Doctment of

The World Bank

FOR OFFICIAL USE ONLY

MICROFICHE COPY

Report No. 10372-MA Type: (SAR)TEMPLETON,/ X82272 / F3061/ ASTAG

STAFF APPRAISAL REPORT

MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

MAY 15, 1992

Agriculture Operations DivisionCountry Department IEast Asia and Pacific Regional Office

IThis document has a restricted distribution and may be used by recipients only in the performance ofth._ir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTSDecember 1991

Currency Unit: Malaysian Ringgit (M$)M$l - US$ 0.37US$1 - M$2.70

FISCAL YEAR (FY)

Government: January 1 - December 31Bank: July 1 - June 30

WEIGHTS AND MEASURES

1 hectare (ha) = 2.47 acres (ac)i kilogram (kg) - 2.2 pound (lb)

ABBREVIATIONS

CIF - Cost, Insurance and FreightFELCRA - Federal Land Consolidation and Rehabilitation

AuthorityFELDA - Federal Land Development Authorityffb - Fresh Fruit Bunch (oil palm)GDP - Gross Domestic ProductICB - International Competitive BiddingINRO - International Natural Rubber OrganizationKPFB - Koperasi Peserta FELCRA Berhad (FELCRA Settlers'

Cooperative Limited)KPFB Holdings - KPFB Holdings Sendirian Berhad (KPFB Holdings

Company Limited)KPR - Koperasi Peserta Rancangan (FELCRA Scheme

Participants' Cooperative)LCB - Local Competitive BiddingMIS - Management Information SystemMRD - Ministry of Rural DevelopmentPWD - Public Works DepartmentRISDA - Rubber Industry Smallholders' Development AuthorityRRIM - Rubber Research Institute of MalaysiaRSS - Ribbed Smoked Sheet (rubber)

FOR OFFICIAL USE ONLY

THIRD FELtRA LAND DEVELOPMENT PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

LOAN AND PROJECT SU..MARY . . . . . . . . . . . . . . . iii

I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Agriculture in the Economy ................. . 1The Tree Crop Sector .................... . 2Bank Sector Experience and Strategy . . . . . . . . . . . . . . 5

II. THE FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY . . . 6

Origin ........ .. . .. 6Organization ...... .. . .. 6Land Development Program ...... ... 7Organization of Schemes ....... ... 8Agricultural Performance ...... ... 8Beneficiaries ..... . . . . .. 9Financial Performance . . . . . . . . . . . . . . . . . . . . 11Bank Experience with FELCRA . . . . . . . . . . . . . . . . 13

III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Project Origin and Preparation . . . . . . . . . . . . . . . 14Rationale for Bank Involvement . .. . . . . . . . . . . . 14Project Objectives and Main Features . . . . . . . . . . . . 14Detailed Project Description . . . . . . . . . . . . . . . . 1cAgricultural Development . . . . . . . . . . . . . . . . . . 15Infrastructural Support .... . . . ...... . . . . . . 18Institutional Strengthening .... . ...... . . . . . . 20Studies ..... . . . . . . .3... . . . . . . . . . . . ,3Project Management Support .... . ...... . . . . . . 24Project Costs ..... . . . . ...... . . . . . . . . . 24Project Financing . . . . . . . . . . . . . . . . . . . . . . 26Procurement. ....... 26Disbursement. ....... 28

This report is based on the findings of an appraisal mission to Malaysia inDecember 1991. The mission comprised Messrs. K. Templeton (Task Manager),W. Cuddihy (Economist) and A. Byrne (Financial Analyst). The mission was alsoassisted by Messrs. P. Boyer (Tree Crop Specialist), J. Roman (Rural Engineer)and C. Maguire (Training Specialist). Peer Reviewers were Messrs. D. Notley(Financial Analyst), K-H. Yeow (Tree Crops Specialist) and C. Rees(Ecologist). Mr. C. Madavo (Director, EAl), and Mrs. D.M. Dowsett-Coirolo(Chief, EAlAG) have also endorsed the project.

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

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IV. PROJECT IMPLEMENTATION . . . . . . . . . . . . . . . . . . . . . 29

Scheme Development .... . . . . . . . . . . . . . . . . . 30Staffing .... . . . . . . . . . . . . . . . . . . . . . . 30Implementation Schedule .... . . . . . . . . . . . . . . . 30Operation and Maintenance .... . . . . . . . . . . . . . . 31Management of Palm Oil Mills ,id Agricultural Schemes . ... 31Accounts and Audit .... . . . . . . . . . . . . . ... 3;Monitoring aad Evaluation .... . . . . . . . . . . . . . . 32Environmental Effects . . . . . . . . . . . . . . . . . . . . 32The Role of Women ..... . . . . . . . . . . . . . . . . . 33Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . 33

V. AGRICULTURAL PRODUCTION. MARKETING AND PRICES ... . . . . . . 33

Agricultural Production .... . . ....... . . . . . . 33Marketing and Price Prospects . . . . . . . . . . . . . . . 34Palm Oil . . . . . . . . . . . . . . . . . . . . . . . . 34Rubber ...... .. . . . ......... . .. .. . . 39

VI. PROJECT BENEFITS AND JUSTIFICATION . . . . . . . . . . . . . . 42

Benefits ...... . .. . .......... . . .. . . 42Scheme Income Analysis .... . . ...... . . . . . . . 42Project Analysis . . . . . . . . . . . . . . . . . . . . . . 46Project Risk ..... . .. . ....... . . . . . .. . 47

VII. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . . 47

ANNEXES

Annex 1: Detailed Cost TablesAnnex 2: DisbursementsAnnex 3: Financial Statements of KPFB Holdings Sdn. Bhd.Annex 4: FELCRA's Financial StatementsAnnex 5: Tapping Training Program (5.1); Terms of Reference for Accounting

Consultants (5.2); Agricultural Production Technologies (5.3);FELCRA Staffing (5.4); FELCRA Action Plan (5.5)

Annex 6: Crop Yield Profiles (6.1); Commodity Prices (6.2-6.3); Farm ModelCash Flow and Economic Analysis for Oil Palm (6.4-6.6) and forRubber (6.7-6.9); Economic and Sensitivity Analyses (6.10-6.11)

Annex 7: Documents in Project File

CHARTS

Figure 1: Organizational Chart of FELCRA (1991)Figure 2: The Agricultural Development ProcessFigure 3: Organization of Proposed Plantation and Finance Divisions

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MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

Loan and Project Summary

Borrower: Malaysia

Beneficiary: Federal Land Consolidation and RehabilitationAuthority (FELCRA)

Loan Amount: US$94.0 million

Terms: 17 years, ir-<uding 5 years of grace, at theBank's standard variable interest rate.

Project Description:

The project would strengthen FELCRA as a development institution andwould support its efforts to disengage from the management of variousmature operations in favor of private beneficiary institutions. twould: (i) rehabilitate planting 48,000 ha of idle agricultural landthrough planting of tree crops under group farming arrangements, andwould maintain a further 120,000 ha of tree crops during cropimmaturity; (ii) provide agricultural scheme and other infrastructure;(iii) introduce a system of reduced frequency tapping to lower rubbertapping costs and labor requirements; (iv) strengthen FELCRA through thecreation of new plantation and finance divisions and the introduction ofimproved accounting and financial management systems; (v) assist FELCRAin privatizing the management of its palm oil mills and of agriculturalschemes which have repaid their land development loans; (vi) expandtraining programs for farmers and staff; and (vii) provide studies andmanagement support services

Benefits and Risks:

The main project benefits would include improved incomes for some 24,000smallholder families including many previously earning under the povartylevel; devolvement of the management of mature agricultural schemes andagro-processing facilities to private beneficiary institutions;improvement in FELCRA's efficiency as a development agency withparticular attention to its technical services and financial management;and increased national export earnings from tree crops. The onlynotable project risk would be a significantly steeper deterioration inthe cost-price relationships for rubber production than have beenanticipated in the project economic analysis. However, this is notconsidered serious as conservative assumptions have been used and, therate of return is relatively insensitive to further variations in theseassumptions.

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Estimated Costs: LocalForeignTotal----- US$ million---------

Agricultural Development 88.3 58.9 147.2Civil Works 28.2 15.8 44.0Training 2.9 1.9 4.8Studies - 1.1 1.1Equipment, Furniture and Vehicles 3.0 14.3 17.3Project Management 120.5 - 120.5

Base Costs 242.9 92.0 334.9

Physica: Contingencies - -Price Contingencies 19.9 6.8 26.7

Total Project Costs 262.8 98.8 361.6

Financing Plan

IBRD 94.0 94.0Government 262.8 4.8 267.6

Total ,262.8 . 361.6

Estimated IBRD Disbursements FY92 FY93 FY94 FY95 FY96

Annual 0 30.22 22.8 21.3 19.7Cumulative 0 30.2 53.0 74.3 94.0

Economic Rate of Return: 13%

Map: IBRD No. 23771

1 Exclusive of taxes and duties estimated at US$2.7 million.

2 Including retroactive financing of US$9.4 million.

MAIAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

I. BACKGROUND

Agriculture in the Economy

1.1 Malaysia's agricultural sector continues to play a key role in theeconomy, although its relative importance is naturally declining as thecountry proceeds towards industrialization. In 1991, agriculture's share ofGDP was 15%, down from 24% in 1980.11 However, the sector still employs 25%of the workforce and contributes 10% to direct export income, while alsoproviding raw materials and jobE to other export industriei. Malaysia's long-run agricultural growth rate has l-een high by international standards. Duringthe 1960s and most of the 1970s, the growth in sectoral output at constantprices averaged 7%. This declined to a lower, but still very respectable, 5%during the 1980s as expansion of the land frontier slowed.

1.2 About one-third of Peninsular Malaysia and 5% of East Malaysia (5million ha) are under cultivation, with the remaining area under forest orscrub regrowth. About 86% of this area is planted with tree crops, mainlyrubber and oil palm. Oil palm has overtaken rubber as the largest cropbecause of its greater profitability and relative ease of management. Cocoaalso expanded rapidly during the past three decades, from only 2,000 ha in1960 to 370,000 ha in 1990. The balance of the area under cultivation isdevoted to rice, Malaysia's main food crop. Food production jumped as aresult of the spread of irrigation and high yield varieties of rice during the1970s, but has since stabilized.

1.3 The 1990 Household Expenditure Survey estimates the number employedin agriculture to be about 1.84 million, down from almost 2 million a decadeearlier. Of the approximately 850,000 households involved, the largest numberare rubber smallholders (155,000), followed by paddy farmers (116,000), oilpalm growers (100,000) and estatR. workers (81,000), with the rest dividedamong mixed farming and fishing. There are also large numbers of undocumentedimmigrant laborers, particularly in the tree crops estate sector. Althoughfarm employment has dropped, real agricultural GDP rose at an annual averagerate of almost 5%, indicating a long-run productivity increase of 6% per year.Both wages and labor productivity are closely tied to commodity prices, whichexperience significant short-run fluctuations. To illustrate, nominalagricultural wages increased at a lower rate than inflation in 1990, but thiswas reversed during the first half of 1991, when they rose by 5.8% in responseto commodity price changes, resulting in real wage gain} of about 3%. Duringthis period overall labor productivity in rubber and oil palm rose 6.6%. Forthe future, it is likely that the long-run trend of falling agricultural

The Second Outline Perspective Plan 1991-2000, Government of Malaysia,1991.

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employment should continue to be offset by increasing labor productivity,resulting in wage increases equal to or slightly above the rate of inflation.

The Tree Crog Sector

1.4 Present PerZormance Alaysias climate and soil conditionsprovide a strong natural compA- ..;ve advantage for tree crops. The countryhas long been the world's large producer and exporter of rubber and oilpalm, and is one of the major pruducers of cocoa. In 199Y, Malaysia provided6 million tons of the total world output of 11.8 million tons of palm oil(Table 1.1), and 1.25 million tons of the world output of 3.2 million tons ofrubber (Table 1.2). Malaysia remains the industry leader for palm oil interms of area, yields, production, technology and downstr.iam processing. Forrubber, this position has changed over the past decade, a; increasing reallabor costs have begun to erode relative profitability. In 1991, Malaysianrubber output fell to 1.25 million tons, while Indonesia's rose to 1.29million tons and Thailand's to 1.25 million tons. Although Malaysian rubberproduction has been on a gradual long-term decline, high prices in 1988 evokeda strong output response and a resurgence of interest in replanting. Far frombeing a sunset industry, indications are that a firming of long run prices,improvementi in production and processing technology, and maintenance of highand consistent quality will ensure that Malaysia remains a major force in theworld rubber market.

1.5 Malaysian tree crop yields are high, both on total planted andmature areas. By planted areas, the overall yield of oil palm fresh fruitbunches (ffb) averages 18 tons/ha, compared with 9.5 tons/ha for Indonesia and11.9 tons/ha for Thailand. For dry rubber, yields are about 760 kg/hacompared with 400-500 kg/ha for Malaysia's two neighbors. However, theseaverage figures underestimate the higher yields of mature plantings inMalaysia: average yields for mature estate oil palm are about 25 tons ffb/ha,for estate rubber about 1,400 kg/ha, and fnr smallholder rubber about 1,000kg/ha. Malaysia's yield superiority reflects the good institutionalperformance of research, extension and marketing based on individual commodityspecialization.

1.6 Palm Oil Outlook. World demand for palm oil has grown at some 10%p.a. over the past two decades, from 1.7 million tons in 1971 to 11.4 milliontons in 1991. Palm oil remains the lowest cost source of vegetable oil (aboutUS$200/ton compared with US$300-500/ton for annual oilseeds), and some 90% ofthis output is consumed in developing countries (Table 1.1). Long-run demandis expected to continue to grow at a rate of at least 6% per annum based onpopulation growth and high income elasticity at low income levels (para. 5.7).Global production is projected to double within 15 years, from 11.8 milliontons in 1991 to 24.4 million tons by the end of 2005, with the increase insupply coming mainly from established producers (Table 1.2). Prices areexpected to rise 30% in current dollars and to decline 20% in constant dollarsover the next 15 years (para. 5.6). Based on immature plantings alreadyestablished, as well as on projected plantings, Malaysia should increaseproduction by about 70%, from the present 6 million tons/year to 10.2 milliontons, over the period. While this is significant, it will not be sufficientto maintain world market share, which is expected to drop from a high of 61%

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in the late 1980's to 42% by 2005. Despite lower relative prices, theMalaysian palm oil industry should maintain profitability through a vigorousplanting program with high performance varieties and through exploitation ofidentified, but as yet underutilized, yield potential. The major issues forthe industry remain the price and availability of labor, and the fact thatMalaysia's market access is affected by the discrimina.ory trade policies ofother countries. While Malaysian palm oil is virtually unprotected (para5.8), it faces competition from subsidy programs of oilseed exporters andtariff barriers of importers.

Table 1.1: f m..n Oil Production. Consumption and Prices

Actual Proiected1979-81 1988-90 1991 1992 1995 2005

Production (million tons)- World 4.9 9.5 11.8 13.1 16.3 24.4- Malaysia 2.9 5.8 6.0 6.2 7.1 10.2- Market Share % 59 61 50 47 44 42

Consumption (million tons)- Industrial economies 0.9 1.4 1.3 1.2 1.3 1.8- Developing economies 3.3 7.8 10.1 11.3 14.2 21.3- Market Share % 78 84 88 90 92 92

Prices-Current US$/ton 584 350 339 341 408 450-Const. 85 US$/ton 556 238 211 210 248 183

Source: International Trade Division, World Bank: Price Prospects for MajorPrimary Commodities, 1990, and Commodity Price Bulletins.

1.7 Rubber Outlook. World consumption of natural rubber is expected torise from 5.2 million tons in 1991 to over 7 million tons within 15 years,with supplies coming mainly fLom established producers (Table 1.2). Increaseddemand for natural rubber, particularly in developing economies, relative tothat for synthetic rubber comes from recent technological developments andavailability of more types and grades of natural rubber of stringentspecifications. Rubber prices are projected to recover in nominal terms asthe global economy pulls out of recession and to double within 15 years to UScents 206/kg, but to remain relatively low in real terms over the long-run.Much will depend on the economic performance of Asian and East Europeancountries wish high income elasticity for rubber products. Malaysia'sproduction is expected to regain recent levels of up to 1.5 million tonsthrough technology innovations, including reduced frequency tapping andreplanting with high performance clones, but to reduce its market shareslightly from about 27% in 1992 to 22% by 2005.

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Table 1.2: Rubber Production. ConsumpLion and Prices

Actual Projected1979-81 1988-90 1991 1992 1995 2005

Production (million tons)-World 3.8 4.9 5.2 5.4 5.9 7.2-Malaysia 1.5 1.5 1.2 1.3 1.5 1.6-Market Share % 40 30 24 24 25 22Consumption (million tons)-Industrli.' economies 2.0 2.5 2.4 2.5 2.7 3.2-Develo,.Lg economies 1.4 2.2 2.3 2.4 2.6 3.4-Market Share % 41 45 49 49 49 51Prices-Current USc/kg 162 129 100 114 146 206-Const.85USc/kg 155 92 62 70 86 84

Source: International Trade Division, World Bank: Price Prospects for MajorPrimary.

1.8 Tree CroD Strategy. Government sector policy aims to ensure thesupply of food and agricultural commodities for industry and export, whileeradicating rural poverty. The tree crop subsector is seen as the principalvehicle for achieving the non-food objectives. The development strategy hasbeen to provide high quality support services, replanting programs andsettlement schemes, as well as to set and regulate product quality standards.The results of strong Government support to institutions serving the tree cropsector have been recognized internationally. Of note is the Rubber ResearchInstitute of Malaysia (RRIM), which has a long history as a world leader inadvancing rubber production technology. The Rubber Industry SmallholderDevelopment Authority (RISDA), through a replanting program of 30,000-40,000ha per annum, has ensured the availability of high quality clones in thesmallholder subsector. The Federal Land Development Authority (FELDA) hasresettled over 100,000 smallholder families in estate-type schemes planted torubber, oil palm and other crops to close the gap between smallholder andestate performance levels. As the supply of new land for these schemes hasdiminished, Government policy has emphasized intensive rehabilitation ofexisting smallholdings through a group development approach by the FederalLand Consolidation and Rehabilitation Authority (FELCRA), which had developedsome 240,300 ha (of tree crops) by the end of 1990 (para. 2.6). The OPP2confirms that the policy emphasis for the future will continue to be onconsolidation and rehabilitation of existing smallholdings, rather than on thesettlement of new lands.

1.9 Diversification. Both the private and public sectors are activelyinvolved in crop and product diversification. Little palm oil is now exportedin crude form, and even refined oil is increasingly exported as manufactured

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products. Similarly, rubber is it,creasingly manufactured into final productsbefore export. Government agencies are also involved in the expansion ofpepper, pineapple, fruits and vegetables among smallholders, as well as theincrease of small animal production. FELCRA, for example, has moved intolarge scale production of pineapple. Strong private sector investment hasresulted in high growth rates for poultry, pork, mutton' and beef. TheMalaysian Agricultural Research and Development Institute (MARDI) concentrateson widening the range of crops adapted to the local environment and onimproving crop processing technology.

Bank Sector Experience and Stratqgy

1.10 The Bank has consistently supported the Government's growth andincome objectives and strategies in the agricultural sector in Mala- . Forthe future, the Bank will continue to assist smallholder progrnms e :~J atpoverty alleviation and productivity improvements to help maintain Malaysia'sinternational competitiveness. This assistance will empLasize institutiondevelopment and support for the devolution of management activities to farmerbeneficiaries, and the privatization of activities which no longe; need to becarried out by the public sector.

1.11 The Bank's past involvement in the sector has helped to increasefoodgrain output, through large and small-scale rice irrigation schemes andthe development of Malaysia's research and extension services. Tree cropdevelopment has been supported under both crop-specific operations and areadevelopment projects in which tree crops played a major role. Cropdiversification has been pursued through both area development andagricultural research projects. The Bank has also had a long association withMalaysian agricultural policy analysis through formal technical assistance tothe Economic Planning Unit of the Prime Minister's Department and throughregular economic and sector reporting.

1.12 To date, the Bank has made 32 loans for agriculture and ruraldevelopment, amounting to US$956.6 million, or nearly 40% of total lending toMalaysia. Within the food crop sector, the most successful was the MUDA IIrrigation Project (LN.434-MA) which led to a doubling of cropping intensity,increased yields and strong institutional development. Within the treecropsector, seven loans have been made to FELDA to assist implementation of itsland settlement schemes. Six of these have been completed, and five ProjectPerformance Audit Reports (PPARs) and an Impact Evaluation Report (IER)2/ bythe Operations Evaluation Department (OED) concluded that all these FELDAprojects were quite successful in me-'ing their objectives. Achievements inland development, crop yields, incoLt and economic returns were satisfactory.The Bank has also made three loans for FELCRA-led development, all of whichachieved or exceeded targets and were considered successful and sustainable(paras. 2.23-2.26). The Bank has made one loan in 1990 for RISDA, which hasalso been an implementing agency in several of the Bank supported ruraldevelopment projects.

21 PPAR Nos. 2122, 3024, 3978, 4221 and 5780. IER No. 5988: Malaysia-First, Second and Third Jengka Triangle Projects.

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II. THE FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY

OrigLi

2.1 In the 1950s and early 1960s, many States had alienated largetracts of land for rubber development to landless villagers and farmers whoseholdings were too small to generate an adequate income. Most of these landswere hilly and remote, and the new holders did not have the technical andfinancial resources to develop them adequately. The Federal LandConsolidation and Rehabilitation Authority (FELCRA), under the Ministry ofRural Development (MRD), was established in 1966 to consolidate andrehabilitate these State and privately owned smallholder lands. This programwas part of Government's major thrust to reduce rural poverty by promotinggroup farming arrangements for smallholders, based on the more efficient treecrop, estate-type production systems which have been so successful inMalaysia. FELCRA's activities are largely confined to Peninsula Malaysia, butduring the Sixth Plan period it will initiate its first rehabilitation programin Sarawak; it has no presence in _;.h. At the end of 1990, FELCRA haddeveloped some 247,000 ha (5% of the total cultivated area in Malaysia),mostly oil palm and rubber, of which 83,000 ha were in production, for a totalrevenue of about M$152 million. Production included 31,000 tons of rubber and120,000 tors of palm oil, representing abo'lt 2.5% and 1.8% respectively of thenational production of these commodities. For the future, FELCRA willconcentrate primarily on rehabilitating underutilized or idle smallholderlands, but has no plans to engage in any significant new land development.

2.2 By a 1985 amendment of its original Act, FELCRA's mandate wassubstantially broadened, permitting expansion into rural non-agriculturalactivities, including the promotion of cooperatives and their commercialventures, oil palm processing and participation in MRD's national villagedevelopment and rural industrialization programs. By 1991, FELCRA hadestablished some 86 farmers' cooperatives engaged in a wide variety ofactivities (para 2.13), had four oil palm processing mills in, or about tocome into, production, and had initiated about 17 cottage industry projects infood processing, manufacturing of barbed wire, ceramic and wood products,furniture and tools, and services such as motor repair shops and touristamenities.

Qrganization

2.3 FELCRA is a fully funded Government statutory body operating undera 16-member Board of Directors, comprising a Chairman, one representative eachof the Ministries Finance and of Rural Development, the Director General ofFELCRA and up to 12 other members appointed by the Minister of RuralDevelopment to represent various central and State government agencies. TheBoard Chairman determines operational policy in line with the Agency'sobjectives, while the Director General is responsible for policyimplementation and administration. FELCRA's structure has been modified threetimes over the last decade to reflect the Agency's changing operations, themost recent being in 1989 to strengthen its social development programs.

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2*.4 Under the current structure, depicted in Figure 1, the DirectorGeneral is assisted by a Deputy Director General, to whom six DivisionalDirectors report, with responsibilities for Planning, Technical Services,Social Development, Management Services (including finance, personnel,procurement and training), Processing/Marketing, and Monitoring and Evaluation(which includes the scheme inspectorate). At the secondary management level,there are 21 Deputy Directors of Sections and 12 State Directors (includingSarawak, Perlis combined with Kedah, and the Trans Perak Area DevelopmentProject as a separate office) who report to the Deputy Director General. Atthe State level, FELCRA operations are managed by State Directors, assisted byfield managers and supervisors, agricultural officers and engineers, socialdevelopment, marketing and finance officers and administrative staff. At thefield level, the agricultural schemes, which individually range from less than50 ha to more than 1000 ha, are managed in clusters. Each cluster has anoperational center and manager, with the indi-idual schemes under supervisorsand assistant managers according to area. There are currently 181 clustersaveraging 1,360 ha in area and averaging about 8 schemes each.

Land DeveloDment Program

2.5 Over the years, FELCRA has been involved in land rehabilitation andconsolidation, group settlements, area development, border security schemes,youth schemes and a few aboriginal settlements. In future, the emphasis willbe on rehab1litation and consolidation. Whereas most of FELCRA's earlierprograms involved rubber, oil palm became the dominant crop in the 1980s, inresponse to commodity prices and smallholder preferences. More recently,FELCRA has encouraged some planting of diversified crops where theagroclimatic conditions and market prospects are favorable. The most popularcrops have been various fruit trees with local market or export potential,pineapple and cocoa.

2.6 Of the 247,000 ha developed by FELCRA through 1990, about 164,000ha was in conselidation schemes (65%) and 82,000 ha in rehabilitation schemes(35%). Including the 16,300 ha developed in 1991, the distribution by cropsis:

Oil Palm 60 % 157,600 haRubber 33 % 87,400 haPaddy 2.5% 6,700 ha (Trans Perak Area Dev.)Cocoa 2.5% 6,700 haOthers 2 % 4,600 ha (mainly fruits)

For the five years, 1987-1991, development averaged about 15,000 ha per year.Although oil palm has been the dominant crop, there has been a strong swing tothe planting of rubber in th,e last three years, with annual hectarageincreasing from abolit 1,000 ha in 1987 to 5,500 ha in 1991. This trend isexpected to continue during the project period in response to relativecommodity prices and the increasing emphasis given by the Government todeveloping the poorer northern and eastern states (Kedah, Perlis, Kelantan andTrengganu) which are generally more agroclimatically suitable for rubber. Theareas in production included some 31,000 ha of rubber in 122 schemes, 46,000ha of oil palm in 417 schemes, 5,600 ha of paddy and 630 ha of cocoa.

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Organization of Schemes

2.7 For each scheme, FELCRA signs long-term agreements with allparticipants or the State for State schemes, giving it the right to developtheir lands as a group farm for more cost effective operations, to facilitatethe use of more advanced production technologies and management systems, andto attain better product quality and higher returns. The scheme developmentprocess from site selection to implementation of agricultural development isdepicted in Figure 2. Other than requests from States to develop specificblocks of land, FELCRA normally identifies potential scheme areas throughtheir State staff who have very good knowledge of local smallholder landssuitable for development. FELCRA dialogues with owners to explain the natureof its program aned promote their interest in group farming, and establishes anowners' consultative committee with which it devises a development schedule.FELCRA then arranges liens on all land titles in the scheme area and preparesa feasibility report for Board clearance and Federal Treasury approval.

2.8 Land development through the completion of crop establishment isdone by contractors retained by FELCRA, who are required to employ ownerbeneficiaries seeking work. Crop maintenance from planting to full productionmay also be done by contractors, or by beneficiaries and their families underFELCRA force account arrangements in those schemes where the majority ofbeneficiaries prefer this. Land development (including on-farm roads, drainsand fences), planting and crop maintenance costs are assumed as a loan by thefarmers. Access roads and management infrastructure, service and facilitiesare provided as public services. Costs and revenues to owners are shared inproportion to their individual land areas.

2.9 FELCRA manages schemes until such time as the land development loanhas been repaid, after which the beneficiaries' cooperatives are expected totake over. Until recently few schemes had repaid their loans and thereforeFELCRA had not yet developed the specific arrangements for transfer of schememanagement, although for some years it has been encouraging schemebeneficiaries to organize into cooperatives during land development (para.2.13). Conscious of the need to withdraw from mature scheme management as itsland development portfolio expands, and of the risk that group farmingarrangements could break down without adequate guidance and support, in 1989FELCRA encouraged the cooperatives (through their umbrella organization, KPFB)to establish a private company (KPFB Holdings) to provide agriculturalmanagement services to mature schemes (para. 2.14). At the end of 1991, ofthe 38 schemes that had fully repaid their loans, privatized managementarrangements are in place for 21 schemes, only two of which do not involveKPFB Holdings.

Agricultural Performance

2.10 During preparation of the proposed project, FELCRA reviewed itsagricultural performance in rubber and oil palm, focussing on the period ofcrop immaturity and crop yield by production year. On the period of cropimmaturity, the findings were that for both oil palm and rubber, the averageimmaturity period is some 25% longer than industry (i.e. estate) standards,but better than that of unassisted smallholders. Long immaturity periods

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reduce investment returns and beneficiary incomes, and are mainly due todelays in land preparation and planting. Other factors include inadequatesupply of planting materials, fertilizer supply problems and poor contractorperformance. With regard to yields, those of oil palm were generallysatisfactory and consistent with estimates of the Malaysian Oil Palm GrowersCouncil for estates under similar soil conditions. Rubber yields averaged 25%lower than those of commercial estates for about the first eight years ofexploitation, after which the gap widened because virgin bark is prematurelydepleted and tapping forced onto inadequately renewed bark. This, in turn, iscaused mainly by imprudently heavy tapping in the early years to achievefaster loan repayment. Other factors include poor tapping skills, inadequatemanagement supervision and the lack of incentives for quality tapping in thewage structure.

