World Bank Document

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 2463-BA

BURMA Public Disclosure Authorized FORESTRY II - EAST PEGU YOMA PROJECT

STAFF APPRAISAL REPORT Public Disclosure Authorized

July 17, 1979 Public Disclosure Authorized South Asia Projects Department Agriculture Division B

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

US$1.00 = Kyat (K) 6.7 K 1.00 = US$0.149

WEIGHTS AND MEASURES

1 hoppus foot (HF) = 1.273 cubic feet (feet (ft ) true geometric measure 1 hoppus ton (H ton) = 50 HF3in round logs or = 50 ft of converted lumber, or = 63.75 ft true geomesric measure, or = 1.805 cubic meter (m ) roundwood under bark 1 sawn ton (ST) = 50 ft Sr = 1.416 m (sawnwood) 1 metric ton (mt) = 2205 pounds 1 pound (lb) = 0.45 kilograms (kg) 1 mile (mi) = 1.609 kilometers (km) 1 square miles (sq mi) = 2.589 squjarekilometers (sq km) 1 hectare (ha) = 2.47 acres (ac) 1 millimeter (mm) = 0.04 inches (in) 1 meter (m) = 1.09 yards (yd)

Fiscal Year - April l/March 31

ABBREVIATIONS

ADB - Asian Development Bank CC - Construction Corporation CIDA - Canadian International Development Agency CP - Cooperative Program (FAO/IBRD) DCA - Director of Commercial Audits EEC - European Economic Commumity FAO - Food and Agricultural Organization of the UN FD - Forest Department FFS - Forest Feasibility Studies FRI - Forest Research Institute gbh - girth breast height (see Glossary, Annex I) GOB - Government of Burma GOF - Govz,,ment of Finland MAF - Ministry of Agriculture and Forests MPF - Ministry of Planning and Finance PSC - Project Steering Committee PU (TC) - Project Unit (Extraction and Sawmilling) PU (FD) - Project Unit (Plantations) TC - Timber Corporation UBB - Union of Burma Bank UNDP - United Nations Development Program BURMA FOR OFFICIAL USE ONLY

FORESTRY II - EAST PEGU YOMA PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. THE FORESTRY SECTOR ...... 1

A. Introduction ...... 1 B. Forest Resources and Population ...... 1 C. Contribution to the Economy ...... 2 D. Markets and Production Potential ...... 3 E. Forestry Institutions ...... 4 F. Forest Industries ...... 6 G. External Assistance to Forestry ...... 7 H. Constraints to Development ...... 10

II. THE PROJECT AREA ...... 10

A. Location, Resource and Forestry Production ...... 10 B. Topography, Geology and Soils ...... 11 C. Climate ...... 13 D. Infrastructure ...... 13 E. Economy and Industries ...... 13

III. THE PROJECT ...... 14

A. Project Genesis ...... 14 B. Main Features ...... 14 C. Detailed Features ...... 16 D. Cost Estimates ...... 24 E. Financing ...... 24 F. Procurement ...... 25 G. Disbursements ...... 26 H. Accounts and Audit ...... 27

This repo t Is based on the findings of a Bank mission which visited Burma in NSovember-December 1978, and which comprised Messrs. I.A. Harvey, 0. Baykal, U. Warnemunde, (Bank), W. Ellis, A. Haspey and J. Myllyrinne (Consultants).

Table of Contents (Cont'd.)

Page No.

IV. ORGANIZATION AND MANAGEMENT ...... 27

A. Project Implementation ...... 27 B. Consultancy Services, Technical Assistance and Training ...... 30 C. Forestry Planning, Inventory and Coordination ...... 31

V. PRODUCTION, MARKETS AND PRICES ...... 32

A. Production ...... 32 B. Markets and Prices ...... 33

VI. FINANCIAL ANALYSIS ...... 36

VII. ECONOMIC ANALYSIS ...... 37

A. Benefits and Costs ...... 37 B. Beneficaries ...... 39 C. Economic Rate of Return ...... 40

VIII. PROJECT RISKS ...... 41

IX. ASSURANCES RECOMMENDATIONS ...... 42

ANNEXES

1. Glossary 2. Supporting Tables 3. IDA Disbursements Against Local Expenditures for Teak Plantation Establishment. 4. Related Documents and Data Available in the Project File.

LIST OF TABLES IN THE MAIN TEXT

1. Land Classification. 2. Phasing of Project Physical Development Targets. 3. Summary Cost Estimates. 4. Financing Plan. 5. Project Area Timber Production. 6. Fiscal Implications for GOB. 7. Summary Financial Status of TC and Forestry I. 8. PU (TC) Summary Cash Flow. 9. Sensitivity Analysis. BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Staff Appraisal Report

I. THE FORESTRY SECTOR

A. Introduction

1.01 Burma is well endowed with natural resources. Forests form a major element of this endowment. Climate and topography have together contributed both to a rich variety of forest species and to a river system providing access for timber extraction. Burma's forests have been well preserved by one of the world's oldest forest departments. Teak and a few other valuable hardwood species have historically formed the major part of forest output. A description of Burma's forest resources and a discussion of their development potential was included in the Burma Forestry Project No. 774a-BA of 1974 (Forestry I) and is described in detail in the Forest Feasibility Studies (FFS) of 1977/78 (Annex 4, B2). This section summarizes the more important points of relevance to the project.

B. Forest Resource and Population

1.02 Burma's population density of 47 per square kilometer and its growth rate of 2.2% are among the lowest in Asia. Land pressures and land-use con- flict are relatively light. Adult literacy is about 67% and skilled manpower is available, particularly in forestry, where there is a strong, well trained, professional body with substantial overseas experience (Annex 4.CI).

1.03 Burma's forests cover about 96 M acres or 57% of its land area. Of this forest area, 24 M acres or 25% are reserved forest. There are about 15 M acres of teak reserve forest which partially overlap about 16 M acres of non- teak hardwood 1/ reserve forest. About 35% of Burma's forest resources (15% of teak standing volume) are currently inaccessible for reasons of topography or security and large scale forestry operations in these areas are usually not possible. Taungya, or uncontrolled shifting cultivation, covers about 660,000 acres/year over a six year cycle. Controlled taungya is used successfully for plantation establishment whereby taungya farmers intercrop, tend and weed the plantation crop. Of the eight forest types in Burma, deciduous forest is the

1/ In this report, "hardwood" refers to "non-teak hardwood". - 2 - most important, with principal species being Teak, In, Kanyin, Pyinkado, Padauk and other commercial hardwoods 1/. There are extensive bamboo stands in Arakan and Tennasserim. Plantation establishment in Burma started before 1860, but although about 220,000 acres of plantations have been established since then, some of this area was in the form of small "enrichment" areas, which have since merged back into the natural forest, or have been felled. About 100,000 acres of plantations, of which 50% is teak, have been established in the last forty years. Planting has increased since 1962, with annual areas of 2,000 acres teak, 1,000 acres pyinkado and 3,000 acres other species. Since 1969, 20,000 acres of eucalypts have been planted for watershed protection and fuelwood, mainly in Central Burma. Although data for predicting naturally regenerated teak yields for the next forty years is adequate, much of the inventory data on forest stocking are out of date and GOB is considering undertaking a new forest inventory. Current annual forest output is about 310,000 H tons of teak and about 375,000 H tons of hardwoods. The present teak Annual Allowable Cut 2/ (AAC) for all Burma is about 400,000 H tons of which 300,000 H tons are from accessible and secure areas. Based on recommendations in the FFS, girth limits for teak and hardwoods have been reduced, which will increase yields substantially during the next cutting cycle. There is also a backlog of girdled, unfelled teak of about 440,000 H tons in secure areas. The hardwood AAC is not fully utilized and, at 1.1 M H tons from accessible areas, is well above the current extraction level. GOB is now embarking on an aggressive policy of compensatory plantations and the dynamic system of forest management being created will substantially increase forest yields.

1.04 The geography of Burma is dominated by the Irrawaddy River complex which drains two-thirds of the country and provides access to many of the forest areas and which continues to provide cheap, if slow, transport for rafting teak logs from remote forest areas to Rangoon. Insurgency affects significant areas of forests. Where insurgency has been controlled, for example, in the project area, rich natural forests are available for development.

C. Contribution to the Economy

1.05 The agricultural sector, including crops, livestock, fisheries and forestry is the largest in the Burmese economy, contributing 47% of GDP and employing 67% of the labor force. Agricultural products, principally rice and teak, account for about 85% of all exports. Although forestry contributes less than 2.5% to GDP it provides almost 25% of foreign exchange earnings and forest products provide an important element of indigenous consumption. Fuel- wood provides a high proportion of rural energy consumption, supplying villagers' basic needs for heating and cooking. Industrial roundwood is used in the production of sawnwood and wood-based panels. Other forest products, such as bamboo, provide inputs to the pulp and paper industry. Sawnwood and panel

1/ See Annex 1 for species.

2/ The volume of wood which may be harvested annually from a given area. - 3 -

products are used in public, residential and commercial construction and furniture manufacture. Forests also play a significant role in protecting Burma's watersheds, preventing soil erosion and ensuring a sustained flow of irrigation and drinking water for farmers and urban dwellers situated down- stream. The value of forestry production is about US$90 M. Real growth of forest based income was almost 8% per year during the Second Four Year Plan (1974/75-1977/78), although measured against a low base year. Total permanent employment in forestry operations is about 150,000 of which about 32,000 are employed directly by Timber Corporation (TC) and 4,500 by Forest Department (FD). Due to a decline in hardwood extraction, teak and hardwood sawnwood consumption has declined from 380,000 H tons in 1971/72 to 193,000 H tons in 1977/78. The shortage of sawn hardwood has affected many sectors, particularly construction and railways, and is a principal reason for a large increase in theft of teak logs by villagers. Despite extensive forests, Burma's annual consumption of mechanical wood products of 12 m per 1,000 people is low by any standards.

D. Markets and Production Potential

1.06 Teak is valued in export markets for both its decorative and structural properties. The markets for both are strong. Burma's timber export increased in value from about Kyats 230 M to almost Kyats 400 M between 1974/75 and 1977/78, despite a decline in volume over the same period from about 115,000 H tons to about 95,000 H tons, due to substantial increases in world teak prices. Revenues and volumes for 1978/79 are projected to have increased further. Because of recent reductions in teak export by other countries, Burma now has a virtual world monopoly in the high quality teak trade. Teak veneer log exports are limited only by log quality. About 13% of current extraction is suitable for log export for veneer production, mainly to Japan. Teak sawnwood markets are principally Singapore and Hong Kong where, because of poor sawing quality in Burma, timber is frequently resawn to customer requirements. In the past, Burma has had a poor marketing reputation due to failures to meet delivery commitments and to poor commercial and marketing practices. The market potential for increasing teak sawnwood volume, quality and prices is good, provided that TC continues its current efforts to improve sawnwood quality and marketing methods. Export markets for Burma's hardwoods are less strong principally because of TC's marketing reputation. However, providing that marketing deficiencies continue to be overcome, the growing world markets for tropical hardwoods would provide outlets for Pyinkado, Gurjun and Padauk as logs or sawnwood. Burma's share of the world tropical hardwood market has never exceeded 0.14%, thus even a substantial increase in Burma's exports from current levels would not mea- surably affect world supply or prices. The domestic market is supply constrained and is likely to remain so. Wood product imports are insignificant. Bamboo will continue to take an important role in urban and rural housing, commercial and industrial facilities and pulp manufacture. - 4 -

E. Forestry Institutions

1.07 All of Burma's forests and most forest based industries are owned and controlled by Government. The Ministry of Agriculture and Forests (MAF) is primarily responsible for the forestry sector, exercising control through FD and TC. TC extracts all commercial teak and most hardwood. Little data are available on private sector hardwood production, but its market share is small. All teak sawmilling, most hardwood sawmilling, veneer and plywood manufacturing is owned by TC. Some hardwood "resaw mills" are privately owned and account for about 20% of hardwood sawing capacity. Pulp and paper production plants are owned and operated by Ministry of Industry Two. The FD, founded in 1856, is the oldest forest service outside Europe, and is responsible for all aspects of forestry in Burma, other than extraction and sale of timber. The FD staff of 4,500 is well trained and dedicated. The Forest Research Institute (FRI) at Yezin has recently been established and its foreign exchange costs are being financed through UNDP/FAO. FD, which would be responsible for the plantation component of the project, has already been responsible for a continuing, successful but relatively small plantation program.

1.08 Timber Corporation (TC). TC is a wholly state-owned corporate body, with separate legal entity and perpetual succession. It has the power to enter contracts for transaction of its business, the right to sue and the liability to be sued. It is the successor to the State Timber Board (STB) which was created in 1950, following nationalization of teak extraction and sawmilling enterprises. In 1963 hardwood extraction and most hardwood sawmilling was nationalized and also brought under STB. Effective management responsibility is carried by the Managing Director and a Management Committee. Since 1976, TC has been subdivided into 14 operating divisions corresponding to the administrative divisions of Burma. These operating divisions are further subdivided into about 35 extraction and 2 rafting agencies. The Forestry I (IDA financed) and Sagaing (ADB financed) Projects are based on functionally manageable extraction areas, and enjoy substantial autonomy within TC. A lengthy period of stagnation and falling production by TC has been abruptly terminated in recent years by government's realization of TC's key role in economic growth. As a result, TC's organization has been struggling to meet more ambitious objectives with an obsolete and essentially worn out equipment base and in face of serious shortages of operating supplies, parts and equipment, organizational difficulties and security constraints. The Forestry Projects were set up as separate entities to ensure dynamic performance by combining improved management with enhanced equipment supplies and work procedures. Because of their success in operations and training, and their place in TC's future structure, Forestry II would also be a separate and similar entity. TC's organization is expected to evolve over a period of years, with the TC Organization and Management recommendations of the FFS as a major input. Forestry I, Forestry II and the Sagaing Projects will provide trained personnel and operating methods and systems for this continuing reorganization. TC employs about 32,000 full time personnel of whom about 600 are professionally qualified, with additional extraction workers engaged on a contract basis during the extraction season. -5-

1.09 Although investment in extraction, sawmilling and transportation equipment in the early 1970's was minimal, TC teak production showed compara- tively small declines, but at the cost of major reductions in hardwood output. Equipment shortages were compounded by unsatisfactory management performance in TC. Operations were highly centralized with little delegation of authority. Cost control and information systems were ineffective. Discipline was lax, forward planning was inadequate and export marketing was poor. These difficulties were recognized by both GOB and TC. Rather than attempt immediate change for all TC, development efforts for institutional change, training and investment were concentrated in the Project Units of Forestry I and Sagaing. With the active participation of TC management and MAF, these Project Units are developing packages of workable and effective structures, methods and systems, which can be adopted by TC. These Project Units have already had substantial direct and indirect effects. Teak and hardwood output is increasing. Export volumes and value have shown substantial increases and TC's marketing methods are improving. Furthermore, as a result of the new commercialization policy of GOB, TC's Management Committee now has policy- making power, TC has to operate within a commercially-oriented financial system and a bonus scheme has been introduced. Under the decentralization policy of GOB, TC's extraction, accounting and marketing and milling activities are being decentralized to relax central control and encourage decision making and innovation at the field level. Although there will be a difficult transition period, these measures are expected to improve TC's productivity and quality of work. Most significantly, the Forestry II extraction project was prepared by TC, utilizing some personnel from the Project Units, with advice from CP, in only four months. Because of the high quality of many of its staff TC has great potential for development which will be hastened as TC staff benefit from international experience through in-house and overseas training and from suitably experienced overseas personnel visiting Burma.

1.10 Despite TC's variable physical performance, it has always been a financially profitable organization. In fiscal 1976/77 total after-tax earnings were Kyats 58 M (US$8.6 M) on gross revenues of Kyats 540 M (US$81 M), (11% return on revenues) having risen from after tax earnings of less than Kyats 1 M on gross revenues of Kyats 340 M in fiscal 1972/73. TC's total assets were about Kyats 880 M (US$131 M) at the end of fiscal 1976/77. TC's after-tax return on total net assets rose from 2.9% in 1973/74 to 6.6% in 1976/77. In 1976/77, Forestry I contributed 28% of TC's net earnings and provided 26% of revenues from 23% of net assets (8% return on net assets). In 1977/78 Forestry I increased its return on net assets to 21% and is expected to contribute, together with the Sagaing project, to a substantial further improvement in TC's operating position. The total equity capital of TC was Kyats 312 M (US$46 M) at the end of fiscal 1976/77 with net total long-term debt of Kyats 247 M (US$37 M) of which Kyats 161 M (US$24 M) is 20 year government debt stemming from the Working Capital and People's Consolidated Fund System which ended in 1977/78. TC's debt coverage in 1976/77 was 2.8 with a debt ratio of about 0.65. TC's capital structure is considered acceptable. GOB receives substantial contributions from TC operations through import taxes and duties (of about 50%) on equipment, operating taxes on value-added (rang- ing from about 30% to 55%) and royalties on teak and hardwood extraction. Accounting and auditing have been less than satisfactory for TC as a whole, - 6 - with two years backlog. Forestry I accounting and auditing, however, is up-to-date. TC's backlog of accounting is being reduced, and the adoption of Forestry I financial and cost accounting procedures, when completed and proven, will bring major improvements.

F. Forest Industries

1.11 Burma's forest products industry has, until recently, been neglected and, hence, has been unable to maintain its share of national output. It is old, run down, short of spares, inadequately maintained and has low throughput and wastefully low conversion rates. It cannot supply the minimal requirements of the domestic economy nor can it supply adequate quality sawn and manufactured products to the export markets. Rehabilitation and expansion are of primary importance to make better use of current forest output. Present State manufacturing facilities include about 200 teak and hardwood saw mills, 3 plywood mills, 1 integrated pulp and paperboard mill, 1 waste-paper paperboard mill and minor plants such as a small furniture factory. There are also about 400 small, private "resaw" operations which are licensed to re-saw teak and hardwood to retail sizes. Employment in the industry is about 30,000, of which over half is widely dispersed in villages and towns other than Rangoon. With the exception of paper and paperboard, production has declined over the last 5 years. Particularly serious are sawn teak, sawn hardwood and plywood production. Current single shift teak milling capacity is 270,000 H tons. 1976 input was 155,000 H tons with an output of 70,000 H tons, the lowest since 1958/59 and 55% of rated capacity. The current teak recovery rate of 45% hoppus is low, given the existing log input quality and product mix. Substantial revenues are now foregone due to poor sawing. The hardwood mills are mainly small, simple operations of 2,000-10,000 H tons annual input. Almost all are in very poor condition and ill equipped to utilize effectively the existing hardwood resource. The sawn product is of poor quality and would be largely unacceptable in international markets. While most teak sawnwood is exported, hardwood sawnwood is utilized almost entirely domestically. Whereas all the principal teak mills are in Rangoon, hardwood production is widely dispersed with mills generally 10-15% the size of teak mills. Hardwood sawmilling now runs at substantially less than nominal capacity. Throughput in 1975/76 was 350,000 H tons or 60% of nominal capacity, compared with 1972/73 throughput of 580,000 H tons. Recovery, as for teak, is poor at 54% hoppus. Declining output is due to log shortages, equipment breakdowns, few spare parts, absenteeism and diesel fuel shortages. Three plywood plants in Rangoon and Swa manufacture and distribute a small range of urea bonded plywood panels from sliced and3 peeled teak or hardwood veneers. Althoug nominal capacity ii 450,000 ft actual output has fallen from 390,000 ft in 1972 to 300,000 ft in 1976. Recovery rates average an extremely low 26%. The secondary mechanical wood products industry is not highly developed and although these activities provide an essential service to the domestic market, only minimal volumes are exported. - 7 -

G. External Assistance to Forestry

1.12 Forestry I. The Burma Forestry Project, Credit 493-BA for US$24 M was approved in 1974 (Map 1). The project covers five extraction agencies centered in Prome, in an area 400 miles long and 75 miles wide and including about 5 M acres of teak and hardwood forest. Principal project components are:

(a) Roads - Construction and maintenance of access feeder roads;

(b) Logging - equipment for logging, spares for rehabilitation of existing equipment;

(c) Transport - loading equipment, logging trucks, towing launches for river log rafts and spares for existing equipment;

(d) Administration - project headquarters buildings, stores and workshops, supervision vehicles, workshop and office equipment;

(e) Sawmills - rehabilitation of selected sawmills;

(f) Technical Assistance - training overseas of key TC personnel and provision of specialists in workshops, extraction, roads, management accounting and sawmilling; and

(g) Feasibility Studies - to study future development projects in the forestry sector.

1.13 The project started slowly due to delays and difficulties in recruit- ing consultants and to organizational constraints. The project reached its projected annual teak output of 100,000 H tons in 1976/77 but has reached only 35% of projected hardwood output of 72,000 H tons (1977/78). Despite the hardwood shortfall, project revenues are about 25% greater than projected at appraisal, due to substantial increases in the world price of teak and average production costs which are equal to or less than those projected at appraisal. Although returns from the project are very high, there have been substantial problems during implementation which have prevented returns from being yet higher. These problems have included shortages of spare parts and diesel fuel, slow procurement, inadequate maintenance and management accounting and insufficient forward planning. The shortfall in hardwood output stems principally from procurement problems for new logging trucks which have only recently been resolved, but also from a natural concentration on high value teak extraction whenever difficulties limited total extraction capacity. The project status is now good. GOB has taken action to solve shortages of spare parts and diesel fuel, project planning has improved because TC and IDA have more fully understood the complexities of mixed animal/mechanical extraction of teak, maintenance and forward planning are being improved. The Project Unit has strong support from MAF and TC. Logging trucks will arrive in mid 1979. Rehabilitation of sawmills is almost complete and IDA is, in addition, financing a small new hardwood sawmill which would be a model for the proposed new mills in Forestry II. Project disbursements under the Credit as of April 30, 1979 were US$11.5 M or 55% of appraisal estimate. With the arrival -8- of equipment now on order, disbursements are expected to reach 80% of appraisal estimates by September 1979. The bulk of the Credit is expected to be dis- bursed by the project closing date of March 31, 1981. The financial position of Forestry I is satisfactory. With gross revenues of Kyats 190 M (US$28 M) and total assets of Kyats 260 M (US$39 M), in 1977/78 it had a return on total assets of 21%, a debt ratio of 48%, a current ratio of 3.9 and debt coverage of about 6 times.

1.14 Many lessons have been learned from Forestry I. Communications were difficult, due to the size of the area (which was also split by the Irrawaddy) and poor telephone communications leading to inefficient control of machinery operations. As a consequence, Forestry II would be much more compact, would lie in one area served by road and rail and would have a comprehensive internal radio network. The use of logging equipment in Forestry I is not yet fully developed, and Forestry II would provide further assistance for planning, operator training and surveying so that techniques appropriate to the unique problems of Burma may be developed further. Technical assistance would be provided by a firm, to avoid the difficulties of identifying available experts with sound, recent commercial experience. Specifications for major equipment groups have been finalized to avoid delays in the procurement approval process. The problems experienced in Forestry I are expected not to appear in Forestry II due to improved project design and GOB actions taken as a result of experience in Forestry I. Significantly, TC and FD were capable, with assistance and advice from CP, of themselves preparing the Forestry II project.

