Document of F | PYThe World Bank

FOR OFFICIAL USE ONLY

Report No. 2897-ZR

ZAIRE

KWILU-NGONGO SUGAR PROJECT

STAFF APPRAISAL REPORT

November 25, 1980

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

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CURRENCY EQUIVALENTS

As of October 1978Z 1.00 = SDR 1.00

US$1.00 = Z 0.77z 1.00 = US$1.30

As of January 1979Z 1.00 = SDR 0.5US$1.00 = Z 1.007Z 1.00 = US$0.9930

As of August 24, 1979Z 1.00 = SDR 0.375US$1.00 Z 2.04Z 1.00 = US$0.49

Since February 22, 1980z 1.00 = SDR 0.2625US$1.00 = Z 2.9z 1.00 = US$0.34

WEIGHTS ANiD MEASURES

Metric British/US Equivalent

1 meter (m) - 3.25 feet1 hectare (ha) - 2.47 acres1 kilometer (km) 2 - 0.62 mile1 square kilometer (km ) - 0.39 square mile (sq mi)1 kilogram (kg) - 2.2 pounds (lb)I liter (1) - 0.26 US gallon (gal)

- 0.22 British gallon (imp. gal)1 metric ton (m ton) - 2,205 pounds (lb)

MAIN ABBREVIATIONS

DOA - Department of Agriculture and Rural DevelopmentINERA - National Institute of Agronomic Research and StudiesONDS - National Sugar OfficeARP - Agricultural Recovery ProgramISA - International Sugar AgreementCCCE - Caisse Centrale de Cooperation Economique (France)SOFIDE - Societe Financiere de Developpement

FISCAL YEAR

Government: January 1 to December 31Compagnie Sucriere: January 1 to December 31

ZAIRE FOR OFFICIAL USE ONLY

KWILU-NGONGO SUGAR PROJECT

STAFF APPRAISAL REPORT

Table of ContentsPage No.

I. BACKGROUND . ............................................... l

A. Project Background ........ ........................... lB. The Agricultural and Agro-Industrial Sectors ......... 1C. The Sugar Sub-Sector ........ ......................... 7D. Sugar Markets, Marketing and Prices ..... ............. 8

II. COMPAGNIE SUCRIERE .............. 10 .......................... lO

III. THE PROJECT ............ ................................... 16

A. General Description .................................. 16B. Detailed Features .................................... 17C. Organization and Management ........................... 20D. Accounts and Audit ................................... 20E. Environment and Occupational Health .... .............. 21

IV. PROJECT COSTS, FINANCING, PROCUREMENT AND DISBURSEMENTS ... 21

V. FINANCIAL ANALYSIS ......... ............................... 24

VI. ECONOMIC ANALYSIS AND JUSTIFICATION ....................... 27

VII. AGREEMENTS REACHED AND RECOMMENDATION ..... ............... 28

SUPPORTING TABLES, CHARTS AND MAPS

Tà2be 1 - Project Cost SummaryTable 2 - Project Cost and Financing SummaryTable 3 - Estimated Schedule of DisbursementsTable 4 - Projected Income Statements

- -~. Table 5 - Projected Cash Flow StatementsTable 6 - Projected Balance SheetsTable 7 - Financial Rate of Return CalculationTable 8 - Government Cash FlowTable 9 - Economic Rate of Return CalculationTable 10 - Economic Sensitivity Analysis

Annex - Selected Documents and Data Availablein the Project File

Chart l - Compagnie Sucriere OrganizationChart 2 - Implementation Schedule

Maps IBRD 14628 and 14629

This report is based on the findings of an appraisal mission which visitedZaire in July 1979, consisting of Messrs. F. M. Patorni, Y. Wong You Cheong(IDA), P. I. Ross and A. de Ruyter (consultants).

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

ZAIRE

KWILU-NGONGO SUGAR PROJECT

I. BACKGROUND

A. Project Background

1.01 A review of the sugar industry in Zaire was carried out in October1977 by the FAO/World Bank Cooperative Program in collaboration with the WorldBank Industrial Sector Survey Mission. It appeared from this review thatdomestic supplies could best be increased in the short-term by rehabilitatingand expanding the sugar estate at Kwilu-Ngongo. In September 1978 and inJanuary 1979, Batnk staff discussed the possibility of financing rehabilitationand expansion of the Kwilu-Ngongo estate facilities with Government and theProject sponsor (Compagnie Sucriere). A detailed report prepared by CompagnieSucriere was the basis for appraisal of the proposed Project in July 1979.This report is based on the findings of an appraisal mission which visitedZaire in July 1979, consisting of Messrs. F. M. Patorni, Y. Wong You Cheong(IDA), P.I. Ross and A. de Ruyter (consultants). No significant changes weremade in project design following appraisal.

1.02 The main objective of the proposed Project would be to increasesugar production in Zaire in order ultimately to meet domestic demand forthis commodity. To meet this goal, the proposed Project would provide for(i) rehabilitation and expansion of the Kwilu-Ngongo sugar estate; (ii) stafftraining; and (iii) applied research. The proposed Project would also aim atincreasing the production of food crops and at improving the living conditionsof the local rural population through the implementation of pilot projects.

B. The Agricultural and Agro-Industrial Sectors

General

1.03 About 4% of Zaire's total area of about 2.3 million km is cultivated;45% is covered by equatorial forests and the balance is made up of savannah,mountains, lakes, rivers and marshes. Approximately 75% of the population of26 million derives its livelihood directly from agriculture, and many of theremaining 25% are indirectly dependent on it for employment. Zaire also hasthe world's largest reserve of tropical hardwoods, and there is considerablepotential for development of freshwater fishing.

1.04 There are two main types of production units in the agriculturalsector. Some 3-4 million traditional small family farms occupy about 4million ha and account for about 60% of total agricultural production; subsis-tence food crops such as cassava, maize, plantain, rice and groundnuts aregrown as are some cash crops such as cotton and coffee. About 900 large scaleagro-industrial plantations, covering about 400,000 ha produce coffee, tea,rubber and cocoa for export or sugar, palm oîl, and cattle for the domestic

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market. Processing of agricultural products is mostly carried out by agro-industrial enterprises which handle the output of their own plantations aswell as additional crops purchased from smallholders. Many processing plantsare old, badly maintained and lack replacements and spare parts for theirequipment.

1.05 Agricultural production has been severely hampered by the politicalturmoil of the 1960's with the disruption of transportation and commerce, thedeterioration of Government services, unfavorable farm prices, nationalizationpolicies and the general deterioration of Zaire-s economy. The results havebeen a reduction in the volume of crop exports, and an increase in imports offoodstuffs to meet the needs of the fast-growing urban population. Productionof some commodities which the country used to export has decreased to theextent that in a number of cases, such as palm oil and cotton, there is aneed to import to meet local demand. Food imports account for about 20%of merchandise imports and the effects on the balance of payments has beenserious. Even so, food imports are not sufficient to meet demand and seriousshortages occur leading to rapid increases in the price of food. Agriculturalexports, principally of coffee, accounted for 14-21% of all exports duringthe last five years, depending on price fluctuations for coffee and copper.Foreign exchange allocated to importing agricultural inputs, however, hasfallen; these now constitute less than one percent of total imports.

1.06 Marketing of most agricultural crops is dominated by the privatesector. Prices are fixed by the Government at various levels of the market-ing chain, but the actual prices paid by consumers are often much higher.Domestic market prices are affected by the high margins of a long chain ofintermediaries, by inadequate, high-cost transportation, by packing andstorage problems and by high losses, especially of perishable products. Allof this results in either permanent shortages or in an intermittent supplywhich often does not meet demand. Export marketing is handled by commercialplantations or trading agents.

Institutional Structure

1.07 Despite Governnent declarations of its intention to give priorityto agricultural development, agriculture-s share of the recurrent budgetincreased from about 1.5% for the period 1970-76 to an average of only 3%in 1977-78, while its share of the investment budget fluctuated between 2%and 8%.

1.08 The Department of Agriculture and Rural Development (DOA), isresponsible for establishing general agricultural production policy, imple-menting price and marketing policies for agricultural crops, carrying outagricultural research and providing extension-and village water supply ser-vices. The DOA is headed by a State Commissioner for Agriculture, with twoState Secretaries under him, one for Agriculture and one for Rural Development.At present, DOA is not able to provide effective assistance to the country'sfarmers. Only the small minority benefitting from the roughly 30 ongoingrural development projects (almost all foreign assisted) have access to effec-tive extension services. DOA½s operations are hampered by lack of research

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and of inputs such as improved seed, poor transport and communications andgenerally weak organization. The National Institute of Agronomic Research andStudies (INERA), under DOA, is in charge of agricultural research in Zaire.Its activities cover plantation and field crops as well as livestock. INERAhas 22 research stations, not all of them active due to inadequate budgetallocations. In 1971, Government started to set up specialized developmentorganizations ("Offices") for each major agricultural product. The NationalTextile Fibers Office (ONAFITEX), was the first to be established and dealtwith cotton; the National Cereals Office (ONACER), with maize and other grainsand the National Sugar Office (ONDS), with sugar, were created thereafter.The principal responsibility of these bodies was to provide technical assis-tance to farmers, to buy produce at fixed Government prices, process it andsell it on the domestic market or export it. In May 1978, most "Offices",including ONACER, ONAFITEX, and ONDS, were abolished. For cotton processingand marketing, Government has promoted regional mixed-capital textile firms.The National Staple Food Products Office (ONPV) has replaced ONACER and isnow responsible for providing farmers with inputs and marketing their foodcrops. However, ONPV can play only a minor role because it is short of funds.Responsibility for sugar production has reverted to the two sugar companiesunder Government-s "retrocession program" (para 1.11) and sugar imports arenow handled by commercial firms (para 1.32).

1.09 The commercial agricultural sector is served by commercial banksand by a national development bank (SOFIDE) whose financing of agriculturalinvestment projects has grown rapidly in the past three years. There is noinstitutional credit for small farmers, except for that minority who benefitfrom special agricultural projects. Agricultural credit demand and possibleinstitutional structures are being studied in three projects financed byFAO/UNDP and by Italian and Canadian bilateral assistance.

Government Policies

1.10 Up until 1973, almost all major industrial and agro-industrialenterprises were owned by foreign and locally-based expatriate interests.The "zairianization" measures of 1973-74, however, transferred ownership ofmany firms in the transportation, commerce, agriculture, and agro-industrialsectors and some in the manufacturing sector, to private Zairian hands. In1974-75, the Government's "radicalization" measures effectively nationalizedabout two-thirds of the firms in the manufacturing sector, which neverthelesscontinued to be managed for the most part by their expatriate former ownersand managers. The "zairianization" and "radicalization" measures resulted insevere dislocation of the distribution system of manufactured goods (especiallyin the interior), a drastic decline in the level of industrial investmentand a substantial deterioration in relations between the private sectorand Government. In 1976-77, under the Government's "retrocession" program,ownership of almost all nationalized firms and a large number of "zairianized"enterprises were returned to their former foreign owners, who were requiredsubsequently to find Zairian partners to purchase 40% of their shareholdings.Although finding suitable local partners has proven difficult in many cases,given the limited number of Zairian entrepreneurs, several foreign ownedindustrial firms have so far managed to do so. In some cases, such as thatof Compagnie Sucriere which the proposed Project would assist, Governmentholds 40% of the shares.

1.11 The economic crisis in Zaire has depressed the investment environment.Following "retrocession" in 1976/77, which was prompted by concern over thelack of adequate maintenance and replacement of plant and equipment during theperiods of "zairianization", plants in many branches of industry were found tobe in major need of modernization and rehabilitation. Private foreign invest-ment for this purpose, however, has not been forthcoming due to continueduncertainty coupled with declining demand for certain manufactured productsand shortages of foreign exchange for profit repatriation, imported rawmaterials and spare parts. In some branches, notably those based on process-ing of local raw materials (and especially agro-industry), there has been netdisinvestment overall since the late 1960s. In this environment, SOFIDE (para1.09) has become the major source of long-term foreign exchange financing andhas supported much of the investment required to preserve Zaire's industrialbase and to restore agricultural and agro-industrial production.