2.11 In light of these findings, the Bank encouraged FELCRA to considera system of reduced frequency tapping with latex stimulation, as has beendeveloped and now widely used in West Africa, to counter both high rates ofbark consumption and shortages of tappers. The Malaysian rubber industry hastraditionally been cautious about these systems, because of earlier unrelatednegative experiences with the use of the stimulant and the unsuitability ofthe local tapping wage structure. In early 1990, FELCRA officials visitedseveral West African countries to observe the use of reduced frequency systemsand were sufficiently impressed with the potential to recommend their trial inFELCRA schemes. Nine demonstration plots totalling 108 ha on schemes over awide geographic range, and a 270 ha pilot program on a scheme with a seriousshortage of tappers, were set up in 1991 with consultant assistance and withthe concurrence of the Rubber Research Institute of Malaysia (RRIM).Preliminary results are sufficiently encouraging that the new technology willbe promoted throughout the FELCRA system under the project. Other problemsaffecting crop performance would be addressed through strengthening thetechnical capacity of FELCRA's agricultural management and field inspectorate,and through additional training and exposure of scheme managers andsupervisors to industry practice.

Beneficiaries

2.12 Incomes. By the end of 1990, FELCRA had a total of nearly 46,800beneficiary families in its schemes, of which 38,300 were in rehabilitationschemes and 8,500 families on consolidation schemes. Several Stategovernments are still completing settler selection for some of the largerschemes which FELCRA is implementing. In 1990 the average monthly income ofbeneficiaries in producing rubber and oil palm echemes was M$474, with incomefrom rubber just marginally higher than that from oil palm, compared to theGovernment's poverty benchmark of M$360 per month. Beneficiaries working onschemes not yet in production earned a little more than M$200 per month.Surveys indicate that most beneficiaries also obtain other income from off-farm employment by one or more family members.

2.13 Cooperatives. Cooperatives were first introduced to FELCRAbeneficiaries in 1979, when the FELCRA Settlers' Cooperative Limited (KPFB)was launched. It was soon found that this central body could not adequatelycater to the needs of members at the farm level, and therefore the first

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scheme level cooperative (KPR) was formed the following year. Cooperativesaim to involve members in the operation of their schemes and to encourageentrepreneurism and generation of off-farm income. These objectives areconsistent with FELCRA's policy of withdrawing from scheme management onrepayment of the land development loan. FELCRA's strategies to makecooperatives stronger and more attractive to beneficiary participation consistof leading the cooperatives into upstream and downstream business and revenueearning operations based on land development, and member training inleadership and cooperative management. At the end of 1991, there were 75registered cooperatives and 11 others were in various stages of formation.Total voluntary membership had reached 13,651, paid-up capital M$9.38 million,asset value M$1.6 million and total turnover in 1991 exceeded M$35.0 millionfor a net profit approaching M$2.0 million. The still relatively lowmembership reflects the large ntumber of schemes established in recent years,for which cooperatives have not yet been formed, some traditional ruralcaution about cooperative operations and the low direct participation ofbeneficiaries in scheme management. However, for the existing 75cooperatives, beneficiary participation is about 90%. The cooperativesundertake a variety of contract business activities such as production ofplanting materials, rubber tapping, transportation of oil palm fruit bunch (amajor activity), raising of livestock, small scale trading and construction,and supply of consumer goods for which they have 30 retail outlets. Thecooperatives still depend heavily on FELCRA and its staff, but the chairmen of23 cooperatives and the treasurers of 73 now come from the memberships. Inaddition, 15 cooperatives are financing one or more of their managerial postsand 64 are paying for clerical assistance.

2.14 As part of Government's privatization strategy to downsize itsdirect role in business, and in particular to increase the operationalefficiency of land development parastatals and stimulate a spirit ofentrepreneurism among their beneficiaries, FELCRA spearheaded the formation ofFELCRA Settlers' Cooperative Company Limited (KPFB Holdings Sdn. Bhd.) byKPFB. Holdings was incorporated in January 1989 with an authorized capital ofM$3.0 million. Current paid-up capital is M$172,000, held as shares by 16scheme cooperatives (77% of the total) and KPFB (23%). For the forseeablefuture, Holdings will undertake three main functions: (a) management ofFELCRA's four existing palm oil processing mills and construction ofadditional mills; (b) management of profitable schemes, limited initially tothose which have fully repaid their development loans (estimated to reach 65schemes with 27,900 ha up to the year 2000),; and (c) provision of technicalagricultural services to FELCRA, such as interpretation and laboratoryservices of soil and crop foliar analyses, and soil surveys. Other functionsthat may be privatized and passed on to Holdings include haulage of schemeproduce to processing facilities, supply of computer services and commoditytrading.

2.15 To service their operations, Holdings is recruiting experienced andcapable staff from FELCRA. As necessary, specialized staff will also besought from the private sector. Holdings will charge service fees to theschemes and mills to cover overheads and prov.de an appropriate level ofprofit after taxation. Holdings has sourced the bulk of its operationalfinance and working capital requirements from local banks and is negotiating

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term financing for its investment requirements. Additional issued capitalwould be raised from existing shareholders and new cocperatives requiringHoldings' services, and possibly in future from FELCRA itself through equityparticipation. The forecast consolidated profit and loss account andconsolidated balance sheet covering the period 1992-1995, based on itsprojected operations, are satisfactory (Annex 3, Tables 1 and 2).

2.16 Women in FELCRA Schemes. Women participate in I'ELCRA schemes,generally as part of the agricultural labor force and they comprise about 8%of cooperative membership. They are involved in a wide range of scheme fieldwork and are often prominent as rubber tappers, particularly in the State ofKelantan where they traditionally make up the majorit, of the tapper force.Child creche facilities support women's participation in field work on largerschemes. FELCRA's social programs have also provided women with training andopportunities for generating supplementary family income through production ofhandicrafts and snack foods and condiments, which are sold through cooperativeshops. These occupations, however, are mostly low income and part-time innature, because of limited markets for the products. Agricultural skilltraining courses, including rubber tapping, are available to women on an equalopportunity basis with the men.

Financial Performance

2.17 Sources and Uses of Funds. FELCRA has become a large and complexorganization, undertaking various development activities for the Government,and undertaking agricultural and other types of development in a fiduciarycapacity on behalf of scheme beneficiaries. Development activities are fundedby a combination of budgetary allocations for different purposes. FELCRA alsogenerates a limited amount of income by way of interest earned on short-termdeposits at banks and on funds invested in development schemes, and derivesdividends from certain schemes in which it has made equity investments andfrom some miscellaneous sources. The distribution of FELCRA's sources offunds during the period 1988-1990 is detailed in Annex 4, Table 1, andsummarized below.

(a) The Government provides annual budgetary grants to FELCRA to coveractivities which it considers to be public responsibilities (staff salariesand other administrative expenses, and capital expenditures on infrastructuresuch as access roads, offices, staff quarters, water and electricity supplies,and some other buildings, vehicles and equipment). At year end 1990, M$139.1million from the M$245 million net accumulated development budget allocationhad been utilized for the above purposes ar4 M$105.9 million remained unspentand held in cash for furthe: scheme infrastructure.

(b) FELCRA makes loans or behalf of the Government for land developmentschemes, settler housing and palm oil mills. Total outstanding borrowings atthe end of 1990 were M$703.2 million, comprising M$658.3 for agriculturalschemes, M$17.1 million for settler housing and M$27.8 for mill construction.The terms extended for land development schemes have been standard since 1985,and comprise an overall loan period of 25 years, including a grace period of10 years, with interest at 4% p.a. accruing after the grace period (Annex 4,Table 2). These tates target the poverty group of small farmers with low

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income levels. They are positive in relation to Malaysia's historic inflationrate (para. 6.12) and are standard for all Government smallholder developmentprograms. Although they are lower than the terms of the Bank's loan toMalaysia, they are in line with overall cost of the funds used to finance theFELCRA program. Since FELCRA is not a financial intermediary, there is noimpact on credit markets. It represents less than 5% of rubber and palm oilproduction; hence its impact on Malaysian export prices is not significant.

(c) FELCRA also administers certain other funds for itself and onbehalf of Government. At the end of 1990, these accumulated funds comprised:(i) for FELCRA, M$42.2 million of miscellaneous income, M$35.8 million ofdeferred interest receivable, and M$9.1 million of retained earnings from palmoil mills; and (ii) for Government, revolving funds of M$44.1 millionincluding the FELCRA dividend fund, replanting fund, estate insurance fund andmarketing services fund. In addition, FELCRA administers M$28.7 million individends payable to development scheme beneficiaries, and a bank loan ofM$0.1 million, which are included in its accounts under liabilities. Of theM$1,080.3 million of total funds employed by FELCRA at the end of 1990, M$96.4million was net working capital (mainly cash on hand), M$152.2 million was netfixed assets including mills and investments, and M$831.7 million (77% of thetotal) was in long term accounts receivables (beneficiary accounts).

2.18 Beneficiary Accounts. FELCR1. handles the capital investment inagricultural land development schemes on behalf of Government, as well as thetrading activities of each development scheme. For investments in developmentschemes, FELCRA acts as the agent of Government until scheme beneficiaries areselected. When the development schemes begin production, FELCRA acts as thefiduciary agent of scheme beneficiaries. With FELCRA receiving andcontrolling scheme revenues, loan repayments are on schedule for nearly allschemes and at 95% overall. In many of the better schemes, repayment is oftenwell ahead of schedule.

2.19 Financial Status. Plans and Projections. FELCRA's consolidatedbalance sheet at December 31, 1990, together with supporting schedulesindicating the results of its main business activities, is shown in Annex 4,Tables 3a-3f. FELCRA's overall financial position is reasonably satisfactory.Estimates of FELCRA's financial plans, based on Government's approved budgetallocation to FELCRA for the Sixth Malaysia Plan, in the form of projectedbalance sheets for FELCRA's main development business and separately for thepaim oil mills for the project years 1992-1995 are shown in Annex 4, Tables 4and 5.

2.20 Some aspects of FELCRA's accounting and financial managementsystems would benefit -rom some strengthening. Historically, FELCRA hasfinanced certain costs incurred in completing development schemes, and insupporting occasional loss-making schemes, from funds available internally(part of its accumulated miscellaneous income and some loan repayments fromdevelopment scheme beneficiaries in advance of payment to Government). At theend of 1990, the funding of such investments amounted to M$120.6 million,although the total has since declined as FELCRA moves to limit such costs.The practice of financing unprofitable schemes could in the long run adverselyaffect FELCRA's financial position, and therefore will be addressed under the

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project with the assistance of consultants (para 3.14a). In addition,improvements to the accounting, and financial computerization of beneficiaryincomes are necessary, and these also will be provided for under the project(para. 3.11).

Bank Experience with FELCRA

2.21 The Bank has thus far supported expansion of FELCRA through threeloans. Two have been completed, with the Bank generally commending FELCRA'ssuccessful rural development efforts, while performance under the ongoingthird loan has also been good.

2.22 The first loan, approved in 1981, was for the Trans Perak AreaDevelopL 't Project (Loan 1960-MA). The project was originally designed forthe Ministry of Agriculture, but FELCRA was the main implementating agency andtook it over after three years. The loan of US$30.65 million after revision,financed the development of about 4,350 ha of rice in Malaysia's first andonly rice estate, and 8,200 ha of tree crops, mostly oil palm. Despite earlyimplementation problems associated with the change of agency, contractors anddrainage issues, the project exceeded many targets and increased agriculturalproductivity and income of settlers, was adequately funded and staffed atcompletion, and was judged to be an overall success and sustainable_3.

2.23 The second loan, also approved in 1981, was for the FELCRA IProject, (Loan 2013-MA) and amounted to US$37 million. It financed theAgency's land rehabilitation and consolidation program. The project developedsome 36,800 ha of oil palm and rubber over 7 years instead of the 5 yearsanticipated at appraisal. The major implementation delays in the first twoyears were due to technology changes in the type of rubber planting materialused and the time needed to redevelop the planting material nurseries. Later,high palm oil prices led to a severe shortage of oil palm planting material in1985/6 as many farmers preferred to plant oil palm instead of rubber, andrecession-driven budget cuts constrained new developments. The Bank auditreport concluded that at the end of the project, FELCRA was a stronger andmore efficient institution with a high staff morale, well managed and capableof responding to its changing mandate in line with shifts in Governmentpolicy*/.

2.24 The third loan of US$66 million over four years was for the SecondFELCRA Land Development Project (Loan 2917-MA). It was approved in 1988 andprovided time-slice financing for most of FELCRA's development program undermainly Statement of Expenditure disbursement procedures. Loan disbursementwas generally ahead of target. The project was closed on target at the end of1991 with 96% of the loan disbursed; the remainder is expected to be taken upwithin gi four months disbursement grace period. Implementation of agricultureand associated scheme infrastructure have exceeded targets, although progress

31 PCR dated April 5, 1991 for Trans Perak Area Development Project,Loan 1960-MA.

XI PCR dated May 18, 1990 for FELCRA I Project, Loan 2013-MA.

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with other civil works and palm oil mills was slower due to administrativedelays in land acquisition, mill licensing procedures, and unsatisfactorycontractor performance. Contracts for the Training Centers and State officeswere awarded in late 1991 and their financing, in large part, is part of theThird Project. The project completion report is still to be written, but allindications are that this third project has also been quite successful.

III. THE PROJECT

Proiect Origin and Preparation

3.1 The Government and the Bank initiated discussions in 1990 for aproposed project to continue Bank support for FELCRA's development programthrough the Sixth Malaysian Plan period (1991-95). The first preparationmission was mounted in December 1990 and the second in May 1991, for whichFELCRA prepared a draft project proposal and supporting papers (Annex 7).This proposal, modified in line with Bank suggestions, was formally submittedto the Bank in August 1991. The project was preappraised in September 1991and appraised in December 1991.

Rationale for Bank Involvement

3.2 FELCRA's expanding land development and social programs, and itscontinuing management of all existing schemes into their production years, hasplaced increasingly heavy demands on the agency's technical, management andfinancial resources. Thus, there is a risk of weakening performance in theagency's main developmental area of agriculture. The Bank's continuedinvolvement through the proposed project would help to assist FELCRA indealing with key transitional issues which it will face in the immediate yearsahead, in order for it to remain a highly effective development agency. Theseinclude: (a) the need for institutional strengthening with particular focus onFELCRA's agricultural and financial management systems so as to achievegreater internal efficiency; (b) the need for significant improvement in cropproduction technology to maintain Malaysia's competitiveness as a major treecrop producer; (c) the task of devolving the management of schemes for wilichdevelopment loans have been repaid to the beneficiaries or their institutions,without weakening management quality or overall scheme performance; and (d)privatization of the management of FELCRA's palm oil mills. The project wouldbe consistent with the Bank's long-standing poverty alleviation objectives inMalaysia, given that rubber smallholders constitute the largest remainingpoverty grouxp in the country. Finally, the project would contribute towomen's income earning levels by upgrading skills of women field workers,especially rubber tappers.

Project Objectives and Main Features

3.3 The project aims to support FELCRA's continued evolution into astronger and more effective development institution, to increase the incomesof its clientele smallholder beneficiaries and improve the quality of rurallife; enhance the quality and efficiency of agricultural performance; supportthe agency in the transitional period as it begins to disengage from the

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management of mature agricultural schemes in favor of beneficiaries,cooperatives and proceeds to privatize management of its palm oil mills; andexpand national revenues from tree crops. Main features of the project wouldinclude:

(a) rehabilitation of idle agricultural lands by crop establishment andearly maintenance of tree crops under group farming arrangements,with a particular focus on promotion of improved crop productiontechnology;

(b) construction of agricultural scheme infrastructure and managementfacilities;

(c) institutional strengthening of FELCRA in the areas of agriculturaldevelopment, financial management, computerized information systemsand other management support;

(d) support for FELCRA's efforts to disengage from the management ofagricultural schemes without disrupting scheme performance andbeneficiary incomes, and from management of its palm oil mills;

(e) human resource development through local and overseas training ofstaff, and skill training for scheme workers and familybeneficiaries; and

(f) technical assistance through consultant studies.

3.4 The project, which supports FELCRA's approved development programand budget for the 1992-1995 period of the Sixth Malaysia Plan, would beimplemented over four years. The Bank would provide time-slice financing ofthe approved program, except for the activities of village development andrural industries. The project would absorb about 92% of FELCRA's total budgetfor the period.

Detailed Project Description

Agricultural Development

3.5 The project would: (a) rehabilitate through cro2 establishmentabout 48,000 ha of idle and low productive smallholdings, organized as groupfarms and benefitting about 24,000 beneficiaries. The annual planting targetwould be 12,000 ha. Notionally, about 50% of the total would be oil palm, 40%rubber, and the balance of 10% other crops. About 400 schemes would be formedbased on current average scheme areas of 150 ha for oil palm, 200 ha forrubber and under 50 ha for other crops. Details of the phasing of theplanting program by crop are shown in Table 3.1, and expenditures are setforth in Annex 1, Table 1.

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Table 3.1: Schedule of Crop Establishment('000 ha)

Crop 1992 1993 1994 1995 Total

Oil Palna 6.0 6.0 6.0 6.0 24.0

Rubber 4.8 4.8 4.8 4.8 19.2

Diversified crops 1.2 1.2 1.2 1.2 4.8

Total 12.0 12.0 12.0 12.0 48.0

FELCRA would advise, but final crop choice would be a consensus of schemebeneficiaries, reflecting local agroclimatic conditions, commodity pricetrends and crop processing/marketing facilities. Oil palm will likely be thechoice in areas of gentle terrain and high water table while rubber willpredominate in hilly areas and where there is a prolonged dry season. Theplanting of diversified crops, of which the most popular would be fruits(guava, starfruit, banana and pineapple) would be largely confined to morefertile areas, except for pineapple on peat soils. The planting of fruitswould proceed very cautiously and in relatively small areas as FELCRAendeavors to tie their development into contract arrangements with experiencedproducers or established marketing chains so as to reduce the high risksassociated with crop perishability and quality requirements. The estimatedtotal base cost of the crop establishment program, covering expenditures onland preparation, planting and planting materials only, is M$61.1 million(US$22.6 million), with average per hectare costs of M$2,510 for oil palm andM$2,785 for rubber. The average per hectare cost for oil palm, has been usedas a surrogate in estimating the costs of establishment of diversified crops.

(b) The project would also support early crog maintenance for areasplanted before and during the project. This includes costs such as weeding,fertilizers, pest control, pruning and sanitation, soil and foliar analysisand the maintenance of farm roads, bridges and drains. The schedule of areasfor maintenance is shown in Table 3.2, and the expenditures are detailed inAnnex 1, Table 1. Total area is 119,900 ha including 83,900 ha planted priorto the project and 36,000 ha planted during 1992-94. Maintenance expendituresare defined in FEILRA as extending from the completion of field planting untilthe year of first net operating profit. Currently, this period is 5 years foroil palm and 9 years for rubber. Total base cost of crop maintenance isestimated at M$336.4 million, including M$3,348 per hectare for oil palm andM$4,333 per hectare for rubber.

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Table 3.2: Schedule of Areas Under Maintenance('000 ha)

1992 1993 1994 1995 Total

Oil PalPlanted preproject 58.1 44.8 29.9 21.9 154.7Planted in project - 6.0 12.0 18.0 36.0

Subtotal 58.1 5L9 190

RubberPlanted preproject 23.5 20.5 18.2 16.9 79.1Planted in project - 4.8 9.6 14.4 28.8

Subtotal 27.81.3 107.9

Diversified cropPlanted preproject 2.3 1.9 1.3 0.7 6.2Planted in project - 1.2 2.4 3.6 7.2

Subtotal L 1.1 3.2 A.l 1LA

All cr2RsPlanted preproject 83.9 67.2 49.4 39.5 240.0Planted project - 12.0 24.0 36.0 72.0

Total 8L3 7L.2 7L34 75.5 312.0

3.6 Im2roved crop production technology would be introduced to promotebetter agricultural performance. The main focus would be on the introductionof reduced frequency tapping systems in rubber, but application anddevelopment of other improved crop production technologies, including the useof sound nursery production systems, would also be supported (Annex 5.3).Implementation of the reduced frequency tapping systems would lower laborrequirements and production costs, counteract the high rate of barkconsumption, improve and sustain yields, and enable areas to be brought intotapping on schedule. Initially, third daily tapping with stimulation wouldreplace the current alternate daily system, although fourth daily tapping withits further labor-saving advantages would eventually predominate. Results todate in the pilot demonstration areas (para. 2.11) are fully in line withexpectations The proposed phasing of the program is shown in Table 3.3.

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Table 3.3: Phasilg of Reduced Frequencv TaDRing Systems(ha)

1992 1993 1994 1995 Total

New Tapping Areas 1,600 2,000 2,900 5,200 11,700

Existing Areas 3,500* 7,600 11,400 15,200 37,700in Tapping

Total 5,100 9,600 14,300 20,400 49,400

*estimated area of delayed tapping

Reduced frequency tapping will be introduced as a priority to all schemescoming into tapping for the first time during the project, except in thoseselected cases where it would release labor that could not be gainfullyemployed in other local occupations. In 1992, the new tapping system is alsoa priority in the estimated 3,500 ha not yet opened for tapping because oflabor shortage. In addition, about 37,700 ha in tapping prior to 1992 willalso be phased in during the project. The pace of first year implementationwill be linked to completion of scheme manager and supervisor training and thedevelopment of appropriate incentives. Current tapping wage rates aredesigned for the alternate daily system with its relatively low daily rubberharvest per tapper, and bonuses paid for daily quantities above 15 pounds. Anincentive payment for attendance at tapping was introduced in 1991. However,with reduced frequency tapping, harvests per tapper would be two to threetimes higher and thus the current wage structure, by reason of its bonuslevels, would lead to fairly high payments and undermine the significant costadvantages to the system. FELCRA will need to revise the current wagestructure so as to make it compatible with the new tapping system, while atthe same time ensuring that it embodies adequate remuneration and incentivesfor tappers to compensate for the handling of increased daily crop andsignificant cost savings to scheme management. As part of its tappingdevelopment strategy, FELCRA has targeted the introduction of incentivepayments for tapping quality and production levels from May and August 1992respectively.

Infrastructural SuDDort

3.7 The project would provide for the construction of agriculturalscheme infrastructure including access roads, offices and staff quarters,utilities and harvesting facilities. Provision of these facilities willnormally take place at least one year in advance of crop production. Thetotal estimated base cost of the component is M$106.3 million, as detailed inAnnex 1, Table 2a.

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(a) Access roads would link schemes to the public road network.Construction specifications of roads to schemes of more than 400 ha, schemeswith considerable areas of potential development nearby, or where there arevillages along the proposed alignment, would be according to the Public WorksDepartment Rl or R2 standards, which were used in the Second FELC-A projectand currently in FELDA projects. Specifications for roads to smaller schemeswould be those used by FELCRA for all-weather main agricultural roads withinschemes. All roads would have lateritic pavement except those passing throughwell established villages, which would be asphalted. Roads of more than 2 kmlength and those involving major bridge work would be constructed by thePublic Works Department under their normal contract and supervisionarrangements. All shorter roads would be implemented by FELCRA throughcontractors with FELCRA supervision. The project would construct about 217 kmof new roads of which 93 km would be implemented by PWD and 124 km by FELCRA.Most of the roads have been identified and designs prepared. The projectwould also complete some 146 km currently under construction. Total estimatedcost of the road component is about M$51.6 million of which M$44.4 million,860, would be incurred by PWD.

(b) Buildings, consisting of scheme offices, staff quarters and storeswill be constructed in timber and semi-bricks using standard FELCRA designsand specifications. Quarters will range from individual to terraced unitsaccording to staff grades. Project requirements are estimated at 60 units ofoffices, 60 units of garages, 69 units of stores and 730 units of housing fora total estimated cost of M$26.0 million. Phasing of construction is shown inAnnex 1, Table 2b.

(c) Water and electricity utilities would be supplied to schemecomplexes. Water is sourced from the public reticulation system wherepossible; alternatively river sources or well systems have to be developed.It is estimated that the project would develop 68 water supply systems for atotal cost of M$14.1 million. For electricity, the national grid system isused wherever possible; alternatively, generator sets ar; installed. Costswill vary by size of scheme complex. An estimated 66 electric supply systemswould be installed for a total expenditure of M$7.2 million.

(d) Harvesting facilities provided by the project would comprise loadingramps for oil palm fruit bunches and rubber latex collection stations. Sizeand number of facilities vary with scheme area. The project would construct69 loading ramps for a total cost of M$6.9 million and about 28 latex stationscosting some M$0.6 million.

3.8 The project would also provide other infrastructure not related toindividual agricultural schemes. These would consist of State directorateoffices and training centers for a total base cost of M$12.5 million, asdetailed in Annex 1, Tables 2a and 3.

(a) FELCRA aims to have its own State offices in most States. Fiveoffices would be constructed during the project. The first four (in Perak,Negeri Sembilan, Pahang and Kedah) were originally targeted for completionduring the Second Project but were delayed by problems of approval andacquisition of suitable building sites. Construction of three of these four

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offices for a total cost of M$5.5 million comenced in the second half of1991, with completion expected by mid-1992, while the contract for the fourth(Kedah) 18 expected to be awarded in early 1992. The remaining office for theState of Johor would be constucted in 1994-95 at a total cost of M$2.0million; land acquisition for this site is advanced.

(b) The project would complete on-going construction of FELCRA's twotraining centers approved for financing under the Second FELCRA project andawarded only in 1991 due to delays in budget approval. These are the centraltraining complex at Tebing Tinggi in North Johore and the training school atSeberang Perak in the Trans-Perak project. Total base cost for the completionof these works is estimated at M$5.0 million, compared with their totalcontract value of about M$8.3 million, the difference being works completedprior to this project. Implementation of the central complex consisting of alecture hall, seminar rooms, administrative block, staff quarters, hostel for250 students, library and social amenities, was 20% complete when thecontractor failed due to financial problems. The work was retendered inNovember 1991. The thirty-nine units of staff quarters will be .endered inApril 1992. All works are expected to be completed by the end of 1992. Thetraining school is largely completed.

Institutional Strengthening

3.9 The project would strengthen FELCRA's institutional capacitythrough organizational changes, improved financial and agriculturalmanagement, further human resource development among staff and schemebeneficiaries, and disengagement from management of mature operations.

3.10 Organizationail The project would establish three new Divisions ofPlantation, Finance and Htman Resource Development, out of existingstructures, and would expand the scheme inspectorate.

(a) The existing small agriculture section of the Technical ServicesDivision would be upgraded and expanded to form a new Plantation Division bybringing together some of FELCRA's best scheme managers and agriculturalprofessionals, many of whom are scattered in other divisions and among theState offices. The new Division would allow for a more effective andconcentrated attention to the standards of scheme management, promotion ofimproved agricultural technology inputs and more focus on implementationconstraints and problems than hitherto. The Division, with Deputy Directorsfor Agriculture and Management, will consist of four Sections of CropAgronomy, Crop Exploitation, Agricultural Monitoring, (concerned with natureand results of the use of agricultural technologies) and Scheme Management, asshown in Figure 3. FELCRA has an available senior (grade A9) post for a newHead of Division, who would have a strong background and wide experience inagriculture and the management of tiee crops, including rubber, on acommercial scale and preferably from the estate sector. Agreement was reachedat negotiations that by December 31, 1992, FELCRA will establish andthereafter maintain the new Plantation Division headed by a qualified andexperienced officer (para 7.1(a)). The Technical Division that will remainafter relinquishing its agricultural functions will focus on FELCRA's civil

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works program, survey and other technical works and should absorb anyengineering functions required by the Settlers Development Division.

(b) A new Finance Division would attend to FELCRA's large and complexfinancial services and management operations. The existing finance, budgetingand electronic date processing sections, three of the nine units in theexisting Management Services Division, would form the new division. The Headof the ncw Division should have a strong background and wide experience infinancial management and accounting. FELCRA has a post available for thedivision Head and is proceeding to search for a suitable candidate. Agreementwas reached at negotiations that by December 31, 1992, FELCRA will establishand thereafter maintain the new Finance Division to be headed by anexperienced and qualified officer (para. 7.1(b)).

(c) Responsibility for FELCRA's training program is currently splitbetween two divisions: the Management Services Division for staff training andthe Settlers Development Division for training of scheme beneficiaries. Tostrengehen the focus on staff development and to rationalize its trainingoperations, FELCRA proposes to create a new Human Resources Division in early1993, combining these two training sections and the existing Personnel andManpower Planning sections, into the Management Services Division.

(d) The Scheme Inspectorate, a service of the Monitoring and EvaluationDivision, provides an independent and routine assessment of agriculturalimplementation performance in all schemes for FELCRA management. It focussesparticularly on the nature, timing and quality of agricultural operations.The Inspectorate, which is modeled on the well-known visiting agent system ofprivate estates, was established in 1991 with 14 staff drawn from State andfield positions. The number of inspectors will be increased to about 24 in1992 to ensure semi-annual coverage of all schemes.

