FILECOPY RESTRICTED Report No. TO-575a
Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized
APPRAISAL OF
A SUGAR ROADS PROJECT
KENYA Public Disclosure Authorized
April 26, 1967 Public Disclosure Authorized
Projects Department CURRENCY EQUIVALENTS
100 K. (Kenya) Cents = 1 K. Shilling 20 K. Shillings = 1 Sterling L E; 1 million = US $ 2. 8 million 1 K. Shilling = US ¢ 14 1, 000, 000 K. Shillings = US $ 140, 000
FISCAL YEAR
July 1 - June 30
WEIGHTS AND MEASURES
English
EQUIVALENT METRIC SYSTEM
1 mile = 1. 6 kilometers 1 foot = 30. 5 centimeters 1 acre = 0.41 hectares 1 imperial gallon = 1. 2 U. S. gallon = 4. 54 liters 1 ton = 1.12 U.S. short tons = 1. 02 metric tons K E N Y A
APPRAISAL OF A SUGAR ROADS PROJECT
Table of Contents Page
Summary i-i
1. ITTRODUCTION 1
2. BACKGROUND 2
3. DESCRIPTIONOF THE PROJECT AREA AND THE MIWANI- CHEMELIh-MUHORONIREGIONAL DEVELOPMENT PROGRAM 4
A. The Area 4 B. Present Sugar Production in Kenya 4 C. The Development Program and its state of Implementation 4 D. Organizational Arrangements 5 E. Transportation Requirements and Organization 7
4. THE PROJECT 9
A. Description 9 B. Traffic and Design Standards 9 C. Cost Estimates and Financing 10 D. Execution and Maintenance 11
5. ECONOMICJUSTIFICATION 13
A. Introduction 13 B. The Market of Sugar in Kenya and Production Costs 13 C. Benefit Analyses 14
6. CONCLUSIONSAND RECOIVTENDATIONS 16
TABLES
1. Sugarcane Acreage by Region and Type of Farming 2. List of Works and Cost Estimates 3. Design Standards 4. InvestmentRequirements by Region and by Sector 5. Benefit Summary 6. Distributionof Net Benefits Between Factories 7. EmploymentProvided by DevelopmentPlan
MAP: Miwani-Chemelil-Muhoroni Areas
This report is based on the findings of a mission in February/March 1966 to Kenya, composed of Messrs. Haker, Soges and van Gent, and a subsequent up- dating mission in July 1966 zonsisting of Messrs. Eklund, Haker and Malik. KENYA
APPRAISAL OF A SUGARROADS PROJECT
SU11MARY
i. The Government of Kenya has asked the InternationalDevelop- ment Associationto help finance the cost of a sugar roads project com- prising: (a) the detailed engineeringand constructionof main, feeder and field access roads totaling approximately269 miles; (b) the detailed engineeringof additionalroads totaling about 224 miles to be constructed subsequently.
ii. The total cost of the project is estimatedat about US$ 7.8 million equivalent,of which US$ 5.3million is the estimatedforeign exchange component to be financed by the proposed credit. The cost estimatesare based on detailed engineeringand unit prices currently tendered in Kenya for similar works. A contingency allowance of 7½ per cent for physical increases and 10 per cent for price escalationhas been included.
iii. The Roads Branch of the Ministry of Works will be responsible for the execution of the project. The project is being engineered and will be supervisedby consultants. The construction will be carried out by con- tractors selected on the basis of internationalcompetitive bidding, except for some minor urgent works representingabout 8 per cent of the project, which are being carried out by departmentalforces and local contracts. Principal responsibilityfor maintenanceof the roads will rest with the Ronds Branch.
iv. The primary purpose of the project roads is to serve the transportation needs of the i4iwani-Chemelil-Muhoroni sugarcane growing areas and cane processing factories. The project constitutesan integral part of a general development program of the Miwani-Chemelil-Muhoroni area, whose aim is to make Kenya self-sufficient in sugar by 1971. The overall cost of the developmentscheme is US$ 53 million. It comprises settlement of African farmers, and the establishmentof sugarcaneestates, sugar factories and roads and is basically sound. The cost at which Kenya will become self-sufficient in sugar is considered reasonable. v. IWTithfull implementationof the general development program, about 8,000 jobs will be created, including5,000 for farmers who now live at subsistencelevels and who will be broughtinto the market economy. It is estimated that about US$ 8 million equivalent will be saved annually in foreign exchange and that the net benefits will amount to US$ 7.8 million. The rate of return for all the investments involvedin the sugardevelopment program is of the order of 11 per cent.
vi. This would be the fourthloan/credit for roadsby the Bank/IDA to Kenya. In May 1960, the Bank made a firstloan for an agricultural and roadsproject of US$ 5.6 million(256-KE), followed by a creditof US$ 4.5 million(70-KE) for trunk roads grantedin December 1964, and - ii - another credit of US$ 3 million (77-KE) for tea roads in June 1965. Project 256-KE has been completed; performance under credit 70-KE is generally satisfactory; it is too early to comment on credit 77-KE although tendering is somewlhat behind schedule. vii. The project constitutesa suitable basis for an IDA credit of US$ 5.3 million equivalent. KE1 A 1(EYA
APPRAISAL OF A SUGARROADS PROJECT
1, INTRODUCTION
1.01 The Government of Kenya has requested a credit from the International Development Association to finance part of the cost of a project comprising the detailed engineering and construction of 269 miles of main, feeder and field access roads and the detailed engineering of an additional 224 miles to be constructed in the second phase. The primary pur- pose of the project is to serve the transportation needs of the Miwani- Chemelil-Muhoronr sugarcane growing areas and cane processing factories.
