Document of The World Bank

FOR OFTICIAL USE ONLY Public Disclosure Authorized

Report No. 11287

PROJECT COMPLETION REPORT

MALAYSIA Public Disclosure Authorized

SABAH FORESTRY TECHNICAL ASSISTANCE PROJECT (LOAN 2550-MA)

OCTOBER 23, 1992 Public Disclosure Authorized

Agriculture Operations Division Public Disclosure Authorized Country Department I East Asia & Pacific Regional Office

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

(M$ per US$)

Year Exchange Rate

1985 (appraisal) 2.50 1986 2.60 1987 2.49 1988 2.71 1989 2.70 1990 2.70 1991 (completion) 2.70

WEIGHTS & MEASURES

Metric System

Abbreviations

DOD - Department of Development (Sabah State) FD - Forest Department (Sabah State) FRC - Forest Research Center (Sabah State) FRIM - Forest Research Institute Malaysia PCR - Project Completion Report PPMU - Project Preparation and Monitoring Unit PDG - Project Development Group PMT - Project Management Team SAFODA - Sabah Forestry Development Authority SAR - Staff Appraisal Report SF - Sabah Foundation SFI - Sabah Forest Industries (SDN. BHD.) SSSB - Sabah Softwoods (SDN. BHD.) UPM - Agricultural University of Malaysia

FISCAL YEAR OF BORROWER

January 1 to December 31 FOR OFICIL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Officeof Director-General OperctionsEvaluction

October 23, 1992

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report - Malaysia Sabah Forestry Technical Assistance Project (Loan 2550-MA)

Attached, for your information, is a copy of a report entitled "Project Completion Report on Malaysia - Sabah Forestry Technical Assistance Project (Loan 2550-MA)", prepared by the East Asia & Pacific Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time.

Attachment

This document has a restricteddistribution and may be used by recipients only In the performance of their official duties. its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT

MALAYSIA

SABAH FORESTRY TECHNICAL ASSISTANCE PROJECT (Loan 2550-MA)

TABLE OF CONTENTS

Page No.

Preface .i......

Evaluation Summary ...... iii

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE ...... 1

Project Identity ...... 1 Background ...... Project Objectives and Description ...... 2 Project Design and Organization ...... 2 Project Implementation ...... 3 Project Results ...... 10 Project Sustainability ...... 16 Bank Performance ...... 17 Borrower Performance ...... 18 Project Relationship ...... 19 Consulting Services ...... 19 Project Documentation and Data ...... 20

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ...... 21

Introduction ...... 21 Design and Implementation Experience ...... 21 Project Impact ...... 21 Findings and Lessons Learned ...... 23 Bank's Performance ...... 24 Borrower's Performance ...... 25 Project Relationship ...... 26

PART III: STATISTICAL INFORMATION ...... 27

Table 1: PRELATED LOANS ...... 27 Table 2: PROJECT TIMETABLE ...... 27 Table 3: CREDIT DISBURSEMENTS ...... 28 Table 4: PROJECT IMPLEMENTATION ...... 29 Ta-le 5: PROJECT COSTS ANDFINANCING ...... 30 A. Project Costs...... 30 B. Financing ...... 30

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (Cont'd)

Page No.

Table 6: PROJECT RESULTS ...... 31 A. Direct Benefits at Full Development ...... 31 B. Economic and Financial Impact ...... 31 C. Studies...... 32 Table 7: STATUS OF COVENANTS ...... 33 Table 8: USE OF BANK RESOURCES ...... 34 A. Staff Inputs (Staff Weeks) ...... 34 B. Missions...... 34

Map IBRD 18946 PROJECT COMPLETION REPORT

MALAYSIA

SABAH FORESTRY TECHNICAL ASSISTANCE PROJECT (Loan 2550-MA)

PREFACE

This is the Project Completion Report (PCR) for the Sabah Forestry Technical Assistance Project in Malaysia, for which Loan 2550-MA in the amount of US$6.5 million equivalent was approved on May 21, 1985. The Loan was closed on December 31, 1991, two years behind schedule. The undisbursed balance of US$194,411.22 equivalent remaining after the last disbursement on March 16, 1992, was cancelled.

The PCR was prepared jointly by the Agriculture Operations Division of the East Asia and Pacific Regional Office (Preface, Evaluation Summary, Parts I and III) and the Borrower (Part II). Preparation of this PCR was started during the Bank's final supervision mission of the project in March 1992, and is based, inter alia, on the President's Report (P-3923-MA) dated May 2,1985'1, the Loan Agreement dated January 17, 1986, the Bank's supervision reports and internal memoranda, correspondence between the Bank and the Borrower, field visits to project sites, reports prepared by participating agencies of the Borrower, discussions with the Borrower's project staff and interviews with World Bank Staff associated with the project.

The East Asia and Pacific Regional Office wishes to express its appreciation to the officials of the Borrower for their valuable assistance in preparing the PCR.

1/ No Staff Appraisal Report was prepared nor rate of return calculated because of the technical assistance nature of the Project.

- iii -

PROJECT COMPLETION REPORT

MALAYSIA

SABAH FORESTRY TECHNICAL ASSISTANCE PROJECT (Loan 2550-MA)

EVALUATION SUMMARY

Objectives

1. The main objective of the project was to test the feasibility of forest plantation development on degraded ex-forestry land in the Bengkoka area of northern Sabah State, Malaysia. The results of the Project were to be used to determine the size, composition, and location of investments to be made under subsequent phases of Sabah's reforestation program.

2. The project was to establish a 3,000 ha trial plantation of state forest at Bengkoka using fast-growing tree species which were exogenous to Sabah. Another 500 ha of the same species would be established as cash crops on private farms, mostly as small woodlots near the pulp mill at Sipitang in south Sabah. The project would also support a new 500 ha research plantation of the Forest Department to provide necessary information on adapting these species to local circumstances. In addition, consultancy services were to be provided to assist project management and to carry out related studies. A project office was to be established to coordinate the project activities of the various agencies and training was to be given to local staff involved with forestry project implementation, planning and policy analysis.

3. The project was chosen as an alternative to one of immediate large- scale plantation investment as the productive base of a settlement scheme (para. 2.2).

Implementation Experience

4. Project implementation took almost seven years from approval in May 1985 to Loan closing on December 31,1991, instead of the planned five years from 1985 to 1989. Loan signing was delayed eight months and effectiveness took another four months. Two closing date extensions were made to allow completion of research and two consultant studies. The major components were completed on schedule.

5. Establishment of the trial plantation went better than expected, with some 7,000 ha being planted by project completion instead of the expected 3,000 ha (para. 6.1). The implementing agency, SAFODA (Sabah Forestry Development Authority), formed a close working relationship with the expatriate project management consultants. The combined Project Management Team (PHT) approach was - iv - successful in transferring technical and managerial skills to SAFODA staff who were able to continue the program satisfactorily after completion of the consultants' involvement, though questions remain as to long-run sustainability (para. 6.7).

6. The smallholder tree farming program fared better than anticipated. By project completion, 1,400 ha of woodlots averaging 2 ha in size were planted, compared with 500 ha anticipated. The implementing agency, Sabah Forest Industries S.B. (SFI), established a smallholder extension service based on experience with their own nearby industrial-sized plantation and entered into a purchasing agreement with the growers. Farmers were quick to respond and the component was soon oversubscribed.

7. The research program proved difficult to implement, largely because of design shortcomings. The Forest Research Center (FRC) of the Forest Department (FD) was undergoing some basic restructuring as young local staff had largely replaced experienced expatriates. The project proposed a heavy program of research at a time when the FRC resources were stretched by ongoing research and by the training needs of fresh graduates. The large number of proposed research activities was cut, and many of those remaining were implemented as collaborative research with other agencies involved in forestry in Sabah.

8. Of the eight studies to be done under the Project, two were completed as envisaged, one was completed as a workshop, three were completed but funded outside the project, and two were considered redundant because of other work already under way. Both studies financed by the project involved implementation problems. In both cases, the consultants were not familiar with the forestry sector in Sabah and early study drafts were not sufficiently specific for project purposes (para. 5.17).

9. Study tours were undertaken to observe smallholder treefarming in the Philippines; to review the large-scale plantation programs in Indonesia; and to study plantation development and wood utilization in New Zealand. Three fellowships for training abroad were approved in advanced tree breeding, application of computer modelling to forest management and local courses and workshops were supported.

10. A Project Preparation and Monitoring Unit (PPMU) was established within the DOD. The PPMU monitored and reported the overall progress of the project, implemented the studies component, analyzed project performance data and functioned as a technical secretariat to the steering committee for the project, the Project Development Group (PDG). At completion, the project cost of about US$13.3 million was close to the appraisal estimate of US$13.1 million. Of the Bank loan of US$6.5 million, US$6.3 million was used and US$0.194 million was cancelled.

Results

11. The project was successful in achieving its objectives of testing the technical, institutional and financial feasibility of forest plantation development at Bengkoka and providing the basis for the next phase of Sabah's - v - reforestation program. The implementation capacity of the project team within SAFODA increased from an annual average of 200 ha of poor stands to 2,000 ha of very good stands over the project period. Detailed information on establishment and maintenance costs was recorded, as well as on tree growth rates, pests and diseases, and silvicultural regimes. Applied research into soil conditions and the tree growth response of various seed source material was carried out. Systems for fire control and forest mensuration were developed. The project's implementing agency provided jobs, housing, schools, roads and other benefits for the local communities, among the poorest in Malaysia. Because the trees are not yet ready for harvest, little information on marketing has been obtained beyond an inconclusive shipment of pulpwood from plantation trees established before the project began.

12. The smallholder tree planting program established the validity of this approach in providing low cost wood as a supplement to that from commercial-scale plantations. Farmers were keen to diversify into trees with low labor inputs. The legume tree species is recognized as both improving soil conditions and in weed control.

