Public Disclosure Authorized
Document of
The World Bank
FOR OFFICLAL USE ONLY
Public Disclosure Authorized
Public Disclosure Authorized
Public Disclosure Authorized
Repor No.
13818
PROJECT COMPLETION REPORT
GHANA
OIL PALM DEVELOPMENTPROJECT - PHASE II
(CREDIT 1498-GH)
DECEMBER
29, 1994
Agriculture Operations Division
West Africa Department
Africa Regional Office
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EOUIVALENT
Currency Unit
=
Cedi (0Z)
US$1
(May 1984)
=
35 Cedis
US$1
(December 1993)
=
900 Cedis
ABBREVIATIONS AND ACRONYMS
CIRAD-CP
FAO/WB-CP
ffb
GOPDC
ha
IMC
IRHO
MOFA
mt
OP I
OP 2
OPRI
Centre de Cooperation Internationale en Recherche Agronomique pour
Developpement - Cooperative Program
FAO/World Bank Cooperative Program
Fresh fruit bunch
Ghana Oil Palm Development Corporation
Hectare
Interim Management Committee
Institut de Recherches pour les Huiles et Oleagineux
Ministry of Food and Agriculture
Metric Ton
Oil Palm Development Project Phase I
Oil Palm Development Project Phase 11
Oil Palm Research Institute (formerly OPRC)
FOR OFnlCLALUSE ONLY
THE WORLD BANK
Washington, D.C. 20433
U.S.A.
Officeof Director-General
Operations
Evaluation
December 29, 1994
MEMORANDUMTO THE EXECUTIVE DIRECTORS AND THE PRESIDENT
SUBJECT:ProjectCompletionReporton Ghana
Oil PalmDevelopmentProject- PhaseII (Credit 1498-GH)
Attachedis the Project CompletionReporton Ghana-Oil PalmDevelopmentProjectPhaseII (Credit1498-GH) preparedby the AfricaRegionalOffice. No commentswere received
from the Borrower.
The projectfinancedthe secondphaseof developmentof an oil palm nucleusestate.
The principalelementsof this phase were smallholderoutgrowerplantingsand an expansionof the oil
palmmill. Appraisaltargetswere achievedor exceeded. For example,5,300 hectaresof smallholder
managedpalmswereplanted, comparedto an initialtargetof 2,500 hectares. Yieldshavebeen above
projectionsand the performanceof the mill has beenvery high. The enterprisewas managedfrom
PhaseI by an internationalmanagementagency. Over the life of the projectthe internationalstaff
wasprogressivelyreplacedby Ghanaians.The enterpriseis financiallyprofitableand is currently
beingprivatized. Institutionaldevelopmentis judgedto havebeen substantialand sustainabilityis
likely.
The PCRre-estimatesthe ERR at 21 percent, comparedwith an appraisalestimateof
12.3percent. However,giventhat the real valueof palmoil fell by 50 percentover the project
period,it is not clear that the high level of physicalperformancewas enoughto offset the adverse
shift in prices, especiallysincesome aspectsof productiondo not appearto have beenfullycosted.
The projectoutcomeis rated as satisfactory.
Apart from the economicanalysis,the completionreportprovidesan adequateaccountof
project implementation.No audit is planned.
Attachment
Thisdocumenthu a restricteddistribution
and may be used by recipientsonly in the performanceof their
officialduties. lt contents maynot otherwie be disclosed withoutWorldBankauthorization.
FOR OFFICIAL USE ONLY
PROJECT COMPLETION REPORT
GHANA
OIL PALM DEVELOPMENT PROJECT - PHASE II
(CREDIT 1498-GH)
Table of Contents
Page No
Preface .
...................................................
Evaluation Summary ............................................
Part I:
i
iii
PROJECT REVIEW FROM BANK'S PERSPECTIVE .................
1
Project Identity .
..............................................
Background .
................................................
Project Objectives and Description
.................................
Project Design and Organization ...................................
Project Implementation ..........................................
Project Results .
..............................................
Project Sustainability ..........................................
Bank Performance ...........................................
Borrower Performance ........................................
Project Relationship ..........................................
Consulting Services ..........................................
Project Documentation and Data ..................................
Part II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE
PART III: STATISTICAL INFORMATION
..........................
Table 1: IDA Credit/Loan Relevant to the Project .......................
Table 2: Planned, Revised and Actual Dates of Project Timetable ..............
Table 3: Cumulative and Actual Disbursements .........................
Table 4: Planned and Actual Completion Dates of Components ...............
Table 5: Project Cost .........................................
Table 6: Project Financing ......................................
Table 7: Allocation of Credit Proceeds ..............................