1.12 The Government has tried to use a number of policy instruments toregulate and promote industrial development in Zaire. Prices of almost allmanufactured goods are controlled at the producer, wholesale and retail levelsby the Department of National Economy. Producer prices are generally estab-lished on the basis of production costs (including depreciation) plus a 20%profit margin before tax (which is 50%). Fixed margins above these pricesare also set for wholesalers and retailers mark-ups. Increasing shortagesof supply of processed goods, however, have caused price control mechanisms tobe rather ineffective particularly at the wholesale and retail levels, wherethe high profit margins of an extended chain of commercial intermediaries havetended to push final consumer prices well above officially established ones.Taxes and duties are levied on imported goods but their application is some-what unsystematic and haphazard. As a result, some local manufacturers havedifficulty in competing with importers because higher import tariffs arecharged on inputs than on finished products. Under the Investment Codeestablished in 1969 and revised in September 1979, the Government can grant anumber of tax exemptions and guarantees for repatriation of capital investment,profits and interest. Until September 1979, the Code was administered by anInvestment Commission within the Department of National Economy. The smallstaff of the Investment Commission was not able to review adequately the largenumber of applications, and in September 1979 the contents of Investment Codeand the way it is implemented underwent a major revision. Certain changeswere made whose purposes were (i) to strengthen and improve the process ofproject evaluation, (ii) to simplify the decision-making process and (iii) toencourage foreign investment.

1.13 In the crisis which has beset the Zairian economy since 1974, theimpact of price controls, foreign trade regulations and the Investment Codeupon the activities of the industrial sector has, in practice, been verylimited. Government is presently preparing a recovery program for the Zairianeconomy, and it is expected that this program will include, inter alia,allocation of additional foreign exchange for purchase of raw materials andspare parts by local producers, and priority status for industries based uponlocal raw materials.

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The Agricultural Recovery Program (Programme de Relance Agricole)

1.14 The Agricultural Recovery Program (ARP) was prepared as part of the"Mobutu Plan", which was to define the general objectives for economic recovery.ARP presented the Government's assessment of the situation and its proposalsfor solving the major problems, including identification of the key invest-ments necessary to stimulate agricultural production. It was discussed bythe Agricultural Working Group set up in 1977 following the 1976 ConsultativeGroup meeting. The Zaire Government and the representatives of various donorsagreed which were major current bottlenecks in agricultural development andwhich priority investments could therefore be identified. These were: (i)restoring transportation links in the rural areas; (ii) raising productivityon small farms; (iii) applying simple and low cost agricultural technologies;(iv) reviewing pricing and marketing policies; (v) involving the privatesector in the Agricultural Recovery Program through Development Agreementswith industrial enterprises, whereby funds from the collection of specialcharges are earmarked for priority development projects; and (vi) strengthen-ing agricultural training and extension.

1.15 Since the last meeting of the Agricultural Working Group in March1978, IDA has continued the sectoral dialogue with the Government, mostrecently during the first Country Implementation Review and in the contextof the preparation of the investment program for 1979 - 1981.

Development Agreements and Economic Recovery Funds

1.16 The Government intends to call increasingly on the private sector tointervene directly in agricultural development. To stimulate participation bythe private sector in the national economic recovery effort, the Governmentestablished a system of economic recovery funds in 1978. The system wasinstitutionalized by law 79-002 of February 7, 1979 which requires all indus-trial and commercial enterprises to participate in the national effort foreconomic recovery by signing Development Agreements with the National ExecutiveCouncil, whereby they are authorized to establish an Economic Recovery Fundfrom the collection of a special sales tax. The proceeds are to be depositedonce a month with the Bank of Zaire and are to be managed by the enterprisefor the Government; the enterprise is to keep separate accounts on this fund.The fund is to be used to finance development projects with priority given toimport substitution projects for enterprises engaged in a productive activity.When operating in the interior of the country, the enterprises can use thisfund to finance the maintenance and/or construction of transport and socialinfrastructures (roads, schools, dispensaries). The enterprises can implementsuch develoment projects on their own or sub-contract their implementation toother companies and private or public organizations under an "ImplementationAgreement".

1.17 Under Departmental Ordinance No. BCE/ENI 091/78 of October 25, 1978a supervisory committee is responsible for approving all the projects to befinanced by an enterprise through an economie recovery fund and for monitoringtheir performance. It is composed of ten members of whom two represent theenterprise, six are from the Departments of Finance, Planning, Portfolio,National Economy and Commerce and Industry, and Agriculture and Rural Develop-ment, and two are commissioners from the General Accounting Office.

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1.18 To date, the experience with Development Agreements is mixed,although on the whole positive. Several companies, including CompagnieSucriere, have signed Development Agreements with the National ExecutiveCouncil and have expressed their satisfaction with the system. However, theAgreements are often loosely drafted, defining the actions to be taken in ageneral way only and without specifying the distribution of the financialbenefits arising from them. The terms under which the companies may utilizethe Recovery Funds are likewise not clearly stated. The success of theseprojects therefore largely depends on the performance of the individualcompanies establishing Economic Recovery Funds.

Other Measures

1.19 Certain other measures introduced in 1978 to revitalize the economyas a whole are encouraging. Law No. 008 adopted in January 1978 is intendedto invest the regions with increased autonomy and responsibility for theirown economic development. A network of Regional Economic Development Councilsis currently being set up to serve as the policy-making apparatus for theeconomic development of the different regions and subregions and to assumeresponsibility for coordination and monitoring investment and developmentprojects and programs.

IDA Projects

1.20 IDA has financed ongoing projects as follows: livestock development(Shaba Region), smallholder cotton development (Equateur Region), a secondlivestock project in the Ituri region and an oil-palm project (Haut-Zaire andEquateur Regions). All projects have encountered severe start-up problems anddifficulties in obtaining agreed local contributions. The Shaba and the Iturilivestock projects have been hampered by delays in local contributions. Thecotton project has been set back by, among other things, the abolition ofONAFITEX, while the oil palm credit is not yet effective.

1.21 A Credit for a Fifth SOFIDE Project (para 1.09) has been approvedby the Bank-s Executive Directors in March 1980. The credit would financethe foreign exchange component of subprojects approved by SOFIDE in theagriculture, transportation and industrial sectors.

Bank Group Role and Sector Lending Strategy

1.22 The Bank-s lending strategy to Zaire for the period 1979-81 is tofinance exclusively projects which (i) contribute directly to rehabilitatingproductive capacity, (ii) increase the supply of basic commodities, and(iii) benefit from the existence of well-run institutions and impose a minimumburden on the Government budget. The proposed Sugar Rehabilitation Projectmeets these criteria and has been included in the 1979-81 Lending Program asa priority project capable of quick implementation.

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C. The Sugar Sub-Sector

General

1.23 Sugarcane is grown all over Zaire but commercial production andprocessing into mill-white sugar are concentrated in Kwilu-Ngongo (Bas-Zaire)and Kiliba (Kivu) which together produce a total of about 500,000 tons ofsugarcane per annum. There are no precise data on smallholder sugarcaneproduction, but it is generally estimated to be between 200,000 and 300,000tons per annum. This cane is used for chewing and for artisan production ofliquor. The Kwilu-Ngongo Sugar Company has about 11,000 ha of sugarcane underrain-fed cultivation and a theoretical milling capacity of about 40,000 tonsof sugar per annum. However, because most of its equipment needs to berehabilitated, Compagnie Sucriere can produce only about 38,000 tons of sugarper annum. The Kiliba Sugar Company has about 2,400 ha of sugarcane underirrigation and a milling capacity of about 18,000 tons of sugar per annum.During the past decade, in both factories capacity output was achieved only in1974 and 1975. Since then production has decreased again due to insufficientsupplies of materials and spare parts for the factories and agricultural inputsfor the plantations. Overall annual production of sugar averaged 50,000 tonsduring the 1976-1979 period, while current domestic demand is estimated atabout 100,000 tons a year. Since no foreign exchange is available to fillthe gap (in 1977 only 9,400 tons of sugar were imported), acute shortages ofsugar occur periodically, particularly in the capital where demand is largest.Demand is growing at an estimated 6% per year, without expansion of production,therefore, the sugar deficit can be expected to rise to about 80,000 tons by1985.

Government Strategy

1.24 The Zaire Government has adopted a two-fold strategy aimed at reach-ing self-sufficiency for sugar; it consists of (a) rehabilitating the existingfactories and (b) establishing new sugar factories. The rehabilitation andexpansion of the facilities at Kwilu-Ngongo under the proposed Project wouldbe an integral part of this strategy. Five studies have been done by variousfirms on the feasibility of establishing new estates in Haut-Zaire (Yawendaproject), Equateur, Bandundu (Mushi-Pentane project), Kasai (Luiza project)and Shaba (Lubilashi project).

1.25 Implementation of the Yawenda project has started and about 100 ha(out of 3,000 ha) have been cleared so far. The Yawenda project is designedultimately to produce 15,000 t of sugar annually. Agricultural and industrialequipment is financed by the People's Republic of China. Although productionis scheduled to commence in 1983, it is expected that there will be substantialdelays because of the lack of counterpart funds and logistic problems. Theother projects would provide for the establishment of plantations of about10,000 ha each, factories and all the related infrastructure with a millingcapacity of about 50,000 t per annum. Each of these projects might cost overUS$200 million, and their economic viability is doubtful. Government iscurrently trying to secure foreign funds to finance these projects. However,considering the growing demand and the long period necessary to implement

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projects of this type, there are no foreseeable risks that production wouldexceed domestic demand. In order to reduce the likelihood of uneconomicinvestments in the sugar sub-sector, assurances were obtained at negotiationsthat Government would continue to provide the Association with all informationabout the sugar sub-sector including proposals to invest in sugarcane planta-tions or factories, and the financial and economic justification of investmentproposals, and would give the Association the opportunity to comment on theseproposals.

D. Sugar Markets, Marketing and Prices

International Markets and Prices

1.26 Sugar Production. Sugar is produced all over the world; productionreached a level of 92 million tons in 1978 and is expected to be about 90million tons in 1980. About 40% of world sugar production comes from sugarbeets, the rest from sugar cane. Over 40% of the world s sugar is producedin developing countries, 30% in the industrialized countries, and theremaining 30% is produced in the centrally planned economies. The largestsingle sugar producing countries are the Soviet Union, Brazil, Cuba and theUnited States, which together produced one-third of the world's sugar output.

1.27 International Trade and Prices. About 25% of world sugar productionis traded internationally. Half of world gross exports come from the develop-ing countries, mainly Brazil and the Philippines. Over half of world importsare absorbed by the industrialized countries, mainly the U.S. and Japan,20% by the centrally planned economies, and the remaining 20 to 25% by thedeveloping countries. About 25% of internationally traded sugar is importedto industrialized countries under special arrangements at prices significantlyhigher than prices on the free market.

1.28 The world free market price of sugar is extremely volatile and isclosely related to world stocks. Prices are often doubled or halved in asingle year. The International Sugar Agreement (ISA) which entered intoforce in 1978 reflects an attempt to limit these fluctuations. So far ithas had little effect on the market. Free market prices for sugar (in 1980constant dollars) declined from a high of US$1,200/t in 1974 to US$215/t in1978. Prices increased to US$235/t in 1979 and went up very sharply overUS$700/t in early 1980. High prices are expected to continue to prevailduring about two or three years, and then decline again. Over the long run,sugar prices are expected to average about US$390/t.

The Domestic Market

1.29 Supply and Demand Outlook. Sugar consumption in Zaire during thelast few years has averaged about 67,000 tons, approximately 20% of whichhad to be imported. Processed sugar is presently supplied by the two sugarfactories, at Kwilu-Ngongo and Kiliba. The breakdown of the production andimports for the period 1974-1979 is shown below:

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---------------------------MT 000…-----------_--__________Production Total

Kwilu-Ngongo Kiliba Imports Consumption

1974 44,100 18,400 14,400 76,900

1975 45,000 18,400 9,300 72,700

1976 35,600 10,200 24,500 70,300

1977 41,100 13,100 9,400 63,600

1978 36,100 12,000 e 10,500 58,600 e

1979 37,600 15,000 e 10,000 e 62,600 e

e = estimated

1.30 About 30% of the total sugar supply is used by industrial enterprises

for the production of beer, soft drinks, and confectionery; the balance is

used up by households for domestic consumption. The use of sugar and processed

products containing sugar, mainly by middle and high income groups, is heavily

concentrated in urban and industrial centers. Although per capita annual

consumption of manufactured sugar reaches 12-15 kg/year in Kinshasa and

Bas-Zaire, overall average per capita consumption of sugar in Zaire is one of

the lowest in the world at about 3 kg/year. At present sugar consumer prices

(para 1.33) and income levels in Zaire, domestic demand is estimated at about

100,000 tons/year, with a deficit of domestic production of about 50,000 tons.