13. The research plantation was established, together with associated laboratory facilities, and a series of long-term experiments with plantation and native species was begun. The study into the feasibility of a large-scale smallholder program provided the necessary basis for expansion while the study of incentives for private sector participation in reforestation raised many important issues. The visits to the Philippine smallholder tree growing site (PICOP) and to the Indonesian plantations were important in demonstrating what can be done with adequate commitment to the goals. A major result of the project was the marked inter-agency involvement in assessing plantation development issues and prospects.

14. While the project succeeded in providing a suitable basis for further plantation forestry development, various factors have delayed implementation of a follow-on project. It had been expected that by the early 1990's, a planting program of some 20,000 ha per annum would be reached in order to achieve the State's industrial plantation goal of a sustained 250,000 ha throughout Sabah. At Loan closing, however, the prospects were for a Statewide program of only around 2,000-4,000 ha per year, mainly because of the lack of a clear sector development strategy.

Sustainability

15. The project is sustainable inasmuch as the concerned institutions are able to maintain and expand the investments made (para. 7.1). SAFODA intends to expand the pilot plantation into an industrial-sized concern, if financing is available, and SFI is continuing with the smallholder program using its own funds. - vi -

Findings and Lessons Learned

16. The project demonstrated the technology and management needed to reforest problem sites through use of fast-growing legume trees managed as commercial plantations, or as a means of capturing the site to re-establish native dipterocarp species. The results are applicable to large areas of Southeast Asia covered by lalang grass (Imperata cylindrica).

17. The project demonstrated the suitability of various locations in Sabah for production of large volumes of industrial cellulose required to substitute for valuable forest species in manufacturing of paper, particle board and other reconstituted wood products.

18. The project demonstrated the suitability of these trees as a smallholder crop where an assured market and a nucleus estate is nearby. The smallholder wood proved cheaper to grow than that from plantations.

19. The project demonstrated the high returns to applied research. Major differences in tree growth rates and tree form resulted from interaction between sites and seed sources.

20. The experience during implementation justified the decision to proceed with the pilot scheme at Bengkoka as an alternative to a large-scale settlement project based on one largely unknown tree species. Tree growth rates proved less than expected because of soil and climate conditions and not enough was known on site-provenance interaction. Even on a pilot scale, institutional capacity was strained for several years. Land tenure disputes between SAFODA and indigenous people remain unresolved.

21. The data recorded by the project underscored the marginal financial viability of stand-alone plantation forestry unless it is integrated with a manufacturing facility, or other revenue raising activity. While shadow-pricing the value of the wood to include social and environmental benefits would more correctly reflect its true value to Sabah's economy, the increment over market prices is not captured by the planter. Accordingly, there is little private sector interest.

22. Project coordination proved difficult because of the number of entities involved. The PDG was only partly successful in resolving the problem as it had little influence over the policies and programs of the participating agencies. The PPMU was not provided with adequate technical expertise needed for project monitoring as provided in the President's Report. Projects should be kept as simple as possible with the minimum number of entities. PROJECT COMPLETION REPORT

MALAYSIA

SABAH FORESTRY TECHNICAL ASSISTANCE PROJECT (Loan 2550-MA)

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Project Identity

Name: Sabah Forestry Technical Assistance Project Loan No.: 2550-MA RVP Unit: East Asia and Pacific Country: Malaysia Sector: Agriculture Subsector: Forestry

2. Background

2.1 Faced with rapid but uneven regional growth in the 1970's, the Sabah State Government undertook to create employment and foster economic development in lagging districts. The Pitas District in northern Sabah, in the area of the Bengkoka Peninsula, contained communities estimated to be among the poorest in Malaysia. The 3,000-4,000 families depended on shifting cultivation, fishing, hunting and occasional casual labor. Shifting cultivation had long ago degraded the former forest land, leaving it with a dense coverage of lalang grass effectively preventing forest regrowth.

2.2 In 1981, the Sabah Forestry Development Authority (SAFODA) began to establish a plantation at Bongkol, north of the town of Pitas (Map IBRD No. 18946), as part of its Bengkoka Afforestation and Settlement Project. The project came to the attention of the Bank during a Bank-funded consultant review of development possibilities in the area. A Bank identification and preparation mission concluded that plantation forestry, together with some agriculture and related activities, would form a satisfactory basis for a settlement project. In May 1983, the Bank appraised a project to support SAFODA's initiative and a draft Staff Appraisal Report was prepared. The project would have established 36,000 ha of Acacia mangium trees, for sawlogs, over a period of six years and would have settled 2,000 families in five settlements provided with housing, infrastructure and services.

2.3 Concern was expressed within the Bank over the dependence of the proposed project on Acacia manaium, a little-known species not used in commercial plantations or traded on world markets. SAFODA had chosen mangium because of its good growth on the poor soils of northern Sabah. As a condition of further processing of the project proposals, the Bank requested milling tests of the species to establish its marketability. A sample of 168 logs of 11 years of age were tested in a commercial timber mill by the Asia Pacific Forest Industries Group of the FAO and the Forest Research Center (FRC) in October 1983. -2

2.4 Test results indicated that products made from the samples would not be saleable except as low grade utility timber or as a source of industrial cellulose (pulpwood, particle board, etc.). In addition, the percentage timber recovered from logs was unduly low and all logs showed heartrot which increased with tree age (Milling Tests of Acacia manxium. FAO, 1983, Appendix 3). At the likely log prices, the project would therefore not be viable. However, the report stated that the sample may not have been truly representative and that many log defects might be amenable to improved tree breeding and silvicultural practices. Under these circumstances, the Bank declined further support for the project as appraised, but agreed instead to finance a much smaller pilot project to test various assumptions. At that time, the ongoing SAFODA settlement component was halted, with 200 houses having been constructed.

3. Proiect Objectives and Description

3.1 Proiect Obiectives. The project sought to: (a) improve the marketability of mangium through better silviculture and tree selection; (b) establish and improve the growth performance of the species under upgraded plantation management; (c) determine cost of production; (d) test the acceptability of smallholder treefarming; (e) improve research knowledge of this and other plantation species; (f) strengthen SAPODA's institutional capacity; (g) undertake detailed studies of markets, scope for expansion of treefarming, incentives to encourage private sector investment in plantations, and other topics; and (h) establish within the Sabah Government a capacity to prepare, evaluate and monitor projects according to generally accepted practice.

3.2 Proiect Components. The project components were:

(a) establishment of a 3,000 ha pilot plantation of Acacia mangium;

(b) development of 500 ha of smallholder woodlots of mangium;

(c) establishment of a 500 ha research plantation;

(d) provision of about 116 months of consultancy services for assistance to plantation management and to carry out related technical and marketing studies;

(e) provision of 12 months of fellowships, study tours and other training; and

(f) establishment of a Project Preparation and Monitoring Unit.

4. Prolect Design and Organization

4.1 It was expected that SAFODA would plant 3,000 ha of mangium over four years using labor from the settlement and from nearby villages. A Project Management Team (PMT), initially consisting of consultants experienced in plantation management plus SAFODA staff, would evolve into a SAFODA management unit capable of implementation of large-scale programs. The PMT would determine appropriate methods of tree establishment and maintenance, develop silvicultural - 3 - regimes to improve tree growth rates and form, set out procedures for fire prevention and control, and record cost of production and technical data.

4.2 Sabah Forest Industries (SFI), a State-owned enterprise, undertook to implement the smallholder program in the southern part of the State. Under the program, smallholders would sign an agreement with SFI to grow mangium trees and to sell them to SFI for use in its nearby pulp and paper mill. SFI would receive project financing to establish seedlings in a nursery. The seedlings would be delivered to participants upon signing of a marketing agreement. Costs would be recovered at the time of sale, about eight years after planting. Advice on site selection and tree growing would be given to growers without cost recovery.

4.3 The research plantation would be established by the Forest Research Centre (FRC) of the Sabah Forest Department (FD) at Segaliud-Lokan in eastern Sabah, the most important forestry area of the State. Logged-over forest would be cleared, field offices, a laboratory and staff quarters would be constructed and scientific equipment provided. The site would be planted with both plantation and indigenous species under a series of long-term research trials to support plantation development as well as re-establishment of indigenous species in logged forest.

4.4 Studies considered complimentary to plantation development and to rehabilitation of logged forest were to be carried out by international experts covering the following topics: transport, marketing, processing, incentives, site surveys, treefarming, natural forest management, and research. Training through fellowships, study tours, courses and seminars would be supported both in Malaysia and overseas to enable those involved in Sabah's forestry sector to become aware of the advances in plantation development and related fields. Both consultant studies and training were to be implemented by the Project Preparation and Monitoring Unit (PPMU) to be established in the Sabah Department of Development (DOD).

4.5 The DOD is within the Chief Minister's Department and plays a key role in determining the State's development priorities, strategy and selection of individual projects. Because of the importance of forestry to the State's economy, the PPMU to be set up under the project was to consist of a forester and an economist, with support staff and equipment. The PPMU would coordinate and monitor the project across the many components and participating agencies, and would be responsible for project reporting, analyzing at project level the output of the component data, and leading preparation of proposals for a follow-on project.

5. Proiect Implementation

5.1 Project start-up was late because of a 12 month delay between loan approval in May 1985 and loan effectiveness in May 1986, following the required signing of a Subsidiary Loan Agreement between Federal and State Governments. The delay occurred because of the need to define arrangements between State and Federal bodies and between agencies within Sabah itself. The large number of institutions involved in this small project also led to complications in project management that were never fully resolved. A steering committee, the Project - 4 -

Development Group (PDG), was set up to coordinate the Sabah agencies at a level above that of the PPMU. It provided an important forum for sharing experience with implementation and increasing awareness of issues in plantation development. The PDG's effectiveness, though, was overridden by the policies and practices of the individual agencies over which it had little influence.

Pilot Plantation at Bengkoka

5.2 Despite the delay in the official project starting date, SAFODA began implementation soon after Board approval. The Project Agreement between the Bank and Sabah required the engagement of a specialized forestry project management team to assist SAFODA. A consultant firm was engaged for this purpose and began work on the site in July 1985, ten months prior to loan effectiveness. In the two years prior to the project, SAFODA had planted a total of 130 ha in the project area. Over the next two years the combined Consultant/SAFODA Project Management Team (PMT) managed to plant 1,341 ha.