1.02 This would be the fourth loan/credit for road development projects in Kenya by the Bank/IDA. In May 1960, the Bank made a loan of US$ 5.6 mlil- lion (256-KE) for the development of agriculture in areas of high potential and associated roads. Out of this loan, about US$ 2.56 million was spent on the construction and improvement of roads totaling 400 miles in length. A.lmosttwo-thirds of the mileage consisted of feeder roads to provide access to production areas and markets. This project was satisfactorilycompleted in mid-1964. In December 1964, the Associationgranted a credit of US$4.5 million (70-KE) for the engineering, construction and improvement of seven roads totaling 194 miles in length including 18 bridges. The object of credit 70-KE is the upgrading of short, scattered low standard sections on exist- ing roads, together with the replacementof a number of unsatisfactory bridges on these and a few other important roads. This work is mainly an extension of earlier work carried out with either Bank or Government funds. The project is progressing satisfactorily and its completion is expected towards the end of 1967, before the closing date. In June 1965, the Association granted another- credit of US$3 million (77-KE) for building about 900 miles of tea roads and establishing a number of units to carry out day-to-day maintenance, The roads are to provide access to tea growing areas being developed under the country's small holder tea development program for which an IDA credit (64-KE) of US$2.8 million was granted in August 1964k It is too early to judge perform- ance on the tea roads project,but tendering has fallen about 6 months behind schedule.
1.03 This appraisal report is based on engineering and feasibility studies of the project carried out by consultants Sir Alexander Gibb and Partners E,A,, and on the findings of an IDA mission in February-March 1966, consisting of Messrs. Haker, Soges, van Gent, and a subsequent updating mission in July 1966 composed of Messrs. Eklund, Haker and Malik. - 2 -
2. BACKGROUND
2,01 Kenya lies on both sides of the equator and is bounded by the Indian Ocian and Somalia on the east, Ethiopia and Sudan on the north, Uganda and Lake Victoria on the west, and Tanzania on the south (see map). It has an area of 225,000 square miles, almost the size of France and a population estimated in 1965 at 9.4 million including 270,000 non-Africans. Although Kenya straddles the equator, great variations in elevation create wide dif- ferences in climate conditions wihich range fron temperate to tropical,
2.02 More than half the country is arid lowland, but as the land rises inland, the climate moderates to subtropical and temperate. The high plateau areas, lying between 5,000 and 10,000 feet elevation, which cover roughly the south-westernquarter of Kenya, comprise some of the best land.for settlement and agriculturein Africa. The population spread ref'lectsthese basic geo- graphic and climatic factors, with about 5 million persons, or 55 per cent of the total population, concentrated in only 20 per cent of the total area in the southwestern quarter of the country.
2.03 Kenya is basically an agricultural country, industry and mining being of secondary importance. About 80 per cent of all exports from Kenya consist of agricultural products. Agriculture is largely concentrated along the coast and in a triangle of the country southwest of ii4ount Kenya.
2.04 The GDP of Kenya amounted to US$805 million in 1965,giving a per capita income of US$84. This amount, although low, is considerably above average for African countries. In the period between 1959-1964, the GDP grew at the rate of 5 per cent per annum. Agriculture constitutes 38 per cent of the GDP and industry 11 per cent. Other sectors of importance are trade, Government, and transport.
2.05 In Kenya, the principaltransport facility which is underthe jurisdictionof the KenyaGovernment is the road network. Airports are also nationallyowned and maintained.Railways, harbors, and some aviationand related services are provided and maintained under the East African Common Services Organization (EACSO)jointly for Kenya, Tanzania and Uganda. The railway system, East African Railway and Harbor Administration (EARH), comprises 3,600 miles, of which about 1,020 miles are situated in Kenya. The Bank has made two loans for the use of EARH: one in 1955, (Loan No. ll0-EA) for an amount of US$24 million and the second of US$38 million in Septem- ber 1965. The object of these loans is to modernize, improve and expand facilitiesto increasethe efficiencyand transportcapacity of the railways and harborsto meet the increasingtrafiic demand. The work on the first loan has been satisfactorilycompleted. The work on tho secondloan is in progress.
2.06 The road system of Kenya comprises about 26,000 miles of roads of which 3,900 miles are classified as primary or trunk roads, 6,600 miles as - 3 -
secondary and 15,500 miles as tertiary roads. Overall responsibility for the road systcmn rests with the Roads Branch of the Ministry of Works, which is in charge of planning and execution of main road construction projects, and has direct responsibility for the maintenance of the trunk road system. Main- tenance of the secondary and tertiary road systems is the duty of local autho- rities, but the Roads Branch also delegates execution of maintenance work for certaintrunk roads to the local authorities,in caseswhere the county councilsor municipaladministrations are consideredcapable of undertaking such work0 Performanceof the Roads Branchis generallysatisfactorye - 4-
3. DESCRIPTIONOF THE PROJECT AREA AND TIDEM1IA1iTI-CHFNELIL-MUHORONqI REGIOINAL DEVELOPMEITPROGREAM
A. The Area (see map)
3.01 The region,inwhich the project area is situated,liesmostly in the Nyanza province of southwesternKenya, close to Lake Victoria. The rogion has a land aroa of about 1.5OO sqO miles0 By-Kenyan standards,it is densely settledwith an estimatedpopulation of 1.75 million in 1965 or about 20% of the country's total population.
3.02 The project area itself is about 250,000 acres. It is a broad plain traversedby several rivers and streams. It is bordered on the north by the wall of the Niandiescarpment, and on the east by the Eldoret highland,and rises from an elevationof 3,800 feet in the south to 4,800 feet in the north. In the south,it is contiguouswith the Kano plain. A descriptionof the main agriculturalfeatures of the project area is given in Annex 1. At present, the African populationin the area is living mainly on subsistencefarming.