Table 8: Direct Benefits .......................................
Table 9: Compliance with Credit Covenants ...........................
Table 10: Staff Inputs
...................
......................
Table 11: Missions
....................
.......................
1
1
2
2
3
9
11
12
12
12
13
13
...
.....
14
15
16
17
18
19
20
21
22
23
25
27
28
This documenthas a restricteddistributionand maybe used by recipientsonly in the performanceof their
officialduties. Its contents maynot otherwisebe disclosedwithoutWorldBank authorization.
Contents
ANNEXES:
Annex
Annex
Annex
Annex
Annex
Annex
1: GOPDC - Profit and Loss Statement .........................
2: GOPDC Sources and Application of Funds .....................
3: GOPDC Balance Sheet .........
.........................
4A: Economic Rate of Return .........
.......................
4B: Economic Millgate Price of Palm Oil and Palm Kernels ....
4C: Production of ffb, Palm Oil and Palm Kernels ...................
.........
29
30
31
32
35
38
PROJECTCOMPLETIONREPORT
GHANA
OIL PALM DEVELOPMENT PROJECT - PHASE II
(CREDIT 1498-GH)
PREFACE
This is the Project CompletionReport (PCR)for the Oil Palm Phase II Project in
Ghana, for which a Credit (Cr. 1498-GH)in the amountof SDR 23.5 million (US $25
million at the time of appraisal)was approvedon June 12, 1984, and signed on June 22,
1984. The Credit closedon December31, 1993, after two extensionstotallingthree years
from the original closingdate. It was almostfully disbursedon May 10, 1994, the date of
the last disbursement,and SDR 1.48 million was canceled.
This PCR was prepared by the AgriculturalOperationsDivision of the Western Africa
Department(Preface, EvaluationSummary,Parts I and III).
The PCR was preparedby Ms. PatienceMensahand is based, inte "i, on the
Report and Recommendationof the President; the Staff AppraisalReport; the Development
Credit and Project Agreements;supervisionreports; correspondencebetweenthe Bank and
Borrower; internalBank memoranda;and interviewswith Bank staff involvedwith the
project.
A copy of the draft PCR was sent to the Governmentof Ghana on May 13, 1994and
no commentswere received.
iii
PROJECTCOMPLETIONREPORT
GHANA
OIL PALM DEVELOPMENT PROJECT - PHASE II
(CREDIT 1498-GH)
PROJECTEVALUATIONSUMMARY
A. Obiectives
1.
The objectivesof the project (para. 6 main report) were to continue the Bank's
involvementin the agriculturalsector includingpolicy areas, strategy for development,
productionof improvedplanting material and improvedcultivationtechnology;diversification
away from cocoa, importsubstitution;and continueddevelopmentof investmentsmade in the
Oil Palm DevelopmentProject Phase 1 (Cr. 531-GH). More specificallythe project would
assist in the developmentof new outgrowerplantingsof oil palm and the expansionof oil
palm millingcapacity.
B. ImplementationExperience
1.
Overall project implementationwas satisfactory. The project period was extended
twice, once for one year, then for two years, to completeproject activities (para. 12).
GOPDC, a wholly-ownedgovernmentliability company,was responsiblefor implementation.
The project establishednew outgrower plantingsunder a loan scheme where repaymentsare
recoveredfrom crop sale revenuespayable by GOPDCto outgrowers. It also consolidated
developmentsmade in the Phase I project consistingof a nucleusplantationand
smallholder/outgrowerplantings. Civil works includedconstructionof buildings(workers'
houses, offices, workshop);constructionand maintenanceof feeder roads; and extensionof
the central mill's capacityfrom 15 ton ffb/hr to 30 ton ffb/hr. The mill processed fruits from
the nucleusestate, smallholder/outgrowerholdings and private/statefarms.
2.
The main financialconstraintencounteredwas a two-yeardelay in the government
providingUS$1.3 million equivalentof its equity contributionto GOPDC. However,
GOPDChas operated at a profit during project implementation. Over-dependenceon a single
buyer at the initial stage causedproblemsof cash flow and poor productoff-take especially
during peak supply periods. This was overcomethrough diversificationof sales channelsand
some expansionof storage facilities.
3.
Managementwas on the whole satisfactoryand was providedunder a management
contractwith an internationallyexperiencedfirm whose staff worked with local counterparts,
who took over full managementresponsibilityin the last year of the project (para. 20). There
was over-recruitmentof workersat the beginningand productivitywas low, but excess labor
was successfullyreducedin size and productivityincreased. Harmony in labor-management
was not always attainedand the high degree of politicizationof the labor movementin
iv
Ghana encourageda confrontationalattitude. There were two serious cases of industrial
action which led to disruptionof project activitiesfor several weeks.
