUCEL to have access to all necessaryland, and to employ consultants without undue delays.

Estimated Costs: /1

Local Foreign Total-$ million--------

A. Afforestation and Related Works 59.4 31.5 90.9B. Pilot Credit 1.0 1.0 2.0C. Technical Assistance and Training:

(i) Extension 0.6 0.3 0.9(ii) Training - 0.1 0.1(iii) Studies - 0.4 0.4

D. Project Administration 4.7 1.3 6.0

Baseline Cost 65.7 34.6 100.3Physical Contingencies 8.8 4.5 13.3

74.5 39.1 113.6

Price Contingencies 45.5 10.9 56.4

TOTAL 120.0 50.0 170.0

Financing Plan: Local Foreign Total…______$ million---------

IBRD - 50.0 50.0Government /2 65.5 - 65.5PORTUCEL 47.2 - 47.2IFADAP and PBIs /3 1.3 - 1.3Farmers 6.0 - 6.0

Total 120.0 50.0 170.0

/I Taxes and customs duties are excluded.77 Including possible external cofinancing.75 Participating Banking Institutions.

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EstimatedDisbursements: I-BRD FY 1981 1982 1983 1984 1985 1986

Arnual 9.5 11.1 8.2 7.8 7.7 5.7Cumulative 9.5 20.6 28.8 36.6 44.3 50.0

Rate of Return: 19 percent

Appraisal Report: No. 2837-PODated April 21, 1980

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OFTHE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED

LOAN TO THE REPUBLIC OF PORTUGALFOR A FORESTRY PROJECT

1. I submit the following report and recommendation on a proposed loanto the Republic of Portugal for the equivalent of US$50.0 million to helpfinance a forestry project. The loan would have a term of 15 years, including3 years of grace, with interest at 8.25 percent per annum. About $19.2million of the proceeds of the loan would be relent to Empresa de Celulose ePapel de Portugal, E.P. (PORTUCEL) at a rate of interest of 10 percent perannum for 15 years, with PORTUCEL bearing the foreign exchange risk, to helpfinance PORTUCEL's expanded afforestation program. In addition, about $1.3million of the proceeds of the loan would be relent to Instituto Financeiro deApoio ao Desenvolvimento da Agricultura e Pescas (IFADAP) on the same terms asthose of the loan, to help finance a pilot forestry credit scheme, on whichthe Government would bear the foreign exchange risk. The Government hopes toobtain external cofinancing for some of the local cost of the project.

PART I - THE ECONOMY

2. An economic report entitled "An Updating Report on the PortugueseEconomy" (No. 2214-PO) was distributed to the Executive Directors onSeptember 8, 1978. Country data sheets are attached as Annex I.

3. Between the revolution of April 1974 and September 1975, Portugal'seconomy was radically transformed. The banks, insurance companies, powercompanies, major transportation agencies and the large industrial groups werenationalized. A comprehensive land reform was carried out in the central andsouthern parts of the country. Trade union activity was legalized and workers'rights safeguarded. Minimum wages were established and restraints were put onthe highest salary levels. Prices were controlled. Unemployment and socialsecurity benefits were increased. This was a very different Portugal from twoyears earlier. There was a new relationship between management and labor, andat first there was a lack of discipline, absenteeism and reduced productivity.Perhaps most important of all for the longer term, the revolution createdexpectations of a substantial increase in consumption. Such an increase didindeed take place initially, financed in large part through the substantialforeign exchange reserves which had been accumulated before 1974.

4. Portugal's economy was affected adversely by three major factorsin the post-revolution period, viz. (i) the dramatic oil price increase ofend-1973 which resulted in a sharp deterioration in Portugal's terms of trade;(ii) the return of more than half a million Portuguese from the overseascolonies to the mainland; and (iii) the onset of recession in Europe withreduced demand for Portuguese emigrant labor, export commodities and touristfacilities. The deterioration in Portugal's terms of trade in the post-1973period led to a permanent income loss equivalent to about 5 percent of GDP

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(measured in terms of export values). The combination of these externalfactors with the structural changes brought about by the revolution resultedinitially in a sharp deterioration in the balance of payments. The currentsurplus of $348 million in 1973 turned to a large deficit in 1975, whichincreased to $..5 billion by 1977. Thus, the period 1974-77 saw Portugalfighting a losing battle with the problems of maintaining private consumptionand meeting the investment needs of the economy in the face of continuingadverse external conditions. By 1977, real consumption per capita had in-creased by about 10 percent over the 1973 level, both the external currentaccount and the domestic budget were substantially in deficit, and the levelof inflation was above 20 percent, while open unemployment was over 300,000(i.e. about 8 percent of the resident labor force).

5. Several austerity measures and currency devaluations were imple-mented in 1976 and 1977 but their impact was reduced by the continued rapidexpansion of credit, mainly to finance the government deficit. In early May1978, the Government adopted a program to reduce the balance of paymentsdeficit in the 12 months ending in April 1979. The measures taken to stab-ilize the economic situation included: (i) a 6.5 percent devaluation of theescudo and the continuation of the crawling-peg depreciation of the escudo ata rate of 1.25 percent per month; (ii) a 5 percentage point increase in therediscount rate, and similar increases in deposit rates and lending rates;(iii) restrictions on domestic credit expansion; (iv) an increase in taxes;and (v) limits on subsidies through substantial price increases for water,electricity, gas and transportation, and essential food products. The measureswere effective in red.zing the balance of payments current account deficit for1978 to $800 million. Policies pursued in 1979 represented a continuationof those initiated in 1978. This resulted in a further improvement in theexternal financial situation. During 1979, commodity exports are estimated tohave grown by about 21 percent in real terms while imports grew by about 8percent. Workers' remittances also increased substantially (from about $1.6billion in 1978 to about $2.5 billion in 1979). As a result, the externalcurrent account position in 1979 is estimated to have attained a deficit ofonly about $120 million, despite the substantial oil price increase during theyear, which caused the country's terms of trade to deteriorate slightly from1978 to 1979. However, the country was in a much better competitive positionthan two years before because relative unit labor costs adjusted for changesin the effective exchange rate declined by almost 17 percent between 1977 and1979. These achievements are noteworthy. Energy consumption has been con-strained by high domestic prices for gasoline and other products. Importsof energy (oil and coal) have been rising only slightly faster than GDP inreal terms; between 1977 and 1979, they grew at a rate of 7.4 percent whileGDP rose by 6 percent. The sharp upward trend in oil prices since 1973 islargely responsible for the increased burden on the balance of payments. Theoil import bill accounted for around 20 percent of total imports in 1979,compared with only 3 percent in 1972.

6. However, Portugal had to pay a high price for its remarkableperformance in the external sector: a decline in the growth rate of GDP, thecontinuation of inflation, a substantial decline in real wages, and a highunemployment rate. The growth rate of GDP declined from 5.6 percent in 1977

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to 3.2 percent in 1978 and 2.8 percent in 1979. Inflation remained very highat 22 percent in 1978 and 24 percent in 1979. Real wages declined both in1978 (by 2.4 percent) and in 1979 (by 9.5 percent). The rate of unemploymentremained above 8 percent both in 1978 and in 1979. To discourage speculativestock building and to slow down inflation, the government which took officein December 1979 revalued the Escudo by 6 percent in February 1980, whilemaintaining the monthly devaluation rate at 0.75 percent. There is anotherimportant cost to the stabilization program: it delays implementation of theindustrial modernization effort. Since the revolution, capital formation,especially in the private sector, has slowed down, and modernization of indus-try has been deferred. Capital markets were disrupted and many enterprisesexperienced financial difficulties, accumulating large debts. Much of theinvestment which has taken place since 1976 was in the public sector. Thereis a possibility that some of the new capacity which is being created maybe in sectors and industries where Portugal might not have a comparativeadvantage in the longer term. The task now is to create the climate for newinvestment of the kind which Portugal will need to ensure adequate growth ofexports and employment in the next decade.

A Growth Strategy for the Eighties

7. In spite of the improvements in the balance of payments positionover the last two years, notably the increase in exports, Portugal expects tohave a deficit of some $800 million in 1980, due mainly to the doubling of itsoil import bill from $1,200 million in 1979 to $2,400 million in 1980. None-theless, the success of short-term stabilization policies in 1978 and 1979should lay the basis for increased growth of the Portuguese economy in thenext decade. While no actions should be taken which would jeopardize therecent economic gains, a gradual policy of economic expansion now appearsfeasible. A doubling of per capita income by the year 2000 would seem to bean attainable goal, which implies an annual average GDP growth rate of 4.5percent over the period (assuming a 0.9 percent population growth). Theachievement of this rate of growth, without running into the constraints whichlimited foreign exchange resources and inadequate domestic savings mightimpose, will require the exploitation of Portugal's comparative advantages andof the potentials of EEC membership (expected to be accomplished in the mid-eighties) (para. 11). Previous analyses by Bank missions suggest that thehighest returns will attach to the export of light industrial products and toefficient import substitution in agriculture (both specifically geared towardspotential entry into the EEC). In general terms, a strategy for developmentin the eighties must center on the expansion of investment in light industry,agriculture, tourism and housing construction. The priority of these sectorsrelates first to the export potential of light industry, the foreign exchangesavings which would result from increased agricultural output, and the lowimport elasticity of housing construction which enables it to be expandedwithout too much use of foreign exchange resources. Secondly, the encourage-ment of investment in these sectors should stimulate private voluntary savings,since these are sectors which are predominantly (though not by any means exclu-sively) in private or cooperative hands. Third, these are labor-intensiveactivities which should enable significant progress to be made in reducing thelevel of unemployment. To this list should be added those basic industrial

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projects which yield adequate rates of return on the basis of an evaluation ofthe price and marketability of their output. These are mainly, though againnot exclusively, in the public sector. Infrastructure should be geared tosupporting these projects.

8. The last major planning exercise in Portugal was conducted in 1976,in the form of a proposed plan for 1977-80 which, however, was not implemented.Work is now underway to launch the preparation of a medium-term developmentplan. The challenge for Portuguese planners and policymakers is to increasedomestic savings, promote exports, and boost employment within the limits ofprudent balance of payments management. It is estimated that an investmentprogram of about Esc. 1,000 billion (in constant 1978 prices) for the period1980-84 in industry (27 percent); housing and construction (18 percent);agriculture, transport and communications and power (8 to 9 percent each); andhealth, education and other services (29 percent) would produce an aggregateGDP growth rate of 4.5 percent per annum over the same period. However,to implement investments of this magnitude in a timely fashion, new institu-tional arrangements would be required to streamline decision making, as wellas project preparation, implementation and supervision. Another area whereimprovements would be needed is the autonomy of public enterprises and theeconomic relations between public sector entities.

9. The industrial sector will obviously remain the leading sector inPortugal's future growth. Here, the problem is that the export of manufac-tures is mainly done by the private sector which has been reluctant to investfor reasons quite unrelated to the profitability of exports. These includethe general uncertainty and the difficulties of dismissing labor once it hasbeen hired on a permanent basis. The Government has made a substantial effortto restore the confidence of the private sector. Thus, provision has beenmade for compensation for nationalized assets, the law on dismissal has beeneased, and profitability has been improved through lowering real wages in 1977,1978 and 1979, depreciating the exchange rate and providing special incentives.The private sector is likely to be the major contributor to the economicgrowth rate foreseen for the 1980s. Restoring private sector confidence mayrequire further incentives and evidence of a government commitment to encour-age private initiative. The Government could perhaps do more to try to orientthe manufacturing units in the public sector in the direction of exportingfrom their present capacity, and of investing in new capacity for exportproduction. The substantial increases in industrial exports in 1978 andparticularly in 1979 indicate that improvements are underway. The Governmentis also working to improve and adjust the education and training efforts inrelevant disciplines in line with the longer term manpower requirements of theeconomy.

10. Agricultural growth in the past has been sluggish and this hasnecessitated increasing imports of agricultural products. It is a matter ofcorrecting deficiencies inherited from the period prior to the revolution, ofreorganizing the ministry and strengthening its inadequate field services.Extension is weak in terms of personnel and of the links with the researcheffort on the one hand, and with small farmers and cooperatives on the other.The training and education of agricultural manpower and of farmers has been

very insufficient in the past and recent efforts in this area need to befurther intensified. Credit to the rural sector has neither been adequate norproduction-oriented. Fertilizer application rates are low. The situation hasbeen exacerbated since 1974 by the problems consequent to the agrarian reformand changes in land tenure. Investment alone will achieve little withoutsubstantial advances in these other areas as well. Measures to improve theconditions in the agricultural sector are underway.

11. Portugal is well advanced in its negotiations on accession to theEEC, and membership is scheduled to take place within the next few years. Theefficiency of the industrial sector is particularly important in the contextof EEC membership, which will permit increased access to the European market,but will also provide to producers in those countries the possibility ofcompeting more easily in the Portuguese market. If the transition to a lessprotected trading system is not to be traumatic, steps will need to be takento strengthen some of the smaller, less efficient firms, whose contributionto total output, and especially employment, is quite substantial at present.Given that very little has been done in agriculture and that the institutionsare weak, the bulk of the development in agriculture will probably take placeafter entry into the EEC and under the conditions which the common agricul-tural policy will impose on the sector.