B. Present Sugar Production in Kenya
3.03 The total area under sugarcane cultivation was about 42,000 acres in 1962-1965out of which 37,000 acres were in the project area. Total production of sugarcane was of the magnitude of 650,000 - 700,000 tons per year, of which some 600,000 tons were grown in the project area. In this area 90 per cent is grown on large scale farms owned by non-Africans. About 250,000 - 300,000tons of the sugarcane are processed by the Miwani sugar factory, situated in the project area, which produces 25,000 - 30,000 tons of milled white sugar. Outside the project area, at the coast, there is a small sugar factory, Ramisi, which converts some 50,000- 100,000 tons of sugarcane per year into sugar. Total sugar production in Kenya in 1962- 1965 thus has been about 35,000 tons per year and has supplied about one- third of the country's total requirement. The remaining sugarcane is con- verted into jaggery (low quality unrefined sugar) by some 65 small factories. Some of the jaggery is converted into alcohol.
C. The Development Program and its State of Implementation
3.04 The chief means used by the Government of Kenya to develop the project area is the rapid expansion of sugarcane cultivation through a pro- gram which is in an advanced stage of execution. The acreage under sugarcane will be more than doubled from the present 37,000 to 81,000 acres by 1971 (see Table 1). Through better managerial and agricultural techniques, yields per acre are also expected to rise from 16 tons in the past to about 20 tons, or more, after some years . As a z-esult sugarcane production will triple from the present 560,000 to 1,600,000 tons by 1973. About two-thirds of the additional sugarcane will be gronmby Africsn farmers,--who for thb: first time will begin to produce for a market economy. The exapngion also entails the settlement of some 3,000 African families on formerly European- owned lands.
3.05 On the industrial side, milling capacity at the Miwani factory is being increased by 50 per cent bringing it up to 45,0OOtons per year. Another factory at M4uhoroni with a capacity of 45,000 tons has recently been completed and a third factory at Chemelil with a capacity of 60,000 tons is under construction. The total production from the three factories,when operating at full capacity,will thereforebe 150,000 tons.
3.o6 On the transport side, a network of some 493 miles of main, feeder and access roads has been planned for the project areas. The transport aspects of the Development Program are discussed in greater detail in para- graphs 3.18 and 3.22.
3.07 Most of the elements of the DevelopmentProgram are well under way. The constructionof the Muhoroni factory is nearly complete and it will begin operations shortly. The Bank has under considerationa sub-project under IBRD loan 303-KE to assist the settlement of African farmers in the Muhoroni area. Construction of the Chemelil factory has been started and it is expected to begin operations at the end of 1968. About half of the settlement scheme has already been executed and sugarcaneplantation is proceeding according to plan. So far, funds have been fully budgeted except for African outgrowers in the Miwani zone (5,500 acres) and in the Muhoroni zone (5,000 acres). Assurances were obtained during negotiations that the Government will provide adequate funds to implement the scheme fully.
D. Organizational Arrangements
3.08 The Development Program is large by Kenyan standards, involving an investment of about US$ 53 million. This investment will be financed by Government and private sources, the latter also including capital from overseas. At full capacity, the program as a whole will employ about 8,000 additional workers and farmers, and yield an annual gross output of US$ 15 million.
3.09 Responsibility for the program rests with several bodies: Govern- ment, factories, and various sugarcane growers. At the Government level, the five Ministries involved are: Agriculture, Cooperatives, Finance, Settlement and Works. The Ministry of Agriculture is sponsoring and generally supervising the Chemelil project, while the Muhoroni scheme is under the sponsorship of the Ministry of Settlement. The Government participation in the equity of Chemelil and Muhoroni factories is about 45 and 20 per cent respectively. Miwani factory is entirely privately owned.
3.10 Of the 81,000 acres of sugarcaneplanned, 20,000 acres will be grown by sugar estates owned and managed by the factories, and about 29,000 acres by large-scalefarms owned by Europeansand Asians. These growers have experience of cane cultivation and will require little - 6 - technical or financial assistance. The remaining 32,000 acres will be cultivated by Africans who, being tuntil recently subsistence farmers, have no knowledge of commercial farming. Of the total of 81,000 acres, about 37,000 acres were being cropped in sugar in 1965; the additional 44,000 acres, most of which will be cultivatedby African growers, will be fully developed by 1973. (See Table 1 for further informationon acreage under cultivation,present and planned.)
3.11 The success of the whole program very much depends on the ability of the African growers to adapt themselves rapidly to the requirementsof a market economy. The average African farm unit will vary between 5 - 7½ acres so that in aIl some 5,000 Africans are involved. It has been decided that the best way to integrate these farms into the market economy is by organizingthem into cooperatives. Each cooperativewill elect an execu- tive committee, which will be responsible for implementing the advice and directions of the factory management. The Government will support the African farmers with adequate extension research. A sugar officer has already been stationedin the area, helping with advice. There is also a German technical team at Chemelil,which is helping with the day-to-day running and planning of cooperatives. Further foreign aid in extension has been offered from the Netherlandsand is under active consideration for both Chemelil and Muhoroni. Two experts in cooperativesand two agronomistshave been stationedat Miwani.
3.12 American Factors AssociatesLtd. of Hawaii, a leading operator in sugar extractionand processing,has been appointedas Managing Agent for the overall Chemelil project. The link between the factory management and the smallholdercooperatives is, in the case of the Chemelil factory, through the nucleus estate which is owned by the factory. Besides grow- ing its share of sugarcane,the nucleus estate will perform certain ser- vices for the farmers such as deep ploughing and pest control. The estate will also be responsiblefor securing a steady flow of sugarcaneto the factory, If any of the cooperativesfalls behind schedule,the nucleus estate has the right to intervene and do the necessarywork writhits own manpower and equipmentat the expenseof the smallholderin question,the cost being deductiblefrom the gross revenues of the smallholder.