5.3 The PMT was made up of a team leader, a planting manager and a mechanical engineer, with their counterparts from SAFODA staff. The build up in implementation capacity was initially slower than anticipated at appraisal, but eventually exceeded it. It was hoped that the project would build capacity to about 1,000 ha per year of plantation establishment. In fact, by project completion the PMT was comfortably able to manage a sustained planting program of 2,000 ha per year and adequately maintain the previous plantings.

5.4 Implementation was hampered by a number of factors, including: (a) isolation of the project area; (b) climate; (c) difficulty of operating a semi- autonomous PMT within SAFODA's structure; (d) difficulty of recruiting and retaining adequate counterpart staff for the project; and, (e) the slowness to develop a comfortable working relationship with local inhabitants.

5.5 Isolation. The project area is isolated, not only by distance from commercial centers, but also by poor infrastructure and by being located on a peninsula that is not a through route. The arrangements within SAFODA required project staff to travel frequently from the site to SAFODA headquarters, a journey of 200 km, with problems of roads being impassible during parts of the wet season and with the ferry across the Pitas river often being out of service and requiring a vehicle on either side of the river. This isolation caused delays, added to costs, and aggravated the problem of attracting and retaining staff (para. 6.8).

5.6 Climate. Although the average annual rainfall in the project area (2,200 mm) is sufficient for forestry, its distribution throughout the year and its unreliability posed problems for implementing the planting program. Most of the rain falls in the November-January period as intense downpours with fast and heavy runoff. High evapotranspiration rates quickly deplete soil moisture, leading to plant stress, causing the area to be characterized as drought-prone (relative to Sabah conditions). The fast drying out of the soil resulted in plant deaths, fires and delays in planting, all pushing up costs. An additional problem arose because the wet season and the planting period straddled two calendar and fiscal years. Any delay in planting because of late rains was reflected as a planting shortfall for the year, even though the acreage for the season may have been right on target. The unsuitability of annual reporting and budgeting on a calendar instead of a seasonal basis was never satisfactorily resolved, and yearly achievements continued to reflect part of two separate planting seasons.

5.7 SAFODA's Obiectives and Structure. Implementation was also complicated by unsettled questions about SAFODA's mandate and structure. SAFODA was established as a commercial forestry corporation under 1976 and 1981 Sabah Acts and was charged with carrying out forestry and reforestation activities on behalf of Sabah State. As a corporation, SAFODA receives its funds predominately as recoverable loans. In practice, SAFODA functions as a government department in operations and staffing. SAFODA's operations focus on reforesting wasteland and marginal agricultural land while improving the welfare of local people through community involvement and in a manner in which cost recovery will be partial at best. This ensures that the land resources SAFODA receives are poor, while the expectations of what it can achieve in improving incomes and living conditions are unrealistically high. SAFODA does not evaluate its projected and ongoing activities according to the usual tests of commercial merit, nor does it have the capacity to do so. This has led SAFODA into generally unsustainable projects and into a way of managing its activities that is not cost effective.

5.8 This outlook persisted throughout the project period. For instance, nursery and other workers received a full day's wage for tasks completed by mid- morning. SAFODA was unable to resist the pressure to distribute benefits without due regard to the timing or quantum of net benefits to be obtained from the project returns. Project implementation focused on expanding at the maximum rate, without due regard to cost control or other standard management tools. This has left the project with a lot of valuable but unprocessed management information data in which SAFODA has little interest (para. 6.8). This point is of more than just passing interest, since lack of cost control hampers efforts to attract financial backing from the private sector. The inefficient use of labor was derived from the premature settling of 200 families in new houses supplied by SAFODA in the project site; the need to keep the occupants in permanent work and to provide work for families in villages whose customary-use shifting cultivation lands were affected by SAFODA's activities (para. 6.10).

5.9 Counterpart Staff. SAFODA's position remains ambiguous. Although a corporation, its staff come under civil service rules and pay scales, making it unable to compete with the private sector for candidates with adequate skills and experience. Staff in the project area are relatively junior, and for promotion need to transfer to SAFODA headquarters or to other departments. SAFODA's inability to attract and retain high calibre staff in the project area limited the skills transfer impact of the expatriate members of the PMT. The difficulty of finding and keeping a good project manager to succeed the expatriates remained a problem through to project completion. The management contract had to be extended by one year because SAFODA was unable to provide a local manager for the project in 1988. It is understood that the activities in the project area are once again being managed from the capital city, Kota Kinabalu some 200 km distant, the same inappropriate situation as prior to the project. - 6 -

5.10 Relationships with Local Inhabitants. The Bengkoka Peninsula is sparsely inhabited with only 4,000 families in an area of 1,250 km2. Except for a small area of forest reserve in very steep country, the original forest cover was long gone and the use of the land for continual shifting cultivation was evident from the dense lalang grass (Imperata cylindrica). Prior to project start-up, the main economic occupations were shifting cultivation, fishing, and minor subsistence activities supplemented by seasonal employment outside of the Peninsula. The arrival of SAFODA was a major disturbarce, greeted with caution by local inhabitants. As the planted area expanded, cultivators were locked out of lands they regarded as theirs (para. 6.10). Land ownership was disputed with SAFODA, while strangers as project staff, contractors and petty traders entered the area. Fires were common in the tree stands. While these could not definitely be proven to have been deliberately set, the view of the then current PMT was that the fires were frequently set as a result of land and labor disputes. Project management countered by giving local inhabitants jobs, a school, a health clinic, access to infrastructure and other benefits. Two successful measures were the contracting of fire prevention services to adjacent villages and construction of small shops near the project headquarters for use by locals. The initial difficulties have now been overcome to a large extent, but the problem could reoccur if a major expansion were undertaken without prior resolution of the land tenure issues.

Smallholder Treefarming

5.11 Implementation of this component proved to be relatively problem-free. The implementing agency, Sabah Forest Industries (SFI), like SAFODA, is a Sabah State-owned corporation, but unlike SAFODA it operates outside the civil service structure and pay scale. Its operational area is located adjacent to the town of Sipitang in southern Sabah. SFI's main business is operating a 120,000 ton per year integrated paper mill for production and export of fine quality writing paper. The mill feedstock is mixed tropical hardwood from the moist forest of the Crocker Range. The mill development plan included the eventual switch to plantation-grown wood as close to the mill as possible and some 12,000 ha of Acacia manxium and other species has been established on land held by SFI. SFI agreed to implement the trial to encourage smallholders to grow wood as a cash crop.

5.12 Contrary to the Bengkoka experience, local people saw the development of treegrowing as something from which they would benefit without a threat to their existing situation. The physical presence of the market, the SFI mill, in the neighborhood plus the purchase contract with SFI provided enough security to induce potential growers to take the risk. Instead of the planned 500 ha over three years, 713 ha were planted within half this time by 282 smallholders. Concurrently, a study of the potential for large-scale expansion of the program (para. 6.16) was being financed under the project and the Bank decided not to support further expansion until results of the study were available. One item of concern was the planting of a significant amount of trees on what proved to be unsuitable sites (para. 6,11). Implementation of the study proved more difficult than expected (para. 6.18), and SFI decided to support expansion using its own resources. -7-

Research Plantation

5.13 The FRC has its major facilities at SEPILOK, some 14 km from the FD complex near Sandakan, the principal town on Sabah's east coast, and maintains several research outstations within the forests in the interior. One of these is at Segaliud Lokan, some 80 km distant. The project upgraded the outstation to a full research facility with an area of 500 ha for field experimentation particularly with respect to re-establishment of indigenous dipterocarp species within degraded forests. Implementation proceeded slowly, to a large extent because of the distance from the site and because of the slowness of the planning and procurement process in the FD. The field trials also took a long time for planning and establishment because of other commitments of senior research planning staff. By project completion, the facility was completed as planned but took five years instead of three.

Research

5.14 The research program proved the most difficult to implement, primarily because it was not properly prepared. The capacity of the FRC to absorb the major program envisaged by the project was not well evaluated. The institutional arrangements for forest research within Malaysia, and particularly within Sabah, are not conducive to an efficient allocation of scarce research capacity. The federal Forest Research Institute of Malaysia (FRIM) is mandated as having the responsibility for forest research throughout the country, yet Sabah and Sarawak maintain independent forest research institutions based on the Constitutional primacy of States over land matters. Because of its small population (1.5 million) Sabah finds it difficult to obtain and keep its own pool of senior research officers required to adequately run its own research program. While facilities and foreign expertise can be provided easily enough, the supply of experienced local researchers is fairly inelastic in the short and medium term. In addition, the FD must compete with four Sabah State-owned, in whole or in part, forestry entities generally able to offer better terms and conditions than the FD. SFI, SSSB, Sabah Foundation, and SAFODA all carry out forestry research. During the project period the FRC was undergoing a major staff development program necessitating study leave for key researchers and was not able to take on the major program envisaged by the project. The PDG attempted to structure and prioritize the large amount of research considered important by holding an inter-agency research workshop in March 1987. On the basis of this the research program was cut by half and parts of it were implemented for the FRC by the other Sabah forestry agencies and by FRIM and University Pertanian Malaysia.

Studies

5.15 Seven studies were considered important to complement the field trials. Studies in marketing and processing of Acacia mankium were thought necessary before embarking on a major plantation expansion. Bank experience and elsewhere has shown that the argument for establishing a large tree resource in the belief that the supply will generate demand is not valid, particularly for a little known species. This is particularly true where extraction costs are greater than the net value of the product and a study of wood transport from the Bengkoka Peninsula was included. A study of the incentives for private sector - 8 - investment in commercial reforestation was included since that sector was the major beneficiary of logging and was required to reforest under concession terms. In fact, concessionaires simply forfeited the replanting bond. Studies were also included to assess the potential for large-scale expansion of smallholder tree- farming and for assessing the suitability of sites for plantation establishment. Finally, provision was made for studies in sustained management of natural forest.