Because of shortages of foreign exchange, imports of sugar have not been

sufficient in recent years to bridge the gap between production and demand,

and there have been continuous shortages of sugar on the market. Domestic

sugar consumption is limited mainly by sugar availability. In net exporting

developing countries consumption is about 40 kilograms per capita, and its

upward trend shows little sign of levelling off; in net importing developing

countries, such as Zaire, per capita consumption is very low, often no more

than five kilograms. There is therefore considerable room for expanding

domestic production and consumption in Zaire.

1.31 Market Structure. The two sugar factories (para 1.29) sell to

industry and wholesalers who assume responsibility for transport and subse-

quent storage. Wholesalers then arrange distribution to consumers through

distributors and retailers. Most of the sugar produced by the factory in

Kwilu-Ngongo (Compagnie Sucriere) is sold in the province of Bas-Zaire (70%);

the rest is sold in Bandundu, Equateur, Kasai Occidental and Haut-Zaire.

The uneven distribution of sugar availability between provinces is due to the

concentration of the industries and population in Kinshasa (Bas-Zaire) which

are linked to the Kwilu-Ngongo factory by rail, and to the shortcomings of

the transport system in the other provinces. The sugar produced by the Kiliba

factory is sold in Kivu, Kasai Oriental and Shaba.

1.32 In 1975 and 1976, sugar was imported by ONDS (para 1.08) and in

1977 by the sugar companies. In May 1978, responsibility for sugar imports

was transferred to commercial firms selected by Government.

1.33 Prices. Sugar prices are fixed by the Department of National

Economy, Industry and Commerce, as for other industrial production in Zaire.

The ex-factory price is set on the basis of an agreed cost of production, plus

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a gross profit margin of 20%, which is liable to taxation at the rate of 50%.The ex-factory production cost of the sugar produced at Compagnie Sucrierewas about US$445 equivalent per ton in 1979 (using the shadow exchange rateof US$1.0 = Z 3.0) and is expected to decrease to about US$300 equivalent perton (1980 constant prices) in Project year 10, because of the economies ofscale achieved by expanding processing capacity. The C.I.F. cost of importedsugar fluctuated between US$400 and US$770 per ton in 1979, and is expectedto be in the US$575-US$800 per ton range during the period 1980-1990. To theex-factory price a levy of Z 60/ton (about 5% of the 1979 ex-factory price)is added and is used for the development of agriculture (Agricultural RecoveryProgram, para 1.14) and is expected to be reviewed from time to time toreflect general price increases in Zaire; in the particular case of CompagnieSucriere, a second levy is paid to the Department of National Economy toequalize ex-factory prices between the Compagnie Sucriere and Kiliba factories.This levy amounted to Z 63/ton in 1979. Wholesalers are allowed a 15% mark-upon their costs (purchase price and transport cost), and retailers a mark-up of12%. The regulations for ex-factory prices are respected. The prices paid atthe retailer and consumer levels cannot be efficiently controlled and becauseof the shortage of sugar in Zaire, actual market prices vary widely. Forinstance, in 1978 the price paid by consumers was, on average, twice theofficial price and reached peaks of ten times the official price during shortperiods. Speculation, however, should decrease with the expected incrementof about 27,000 tons per annum in sugar production under the proposed Project.Assurances were obtained at negotiations that internal prices of sugar soldin Zaire would be reviewed by Government whenever required and at least once ayear and after each significant change of the exchange rate and, when necessary,promptly changed to allow the sugar companies to meet their costs and financialobligations, and to make a reasonable return on investment.

TI. COMPAGNIE SUCRIERE

History and Ownership

2.01 Compagnie Sucriere was established at Kwilu-Ngongo (Bas Zaire) in1925 as a privately owned Belgian company. In January 1974, as part of theindustrial nationalization program, Compagnie Sucriere was taken over by thenewly formed Office National du Sucre (ONDS). The technical and financialperformance of Compagnie Sucriere deteriorated over the next three seasonsand, in December 1976, 60% of the capital and responsibility for managementwere restored to the original owners. Since then, the management performanceof Compagnie Sucriere has been very good. Compagnie Sucriere is now owned60% by the.Belgian company SOGESUCRE and 40% by Government. An agreementon the amounts, timing and procedures for the payment of Government's 40%share to SOGESUCRE was signed in December 1979 and approved by Governmentin January 1980.

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Organization and Management

2.02 Compagnie Sucriere's Board of Directors includes six representativesof SOGESUCRE and four representatives of Governient, reflecting the capitalstructure. The organization of Compagnie Sucriere is detailed in Chart 1.Total staff numbers about 4,500, of which about 4,200 are laborers. Abouthalf of this workforce originates from neighboring Angola, and is well inte-grated with the local population. Government is expected to continue allowingforeign workers to work on Compagnie Sucriere's estate. However, a change inthis practice would cause a critical labor shortage at Compagnie Sucriere.Assurances were obtained at negotiations that Government would take allnecessary measures to enable Compagnie Sucriere to recruit and retain anadequate labor force.

2.03 Most of the key positions are filled by expatriates. However, thecompany follows a policy of in-house training of Zairian nationals and thenumber of expatriate personnel has decreased from about 45 before 1976 to 27at present. The standards of management of the plantation and of the factoryare satisfactory. There is, however, a need for further staff training incane research, sugar technology, engineering, and factory operation procedures.

Infrastructure and Facilities

2.04 Kwilu-Ngongo is linked to Kinshasa (185 km) and to Matadi (170 km)by rail and by a tarmac road (Map). Compagnie Sucriere's estate covers about14,000 ha and includes 70 km of narrow gauge rail track, 250 km of mainplantation roads, 1,250 km of plantation tracks and 17 bridges; there isalso an airfield, and a telephone system operates alongside the railtrack.Most of the agricultural, transportation, and factory equipment is in disrepairbecause foreign exchange to purchase spareparts and to renew equipment has beenlacking for about five years.

2.05 Industrial buildings cover about 38,000 square meters. In addition,there are about 3,800 workers houses in 20 villages, one hospital with 230beds, 15 dispensaries, 22 stores for the retail of basic goods, 17 primaryschools, and six social clubs.

Cane Production, Harvesting and Transport

2.06 The total cultivated area is about 11,200 ha, of which about 10,800ha are under cane, and the remaining 400 ha under foodcrops. Although thereare about 50 varieties of cane in the collection plots, one single varietyoccupies about 85% of the total area under cane. The choice of this varietywas dictated by its steady yield throughout the crop cycle and its resistanceto drought and smut disease, which is the main disease prevalent in theProject area. Although Compagnie Sucriere's fields are free of any majorcane disease, the prevalence of a single variety is risky; if a new diseaseto which that variety were susceptible broke out, the financial consequencescould be catastrophic. Under the proposed Project, new varieties would beidentified and planted to decrease this risk.

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2.07 Plant canes have consistently received adequate fertilizer. In thecase of ratoons, however, only nitrogen has been applied since 1974, and nofertilizers were applied to ratoons in 1978, because they were not availablelocally and there was no foreign exchange to import them. Filter muds are notregularly applied to the fields because of a shortage of transport equipmentnor is any pre-emergence herbicidal treatment presently done on the estate,although trials are under way. Post-emergence chemical weed control was usedto only a small extent from 1973 to 1977, when not more than 10% of the totalarea was treated. Because the cropping cycle was temporarily reduced from 18months to 12 months between 1974 and 1976, and because of insufficient use ofherbicides, weed growth on the estate increased significantly and about 30% ofthe area had to be treated in 1978.

2.08 The area harvested increased from about 5,850 ha in 1969 to 8,300 hain 1978, with cane yields averaging 67 t/ha (ranging between 50 and 100 t/ha),and sugar yields averaging 10% (ranging between 9% and 11%). All fields areburnt before cutting which is carried out entirely by hand. The fieldsrichest in sucrose are harvested first after cane sampling and analysis.The present method of sampling needs to be improved because only a verysnmall number of canes is sampled. Trials are under way to test the effectsof various ripeners on the sucrose content throughout the harvesting season(May-December). Conclusive results, however, will be available.only afterseveral years. Cut canes are loaded mechanically onto trailers attached totractors which either take these to transloading stations for loading ontowagons, to be carried by rail to the factory (80% of the cane) or directly tothe factory (20% of the cane). The plantation's rail system is the principalmeans of transporting cane, limestone and fertilizer internally; it includes70 km of 60 cm gauge railtrack, a fleet of 10 operating locomotives, and 570wagons with a capacity of about 3.5 tons of cane each.

2.09 Cane transport operations face a number of problems which frequentlyresult in irregular supplies of cane to the factory. Some of the tractorsutilized for pulling the trailers are not sufficiently powerful, which resultsin a high rate of mechanical failure. Most of the trailers have a single axle(the only type available in Zaire) and are too weak for cane transport. Thereare delays at transloading points to the railtrack because of a shortage ofwagons and of storage capacity. Only 10 locomotives out of 17 are in operatingconditions for want of spare parts. Capacity for on-field maintenance ofequipment is insufficient. The proposed Project would aim at solving theseproblems, which all have their source in Compagnie Sucriere's lack of foreignexchange resources.

Agricultural Research

2.10 Before the nationalization measures in 1974 (para 1.10), research andagricultural trials were regularly carried out. These activities were almostabandoned between 1974 and 1976, and have not yet resumed to a satisfactorylevel. There is at present no research agronomist at the Compagnie Sucriereand consequently, no organized research is carried out. Some investigationsare made on variety collection plots, but the trials have not been properlydesigned and replicated; no large scale planting program could be launched onthat basis. Under the proposed Project, properly designed trials would becarried out on all relevant aspects of sugar cane production on the estate(para 3.10).

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The Factory

2.11 The Factory, in general, is spaciously designed, with ample roomfor future expansion. Despite the fact that spare parts are in short supplyand that some machinery has exceeded its life expectancy, the factory as awhole is in . fair state of repair and is maintained where possible with partsproduced in the factory workshop. The workshop, however, is unsatisfactorilyequipped and is too cramped. The factory operates on an average net timeefficiency of 92%, which is comparable to normal standards. Factory stoppageis due mainly to temporary shortages of canes, due to breakdown in the trans-port system, followed by boiler problems, and breakdowns at the pumpingstation. At present, the factory has an overall capacity to produce about38,000 tons of sugar in a 155-day season, about three million liters ofalcohol and 500 tons of carbon dioxide. This production capacity, however,could be maintained only if a substantial part of the present equipment isreplaced (para 1.23).

Other Activities

2.12 Besides the production and processing of sugar cane, and the market-ing of sugar, Compagnie Sucriere carries out a program aimed at promotingrural development and food production in the Project area financed from theEconomic Recovery Fund (para 1.16), the use of which is defined in an agreementbetween Compagnie Sucriere and Government signed in August 1978. The programis intended to promote smallholder production of manioc, maize, soya beans andrice and the development of livestock. At December 1978, the fund amountedto about Z 1.2 million (US$800,000), which was to be used to (i) conducttrials on food crops, (ii) establish a chicken farm, (iii) assist smallholderdevelopment and (iv) provide social services in the area of the estate. Theimplementation of these activities has started; the food crop trials are beingcarried out; an operation "self-subsistence" has been successfully launchedto assist plantation workers in growing their own food crops, by allocatingland, distributing seeds, preparing the fields before planting, and providingincentives to the workers such as leave to plant the fields; 40 ha of irrigatedvegetables have been developed and the poultry units are being expanded tohouse 10,000 laying hens.

2.13 Compagnie Sucriere has plans for a number of foodcrop productionschemes, including the pilot development of about 3,000 ha in the Lualavalley (at about 150 km from Kwilu-Ngongo) where it is estimated that up to26,000 ha could be ultimately developed, and the development of several othersmaller valleys. Funds would be included under the proposed Project to helpCompagnie Sucriere to finance pilot projects of this nature (para 3.14).

