Document of

Tlhe World Bank

FOR OFIIClAL USE ONLY

Report No. 13161

PROJECT COMPLETION REPORT

MAURITIUS

SUGAR INDUSTRY PROJECT(LOAN 2728-MAS)

JUNE 14, 1994

Agriculture and Environment DivisionSouth-Central and Indian Ocean DepartmentAfrica Regional Office

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

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CURRENCY EQUIVALENTS

Year Mauritian Rs/US$ US$1Mauritian Rs1982 10.873 0.09201986 13.466 0.07431987 12.878 0.07771990 14.863 0.06731991 15.652 0.06391992 15.624 0.06401993 17.500 0.0571

(Estimate)

WEIGHTS AND MEASURES

1 arpent = 1.043 acres = 0.422 hectares1 acre = 0.959 arpents = 0.405 hectares1 hectare = 2.369 arpents = 2.471 acres1 metric ton = 1.102 short tons = 0.984 long tons

ACRONYMS AND ABBREVIATIONS

AMSP Agricultural Management and Services ProjectBEDP Bagasse Energy Development ProgramBOM Bank of MauritiusCEB Central Electricity BoardECU European Currency UnitEU European UnionFSC Farmer's Service Centers/Farmer's Service CorporationGATT General Agreement on Tariffs and TradeGOM Government of MauritiusIA Irrigation AuthorityIPU Irrigation Planning UnitMCA Mauritius Chamber of AgricultureMOA Ministry of AgricultureMSA Mauritius Sugar AuthorityMSIRI Mauritius Sugar Industry Research InstituteMSPA Mauritius Sugar Producers AssociationMSS Mauritius Sugar SyndicateMTR Mid-Term ReviewODA Overseas Development Administration, UKSAP Sugar Action PlanSAR Staff Appraisal ReportSEDP Sugar Energy Development ProjectSIEA Sugar Industry Efficiency Act, 1988SIES Sugar Industry Efficiency StudySOE Statement of ExpendituresSPES Small Planter's Efficiency Study

FISCAL YEAR

July 1 - June 30

FOR OFFICIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A.

Office of Director-GeneralOperations Evaluation June 15, 1994

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

Subject: Project Completion Report on MauritiusSugar Industry Project (Loan 2728-MAS)

Attached is the Project Completion Report on the Mauritius Sugar Industry Project (Loan2728-MAS) prepared by the Africa Regional Office with Part II by the Borrower. The Loan ofUS$30.0 million was approved in June 1986 and closed in June 1993, a year late, with US$1.6 millioncanceled. ODA/UK cofinanced US$1.63 million for technical assistance.

In the early 1980s revival of the dominant sugar subsector featured in two structuraladjustment loans and in sector report dialogues with the public and private sectors. Government andprivate sector proposals led to The Sugar Action Plan (SAP) for 1985 to 1990, on which the projectwas based, and to legislated structural changes. The SAP targeted productivity and diversification. Theproject was a mix of investments, institutional strengthening, and complex policy and technical studies.It was to finance sugar mill machinery and fertilizers; set up about 16 Farmers' Service Centers(FSCs) for smallholders; strengthen the Mauritius Sugar Authority (MSA), especially for policy work;support research by the Mauritius Sugar Research Institute (MSIRI) and studies on diversificationby the Ministry of Agriculture (MOA); and provide technical assistance.

Despite delays against an ambitious plan, sugar mill and fertilizer investments (80 percent ofcosts) met targets, the main set of studies (by MSA) led to further reform legislation and MSIRI didplanned research. Consultants provided valuable assistance. However, an incomplete institutionaldesign caused difficulties for the FSC component, with only four centers being built (serving a thirdof the farmers planned), and five more started. Difficulties were resolved by creating the Farmers'Service Corporation. MOA did not pursue diversification. Follow-up was weak by Government onsome studies and by the Bank on some institutional aspects and after the joint mid-term review.

The PCR is deficient and inconsistent in places, and (in the absence of monitoring andevaluation) is inconclusive on the impact of the main investments in sugar mills, fertilizers and FSCs(being silent on the rate of return). The main lessons are not new: the importance of resolving policyissues first; that stakeholder participation brings commitment; that objectives and implementationschedules should be clear and realistic; that institutional designs should be well advanced, and thatmonitoring and evaluation is important. The project is rated as satisfactory, sustainability as likely(although the Borrower notes that financial viability could be temporary) and institutionaldevelopment is rated as substantial.

An audit is planned to clarify design issues and outcomes.