5.16 Only the incentives and treefarming studies were carried out under the project itself. Early on during project implementation, it was found that the processing, marketing and transport studies were redundant to studies already under way for the same purpose and available to the Sabah Government. The topics under the forest management study were absorbed into the research program and the site survey study became part of the tree farming study.

5.17 Incentives Study. The study of incentives for private sector plantation development in Sabah began with a background seminar in November 1987, and attracted participants from many countries who detailed the experiences of the Philippines, Brazil, Europe and elsewhere. The findings of the conference were used to draw up terms-of-reference for the detailed study and a contract was awarded to a Malaysian firm in September 1988, with submission of the final report required in January 1989. Implementation of the study proved troublesome and the final report was not received until May 1990. The basic cause of the difficulties encountered was the substitution of other personnel for those nominated in the study contract. The nominated study director and principal researcher used a foreign consultant to carry out the work. The consultant did not follow the terms-of-reference, which required a specific empirical analysis of Malaysian experience with regard to Sabah and a review of incentive programs elsewhere, nor did it follow up on the valuable start made at the seminar. Instead, an unsatisfactory draft was produced presenting a general treatise on forestry without the author visiting Sabah. The firm agreed that the draft did not comply and after discussions with the Bank and the Sabah authorities a second draft was produced by another consultant under the same arrangements. This draft was accepted as marginally adequate. The major shortcoming again was a weak empirical analysis on which to base general statements, with inadequate follow-up on relevant experience in Sabah. The report is essentially a review of the literature. The terms-of-reference for the study should have anticipated this and should have been more specific in spelling out how much background and how much analysis was required.

5.18 Smallholder Treefarming Study. The objective of this study was to assess the potential for a large expansion of the smallholder treefarming pilot project. This required examination of the experience so far, an evaluation of the area of suitable soils and sites, a review of species suitability, an analysis of economic merit, and a review of social impact. This study also proved difficult to implement for much the same reason. A contract was awarded in December 1987 to an international firm of high regard with a local partner. Execution of the study was left mainly to the local partner, which did not have the required expertise in major areas of investigation. The study was done in three parts, namely, evaluation of physical resources suitable for tree farming, evaluation of the ongoing trial program and strategy for expansion, and a socio- economic survey of the intended participants in the program. The inception report was prepared by the international partner and was acceptable. Interim reports prepared by the local partner in 1988 on existing tree farming and on socio-economic conditions were also acceptable, but the report on physical resources was quite inadequate because the local partner did not have expertise particularly in soils and land use capability analysis and turned the study into an exercise using that expertise which it did have. The local firm's specialty was in the interpretation and utilization of satellite imagery. While this is a useful tool of analysis, in this case it should not have substituted for competent land utilization assessment. The international partner accepted responsibility for rectifying the study shortcomings in January 1989 and a satisfactory report was eventually produced in 1991, two years later than specified in the contract.

Training

5.19 The objective of this component was to give Sabah officers involved in forestry planning, management and finance exposure to relevant experience elsewhere in the region. Four study tours were undertaken, being: (i) to the Philippines to look at the Bank-supported smallholder treefarming project with PICOP (1506-PH); (ii) to Thailand to review successful tree breeding and improvement programs; (iii) to New Zealand to examine the production and marketing of plantation wood particularly in the private sector; and (iv) to Indonesia and Peninsular Malaysia to look at large scale plantations using the same species and technology as used in Sabah. This component did not present any implementation problems.

Institution Building

5.20 During project preparation and appraisal, it became clear that the Sabah Department of Development did not have the capacity for in-depth evaluation of forestry investment projects, such as SAFODA's Bengkoka proposals, nor did the FD. This was considered a serious omission because of the importance of forestry to the State. In addition, establishment of a forestry unit within the DOD was considered necessary to coordinate the multiple components of the project and to link ongoing results of trials and studies with preparation of a follow-on project. Establishment of a Project Preparation and Monitoring Unit (PPMU) was a condition of loan effectiveness (Section 5.01(c) of the Loan Agreement). It was agreed that the office would be staffed on a full time basis by an economist and a forester with secretarial assistance, a vehicle for field work and office facilities. The Unit was established, equipped and staffed using two economists having other responsibilities in the DOD and a financial analyst on a full time contract basis. A forester was seconded from the FD for 18 months.

5.21 Operation of the PPMU was generally without problems and received full management support. However, the temporary and part-time nature of the Unit affected functioning to some extent. For example, no career progress was possible in the Unit and the seconded forester returned to the FD. Secondly, the value of the Unit as other than a secretariat was not always clear to the agencies implementing the project and information access appears to have been difficult, perhaps because the Unit may have been perceived as an "outsider". - 10 -

6. Proiect Results

Results of the Pilot Plantation at Ben,koka

A. Plantation Development

6.1 Area Planted. The project proposed planting 3,000 ha over four years. The project actually achieved 6,917 ha over seven years between loan approval and closing table (6.1). By loan closing the PMT had raised its capacity to plant some 2,000 ha per year, a tenfold increase over the pre-project situation. The net area established was 7,553 ha, including 636 ha established prior to the project. The gross area planted was about 7,900 ha of which several hundred ha were burnt or failed for various reasons-.

Table 6.1: Area Established - Actual and Proiected, 1985-1991 (Ha. cumulative)

Planting Established

Projected Achieved (Net Area)

Pre-Project 636 636 1985 300 401 1,037 1986 1,000 485 1,522 1987 1,200 960 2,482 1988 500 855 3,337 1989 1,094 4,431 1990 1,452 5,883 1991 1,670 7,553

Total 3,000 6,917 7,553

1/ Numbers are approximate. Problems with reconciling recorded plantings with surveyed establishment have generally been resolved but some difficulties remain with tabulation of early years. - 11 -

6.2 Species Performance. Acacia mangium proved to be the correct species for the project site. The species is tolerant of difficult conditions including drought, delays in transfer from nursery to field, poor soils, and weed competition. The species proved exceptional in capturing lalang-infested land, quickly suppressing weed growth and visibly improving soil structure while contributing to soil nitrogen and organic matter. Form and growth of mangium stands are very good. Yields are good, with mean annual increments at year 7 of 20-30 m3/ha/yr, and compare well with first rotation yields of other species on more favorable sites and with mangium on plantations elsewhere. The optimum age for pulp rotation is seven years after planting with production of 140 m3 -210 m3 expected.

Table 6.2: Tree Growth Rates in Prolect Area

Mean Annual Increment Production Site Type (mSlhalyr) (m3/ha)

Proiect Area 20 140 Grassland 25 175 Scrub 30 210 Degraded forest

Comparators 1-2 Sabah natural forest 15 Thai Eucalypt 15 Sumatra Eucalypt 13 Brazil Eucalypt 8 Portugal, Vietnam, Eucalypt 25-30 Sumatra Mangium 20-30 East Sabah Mangium 17-25 South Sabah Mangium

6.3 Testing of different mangium provenances resulted in improvements in yield, vigor and tree form and indications are that improvement potential remains relatively unexploited. Second rotation yields will be higher, with mean annual increment in the range of 30-40 ms on well managed suitable sites.

6.4 Plant Disease. Acacia mangium in Malaysia had been known to be susceptible to heart rot and the trees at Bengkoka, as elsewhere in Sabah, proved vulnerable. An investigation by a consultant pathologist in 1990 found that disease incidence and severity increased with age and that by year eight, some 50% of the trees were severely infected with soft rot extending more than 1 - 12 - meter#1. Heart rot is caused by a secondary pathogen entering a naturally inflicted or branch pruning wound. The core wood becomes discolored and eventually soft and spongy. Tree growth remains unchecked and no external effect is visible. The recovery of wood is affected as utilizable volume is reduced. The implications are that the trees must be harvested before age eight for pulping and, more significantly, the species is not suitable for milling into lumber until the disease is brought under control. There are indications that provenance selection and better silviculture practice (pruning, etc.) may reduce the severity of the disease, but at this stage nothing definite is known. In early 1992, on the advice of the FRIM, the Minister of Primary Industries prohibited the planting of further mangium in Peninsular Malaysia (where the species is grown for sawlogs) pending further investigation. The species is still planted in Sabah for pulp.

B. Costs and Prices

6.5 Costs. Costs of field operations averaged M$1,925/ha. This is similar to that in Sabah and elsewhere, but is somewhat on the high side considering little heavy land clearing was required. Because of the pilot size of the operation, its remoteness, and its experimental nature costs were expected to be high. Within the cost structure there is room to reduce costs, particularly for labor and roading. About 35 m of road per ha has been constructed, whereas 20 m per ha is probably all that is required for the terrain. Sabah wage rates of about US$8/day for unskilled labor are about double those in Indonesia and the Philippines. Within the project area, the staffing ratio of one employee per 6.3 ha of plantation is considered very high by international standards and may result from pressure to gain goodwill among local people to avoid conflict over land use (para. 6.10). Scope for cost reduction through mechanization of many operations exists, but the need to employ locals and the unsuitability of much of the terrain argue against such a strategy.

6.6 Since harvesting has not yet begun, there are no firm estimates of the costs of upgrading roads, logging, trucking, scaling, bundling, stevedoring and final overhead. These are generally about three times the field costs. Current indications are that the all-up cost of roundwood delivered to the nearest wharf site (Mempakad) would be about M$65/m3 (US$26/M3), including a 10% profit margin. This would be about the same as for other Sabah growers. At the current actual export price for this product and species received FOR Sabah (about M$60/m3 for wood with 40% moisture), expansion of the plantation along the current cost curve for roundwood would be marginally viable, at best, and could not carry the cost of social overhead. Furthermore, the likely reduction of merchantable volume due to heart rot would increase the cost/mi'and decrease the price (para. 6.4).