Social Services

2.14 About 60,000 people derive their livelihood from Compagnie Sucriere'sagro-industrial estate. Medical services are provided to these people as wellas to people in the surrounding areas not related to estate employees (para2.05). The hospital is adequately supplied. The hospital and the 15 dispen-saries give about 250,000 consultations every year, and about 5,000 patients

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are hospitalized. Nutrition education is provided at the maternity complex(about 1,000 births each year) to mothers and young children and significantprogress has been made in initiating the local population to the cultivationand consumption of soya beans. The estate population has access to 22 smallstores which sell basic commodities such as rice, beans, oil palm, milk andlamp oil to the workers. The 17 primary schools have an enrollment of about1,800 children.

Reports, Accounts and Audit

2.15 Compagnie Sucriere continuously monitors and records all the datarelated to its operations in detail and up-to-date information is availableto management at all times. Accounts are issued regularly at the end of eachfinancial year. At present, Compagnie Sucriere rents a computer (IBM 1130)which carries out the following operations:

(i) payroll (about 4,500 people) and imputation of salariesto various activities' accounts, and keeping employeesaccounts for savings, social security and taxes;

(ii) billing of customers (over 250 accounts);

(iii) inventory management (34,000 stock items); and

(iv) ordering of supplies.

Compagnie Sucriere is currently implementing a cost accounting system whichshould enable it to improve management and reduce production costs. TheIBM 1130 system, however, is obsolete and the procurement of spare parts isexpected to be difficult in the future. An improved data processing systemwould be implemented under the proposed Project (para 3.13).

2.16 The accounts are audited each year by two of the Company-s staff,one on behalf of the parent company (SOGESUCRE), and the other on behalfof Government. In addition, an accountant from the parent company visitsthe estate every year to verify the internal audit and to provide generaladvice to the accounting department. There is no external audit. Assuranceswere obtained at negotiations that the accounts would be audited by independentauditors acceptable to IDA (para 3.16).

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Financial Situation

2.17 Recent sales and financial data for Compagnie Sucriere are summarizedbelow.

Compagnie Sucriere: Financial Indicators

1977 1978 1979-tons' 000---------

Income Statements and Cash Flow

Sugar Production 41.2 36.1 37.7Sugar Sales 1/ 45.5 39.6 33.9

----------Z million----------

Gross Sales 18.6 17.9 52.7Production Costs 14.5 18.6 38.5Interest 0.3 0.5 0.8Depreciation 0.6 2.5 5.4Net Income (Loss) before Taxes 3.2 (4.0) 8.7Net Income (Loss) after Taxes 1.6 (4.0) 6.3Net Cash Flow 2.2 (1.5) 11.7Debt Service 0.3 0.3 0.2

Balance Sheets (December 31)

Current Assets 18.2 14.5 32.1Cash Reserves 7.7 6.1 12.7Current Liabilities 8.1 8.5 14.1Net Fixed Assets 4.2 9.8 9.9Long-Term Debt 0.7 0.4 3.5Capital 13.7 11.7 24.5

Ratios:

Current Ratio 2.2 1.7 2.3Debt/Equity Ratio 5:95 3:97 12:88

1/ Sales differ from production because of stock adjustments.

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2.18 The losses incurred in 1978 are due to Compagnie Sucriere's inabilityto raise the price of sugar while unit production costs rose by about 45%above the costs of the previous year because of inflation. The ex-factoryprice of sugar is set by law to allow a profit margin of 20% to the factory(para 1.33). However, the price for the 1978 season was set on the basisof the previous years and proved too low; it was not adjusted in time.Agreement on price adjustment covenants were obtained at negotiations tomaintain Compagnie Sucriere's sound financial situation (para. 1.33).

2.19 The main financial constraint on Compagnie Sucriere's operationsis the difficulty of obtaining foreign exchange to purchase agriculturalinputs, spare parts and supplies, and to replace equipment. The Governmenthas indicated that a mechanism for allocating foreign exchange to CompagnieSucriere would be established so that operating requirements can be met.This mechanism was discussed with Government and Compagnie Sucriere duringnegotiations and is satisfactory. The details would be specified in a sub-sidiary agreement, satisfactory to the Association, between Government andCompagnie Sucriere.

1II. THE PROJECT

A. General Description

3.01 The Project would be implemented over four years on the CompagnieSucriere's sugarcane plantation and estate in Kwilu-Ngongo, Bas Zaire, about185 km southwest of Kinshasa. The Project's implementation schedule is shownin Chart 2. After five years annual capacity for output of processed sugarwould be increased by about 27,000 tons from 38,000 tons to 65,000 tons, allfor domestic consumption. The Project would include:

(a) the rehabilitation of the existing plantation (earlyreplanting) and its extension from about 10,800 to about13,500 ha;

(b) the provision of equipment for land preparation, cultivation,and harvesting;

(c) the provision of equipment for sugarcane transport andplantation track maintenance, the modification of someexisting transport equipment, and infrastructure (about10 km of rail track);

(d) the rehabilitation and expansion of cane processing facilities;

(e) the construction of various civil works related to extension ofthe factory and construction of offices, social infrastructurefacilities and staff and workers accommodation;

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(f) the design and implementation of an applied sugarcane researchprogram;

(g) the recruitment of technical assistants and local staff forthe detailed design, assembly and start-up operations of thefac ory extensions and for the agricultural research program;

(h) training of local staff;

(i) the installation of an improved electronic data processingsystem; and

(j) pilot projects to promote food crop production and improvethe living conditions of the rural population.

B. Detailed Features

Plantation Rehabilitation and Extension

3.02 The Project would be implemented and managed by Compagnie Sucriere(Chapter II). The Project would provide for the rehabilitation of the existingplantations which were damaged between 1974 and 1976. This would include theearly replanting of about 8,000 ha (sub-soiling, plowing, harrowing, ridgingand planting) and adequate fertilizing and weed control on the total plantationarea of 10,800 ha. An additional 2,700 ha of yet undeveloped land (Map) wouldbe prepared and planted with cane. Project investments would be for thereplacement of obsolete machinery, and new purchases for land clearing andpreparation, maintenance of fields, application of filter muds, fertilizersand herbicides, and for loading and transport of cane.

3.03 The agricultural and plantation maintenance equipment purchasesunder the Project would include tractors of various types, agriculturalimplements such as plows, harrows, sprayers, a crop spraying aircraft, andequipment for the irrigation of 200 ha for cane nurseries and research (para3.10). Loading and transport equipment would include cane loaders, trailers,cranes, wagons (new wagons and modification of existing ones to increase theircapacity), 250 HP locomotives, mobile workshops and track maintenance equipment.The existing narrow-gauge rail track would be extended by 10 km to serve theplantation extensions (Map).

Processing Facilities

3.04 The present processing facilities are described in para. 2.11.All parts of the factory would be rehabilitated in varying degrees and, whereappropriate, expanded to raise the overall processing capacity to 65,000 tonsper annum.

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3.05 Mill Tandems. Cane is presently milled at two milling trains with acapacity of 2,000 and 1,500 tons of cane per day (tpd) respectively. Projectactivities would include modificaiton of the 2,000-tpd mill; its power wouldbe increased, the rollers grooved, and a shredder, electromagnet and screenswould be installed. The 1,500-tpd mill is too old to be economically repar-able. It would be replaced by a new mill tandem (five mills) with a capacityof 3,000 tpd, together with the auxiliary equipment (shredder, bagasse carrier,electrical and mechanical equipment, steel work). The resulting capacity of5,000 tpd combined with a milling season of 155 days would be largely suffi-cient to process the expected crop of 650,000 tons of cane and adequate forprocessing the larger crops (up to about 750,000 tons) which are expectedoccasionally to occur.

3.06 Steam Generation. There are at present three boilers, each with adesign capacity of 25 tons of steam per hour, two of which require a completeoverhaul, and the third of which needs repair. These boilers would berehabilitated under the Project. In addition, a new boiler with a capacity ofabout 70 tons per hour would be installed to meet the factory's total steamrequirements.

3.07 Electrical Generation. There are at present two turbo-alternators,one with an output of 1,000 kw, the other with 1,500 kw. To meet future powerdemands in the mill and the factory, an additional 3,000 kw turbo-alternatorwould be provided under the Project.

3.08 Other Components. The Project would also contain provisions formodification of the cane reception area (feeder tables, cane carriers, cranes,steel-works) and rehabilitation and modification of the clarification, limepreparation, evaporation, crystallization, and centrifugation sections of thefactory. Workshop equipment would be provided and the two pumping stationswould be rehabilitated.

Building and Civil Works

3.09 Civil works investments under the proposed Project would be to extendthe factory's garages, storage facilities, workshops and offices. Thirty-fourhouses for new professional and mid-level staff, about one thousand workers'houses would be constructed and the hospital expanded from 230 to 300 beds.Basic infrastructure for a 300-family workers' village (dispensary, school,store, water supply) would be provided.

Research Program

3.10 The Project would include an applied sugar cane research program.This program would consist of trials on varieties, fertilizer requirements,herbicide treatment, effect of ripeners, and cultural practices. As theplantation is at present entirely rainfed, production might be significantlyincreased by irrigation. The research program would therefore also includeirrigation trials on about 200 ha to determine the yield response to irri-gation and assess the economic viability of different methods of irrigatingthe cane. To implement this program, the Project would provide for theemployment of a research agronomist and of short-term consultants and for thepurchase of irrigation and laboratory equipment. Compagnie Sucriere would

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prepare annual work programs for research, which would be submitted tothe Association for its review and approval before June 30 of each year.Assurances to this effect were received at negotiations.

Recruitment of Staff and Training

3.11 Additional local and expatriate staff would be recruited to preparethe detailed designs for the factory extension and the tender documents, tosupervise construction, assist in start-up operations, and carry out theadditional work resulting from the increase in production. The local staffwould be increased by fourteen professionals: five engineers, eight techni-cians, and one doctor, about 160 skilled workers and 750 laborers. Fifteentechnicians and a research agronomist would be recruited internationally toserve with Compagnie Sucriere for up to five years, totalling 65 man-years.Seven of these technicians are expected to be recruited shortly to preparedetailed designs and tender documents, under the Project Preparation Facilitywhich was approved in January 1980 (para 4.07). The Project would alsoprovide for short-term consultancy services, totalling 2.5 man-years (para3.15). Assurances were received at Credit negotiations that (i) Governmentwould permit the internationally recruited staff to remit an adequate portionof their salaries to their respective countries, and that (ii) their qualifi-cations, experience and terms and conditions of employment would be satisfac-tory to the Association.

3.12 Some difficulties are expected in recruiting fully qualified pro-fessionals locally and staff with limited experience would have to be reliedupon. They would be trained by the technical assistants whom they wouldreplace after about five years. A detailed training program includingextended visits to industrial sugar estates outside Zaire would be preparedby Compagnie Sucriere, and submitted to the Association for its review andapproval by June 30, 1981. Assurances to this effect were received atnegotiations.

Data Processing

3.13 Compagnie Sucriere processes payroll, billing of customers, andinventory management on obsolete data processing equipment (para 2.15). Animproved data processing and management information system would be installedunder the Project. Compagnie Sucriere is currently preparing a detailedproposal for implementation of this system, which will include proposals forboth software and hardware modifications to the present system. This detailedstudy would be submitted to the Association for its review and comments, anddisbursements for this component would be contingent upon the Association'sapproval of Compagnie Sucriere's proposals.

Pilot Projects

3.14 Compagnie Sucriere has initiated a number of pilot projects aimedat promoting smallholder production and financed from the proceeds of theeconomic recovery fund surcharge levied on sugar sales (para 2.12). However,the implementation of these pilot projects is constrained by the lack offoreign exchange financing, since the economic recovery fund provides onlylocal currency. The proposed Project would include funds to provide foreign

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exchange to carry out pilot projects aimed at testing the feasibility oflarger undertakings, such as the development of the Luala valley (26,000 ha)for the growing of food crops (para 2.13). The financing of such projectsby the Association would provide a useful forum for a continuous dialoguewith the Government on the development of the Bas Zaire region generally. Tobecome eligible for disbursement under the Project, each of the pilot projectsproposed by Compagnie Sucriere would be submitted to the Association for itsreview and approval.