External Assistance and Creditworthiness

12. Multilateral and bilateral agencies have responded well to Portugal'sneed for external assistance, both for balance of payments support and forlong-term project loans. With gold as collateral, the BalIk of Portugal hasobtained short-term loans for balance of payments support from the Bank forInternational Settlements and European central banks. In addition, as ofmid-1979, total disbursed and outstanding IMF assistance to Portugal amountedto $253 million. The EC, EIB, EFTA, as well as bilateral agencies havecommitted significant funds to Portugal in emergency concessionary aid and forlong-term projects. The Bank's contribution is summarized in Part II below.Starting in 1977, Portugal received $750 million in medium- and long-term aidcommitments as balance of payments support from 14 countries, with the US,Germany and Japan being the main contributors. In addition, Banco de Portugalconverted about half of its $1.9 billion short-term liabilities into medium-and long-term debt. The Government and major banks and companies are ableto attract medium-term loans from consortia of commercial banks in the Euro-currency market. Recent terms have been reasonable with ten years repaymentat an average interest rate of about 0.7 percent over LIBOR. The new Govern-ment's efforts to stimulate inflows of direct foreign investment may help toattract some capital. Portugal will however continue to require sizeableexternal inflows for the investment necessary to restructure its economy. Themultilateral lenders, and in particular the EC/EIB, EFTA and the World Bank,will have to continue to play a vital role in helping Portugal meet itscapital requirements.

13. Portugal's public and publicly guaranteed medium- and long-term debt(disbursed and outstanding) was about $1,458 million at end 1977 and $2,642million at end 1978, with a debt service ratio (debt service/earnings from

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exports, non-factor services and workers' remittances) of 3.7 percent and 5.1

percent respectively. These figures include the portion of Banco de Portugal

debt which was converted into MLT debt. The total debt of Banco de Portugal,

including the converted amounts, came to $1,680 million in 1977 and $1,924

million in 1973, disbursed and outstanding. Total 1/ (public and private)

medium- and long-term external debt reached about $3,990 million at end 1978,

with a debt service ratio of about 13.6 percent. Portugal's total debt

outstanding, including borrowings in 1979, still remained at manageable

levels, and presented an improved maturity profile. Portugal's total medium-

and long-term debt service ratio is expected to rise to about 17 percent

towards the middle of this decade. Portugal maintains a gold stock of about

22.13 million fine troy ounces (December 1979), which serves as a safety net.

In the light of these facts, of the stabilization efforts made by the Govern-

ment, and of the prospects for growth, Portugal can be considered creditworthy

for Bank lending.

PART II - BANK GROUP OPERATIONS IN PORTUGAL 2/

14. The first phase of Bank lending to Portugal was during the period

1963-66 and lending was concentrated in the power sector, in line with Govern-

ment priorities which reflected the power needs of a rapidly developing indus-

trial sector. Five loans totaling $57.5 million helped finance three thermal

and two hydro-power projects, which were successfully completed to meet the

country's increasing Tower requirements.

15. The events of the more recent past and the ensuing dislocation of

human resources have created special problems, and the transition to an open

political system has revealed social and economic weaknesses which are unusual

for a high-income developing country. The Bank has responded to Portugal's

needs by identifying, preparing and financing projects, and through economic

and sector work.

16. The proposed loan would finance the Bank's sixteenth project in that

country, the eleventh since the resumption of lending in 1976. Bank opera-

tions since 1976 involved a sixth power project, two highway projects, two

industrial finance projects, two education projects, and water supply, agri-

cultural and fisheries credit, and fertilizer modernization projects. Total

Bank loans since the resumption of lending amount to $424 million. Disburse-

ments under the 1976 and 1977 loans are behind schedule, due mainly to the

Portuguese agencies' initial lack of experience with Bank procedures and to

slow action on procurement. These difficulties are now being overcome. The

1976 and 1977 loans are substantially committed, and procurement action (such

1/ Excluding Banco de Portugal.

2/ Substantially unchanged from Part II of the President's Report for the

Second Education Loan, which was distributed to the Executive Directors

on December 21, 1979.

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as hiring engineering consultants, and awarding major civil works contracts)

has started comparatively early under some 1978 and 1979 loans, although under

two loans delays in effectiveness have created problems. Nevertheless, total

Bank exposure in Portugal is still small. Annex II contains a summary state-ment of Bank loans as of March 31, 1980 and notes on the execution of ongoing

projects.

17. In an intensive parallel effort at the macroeconomic and sectoral

levels, the Bank assisted the Government in reviewing policy and managementissues. Economic missions and the discussion of their reports have pro-vided a basis for a review of policy at the macroeconomic level. Reviews of

the water supply (together with WHO) and the education sectors were carried

out and were discussed with the Government in March 1977. Agriculture andmanufacturing export industries were also studied, and were reviewed with theGovernment in November 1977. The report entitled "Manufacturing Export Indus-

tries in Portugal" (No. 1695a-PO) was distributed to the Executive Directorson January 13, 1978, and the report entitled "Portugal - Agricultural Survey"

(No. 1689b-PO) was distributed to the Executive Directors on March 24, 1978.

As a major problem, unemployment has received particular attention; a report

which sums up the results of a Bank survey, entitled "Unemployment in Portugal:Causes, Prospects and Policy Options" (No. 2285-PO), was distributed to the

Executive Directors on May 10, 1979. A survey of the public medium-term in-vestments program was carried out in June 1979, and a report is under prepara-tion which should help the Government decide on investment priorities.

18. In the light of the economic and sector discussions mentioned above,agriculture and industry have been identified as the areas of concentrationfor Bank lending. In the industrial sector, there is a need for major struc-tural improvements such as merging firms, eliminating uneconomic enterprises,and modernizing equipment. Improvements in these areas are being introduced

in the fertilizer subsector and are being studied for the pulp and paper and

the textile subsectors, with Bank support and advice. A loan expected to be

submitted to the Executive Directors shortly would support restructuring andmodernization of two major state-owned enterprises in the mechanical indus-

tries sub-sector. Another important constraint to industrial development isthe insufficient financial and technical support to small- and medium-sizeenterprises; the FY79 Small- and Medium-Scale Industry Development Loan (SMI)will address this need. The importance of developing the industrial sectorcannot be overemphasized, since this sector will be the main force in thePortuguese economy, primarily to continue the export expansion which startedin 1978, and to maintain competitiveness in the European Common Market. Themain objectives of Bank lending to industry are structural reform, exportpromotion and employment creation (or preservation). In agriculture, a sectorbeset with major problems, there is considerable scope for stepping up growth.The major constraints are the still unsettled land tenure conditions, insti-tutional weaknesses, and a shortage of trained technicians for promotingimproved technologies. The Bank has assisted the Government in creating asound agricultural credit institution; the proposed loan would assist inforestry development; and future operations in this sector are likely tofoster agroindustries, fisheries, rural development, and extension (para. 38).The trained manpower requirements of the industrial and agricultural sectors,

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which constitute a serious bottleneck, particularly in agriculture, would beaddressed through the FY78 First Education Loan and the recently approvedSecond Education Loan. The improvements in transportation required to sustainthe increased output of the agricultural and industrial sectors are beingaddressed by the FY76 First Highway Loan and the FY79 Second Hi^-way Loan, anda railways project is being prepared.

19. The deflationary policies of 1977-1979 (paras. 5-6), while contri-buting to the improvement of the balance of payments, have not permittedimplementation of development programs now urgently needed in many sectors.If the restructuring needs of the economy are to be tackled seriously and thepressing deficiencies in the social sectors corrected, long-term externalassistance would be needed to assist Portugal. It is the World Bank's objec-tive to contribute to these efforts and to provide advice on institutionalreforms which are crucial for Portugal's long-term economic development.

PART III - THE AGRICULTURAL SECTOR AND THEFORESTRY SUB-SECTOR

20. General Background. Portugal's agriculture (including forestryand fisheries) accounts for about 18 percent of GDP, 30 percent of foreignexchange earnings and employs about 27 percent of the labor force. About 60percent of the population live in rural areas, and some 20 percent of therural population is in the poverty target group.

21. The rate of growth of aggregate agricultural production has declinedin recent years and domestic production has increasingly failed to meet risinginternal demand, with the result that imports of food items such as meat,cereals, oilseeds and sugar, have increased. In 1976, these imports represen-ted 20 percent of total merchandise imports, and this proportion has tended toincrease in recent years. To reverse these trends, a substantial infusion ofinvestment resources into the sector would be required, as well as the provi-sion of strong institutional support services, such as agricultural credit,research and extension. If the capital/output ratio is assumed to remainunchanged in the foreseeable future, which is likely given the present levelof technology, investment in agriculture would have to be doubled to attain a3 percent annual growth rate.

22. The absorptive capacity of the sector is substantial, thus providingample opportunity for choosing and implementing varied types of projects.Within agriculture, some sub-sectors exhibit a broad comparative advantageover others in their potential for increased efficiency in resource utiliza-tion, thus offering the greatest opportunities for accelerating growth. Theforestry sub-sector is one of them.

The Forestry Sub-Sector

23. Forest Land. Of Portugal's total area of 9.2 million ha, about8 million ha are agricultural and forestry lands. While about 3 million haare in fact occupied by forests, the total potential forest area is estimated

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at nearly 5 million ha. Most of the 2 million ha of untapped potential forestareas are fallow, but some are used for pastures although their soils are ofmarginal quality, not suitable for crop production. The opportunity cost ofsuch lands is low, and they can be utilized for forestry, for which they are

often best suited.

24. The potential forestry area has not been fully exploited becausemanaged afforestation and reforestation are fairly new phenomena in Portugal,

and because of the shortage of investment resources. Current afforestationprograms of the Government and of PORTUCEL provide for about 21,000 ha per

year; the proposed project would accelerate that pace. In addition, twoprivately owned pulp and paper companies have afforestation programs which, inthe aggregate, provide for about 6,000 ha per year.

25. Most existing forest lands are owned or controlled by privatefarmers (80 percent), with cooperatives and collectives having 10 percent,baldios (communal lands or lands owned jointly by a group of communities)8 percent, and the Government 2 percent. Most of the privately owned landsbelong to smallholder farmers, with the rest belonging to wood processingplants. The distribution of areas owned or controlled by the different groupsvaries by region. Baldios lands are common in the northern half of Portugal,where the tradition of communal ownership is strong, while virtually all ofthe cooperatives and collectives are found in the Alentejo region, resultingusually from the nationalization of lands which used to belong to large, andfor the most part absentee, landowners. Since a large proportion of thepotential forest areas are located in the northern half of Portugal, most ofthe project area would be located there.

26. Of the existing forest lands, 44 percent are occupied by conifers,10 percent by Eucalyptus, 21 percent by cork oak, 17 percent by holm oak,and the remaining 8 percent by other species. The mean annual increments ofexisting pine and Eucalyptus amount to 4.7 st ub/ha 1/ and 8.1 st ub/ha,respectively. These production figures are well below the productive poten-tial of these forest areas, mainly because of the fragmented ownershippattern, poor management patterns and, to a lesser degree, because of theshortage of investment funds. If brought under more intensive mangement,the existing pine and Eucalyptus forest could produce 8.5 to 10.6 st ub/haand 15.2 to 18.7 st ub/ha respectively, which would double present yields.According to various studies made both by the Government and by others, therewill be a shortage in the supply of industrial wood relative to demand by 1985unless the supply is increased. This projected deficit can only be satisfiedin the short run by improving the productivity of existing forests, but in thelong run, projected additional demand would have to be met by new plantings.

1/ st ub/ha = stere underbark per hectare.

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27. Constraints to forestry development. Apart from the shortage ofinvestment resources available to the forestry subsector, the key constraintsto forestry development, which the proposed project would address, are:

(a) the dispersed forest land ownership pattern, under which over80 percent of forest lands are owned by some 800,000 small privateowners whose productivity is very low, and the management of, andproductivity from, about 300,000 ha of baldios forest lands, whichmust be improved to secure a sustained flow of industrial wood;

(b) the unsatisfactory organization of the harvesting operations andof the marketing system, which have resulted in the yields fromprivate smallholder forests being half their potential, and farmers'share of the value of output, smaller than it could be;

(c) the absence of a forestry extension service to give assistance andtechnical advice to the small forest farmers;

(d) uncertainties about the land reform legislation, particularlyabout its impact on the acquisition of land and rights to landby private wood processing industries; and

(e) the high incidence of forest fires which, over the last decade,has resulted in the destruction of about 65,000 ha of forest.

28. Forestry In titutions. Overall responsibility for the developmentof the sub-sector is vested in the Ministry of Agriculture and Fisheries(MAP), which operates in this area through two directorates: the Directoratefor Forest Development (DGFF) and the Directorate for Forest Management(DGOGF). DGFF identifies, prepares, and assists in implementing afforestationprojects on Government, baldios and private forest lands. DGOGF managesGovernment and baldios forests, enforces forestry laws and regulations, andis responsible for maintaining forest roads and for fire protection. DGOGFis also responsible for the protection of DGFF plantations once these havebeen established (usually 3 years after planting) and manages Government andbaldios forests and assists in the management of private forests. DGFFoperates through a network of 10 brigades, each responsible for a forestryzone. DGOGF has a regional organization of forest divisions covering 18districts, each staffed by permanent personnel. Both Directorates would beinvolved in project implementation. A weakness of the present MAP forestorganization is the lack of any specialized extension and technical serviceto assist forest owners, particularly small ones. The staffing and operatingbudgets of both Directorates are low relative to the needs of forest develop-ment, and the financing allocations are far below the sub-sector's absorptivecapacity. Both have the organizational capacity for expanded operations. Atpresent, DGOGF manages about 57,000 ha of Government forest lands, and about303,000 ha of baldios forests.