3.13 For the I4uhoronischeme, similar provisions as for Chemelil have been stipulated,but responsibilitylies at present with the Ministry of Settlement instead of with the nucleus estate. Miwani, the existing factory, will continue to function as before. Responsibility for the new settlement areas will be shared by the Ministries of Agriculture and Cooperatives. The nucleus estate of Miwani will also intervene to aid the producer co- operatives, if needed.
3.1h Due to the complexity of the organizationalaspects of the overall developmentprogram, to inadequateplanning prior to implementa- tion, and to the forced pace of the program's execution,problems of coordinationdeveloped at an early stage. No single agency had overall authority, or for that matter even a clear picture of all aspects of the developmentprogram. The Bank mission of February/March1966 stressed -7- the importance of ensuring adequate coordinationbetween the various execut- ing bodies. As an initial solution,the Governmentappointed, in March 1966, a senior officer of the Ministry of Agriculture, whose major task was to keep himself informed of all aspects of the program.
3.15 As planning for the development program advanced, the Kenya authoritiesbecame increasinglyaware of the lack of coordination. This led to the formal vesting of overall responsibilityfor coordinationin the Ministry of Agriculture. The Ministry in turn appointedan Advisory Council to deal with matters relating to the program. The Council is composed of eleven members: the Assistant Minister for Agriculture, who is the Chairman, the General Manager of the Chemelil factory, the Chairman of the Board of the Miwani factory, the Chairman of East Africa Sugar Industries (Muhoroni),one representativeof Kenya's National Farmers Union, one representativeof Asian Growers' Cooperatives,one representa- tive from the smallholdersof South Nyanza and one from those of North Nyanza, the Director for Settlement of the Ministry of Settlement, one representativefrcm the Ministry of Cooperativesand, as Secretary,the officer of the Ministry of Agriculture originally appointed for coordina- tion duties,
3>16 The terms of reference of the Advisory Councilhave been broadly defined as advising the Minister of Agriculture on all problems of coordinationrelated to the program, from the settlementstage and organization of cooperatives to the cultivation, transportation, and production of sugar. The Council met for the first time on July 15, 1966 and has started to address itself to these problems.
E. TransportationRequirements and Organization
3.17 The three factorieswill operate 270 working days each year and at full capacityrequire a daily supplyof about5,500 tons of sugarcane. Chemelilwill need 2,200 tons,Miwani 1,650 and Muhoroni,1,650 It is importantto the successof the projectthat the factorieshave adequate transportfacilities to ensureregular supplies of cane.
3.18 Presentlythe factorieshave formulatedthe followingtransport arrangements,all of which seem satisfactory:
(a) Miwani. The Miwanifactory has been in operation for a long time and obtainsits transportservices on a contract basis. The transportused is a 4-ton capacitytruck, which is handloadedin the field. On its nucleusestate, however, it also operatesa smalltrunk railwaysystem. The factory's offloadingequipment is differentfrom that which will be employedat Muhoroniand Chemelil; - 8 -
(b) Muhoroni. The Muhoroni factory has decided to employ tractors plus a two-trailer combination, of about 4 tons capacity each, to be handloaded. In the future, for the more remote sugarcanefields, use will be made of 8-ton trucks on a rental basis;
(c) Chemelil. Two possibilitiesare under consideration: (i) to handload the sugarcane into baskets and winch the baskets onto trailers; or (ii) to handload the cane into boxes or pallets and mechanically load the boxes into the trailers,which in this case will be stationed at the access road.
3.19 The Chemelil managementis the only one of the three that has used consultants (HenckellDu Buisson) for a systematic study of the transport question. Two cases have been studied: one where each factory has its own transport; the second where the three factoriesuse a joint transportationservice. In the first case, the study was confined to Chemelil; it concluded that a tractor plus two trailers would be the most advantageousfor transportingthe sugarcaneto the factory. Each trailer will have a loading capacity of 5 tons. The average haulage dis- tance from the field to the factory is about 8 miles. Each unit will make three round trips per day and will thus supply 30 tons to the factory.
3.20 Under the assumption that the three factorieswould have a joint transportationservice, the transportunit recommended by the con- sultants would consist of a "road tractor" plus a trailer combination having a minimum capacity of 15 tons. Transloading from the in-field unit (one light agricultural tractor plus two trailers) would take place at fixed stations near the main roads. This alternative was not fully investi- gated by the consultants, but according to their preliminary findings this transport system would only be more economical if it could be used by the three factories together.
3.21 There is, however, no immediateprospect of the adoption of a joint transportsystem, for two main reasons. Firstly, most of the advan- tages of a faster transportationsystem are related to the transportation of sugarcane from remote outlying fields, whose roads will not be construicted until Phase II of the Road Program. These roads will not be completed before the early 1970's. Secondly, the necessaryamount of inter-factory cooperationto ensure an efficient joint transport service appears diffi- cult to achieve among the differentmanagements, at least in the near future.
3.22 At present, therefore, there does not appear to be much need or scope for a joint transportservice among the three factories. It is believed, however, that in time the benefits arising out of a more inte- grated transport service among the three factorieswill increase and become persuasive. During negotiations,the Governmentgave assurances that it will examine, at the earliest opportunity,the most effectiveand expeditiousways of arranging efficienttransport services for the Miwani, Muhoroni and Chemelil factories. 4. THE PROJECT
A. Description (See Map and Table 2)
4.01 The project consists of (1) the detailed engineering and construc- tion of 41 miles of bituminous surfaced and 4 miles of gravel surfaced main roads, of 118 miles of gravel surfaced feeder roads, and of 106 miles of gra- vel surfaced field access roads; and (2) the detailed engineering of an addi- tional 40 miles of main roads,and 200 miles of feeder and field access roads to be constructedin a second phase. The project is concernedwith the whole agricultural road development program under the Miwani-Chemelil-Muhuroni regional development scheme. The primary purpose of the roads is to serve the transportation needs of the sugarcane areas and of the cane processing factories.