C. Organization and Management

3.15 Compagnie Sucriere would have overall responsibility for carryingout the Project; its organization is detailed in Chart 1. A satisfactoryorganization for Project execution has been developed and is being progres-sively built up. Detailed Project design, procurement, construction andassembly would be carried out by a Project team in a division speciallyestablished for this purpose and adequately staffed (para 3.11). The variousother departments of Compagnie Sucriere and outside consultants would providesupport to the Project team as required. Agricultural and processing activi-ties would continue to be carried out according to the present organizationstructure which is satisfactory. The success of the proposed Project dependsheavily on the continued good performance of Compagnie Sucriere-s managementand on the efficiency of the decision making process in Compagnie Sucriere.This process, including the respective voting rights of the shareholders, isdescribed in Compagnie Sucriere's statutes. The statutes of Compagnie Sucriereand of SOGESUCRE are currently being revised. A condition of credit effective-ness would be that these statutes have been revised in a manner satisfactoryto the Association. Assurances were obtained from Government at credit nego-tiations that, until December 31, 1990 (i) no changes in Compagnie Sucriere'smanagement structure and ownership would be made without prior approval of theAssociation, and (ii) the position of General Manager (Administrateur-Delegue)would continue to be filled by a person with qualifications and experiencesatisfactory to the Association.

D. Accounts and Audit

3.16 Compagnie Sucriere's financial reporting is timely and satisfactory(para 2.15). At present, the accounts are only audited internally, butsince several auditing firms acceptable to the Association are establishedin Kinshasa, no difficulties are anticipated in carrying out regular externalaudits also. Assurances were obtained at credit negotiations that (i) CompagnieSucriere's accounts would be audited by independent auditors acceptable to theAssociation, that (ii) Compagnie Sucriere would send the audited accounts tothe Association no later than six months after the end of Compagnie Sucriere'sfiscal year, and that (iii) Compagnie Sucriere would maintain separate accountsfor the Project.

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E. Environment and Occupational Health

3.17 The Project would be implemented with due regard to the environmentand to occupational health. The main potential environmental problem is therelease into the river Kwilu of factory effluents. Occupational health

iF problems could arise from accidents and possibly from exposure to toxicchemicals, fumes and dust, particularly in the factory.

3.18 Almost all the molasses produced is used for alcohol production;occasional non-marketable surpluses are dumped into the fields. Vinasse,the by-product of alcohol distillation, was discharged into the river Kwilu atthe time of appraisal. However, Compagnie Sucriere's representatives indicatedduring negotiations that physical arrangements had been made so that vinassewas no longer discharged into the river. Filter muds are pumped into sedi-mentation ponds, some liquid also draining into the Kwilu. The actual amountof effluents discharged is not known. The sedimentation ponds do not providebreeding sites for insects because of the high calcium content of the residues.The dried filter muds are applied to the fields. Most of the bagasse producedis burned to generate steam and electricity, and there is no evidence ofpollution caused by surplus bagasse. Under the Project, the water quality inthe river would be monitored by regular sampling and analysis and CompagnieSucriere would take appropriate action if necessary to ensure that its activi-ties do not materially affect the environment. To this effect, CompagnieSucriere would submit to the Association for its review and approval (î)before June 30, 1981, a proposal for the monitoring of the water quality ofthe Kwilu River downstream of the factory, and (ii) before December 31, 1981,a proposal to control, to the extent appropriate, the adverse effects of thefactory effluents and residues on the environment. Assurances to this effectwere received at Credit negotiations.

3.19 There are no undue occupational health hazards. Health hazards aremonitored by Compagnie Sucriere and their consequences are minimized by theavailability of good health facilities on the estate.

IV. PROJECT COSTS, FINANCING, PROCUREMENT AND DISBURSEMENTS

Project Costs

4.01 Total Project costs are estimated at about US$80.4 million equiva-lent, the foreign exchange component of which is about US$63.8 million, orabout 80%. The goods imported under the Project would be imported free oftaxes and duties and the above cost estimates include only negligible amountsof taxes corresponding to sales taxes on locally procured goods. The followingTable is a summary of these costs, with a more detailed breakdown appearing inTable 1.

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Foreign BaseLocal Foreign Total Exchange Cost---- (US$ Million) ---- % %

Equipment 1.4 39.3 40.7 97 63Civil Works 6.5 2.8 9.3 30 14Agricultural Inputs 0.2 5.0 5.2 97 8Staff and Professional Services 4.7 2.7 7.4 36 ilTraining - 0.5 0.5 100 1Pilot Projects 0.4 1.6 2.0 80 3

TOTAL BASE COST 13.2 51.9 65.1 80 100

Physical Contingencies 1.2 4.1 5.3 77 8Price Contlngencies 2.2 7.8 10.0 78 15

TOTAL COST 16.6 63.8 80.4 79 123

4.02 Estimates for the cost of plantation equipment valued at about US$21million are based on pro-forma invoices received by Compagnie Sucriere andadjusted for inflation as at July 1980. Estimates for the cost of factoryequipment (US$28 million) are based on actual bids. The costs of civil works,salaries, incremental agricultural inputs, and pilot projects and trainingare based on Compagnie Sucriere's recent experience and on the mission'sestimates. The average man-month cost of resident expatriate staff (para3.11), based on individual fees, international travel and local allowances,is expected to be about US$6,000. The average man-month cost of short-termconsultancy services would be about US$9,500. The total cost of expatriateprofessional services would be about US$5.0 million, or 6% of the totalProject cost. No significant increases in permanent working capital would berequired, as present inventories of consumables would be sufficient for theexpanded processing capacity, and because the equipment would be purchasedwith an adequate initial stock of spare parts. Physical contingencies wereapplied at the rate of 10% of the costs of equipment and civil works toreflect general uncertainty about the detailed scope of Project investments.Contingencies for price escalation at the annual rates of 10.5% for 1980, 9%for 1981, 8% for 1982, and 7% thereafter were applied on a cumulative basison the cost of all goods and services for which no firm bid is available. Forequipment covered in the bids which have been received, calculations were madeon the basis of the price variation clauses. It was assumed that the progres-sive devaluation of the Zaire currency would compensate for the increase inlocal costs.

Financing

4.03 The sources of funds to finance the Project are summarized belowand are shown in more detail in Table 2:

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US$ Milllon %

IDA 26.4 33CCCE 27.4 34

Sub-Total 53.8 67

Compagnie Sucriere 26.6 33

TOTAL 80.4 100

4.04 The Project's direct foreign exchange costs would be financed on aparallel basis by the Association and Caisse Centrale de Cooperation Economique(CCCE-France). CCCE approved its financing for the Project in October 1980.Conditions of Credit effectiveness would be that (1) the subsidiary agreementbetween Government and Compagnie Sucriere defining inter alia the on-lendingarrangements of the proceeds of the Credit is effective, and that (ii) loanagreements between Compagnie Sucriere and CCCE are effective.

4.05 The IDA Credit would be made to Government on standard terms. Allthe proceeds, including those for the implementation of pilot projects, wouldon-lent to Compagnie Sucriere at an interest rate of 15% per annum. Thematurity of the sugar plantation and factory investments would be 15 yearsincluding 5 years of grace. The maturity of the loans for pilot projectswould be determined on a case-by-case basis during Project implementation.Compagnie Sucriere would take the foreign exchange risk. The proposed interestrate of 15% is that which would be charged by SOFIDE to its sub-borrowersunder the Fifth SOFIDE Project (para 1.21). Although our projections indicatethat inflation in Zaire over the next three years may be about 50% in 1980,tapering down to 30% by 1982 onwards, the proposed interest rate is positivein real terms because Compagnie Sucriere would take the foreign exchange risk(para. 5.06). The CCCE loans would bear a combined interest rate of 12%, wltha maturity of 15 years including 5 years of grace.

Procurement

4.06 All the costs quoted in this paragraph include provisions for thepurchase of an adequate stock of spare parts where appropriate and for physicaland price contingencies. For the IDA-financed portion of the Project, procure-ment through international competitive bidding would be about US$18.2 million.This would include the procurement of agrlcultural tractors, trailers andequipment (US$9.7 million), crawler tractors (US$2.8 million), locomotives(US$1.4 million), steel, wagons and the extension of the plantation's railtrack(US$4.3 million). Some equipment with an aggregate value of about US$3.7 mil-lion would be purchased directly from specific suppliers, because standardiza-tion of this equipment and of spare parts is necessary. This would includeplantation and road maintenance equipment (US$0.6 million), agriculturalequipment (US$1.8 million), data processing equipment (US$0.8 million) andmiscellaneous items with a total value of US$0.5 million. Civil works valuedat about US$12.6 mlllion would be carried out by Compagnie Sucriere. Thegoods and services financed entirely by Compagnie Sucriere would be purchased

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following commercial practices. They include (1) civil works constructionlabor and materials valued at US$12.6 million and (il) agricultural lnputsvalued at US$6.4 million. Draft tender documents for all contracts expectedto cost in excess of US$300,000 would be submitted to the Association forapproval before invitations are issued, and tender analysis for comment,before contracts are awarded. Compagnie Sucriere would employ local staffand labor (US$4.0 million) to carry out the Project and technical assistantsand consultants for engineering and construction supervlsion (US$5.0 million).Their terms of reference, qualification, experience and terms and conditionsof employment would be satisfactory to the Association. Most of the factoryequipment, with an aggregate value of about US$28.0 million, would be financedon a parallel basis by CCCE, and procurement would be in accordance with ltsguidelines.

Disbursements

4.07 The proceeds of the credit would be disbursed to cover 100% offoreign exchange expenditures on the following basis:

SDR

(1) Equipment and steel 13,720,000 (US$18.0 million)(2) Technical assistance 1,760,000 (US$2.3 million)(3) Training 390,000 (US$0.5 million)(4) Pilot projects 1,150,000 (US$1.5 million)(5) Data processing equipment 390,000 (US$0.5 million)(6) Refunding of advance for

preparation of Project 540,000 (US$0.7 million)(7) Unallocated 2,250,000 (US$2.9 million)

Total Credit 20,200,000 (US$26.4 million)

An advance of US$675,000 on the Credit under the Project Prepara-tion Facility was approved in January 1980 to finance the cost of seveninternationally recruited technicians, consulting services, and officeand drawing equipment to prepare the Project's detailed design and tenderdocuments. This advance would be refunded out of the proceeds of the proposedCredit. All disbursements would be against contracts and would be fullydocumented. The credit would be disbursed over a period of five years.An estimated schedule of disbursements is given in Table 3.

V. FINANCIAL ANALYSIS

Basic Assumptions

5.01 Financial projections are based on Compagnie Sucriere's results forthe year 1979. Prices were converted into US$ equivalent at the exchange rateprevailing in July 1979 (US$1.0 = Z1.5). Sugar prices were set according toregulations in Zaire on the basis of production costs (including depreciationand interest) plus a 20% profit margin.

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Financial Projections

5.02 Detailed projections of Compagnie Sucriere's income statements,cash-flows and balance sheets are in Tables 4, 5 and 6, and are summarizedbelow.

Compagnie Sucriere: Projected Financial Indicators

Project Years1 2 3 5 10-------------tons' 000-----------

Income Statements and Cash Flow

Sugar Sales 38 45 45 65 65

------…US$ million equivalent-------Gross Sales 38.9 47.4 54.0 70.7 68.8Production Costs 29.3 35.0 36.8 51.6 49.0`Interest 1.1 3.6 5.8 7.3 4.2Depreciation 2.0 0.9 2.4 4.1 4.1Net Income before Taxes 6.5 7.9 9.0 11.8 11.5Net Income after Taxes 3.3 4.0 4.5 5.9 5.7Net Cash Flow 6.3 1.1 3.3 10.7 4.5Debt Service - - - - 5.3

Balance Sheets

Current Assets 10.0 10.0 10.0 10.0 18.0Accumulated Cash Surplus 14.8 15.9 19.2 35.1 57.9Current Liabilities 6.0 6.0 6.0 6.0 11.3Net Fixed Assets 15.1 41.0 52.2 53.6 33.1Long-Term Debt 14.9 37.9 47.9 53.8 27.3Capital 19.0 23.0 27.5 38.9 70.4

Ratios

Current 1.6 1.6 1.6 1.6 1.6Debt/Equity 44:56 62:38 63:37 58:42 28:72Debt Service Coverage - - - - 1.8

The projections of revenues are based on reasonable assumptions as to thebuild-up of output to normal operating capacity of 65,000 tons of sugar perannum in Project year 5. The plant would be designed to handle a maximumcapacity of 75,000 tons which would be necessary to handle the larger cropswhich are expected occasionally to occur.