3.11 Financial Management: FELCRA's accounting and financialmanagement systems will be improved with the assistance of accountingconsultants financed under the project (para. 3.14 (a)). The most significantactions would include inter alia:

(a) improved financial control and management of beneficiaries' accountsthrough regular preparation of periodic summary financial informationanalyzing the status of accounts receivable (by age, type, profitable andunprofitable scheme etc.);

(b) preparation of regular financial statements reflecting the movementson the capital account of each scheme, so that beneficiaries can clearlyascertain amounts added to their existing debt, repayments made against theirloans and earnings accruing to the scheme retained by FELCRA. Such statementswould be submitted to the beneficiaries at least annually and would discloserelevant details of scheme trading activities for the year;

(c) an improved accounting and reporting system, including inter alia:(i) separation of FELCRA's investments in Fringe Schemes from its long-termaccounts receivable and appropriate classification in the financialstatements; (ii) accounting for interest received versus interest accrued;

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(iii) appropriate recording of beneficiary loan repayments received inadvance, and the funds in the financial statements; and (iv) accountingproperly for quit rent deductions and payments;

(d) formal arrangements with the Ministry of Finance for approving andfinancing of land development schemes where original budgets (and thereforethe Government loans) are insufficient to meet additional costs incurred tocomplete such schemes or where expenditure is incurred to support loss-makingschemes; and

(e) preparation for FELCRA management of summarized financial statementsshowing the status of FELCRA's main business activities as well as itsconsolidated financial position, for internal management purposes on a regularbasis. A statement showing FELCRA's present and forecast cash position shouldalso be produced as part of this financial management package.

3.12 TrAining: The project would support FELCRA's human resourcedevelopment program through training of staff, scheme beneficiaries and theirfamilies and field workers in their agricultural skills, and the provision oftraining materials. Estimated total base costs of the program are M$13.0million (Annex 1, Table 3). Components and their estimated base costs are:(a) local training of staff (M$5.3 million for lecturers' fees, externalcourse fees and participant allowances); (b) overseas training, subject toGovernment approval, for professional staff in management and technical skills(M$1.2 million); (c) training of scheme beneficiaries and their families inskills of agriculture, cooperatives, homemaking, entrepreneurism andgeneration of supplementary income (M$5.0 million); and (d) training materials(M$0.5 million). All staff are given the opportunity to participate annuallyin one or more training courses provided by the Training Unit or madeavailable in outside training institutions. Courses cover a wide spectrum oftechnical subjects relevant to FELCRA's operations as well as more generalstudies to strengthen the work ethic, and are graded into basic, intermediateand advanced levels. Of principal importance to the project would be thetraining of scheme managers and supervisors in the features of quality tappingand reduced frequency tapping systems (details of this program are given inAnnex 5.1). The costs of the rubber tappers training program for improvingskills and tapping quality, and involving 14-15,000 tappers over the projectperiod, would be charged to the individual scheme profit and loss accounts.For local training of staff, women, whether staff or beneficiary, have equalaccess to all FELCRAts courses. It has been agreed that the Training Divisionwill monitor the gender participation in all courses.

3.13 Evolution of FELCRA's Management Role. FELCRA would continue topursue its efforts to withdraw from the management of its agricultural schemesand palm oil mills in favor of private beneficiary institutions, whileensuring the continued sound performance of these operations through:

(a) progressive disengagement of FELCRA from the management of schemeswhich have fully repaid their land development loans, and possiblyof schemes which have not fully repaid their loans but whichexhibit good potential production and financial performance;

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(b) increased involvement of cooperative leadership in schememanagement, supported by appropriate training, so that when loansare repaid the cooperatives are fully acquainted with the range ofissues and decisions that need to be taken routinely;

(c) introduction of graduated management fees to schemes that haveachieved profitability, so that by the time loans have been repaid,the schemes would already be financing most of their managementcosts. FELCRA's development contracts with the States and schemebeneficiaries do not specifically provide for management fees, butFELCRA will review this with the aim of effecting a change. It isintended that for 1992, Holdings will charge a management fee ofM$17.40/ha (M$7.0/acre) to all schemes transferring to theirmanagement; and

(d) monitoring by FELCRA of the performance of agricultural schemes andpalm oil mills which are under private management arrangements.

The details of FELCRA's action plan for management devolution were reviewedduring negotiations and found satisfactory. Agreement was reached on aperiodic exchange of views between FELCRA and the Bank on its managementdevolution efforts (para. 7.1(c)).

Studies

3.14 The project would finance several consultant studies, including afinancial management study which is a priority and is therefore scheduled tostart in late 1992. Other studies have yet to be defined in detail. Of thetotal M$3.0 million of base costs for project studies, M$2.4 million isearmarked for the financial management study, as detailed in Annex 1, Table 4.

(a) The financial management study of FELCRA's accounting policies,procedures and internal controls would involve a detailed review by aqualified professional accounting consultant familiar with internationalaccounting standards, as well as those normally accepted in Malaysia, ofGovernment accounting regulations and the generally accepted accountingprinciples applicable to the plantation industry. Recommendations would bemade to improve FELCRA's internal controls and annual financial reportingformats to ensure clear disclosure of the results of operations and keybusiness activities, and to integrate the new accounting procedures andsystems into the design, development and implementation of the computerizedDatabase Management System and the Management Information System. Jobdescriptions for the new Finance Division staff would also be needed. Thestudy would require about 15 staff months of consultant services. Detaileddraft Terms of Reference have been prepared (Annex 5.2). Agreement wasreached that by December 31, 1992, FELCRA would appoint an independent firm ofaccounting consultants selected in accordance with Bank procurement guidelinesto undertake the financial management review of FELCRA's accounting policiesand practices (para. 7.1(d)).

(b) Other activities tentatively include: (i) a Rural Industries studyto identify effective ways for FELCRA management to promote rural small scale

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or cottage industries for the benefit of its beneficiaries without directinvolvement in the supply of technical, management, financial, and marketingservices; and (ii) a Production Cost study to review and compare FELCRA'sagricultural operations with those of the estate sector of the industry with aview to finding ways to further improve efficiency.

Project Management SURRort

3.15 The project would provide equipment, including a computerizedaccounting and management information system, and vehicles, in support ofmanagement services for a total base investment cost of M$46.8 million, asdetailed in Annex 1,Table 5a.

(a) Eouipment. Furniture and Vehicles: Excluding computers, equipmentincluding 20 units of weighbridge for oil palm schemes of more than 1,000 ha,laboratory equipment, miscellaneous field implements, and office equipment,and furniture for scheme and State offices, have a total estimated cost ofM$9.8 million. FELCRA's large fleet of vehicles and tractors needs to befurther expanded and renewed to ensure project operational effectiveness.Requirements of 4-wheel drive vehicles are estimated on the basis of one unitto every cluster with an additional unit to clusters exceeding 2,000 ha orhaving difficult transport conditions. In addition a pick-up truck isprovided to clusters of more than 1,000 ha. Supply of tractors, used widelyfor crop collection, is normally one 70-80 hp unit to every oil palm scheme atthe time of first harvesting and an additional unit for every 200 ha ofplanted area; for rubber, the basic allocation is one 60-70 hp unit from thetime of first production and additional units for every 400 ha of plantedarea. Total base cost of project requirements, listed in Annex 1, Table 5b,is M$32.4 million.

(b) Computer EquiRnpent: The project will support FELCRA's continuingeffort to improve its management information database and introduce elementsof a decision support system through upgrading of its hardware and softwarecomputer facilities. Planning and providing for updated and expandedcomputerization of FELCRA accounts and MIS databases started under therecently completed Second FELCRA Project. Contracts for the supply andinstallation of an integrated system are expected to be awarded in early 1992.The system, which has been agreed with the Bank, comprises a mainframeHeadquarters system to which is linked the mini-computers at State officeswhich in turn are connected to the higher grade personal computers in allscheme clusters. Total estimated cost of the system including peripherals andsoftware is M$4.6 million.

Project Costs

3.16 The total project cost, including contingencies, for the four years1992-95 is estimated at M$976.4 million, equivalent to about US$361.6 million,exclusive of identifiable taxes and duties of M$7.3 million (US$2.7 million).The foreign exchange content of the project cost is US$98.8 million (27%).Unit costs for works, goods and services are based on recent contract pricesfor similar works, vehicles and equipment. Project base costs are calculated

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in constant 1992 prices. No physical contingencies have been applied to thebase cost estimates, since total expenditures are limited by the total budgetallocation for the Sixth Plan period and any significant changes in costswould therefore need to be handled through adjustments in physical targets.Price contingencies of US$26.7 million, equal to about 8% of base costs, havebeen included to accommodate annual projected inflation rates of 4% per annumfor local costs and 3.9% per annum for foreign costs. Project cost detailsare given in Annex 1, Tables 7-9 and are summarized in Table 3.4.

Table 3.4: Project Cost Summary(US$ million)

MS '000 USS '000 foreign Total baseComponent Local Foreign Total Local Foreign Total exchange costs

Agricultural Development:Planting 36.7 24.4 61.1 13.5 9.1 22.6 40 7Maintenance 201.8 134.6 336.4 74.8 49. 124.6 40 /a 37

Subtotal 238.5 159.0 397.5 88.3 58.9 147.2 40 44

Civil Works:Scheme Infra. 68.1 38.2 106.3 25.2 14.2 39.4 36 12Other 4,9 a, L 1.8 1. 2. l 1

Subtotal 73.0 40.8 113.8 27.0 15.2 42.2 36 13

OtherTraining /a 11.1 6.8 17.9 4.1 2.5 6.6 39 2Studies 0.0 3.0 3.0 0.0 1.1 1.1 100 0Equip.& Vehicles 8.1 38.7 46.8 3.0 14.3 17.3 83 5Project Mgt. 325.3 0.0 325.3 120.5 0.0 120.5 0 36

Bale Cost 656.0 248.3 904.3 242.9 92. 334.9 27 1

Physical conting.0.0 0.0 0.0 0.0 0.0 0.0 0 0Price conting. 53.6 18.5 ILI AA 6.8 1i 8

Total Projectcosts & 709.6 266.8 976.4 262.8 98.8 361.6 27 108

/j Component includes Training Centers of M$5.0 million (US$1.8 million) base cost./k Exclusive of taxes and duties estimated at US$2.7 million.

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Pgroject Financing

3.17 The proposed Bank loan of US$94.0 million to Malaysia would financeabout 26% of total project costs exclusive of taxes and duties and about 95%of the estimated foreign exchange content of $98.8 million. Government'scontribution to total project costs through its annual development andoperating budget allocations to FELCRA would be about US$265.0 million. TheUS$4.8 million of foreign exchange costs not financed by the loan relate tothe estimated financing foregone as a result of reserve procurement of 110,500tons of 'straights' fertilizers that FELCRA has contracted to purchase fromgovernment central contract in 1992. Financing arrangements for the projectby categories of works, inclusive of contingencies, are summarizedin Table 3.5.

Table 3.5: Project Financing Plan(US$ million)

World Bank Government TotalCategory Amount % Amount % Amount %

AgriculturalDevelopment 58.3 37 100.6 63 158.9 44

Civil works 17.3 37 29.4 63 46.7 13

Equipment, furnitureand vehicles 15.4 83 3.3 17 18.7 5

Training /a 1.9 37 3.3 63 5.2 2

Studies 1.1 100 0.0 0 1.1 0

Project Mngmnt. 0.0 0 131.0 100 131.0 36

Total Financing 94.0 26 267.6 74 361.6 100.0

/a Training Centers costing US$1.9 million including contingencies areincluded under Civil Works category.

3.18 Procurement

Procurement arrangements are summarized in Table 3.6.

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Table 3.6: Procurement Method and Disbursements(USS million) LA

TotalItem ICB LCB Other NBF A cost

Works:Agricultural Development - - 101.4

- (20.6) (16.9) - (37.5)

Scheme infrastructure - 41.9 - - 41.9- (15.5) . - (15.5)

Other civil works - 4.8 - - 4.8- (1.8) (1.8)

Subtotal - 4.- - 47- (17.3) (17.3)

GoodsVehicles 11.7 1.3 - - 13.0

(9.7) (1.1) - - (10.8)Equip. and furniture 1.8 3.9 - - 5.7

(1.4) (3.2) - - (4.6)Fertilizers and chemicals 36.6 10.6 - - 47.2

(13.5) (3.9) - - (17.4)Planting materials - - 10.3 - 10.3

- - (3.4) - (3.4)Subtotal 50.1 15.8 10.3 - 76.2

(24.6) (8.2) (3.4) (36.2)

TrainingTraining - - 4.7 -4.7

(1.4) - (1.4)Materials - - - .5

(0.5) - (0.5)

Studies - -. 1( 1. 1 ) - (1.1)

AdministrationSalaries - - -84.4 84.4

(0) (0)Services - - -. 46.6

- - - (0) (0)

Total 50.1 118.3 622 131.0 361.6(24.6) (46.1) (23.3) (0) (94.0)

Percentage of procurement 14 33 17 3 100(26) (49) (25) (0) (100)

/a Figures in parentheses show Bank financing.A Not Bank financed.

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(a) Works: Agricultural and infrastructure works represent 28% and13% of total project costs and amount to US$101.4 million and US$46.7 millionequivalent, respectively. Except for one road contract for an estimatedUS$3.6 million in an isolated area and involving a substantial bridge, allcontracts for these works would be under US$1.0 million, geographically widelydispersed and scattered in time over the project period, and thus of littleinterest to foreign bidders who would however, be eligible to compete. Allworks contracts will be awarded under LCB procedures acceptable to the Bankwith the following exceptions:

\i) land development works costing less than US$40,000 each, andestimated at US$15.2 million in total (15% of the value of allland contracts), which will be procured following localprocedures acceptable to the Bank; and

(ii) crop maintenance works such as weeding and the application offertilizers, estimated at US$30.4 million in total (30% of thevalue of all land contracts), which will be carried out by schemebeneficiaries under force account.

(b) Goods: Fertilizers (US$36.6 million), vehicles, except trailers,passenger cars and speedboats (US$11.7 million), and computer equipment(US$1.8 million) would be procured under ICB procedures in accordance withBank Guidelines. A margin of preference equal to 15% of the c.i.f. bid priceof imported goods, or the amount of customs duties and taxes, whichever isless, would be allowed for domestic manufacturers. All other goods would beprocured through LCB in which foreign suppliers would be eligible toparticipate, except for planting materials valued at about US$3.8 millionwhich would be mostly procured from scheme cooperative nurseries understandard terms with FELCRA. Contracts for items or groups of items of goodsestimated to cost less than the equivalent of US$50,000 each and not exceedingthe equivalent of US$1.0 million in aggregate, may be procured on the basis ofcomparison of price quotations in accordance with the Borrower's normalprocurement procedures.

(c) Consultant Services: Consultant services (US$1.1 million) wouldbe procured according to Bank Guidelines, with terms of reference,qualifications, and contract terms and conditions satisfactory to the Bank.

(d) Procurement Review: All contracts estimated to cost theequivalent of US$2.0 million equivalent or more (about 17% of the total valueof all contracts), and all overseas training proposals would be subject toprior Bank review. Other contracts would be subject to selective post-awardreview.

Disbursemen

3.19 Disbursement of the proposed loan over four and one-half years aredetailed in Annex 2, Tables 1A and 1B, and summarized below:

(a) 37% of the expenditures of: (i) land preparation, cropestablishment, crop maintenance through to maturity and

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agricultural inputs; end (ii) all civil works including schemeinfrastructure of access roads, buildings, utilities and harvestingfacilities, State offices and training centers;

(b) 100% oL the foreign expenditure costs of directly importedvehicles, including tractors, and equipment including furniture,100% of the ex-factory cost of locally manufactured items, and 75%of the cost of items procured locally;

(c) 100% of all costs of overseas training, local training lecturefees and training materials; and

(d) 100% of the cost of consultants' services.

3.20 Disbursements would be made on the basis of Statements ofExpenditure (SOEs) for all expenditures for: (a) agricultural developmentincluding land preparation, crop establishment, crop maintenance through tomaturity and agricultural inputs; (b) contracts valued at less chan US$200,000equivalent for civil works, vehicles and equipment; and (c) training.Documentation on these withdrawal applications would be retained by FELCRA forreview by Bank supervision missions. All other disbursements would be madeagainst full documentation. To the extent possible, withdrawal applicationsshould be consolidated into amounts of US$50,000 equivalent or more, prior tosubmission to the Bank.

3.21 The loan is expected to be disbursed over four and one-half years.As the project is an expenditure time-slice of an ongoing development program,disbursements are projected to be much faster than the standard profile forMalaysian agricultural projects. This is supported by the experiences of twoother recent time-slice loan operations, the Second FELCRA Project (Loan 2917-MA) for which 95% of the loan was disbursed after three and one-half years,and the ongoing RISDA Project (Loan 3139-MA) where 44% was disbursed in 23months. The loan closing date would be June 30, 1996. The proposed loanwould provide retroactive financing not exceeding US$9.4 million for eligibledevelopment expenditures incurred from the start of appraisal on December 1,1991 through the date of loan signing, so as to ensure continuity of Bankfinancing.

IV. PROJECT IMPLEMENTATION

4.1 Malaysia would be the borrower for the loan, and the Ministry ofRural Development (MRD), through FELCRA, would be responsible for projectexecution. FELCRA would be assisted by the Federal and State Public WorksDepartments for the construction of larger roads. FELCRA's Finance Division,which has had considerable prior experience with the Bank's procurement andloan withdrawal procedures, would be responsible for preparation of loanwithdrawal applications on behalf of the Government.

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Scheme Development

4.2 The scheme development process from identification of areasthrough to land development is shown in Figure 3. Areas with potential fordevelopment are normally first identified by FELCRA State staff, particularlyscheme managers with their intimate knowledge of the smallholder lands intheir areas. Dialogues with owners to discuss development proposals arecarried out by the State Office, which also initiates the land titleverification process and prepares a feasibility report. The TechnicalDivision is responsible for all design and preparation of tender contractspecificstions for all agricultural and engineering works. Contracts forworks estimated not to exceed M$100,000 are arranged through the State office;larger works are tendered through Headquarters.

Staffing

4.3 FELCRA's projected staffing for the project period is summarizedby grades and functions in Annex 5.4, Table 1. At the end of 1991, totalstaff numbered 3,488 persons. Of these 44 staff, including 12 of Grades A andB. working in the two palm oil mills have been seconded to KPFB Holdings andwill not be re-absorbed into FELCRA. The current ratio of staff to hectaresof land in development of 1:75 is expected to decline as management withdrawsfrom schemes with fully repaid loar.s, and staff capabilities improve throughtraining. Thus, the annual increase in professional and semi-professionalgrades is not likely to exceed 50 posts per year and there is no plannedexpansion among lower grades. Planned staff increases, shown in Annex 5.4,Table 2, will be principally in the categories of managers and supervisors fornew agricultural areas, an enlarged scheme inspection service (para 3.10d) andstaff for FELCRA's village development and rural industry programs. UnderFELCRA's management withdrawal program, staff will initially be seconded toKPFB Holdings under Government staff rules for a period of two years, at whichtime they may formally separate. By 1995, it is estimated that at least 186staff, including 142 agricultural staff and 44 staff currently working in thepalm oil mills, and comprising of managers, field supervisors, factoryengineers and operators and clerks, will have been moved to Holdings.

Implementation Schedule

4.4 Since the project is a continuation of FELCRA's ongoingdevelopment program, no significant pre-project implementation arrangementsare required. Implementation targets would be adjusted annually according tothe actual allocations for the year. The first year's program has beendefined and agreed. An understanding was reached that FELCRA would review itsproposed annual work program and approved level of funding with the Bankaround the end of each year for each subsequent project year (para 7.1(e)).For the first project year, some 9,000 iha (75% of target) were ready forimplementation at the time of appraisal and tenders for many contract workswere in place. Additional areas were expected to be added into the year'sprogram. Planning for programs of subsequent years would be initiated andlargely completed one year in advance of targeted implementation. Allmaintenance work on immature crops in schemes established prior to the project

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would continue on a routine basis, with FELCRA hiring contractors or employingscheme members, their families and others under force account arrangements.There are a substantial number of 1991 ongoing contracts for access roads,both FELCRA and PWD implemented, and buildings which will be completed in1992. Design works for roads are ready for several years in advance. Worksare assigned to PWD annually. Designs for offices and staff quarters arestandard while work on utilities and harvesting facilities would be phased inaccording to progress with agricultural development. Construction of the twotraining facilities and three State offices are on-gning and a fourth Stateoffice is ready for tender. Land acquisition for scheme and other civil worksis ongoing.

Operation and Maintenance

4.5 Financing arrangements for the maintenance of all existing FELCRAaccess roads constructed by PWD and FELCRA, have, until recently, beeninsecure. It is Government's policy that all Federally financed PWD roadsshould be gazetted as Federal roads and maintained through annual grantsspecifically earmarked for this purpose. Unfortunately the gazetting processis very slow and the roads after construction receive only limited maintenancewith funds that FELCRA is able to allocate for this purpose. For reasonsconcerning different standards, the FELCRA-constructed access roads are notaccepted for inclusion in State networks and therefore do not qualify forState maintenance funding. FELCRA thus remains responsible for their upkeep.Recent Government changes in the budgetary process permit FELCRA to identifyfunds for the maintenance of all access roads constructed under the projectand which remain under FELCRA's responsibility. Funding for 1992 (M$2.0million) and that proposed for 1993 (M$4.935 million), was satisfactory to theBank and an understanding was reached that the Government would continue toprovide adequate funding for project access road maintenance during theproject.

Management of Palm Oil Mills and Agricultural Schemes

4.6 In taking over the management of FELCRA's palm oil mills, Holdingswill enter into a contract with FELCRA, setting out the terms and conditionsof the services to be provided and the financial arrangements between theparties. In the transfer of management of agricultural schemes, schemebenefiaries as a group would enter into a contract with Holdings or otherbeneficiary institution as the management entity. Representative copies ofthese various management contracts would be sent to the Bank for information,after approval by the FELCRA Board in the case of the palm oil mills.

Accounts and Audit

4.7 FELCRA is subject to normal Government control and auditprocedures. The accounts are audited by the Office of the Auditor General,who is considered an independent auditor acceptable to the Bank. FELCRA wouldsubmit its audited consolidated financial statements to the Bank annually,including separately the results of its various business activities, and asummary analysis of the long term accounts receivable by type and age. Theformats of these financial statements should adequately reflect project

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expenditure and progress over the life of the project. Assurances wereobtained during negotiations that FELCRA would submit audited annual financialstatements within nine months of the end of each fiscal year, including aseparate audit opinion on the use of funds disbursed against SOEs. (para7.1(e)).

Monitoring and Evaluation

4.8 FELCRA's Monitoring and Evaluation Division would continuallyassess the overall performance of its agricultural development program. Thiswould focus on scheme economic and financial performance, taking into accountcrop yields, costs of production and production revenues, progress with loanrepayment and scheme contribution to beneficiaries' in-ome. Results reportedregularly to FELCRA management, and to the Government, would also be rourinelymade available to the Bank. It has been agreed with FELCRA that the databaseon the costs of land development in the States, used in the economicevaluation of new scheme proposals and in development cost estimates, and thelevel of beneficiary participation in scheme operations, will be regularlymonitored and brought up to date in 1993.

4.9 Implementation of FELCRA's action plan for devolution of themanagement of agricultural schemes which have repaid their land developmentloans and palm oil mills in favor of private institutions will be routinelymonitored (para. 3.13). A list of proposed performance indicators, and 1991data for the 75 cooperatives to provide a basis for recording progress ofcooperative development during the project, are provided in Annex 5.5,Table 1.

Environmental Effects

4.10 Project activities concern primarily the rehabilitation ofexisting agricultural lands and are therefore unlikely to induce significantenvironmental impacts. FELCRA will update its planting directives to schememanagers and supervisors and check lists used by the monitoring inspectorate,to reflect environmentally sound field practices. It is planned that thisupdate would emanate from findings and recommendations of a mid-1992 workshopof agriculturalists and others of leading land development agencies, under thedirection of the Department of the Environment, convened to review and agreeenvironmental guidelines for land development. The proposals for theirconsideration were prepared by an independent consultancy through the SabahLand Settlement and Environmental Management Project (Loan 3039-MA).Agreement was reached that adequate environmental directives and guidelineswill be incorporated into FELCRA's planting directives and inspectorate checklists by December 31, 1992 (para 7.1(f)). For road construction, theenvironmental standards and controls observed by the PWD and FELCRA are set bythe State and Forest Department authorities and are satisfactory. A list ofenvironmentally acceptable agricultural chemicals has been agreed with theBank among which is the herbicide paraquat, which needs to be carefullyhandled and managed. Bank requirements in the use of this herbicide are inline with those of the Pesticide Board of Malaysia. An understanding wasreached at negotiations that FELCRA is endeavoring to comply with necessary

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safety procedures and would include such requirements in its plantingdirectives and guidelines.

The Role of Women

4.11 Women will participate in scheme development, generally as part ofthe agricultural labor force. FELCRA's training programs for schemebeneficiaries and their families, like those for FELCRA women staff, will beavailable equally to women as for men. FELCRA will conduct many courses onschemes or in villages to encourage women's participation without overlydisrupting their domestic routines. The Training Division will maintainrecords by gender of participants in all training programs. The proposedstudy on the most effective roles for FELCRA in small scale rural industries(para 3.14(b)) will have, as one of its objectives, the identification of highincome earning activities fcr women.

Reporting

4.12 FELCRA would prepare and submit to the Bank a semi-annual progressreport on project implementation and consolidated expenditure performance,both actual and committed, for each main category of development. The Bank'sSupervision Plan is shown in Annex 5.5, Table 2.

V. AGRICULTURAL PRODUCTION. MARKETING AND PRICES

Agricultural Production

5.1 The oil oalj yield profile for the project planted areas is shownin Annex 6, Table 1. It is based on average industry yields on inland soils,which also approximate FELCRA's average performance over the first tenproduction years. Average yield over 24 years is about 18 tons FFB/ha with apeak of 22.6 tons/ha in year 16, and a total FFB production of about .".43tons/ha. At full production from about 2010, the new rehabilitated area of24,000 ha is estimated to produce a total of 530,000 tons of fresh fruit bunchfrom which some 105,000 tons of palm oil would be obtained.

5.2 The yield profile for rubber is shown in Annex 6, Table 1. Over 25years of tapping, the average annual yield is 1.55 tons/ha with a peak ofabout 1.75 tons/ha in the tenth year. This compares with current performanceover 14 years of tapping of 1.26 tons/ha with a peak of 1.67 tons/ha in year9. Yields would decline to uneconomic levels after about 25 years. Theprofile, which reflects a 30% better performance than individual smallholders,is derived as 90% of the current average commercial yields of the two mostwidely grown Class I clones, also prominently planted in FELCRA schemes,assuming that FELCRA's performance will improve substantially with the newtapping technology. At full production in 2010, the new rehabilitated area of19,200 ha is estimated to produce a total of 34,000 tons of dry rubber.

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Marketing and Price ProsRects

Palm Qil

5.3 World demand for palm oil grew at a rapid 10% per year over thepast two decades and is expected to grow at 6% per year over the long-run,based on population growth, substitution of palm oil for other vegetable oils,and high income elasticity at low income levels. Global consumption shouldalmost double over the next 15 years. Demand for palm oil is derived fromtotal demand for edible oils, from the degree of technical substitution in enduse and from relative prices of the oil sources. Global demand for all oilsrose from 52.6 million tons in 1987/88 to 60.3 million tons forecast for1991/92. The largest source remains soybean oil with 26.5 % of the market,followed by palm and palm kernal oil with 22.2% of the total (Table 5.1). Overthe period, total demand rose 15%, that for soybean oil rose 6%, while thatfor palm oils rose 40%. The cheapest source of oil remains palm oil anddemand growth is greatest in developing countries where about 90% of output isconsumed.

Table 5.1: Edible Oils Demand(million tons)

Consump-Market tion

1987/88 1988/89 1989/90 1990/91 1991/92 Share Increase

consumRtion

Soybean oil 15.0 14.9 15.8 15.9 16.0 26.5 6Palm oils 9.6 10.6 12.1 12.4 13.4 22.2 40Coconut oil 2.7 2.7 2.9 2.9 2.9 4.8 7Others 25.3 25.7 26.3 27.7 28.0 46.5 11

Total 52.6 53.9 57.1 58.9 60.3 100.0 15

Source: USDA, Foreign Agricultural Service, World Oilseed Situation andOutlook, Dec. 1991.

5.4 Export Demand. Palm oil commands a 43% share of the internationaltrade in edible oils, followed by soybean oil at 17% of global exports. Thelargest importers are China, Singapore, India and Pakistan, which togetherwith smaller Asian countries import 60 % of the total traded. Asian long-rundemand has increased at an annual average of 40% and is projected to continueincreasing at 30%-40% per year (Table 5.2) because of low average per capita

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consumption of fats and oils was 7.7 kg, compared with 20 kg for high incomedeveloping countries and almost 40 kg for developed countries. China's incomeelasticity for calories from fats and oils in 1988 was estimated by FAO/WorldBank to be 1.12% with a population of over 1 billion.

Table 5.2: Palm Oil- Gross Exgorts and Imoorts(million tons)

Actual Projected Change %1969-71 1979-81 1989-91 1999-01 2005 Annual

Exports, total 1.0 3.5 7.5 14.8 18.3 49-Malaysia 0.4 2.4 5.2 8.3 9.2 25-Indonesia 0.2 0.4 1.0 2.9 4.3 11

Imports, total 0.9 3.2 7.4 14.7 18.3 49-USA 0.1 0.1 0.2 0.2 0.2 0-EEC 0.5 0.7 1.0 1.5 1.5 2-E.Europe 0.0 0.2 0.6 1.1 1.4 4-Asia 0.2 1.8 4.8 8.3 10.6 30

Source: World Bank, USDA and Government reports.