4.02 In view of the status of the road engineeringstudies, the road constructionprogram has been divided into two phases. The first construc- tion phase would comprise the roads describedunder item (1) in the project for which the detailed engineeringby consultantsis complete and construc- tion could commencebefore mid-1967. This phase would cover areas closer to the factoriesand in which the agriculturaldevelopment has already proceeded to an advanced stage. The second constructionphase would comprise the roads describedunder item (2) in the project, for which the detailed engineering by consultantsis scheduled to be completed in mid-1968. The roads in the second phase would cover more outlying areas, in part of which agricultural developmenthas not yet started. Since detailed engineeringfor the second phase constructionwill not be availablebefore the middle of 1968, construc- tion could not start before late 1968, hence financingof this construction is not considered suitable for inclusionin the present project. During negotiationsan assurancewas obtained from the Government that it will carry out the second phase on a schedule satisfactoryto IDA.
4.03 The sugarcaneareas are presently servedby an insufficientnumber of low standard gravel and earth roads on which traffic is difficult. During the rainy season the roads are often closed. Under the proposed project, most of the existing main roads will be improved to modern two-lane bitumi- nous surfaced standards;the 4 miles of main road to be built with gravel surfacewill be bituminizedat a later date as traffic requires. The exist- ing feeder roads will be improved to all-weathergravel surfaced standards, and new feeder and field access roads will be constructedto similar standards to meet increased traffic requirements. The main roads in the project connect the cane growing areas to the processing factories,and also provide the link with the country's rail and road system. The feeder roads branch from the main roads and lead to field access roads penetratingthe cane growing areas.
B. Traffic and Design Standards (See Table 3)
4.04 The various classes of roads in the project are intended to carry differentlevels of traffic and types of vehicles and their design standards were selected accordingly. The main roads will carry substantialgeneral traffic in addition to the sugarcanetraffic. For these roads, design speeds - 10 - from 40 to 60 mph have been adopted; the overall roadway width including shoulders will be 34 to 36 feet; the pavement structure will be composed of an aggregate subbase and base with a 20-22 foot wide bituminous sur- facing appropriate to meet the expected traffic loads and volume in 1970, ranging between 600-1000 vehicles per day; one of the gravel surfaced shoulders over localized sections will be 9 feet wide for use by crawler tractors and other agricultural equipment. The feeder and field access roads will carry lower density traffic, consisting mainly of slow moving cane transport; these roads will be gravel surfaced and their width will be respectively 24 feet and 18 feet. The design standards allow for a maximum axle load of 3 tons on main roads. The pavement structures of the feeder and field access roads have been designed to carry 5-6 ton loading with the object of increasing the strength by stage construction as the need arises.
C. Cost Estimates and Financing (See Table 2)
4.05 The cost estimate of the project is summarized below:
US$ equivalent 1 1,000 1,000
A. Construction
(1) First phase construction(including 7½i per cent quantity contingencies)
Main roads 1,263
Feeder roads and field access roads 979
Sub-total, constructioncost 2,242 6,250
B. EngineeringServices
(2) Detailed engineeringand supervision of constructionfor first phase 220
(3) Detailed engineeringfor second phase 70
Sub-total, engineeringcosts 290 810
C. Price Contingencies
(4) Price contingencies,about 10 per cent on all costs 253 710
Total 2,785 7,770
Say US$ 7.8 million. - 11 -
4.o6 The cost of the constructionand supervisionof the second phase is estimated at E 1.80 million(Us$ 5 million equivalent), which brings the estimatedcost of the whole road program under the regional development scheme to I 4.58million (US$ 12.8 million equivalent).
4.07 The cost estimatesof the first phase are based on quantities derived from the detailed engineeringstudies preparedby consultants,and unit prices currently tendered in Kenya for similar works. The project includes the reimbursementof detailed engineeringcosts and some cons- truction work undertaken subsequentto June 1, 1966. The construction costs include a built-in allowanceof 71 per cent for quantity contingencies. An additional conitingencyof 10 per cent on constructionand engineeringcosts has been included for possible price increasesduring the two-year cons- truction period, which is consistentwith experience in Kenya.
4.08 The foreign exchange component as estimatedby the Consultantsand checked by the mission, is 68 per cent, or about Us$ 5.3 million equivalent, and includes depreciation of equipment, spare parts, fuels, imported materials (bitumen, steel), foreign personnel, and overhead of foreign consultants and contractors. The local cost includes mainly labor and about 5 per cent for duties and taxes other than income tax.
4.09 The Governmenthas requested that the entire foreign exchange component be financed by the proposed IDA credit; the local currency cost would be met by the Government out of budget appropriations. Expenditures already incurred for design and for some minor urgent construction works are considered eligible for retroactive DA participation from June 1, 1966. (See paragraph 4.12.)
D. Execution and Maintenance
4.10 Execution of the project will be the responsibility of the Ministry of Works with the Roads Branch in charge of its administration. The present personnel of the Roads Branch are competentand, provided they were to remain during the execution of the project, should be capable of performing,with the help of their consultants, all administrative functions to ensure satisfactory completion of the project. However, due to the Government's policy of African' zation of staff, expatriate professionals at the administrative level are planning to leave, and there appears to be a lack of sufficiently experienced replacements among Kenyan nationals. In order to ensure the successful execution of the project under these circumstances,the Governmentis mak- ing appropriate arrangements for retaining or securing sufficiently trained and experienced staff for the proper operation of the Roads Branch. Assurance was obtained from the Government during negotiations that the standard of professional personnel in the Roads Branch will be maintained.