Robert Picciotto

by Hans-Eberhard KoppAttachment

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

FOR OFFICIAL USE ONLY

PROJECT COMPLETION REPORT

MAURITIUS

SUGAR INDUSTRY PROJECT(LOAN 2728-MAS)

TABLE OF CONTENTS

PREFACE.i

EVALUATION SUMMARY.iii

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE .................. 1Project Identity ............................................. 1Project Background .......................................... 1Project Objectives and Description ................................ 2Project Design and Organization .................................. 2Project Implementation: Overall and by Components ..................... 3Project Results ............................................. 6Sustainability .............................................. 7Bank Performance ........................................... 8Borrower Performance ........................................ 8Relationship between Borrower and Bank ............................ 8Consultants .............................................. 9

Project Documentation and Data .................................. 9

PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE ... ...... 10

PART III: STATISTICAL DATA ............... .. ................... 12Table 1: Related Bank Loans .................................. 12Table 2: Project Timetable .................................... 13Table 3: Loan Disbursements .................................. 14Table 4: Project Implementation ................................ 15Table 5: Project Costs and Financing ............................. 16Table 6: Studies .......................................... 17Table 7: Status of Legal Covenants ............................... 18Table 8: Use of Bank Resources ................................ 20Table 9: Sugarcane area, production and yields, 1980 through 1992 ... ....... 22Table 10: Sugar Production, Sales and Unit Revenue 1985-1986 to 1992-1993 ... . 23Table 11: Technical and Financial Performance: 1983-92 ................ 24Table 12: Employment in the Sugar Industry ......................... 25

ANNEX - COMMENTS BY OVERSEAS DEVELOPMENT ADMINISTRATION ..... 27

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Banlc authorization.l

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PROJECT COMPLETION REPORT

MAURITIUS

SUGAR INDUSTRY PROJECT(LOAN 2728-MAS)

PREFACE

This is the Project Completion Report (PCR) for the Sugar Industry Project in Mauritius(Loan 2728-MAS), for which a loan of US$30 million was approved on June 26,1986, becameeffective on January 15,1987, and was closed on June 30, 1993, 12 months after the original closingdate. The last disbursement took place on October 29, 1993, at which time the undisbursed balanceof US$1.62 million was cancelled.

Parts I and III of the PCR were prepared by the Agriculture and Environment Division, SouthCentral and Indian Ocean Department, Africa Region. The comments received by the Governmentof Mauritius have been incorporated as Part II. Comments by the co-financier, the OverseasDevelopment Administration, United Kingdom, have been attached as an Annex to the report.

Preparation for this PCR was started during Bank missions in July and September-October1993, and is based, inter alia, on the Staff Appraisal Report, the Loan Agreement, supervisionreports, and internal Bank memoranda.

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PROJECT COMPLETION REPORT

MAURITIUS

SUGAR INDUSTRY PROJECT(LOAN 2728-MAS)

EVALUATION SUMMARY

Background

1. The central issue of the sugar sector at the time of project formulation was that of the sharingof rent in a protected market among the sector partners (mills, growers, labor and the government),articulated in an environment of intense mistrust between the government and the private sector. Thefinancial viability of the sector was being continuously eroded, mainly due to the export tax. Againstthis background, the project followed the Sugar Action Plan (SAP) of the Government of Mauritius(GOM) in 1985 and the Bank's sector study.

Project Objectives and Description

2. The project's main objective was to provide means to promote the viability and increasedproductivity of the sector, and agricultural diversification through the correction of distortions withinthe sector. The specific objectives were to: (i) rehabilitate and modernize the sugar mills; (ii)strengthen the sector financial performance, increase its transparency, and broaden mill ownership;(iii) improve productivity in the use of land, labor, fertilizer, machinery, and equipment in sugarproduction; (iv) support the development of irrigation and the use of bagasse for power generation;(v) improve small farmer technology; and (vi) promote research on technology development.

3. The project components consisted of: (i) the acquisition and import of machinery, equipment,capital and intermediate goods, and raw materials required for the rehabilitation of the sugar mills;(ii) the import of fertilizer and fertilizer materials; (iii) technical assistance, office and logisticssupport for the Mauritius Sugar Authority (MSA), mainly for the Sugar Industry Efficiency Study(SIES) to assess the industry's financial situation and recommend appropriate fiscal and otherpolicies; (iv) establishment of the Farmer's Service Centers (FSC); (v) support to research programsof the Mauritius Sugar Industry Research Institute (MSIRI) and the Ministry of Agriculture (MOA);and (vi) strengthening the sector management capability of the MOA.

Implementation Experience and Results

4. The originally scheduled closing date (June 30, 1992) was extended by one year, both dueto delays in the physical implementation of the second phase of the FSC program and thecommissioning of a study of environmental importance, namely the Characterization of SugarIndustry Waste. The estimated project cost at appraisal was US$44.9 million, with a foreignexchange component of US$30 million to be financed by the Bank. Part of this was met later by aco-financing agency, Overseas Development Agency (ODA), which was not originally a projectpartner. The final actual project cost was US$43.46 million, of which Bank financing amounted to

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US$28.38 million (94.6 percent of the original loan amount). ODA financed technical assistance forthe FSC in the amount of US$1.63 million.

Project Implementation

5. The overall performance of the Borrower was highly satisfactory. Despite a nominal delayin effectiveness and delays of varying lengths in implementing some components, there was no criticalvariance between planned and actual output. Loan provision for mill machinery and fertilizer importswas fully utilized. The SIES was completed and was followed by legislative measures. The FSCpilot program was a success, but implementation of expansion faced problems. Research programs,however, did not rise up to appraisal expectations. Procurement, after an initial period of gainingexperience, posed no major problems. Audit and accounts are up to date, after lagging behind in thefirst half of the project period.