5.5 Export SUPDly. The two largest producers of palm oil are Malaysiawith about 6 million tons, followed by Indonesia w'th about 2.3 million tonsof annual outturn. The long-run forecast is a continuance of this position,with Malaysia producing 10 million tons within 15 years and Indonesiaproducing almost 7 million tons. Indonesia is expected to consume a largershare of its palm oil, leaving Malaysia as the dominant exporter of about 9million tons annually. To achieve this target, Malaysia will have to maintainan annual planting program of about 100,000 ha.

5.6 Prices. Malaysia continues to dominate palm oil production andexports because its soil and climatic conditions are ideal for high yields,research and other supporting institutions are able to generate streams ofproductivity raising improvements, and because exchange rate and industrypolicy are favorable. Detailed comparative cost of production studies in thelate 1980's estimated that annual oilseed oils (soybean, rapeseed, safflower)cost US$300-$500 per ton to produce, while East Asian palm oil cost aboutUS$150-$250 per ton.6' Other palm oil producers were often at a disadvantagebecause of unfavorable exchange rate and trade policies, with costs ofproduction often being double or more that of Malaysia. Because of increasinglabor costs, Malaysia's 1992 production cost is creeping towards the US$200-250/ton, while Indonesia's remains in the US$150-$200/ton range. However,this is still well below the export price of US$350/ton (Malaysia fob)

61 Landell Mills, 1987; Larson, D., 1991.

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received in early 1992, and below the $US430/ton export price of soybean oil,US$414/ton export price of rapeseed oil, and US$600/ton of corn oil for thesame period. Price projections indicate that this relativity will remain(Table 5.3). While increasing labor costs are a concern for Malaysianproducers, there are also a number of already identified sources ofproduc.tivity gains to be implemented. In addition, Malaysia will soon beentering the phase where replanting will be greater than extension of plantedarea. The presence of existing infrastructure and established labor supplieswill lower the average cost of establishment and operation.

Table 5.3: Edible Oil Prices and Projections(US$/ton)

Actual Projected

1980 1985 1990 1992 1995 2000 2005

Current Prices-Palm oil 584 501 285 350 408 425 450-Coconut oil 674 590 371 550 639 793 774-Groundnut oil 892 878 975 750 733 779 713-Soybean oil 501 572 463 423 515 575 634

Constant Prices (US$85)-Palm oil 556 501 194 215 239 208 183

Source: World Bank Projections: USDA, FAS Reports.

5.7 Industry Protection and Exprt Comnetitiveness. World markets foredible oils are characterized by a high degree of price and non-priceinterventions and this causes relatively higher price instability than forother commodities. Within the oils, palm oil price is among the mostunstable. Among importing countries (e.g., India) the most commoninterventions are quantitative import restrictions to encourage domesticproduction of annual oilseeds. Vegetable oil prices are affected by livestockcycles and the demand for oilseed meal. Among exporters, the most commonintervention are export subsidies, including the Export Restitutions of theEEC (whereby exporters of oil are compensated for exporting at a loss) and theUS Market Development Programs under which the export of oils, oilseeds andmeals are subsidized through the GSM 102/103, PL 480 Title I/II, Sunflower OilAssistance Program, Cottonseed Oil Assistance Program, and the Vegetable OilExport Enhancement Program). The announced subsidies for FY92 for the GSMprogram alone exceed US$1 billion. The net impact of these programs is tolower prices, destabilize markets and retain high cost producers.

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5.8 Malaysian palm oil production and trade is free of supply managementand price intervention. Mission estimates (Table 5.4) based on published datafor 1991 show that the nominal protection rate on Malaysian palm oil was zeroin that year, consistent with that of other years. Farm-gate prices toproducers represented the border price equivalent less normal deductions forprocessing, transport and services, all valued at the freely convertibleexchange rate. Traded inputs are not subject to interventions and value-addedat domestic prices equals value-added at border prices to give an effectiveprotection rate of zero. Using the domestic resource cost (DRC) methodology toestimate economic efficiency, by deducting the opportunity cost of primaryfactors of production from value added, a cost of M$0.64 is incurred to earnM$1.00 of net benefits. This indicates highly efficient use of factors andpalm oil production should be expanded to the point where the cost rises toM$1.00 per M$1.00 of benefits and provides empirical support to the view thatMalaysia can absorb labor cost increases in the industry. In terms of foreignexchange generation, it cost M$75.00 of domestic resources to produce a ton offfb worth US$42.00 (M$116.62, value-added). The implicit exchange rate is thenM$1.78 per US$1.00. Since it costs only M$1.78 of domestic resources to earnUS$1.00 from palm oil and M$2.75 per US$1.00 (the actual exchange rate) fromthe rest of the economy, palm oil is a highly competitive foreign exchangeearner for Malaysia.

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Table 5.4 Malaysian Palm Oil - Efficiency Estimates(October 1991)

Nominal Protection

1. Crude Palm Oil (CPO)Average seller's price cif Rotterdam US$/ton 342.50- less freight 40.00

financial charges (2.75%) 9.42insurance (0.4%) 1.37normal arrival loss (0.25%) 0.86

FOB Price 290.86Convert to M$ usi', spot rate 2.7380 M$/ton 796.36- less port charg%.s 2.00

transport mill to port 30.00Equals Border Price equivalent ex mill 764.36

2. Palm Kernels (PK)Average sellers' price ex mill Malaysia M$/ton 574.98

3. Fresh Fruit Bunches/tonCPO value at 20% extraction 152.87PK value at 5% extracrion 28.75- less milling cost 30.00(a) FFB val./ton at mill door in efficiency prices 161.62(b) Actual producer price at mill door 161.62Nominal Protection Rate (a-b)/a 0%

Effective Protection

Traded inputs/ha (fert., chemicals etc.,) year 10 690.00Value of traded inputs/ton ffb in domestic prices 35.00Value-added/ton ffb in domestic prices 116.62Value-added/ton ffb in efficiency prices 116.62Effective Protection Rate 0%

Domestic Resource Cost (DRC)

Value of primary factors/ha at domestic prices- labor 497.00- capital (depreciation) 500.00- land (imputed value in rubber production) 500.00

Total value/ha of domestic resourceS 1,497.00Opportunity cost of domestic resources/ton ffb 75.00Valie added by domestic resources 116.62DRC coefficient 0.64

Source: Mission estimates from published data

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Rubber

5.9 Demant. The demand for natural rubber is derived from total demandfor elastomers and from the degree of technical substitutability betweennatural and synthetic sources. Total demand for elastomers is some 15 milliontons annually, of which about 5.2 million tons is for natural rubber (Table5.5). Natural rubber consumption has grown at 2% to 3% per year over the past20 years, from 3 million tons in 1970, despite the inroads made by syntheticelastomers. While demand for natural rubber in the transport sector hasdeclined, this has been more than offset by an increase in demand from othermanufacturing industries. Advances in grading and processing have allowedrubber to meet stringent specifications and improve its non-pricecompetitiveness for a wider range of end-uses. Buyers are increasingly movingtowards direct trading with countries that are able to ensure reliablesupplies with guaranteed technical specifications demanded by consumers. Aswith palm-oil, the greatest demand growth will be in Asia where consumptionhas tripled from 797,000 tons to 2.4 million tons over the past two decades.

5.10 SuDply Status and Outlook. Production in Malaysia has declined from1.53 million tons in 1980 to 1.25 million tons in 1991 (Table 5.5). In 1988, aone-time jump to 1.66 million tons was recorded as a response to a short runprice peak. The decline is due to a fall in planted area as rubber isreplaced by oil palm and urban infrastructure or is left untapped in high-costareas. The estimated planted area fell from about 2 million ha in 1980 to 1.82million ha in 1992. Some recovery of production level is anticipated fromyield growth but the long run outlook is for Malaysia's share of worldproduction to fall to about half of its 1980 share of 40%, with Indonesiabeing the dominant producer.

Table 5.5 Rubber - Production('000 tons)

Actual Proiected Share %

1980 1988 1990 1991 1992 2000 2005

Production 3,814 4,749 5,318 5,238 5,349 6,566 7,180World 1,537 1,660 1,290 1,250 1,260 1,570 1,600 22Malaysia 982 1,235 1,263 1,297 1,345 1,800 2,065 29Indonesia 514 954 1,220 1,250 1,280 1,560 1,600 22Thailand

Source: Government of Malaysia Economic Report 1991/92; World Bank,International Economics Department

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5.11 Trade. While Malaysia is also expected to lose its leadership interms of total export volume, it will remain one of the big three exporters(Table 5.6) and should dominate the higher-priced, quality end of the market.In 1980, Malaysia exported 1,553 tons of rubber, equivalent to 48% of totalexports; by 1991 its share had fallen to 29% as total production fell anddomestic use in manufacturing rose, often to be exported in higher value form.The export of rubber manufactures from Malaysia increased from M$84 million in1980 to M$1,356 million in 1990. Import demand will be greatest in Asia wherehigh population levels and growth, and high income growth and elasticity ofdemand, accompanied by increasing industrialization is expected to strengthenimport demand from 1.55 million tons in 1991 to over 2.4 million tons within15 years.

Table 5.6: World Trade in Rubber(000 tons)

1980 1990 1991 1992 2000 2005

ExportsTotal 3,259 4,150 4,232 4,370 5,127 5,598Malaysia 1,553 1,291 1,250 1,260 1,484 1,512Indonesia 886 1,149 1,158 1,189 1,452 1,643Thailand 483 1,158 1,186 1,215 1,480 1,518

ImportsTotal 3,388 4,150 4,233 4,370 5,127 5,598N. America 772 982 953 927 1,060 1,141EEC 780 800 860 870 948 1,003Asia 821 1,536 1,550 1,606 2,185 2,404

Source: Economic Report 1991/92, Ministry of Finance, Malaysia; World Bank,International Economics Department.

5.12 Prices and Costs. In turrent dollars rubber prices have fallen fromUS$1.62/kg in 1980 to US$1.00/kg in 1991 (Table 5.7), and to US$0.97/kg inearly 1992. Prices are unlikely to firm until the global economy pulls out ofrecession, but are then expected to double over the long run. In constantdollars the price of rubber adjusted for inflation in 1991 had fallen 58% fromUS$1.55/kg in 1980 to a record low of US$0.65/kg in 1991. Constant dollarprices are expected to increase over the long run but only to US$0.84equivalent. Malaysia's average cost of production from mature rubberplantings in 1991 was about M$0.90/kg for field costs, M$0.80/kg for tappingand M$0.35/kg for processing and marketing, to give a total cost of M$2.05/kg(equivalent to US$0.74/kg). For immature rubber the cost is about US$1.10/kg.

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Table 5.7: Rubber Prices and Price Projections(US Cents/kg)

Actual Proiected Change

1980 1985 1990 1991 1995 2000 2005 %

Current Prices 162 92 103 100 146 176 206 +27Const. 1985 Prices 155 92 70 65 86 86 84 -46

Source: IBRD

5.13 Industry Competitiveness. The future of Malaysia's rubber industrydepends on its international competitiveness and the adjustment actions takento counter the decline in relative prices. Between 1980 and 1990 the movingaverage real price of rubber fell 55%. The short-term reaction of smallholdershas been to keep planted area fairly constant at about 1.8 million ha whiletapping less (Table 5.8). Estates on the other hand have more quicklyreplaced rubber with oil palm. In just ten years, estates' share of outputfell from nearly 40% to 28% because it was more profitable to grow oil palm.This does not, however, mean that Malaysia should not continue to grow rubber,particularly on lands marginal for oil palm because of transport distances,soil conditions and slopes. Using the same protection estimates methodologyas for palm oil (para 5.7) and the pricing structure shown in Annex 6, Table9, both the nominal and effective rates of protection are effectively zero.Small welfare transfers are given to some smallholders but not to the industryas such. The static model two sector DRC analysis estimates that it costsM$0.99 of domestic resources to earn M$1.00 of value-added in rubberproduction, with the analysis being most sensitive to assumptions about theopportunity cost of labor. The economic implication is that growers who canproduce below the average cost should stay in production, as well as thoseable to reach value-added above the average. Long-run adjustment will seecontinued relocation of rubber onto land with lower opportunity cost,increased concentration among smallholders with lower marginal opportunitycost of labor and technology changes to raise the productivity of labor.

5.14 Malaysia generally receives a higher price than the published gradeprices because of consistent quality. Advances in technology allow cleanerlatex of specifications between narrow limits to be supplied. Buyersincreasingly prefer direct purchases tailored to specific requirements and paya premium. While industrialization puts Malaysia at a disadvantage in termsof labor costs, it brings gains in processing and marketing advantages andsuggests that concentration on the high value top end of the market willensure a healthy long-run competitive position.

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Table 5.8 Malaysian Rubber Statistics 1985 - 1992

1987 1988 1989 1990 1991 1992

Prices (H cents/kg) 249 310 262 233 230 235

Planted Area (000 ha) 1,898 1,861 1,848 1,832 1,825 1,819- smallholdings -- -- 1,486 1,480 1,480 1,480- estates -- -- 362 352 345 339

Production (000 tons) 1,581 1,660 1,419 1,291 1,250 1,260- smallholding 1,094 1,186 931 892 890 897

- estate 487 473 488 399 360 363

Yield (kg/ha)- smallholdings 1,113 1,191 988 909 1,000 1,025- estates 1,531 1,495 1,389 1,329 1,400 1,424

Source: Government of Malaysia, Economic Reports

VI. PROJECT BENEFITS AND JUSTIFICATION

6.1 The benefits of the project would be: (a) strengthening of FELCRA'sagricultural performance (paras. 3.6 and 3.10(a)); (b) promoting itsdisengagement from the management of mature schemes (para. 3.13); (c)production of an incremental 105,000 tons of palm oil per year and 34,000 tonsof rubber per year for export to meet firm international demand (paras. 5.1and 5.2); and (d) improvement of the incomes of some 24,000 beneficiaries withannual average incomes for a family of five below M$436/month (US$145), amongthe poorest in the country, expected to benefit (paras. 6.4 and 6.6). The netforeign exchange earnings by full development in 2010 (using projected worldmarket prices and in 1992 constant dollars) would be about US$100 million peryear. The project would be an effective means of implementing theGovernment's rural development strategy of improving smallholder incomes andself-reliance and in promoting human resource development.

Scheme Income Analysis

6.2 Oil Ralm Schemes. The analysis is based on a typical scheme modelof 300 ha of land being developed for oil palm to rehabilitate some 120smallholder properties averaging 2.5 ha each. Development costs over four

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years amount to M$6,058/ha (Table 6.1 and Annex 6, Table 4). The scheme isprovided with buildings, electricity, water supply and other infrastructure,as well as vehicles and equipment. FELCRA provides management servicesduring the development phase. The first crop of about 1.7 tons ffb/ha isharvested three years after planting. Yields rise rapidly to a little over 20tons/ha by year 9 and remain at this level for about 10 years after which theygradually decline (Annex 6, Table 1). The cash flow remains negative untilyear 6 (Annex 6, Table 5). FELCRA's loan to the settlers covers expendituresduring development. Cost recovery is made by deduction from receipts duebeneficiaries for delivery of ffb to FELCRA or other mills. Beneficiaries whochose to work on the scheme typically earn some M$1,875 per year from 250 daysfield maintenance work at M$7.50 per day, the current wage for this work inFELCRA schemes. Harvesting is done by contractors. Beneficiaries alsoreceive dividend payments from scheme net profit after debt service, startingabout five years after planting. By year 9, a beneficiary family working onthe scheme would receive an income of M$3,917 from dividends and M$2,813 fromwages for 1.5 labor units to give a total income of M$6,729 per year (Annex 6,Table 6), about double that of the without project situation. The scheme IRRwith full cost recovery and under the assumptions used, is estimated to be11%.

Table 6.1: Summary Oil Palm Schemes

Scheme Model Scheme 1 Scheme 2 Scheme 3

Devel. cost/ha 6,058 3,846 3,176 4,726Yield tons/ha 22.3 25.3 21.1 21.9Oper. cost/ton 68 57 67 35Price/ton ffb 145 144 139 153Gross margin/ton 77 87 72 118G.M./ha 1,717 2,201 1,519 n/a

Source: Annex 6, Tables 4-6.

6.3 The results of this model were compared with the actual performanceof the three ongoing palm oil schemes given in FELCRA's AgriculturalPerformance Study (1991), as a check on the validity of the assumptions.Based on current contracts, unit development costs of some M$6,106/ha are from60% to 90% higher than for the three schemes developed some 10 years or moreago (Table 6.1). Operating costs for the period 1988-90 averaged betweenM$35/ton and M$67/ton of ffb harvested. The Performance Report states thatthese figures are low because of procurement difficulties with fertilizer andthe model operating cost estimate of M$68/ton ffb seems reasonable as doyields. The ffb prices are those received by the schemes for 1989 and theaverage of M$145/ton ffb at mill gate is used in the summary table. The grossmargin/ton varies between M$72 and M$87/ton with the excessively high figurefor the third scheme being due to inadequate fertilizer application and notsustainable. The gross margin per ha of the model is estimated to peak at

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M$1,717/ha in year 9 lying either side of the actual performances of the twoschemes. The model and its assumptions are considered valid with profitperformance differences between old and new schemes being fully accounted forby changes in cost-price relationships.

6.4 With FELCRA's existing average share size of 2.5 ha and usingcurrent costs, prices and yield profiles, the total maximum annual income fora working beneficiary (about 9 years after planting) is estimated to beN$6,729. While this is above the OPP2 relative poverty estimate of M$5,232for 1990 (M$436/month), the net income falls below this threshold once loanrepayment begins in year 11 and does not fully recover as yields eventuallydecline through the 15 year repayment period. Doubling the share size to 5.0ha raises the average income for a working beneficiary to M$8,707.

Table 6.2: Income Effect of Share Size

2.5 ha 5.0 ha

Gross mergin 4,322 8,644Debt service 1,375 2,750Net income 2,947 5,894Wages from scheme 2,813 2,813

- Total income/year 5,760 8,707

- Relative poverty line 5,232 5,232

6.5 The model is most sensitive to palm oil price assumptions. Schemeand mill records show ffb prices per ton varying from M$224 in 1984 to M$76 in1985 to M$180 in 1988 and down to M$110 in 1990 reflecting movements ininternational prices of the final products (para 5.6). Palm oil prices incurrent dollars have declined from a high of US$729/ton in 1984 to US$342/tonin 1991, CIF Rotterdam. This price nevertheless remains above the cost ofproduction of between US$200-$250/ton (para 5.6). In constant 1985 dollars,to eliminate the effect of inflation, the trend has been generally downwardsfrom US$716/ton in 1970 to a low of US$199/ton in 1990. The long-runprojected price affecting project output most is expected to be US$183/ton inconstant dollars. Without improvements in productivity, the long-run expectedcost is US$156/ton. To offset the effect of falling prices, the project willpromote best agricultural management practices to maximize productivityimprovements. However, this will not exhaust the yield potential of oil palm.It can be expected that over the life of the trees to be planted under theproject, average yields will be higher than those used in the model.

6.6 Rubber Schemes. The analysis is based on a typical 200 ha schemewith 80 beneficiaries. The development approach is the same as for oil palm.

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Development cost over the seven years to tapping emounts to M$7,238 per ha,based on current contracts (Annex 6, Table 7). Yields rise from 520 kg oflatex per ha to a peak of 1,750 kg/ha some 10 years later and slowly decline.The total investment reaches M$1.64 million, about M$20,000 per family.FELCRA's tapping costs are typically about M$1.20/kg for young rubber fallingto about M$0.85/kg for trees at peak production. With less frequent tapping,average tapping cost would fall at least 15% to M$1.02/kg-M$0.68/kg. The cashflow remains negative until year 8 when the first tapping yields 520 kg/ha(Annex 6, Table 8). Under the project, less frequent (third daily) tappingwould reduce the number of tappers required and would increase laborproductivity to give a net 15% savings on unit labor costs. The rate ofreturn on the rubber scheme model with full cost recovery is estimated at 12%.Beneficiaries working on the scheme as tappers, machinery operators or fieldmaintenance laborers would receive a net income of some M$6,000 per family byyear 13 made up of about equal shares of wages and dividends (Annex 6, Table9). The results are marginally better than those for oil palm because rubberyields and real prices do not decline as quickly.

6.7 The model and its assumptions were compared with results ofFELCRA's Agricultural Performance report on ongoing schemes. The developmentcost of M$7,238/ha based on current contracts is consistent with the averagecost of M$6,313/ha for schemes developed during the 1980s, adjusted forinflation. The 7-year period to first tapping used in the model is one yearlonger than the commercial standard but six-months shorter than FELCRA'saverage. Yields are consistent with those being achieved on well managedFELCRA schemes but lower than those on estates. The net income per workingbeneficiary of M$6,000/year at full development is towards the high end of therange reported by the profit and loss analysis of ongoing schemes given in thePerformance study. However, the income estimate is considered conservativeunder good management and using the practices discussed in para. 3.6. Thechief difference between the model and the actual performance of FELCRA'srubber schemes is that model yields do not show the drop after year 12resulting from poor tapping practices (para 2.10).

6.8 The model is most sensitive to assumptions on the price of rubberrelative to tapping labor cost, which accounts for 70% - 80% of the productioncost. In real terms (1985 constant dollars projections, Annex 6, Table 3),rubber prices are expected to rise by 20% over the next decade, an average of2% per year. At current wages, both FELCRA and the estate sectors are losing10% to 15% of rubber production because of tapper unavailability and poorlyskilled tappers are adversely affecting current production and tree life. Amove to third daily tapping will require 30% fewer tappers for a given area,but they will need a higher skill level and adequate incentives. On the49,400 ha to be converted to third daily tapping under the project, the numberof tappers needed would be reduced from 24,000 to 16,000 at full development.Other industry advances in nursery and agronomic practices indicate potentialyield increases in the near future beyond that assumed for the project.

6.9 Scheme Cost Recovery. All land development costs are recoveredexcept management costs, which are about 5% of annual operating costs. Theinterest rate charged on land development loans has generally been positive in

- 46 -

real terms, bat involves a small subsidy element (para. 2.17(b)), which hasbeen justified as an income transfer to a poverty target group. Beneficiariesassume full financial responsibility for these loans and, under the project,will pay full management costs after loan repayment. Loan repayment rates areabout 95% (para. 2.18), as collection is made through deduction from paymentdue to beneficiaries for ffb and rubber marketed by FELCRA.

Project Analysis

6.10 The base case rate of return at economic costs and prices, all interms of constant 1992 dollars, is estimated at 13% (Annex 6, Table 10). TheIRR for rubber is 12% and that for palm oil is 11%. To this is added thetapping cost saving of 15%/kg of rubber from introducing the reduced frequencytapping method to about 50,000 ha phased in over 8 years. Not included in thebenefits are the expected, but unquantifiable, gains from the adoption ofthird daily tapping by producers other than FELCRA schemes and the benefits ofthe access roads external to the schemes. All development and operating costsare included with full costing of access roads. One half of the training costis included, since the other half is apportioned to activities of FELCRA notrelated to the project. The result is insensitive to assumptions on trainingcosts. Similarly, FELCRA head office overheads are included at 15% of thetotal cost, since this represents the project share of FELCRA's overallactivities. This rate of return is considered satisfactory under theassumption of a 10% opportunity cost of capital for Malaysia.

6.11 Economic pricing. Prices of investment items are estimated net oftaxes and duties. Most significant are the excise duties (30%) and sales tax(10%) on vehicles and lower rates on equipment such as weighbridges. The costof current inputs such as fertilizers are also net of taxes. The farm-gateprices of oil palm and rubber in Malaysia reflect their full economic value.The only market intervention program for palm oil is an export duty on crudepalm oil to encourage domestic processing. This is currently about 3% of thefob price but is insignificant since less than 5% of output is exported asCPO. For rubber, the buffer stock operations of INRO have no effect on inter-year prices.

6.12 The oil palm prices used in the analysis are the Rotterdam cifprice projections less freight, insurance, financial charges and deliverylosses adjusted back to the farm gate (Annex 6, Table 2). The New York spotprice of RSS1 rubber (Annex 6, Table 3) is adjusted to RSS3 level to reflectaverage quality of project output and is further derived to the farm gate(Annex 6, Table 9). The impact of project output on world markets is alreadyincluded in the price projections. No adjustment in the price of foreignexchange is needed since the ringgit is freely convertible at the market rate.Similarly, the labor market functions without controls and the analysisassumes that the marginal productivity of labor equals the wage rate.

6.13 Sensitivity Analysis. The rate of return is markedly insensitiveto changes in assumptions (Annex 6, Table 10). A 20% increase in the cost oftapping over and above the general inflation rate reduces the rate of returnon the rubber scheme model by only 1%. A doubling of the cost of tapping only

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reduces the rate of return to 7%. This is because tapping is not asignificant cost until year 10. At the project level, the effect is mixedsince the rise in tapping cost increases the benefits due to tapping costsavings from introduction of the third daily system. Similarly, the return isrelatively insensitive to changes in investment costs. A 10% increase ininvestment costs results in a fall of the rate of return from 13% to 12%.This is because the annual operating costs, particularly for oil palm arehigher than the annual investment costs. Results of sensitivity tests acrossa range of assumptions is given in Annex 6, Table 11.

Proiect Risk

6.14 The only major risk for the project would be a steeperdeterioration in the cost-price relationships for rubber production than couldbe offset by productivity gains, which would leave FELCRA holding significantareas of untapped rubber. The success of the new tapping technology, whichwill be the major sources of productivity gains, depends on the supply,training and supervision of workers. The project training component will needto be matched by a system of incentives adequate to motivate tappers in a fastgrowing economy of rising expectations (para. 3.6). The risk is less in oilpalm because the main labor requirement is largely for unskilled workers andwage rates are competitive with non-agricultural wages. The project is fullysustainable and self-financing after the development investment period. TheGovernment assures the necessary budget funds to complete investment needsafter the project period, and the whole thrust of the project is to encouragesmallholders to take over the full management and associated costs of theirgroup farms.

VII. AGREEMENTS REACHED AND RECOMMENDATION

7.1 During negotiations, agreements were reached on the following:

(a) By December 31, 1992, FELCRA shall establish and thereafter maintaina new Plantation Division headed by a qualified and experiencedofficer (para 3.10(a));

(b) By December 31, 1992, FELCRA shall establish and thereafter maintaina new Finance Division headed by a qualified and experienced officer(para 3.10(b));

(c) FELCRA shall, from time to time, exchange views with the Bank on itsprogram to devolve to private institutions, the management of palmoil processing mills, and agricultural schemes which have repaidtheir land development loans (para. 3.13);

(d) By December 31, 1992, FELCRA will appoint an independent firm ofaccounting consultants to carry out a financial management review ofFELCRA's accounting policies and practices (para. 3.14(a));

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(e) FELCRA shall submit to the Bank within nine months of the end ofeach fiscal year, its audited financial statements including aseparate audit opinion on the use of funds disbursed against SOEs(para 4.7); and

(f) By December 31, 1992, FELCRA shall incorporate into its plantingdirectives and inspectorate check lists, adequate environmentaldirectives and guidelines (para 4.10).

7.2 With the above assurances, the proposed project would be suitablefor a Bank loan of US$94.0 million to Malaysia. The loan would have arepayment period of 17 years, including a grace period of 5 years at theBank's standard variable interest rate.

MALAYSIATHIRD FELCRA LAND DEVELOPNENT PROJECT

AGRICULTURAL DEVELOPMENTDetailed Cost Table

NS

Base Costs Base Costs in USS_UUU3UUUUUSU MnU3_U _ _ _ _ _ _ _ _

Unit 1992 1993 1994 1995 Totol 1992 1993 1994 1995 Total.................................................. ............................................................................................................

1. INVESTMENT COSTS................

A. CROP ESTABLISNIENT/REHABOIL PALM 7500.0 7500.0 7500.0 7500.0 30000.0 27m7.8 27m7.8 27m7.3 2777.8 11111.1RUBBER 6274.5 6274.5 6274.5 6274.5 25098.0 2323.9 2323.9 2323.9 2323.9 9295.6DIVERSIFIED CROPS 1500.0 1500.0 1500.0 1500.0 6000.0 555.6 555.6 555.6 555.6 2222.2

Sub*Total 15274.5 15274.5 15274.5 15274.5 61098.0 5657.2 5657.2 5657.2 5657.2 22628.98. CROP MAINTENANCE

OIL PALM 71869.7 62839.6 51830.3 49356.3 235895.9 26618.4 23273.9 19196.4 18280.1 87368.9RUBBER 18283.0 19683.4 21628.4 24351.4 83946.2 6771.5 7290.1 8010.5 9019.0 31091.2DIVERSIFICATION 2845.1 3834.7 4576.9 5319.1 16575.8 1053.7 1420.3 1695.1 1970.0 6139.2

Sub-Total 92997.8 86357.7 78035.6 79026.8 336417.9 34443.6 31984.3 28902.1 29269.2 124599.2

Total INVESTMENT COSTS 10827.3 101632.2 93310.1 94301.3 397515.9 40100.9 37641.6 34559.3 34926.4 14J228.1*72M ===E s======== ====== g=Z===== ==__====2 zC====== == ====--== = =zZ===

Total 108272.3 101632.2 93310.1 94301.3 397515.9 40100.9 3764;.6 34559.3 34926.4 147228.1 C.

Values scaled by 1000.0 3/3/1992 15:47

ii1

MkLAYSIATHIRD FELCRA LAND DEVELOPMENT PROJECT

SCHENE INFRASTRUCTURE & BUILDINGSDetaited Cost Table

Ns

Base Costs Base Costs in USS

Unit 1992 1993 1994 1995 Total 1992 1993 1994 1995 Total.................................................. ................................................................................ ......................