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5.03 A cash build-up occurs in the projections because they do notinclude provision for dividend payments and do not assume reinvestmentof depreciation in the form of future lnvestment expenditures. The cashbuild-up would provide a financial buffer to reduce the cash-flow problemswhich might result from devaluations (para 5.06). The debt to equity ratiowould increase from about nil at present to slightly above 60:40 in Projectyears 2 and 3, and decrease progressively thereafter. The financial positionof Compagnie Sucriere is expected to be good throughout the Project imple-mentation period.

5.04 In order to maintain Compagnie Sucriere's sound flnancial position,assurances were obtained at negotiations that: (1) until the CompletionDate, Compagnie Sucrlere would not pay dividends to its shareholders; (ii)until the Completion Date, Compagnie Sucriere would not invest ln assets notdirectly related with Project implementation above US$500,000 equivalentduring each of its financial years without prior approval of the Association;(iii) Compagnie Sucriere would maintain a debt/equity ratio not greater than70:30 before the Completion Date, and not greater than 60:40 on the CompletionDate and thereafter; (iv) Compagnie Sucriere would maintain at all times acurrent ratio of at least 1.5:1; (v) Compagnie Sucriere would not contract anydebt if, on the basis of financial projections prepared by Compagnie Sucriereand acceptable to the Association, its projected debt service coverage ratiowould be less than 1.5:1; and (vi) Government and SOGESUCRE would provideCompagnie Sucriere with sufficient funds, in the ratio of their shares ofCompagnie Sucriere in the event Compagnie Sucriere could not provide suffi-cient funds to complete the Project. For the application of these covenants,Completion Date means the date on which the productive facilities included inthe Project have been in satisfactory operation during a period of six monthsand on which 60,000 tons of sugar have been produced by the Project facilitiesduring one year. The Completion Date is expected to be June 30, 1986.

Financial Return and Sensitivity Analysis

5.05 Based on the above projections, the base financial rate of returnof the Project would be 12.5% before and 9.5% after taxes. These rates ofreturn are based on realistic capital and operating costs, and revenue assump-tions, and include physical contingencies on capital costs. Costs and benefitsstreams used for the calculation of the financial rate of return in constantterms are shown in Table 7. The capital costs, however, do not includehousing and social investments (valued at about US$6.3 million in 1980 prices)the benefits of which cannot be quantified. The financial return would not beadversely affected by increases in production costs due to price increases orlower than expected productivity, because sugar prices are set by law to suchlevel that would enable the producing company to make a gross profit marginof 20% (para 1.33). The financial rate of return is moderately sensitive tocapital costs. A 10% increase of the capital costs would reduce the financialrate of return by about 2 percentage points. A 10% decrease of the capitalcosts would increase the financial rates of return by about 2 percentagepoints.

- 27 -

Financial Risks

5.06 Compagnie Sucriere would bear the foreign exchange risk. The main

financial risk would result from the devaluations which are expected to takeplace in Zaire from time to time. The main effects of these devaluationswould be (1) to increase the cost of production inputs while the sugar pricewould remain set at its pre-devaluation level and (ii) to increase the localcurrency value of Compagnie Sucriere s debt service, which could result inshort-term cash flow problems. The risk of a sudden increase in productioncost with fixed sugar prices would be substantially reduced by the provisionof an ample stock of spare parts and production inputs, and by the pricingcovenant described at para 1.33. The short-term cash-flow problems generatedby increased debt-service due to a devaluation would be reduced by the accumula-tion of appropriate reserves. The general risks associated with the Projectare described at para 6.07.

Government Cash Flow and Foreign Exchange Earnings

5.07 The Government cash flow is shown in Table 8. The net cash flowwould be positive each year, and average US$3.5 million equivalent (in constant1980 terms) each year from Project year 1 to Project year 20. These projec-tions do not take into account the dividends that Government may receive afterProject completion. Government's net foreign exchange earnings derived fromthe Project would always be positive and would average about US$7.5 millionannually (in 1980 constant prices) after Project year 5.

VI. ECONOMIC ANALYSIS AND JUSTIFICATION

Summary Economic Benefits and Justification

6.01 The Project would support Government's objective to increase sugarproduction, all for domestic consumption, by (1) preventing a drop in theproduction capacity of Compagnie Sucriere's present facilities and by (ii)expanding the production capacity of these facilities. This would result inincreasing Zaire's sugar production by 27,000 tons of sugar, which representshalf of its present total production. The Project would provide employmentfor about 750 additional workers.

6.02 The basic economic rate of return (ERR) after deduction of thebenefits which may accrue to non-Zairians, would be 17.5%. Foreign exchangewas shadow priced 1/. If foreign exchange were not shadow priced, the ERRwould decrease by 6 percentage points.

Basic Assumptions

6.03 The economic life of the Project is assumed to be 20 years. The rateof return analysis includes all expenditures for capital investments, replace-ments and operation and maintenance costs directly related to production.

1/ At the rate of US$1.0 = Z 3.0.

- 28 -

6.04 Assumptions on capital and recurrent costs are in paras. 4.02 and4.03. Costs do not include price contingencies, taxes and transfer payments.Physical contingencies, however, are included in the calculations of theeconomic rates of return.

6.05 The calculation of benefits is based on the import-substitutionvalue of sugar. Assumptions regarding international sugar prices are ln para.1.28. Costs and benefits streams used for the calculation of the rates ofreturn are shown in Table 9. The summary of the sensitivity analysis is inTable 10.

Sensltivity Analysis

6.06 A decrease of international sugar prices of 10% during the entireProject life would reduce the ERR from 17.5% to 14.5%. An increase of 10%of capital costs would decrease the ERR from 17.5% to 16%. An increase of10% of recurrent costs would decrease the ERR to 16%. A delay of one yearin the realization of benefits, wlth an accompanying delay of variable produc-tion costs, and no delay in capital and fixed costs, would reduce the ERRfrom 17.5% to 15.5%. A reduction of the production to 90% of capacity woulddecrease the ERR from 17.5% to 15%. The switching values for the Project,using an opportunity cost of capital of 10%, are as follows: 20% for thebenefits, and 50% for capital costs and operating costs.

Risks

6.07 The Project faces few technical, commercial and managerial riskswhich could affect Its economic and financial viabillty. Technical risksregarding plant design and operations are low because (1) only well estab-lished sugar technology would be used in the Project, (il) the Project wouldbe implemented by Compagnie Sucriere's staff who have adequate expertise,and (iii) projections were based on the actual past performance of CompagnieSucriere. The risk of a sugar cane disease outbreak are considered low inview of past experience and would be reduced by the diversification of canevarieties (para 2.06). There are some risks of delays in Project implementa-tion due to the general working conditions ln Zaire. This, however, would notmaterially affect the Project's viability. Commercial risks are low given thepresent shortage of sugar in Zaire. The risks of unsatisfactory managementperformance are minimal as long as a competent management team remains incontrol. Adequate assurances were obtained at negotiations to this effect(para 3.15). The risk of difficulties in maintainlng an adequate workforceon the estate (para 2.02) would also be reduced by the Government's commltmentto the Project. The risk of delays in receiving sufficient foreign exchangeto cover the operating costs of Compagnie Sucriere would be reduced by thearrangements referred to in para. 2.19.

VII. AGREEMENTS REACHED AND RECOMMENDATION

7.01 Conditions of Credit effectiveness would be that:

- 29 -

(i) the subsidiary agreement between Government and CompagnieSucriere defining the on-lending arrangements for theIDA Credit is effective (para 4.04);

(ii) loan agreements between Compagnie Sucriere and CCCE areeff,:tive (para 4.04); and that

(iii) the statutes of Compagnie Sucriere and of SOGESUCRE havebeen revised in a manner satisfactory to the Association(para 3.15).

7.02 Agreements were obtained at Credit negotiations that:

(i) Government would continue to inform the Associationon all aspects of the sugar sub-sector including invest-ment proposals, and would give the Association theopportunity to comment on these proposals (para 1.25);

(ii) Prices of sugar sold in Zaire would be reviewed byGovernment whenever required, and at least once a yearand after each significant change of the exchange rateand changed when necessary (para 1.33);

(iii) Government would take all necessary measures to enableCompagnie Sucriere to recruit and retain an adequatelabor force (para 2.02);

(iv) Compagnie Sucriere would prepare annual work programs forresearch, which would be submitted to the Association forits review and approval before June 30 of each year(para 3.10);

(v) Government would permit the internationally recruitedstaff to remit an adequate portion of their salaries totheir respective home countries; their qualifications,experience and terms and conditions of employment wouldbe satisfactory to the Association (para 3.11);

(vi) Compagnie Sucriere would submit to the Association, byJune 30, 1981, a detailed training program for its reviewand approval (para 3.12);

(vii) until December 31, 1990, no changes in Compagnie Sucriere-smanagement structure and ownership would be made withoutprior approval of the Association, and the position ofGeneral Manager (Administrateur-Delegue) would continue tobe filled by a person with qualifications and experiencesatisfactory to the Association (para 3.15);

- 30 -

(viii) Compagnie Sucriere would monitor the water quality ofthe river Kwilu and, if necessary, take appropriateactlons to ensure that lts activities do not materlallyaffect the environment (para 3.18); Compagnie Sucrierewould submit to the Association for its revlew andapproval proposals for the monitoring and control of theProject's effects on the environment, as descrlbed atpara 3.18; and

(Lx) Government, SOGESUCRE and Compagnie Sucrlere would observecertain financlal covenants to maintain Compagnie Suerlere'ssound financial situation (paras 5.03 and 5.04).

7.03 A condition of disbursement on account of expendltures for theinstallation of an improved data processing system and for pilot projectswould be the Association's agreement on detalled proposals (paras 3.13 and3.14).

7.04 Subject to the above conditions, the proposed Project would besuitable for an IDA credit of SDR 20.2 million (US$26.4 million) to theGovernment of Zaire on standard terms.

- 31-

TABLE I

ZAIRE

RWILU-NOONGO SUCAR PROJECT I PROJET SUCRIER DE EWILU-NGONGO

PROJECT COSTS SUMt4ARY I RESIM`E DES COUTS DU PROJETl/

(By Project Component I Par composantes du projet)

°1, Foreign

30% 50% 10% 107o Exchange/

1 2 3 4 5 Total % Devises

I. FACTORY EOUIPMENT I _ EDUIPEMENT USINE

Cane Reception Ares 510 845 332 - - 1,687 Dechargement

Rehabilitation 2,000 T/day Mill 275 460 185 - - 920 Remise en etat moulin 2.000 T/jour

New 3,000 T/day Mill 1,960 3,270 650 658 - 6,538 Nouveau moulin 3.000 T/jour

Seeam and Electrical Ceneration 1,810 3,020 600 615 - 6,045 Chaufferie et production electrique

Sugar Processing Equipment 1,170 1,950 390 390 - 3,900 Equipement fabrication sucre

Miscellaneous 1,190 2,000 400 365 - 3,955 Divers

Total Factory Equipment 6.915 121.54 2.557 2,028 - 23,045 97 Tatal equipenent usine

Il. PLANTATION EQUIPMENT II. MATERIEL CULTURES

Infrastructure 100 220 - - - 320 Infrastructure

Land Preparation & Cultivation 1,930 2,250 2,255 - - 6,435 Preparation des sels et cultures

Irrigation 1,000 - - - - 1,000 Irrigation

Cane Transport 1,050 2,610 785 785 - 5,230 Transport des cannes

Miscellaneous 575 575 575 575 - 2,300 Divers

Spare Parts 360 720 720 - - 1,800 Pietes de rechange

Total Plantation Equipment 5,015 6.375 4,33 1.360 - 17085 97 Total materiel cultures

III. CIVIL WORRS III. OENIE CIVIL

Industrial Buildings - 1,615 1,105 290 - 3,010 Estiments industriels

Staff Houses - 520 620 200 - 1,340 Maisons personnel

Workers' Houses - 1,125 1,125 2,250 - 4,500 Maisons travailleurs

Social Services - - 500 - - 500 Services sociaux

Total Civil Works - 3,260 3,350 2,740 - 9,350 30 Total geais civil

IV. AGRICULTURAL DEVELOPMENT IV. MISE EN VALEUR AGRICOLE

Plantation Extension (2,700 ha) 1,000 1,000 - - - 2,000 97 Extension plantation (2.700 ha)

Cane Replanting (2,000 ha/year) - 800 800 800 800 3,200 97 Replantage des cannes

Total Agricultural Develapment 1,000 1,800 800 800 800 5.200 97 Total mise en valeur agricole

V. INCREMENTAL STAFF V. PERSONNEL SUPPLEMENTAIRE

Local Staff 105 815 990 990 990 3,890 - Personnel local

Expatriera Staff & Consultants 250 700 850 850 850 3,500 77 Personnel expatrie et consultants

Total Incremental Staff 355 1,515 1,840 1,840 1,84 7,390 36 Total personnel supplamentaire

VI. OTHER COSTS VI'. AUTRES COUTS

Training - 50 100 150 200 500 100 Formation

Electronia Data Processing - 500 - - - 500 100 Informatique

Pilot Projects - 500 500 500 500 2,000 f0 Projets pilote

Sub-Total - ,050 600 650 700 3,000 86 Sous-Total

TOTAL BASE COST 13,285 25,545 13_482 9,418 3,340 65,070 80 COUT TOTAL DE BASE

Physical Contingenies 1,065 2,045 1,080 755 - 4,945 Imprevus p';ysiques

Price Centingencies 1,100 3,360 2,500 1,865 1,530 10,355 Provision pour augmentation des prix

TOTAL PROJECT CO3T 15,450 30,950 17,062

12,038 t_80 80,370 80 COUT TOTAL DU PROJET

1/ Base cost in mid-1980 constant prices. 1/ Cour de base en prix constant de

Year 1 cerresponds ta calendar year 1981 mi-1980. Ltannee 1 correspond a

l'annee calendaire 1981.