1.15 Forest Feasibility Studies (FFS). The FFS were a component of Forestry I. The principal objective was to prepare a program for the system- atic development of Burma's forest-based industries, matched with the resource potential. The FFS were implemented in three phases:

(a) Phase 1: overseas training for Burmese counterparts;

(b) Phase 2: evaluation of forest resource, present and future markets and selection of projects for detailed study;

(c) Phase 3: detailed studies for: (i) teak extraction, (ii) organization and management of TC, (iii) mechanical wood using industries; and (iv) pulp and paper industries.

The FFS were satisfactorily completed in October 1978 and provide detailed development recommendations and feasibility studies (Annex 4 B.2). Key constraints and objectives identified are included in para 1.19. Detailed feasibility studies were completed for a timber extraction project in the East Pegu Yoma, a hardwood sawmill in Mandalay and an export teak veneer mill in Rangoon. Principal FFS recommendations are summarized below:

(a) Forest Resource: Early implementation of a forest inventory, linked with land use/land capability study; reduction in teak girth limit and felling cycle; conversion of forest management -9-

from selection to uniform system following intensive trials; a substantial increase in plantation establishment; improved integration of FD and TC operations; and strengthening of FD.

(b) Extraction. Limiting teak AAC to 300,000 H tons and hardwood AAC to 780,000 H tons unless supplemental plantations be established; increased mechanization and trucking; simultaneous extraction of teak and hardwoods; increased all- weather roads; major expansion of radio network; and improved repair, maintenance and spares systems.

(c) Industrial Development. Rationalize and rehabilitate teak mills including Okkyin mill; to supply domestic market requirements, increase hardwood sawing capacity by 500,000 H tons through rehabilitation and new construction; continue regional development based on "project areas"; review hardwood pricing policy; rehabilitate plymills 2 and 3; maintain teak log exports and initiate a teak export veneer mill; improve export marketing; improve knowledge of the domestic market; implement a prefeasibility study for a bleached kraft bamboo pulp mill in Arakan and formulate a national plan for pulp and paper.

(d) Timber Corporation. Continue a single corporation, decentralized with four regional and one product division based on existing and proposed project units; maximum authority and responsibility delegated to divisions; integrate and coordinate industry and sectoral planning.

1.16 Some of these recommendations have already been implemented, and the reduction in girth limit has already enabled TC to increase its permissi- ble extraction volumes for the next cutting cycle. Many of the recommendations would be implemented in the proposed Forestry II project. Others are under active consideration by GOB.

1.17 The ADB financed forestry project in Sagaing (near Mandalay) is similar to Forestry I (Map 1). Full production is projected to be about 88,000 H tons of teak and 215,000 H tons of hardwood annually. The loan of US$25.1 M, made in March 1977, was to finance construction and upgrading of forest roads, investment in logging equipment, sawmill modernization, overseas training and technical assistance, and assistance to FD. Project equipment has recently arrived and 1979/80 will be the first complete production year. Equipment procurement has proceeded smoothly due to TC's increasing experience in procurement but there have been continuing delays in the hiring of foreign consultants. FAO/UNDP is financing foreign exchange costs for the development of FRI at Yezin. CIDA is financing the development of TC's base workshop at Pyinmana, including rehabilitation of Canadian manufactured logging equipment.

1.18. GOB has also requested assistance for a Forestry III (Forest Indus- tries) project and for a Fuelwood Supply Plantation Project. These projects are under preparation. - 10 -

H. Constraints to Development

1.19 Key sectoral constraints identified in the FFS and through Bank operations in Burma include: (i) Extraction - inadequate investment in new equipment and insufficient maintenance of existing equipment so that the available resource is not utilized optimally, (ii) Processing - insufficient investment in primary processing causing inefficient utilization of present forest output and (iii) Planning - insufficient knowledge of the resource for comprehensive long term planning. Principal sectoral objectives are: (i) to maximize teak log export revenues in the near term, (ii) to satisfy the domestic market for sawn hardwoods, and (iii) to develop a strategy to maximize long term economic returns from the forest resource. GOB's policies will meet these objectives through: (i) investment in roadmaking, extraction and transport equipment to reduce log losses in transit and to increase timber extraction volumes, (ii) improving sawing quality and conversion rates of sawmills, plywood mills and veneer mills through rehabilitation and new investment, (iii) improved marketing by TC to increase total revenues, (iv) improving equipment maintenance, (v) increasing resource availability by improved forest management/silvicultural research and by augmenting supplies of teak and other hardwoods through increased plantation establishment and (vi) intensified planning and coordination of forestry activities by GOB.

II. PROJECT AREA

A. Location, Resource and Forestry Production

2.01 The project area covers almost the entire eastern slope of the Pegu Yoma range, forming a north-south rectangle 50 miles wide and 280 miles long (Map 2). Of these 14,000 square miles, about 6,500 square miles (4 M acres), are productive forest. The area contains six of Burma's 36 Forest Divisions 1/, 20% of Burma's teak bearing reserve forest area and teak standing volume, 2/ 17% of the hardwood reserve forest area and 21% of merchantable hardwood standing volume. 2/ The rugged terrain of the East Pegu Yoma contains some of the finest quality teak and other valuable hardwood species in Burma. From 1974 to 1977 annual teak log production from the project area increased from 50,000 H tons to 67,000 H tons but annual hardwood log production declined from 135,000 H tons to 81,000 H tons. The hardwood sawmilling industry in the area also declined, not only from the reduction in log input, but also because equipment is old and unreliable.

2.02 The teak AAC for the reserve forest in the project area is 147,000 H tons for the next twenty year cutting cycle. This AAC includes the extraction of the teak backlog and "excess working stock" created by the reduction from

1/ North and South Pyinmana, North and South Toungoo, North and South Pegu.

2/ Volume over 4 foot gbh. - 11 -

7'6" to 6'6'" gbh. In the subsequent cycles the AAC in perpetuity provided by natural regeneration annual increment would revert to about 60,000 H tons. About half the forest area has never been felled for hardwoods. The growing stock in these project areas comprises mature and over-mature stock, with per acre yields substantially higher than other previously logged areas. Approximately 70% of the hardwood growing stock in the project area comprises currently merchantable species. In the project, teak and hardwoods would be extracted simultaneously and annual hardwood production would be limited to 290,000 H tons. This level of extraction could be maintained for a cutting cycle of about 30 years for currently merchantable species. In the second and subsequent cycles, other circumstances remaining equal, the hardwood AAC in perpetuity would revert to about 150,000 H tons. It is expected that, by then, species utilization would have improved and that, more significantly, production from the manmade forests in the East Pegu Yoma will more than compensate for a reduction in natural regeneration yield (Annex 3.C1).

2.03 Plantation forestry in the project area is well established, mainly in scattered stands or "enrichment plantations" throughout the area. About 40,000 acres, which is about 20% of total national plantation area, have been established in the project area. Of this about 75% is teak and 10% eucalypts. Plantation establishment in the past was not consistent, partly because of interruptions due to war and insurrection, with particularly severe effects on the small scattered plantations on tending, thinning and protection. In the last ten years, taungya plantation establishment has been implemented in larger blocks of up to 5,000 acres and, although inexpensive and simple, has been extremely successful in the project area and in the Forestry I project area. Growth characteristics of plantation teak in the project area are excellent with ideal climatic and soil conditions.

2.04 Demand for industrial sawnwood from the project area is increasing because of its proximity to both Mandalay and Rangoon and because it is close to Rangoon port for export of logs and sawnwood. The area contains important conversion facilities and is of sufficient size to support a large scale mechanical extraction and sawmilling operation. It is sufficiently compact to allow good communications and control of extraction operations. Selection of the project area as an operating area fits with GOB's policy of decentralizing TC and creating operationally autonomous and accountable operating divisions.

B. Topography, Geology and Soils

2.05 Topography of the forest areas varies between gently undulating hills close to the plain and broken, rugged, steep, short slopes with many small streams and rivers, in the remote areas close to the Pegu Yoma watershed. The main parent materials are soft tertiary sandstones and clay shales. Solid rock and laterite exist in scattered areas. The area extending from the Sittang River to the Pegu Yoma foothills is flat and is under cultivation principally for rice and sugar cane. Soils in the plain are sand and sandy loam with some heavier clay soils in poorly drained depressions. Generally, the main drainage patterns flow east from the Pegu Yoma ridge to the Sittang - 12 -

River. The exception is in the Pegu area where the main drainage flow is northwest to southeast. Altitudes range from approximately 400 ft in Toungoo Township to 2,000 ft on the remote higher ridges of the Pegu Yomas. In the hills, soils are generally sandy loam with limited pockets of clay or laterite. Earth roads become excessively dusty in the dry season and, if unimproved, become impassable to wheeled traffic in the rainy season. A shortage of suitable road surfacing materials makes the construction of all weather roads difficult and expensive. For logging and road construction purposes the project area may be divided into three distinct classes of topography which run roughly parallel to the Sittang River in a north/south direction. These classes of topography are:

(a) Class I (Steep) - areas with slopes greater than 22 1/ or so remote as to be beyond present economic or practical roading access within the next five years;

(b) Class II (Moderate to steep) - areas with slopes from 120 to 220 with limited areas in excess of 22 such as bluffs or steep side slopes in the lower reaches of the catchments; and

Areas included in each category are shown in Table 1.

Table 1: LAND CLASSIFICATION ('000 acres)

Class I Class II Class III Total Steep Slopes Moderate to Easy Forest in Excess of Steep Slopes Slopes Below Area in Agency 220 120 to 220 120 '000 Acres Area X Area % Area % Area %

N. Pyinmana 0 0 349 70 150 30 499 100 S. Pyinmana 0 0 286 50 287 50 573 100 N. Toungoo 244 40 367 60 0 0 611 100 S. Toungoo 600 50 601 50 0 0 1,201 100 N. Pegu 276 50 276 50 0 0 552 100 S. Pegu 210 40 316 60 0 0 527 100

Total 1,330 34 2,195 55 437 41 3,963 100

Elephants are highly effective in rugged terrain inaccessible to machines and the project has been designed so that elephant extraction for teak is confined to the Class I (remote or steep) areas with the balance of elephants being used

1/ Gradients based on ability of earth moving, logging and transport equipment to negotiate slopes. - 13 - in conjunction with machine extraction in the Class II areas. Many Class III (easy) areas have been logged for teak in the recent past and mechanical or elephant and mechanical logging would be confined principally to the Class II (moderate to steep) areas.

C. Climate

2.06 The climate of the project area is monsoonal with two distinct sea- sons. The dry season extends from November to April with little or no rainfall (Annex 2, Table 1). The rainy season begins in the middle of May and lasts until the end of October. Rainfall is intermittent in September/October and some logging and road construction activity could take place although it is not present practice to do so. Annual average rainfall varies from 140 inches in Pegu to 60 inches in Pyinmana. Day time temperatures can reach 30°- 400C particularly towards the end of the dry season. Night time temperatures can go as low as 100 C during January and February.

D. Infrastructure

2.07 Transportation in the project area is reasonably good in a north/ south direction. A two lane tarred road from Rangoon to Mandalay runs through the plain adjacent to the Sittang river. East/west access is poor with only one all weather road crossing the Pegu Yoma range from Toungoo to Prome, in the Forestry I area. A multi-lane road from Rangoon to Mandalay is in the early planning and construction stages and would cross much of the rich and presently inaccessible forest. This road is expected to be completed after the project and has not been considered in project planning for the next five years. The Pegu river provides access to South Pegu Agency during the rainy season. The Sittang river is navigable to small craft during the rainy season, and is used for rafting dry teak from Toungoo and Pegu to Rangoon via the Pegu canal. The north/south Rangoon Mandalay railroad runs parallel with the road, providing transport for both logs and sawnwood to either Rangoon or Mandalay. A single track railroad provides the only access through the main valley of South Pyinmana to the forest extraction areas and sawmills. North Pyinmana, North Pegu and South Pegu extraction agencies have road or rail access only up to the boundary of the forest.

E. Economy and Industries

2.08 The population of the project area is about 2.5 million of which 10% live in the main urban areas of Pegu, Toungoo, Yadeshi, Lewe and Pyinmana. Villages are located both along the main road and adjacent to the foothills of the Pegu Yomas. The forest areas are sparsely inhabited, principally because they were cleared of population during insurgency in the early 1970's. - i4 -

The area is now secure and some resettlement would take place at plan,2ation centers in the project. Pegu is a center of local government. The area has high voltage grid supply which is reasonably reliable.

2.09 In 1977/78, the total value of industrial timber extracted from the project area (about 67,000 H tons of teak and 81,000 H tons of hardwoods) was estimated to be about US$26 M, compared with Burma's total production of US$90 M. The sawmilling industry in the project area comprises 16 State owned mills and 14 private or hire mills, all of which saw timber extracted by TC. Few can operate at full capacity because of poor design and high levels of downtime due to mechanical failures, lack of spares and inadequate log supply. All the hardwood mills have circular saws. A few very small private and cooperative mills are permitted to saw reject teak and hardwood logs for local consumption. Recovery percentages are low (about 40%) and the quality of sawing is uneven. Further deterioration of sawnwood occurs from poor stacking and inadequate protection. A plywood mill at Swa has a nominal annual capacity of 100,000 sheets of plywood/veneer. This mill is well designed and managed but requires upgrading and replacement of some equipment. A 45 tons/day pulp and paper mill at Sittang produces all of Burma's virgin pulp from bamboo furnish. A new pulp and paper plant is under construction at Yeni and further expansion is proposed at that site, using hardwood tops and lops, bamboo and bagasse as furnish. Forest industries provide employment to an estimated 10,000 people in the project area.

III. THE PROJECT

A. Project Genesis

3.01 The FFS made overall recommendations for priority investments in Burma (para 1.15 et seq). Included was a feasibility study for timber extraction in the East Pegu Yoma. The detailed project proposal was prepared by GOB between May and September 1978, with assistance from CP during August 1978. The Project Preparation Committee, principally TC and FD staff, drew extensively on experience in Forestry I, the Sagaing Project and FFS, and presented a Preparation Report to IDA in October 1978. The Preparation Report was considered a sound basis for a project, and an IDA appraisal team visited Burma during November and December 1978.

B. Main Features

3.02 The project would cover a five year period from 1979 to 1984 and would be the first phase of forestry and forest industry development in the East Pegu Yoma. Principal project objectives would be:

(a) to increase teak and hardwood export revenues; - 15 -

(b) to increase the supply of sawn hardwood to the domestic market;

(d) to select suitable fast growing species and to establish land clearing techniques for future large scale plantation establishment of fast growing species.

These objectives would be met through the following major activities:

(a) setting up project units in the project area for extraction and sawmilling, PU(TC), and for plantations, PU(FD);

(b) investment in new, and rehabilitation of existing extraction equipment which would increase annual extraction capacity by about 290,000 H tons and reduce teak log losses;

(d) upgrading mechanical maintenance capacity in the project area;

(e) investment in the rehabilitation of existing hardwood sawmills and the construction of new hardwood sawmills in the project area which would increase existing annual capacity by about 21,000 H tons, add 24,000 H tons of new single shift annual capacity and reduce timber wastage by improved equipment and sawing techniques;

(f) investment in the rehabilitation of Okkyin teak sawmill in Rangoon, provision of minor spares to other teak sawmills to provide teak sawmilling capacity to meet increased project output and provision for minor equipment to TC Milling and Marketing Department;

(g) investment in 29,500 acres of teak plantations;

(h) investment in about 6,000 acres of large scale trial plantations for selection of appropriate fast growing species and the development of land clearing techniques;

(i) upgrading of timber wagons and locomotives on the Taungdwingyi-Rangoon rail line to provide adequate unit-train timber transport capacity to Rangoon; and

(j) technical assistance for extraction, sawmilling and plantations. - 16 -

C. Detailed Features

3-03 A --mmary of project output and physical development targets is giv"-, in Tabi -. A detailed description of project components follows.

Timber Corporation

3.04 Extraction 'nnex 4.C2). The annual output of the project at full development would be about 423,000 H tons of timber. Of this, about 45,000 H tons would be dry I/ teak extracted by elephant, thence floated down streams. The remaining 88,000 H tons of teak and 290,000 H tons of hardwood would be extracted by elephant/mechanical or mechanical teams in blocks of compart- ments 2/ grouped for simultaneous extraction of teak and hardwoods and economy of road construction. The project would log annually about 140,000 acres or 23,000 acres per extraction agency. Three methods of timber extraction would be employed in the project: (a) elephant/float, (b) elephant/mechanical, and (c) mechanical.

(a) Elephant/float. About 230 elephants would be used to extract dry, girdled teak in the Class I (steep and remote) areas. The teak would be floated down streams and then railed, trucked or rafted to Rangoon.

(b) Elephant/mechanical. About 580 elephants working in 29 units would bc used in Class II (moderate to steep areas) where road access may be gained along stream beds, to extract annually about 215,000 H tons of teak and hardwoods. These elephants would be supported by 29 140 HP bulldozers, and 116 self-loading 6.5 m ton lorries and 15 front-end loaders. Elephant/mechanical teams would move logs mainly downhill to roads built along the stream beds. The bulldozers would construct feeder roads along stream beds and valley floors, prepare stream crossings and assist elephants with any uphill hauling. Because elephants cannot be used in concentrations greater than twenty per compartment the operational density of elephant/mechanical units would be limited to one unit per compartment.

(c) Mechanical. About 28 mechanical teams would extract annually about 165,000 H tons of teak and hardwood from those Class II areas in which there are "barriers to access" in the valley or stream beds such as waterfalls or rocky gorges. These units would be modelled on the standard bh lidozer/skidder

com. .- ic bad extensively ±n other Sou-.h -'siadipterocarp

1/ Teak which has been ring barked and dried on the stump to reduce density and promote uniform drying.

2/ Compartment - a logging/forestry area defined by a watershed and usually about 1 square mile. - 17 -

Table 2: PHASING OF PROJECT PHYSICAL DEVELOPMENT TARGETS Agency Operation Unit 1979/80 1980/81 1981/1982 1982/1983 1983/84 Total TC Production Teak logs H tons 60 100 132.5 132.5 132.5 558 Hardwood logs H tons 70 122 200 290 290 972 Hardwood sawnwood H tons 35 60 68 91 105 360 Road construction and maintenance AW road construction miles - 30 30 30 30 120 ELS road construction miles - 60 60 60 60 240 AW/ELS maintenance miles - 400 400 400 400 1,600 Feeder roads miles - annual program prepared during 1,900 implementation Construction and Rehabilitation Rehabilitate hardwood mills units - 8 8 - - 16 Construction hardwood mills units - - 2 - - 2 Rehabilitate teak mill units - 1 - - - 1 New workshops and improvements and stores sites 3 4 - - - 7 Administration building and housing sites 1 - - - - 1 Equipment rehabilitation units - 167 - - - 167 FD Plantations Teak - land prepar- aration acres 3,200 3,900 5,650 7,050 8,000 27,800 - planting acres 1,700 3,200 3,900 5,650 7,050 29,500 1/ Fast growing species trial - land preparation acres 900 1,000 1,400 1,400 1,400 6,100 - planting - 900 1,000 1,400 1,400 5,200 Plantation centers sites 10 - 5 2 1 18 Road construction miles - 39 46 54 52 191 TC/ BRC Railways Rehabilitation - timber wagons units - 150 20 20 - 190 - locotives units - 4 - 1 - 5

1/ Including 8,000 acres prepared in 1983/84 and planted early in 1984/85. - 18 -

forests with terrain similar to Burma's. The mechanical units would comprise about 56 140 HP bulldozers, 28 skidders and 14 loaders. Bulldozers would create access for skidders either along ridge tops or by side cutting along slopes and would winch or skid logs to points from Mnich skidders could operate safely and rapidly. Skidders would undertake longer forwarding hauls to roadside. Extraction areas for these units would be surveyed and skid trails prepared at least one year prior to extraction to achieve operational efficiency. Short distance log transport within the active extraction areas would be by skidder.

3.05 Elephants working singly, supported by buffalo, produce about 100 to 200 H tons of logs annually. In the project, the productivity of elephants supported by mechanical teams and buffalo would increase to about 375 H tons annually. Although buffalo are currently used in extraction operations, their usefulness would decline as extraction moves into more rugged terrain. The number of working elephants in the project area, owned by TC or contractors, would be increased to about 810 prior to the 1981/82 extraction season, by moving elephants from areas where the opportunities for productive use are not as good (para 4.07). Without mechanical support, especially trucking, insufficient stream floating capacity in the East Pegu Yoma would limit use of this increased number of elephants.

3.06 The 6.5 m ton lorries are locally assembled and conversion of 58 lorries to self-load, by adding a simple self-loading mechanism and power take off operated winch, would be completed by October 31, 1980, with the remaining 58 completed by October 31, 1981 (para 4.07). Transport from the extraction areas to main road head, saw mill or rail head would be by 15 m ton trucks which would also be required for moving logging bulldozers during the extraction season. Logging equipment would be ordered at one time, but delivered in two batches about one year apart, to allow the build-up of logging work force, trained personnel, mechanical maintenance facilities and initial road penetration in the virgin forest areas of North Pegu and South Pegu. A description of these logging systems and typical costs is in Annex 2, Table 2. The proposed extraction program is in Annex 2, Table 3. A radio system (Annex 4.C3) would be installed in the project area to control logging operations, to enable management to utilize transport effectively, to direct mechanical support services to plant items requiring maintenance, to control the logis- tics of fuel supply and distribution and to communicate with the plantation project. MAF would ensure that frequencies had been allocated to TC by September 30, 1979 (para 4.07).

3.07 Road Construction (Annex 4.C4). PU(TC) would have two road construction units (Annex 2, Table 4) which would construct about 120 miles of All Weather (AW) roads, and about 240 miles of Extended Logging Season (ELS) roads. These road units would comprise in total, 2 200 HP bulldozers, 4 140 HP bulldozers, 8 6x4 graders, 2 front-end loaders and 20 15 m ton dump trucks. Previous mechanical logging operations in Burma have used only two road classes, AW roads and feeder roads. The purpose of ELS roads would be to - 19 - enable Road Units to construct greater mileages of intermediate, cheaper roads annually. ELS roads would increase access road availability from 120 days to 150 days per year so that mechanical extraction could similarly increase to 150 days per year. This would raise equipment utilization levels closer to those obtained in other countries with similar terrain and climatic conditions. Road specifications and typical costs are in Annex 2, Table 5. North and South Pegu now have no reasonable road access and one full road construction year would be necessary before sufficient road penetration would enable mechanical logging operations (road construction program, Annex 2, Table 6). PU(TC) would build and maintain all forest roads required for timber extraction. Construction Corporation (CC), which is responsible for maintenance of the main highway system would, as requested by TC, transfer maintenance responsibility for those public roads which were deteriorating due to being heavily trafficked by logging vehicles, to PU(TC) for a specified period. The principal road concerned is the Oktwin-Prome road east of the Pegu Yoma watershed. Agreement was reached with GOB that an agreement between TC and CC would specify terms and conditions for such a transfer including the condition in which roads were to be returned, the period for which PU(TC) was to maintain the road and the conditions under which TC or CC could request the road be returned to CC (para 9.02(a)). CC would maintain responsibility for the Rangoon-Mandalay highway, and would maintain specific sections at TC's request. The road units would also: (i) construct rail loading areas at Minbyin, Thitpokpin, Pyudwin, Pyinmana and Thagaya; (ii) upgrade sawmill log yards; and (iii) prepare sites for construction of new sawmills.

3.08 Equipment Rehabilitation (Annex 4.C5). Major rehabilitation of existing equipment would be restricted to about 170 units which would have remaining lives of at least five years and would be economically repairable (Annex 2, Table 7). The CIDA-financed TC workshop at Pyinmana is currently repairing logging trucks and skidders which belong to the project. These latter repairs would be completed and equipment transferred to PU(TC) by October 31, 1980 (para 4.07).