1. INVESTMENT COSTS................

A. SCHEME INFRASTRUCTUREACCESS ROADS 22040.0 17300.0 9470.0 2790.0 51600.0 8163.0 6407.4 3507.4 1033.3 19111.1WATER SUPPLY 3860.0 5130.0 3840.0 1250.0 14080.0 1429.6 1900.0 1422.2 463.0 5214.8ELECTRICITY 3360.0 1490.0 1800.0 580.0 7230.0 1244.4 551.9 666.7 214.8 2677.8SCHEME OFF.& STAFF HOUSES 5960.0 105F0.0 5340.0 4080.0 25960.0 2207.4 3918.5 1977.8 1511.1 9614.8LOWDING RAMPS 1300.0 1500.0 2300.0 1800.0 6900.0 481.5 555.6 851.9 666.7 2555.6LATEX COLLECTION CENTRES 100.0 140.0 120.0 200.0 560.0 37.0 51.9 44.4 74.1 207.4

Sub-Total 36620.0 36140.0 22870.0 107C0.0 106330.0 13563.0 13385.2 8470.4 3963.0 39381.5B. OTHER CIVIL WORKSSTATE OFFICES 5500.0 0.0 1000.0 1000.0 7500.0 2037.0 0.0 370.4 370.4 2777.8

Total INVESTMENT COSTS 42120.0 36140.0 23870.0 11700.0 113830.0 15600.0 13385.2 8840.7 4333.3 42139.3Total 42120.0 36140.0 23871.0 11700.0 113830.0 15600.0 13385.2 8840.7 4333.3 42159.3Values scaled by 1000.0 3/3/1992 15:48

- 51 - ANNEX 1

Table 2b

MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

Phasing of Buildings in Scheme Infrastructure

(No. of Units)

1992 1993 1994 1995 Total

office 6 31 8 15 60

Store 7 36 11 15 69

Garage 6 31 8 15 60

Staff Houses 121 300 182 127 730

MALAYSIATHIRD FEtCRA LAND DEVELOPENT PROJECT

TRtAININGDetailed Cost Table

NS

Base Costs Base Costs in US#

Unit 1992 1993 1994 1995 Total 1992 1993 1994 1995 Total1. INVESTIENT COSTS

................

A. TRAININGTRAINING MATERIALS 910.0 150.0 100.0 50.0 1210.0 337.0 55.6 37.0 18.5 448.1TRAINING CENTERS 4710.0 250.0 0.0 0.0 4960.0 1744.4 92.6 0.0 0.0 1837.0OVERSEAS CORSES 260.0 370.0 370.0 240.0 1240.0 96.3 137.0 137.0 88.9 459.3LOCAL COURSES 2020.0 3400.0 2540.0 2540.0 10500.0 748.1 1259.3 940.7 940.7 3888.9Si-oal70 . ....... 31...... 23...... 19...... 2...... ...... 1...... ....... ........Sub-Total t 7900.0 4170.0 3010.0 2830.0 17910.0 2925.9 1544.4 1114.8 1048.1 6633.3....... . ........ ........ ....... ........ ....... ....... .......Totat I7STMENT OSTS 7900.0 4170.0 3010.0 2830.0 17910.0 2925.9 1544.4 1114.8 1048.1 6633.3U UUUSUU33US3twflUUU3SS * t t2sS3US- m2U 222 ===5=2= ===ZS== S======2 =======Total 7900.0 4170.0 3010.0 2830.0 17910.0 2925.9 1544.4 1114.8 1048.1 6633.3

- Values scaled by 1000.0 3/3/1992 15:48

vi

NALAYSIATIIRD FELCRA LAND DEVELOPNENT PROJECT

PROJECT STUDIESDetailed Cost Table

ns

Base Costs Base Costs in USS2=3=2=s2332=3=3==3===33=33ss33sr 3=323=:ssa======3.. …==22=2

Unit 1992 1993 1994-95 Total 1992 1993 1994-95 Total,.................................................... ................................

1. INVESTMENT COSTS................

A. STUDIESCORPORATE StUDIES 200.0 150.0 150.0 650.0 74.1 55.6 S5.6 240.7ACCOUNTING SYSTEMS 600.0 1700.0 0.0 2300.0 222.2 629.6 0.0 851.9

....... ....... . . . . . . . ....... ....... ....... ....... .......

Sub-Total 800.0 1850.0 150.0 2950.0 296.3 685.2 55.6 1092.6

Totat INVESTMENT COSTS 800.0 1850.0 150.0 2950 .0 296.3 685.2 55.6 1092.63=3=3 3333332 3=-2==3 -- =-==-2 =32=2= ======= ======= =.=====

Total 800.0 1850.0 150.0 295O.0 296.3 685.2 55.6 1092.6

- Values scaled by 1000.0 3/3/1992 15:48

w

/~~~~~~

MALAYSIATHIRD FELCRA LAND DEVELOPMENT PROJECT

VEHICLES & EQUIPMENTDetailed Cost Table

NS

Base Costs Base Costs in USS

Unit 1992 1993 1994 1995 Total 1992 1993 1994 1995 Total............................................. ................................................................................................

1. INVESTMENT COSTS................

A. VENICLES4 WHEEL DRIVE 4230.0 6030.0 2880.0 2700.0 15840.0 1566.7 2233.3 1066.7 1000.0 5866.7TRACTOR 60HP 920.0 280.0 600.0 2080.0 3880.0 340.7 103.7 222.2 770.4 1437.0TRACTOR 70HP 1080.0 1170.0 3110.0 4010.0 9370.0 400.0 433.3 1151.9 1485.2 3470.4TRAILER 3.5 TON 320.0 40.0 150.0 260.0 770.0 118.5 14.8 55.6 96.3 285.2TRAILER 5 TON 590.0 180.0 480.0 620.0 1870.0 218.5 66.7 177.8 229.6 692.6PASSENGER CAR, TYPE A 140.0 140.0 0.0 0.0 280.0 51.9 51.9 0.0 0.0 103.7PASSENGER CAR, TYPE B 0.0 0.0 110.0 30.0 140.0 0.0 0.0 40.7 11.1 51.9SPEEDBOAT 120.0 40.0 120.0 0.0 280.0 44.4 14.8 44.4 0.0 103.7

Sub-Total 7400.0 7880.0 7450.0 9700.0 32430.0 2740.7 2918.5 2759.3 3592.6 12011.1B. EQUIPMENTWEIGHBRIDGE 540.0 450.0 360.0 450.0 1800.0 200.0 166.7 133.3 166.7 666.7COMPUTERS 4600.0 0.0 0.0 0.0 4600.0 1703.7 0.0 0.0 0.0 1703.7INPLEMENTS 30.0 30.0 30.0 30.0 120.0 11.1 11.1 11.1 11.1 44.4OFFICE EWIPNENT 1100.0 16S.0 1450.0 450.0 4690.0 407.4 625.9 537.0 166.7 1737.0 nFURNITURE 800.0 800.0 800.0 800.0 3200.0 296.3 296.3 296.3 296.3 1185.2

Sub*TotaL 707?.0 2970.0 2640.0 1730.0 14410.0 2618.5 1100.0 977.8 640.7 5337.0Total INVESTMENT COSTS 14470.0 10850.0 10090.0 11430.0 46840.0 5359.3 4018.5 3737.0 4233.3 17348.1===:== u=3=33=== uu u=====3 s=3333 = s 3 = s s==u===== 3=3 …-3Total 14470.0 10850.0 10090.0 11430.0 46840.0 5359.3 4018.5 3737.0 4233.3 1734.1

- Values scaled by 1000.0 3/3/1992 15:48

I-.1

- 55 -

ANNEX 1Table 5b

MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

Phasing of Vehicles and Equipment

(No. of Units)

Unit costincl. tax

1992 1993 1994 1995 Total (M$ '000)

4 Wheel Drive 94 134 64 50 352 45Tractor (60-70 HP type) 23 7 15 52 97 40Tractor (70-80 HP type) 24 26 69 89 208 45Trailer (3-1/2 ton type) 64 7 29 52 152 5Trailer (5 ton type) 84 26 69 89 268 7Passenger Car type A 2 2 - - 4 70Passenger Car type B - - 3 1 4 35Speedboat 3 1 3 0 7 40Weighbridge 6 5 4 5 20 90

MALAYSIATHIRD FELCRA LAND DEVELOPtMET PROJECT

PROJECT MANAGEMENTDetailed Cost Table

Ns

Base Costs Baso Costs in USS

1992 1993 1994 1995 TotaL 1992 1993 1994 1995 Total.................................................. ............................................................................................................

11. RECURRENT COSTS...............

A. PROJECT MANAGEMENTSTAFF SALARIES 46500.0 51402.0 54372.0 57494.0 209768.0 17222.2 1907.8 20137.8 21294.1 77691.9OPERATION & MAINTENANCE 20971.0 25506.0 28268.0 31366.0 106111.0 7767.0 9446.7 10469.6 11617.0 39300.4NISCELLAEOUS 1599.0 2466.0 2590.0 2719.0 9374.0 592.2 913.3 959.3 1007.0 3471.9S...;l60.. .........0 850.0 ......... .032 3.0 258.7. ....... 8 ......... ......... .........SUbRTota 69070.0 79374.0 85230.0 91579.0 325253.0 25581.5 29397.8 31566.7 33918.1 120464.1*3UU=3333.. . ... 3.... 3 3 .. ......... ......... ......... .........33 ......... ......... .........Total RE RENT COS69070.0 79374.0 85230.0 91579.0 325253.0 25581.5 29397.8 31566.7 33918.1 120464.1

Totcl 69070.0 79374.0 85230.0 91579.0 325253.0 25581.5 29397.8 31566.7 33918.1 120464.1_ = _ _ _ _ _ 55585==5=5---=~~~~~~~~~~~--------------g _ - VaLues scaled by 1000.0 3/3/1992 15:49

CU0' I-

MALAYSIATHIRD FELCRA LAND DEVELOPMENT PROJECT

NS

Sumary Accounts by Year

Base Costs Foreign Exchange................................................... ................................................................... .........

1992 1993 1994 1995 Total X AmwotUU=UUUU===33==-==DUSUUUUUZ=32=Z3=3333==-- 33a3.3uzuuu33

1. INVST1IENT COSTS...................

A. AGRICULTURAL DEVELOPNENT1. CROP ESTABLISHMENT 15.3 15.3 15.3 15.3 61.1 40.0 24.42. INITIAL MAINTENANCE 93.0 86.4 78.0 79.0 336.4 40.0 134.6

Sub-total 108.3 101.6 93.3 94.3 397.5 40.0 159.0B. CIVIL WORKS

1. STATE OFFICES 5.5 0.0 1.0 1.0 7.5 35.0 2.62. SCHENE HO COMPLEXES 36.6 36.1 22.9 10.7 106.3 36.0 38.23. TRAINING CENTERS 4.7 0.3 0.0 0.0 5.0 35.0 1.7

Subtotal 46.8 36.4 23.9 11.7 118.8 35.9 42.6C. VEHICLES & EQUIPNENT

1. VEHICLES 7.4 7.9 7.4 9.7 32.4 77.4 25.12. EQUIPNENT 7.1 3.0 2.6 1.7 14.4 94.4 13.6

Su- total 14.5 10.8 10.1 11.4 46.8 82.6 38.7D. TRAINING

1. TRAINING EQIP.& MATERIALS 0.9 0.1 0.1 0.0 1.2 100.0 1.22. OVERSEAS TRAINING 0.3 0.4 0.4 0.2 1.2 100.0 1.23. LOCAL TRAINING 2.0 3.4 2.5 2.5 10.5 25.0 2.6 1

Sub-totaL 3.2 3.9 3.0 2.8 12.9 39.2 5.1E. STUDIES

1. CORPORATE STUDIES 0.2 0.1 0.1 0.1 0.6 100.0 0.62. ACCOUNTING SYSTEMS 0.6 1.7 0.0 0.0 2.3 100.0 2.3

Sub-total 0.8 1.8 0.1 0.1 2.9 100.0 2.9.............................................. ............................................................ ..................

Total INVSTNENT COSTS 173.6 154.6 130.4 120.4 579.0 42.9 248.3

II. RECURRENT COSTS...................

F. STAFF SALARIES 46.5 51.4 54.4 57.5 209.8 0.0 0.0G. OPERATION & NAINTENANCE 21.0 25.5 28.3 31.4 106.1 0.0 0.0H. NISCELLANEOUS 1.6 2.5 2.6 2.7 9.4 0.0 0.0

Total RECURRENT COSTS 69.1 79.4 85.2 91.6 325.3 0.0 0.0

Total BASELINE COSTS 242.6 234.0 215.7 212.0 904.3 27.5 248.3Physical Contingencies 0.0 0.0 0.0 0.0 0.0 0.0 0.0Price Contingencies 4.8 14.1 22.1 31.0 72.1 25.7 18.5

Total PROJECT COSTS 247.4 248.1 237.8 243.0 976.4 27.3 266.8 0 :3=33==== e~ = 3 3 3 Z U 3 3= =S33==========3==...====.

Taxes 1.9 2.7 1.4 1.3 7.2 0.0 0.0Foreign Exchange 76.3 68.9 61.2 60.4 266.8 100.0 266.8 .X

........................................................................................................ -- values Scaled by 1000000.0 3/3/1992 15:49

MALAYSIATHIRD FELCRA LAND DEVELOPMENT PROJECTSumrmry Account by Project Component

Ns

Physical PriceVEHICLES Contir6encies Contingencies

AGRIC. INFRASTR & PROJECT ...........--................DEVELPT UCTURE EOUIPNNT STUDIES TRAINING NANAGNUT Total X Amount X Amount

I. INVESTMENT COSTS....................

A. AGRICULTURAL DEVELOPMENT1. CROP ESTABLISHMENT 61.1 0.0 0.0 0.0 0.0 0.0 61.1 0.0 0.0 8.2 5.02. INITIAL MAINTENANCE 336.4 0.0 0.0 0.0 0.0 0.0 336.4 0.0 0.0 7.9 26.5

......................................................................... ........................... ...........Sub-total 397.5 0.0 0.0 0.0 0.0 0.0 397.5 0.0 0.0 7.9 31.5B. CIVIL WORKS1. STATE OFFICES 0.0 7.5 0.0 0.0 0.0 0.0 7.5 0.0 0.0 4.8 0.42. SCHEME HO COGPLEXES 0.0 106.3 0.0 0.0 0.0 0.0 106.3 0.0 0.0 6.4 6.83. TRAINING CENTERS 0.0 0.0 0.0 0.0 5.0 0.0 5.0 0.0 0.0 2.2 0.1

Sub-total 0.0 113.8 0.0 0.0 5.0 0.0 118.8 0.0 0.0 6.1 7.3C. VEHICLES & EOJIPMENT1. VEHICLES 0.0 0.0 32.4 0.0 0.0 0.0 32.4 0.0 0.0 8.5 2.82. EWIPUENT 0.0 0.0 14.4 0.0 0.0 0.0 14.4 0.0 0.0 5.7 0.8

Sub-total 0.0 0.0 46.8 0.0 0.0 0.0 46.8 0.0 0.0 7.6 3.6 ODD. TRAINING1, TRAINING EOIP.& NATERIALS 0.0 0.0 0.0 0.0 1.2 0.0 1.2 0.0 0.0 3.6 0.02. OVERSEAS TRAINING 0.0 0.0 0.0 0.0 1.2 0.0 1.2 0.0 0.0 8.0 0.13. LOCAL TRAINING 0.0 0.0 0.0 0.0 10.5 0.0 10.5 0.0 0.0 8.4 0.9

...................... ................................................. ........................... ....... ...Sub-total 0.0 0.0 0.0 0.0 12.9 0.0 12.9 0.0 0.0 7.9 1.0E. STUDIES1. CORPORATE STUDIES 0.0 0.0 0.0 0.6 0.0 0.0 0.6 0.0 0.0 7.6 0.02. ACCOUNTING SYSTEBS 0.0 0.0 0.0 2.3 0.0 0.0 2.3 0.0 0.0 4.9 0.1........................................................................................................

.......Sub-totat 0.0 0.0 0.0 2.9 0.0 0.0 2.9 0.0 0.0 5.5 0.2Total INVESTMENT COSTS 397.5 113.8 46.8 2.9 17.9 0.0 579.0 0.0 0.0 7.5 43.611. RECURRENT COSTS..............

A. STAFF SALARIES 0.0 0.0 0.0 0.0 0.0 209.8 209.8 0.0 0.0 8.6 18.1B. OPERATION & MAINTENANCE 0.0 0.0 0.0 0.0 0.0 106.1 106.1 0.0 0.0 9.0 9.5C. NISCELLANEOUS 0.0 0.0 0.0 0.0 0.0 9.4 9.4 0.0 0.0 9.1 0.8................................................................................................................

Total RECURRENT COSTS 0.0 0.0 0.0 0.0 0.0 325.3 325.3 0.0 0.0 8.8 28.5 1 |

Total BASELINE COSTS 397.5 113.8 46.8 2.9 17.9 325.3 904.3 0.0 0.0 8.0 72.1Physical Contingencies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Price Contingencies 31.5 7.2 3.6 0.2 1.1 28.5 72.1 0.0 0.0 OD F-................................................................................................................

Total PROJECT COSTS 429.1 121.0 50.4 3.1 19.0 353.8 976.4 0.0 0.0 7.4 72.1=== ~3 ===== = =================_=======================_== - …-== Taxes 0.0 0.0 7.2 0.0 0.0 0.0 7.2 0.0 0.0Foreign Exchange 171.4 43.4 41.7 3.1 7.2 0.0 266.8 0.0 0.0

MALAYSIATHIRD FELCRA LAND DEVELOPNENT PROJECT

Suary Accounts by Year

Totals Includirg Contifgencg es Totals Including ContingenciesNs US$

.................................... .......................................................... ..................1992 1993 1994 1995 TotaL 1992 1993 1994 1995 Total

1. INVESTMENT COSTS....................

A. AGRICULTURAL DEVELOPMENT1. CROP ESTABLISHMENT 15.6 16.2 16.8 17.5 66.1 5.8 6.0 6.2 6.5 24.52. INITIAL MAINTENANCE 94.8 91.6 86.0 90.6 363.0 35.1 33.9 31.9 33.5 134.4............ ..................... . ............................................................ .................Sub-Total 110.4 107.7 102.8 108.1 429.1 40.9 39.9 38.1 40.0 158.9

B. CIVIL WORKS1. STATE OFFICES 5.6 0.0 1.1 1.1 7.9 2.1 0.0 0.4 0.4 2.92. SCHEME HQ COMPLEXES 37.3 38.3 25.2 12.3 113.1 13.8 14.2 9.3 4.5 41.93. TRAINING CENTERS 4.8 0.3 0.0 0.0 5.1 1.8 0.1 0.0 0.0 1.9

Sub-Total 47.8 38.6 26.3 13.4 126.1 17.7 14.3 9.7 5.0 46.7C. VEHICLES & EQUIPMENT

1. VEHICLES 7.5 8.3 8.2 11.1 35.2 2.8 3.1 3.0 4.1 13.0 Ln2. EQUIPMENT 7.2 3.1 2.9 2.0 15.2 2.7 1.2 1.1 0.7 5.6.................................... .......................................................... .................. Sub-Total 14.8 11.5 11.1 13.1 50.4 5.5 4.3 4.1 4.8 18.70. TRAINING

1. TRAINING EQIP.& NATERIALS 0.9 0.2 0.1 0.1 1.3 0.3 0.1 0.0 0.0 0.52. OVERSEAS TRAINING 0.3 0.4 0.4 0.3 1.3 0.1 0.1 0.2 0.1 0.53. LOCAL TRAINING 2.1 3.6 2.8 2.9 11.4 0.8 1.3 1.0 1.1 4.2..... ........ ................................................ ............. .....................................Sub-Total 3.3 4.2 3.3 3.2 14.0 1.2 1.5 1.2 1.2 5.2E. STUDIES

1. CORPORATE STUDIES 0.2 0.2 0.2 0.2 0.7 0.1 0.1 0.1 0.1 0.32. ACCOUNTING SYSTEMS 0.6 1.8 0.0 0.0 2.4 0.2 0.7 0.0 0.0 0.9.................................... .......................................................... ..................Sub-Total 0.8 2.0 0.2 0.2 3.1 0.3 0.7 0.1 0.1 1.2.................................... .......................................................... ..................Total INVESTNENT COSTS 177.0 163.9 143.7 137.9 622.6 65.6 60.7 53.2 51.1 230.6== _ _==3=3=== ==w== = =====~=====s _=e==

It. RECURRENT COSTS...................

7A. STAFF SALARIES 47.4 54.5 60.0 66.0 227.9 17.6 20.2 22.2 24.4 84.4 I-aS. OPERATION & MAINTENANCE 21.4 27.1 31.2 36.0 115.6 7.9 10.0 11.6 13.3 42.8C. MISCELLANEOUS 1.6 2.6 2.9 3.1 10.2 0.6 1.0 1.1 1.2 3.8.................................... .......................................................... ..................Total RECURRENT COSTS 70.5 84.2 94.0 105.1 353.8 26.1 31.2 34.8 38.9 131.05=_===S=====Q=e=L:==- ==== w=5=Q====== ==--=

Total PROJECT COSTS 247.4 248.1 237.8 243.0 976.4 91.6 91.9 8.1 90.0 361.6............................................................................................................

- 60 -ANNEX

NALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

A. DISBURSEMENT CATEGORIES AND AMOUTS

DisbursementCategory Amount (USS millIon) Dfsbursement

Percentage

1. Agricultural Development 58.3 37%2. Cfvil Works 17.3 37%3. VehIcles, tractors, 15.4 (i) 100% of forefgn

trailers, speedboats, exchange cost ofequipment and furniture directly fmported

ftems;(Cf) 100% of ex-factory

cost of locallymanufactured Items netof taxes; and

(Mli) 75% of cost Locattyprocured Items.

4. Training, including 1.9 100% of costs of overseasoverseas training, training, course and lecturelecture fees for local fees for local training andtraining and training training materiaLs.materIals

5. StudIes 1 1 100% of cost of consultants.Totat 94.0

B. DISBURSEMENT DETAILS

IBRD Semester Disbursement (USS milion) ProfileFiscal Year Ending Semester cViulative Cumulative X Cumulative X

199 June 30 1992 0 0 0 0

1993 Dec. 31, 1992 18.1 18.1 19 2June 30, 1993 12.1 30.2 32 4

1994 Dec. 31, 1993 12.1 42.3 45 10June 30, 1994 10.7 53.0 56 18

1995 Dec. 31, 1994 10.7 63.7 68 24June 30, 1995 10.6 74.3 79 30

1996 Dec. 31, 1995 10.6 84.9 90 40June 30, 196 9.1 94.0 100 50

Loan ClosIng Date June 30, 1996

g MaLaysian AgricuLturaL Projects (05/17/91).

-61-Table 1

MAIAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

KPFB HOLDINGS SDN. BHD.

Forecast Consolidated Profit and Loss Account(M$ million)

1992 1993 1994 1995

Turnover 3.284 4.795 6.581 7.836

BRenditure

Rental 0.144 0.144 0.144 0.144Salaries/Allowance 1.172 1.420 1.653 1.940Office Expenses 0.180 0.±90 0.200 0.200Travelling 0.217 0.285 0.343 0.375Medical 0.047 0.066 0.083 0.092Provident Fund (EPF) 0.157 0.192 0.234 0.263Staff Insurance 0.040 0.056 0.070 0.079Repairs and Maintenance 0.063 0.063 0.063 0.063Depreciation 0.101 0.101 0.101 0.101Laboratory 0.065 0.050 0.060 0.060Directors' Fee 0.004 0.005 0.005 0.005Hire Purchase 0.185 0.090 0.090 0.090Miscellaneous 0.060 0.060 0.075 0.075Audit Fees 0.005 0.010 0.010 0.010Interest on Loan 0.330 0.330 0.330 0.330

2.770 3.062 3.461 3.827

Profit/(Loss) Before Tax 0.515 1.733 3.119 4.009

-. 62 - ANNEX

Table 2

THIRD FELCRA LAND DEVELOPMENT PROJECT

KPFB HOLDINGS SDN. BHD.

Forecast Consolidated Balance Sheet 1992-95(M$ million)

1992 1993 1994 1995

FIXED ASSETS 0.487 0.388 21.633 40.225

CURRENT ASSETS:

Work in Progress 6.480 27.840 27.840 27.840Cash in Hand/Bank 0.291 0.662 0.431 1.328Investment 2.000 3.000 7.000 11.000Fixed Deposit 0.220 0.500 2.000 2.000Debtor 3.003 3.003 3.003 3.003

12.481 35.394 61.907 85.396

Financed by:

Share Capital 2.452 2.452 2.452 2.452Retaiuied Profit 0.334 1.126 2.028 2.606Reserves 0.034 0.369 1.495 3.522Short Term Overdraft 0.500 0 0 0Long Term Loan - Division 2.500 3.000 3.000 3.000

- Mills 6.480 27.840 51.840 72.412

CURRENT LIABILITIES:

Provision for Tax 0.181 0.607 1.092 1.404

12.481 35.394 61.907 85.396

63 Annex 4

Table 1

MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

FELCRA's Sources of Funds. 1988-90(M$ million)

1988 1989 1990 1988-90

Government Grants

Admninistration 48.5 44.8 53.2 146.5

Development 33.0 72 86.2 191.5

81.5 117.1 139.4 33.

Govemment Loans 104.4 67.4 67.0 238.8

Obherlncome

Interest 1.2 3.6 4.2 9.0

Dividend 3.5 2.7 3.1 9.3

Miscellaneous 1 5 L1 12 37

fi.2 10.0 L. 272

Total Funding 1922l 194.5 217.4

- 64 -

Annex 4Table 2

MALAYSIA

TID FELCRA LAMN DEVELOPMENT PROIE5

Terms and Conditions of Govemment Loans to Felcra

Grace GraceFree period on period on

Interest Total interest interest pnncipalPeriod of rate terms period payment repaymentLon v al (% p.a.) {years) Lvear) (year) (years

loans for Land

1967-76 6.5 15 5 6/a 6aA1977-80 6.5 20 5 10l 1Oj1981-83 0.0 25 25 n/a 10&1984 3.75* 25 10 10/4 10to41985 4.0 25 10 10/4 10/.41986 4.0 25 10 10/.4 101.41987 4.0 25 10 104 10 Ld1988 4.0 25 10 1014 10/.41990 4.0 25 10 10/4 10/4

Loan for

1984 7.5 15 0 3 & 3

* Some agreements are interest free.

h Interest is capitalized for one year befor repayment begins in year seven.

/k Interest is capitalized for five years before repayment beings in year eleven.

k Interest-free loans.

14 No interest capitalization, as the loan is interest-firee until repayment begins in year eleven.

& Interest is capitalized for three years.