- 32-

TABLE 2

ZAIRE

KSIDU-NGONGO SUGAR PPOJECT/PROJET SUCRIER DE KUILW-IGCOpGO

PROJECT COST AND PINANCING SUMNARY/RESUSE DES COUTS ET DU FINANCEhENT DU PROJET 1/

(BS Preorres,ent Cateuar-/Par cateasein d'achat)(S$ '0OO equivalent )

TOTAL COST/ %pereign ch. ---- Financed by/Finance pa----COeL TOTAL 7 Devises IDA CCCE Ce. Sucriers

A. INTERNATIONAL COKPETCTIVS BIDDING (ICB)Crawler Tractor-Rippers 200 HP 1,800TracCors 2/ 2,930Agricultaral Sepleteents 367Irrigation Eqsipment 1,000Trailer Sets 1,020Lessectire. 900Wagosa 2,260Railt-ack 500Other 3/ 875Data Pracrsisg Eqaip-tes 550Spare Pares 5,00PFeaDEt, Handling, Isurasce 1,890

Physical Centinge-cies 1,525Prie Conting.ecias I ,855

TOTAL ICB i2aal7 97 18,543 _ 574

B. DIER::T PROCUREKENT 4/

1. EQUIPIERTRaad Mais tararre Rquipment 320Crawler Tracter 200 HP 155AgricuWural Isplemts 308Case LeaderS 55Spara Parts 100Freight, Randling, Inearaner 410

Physical Centingenci-s 285Price Cotiegencies 340

Sab-Tetaî 2,468 97 2.394 -7

2. OThER GOOS ARD SERVICESAgricultural Development (Inpatu) 5,200 97 - _ 5,200Staff and Techeicai Assietanco 7,390 36 2,660 - 4,730Training 500 100 500 -

Price Centingencies 2,900 62 700 - 2,200

Sb-Total 15.990 52 3.860 - 12. 130

TOTAL DIRECT PROCSSREMENT 18.458 67 6,254 _ 12.204

C. QThER PROCEDURES 5/Cane Reception 1,687h11l Rehabilîtation (2,000t) 920Nea 1ill (3.000t) 6,538Stean and Electrical Geeratios 6,045SUgar Proeessing Equisuust 3,900Caseructior Equiprest 274Workskhp 978Miiscellaeeou (apare parts, ars..bly) 1,818Cusseltuets - Ag. Rencards 65

Pri-e and Physical Cestingescies 5,155

SOb-Tctaî 27,380 100 - 27.380

Transport 820 - - - 820

TatAL 28.200 97 - 27.380 820

D. CIVIL WORKS (FPrce ArcouetBser Ceet 9,350

Physical Cantingescies 935Pne Centin 8 entie_ ,310

TOTAL CIVIL WORRS 12.595 30 _- 12.595

E. PILOS PROJECTS 6/ 2.000 80 1.600 - 400

TOTAL 80.370 80 26.397 27.380 26.593

1/ Base cost ie nid-1980 c-nstant pres. Yfeu S cerresponds 1; Cent de base as prixs cnstante de m -1980

te caDendar year 1980. Cfets inelade fraight, handling L'anses I sarenapad a lannee calenduiraand insarasca ohe- appropriote. 198E. Les sauts co=prennent le frac,

saueuratiss et assurasse s'il y en a lireu.

2/ TataS ef 52 ceactera ef varices typs. 2/ Tetal de 52 tracteurs de divers types.

}/ Crases, trailers, crap-spraying airerait, mcbile uerkehcpe. 3/ Grues, remarques, arien puSelrieateer,atelier mabila.

4/ Negotiatad contracet vith euppliers cf goods asd cervies, 4Cteera e s Se cfsi s d

bi-n et de servises

5/ As reqeired by agecies financing these cmpenents., 5/ SuDrant Ie- pracedures requises par lesageneas qui fientnerasi cas raxpesanters

6I Proerresent preredarssera vId drpsnd se the iScs financed 6/ Les precedures de pass.. ies des e-rcheundar thie cempacent. tent fonction de la satore des biers et

serviees finances dans le cadra de setta

- 33 - TABLE 3

ZAIRE

KWILU-NGONGO SUGAR PROJECT

Estimated Schedule of Disbursements

(uSt Million)

IDA Fiscal Year Quarterly Cumulative Disbursementsand Quarter Disbursements at End of Quarter

1980/81

September 30, 1980December 31, 1980March 31, 1981 0.7 0.7June 30, 1981 2.0 2.7

1981/82

September 30, 1981 2.0 4.7December 31, 1981 2.0 6.7March 31, 1982 2.0 8.7June 30, 1982 2.0 10.7

1982/83

September 30, 1982 2.3 13.0December 31, 1982 3.0 16.0March 31, 1983 3.0 19.0June 30, 1983 3.0 22.0

1983/84

September 30, 1983 0.5 22.5December 31, 1983 0.5 23.0March 30, 1984 0.5 23.5June 30, 1984 0.5 24.0

1984/85

September 30, 1984 0.5 24.5December 31, 1984 0.5 25.0March 30, 1985 0.5 25.5June 30, 1985 0.5 26.0

1985/86

September 30, 1985 0.4 26.4

ZAIRE

KWI LU-NGONGO SUGAR PROJECT / PROJET SUCRIER DE KWILU-NGONGO

PROJECTED INCOME STATEMENTS / COMPTES D'EXPLOITATION PREVISIONNELS 1/

Compagnie Sucriere

(US$Million equivalent)

WithoucFiscal Years Ending December 31 Project 2/ 1 2 3 4 5 6 10 Annees Financieres se Terminant la 31 Decembre

Sugar Sales (tons) 38,000 38,000 45,000 45,000 55,000 65,000 65,000 65,000 Ventes de sucre (tonnes)

Sales Revenue 33.3 38.9 47.4 54.0 65.8 70.7 72.2 68.8 Revenu

Production Costs Couts de Production

Consumables 5.7 6.3 8.0 8.6 11.4 14.4 14.4 14.4 Matieres de consommationSpare Parts 5.5 6.1 6.2 6.6 8.8 11.0 11.0 11.0 Pieces de rechangeFertilizers and Chemicals 1.0 1.1 1.3 1.4 1.9 2.4 2.4 2.4 Engrais et produits chimiquesPersonnel 10.0 11.4 13.7 15.1 16.2 17.3 16.2 16.2 PersonnelServices and Utilities 3.0 3.3 3.7 4.0 4.5 5.0 5.0 5.0 Services et prestations exterieursAgricultural Development - 1.1 2.1 1.0 1.1 1.2 - - Mise en valeur agricoleTraining - - - 0.1 0.3 0.3 - - Formation

Total Production Costs 25.2 29.3 35.0 36.8 44.2 51.6 49.0 49.0 Total des Couts de Production

Financial Expenses Frais Financiers

Short-term Interest 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Interet a court termeInterest on Long-Term Debt: Interets sur dettes . 1Gog tcrm_z

Subsidiary IDA Loan - 0.5 1.7 2.9 3.6 3.9 4.0 2.4 Pret subsidiaire IDA .CCCE - 0.5 1.8 2.8 3.1 3.3 3.0 1.7 CCCE

Total Financial Expenses 0.1 1.1 3.6 5.8 6.8 7.3 7.1 4.2 Total des Frais Financiers

Depreciation Amortissements

Existing Buildings and Equipment 2.0 2.0 - - - - - - Immobilisations existantesProject Investments: Investissement Projet:

Civil works and Buildings - - - 0.2 0.3 0.5 0.5 0.5 Genie CivilPlantation Equipment - - 0.8 1.6 2.4 2,5 2.5 2.5 Equipement culturesFactory Equipment - - - 0.5 1.0 1.0 1.0 1.0 Equipement usineMiscellaneous - - 0.1 0.1 0.1 0.1 0.1 0.1 Divers

Total Depreciation 2.0 2.0 0.9 2.4 3.8 4.1 4.1 4.1 Total Amortissements

INCOME 6EFORE TAXES 5.6 6.5 7.9 9.0 11.0 11.8 12.0 11.5 REVENUE AVANT IMPOTS

Taxes 2.8 3.2 3.9 4.5 5.5 5.9 6.0 5.8 Impots

INCOME AFTER TAXES 2.8 3.3 4.0 4.5 5.5 5.9 6.0 5.7 REVENU APRES IMPOTS

Agricultural Recovery Fund 1.5 1.5 1.8 1.8 2.2 2.6 2.6 2.6 Fonds de Relance Agricole

1/ In current terms for years 1-5, in constant terms thereafter. 1/ En prix courants pour les annees 1-5, en prix constantsGeneral price increases assumed as follows: Year 1 (1981), 97%; par la suite. Augmentation generale des prix:Year 2, 8%/; Years 3-5, 7/ p.a. annee 1 (1981), W9; annee 2, 87O; annee 3-5, 7r p.a.

2/ In 1980 prices. 2/ En prix de 1980.

t` t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t

ZAIRE

KWILU-NGONGO SUGAR PROJECT / PROJET SUCRIER DE KWILU-NGONGO

PROJECTED CASH FLOW / FLUX FINANCIERS PREVISIONNELS

Compagnie Sucriere

(US$ Million equivalent)

Fiscal Years Ending December 31 1 2 3 4 5 6 10 Annees fiscales se terminant le 31 decembre

SOURCES OF FUNDS SOURCES DES FONDS

Net Income 3.3 4.0 4.5 5.5 5.9 6.0 5.7 Resultat netDepreciation 2.0 0.9 2.4 3.8 4.1 4.1 4.1 Amortissements

Funds from Operations 5.3 4.9 6.9 9.3 10.0 10.1 9.8 Sous-Total

IDA Credit 6.7 9.3 7.0 2.0 1.4 - - Credit IDA

CCCE Loan (Equipment) 8.2 13.7 3.0 2.5 - - - Pret CCCE (equipement)

TOTAL SOURCES 20.2 27.9 16.9 13.8 11.4 10.1 9.8 TOTAL DES SOURCES

APPLICATION OF FUNDS UTILISATION DES FONDS

Project investments 1/ 13.9 26.3 13.1 8.1 0.2 - - Investissements projet 1/

Pilot Projects _ 0.5 0.5 0.5 0.5 - - Projets pilotes

Debt Repayment Repayment des PretsSubsidiary IDA loan - - - - - 2.6 2.6 Pret subsidiaire IDA

CCCE - - - - - 2.7 2.7 CCCE

Sub-Total - - - - - 5.3 5.3 Sous-Total

TOTAL APPLICATIONS 13.9 26.8 13.6 8.6 0.7 5.3 5.3 TOTAL DES UTILISATIONS

Net Cash Flow 6.3 1.1 3.3 5.2 10.7 4.8 4.5 Marge nette

1/ Excluding agricultural development and 1/ Excluant mise en valeur agricole et personnelstaff accounted for in the income pris en compte dans le compte d'exploitation,statement, and pilot projects. et les projets pilote.