3.09 Workshops and Mechanical Maintenance (Annex 4.C6). Mechanical maintenance would be of fundamental importance to the mechanized logging and road construction operation. The mechanical maintenance department of PU(TC) would be strengthened to provide rapid and effective mechanical support. Additional workshop equipment, mobile service centers, inspection vehicles and recovery vehicles would be provided for the six agency workshops and the static workshop at Swa. New workshops and stores would be built in South Toungoo and South Pegu; a stores extension would be built at Swa and workshop improvements carried out in North Pyinmana, North Toungoo and North Pegu. Training would be given to workshop staff in the areas of workshop management and supervision. For the purchase of emergency spare parts for PU(TC) a GOB revolving fund and supply arrangements by equipment manufacturers, which have been used in Forestry I, would be repeated in Forestry II.

3.10 Hardwood Sawmill Rehabilitation (Annex 4.C7). The project would provide equipment to rehabilitate 16 State sawmills and provide spare parts, for resale by TC, to 14 private or "hire" sawmills operating under contract - 20 -

to TC. Capacity of the State sawmills would increase by 39,000 H tons input or 21,000 H tons output. The majority of the State hardwood sawmills are of a type and condition that do not justify major rehabilitation, and the rehabilitation in the project would be a holding operation to prolong their use- ful life until the project has established the first stage of modern bandsaw milling. Overseas training for TC sawdoctor instructors would be provided (para 4.08). These instructors would then conduct sawdoctor training throughout the project area and elsewhere in TC.

3.11 New Hardwood Sawmills (Annex 4.C7). Additional sawing capacity would be required by 1982 in North Pegu and South Pegu. The project would construct two sawmills, each of nominal annual single shift log input capacity of 12,000 H tons. The mills would be located outside the forest area at Payagalay and Kyungon close to power, transportation, and existing labor sources. As staff gain operational experience, annual production would be increased from 12,000 H tons single shift to 24,000 H tons double shift. The sawmill building, machinery layout and area of the site have been planned for future expansion and the later addition of drying kilns, drying areas, kiln dried lumber storage and a moulding mill. Mill design would allow teak sawing with only minor equipment changes. Sawing would be to finer tolerances and yield would increase from the present 54% to about 58%. The hardwood sawing program is in Annex 2, Table 8. Annual single shift mill capacity could be increased in the future from 12,000 to 20,000 H tons by the addition of minimal handling and sawing equipment.

3.12 Okkyin Teak Mill Rehabilitation (Annex 4.C7). The Okkyin teak sawmill in Rangoon was commissioned in 1972. The design annual two-shift input was 150,000 H tons but because of design inadequacies and poor operation, current annual input is only about 20,000 H tons. In the project TC, with the assistance of the sawmill engineer provided under the project, would carry out a detailed work study and would redesign bottleneck areas in the mill. The project would provide sawing and materials handling equipment to rehabilitate the mill. The mill main building would be partially rebuilt, new timber storage sheds and site roads constructed and the saw and machine shops extended. Annual two shift input would increase to about 100,000 H tons. The rehabilitation work has not been appraised in detail but preliminary estimates, based on TC proposals, indicate that rehabilitation of the log input system from the river, resaw operations, materials handling equipment and power supply improvement would remove existing bottlenecks. Disbursement for this component would be contingent upon the technical approval of detailed rehabilitation plans by the sawmill engineer (para. 3.26). Following reconstruction, the sawmilll engineer would assist TC in Okkyin mill operations. The Project would also provide minor spare parts to teak sawmills number 1, 2, 3, 4, 6, 10 and 14 in Rangoon. A summary of teak sawmilling capacity is in Annex 2, Table 9.

3.13 Administration, Planning and Marketing. PU(TC) would construct new and extend existing headquarters buildings in Toungoo and would provide housing for technical assistance personnel. Office equipment, inspection and other administration vehicles would be provided to PU(TC). - 21 -

3.14 Map making, surveying and detailed planning for forest extraction areas would take place one to two years in advance of operations. Overall planning would be on a five year rolling basis. Aerial photograph negatives of the project area, which were made between 1971/72 and 1973/74 and which are adequate for planning purposes, would be made fully available for copying by PU(TC). During implementation they would be transferred by aerial photointerpretation techniques into large-scale operating maps of extraction and plantation areas. Survey and photointerpretation equipment and materials would be provided. Overseas training in techniques of aerial photointerpretation, mapscribing and surveying for the new logging methods would be provided (para 4.08).

3.15 The export section of the Marketing and Milling Department, TC, Rangoon, would be provided with office equipment, inspection vehicles, a marketing library and other equipment to assist its export marketing efforts.

Forest Department

3.16 Plantations (Annex 4.C8). The project would establish about 36,000 acres of plantations in a period slightly over five years. The principal species would be teak (29,500 acres), which has a well established technology (taungya cultivation) for plantation establishment (paras 1.03 and 2.03). The project's plantation teak planting program at full development would produce about 450,000 H tons of teak annually at maturity, which is greater than the present teak AAC from the whole of Burma's Reserve Forest Area. Teak plantations would be distributed among the six forest divisions. Large scale plantation trials (6,100 acres) would select suitable fast growing species for the future establishment of commercial scale industrial plantations in the project area. The trials would also develop suitable mechanized plantation establishment methods for future use when taungya labor is insufficient. Trial plantations would be located at the two extremes of the project area, South Pegu and Yamethin (North Pyinmana), areas of high and low rainfall respectively. The project would employ taungya cultivation methods for teak plantation establishment and for part of the large-scale trials. This labor intensive method is currently used, is successful and is silviculturally, socially, financially and economically superior to mechanized operations when labor is available. Taungya labor would be provided by landless people whose occupation would otherwise cause the destruction of high value timber through uncontrolled, shifting cultivation in the reserve forest. Activities and typical costs are in Annex 2, Table 10. Both taungya and mechanized methods would be used for trial plantation establishment. At full development 18 plantation centers would have been established, each with an annual planting program of about 500 acres. The planting program is in Annex 2, Table 11.

3.17 PU(FD) would be provided with 4 140 HP crawler tractors, 6 80 HP crawler tractors, 5 85 HP graders, 5 dump trucks, 1 bucket loader and 14 rotary slashers for mechanized land clearing. Taungya plantation development would be provided with 18 65 HP wheeled tractors, trailers and water bowsers and 18 6.5 m ton trucks. Administration vehicles, office equipment and minor workshop equipment would be provided. New offices and residential - 22 - buildings would be constructed to accommodate staff. Buildings constructed at plantation centers would be mainly temporary. Each center, in addition to an office and operational buildings, would include a shrine, school, dispensary, common room, and potable water supply. Taungya villagers would build their own temporary houses, assisted by PU(FD) in the transport of building materials such as bamboo poles and thatching materials. PU(FD) would have a small workshop to carry out routine maintenance amd minor repairs on PU(FD) project equipment. Technical assistance would be provided for silvicultural and land clearing operations. Overseas training would be provided to FD and PU(FD) staff (para 4.08). The plantation project would work closely with the Forest Research Institute (FRI) at Yezin. FRI would monitor and evaluate the plantation program as part of its research program and FD and FRI would prepare a monitoring program, in consultation with the project silviculturalist, by December 31, 1980 (para 4.07).

Burma Railways Corporation (BRC) (Annex 4.C9)

3.18 Railways Rolling Stock Rehabilitation. Transport capacity on the Taungdwingyi-Pyinmana-Rangoon line would be increased by rehabilitating 190 double-bogie log wagons and 5 locomotives (Annex 2, Table 12). New bearings and vacuum brakes would be provided for the wagons and spares for 2 major overhauls each provided for the locomotives, to permit higher speeds and unit train operations. BRC would thereafter operate four unit or regular trains from Pyinmana to Rangoon and one train on the Myinbyin-Pyinmana line for sawnwood transportation. Spares would be purchased by TC and transferred at cost to BRC who would then install them. Agreement was reached with GOB that BRC and TC would form a written agreement, specifying terms and conditions under which the unit train would be operated by January 31, 1980 (para 9.02(b)). The contract would specify inter alia that:

(a) TC would:

(i) procure and resell at cost to BRC vacuum brakes and bearings for 190 wagons and two sets of major overhaul spares for each of 5 locomotives;

(ii) ensure that wagons are loaded within a specified time at Pyinmana and Thagaya if wagons were presented as scheduled;

(iii) pay the regular one way freight charge for a fully loaded unit train from Pyinmana to Rangoon, irre- spective of load;

(b) BRC would:

(i) fit 190 double-bogie wagons with vacuum brakes and bearings and overhaul 5 locomotives, to an agreed schedule, and would reserve those units for TC use on the Taungdwingyi-Pyinmana-Rangoon line;

(ii) run unit or regular trains on that line to a regular schedule agreed with TC; - 23 -

Table 3: SUMMARY OF COST ESTIMATES /a % Base % Local Foreign Total Local Foreign Total Cost FE ----Kyat million------US$ million----

Civil Works Road Construction(TC) 19.8 5.0 24.8 3.0 0.7 3.7 5 20 Administrationand workshops (TC) 2.7 0.1 2.8 0.4 - 0.4 1 4 Hardwood Sawmills (TC) 3.0 - 3.0 0.4 - 0.4 1 - Teak Mill 5.5 0.1 5.6 0.8 - 0.8 1 2 Plantationbuildings and roads (FD) 10.0 0.8 10.8 1.5 0.1 1.6 2 7 41.0 6.0 47.0 6.1 0.9 7.0 10 13

Equipment and Machinery Road Construction(TC) 11.6 21.7 33.3 1.7 3.2 5.0 7 65 Extraction (TC) 91.3 170.2 261.5 13.6 25.4 39.0 53 65 Administrationsuper- vision and export (TC) 3.6 6.2 9.8 0.5 0.9 1.5 2 63 Equipment rehabilitation 3.1 7.4 10.5 0.5 1.1 1.6 2 70 Hardwood mills (TC): - rehabilitation 4.4 7.2 11.6 0.6 1.1 1.7 2 62 - construction 10.1 14.5 24.7 1.5 2.2 3.7 5 59 Teak Mill rehabilitation(TC) 9.3 15.9 25.2 1.4 2.4 3.8 5 63 Plantationequipment (FD) 12.3 20.9 33.2 1.8 3.1 5.0 7 63 Railwagonrehabilitation 3.0 6.5 9.6 0.4 1.0 1.4 2 68 (TC/BRC) 148.7 270.5 419.3 22.2 40.4 62.6 85 64

Plantations Teak plantation establishment (FD) 12.0 - 12.0 1.8 - 1.8 2 - Fast growing species large scale trials (FD) 3.5 0.6 4.1 0.5 0.1 0.6 1 15 15.5 0.6 16.1 2.3 0.1 2.4 3 4

Training and Technical Assistance Overseas and local training 0.2 1.2 1.4 - 0.2 0.2 - 86 Technical Assistance 2.3 8.0 10.3 0.3 1.2 1.5 2 78 2.5 9.2 11.7 0.4 1.4 1.7 2 79 TOTAL BASE COST 207.8 286.4 494.2 31.0 42.7 73.8 100 58 Physical contingencies 12.4 16.9 29.3 1.8 2.5 4.4 6 58 Price contingencies 25.5 29.9 55.4 3.8 4.5 8.3 11 54

TOTAL PROJECT COST 245.7 333.2 578.9 36.6 49.7 86.4 117 58

/a Includingtaxes and duties. NB Totals may not add due to rounding. - 24 -

(iii) present wagons at agreed times to TC for loading; and

(iv) maintain and overhaul the reserved wagons and locomotives.

D. Cost Estimates

3.19 Total project costs are estimated at US$86.4 M of which US$49.7 M is foreign exchange and US$20.9 M, import taxes and duties (Table 3). Local currency costs (excluding taxes and duties) are estimated at US$15.8 M. Including contingencies, equipment costs amount to US$51.8 M of which US$46.4 M is foreign exchange, civil works and plantation establishment amount to US$11.7 M of which US$1.7 M is foreign exchange and technical assistance and overseas training amount to US$2.0 M of which US$1.6 M is foreign exchange. The cost estimates for imported equipment, vehicles, and foreign consultants and training are based on unit prices in recent contract awards and on international prices, adjusted to January 1979 price levels. Costs of civil works, buildings, and plantation establishment are based on recent costs in Burma for similar works. Physical contingencies amount to an average of 6%, based on 5% for equipment, 5% for buildings and hardwood mills (where construction would be almost identical to that recently completed in Forestry I), 5% for road construction (which is in terrain similar to that in Forestry I, where recent average costs are available) and 20% for Okkyin sawmill. Con- tingencies for price escalation over the 5-year period amount to 11% of the basic cost based on 7% per annum increase for civil works and 6% per annum for equipment. Cost estimates by component are in Annex 2, Table 13.

E. Financing

3.20 Total external financing, which would amount to US$44.6 M would finance all foreign exchange costs, except for reserve procurement (para 3.21) or 68% of total project costs, excluding taxes and duties. An IDA Credit of US$35.0 M equivalent would finance equipment (US$33.3 M), teak plantations (US$1.5 M) and local consultants (US$0.2 M). An EEC Special Action Credit of US$8.0 M equivalent would finance equipment. A Government of Finland (GOF) grant of US$1.4 M would finance technical assistance and a UNDP grant of US$0.2 M would finance overseas training. The EEC Credit would finance specific items of logging and sawmilling equipment. The GOF grant would finance a technical assistance firm. A condition of effectiveness of the IDA Credit would be effectiveness of the EEC Credit and GOF Grant (para 9.03(a)). The overall financial plan would be as follows: Table 4: FINANCIAL PLAN /a US$ million IDA EEC Finland UNDP GOB Total

TC 30.9 8.0 - - 15.0 53.9 FD 3.9 - - - 5.7 9.6 Technical Assistance 0.2 - 1.4 - 0.2 1.8 Overseas Training - - - 0.2 - 0.2 Total 35.0 8.0 1.4 0.2 20.9 65.5

/a Excluding taxes and duties. - 25 -

3.21 Equipment and vehicles currently estimated to cost about US$8.4 M, including contingencies, of which about US$5.1 M is foreign exchange, would be reserved for procurement under local procedures, would be financed by GOB and would not be eligible for reimbursement. The proposed equipment procurement list has been approved by the Equipment Control Committee. A subsidiary loan agreement for US$39.1 M between GOB and TC would onlend IDA and EEC funds at 9% interest, repayable over fifteen years including a five year grace period with TC bearing the foreign exchange risk. TC would borrow from the Union Bank of Burma (UBB) for other capital expenditures at prevailing interest rates. The average annual inflation rate from 1976-78 was about 5% and for the next three years is expected to be about 6-7% annually. Current interest rates for similar lending from domestic institutions range from 5% to 9% for investment and 8% for working capital. The execution and delivery of a subsidiary loan agreement between GOB and TC would be a condition of credit effectiveness (para 9.03(b)). FD expenditures would be financed by annual budgetary appropriations. Adequate budgetary allocations for TC and FD have been made by GOB.

F. Procurement

3.22 IDA Credit. Equipment, vehicles and spare parts to be financed by IDA would be procured by International Competitive Bidding (ICB) in accordance with Bank Group procurement guidelines. Exceptions to these procedures, totalling US$4.5 M equivalent, would be as follows:

(a) proprietary spare parts for rehabilitation of existing extraction equipment (US$1.3 M) and sawmilling equipment (US$1.2 M) are specific by make and model so that ICB procedures would not be appropriate and procurement would be from original equipment agents or manufacturers.

(b) equipment, spare parts and materials and groupings thereof, estimated to cost the equivalent of less than US$100,000 equivalent, per contract, which are either required urgently or are otherwise not suitable for ICB, would be purchased through normal GOB procurement procedures and on the basis of comparing prices from no less than 3 independent suppliers. Such purchases would be limited to US$2 M which would be about 5% of equipment costs.

3.23 EEC Credit. Equipment to be financed by the EEC Special Action Credit, would be procured by ICB in accordance with Bank Group guidelines for procurement and subject to EEC eligibility restrictions. Equipment estimated to cost the equivalent of less than US$100,000 equivalent per contract, which is either required urgently or is otherwise not suitable for ICB would be purchased through normal GOB procurement procedures and on the basis of comparing prices from no less than 3 independent suppliers. Such purchases would be limited to US$1 M, which is about 2-1/2% of equipment costs. Equip- ment to be financed by the EEC Credit would include (a) road graders, log - 26 -

loaders, fork lift trucks and straddle trucks for TC operaLions and, (b) workshop equipment, survey equipment and radios.

3.24 Orders for sawmill equipment, workshop equipment and similar items would be bulked to provide economic bidding packages for ICB and to reduce the procurement load on TC. Preference limited to 15% of the CIF price, or the prevailing customs duty, whichever is lower, would be extended to eligible local manufacturers in the evaluation of bids. Draft specifications and bidding documents for crawler tractors (200 HP, 140 HP and 75 HP) front-end loaders, skidders, 15 metric ton logging and tipper trucks, mechanical service units and motor graders (120-130 HP and 60-70 HP) have been agreed with IDA. A summary procurement and replacement schedule for major equipment is in Annex 2, Table 14.

G. Disbursements

3.25 Disbursements from the IDA Credit account are expected to be completed by September 30, 1985, approximately nine months after the end of project implementation. Disbursements from the EEC Special Action Credit are expected to be completed by June 30, 1982. Disbursements from the proposed IDA and EEC credits would be as follows:

(a) 100% of foreign expenditures for directly imported equipment, spare parts and other materials (IDA and EEC credits);

(b) 100% of local expenditures (ex-factory costs) for locally manufactured equipment and spare parts (IDA and EEC Credits);

(c) 90% of expenditures for local consultants' services (management accounting and information systems) (IDA Credit); and

(d) 100% of direct local costs of teak plantation establishment (IDA Credit).

3.26 Disbursements for plantation establishment would be made only for those plantings which had been certified by the Director General, FD to have been satisfactorily established. Project plantings would be considered established approximately nine months after planting. Certified statements of establishment would be audited by the Director General, Central Accounts Office acting on behalf of the Council of Peoples Inspectors of the GOB. Disbursements would be at an estimated rate of US$50 per acre up to a maximum of 29,500 acres. Disbursements for Okkyin sawmill equipment would be contingent upon the technical approval of the detailed rehabilitation plans by the sawmill engineer (para 3.12).

3.27 Applications for withdrawals from the IDA and EEC credits would be fully documented except that disbursements for project plantings would be against a statement prepared by the PD(FD) and certified by the Director General, FD (Annex 4). Documentation supporting these statements would be - 27 - retained by FD for review during project supervision. Upon completion of the project, any surplus remaining in the credit account could be used for project related expenditures, as agreed between GOB and IDA. Estimated quarterly disbursements are in Annex 2, Table 15.

H. Accounts and Audits

3.28 All government agencies maintain accounts according to procedures and forms laid down by the Ministry of Planning and Finance (MPF). The Central Audit and Inspection Office, acting on behalf of the Council of Peoples Inspec- tors, is responsible for auditing government accounts and would be acceptable to IDA as an independent auditor for this project. Agreement was reached with GOB (para 9.01(a)) that, as in Forestry I:

(a) Separate accounts for TC and FD project components would be maintained by the respective implementing agencies; and

(b) These accounts would be audited annually in accordance with sound auditing principles consistently applied by the Director General, Central Accounts Office acting on behalf of the Council of Peoples Inspectors of the GOB; and

(c) TC and FD would send to IDA copies of the summary of the unaudited annual project accounts within 6 months of the end of a fiscal year to be followed by certified copies of the audited accounts and auditors' reports for the PU(TC) and PU(FD) and for TC and FD within 9 months of the end of each fiscal year. The PU(FD) audit would include an audit of the planting program against which IDA disbursements had been made.

IV. ORGANIZATION AND MANAGEMENT

A. Project Implementation

Project Authority

4.01 The Ministry of Agriculture and Forests (MAF) (Annex 2, Chart 1) would be responsible for project implementation, except for rehabilitation of the BRC rolling stock. MAF currently is responsible for the Burma Forestry I project and the ADB financed Sagaing Forestry Project. All extraction and plantation establishment would be in reserved forest areas and therefore under the control of MAF. - 28 -

Implementing Agencies

4.02 TC would implement the extraction, road building and sawmilling components. FD would implement the plantation component. Coordination of administrative matters between the agencies would be provided through the Project Steering Committee (PSC) which would be formed by August 31, 1979 (para 4.07) and the formation of which would be a condition of credit effectiveness (para 9.03(c)). The PSC would be chaired by the MAF Deputy Minister and would comprise the heads of the implementing agencies. The MAF Planning and Statistics Department (PSD), BRC, Heavy Industries Corporation, CC, Myanma Oil Corporation, auditing agencies and MPF would be coopted as appropriate. The PSC would be responsible for coordinating activities, as necessary, with other Ministries and would meet not less than once in three months.

Timber Corporation Extraction Operations

4.03 TC would establish a Project Unit PU(TC), headquartered in Toungoo, by August 31, 1979 that would be fully responsible for road development, timber extraction, rehabilitation of existing hardwood sawmills, construction of new hardwood sawmills and the milling and marketing of teak and hardwood in the project area (para 4.07). Establishment of PU(TC) would be a condition of credit effectiveness (para 9.03(c)). A similar PU has functioned well in Forestry I project. PU(TC) would be an operating division (East Pegu Yoma Division) of TC and would be responsible to the Managing Director and Manage- ment Committee of the Timber Corporation. In order to provide operational continuity and to attract staff to transfer to Toungoo, PU would remain an operating division indefinitely after the project period. The Project Director (PD(TC)), with qualifications acceptable to IDA, would be of the rank of General Manager. Appointment of PD(TC), with qualifications and experience acceptable to IDA would be a condition of effectiveness (para 9.03(d)) and should be made by August 31, 1979 (para 4.07). The Management Committee of TC would meet as often as required and not less than once a month, to assist the PD(TC) in implementation and operation of the project. Day-to-day internal operational coordination of the project in the project area would be carried out by the Project Implementation Committee (PIC) comprising the Department Heads of PU(TC), the Technical Assistance Co- ordinator (para 4.09) and, as required, the technical assistance advisors. A liaison office in Rangoon would coordinate operations, procurement and disbursements between PU(TC) and TC Headquarters. Staff would be recruited principally from TC. PU(TC) would have 6 Department Heads viz. Extraction, Roads, Workshops, Milling and Marketing, Finance and Accounts, and Internal Audit (Annex 2, Chart 2). Agency Extraction Managers would report to the Extraction Manager. Agency workshop foremen would report to the Workshop Manager. The workshops would undertake service and maintenance requirements for all PU(TC) vehicles, mobile and stationary plant utilized in logging, roading, sawmilling, railway log yards, project administration vehicles and workshop vehicles and plant. Major rebuild work would be undertaken as required under contract for PU(FD). Current mechanic staffing in the project area is adequate but some relocation of staff would be required. Substantial upgrading of mechanics from lower grades to skilled mechanic grades is necessary and would be undertaken under the technical assistance component - 29 - of the project (para 4.08). Although most mechanics in Burma have undergone some technical training there has been insufficient training in the maintenance of advanced heavy -quipmnnt and mechanical staff often have to repair unfamiliar and advanced machinery. In the project area, 25% of the mechanics are Grade 1, with the balance being in the lower Grade 2 and Grade 3 catego- ries. Training would pay particular attention to fleet and component-specific training. Such training would include, in addition to upgrading courses, specialist courses in welding, machining, autoelectrics, toroue convertors, other heavy duty transmission repairs, fuel injection, other engine repairs and mechanical storeman training. The workshops would provide the following services:

(a) Agency workshops would provide primary field maintenance and repair services and would ensure high standards of in-field maintenance and service;

(b) Swa static workshop would undertake the rehabilitation of major components such as replacement engines, gear boxes and differentials;

(c) Pyinmana base workshop. Pyinmana base workshop is not included in PU(TC) but, because it is the major rebuild center for TC, would undertake the repair and reconditioning of parts or assemblies which require precision machining and specialized mechanic skills. These services would not be duplicated at Swa workshop.