- 65 -

Annex 4Table 3a

FEDERAL LAND CONSOLIDATION AND REHABIUTATION AUTHORITY(incorporated In Malaysia Under Act 22 Year 1966)

CONSOLIDATED BALANCE SHEET (US$)As at December 31, 1990

M$ Million

FIJNDS PROunDFD FROM:Loans from Government 703.2 636.2Grants from Government 245.8 185.0

Bank Loan 0.1 0.1

Dividends Payable to Beneficiaries 28.7 25.6Revolving Funds 44.1 36.8

Felcra Accumulated MisceliRneous Income 42.2 36.1Deferred Interest Receivable 35.8 32.3Palm Oil Mill Accum. Retained Eamings 9.1 5.3

TOTAL 1 109.0 97

Cash at Bank 142.2 122.4Other Current Assets 5.9 44A

202.1 166.7Deduct: Accounts Payable Z7 05

Subtotal 125.1 102.2

Investment 0.9 0.9

Fixed Assets (Net) 151.3 117.9

Long Term Accounts Receivable: (Net)Settlers Land Development Schemes 786.4 694.5Setters Housing 24.7 21.6Advances to Loss Makkiig Schemes 20.6 20.3

Subtotl 8 7364

TOTAL 1,09 0 957.4

- 66 -Annax 4Table 3b

FEDERAL LAND CONSOLIDATION AND REHABIUTATION AUTHORITY(Incorporated in Malaysia Under Act 22 Year 1966)

LOAN ACCOUNT BALANCE SHEET (US$ MILLION)As at December 31, 1990

M$ Million

1ai 990 98

FtUND:; PROVIDED FROM:Government Loan for:

Settlers Land Development 658.3 588.2Settlers Housing 17.1 17.5Investment La t2

Subtotal 676.7 60fi 9

Bank Loan 0.1 0.1

Advances from (or to) other Felcra A/csAdministration Accounts 42.8 36.9

Trustee Account 62.9 43.8Paim Oil Mill Account --A&

105.2 77.5

Deferred Interest Income 35 TOTAL 817. 71L,

Current Assets 43.9 34.1Deduct Current Liabilities 58Z 54 6Net Current Liabilities -14.8 -20.5

InvestmentPanji Alam Co. Ltd. 0.9 0.9

Long Term Accounts Receivable: (Net)Setters Land Development Schemes 786.4 694.5Settlers Housing 24.7 21.6Advances to Loss Making Schemes au zBZ

Subtotal 731f 736.4

TOTAL .8 716.8

- 67 -Annex 4Table 3c

FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY(Incorporated In Malaysia Under Act 22 Year 1966)

TRUST ACCOUNT BALANCE SHEETAs at December 31, 1990

M$ Million

iaa

Revolving FundsEconomic Project 0.9 0.9Land Consolidation 0.5 0.5Project Investment 2.3 1.2Marketing Services 3.2 2.8Estate Insurance 6.6 5.1Replants of Palm Oil 9.5 8.1FELCRA Dividend 1l8

41.8 34.4Dividends Payable to Settlers 287 25 6

DTOAL 70.5 au

REPRiESENIED RYCash 11.3 19.4Accounts Receivable L2 12

12.5 20.6Deduct: Accounts Payable 4. 4A

Net Current Assets 7.6 16.2

Advance to Felcra Loan Account 62 AM

IOTAL Z7 au

- 68 - Annex 4Table 3d

FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITY(Incorporated In Malaysia Under Act 22 Year 1966)

ADMINISTRATIVE ACCOUNT BALANCE SHEET (US$)As at December 31, 1990

M$ Million

RINDS PRO\/DED FROMGovernment:

Grant for DevelopmentHeld in Cash 105.9 74.0Spent on Fixed Assets 139i. 245.0 103 8 177.8

Grant for Administration - Held in Cash 0.8 7.2

Revolving Fund for Staff 2 2A

TOTAL 248.1 187.4

Accumulated Miscellaneous Income 4.22 3A

TOTAL 290.3 223.5

REPRENT Y-Cash 107.4 82.5Accounts Receivable & Deposit 5.9 3.0Advances and Loan to Staff L L

115.3 87.3Deduct: Accounts Payable 6 9

Net Current Assets 108.4 82.8

Fixed Assets (Net) 139.1 103.8

Advance to Felc.a Loan Account 4.2 8L9

ITOAL 2DJ= 223

- 69 -Annex 4Table 3e

FEDERAL LAND CONSOLIDATION AND REHABIUTATION AUTHORITY(Incorporated in Malaysia Under Act 22 Year 1966)

PALM OIL MILL BALANCE SHEETAs at December 31, 1990

M$ Million

FUNDS PROVIDED FROM:Loan from Government 26.5 2!1.3Advance from Felcra Loan A/C 0.5 3.2Accum. Retained Earning from Mill Operations L53

TOTAL

REPRESENTED BY:Cash and Bank Balances 23.5 20.5Accounts Receivable 6.4 3.7Inventory Q M

30.4 24.7Deduct Accounts Payable L 5LNet Current Assets 23.9 23.7Fixed Assets (Net) 12A2 4.1

TOTAL

FEDERAL LAND CONSOUDATION AND REHABIUTATION AUTHORITYSOURCES AND APPUCATIONS FOR FUNDS

FOR THE YEAR ENDED DECEMBER 31,1990M$ Millions

PALM OILSOURCESOFFUNDSFROMGOVPRNMENT LOLANIAC ADMIN A/C TBUSE MILL A/C TOTAL

New Loans (Repayments) 69.8 - . -2.8 67.0Grants - 60.7 - 60.7From Felcra (Intemal Accounts) 27.7 - - - 27.7Increase In Oil Palm Mills Earnings - - 3.8 3.8Increase in Divided to Settlers Schemes 3.1 - 3.1Other Income/income Receivable a.D ZA t 17

TOTAL SOURCES OF FUNDS DURING1990 I 10 17 3ZL

APPUCATIONS QF EUNDSLOANS TO SETTLERS NE OF REPAYMENT 95.3 - - - 95.3

ADDITIONS DELIFONS TO F-(ED ASSETS 35.3 * -1.9 33.4

ADDITIONSI/DEt-TIoNs TO WORKING CAPITALCash and Equivalents - 24.9 -8.1 3.0 19.8Other Working Capital Terms 5.7 0.7 -0.5 -2.8 3.1

ADVANCES TO FELCRA (LOAN AC) (NOTE 1) _ - 5.Z 22LZ

NET APPLICATIONS OF FUNDS DURING 1990 U 1. 1.01. , xX h

FEDERAL LAND CONSOUDATION AND REHABIUTATION AUTHORITYFORECAST BALANCE SHEET

MS MOionFELCRA DEVELOPMENT ACTIVITIES

ASSETS ArL Act/Est- Eilaa EPll aNFixed Assets (net) 139.1 229.8 303.6 336.0 365.8 393Settlers Housing 24.7 29.1 37 46.5 55.7 66.6Long Turm Receivables 786.4 883.1 986.3 1079.3 1161.3 1249.4Advanoes to Loss Making Schemes 20.6 20.6 20.6 20.6 20.6 20.6Investment 0.9 0.9 0.9 0.9 0.9 0.9

TOTAL FIX ASSETS 7U.1 11635 134824 14833 160423 1730.5

Cash 118.7 87.6 103.0 130.3 153.6 174.1Other 53.0 67.0 Z.Q 92.0 144.0

DEDUCT CUaBR UAML SDiv. Due to Participants 28.7 30.1 31.6 33.2 34.9 36.6Other 70.0 63.0 75.0 87.0 99.0 151.0

NETCtURRENTASSETS 73 am 1 t1.7 LI

1TTLNEIT A0 08 17t611 1572A 17l0 laal

FNANCEDBY:1_1 658.3 764.5 878.7 984.2 1080.2 1183.8

LONG7IWBGOVERNE ANSrIOiJS?J) 17.1 21.5 29.4 38.9 46.1 59.1LONWTERMGOVERNMENTLOANSIWNESTMEN 1.3 1.3 1.3 1.3 1.3 1.3

GVERNMENTGRANI'SEVELOFMBET 245.8 291.0 356.2 391.3 419.7 440.1RETA NDHOOME 42.2 51.2 59.2 66.2 72.7 79.2DEFERRED MBINT P=ME 35.8 39.3 42.8 Au 49.8 53.307HER RI"2B 442 #442 #442 44.2 44.2 A4L2

0TOAL 1044.7 1411.8 1572& 1ZILf0 JAT

Current Ratio 1.7 1.5 1.6 1.7 1.8 1.7Ouick Asets Ratio 1.2 0.9 1.1 1.1 1.1 0.9

FEDERAL LAND CONSOLIDATION AND REHABILITATION AUTHORITYFORECAST BALANCE SHEET

M$ Million

OIL PALM MILLS

AQL Act./Est. Elan PlanFIXED ASSETS (NET)

Present 12.2 10.2 8.2 6.2 4.2 2.2Future _- 21 23 2Z5 SUliBTOTL 12.2 10.2 39.5 35.5 31.5 27.5

CIIRRENT ASSETSCash 23.5 25.3 25.6 32.3 42.8 55.7Other 7.0 7.5 8.0 10.5 12.5 16.0Deduct Current Liabilities J7.1 -. 6. .LJ. .1Lf 6 .16 .SUQI& 2nA 2L2 42 5.

42-Z~~~~~~~~~~-

TOTAL NET ASSET L2 83.1

FINANCED BY:GOVEMEWLNS

Actual 26.5 22.7 19.5 16.2 12.5 8.7Future 31.3 33.5 35.8 38.3

RETAIWD EARNINGSPresent Oil MIll 9.1 12.7 15.2 1 9.0 24.4 31.1Future Oil Palm Mills - . -1. - ll

1 z121 14A2 iL. 2L

Current Ratio 4.3 4.4 4.2 4.1 4.4 4.5OuIck Assets Ratio 3.3 3.4 3.2 3.1 3.4 3.5

-73 ANNEX 5.1Page 1 of 16

!CR VID SU" M -

1. = U

1.1 The objective of the paper is to offer proposals onaction plans an tapping expertie/skills trainingprograms for Felcra staff and its tape- force.

2.

2.1. The extnsive or uncnmtrolled use of rubber barks intapping activities will hinder regrowths or recoveringof tree bark. The investigations and test carried outat Felcra projects show that almost all of the treebarks are uilised durg a period of only 7 to 8 yearscmu,ared to its overall plant exploitation period of 12years i.e. under the controlled tapping frequencysyStm 52 d 2 .

2.2. This uncontrlled tapping system which reduces planteXploitation period affects project output, settlerslong-term incoma and repayment prograrm on developmentcost.

.

2.3. The unhealthy conditions above are influenced byseveral factors i.e. poor supervision and mnitoring oftapping activities and quality of tappers. This is dueto the ladk of tapping knowledge and expertise inoutput exploitation aspects among Felcra staff/itstaoppr force.

-74 ANNEX 5.1Page 2 of 16

3. TRINWI IS O1 TPPING

3.1. Uhtil July 1991, 134 rubber pojects totalling 35,000hectares wre in puction and would continue toincrease in the future. This show that there will bean inease in the mber of field staff to be trainedfor tapping. Based on the number of rubber projects,320 field staff (inclusive of 20 personel required in1992) will thus have to be given taping exposure and

kills.

3.2. 7Lbe field staff above make up of Technical AgriculturalOfficers, State Agricultural Officers, ProjectMaagegrs, Field Supervisors and Senior FieldSupervisors. The criteria for selecting the candidatesis based on the following:-

3.2.1. The technical Agricultural Officer at FelcraAdministrative Level is directly responsiblefor inpleffnting and monitoring as well asevaluating a controlled tapping systnm at therubber projects and especially evaluating thefeedback of the training program.

3.2.2. State Agricultural Officer at stateAdmnistrative Level is responsible for fieldmanagement, planning and nonitoring acontrolled tapping system at the rubberprojects and also in evaluating the feedback ofthe training program.

3.2.3. The Project Manager who is responsible for theoverall field manageuffnt activities and projectadSinistration should equip himself with theknowledge and eperUtise in tapping activitiesso as to enable him to co-ordinate and mmnitoreffectively the staff and his tapper force.

3.2.4. Field Suparvisors are directly responsible formn¶itoring and offering guidance on efficientmethods of controlled tapping to his tapperforce.

- 75 ANNEX 5.1

Page 3 of 16

3.3. The training program is a refresher course forcandidates of para 3.2. above and the objective of the

training program is as follows:-

3.3.1. Offer the candidates further/new knowledge onrubber output exploitation aspects, tappingtechniques using the reccmmended controlledsystem.

3.3.2. To self experience and to increase and improvetheir tapping skills and expertise among courseparticipants using the learned techniques.

3.3.3. The course participants thus will be able to

manage, supervise and offer proper guidance toits field staff and present tapper force aswell as to those who will be recruited at theprojects in order that tapping techniques will

follow the controlled system.

4. NER4BE OF PARTICIPANTS, TRAINEESA TRAING PROM SCDULE

4.1. Nurber Of Partiiants

4.1.1. As mentioned in para 3.1., 320 courseparticipants camprising of agriculturalofficers, project managers, field supervisorswill undergo. training according to thefollowing breakdown:-

i. Agricultural Officer : 9ii. Project Manager : 43iii. Field Supervisor : 268

Total 320

- 76 -ANNEX 5.1Page 4 of 16

4.1.2. Out of the 320 staff above, 36 fieldsupervisors have undergone a 6 day trainingprogram with the cooperation of RRIM officerfrom 5 until 10 August 1991 and from 9 until 14Septeuber 1991 at Felcra Bukit Pedoman, Johorand at Felcra Langkawi, Kedah.

4.2. =Ai

4.2.1. In order to carry out this training program, itis proposed that part of the course sessionsi.e. 4 sessions cowprising of 80 personnel beconducted by RRIM trainers at the RRIM TrainingCentre, Sungai Euloh, Selangor.

4.2.2. The remainder of 204 is proposed to be trainedby Felcra officers themselves who had undergonebasic training and a training course in the1st, 2nd, 3rd and 4th sessions as in para4.2.1. above. The program for the training oftrainers is as follows:-

i. 9 experienced Felcra officers comprisingof agricultural o, icers and projectmanagers will be selected to undergo anintensive course in Sessions 1 at theRRIM Training Centre at Sungai Bulohtogether with 11 other participants.

ii. The samg 9 trainees will be required toundergo session 2 at the same venue alongwith 20 other field staff. During thissession, they will take over 25% oftheory and 25% practical modules astrainer. They will be guided andmnmitored by eerienced RRIM instructors.

iiI. At the third session, the same futuretrainers will be required to conduct 50%of theory and 25% of practical nodulesalso guided by a RRIM instructor.

- 7 7-~ AkTNEX 5. 1

Page 5 of 16

iv. The final stage of instructors coursei.e. in session 4, they are required toconduct a camplete theory and practicalmodule. They will be assessed andevaluated by the RRIM instructor toensure that they are qualified andcapable to conduct courses. for fieldstaff and Felcra tapper force.

4.2.3. This training program is a continuing processto train new recruits enployed at Feclraprojects in order to obtain maxi=m productionfram the increasing projects. As such thelong-term objective of the instructors amongFelcra officers is to improve their knowledgeand expertise in this field through thecontinued training program. These officerswill be the main source in the Felcraadministration who will assist and ensuremaximun rubber production and its quality.

4.3. Program Sche

4.3.1. As mentioned above, 2 training sessions havebeen conducted with RRIM involving 36 fieldsupervisors. For 'the other training programsin 1992, involving 284 personnel, Felcra'sadministration has requested the cooperation ofRRPtM to conduct 4 more sessions which willinvolve 80 officers and staff i.e. 20 personnelfor each session. The venue is proposed to beat the ERIM Training Centre, Sungai Buloh,where sufficient facilities are available.

4.3.2. Should the allocation for this training programbe sufficient, it is proposed that 14 coursesessions be carried out in 1992. Four (4) ofthe above 14 sessions will be carried out withthe assistance of RRIM expertise.

- 78 -ANNEX 5.1

Page 6 of 16

The scheduled program are as follows:-

Course CourseSession Period Venue Participants

1 Weeki 1 RRIM Sg. Buloh 20January 92

2 Week 3 RRIM Sg. Buloh 20January 92

3 Week 2 ERIM Sg. Buloh 20February 92

4 Week 4 RRIM Sg. Buloh 20February 92

5 - 14 Mac 92 - Felcra projects 204June 92 -----

Total 284

4.3.3. The training program for the fifth (5) sessionuntil the 14th will be carried out by Felcraofficers at Felcra projects. This action ismore cost effective and will expedite theprocess of transferring technology to otherfield staff.

5. a CONTS

5.1. It is proposed that this tapping expertise trainingprogram be carried out for 6 days comprising of theoryand practical modules. It mainly stresses on goodtapping techniqye using the present tapping system.

5.2. In detail the contents of the training progrini forFelcra officers and staff is as in AiPEMIX

- 79 ANNEX 5.1

Page 7 of 16

5.3. The 6 day training program will consume 46 hours as inthe following breakdown: -

i. Theory/Lecture : 7 hours (15%)ii. Practical Training : 26 hours (57%)iii. Discussion : 13 hours (28%)

6. ESTIMED EXPENDITURE FOR STAFFTFAINIG CON GOOD TAPPING TECHNTOUE

6.1. It is estimated that the total cost of expenditure tocarry out the tapping expertise training program for284 personnel in the above 14 course series isM$99,880.00. The cost breakdown is as follows:-

6.1.1. Trainirg Program At TheRRIMM rainin, Centre, Suncai Euloh

i. Fee $300.00/per person : $24,000.009 80 persons

ii. Transport $200.00 per person : $16,000.00e 80 persons

Tbtal $40,000.00

6.1.2. Training Program UndertakenBy Felcra Officers

i. Full Board $15.00 per person : $18,360.00@ 204 persons @ 6 days

ii. Accomodation $40-00 per roms : $16,320.00@ 68 rooms e 6 days

iii. Transport $50.00 per person : $10,200.00Q 204 persons

ANNEX 5.1

Page 8 of 16

iv. Hall And Facilities $500/ : $ 5,000.00per session @ 10 sessions

v. Contigency $1,00/per session : $10,000.00@ 10 session

Total $59,880.00

6.2. It is believed that major costs could be furtherreduced and that a smooth and efficient trainingprogram be undertaken on the whole if the 10 trainingprogram be carried out by Felcra officers at Felcraprojects compared to if all the training programs wereto bo carried out at the RRIM Training Centre SungaiBuloh. As in comparison, the overall cost expenditureof each personnel if carried out at the RRIM TrainigCentre Sungai Buloh is about $500.00 compared to$293.00 if it is carried out wholly by Felcra'sadministration at the projects.

7. PROPOSED TRAINING PROGRAM EFRREDCED FRUENCY TAPPING SYTE3M .

7.1. Based on proposed hectarage of 11,725 hectares (1992 -1995) for adoption of reduced frequency tapping, atotal number of 61 staff who will be supervising theareas proposed for the reduced frequency tapping systemwill undergo a special one day training program on d3tapping system. Details on reduced frequency tappingare as in APPEMIX II.

7.2. The number -f norsonel to be trained per year from1992 - 1995 is as follows:-

1992 - 9 personnel1993 - 10 personnel1994 - 16 personnel1995 - 26 personnel

- 81 -.

ANNEX 5.1

Page 9 of 16

7.3. The estirwated cost for the above special trainingprograms to be executed in 5 sessions is M$9,150.00.The breakdown is as follows: -

1992 - 9 personnel @ $150.00 = $ 1,350.001993 - 10 personnel @ $150.00 = $ 1,500.001994 - 16 personnel @ $150.00 = $ 2,400.001995 - 26 personnel @ $150.00 = $ 3,900.00

(2 sessions)

Total $ 9,150.00

8. TRAINN NEEDS CN TAPPING EXPERTISEFlo TELRA TAPPERS

-8.1. Obiective

The objective of tapping expertise training planned forFelcra tappers is to improve tapping skills among thetarget group by practising proper techniques andmethods. It is therefore hoped that at the end of thetraining program, tappers will achieve the expectedgoals as in the following:-

8.1.1. Tappers will be able to tap the bark to itsr ecnmieled depth and thickness avoiding damageof the bark while tapping, thereby saving usageof bark for long-term production.

8.1.2. Tappers can make proper preparations beforebegining tapping works i.e. sharpening tappingknives in correct methods, fixing spring-coiland attaching latex cups in proper techniquesas well as to keep clean the equipuent usedbefore and after tapping.

8.1.3. Tappers can open up tapping sites usingrecciunended methods by accurate norking andcurving of barks.

- 82 -ANNEX 5.1

Page 10 of 16

8.2. atbOd In tae

8.2.1. All existing tappers will be evaluated andgraded by their scheme supervisor. Accordingto their grades, they wiUl be required touergo part or all of the full tappingcourse. New tappers wild be required todem nstrate a certain level of tapping skillsbefore being hired. Existing tappers will beupgraded in their skills.

8.2.2. The full tapping expertise training program forthe tappers is proposed for a period of 3 weeksor 18 days. The course participants areoorised of those who are presently involvedin tapping activities at Felcra projects andfuture tapper recruits. For those who arealready wing, this training program will actas an evaluation to their 'tcrk performace i.e.based on quality of wark in producing latex asin skillful tapping, tapping speed and latexcollecting. For future tapper recruits thesame process of orientation and evaluation willbe adhered to. This is to ensure that qualityork is achieved, in tapping so that an even

level of latex collection is maintained.

8.2.3 This training progrm will be carried out atFelcra projects where the tapper or futuretappers work. They will be trained and

itored by Felcra staff i.e. Project Msnagwsand Field Supervisors who had already undergonetapping expertise course.

8.2.4. Generally, the training PrOgram is carried outin the form of theory presentations andpractical training.

- 83. ANNEX 5.1

Page U of 16

The contents is as follows:-

i. Tapping Terminology And IntroductionTo Trainina Technicues

The aspects stressed are preparation oftapping equipments, cleanliness intapping and latex collection, basictapping techniques and controlled tapping(Based on project's needs)

ii. Practical Training InTamina Stacae 1 - 4 days

At this stage, the course participantswill use the trunk of rubber tree to tapusing proper thickness depth.

iii. Practical Training InTaoinca Stacae II - 6 days

Five course participants will be givenone task tapping area and will berequired to tap about 100 to 110 trees in40 minutes. At this stage, theparticipants will be evaluated whether ornot they can achieve quality tapping at arequired time.

iv. Practical- Training InTaminra Stacae III - 6 days

Each tapper will be given a task (500trees) which will have to be worked uponat a fixed time. At this stage theywuld be evaluated on targeted qualitytapping.

- 84 - ANNEX 5.1

Page 12 of 16

8.2.5. For each stage of practical training carriedout, the course participants will be evaluatedwhether or not they are eligible to proceedpractical training to the next stage and soon. At the end of the course, new tappers whosucceed will be recruited to work in the Felcraprojects. During the duration of the trainingprogram, the tappers will be given courseallowance of $5.00/per day and tappingincentives based on the quantity produced atstage 7.2.3. above.

8.2.6. To ensure that this training program bringspositive results and at the sametime 'rappingactivities will not be hindered, it is proposedthat the existing group of tappers have toundergo training programs 7.2.3. (i), 7.2.3(ii) and 7.2.3. (iii) at a shorter duration.Recruitment for training is done at stages forexample 10 personnel for one group at onesession.

8.3. Number Of Tappers Andcost Of Procram

8.3.1. Until 1991, 11,700 tappers wwer required fortapping in Felcra rubber plantations using thed2 tapping system. From 1992 - 1995, based on11,725 hectares proposed for the phasing forreduced frequency tapping, an addition of 2,931new tappers are required. Therefore the totalnumber of tappers proposed for the tappingexpertise program is 14,631.

8.3.2. For the training of the existing tappers(11,700), priority of training will be asfollows: -

Ist - Scheme participants/dependents2nd - Outside people hired by the scheme3rd - Contract workers

- 85 - ANNEX 5.1

Page 13 of 16

8.3.3. It is estimated that the cost involved forcarrying out the training programs for thetotal tapper force of 14,631 is MS1.54million. The cost breakdown for 10 trainee persession is as follows:-

i. Allowance $5.00/per trainee/ : $ 900.00per day x 10 x 18

*ii. Tapping equipments : $ 150.00(knife and sharper)@ $15.00 per trainee x 10

Total $1,050.00

* The total estimated cost of tappingequipients for the program is

M$219,465.00.

9. TO COS

9.1. The total estimated cost for this training program forFelcra staff and its tapper force is M$ 1.65 million.BreakdowA is as follows:-

i. Staff training on d2 - M$ 99,880.00

ii. Staff training on d3 - M$ 9,150.00

iii. Tappers - M$ 1,540,000.00

10. g2MMCLUIO

10.1. Felcra's adinistration believes that the steps takento have this training program for its field staff andtapper force will be able to solve problems of low-grade production at Felcra rubber projects. With theinplmntation of reduced frequency tapping system atFelcra projects, it will overcome problems in theavailability of skillful tapper force which we ax-*presently facing. As such immediate action has to betaken by Felcra's administration to make this trainingprogram a possible and successful one.

- 86 ANNEX 5.1

Appendix IPage 14 of 16

E Lm COMM CaRWT FOR ThPP q EDCM STNDUD TP2PI N_22)(

Day 1 Intxoduction Written response/oral by participants(Mbrning) (1/2 hour) regarding tapping (objective questions)

Lecture 1 Introduction on rubber tapping (Anatcay(2 hours) and Physiology and methods to open

tapping sites)

Lecture 2 Tapping system, stimalatL n and(2 hours) tapping schedule

(Evening) Practical A Training on sharpening knife(2 hours)

Day 2 Practical B Training on opening tapping sites(Mokrning) (4 hours) and tapping (methods in tapping

per tree per person repeatedly)

(Evening) Lecture 3 Tapping equipments and collection(1 hour) LELICS, knife, cup, RRIMGDM, RRDCnP

etc.)

Lecture 4 Controlled upward tapping (CUT)(1 hour)

Day 3 Practical C Tapping (continuation)(Mbrning) (3 hours)

Practical D Monthly mar1.wrr Q monitor bark usage(1 hours)

(Evening) Practical E Traiuing on chemical usage(2 hours) (Introductry level)

-87 ANNEX 5.1

Appendix IPage 15 of 16

PM;t CURSE TOPIC

Day 4 Practical F Controlled upward tapping (CUT)(Mbrning) (4 hours)

(Evening) Practical G Training on fixing tapping aid(2 hours) equipmints

Day 5 Practical H Tapping in field area (one site(Mbrning) (4 hours) per person)

(Evening) Discussion

Day 6 Test Tapping testCourse evaluation

trainpro14-15:

- 88-. ANNEX 5.1Appendix 2Page 16 of 16

NASDE C ADOPINXN FCRma FR3Dr ThPPI3

YEAR OF PLANTING 1986 1987 1988 1989YEAR OF PRODUCTION 1992 1993 1994 1995

1. PERAK 305 28 339 269

2. KEDAH/PERLIS 227 738 898 1,385

3. PAHANG 822 215 685 580

4. NEGEI SEMBILAN 121 32 307 1,225

5. JCHOR - 89 88 344

6. KELANTAN 92 867 224 988

7. SARAWK - - - 230

8. SELAGOR 53 - 367 207

TOTAL HECTARAtE 1,620 1,969 2,908 5,228BY YEAR-- =

GRAND TOTAL(1992 - 1995) 11,725

NO. OF PERSCU4LON SPECIAL COURSE (9) (10) (16) (26) 61OF D3

- 89 - ANNEX 5.2Page 1 of 9 Pages

NALASI

THIRD FELCRA LAND DEVELOPMENT PROJECT

TERMS OF REFERENCE FORC)NSUTANTS FOR FELCRA ACCOINTING AND

DATJ%BASE XANAGE1ENT NOPETION SYSTE

1. Qeperal

1.1 Felcra at present maintains its accounts and prepares reports forGovernment, Audit and Management purposes in accordance withgovernment accounting procedures. It is not proposed to abandonprocedures which may be required for government accounting orauditing purposes, but it is proposed to refine these so as to showmore clearly the results of FELCRA's activities and its financialstatus for management pu..poses. It should be understood that Felcrahas two major roles to play which have made its operations verycomplex from a financial management viewpoint:

It acts as a middleman, receiving, holding and disbursing funds forGovernment, as well as for development scheme beneficiaries (in factacting like a Trustee for both).

- It is the actual developer and manager of some 1,400 developmentschemes and several oil palm mills.

1.2 In its technical comments, the World Bank recommended tha. x-rmanagement purposes and for the information of third parties(including Government Departments) FELCRA, in addition to preparingmore informative and clearer consolidated financial statements,should prepare separate sets of accounts summarizing the results ofthe activities and operations of its four main components as set outin para. 2.3 below.

In addition to the normal year-end consolidate financial statementswhich include a Balance Sheet, Income and Expenditure Statement, andSource and Application of Funds Statement, the Bank has suggested anadditional financial statement referred to a the "FinancialStatement of Cash Position". This would show inter alia: -

(a) Loan repayments received in advance from developmentscheme beneficiaries;

(b) Development grants from Government not yet utilized;

(c) Monies held in Trust such as:

- Contractors Deposits- Revolving Fund balances- Dividends payable to development scheme beneficiaries- Other Funds held for development scheme beneficiaries

- 90 ANNEPage 2 of 9 Pages

(d) Felcra Income earned such as:

- Felera Dividend (10% from Fringe Schemes)- Interest earned on deposits- Interest earned on accounts receivable- Miscellaneous income

(e) Palm Oil Hill cash balances (represented by Palm Oil Hillretained earnings and accumulated depreciation).

In addition this statement would demonstrate how such funds had beenutilized and were held at year end i.e.:

(a) Utilized to finance development schemes, and oil palmmills

(b) Utilized as advances to loss making schemes.

(c) Placed on deposit at banks.

(d) Held on current account at banks.

1.3 From a management viewpoint, the four main components of Felcra'soperations can be broken down as follows: -

_ Development Activities;- Administration Activities;- Trustee Activities;- Oil Palm Mill Activities.

but of these, Development Activities is by far the most important.

1.4 Developomnt Activities

(a) The financial statement for this activity should clearlyanalyze the progress made by development schemes during theyear - presenting the various types (and stages of development)of long term accounts receivable bX way of summary schedules(showing both numbers of schemes and the value thereof)including inter alia:

(i) Type of Scheme:

- Land Development- Settlers Housing- Rehabilitation Schemes- Fringe Schemes- Youth Schemes

(ii) Stage of Development

- Under Development- In Production - Profitable Schemes

- 91- Page 3 of 9 Pages

- In Production - Loss Making Schemes- Inactive Schemes- Advances to Loss Making Schemes.

(iii) Age of Accounts Receivable Balance Outstanding:

- Differentiating by type of Scheme (number and valueby year).

- Differentiating by State of Development (number andvalue by year).

- Differentiating between current and long-term portionoverdue, by type of scheme.

(iv) Repayments Received in advance:

- By type of scheme.

(b) Its liabilities to the government for loan principal andinterest repayments and for any funds received from othersources.

1.5 Administration Activities, encompass those for which Felcrareceives grant monies from the government which are utilized to runits own operations. These accounts would facilitate the annualbudgeting process and enable the management and Treasury to see moreclearly what funding Felcra needs for normal operations. Thisshould include appropriate allowances for the repair and maintenanceof all Felcra fixed assets such as Buildings, Equipment, Vehicles,Roads etc.

1.6. Trust Activities, in which role Felcra receives and handles in afiduciary capacity monies belonging to third parties such asdividends due to development scheme beneficiaries and variousReserve Funds maintained by Felera for specific purposes.

1.7 Oil Palm Mill Activities showing the results of the two millspresently being operated as well as the costs of the two mills underconstructrion.

2. DEAILED TERMS OF RFERECE

2.1 Felera has decided that in its efforts to continue implementing itscomputerization plan, it would be advantageous to Felcra to engagethe services of consultants to:

(a) Review and recommend improvements to Felcra's accountingpolicies, procedures and systems.

(b) Redevelop the existing application systems to a DatabaseManagement System (the new accounting policies, procedures andformats will be implemented within the Database ManagementSystem).

(c) Develop a complete and systematic Management InformationSystem.