4.
The project providedsupport for research in breedingand productionof improved
seedlingsof oil palm, and for investigationinto Cape St. Paul's Wilt diseaseof coconut.
Both senior and middle level staff benefittedfrom on-the-jobas well as formal training.
Managementof the Oil Palm ResearchInstitute (OPRI;formerly Oil Palm Research Center)
was unsatisfactory.
C.
Results
5.
The project was successfulin completingthe establishmentof a nucleusplantation,
and extending(doubling)the capacityof a central oil mill linked to smallholder/outgrower
holdings. New plantingsby outgrowerswere 5,283 ha, involving2,673 smallholderfarm
families. At the time of PCR preparation,annual productionwas 16,700 tons palm oil and
3,040 tons kernel (para. 38). The PCR estimatesoil palm fruit productionat full
developmentof Phase I and II at 91,000 tons, or about 129 percent of the SAR estimate
(Table 8). A portion of the outgrower programis receivingfollow-onfinancingunder the
AgriculturalDiversificationProject (Cr. 2180-GH, FY91).
6.
The economicrate of return is 21 percent (Annex 4A). Debt recoveryfrom
outgrowersand smallholdershas been behind schedule, with year-to-year recoveryof
annuitiesfluctuatingfrom 48 percent to 98 percent.
D.
Sustainability
7.
The project is financially,institutionallyand technicallysustainable. It has been able
to successfullyintegrateimprovedtechnologypracticesinto local farmers' oil palm
cultivation. GOPDCis capableof prudentialmanagementof its financesand continuing
profitableoperation. Local managerialand technicalcapacityhas been built to efficiently
utilizethe land, capitaland human resources availablefor a viable commercialoperation. In
fact, the governmenthas put GOPDCup for sale to the private sector, and three international
firms have submittedproposalsto buy it. The private businessinterest is indicativethat the
companywill continueto be operated efficientlyin the future should the divestituresucceed.
It is not certainhow the smallholder/outgrowercomponentwould be treated in the event of
divestiture,but it is clear that the nucleusplantationand mill woulddepend on
smallholder/outgrowerproductionto maintainprofitability.
E.
LessonsLearnt
8.
The project has shown that establishinga nucleusplantationlinkedto outgrower
holdingsis viable under the conditionsof: (i) a simple project design; (ii) autonomyto
operate as a businessentity; (iii) efficientand competentmanagement;and (iv) provision of
adequateamountsof local counterpartfunds. Technicalassistancecan be used for the
successfultraining of local counterpartstaff with the cooperationof the TA provider and close
monitoringby the recipient.
PROJECTCOMPLETIONREPORT
GHANA
OIL PALM DEVELOPMENT PROJECT - PHASE II
(CREDIT 1498-GH)
PARTI: PROJECTREVIEWFROM THE BANK'SPERSPECTIVE
A. Project Identity
Project Name:
Credit Number:
Credit Amount:
RVP Unit:
Country:
Sector:
Oil Palm DevelopmentProject - Phase II
1498-GH
SDR 23.5 million(US$25million)
Western AfricaDepartment(AF4)
Ghana
Agriculture
B. Back_round
1.
Ghana experiencednegativegrowth in the 1970sfor reasons includinginappropriate
macro-economicpolicies, poor managementand adverseexternalfactors. The agricultural
sector which was contributingabout 50 percent of GDP and employed51 percent of the labor
force was neglected,resulting in a downturnin productionof food and export crops. Cocoa,
the leading export crop, experienceda progressivedeclinedue to high net taxationand poor
producerprice incentives.
2.
The Bank's earlier involvementin the agriculturalsector was to reverse the declineof
the cocoa and timber subsectorsand assist the country in efforts to increase the productionof
food and raw materials for agro-industries. Total lending from 1969 to 1983 amountedto
US$105.5million, comprisingeight projects, amongstwhich was the Oil Palm Development
Project Phase 1 (Credit 531-GH)for US$13.6 millionfor developing4,000 ha of nucleus
plantationand 1,200 ha outgrowerplantingsand constructinga 10 ton/hr palm oil mill and
associatedinfrastructure. Most of these projects were largely unsuccessfuldue to shortagesof
both foreign exchangeand local funds, poor managementand slow bureaucraticprocesses.
However, the Phase I Oil Palm DevelopmentProject (OPI) achievedits planting targets,
institutional,financialand economicobjectives.
3.