Because marketing of teak and hardwood outside the project area would be the responsibility of TC, as in Forestry I, PU(TC) teak would be identified separately. Agreement was reached with GOB that, as in Forestry I: (i) PU(TC) would be autonomous in financial and operating matters, (ii) TC would deposit to PU(TC)'s bank account proceeds of project teak and hardwood sales outside the project area, less reasonable marketing and milling costs, promptly after Milling and Marketing (TC) takes possession of project timber, (iii) PU(TC) would be permitted to retain annual depreciation provisions for reinvestment and replacement of fixed assets (para 9.01(b)). PU(TC) would provide TC with a return of at least 10% on its equity in PU(TC).

4.04 Annual diesel fuel requirements for project extraction operations would be 1.0 million gallons in 1980/81, rising to 1.6 million gallons in 1981/82 and 1.9 million gallons at full development in 1982/83. Timely supply of fuel would be essential.

Other Timber Corporation Activities

4.05 Work study, redesign and rehabilitation of the Okkyin sawmill would be carried out by the Marketing and Milling Department of TC Headquarters in Rangoon, using staff trained in the Forestry I project, with the assistance and advice of the Sawmill Engineer. Agreement was reached with GOB that the Marketing and Milling Department in Rangoon would be strengthened by formation of a Market Research Unit by July 31, 1980 in order to continue TC's development of a strong export marketing function and to improve TC's knowledge and -30 - and forecasting for the domestic market (para 9.02(d)). The Market Research Unit would, inter alia: (i) collect and analyze market and forecasting data for East and West export markets; (ii) propose pricing and cutting policies for export markets, (iii) analyze and recommend appropriate changes for physical aspects of TC marketing including enquiry handling, shipping, contracts and handling, (iv) survey the domestic, public and private markets including the effects of national and sectoral priorities, (v) project domestic product requirements by volume, size and species; and (vi) communicate its conclusions within TC and MAF.

Forest Department Component

4.06 The plantation component would be implemented by a PU within FD (PU(FD)) reporting through the Director General of the FD to the PSC. Estab- lishment of PU(FD) would be a condition of effectiveness (para 9.03(c)). Implementation uf the FD component would be coordinated by a Technical Com- mittee, chaired by the Director General of FD and including departmental heads of FD and the Technical Assistance Coordinator (para 4.09). The Project Director (PD(FD)) would be recru!ited from FD and he would be of Conservator status. Appointment of PD(FD), with qualifications and experience acceptable to IDA would be a condition of effectiveness (para 9.03(d)) and should be made by August 31, 1979 (para 4.07). Initially two ana, in year 3, three regions, would be organized within the project area (Annex 2, Chart 3). Each region would be headed by a professional forester with District Forest Officer status who would eventually control 6 plantation centers, each with an annual planting program of about 500 acres. Plantation centers would be headed by a junior professional forester (Assistant Director). Plantation centers would execute field operations. after che third year plantations would be considered established and would be transferred to the FD for subsequent management and protection.

General

4.07 PSC would ensure close coordination between FD and TC activities. FD would depend on the construction of AW roads by TC to provide year round access to the plantation centers. PU(TC) and PU(FD) would establish their headquarters close to each other, preferably in the same compound. A joint mapping office would be established staffed by both TC and FD personnel and would be responsible for preparation of maps, aerial photointerpretation and primary survey work. A summary project implementation schedule is in Annex 2, Chart 4. Key implementation activities and dates are in Annex 2, Chart 5. A detailed equipment procurement, implementation and cost schedule is in Annex 2,Chart 6.

B. Consultancy Services, Technical Assistance and Training

4.08 The project includes direct provision for foreign exchange costs of about US$0.2 M for about 137 manmonths of overseas training for TC and FD personnel (Annex 2, Table 16 and Annex 4.C 10), and about i6 manyears of - 31 -

expatriate technicalconsultancy assistance costing about US$1.4 M (US$6,500 per man-month) (Annex 4.C 10). Agreement was reached with GOB that a detailed program for overseas training, includingmanagement, extraction, workshops, roads, finance and milling and marketing, would be prepared by January 31, 1980 (para 9.01(e)). Technical assistance provided by a firm over a three year period would include about 3 manyears for workshop engineering,3-1/2 manyears for mechanic training and in-fieldmechanic assistance,3 manyears for logging engineering,2 manyears for sawmill engineering,2-1/2 manyears for silviculturalplantation assistance and land clearing. In addition, the firm would provide about 22 man-months of external assistance for management accounting and management informationsystems assistance to PU(TC), supported by about 4 manyears of local consultancy (financedby IDA). About 2 manyears of road engineeringassistance and about 2 manyears of surveyingassistance would be provided to PU(TC) by local consultants. Equipment manufacturers would also provide 1 manyear of assistance for training of heavy equipment operators. Draft Terms of Reference are in Annex 4.ClO. Benefits from the technicalassistance would be substantial (para 7.04).

4.09 The total cost of the project's technical assistanceand overseas training component is estimated at about US$2.0 M of which US$0.4 M would be local currency. A Technical Assistance Coordinatorof senior rank would be appointedto oversee and coordinate all TA activities in the project by December 31, 1979 (para 4.07). The coordinatorwould be responsibleto the PSC and thus also to TC and FD, to ensure that the consultantsare effectively utilized. Agreement was reached with GOB that a consulting firm with terms of reference and qualificationsacceptable to IDA would be retained by March 31, 1980 (paras 4.07, 9.02(f)).

C. Forestry Planning, Inventory and Coordination

4.10 With the continuing developmentof the forestry and forest industries sector in Burma, effective coordination,an improved data base, and improved forest management planning will be increasinglynecessary for efficient forest management. Burma's forestry and forest based industries have the potential for supplying increasedvolumes of teak and other hardwoods to the export markets and for fulfilling a critical domestic need for wood products by improvingother forest based industries such as sawmills,veneer, ply production and pulp and paper. In order to provide a long term framework for planning,development and investments it is necessary that GOB should improve its medium and long term forest developmentplanning by developing, over time, a long term comprehensiveforest based industry developmentMaster Plan. This would include:

(a) improvingthe data base for forestry for key areas of teak, hardwood and pulp wood production;

(b) carrying out a program of silviculturaland plantation research and forest management developmentover the next five years so that appropriateinformation becomes availablefor decision - 32 -

making when inventory data indicates that existing stocking levels and management practices are a constraint to long term development; (c) relating forest based industry development to resource availability; and (d) initiating land use - land capability studies to resolve potential land use conflicts. MAF would initiate and the MPF and MAF would undertake coordination between agencies and departments involved in forests or forest products including TC, FD, BRC, FRI and CC, which are users of, or produce, timber. Agreement was reached with GOB that the Forestry Committee of MAF would undertake preparation of a detailed program for the development of a Forest Master Plan by December 31, 1980 (para 9.02(g)). 4.11 Project evaluation would be the responsibility of TC and FD. CSO would provide technical and statistical back-up, as required, to TC, FD and FRI for the monitoring and evaluation of the project. TC and FD would prepare a draft Project Completion Report.

V. PRODUCTION, MARKETS AND PRICES

A. Production

5.01 Past and planned future production of wood in the project area is summarized in Table 5. 1/ Table 5: PROJECT AREA TIMBER PRODUCTION ('000 H tons) Teak Hardwoods Year Burma Total Forestry II Burma Total Forestry II 1974/75 258 49 527 135 1975/76 237 33 393 93 1976/77 280 52 403 120 1977/78 316 67 357 81 1978/79 310 60 419 75 1979/80 313 60 460 70 1980/81 336 100 550 110 1981/82 363 132 643 200 1982/83 363 132 733 290 1983/84 363 132 733 290 1984- 363 132 733 290

Source: Timber Corporation and Mission Estimates.

1/ Assuming no further investments are made other than those proposed in this project. - 33 -

The highest quality teak logs would continue to be exported as roundwood because it is unlikely that Burma will, in the near future, be able to compete with Japanese veneer manufacturers who now slice veneer to about 0.25 mm, which is approximately half the industry standard in the rest of the world. Medium quality teak logs would also be exported in the near term. However, upgrading of existing mills, or a new mill, could justify some local manufacture when conversion rates and quality were satisfactory. Low quality teak logs would be sawn locally and exported as conversions or sold domestically. A small volume of hardwoods would be exported as roundwood or conversions but most would be sold locally. The increase in teak extraction volumes from about 60,000 H tons to the final production volume over two years is considered reasonable, considering the immediate impact that improved transportation in 1980/81 would have on teak production capacity and also the immediate and one time benefit to be realized by removing some of the approximately 75,000 H tons of teak logs now lying in stream beds, which may be simply and rapidly removed by mechanical transport. This permanent reduction of in-transit floating volumes would have the continuing benefit of reducing teak log losses from theft from about 20% to almost zero for trucked logs. Log losses, which have averaged almost 30% countrywide for all Burma over the last four years, have been reduced in Forestry I to almost nil for trucked logs and about 15% for free-floated logs. The extraction components are similar to those of the IDA and ADB financed projects and knowledge from these projects would simplify and speed implementation of similar components in this project. Hardwood production would increase to full capacity over a period of 3 years. Con- struction of new sawmills, and rehabilitation of existing hardwood sawmills has been phased so that log production arriving at sawmills would provide adequate log supply during their increase to full two shift production. Details of past and projected project output are shown in Annex 2, Tables 17 and 18.

B. Markets and Prices

Markets

5.02 Teak occupies a unique position in the wide range of wood species available for use as structural, architectural or furniture grades. It is highly valued because of both its technical and aesthetic characteristics and the limited production of high quality teak. Its desirability comes from its durability when exposed to air, sun and water; dimensionally stable under changing atmospheric conditions; the ease with which it can be worked; natural oils which make it smooth and easy to finish; resistance to decay and destruction by insects; and above all, its attractive appearance embodying a richness and "depth" which are found in few other species. The world volumes of mature teak available for harvest in producing areas are very small in comparison with the availability of other species. The long rotation periods necessary to grow mature trees limit the volumes which can be produced. Although extensive plantation programs have been initiated in Asia, Africa and the Caribbean, their recent establishment precludes their competing with Burma in the near future. Currently Indonesia is the only other major producer of teak in - 34 - addition to Burma. No reliable consolidation of inturraticLxaL trade figures for teak is compiled but, since the species is indigenous to restricted areas of Southeast Asia including Burma, Thailand and Indonesia (Java), a fairly reliable estimate of the position of Burma in the trade can be made. Burma supplies over half the world's teak and has recently become the only source of supply of high quality teak in the world, due to declines in production from other areas, and now has a world monopoly in the teak log trade. The recent export ban for teak from Thailand, due to declining teak volumes, will further improve the market situation for Burma. Exports of teak from Laos, Cambodia and Vietnam are assumed to be small. Teak log exports would be limited by the volume of high quality logs available. About 13% of teak logs which arrive in Rangoon would be of export quality and would be exported principally for veneer manufacture. The remaining lower quality logs would be converted in Burma. In the project, an increasing share of teak sawnwood would be exported, rising from 65% in the first year of the project to 90% in 1984/85. To achieve this increase in export conversions, TC would need to continue to improve and change its marketing system along the lines proposed in the FFS.

5.03 The hardwoods to be produced 1/ would comprise a group of species internationally less well known than teak. The main species in the project area is Pyinkado, 2/ known in the domestic market as an excellent heavy construction timber and in the export market as a good material for railway sleepers. Because of low hardwood production, there have been major shortages of pyinkado domestically and recent exports of pyinkado have been negligible. Other important species would be gurjun (for construction) and padauk (decorative). About 60% of pyinkado and padauk logs and 50% of other species would arrive in Rangoon port in exportable quality. Export markets for padauk are good and, based on recent experience, all export quality padauk logs would be readily marketable. Pyinkado and gurjun, however, compete in the world market with other tropical construction timbers and, in some applications, with pressure treated kiln dried softwoods. TC would have to establish new markets for pyinkado by improved market research, intelligence, pricing, and improved coordination between production and marketing. An increase in export of other hardwoods from Burma to the projected total of 56,000 H tons by 1985 would imply a share of the world market in this type of timber increasing from the past peak of 0.14% to 0.17%. This is an insignificant change in market share. TC has recently improved its poor reputation in the export market both for supply levels and continuity of supply. In the project, TC would coordinate production and export sales from the project area such that reasonable export quantities could be supplied on a regular basis. Pyinkado round log export would be temporary until sawnwood quality improved to standards acceptable in world markets. In the longer term, hardwoods would increasingly be exported as sawnwood.

1/ See Annex 1 for species.

2/ 23% of total standing volume, 28% of total standing volume over 5' gbh and 40% of volume extracted. - 35 -

5.04 In the domestic market, consumption of hardwood sawnwood has been supply constrained and has declined from about 350,000 H tons in 1971/1972 to about 160,000 H tons in 1977/1978. The increase in teak theft over the same period is directly attributed to hardwood shortages. In recent years, TC has been able to fill only 40% to 75% of the orders placed upon it by Government Departments and Public Corporations and supply to private users has been equally limited. Demand estimates by the FFS and FAO indicate total sawnwood demand of between 350,000 and 450,000 H tons/year by 1985. Project output would increase national sawnwood output to the lowest of the demand forecasts. It is possible that forecast consumption would be achieved earlier than projected, in which case, sawmilling capacity in the project area could be increased. In order to improve knowledge about domestic demand and production, TC would carry out a domestic sawnwood demand and production survey during the project by December 31, 1980 (para 4.07). Draft Terms of Reference for the survey are provided in Annex 4.Cll.

5.05 During the project, domestic consumption of teak would be reduced to a minimum by increasing the supply of substitute sawn hardwoods and divert- ing increased quantities of sawn teak to the export market.

Prices

5.06 Financial and economic prices used in project analyses are given in Annex 2, Table 19.

5.07 Teak export prices are based on prevailing average export prices and have been maintained constant for the analysis period. Past teak volumes and prices are in Annex 2, Table 20. The average log quality from the project would be substantially greater than the average for Burma (due to large mature trees, and a reduction in theft of highest quality logs). Because real tropical hardwood prices in general are projected to increase by at least 2% per annum, price assumptions are therefore considered extremely conservative. Although Burma's exports would increase during the project, the effect on world teak prices would not be significant, because of declining exports from alternative suppliers. Hardwood log and sawnwood economic prices are based on prevailing average world market prices, adjusted for quality. Past hardwood volumes and prices are in Annex 2, Table 21. The project would increase supply to the most pessimistic projections of demand. Because it is not clear to what extent excess demand exists, additional data would be collected during the project (para 5.04). Hardwood export prices used in the economic analysis were lower than world market, reflecting the discounts TC may require to reenter the world market in the volumes proposed.

5.08 The separate analysis of the teak plantation component assumed a real teak price increase of 2% per year, for the project rotation of 60 years, in line with projected price increases for tropical hardwoods in general. In the long term, it is expected that the higher value, scarcer hardwoods will increase in value at greater rate at least equal to the general price increase for tropical hardwoods. In order to improve knowledge of the market characteristics of plantation grown teak TC and FRI would undertake test - 36 - marketing and processing of plantation grown teak, would test its physical and decorative characteristics and would project prices attainable at maturity, by June 30, 1981 (para 4.07).

VI. FINANCIAL ANALYSIS

6.01 The project continues and expands the ongoing MAF forest development program. This program has historically been extremely profitable to GOB, principally because of the extremely high returns from teak exports. The fiscal rate of return of the project to GOB would be 67% (Annex 2, Table 22). A five year summary of the fiscal implications for GOB of the project are in Table 6.

Table 6: FISCAL IMPLICATIONS FOR GOB /a (Million Kyats)

1979/80 1980/81 1981/82 1982/83 1983/84

Incremental expenditures 37 231 170 82 75 Incremental benefits - 99 216 260 271

Net incremental benefit (37) (132) 46 178 196

/a Source: Annex 2 Table 22.

During the five year project, incremental investment and operating taxes of about US$90 M would be payable to GOB. Project investments by TC and PU(TC) would be financed by on-lending from GOB. TC's financial status is summarized in para 1.10 and in Table 7 below. TC's most recent financial statements are summarized in Annex 2, Table 23.

Table 7: SUMMARY FINANCIAL STATUS OF TC AND FORESTRY I

Gross Net Net Total Return Debts/ Year Revenue Revenue Earnings Assets on Assets Assets ------(million kyats) ------

TC 1976/77 541 346 58 881 6.6% 65% Forestry I 1976/77 150 120 17 210 8% 62% Forestry I 1977/78 190 140 55 260 21% 51%

A five year summary of the financial flows (constant prices) for PU(TC) is given in Table 8 below. - 37 -

Table 8: PU(TC) SUMMARY CASH FLOW (Million Kyats)

1979/80 1980/81 1981/82 1982/83 1983/84

Incremental costs - Investments 12 214 145 14 - - Production 3 91 154 181 190 - Total 15 305 299 195 190

Incremental benefits - 99 216 260 271

Net incremental benefit (15) (206) (83) 65 80

The financial rate of return for the PU(TC) would be 14%, after payment of all investment and operating taxes and duties (Annex 2, Table 22). This is satisfactory, in view of GOB's heavy taxation and Export Price Equalization Fund systems which are necessary in order to reduce TC's returns to levels which encourage efficient operation. PU(TC) - the East Pegu Yoma Division - would generate a satisfactorycash flow for debt service and which would be adequate for replacement of equipment from its own resources (Annex 2,Table 24, Annex 4C 13). Debt coverage for PU(TC) would be about 1.9 in 1980/81, but would rise rapidly thereafter to over 5 in 1983/84. The overall earnings performance of TC is considered adequate in the context of GOB's taxation system and because TC's overall performance is expected to improve rapidly due to the substantial and increasing contribution from the Forestry I project and a similar contribution from the ADB financed Sagaing project.

6.02 FD capital and operating costs would be financed through budgetary allocation from MAF. The financial rate of return of the overall plantation program would be 19% (Annex 4.C8).

VII. ECONOMIC ANALYSIS

A. Benefits and Costs

7.01 Incremental physical output benefits of the project are given in Annex 2, Table 25. The project would contribute to meeting GOB's 4 year plan objectives of increasing teak export revenues and increasing supplies of sawn hardwoods to the domestic market by increased utilization of the teak resource, increased hardwood output from log production, by upgrading forest based industries and improving incomes and living standards of landless people in the project area. The annual incremental total economic benefits of the project, which amount to over Kyats 600 M at full development, would accrue to the Government. - 38 -

7.02 It has been assumed that annual "without project pro.iuctionwould remain at current levels of about 60,000 H tons of teak, about 70,000 H tons of hardwood logs and about 39,000 H tons of sawn hardwood. Although these production levels in the 'without project' case could be exceeded for short periods by extreme overcutting, this alternative is technically unacceptable and was not considered as an alternative. Maintaining the "without project" volumes may be optimistic, considering the rapidly deteriorating state of equipment in the project area and to this extent project benefits are understated. At full "with project" production total annual log extraction from the project area would be 132,500 H tons of teak and 290,000 H tons of hardwoods, a net incremental log production of 72,500 H tons of teak and 220,000 H tons of hardwoods. "With project" teak production includes benefits resulting from the reduction in log losses and logs in transit (para 5,01). Total production of sawnwood from State and hire mills at full production would be about 113,000 H tons or 76,000 H tons net incremental production. The plantation program would be the first phase of a continuing program aimed at increasing the value of Burma's forest resource. It would ensure a continuing and expanding forestry sector in Burma, and would provide a basis for sustained forestry industry expansion in the East Pegu Yoma area. The "without project" alternative for plantations is natural forest management with uncontrolled destruction of high value timber stands by taungya farmers and the net benefits are assumed to equal net costs. To the extent that most of the plantation areas would be on already degraded forest land with virtually zero opportunity cost, and because the economic costs of uncontrolled taungya farming are substantial, project benefits may be understated.

7.03 Total personal income to project employees would be about Kyats 15 M (US$2.2 M) per year. In addition, Kyats 25 M (US$3.7 M) would be earned by private fellers, elephant and buffalo owners and private truck owners. Income to taungya farmers from FD work carried out concurrently with normal cultivation would increase the annual total revenue of each taungya family from less than Kyats 1,600 (US$240) to more than Kyats 3,000 (US$450).

7.04 In addition to making physical investments to achieve and sustain annual industrial production of 420,000 H tons, the project would provide managerial and technician level assistance to improve utilization of new and existing equipment and, equally important, to make future development in the area self-sustaining. Based on current operating experience in Burma compared with similar countries, more efficient use of machines and improved maintenance due to the proposed Technical Assistance and Overseas Training Program have reduced capital investments required for the project output by about US$15 M or about US$4 M per year in annualized capital and operating costs. Production benefits from improved sawmilling and sawdoctoring would be about US$2.5 M per year. The project technician training would emphasize training teachers and the extensive technician level training to be provided to mechanics, sawdoctors, plant operators, surveyors and photointerpreters is expected to generate benefits outside the project due to staff mobility. Improvement of Okkyin sawmill in Rangoon would be the first stage of physical and operational improvement in teak sawmilling which, because of the high value raw material, would create substantial benefits which, in this analysis, have not been quantified. - 39 -

7.05 The quality of sawnwood and mill recovery rates are very low in Burma. For high value timber, Burma receives a greater economic return from log export than from sawnwood or veneer export (para 5.01). Consequently,this project would export the best high quality teak and hardwood logs. The introduction of hardwood bandsaw mills and the technical assistanceto be provided by the sawmill engineer and sawdoctorwould increase returns from sawnwood. The project would improve the quality and recovery rate of sawnwood such that TC could expand its export of sawnwood and correspondinglyreduce its export of logs. Prices used in the economic analysis are based on internationalprices for export timber and internationalprices adjusted for transport to factory gate for domesticallyconsumed timber (Annex 2, Table 19). Sales benefitshave been allocatedin subsales groups based on historical experience and expected exports.

7.06 Labor was priced at its current financialrate in the project area, where seasonal labor peaks for forestry coincide with farming labor peaks. A Shadow Exchange Rate (SER) of US$1 = 12 kyats has been used for conversion of foreign exchange costs and benefits to local currency. This SER is equivalent to a Standard Conversion Factor of 0.56 and reflects extensivequantita- tive restrictionson trade. Costs exclude timber royaltiespaid to GOB, sales and other taxes, import duties and price contingencies.The overall project analysis includescosts of the total plantation program but excludes plantation benefits pending results of the teak research plantationprogram which will give a firmer indication of expected yields. To this extent project benefits are understated.