ZAIRE

KWILU-NGONGO SUGAR PROJECT / PROJET SUCRIER DE KWILU-NGONGO

PROJECTED BALANCE SHEETS / BILANS PREVISIONNELS

Compagnie Sucriere

(US$Million equivalent)

Fiscal Years Ending December 31 1 2 3 4 5 6 10 Annees financieres se terminant le 31 decembre

ASSETS ACTIF

Current Assets 10.0 10.0 10.0 10.0 10.0 18.0 18.0 Valeurs a court-terme

Fixed Assets Valeurs immobilisees

Land 0.1 0.1 0.1 0.1 0.1 0.1 0.1 TerrainsBuildings, Machinery, Equipment 30.1 56.9 70.5 79.1 79.8 79.8 79.8 Autres immobilisations corporellesLess: Accumulated Depreciation (15.1) (16.0) (18.4) (22.2) (26.3) (30.4) (46.8) Moins: amort;ssements

Net Fixed Assets 15.1 41.0 52.2 57.0 53.6 49.5 33.1 Total Valeurs immobilisees

Surplus Cash 14.8 15.9 19.2 24.4 35.1 39.9 57.9 Surplus

TOTAL ASSETS 39.9 66.9 81.4 91.4 98.7 107.4 109.0 TOTAL ACTIF

LIABILITIES AND CAPITAL PASSIF ET CAPITAL

Current Liabilities Dettes a court-terme

Accounts Payable 6.0 6.0 6.0 6.0 6.0 6.0 6.0 FournisseursCurrent Portion Long-Term Debt - - - - - 5.3 5.3 Echeances dette a long-terme

Total Current Liabilities 6.0 6.0 6.0 6.0 6.0 11.3 11.3 Total dettes a court-terme

Long-Term Debt Dettes a long-terme

Long term debt 14.9 37.9 47.9 52.4 53.8 53.8 32.6 Dettes a long-termeLess: Current Maturities - - - - 5.3 5.3 Moins: echeances

Net Long-Term Debt 14,9 .9 47.9 52.4 53.8 48.5 27.3 Dette a long-terme nette

Capital Capital

Share Capital 0.8 0.8 0.8 0.8 0.8 0.8 0.8 Capital socialRetained Earnings 18.2 22.2 26.7 32.2 38.1 46.8 69.6 Reserve speciale

Total Capital 19.0 23.0 27.5 33.0 38.9 47.6 70.4 Total Capital

TOTAL LIABILITIES AND CAPITAL 39.9 66.9 81.4 91.4 98.7 107.4 109.0 TOTAL PASSIF ET CAPITAL

Current Ratio 1.6 1.6 1.6 1.6 1.6 1.6 1.6 Valeurs court-terme/Dettes court-termeDebt/Equity Ratio 44:56 62:38 63:37 61:39 58:42 50:50 28:72 Ratio Dette a long terme/Capital

5s 1,

- 37 -

TABLE 7

ZAIRE

KWILU-NGONGO SUGAR PROJECT I PROJET SUCRIER DE ICWILU-NGONGO

FINANCIAL RETURN CALCULATIONS I CALCULS DE RENTABILITE FINANCIERE I/

Compagnie Sucriere

(US$ Million equivalent)

1 2 3 4 5 6 7 8 9 10 11-19 20

4 Incremental Revenues 2.1 6.5 8.9 14.7 14.8 15.8 15.2 14.7 14.1 13.5 13.3 13.0

Incremental Costs

Capital Costs 12.8 22.8 9.4 4.1 - - - - - - (16.4)operating Costs 1.4 4.2 3.6 6.2 9.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1Taoes on Income 0.1 0.5 0.7 1.2 1.2 1.2 1.2 1.2 1.1 1.1 1.1 1.0

Net Benefits (12.2) (21.0) (4.8) 3.2 4.5 6.5 5.9 5.4 4.9 4.3 4.1 20.3

Financial Rate of Return after taxes /9i5%Taux de rentabilite financiere apres impots '

Financial Rate of Return before taxes / 12.5%Taux de rentabilite financiere avant impots

1/ In constant prices 1/ En prix constants

ZAIRE

KWILU-NGONGO SUGAR PROJECT / PROJET SUCRIER DE KWILU-NGONGO

GOVERNMENT CASH FLOW / FLUX FINANCIERS DU GOUV NEMENT

(US$ Million equivalent) 1/

1 2 3 4 5 6 7 8 9 10 11 - 14 15 - 20

Sources of Funds Sources des fonds

Income Taxes (incremental) 0.4 1.1 1.7 2.7 3.1 3.2 3.2 3.1 3.0 2.9 2.9 2.8 Impots sur le revenu (additionels)

Debt Repayments: Repayment Prets:Principal - - - - - 2.6 2.6 2.6 2.6 2.6 2.6 2.6 - 0.0 PrincipalInterest 0.5 1.7 2.9 3.6 3.9 4.0 3.6 3.2 2.8 2.4 2.0 - 0.4 - - Interet

IDA Credit 6.7 9.3 7.0 2.0 1.4 - - - - - - - - - Credit InA

oaTotal Sources of Funds 7.6 12.1 11.6 8.3 8.4 9.8 9.4 8.9 8.4 7.9 7.5 - 5.9 5.4 - 2.8 Total des sources

Application of Funds Utilisation des Fonds

Subsidiary IDA Loan 6.7 9.3 7.0 2.0 1.4 - - - - - - - - - Prets subsidiare IDA

Debt Service: Dette:IDA - Printipal - - - - - - - - - - 0.2 - 0.7 0.7 - 0.7 IDA - PrincipalIDA - Service charge - 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 - 0.2 0.2 - 0.1 InA - Frais financiers

Total Application of Funds 6.7 9.4 7.1 2.1 1.6 0.2 0.2 0.2 0.2 0.2 0.4 - 0.9 0.9 - 0.8 Total utilisation des fonds

Net Cash Flow 0.9 2.7 4.5 6.2 6.8 9.6 9.2 8.7 8.2 7.7 7.1 - 5.0 4.5 - 2.0 Cash flow net

1/ In current terms for years 1-5 l/ En termes courants pour les annees 1 a 5

ZAIRE

KWILU-NGONGO SUGAR PROJECT / PROJET SUCRIER DE KWILU-NGONGO

ECOINOMIC RATE OF RETURN / TAUX DE RENTABILITE ECONOMIQUE

(US$Million equivalent)

Foreign Exch. %

1 2 3 4 5 6 7 8 9 10-19 20 Devises7%

Incremental Sugar Production Production de sucre supplementaire

Quantity (ton'000) - 7 7 17 21 27 27 27 27 27 27 Quantite (tonnes '000)

Factory Import Price (US$/ton) - 800 731 615 604 604 604 604 604 604 604 Prix d'importation rendu usine(US$ /tonne)

Ex-Factory Import Value - 5.6 5.1 10.5 16.3 16.3 16.3 16.3 16.3 16.3 16.3 95 Valeur d'importation rendue usine

w

Incremental Costs Couts sueplementaires

Capital Costs 12.8 22.8 9.4 4.1 - - - - - - (16.4) 83 Couts d'investissement

Operating Costs 1.4 4.2 3.6 6.2 9.1 8.1 8.1 8.1 8.1 8.1 8.1 50 Couts de fonctionnement

Repatriated dividends - - - - - 1.0 1.0 1.0 1.0 1.0 1.0 100 Dividendes rapatries 2/

Net Benefits (14.2) (21.4) (7.0) 0.2 7.2 7.2 7.2 7.2 7.2 7.2 23.6 Marge Nette

Economic Rate of Return/ 1757Taux de rentabilite economique ' 7* °

1/ Using a shadow exchange rate of US$1.0 - Z 3.0 instead of the 1/ En utilisant un taux de change virtuel de

rate of US$1.0 = Z 1.5 on which the financial calculations are US$1.0 = Z 3.0 au lieu du taux de US$1.0 = Z 1.5

based. qui a ete utilise pour les calcula financiers.

2/ Level of dividends shown is for projection purposes only and 2/ Le niveau des dividendes ci-dessues uniquement

does not prejudge the level of dividends which would actually pour previsions, et ne presume pas du niveau des

be distributed. dividendes qui seraient en fait distribues.

! 40TABLE 10

ZAIRE

KWILU-NGONGO SUGAR PROJECT / PROJET SUCRIER DE KWILU-NGONGO

Economic Sensitivity Analysis I Analyse de sensibilité économique

ERR(%)

Base Economic Rate of Return 17.5 Taux de rentabilité économique de base

10% increase in capital costs 16.0 10% d'augmentation des coûts d'investissement

10% decrease in capital costs 19.5 10% de diminution des coûts d'investissement

10% increase in operating costs 16.0 10% d'augmentation des coûts de fonctionnement

20% decrease in operating cost 19.0 20% de diminution des coûts de fonctionnement

10% increase in sugar price 20.5 10% d'augmentation du prix du sucre

10% decrease in sugar price 14.5 10% de diminution du prix du sucre

- 41 -

ANNE:X

ZAIRE

KWILU-NGONGO SUGAR PROJECT

Selected Documents and Data Available in the Project File

A. Selected Reports and Studies on the Sector or Sub-Sector

Ai. Draft Report of the ZAIRE - SUGAR INDUSTRY REVIEW AND POSSIBLEDEVELOPMENT PROGRU±\ME, FAO/World Bank Cooperative Programme,Report No. 44/77 - ZAI.14, 15 November 1977.

B. Selected Renorts and Studies Relating to the Project

Bl. Description du projet d'investissement sucrier, Compagnie Sucriere.

B2. Description du projet de développement de la production de Sucre àKwilu-Ngongo, Compagnie Sucrière.

B3. Demande d'augmentation du prix de vente - sucre, alcool, C02 -

Compagnie Sucrière, Février 1979.

B4. Complément d'information au dossier soumis à la Banque Mondialesuite à la visite du 02.05.1979, Compagnie Sucrière, juillet 1979.

B,. Complément d'information au dossier soumis à la Banque Mondialesuite à la visite du 16 juillet 1979, Compagnie Sucrière, juillet 1979.

C. Selected Working Papers

Cl. Working papers (one volume) including supporting cost tables, anddescription of (i) the Project area, (ii) the factory, (iii) caneproduction and (iv) cane harvesting and transport.

ZAIREPROJET SUCRIER DE KWILU-NGONGO

Organisation de la Compagnie Sucrière

Conseil d'administration

Administrateur-Déligué

SUCRERIE l l PROJETS SERVICES BUREAU

| Directeur administratif || Directeur techni 7e 1SECTIONS

COMPTABILITE- DISPATCHING ENT. MECANIQUE Pr. VIVRIERS ECOLESCOMMERCIAL

l 1 g ~~~~~~ENT. ELECTRIQUE l_

GESTION ET CONTROLE USINE ETUDES AGR. HOPITAL

_ FABRICATION.I

APPROVISIONNEMENTS IND. CONNEXES PROJET SUCRE DISPENSAIRES

INFORMATIQUE GARAGE GENIE CIVIL

SERV. GENERAUX ATELIERS QMECANIUE

_| CONSTRUCTION l q ELECTRICITE

MONTAGE

BLOC I

CULTURES

BLOC Il

Banque Mondiale 21339

41~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

ZAI REKWI LU- NGONGO SUGAR PROJECT/ PROJET SUCRIER DE KWI LU-NGONGO

Implementation Schedule/ Calendrier d' exécution

1980 1981 1982 1983 1984 1985

Activities ActivitesA ct iv it ie s1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 _ 2 3 4 1 2 3 4Activités

FACTORY USINE

Design and Procuremerit _ Conception et marchés

Manufacturing and Delivery Fabrication et livraison

Construction and Assembly _ Construction et montage

Commissioning Mise en service

PLANTATION PLANTATION

Procurement of Equipment Marchés équipment

Cahe Replanting and Extension Replantation et extension

World Bank - 22203

IBRD 14628

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