29. Forestry research is conducted through MAP's National AgriculturalResearch Institute (INIA) and the Polytechnic Institute of Vila Real. Otherministries and the wood processing industries also conduct research on forestry

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and wood technology. There is a clear need for coordinating the researcheffort. The Government allocates adequate human and budgetary resources toresearch, and it intends, with bilateral assistance, to address problems offorestry management. The Government's Forestry Products Institute gathers andanalyses data on activities pertaining to forestry products, particularly on

export marketing.

30. DGFF operates a network of some 30 nurseries, which are closelylinked with the State-run research stations. The total annual nursery capacityis estimated at slightly over 100 million seedlings, which is sufficient forplanting 50,000 ha per year, and therefore well above the requirements of theproposed project.

31. The Instituto Superior de Agronomia, in Lisbon, provides advancedtraining in forestry science. Total graduates to date amount to 150 forestengineers (equivalent to a Master's degree), 600 junior engineers and 900forest technicians. Since a large number of junior engineers and foresttechnicians are at present unemployed or underemployed, no difficulties areforeseen in meeting the additional technical staffing requirements of theproposed project.

32. In addition to these State agencies, some of the wood processingindustries have forestry departments and maintain nurseries. PORTUCEL, thelargest among these, has three forestry-related departments, with respon-sibility for purchasing wood to supply mills, forest exploitation operations,and afforestation, which is predominantly in Eucalyptus (85 percent), butincludes Pinus pinaster and other conifers as well. The quality of PORTUCEL'safforestation work and of its forestry management is high, so that the averagemean annual increment of the company's forests is about double the nationalaverage. PORTUCEL was established in 1976 as a public enterprise through thenationalization and merger of five pulp, paper, and packaging companies, someof which with very weak financial structures, and it enjoys administrative andfinancial autonomy. It had poor financial records through the end of 1979.During the period 1977 to 1979, PORTUCEL's current ratio hovered around0.64-0.74, with a debt:equity ratio of 72:28 to 68:32. Beginning with 1980,however, improvements are expected in the company's finances, due in largepart to the steady rise in international prices for pulp and paper, toincreased production from mills that had been damaged by accident a few yearsago, and to improved financial management. In 1980, the current ratio isexpected to be 0.96, rising to 2.0 in 1985, and the debt:equity ratio isexpected to improve from 68:32 in 1980 to 11:89 in 1985.

33. Financial. There are three main sources of financing in the sub-sector: domestic public funds, domestic private capital and external privatecapital. The private capital is mainly to finance wood processing industries,and only to a small extent for afforestation. In the past, nearly all of thepublic funds channelled to the sub-sector were for afforestation, reforesta-tion and the management of existing Government and baldios forests, and only asmall amount was used for helping private forest farmers. In 1978, the totalamount of public financing in the sub-sector amounted to $17 million. Up tonow, part of the investment on baldios and on individually owned lands hasbeen funded on a long-term subsidized credit basis, with a small proportion

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extended to them as direct grants, all administered by DGFF, but only very

limited amounts have been available for such credits and grants (about $3.4

million per year). Most of the grants have been extended for baldios lands

where, in 90 percent of the cases, the Government establishes and manages the

forests for the communities involved. Subsidized credits carried an annual

interest rate of 2 percent, with loan repayment periods depending on the

species, while the average annual interest rate on other agricultural loans is

of 16.5 percent, with shorter repayment terms (8 years). Loan repayment has

been made in kind, with the Government getting between 30 percent and 50

percent of harvest, the actual percentage depending on yields and wood prices

at harvest time. At the present time, financing for afforestation projects on

private, as on baldios, lands has been out of the National Budget, with

recovery to be assured through a revenue sharing mechanism similar to the one

described above.

34. Credit may not be the most appropriate vehicle for financing affore-

station because of the long gestation period of such projects, which varies

from 10 to 12 years for Eucalyptus to 20 years or more for pine, and because

experience elsewhere in the world has shown that farmers are reluctant to

borrow for afforestation projects, the benefits from which are so distant and

thus perceived to be risky. There is scope, however, for financing of

integrated forest extraction, and management and marketing projects, by the

Agricultural and Fisheries Development Fund (IFADAP), since these can be shown

to yield immediate cash benefits to the farmers. This is confirmed by evidence

that farmers borrow from commercial banks to buy tractors, trucks, logging

equipment, etc. Clearly, there is a need to define a clear and rational

policy for financing forest development, and a subsectoral study, expected to

be completed by the end of 1982, is included in the proposed project (para.

47), and will address these issues. Until then, DGFF afforestation under the

proposed project would continue to be financed under the budget and the cost

recouped through a revenue sharing mechanism (para. 54). PORTUCEL also envis-

ages entering into revenue sharing arrangements on terms and conditions

similar to those offered by MAP (para. 57).

35. Project Area. The project area (see map) would cover the wood

supply command areas of the major wood consuming industries, most of which

are located in the northern half of Portugal. Throughout the project area,

the main road network serves the wood industries to a satisfactory degree but

plantation access roads are needed. Project area soils are of generally poor

quality except for the river basins, and most of the land has a poor agricul-

tural potential but offers good opportunities for forest development, so that

there will not be a competition for land between forestry and agriculture.

36. Because of favorable climatic and ecological conditions, a large

land resource base, and proximity to traditional export markets, Portugal

is capable of capturing an expanding share of the growing European market

for forest products. The opportunity cost of existing and potential forest

lands is very low, and thus the domestic resource cost of forest production

is low. The exploitation of forest products would therefore be very favor-able relative to other agricultural activities on the poorer soils, and gives

the sub-sector a strong comparative advantage.

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37. Bank Assistance to Agriculture. Bank lending for the developmentof Portuguese agriculture is relatively new. So far, only one project hasbeen approved in that sector, the FY78 Agricultural and Fisheries CreditProject, under which project implementation is only now starting after a longperiod spent in meeting the loan's conditions of effectiveness. This delayin effectiveness was due primarily to two causes. The first is the extremelycomplex and lengthy procedure required under Portuguese law for the employmentby the Government of expatriate experts and consultants. The second is thedelicate political issue of land reform in that project's area, the Alentejoregion.

38. In addition to the proposed forestry project, projects are atvarious stages of processing for a rural development project in the Tras-os-Montes region, the poorest in Portugal; for a national agricultural extensionproject; for a fisheries project, studies for which are to be financed underthe on-going Agriculture and Fisheries Credit Project; and for an agro-industryproject. In addition to these on-going or planned lending activities, theBank carried out an agricultural sector survey (para. 17) and a study onagricultural prices and subsidies, distributed to the Executive Directors onAugust 28, 1979 (No. 2380-PO), and has provided technical support to MAP tohelp it to reorganize its services. The Bank's approach is thus broad, butstill selective enough to attack different but complementary problems ofagricultural development in Portugal. The proposed forestry project fits wellin the Government's agricultural development objectives, and in the Bankstrategy for the sector.

PART IV - THE PROJECT

39. Project History. A Bank-FAO/CP identification mission in November1977 and reconnaissance and preparation missions in June 1978 and February1979 helped the Government to formulate the proposed project, which wasappraised in October-November 1979. Negotiations were held in April 1980 witha Portuguese delegation led by Dr. Antonio Labisa, which also included repre-sentatives of the Ministry of Finance and Planning, MAP, PORTUCEL and IFADAP.A staff appraisal report entitled "Portugal Forestry Project" (No. 2837-PO),dated April 21, 1980 is being distributed to the Executive Directors separately.The main features of the loan and project are listed in the Loan and ProjectSummary and in Annex III.

40. Project Objectives. The primary objective of the proposed projectis to increase outputs of forest products by introducing a long-term forestdevelopment strategy, modernizing management practices on existing forestlands and by increasing the areas under forest to meet long run demand byforest based industries serving the domestic and export markets, therebyincreasing foreign exchange earnings and promoting economic growth. Theproject would also include institution building components, promote equitableincome distribution, improve the environment, and improve the incomes of smallforest farmers.

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Prolect Description and Content

41. Project Description. The proposed project, for which a Bank loanof $50 million is proposed, would consist of the following components, theimplementation of which would be coordinated by a Project Coordination Unit(para. 58):

(a) the establishment of about 150,000 ha of new plantation forests byexpanding on-going afforestation programs of MAP and of PORTUCEL;

(b) provision of credit through IFADAP for pilot-scale integratedextraction, forest management and marketing operations by associa-tions or cooperatives of small private forest owners; and

(c) the provision of technical assistance and training to:

(i) establish a forest extension service within MAP and trainforest extensionists; and

(ii) carry out an in-depth study of the forestry subsector withspecial emphasis on the potential, needs and approaches toimprove existing private and baldios forests, and on thedefinition of a long-term strategy for the development offorests and forest based industries, including appropriatecost recovery mechanisms for the entire subsector.

42. Afforestation and Related Works. This component consists in financ-ing a 5-year afforestation program (1981-1985) to establish about 150,000 haof new plantation forest at an average rate of 30,000 ha per year. Of these,about 91,000 ha would be grown to conifers, mainly Pinus pinaster, 45,500 hato Eucalyptus and the remaining 13,500 ha to other hard woods. Distributionof the species in the project area is based on ecological considerations andon projected industrial wood requirements. The afforestation works wouldinclude land clearing and preparation; planting; construction of a system offorest access roads integrated with firebreaks; and maintenance of plantationsduring the initial growing years by weeding and applying necessary chemicals.The establishment techniques and the species to be used are well proven inPortugal and are in line with experience elsewhere in southern Europe and theMediterranean basin. The main innovation to be introduced under the proposedproject would be wider plant spacing to facilitate intensive mechanizedweeding and thereby promote faster growth. Land clearing and preparationwould, for the most part, be mechanized because it is impractical to useanimal power and other labor intensive technology to uproot and destroycompeting vegetation, to deep rip to break up sub-surface layers of rockymaterial, and to form contour furrows and ridges, or terraces, depending onthe degree of slope.

43. Planting would be done manually, and is estimated to require about10 to 15 man-days per ha. The labor required for this purpose would besupplied locally, since a large pool of underemployed agricultural labor isavailable in the project areas, and since the bulk of forestry planting is

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done in the period November to March, when labor demand for other agriculturalactivities is low. Seedlings would be obtained from existing nurseries (para.30) which are located strategically throughout the forestry zones, have

adequate capacity to satisfy project requirements, and follow satisfactorynursery practices. Seeds of some exotic species not locally available (a

total of about 1,150 kg) would be imported.

44. Full integration of fire protection with requirements for roadaccess to forests and for logging would be ensured as part of the land prep-aration works for afforestation. The standards of construction and main-tenance would aim at keeping the roads trafficable for relatively light

vehicular requirements. Simple 4 m. earth roads would be constructed bytractors and main forest access roads would usually be aligned just offcontour, with feeder roads linking one level to the next. Construction of atotal of about 5,500 km of such access roads and firebreaks is included in theproposed project. Road and firebreak density would be about 20 to 45 m/ha,

depending on slope and terrain conditions. Adequate fire look-out pointswould also be constructed, with radio communication between fire look-outs,headquarters and field vehicles.

45. Pilot Credit Scheme. About $1.3 million of the proposed loan would

be provided to IFADAP for credit financing, on a pilot basis, of integratedforest extraction, forest management and marketing operations by selectedassociations or cooperatives of smallholder forest farmers. One of theconditions of obtaining a credit would be the association's or cooperative'swillingness to improve forest management practices. It is envisaged that thecredit would be used to purchase chain saws, logging tractors, and loading and

trucking equipment. Since 80 percent of Portugal's forests are privatelyowned, the pilot credit scheme would, if successful, lead to a much largerforest credit scheme designed to improve their productivity.

46. Forest Extension. A forest extension service would be establishedwithin MAP by mid-1982. It would primarily assist small forest farmersand associations of forest farmers in planning and implementing forest extrac-tion and improvement works, forest management practices, marketing of forestproducts, and in obtaining credit. The proposed project would provide about

52 man-months of consultant services for this purpose, at a cost of about$6,700 per man-month for expatriates, including travel and overhead. Theseconsultants would also help to prepare sub-projects under the pilot creditcomponent (para. 45), contribute to the formulation of a credit policyto finance the development of the forest sub-sector, study private small-holders' associations, and provide on-the-job training for Portuguese forestextensionists. The Government has agreed to employ all of these consultantsby April 30, 1981 (Loan Agreement, Section 3.03(b)). The proposed projectwould also provide fellowships for about 16 prospective Portuguese forestextensionists for up to three months each, to undertake study tours, includ-ing on-the-job training in private forestry associations in countries wheresimilar experiences exist.