7.07 EnvironmentalEffects. The project would have only minor adverse environmentaleffects. Animal extractionprovides minimum disturbanceto the forest structure. Mechanical extraction, through constructionof skid trails and feeder roads, will create some temporaryminor turbidity in water flows. Forest regrowth over skid trails is normally rapid and completed in one to two years, based on experience in the Forestry I project. Major roads, if not constructedcorrectly, can create some gully erosion and project management would pay particular attentionto the prevention of such erosion through proper maintenance,drainage and bridging. Plantationsare expected to benefit the forestry structure through the replanting of degraded forest areas. Some minor sheet erosionhas been observed in certain soils beneath pure stands of teak plantations and this would be monitored carefully by FRI and the silviculturalist,with appropriateprotective measures taken.

B. Beneficiaries

7.08 Direct total employment in the project would be about 7,000, comprising about 2,200 in extraction,2,400 in sawmills, 200 in administration,1,600 in forest management,nurseries and plantationsand about 600 in miscellaneous and support services. Additional jobs will be also created in the Rangoon teak sawmills and log export yards as a result of increasedproduction from the project area. The net increase in employmentwould be about 3,000. - 40 -

7.09 The project has not been specifically designed to improve rural income levels, but the taungya plantation development would also provide a substantial and expanding source of employment and income to a group of people with low incomes who were previously displaced during insurgency activities in the project area. The plantation program would provide permanent new employment to about 1,700 landless families who would otherwise be limited to the present and destructive practice of uncontrolled taungya cultivation. It would make forestry a more secure source of regular employment throughout the project area. It will improve communications with the deep forest areas and provide forest villages with access to markets, education and health. Currently the logging season is limited due to the lack of all weather roads to the dry season of about 100 to 120 days per year. This would be extended under the project to about 150 days per year and would increase the employment and income levels of private truck owners and extraction operators in the project area.

C. Economic Rate of Return

7.10 The economic rate of return for the total project would be over 100% (Annex 2, Table 26). The very high returns from the project are due to Burma's possession of an extremely valuable and scarce timber resource. Extraction levels without the project would be limited by animal power, limited capacity in floating streams, and poor mechanical support. The project shows substantial returns merely by increasing the levels of extraction. Substantial returns, however, are also achieved by reducing teak log losses from present levels, which average 20%, to almost zero for trucked timber (para 5.01). Because teak extraction shows such high returns, the incremental costs and benefits of the lower return hardwood extraction and sawmilling were estimated separately. The rate of return to hardwood extraction and sawmilling (about 55% of project costs) would be about 90%. Rates of return for hardwood sawmilling and extraction separately have not been estimated, because they are largely inseparable activities. The high return is due to substantial sunk costs in hardwood sawmilling in the project area and low construction and production costs. Because of the long duration of teak plantations and the economic unattractiveness of teak plantations in other countries, the economic rate of return of the teak plantations (about 5% of project costs) was also separately estimated and would be about 20%. This rate of return is high compared with teak plantations in other countries and is due to (i) the very low cost of teak plantation establishment by taungya cultivation and (ii) to the substantial comparative advantage that Burma possesses in its optimum growing conditions for teak.

Sensitivity Analysis

7.11 The project remains extremely attractive even with substantial changes in assumptions of revenue or cost. The project mix of local use and exports could change substantially without significantly changing the economic or financial rate of return. The State sawmills have potential for further - 41 - increased throughput should the conservatively projected level of hardwood export sales not materialize or the local sawing market should not accept the volume of logs proposed. Plantations are sensitive to the income received by taungya farmers in the initial years of the project. Attention would be paid by FRI and FD to assist taungya farmers in selecting crops (e.g. nut crops) which would provide the greatest returns. Project delays, from past experience, would be most likely to occur in procurement. Delays would reduce costs and benefits similarly and would not significantly affect the financial or economic returns. Sensitivities to changed assumptions are given in Table 9.

Table 9: SENSITIVITY ANALYSIS

Hardwood Extraction Total Project and Sawmilling

Base estimate over 100% 90% All costs up 20% 98% 66% Benefits down 20% over 100% All costs up 20%, 81% 45% benefits down 20%

Teak Plantations

Base estimate 19.7% Zero benefit from taungya crop 13.7% 50% decrease in revenue at maturity 18.9%

VIII. PROJECT RISKS

8.01 It is extremely unlikely that the project would become financially or economically unsound due to adverse technical or economic conditions. The project would continue to show substantial returns even in major adverse circumstances such as reduced volumes, lower prices and increased costs. A possible risk is that renewed insurgency in the project area would preclude forestry operations altogether. There is no insurgent activity in the area now and proposed forest industry activity in the project, particularly road building, would tend to discourage renewed activity because of improved access for security forces. Should any of the area become insecure, project investment in equipment would be readily usable elsewhere in the project area, or in other forest areas of Burma. The principal long term risk is that, should hardwood volumes prove to be less than projected by FD, then the proposed cutting cycle would be reduced in duration and a reduction to the sustained annual allowable cut, which is less than the proposed cutting volume, would be reached sooner than could be compensated by initiation of fast growing species plantations. This risk is considered small. It is unlikely that volumes would be inadequate during the project period or during the fifteen year - 42 - analysis period. The proposed hardwood cutting cyci, is course of dynamic forestry management which in the near and longer term would increase the revenues and expand the long term resource basis from forests. A further risk is that the domestic market for sawn hardwoods may recover to 1972 levels more slowly than over the five years projected. Much of the project domestic output would be absorbed by the public sector. The risk of supply exceeding demand is small because of the substantial additional absorptive capacity in the private sector. The risk for plantation grown teak is difficult to evaluate. Plantations will reach maturity in 60 years. Naturally there are uncertainties concerning the value of decorative and structural hardwoods over that period. Teak and hardwoods have, however, increased their real values over an extended period and teak has maintained a price premium above average hardwood prices for 150 years. Given the increasing scarcity of tropical hardwoods in the world, the decision of GOB to invest a small portion of its resources in teak plantations, with the potential of extremely high returns at maturity, is considered a desirable element of Burma's forest strategy.

IX. ASSURANCES REQUIRED AND RECOMMENDATIONS

9.01 During credit negotiations, agreement was reached with GOB that, as in Forestry I:

(a) (i) PU(TC) and PU(FD) would maintain separate bank accounts from TC and FD;

(ii) Accounts for TC, FD, PU(TC) and PU(FD) would be audited annually;

(iii) TC and FD would send to IDA copies of the summary of the unaudited annual project accounts within 6 months of the end of a fiscal year, to be followed by certified copies of the audited accounts and audit reports for the PU(TC) and PU(FD), PU and FD within 9 months of the end of each fiscal year (para 3.28).

(b) (i) PU (TC) would be autonomous in financial and operating matters;

(ii) TC would deposit to PU(TC) accounts proceeds from the sale of PU(TC) timber outside the project area, less reasonable marketing and milling costs not, promptly after TC takes possession of the timber; and, teak from the project area would be identified for origin and stored and invoiced separately; and - 43 -

(iii) PU(TC) would be permitted to retain annual depreciation provisions for reinvestment and replacement of fixed assets (para 4.03).

9.02 During credit negotiations, agreement was reached with GOB that:

(a) (i)) At the request of TC, CC would transfer maintenance responsibility for specified public roads in the project area heavily trafficked by logging vehicles (except for the Rangoon-Mandalay Highway), from CC to PU(TC) for a specified period of time. At the end of that period, or as otherwise requested by TC or CC, maintenance of such roads would revert to CC. For each road so transferred a written agreement, acceptable to IDA, would be made between TC and CC, specifying the terms and conditions under which such transfer would occur, to include inter alia, a description of the minimum physical condition to which PU(TC) must restore the road prior to acceptance by CC (para 3.07);

(ii) As required CC would, promptly maintain or upgrade any section of the Rangoon-Mandalay highway in the project area that is heavily trafficked by PU(TC) logging vehicles (para 3.07);

(b) TC and BRC would form a written agreement, specifying terms and conditions under which unit trains would be operated by January 31, 1980 (para 3.18);

(c) a Subsidiary Loan Agreement between GOB and TC would have an annual interest of 9%, repayable over fifteen years including a five year grace period (para 3.21);

(d) a Market Research Unit would be established within TC's Marketing and Milling Department by July 31, 1980 (para 4.05);

(e) a detailed program for overseas training would be prepared by January 31, 1980 (para 4.08);

(f) GOB would retain a consulting firm by March 31, 1980 (para 4.09); and

(g) MAF would prepare a detailed program for preparation of a Forest Master Plan by December 31, 1980 (para 4.10).

9.03 Conditions of credit effectiveness would be:

(a) effectiveness of the EEC Special Action Credit and Gov- ernment of Finland grant (para 3.20); - 44 -

(b) execution and delivery of a Subsidiary Loan Agreement (para 3.21);

(d) appointment of Project Directors for PU(TC) and PU(FD) with qualifications and experience acceptable to IDA (paras 4.03, 4.06). ANNEX 1 - 45 - - Page 1

BURMA

FORESTRY II: EAST PEGU YOMA PROJECT

Glossary and Principal Species

A. Glossary

1.- Annual Allowable Cut (AAC): The annual amount of wood which may be

harvested from a certain area.

2. Felling Cycle: the interval between successive felling operationson

the same area.

3. Furnish: raw material for pulp manufacture.

4. Girdling: complete ring barking of teak to kill the standing tree,

thereby reducing the moisture content and allowing the logs to be

floated down river.

5. Girth Breast Height: gbh. The tree circumferenceatbreastheight (4'6").

6. Growing Stock: standing volume of live trees.

7. Hoppus Measure: the measure of timber volume in Burma.

3 1 hoppus ft (HF) - 1.273 ft true geometricmeasure

1 log ton/hoppus ton (H ton) = 50 HF (roundlogs)

= 63.66 ft3 true geometric measure

= 50 ft3 (converted lumber)

= 1.805 m3 roundwood under break

1 sawn ton (5 ton) = 50 ft3

= 1.416 m3 (sawnwood)

8. Natural Regeneration: regenerationof the forest from natural seeding.

The area may be managed either before or after seeding to enhance

regenerationsuccess.

9. Reserved Forest: forests gazetted under the Forestry Act and which are

intended to remain in perpetuity as production or protection areas. -46 - ANNEX 1 Page 2

10. Rotation: the period of years required to establishand grow timber crops

to a specifiedmarketable size.

11. Sawnwood: cut wood, lumber.

12. Silviculture: the art and science of cultivating forest crops.

13. Skidding: movement of logs from stump to loading point.

14. Taungya: (i) shifting cultivation or (ii) a system of controlled, moving inter-

cultivation for establishing plantations, which originated in Burma, is now used world wide. 15. Unreserved Forest: gazetted forested areas which can be alienated for

other uses such as settlement.

16. Virgin Pulp: pulp not previously used for paper making.

B. Principal Species

Teak - Tectona grandis

Pyinkado - Xylia dolabriformis benth. (Burma ironwood)

Padauk - Pterocarpusmarcrocarpus kurz. (Burma rosewood)

Gurjun ) ) - Dipterocarpus spp. Kanyin )

In - Dipterocarpus tuberculatis BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Climatic Data - Project Area

Average Monthly Rainfall 1961-75 (mm) Annual Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total

Pyinmana

Average rainfall 6 2 2 27 172 242 230 292 182 165 25 1 1,364 Heaviest Rainfall 34 8 14 57 74 175 88 104 75 155 81 21 - in 24 hours

Toungoo

Average rainfall 1 2 4 28 195 420 405 314 293 183 20 13 1,878 Heaviest rainfall 7 18 31 103 116 102 102 122 90 98 29 43 - in 24 hours

Pegu

Average rainfall 2 5 4 41 298 727 771 833 535 268 18 11 3,513 1 Heaviest rainfall 12 31 35 90 103 138 201 169 189 159 40 21 - 9 in 24 hours

Average Monthly Temperature 1961-75 (IC)

Pyinmana

Average maximum temp. 30.0 33.1 35.4 37.7 35.1 31.1 30.3 30.4 31.5 31.8 31.1 29.2 Average minimum temp. 14.9 15.9 20.6 24.2 24.9 24.1 23.8 23.8 23.9 23.0 20.1 16.3 Lowest minimum temp. 9.0 9.3 13.0 18.0 20.8 22.0 21.9 21.0 22.0 19.0 14.4 10.6

Toungoo

Average maximum temp. 317.1 33.9 36.6 37.6 34.8 30.6 29.6 29.7 31.1 32.1 32.2 30.5 Average minimum temp. 15.6 16.2 20.6 24.4 24.9 24.1 23.8 23.9 23.9 23.4 20.6 17.1 Lowest minumum temp. 10.5 11.0 14.4 18.5 21.3 22.0 21.9 21.8 21.6 18.0 15.0 11.1

Pegu

Average maximum temp. 31.8 34.1 36.6 37.5 34.0 30.0 29.4 29.1 30.3 32.0 33.0 31.6 Average minmmum temp. 17.7 17.3 20.3 23.4 24.8 24.3 24.1 24.0 24.1 23.8 21.7 18.3 - ' Lowest minimum temp. 11.7 11.0 15.3 19.0 22.0 22.5 22.0 22.0 22.0 20.0 16.5 12.0

Source - Feasibility Study Report.

March 19, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Logging Systems and Typical Production Costs

Annual Working days Logging cost/H ton 1/ Method Production Unit Production per year Kyats US$ (H tons) A. Elephant/Float (i) 1 elephant (TC or contract) 200 200 140 21.1 (ii) Hand labor

B. Elephant/Mechanical (i) 20 elephants (TC or contract) 7,500 150 140 21.1 (ii) 1 140 HP bulldozer (iii) 4 6.5 M ton self loading lorry (iv) 1/2 125 HP log loader (v) 6 operators, 1 supervisor X

C. Mechanical (i) 2 140 HP bulldozers 6,000 150 130 19.6 (ii) 1 135 HP skidder (iii) Chain saw (contract) (iv) 1/2 125 HP log loader (v) 4 operators, 1 supervisor

1/ Including depreciation

Source: Project Preparation Report and Mission Estimates.

March 19, 1979 a X BURMA

FORESTRY II - EAST PEGU YOMAPROJECT

Extraction Plan ('000 H Tons)

Agency 1979/80 1980/81 1981/82 1982/83 1983/93-1993/94 Extraction Capacity at Full Production Year 1 Year 2 Year 3 Year 4 Years 5-15 Teak Float Elephant/Mechanical Mebhnical

North Pyinmana Teak na 14 14 14 14 Hardwood na 29.5 42 52 52 Total na 43.5 56 66 66 30 36

South Pyinmana Teak na 20 21 21 21 Hardwood na 32 54 66 66 Total na 52 75 87 87 60 30

North Toungoo Teak na 4 4.5 4.5 4.5 1 Hardwood na 30.5 44 54 45 Total na 34.5 48.5 58.5 58.5 1.8 30 30

South Toungoo Teak na 31 31 31 31 Hardwood na 18.5 29 35 35 Total na 49.5 60 66 66 15.5 30 24

North Pegu Teak na 13 26 26 26 Hardwood na - 10 37 37 Total na 13 36 63 63 13 37.5 12

South Pegu Teak na 18 36 36 36 Hardwood na 11.5 21 46 46 Total na 29.5 57 82 82 14.5 30 36

Project Area Teak 60 100 132.5 132.5 132.5 Hardwood 70 122 200 290 290 Total 130 222 332.5 422.5 422.5 44.8 217.5 168

1/ Data are for arrivals, net of: (i) rejections at stump, (ii) losses in dragging, floating and transport and (iii) butting. H

Source: Project Preparation Report and Mission Estimate. |

May 25, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Road Units

Equipment/Unit Construction Capacity/Unit l/ No. Description Purpose Staffing/Unit Road type Miles per day Miles per year

1 140 HP bulldozer, angle blade Pioneer Cuts 1 Road Engineer AW 0.2 15 single drum logging winch Winching bridge-logs 1 Technician Surveyor ELS 0.4 30 Total 45

1 200 HP bulldozer, straight/bull Complete alignments 1 Survey Assistant AW/ELS/Feeder - 200 blade and ripper maintenance

1 140 HP bulldozer, straight Rip surfacing material 4 Roading foremen blade and ripper assist 200 HP in ELS 1 Construction

1 120-140 HP 6x4 road grader Finish formation side 1 Bridging A drains spread surfacing . 1 Quarry and surface o 1 125 HP front end loader Load surfacing 1 Road maintenance 10 15 m ton dump trucks Transport materials 23 Drivers/Operators 2 1,600 gal fuel bowsers Fuel delivery 16 Laborers l 6.5 m ton general purpose lorry Crew and materials 1 Clerk 1 4x4 jeep Supervisionand survey crew transport

3 120-140 HP 6x4 road graders Road maintenance

1/2 25 ton low loader Transport bulldozers (shared 2 units)

1/2 10,000 lb towed vibrating Compaction of yards, roller (shared 2 units) hardstanding,roads

1/ 1 Road unit can construct noted distance of all roads per year.

Source: Project Preparation Report and Mission Estimate. March 19, 1979 BURMA

FORESTRYII - EAST PEGU YOMAPROJECT

Road Specifications and Typical Costs

Cleared Travel Maximum Grade Minimum Bridges Road Class Width Width Adverse Favorable Curve Radius Utilization/year Load Speed Coat/mile 1/ (feet) (feet) (feet) (days) (M Tons) (mph) Kyats US$ 1. All Weather Road (AW) Log bridges, 6" stone/laterite/ 60 22 40 50 100 300 25 25 127,000 19,000 clay surface compressed to 4".

2. Extended Logging Season Road (ELS) Log bridges, side drainage and 80 18 5° 60 90 150 25 20 52,000 7,800 culverting as AW Road, minimum surfacing, 5 year life.

3. Feeder Roads Minimum cost, 1 year life, no 20 14 8° - 60-80 120-150 - 10-12 na na 2/ bridges, minor culverting only, no surfacing. Stream beds used where possible. Constructed by logging units.

4. Skid Trails Log skidder/bulldozer use only, - 10 - 22° 25-30 120-150 - - na na 2/ no culverts, minor drainage.

5. Maintenance AW/EIS/Feeder roads. ------5,600 840

1/ Including depreciation. 2/ Feeder roads and skid trails constructed by logging units - costs inseparable from logging.

Source: Project Preparation Report and Mission Estimates. HPs March 19, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

AW, ELS and Feeder Road Construction Program

1980/81-1983/84

Feeder Roads (Logging Units) Agency AW Road ELS Road Maintenance Road Unit Cost/H Ton 1/ Approximate Total 2/ (Road Units) (Road Unit) (Road Unit) Kyats US$ ------Miles ------Miles North Pyinmana 7.2 14.4 96 8.38 1.25 300

South Pyinmana 21.6 43.2. 288 19.10 2.85 430

North Toungoo 25.2 50.4 336 33.97 5.07 280 U,

South Toungoo 13.2 26.4 176 20.30 3.03 270

North Pegu 19.2 38.4 256 29.55 4.41 300

South Pegu 33.6 67.2 448 38.59 5.76 290

Project Area 120 240 1,600 25.12 3.75 1,870

1/ (i) Including depreciation; (ii) costs allocatbd,;without distinction between teak and hardwood. 2/ Feeder road details vary on yearly prepared logging plans.

Source: Project Preparation Report and Mission Estimates.

March 7, 1979 O r - 53 - ANNEX 2 Table 7 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

ExiRting Equipment in Project Area

Approximate Beyond Age Total Economic Total to Cost of repair 2/ Plant Years No. Repair Repairable Serviceable-'be Retained ('000 Kyats)

Bulldozers

Caterpillar D7 18 2 2 0 0 0 Caterpillar D6 1-18 5 2 2 1 3 Allis Chalmers 10 13 4 8 1 9 International 15 3 3 0 0 0 Harvester Massey Ferguson 10 5 5 0 0 0 28 16 10 2 12 3,375 Road Graders

Mitsubishi 8 4 4 0 0 0 4 4 0 0 0 - Skidders

Timber Jack 1/ 11 10 0 9 1 10 Caterpillar 2-7 2 0 1 1 2 Clark 2 2 1 0 1 1 14 1 10 3 13 195 Loaders

Yale 11 9 7 0 2 2 Clarke 2-3 6 0 4 2 6 International 10-15 3 3 0 0 0 Harvester Caterpillar 7 2 0 2 0 2 Komatsu 9 3 2 1 0 1 Allis Chalmers 3 3 0 0 0 26- UT 7 4 11 1,830 Timber Lorries

i(enworth1/ 15 34 10 17 7 24 Henschel NA 11 11 0 0 0 Hino 6.5 m ton NA 243 89 120 34 154 288 110 137 41 178 5,090 Administrative Vehicles

Fuel Bowsers NA 3 0 0 3 3 Tippers NA 4 4 0 0 0 Hino 6.5 m ton NA 3 0 3 0 3 G.P. Lorries Jeeps 4x4 NA 6 4 0 2 2 16 8 3 5 8.3 Total 376 154 167 55 222 10,500

1/ To be repaired at Pyinmana Base Workshop under existing CIDA grant. 2/ Including FE, taxes and duties. Labor is costed separately under maintenance. 3/ Serviceable -operable, but in most cases requiring maintenance/rehabilitation.

Source: Project Preparation Report and mission estimate.

July 16, 1979 ANNEX 2 -54 Table 8

BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Summary Hardwood Log Distribution Program to Sawmills & Plymill (t000 H tons)

Agency No. 1979/80 1980/81 1981/82 1982/83 1983/84

North Pyinmana State mills 3 NA 13.7 16.8 18.0 18.0 TC Hire mills 6 NA 15.7 15.7 15.7 15.7 Log supply 16.8 29.4 32.5 33.7 33.7

South Pyinmana State mills 6 - 20.2 26.3 36.0 36.0 TC Hire mills 3 - 12.1 12.1 12.1 12.1 Log supply 18.5 32.3 38.4 48.1 48.1

North Toungoo State mills 4 NA 15.9 20.0 24.0 24.0 TC Hire mills 1 NA 2.7 2.7 2.7 2.7 Plywood mill 1 NA 12.0 12.0 12.0 12.0 Log supply 16.0 30.6 34.7 38.7 38.7

South Toungoo State mills 2 NA 10.5 12.5 12.5 12.5 TC Hire mills 2 NA 8.1 8.1 8.1 8.1 Log supply 10.7 18.6 20.6 20.6 20.6

North Pegu Statemills ------TC Hire mills ------New mill 1 - - - 12.0 24.0 Log supply - - - 12.0 24.0

South Pegu State mills 1 NA 2.8 3.8 6.0 6.0 TC Hire mills 2 NA 8.8 8.8 8.8 8.8 New mill 1 - - - 12.0 24.0 Log supply 6.6 11.6 12.6 26.8 38.8

Project Area State mills 16 NA 63.1 79.4 96.5 96.5 TC Hire mills 14 NA 47.4 47.4 47.4 47.4 Plywood mill 1 NA 12.0 12.0 12.0 12.0 New mill 2 - - - 24.0 48.0 Log supply 70.0 122.0 139.0 180.0 204.0

Source: Project Preparation Report, Mission Estimate.

March 6, 1979 BURMA

FORESTRY II - EAST PEGU YOMAPROJECT

Teak Utilization & Sawmilling Capacity

rrnominal1 shift 1979/80 1980/81 1981/82 1982/83 1983/84 Capacity (O000 H tons)

Availability 363 363 Total arrivals (Burma 313 336 363 312 312 Total for sawmilling (Burma) 268 288 312

Sawmilling 55 50 1 (i) Outside Rangoon 45 58 60 62 177 162 (ii) Rangoon, excluding Okkyin 144.4 185 193 200 80 100 (iii) Okkyin Mill NA 25 35 50 312 TOTAL 268 288 312 312

1/ Double shift operation commences.