C. Institution Building

6.7 Proiect Manaetement. SAFODA's operations in the area prior to the establishment of the PMT suffered from the absence of qualified and experienced

2/ Shin-ichiro Ito, 1990, A Survey of Heart-rot in A. Mangium, Report to SAFODA. - 13 - project management which was essentially done from Kota Kinabalu, some 200 km distant. Supervision of daily operations was diffident and the supervisor did not reside at the project site. The arrival of the expatriate experts comprising a project manager, mechanical engineer, and a plantation manager, together with the establishment of good housing and offices and approval of the budget for a larger program, had a marked impact on performance. Transfer of management skills and technology was generally successful as evidenced by the improved field performance but at the end of the consultant contract in June 1988 SAFODA had not been able to provide and retain a suitable candidate to take over the project manager position. The contract was extended and a suitable Sabahan took over and managed to continue satisfactory implementation.

6.8 Nevertheless, at levels below that of project manager, absorptive capacity remains an issue. For example, a cost control specialist set up a system for cost control as a management tool in 1987. This was never internalized and used in addressing the cost issues mentioned above. Similarly, other management information systems were established but not incorporated because of SAFODA's inability to provide adequately trained and motivated staff at lower levels. Since the departure of the experts, very little has been done on the analysis and interpretation of data from the permanent sample plots and other highly relevant research has lapsed. During project implementation, SAFODA itself was undergoing serious institutional problems many of which remain unresolved and was unable to provide the project with the necessary institutional backing.

D. Social Development

6.9 An important object of SAFODA's original proposal was social and economic development of the indigenous inhabitants of the Peninsula, among Malaysia's poorest. This was not a specific objective of the pilot project, which was mainly intended to test the technical feasibility of sustainable plantation development based on Acacia mangium. Nevertheless, the views of the local people were solicited, their rights acknowledged and they were encouraged to participate in the project. Two hundred houses were built prior to the project in anticipation that a settlement project with 2,000 houses would be approved. No further houses were built by the project. However, the Government funded from its own resources an elementary school, a high school, a clinic, a mosque, some shop-houses and other facilities. Local people improved their own homes and standard of living from wages earned. Women working in the nursery and elsewhere were able to earn cash for the first time and traders entering the project site offered competition to the few area merchants for the first time. All this, though, depends on the continued expansion of the plantation. A move to maintenance only would lower the labor requirement markedly and have a depressing effect on socio-economic activity. This would likely cause a resurgence of land claims against SAFODA.

6.10 Land Claims. Sabah law recognizes customary use by native Sabahans as the basis for issuing formal land titles. The project area forms part of a larger swathe of land used by shifting cultivators for generations, as evidenced by the vegetative covering and ongoing swidden outside project boundaries. SAFODA has received formal use rights of an extended project area on a - 14 -

"gazettement" basis. That is, SAFODA can use the land pending resolution of claims disputes. Only after resolution can the process of titling through alienation begin. Although SAFODA has been dealing with the issue for over ten years, little has been achieved and counterclaims remain open. It has proven difficult to gauge the importance of land disputes. While SAFODA maintains that there are few claims with sufficient merit to proceed to litigation, this is partly because only claims lodged before 1983 will be reviewed.

Results of Smallholder Treefarmin2

6.11 After the Bank capped its participation at 713 ha (para. 5.12), SFI continued the program as its "Seedling Loan Scheme", and another 756 ha were planted by the time of Loan closing. The final total was 1,469 ha planted by 644 smallholders, at an average of 2.3 ha per woodlot. The trial established that pulpwood trees are an acceptable smallholder crop where security of markets, technical assistance and other factors reduce growers' perception of risk. However, the interim results also indicate that caution is advisable. Because the woodlots are planted in scattered parcels, across a wide range of site suitability and farm conditions, the plantings are extremely variable in performance. In general the overall growth rate of the trees is considered too low for commercial viability (mean annual increment of 10 m3 /yr at age 7), though probably acceptable to smallholders with low opportunity cost of labor and land. Growth was highly variable and though the mean is about 10 m3/yr, the best stands were growing at a mean of 20 m3 /yr or better. Part of the variability is due to soil conditions, part is due to poor plant care, and part due to problems associated with management of the program.

6.12 In a follow-up survey, participants were in agreement that the program was worth joining, but were disappointed at the way the program was implemented. Tree seedlings were sometimes delivered at the wrong time, or without adequate prior notice, and SFI advisers did not always provide the advice needed. On the other hand, survey respondents admitted that farmers themselves often lacked the motivation to follow the prescribed operations for a new crop with no income for at least seven years.

6.13 These problems are to be expected since both SFI and the participants are new to both the crop and the strategy. Better advice is now being given on site suitability and the first plantings are soon to be harvested. The generation of a cash flow should promote grower confidence in the program and commercial level performance is feasible in the second rotation provided the technical assistance services are upgraded. As at Bengkoka, urgent attention needs to be taken with respect to heart rot incidence and severity in Acacia mangium and the opportunity for planting other species on the better soils. Under the Studies component, the feasibility of expanding the program was studied in depth and concluded that up to 30,000 ha of privately owned farmland within the economic transport distance of the paper mill was available for smallholder pulpwood production. Even if only one-half the potential area is planted to trees this could provide 30% of the mill's annual wood requirement at a cheaper cost than SFI's own plantation or MTH supplies. - 15 -

Research Results

6.14 Despite the slow start to the program, this component added to the research capability of the FRC. Scientific equipment and buildings were provided as was training, both local and overseas, in tree breeding, forest entomology, biometrics and other subjects. A program of field trials and laboratory investigations relevant to the technical issues of the project were undertaken. Some are completed while some are long-term by nature and will continue after the project. For completed studies, such as a review of plantation species and provenances in Sabah, results have been published or are in preparation for publishing. The research component was formulated by considering the activities needed to support the project without due regard to the capacity of the FRC, given that it had to provide operational support to the rest of the forest sector activities and much time was lost in developing a multi-agency system for contracting out work that the FRC could not accommodate.

6.15 Experience under the project clearly demonstrates that the FRC does not at present have the capacity to support the major expansion into plantations envisaged by the Sabah State Government, which projects an annual harvest of some 2-3 million m3 per annum from fast-growing species in the near future. Any major plantation proposal would need to incorporate independent research capacity into its cost estimate. Alternatively, consideration should be given to restructuring Malaysia's forestry research arrangements. Both Sabah and Peninsular Malaysia have had large government sponsored planting programs using Acacia mangium, while its susceptibility to heart rot has been long known (Waring, L., Milling Tests of Acacia mangium, Asia-Pacific Forest Industries Development Group, Kuala Lumpur, 1983). At the least, the connections between research and operations, and between the State and Federal forest-related agencies, appear warranted.

Studies

6.16 Tree Farming Study. The study surveyed 50,000 ha of land within the economic transport distance from the Sipitang paper mill to assess suitability and availability of land for private sector tree growing both smallholder and commercial in size. Farmers' attitudes were canvassed and used to plan a technical assistance and credit strategy. About 30,000 ha of this land was found to be generally under-utilized ("idle land"), suitable and available for tree farming. Of this total, some would not be planted because of farmer choice or other limitations not revealed by the study, to give an expected planted area of 20,000 ha if the program were to proceed. The wood would be suitable for pulping and could provide the mill with one-third of its annual raw material requirements at lower cost than forest hardwoods or wood grown on SFI's own plantations. The IRR for treefarming with full cost recovery and direct benefits only was estimated to be about 8%. This is in accordance with general plantation returns and is considered acceptable. This would be expected to rise over time with productivity raising measures being developed.

6.17 The study identified the conditions necessary for a successful program. The most important were the need to diversify the species to be planted, the technical assistance requirements, and market security. The subsequent experience with mangium heartrot supported the general proscription on monoculture. Both the technical assistance and marketing would require that SFI take a leading role in the program. In summary, the study is a satisfactory - 16 -

identification/feasibility report that sets out the basis of merit for an innovative approach to plantation forestry. The major risks are shown to be institutional and provenance/species.

6.18 Incentives Study. The incentives study was designed to answer the question of why the private sector was not involved in plantation forestry in Sabah, except for the faltering Sabah Softwoods joint venture, and to review experience overseas in encouraging reforestation as a commercial enterprise. The 1987 initiating seminar on this topic emphasized that forest plantations are a marginal economic activity for the private sector unless they are integrated with industrial processing, mainly because they cannot compete with underpriced wood from the standing natural forests. The seminar detailed the strong impact of taxation concessions to compensate for the implicit subsidy on forest wood supplied to industry. The seminar also pointed out the budgetary implications of incentives' programs and the perverse effects that may arise, particularly the clearing of natural forests to take advantage of the incentives.

6.19 The subsequent study had been expected to follow-up on these matters in the Sabah context. To some extent, this was done. However, the study presented a fairly conventional treatment of arguments against subsidies in general. For example, the presentation of the impact of over-valued exchange rates bears no relevance to the study context. In fact, the study gave more emphasis to treatment of pricing of natural forest products and sustainable forest management where the author's interest lay. While these topics are of greater importance, the focus of this study was on plantations. Sabah has a lot of unutilized land which for various reasons will not be returned to natural forest. The soils and climate are very good for tree production yet the private sector has shown little interest. The study was expected to clarify why this is so and what could be done about it, if anything. The smallholder treefarming component showed that farmers are prepared to plant idle farmland if the incentives are right. In the Sabah case, the security of the market was the key. The trees were not planted at the expense of natural forest. An expansion of the program to promote wood as a substitute crop in place of marginal expansion of rubber and oil palm may have merit. The study findings with regards to natural forest management are correct and the rather general reflections on plantation incentives are also correct, but study results are not expected to be significant because of lack of specific treatment of the objectives spelt out in the terms of reference.

7. Prolect Sustainability

7.1 The project was designed to test the viability of plantation development based on Acacia mangium, transfer technology and build institutional capacity. This has been achieved to a large extent, and the conditions needed for a successful project on a large scale for the different components are now known.