47. Sub-Sector Study. Portugal's forestry development program is basedon sustained yield forest management principles. Achieving this goal impliescutting overmature stock as soon as possible, and an expanded afforestation

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program with fast growing species. The implications of an accelerated woodproduction program, for instance by shortening rotations, and alternativeindustrial development patterns, need to be evaluated. The proposed studywould address these issues and would assess the economic viability of newindustrial enterprises, in particular in the areas of saw-milling, wood basedpanels, pulp and paper, and paperboard, each of which has different woodrequirements; and it would examine means to ensure the fullest use of woodresiduals, for instance by a closer integration of wood based industries,over the period until the year 2000. The study would be undertaken duringthe period 1980 to 1982. The results of this study, along with the experi-ence under the pilot credit scheme (para. 45) and the study on private small-holders' associations (para. 46), are expected to provide a sound data base onwhich to build a viable forestry development strategy. About 64 man-months ofconsultant services would be provided to carry out the study, at the samecosts as for the extension consultants (para. 46), and they would also beemployed by April 30, 1981 (Loan Agreement, Section 3.03(b)).

48. Project Cost and Financing. The total cost of the proposed projectis estimated at $170.0 million (including contingencies), of which the foreignexchange component, estimated at $50 million, would be financed by the pro-posed loan; this represents 29 percent of total cost. Remaining project costswould be financed as follows: the Government (which intends to seek externalco-financing for part of this local cost), $65.5 million; PORTUCEL, $47.2million; IFADAP and participating banking institutions (PBIs), $1.3 million;and farmers, $6 million. To avoid delays during peak planting months, fundsneeded by MAP for each planting season will be allocated by November 30 of thepreceding calendar year (Loan Agreement, Section 3.01(a)). Of total projectcost, about 92 percent ($156.8 million) would be for afforestation andrelated works; about 2 percent ($2.6 million) for the pilot credit scheme;about 1 percent ($1.9 million) for technical assistance and training; andabout 5 percent ($8.7 million) for project administration. Of the proposedloan amount, about $46.2 million would help to finance afforestation andrelated works; about $1.3 million, the pilot credit scheme; about $1.0 mil-lion, technical assistance and training; and about $1.5 million, projectadministration. The project would be exempted from taxes and customs duties,except for minor implements and miscellaneous vehicles, the cost of whichwould be minimal. Physical contingencies are 13 percent of baseline cost,and price contingencies are 49.6 percent of the baseline cost and physicalcontingencies.

On-Lending

49. The Government would be the borrower of the proposed loan, and wouldpass on to MAP a total of $29.5 million of the loan: about $27.6 million tohelp finance the afforestation and related works on baldios, Government andprivate smallholder lands; about $1.0 million for the technical assistance andtraining program; and about $0.9 million for project administration (equipment,supplies, and other administrative expenses). The Government would bear theforeign exchange risk, except for the portion of the loan on-lent to PORTUCEL(para. 50).

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50. Of the balance, the Government would on-lend to PORTUCEL about $19.2million of the loan amount (including contingencies) to help finance theexpanded plantation program of PORTUCEL, under a subsidiary loan agreement tobe entered into as a condition of effectiveness of the proposed loan (LoanAgreement, Section 6.01(b)). The on-lending terms are a 10 percent per annuminterest rate and a repayment period of 15 years, including 3 years of grace,and PORTUCEL will bear the foreign exchange risk on its portion of the pro-posed loan. Since PORTUCEL will not begin to earn project related incomeuntil year 7 of the project, it would have to make the initial subsidiary loanrepayments from income generated by its overall operations. An analysis ofPORTUCEL's finances shows that it would be able to service this subsidiaryloan without undue difficulty. Since the Bank is in the process of preparinga pulp and paper project for which PORTUCEL would be the principal beneficiaryand the borrower, PORTUCEL's finances will be kept under close scrutiny.

51. The remaining $1.3 million of the loan amount would be on-lent toIFADAP to help finance the pilot credit scheme, under a subsidiary loan agree-ment to be entered into as a condition of effectiveness of the proposed loan(Loan Agreement, Section 6.01(a)). This amount would be on-lent on the sameterms and conditions as the proposed loan, and IFADAP would utilize thesefunds for loans to associations and cooperatives of forest farmers on the sameterms and conditions as those applicable for long-term agricultural loans,i.e. an average of 16.5 percent per annum at present, except that repaymentwould be within 5 years, based on the useful life of the equipment expectedto be financed under this pilot scheme. When the principal of these forestdevelopment loans is repaid to IFADAP, the amounts not needed to service thesubsidiary loan from the Government would be available to IFADAP for thepurpose of making further forestry development loans (IFADAP Project Agree-ment, Section 2.06).

52. The forest extension service (para. 46) would help small privateforest farmers to organize themselves into associations or cooperatives,help them to identify and prepare forest development projects, and wouldassist them in applying for loans from PBIs; these are financial institutionswhich have agreed to participate in IFADAP's agricultural and fisheries creditsystem. MAP would then prepare a report on the proposed forest developmentproject for the PBI concerned and IFADAP. Relationships between PBls andIFADAP are governed by on-going agreements which leave open the possibility ofintroducing special conditions, depending on the source of IFADAP funds usedfor a specific type of project. IFADAP's decision to lend for a specificproject would be based on an appraisal of the proposed forest developmentproject, to ensure that it is technically, financially and economicallyviable, and that the borrowing forest farmers' association or cooperative hasundertaken to improve forest management practices. Because of the pilotnature of the credit scheme, the results of which would contribute to theformulation of credit policies for the forestry sub-sector, the appraisalreports for the 10 to 15 loan appraisals expected to be proposed for approvalby IFADAP would be sent to the Bank for review and approval prior to IFADAP'sfinal decision to extend the loan (IFADAP Project Agreement, Section 2.02(b)(i)). It is anticipated that, if the first five appraisal reports are satis-factory, the Bank will exempt IFADAP from sending the remaining appraisalreports for the prior review and approval of the Bank.

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Implementation

53. DGFF would be responsible for all MAP afforestation operations,including seed procurement, plantation maintenance activities during theestablishment period, and road and firebreak maintenance programs. It iscapable of undertaking this role but, because of the increased level ofoperations under the project, would need to increase its staff and equipment.Additional equipment is provided under the project. To ensure that theadditional staff receives the necessary in-service training for projectimplementation, they would be employed by DGFF by December 31, 1981 (LoanAgreement, Section 3.03(a)). There are large areas of land suitable forafforestation (paras. 23 to 26). However, the ownership pattern makes itdifficult to arrange for the timely identification, contracting and organizingof the farmers whose lands are to be afforested under the proposed project.The specific sites for the first year's planting program of about 24,300 hahave been identified. In addition, for each year of project afforestation,all formalities for securing the land required must be completed three monthsbefore work on these lands is to begin (Loan Agreement, Section 3.06(b)).We do not anticipate that land availability will be a problem. In the selec-tion of project afforestation sites, priority would be given to farmerswilling to participate in block farming operations, which would reduce thecost of afforestation works (Loan Agreement, Section 3.06(a)).

54. In order to fully recover the public investment in the afforestationof private and baldios lands, including an interest rate that is positive inreal terms, at least 30 percent of the Eucalyptus harvests, and at least 40percent of the conifer harvests, would be retained by the Government (LoanAgreement, Section 3.05 (a)). These percentages imply a 16 percent averageannual interest rate for Eucalyptus over the 10-year growing period, and a12 percent average annual interest rate for conifers over the 30 to 40-yeargrowing period. In addition, the Government will develop a comprehensive costrecovery policy for the entire forestry sub-sector by December 31, 1982 andwill thereafter, in agreement with the Bank, implement the resulting policy(Loan Agreement, Section 3.05(b)).

55. DGOGF would be responsible for implementing the forest extension(para. 46) and the sub-sector study (para. 47) components of the project,with the help of the consultants to be financed under the proposed loan. Thetechnical assistance program would be coordinated by an expatriate advisorfinanced under an on-going UNDP/FAO project, who is already on the job inDGOGF. DGOGF would, in addition, assume the protection and management ofbaldios and Government plantations established by DGFF following their estab-lishment (about 3 years).

56. Under the legislation governing the organization of MAP, its ser-

vices are to be regionalized. MAP has drafted regulations which includeprovisions for the regionalization of DGFF and DGOGF, and which are to beimplemented over a period of 5 years. Under these draft regulations, eachMAP Regional Directorate would have a forestry section to plan and implementforestry projects and to oversee the exploitation of the forest resourcesin its region. This reorganization implies considerable changes in staffing,

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and would certainly require additional staff to ensure that each RegionalDirectorate has an operative forestry section. Staff transfers from DGFFand DGOGF to the Regional Directorate are likely to weaken the coordinationcapacity of MAP in the forestry sub-sector, at least until the new structureshave had a cb-nce to establish themselves. As the timing of this expectedreorganization, particularly in the case of DGFF, may delay project imple-mentation, the Government indicated that it intends to proceed with theregionalization of DGFF's services with a 3-year transition period, and thatthere would remain in MAP a core responsible for planning forestry developmentat the national level. The benefits to be gained by decentralizing MAP'sservices make this acceptable.

57. PORTUCEL would implement its afforestation program on lands itowns or which it intends to lease from private forest owners. The Governmentconfirmed during negotiations that such agreements could include revenuesharing without violating existing legislation, and will provide a legalopinion to that effect (Loan Agreement, Section 3.06(c)). PORTUCEL's staff,mostly drawn from the constituent pulp companies, is experienced and competent.To increase the scope of its afforestation program under the project, PORTUCELwill have to employ additional staff and acquire additional equipment. Itintends to purchase this equipment out of the loan proceeds on-lent to it(para. 50).

58. To coordinate the overall implementation of the project, identifyand attempt to overcome bottlenecks, coordinate progress reporting and projectcompletion reporting, a Project Coordination Unit is being set up and comple-tion of its staffing is a condition of effectiveness of the proposed loan(Loan Agreement, Section 6.01(c)), and adequate funding is to be provided(Loan Agreement, Section 3.04(a)).

Procurement and Disbursement

59. Land preparation and the construction of forest access roads andfire protection works would be shared among DGFF, PORTUCEL, and privatecontractors. It is expected that, under the project, about 50 percent ofsuch works will be carried out by DGFF for the afforestation it will undertake(about 90,000 ha in total), and that PORTUCEL will carry out about 30 percentof such works on lands it will plant (about 60,000 ha in total). For theseworks, disbursement would be for the procurement of equipment. The balance ofthese works would be carried out by private contractors, of which there areabout 30 in Portugal, many of whom already have had experience in afforesta-tion work; they can handle the volume of work involved, and their serviceswould be procured on the basis of local competitive bidding procedures exceptfor contracts under $100,000 (Loan Agreement, Schedule 4, Part C(i), andPORTUCEL Project Agreement, Schedule, Part C(1)). This procedure is accept-able, given the geographical distribution of the afforestation works, theirtiming over a period of 5 years, and the improbability of a foreign contractorwishing to bid; local procedures allow foreign bidders to participate.

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60. Equipment and spare parts for DGFF's and for PORTUCEL's afforesta-tion program would be procured under international competitive bidding (ICB)in accordance with Bank guidelines. Local suppliers would be allowed a15 percent preference or applicable custom duty rates, whichever is lower.Equipment which cannot be bulked for ICB and is therefore unlikely to attractforeign suppliers would be procured under the local procedures (para. 59) upto an aggregate amount of $1.5 million (Loan Agreement, Schedule 4, Part C(2),and PORTUCEL Project Agreement, Schedule, Part C(2)).

61. The equipment required under the pilot credit scheme would bediverse and not suitable for bulk procurement. It would therefore be procuredthrough normal commercial channels or, for contracts expected to cost morethan $30,000 equivalent, through prudent shopping, which requires at leastthree quotations from suppliers (IFADAP Project Agreement Schedule, para. 1).Disbursement would be against certificates of expenditure by IFADAP (LoanAgreement, Schedule 1, para. 5), which will keep records of the correspondingexpenditures for inspection by the Bank in the course of project supervision(IFADAP Project Agreement, Section 4.01). IFADAP's financial accounts willbe audited in accordance with Bank requirements (IFADAP Project Agreement,Section 4.02). Seeds of exotic species would be imported by DGFF throughnormal commercial channels. Overall, $16.9 million of the loan amount isexpected to be for expenditures on contracts procured under ICB.

62. Disbursement of the proposed loan would take about 6 years. Retro-active financing for the technical assistance and training program is recom-mended to ensure timely employment of the necessary consultants and initiationof the sub-sector study, up to a maximum of $100,000 (Loan Agreement, Schedule1, para. 4). The expected rate of annual disbursements is given in the Loanand Project Summary. Disbursements would be made on the basis of: 32 percentof total expenditures for civil and afforestation works; 50 percent of amountsdisbursed by PBIs under the pilot credit scheme; 100 percent of foreignexpenditure or 100 percent of local ex factory cost for equipment and materialsneeded for afforestation; and 100 percent of foreign expenditures for consul-tants and for fellowships.