OPI was appropriateconsideringlong-termprojections of excess demand for palm
oil over Ghana's domesticproduction. This was not only a hedge against future shortagesof
palm oil but also offered an opportunityfor import substitutionin view of the serious shortage
of foreignexchangeat that time.
4.
Preparatorywork on a secondphase project (OP2) was initiated in anticipationof the
end of OPI, which was due to closeon June 30, 1984. Preparationwas carried out by
FAO/CP staff together with an IDA mission in October 1980. The project was appraisedin
April 1981 and the draft Staff AppraisalReport(Green Cover) was completedin January
2
1982. Further processingof the financingproposal was suspendedtemporarily. The
submissionof the loan packageto the Loan Committeewas deferred pendingthe new
government,which came into power in December 1981, reaching agreementwith the IMF
and the Bank on macro-economicpolicy reforms.
5.
The project was re-appraisedin October 1983after the governmentreached agreement
with IMF and the Bank and announcedthe reforms.
C. Project Objectivesand Description
6.
The objectivesof the project were to continuethe Bank's involvementin the
agriculturalsector, includingpolicy areas, strategyfor development,productionof improved
planting materialand improvedcultivationtechnology. Continuationof improvementin the
developmentsstarted in OPI wouldprovide a diversifiedproductionbase that had been
dominatedby cocoa, save foreignexchangethrough import substitutionof edible oil, and
increase foreignexchangeearningsfrom exports of palm kernel.
7.
Project componentsas describedin the Staff AppraisalReport (SAR) No. 3724-GH
comprised:
(a)
the developmentof 2,500 ha of new outgrowerplantings;
(b)
the expansionof the oil mill capacityfrom 15 ton ffb/hr to 25 ton ffb/hr;
(c)
continuationof internationalmanagementexpertise;
(d)
consolidationof Phase I developmentof nucleusestate and
smallholders/outgrowersby providingvehicles, equipment,housing, and
inputs for plantingsnot yet in bearing;
(e)
practical training of Ghanaiansin technicaland managementaspects of the
project, and provisionof consultants'services for special and general studies
and training; and
(f)
supportfor OPRI's researchprogram through provisionof vehicles,
equipment,materials, overseastraining and consultant's assistancefor OPRI.
D. Project Design and Organization
8.
The OP2, which was to be implementedover a six-year period, was designedon the
model of a government-ownednucleusplantationwith a central crop processing facilitylinked
to smallholder/outgrowersthrough credit and crop purchasearrangements. Nucleusplantation
and smallholder/outgrowerplantingsestablishedearlier under OPI wouldbe brought to
maturityand the area under outgrowerswould be expandedwith new plantings. A
smallholder/outgroweroil palm fruit collectionsystem for centralizedmillingwould be set up,
and loan repaymentswould be deductedfrom proceedspayable to the
smallholders/outgrowers.Increasedproductionfrom earlier plantingstogether with harvests
3
from the additionaloutgrowerplantingsin this phase would allow expansionof existing oil
mill capacityfrom 15 ton ffb/hr to 25 ton ffb/hr.
Project conceptand design were appropriatelytimed to consolidatedevelopments
9.
made in OPI where 5,145 ha of oil palms were planted and a 15 ton/hour palm oil mill was
constructed;together with a planneddevelopmentof additional2,500 ha and expansionof the
mill to 25 tons/hour. Consequently,the project financingincludedresourcesto finance
inputs, operate and replaceplant and equipmentinheritedfrom the earlier project until such a
time that the project wouldgeneratepositive cash flow from its operations. The project also
providedfor on-plantationhousing of its workersas a solutionto the high level of
absenteeismencounteredduring the first phase. To provide for the required managementand
technical expertise,the implementingagencywould enter into a managementcontractwith an
internationallyrecognizedfirm experiencedin oil palm management. The staff of the
managingfirm would work with Ghanaiancounterparts,who would have to be trained to take
over the managementby the end of the contract. The investmentsmade in OPI warranted
follow-upIDA assistanceto supportpre-maturitycrop maintenanceand to expandproduction
to a financially-viablescale.
10.
Except for two relatively small components,project implementationwas assigned to
the Ghana Oil Palm DevelopmentCorporation(GOPDC),which had implementedOPI.
OPRI and the Ministry of Agriculturewere to be responsiblefor research and for feasibility
studies for future agriculturalprojects, respectively. Althoughwholly government-owned,
GOPDCwas to be given autonomyto operate as a businessentity. It was intendedthat, in
the course of time, the prospectsfor privatizationof GOPDCwould be discussed, including
the possibilityof smallholders/outgrowersand employeesacquiringshares in the privatized
structure. The Interim ManagementCommittee(IMC)which had replacedthe Board of
Directors in 1992would providepolicy directiononly. IDA sought assurancesfrom the
governmentto co-opta representativeeach from the Ministriesof Finance and Agricultureon
the IMC as the IMC was an internalcommitteecomposedentirelyof staff of GOPDC,
withoutany representationsfrom the two key policy organs at the national level. This was
compliedwith and the IMC was subsequentlyreplacedby the Board which was reconstituted
in June 1991to replacethe IMC.