7.2 As a result of the project experience, the Bank has recommended to the Sabah Government that a major expansion at Bengkoka poses a serious market risk. Present indications are that Acacia mangium will not produce the high-value sawlogs needed to offset the high cost, particularly transportation. SAFODA - 17 -

accordingly has pursued a possible joint venture with a foreign company to supply the partner with mangium pulpwood chips. If such an arrangement were to eventuate, the full benefits of the trials would be realized and sustained.

7.3 The Bank also recommended to the Sabah Government that the existence of the paper mill at Sipitang and its demand for pulpwood, together with the good results of the treefarming trials nearby, offered a better project opportunity. In June 1990, the Bank appraised a follow-on project to support a major expansion of both the tree-farming component and SFI's own commercial plantation. Following appraisal, SFI suddenly withdrew its support on the grounds that the cost of plantation wood was not competitive with mixed tropical hardwoods, and project processing was therefore suspended. Without SFI's nucleus estate as a technical assistance base, a major expansion of smallholder tree-farming would have posed undue risk. Even on the present small scale, the sustainability of tree farming depends on SFI's interest. Harvesting trials of the first planted trees will begin in late 1992, and results should determine sustainability of farmer and SFI interest.

8. Bank Performance

8.1 In retrospect, the Bank was correct in turning down the original large-scale settlement proposals. SAFODA was stretched in implementing the small project, the status of land usage and tenure was unresolved, and the project would have been a large, permanent claim on public expenditure. Until a suitable sawlog species or heartrot-free provenance of Acacia mangium is found, the stand should be maintained on an R&D basis addressing these issues. However, the Bank's own initial enthusiasm for the settlement proposal, based on a virtually unknown species, contributed to the misplaced expectations and only a post- appraisal insistence on a milling test during internal review prevented a costly error. The decision to recommend (and agree to finance) a smaller, pilot effort was a good one.

8.2 The decision to add other trial components, such as treefarming and research, also seems justified in light of the results but, for the research program at least, preparation was not adequate. While adding what appeared to Bank staff to be a small amount of research to support the trials had merit, the capacity of the FRC should have been better investigated.

8.3 The Bank supervised the project regularly with 15 supervisions in 6.5 years. Continuity of task manager was maintained throughout and a wide range of specialist technical expertise was used.

8.4 The main lessons which can be drawn from the Bank's experience with the Project are:

(a) The project demonstrated the technology and management needed to reforest problem sites through use of fast-growing legume trees managed as commercial plantations, or as a means of capturing the site to re-establish native dipterocarp species. The results are applicable to large areas of Southeast Asia covered by lalang grass (Imperata cylindrica). - 18 -

(b) The project demonstrated the suitability of various locations in Sabah for production of large volumes of industrial cellulose required to substitute for valuable forest species in manufacturing of paper, particle board and other reconstituted wood products.

(c) The project demonstrated the suitability of these trees as a smallholder crop where an assured market and a nucleus estate is nearby. The smallholder wood proved cheaper to grow than that from plantations.

(d) The project demonstrated the high returns to applied research. Major differences in tree growth rates and tree form resulted from interaction between sites and seed sources.

(e) The experience during implementation justified the decision to proceed with the pilot scheme at Bengkoka as an alternative to a large-scale settlement project based on one largely unknown tree species. Tree growth rates proved less than expected because of soil and climate conditions and not enough was known on site-provenance interaction. Even on a pilot scale, institutional capacity was strained for several years. Land tenure disputes between SAFODA and indigenous people remain unresolved.

(f) The data recorded by the project underscored the marginal financial viability of stand-alone plantation forestry unless it is integrated with a manufacturing facility, or other revenue raising activity. While shadow-pricing the value of the wood to include social and environmental benefits would more correctly reflect its true value to Sabah's economy, the increment over market prices is not captured by the planter. Accordingly, there is little private sector interest.

(g) Project coordination proved difficult because of the number of entities involved. The PDG was only partly successful in resolving the problem as it had little influence over the policies and programs of the participating agencies. The PPMU was not provided with adequate technical expertise needed for project monitoring and as provided in the President's Report. Projects should be kept as simple as possible with the minimum number of entities.

9. Borrower Performance

9.1 In general, Borrower performance was better than expected on physical implementation, but initially weak in terms of overall management. Shortcomings in performance usually stemmed from the operating constraints the agencies themselves faced and could do little about, or from unfamiliarity in Sabah with Bank procedures. The main problems on the Borrowers' side came from the multiple agencies involved. This caused the one year's delay between approval and effectiveness, as agreements had to be reached between the Federal and State Governments and between the Sabah Government and the agencies, and among some of the agencies. This had been unwittingly aggravated by the Bank's early - 19 -

concentration on Sabah agencies with little communication with the Federal EPU until somewhat late in the process.

9.2 The decision taken by Malaysia at negotiations not to establish a proposed Special Account and a matching revolving fund caused problems for implementation throughout the project period. For example, some components were financed by a mix of Federal and State, Loan and Grant Funds, some reimbursable and some not. A pre-financing arrangement could have smoothed out irregularities in agencies' cash flows. The accounting and budgeting of this complex system proved troublesome. A revolving project account was eventually opened, but after initial drawdowns it was not used because of local procedural difficulties. Complications also arose because the Sabah Government did not make budgetary provision for the project in 1986 due to the delay in Loan signing, while the Federal Government had made provision and agencies had begun implementation. It is doubtful if much could have been done about internal Federal-State financing in the context of this project, nor was there any flexibility possible during project negotiations to alter Loan terms and conditions from the Bank. The lesson from this is the need for the Bank and the legal Borrower to ensure that agencies new to Bank financing are kept fully briefed as early as possible in the project cycle.

9.3 Unfamiliarity with Bank procedures delayed use of project funds. A year after effectiveness, only 7% of projected disbursements had been made, partly due to delayed start-up but also to failure to submit applications for eligible expenditures. It was not until December 1988, more than two years after effectiveness, that the project was visited by a Bank Disbursement officer. Although project entities eventually became familiar with Bank procedures, the lesson is that for new agencies a Bank person familiar with operational details of reimbursement should join a mission at or soon after appraisal to review the local budget procedures and explain reimbursement mechanisms.

10. Proiect Relationship

10.1 Despite the initial disappointment at the Bank's refusal to finance the original proposal, the agencies all cooperated fully, although the resulting pilot project continued to be regarded as the "Bank's" project. However, at all times relationships were positive. Sabah officials were eager to learn Bank procedures and methodology and were unstinting in providing logistical support to supervision missions. The differing points of view on the appropriate investment follow-up to take advantage of the results of the considerable cost and effort under the Technical Assistance Project are appreciated in a professional manner.

11. Consulting Services

11.1 A total of US$1.1 million was spent on consultants, equivalent to 17% of total disbursements. Consultants were used for overall management of the Bengkoka development and for training SAFODA staff in management, plantation activities, mechanical supervision, and nursery operation. Special studies were done at Bengkoka on fire protection, forest mensuration, tree nutrition, budgetary and financial control procedures. After the PMT handed over management - 20 -

of the component in 1989 to the SAFODA staff they had trained, four visiting agent inspections were made in the following two years by the former managers. During the project, volunteers from abroad gave technical assistance in agro- forestry. Consultants also carried out the treefarming and incentives studies. With the reservations already noted, consultant performance was satisfactory.

12. Proiect Documentation and Data

12.1 The President's Report and Loan Agreement provided a useful framework to guide project implementation although, because of the pilot nature of the project, they were necessarily brief and often general. The reporting and record keeping of the participating agencies was adequate but data processing fell short, except in the case of SFI. SFI maintains an R&D unit within its own structure and data from the smallholder program is processed within its general program. In summary, the project achieved its purpose of generating data for plantation development, investment and policy. - 21 -

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

1. Introduction

1.1 As stated in the Preface of the PCR, the participating agencies had earlier presented their views in their separate PCRs. Part I of the PCR has therefore incorporated the findings of the agencies concerned. This Review thus summarizes the Borrower's perspective on the design and implementation of the project and its development impact and lessons learned over and above what is not stated in Part I. Except where indicated otherwise, this Review agrees with Part I of the PCR.

2. Design and Implementation Experience

2.1 In general, the overall project scope was too broad and ambitious involving too many agencies - Government and parastatals thereby rendering effective co-ordination and monitoring of the various project components difficult.

2.2 The scope of the research program was too ambitious and did not take into account the capacity of FRC at that time. The project also did not consider the involvement of other forestry-related agencies, such as, SSSB, SFI and SAFODA, each of which undertakes considerable research operations.

3. Proiect Impact

Pilot Plantation in BenRkoka

3.1 The Pilot Plantation benefitted from the technical inputs of the PMT in the early years which had resulted in a well established plantation. The Management that took over from the PMT had improved its capacity to maintain the current project and to manage a development program of 2,000 hectares of new planting a year.

3.2 The Project had generated employment opportunities and provided human resources development in the region. It had also demonstrated to the locals that tree cultivation can be an additional source of income.

3.3 The successful implementation of the Pilot Plantation had also drawn the attention of international organizations, such as the FACE Foundation, and private sector interest like SUMITOMO. The FACE Foundation has indicated positively on the grant funding for a start of some 2,000 hectares of Acacia mangium plantation in the North Sabah Pulp area. The Memorandum of Understanding and Implementation agreement with the FACE Foundation is scheduled to be signed in June this year. Meanwhile, SUMITOMO has been holding discussion with SAFODA and also co-financed the Feasibility Study of the Bengkoka Plantation and Chipmill project study with a view of possible joint-ventureship in the near future. - 22 -

PPMU

3.4 The Project had succeeded in establishing a PPMU in the DOD. Although PPMU started, initially, with two economists and was subsequently strengthened with a financial analyst and a short term forester, the knowledge and expertise acquired through constant interaction with Bank Mission members, and the forestry-related agencies, both local and international, had enhanced the planning capability as well as broadening the outlook of the personnel. The project had succeeded in enhancing the capacity of the PPMU and officers involved in the Project in in-depth evaluation of forestry projects. The opportunities provided under the Project to participate in study tours and seminars had also benefitted the PPMU team.