Sources: Project Preparation Report Addendum, Mission Estimate.

May 8, 1979

%I-. - 56 - ANNEX 2 Table 10

BUL IA

FORESTRY II - EAST PEGU YOMA PROJECT

Labour Intensive Plantation Establishment - Typical Inputs, Costs and Taungya Benefits

Cost/Acre Activity Input/Acre (Kyats) (US$)

LAND CLEARING 1. Surveying 1/ - labor 0.5 man days 2.70 0.40 2. Land Clearing - labor 15 mandays 81.0 - tools sum 13.6 PLANTING 94.6 14.12 3. Burning & Reburning - labor 9 man days 48.6 7.25 4. Staking - labor 2 man days 10.8 - stakes sum 15.0 _ 25.8 3.85 5. Planting - labor 1.5 man days 8.1 - stumps/seeds 540 units 22.4 - tools sum 6.5 _ = 37.0 5.52 6. Replanting - labor 1 man day 5.4 - stumps 160 units 7.0 - tools sum 2.0 14.4 2.15~ 7. Weeding (a) First Weeding - labor 5 man day 27.0 - tools sum 7.50 34.50 5.15 (b) Second Weeding 34.50 5.15 (c) Third Weeding 34.50 5.15

Total Cost 327.00 48.74

Alternative Outputs of Taungya Farmers

Product Seed Yield Net Yield Local Price Net Revenue (Basket) (Basket) (Basket) (Kyats/Basket) (Kyats/Acre ) Hill Rice 1.0 30 29 9.0 261 Groundnut 0.75 10 9.25 34.0 315 Sesame - 4 4 85 340

i/ Wage rate of j.4 Kyats/manday. Source: Project Preparation Report, Mission Estimates. March 6, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Plantation Planting Program 1/ (Acres)

1979/80 ------1980/81 ------1981/82------2/83 Total Teak Fast Crowing Species Trials Total Teak Fast Growing Species Trials Total Teak Fast Growing Species Trials Total Teak Fast Growing Species Trials Labor Labor LabGr - Forest Division Intensive Mechanized Intensive Mechanized Intensive Mechanized Intensive Mechanized

Yamethin (N. Pyinmana) 600 600 - - 850 600 - 250 900 600 - 300 1,500 1,000 - 500

ytEnmana 800 800 - - 1,100 1,000 100 - 1,100 1,000 100 - 1,350 1,250 100 -

North Toungoo 300 300 - - 900 800 100 - 1,100 1,000 100 - 1,300 1,200 100 -

South Toungoo - - - - 700 600 100 - 800 700 100 - 1,100 1,000 100 -

North Pegu -- - 200 100 100 - 400 300 100 - 700 600 100 -

South Pegu - - - - 350 100 - 250 400 300 - 300 1,100 600 - 500

TOTAL 1,700 1,700 - - 4,100 3,200 400 500 4,900 3,900 400 600 7,050 5,650 400 1,000

1/ Planting program has been updated to agree with latest field work by FD. Project costs have been left unaltered and are not significantly affected. Procurement timing remains umaltered.

Source: Forest Department

March 6, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Plantation Planting Program 1/ - (Acres)

------1983/83------1984/85------Total------Total Teak Fast Growing Species Trials Total Teak Fast Growing Species Trials Total Teak Fast Growing Species Trials Labor Labor Labor Intensive Mechanized Intensive Mechanized Intensive Mechanized

1,850 1,350 - 500 2,000 1,500 - 500 7,700 5,650 - 2,050

1,350 1,250 100 - 1,600 1,500 100 - 7,300 6,800 500 -

1,350 1,250 100 - 1,600 1,500 100 - 6,550 6,050 500 --

1,300 1,200 100 - 1,600 1,500 100 - 5,500 5,000 500 -

1,100 1,000 100 - 1,100 1,000 100 - 3,500 3,000 500 -

1,500 1,000 - 500 1,500 1,000 - 500 5,050 3,000 - 2,050

8,450 7,050 400 1,000 9,400 8,000 400 1,000 35,600 29,500 2,000 4,100

1/ Planting program has been updated to agree with latest field work by1 FD. Project 3osts have been left unaltered and are not significAntlv affected. Procurement timing remains unaltered.

Source: Forest Department

March 6, 1979 X BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Railway Program : Rangoon - Taungdwingyi Line

1983/84 1979/80 1980/81 1981/82 1982/83 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 M.Tons H.Tons M.Tons H.Tons M.Tons H.Tons M.Tons H.Tons M.Tons H.Tons

56 109 66 128 76 146 Logs NA NA 60 115 61 119 70 136 74 144 Sawnwood NA NA 61 119 117 228 136 264 150 290 Total NA NA 121 234

170 - 190 - 190 Logwagons required (units) - - - 150 - 4 _ 51/ - 5 Locomotives required (units) - - - 41/ -

wagons from sawmills on the Minbyin, 1/ 1 locomotive would operate "yard train" to move sawnwood Thitpokpin, Lewe, Pyinmana line to Pyinmana.

Source: Mission Estimate.

June 1, 1979

I X - 60 - ANNEX 2 Table 13

BURMA

FORESTRY II: EAST PEGU YOMA PROJECT

Project Cost Estimates by Component ('000 Kyats)

Percentage of Base Cost

Local 1/ FE Total 1

A. Administration and Export (i) Civil works and buildings 1,915 50 1,965 0.4 (ii) Equipment 2,550 3,190 5,740 1.2 Base cost 4,465 3,240 7,705 1.6

B. Road Construction (TC) (i) Civil works, All weather construction 19,816 4,984 24,800 5.0 (ii) Equipment, road units 11,600 21,685 33 285 6.7 Base coSt 31,416 26,669 58,085 11.7

C. Logging, Transport and Maintenance (TC) (i) Civil works, maintenance workshops 830 60 890 0.2 (ii) Equipment - Logging and transport 87,800 166,500 254,300 51.4 - maintenance 3,460 3.700 7,160 1.4 - operational supervision 1,045 2,980 4,025 0.8 92,305 173,180 265,485 53.7 Base cost 93,135 173,240 266,375 53.9

D. Equipment Rehabilitation (TC) Equipment 3,096 7,398 10,494 2.1 Base cost 3,096 7,398 10,494 2.1

E. State Hardwood Sawmill Rehabilitation (TC) (i) Civil works 630 - 630 0.1 (ii) Equipment 3,995 6,435 10,430 2.1 Base cost 4,625 6,435 11,060 2.2

F. Private Hardwood Sawmill Rehabilitation Equipment 420 760 1,180 0.2 Base cost 420 760 1,180 0.2

G. State Hardwood Sawmill Construction (TC) (i) Civil works 2,340 - 2,340 0.5 (fi) Equipment 1,3 14,530 24,660 5.0 Base cost 12,470 14,530 27,000 5.5

H. Teak Sawmill Rehabilitation (TC) (i) Civil works 5,535 80 5,615 1.1 (ii) Equipment 9,310 15,925 25,235 5.1 Base cost 14,845 16,005 30,850 6.2

I. Plantations (FD) (i) Civil works and buildings 9,965 850 10,815 2.2 (ii) Teak plantation establishment 11,995 - 11,995 2.4 (iii) Fast growing species, large scale trials 3,502 600 4,102 0.8 (iv) Equipment 12,340 20,860 33,200 6.7 Base cost 37,802 22,310 60,112 12.1

J. Railways (BRC/TC) Equipment 3,045 6530 9,575 1.9 Base cost 3,045 6,530 9,575 1.9

K. Technical Assistance (TC/FD) (1) Technical assistance 2,280 8,040 10,320 2.1 (ii) Overseas and local training 245 1,190 1,435 (.3 Base cost 2,520 9,230 11,750 2.4

PROJECT TOTAL

Base cost 207,800 286,400 494,200 100.0 Physical contingencies 12,400 16,900 29,300 6.0 Price contingencies 25,500 29,900 55,400 11.2 Total project cost 245,720 333,180 578,900 117.1

1/ Including taxes and duties.

NB Totals may not add due to rounding.

July 5, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Suomoary Major Equipment Procurement and Replacement Schedule 1/

Proijet Replacemet Eniotina 79/80 80/81 81/82 82/83 83/84 Total 84~/85 85/86 68W78 88 99 09 91/92 92/93 93/9

EXTRACTION (TC)

Logging 140 HP bulldozer, angle blade, winch 12 29 44 73 12 73 12 125 HP wheel log-loader 11 5 20 25 11 25 11 135 HP log skidder 13 15 15 13 15 13 15 m ton logging lorry with trailer 24 77 77 154 24 154 24 6.5 ton self loading lorry 58 58 58 58 58 58 Power saws 60 60 120 60 60 60 60 60

Roads 200 HP bulldozer, straight blade, ripper 2 2 2 140 HP bulldozer, straight blade, ripper 2 2 2 140 HP bulldozer, angle blade and wineh 2 2 2 125 HP road grader 8 8 8 125 HP frout end loader 2 2 2 15 m ton tipper lorry 20 20 20 6.5 m ton fuel bowser 3 3 3 6.5 m ton gp lorry 2 2 2 4x4 SWB 2 2 2 2

Administration, maintenance Radios Set Set Set 6.5 m ton fuel bowser 3 10 10 3 10 3 6.5 m ton gp lorry 1 12 12 1 12 1 Recovery vehicle 6 6 6 4x4/4x2 SWB and LWB 2 8 24 32 2 32 2 32 Utility truck 2 2 2 o 6.5 m ton mobils service units 6 6 6

New hardwood sawmills Log loader 2 Fork lift truck 4 Straddle truck 4 Tow truck 2 4x2 vehicle 2

Okkvyn Sawmill Forklift truck 4 Straddle truck 3 6.5 m ton truck 5 Tipper truck 2 Wheel bractor 2 3.-5 m tou truck 3

Marketing and Milling Rangoon 2x4 Inspection vehicles 4

PLANTATIONS (FD)

60 HP wheel tractor 10 5 2 1 18 140 HP crawler tractor 2 2 4 80 HP crawler tractor 2 4 6 85 HP tractor/grador 2 2 4 eu yd tipper truck 5 5 12 0 ton truck 1 I 6.5 m ton fuel bowser 2 2 4 Rotary slasher 6 2 4 2 14 2 cu yd wheel loader I I 4x4 SWB and LWB 5 14 8 2 29 6.5 m ton gp truck 10 5 2 1 18 Minibus 1 I 300 gal water bowoer 10 5 2 1 18 13 mton trailer 10 5 2 1 18

Source: Project Preparation Report and Mi-sion Estinates.

1/ Yeor of delivery.

July 16, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Estimated Schedule of Disbursements (US$ Millions)

-- IDA CREDIT ------EEC CREDIT ------TOTAL ------IDA Fiscal Year & Quarter Quarterly Cumulative Quarterly Cumulative Quarterly Cumulative Disbursement Disbursement Disbursement Disbursement Disbursement Disbursement

FY1980 September 30, 1979 December 31, 1979 - - _ _ March 31, 1980 0.2 0.2 0.1 0.1 0.3 0.3 June 30, 1980 0.2 0.4 0.3 0.4 0.5 n.8

FY1981 September 30, 1980 1.5 1.9 0.4 0.8 1.9 2.7 December 31, 1980 2.2 4.1 2.1 2.9 4.3 7.0 March 31, 1981 5.8 9.9 2.0 4.9 7.8 14.8 June 30, 1981 4.0 13.9 1.9 5.8 4.9 19.7

FY1982 September 30, 1981 1.4 15.3 2.2 8.0 4.0 23.3 December 31, 1981 6.0 21.3 - 8.0 6.0 29.3 March 31, 1982 5.0 26.3 - 8.0 5.0 34.3 June 30, 1982 3.0 29.3 - 8.0 3.0 39.3

FY1983 September 30, 1982 1.5 30.8 - 8.0 1.5 38.8 December 31, 1982 1.0 31.8 - 8.0 1.0 39.8 March 31, 1983 1.0 32.8 - 8.0 1.0 40.8 June 30, 1983 0.6 33.4 - 8.0 0.6 41.4

FY1984 September 30, 1983 0.3 33.7 - 8.0 0.3 41.4 December 31, 1983 0.2 33.9 - 8.0 0.2 41.9 March 31, 1984 0.2 34.1 - 8.0 0.2 42.1 June 30, 1984 0.4 34.5 - 8.0 0.4 42.5 FY1985

September 30, 1984 - 34.5 - 8.0 - 42.5 December 31, 1984 34.5 - 8.0 - 42.5 March 31, 1985 - 34.5 - 8.0 -- 42.5 June 30, 1985 0.5 35.0 - 8.0 0.5 43.0

July 16, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Overseas Training Requirements

Approximate -----Year 1------Year 2------Year 3------Total----- Duration m/m # m/m # m/m # m/mr m/m Timber Corporation

1. Logging PU(TC) & TC 2 2 4 2 4 2 4 6 12

2. Roads PU(TC) 2 1 2 1 2 - - 2 4

3. Management PU(TC) & TC 2 2 4 2 4 2 4 6 12

4. Workshop PU(TC) & TC 2 1 2 1 2 - - 2 4

5. Marketing TC 1 2 2 2 2 2 2 6 6

6. Finance PU(TC) & TC 2 1 2 1 2 1 2 3 6

7. Sawmilling PU(TC) & TC 2 2 4 2 4 - - 4 8

8. Sawdoctor PU(TC) & TC 6 2 12 1 6 1 6 4 24

9. Photo-interpretation and survey PU(TC) 4 2 8 2 8

Sub-total 15 40 12 26 8 18 35 84

Forest Department

1. Silviculture 3 2 6 2 6 4 12

2. Photo-interpretation, cartography, survey 6 2 12 - - 2 12

3. Forest protection 3 1 3 1 3

4. Management training 2 - - 1 2 1 2

5. Forest economics, planning 24 1 12 12 1 24

Sub-total 6 33 3 20 9 53

2173 75 46 8 1 44 37

1/ To include (i) pines, (ii) hardwoods, (iii) mechanization, (iv) plantations establishment.

July 16, 1979

1' Ft'II' 0 m BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Past and Projected Teak Log Arrivals and Utilization in Burma ('000 H tons)

Log Utilization Sawnwood Utilization Delivery Export Arrivals 11 Export to Other Total Local % Total Year Total Forestry I Forestry II ADB Other Volume % of logs Sawmills Use Sales Use Volume Conversions

1974-75 258 67.7 48.6 105.1 36.6 37 14 205 4 88 22 66 75

1975-76 237 83.2 33.0 88.1 32.7 33 14 195 7 92 24 67 73

1976-77 280 100.1 52.0 62.1 65.8 26 9 215 3 73 22 51 70

1977-78 316 101.1 66.6 76- 72.3 46 15 237 4 73 34 39 53 O

1978-79 2/ 310 100 60.0 85 65 40 13 266 4 112 45 67 60

1979-80 313 100 60.0 88 65 41 13 268 4 113 40 73 65

1980-81 336 100 100 71 65 44 13 288 4 121 40 81 66

1981-82 363 100 132.5 65.5 65 47 13 312 4 131 33 98 75

1982-83 363 100 132.5 65.5 65 47 13 312 4 131 26 105 80

1983-84 363 100 132.5 65.5 65 47 13 312 4 131 20 111 85

1984-85 363 100 132.5 65.5 65 47 13 312 4 131 13 118 90

1985- 363 100 132.5 65.5 65 47 13 312 4 131 13 118 90 s3

1/ Arrivals - net of losses including (i) rejections at stump, (ii) floating/transport losses and (iii) butting losses. 2/ 1978/79 Data - Mission estimate.

Sources Project Preparation Report, Forestry I Appraisal Report, Sagaing Project (ADB) Appraisal Report, Feasibility Study Reports and mission estimates. July 16, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Past and Projected Hardwood Log Arrivals and Utilization in Burma ('000 H Tons)

Log Utilization Sawnwood Utilization Arrivals 1! Deliveries TC Total Sawnttmber Forestry Forestry ADB to TC Local Sawntimber Other Other Sales Output Output Output Export Year Total I II Project Others Sawmills Export 57 235 30 265 2 1974-75 527 47.3 135.4 178.8 165.5 427 11 32 6 189 3 192 6 1975-76 393 30.6 92.7 130.9 148.8 347 3 37 113 138 60 198 2 1976-77 403 16.5 120.1 158.0 294.6 257 5 28 24 -4 173 - 173 - 1977-78 357 36.1 81.4 165.9 _ 83.6 327 10 30 204 - 204 - 1978-79 2/ 419 40.0 75.0 174 130 378 11 - 30 - 226 - 226 - 1979-80 460 75.0 70.0 185 -130 419 11 30 - 268 - 268 - 1980-81 538 100.0 110.0 198 130 497 11 296 6 302 - 1981-82 643 100.0 200.0 213 130 549 45 30 19 58 318 41 359 5 o 1982-83 733 100.0 290.0 213 130 589 56 30 34 330 19 349 5 m 1983-84 733 100.0 290.0 213 130 613 56 30 34 330 19 349 5 1985- 733 100.0 290.0 213 130 613 56 30

Forestry II Log Utilization Note A Breakdown of Projected Log Export by Producer Note B Breakdown of --- Other Use--- Local Log Export TC Mills Plywood Others Sales Year Total ADB Forestry I Forestry II Year

110 - - 1980-81 11 11 - - 1980-81 - 24 127 12 18 19 1981-82 45 11 10 24 1981-82 35 167 12 18 58 1982-83 56 11 10 35 1982-83 35 191 12 18 34 1983-84 56 11 10 35 1983-84

losses and (iii) butting losses. 1/ Arrivals - net of losses including (i) rejections at stump (ii) floating/transport 2/ 1978/79 Data - mission estimate. Report, Feasibility Study Reports Preparation Report, Forestry I Appraisal Report, Sagaing Project (ADB) Appraisal Sources: Project X and mission estimates. 00 March 6, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Prices Used in Financial and Economic Analyses 1/ Product Financial Prices Economic Prices 1 Basis of Economic Price K/H ton US$/H ton K/H ton US$/H ton 1. Teak Logs (i) Local use 745 4/ 111 4620 385 Weighted average export price, FOB Rangoon, lowest quality teak logs. (ii) Export 4965 3/ 741 8965 741 Weighted average export price, FOB Rangoon. 2. Hardwood Logs (i) Local use Grade I 395 4/ 59 1220 99 Millgate Pegu, from world market price, CIF Rangoon for similar timber. (ii) Local use other grades 310 4/ 46 1050 85 " (iii) Export Padauk 4050 3/ 604 7310 604 Weighted average export price, FOB Rangoon (iv) Export Gurjan 585 3/ 87 1110 87 it (v) Export Pyinkado 490 5/ 73 940 73 World market prices for similar timber, FOB Rangoon, less 15% discount. 3. Teak Sawnwood (i) Local use 1845 4/ 275 5485 457 Weighted average export price, FOB Rangoon, less 25% quality discount. (ii) Export 3975 4/ 593 7215 593 Weighted average export price, FOB Rangoon.

4. Hardwood Sawnwood (i) Local use Grade I 1020 4/ 152 2550 210 Millgate Pegu, from world market price CIF Rangoon for similar timber. (ii) Local use other grades 700 4/ 104 2310 190 " (iii) Export Pyinkado 920 5/ 138 1770 138 World market, FOB Rangoon.

Notes 1/ Adjusted to January 1979 price levels. 27 Shadow rate of exchange 1 US$ = 12 kyats 3/ Based on weighted sales price 1977/78 FOB Rangoon, net of handling, packaging, harbor fees, etc. 4/ Based on weighted average sales price 1977/78. 5/ Missionestimate. M

May 7, 1979 BURMA

FORESTRY II - EAST PEGU YOMAPROJECT Sawnwood Export Prices and Volumes of Burma Teak Logs and

77/78 78179 (8 mos) 75/76 76/77 % Volume 70/71 % Volume Unit Price/H ton % Volume Unit Price/H ton Volume Unit Price/H ton % Volume Unit Price/H ton TEAY LOG PRICES 1/ Unit Price/H ton 7 US$ '000 Kyats US$ '000 Kyats '000 Kyats US$ '000 Kyats Grade US$ '000 Kvats US$ 8.87 11% 2,030 13.62 1% 14.41 2% 1,380 9.66 58% 1,270 Tender 1,040 5.22 8% 2,150 21 44 * 1,100 7.40 1% 6.71 1% 1,160 8.15 * 3,060 First 490 2.45 3% 1,000 10.10 27. 1,480 9.95 1% 5.37 10% 970 6.81 9% 1,440 Second 350 1.77 29% 800 6.07 29% 869 5,53 23% 3.22 74% 630 4.40 23% 870 Two Star 220 1.00 57% 480 2.32 3% 340 2.26 3% 1.63 5% 220 1.51 2% 330 Log ends 85 0.42 3% 240 4.08 41% 630 4.24 53%7 2.58 5% 490 3.44 7% 580 Sawing quality - - - 380 ------* - - Unbutted 320 1.62 2.60 14% 400 2.68 18% 1.81 3% 290 2.05 2% 370 Unsorted 110 0.66 1 270 5.05 100% 690 4.61 100% 3.48 100% 1,070 7.50 100% 720 Total Weighted Average 320 1.62 100% 520 45.6 37.3 33.5 26.3 Total Volume ('000 H tons) 49.1

TEAK SAWNWOOD PRICES 1/ 4.10 650 4.33 2.39 510 3.56 580 Total Weighted Average 150 0.76 360 38.7 41.6 67.3 50.6 Total Volume ('000 H tons) 75.4

1/ Fob Rangoon. 2/ Average prices CIF European ports. |x * Less than 1%.

March 6, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Hardwood Sawnwood Export, Domestic Consumption Volumes & Prices

Volume Average Prices Year Total Export Domestic Export Domestic '000 H tons k/H ton US$/H ton k/H to_ US$IH ton 1966/67 310 5 305 564 117 271 57 1970/71 330 2 330 337 67 347 73 1975/76 192 6 - 186 626 93 474 72 1976/77 196 2 198 655 94 NA NA 1977/78 00 173 * 173 1120 170 NA NA X 1978/79 (8 mos.) NA 1 * NA 1165 175 840 125

Ht m Sources: Project Preparation Report, IBRD- Economic Analysis and Projections Department, Mission Estimates.

May 7, 1979 BLTUMA

FORESTRY II - EAST PEGU YOMA PROJECT

Summary Fiscal and Financial Analysis - (million K)

Fiscal Financial 3/ Incremental Incremental Incremental Costs Incremental Net Incremental Costs Incremental Net Year Investment Production Total Benefits Benefit Investment Production Total Benefits Benefit 1 1979/80 34 3 37 - (37) 12 3 15 - (15) 2 1980/81 195 36 231 99 (132) 214 91 305 99 (206) 3 1981/82 119 51 170 216 46 145 154 299 216 (83) 4 1982/83 23 59 82 260 178 14 181 195 260 65 5 1983/84 13 62 75 271 197 - 190 191 271 80 6 1984/85 6 62 68 - 277 208 - 192 193 277 84 7 1985/86 49 62 111 277 165 59 192 251 277 26 8 1986/87 9 62 71 277 205 3 192 195 277 82 a 9 1987/88 10 62 72 277 205 - 192 192 277 84 10 1988/89 173 62 235 277 42 239 192 431 277 (155) 11 1989/90 6 62 68 277 209 - 192 192 277 84

12 1990/91 6 62 68 277 209 - 192 193 277 84 13 1991/92 6 62 68 277 209 - 192 192 277 84 14 1992/93 9 62 71 277 206 3 192 195 277 82 15 1993/94 9 62 71 277 206 4 192 196 277 80

Fiscal Rate of Return: 67% Financial Rate of Return (PU-TC): 14%

_ ~~~~~~~~~~~~~~~~~~~~~X 1/ At constant 1979 prices. 2/ Fiscal analysis includes all investments; excludes investment, operating and other direct Burmese taxes. 3/ Financial analysis includes those investments and operations undertaken by PU(TC). Investments excluded are: okkyin mill, railways, hire mill spares. Investment and operating taxes included.