- 92 - S.iH K-LPage 4 of 9 Pages

2.2 The following will comprise the scope and duties of the consultants.

The scope of work of the consultant are as follows. -

(a) To review all existing accounting policies, procedures andsystems for all FELCRA's activities. Some of the accountingpolicies to be reviewed are indicated in Attachment 3.

(b) To propose necessary improvements to the accounting policies,procedures and system and financial reporting.

(c) To provide direct assistance in the implementation anddevelopment of the Database Management System and theManagement Information System based on the recommendedaccounting policies, procedures and systems.

3. DUTIES OF CONSULTANT

ACCOUNTING POLICIES PROCEDURES AND SYSTEMS

In close consultation with FELCRA's accounting staff:

(a) Revise or prepare an updated Accounting policies and Procedure forFelcra Management's approval.

(b) Draw up a detailed Chart of Accounts to simplify and improve theaccounting system and the computerization thereof.

(c) Draw up a practical method of accounting for, and presenting thevarious types of development schemes separated into:

(i) Scheme under Development (e.g. work in progress).

(ii) Developed schemes (not incurring interest charges).

(iii) Developed Schemes in Production (interest accrued;principles and interest payable), distinguishing between:

- Profitable Scheme- Loss Making Schemes

(iv) Inactive scheme (abandoned schemes, abandoned houses, etc)

(v) Advances to Loss Making Schemes.

(d) Review the accounting methodology employed for accounting forprinciple, and for accruing interest receivable and payable as wellas for treating interest received on loans to beneficiaries,including accounting for payments received in advances etc., andinterest paid on long term loans from Government; thecomputerization thereof: and the presentation thereof in the annualfinancial statements. Also reclassifying (if considered desirable

-93 - ANX SJPage 5 of 9 Pages

and practical) the amounts recoLvable and payable withLn the next 12months undercurrent assets and current liabilities, etc.

(e) Review and advise Folera on the presentation of: -

(i) Its consolidated Balance Sheet Income and ExpenditureStatement; Statement of Funds Held and Cash Positlon; andStatement of Source and Application of Funds for the annualfinancial statements.

(ii) The reclassifying of items in the financial statements whereappropriate, to ensure the financial statement comply withMalaysian Law, and generally accepted international accountingstandards. (e.g. treatment of Fringe Schemes - 108 of whichbelong to Felera and for which Felera receives a dividend).

(f) Examine Felcra's internal controls, accounting systems andprocedures and develop ways to: -

(i) Ensure prompt authorization and funding of cost overruns(compared with approved budgets) on development schemes, etc.,

(ii) To prepare a suitable cash management system lncluding cashflow forecasts to enable Felcra to better manage it financialaffairs in an efficient, cost effective manner, to ensure: -

- Loan repayments to Government are made in a timely manner;

- Felcra reviews the appropriate level of funding for itsadministrative and development budget;

- That trustee funds are maintalned intact and are used forthe purposes intended;

= That Felera's Internal controls and system and proceduresover cash payments and receipts are satlsfactory,appropriate and maintained din sound working order tominimize any potential misuse.

(Lii) Furnish appropriate and timely financial and accountinginformation which can be used by Feclra's Management tomanage FELCRA's affairs more efficiently.

4. DATABSE MANAGEMENT SYSTEM ANDKAMkGEIENT INFORMATION SYSIEM

The consultant will provide direct assistance in the following:-

4.1 The designing, development and implementation of the now applicatLonsystems using the Database' Management System based on therecommended accounting procedures and formats stated above.

4.2 The designing, development and implementation of the ManagementInformation system which involves three majors components: -

- 94 - ANNEX 5.2Page 6 of 9 Pages

- the accounting information subsystem;- the administrative information subsystem; and- the operations decision support subsystem.

4.3 The schedule of duties of the consultants over a period of 15 monthsis shown in Attachment I.

5. PROJECT ESTIMATED COSTS

The project will be carried out as a joint venture between Felcra and theConsultant concerned. The estimated consultant cost was based on thelocal (Malaysian) Consultant fees:-

(a) the estimated cost of engaging the consultant to review and proposethe new accounting system and procedures is approximately$800,000.00.

(b) The estimated cost of engaging the same consultant to design andimplement the Database application systems based on the newaccounting procedures and formats and also to develop and implementa Management Information System will be approximately $1,500,000.00

Therefore an overall estimated cost of engaging a consultant is(M)$2.3 million.

(c) The schedule of breakdown of cost over a period of 15 months for theoverall consultant services is shown in Attachment 2.

Schedule of uties of tde COnulttwt-Owe a ie TYes Period ._. __._=_--_-

Person Perondon day 1991 1992 1992 1992 1992 1993Activities______Fletcr Consultant Oct-Dec Jo-Nar Apr-JMune Jul-Sep O eJ-Mar

1. Review AccountingSystem and 40 60 XXXXXXX0OO(Procedures

2. Identify TheNecessary Changes 30 30 XXX

3. Propose The MewAccounting System 20 20 XXXand Procedures _

4. Prepare TheAccounting Policyand Procedures 40 20 XXXManuals

5. Oetail Design ofThe DatabaseApplication Systems 150 90 XXXXXXXXXXXX XXXXXXXXXXX qa

6. Conversion ofExisting Data Intothe Database System 50 20 _

7. Acceptance Testing50 20 XXX

8. I plemantation ofThe DatabaseApplication Systems 90 20 XXX

9. Detailed Design ofThe ManagementInformatior System 90 60 XXXXXOOOXXXX _

10. Ieplementation ofThe Management

QInforntion System 50 40 XYXXXXXX :O-

Total 610 380 wo_ _ . ° ° |

- -=

Annex 6.2- 96 - Atina =6.2

Paso I of 9 Page

Breakdown of Consultant CostOver A Two Year Period

'__________ __________ ___________ ______ _ ;1992 1993

1. Review Accounting System and 200,000 _Procedures

200,0002. Identify The Necessary Changes

3. Propose The New Accounting System andProcedures 200,000 _

4. Prepare The Accounting Policy and - 200,000Procedures Manuals

5. Detail Design of the DatabaseApplication System - 400,000

6. Conversion of Existing Data Into TheDatabase System _ _

7. Acceptance Testing - 100,000

8. Implementation of The Database 400,000Application systems _

9. Detailed Design of The ManagementInformation System - 300,000

10. Implementation of The ManagementInformation System - 300,000

Total 600,000 1,700,000

- 97 - Annex 5.2Attachment 3

Page 9 of 9 Pages

Accounting Policies To Be ReviewedAnd Updated for Felcra Management Agreement

Inventories of Stock on Hand

- How should these be valued? FIFO or Standard Cost. If standard howoften should standards be revised - annually?

Lona Term Accounts Receivable

- Treatment of bad or douL-iul debts/inactive schemes.

- Treatment of Fringe Schemes - FELCRA 60 10 equity vein and 10%Dividend each year.

- Separate Current Portion at year end for Balance sheet presentation.

Fixed Ass_ts (Non Palm Oil Mill)

- Any need to calculate depreciation thereon?:

- Include annual provision for repairs and maintenance in administrationbudget (in preference to development budget for Government Grants).

Deferred Interest Income

- Separate actual interest received form development scheme beneficiariesloan repayments and show separately as income each year.

Accounts Receivable and Payable/Security DeDosits

- Show long term separate from short term (current)

- Separate debits from credits and show gross amounts in year endfinancial statements

Analyze and explain debits in CAC accounts payable.

- 98 - ~~~ANNEX 5.3Page 1 of 3

MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

Agricultural Production Technologies

Oil Palm

1.1 Land PreRaration: Areas for oil palm would be mainly flat toundulating, and often include low lying lands such as abandoned rice fieldswith impeded drainage which would have to be corrected before planting thecrop. Land clearance would be mechanical, preferably done in the dry season,slopes terraced as necessary (estimated at 330 meters/ha), drains andperimeter fencing installed and legume cover crop planted as a priority forsoil protection, especially on slopes, all in advance of planting the palms.

1.2 Planting: Germinated seeds of high yielding progenies would beprocured from major outside suppliers. The seedlings will be raised inpolybags in on-site or cluster nurseries under contracts to cooperatives withclose FELCRA supervision to ensure product quality. Plants of 10-12 months ofage, selected for vigor, would be planted into the field during theappropriate planting season at a density of 148 plants per ha. Supplyplanting for initial losses, estimated at not more than 5Z, would be doneduring the first year after planting only.

1.3 Field Maintenances The palms will be routinely circle weeded,using herbicides, at monthly intervals in the first three years, reducing toonce in three months during the following two years. New generation, lowtoxicity herbicides will be introduced as appropriate. Types and quantitiesof fertilisers, which should always be timely applied in accordance withestablished industry practice, would after the first year be determined by theresults of annual foliar analysis. The use of empty fruit bunches and treatedmill effluent as fertilizer are being evaluated on a small scale in someschemes. Frond pruning, control of leaf-eating insects and ablation of earlyfruit bunches in the second year to prevent precocious fruiting would beroutine.

1.4 Harvesting: With good maintenance, the palms should be inproduction not later than three years after planting. The ripe fruit bunches(ffb) are harvested twice monthly initially and at 10 day intervals from aboutthe third production year. Harvesting would continue for about 25 years afterwhich the stand should be replanted because of low yields and the difficultyof harvesting tall palms. Mechanised collection of ffb using various systemshas been tested and introduced in a number of schemes. The ffb would betransported to the scheme loading ramp from where it would collected bycontractor for delivery to a FELCRA mill if conveniently located, to a privatemill, or in some isolated schemes, sold ex-farm gate to traders by tender.

- 99 - ANNEX 5.3Page 2 of 3

1.5 Processing: FELCRA has two oil palm proceesing mills at Nasaruddinin Perak and Bukit Kepong in North Johor. Two further mills, at SeberangPerak in Perak and Maran in Pahang, are under construction and expected to becommissioned in the second half of 1992. Mill supplies are normally drawnfrom schemes within a distance of about 60 miles, although for the BukitKepong mill, which has under-utilized capacity, FELCRA has been providingtransport cost assistance to more distant schemes. Supply contracts toprivate mills are normally for one year. Mills grade ffb for quality,primarily on fruit ripeness, and pay sappliers according to the daily gazettedpalm oil price less processing costs.

Rubber

1.6 Land Prcjarations Rubber areas would be typically hilly, oftenwith steep slopes, and growing old or abandoned rubber much of which may bepartially teverted to secondary forest conditions. All land clearing andpreparation would be done mechanically under contract. Slopes would beterraced with requirements estimated 990 meters/ha. In some localities,rubber wood might be sold for charcoal or other uses. Clearing would normallybe done in the dry season so that planting can proceed in the most favorableseason. Terraces and interrows would be planted as quickly as possible afterland preparation with a legume cover crop mixture to protect soil from watermovement and to suppress weed growth.

1.7 Planting: Young rubber plants would be produced mainly incooperative nurseries within the scheme cluster under close FELCRAsupervision. Rubber seeds from high yielding clonal areas would begerminated, planted into nursery rows or polybags, selected for vigor,budgrafted with high yielding clones at 4 to 6 months of age, and, for the rowplents, transferred to polybags. The system of producing young buddings onstocks about 3 months old will be tested in the near future in selectednurseries for further efficiencies. Vigorous buddings would be ready to plantinto the field about four months later. Supply planting would be limited toone year unless advanced planting materials are available. Core budded stumpsas an improved alternative for suppling have recently been used. Deeper fieldplanting for longer tapping panels is now standard practice in all new rubberareas. Clones used would follow RRIM recommendations in the ratio of 70Z ofClass 1 clones and up to 30Z of Class II clones; FELCRA has an ongoing programwith RRIM for evaluating promising new clones. Planting density would be 511trees/ha for a targeted stand at tapping of about 450 trees/ha. Clones wouldbe planted in minimum sized blocks of at least one tapping task to match withtapping requirements.

1.8 Field Maintenance: Poor standards of -weeding can seriously reducethe growth vigor of young rubber. Planting rows will be clean weeded usingherbicide on a monthly schedule for about the first three years afterplanting, and then at decreasing frequency as the tree canopies develop toabout once in three months when the trees reach tappable size. The use of lowvolume spraying in weed control for cost savings is being investigated. Thetrees would be regularly fertilized during immaturity with compoundfertilizers at RRIM recommended rates by soil type. Appropriate nutrient

- 100 - ANNEX 5.3Page 3 of 3

rates for use after the trees enter into tapping would be based or the resultsof annual foliaz analysis. FELCRA is closely following RRIM's evaluation ofthe pr&ctice of withholding fertilizers for up to 8 years on rubber tapped onrenewed bank with a view to its possible adoption for significant costsavings. Pests and dise ?r', except for root disease, are not of greatimportance in young rubb

1.9 Harvesting: Tap1 ing would commence when 1OZ of the trees attain atrunk girth of 45 cm at one meter from the ground. With good field practice,this should be at not more than 6 years from plantinz. FELCRA's standardtapping system is a half spiral cut alternate daily. Under the improvedtapping technology program, all areas on opening would be tapped under thereduced frequency system of a half spiral cut every third day with applicationof ethepon latex stimulant at 2.5Z concentration ab3ve the tapping cut at 6-8times/year. Full recovery tapping would be practised to compensate for raindays. Areas in tapping before 1992 would remain on the alternate daily systemuntil the new system can be phased in. FELCRA in moving towards less laborintensive tapping technology, will be receptive to any new labor savingtapping technology recommended to the industry.

1.10 Processing: Rubber as latex and cup lumps, is brought to fieldcollection stations by scheme transport and sold to the Malaysian RubberI)evelopment Corporation in all areas where they have a processing factory.For- other schemes, the rubber is processed on site into air-dried sheets, ormore commonly, sold directly by tender to private traders. Prices are basedon the daily commodity quotations and the measured dry rubber content of thelatex, or estimated content of cup lumps.

- 101 ~~~~~ANNEX 5.4- 101 - Table 1

MALAYSIA

THIRD FELERA LAND DEVELOPMENT PROJECT

Proiected Staffing by Grade and Function 1992-95

1991 (Actual) 1992 I99. 1994 1995

A. By Grade

Grade A 205 228 253 278 303Grade B 340 355 376 398 420Grade C 1,823 1,790 1,774 1,752 1,737Grade D 1,120 1lo08 1,102 1,092 1,086

Total 3,488 3,481 3,505 3,520 3.546

B. By Function

Administration 1,340 1,326 1,321 1,313 1,312Finance 42 44 44 44 44Data Processing 38 39 40 41 41Agriculture 26 49 49 53 54Schemes (Plantation) 1,655 1,621 1,635 1,644 1,661Engineering 156 159 160 161 162Survey 88 88 88 88 88Social Development 143 155 168 176 184

- 1OM - ANNSX 5.4Table 2

MALAYSTA

THIRD FSLCRA LAND DEVELOPMENT PROJECT

Projected Changes in Staff Numbers by Grade and Function1992-1995

Grades A and B 1992 1993 1994 1995 Total

Administration +2 +1 +2 +6 +11Finance +2 +2Data Processing +1 +1 +1 +3Agriculture +23 +4 +1 +28Scheme 'Plantation) -3 +30 +31 +31 +89Engineering/Survey +1 +1 +1 +1 +4Social Development +12 +13 +8 F8 +41

Subtotal Change +38 +46 +47 +47 +178

Grades C and D

Administration -16 -6 -10 -7 -39Finance 0Data processing 8Agriculture 0Scheme (Plantation) -31 -16 -22 -14 -83Engineering/Survey +2 +2Social Development - 0

Subtotal Change -45 -22 -32 -21 -120

Total Change -7 +24 +15 +26 +58

- 103 - AX S.S

Page df 2

THIRD FELCRA LAND DEVELgOpENT PROJECT

FELCRA's Action Plan

imlementation Tarsats and Monfitorina Indicators

19°1 2ig 1i 94 12(Actual)

1. FELCRA StaffinaAnricultural Inspectorate 14 24 24 24 24Snoeme Management

Grades A+B 240 237 267 298 329Grades C+D 1,405 1,374 1,358 1,336 1,322

Secondment of Staff toKPFB Holdings:

No. Agric. Staff 0No. Marketing Staff 0No. mill staff 44

2. Disenaaacment from Scheme Manaaemen(by oil palm and rubber schemes)

No. of Schemes 0 16 25 35 42 (48 in 1996)Ha. of Schemes 0 5.900 8,900 12,100 155100 (21,000 in 1996)

3. Technical Services to HoldinMsFoliar Analyses Interpretation (ha) 0 110,000 120,000 136,000 147,000Soil Survey Analyses Interpretationtha) 0 0 2.5000 3.000 3,000

4. Schene Performance (by scheme)Total ProductionYield per ha

5. Palm Oil Mill Performance (by mill per month)Total ffb ThroughputExtraction RateFatty Acid XDays of OperationHours of OperationDowntime

6. Manacement Trainina for Coooerative MembersNo. of trainees - basic courses 1.460 100 75 150No. of trainees - intermediate courses 305 1,442 310 200No. of trainees - advanced courses 100 150 95 570

- 104 - ANNEX 5.S

Page 2 of 2

7. Coogerative(a) Performance of the 75 cooperatives registered at December 31, 1991 for the

period 1991-95 (1991 data shown where available).

General 199- no. scheme beneficiaries in the 75 coops. 15,115- no. male and female 13,267 (m), 1,848 (f)- no. beneficiaries as cooperative members 13,651- % membership - total 90%- no. male and female as cooperative members 12,546 (m), 1,105 (f)- % membership - male and female 95% (m), 60% (f)- Total value of member shares M$9.376 million- Avg. paid-up share value per member M$638

Management of CooReratives- no. coops. with members in mgt. 73- no. coops. with FELCRA staff in mgt. 73- no. coops. with member as president 0- no. coops. with member as chairman 23- no. coops. with member as secretary 9- no. coops. with member as treasurer 73

- no. coops. with FELCRA staff as president 22- no. coops. with FELCRA staff as chairman 52- no. coops. with FELCRA staff as secretary 64- no. coops. with FELCRA staff as treasurer 0

Cooperative Financing of Management- no. coops. financing managers (and total managers) 15 (17)- no. coops. financing clerks (and total clerks) 64 (106)- no. coops. financing laborers (and total laborers) 29 (141)

Financial (data for 1991 incomplete)- total turnover M$35.062 million- avg. turnover (74 schemes) M$0.474 million- total net profit M$1.699 million- avg. net profit (74 schemes) M$0.023 million- profit as % turnover 4.8%- total costs of management- total net profit of coops. financing mgt.- total mgt. costs as % total coops. expenditure -

(b) For Cooperatives registered 1992-95

- no. cooperatives- no. scheme beneficiaries- no. beneficiaries as coop. members- % membership- total and average annual turnover M$- total and average net profit M$- Avg. paid-up share value per member

- 105 - AULIX I

MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

Bank Simervision Mission Plon

StaffProject Approx. Expectod Inputs

Mo. Tear Mission Oate Area o Concentration Skill Requirements CStaffweeks)

1. 199 Saptember Loan effectiveness, procureomnt and Tre crop speciatists 11.0disbursement, appointment of Financ EconomistDivision had, progress of Financial Analystaccounting/consultants update resultr Computer Speciltistnd implementation of tapping

technoLogy, tapping wages, Holdingscontracts nd progres In scho andmill mnAgement, MIS, review FELCRA'sproposed 19 work progr .

2. Jan./Feb. Jan./Feb. Tapping technology nd planting material Tree Crop Specialisto 11.0progr_m and new wage structure, Financisl Analystfunctioning of new agricultural Economistdivision, nviror e ntat guidelines for Engineeragriculture, financial and schm_ Training Specialistmanegament arrangements, rural industryand perequat studlies, progres of hold-ings nd cooperatives In schemmanagement, civil works, procuremant,training progrm. Human ResourceDevelopmant Division.

3. 1t13 October Tapping and agricuiture program, audits, Tree Crop Specialists 8.0perfor_ance of holdings nd FELCRA's Financial Analystwithdrawal from sche_ management, NIS, Economiststudy on agricultural costs and review MISresults of earie r studies, revI.._FELCRA's proposed 1994 work progrm.Proposats.

4 1994 March Agricultural program, FELCRA8s with- Tree Crop Specialists 10.0drawl from scheme management, staff and Financial Analystamliholder training, revfew agric. Economistcosts study, famotioning of all new NISdivisions, civil work-, progress ofcooperatives.

S. 1995 Nov*ar Agricultural program including rubber Tree Crop Specialists 6.0tapping technology, Review of FELCRA's Economistproposed 1995 work progrm. Financial Training Speciatistmanagement, MIS. Engineer

Cooperatives

6. 195 MNAY AgrIcultural program, civil works, Econom st 6.0training progrm. Tree Crop Specialist

F;nancial Analystms

7. 1995 Nove.er Agricultural program, disbursements, Economist 4.0Progres of Hotdings. Tree Crop Specialist

8. 1996 5 pto br ProJect CopLetion Report. Economist 4.0Tree Crop Sp cialist

- 106- ANNEX 6Table 1

MALAYS

THIRD FELCRA LAND REHABILITATION PROJECT

Crop Yield Profiles

Years from Oil Palm RubberPlanting (ton ffblha) (x8 dry rubber/ha)

1 0 02 0 03 0 04 1.7 05 5.1 06 9.5 07 13.9 08 18.3 5209 20.8 92010 21.1 1,19011 21.3 1,41012 21.4 1,52013 21.7 1,62014 21.9 1,70015 22.5 1,72016 22.6 1,73017 22.4 1,75018 22.4 1,73019 21.2 1,73020 20.2 1,72021 19.6 1,71022 19.4 1,70023 19.0 1,68024 18.6 1,66025 17.3 1,65026 16.5 1,63027 15.5 1,60028 14.8 1,59029 14.5 1,57030 14.0 1,510

Total Yield 477 tons/ha 35,560 kg/haProduction 27 23Average Yield 17.7 tons/ha 1,550 kg/ha

- 107 - ANE 6Table 2

1°I Il-E §ffS R UI E| g | 4 ! R 84; Bn n #, | g t X n, ; 0-

| t Ut1 ll;" gi ;4 :

i; ! }'"-ili s aS

|3 Ilt In U i 4 10

W llB3g; Za§ , gx l002. ll;i

X~~~~~~ I

F " 4 lllSsl!1.!3jF 111

lHRDEO RLAND DEVLPMPROJCTRUBBEIPRMSIRUCIURE

YEAR ACIUAL9I 92 93 94 95 96 97 98 99 00 01 Q 4 0a5 06

A. CRRBENPRICS - Augt

MARDEC -b-RSSI Mikg fob 235.54-km hqa.cm 13.77

dhWuot 3.00Net fawm gate 21&77

MARDEC - =Wv.-SMR 20 Msglc fob 206.53-klssdutyc 1.3.77 odismt 23.50 0Net fwm gate pnc 169.26

Ba PROJECFIONS -

(Jul91)

RSSI N.Y. Czr.tUScentsikg 110 116 121 145 150 160 170 180 184 195 200 210 215 2158SCoSLUScetu4g 70 73 73 84 84 85 86 86 86 85 85 84 84 8492CbfsLUScenfkg 107 112 112 129 129 130 132 132 132 130 130 129 129 129LeuFmtW&Jhu USceotWkg 1S 1S iS 1S iS iS 1S 1S IS 1S 1S 15 15 15foblOag 92CmstMcmtsfkg 253 266 266 312 312 316 321 321 321 316 316 312 312 312RSS3@909RSSLMcmtrwg 228 239 239 281 281 285 289 289 289 285 285 281 281 281L=mu ft4 &plw ,, i 12 12 12 12 12 12 12 12 12 12 12 12 12 12WWotedsketgpAitperice 216 227 227 269 269 273 277 277 277 273 273 269 269 269mmmmmS11ss=""=S =C= C- === =mm mm ms m = = =-

SmwCe pi= MARDEo FE.RA 1tmw km BkJul 9L

THMRFeLCR IAUND1VE0 ETPRTWFECTOIL PALM - FEWD COTS PEER HECTARE

YEV 1 2 s 4 6 0 I e 9 to II 1 2 13 14 iS is IT It to 20 30PIfPAPATON AND PLANTI_________________

FELUN, & CLEARN 070AGFL RaS OD 700CRAIS 201 150TERACES ISOFENCES 420COEaCRoPs 150uNW PLANFING Go e0SURVEY 100 l0o

SUB-TOTAL 2At 0 0 0 a 0 0 0 0 0 0 0 0 0 o 0 0 0 0MATERW8

FERT O1L PAU till 330 270 310 350 345 340 335 330 325 325 315 3J5 315 315 295 295 295 295 0FERT. COVER CROP S0CHEMOALS 20 SS :SS S05 90 05 as 75 70 s0 s0 s0 s0 s0 50 50 50 so 50 10SFA ISIIUANCE 35 to 10 1e to 10 10 s0 1o 10 16 10 le lo to 10 i0 1t is toFF8 TAAN8ORT 20 7 124 tOo 220 270 274 27 270 262 205 293 204 291 291 270 203 to2--- -- - -- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---SUB-TOTAL 0 %L. 405 451 soo 505 m27 679 we0 600 0 0e0 0ea an0 074 075 052 2 eV7 t 202LABOR

WEEaN 400 2US 260 1o0 i:o as 95 so 7s 70 70 70 70 70 70 70 70 70 70 70pESTONIOL to t0 to 10 10 10 to 10 is IS Is iS Is Is IS IS IS iS 0FERTLWN3 30 50 as t0 70 0S as 0 5 55 so So so so So so 40 40 40 40 0PALMMAITEMAiNCE 10 10 10 10 to to 10 10 10 10 10 10 10 10 :0 t0 10 10 0SUFPLY PLANWIVE 30`R MANTBEANCE 20 20 20 20 20 20 20 20 20 20 2D 20 20 20 20 20 20 0CEMSS :0 10 tO to to 10 0 10 tO 10 10 10 10 tO 10 10 10 10 tO 10HARVESTIN 43 112 too 230 311 312 317 27 270 262 205 293 294 201 29' 270 203 162SUB-TOTAL 0 470 375 410 307 420 440 t21 507 496 452 453 457 400 4o 400 450 450 441 420 262--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- _---TOTAL 2.510 50 1.720 070 05 1.0t5 1.073 1.200 1.20 1.187 1.120 1.122 1.120 1.125 1.141 1.144 1100 1.100 1.077 1.051 464.00.. .6 ... .. .... ....... .... ...... .... .... .... .... .... .... ....

ChIRUATWE COST 2510 3.400 5.180 e0os 0.03 rss7 9,030 10.20 11.434 12t20 13,740 14053 15.903 17.10S :8.249 19.303 20.501 21.010 22.67 23.736 "l

VIELTOK44A 1.70 510 9.60 13.00 10.30 20eo 21.10 21.30 21.40 2f.70 21. 22.S 22.0 24 22.4 212 202 140HAVESTINGOOSTSTON 25 22 20 17 17 Is 1s 3 13 13 1s 13 13 13 13 13 13 13TRPNAIAFTATIO TO ILL IS t 5 13 13 13 13 13 13 13 13 13 13 13 13 13 13 13 13INCOME

FFSPCEINAT ML U9 130 1I6 104 100 1OS Iso 145 141 1t30 132 ?7 122 iSe 11 Ito 1s1 I li *10 110 l lTOTALOME 0 a 0 270 010 1473 2066 2054 2933 2070 2012 2718 2547 2504 20S0 2007 203 2040 2502 2304 1652 0 .NETNOME (s1q (GM (1.72m (w (7 4G0 1.012 1.044 1.7i9 1.t03 .02 I5S 1.527 1,450 1.514 1.L.3 1.tSJ t.53 1.424 S.=3 1,1t0 I-a---------------------------------------------------- -------------.-----

-- ---------S&aw FEL A 9dbzd Pe _,atmm 9S . 91: FELCRA Pmw* tkMoorbg aiFl 0DpwSn dRcoid .Nb bIvk vus lot tyIwO 21 -29 gvn hw r p4w n h pcjscl tie.

THRD FELCRA LAND DEVELOPMENT PROJECTREPRESENTATIVE OL PALM SCHEME

MI

YAR t 2 3 4 5 0 7 e 9 10 IS 12 13 14 1s 16 47 1l 19 20 30

SCHEME INCOME

PLANTED AREA (NA) 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300Y1ELDtA(TONFFS) 0 0 0 1.7 5.1 9.5 13.9 18.3 20.8 21.1 21.3 21.4 21.7 21.9 22.5 22.8 224 22.4 24.2 20.2 140PRODUCTION (TON FF8) 0 0 0 50 S,530 2.850 4,170 5.490 e.240 0,330 8.390 e.420 6,510 0,570 6.750 6,780 6.720 6.720 6e3s0 8.0o0 4,200PRICEJTONFFS (SM 149 438 S58 464 160 455 450 145 14i t38 132 127 122 148 lie t18 40 8 I48 4s8 Il6 IlaGROSSREVENUE (SSOOq O 0 0 84 245 442 626 796 830 so6 843 8tS 794 775 797 800 793 793 750 745 490

INVESTMENT COST (SWOODO)________________

- FEI DEVELOPMENT 724 285 548 264 0- SCHEME INFRASTRUCTURE 0 232 ea 8 0- VEHICLES & EQUIPMENT 46 5 5 57 0- MANAGEMENT COSTS 16 6e 4o 22 0

TOTAL INVESTMENT COSTS 845 538 60s 354 0 .0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ._......…......... ... ... ... ... ... ... ... ... .. ... ... ... ... ... ... ... ... ... ... ... ....