Benefits and Risks

63. Eucalyptus would be cut at intervals of 10 to 12 years, dependingon the site, and connifers after 30 years, with intermediate thinning after7 years. The total volume of wood produced over the project life wouldbe about 72.7 million st ub, more than 80 percent of which would be smallwoodand pulpwood to be used mainly for the manufacture of pulp and of wood-basedpanels; the balance would be used for sawlogs. As indicated above (para.26) the expected increase in demand for industrial wood is expected to fullyabsorb the incremental production under the project. In addition to meet-ing Portugal's growing domestic requirements, the anticipated project outputwould make enough wood available from 1990 onward to support additionaldomestic wood based industrial capacity (on the order of 700,000 tons), whichimplies incremental gross foreign exchange earnings in excess of $250 milliona year in 1979 prices. The project would by the year 2000 increase exports ofindustrial wood and its products over what Portugal could export without the

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project. In the form of pulp, paper and paperboard products, demand inWestern European countries, in the Middle East and in North Africa is expectedto grow considerably by the year 2000 and the additional export potential ofPortugal due to the proposed project would account for only 10 percent ofWestern European demand. Marketing of project output is therefore not aproblem.

64. In addition to increasing the output of industrial wood, which wouldresult in greater foreign exchange earnings (para. 63), the project wouldraise the incomes of about 50,000 smallholder farm families and create from410 to 620 man-years per year of additional unskilled employment duringproject implementation, thus providing employment opportunities to 1,000 to1,500 farm laborers now unemployed or underemployed. The project wouldcreate about 264 new jobs for skilled machinery operators and about 224 forforestry technicians. The project would have indirect and unquantifiableenvironmental benefits and would make an important contribution to the Govern-ment's efforts to build institutions able to meet effectively the complex andchanging needs of the agricultural sector.

65. Using a conversion factor of 0.60 to price the domestic cost ofunskilled labor, and costing all other items at border cost equivalents in1980 prices, the economic rate of return (ERR) on investments under theproposed project, based on quantifiable costs and benefits, is estimated atabout 19 percent. The benefit-cost ratio in 1980 prices and discounted at16 percent (the probable value of the economic accounting rate of interest)amounts to about 1.5. The ERR is not very sensitive to changes in any singleitem of cost or benefit. A real increase in investment cost of 10 percent,or a similar decrease in benefits, would reduce the estimated ERR by only 1percent. Even a combination of an increase in costs of 15 percent with adecrease in benefits of 10 percent would only reduce the estimated ERR to 17percent.

66. There is no special technical risk associated with the proposedproject, as the technology to be applied is not new to Portugal. The expectedregionalization of MAP, with its consequences on staffing, the management ofoperations, etc., would constitute a risk but the Government's expressedintention to regionalize DGFF's services with a 3-year phasing in period, andto retain a forestry planning unit in MAP reduces this risk (para. 56). Thereis also a risk concerning the timely availability of land, but the measuresagreed upon in this regard (para. 53) ought significantly to reduce this risk.The timely employment of consultants, which has caused substantial delays inthe effectiveness of the Agricultural and Fisheries Credit Project (para. 37),is not a condition of effectiveness for this project but may be a problem inits timely implementation. The Government indicated that it intended to seeka simplification of existing regulations on hiring expatriates. If such asimplification is enacted, the risk, not only under the proposed project butunder most future projects, would be substantially reduced.

- 22 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

67. The draft Loan Agreement between the Republic of Portugal and theBank, the draft Project Agreement between the Bank and PORTUCEL, the draftProject Agreement between the Bank and IFADAP, and the Report of the Committeeprovided for in Article III, Section 4(iii) of the Articles of Agreement, arebeing distributed to the Executive Directors separately.

68. Special conditions of the loan are listed in Section III of AnnexIII. The establishment of the Project Coordination Unit, the signing of a sub-sidiary loan agreement between the Republic of Portugal and PORTUCEL and ofa subsidiary loan agreement between the Republic of Portugal and IFADAP, areconditions of effectiveness of the loan (Loan Agreement, Section 6.01).

69. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOMMENDATION

70. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

By: Ernest Stern

AttachmentsMay 5, 1980Washington, D.C.

- 23 - Annex IPage 1 of 5

TABLE 3APORTU(AL - SOCIAL INDICATORS DATA SHEET

LAND AEA TOUSANDS K.)QTUGAL REFERENCE GROUPS (AD.CS7ED A'4zRAc;SLANYD AREA (thoU'SAD S0. 41.) - MOS' REC'Nt !STIMA-E -'.O''AL 92.1 SAXU SAME qEX Adl.HERACRICL'LTURAL 41 .3 MOST RECENT CERAPFIC INCOME :NCOt'

1960 fb l970 Pb ESTIMIATE /b REGION !c CROCP 'd GlOUP le

CNP PER CAPITA (USS) 350.0 930.0 2020.0 2906.3 1942.6 3075.3

ENEPRGY COFSUFTIONl PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 382.0 7S4.0 1050.0 2033.2 1646.7 2518.6

POPLLAT-ON Ak.X VITAL STAt'S'ICSPOPULRTION M3-CEAR (3.IO'iS) 9.0 9.0 9.6UltAN PDFPULAT.ON (FEACLNT OF TOTAL) 22.5 26.2 28.2 56.3 51.2 72.1

POPtLATITON FROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 11.0STATIONARY POPULATION (HILLIONS) 14.0YEAR STATIONARY POPULATICS 1; REAClD 2095

FOP'LATION 0ENStTYPER SQ. Y-M. 98.0 93.0 104.0 81.5 28.2 33.5PEP. SQ. III. ACRICULTU..L LAND 218.0 213.0 232.0 138.8 100.5 91.3

OPFULATION AGE STRUCLTURE (FZRCEXT)0-14 YS. 29.2 28.5 26.0 25.6 35.4 33.3

15-64 YRS. 62.S 61.8 63.0 62.9 56.3 57.565 Y.S. AND ABCVE 8.0 9.7 11.0 10.2 5.1 5.7

POPULATION GRTO Sr RATE (PERCENT)TOTAL * 0.7/f . 0.0/f 0.8 0.9 1.7 2.1UR2M 1.4 1.5 2.3 2.6 3.0

CRUDE FIRH FEATE (PER ThOUSAND) 24.0 21.0 19.0 18.5 27.5 31.4CRL'DE DEATH RATT (PER THOUSAND) 11.0 11.0 11.0 9.2 9.1 8.2CROSS REPRODUCTION RATE 1.6 1.5 1.2 1.2 1.8 1.9FAMILY PLANNING

ACCEPTORS ALNNIUAL (TNOUSANIS) .. .. ..USERS (PERCENT OF PARRIED WOM.Y) .. .. ..

FOOD AND Y'UTRITIONINDEX OF FOOD PRODUCTIONPER CAPITA (1969-71-100) 80.8 106.0 87.0 115.7 102.0 98.7

PER CAPITA SUPPLY OFCALORIES (PERCEN'T OF

= EQUIREmrYTS) 107.0 118.0 '41.0 134.2 120.8 112.7PROTElYS (07.62S PER DAY) 77.0 85.0 94.3 95.4 80.9 70.3

OF WHICH ANItAL AN'D PLLSE 33.0 40.0 . 45.4 31.3

CKILD (AGES 1-4) MORTALITY RATE 7.0 4.0 2.2 1.3 5.1 2.5

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 62.3 68.2 68.7 70.0 65.6 68.7INPANT .YORTAL.TY RATE (PERTHOUSAND) 77.5 58.0 39.0 31.5 45.5 20.8

ACCESS TO SAFE WATER (PERCE£T OFPOPULATION)

TOTAL. .. .. 65.0 .. 69.4 73.9URBAN .. .. 90.0 .. S5.1 94.6RUlrL .. .. 56.0 .. 43.0 64.6

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)TOQAL .. .. .. .. 70.1UR8AS .. .. .. .. S8.3RlIWAL 3. .. .. .. 3.2

POPULATION FER PHYSICIA-N 1200.0/k 1100.0 800.0 661.6 1343.2 981.8?OPULATT2N PER NURSING PERSON 1430.0/k 1000.0 520.0 677.1 765.0 397.8POPU'LATION PER HOSPITAL BED

TOTAL 190.0 170.0 170.0 180.1 197.6 240.6URSAN .. .. .. .. 260.2RLRAL .. .. .. .. 1055.0

ADMISSIONS PER HOSPt-AL 3ED r. 10.0 12.0 15.3 17.3 19.2

HOUSINSCAVERAGE SIZE OF fOUSEHOLD

TOTAL 3.9 3.7 .. .. -i7UR3AN 4.0 .. .. ...RLRAL 3.9 .. .. .. 5.1

AVERAGE LPY9ER 3F ?E.SONS PER ROOMT.OAL 1.1 0.S .. . 1.1.UR1AN 1.0 ..RLRL 1.1 .. .. .. 1.2.

ACCESS TO ELECTRICITY (PERCE%TOP D0'ELLINGS )

TO-AL 40.5 6.2 .. .. 66.DSORSAN 8S.5 .. .. .. 85.1RCSLr 27.4 .. ..

Annex I-24- Page 2 of 5

TAiLE 3APORTUGAL - SOCIAL INDICATORS DATA SHEET

LREFtiRENCE GROUPS (ADJUSTED AyLRAGESPORTUGAL .- MOST RECENT ESTIKATE) -

SAME SAME NEXT HICHERMOST RECENT CEOGRAPHIC INCOME INCOME

1960 /b 1970 Lb ESTIMATE /b REGION /c CROIIP /d CROUP /I

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 131.0 98.0 1)2.0 105.7 101.7 107.6MALE 132.0 99.0 137.0 107.1 110.0FDtAL. 129.0 96.0 129.0 104.5 92.8

SECONDARY: TOTAL 20.0 57.0 54.0 65.9 51.2 39.7MALE 24.0 63.0 5f.0 70.3 56.4FEMALE 16.0 51.0 5".0 62.2 43.7

VOCATIONAL ENROL. (Z OF SECONDARY) 46.0 32.0 40.0 20.4 18.3

PUPIL-TEACHFR RATIOPRIMARY 34.0 34.0 27.0 26.7 27.1SECONDARY 19.0 17.0 14.0 .. 25.3

ADULT I.In:RRACY RATE (PFRCErUT) 62.0 71.0 70.0 .. 86.1

CONSUIMPT I ONPASSEN(,f.h CARS PFR CAOUSANI)R) PULATION 17.0 54.0 107.6 105.5 53.4 68.1

RADIn PFCtiVERS PER THOUSANDPOPILATICN 95.0 142.0 173.0 233.7 225.9 210.3

TV RLECIVERS PER THOUSANTDPOPULATION 5.0 40.0 65.0 148.0 102.6 117.7

NEWSPAPER ("DAILY GENFRAI.LNTERESTC) CIRCULATIOS PERTHOUSSO1) PjLPULATION 63.0 8 84.0 70.0 .. 78.5CINEMA ANNUAL ATTENDANCE PER CAPITA 3.0 3.0 4.1 6.4 3.6

LABOR FnRCETOTAL LABOR FORCE (THOUSANDS) 3398.0 3388.0 4100.0/g

FEMALE (PERCENT) 17.9 74.8 25.5 32.3 24.5 27.2ACRIJItLTURF (PFRCENT) 44.1 33.3 27.0 25.8 28.9 23.8INDUSTRY (PERCENT) 29.0 33.2 36.0 33.1 30.6

PARTICIPATIrIN RATE (PERCENT)TOTAL 38.5 39.3 44.6 37.6 33.8 40.1MALE 66.0 62.3 56.4 57.0 51.3 55.7FEMALE 13.2 18.5 32.3 28.0 16.3 24.7

ECONOMIC DEPENDENCY RATIO 1.0 1.0 0.9 1.0 1.3 1.0

INCOME DISTRIBUT10NPERCENT OF PRIVATE INCOMERECEIVED NY .-

HICHEST 5 PERCENT OF HOUSEHOLDS .. .. ..

HICHEST 20 PERCENT OF HOUSEHOLDS .. 56.1/h,t 56.3/4,j 47.9 57.6.LOWEST 20 PERCENT OF HOUSEHOLCS .. 6.2/h,t 7.3,Lb i S.0 3.4LOWEST 40 PFRCENT OF HOUSEHOLDS .. 20.6/h,t 21.4/hj 15,4 11.0

POVERTY TARCET CROUPSESTIMATES AESOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. ..

RURAL .. .. ..

ESTIMATED RELATIVE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. 480.0 .. 550.0

RURAL .. .. 480.0 436.1 403.4

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. ..

RLIRAL .. .. ..

Not avaIlableNot applicable.

NOTES

/a The adjusted group averages for each indicator are populatIon-veight,d geometric m .os. excluding the -n:r,e-values of the indicator and the most popul.Lted country In each group. Coverage Ct countries amo,ng thcIndicators depends on availabilicy of data and Is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year b.twe-n 1959 and 1961; icr 1970. tLtw.en 1969and 1

97I; and for Most Rvcent Estimate, between 914 and 1977.