Source: Mission Estimate. May 7, 1978 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Timber Corporation Consolidated Financial Statements 1976/77 (Million Kyats)

Balance Sheet (March 31, 1977) Income Statement 1976/77

Assets Liabilities

Net fixed assets 154 Current liabilities 288 Gross Revenue 541 Other assets 43 Payables 34 Current assets 1/ 642 Cost of sales 195 Receivables 42 Long term debt (IDA) 65 Other long term debt 21 Net revenues 346 Working Capital System 161 and People's Consolidated Other costs and provisions 98 Total Assets 881 Fund

Government capital 98 ° Reserves/provisions 9 I Retained earnings 205 Margin 248

Total liabilities 881 EPEF 2/ 105 State Contribution 15 Commodity taxes 58 Service taxes 12 190

Net profit 58

1/ Financial year ends March 31, which is peak logging season, after logs have been removed from the forest, but before arrived in Rangoon in the period April and May. High current assets reflect this, and the five to seven year inventory of floating teak logs as a whole. 2/ EPEF - Export Price Equalization Fund.

Source: 1976/77 TC and Forestry I Financial Statements.

May 25, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Sources and Applications of Funds - PU(TC)

1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 Sources of Funds

Internal cash generation Total income 51.8 234.9 281.3 364.6 412.8 464.0 Depreciation 0.7 21.8 39.6 43.5 43.5 43.5 Total 52.5 256.7 320.9 408.1 456.3 507.5 Capital IDA/EEC loan 3.4 129.4 102.6 10.7 0.2 _ Union Bank loan (capital) 9.1 99.4 56.5 5.2 - Total 12.4 228.8 159.1 15.9 0.2 _

Total 64.9 485.5 480.0 424.0 456.5 507.5 Application of Funds

Capital expenditures Foreign 3.4 129.4 102.6 10.7 0.2 0.2 Local 9.1 99.4 56.5 5.2 0.2 0.1 Total 12.5 228.8 159.1 15.9 0.4 0.3 Debt service IDA/EEC loan amortisation - - - - - 49.2 Union Bank loan - - - 100.0 70.2 - Interest 0.4 18.5 31.1 32.4 26.4 17.7 Total 0.4 18.5 31.1 132.4 96.6 66.9

Operating taxes 29.7 133.9 161.9 192.1 214.4 234.1 Royalties 7.0 30.1 32.4 35.1 35.1 35.1 Other taxes 2.9 10.5 11.4 21.0 27.4 35.4 Total 39.6 174.5 205.7 248.2 276.9 304.6

Working capital and other assets 12.4 63.7 84.1 27.5 82.6 135.7

Total 64.9 485.5 480.0 424.0 456.5 507.5

Source: Project Preparation Report, Mission Estimate. e

July 17, 1979 - 72-- ANNEX 2 Table 25 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Physical Benefits of the Project ('000 H tons)

Teak 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85-1993/94

Total Log production 60 60 60 60 60 60 without the project Log production with the 60 100 132 132 132 132 the project Benefit - 40 72 72 72 72

Log export without 7.8 7.8 7.8 7.8 7.8 7.8 the project _J Log export with the 7.8 13 17.2 17.2 17.2 17.2 project Benefit - 5.2 9.4 9.4 9.4 9.4

Local log sales without 1.8 1.8 1.8 1.8 1.8 1.8 the project Local log sales with the 1.8 2.5 4.0 4.0 4.0 4.0 the project Benefit - 0.7 2.2 2.2 2.2 2.2

Sawnwood export without 13.8 13.8 13.8 13.8 13.8 13.8 the project Sawnwood export with 13.8 23.4 34.9 37.2 39.5 41.9 the project Benefit - 9.6 21.1 23.4 25.7 28.1

Local use of sawnwood 7.4 7.4 7.4 7.4 7.4 7.4 without the project Local use of sawnwood 7.4 12.1 11.6 9.3 7.0 4.6 with the project Benefit - 4.7 4.2 1.9 (0.4) (2.8) Hardwoods

Log production withouh the 70 70 70 70 70 70 project Log production with the 70 122 200 290 290 290 project Benefit - 52 130 220 220 220

Log exports without ------the project Log exports with - - 24 35 35 35 the project

Local log sales (Grade I) - 12 30 30 30 30 with the project Local log sales (other - - 19 58 34 34 logs) with the project Benefit - 12 49 88 64 64

Sawnwoodproduction GradeI 19.5 18.2 18.2 18.2 18.2 18.2 without the project Sawnwoodproduction GradeI 19.5 25.5 23.9 38.6 35.6 35.6 with the project 2/ Benefit - 7.3 5.7 20.4 17.4 17.4

Sawnwoodproduction other 19.5 18.2 18.2 18.2 18.2 18.2 grades without the project Sawnwood production other 19.5 34.1 44.6 52.8 69.7 69.7 grades with the project 2/3/ Benefit - 15.9 26.4 34.6 51.5 51.5

Sawnwood export with - - 3.7 7.4 7.4 the project

1/ 13% of arrivals would be of export quality. 2/ Conversion export has been deducted. 3/ From total extraction 50% are other grades. May 25, 1979 BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Economic Benefit and Cost Streams (million K)

Incremental Benefits Incremental Costs Teak Hardwood Total Investments Production Costs Total Cost Year Extraction Sawmilling Railways Plantations Total Extraction Sawmilling Total

1 1979/80 - - - 9 - 7 28 44 3 0 3 48 2 1980/81 146 70 216 215 90 - 11 316 30 6 36 352 3 1981/82 268 188 455 175 4 4 11 195 55 6 62 256 4 1982/83 274 315 589 18 1 1 8 26 69 8 77 103 5 1983/84 278 328 605 1 - 1 7 8 70 10 81 89 6 1984/85 282 328 610 - - - 7 7 70 10 81 88 7 1985/86 282 328 610 68 - - 7 75 70 10 81 156 8 1986/87 282 328 610 4 - - 7 10 70 10 81 91 9 1987/88 282 328 610 - - - 13 13 70 10 81 94 10 1988/89 282 328 610 290 - - 7 297 70 10 81 364 11 1989/90 282 328 610 - - - 7 7 70 10 81 87 12 1990/91 282 328 610 - - - 7 7 70 10 81 87 13 1991/92 282 328 610 - - - 7 7 70 10 81 87 14 1992/93 282 328 610 4 - - 7 10 70 10 81 91 15 1993/94 282 328 610 68 - - 7 75 70 10 81 156

Rate of return: Over 100%

Source: Mission Estimate.

May 25, 1979 MIX BURMA FORESTRY11: EAST PEGUYOMA PROJECT THE MINISTRY OF AGRICULTURE AND FORESTS ORGANIZATION CHART

| Minister

§ I Off~~~~~~~~~~~~~iceof the Minister

| Deputy Minister Deputy Minister Livestock, Fisheries l Agriculture l l & Forests

imber ject Steering Forest Planning & Statistics Agriculture State Farms

ort Planning State Farms~~~~~~~~~~~~~ TmerPojctSeein Department Department Department Corporation Corporation Committee

Irrigation l l Survey Salt Corp. Fisheries l Department l l l Department| | " " . | Department

Pearl & Animal | -|LandRecords lameango |- Z o Veterinary & Fishery Corp. Depa oren giH aresusbandary Dept.

Livestock Corp.

Proposed U Liaison

SassPeuYoma Technicalss V Division Coordmnt.

World Bank - 20060

rtX I . BURMA FORESTRY 11- EAST PEGU YOMA PROJECT Project Unit (TC) Organization Chart

Timber Corporation Technical Assistance Managing Director/Management Committee Coordinator

Project Implementation Project Director Committee

LiaisonOffice ZIIchn....~ ji~ I icasssistance Rangoon Consultants (PU-TC)

|Deputy Project Director

Internal Engingaction oadig Offi Audit Fiac niern xrcinRasMarketing ManagerI Manager M Manager Manager Manager Manager (Headquarters) Lni

Extraction Road Procurement Workshop Agencies Constructin Sawmilling apping

Sittang Inventory Agency Rafting Workshops (6) Agency

Cost Sawmill | _ Joint Accounting Engineering with PU (FD)

Financial r1t X Accounting Bn -0

World Bank- 20268 BURMA FORESTRY 11- EAST PEGUYOMA PROJECT Project Unit (FD)- OrganizationChart

Director Gerieral Technical Assistance FD Coordinator

Technical | Comm ittee

Plantation Dirctr r

Technical Assistance

Assistant | Director

eanica Accounts Region 1 Region 2 Region 31/ Mapping Engineer Officer Deputy Director Deputy Director Deputy Director Unit

6 Centers

| Plantation Cnter Assistant Director

_ _ _ Joint with PU (TC)

Deputy Ranger (4) Nursery - Deputy Ranger - Forest Guard (2)

Forest Guard (6)

'IN 1' Region 3 from year 4. rt

World Bank - 20267 BURMA FORESTRY II: EAST PEGU YOMA PROJECT SUMMARY PROJECT IMPLEMENTATION SCHEDULE

BLurmese Fiscal Year l------1998 Ic1980/81' i 19182 982183 198/8

Calendar Year 1979 1980 1981 19q82 1983 1984

AgenCy

EXTRACTION \ . 1. Equipment Procurement TC ~ 1.1 Road Construction u

1.2 Logging ' tgl .d

1.3 Admninistration & Maintenance 2. Equipment FRehabilitation T

3. Road Construction TC 0Mls AW/E LS kH iles AW/ELS \> 90 Miles AW/ELS 90 Miles AVVIEL~

SAW MILLING 1. RehabilitationHardwood TC

1.1 Equipment Procurement I

1.2 Civil Works & Installation 16ilsCmlt

2. Hardvvood Construction TC7,

2.1 Equipment Procurement silNO. 1Copee N"26mlt'

2.2 Civil Works & Installation 3. Okkyin Sam Mlill TO

3.1 Studiy

3.2 Equipmnent Procurement

3.3 Civil Works & Installation

PLANTATIONS V 1. Equipment Procurement FD 2. Teak Plantation Establishment P0 1700 Acres 30 ce 3900 Acres 6650 Acres 7 050Acres 000 Acres

3. Fast Gromving Species Trials FD 90Acres 1000 Acres 140 cres1400 Acres 10qAcres

RAILWAYS

1. Equipment Procurement TO

SPARE PARTS TO/FD il

Illelhlmlull Order i_J Each group of lottingequipment isordered at one time and delivered in tmo batches,.-1 ~~~~~Delivery 2_/ Mechanical handling equipment.r-

FieldWork 3J Savvmilling equipment World Bank - 20128

V \ Rainy Season ANNEX 2 Chart 5

BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

Key Implementation Activities

Activity Ref. Para Responsibility Date

1. 810 working elephants in project 3.05 TC/MAF August 31, 1981 area.

2. (i) Conversion of 58 self-load 3.06 TC October 31, 1980 6.5 m ton lorries completed (ii) Conversion of remaining 58 3.06 TC October 31, 1981 self-load lorries completed

3. Radio frequencies allocated to 3.06 MAF September 30, 1979 TC.

4. Completion of repairs to 15 3.08 TC October 31, 1980 Kenworth logging trucks and 11 Timberjack skidders at Pyinmana Base Workshop, transfer to PU(TC).

5. Preparation of a program for 3.17 FD/FRI/MAF December 31, 1980 monitoring the plantation program

6. Establish PSC 4.02 MAF August 31, 1979

7. Establish PU(TC) 4.03 TC/MAF August 31, 1979

8. Appoint PD(TC) 4.03 TC/MAF August 31, 1979

9. Establish TC Market Research Unit 4.05 TC July 31, 1980

10. Establish PU(FD) 4.06 FD/MAF August 31, 1979

11. Appoint PD(FD) 4.06 FD/MAF August 31, 1979

12. Appoint TA Coordinator 4.09 MAF December 31, 1979

13. Consultant firm retained 4.09 MAF March 31, 1980

14. Complete draft program for 4.10 FD/MAF December 31, 1980 preparation of a Forest Master Plan.

15. Completion of domestic sawnwood 5.04 TC December 31, 1980 demand and production survey.

16. Completion of TC and FRI test 5.08 TC/FRI June 30, 1981 marketing and processing of plantation grown teak, price projections.

July 17, 1979 BURM&

FORESTRY II - EAST PEGU YOMA PROJECT

Equipment List and Procurement Schedule a/

Foreign Local Takes Unit Total Total and Procurement Procurement Schedule 5/ No. Item Cost 1/ Cost 2/ Cost 3/ Duties Method 4/ A B C D __F ____------('000 Kyats) ------

A. TIMBER CORPORATION - PU (TC)

A.l ROAD CONSTRUCTION

Al.l 200 HP Bulldozer with straight 2 940 1,870 90 930 ICR * 8/79 10/79 12/79 1/80 8/80 blade and ripper

A1.2 140 HP Bulldozer with straight 2 600 1,200 60 600 ICB 8/79 10/79 12/79 1/80 8!80 blade and ripper

Al.3 140 HP Bulldozer with angle 2 650 1,300 60 650 ICB * 8/79 10/79 12/79 1/80 8/80 blade and winch

Al.4 125 HP 6 x 4 road grader 8 510 4,100 190 2,030 EEC-ICB 9/79 11/79 1/80 2/80 10/80

A1.5 125 HP Bucket loader 2 610 i,210 60 610 EEC-ICB * 9/79 10/79 12/79 1/80 8/80

A1.6 Low bed loader 40 m ton 1 740 740 40 370 ICB 9/79 10/79 12/79 3/80 4/80 9/80

A1.7 15 m ton Tipper truck 20 340 6,700 330 3,340 ICB * 8/79 10/79 12/79 1/80 A/80

A1.8 6.5 m ton Fuel bowsers 3 270 - 820 - RP - - - 9180

Al.9 4 x 4 SWB vehicles 2 100 - 200 - RP - - - - - 3180

Al.10 Survey equipment - Photoscriber I - Enlarger 1 - DiOdzoprinter 1 - Planimeters 2 - Stereo viewer 6 - Compass - staff 2 - Compass - hand 6 - Clinometer - level and staff 1 - Clinometer - hand 6 - Chains and tapes - topo/trailer tapes 6 - 100 foot 12 - Miscellaneous Total survey 60 60 - 20 EEC-PS (B) - 9/79 11/79 1/80 6/80 Subtotal 17,180 1,850 8,550

Subtotal including spares 6/ 20,710 2,280 10,290 ~00 Footnotes page 14.

a/ This estimate of equipment requirements may be changed during project implementation by agreement between the Borrower and IDA.

June 21, 1979 Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule 5/ No. Item Qtyf Cost 1/ Cost 2/ Cost T 3/ Duties Method 4/ A B C D E F ---- -Tr- - Tyats)7 ------

A.2 LOGGING

A2.1 140 IIP Bulldozer with angle blade 73 650 47,840 2,390 23,920 ICB * 8/79 10/79 12/79 1/80 ( (29) 9/80 and winch ( (44) 7/81

A2.2 125 HP Nbheeled log loader 25 610 15,380 770 7,690 EEC-ICB * 8/79 10/79 12/79 1/80 ( (5) 9/80 ( (20) 7/81 A2.3 130-140 HP Wheeled skidder 15 420 6,230 310 3,120 ICB * 8/79 10/79 12/79 1/80 9/80

A2.4 (i) 6.5 m Logging lorry 58 180 - 10,530 - RP - - - - - 10/80 (ii) Self loading equipment 116 30 - 6,020 - RP 7/79 - - - 5/80

A2.5 (i) 15 m ton Logging lorry 154 340 a/ 51,030 2,600 25,990 ICB * 8/79 10/79 12/79 1/80 )(77 + 20) 9/80 (ii) 10 m ton Towed trailer 40 )(77 + 20) 7/81

A2.6 Power saw 120 # 400 20 200 PS (60) * 9/79 11/79 - 1/80 7/80 o (60) - 6/81 8/81 - 10/81 4/82

Subtotal 121,780 22,640 60,920

Subtotal including spares 6/ 153,210 24,530 76,460

A.3 MAINTENANCE

A3.1 Welding/Generators etc - Engine driven welding set 8 * - Portable service unit (lube 7 and air compressor) - Oxy-acetylene welding/cutting 9 set - Battery charger 50A 7 - Track reconditioning machine 1 - Soldering equipment 10 - Generating set 20 KW 1 - Steam clearer 2 __80 1/80 Lot 280 40 140 EEC-pS (B) - 9/79 11/79 _ 1/80 6/80 a/ Price is combined for lorry/trailer in ratio of 154/40.

Footnotes page 14.

July 16, 1979 Foreign Local Taxes Unit Total Total and Procurement No. Procurement Schedule V Item - Qty Cost 1/ Cost 2! Cost 3/ Duties Method 4/ A 1 C D

A3.2 Jacks and heavy lift equipment - Hydraulic jack 10 ton 1E - Hydraulic jack 20 ton 8 - Track pin press 7 - Chain block S ton 8 - Chain block 2 ton 8 - Sheerlegs - Sheer legs ~~~~10 10 LBot 120---- 60 60 EEC-PS (B) 97 17 /0 - 9179 11/79 - 1180 b/SO68 A3.3 Tools - Tractor mechanic tool kits 135 (metric and imperial) - Industrial tool set (over size 10 specialist spanners) - Torque wrench 300 ft lb 8 - Torque wrench 100 ft lb 8 - Plumbers tools, wrenches 8 - Portable electric drill I" 8 - Portable electric grinders 8 - Benchvice 5"-6" 56 -CGlamps (set of 2) 26 - Heav-y duty tyre repair kit 8 -97 tot 820 So 17 410 EEC-ICB (B) - 9/79 11/79 - 1/80 6/80 A3.4 Specialist 'fools - Tap and die set (metric) 8 - Tap and die set (imperial) 8 , Stud/screw extractor 8 - Bench grinder (10") 4 - Bench drill (1 1/2") 4 - Inspection lamp 20 - Compression gauge 12 - Hydraulic test gauge 4 - Battery cell tester 8 - Measuring sets (micrometer, 10 verater, depthetc) Lot 40 - 20 EEC-PS (B) - 9/79 11/79 _ 1/80 6/80 A3.5 6.5 m ton Fuel bowser 6 270 - 1,620 - uP - - - - - 8/80 A3.6 4 x 4 SWB vehicles 6 - - 600 - RP _ - (4) i/80 A3.7 4 x4 LdB pickup (6) s/so 4 100 - 400 - RP - - - 6/80 A3.8 6.5 m ton service vehicle 6 180 - 1,080 - RP - - - - - 9/80 A3.9 Miscellaneous equipment, - - - 200 - PS pressure gauges, etc.

Subtotal 1,260 4,080 630

Subtotal including spares 6/ 1,580 4,790 790 Footnotes page 14.

July 16, 1979

a' S Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule 5/ No. Item Qty Cost 1/ Cost 2/ Coat 3/ Duties Method 4/ A B C D E P ------('000 Ryats) ------

A.4 OPERATING EQUIPMENT

A4.1 6.5 m ton fuel bowser 4 270 - 1,080 - RP - - - - - (2) 7/80 (2) 7/81 A4.2 Radio system (incl. 10% spares) - 100 w 2 50 100 10 50 EEC-ICR 10/79 12/79 2/80 4/80 5/80 10/80 -25 w 6 40 240 10 120 A4.3 4 x 4 SWB vehicles - Agency managers 6 100 - 600 - RP - - - - - 6/80

A4.4 4 x 2 LWB pickup - Agency managers 1 100 - 100 RRP - - - - - 12/80

A4.5 Recovery vehicle 6.5 m ton 6 180 - 1,080 RNP _ _- 12?80

Subtotal 340 2,880 170

A.5 ADMINISTRATION PU(TC)

(PU (TO) Headquarters)

A5.1 Typewriter 18" 6 # 20 4 10 PS (B) - 7/79 9/79 _ 11/79 4/80 A5.2 Typewriter 12" 4 # 20 # 10 " " " I I I A5.3 Hand calculator 6 # 20 # 10 T I " " " " A5.4 Electric calculator 4 # 20 # 10 " "U" " A5.5 Electronic calculator 10 4 # # # " " " " " A5.6 Duplicating machine 1 10 10 # 4 " " " I A5.7 Copying machine 1 20 20 # 10 " " " " " " A5.8 Survey and drafting equipment Set 60 60 # 10 " I " " I I T (see A1.10) A5.9 Camp equipment 5 # 10 # # " I I I I " " A5.10 Ceiling fan 12 # 10 # 4 " " I " I IT IT A5.11 Air conditioner 10 10 70 4 40 " I I " T "I A5.12 Water cooler 4 4 10 4 4 I I " I I T I A5.13 Refrigerator 2 10 10 # # " " T TI " I IT A5.14 Office furniture - - - 60 - RP I " I " " "

(Agency Headquarters)

A5.15 Typewriter 14 # 50 4 10 PS(E) II IT IT II ,, .. A5. 16 Hand calculator 7 # 20 # 4 " " " I " I I A5.17 Electronic calculator 14 4 10 # 4 I I " I I " I

(Vehicles)

A5.18 4 x 4 SWB -HQ 4 100 - 400 - RP " " II II - Technical assistance 4 100 - 400 - RP "" II II 3/80

A5.19 2 x 4 LWB pickup -HQ 4 100 - 400 - RP - Technical assistance 4 100 - 400 - RP " T I I T

A5.20 6.5 m ton General transport (HQ) 5 180 - 900 - RP

A5.21 6.5 m ton General transport (Agency) 7 180 . 1,260 -RP I " " " I 4/80

Subtotal 340 3,820 170

Footnotes page 14 .

July 16, 1979 Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule 5/ No. Item Oty Coat -/ Coat 2/ Coat 3/ Duties Method 4/ A B C 0D E F ------('000 Kyats) -----

A6 EQUIPMENT REHABILITATION

Spares as required - - 7,400 1,270 1,920 OEM ------Not Applicable ------

Subtotal 7,400 1,270 1,820

A7 STATE SAWMILLBENABILITATION

A7.1 Industrial diesel engine 220 HP 13 90 1,200 70 600 ICB (B) 9/79 10/79 12/79 7/80 3/80 9 80

A7.2 Circular saw grinder with 16 40 580 30 290 " 2.5 hP motor

A7.3 AC generating set 20 KW 9 80 1,360 80 680 "

A7.4 72" Circular saw headrig with 5 70 340 20 170 " " carriage

A7.5 Log washing pump, 3 UP motor 16 40 640 30 320

A7.6 48" Circular saw benches 6 10 80 # 40 " " " A7.7 3 ton chain block with beam 1 10 10 # # " " "

A7.8 Log hauling winch 1 30 30 # 20 " " " "

A7.9 Double drum winches with 40 BP 16 120 1,960 100 980 " ' diesel, cables, main blocks and rail blocks

A7.10 Sawshop equipment, hammers 3 10 20 4 10 anvils, setting gauges sets

Subtotal equipment 6,220 310 3,110

A7.11 72" Circular headrig saws 14 # 40 4 20 ICB (B) ------As required ------

A7.12 48" Circular headrig saws 50 # 20 4 10 "------

A7.13 36" Circular headrig saws 50 # 20 # 10 " ------" -_- _- __- ______A7.14 Miscellaneous: small tools, - - 140 10 70 PS (B) files, belting, bearings grinding wheels, etc.