3.5 However, at loan closing, the prospect of maintaining the PPMU team intact is yet to be decided by the higher authorities.

Pilot Smallholder Tree Farming Proiect

3.6 The response of private landowners within Sipitang and neighboring districts to participate in the tree planting scheme was overwhelming since the implementation of the Pilot Project in 1986. This interest has spread to farmers even as far as Papar, Tenom, Beaufort and Kuala Penyu districts. It has also prompted SFI to devise a "Seedling Loan Scheme" whereby seedlings are provided and delivered to farm sites, the costs of which are given on credit and payable only at harvest. This scheme will provide a complementary source of raw materials at low investment costs to SFI's mill.

3.7 SAFODA too has embarked on the smallholder tree farming program in its North Kudat areas in anticipation of a nucleus plantation project in Bengkoka Peninsula. The State Government has recognized the potential role smallholder tree farming will play in poverty eradication in the rural areas.

R&D

3.8 Improvement of the capability of some researchers in the agencies involved in the implementation of the Project component was achieved. The research facilities in FRC were upgraded. In addition, superior planting materials have been developed from the tree breeding studies. All these will contribute towards the development of the Forestry sector.

Study Tours & Fellowships

3.9 The study tours had provided opportunities for State officials, technical and non-technical, to learn about current development and experience in forestry in the neighboring countries. The exposure provided has benefitted the participants tremendously and contacts with relevant foreign counterparts were established. The expertise and knowledge acquired will contribute towards the long term resource management of the State.

3.10 Communications and contact had been established and improved between agencies locally as well as at the international levels. The guidance provided - 23 -

by the Bank's Project Manager and Mission members had been very beneficial to the officials especially to PPMU. The Project also served to familiarize State officers to the Bank's operations.

4. Findings and Lessons Learned

4.1 The Project had generally achieved its objectives and with the information now available, there is no doubt that the decision to proceed on a pilot basis is a correct step. In the course of project implementation, there were important issues and lessons learned which would serve as a basis for planning of the future forestry development program in the State.

4.2 Given the pilot nature of the project, it is accepted that there is a need for the project scope to be broad and to involve many agencies - Government and parastatals. However, this has made effective co-ordination and monitoring of the various components difficult. This, coupled with insufficient emphasis (by both the Bank and State Government) given to the establishment of the PPMU, had resulted in the Unit not being sufficiently manned and supported on a full time basis by the appropriate technical personnel. Technical inputs, especially relating to forestry matters, thus had to be sought from other departments/organizations on an ad hoc basis and this had affected the smooth implementation of the Project Continuity of PPMU and works initiated under the Project should be maintained to ensure the momentum generated in forestry development is not lost.

4.3 The scope of the R&D program was relevant to the long term forestry development of the State. However, consideration should have been given to the pilot nature of the Project, the capacity of the FRC, and the involvement of other forestry-related agencies. The implementation of the research program would have been more effective in time and utilization of the scarce research resources available. Although in the course of project implementation the problem had been eased through contracting of certain projects to other agencies with FRC being the coordinator, the lesson learned is that the authorities will need to assess the relationship between research and operations as well as establishing the linkage among FRIM, FRC, and other forestry-related agencies in the State.

4.4 Both (a) and (b) above had contributed to the delay in project completion and necessitated the extension of the project period.

Heart Rot

4.5 It is generally agreed that Acacia mangium in Malaysia had been known to be susceptible to heart rot and that trees in Sabah have been found to be attacked by heart rot. It is also noted that FRIM has established that the older Acacia mangium stands in the Compensatory Plantation program suffer from 80Z-100Z incidence of heart rot, and the Federal Ministry of Primary Industries (KPU) had accepted the recommendation by FRIM to stop further planting of Acacia mangium in the Compensatory Plantation program. However, results of a survey done in - 24 -

Sabah!' show that the average incidence of heart rot is only 35.5Z in 6 to 9 years old stands. This shows that the heart rot problem in Sabah is a lot less severe than that in Peninsular Malaysia.

4.6 The difference between the results of the survey in Peninsular Malaysia and those in Sabah can be attributed to the fact that Acacia mangium plantations in Sabah have been established with IMPROVED planting materials, and those in Peninsular Malaysia with UNIMPROVED seed from the wild and roadside. In Sabah, Acacia mangium breeding programs are still ongoing in the various forestry-related organizations, particularly in SFI and FRC. In the breeding program, any individual tree infected by any disease is selected AGAINST; thus the future generations of Acacia manaium in Sabah are expected to be less susceptible to infection by the pathogen(s). The optimistic picture is that heart rot will be eliminated in Acacia manaium plantation in Sabah, provided that there is adequate investment on tree breeding and pathology R&D and that only improved planting materials are used for plantation establishment.

4.7 Moreover, the above study indicates that the volume of wood affected by heart rot is very low, from 0.0032 to 1.26Z for trees of more than 10 cm in diameter (please refer to the Table below, taken from Mahmud et al's paper). For production of chip wood on lalang grassland, even at the present stage of tree breeding research, these figures should not pose a serious problem.

4.8 Ito's- report indicates that the incidence of heart rot for stands of 6 to 9 years old is between 50S to 80Z. This higher figure than that obtained by Mahmud et al is correlated with the generally nutrient-poor sites in SAFODA. Mahmud et al's survey covered both infertile (e.g., SAFODA areas) and fertile sites (e.g., Gum Gum and Kolapis). This shows that if the investors have reasonably fertile land (e.g., loamy soil of the Tanjung Lipat soil family) for planting Acacia mangium, they need not worry too much about heart rot. Ito did not estimate the volume of heart rotted wood in the Acacia mangium plantation.

Acacia Hybrid

4.9 Results from preliminary research on Acacia hybrids undertaken by the various forestry-related agencies have been encouraging. Therefore, one should not discount the potential of Acacia hybrids as better pulp logs and higher value timber in enhancing the returns of plantation investment.

5. Bank's Performance

5.1 Future Bank involvement in any follow-up project should not involve too many agencies and that the channelling of loans from the Bank to the implementing agencies should be as direct as possible. This would reduce administration and red-tape.

1/ Survey of Heartrot in Acacia mangium, FRC, 1990, Mahmud, Lee and Ahmad.

2/ Shin-ichiro Ito, 1990, A Survey of Heart-rot in A. Mangium, Report to SAFODA. - 25 -

5.2 The Project experienced regular Supervision Missions from the Bank which enhanced cooperation and working relationship with the State officials. Furthermore, the transfer of technology was also effected through the wide range of specialist technical expertise that came as part of the Missions.

Heart rot incidence, volume of wood affected by heart rot and discoloration and incidence of termite attack

Age Heart Rotted volume Discolored Rotted group Location rot (X merchantable and rotted Termite Volume (year) (Plots) incidence volume) - - voluse attack Stand Rangp Mean

9 Ulu Kukut (Sarang) 60.0 0.36-1.71 0.96 0.69-2.82 NiL 0.58

8 Gum-Gun (Gum-Gun) 30.0 0.02-2.78 0.77 0.32-2.78 NiL 0.23

8 Keningau (Malime& 48.7 0.05-18.10 2.59 0.30-18.10 Nil 1.26 Bahmula)

8 Kudat (MompiLis & 10.0 0.03-10.82 5.51 0.29-12.63 Nil 0.55 Hobut)

8 ULu Kukut (Timbang) 10.0 0.03 0.03 0.29 Nil 0.003

6 TeLupid (Telupid) 36.7 0.07-6.19 1.37 0.76-23.93 23 0.50 6 Kotapis (KotapisA) 28.0 0.03-3.21 1.13 0.04-5.80 5 0.32

5.3 There were two visits made by officers from the Bank's Disbursement Division. Although meetings were held with the various implementing agencies and the officers visited PPMU and SAFODA, it would have been helpful in terms of the preparation of annual reports had the Officers visited the Forestry Department in Sandakan as well.

6. Borrower's Performance

6.1 Although there was a delay in Loan signing and Loan effectiveness, the Sate Government did make budgetary provision for the overall Project as early as 1986.

6.2 The Project experienced delays in the submission of Audited Annual Reports (with the exception of SFI) due to institutional weaknesses.

6.3 In spite of the constraints and limitations encountered in the course of project implementation, with the guidance and advice from the PDG and the - 26 -

Bank, the various implementing agencies were able to complete the Project successfully.

7. Prolect Relationship

7.1 Relationship between Bank Staff and State officials throughout the implementation of the Project were positive. Bank staff had been very helpful and very forthcoming with advice and assistance in establishing contacts with relevant international organizations thus broadening the contact base of the State agencies. - 27 -

PART III: STATISTICAL INFORMATION

Table 1: RELATED LOANS

Loan Number Year and Title Purpose of Approvat Status

673-MA Milling of sawlogs recovered during 1970 Completed 1974 Jengka Forestry Project land cleaning for oil palm PPAR2119 6/1/78 development by FELDA PCR 1/28/76

2828-MA Support to forest research and to 1987 Completed 1992 National Forestry R&D establish the Forest Research (PCR under Project Institute as an independent agency Preparation)

Table 2: PROJECTTIMETABLE

Date -Item Planned Revised Actual Identification a/ 9/15/84 Preparation b/ Appraisal Mission c/

Loan Negotiations 3/29/85 3/29/85

Board Approval 5/21/85 5/21/85

Loan Signature d/ 1/17/86

Loan Effectiveness 5/28/86 Loan Closing 12/31/89 12/31/91 12/31/91

pJ The pilot project was identified following appraisal in May 1983 of a large-scale settlement project, on the basis of unacceptable risk and uncertainty. §J Preparation was carried out in the Bankat headquarters on the basis of discussions during identification.