E. Project Implementation
11.
Credit Effectivenessand Project Start-up: The Credit became effectiveon November
14, 1984, three weeks after the scheduleddate of October23, 1984, with the Borrower
meetingthe remainingconditionof signing an agreementwith managementconsultants.
12.
ImplementationSchedule: The Credit was to close on December 31, 1990, but was
extendedtwice, first for one year to December 31, 1991, and then for two more years to
December31, 1993. The main objectiveof the extensionswas to extendthe outgrower
programto more participantsthan originallyplanned and also to allow for the completionof
the resurfacingof a road providingaccessto the project area.
13.
OutgrowerScheme: Outgrowerplantingsstarted a year later (1986)than the SAR
estimate(1985). As the Credit becameeffectiveonly at the end of 1984, the oil palm
seedlingnursery was establishedin 1985for field planting in the followingyear. A revised
4
planting program was agreed to and maintained,and by the time of the original closingdate
3,750 ha had been planted. A further 1,533 ha were planted during the three-year extension
period. GOPDCprovidedthe outgrowerswith technicaladvice and long-term credit. Credit
in kind was providedfor oil palm seedlings,leguminouscover-cropseed, fertilizers and farm
tools. Participatingfarmers were also advancedcredit in cash for 80 percent of labor costs
for up to four years from planting. Altogether2,673 farmersjoined the outgrower scheme
with an average of 1.98 ha per farmer. A majorityof the outgrowersadopted most of the
practicesrecommendedby the staff of the GOPDCoutgrower unit, but it was apparent that
quite often the fertilizer providedby GOPDCwas not being applied to the palms once these
appearedto have been well-established. Consequently,after 1990, GOPDCdecided not to
supply fertilizersafter the first year of planting except on demand. One issue that seems to
have been discussedseveral times was the type of planting material that should be providedto
the outgrowers. The choice was betweenthat producedby OPRI and that obtained from Cote
d'Ivoire, the latter havinghigher yield potentialbut also being much more expensive. The
inabilityof OPRI to supply the required quantitieson a timely basis created a fait accompliof
a sort. Also the unusuallyhigh oil extractionrates obtainedfrom the imported material seem
to justify the higher cost.
14.
Farmer debt carried an annual compoundinterest rate of 12.5 percent capitalizedover
the first six years. Interest was paid in the seventhand eighth years; then interest and capital
were to be paid in five equal installments. Under DCA section3.01, outgrowerloan funds
were to be from a loan from the governmentto GOPDCalso at 12.5 percent interest rate.
There was therefore no margin allowedfor GOPDCfor the full credit risk it was to take.
IDA supervisionmissionsin 1990 asked the governmentto reviewthe interest rate chargedto
farmersto be consistentwith rates chargedby other Bank-assistedprojects such as the Rural
Finance(Cr. 2040-GH)and SME/Finance(Cr. 1996-GH)projects, starting from 1991
plantings. At that time, the Rural FinanceProject was chargingthe participatingfinancial
institutionsa reference interest rate (RIR) of 18.95 percent, and they on-lentto farmers at
rates between 19.5 percent and 35 percent. The objectivewas to avoid discriminatingagainst
other crops with preferentialrates for oil palm which might lead to inflateddemandfor
outgrowerplanting. On requestfrom the government,IDA agreed to suspend applicationof a
new interest rate for new plantingsin view of the fact that farmers who had already been
selectedhad agreed to participateon basis of the existingarrangement. The old rate was
maintaineduntil the end of the project.
15.
GOPDCcollectedfruits from farmers at points closeto their farms for processing at
the central mill. It kept smallholder/outgroweraccountsand deducted from fruit sales against
loan repayment. Annualloan repaymentstended to be higher for smallholderswhose farms
were happenedto be locatedwithinthe nucleusestate boundariesand were developedalmost
as its integralpart. Outgrowers,whosefarms are generallysome distance away from the
nucleusestate and have been less intensivelysupervisedthan the smallholders,have been less
responsiblein repayments(see below).
YEAR
SmallholderRepayment%
OutgrowerRepayment%
Total Repayment%
1990
70
54
65
1991 1992 1993
81
58
76
69
48
64
98
76
85