/c Europc; /d Upper Middle Income (51136-2500 per apita. 1976); 'e High Inco-e (0ver $2500 per capita,1976); /f Due tn emigration. pop.I1atton growth r-te is lowIr than r.te of natural In)crease; L. E, ma tesba.ed 'n in uiry of -npv-cEnt -ond-Cted by Institate of Nat inn-l Sta.tI. 41.; /h. Highst 2S2 and i--Lu257 a-Cd SC;?. of hIuseh'1ds; /1 1968; 1 1973-7.; /k 19i2.

August, 1979

*NOTE: Most recent estlmate. Primasry school years 1-4, age group 7-10.

Secondary school years 7-11, age group 13-17. Preparatoryschool years 5-6, age group 11-12 are not included. Enrollmentdatte wot comparable over time due to different basis in agegroups.

-25- Annex I

WI;T £JDW L ICATOPS Page 3 of 5Dots,Althouh t. data me. dresess fro m -4ar. g4~61il judged the semI mthorit.tI,. ko eloh. It sbonad a1so hs oted ltht they sp sot 0. ist.esm-Imlonlypcmaal beteep. Of the 1ack of at-Aad5itis definlitioe 55, COSeOPtO 050d by differoOt -o10tli.. In tollecttg ths data. Th. d.tlo r., smt..oSeoPIl to 4--lrb. or.,. of SOatd,Irdien. tsoNdo. sod eh"-t.riA-..stain ftj.r diff-r00.o bmtoe.e noActfie.o

Th. adJ.,te goup .0r,5.. for eacth inditator m. popuainto-neightod goometrte sean., .nol.dlflg ths .. trem -r..se of the indlootor sod the most pepkaltedQ005,0.2 in eah _r,. Sue t. o .0 f dIt., grOSp .erages of .11 1hO1cOtoes for C.pitol .ii,piiiO Otl Roport.rs sod of indloator. of Atees to Weter MAd tUort.

bb -Is.l AisIng, roo ioebtln.0poel t other oo,.5t57tgromps at. ppoie.ti-n.eighted .sloetrte -001 nitlat ... lui..1 of the eutre.- nU.. Ond

10 reatingoverge. o coo ndIct- to -lmtber. Th..0 ere are soIls useful a.n.rebto fexetdoi.e00 h r.n -p-io th0 OClur of onelOdtatr a a 1st.0050 he onary ndrefereoos group..

NAZI AREA (th-.-sd oq.k..) -epesstOngO1-td horoOnI(neewlt of optlrtoni 'tot: cbO e ua

1W,icolt .. l. I Post roetet -West te of ag utua rea used temposselp pervoetoges of their r-np-ti-m popu.boti... Moe odipoi .. oy ie-Iud.te pe-rso tly for crp., posture.. mokht sod kitchee N.Md.o or to the ooleolo U 00 odisp ..al, nith or oithout t ... tnent, of h-.o -.orte

f15tato. end0 -Oto-..t., by .. tt-b-oro sy te. or the -o of pit privie- sod .- iLar

47P PER CAPITA (0,4) ta e oioetmt.n usa oke res o.]'ltpePoilc - 'Popoltion dieldrd ty e.,c I-Of p-atkitg pbyaiciohs~Itdby 0.1wtnn-rorio metlo 00Wrld book Atl... (1;7k-I boi)-50lifled fro . me.dical nnhol et uclee...cty i': I'1960, 1970,and 1978 dote. Pooninp RrigPr .... .Poplatine d,rided by rui.o prottlciap sole

~ I CC.ilSidPficiU Plo Comb- Moo.] roesumplioc of coer Iloer n.1fmae roiutenreo prootl ..... coo on md -sitseton rc.ec.l So ,gnjte, prtroleu, nobrt .. e .:Itd hydro-, o.celert dg- PocItjI- j)9r'Iid -toal 0...b c e.a Population 11001.1 uris,,

~ d1970,- 7 dt.. . polkic and priw-te g--.a nodapecoalired h-top,t0.1) rd-h.ilbit.tilon, -nt-r.Oc.pLitls are est.bli.o,iernl Perr-etly ot.fed Ly at I0..01 -ce pyidbylO-

POPULA7TMN AND1 VtTL STAbSTIC31r itballaioomt.pwdlo rincipallj ,cooilrr r t -led o-lT.t.1 9.Ol-er alloc A. of July 1; I"c, 1970, Sod h,,opita, hI. rr, le 10wd h001t0 eod oedi-l c -tront pweotroti1.y elk) )r

1977 dat.. ty aphysicior (tot by ew_dico I-jtnt r-e, oldlf,1 ~ etc.) .1101 fforUreta Poultocyrr,-t ,f trtal) - Pati.o f .,1b0 to t.t01 ppolotlool in-patIent .ocOmod.Li- Sod P-oIde a llimld raorf medicoI f-cllcl.

diffe-e 4eficitir- of .,Ur. ar-rc cay affect -cpur.blity of d.t. Arto l.ti.. por -ictil1o od n- Tota nmber of drco,tu t or dk.ah.aere- froa.ongc -- itr-c; 3',60, 19)70~ moo lo75 d.t.. boe pitnia diwidwi by tL nolero brd.1

"i iwlatiur 11_~'iT loo Qi - C.rron.t p,p,latio- projeetion- Ore boe we...SI19175 ItoW PoP1o.lti-e by vrw 00d 00. sd IthIr mortlity ad fertilitY AwneSr fttesd(edn e h-nhold) t- -W. -. .da o r-rI

ratu.Pejeot-o tros-tw- fr scrtlclty .010 no_pri- of tb-e I rdwil csit; o'f . ro fidodocOr taloccqotriewnle. -- nuo g lire -opwt-,y at birth i.c--eao ito th1 -ootryo 1c al el. I oadrr 10dgwr may or co not icc -nco-c In 10-per copite loce- lwd ed fe-cl lifO wopectory otabil"ian at LwOne,h.ld for totlinl.rcliOroe.

Tr5ver. Thepoomeer r r ferlity rate ac. hor thre le-el Aceroje -ulrc lrocc-rro c .Urba. a-d rurl - Avwng-9 n-Il.monuiog decline ie fertility -accrig to Incom 1-e nod pmot of proon per ro naloto o uo ooidrnrh.t uli,fosily ebbing p-rfoe. -e lad, co-try iu110 th.ddigtd on or th... -ep-otircly. ter-linf,c-ocl.deoo.er _cwn i_twotor Sod toIiremt.I .lln~U.I c-boob ti-n of mrtality nod fertlity treedo for pr-Jwotion Acc-a tr Flwotri.,ty (Porreto iolnr(-I ), wai c iCi. o.

Satireryiopptiso - I. Ontoti--nY VPopolt-o tbore 10 00 grjotii total, orbn, nod rural doelli.gs reip-ctjlvy.

.tretutmee remeala nOtSot t. Thi. is othlewed only after fertility eat.s ZIlrATIONdoolime otli.elrpb.o.,ot le-e of unit int reproductIon rate, ehm I71 o boelIm-t RatIo.eac geeeratiO of -e .ePI-:.s itomIf ComotIyp 1. Te t.tiom..er POW0- Perlor, othool to.tal, aeso eae ,. total,lsoensd f.mole e-el-latlom sloe os etlated on the bob o the pojected cboru '.oterlte net nf ni gs0 tepIay e1.m pertontogs of roopetlee primary

oftepopltls 10 the yeor 2600. and the rmtm of deolime of fertility sooe-1og. populatiOn etrmoellyfinloelde ebildre aged 6-Il e-r hutcoeto r.plormeent IeeeI. Q..utsd for differeat lengths of primary oductioel foe tou.trie. aith

Teac s_t.tiorp 000l.t10 i. reaoched The pent ho. st.tiee-r popultion anleral.denlo -yolen o coomd 160 p-roet oinreoni pupil.ot.u ha been eeahed. - ate0.0. or 510- the offrwal school ago.

Poucaio eolyhvodr tcl::ol -totel, maleon .1-0reol Computd .- e secndaryPer so. . - Kid-yer, pputiatno pee aqur kiloot.r (100 h-etareO) of eutlo eqres t le...t four Y.-.o of pproced primary ntulo;

totlae provdes Noars el Otbaa,or teacher trolAlog inotru-tion- for p00111Per so h. Wg -Itnx.trl tod - Copoted - .0ev toe -giuto1-4d eal of 12rto 17 year. of age; -oerepoadeo- course. are gwmeralp

1,51 ato. Ad. stero~t- (percet) - Childem (0-1l poare), moekig.S-ogs voceal"Iol omoi.sa (pe t of ewoday) - Voeo...Ion itmtlutlw"a Isolud11.61.ye rs) a reti1ed t.5 yea. so we)n pmremtgeo of sl.ketvool outil eohrpora bo prt odopoodstipor n

pepoltit 196 I 1970. .. d 1977 data. deporteoto of antond.ry in.tlto lea..ftmoa.ti.m Gro.th hate (perteet) - t0.1& - Am0.1 .0-oeti rates of total mid- PopIb-teehor rttio -rmr,md ceco-do - Total otud.at. earolled le

poor popultioss for 1950-60 100 seid 1970-77, -p'esery sdscsOe noe d 0w 1 (limer Of teanhews in the -orre-Poosletiom Grceth isle1 (poewe) - -bn - Anhoaal ae-soh -nte of urhue spondig Ierel.

opato . fr 1950-40 19n0-70~ nod 970-75. AdultP lit.r,r r.le (percet) - iAt.r.tl adults (able to rood sod -it.) aCd.lrhaNt.pe r th-ensd) - dAneal Iiee births per thosesod of mId-. a enatg f total adlt popul.ti.o ged 15 y-r So orer.

poor wpopl.ti 1910, 1970, nod 1977 0-t.10crot D.thR.L (r thOu.sd) - Auomol death. pee thoifso of old-peat fCIDW0f 1W

j6 I ; bii 9I0..1970, sod 1977 data. Pos:fijier Car. opoth0sondZpOpoltIo - Pauseagr rar wompria. motor e..ahetos -pronioriwt at -Awrage umbor of d..ghtero a 00 1oUhetse1a booth Ight peres euldes .mhclarw, here,nd military

*1.h., soma repodeotie. period if she mpreesrsnt age - ombitl-s specific fertility rates; ues14I flee-year soeeesd,.o 10 196.0, P.10 Peceicergl. (hr fthoneoodpotlc~t.htij) - All type, of receivers foe readi1970, .1d 1975. ..acet ogeeo 0010 e boaod of popoltloel -nolde uellrea.. d

Pomily Pl- OeNi - Arcept.r., A,iom (thon..sMd.) - AnOul u0.r0 of -rereee. 10 oooeIoad in penr sh..ari.tottiw of radi .et. -05isnonrptoro of birth-cootrol deone. ecder scwploea of astIc...l foully efet; data for receot yr-oramy not he comparable .1Mr. _t conries

plenabog Icroorso. o~~~~~~~~~~bo1imhed licoastag.finally Plomieg- User. pecort of1 srrdons -1 Percentage of sorrd TV penr1ivere leer1. tuad roehltlo-) - V recicer for lroadcOut to gmoe-s

m of nilih-esrir age 15-44year. etc 00 hith-oomalroi sevi.e..110 e hoiedgppltco xlde. nlice...ed TV .e. .lo-r. in touonrleotoal arid ineot sse age group. - sd Ia years sh.. registr.ton of TV .et. .a. 1n effect.

XeeseoperCig,roltloe (per .thoso oo- Ition) - Shosthe ovrage iroulatioP606 AlND EtTtfPSfII ."hlygmrl oeet oane eIe uaPeroio ulct

1550O fo or donlsiere Cpnt.l (1969-71-100) - toda. of pee t.pIt. dseot.d primorily to -ecodltg ener1 noes. It I. oosder.d to he "daIly"odcil prodctie of all trod oo,ditieO. Prodmetlo meludes aed -co If It nypear. et lent four tlsro a ceek

feed sod is cn .caidroe yea hsis. Coditi.a comr peliary &..d. flywma Aeeual Attemnde per Copit. ver Year - Bheed on the .0.b0 rf t1k.-bt( .Ig. ogr- looteAd of .cog.K) elch oreedible and -oet.ln -tetret. sold dorle tie Yeat, incudngadlsic.- to drce-b1 010... d mobile(e W..ofe nd ten are eucloded). Agreat production of earlt troey - sit..