4.11 The economic feasibilitystudy and the preliminaryengineering were carried out by consultants, Sir Alexander Gibb and Partners, E. A., between July and October 1965. These same consultantshave prepared the detailed engineeringof the first phase of the project and have been engaged for the supervision of construction and the detailed engineering of the second phase of the project. - 12 -
4.12 Some minor construction works (grading and drainage), represent- ing about 8 per cent of the construction project, are being carried out by departmentalforces and by local contracts. These works are necessaryto gain access to the areas under developmentand to provide minimum trans- port requirementsin the implementationof the area developmentprogram. All other constructionwill be carried out under unit price contractsawarded on the basis of internationalcompetitive bidding, and in accordancewith Bank/IDA procedures. This was confirmed during the negotiations. Based on previous experiencein Kenya in the executionof similar projects, no difficulty is anticipatedin obtaining suitable contractorsto execute the project. It is expected that the contractswill be let by mid-1967, and the project completedby mid-1969.
4.13 Estimated foreign and local currency requirementsare as follows:-
----US$ (1000) ----
Total Local Foreign March 1, 1966 to June 30, 1967 1,500* 500 1,000
July 1, 1967 to June 30, 1968 3,300 1,050 2,250
July 1, 1968 to December 31, 1968 3,000 950 2,050
Total 7,800 2,500 5,300
The foreign exchange component will be financed by the proposed IDA credit retroactively to June 1, 1966. The local component would be financedby the Govcrnmentof Kenya.
4.14 The responsibilityfor maintainingthe roads under the project will rest with the Roads Branch. The maintenanceof the main roads and of some of the most important feeder roads will be carried out by depart- mental forces. It has been suggestedby the consultantsthat the sugar factoriesmaintain the remaining feeder roads and the field access roads, under the supervisionof the Roads Branch. This is a suitable arrangement, since the companieswill be the prime beneficiariesof the roads and there- fore have a direct interest in maintainingthem to satisfactorystandards. The factorieswill be equipped for road maintenance, and will have per- sonnel with road maintenanceexperience. The Ministry of Works will directly maintain the East-West road, North-Southroad and the portions of Ahero-Miwaniroad, Ahero-Kibigoriroad and Muhoroni-Songhorroad, falling within the project jurisdiction. The respective factorieswill maintain the remaining roads, both feeder and field access, within areas to be assigned by the Government of Kenya. However, the Government has given assurance that, if for any reason a factory should be unable to perform this duty satisfactorily,the Roads Branch will take over the maintenance of the roads involved. Assurancewas also obtained that adequate furnds will be provided to maintain the whole public road system in a proper manner.
* Included are relativelyminor expenses for engineeringincurred prior to June 1, 1966. - 13 - 5. ECON0PaCJUSTIFICATION
A. Introduction
5.01 The justificationof the project lies in its being viewed within the context of the regional developmentprogram of which it forms an integral part. The total investment requirementsamount to US$53 million, of which US$4.5 million is for settlement,US$12 million for agriculture,US$24 million for factories, and US$12.8 million for roads (see Table 4). The net addition to the GNP of Kenva generatedby the total investment over an economic life of about 25 years is the primary source of economic benefits that can be directly attributed to the developmentscheme as a :hole. The rate of return on this investment is estimatedat about 11 per cent.
5.02 No induced benefits such as multiplier effects on income and em- ployrment,related to the deve1opmentprogram have been taken into account; these induced benefits may well be significantVbut,on the other hand, there is no reason to believe that they would be considerablylarger than those from alternativeinvestments.
B. The Market for Sugar in Kenya and ProductionCosts
5.03 Before calculatingthe addition to the GNP generatedby the total investment,it is necessary to establishwhether the present ex-factory price of L45/ton in Kenya, on which the net addition to the GNP is based, is reasonablein terms of internationalcomparisons, and also to give an account of the market for sugar in Kenya.
5.04 Kenya consumed about 103,000 tons of milled white sugar in 196 4.only about 35,000 tons of this was produced locally, the remainderbeing imported. About 40,000 tons were imported from neighboringUganda and 30,000 tons from world market sources. The price of Uganda's sugar has been fixed according to the Commonwealth Sugar Agreement and in 1965 amounted to &7/ton at export rate. The price of free market sugar has varied between L24 and L31/ ton in the past ten years, except in 1963, when it reached =70/ton, and L45/ ton in 1957. 5.05 Accordingto the forecastsprepared by the Ministryof Agriculture, sugar consumptionin Kenyawill reach 170,000tons towards1971. Present productionis about35,000 tons. For localproduction to match local con- sumption,another 136,000 tons must be produced. The sugarproduced from the developmentprogram will be 120,000tons.
5.06 The desirablelevel of sugar productionby 1971 in Kenya is a matterof productioncosts and the ensuingdevelopmental impact on the economy. At the presentex-factory price of sugarof Lj45/ton,the two local factories appear to makle a reasonable profit. The Plinistry of iigriculture has submitted evidence, which appears reasonable, that the planned fac- tories will, after the first few years of operations, make a profit of 15 per cent on their investments, if the selling price of i45/ton remains unchanged. -. 1ir
5.07 Although this price is about twice as high as the international free market price, it is very close to that of the CommonwealthTrade Agree- ment. Furthermore,the internationalprice itself is not indicative of world production'costs since only 10 per cent of the total world production finds its way into free markets and is sold at dumping prices. Another 15 per cent is sold through various commodity agreementsand the remaining 75 per cent is consumed within national boundaries. A substantialpart of the last category ic produced at costs well above E 45/ton.
5.08 Hence, in the light of the actual costs of total world supply, Kenya's sugar does not appear to be too expensive. Experiencehas indicated that the soils in the region are particularlywell suited either to sugarcane growing or to extensive grazing. In view of the area's high population density, an intensivetype of cultivationsuch as sugarcane is preferred. Although other possible uses of the area under considerationhave not been examined at great length, it is quite clear that the land in question does not have immediate alternativeswhich would produce more satisfactoryrates of return.