Subtotal spares 220 10 110

Subtotal including installation 6,440 780 3,220

A8 HIRE MILLS SPAFE PARTS

A8.1 Industrial diesel engine 6 90 550 30 280 ICB (B) ------As required ------

A8.2 72" Circular headrig saws 14 # 40 4 20 "------

A8.3 48" Circular saws 42 i 20 10 "------

A8.4 36" Circular saws 42 # 10 i 10 "------_ ------

A8.5 Miscellaneous: small tools, - - 140 10 70 "------____--___-___-_____-_-__-______files, belting, bearings etc. _ _ _

Subtotal 760 40 380 x

July 16, 1979

Footnotes page 14. Foreign Local Taxes Unit Total Total and Procureme.nt Procurement Schedule 5/ No. Ttem Qt Cost 1/ Cost 2/ Cost 3/ Duties Method 4/ A B C D F F ------('000 Kyats) ------

A.9 NEW HARDWOODMILLS (Equipoent list for one 12,000 H ton input mill)

Sawmill

A9.1 Vertical bandmill 72" R.H. 100 HP 1 350 350 20 180 ICB (B) 10/79 12/79 2/80 4/80 5/80 11/80 A9.2 Carriage 24' x 5' x 60" opening 1 380 380 20 190 (4 blocks). Manoally operated index on carriage, air dogging.

A9.3 Hydraolic drive 75 HP 1 120 120 10 60 "

A9.4 Rails set 10 10 # 10 "

A9.5 Log turner, air ram, 4 lifting 2 selo 90 190 10 90 arms and controls 10 IIP

A9.6 Log deck 19' 10 IIP 1 120 120 10 60 " " " "

A9.7 Liverolls 59', 4 ejector arms 5 110 560 30 280 25 HP

A9.8 Liverolls 28' 10 lIP 2 40 90 8 40

A9.9 Vertical bandmill 54" LH with 1 620 620 30 310 " ' " " " 20' carriage, 4 blocks 75 IIP

A9.10 Sawn lumber transfer chains 2 60 110 10 60 34', 10 HP

A9.11 Green chain 200', 30 HP 1 370 370 20 180 " " " " "

A9.12 Butting saw 25 HP 3 30 80 # 40 "

A9.13 Firewood conveyor 10 HP 1 300 300 20 150 " " "

A9.14 Sawdust conveyor 10 HP 1 350 350 20 180

A9.15 Air compressor 5 HP 2 50 100 10 50

A9.16 Centrifugal pump 20 gpm, 15 HP 2 10 10 # 10

A9.17 48" vertical band resaw RH, 2 190 390 20 190 power feed with roundabout, 100 HP

A9.18 48" band resaw slab, power feed, 1 160 160 10 80 50 HP

A9.19 Log washing pump 3 HP 1 40 40 # 20 " " " . .

A9.20 4 Saw multiedger, circular, 1 330 330 10 170 inserted teeth, 48" opening, I fixed/3 moveable saws. Airshift. 6" cut depth, shadow lines, 150 HP

A9.21 Electric chain saws 2 10 20 # 10 "

A9.22 550 KVA transformer 1 50 50 ' 30

A9.23 Tranomission contractors I set 150 15O 10 80

A9.24 LT takeoff cable - 40 40 # 20 " ' . A9.25 LT control cubicle and cable - 190 190 10 90

Subtotal 5,140 260 2,570

Footnotes page 14.

July 16, 1979 Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule 5/ No. Item Qhr Cost 1/ Cost 2/ Cost 3/ Dutiee Method 4/ A B C D E F ------('000) ------

Sawshop

A9.26 Side dressing machine for saw 1 60 60 4 30 ICB (B) 10/79 12/79 2/80 4/80 5/80 11/80 blades 2 3/4"-14 1/4" width including motor protective switches, 2 grinding wheels, guide and lamp

A9.27 Saw supporting stand 1 20 20 # 10 " " ,. " ,-

A9.28 Stellite tipping machine 1 40 40 # 20 " "

A9.29 Saw stretcher roller, levelling 2 90 90 40" block for 72" bandmill x 12" width also back gauge, tension gauge, hammers etc.

A9.30 Saw stretcher roller for 48" 2 90 180 10 90 " " ,, " " band resaw x 6" width

A9.31 Automatic bandsaw sharpener for 3 50 150 10 80 . " " , " " 72" RHd bandsaw. (6"-12" width, 15 gauge,, hook 30 , gullet 718")

A9.32 Welding set. Oxy/acetylene torches, 1 20 20 4 10 , . hoses, regulators etc. Goggles, single phase grinding wheel 230 V, portable.

A9v,33 Guillotine 1 10 10 # # ' " " "

A9.34 Automatic grinder for sharpening 1 20 20 4 # ' ' ,' 30" cross cut saws _ _ u

Subtotal 590 30 290

Mechanical Workshop

A9.35 Welding set, bricks, hoses, I ) ICB (B) or ' regulators, goggles ) PS (B)

A9.36 Portable grinding machine 1I ) " "

A9.37 Pedestal drill 3 hP I

A9.38 Power hacksaw 2.5 HP 1I. )

A9.39 Forge 1

A9.40 10 ton chain block 2 ) " " "

A9.41 10 ton hydraulic jack 2 ) " " "

A9.42 Miscellaneous tools, tool kits, , .. wire slings, pulleys, extractors, etc.

Subtotal 100 10 50

Footnotes page 14.

July 16, 1979 m ,. Foreign Local Taxes Unit Total Total and Procurement Procurement Schedulo 5/ N., Iter 21x CostS/ Cost 2f Cost 3/ Duties Method 4/ A B C SD F _-____ (T'O00 iyats) ------

Electrical Workshop

A9.43 Small tools volt meters, eggers, ICB (B) or 10/79 12/79 2/80 4/80 5/80 11/80 tools kits, hand electric drills pS (B) " " (1/2" and 1") miscellaneous electrical equipment, blowers etc.

Subtotal - 40 0 20 " ,

Subtotal equipment 5,860 300 2,920

Mechanical Handling

A9.44 Front end loader a/ 1 610 610 30 300 REC-ICB (B) - - - -

A9.45 Fork lift truck 3 ton 2 180 350 20 180 EEC-ICB (B)

A9.46 Straddle truck 2 170 340 20 170 EEC-ICB (B) - - _ -

A9.47 Tow truck 2 m ton 1 70 70 0 1O PS (B) - 12/79 2/80 4/80 5/80 11/80

A9.48 Trailers Sm ton 12 10 120 - 10 PS (B)

A9.49 4 x 2 vehicle 1 100 - lOO - RP - - - -

Subtotal handling 1,490 310 670

Office Equipent

A9.50 Office equipment - 30 - Rp _ _ _

Subtotal _ 30

Subtotal equipment T,350 640 3,590

Subtotal equipment 7,350 1,165 3,590 including instailation

Subtotal equipment and 14,700 2,330 7,100 installation 2 mills

Coimissioning Cossumable Spares

A9.51 150 ft coil 12 1/4" x 15 gauge 4 10 20 # 10 PS (B) ------As required ------saweteel

A9.52 150 ft coil 8 1/4" x 18 gauge 6 # 10 # 10o ,a u sawsteel

A9.S53 30" circular butting sawblades 18 i 10 S S " " " "

A9854 Miscellaneous saw bits, - - 30 f 10 grinding wheels, etellite oxygen, acetylene

A9. 55 Treatment Chemicale (i) 5,500 litres bensylhesa- - - 100 10 50 chlorideb (ii) 50 Kg sodium pants-t - S # , . .hlorophenate

A9.56 Miscellaneous maintennce - - 140 - RBp supplies

A9.57 Miesellameous office supplies - - 50 - RBP " " " "

Subtotal .mmesuaable spares 170 200 sO

Subtotal new hardwood mills 14,870 2,530 7,260 '

A/ Spess as A.2.2 b/ Specs as C.l.D. Footnotes page 14. July 16, 1979 Forig. Loca Taxe Unit Total Total and Proce. eotPrcurmet Shchdule 5/ No. Item j4ty Cost I/ Cost 21 Cost 3/ luties Method 4/ 5 1C E ---- :--('OIl k'yats) ------

B. TIM4BERCORPORATION, RANGOON

3.1 TEAK SAWILMSLREHARITLTTATION A/

Okkyin Sawill Eouipaent

84.1 48" Beand resas, pewerfeed 6 170 1,000 50 300 ICB (B) 3/80 4/80 6/80 8/80 s/so 3/01

BS.2 Straight 11am edger 12 580 2,160 110 1,080"

31.3 Stelliting/side dressing machine h 50 320 20 160 ""

31.4 Stelliting stands 6 20 120 10 60"

BSA5 Stellite tipping mahine 6 40 250 50 120

81.6 Swing cros cut saw 10 20 250 50 120'

31.7 Saw dust blowe 1 120 120 20 60'""

BS.8 Sew dust conveyer 1 130 150 80 80'""

81.9 Firewood conveyor 1 120 120 60 60"'"

31.10 Lighting - - - 40 RP - - - 5181

31.11 Wiring - - 120 40 60 PS (B) - 4/80 6/80 8/80 - 5/8!

B1.12 Ante bandsw grinder 3 80 260 20 130 ICB (B) 3/00 4/00 6/80 8/30 9/80 5/81 31.13 Bemdoaw strtether rolls 3 80 220 10 110''

131.14 Baedaw sage and shaper 3 20 50 10 20"""'

BI.15 Neesseriog he...b 4 20 20 10"'

31.16 Generting equipment - - 4,000 600 2,000 ICB

31.17 Miscellaneou equipment- - 220 90 110 ICR (3)/PS (N) ""

31.18 Spares and installati,m- 1,880 450 940" '

Subtotal equipment 11,240 1,620 5,620 Okkyin Transport and Handling lquipment

31.19 60 HF Wheel tractor 2 110 -220 RP ---- 12/80

31.20 nrailer 2 50 -20- " *,

R1.21 Dueqs truk 2 240 -480 "'..

31.22 6.5 m ton truck 5 180 -900 ''

31.23 3.5 a ton truck 3 120 -360 - "'

31.24 Fork lift truck 4 120 460 20 230 ICB (B) SI/P9 1/81 3/80 5/80 6/80 12/80

81.25 Straddle truck 3 170 510 20 260 "1 *'

31.26 Spares - - 250 300 70 5CB (3/PS (B)------A.a required…------

Subtotal vehielee 1_,220 2,330 560

3.2 SPARESAS REQUIRAED 1,680 80 840 ICB/PS/(B)/OEMP ------As kequird ------

Suhtota1 teak mill spares 1,680 80 840

Subtotal teak sawmill r-habilitatios 14,140 4,080 7,020

a/ This equipment list is indicative only anod will be revised after further study during pruject iopl-aetatio. Physical contingencles of 20% oequipment base costs are sdditional.

Footnots page 14. July 16, 1979 9 Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule 5/ No. Item Qty Cost 1/ cost 2/ Cost 3/ Duties Method 4/ A B C D E F -(----- '000 K7yats)------

B.3 MARKETING AND MILLING DEPT (Indicative only)

B3.1 Office supplies

B3.2 Duplicating machine 4

B33.3 Plain paper copier 5

B33.4 Internal telephone system 1

B3.5 Typewriter (English) 20

B33.6 Typewriter (Burmese) 4

B3.7 Electric typewriter (English) 3

B3.8 Financial pocket calculation 3

B33.9 Water cooler 4

B33.10 Fan 16

B3.11 Electric stencil 2

B3.12 Calculating machine (hand) 30

B3.13 Calculating machine (electric) 4

B3.14 Miscellaneous equipment -

B3.15 Journals and market research data -

Subtotal 670 20 310 PS By end 1980

B3 2 x 4 Inspection vehicle 4 100 - 400 - RP - - - - - 12/80

Subtotal M and M Dept. 670 420 310

Footnotes page 14.

July 16, 1979 Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule No. Item qt2 Cost I/ Cost 2/ Cost 3/ Duties Method 4/ A B C D E F ------('000 Kyats) ------

C. FOREST DEPARTMENT - PU (FD) See Working Paper C8 - Plantations - for detailed 5 year procurement schedule. C.1 VEHICLES

Project Headquarters

Cl.1 4 x 4 Inspection vehicle 2 100 - 200 - RP

C1.2 4 x 4 Pickup 1 100 - 100 - RP

Regional Offices

CI.4 4 x 4 Inspection vehicle 3 100 - 300 - RP

C1.5 4 x 4 Pickup 6 100 - 600 - RP

C1.6 6.5 ton G.P. truck 18 180 - 3,240 - hP

Plantation Centers

C1.7 4 x 4 Inspection vehicles 18 100 - 1,800 - RP

C1.8 60 HP %heel tractor al 18 110 - 1,980 - RP

C0.9 1 1/2 ton trailer 18 10 - 180 - RP

C1.10 300 gal water bowser 18 20 - 290 - RP

Subtotal vehicles - 8,690 -

C2 HEAVY EQUIPNENT

C2=1 140 HP Crawler tractor 4 650 2,600 130 1,300 ICB (B)

C2.2 80 UP Crawler tractor 6 310 1,860 90 930 ICB (B)

C2.3 85 UP Road grader 5 150 750 40 380 ICB

C2.4 Wheel loader, 2 cu yd 1 610 610 30 300 ICB (B)

C2.5 Tipper truck, 4 cu yd 5 200 - 1,000 - RP

C2.6 Rotary slasher 14 30 420 20 210 PS

C2.7 6.5 m ton fuel bowser 4 210 - 840 - RP

Subtotal heavy equipment 6,240 2,150 3,120

a/ Specs as for A9.47.

Footnotes page 14. July 16, 1979 Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule 5/

No. Item QtX Cost I/ Cost _ 2/ Cost 3/ Duties Methods 4/ A B C __ E F ______--- '000 Kyats) ------_-_--

C3 TECHNICAL. ANDoOFFICE EQUIPMENT See Working Paper C8S Plantations- for detailed 5 year procurement schedule. Headquarters and Regional Offices

C3.1 Office equipment - Drawing office equipment 4 - Electronic ¢alculator (hand) 8 - Electronic calculator (desk) 8 - Typewriters I - Telescope 8 - Binoculars 8 - Planimeter 4 - Camera a/ 4 - Projector a/ 4 - Increment borers 8 - Map measurer 8 - Clinometer 4 - Telescope equipped survey compass 16 - Hand compass 16 -Tapes 8 - Pocket stereoscope 8 o - Mirror stereoscope 4 - Tneodolite and attachments I 190 10 100 PS (B)

Plantation Centers

C3.2 Office Equipment - Drawing office equipment 18 - Electronic calculator 18 - Typewriter 18 - Clinometer 72 - Tape 72 - Prismatic compass with tripods 18 - Soil science field testing kit 18 - Caliper 36 - Earth auger 36 - Increment borer 36 - Planimeter 18 - Pocket stereosope 36 - Knapsack sprayer (motorized) 36 - Knapsack sprayer (hand) 36 > - Refrigerator (seed storage) 18 Total Office 80,000

Subtotal 460 20 230 PS (B) a, a7 For record keeping and instruction purposes, Footnotes page 14. July 16, 1979 Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule ./ No. Item Qty Cost 1/ Cost 2/ Cost 3/ Duties Method 4/ A B C D E F -______----- ('000 Kyats) ------See Working Paper C8 - Plantations - for detailed 5 year C3.3 Other office and admiistrationprceenshdu. equipment 90 - RP procurement schedule.

Subtotal office equipment 650 940 320

C4 OTRER EQUIPMENT

C4.1 Workshop tools 3 110 330 20 160 C4.2 Plantation water supply (village) 18 10 120 10 60 C4.3 Electrical supply 18 140 1 570 80 780 2,710 280 1,340 PS

C4.4 Chainsaws 54 160 10 80 C4.5 Cross cut saws 5-6 ft 1,440 290 10 140 04.6 Axes 2.5 lb 1,440 #50 20 C4.7 Files - - 30 10 C4.8 Sprinkler systen 2 80 160 20 90 C4.9 Diesel engine 10 10 - 130 - RP

C5 SPARE PARTS 2,300 980 1,150

C6 =-CELIANEOUSOFFICE AND NURSERY 1,500 80 750 PS SUPPLIES, SEEDS, LIBRARY WATERALS JOURNALSETC.

Subtotal plantations 13,400 13,120 6,680

Footnotes page 14,

July 16, 1979

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ID' " Foreign Local Taxes Unit Total Total and Procurement Procurement Schedule 5/ No. Item Qtx Cost ! Cost 2/= Cost 3/ Duties Method 4/ A B C D E F -- ______- ('000 Kyats) ------

D. TIMBER CORPORATION/BURMA RAILWAYS

D.1 WAGON SPARES

Dl.l Set vacuum brakes for log wagon 190 10 2,020 100 800 ICB 9/79 10/79 12/79 2/80 3/80 6/80

D1.2 Set bearings for log wagon 190 480 40 200 ICB

Subtotal wagons 2,500 140 1,000

D.2 LOCOMOTIVE SPARES

02.1 Maintenance spares for 5 years per locomotive 5 800 3,980 300 1,580 ICB/OEM 9/79 10/79 12/79 2/80 3/80 6/80

Subtotal locomotives 3,980 300 1,580

D.3 COMMUNICATIONS

D3.1 SSB radio for Pyinmana- 5 10 50 20 PS _ 10/79 12/79 _ 3/80 9/80 Taungdwingyi line

Subtotal communications 50 20

Subtotal railways 6,530 440 2,600

1/ (i) Excluding taxes and duties; (ii) CIF Rangoon (foreign) or exfactory (local). 2/ Directly incurred foreign exchange only. 3/ Excluding taxes and duties. 4/ Procurement method: ICB International Competitive Bidding EEC-ICB Competitive Bidding restricted to bidders eligible under EEC Special Action Credit PS Prudent Shopping EEC-PS Prudent Shopping restricted to bidders eligible under EEC Special Action Credit RP Reserved Procurement OEM Original equipment manufactured (B) As a postscript, item bulked with others to facilitate procurement 5/ A - Specifications and bidding documents forwarded to IDA B - Invitation to Bid C - Bid Opening D - Evaluation Report to IDA E - Contract Award F - Delivery to Project Area 6/ Spare parts: 25% for imported equipment, 10-25% for locally manufactured equipment, except as noted. * Specifications agreed by IDA # Cost less than Kyats 5,000 NB Totals may not add due to rounding

July 16, 1979 -93 - ANNEX 3

BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

IDA Disbursements Against Local Expenditures for Teak Plantation Establishment

1. In the proposed project, IDA would reimburse costs of direct local expenditures for teak plantation establishment. This would provide a measure of control and should maintain and improve planting standards. The reimburse- ments would cover about 100% of the direct costs of surveying, land clearing, burning, staking, planting, replanting and three weedings. About 85% of these direct costs are daily wages paid to the approximately 1,700 taungya families at 18 plantation centers, with the remaining 15% covering hand tools and materials such as stakes. Plantings made from 1979/80 to 1984/85 would be eligible for reimbursement up to a maximum of 29,500 acres total.

2. To ensure that plantings have been properly established, IDA disbursements would be made after the PD(FD) had inspected all plantings. Inspection would be made in December of each year of planting, or about 8 months after planting. The PD(FD) would submit a report to the FD indicating the number of acres which PU(FD) had satisfactorily established based on the following criteria:

(a) Stand: initial planting would be approximately 560 per acre, subject to change for silvicultural reasons.

(b) Survival: a minimum survival of 380 seedlings and replantings per acre by December 1 of the year in which they were planted.

(d) Land preparation: the land should have been properly cleared with roads in place and maintained.

3. Disbursements would be made against the planting statements made by PD(FD), which had been certified by the Director General, FD, and submitted to IDA by FD promptly after each inspection. PU(FD) would maintain full accounts indicating the expenditures incurred to establish the teak plantations under the project and these accounts would be available for inspection by supervision missions and would be subject to audit as part of PU(FD) and FD accounts.

4. IDA would disburse the equivalent of US$50 per acre for each new acre up to a maximum of 29,500 acres satisfactorily established under the project. Plantations which had been established unsatisfactorily or which had been established outside the project area would nol: be eligible for disbursement. -94- ANNEX 4 Page 1

BURMA

FORESTRY II - EAST PEGU YOMA PROJECT

List of Related Documents and Data Available on the Project File

A. Selected Reports and Studies on the Sector or Subsector

A.1 IBRD, Burma, Appraisal of Forestry Projects Report No. 374a-BA May 24, 1974

B. Selected Reports and Studies Relating to the Project

B.1 Burma: Forestry II - East Pegu Yoma Project Project PreparationReport. Government of Burma - Ministry of Agriculture and Forests

(i) Main Report September1978

(ii) TechnicalAnnexes - Timber Corporation September 1978

(iii) Technical Annexes - Plantationsand Forest Department September 1978

(iv) SupplementaryInformation December 1978

B.2 Burma, Forest FeasibilityStudies Prepared by Sandwell Management Consultants,Limited, comprising:

X4040/1 Study Background,February 10, 1978

X4040/2 Vol. 1 Forest Resources - Main Report, February 10, 1978 Vol. 2 Forest Resources - Annexes

X4040/3 The Existing Forest Products Industry,February 10, 1978

X4040/4 Mechanical Wood Products Markets, February 10, 1978

X4040/5 Pulp and Paper Markets, February 10, 1978

X4040/6 Forest Industry Development,February 10, 1978

X4040/7 Timber CorporationOrganization and Management, October 31, 1978

X4040/8 Timber Extraction Studies, December 31, 1978

X4040/9 Teak Veneer Mill FeasibilityStudy, October 31, 1978

X4040/10 Bassein IntegratedSawmill Study (partial study-abandoned due to insufficientresource; resource data available) - 95 - ANNEX 4 Page 2

X4040/11 Central Burma Hardwood Sawmill

Vol. 1 Wood Resources Study - Main Report, May 31, 1978 Vol. 2 Wood Resources Study - Annexes

X4040/12 Central Burma Hardwood Sawmill Feasibility Study, July 4, 1978

C. Selected Working Papers

C.1 Forest Resource in Burma and in the Project Area

C.2 Teak and Hardwood Extraction in the Project Area 1/

C.3 Radio Communications in the Project Area 1/

C.4 Road Construction in the Project Area 1/

C.5 Rehabilitatior of Mechanical Equipment in the Project Area 1/

C.6 Mechanical Maintenance in the Project Area 1/

C.7 Sawmilling 1/

(i) Hardwood Sawmill Rehabilitation in the Project Area

(ii) Spares for Private Mills in the Project Area

(iii) New Hardwood Mill Construction in the Project Area

(iv) Okkyin Sawmill, Rangoon, Rehabilitation

C.8 Plantation Program in the Project Area 2/

C.9 Railway Rolling Stock Rehabilitation 1/

C.10 Technical Assistance Terms of Reference

C.ll Marketing Study Terms of Reference

C.12 Economic Analysis, Financial and Economic Prices and Marketing

C.13 Financial Analysis

C.14 Equipment Specifications

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