I. bcee,d on atlool nereepe -oe prIco .01g1t, Per .. Pit. supyo rlre geoet of roln et)-Comuted from LAsp TO F0

emeeg eqoivteot f p fdsPplIes momig.ic n Ionotey pero-pit. Tonnl1.10 orn. (thousado) - ft.noeod-liy -t110 person, imnludlagnrdper doy. Avai.lolleosppli-o q.mprise dom.tie prdeotioo, iports Ie.. foros ndr ynmp ed hot -ed1ldig h-ueiv-, tIddetss, ste. Dnfinltlo-e- eprts, nd thsoemeo 1.t10k. Met oupplies esClude "i15. feed, sedo. la -i...u Conotri.s -r n-t cpoprable.

quottls05, 10 food pr-noig , sod lo.... is. diotrlbihele. Requiro- Feel. pyecqt) - emal labor f-re .u peronttage of total labor fore..sets e. e-stimated by RAO hooedtn physio1.gi.al ord. for noesal A1-turn roeot) - ab rcfr in It oemg fore-te'Y, utie'g sod.artleity mod health sou.Lderlg earl, -emeta1 t.epr-tor.. bdy olglts fishIng no preceta of t0.t1 lb-, foeceage nod orm dIsttrbuion i of popuIinto, nod olleelOg 10 peenet foe I7 utry (r-cot 1.1c f-ew in olnieg, cseot--oign. snofaturiag sod

s eat t b.oShod lee.Ioilecj tote sd gain os percotogo of total labor fo-c.Rwr -plta aupply of p1rotei es,- e s. - Peut-i contet of P.e P-rtoi.p-Wo Pole (percent)-ntolt _jle nod fl~ensl - itrtilp,ti-or e

-ca .hotnaetapply of fopeda.etuply of food 1.00r1000 _a otivity rates are coOu_ dm t o tal, man nod fr-i lab0 fote m pee-aPovo. Requir.sents for all coutirie I.tablihbe4 by U111k Provide to, a ... itmg.. of tota, soeo sod freale pp~oreti-r ooil oge. reopetlo-ly;

itelumo .11onence or 0-0 gr-a of 1o101 p-toelo pee dsp sod 20 greee of 1lb0, 1970, so 1979 data. These at. 112-a participatlom tote refislaomisl sd polo. protei, of hi.lh 10 era.. ohmnld he soima protein. og.....onr.tured of to.pcpulatio,, sod bog time trend. A fe: rotisotes

fseom tboOdord are lose nhso those of 75 gr- of total prot.no sod are from nanoos s.mLI _ .25 grsm of anImal Proteto so so-vrge for the oor105, ptepoosd by P-AD Weoomtc Demd yPtio - Ratio of pepastion 000c 15 sod 65 sod -ov toin the Third Wend TIod Surrey. telbrfteIs son gromp of 15-64. year..

Per rapnt. Or-tei suply fr.aIma n o. -Petel oupulp of food

Chl ne -)SretaloOt (P- thrrIouod) A-.AtuI deaths Per lho enmrd Peontg of prioato Ioeom (both 10 ea. o bind) - R00.1000 PP richestI% age group 1-4 Ye-rs. to rhildrco in this age grop; for most 0001- 5 Peros"t, rioset r 20 pret, porest 10proent, so wporot 40 pmresotoping e-utriea data derie from lIfe tnble. of hoaoeholde.

HBAbTI P=YOT TAPIR GOfPlif ge-toecy at bith (aro - Aeermg mushr of year. of life Utimated Ab-Ilt. foeb oeben(5 . npn)-ubo e oa

enmalein et birth; I90 17, nd l'ci. data. bboonlute oet P--- 1 1,00 to tIst len le-e be1- obich . si.Le1iWfnt KStorality Rnte Pree th-ound) - Aeni1 deaths of infente 0.00 550 ~ mntritiOoallp doquat. lietn I pl ... tusoLa 0-rood eequL-evts Ia sot

Yea r Icge Per th .. oumOsto tir crthe. affoedab1e.AM".s Ic Safe Wate_ (wfretem of _rlrbtk-n - tota. rbebn. 000rua - Suiosted Orlatiee P-ecty Inrose Lel(19 I!pee rat) -ea sad eu,I

Meetr of prone (total. rahe nod rurl situ remonll aen,toia pean poverty in-ome ieol on_hrdo orage poe oapita.af. eotrr spply 1 lbldee trested surface sater or ontreated hut persn1ni--os of the -cutry. Urhno le... I c deri-d from the rura level

_oetsntdot.e mch no thnt from protected bore. lr , olgs, with dj..utmt for higher vest of 1leing In urban arn...50 enitry ells ospooetogee uf their ..empetire popo1.la -m 7. Fotisor PsitoneIcAsoterretir.n-Lci(e n).Urla" nod

2o urba are n00111 foumntal 00 etedp.st loctate at M-c than rural PeroontI populatio ubnsd-ao su r aoncIute P.,-.30mtors ft-o a h-u. s"Y be -Ldrrd s- being wIthIn reaublle

Ires fthat h-.ude. to-Iea are-na rea-- - -bl. .-.. 5 -cId lplytht the .Iomife or sebr f the h--hb.ld do cit h00. to opead . kmome sd, Sowla1 Pets MpLesondlupeoportLiots port of the day in fet.hing thm fnmily-e oat.. n."a .. ,nol A.rUnlo sod Projection. Pepartset

A.Sgst 197')

26 - ANNEX oPage 4 of S

ECONOMIC DEVELOPMEf5 DATA

(Amoseto in Millions of US Dollars)

Shar of GDPa

Actua1 Annual Oros.'th Rate 7.) EStimated market io.e GD rn at Iol

NATIONAL ACCOUNTS 1978 1974 1975 1976 1977 1978 1979 1960 1970 1975 1976 1980

(enohange rate 1S-43.9 n..as.d.) (PSroJeted)

Gross Domestic Prodoct 17,810 0.7 -3.7 9.0 5.6 3.2 2.8 . 100.0 100.0 100.0 100.0 100.0

Ageicoltoro 2,062 -1.8 -2.7 1.5 -10.0 4.0 3.0 22.7 16.1 14.1 11.6 11.3

Industry 5,945 4.0 -9.3 4.3 10.4 3.3 4.4 34.5 37.3 38.9 33.4 42.0

Services 8,299 0.8 1.6 15.8 6.6 2.5 1.9 35.4 36.2 37.9 46.6 37.4

co-asuptoio h1

15,799 15.3 1.2 3.1 3.3 -1.7 -0.1 62.8 83.3 96.1 88.7 87.0

Cross Investmene 4 117 -6.1 -45.7 30.5 28.8 -6.4 0.7 18.5 23.5 16.3 23.1 22.8

Ecporos of GNFS 3,352 -15.7 -13.2 4.8 6.8 13.5 19.0 16.6 23.4 19.6 19.9 21.3

Imports of COPS 5,658 4.8 26.7 17.5 13.1 -2.0 8.0 22.9 30.2 32.2 31.0 31.2

Groso Notiosal asiogs 3,317 -35.4 -39.2 -8.0 40.2 51.9 6.8 12.2 16.7 3.8 18.6 18.8

PricesRate of Inflaticn 27.4 20.4 18.3 27.0 22.1 24.2

Lorhange Rote SS 25.4 23.6 30.2 38.2 43.9 50.0

MERC0ANDISE TRADE nsal DIts at Cs.-tne Prioes As -sereo. of Total

Imports,Ed 6 b 0 9 1 1973 1975 1972 1978

Capital goods 761 35615 607 694801 20.5 14.5 14.0 16.9Capitoadl o goo1ds 2,65 2,185 2,431 3,043 2,807 . 5°.4 56.1 61.3 51.6

Poel cod rolated materIals 5~~~~~~~~ ~~77 6212 9 743 738 1 6.0 16.0 15.0 15.4

aot.oserion onod, 677 522 595 485 435 - 15.1 13.4 9.7 9.1

Totsl Norch. Imports (c.i.f.) 4,648 5,893 4,329 4,964 4,790 6,027 100.0 100.0 100.0 100.0

Agricolt-ral Pr-dscto 369 324 312 334 376 _ 18.8 16.8 16.5 15.6

Wo2d sod CoEk Producrs 366 306 351 364 378 - 14.8 15.8 17.9 15.6

T.otI_e *rithing cod fociwes. 684 577 533 602 7 85 -04 238 7.6 3.

Othiersod closhins andeqipeo 290 254 2503 301 325 13.2 13.1 14.8 15.5

other 569 474 596 426 549 72.8 24.5 21.2 07.8

Total Merch. Exports (f.t.b.) 2,276 1,9535 1,822 2,027 2.409 3351 100.0 100.0 100.0 100.0

MERChANDoSE TRADE INDICES 1915=100

Export Prico Index 103 100 90 94 102 117

Imp2t- Price Iodex 87 100 95 97 106 123

Tor-s ot Trado Iodro 118 toO 95 97 96 95

Espoet Volsene Sodas 104 10O 105 Ill 120 142 A. Percent of Total

VALn ADDED By SECTOR ~~~~~~~~~~~~~~~~~~~1975 1977 1978 1.979 ]

VALUE ADDED BT SECTOR lOcToi R Datas at .1825'i Pet ces aod Enchange Rote of 25. 55)

PUBLColroto 2,189ANCE37 2 1,4 2, 2 1. 12.6 12.8 12.8

Tdnocty 54,32 5,721 5,7.8 6,601 6, 019.46 7 119 42.7 42.9 43.0 43.7Servies 41462 12 63.43 6846 7.017 31.0 435 2

Caoitsl xpenditures (net) _13,973 13,410 14,564 15,594 50.86 16355 .4 4 5.4 6.4 6100.0 100.0 I 9.7 10.10

UBLOR FINANCE AHDOUTTC t Pie WORKiR eA Peroe.dt ofG CP at oarkot PricEs

PUBLIC FINANCE77 _ 127 7 03.6 1974 1975 16 1977 1978 1979C-str7 1

2 108/

2 6 5.1

C 23.o 24.0 27.2 27.9 27.0 26.8

Crres o6.5 2.6 153.3 182.1 29.5 301.0 22.4 27.3 32.8 29.3 51.8 30.5

a o "tc 1.3 -9.4 -26.2 -0.5 -28.5 -5. 0.4 -. -5t6 -1.3 -3. -3.6Ca Eil t7edso1ce.1 02.4 19.3 34.3 50.8 46.4I 3 4.4 5.c. . .

Notiacorqieeo 5.8 2. 45.5 43.0 79.3 82.3 1.7 5.8 9.7 8.0 1. .

Dinso...g oinedo _8.3 174 48.9 44.7 897 98.8 2.4 4.6 10.4 7.2 1.5 1u.0To4t annetlearico -~~~~~~~~ ~~~~~2.5 4.4 -3.4 -1.7 -10.4-16.5 0.7 1.2 0.7 0.5 1.3 1.7

1,~,BOR - EQRCE AND - OUTp PER ~WMER TOL-41 LAB 8/ VALUE ADDED FiR WORKER 11975 PRICES AND EXCHIANGE EAT 51 br- 25.55)

Cs Thossaeds ees74 ofTtl977 I 0Dolr Pernet of Av.ra.e Averoc A-1 Crotch Eam

1974 1977l 1974oyed 1977r Crorstb Osloudrng vn and1974 1927 1774-77

AgrircitorO 1~~~~~~~~~~,300 1,219 34.5 32.2 .11,684 17,59-7 -45 -39 ~1977I.d-sty 1,307 1,276 34.7 23. 7 C,.8 4,837 5,i73 130 127 2.3

Servo... 1.160 1.291 31.8 34.1 3.6 4.02 8 2 3 .1

To-o 3,767 3,786 100.0 101.0 0.2 3.709 4,066 100 to

A/ Alt marIet prin opoet r epresd a lot orcotsso ar -ne dd ds- to no sco f ne tdiro- tan ad bsdin_

C)Statsioa dtDopoy 0iol d is tho ocsnno aac/ nh.eo eaco since FeIr,-y 1980 1000 47.7 Es-dos

21 Esniasid.7/ ToSs1 esptoyed ScOo- fo-e em-degse hrss-d .edsmeeled

- 27 -

I... S a1 5P2ANt OY PA Td ~ AdllD ~ M i II D DB

3o9 2it« 923 joe. of US. Drl7. r*2a Curon~to lFtioc

1973 1974 197d 1976 1977 ij7I 1979

S1"Yof izlU[ UFri7ET

Eep7o.t 7.0.9.1 8,243 2,279 3,935 1.823 22027 , 3,35-_osrtc Fr OB. ) 2.743 41 227 3 603 3 932 4 533 L 1 3 027

TTrd lecicete (7-Y) _932 -198,9 -26270 -2,109g -2, iD6 -2 ,391 - 2 676Oct Foe Fettot 0.70 tee 67 -54 -2i9 26 32 273 503

STegeic i3eeetetc'"9"'e 'S933 .Al1 _jA ) (322' (403) 4419) (944)sgutflo. e Belcote -833 -2,063 -1.939 -2,293 -2,454 -2,208 -2,179Net 29'9e80oB IotCCn

196 3e 29 -14 -333 -179 -329 -432

Net St*Oiesek!/ 1.097 ,113i 1.037 979 3,304 3,635 , 2.495

Be Ioteh oo Cottets 6tcote6 349 -923 -.97 -I 244 -1490 -80 -22

tOtets otteigo 3,voNteeot 110 I0" 122 75 57 62

DLahura_ns 15d 123 2~ ~ ~~~~ ~ ~~~ ~ ~~~31 - 3.7 596.tttrwtet 74 6 d7 57 64 93 9O

Bet 99e6300cCOtC 94 96 254 la 294 509

Bet cl cbotce.ecte . . 213 2409 het. CeFit-l 49 dttote eo3d o2.t,e1 135 -82 -. 9 265 392Other Cepitel 39 9 3 ) ) -332 356 398 643 1,046

Foteit3 Bottctne esevete< - 1 E re ~~~ ~ ~~~~ ~~-345 554 *8 14. -- l -360 -6.