5.09 While this analysis indicatesthat sugar productionfor the local market is justified, it is not applicable to the case of production for export. It appears that a fifth sugar factory is being consideredat Hiumias. If approved in the near future, it would start production in 1971. There are strong indicationsthat a decision is likely to be taken to go ahead with the factory. The establishmentof such a factory might lead to a seriouswaste of resources in Kenya if the factory is intended to produce for export, or if domestic consumptiondoes not rise sufficiently. During negotiationsan assurance was obtained that the Bank will be kept informed of any plans to constructadditional factories, and given the opportunityto comment on such plans ,
C. Benefit Analysis
5.10 Out of a labor force in Kenya estimated at about 3 million, only some 600,000 are employed at present on a cash basis. The area where sugarcane will be grown is a depressed area with few alternativeagricultural possibili- ties to sustain the population. In fact, there is not much doubt that in the absence of the program the unskilled labor it would employ would otherwise remain unemployed. Even in the long run, it does not appear likely that these workers would find other employment,as the total labor force in Kenya is estimatedto grow to 4h-h million in 1990. He~nce,while the esrnings of the 7,000 wvrkers and farmers to be gainfully employed by the progr.uri represent a finaricial cost to the project, the benefit to the economy is considerable in view of the lack of alternative employment opportunities for them. The net benefits -enerated by the program, therefore, include the earnings of these worker's ard farmersA
5.11 The gross value of the additional 120,000 tons of sugar output to be produced annually by the three factorieswhen the program is in full operation,is estimatedat US$ 15 million. On the assumption that, in the absence of the developmentprogram, the unskilledworkers to be employed in the programwould otherwisehave remained unemployed,the net benefits from the program in 1973 are estimzated at US$ 7.8 million. Taking into account the gradual growth of output from 1967 up to 1973, and assuming no further increase in output, benefits yield a rate of return of 11 per cent on the investment (Tables 5 and 6). - 15 - If, however, it were assumed that the unskilledworkers could find other employmentafter 1975,which at present does not seem likely, the rate of return would be 10 per cent, which would still beisatisfactory.
5.12 The above estimate of benefits and rates of return on the whole investmentof US$ 53 million, including the cost of the road project, have been based on an assumed economic life of the program of about 25 years. An allowance of about $16 million has also been made to replace some of the investmentduring this period, especiallymachinery and vehicles. When the program is in full operation,the net annual foreign exchange savings, on the basis of the weighted average of sugar import prices in 1964, are estimatedat about US$ 8 million.
5.13 As mentioned above, the developmentalimpact of the program will create employmentopportunities for 7,000unskilled workers (see Table 7), of which 5,000 will be for African farmerswho for the first time will be brought into the market economy. Such a farmer, with a 7½ acre plot under sugar cultivation,will net about US$ 280 per annum above his subsistence earnings. The work involved in producing sugar cane will not be at the expense of subsistenceactivities. This net income of US$ 280 per annum should, however, be regarded as a minimum. For every 10 per cent increase in sugarcane output over the assumed yield of 20 tons per acire, the fan-rer's net income will be increasedby about U=3S100 per annum. After an initial five- 7rearperiod, it is quite likely that yields till increase to around 25 tons per acre. In the above calculations,the probable increasesin later years have not been taken into account.
5.14 The benefits from savings in vehicle operatingcosts for the normal traffic volume on those main roads of the project which already have a gravel surface have been included in the above estimatesof benefits;they consti- tute only about 10 per cent of the total benefits. These roads consist of theEast-WiJestRoad from Kisumuto Fort Ternan(h5 miles), the North-SouthRoad from Twin Bridgesto the intersectionwith the East-WestRoad (6 miles),and the connectionbetween Muhoroni to the Kisumu-Nairobitrunk road (5 miles). The cost of theseroads is US$ 4.6 million. The 1965 averagedaily traffic variedbetween 65 - 360 vehicles,depending on the particularroad section. In line with past experience,the trafficgrowth on theseroads has been estimatedat 8 per cent annuallyup to 1978 and at 4 per cent between1978 and 1982,after which traffic is assumedconstant. The growthrates are limitedto normaltraffic, and do not includethe sugarcanetraffic of the developmentprogram, (the benefits of which are includedin the earlier calculation).The rate of returnfor theseroads alone, based on savings in vehicleoperating costs, is estimatedat 10 per cent. - 16 -
6. CONCLUSIONSAND RECOMMENDATIONiS
6.01 The project is well conceived and is technically sound. No serious difficulties are foreseen in its execution.
6.02 Construction of the roads included in the project is economically justified, chiefly on the basis of the contribution to the GNP of Kenya of the overall sugar development program, and to some extent on savings in vehicle operating costs.
6.03 The project is considered suitable for an IDA credit of US$ 5.3 million.
April 26, 1967 TABLE 1
KENYA
SUGARROADS PROJECT
Sugarcane Acreage by Region and Type of Farming
Nucleus Large African Year estates farmers farmers Total
Miwani and /
jaggery factories 8,000 29,000 1 - 37,000
1973
Miwani 8,000 12,900 3,100 2/ 24,000
Chemelil 6,200 2 8,100 18,700 2/ 33,000
I'uhoroni 6,ooo 2/ 8,000 10,000 2/ 24,000
1973 Total 20,200 29,000 31,800 81,000
Acreage added 1965 - 1974 12,200 - 31,800 44,000
All tables are derived from documentsprepared by or for Kenya Government and from verbal informationsupplied by Government officials,Consultants and Sugar Factories' Managements.The distributionof large scale farmers and African farmers to the three zones is tentative and may change althoughthe held acreage of each zone will not be affected by such changes.
1/ This acreage belonging to large farmers will in 1973 be allotted to Miwani with 12,900, Chemelil with 8,100 and Muhoroni with 8,000 acres.