S/ No appraisal was carried out because of the analyses done during the 1983 appraisal of the original project. d/ Conditions of effectiveness delaying signing were execution of a Subsidiary LoanAgreement between Malaysia and Sabah, and execution of agreementsbetween SAFODAand SabahForest Industries. - 28 -

Table 3: CREDIT DISBURSEMENTS

DisbursementU5S Million Equivatent (Loan 2550-MA) Fiscal Year Estimated Actual. Profile Actuat as X Cumulative Cumutative Cumulative of Estimated

1985

Jun. 1985

1986

Sep. 1985 .25 Dec. 1985 .50 .08 Mar. 1986 .80 .16 Jun. 1986 1.10 .28 1987

Sep. 1986 1.80 .12 .39 6 Dec. 1986 2.50 1.26 .52 50 Mar. 1987 3.05 1.28 .65 42 Jun. 1987 3.60 1.30 .91 36 1988

Sep. 1987 3.80 1.60 1.17 42 Dec. 1987 4.00 2.05 1.43 51 Mar. 1988 4.75 2.29 1.69 48 Jun. 1988 5.50 2.34 1.95 42

Sep. 1988 5.75 2.82 2.21 49 Dec. 1988 6.00 3.23 2.47 54 Mar. 1989 6.25 3.23 2.73 52 Jun. 1989 6.50 3.63 2.99 56 1990

Sep. 1989 6.50 3.63 3.25 56 Dec. 1989 6.50 3.98 3.64 61 Mar. 1990 6.50 4.58 4.03 70 Jun. 1990 6.50 4.58 4.29 70

1991

Sep. 1990 6.50 4.63 4.55 71 Dec. 1990 6.50 5.20 4.81 80 Mar. 1991 6.50 5.20 5.07 80 Jun. 1991 6.50 5.41 5.33 83

Sep. 1991 6.50 5.75 5.59 88 Dec. 1991 6.50 5.75 5.72 88 Mar. 1992 6.50 6.31 5.85 97 - 29 -

Table 4: PROJECT IMPLEMENTATION

indicators Units - Actiil

Bengkoka

Nursery Unit 1 1 Area Planted ha 3,000 6,917 AdministrativeBuildings Units 3 3 Staff Housing Units 3 3 Water Supply Units 1 1 Electricity Units 1 1 Vehicles Units 4 4 Forest Tracks, Roads km 67 250

S tltholderProgra

Area Planted ha 500 713 No. of Participants Number 100 282 Vehicles Units 1 1 Nursery Units 1 1

ResearchPlantation

Area Cleared ha 500 500 Trials Planted ha 500 143 Field Office Units 1 1 Laboratory Units 1 1 Vehicles Units 4 13 Nursery Units 1 1 ConsuLtants j/ Months 116 N/A a/ The studies werecontracted on a lump sun payment basis. - 30 -

Table 5: PROJECT COSTS AND FINANCING (in USS '000)

A. Proiect Costs

_ _ _ _ _ :t= 0 :Estimated- _= _- _ _Actual . ______

Local Foreign Total Local Foreign TotaL

Pilot Plantation 3,880 4,002 7,882 3,636 4,901 8,537 Tree Farming 413 117 530 86 86 172 Research 709 601 1,310 645 1,117 1,762 Studies & Fellowships 250 600 850 188 188 Project Unit 210 33 243 408 14 421

Total Base Costs 5,462 5,353 10,815 4,774 6,306 11,080 Contingencies/UnaLlocated 1,138 1,147 2,285

Total Proiect Cost 6,600 6,500 13,100 4,774 6,306 11,080

B. FinancinA

(USS '000)

PLanned Final

PlantationActivities 3,200 3,689 Treefarming 100 86 Equipment& VehicLes 900 1,369 ConsuLtant& Training 1,200 1,162 UnaLLocated 1,100

Total 6,500 6,306

Unused 194 - 31 -

Table 6: PROJECTRESULTS

A. Direct Benefits at FuLL Development

Arealyear MAI (m3rha) 3 Yield/ha ProductiATn/year (ha) Year 7 tm at year 7) (m

Bengkoka

Without Project 200 12 84 16,800 With Project 2,000 20 140 280,000 Incremental 1,800 8 56 263,200

Treefarming

Without Project 0 0 0 0 With Project 713 15 56 74,865

B. Economic and Financial Impact

No economic or financial rate of return was calculated because of the technical assistance nature of the project. The Bengkoka component resulted in an injection of public funds into the area, leading to a major increase in economic activities, which is obvious to observers but is not subject to quantification because of inadequate data. - 32 -

Table 6: PROJECTRESULTS

C. Studies

Study Purpose Status Impact

Treefarming Assess potentialfor smaltholder Completedsatisfactorily Identifiedsome 20,000ha treefarming of suitable land

Incentives Assess scope for private sector Completed Good generaland involvementin reforestationand measure theoreticaloverview but financialincentives impact limited

Processing Assess current situation Not done Studieswere financed TransportMarketing under other programs

Site Surveys To assess suitabilityof various Combinedwith locationsfor tree planting treefarmingstudy

ForestManagement To devise methodsfor sustainable Combinedwith R&D managementof naturalforest program

Speciesand Identifysuperior species/provenances Ongoing Improvedmaterial ProvenanceTrials identified

NurseryTechniques Improvequality of plantingstock Completed Better seedlingcondition and survival

Nutrient Improveearly growth rates Completed Fertilizerregime Requirements developed

Weed Control Identifyleast-cost method of weed Completed Better growthof young control trees

Site Preparation Develop low-costmethods f site clearing Completed Better growthof new trees and reducesoil compactionorAmage at lower cost

Thinningand Improvetree form Completed Silviculturalpractices Pruning improved

Pest Survey Identifyimportant pests in mangiunand Completed Pests found to be relatedspecies relativelyminor in

______importance

Heart Rot Survey Measure importanceof heartrotin mangium Completed Heartrotfound to be important

Otanraticn Evaluatecosts and benefitsof ComDp!e'd Plantationswithout Economics plantaticns processingactivities ______~ ______found to be marginat n - 33 -

Table 7: STATUS OF COVENANTS

Loan Agreement Section SubJect Status

5.01 (a) Execution of Subsidiary Loan Agreement Completed

5.01 (b) Execution of Purchase Agreement between SFI CompLeted and SAFODA

5.01 (c) Establishment of Project Unit CompLeted

5.01 td) Employment of Management Consultants Completed

Project Agreement

3.01 (a) Submit audit reports to Bank within six Project Unit and SFI months of end of financiaL year generaLly on time. SAFODA and Forestry Department generally Late. 34-

TabLe 8

8. Use of Bank Resources

A. Staff Inputs (staff_weeks)

FY 85 FY 86 FY 87 FY 88 FY 89 FY 90 FY 91 FY 92 Total

Prep & PreappraisaL 0.8 ------0.8

Appraisal 2.8 ------2.8

Negotiation 0.2 0.2

Supervision - 7.0 8.3 6.5 7.3 4.0 3.9 10.6 47.6

Total 3.8 7.0 8.3 6.5 7.3 4.0 3.9 10.6 51.4

8. Missions

Speciali- Stage of Number of Days zation Proiect Cycle Year Persons In field Represented Rating ProbLem

Identification 09/84 1 4 Forester.

Preparation 12/84 1 4 Economist

Appraisal' - - - Engrs.

Supervision

Mission No. 1 03/86 2 4 Engr., Fi. Analyst 1 Mission No. 2 10/86 3 5 Two Foresters, Economist 1 Mission No. 3 02/87 1 5 Economist 1 Mission No. 4 07/87 1 4 Economist 1 - Mission No. 5 11/87 2 7 Forester, Economist 1 Mission No. 6 08/88 2 4 Forester, Economist 1 Mission No. 7 11/88 1 2 Disbursement Officer 1 Mission No. 8 02/89 4 10 2 For., 1 Ec., 1 Fi. An. 1 Mission No. 9 09/89 1 3 Economist 1 Mission No. 10 02/90 1 3 Economist 1 Mission No. 11 06/90 4 4 Forester, Economist 1 Mission No. 12 02/91 2 4 Forester, Economist 1 Mission No. 13 07/91 1 3 Economist 1 Mission No. 14 12/91 1 2 Economist 1 Mission No. 15 03/92 3 11 2 Foresters, Economist 1

1 No appraisal mission. Project based on findings of dropped project (para 2.2) IBRD 18946 116' 118°

MALAYSIA FORESTRYTECHNICAL ASSISTANCE PROJECT SABAH

_7See InsetA ProjectAreo -7-~ ~ ~ ~ ~ ~ ~ Se n tAU SettlementArea Kudot _ PulpMill - < oangkol A ForestryResearch Plantation Roads .ri|JDA,] pPitos Rivers Ports Kator orodu t Air Strips Koto Belud Swamps DivisionBoundories Tuoron - - StateBoundary P/ l l -7- - InternationalBoundary

KotoKinobolu/ Ronu

Beluron / anaa

Popor ambunon T -pd omog

eufort KEeningou SABAH

pitong tLahod Dotu PENDAL AMAN TA 'vAI ToLowos )

Sempurno SARAW -N

Mongkubou Inset A Lout 0 20 40 60 80 100 KILOMETERS I I I INDONESIA MILE lo 20 30 40 50 60

% ht.O,fe B,r.B by . B. .1.C4 T.ft co a' ~~~~~~~~~~~~~~~~~~~~~~~~~~~~PrUnse,Co,oic Trdhor0.nb,8Ioy aeb0 B ro.,0. 'boon 0o 180 _dono S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~nT Be'S 0roe brO Bet 0040 k,tneore Fw,c. Co,n'.t *o oTe.Iagfto O W.. 1* V r iy Ofn

o1 VIETNAM PHILIPPINES

Sos L.kmdoo THAILAND P.tos ~~~~~~~~Areaof m Kobotoson, Mop XotoTonQ ~~~~~~~~~~~~~~~~BRUNE,8'oo Lt3 k~~~~~~~~~~Sabaht Konibongon \ (.- M A L A Y S I A Sarawok Sumatera 'NCJSINGAPORE alimantan I N D 0 N E S I A 'MARCH 1985