0ffiCi81~~~~~~~~~~~~~~~~~~~~~~~~~ 4esrveo,033 2409 33 5 3133 13453 36

37 4'636 Oold 1,149 3.13 31,337 1.127 3,023 3,010 .3.FttetgttbtO.etee 3 ,@ I,653 31,379 3 91 250 361 273 935

OiU3T A1t.A h&D .~ LO5068M5T 51 dlO3 0i3T tERlor 3974 3975 30765 2977 2979

OSSitiel otette 6 49.07-124- - 3 - - - -.9.9 DB hteeB 9d272

eej 4t.boteed 3,346 ~~~~~ ~~~2,23 3,`79 2.9 104

Fo333.L Lar 94d. l.tescs d73. Fo, 72 2553 3.OD5 745h4 2 949*02i99 _ _ 3 h 56 74 131 resetect St h25c63t Debt 23 35 39 70 I.3234 - _ _ _ 9eeMste St F.,623, Det 98 78 95 92 09Othet hh 126 1.tert 1 1 226 88 149 sttelF.o83t Oebt Se.oloe 90 313 175 5 2 233Cttct..2ts - 23 45 33 113 451 Otbet 2262.2 teSt yi rtse 340 313 137 32 Bt.o7ttlet. - 32 235 48 393 628 tote) 7962. 0D6 6B ei3te 233 729 262 491 589tlteato,.) tleket, - 433 93 332 1731

Tote) FolIt hUT3. 3.0.09 53 49 3 63 ,4t5 43 ,l 17ar iDw1s3

Actual nebr Outstvssdiur3 = DCe 31- it7 Ttt L 0ebt tetoote 3.7 23 3.29 5.7 35 1

2hS7 53o9 3 erae et..o of Fc6333 Debt .3.0 9.4 2538.4t

orher Yultl- 1tera1 fr ~ ~ ~~ ~ ~ ~~~776 9. eteeteet 5 7tt see, 08 3OS.75 12 4.60 4.4Oeee,etoo 335 .B. O e.ttt ce StSriot sT_t 0905 5.8 4.9 4.7 4 1trp7lletc 2,557 743 2ee I Dehbt Ost. 4 Oiebo.cd 43. 359.3 33.3 32.3 39 1

tiost3l Dcr0e043 _ 3_2 6 8t ihred 3 PoIl 2et 3 20 73 0

TtoeslFohltcondso,o.oe 3.990 373 3960 Det brsetote cc7

21 64eiely ootkett ee,tttoce.SaISd 72e2t..c teIScoloS 67.1,03

travoe tight.. 35 tet floe 0107 totte coO

,ctttrrd3 30 U dollete et toot." -tae. Sepo. 3r 979 etot. 7 32.331nf Ilon oes w1d sve aOr1S IflIet, Soloed *t 330a Fee Soose

d/ D hteooetesttse ctAce acloo 2965 n . t09ecpoortc, -fetoosereetee, 4td

i Does ot 1nc1 de Ptrml *saR hJrr a ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Eot, ldIto.ttos,tlooetto

28 - ANNEX IIPage 1 of 4

STATEMENT OF BANK GROUP OPERATIONS IN PORTUGAL

A. STATEMENT OF BANK LOANS(As of March 31, 1980)

Amount (less cancellation)Loan No. Year Borrower Purpose Bank Undisbursed

Five loans for power development fully disbursed 57.5 -

1301 1976 Electricidade dePortugal Power 36.0 10.2

1334 1976 Republic ofPortugal Highways 24.0 19.5

1432 1977 Banco de Fomento DevelopmentNacional Finance 50.0 31.1

1541 1978 Republic of WaterPortugal Supply 40.0 40.0

1559 1978 Republic ofPortugal Education 21.0 21.0

1603 1978 Republic of AgriculturalPortugal Credit 70.0 70.0

1649 1979 Quimica de FertilizerPortugal, E.P. Moderniza-

tion 58.0 53.31700 1979 Republic of

Portugal Highways II 40.0 40.01701 1979 Republic of Small and

Portugal MediumIndustry 45.0 45.0 /a

1793 1980 Republic of EducationPortugal II 40.0 40.0 Ia

TOTAL 481.5 370.0 /bof which has been repaid 37.3

TOTAL now outstanding 444.2

Amount sold 2.6of which has been repaid 2.1 .5

TOTAL now held by Bank /c 443.7

TOTAL undisbursed 370.0

B. STATEMENT OF IFC INVESTMENTS(As of March 31, 1980)

None.

/a Not yet effective.lb Differences due to rounding.77 Prior to exchange adjustment.

- 29 - ANNEX II

Page 2 of 4

C. PROJECTS IN EXECUTION 1/

Loan No. 1301 - Sixth Power Project; $36.0 Million Loan of September 24, 1976;Effectiveness Date: December 23, 1976; Closing Date: December 31, 1980.

While the loan is now fully committed, project completion isexpected to be delayed more than one year because of organizational changes in

the Power Authority (EDP), revisions in the Project scope and in the list of

goods. These factors delayed procurement under the loan, and the start ofsignificant disbursements. EDP is being reorganized with emphasis on decen-

tralizing management and merging municipal and small private electricity

undertakings within EDP. Mergers are expected to be completed by 1981. Aftera poor year in 1976, owing to bad hydrological conditions, EDP's earnings in

1977 improved. In 1978, EDP generated only 4 percent internal cash, inspite of a 50 percent increase in tariffs, owing to large increases ininterest rates. EDP estimates that it has generated 18 percent cash in 1979

and will reach a self-financing level of 30 percent in 1980. The closing datehas been postponed from the original date of June 30, 1979 to December 31,1980.

Loan No. 1334 - Highways I; $24.0 Million Loan of March 3, 1977; Effective-ness Date: July 8, 1977; Closing Date: July 31, 1980.

Road rehabilitation is on schedule, but other project items arebehind schedule. The Government's decision to postpone bidding until theeffectiveness of the loan resulted in a 12-month delay in purchasing highway

maintenance and workshop equipment. Delays in land acquisition (which is nowcompleted) caused an 18-month delay in the construction of the Covilhabypass road; the contract for this road has now been awarded. The railwaysstudy and the transport master plan are also 18 months behind schedule due

to delays in the selection of consultants; however, work on the study and

master plan is now approaching completion.

Loan No. 1432 - Development Finance Company Project; $50.0 Million Loan ofDecember 19, 1977; Effectiveness Date: March 21, 1978; ClosigDate:

December 31, 1980

While loan signing was delayed due to legal questions raised by theAttorney General's office, it is expected that project implementation will

catch up with appraisal estimates. Nearly all of the loan proceeds are

committed and disbursement is satisfactory.

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report any

problems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation of

strengths and weaknesses in project execution.

- 30 - ANNEX IIPage 3 of 4

Loan 1541 - Lisbon Region Water Supply Project; $40.0 Million Loan of June 6,1978; Effectiveness Date: January 19, 1979; Closing Date: June 30, 1983.

The contract for the Castelo do Bode pipeline (about $33 million)has been awarded. Works on the pipe plant are proceeding. A solution isbeing sought for municipal arrears, which remain a problem. Studies arebehind schedule due to delays in hiring consultants.

Loan 1559 - Education Project; $21.0 Million Loan of June 6, 1978;Effectiveness Date: September 6, 1978; Closing Date: December 31, 1981.

Architectural designs for all project institutions, including man-agement training centers, are underway. Equipment lists are ready and procure-ment of equipment is proceeding. All sites for project institutions (exceptLisbon Management Training Center) have been acquired. Technical assistanceis being recruited on schedule, the study on the teaching of science andengineering is completed, the manpower study is underway. A general publicservice moratorium on hiring personnel and consultants (to contain the growingbudget deficit) has delayed design work. This, combined with site acquisitionproblems, has caused a slippage of about one year. Recent remedial actions andunderstandings however should improve implementation of civil works.

Loan 1603 - Agricultural and Fisheries Credit Project; $70 Million Loan ofSeptember 28, 1978; Effectiveness Date: April 30, 1980; Closing Date:June 30, 1984.

The staffing of the Agricultural and Fisheries Credit Fund (IFADAP)and of project area offices of the Ministry of Agriculture and Fisheries ispractically completed. Consultants have been selected for the groundwatersurvey and for the fish stock assessment survey. Project implementation isabout a year behind the original schedule.

Loan 1649 - Fertilizer Modernization Project; $58 Million Loan of March 14,1979; Effectiveness Date: June 1, 1979; Closing Date: June 30, 1983.

The selection of engineering consultants is completed; detailedengineering work is underway. Procurement of equipment has started.

Loan 1700 - Second Highway Project; $40 Million Loan of July 27, 1979;Effectiveness Date: November 13, 1979; Closing Date: June 30, 1984.

Engineering for highway rehabilitation is underway.

Loan 1701 - Small- and Medium-Scale Industry Development Project; $45 MillionLoan of June 27, 1979; Effectiveness Date: (not effective); Closing Date:December 31, 1983.

Progress has been made towards meeting effectiveness and disburse-ment conditions. Staff for the special unit in Banco de Portugal have beenidentified. A revision in the Public Enterprise for Industrial Estates'

- 31 - ANNEX II

Page 4 of 4

1 (EPPI) rental policy has been made to ensure better returns on investment.However, the additional time required to make changes in IAPMEI's statute hasdelayed the effectiveness of the project.

Loan 1793 - Second Education Project; $40.0 Million Loan of April 16, 1980;Effectiveness Date: (not effective); Closing Date: December 31, 1984.

The project implementation unit has been established.

- 32 - ANNEX IIIPage I or 2

PORTUGAL

FORESTRY PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken by Government to prepare project: 16 months (November 1977-March 1979)

(b) Agencies which prepared project: FAO/Bank CooperativeProgramMinistry of Agricultureand Fisheries

PORTUCEL (the State Pulpand Paper Company)IFADAP (the Agricultureand Fisheries DevelopmentFund)

(c) Date of first presentation to the Bank anddate of first Bank mission to considerthe project: July 1977; November 1977

(d) Departure of Appraisal mission: October 15, 1979

(e) Completion of negotiations: April 18, 1980

(f) Planned date of effectiveness: end-September 1980

Section II: Special Bank Implementation Actions

The project provides for retroactive financing, up to a maximum of$100,000, for the technical assistance and training program, to ensure timelyemployment of the necessary consultants, and initiation of the sub-sectorstudy (para. 62).

Section III: Special Conditions

1. Conditions of effectiveness are:

(a) establishment of the Project Coordination Unit (para. 58); and

(b) the signing of subsidiary loan agreements between the Governmentand PORTUCEL (para. 50) and between the Government and IFADAP(para. 51).

- 33 - ANNEX IIIPage 2 of 2

2. Undertakings by the Government include:

(a) employing all consultants by April 30, 1981, on terms and conditionsacceptable to the Bank (paras. 46 and 47);

(b) employing by December 31, 1981 all additional staff required byDGFF (para. 53);

(c) allocating to MAP all funds needed for each planting season by thepreceding November 30 (para. 48);

(d) providing adequate staff and funds to the Project Coordination Unituntil project completion (para. 58);

(e) in the selection of private sites for afforestation, giving prefer-ence to farmers willing to participate in block farming operations(para. 53);

(f) completing, 3 months before work is to begin, the securing of land-required for each afforestation year (para. 53); and

(g) making arrangements to recover the full public investment in theafforestation of private and baldios (communal) lands, includingan interest rate which, on average, will be positive in real terms,by retaining at least 30 percent of Eucalyptus harvests and atleast 40 percent of conifer harvests; and developing by December 31,1982, in consultation with the Bank, a comprehensive cost recoverypolicy for the entire forestry sub-sector (para. 54).

3. Undertakings by IFADAP include appraising all sub-loans under thepilot credit scheme in accordance with procedures agreed to by the Bank, andsending such appraisal reports to the Bank for its review and approval (para.52).

IBRD 14735,9r 9@ gcv, E JANUARY 19800~~~~~~~~~~~~~~01

42 s t_g '1 ,.

= VIANA DO cASrELO

PORTUGAL d RAPA-

F-ORESTRY PROJECTPROJECT AREA BOUNbV Araro4 ViLA REALW NDA

PARTI1CLEBOARDMOS

41; * AL PL.P MILLS

* FIBREBOARb-D L 1

RAiLWAYS

D STRISCT CAPITALS / -7

=- . IrTRc a DARL B o EGO M o <q p

IVE

'

4

400 G

T %pa ST. BRANC

a 01

ERO

World B.nk'a ot,ff oackwoo4 A',~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~fIA' Raaa,al.ne. at oh,, ,oodaa, of ~ ~ ~ ~ ~ ~ il. ~Ih

0 Q EeS: t \ >0 o \ z dF R.dNC

.thde*a oopafiDtta w1 _ h /, aD])t er uUa a,d

bouds,. da hr7 'fb,, aieand f*t) m api/ t 1 6 / S

do flt aotbpifan thepart af$ Oh, , ;tAe tr7af

WRddBemok nd It aiffda,Rtri?6eor,w anAy , ul ean or,t Pitnl a t6 affrbbs anrf ._Mdotraan ,an i

or accoeptana, af suc/l bouttid,0f 92 .. MOROC CO '-2 AL GE R I