OPERATING COSTS___________

- MATERIALS 452 476 488 204 209 207 200 204 499 200 202 203 t96 490 194 187 61- LABOR ISO 420 134 IS5 452 149 436 130 437 438 440 144 137 137 432 128 79- SCHEME INFRA. MAtNT. 8 8 a8 8 8 8 a 8 a 8 8 8 e- VEHICLE& EOUP.O&M. 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5- MANAGEMENT 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22TOTAL OPERATINGCOSTS 0 0 0 0 304 337 357 395 398 391 374 372 371 373 378 378 367 367 358 354 174.,,. ........... .... ,....,, .... ... ...... ... . .... ... .... a. .... .S .... ... ... .. ... ... .... ... ..... ... ..... ... ..... ... ..... ... ..... ...

SCHEME NET INCOME (81S) -S" (GM (261) (59) 105 209 401 484 470 472 444 423 402 4t9 422 426 426 392 364 321.. .. .... ... w .. .... ... lw...... .... ... .... ... .... ... .... ... .... ... .... ... .... ... .... ... ... ... ...S4R 4 t%

SOURCE: TABLE 1; FELCRA AGRICULTURALPERFORAINCE STUDY 199s; FELCRA RECORDS FINANCE.PLANNINGAND MONITORING OEPTS.Noe: kKtWK% vakwm for yfou 21 - 29 gIeiIn wharkg ppm in pwjc (de.

oFmv, a'

THRD FECALAND DEELPW aMM

NUMOFPPARAPMENS 120PLANIED HECTMES 300rTPE OF SCHEME REHUBUTATION

WEAA 1 2 3 4 6 6 7 8 9 10 It 12 13 14 15 10 17 le 19 20 30MICOME

F0SP&AIU 149 13B 158 164 160 1565 SO 146 141 136 132 127 122 Ila 118 118 Ila Ila 118 118 IlaC nc a Co. 84 246 442 626 796 660 6OI 643 615 794 ns 797 S00 3 93 793 70 716 490Fs abl 753 285 516 264 0

Tel 73 286 516 346 246 442 026 796 60 81 6e43 66 794 N 797 800 3 793 750 715 490

FIhidDswk2pnuri OutD 753 265 5t1 204 0 0Op.mkigCcuts 0 o 0 0 282 315 335 373 374 369 349 3S0 349 351 356 356 345 345 330 329 152RAqf* Rold 0 0 0 0 30 30 30 30 30 30 30 30 3D 30 30 30 30 30 3D 30 30S8t Ld hwg (C.AC4 0 0 0 0 6 6 6 6 6 6 6 a a 6 6 6 6 0 a 8 6A.pqwt uw. v.LoP&I 0 0 0 0 0 0 0 0 0 0 165 OS 166 1656 tOS 106 16 1065 165 166 0

Tcil E*Widkm 753 286 S18 204 318 351 371 409 4tO 405 560 6S 550 552 5 57 5 646 540 537 530 168... .... ... .... ... .... ... .... ... .... ... .... ... ..... .... _.. .... ... .... ... ...... ............... _......-............

Sdwm ".p1 s94)11 0 0 0 0 0 91 265 367 470 456 293 204 244 223 240 243 247 247 213 186 306DMduu_Sw ^dciuypS 0 0 0 0 0 758 2,125 3.226 3,917 3.800 2,442 22,0 2.033 lAS 2.000 2.025 2.056 2,058 .775 1.542 2.567ADCOW 7sg T5-1.5) 0 0 0 0 2.813 2.813 2,813 2.813 2.813 2,813 2.133 2.61 2.83 2.813 2.83 2.013 2.813 2.813 2.813 2.8t3 2,613NdlweCmkb Sdh2sal 0 0 0 0 2.813 3,571 4.93M 60,C6 6,729 6,613 5.254 5,013 4,846 4.071 4.83 48318 0.871 471 4566 4354 5380

._ ................... ...w................ ... ... ..... ... .... ... .... ... .... ... .... ... ... ..... ... .... ... .... ... ...

OEWELOPET LOAN REPAfNM8

Eff TERMS - LOAN PERlOD25 6 Cqaihi MC&MI blm@ 4% -0.0694A tOEYEARS uuso amou" bow -*0347t

INTO% VR 1-1O hb mi r 9 catail - M139.INT4%'VR I1-25 Pre*2 &V - WI 632.00ISEQUALPAMPFRING,WIT EquIP*p)¶ut1SWS - MS16S,000

Saucw: T"2.Nd.: bthsV ktdbifl2I - 29g1vmh kh w g pqsp.cg i.

1, mp&n k)w4~uSd wdIocws Ass laBWN.

1.% I

tdALAYSIA

Tlf RD FEICRA L6ND DeELotPteNT PROJS RUWBER - pELD COSTS PER HECTARE

YEAR 1 2 3 4 5 6 7 s 9 to i 12 13 14 is 16 17 is 19 20 30__---___-____----____~- -- _-------- - -------------------------- -__----- - ----- - - -__------_ _--- -_ __ _ __ _ _-CLEARING A PLANTING_ _ _ ----- --- _ _

FEUING CLEeARING 61sON-FARM ROADS 7s s52DRAINS So SOTERRACES 495FENCES 170COVER CROPS 150UNING. PLANTWN 1.130 80SURVEY £00 100

SUB-TOTAL 2.n5 ISO 0 575 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0MATERIALS

FERTILIZER. RUBDER 210 log 160 170 160 ISO 155 ISO 145 145 145 £45 14S £30 1 30 11 0 130 0 13 120 t7FERT.COVERCROP SSCIEMICALS 20 i15 13S 6 ss s5 s0 40 40 40 40 40 35 35 3s 35 35 25 IsST£MULANTS 4 4 6 30 10 30 10 25 25 2S 25 25 25 30sPA&INSuRANCE 35 £0 £0 £0 to IS IS 15 I5 is Is Is is 15 15 1 15 Is is 15TAtPPING 1tFNSItS 260

SUB-TOTAL 0 320 225 305 245 22s 480 22V 29 206 210 210 210 210 205 20s 205 2OS 205 18s 77

LABOR

wWLDIG 400 269 240 I£S 110 110 £10 95 SO so so so so 70 70 70 70 70 so 25ESTCONTROL 5 10 la £0 10 10 5 5 S 5 S s s 5 S S s s S SFERTIUZING 36 37 35 35 40 36 32 29 23 23 23 23 3 20 20 20 20 20 is toCROP MAINTUANCE is 30 45 30 20 5 s s s 5 s 5 5 s 5 s s s 5SUPPLY PLANTWIG SO 0INFRASTR.MAINTENANCE £0 10 a £0o 30 5 5 s S 5 5 5 5 5 5 5 sCENSUS 5 5 5 I5 l3 £0 10TAPINGOCOST 530 782 L012 1.056 j.170 U.47 1.309 1.324 1332 L260 1.246 1.246 L.238 1.027

SUB-TOTAL 0 49£ 336 320 220 215 396 702 936 3.130 I:04 12 I.365 1.427 1.429 1.437 L365 1.351 1.351 1.3ZI t.077TOTAL 2785 99£ 561 L.200 465 40 676 926 L355 1.336 1.414 1.498 1575 1,637 L634 1,642 1.570 1556 £556 0s6 .154

CUMUIIVBCOST 2.785 3.776 4.337 ssn37 602 6.442 X.116 80$4 9.199 l0.535 11.949 £3447 35.P22 £.659 3.294 39.936 23.506 23.062 24.617 26 124 u2

YIEW OAM S2 920 1.190 1.410 1.520 IAN 1.700 1.720 1130 1750 1730 1730 1720 5sToTACOST MISK (d0) m2 0.5 o.6s 0.77 0.77 0.77 0.77 0.77 077 0.2 0.72 0.72 0.72 O.INCOME

LATEX IPRICE MSI 2L.6 227 2.27 2.69 2.0 2.73 2.77 2.77 277 3 26 29 2 2.69 2. 2.69 2.69 2.60 2.69TOTAL INCOME 0 0 0 0 0 0 0 l.440 24 3249 349 4069 4.35 4573 4.627 454 4.708 4654 4,654 4.627 4,062NErTINCOME (2.785) (99) (561) (1.200) (46 (4o) (676) S14 L93 1.913 2.436 2590 2.72 2.936 2.99 3.012 3.138 3098 3.096 3.120 2.906----- ___ ----------- --- _------------------------_____-_-___---------------___-----------------_-_-----_------_---------- ----- ,E

SOURCM FELCRA.Nole:IdIiuIale eyan2- 9Ii .wdn ae.O

nu~ 3AAPoEEO?n?RicrREPRESENTAI1VE RUEDIE SCHBE

YEARS I 2 3 4 5 6 7 6 9 1o I _1 32 13 14 is 16 17 is 19 20 30

SCHEMEINCOME

1AN4TID AaREA(HA) 200 200 2GD 200 200 200 200 200 200 200 200 20D 20 20C 20 200 200 200 200 200 200ARBA INPRODUCIm014 (HA) - - _20 200 2G0 200 200 200 200 200 200 20D 2c0 200 200 200l aDmA( KGALADE + SCRAP) - - - - 520 920 1.190 1.410 1.520 1620 1,700 1.720 1.730 1.750 1.730 1.730 1.720 1510IRODUCIIOtN(IONS) 0 0 0 0 0 0 0 104 184 235 282 304 324 340 344 346 350 346 346 344 302?RICOxa. (SM) 2.16 2.27 2.27 269 269 2.73 2.77 2.77 2.77 2.73 2.73 269 2.69 249 2.69 269 2.69 29 269 269 ze9GROS REVE UU(SM 0 0 0 0 0 0 0 2s8 510 650 770 816 a72 915 925 931 942 931 931 925 812

1NVEST4rTOoST(S3'I0

-F11DEVELC oWCOsTs 557 I9" 112 240 93 aS 135 IS5 0 0 0 0 0 0 0 0 0 0 0 0 0-SCHEMEINFRASTRUClURE 0 232 6 8 IS S s s 0 0 0 0 0 0 0 0 0 0 0 0 0-VEOCFESAEOU1UENr 46 5 5 5 5 5 57 12 0 0 0 0 0 0 0 0 0 0 0 0 0- MANAGEMErCOSIs 22 22 22 22 22 22 22 22 0 0 0 0 J 0 0 0 0 0 0 0 0TIrALINVETMENrCOSIS 625 457 147 275 133 123 2 227 0 0 0 0 0 0 0 0 0 0 0 0 0................. ...a ... ... ... ... ... ... ... ... ... ... ..... .. . ..... ... .... . .. . ... 3OlERANGCOSMI

1-- MAERIALS

44 41 42 42 42 42 41 41 41 41 41 37 Is w-LAOR(DI3SYS1E4) 37 226 241 256 273 285 286 287 273 270 270 264 215- SCI3E IRWFRA. MAIr.

S S a S 8 6 a 6 S 8 a S a-VEMCIE*EOUIp.oaM 12 0 0 0 0 0 0 0 0 0 0 0 0- MANAGEMENT 2S 28 28 2S 2S 2S 28 28 2S 2S 2S 28 20

TArALOPERATINGCOS13 0 0 0 0 0 0 0 0 279 303 319 335 351 363 363 364 350 347 347 337 267.- ........... ... ...... ... .... .X... ... , ... .... ... .... ,.... . .. ... .,___.... ... .... ... ..... .. ,..... , ... ..... ... ...._SCIEEMENHDXI4OME

lOTDLINVTrAOPERA11NGCOS1 625 457 147 275 13S 123 222 227 279 3G3 319 335 351 363 363 364 350 347 347 337 267JOAL INCOMU 0 0 0 0 0 0 0 288 510 650 770 8S1 872 915 925 931 942 931 931 925 812NErINCO(E (625) (457) (147) (275) (13S) (123) (222) 61 231 347 451 482 521 552 563 567 592 5t4 584 588 546IRR(FULLCOSTPRECOVERY) 120W

SOURV TAKEI MAGRCULtLtAL PERFORMANCE STUDY 1993 EECRA RECORDS FiNA LANNINGAND MONrlRING DEm.Noas Vd&for indidayes2l - 29ea In pr* Gfile

I0D X

THRD FEUM A L DEsELONr PROECREPRESENTATIE RUIER SCHEIaE

CASHFLOWANALYSIS

NUER OF PARflCIPANrS: 80PLANTED ECTARES 200TPE OFSCHEbE REHABILITATION

YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 30SCHEME NCOllE

SI hSI$S& SCp 0 0 0 0 0 0 0 288 510 650 770 818 872 915 925 931 942 931 931 925 812FekwmamiToSewfls 557 198 136 240 93 88 130 193

TOWhl k%xw 557 190 136 240 93 88 136 481 510 OS0 770 818 872 915 925 931 942 931 031 925 812_______ n ... ... ... a.. ... .. a ---. .__ _ _. _ _-. -- . - …-- …

SCHEIE EXPENDITURE______________

Filsld OvdqmunCo s 557 198 136 240 93 88 136 193CpeC Cod 0 0 0 0 0 0 0 0 279 303 319 335 351 363 303 364 350 347 347 337 267SWe* LOWCwCe.(CAC) 0 0 0 0 0 0 0 a 6 6 6 a 6 6 6 6 6 6 a 6 6RspivpitDel.Lw P&I 0 0 0 0 0 0 0 0 0 0 148 148 148 148 148 148 148 148 148 148 0

T1aIEiqdft 557 198 136 240 93 88 136 10 285 309 473 489 505 517 517 518 504 50t 501 491 273---------- ... ... ... ... .. ... --- .- ... ... ... .. a---. .. ... .. ' ' ... ...

SdcmeSuipks WOODS 0 0 0 0 0 0 0 282 225 341 297 329 367 398 408 413 438 430 430 434 530 9!AbDMd,mbflcy (MS) 0 0 0 0 0 0 0 3.525 2.813 4.263 3.713 4.113 4,58 4,075 5.100 5.103 5.475 5,375 5,375 5.425 6.73e I-ADO Tqps hIne 0 0 0 0 0 0 0 3,065 3.065 3,065 3.055 3.055 3,055 3,055 3,065 3.065 3,055 3.065 3,065 3.065 3.055(Laborf55 1 .Sults)

Net kncWorkirg SeW(M$) 0 0 0 0 0 0 0 6,590 5876 7,S2 6,778 7,178 7.653 8.040 8.105 8.228 8,540 8.440 8,440 8,490 9,803.... ........... _ .............. _ .... ... ..... ... _. ..... B ... ... ... ... ... ... ... ... ... ... ... ... ... _.__ ____ __.___.__. , ... .. _.__

DEVELOPMENW LOAN REPAYMENTS

CREODITERhS - LOANPERIOD25YRS CIapireovewyotcr*4% - 0.08014--------- GRACE10YEARS btenfBRooeyFwtor - 0.089014'15-1INTO%YR 1-10 h1tutOFhigenTWu . MSs72,C000INT4%YR 11-25 Pice OwS - AlS1.640,0,00015EOUALPAYMPRIN& tNT Equal Pap-mt 15 ra - MS14,00OOO

SOURCE: TABLE S.Noh: Vaes for hidb1if yws 21 - 29 glm hi proud film.

Io x%OO'

DV429NMPROR=

YOU41111 a 2 5 4 5 6 7 0 9 to 11 12 13 la Is Is I? to it 0 21 n is 24 25 35 n a n n-----------

A. MM PLANTRO-----------OMPALMOMOM 2M ON L710 CM �" tm Lm t.= t" sAw t.%2o tAn Sao S= imt ime UN Lias W tM 106 IMO 'An m tu 114 du 60 c" 4"TMIRAIM tu " 12.4 LS U 11 7.7 " W LS Ls u Ls u Ita as " Is 72 14 7i 73 7.2 7A " Si 49 4i U "TM IfA t"3 ILI " itA 43 #A 1.1 7.7 " V LS ILt ILI u Li lLi 92 as to 7A 7A 73 73 72 u " 34 4.9 4LS SA?MHA 1194 IIA " ILO 63 U 72 7.7 11A L7 Ls u Li Li u IL2 L2 go 90 is 7J 73 73 la u ds u 49 "?mIIA t"S iLl " gLe AL3 ILI 72 7.7 u IL7 23 Lt at ILI el u u ILO " 73 IA 7J is la 74 69 SA 49--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---StqMAL IU 243 S?J 4M 3M SU 27.7 30 M SU 3" "A SU 323 US nd nS n4 3" 3L9 liss 9U 20J 20A 2L5 2L4 US 215 ILI IM--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---Itu"MCOST111h LM "I 561 L200 463 440 9" 1.233 LS34 IA14 KAN I" SA37 L04 IA42 I.M IAM Ij% t4oa SAW tAge S,4W !ilo LSS LMD IJO WM S.1041 LM U944$WHA 1102 1364 42 2.7 58 Lt LI L4 is 6.4 " 7.2 ?Ld is 72 7* 7J 73 73 1.3 69 as " " 63 " 42 3x 5.1 M 534MHAI"3 13A " zi Ss 92 Li 4A 13 49A as 1.2 7L4 Tj 72 70 7.3 73 7i 1.2 as as as as Ls G2 Ss 17 Li4="A lo" ISA 42 2.7 Ss 2.2 u 4A is 4.4 M 7.2 7A is 72 79 7J 7i 7J 14 69 69 Is &2 is ILI 52 174=nok RIP3 13A 4a V 32 2.2 2A u Si " fLe 73 IA 7.9 ?A 7.9 7-4 7J ?j 7.2 69 as " 13 12 Ls 62 is--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---SUMMAL t3A ILL 2M 2U 93A tZB 14.9 14.3 ILS 212 239 2" 20A 3M 514 SU 3LI 30A 29.1 ZPA 203 27.11 272 21.8 213 14U 27A ItA 213 2W--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---(XI sclemcos. SIA 43A S&I 703 47A 412 423 44A SU S" 392 6IJ "I 42S 49A 617 O" aS 41A OM AS 37-9 XI 53A U9 40 41A 4LO 41A 90ACcenROADS La $A 1.2 as 0TRAR111040(50%) 1.7 S.? 0.7FELCRAOVMMAD(19%) SU Its IZA W " Is 9A PA " 9A 9.0 9.0 tio OA to OA 9.0 PA ta VA PA VA OA VA PATOrALDZVELCOW 441 S" 7" _!�4 -3-3A- -;A; _;�'s S- -;a:$ -4-R-9------------ ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...PRO)ECT OENSM

;w;Zr 0 0 0 1.7 !1.1 gj I" W 2u 21.1 2t.3 2LA 21.7 2LO 22.3 2LG 22A 22A 2t.2 20.2 IVA IVA 194 IU 173 iLS L" 14A 143 142?2WHA 1192TOW 121 SL7 aA IOCLI ISLO 14U 1919 Ina 0341 RAI OV laO 1627 161.3 14U ISM 1414 14LI 13*7 1962 13" 12" ItU 1114 "" SOLS NM72Wf41A lg"TONS IU 30 WA 901ki 13LO 14211 1319 Ina Iftt 19162 Ins 16M 1917 t6I.3 16LS tnf t414 14LI Ilk? INS 1319 12" 110 itiA IOU WUIMMA 109$1 OLZ X7 GRA IDMI IJLS 14M ISO Ina 1341 SUZ 19%7 SaO SW iSL9 W3 ISU 1414 t4U SSW IMS 13" 124,6 tiltS tILAo NM720011A t"ITONS t2.2 SO 68.4 IOMI 131A 140 131.10 Ina ISU 0962 157.7 laO IdLI IOLS I$L3 Ing 14SI 14U 131LI 130 13" 22" SIU 2IL6-z ;;;; ii;; ;;i; --- W3; ;,�; ;;; --- WL; --- --- --- ;;t; --- --- ;�O; --- ;,;; --- WLI- --- ;3;;St.1111WALION PM M (W 43al 6im =0 4W 6417 079 6206 YM 33LS 441.4--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---OILPALMPRKE 14" 1390 isto 160 IdOO InD 13MO 3430 14LO 13dO 1320 12M 12LO SIM ligo lige ligo tioto ltto site A liw ltto logo lsto ltto ttto ISM tice tice It=CILPALAgVALUE an M SW 2S 7.41 IL2 32A 4U 6M 7U 773 71A 7U M 743 73A 710 X4 713 712 702 SL3 "4 45A "I 4W 37.7 $95 24 soRUBMY� 0 0 0 0 0 0 0 310 M 1.190 1.410 IXD IAO 1.700 1.720 1.730 1.130 1.730 1.130 L720 L710 1.701) IAM IAGO IGS tim tm L90 I" I=4111181110% IMTOW 23 4A V as 7.3 1A U $3 83 0.4 LS IO OLS 0.2 L2 ILt to 71 7.3 7.7 7A 73 7.2"WHA IMTCNS 13 4.4 3.7 as 73 72 8.2 93 IL3 L4 83 83 93 92 92 el IA 11 72 1.7 7A 7i4100HA1094.010 Ls 4.4 9.7 " 7J is u 93 93 L4 63 63 L9 ILZ 92 tt " 7.9 is 1.7 ?A4MOHA WSTOM 2.3 4A 17 " 73 72 IL2 LS 93 IL4 IL3 Ls 23 92 L2 Si " " 74 7.7St.1111WALTOMIAIM w OA 0.0 OA 010 GM u 2.3 69 12A 19A 24.2 27A 3MO 113 W 311 n3 33J W 3M 3" 3V MA 3M US 31A 3LI 30 3uRUIS0113tFILICZ L16 L27 2.27 2AP 24P L73 2M 2.77 2.77 2.77 L73 L71 2AD 20 2A) 2AP 2.0 2AN &a 2AP 2AIP LO 2AP 2LO za 2a to am in 2"Rtn� VAIM ao " " Go OA do ea 69 194 SW " 6" 74A $M? AW7 87A 0.1 NJ VA 89J 9#0 SU 871 WYJ IOU US MA U5 Uj MA......... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...IMALPRORWrIENEM u no OA 2a 7.9 IL2 11U W OZA IOU 1364 1434 14IL2 1540 !JM IUS ISM Id" WO la? INS IMP ISU 1322 1419 14U 142A RUO SS" L"trmogagm -491 -x2 -ns -4124 -4116 -3W -07 SA 22S 41A 4SIA 7JU 711A UJ MA 9" 92S 9U 142 "A ftA OM IV IFTA U3 K3 9U MA SU WM llqb

00 OM IM IM SW IJI 7JO 7JO 7JD IJO IM 7JO 7.30 7J& 74111 7M 7JO 1.30 7JO 7JO 7.30 7JO 7-V ?A) ?JO MD 7M ?JO 7.50 ?MPOOTDOCKWAINTALMIEWIT112 (46A) (97.71 (7" (BU) (" (ZL* QL2) 0.9 3U 4PJ OA IOA 0126 04 9" 97J WM IOIA 190 IOMV WA "J OL2 94S OU Mg WA 9M 9LI S"am 001,

,4tAcrCD

- 116 -ANNEX 6Table 11

MALAYSIA

THIRD FELCRA LAND DEVELOPMENT PROJECT

Sensitivity Analysis

Product Labor Cost Productivity ERR 2Price Gain

Rubber

Case 1 Base (IBRD) +2Z/yr +2S/yr 12.0 BaseCase 2 -lOS 10.5Case 3 -201 8.5Case 4 +10 13.5Case 5 Base 10.6Case 6 -20 0 7.1 PessimisticCase 7 Base 3 14.5 Optimistic

Oil Palm

Case 1 Base (IBRD) +21/yr +2Z/yr 11.0 BaseCase 2 -10S 7.0Case 3 -201 4.0Case 4 +1OX 12.0Case 5 Base 8.5Case 6 -10x 0 5.5Case 7 +10X 0 10.8Case 8 Base 3 12.0

- 117 - ANNEX 7Page 1 of 2

THIRD FELCRA LAND DEVELOPMENT PROJECT

Documents in Prolect File

Documents Pregared by FELCRA

Preparation Report (for Preappraisal) of the Proposed Third FELCRA LandDevelopment Project, August 11, 1991.

Volume I Main Report

Volume II Appendices (Working Papers)

1. FELCRA's Performance2. Basis for Agricultural Development Cost3. Infrastructure Program and Costs4. Vehicles and Equipment Costing5. Costing for Village Development Program6. Rural Industrialization Program7. Cooperative Development in FELCRA8. Institutional Strengthening9. Proposal for FELCRA's Training Program

Revised Statements (for Appraisal):

Infrastructure Program and Costs- FELCRA Road Projects- Vehicles and Equipment Procurement- Electricity Supply System for FELCRA Housing Schemes- Water Supply Systems for FELCRA Housing Schemes- Staff Quarters and Scheme Administration Buildings

Institutional and Manpower Planning- Institutional Strengthening- Engineering Services Division

Agricultural Performance Study

Manual for State Procurement (Translation of Procedures)

FELCRA's Detailed Financial Statements Including Sumiary ofAgricultural Schemes - December 1991

Performance of FELCRA Cooperatives up to 31.12.91

- 118 - ANFA 7

Page 2 of 2

Action Plans:(i) Proposed Action Plan for FELCRA's disengagement from direct

management from agrlcultural schemes(ii) Implementation of reduced frequency tapping systems

Consultant Reports contracted by the Bank as part of Proiect Preparation

Saxena, S.K. Cooperatives in FELCRA - December 7, 1990

Eschback, J.M. Report on (Reduced Frequency Rubber TappingSystem) for FELCRA - March 1991

Boonsue, K. Women in Development Component of FELCRA Project- June 1991

Naur, Maja Village Redevelopment Program - SociologicalAspects - October 25, 1991

Taylor, Donald M. The Rural Industrialization Program of FELCRA -November 1991

O.her Documents

Laws of Malaysia Act 398, National Land Rehabilitation andConsolidation Authority (Incorporation) Act1966. Revised 1989

KPFB Holdings Sdn. Five-Year Business Plan - December 1991Bhd.

Government of Malaysia A Guide to the Preparation of Terms of Referencefor Highway/Road Projects Department ofEnvironment, Kuala Lumpur - October 1989

Government of Malaysia National Policy on Women. Office of Women'sAffairs. Prime Minister's DepartmentKuala LumpurOfficial Translation - April 15, 1991

Government of Malaysia Malaysia: The Way ForwardWorking Paper by The Prime Minister of Malaysia- February 28, 1991

MALAYSIAT1IRD FELCRA LAND DEVELOPMENT PROJECT

Organizatonal Chart of FELCRA (1991)

Bowd

Iuiwy Eduo D . BudgtI

~~~.

I ~ I

_ S"b~~~~~~~~~~~~eWs _ dan _am~ S l

> - t ~~~~~~~~~~~~~~~~~~~~c~B7

VW8,'O

aams o

lbdu . la

-evm S : e$n a SW.oAWAW So_gpi _oDv FkA ' ' ' , r r_ I-n I00 oId _evi I I I I I I I

surosy Edwoman & DBv. Budge

- 120 - FIGURE 2

MALAYSIATHIRD FELCRA LAND DEVELOPMENT PROJECT

The Agricultural Development Process

SCHEDULED EVENTS RESPONSIBIUTY

Scheme Identiflcathn

Ownership \4rilcsn |

Plannin,g & Development Dlhvllon

Feasibility Rprt Preparation

Exutie Approval Committee (EXCO)

| lWaury, Federal Government | } Man em seAO v Blonudget setion

bchnkal Review andlContract Preparaton

CalAng of TbnderUp to M o0.oo Above MS50.000 chnlb d Servkes Dvsbon

State Oces Head Office

Tbnder Evaluaton

1-------- Procurement Oomltme

Contract,Awad lbnder Award CommitteeContract AwardUp to MS5,OOO Above M$8O,000

EXCO Approval .- - EXCO

Ltr of Award | llder Award Commie

Scheme Implementaton Statse Omce

odv5O7C

MALAYSIATHIRD FELCRA LAND DEVELOPMENT PROJECT

Organization of Proposed Plantaton and Finance Dhsilons

-Rubber bpigQualit control AgnoultiWa EvaluatioO- o crops

Cop and Envromental Protction

L _anm Dision

F-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-EDDbmic DM

A="m_es

l I~~~~~~~~~~~~~~~~~ckiU

MAP SECTION

IBRD 23771

100' \s 10I 10E41

THIRD FELCRA PROJECTFELCRA STATE OFFICES, TRAINING CENTERS

AND PALM OIL MILLS

A STATE OFFICES UNDER CONSTRUCTION

Ka PROPOSED NIW STATE OFFICE

PEl0 1TIAo NING CENTR

'C~ w I U OOR SETAR P IL MILLS

^ STATE CAPTALS 6| KEDAH t _Px J | mNATIONAL CAPITAL

= xirtJDSTATE BOUNDMIES

V\- INEWRNATIONAL BOUNOAES

TrengganuP PINANG KELANTA

\> PERAK - TRENGGANU

SOUTH

t tNASARUDDIN ) t tJ > CHINA

>\,PERAK \> h 7 SEA

4- 4 < u > 25 .

10 b PAHANG0

019 MARAN

T \ ~~SELANO (Y KUAPRL A99

0 W0R 20 30 40 50 60

"BI d D°f" gn m ' NEGRI \ t KI~~~~~~~~~~~~~~~~~VLOMETERS

.h. r"_mb r ,

f_ 0f, < } ~~~~~~~~~~ ~~KUALA i00. > ~~~~~~~~~~~~~~~~PILAH {g>

9 L^D A t < MELAKA 7 ~~~~~~~~~~~~~BUKr |{)t 9 g i ~ ~ ~~~~~~~~~~ ~KEPONG

tt >/ t X ~~~~~~~~~~JOHOR\ , hv v ~~~SC)TH

Zo0\ ~~~~CHINA \JOR

~~~~~~~~~~~(Sumcra)eX \APPJL 1992