2/ Additional 44,000 acrrs, added 1965-7h. TABLE2
IMNYA
SUGARROADS PROJECT
List of Works and Cost Estimates
A. Construction of 269 miles of roads: (including 72 per cent quantity contingencies) a) Main Roads Length Estimated Cost (miles) (TE1,000) (US$1,000 equiv.) ]ast-West Road Nuhoroni to Kibos (bituminous) 32 853
Morth-South Road Awasi to Twin Bridges (4miles gravel and 9 miles bituminous) 13 41O Sub-total. 263 3,550 b) Feeder and 1Ninor Access Roads (gravel)
Area Field Feeder Access Roads Roads Settlement Scheme Songhor 14 10 110 God Abouro 15 11 95 Tamu 16 12 105 Muhoroni 19 29 190 -6T4 62- m00
.African Land Units Luo Land Unit 26 20 229 Kibigori 5 11 60 Chemase 6 2 80 Miwlani 2 7 20 39 40 3LF9 Asian Large Scale Farms 12 - 65
DaT.son Farm 3 25 Sub-total 1TT 10 979 2,700 Sub-total const,269 2,24.2 6,250
B. EngineeringServices a Detailed engineeringand supervi- sion of ccnstructionfor first phase works 220 b) Detailed engineeringfor second phase works 70 Sub-total, engineering services 290 810 C. Price Contingencies(about 10 per cent on all costs 253 710 TOTAL- 177$ 7,770 (Say US$7.8 million) K E N Y A,
SUGARROADS PROJECT
DESIGN STAMDARDS
M a i n R o a d s Feeder Roads Field Access Roads Flat Rolling Mountainous Terrain Terrain Terrain
Design Speed, m.p.h. 60 50 40 25-40 25-40 Roadway width, feet 34-36 34-36 34-36 24 18 Pavementwidth, feet 20-22 20-2'1.! 20 -- __ Shoulder w-idth,feet 5-7,52 5-7, Z 5 Maximum Grtdient,per cent 4 5 7 10 Minimum R',dius,feet (horizontalcurves) 1,500 1,000 750 200 20C Minimum Sight Distance (non-passing),feet 400 350 275 200 200 Minimum Sight Distnnce (passing),feet 2,000 1,700 1,300 800 800 Type of pnvement sub-base Free draining selected granular Type of pavement b.se Stabilized selected granular or crushed stone Type of surfacing Double bituminous surface Selected gravel Selected gravel or treatment or crushed stone crushed stone Slope of crown 1:362 1:36 5/ 1:361:24 1:24 Design Axle Loading 8 long tons for main roads and 5-6 long tons for feeder and field eccess roads Bridge Lo-ding: According to British Standards153, type HA loading.
1J 24 feet betwTeenEpst-West Road and ilogo River about 2 miles. 5 2/ 9 feet shoulder on one side for movement of agriculturalequipment over localized sections. i" Locelized short sections up to 10 per cent. l~/ Localized rel.xationin Sattlement areas up to 100 feet. .51 For gravel sectionsthis may be increasedto 1:24 TABLE 4
KE;NYA
SUGAR ROADS PROJECT
Investment Requirements by Region and by Sector
(in US $ 000)
Chemelil MuI-uoroni Yiwani Total
Settlement 1,932 2,078 500 4,510 Agriculture 7,159 4,578 150 11,887 1/ Factories 13,112 8,901 2,000 24,013
Roads 61400 4:,s1o 2/ 1)590 -/ 12,800
Total 26,663 20,367 4,2Lo 53,210
1/ Transport equipment for about USM-2 million is included in this total. 2/ Tentative,finalallocation between the factoriesnot yet decided. TABLE 5
K ENYA
SUGAR ROADS PROJECT
Benefit Summary (in US$ 000)
1971 1973 1980
A. Added Value to ONP
1. Gross receipts from sugar sales 11,340 15,120 15,120
2. Less cost of inputs 1. (I) 7,462 2/ (-) 7,341 (-) 7,341
3. Net benefits 3/ 3,878 7,779 7,779
B. 4. Savings in vehicle operating 380 707 costs 4/
Total Pet benefits (3 Plus 4) 4,258 8,228 8,086
1/ Fertilizers,bags, gypsum, fuels, spare parts and wages of skilled workers.
2/ The figure for 1971 exceeds those in later years on account of higher initial costs.
3/ Farmers' income and wages of unskilledworkers included.
4/ For present traffic on roads plus normal rate of growth. Table 6 K E N Y A
SUGARROADS PROJECT Distribution of Net Benefits Between Factories
(in $ OOo)
CHEMELIL ivNHORONI NIW-ANI TOTAL
Small holders income and wages of unskilled workers 1,092 580 216 1,888
Profit and interest beforedepreciation 3,051 2,213 627 5,891
Total Added Value 4,143 2,793 84 3 7,779 TABLE 7
SUGAR ROADS PROJECT
Employment Provided by Development Plan
Ohemelil huhoroni Miwani Total
Managerialand executive 40 30 - 70
Skilled labor and clerical 400 300 50 750
Unskilled labor 1,000 750 200 1,95o
ILfricanfarmers 2,400 2,000 60o 5,000
Total 3,340 3,080 850 7,770 | ~~~~~~~~~KE N Y A SUGAR ROADS ] D I MIWANI-CHEMELIL-MUHORONI AREAS 1r - Railway A Sugar Factoryry LXISTlNG ROADS U G A N D A Bituminous EN I Gravrel t1* .: ,, P0eCre,rcr ap- I PRN PROJGCT ROARS Phase 1 Phase 2 RICHO ____ Main Roads (Ritumirioss) CA,, Field -od Feeder A-css Rsods (Griel) KBGR K) 8 I G 0 R I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~/dt dryeR,~A~ ~~ ~ ~~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~T s0 'ICaICE0 lOan j7I9 R~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AR1 OCTOBERlIRE