6. The factors that affected project implementation were: (i) inter-departmental tensions withinGOM; (ii) bureaucratic procedures; and (iii) GOM's reluctance to vest the project entities with neededoperational independence. These risks were not fully identified in the Staff Appraisal Report.

Project results

7. The project has successfully supported its central objective: the viability of the sugar sector,which will continue to be crucial for the economy of Mauritius. The results, achieved in a highlysensitive socio-political environment, can be summarized as follows:

(a) Policy reforms. Overall, the most significant project achievement was the rapportbrought about between the private sector and the GOM, for constructive partnershipin sector development. Systems were installed to enable problem solving (exportduty, taxation of bagasse energy and irrigation management) within a more stable andpredictable policy environment.

(b) The mill sector. The financial performance of the industry improved substantiallyfollowing rationalization of the export duty. The project provided needed support forthe private sector in ensuring foreign exchange for investments. Mill investmentsdoubled compared to the average of 1982-86. Mill performance improved in bothsugar produced and reduction of sugar losses in manufacture (Tables 10 and 11 a).The SIE Act, 1988, has provided fiscal incentives for productivity increases.Systems were installed to increase the transparency of the closely held private sector,through standardization of financial reporting. But mill ownership could not bebroadened. The further reforms in export duty in 1993 have set signals for closureof uneconomic mills, which has already triggered an industry response.

(c) Land. Yield of sugarcane per hectare increased during 1987-92 by 6.73 percentcompared to 1980-86 average, but more in the corporate sector than individualplanters. There has been a reduction in the area under cane by about 2.64 percentfrom the level in 1980 (Table 9) in favor of food and other export crops.

(d) Labor. The Bank was not able to influence labor policies (wage increases, and therestrictions in redeployment of surplus labor). Despite this, there has been a large

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shift of labor away from the sector (a reduction of about 16.5 percent in 1992 overthe level in 1986) (Table 12), as a result of mechanization.

(e) Baeasse. The project substantially contributed to promote utilization of bagasse forenergy production through:

(i) policy changes in the taxation of electricity sold by the mills;

(ii) constitution of the Bagasse Energy Development Committee;

(iii) fiscal incentives under the SIE Act for using bagasse for energyproduction; and

(iv) assistance to the borrower in the preparation of the Sugar EnergyDevelopment Project (SEDP).

(f) Irrigation. Water resource allocation among competing users in a major basin wassettled. A Bank financed study led to proposals on pilot surface irrigation schemes,and strengthening the Irrigation Authority (IA) as part of the AgriculturalManagement and Services Project (AMSP).

(g) Institution building. The objectives were substantially achieved in respect of MSAand FSC, but not in research. The MSA has become crucial as a technical advisorto the Government and as a link between the private sector and the publicinstitutions. The FSC has filled a void in the small-holder sector through theprovision of inputs, and extension and research linkage. As regards research, theimpact of MSIRI's programs, especially on small farmer productivity, is yet to beassessed.

(h) Diversification. MOA did not utilize the opportunity to reorganize its research wingto generate a diversification sub-project. The amendments to the SIE Act in 1993have widened the scope of incentives for non-sugar production, but it is too early toassess its impact.

Sustainability

8. Project results have a high probability of sustainability due to the following: (i) GOM'swillingness to continue the policy reforms initiated under the SIES, as demonstrated in the measurestaken in 1993, in consultation with the private sector; (ii) industry response to the signals set by thegovernment towards consolidation of mills, and utilization of by-products; and (iii) action initiatedfor the restructuring of the small-holder sector in cane towards improved productivity throughconsolidation of holdings and extension services.

9. To ensure sustainability, several issues still need to be addressed. It will be crucial toconsolidate institutional development in respect of the MSA, FSC and the reorganization of theextension and research wings of MOA. MSA requires a more broad based structure. FSC has tobe secure in its finances and operational freedom. An economic assessment of its costs and benefitsis due. In the reorganization of the MOA, the roles of the various institutions in the sector will needto be clearly spelled out. The successor projects (AMSP and SEDP) will contribute to maintain

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continuity. As regards labor, GOM should shift away from frequent wage increases unrelated toproductivity, and policies that hinder mobility of labor.

Findings and Lessons Learned

10. The lessons learned from this project are as follows:

(a) The project quality at entry was high; it was preceded by the Bank and the IMFaddressing macro issues, which set in place an appropriate policy framework.Further, project preparation was a detailed exercise by the Borrower, involving Bankassistance and association of the private sector, which fostered ownership andcommitment.

(b) The project objectives encompassed the entire sectoral needs, both short and longterm, and in result transcended what could be achieved within the project period. Itwould have been better to have distinguished between the two, set monitorable targetsfor the first and evaluable steps to set in track the second. In practice, however, theproject achieved this in the steps taken to install a policy framework towards longterm objectives and generate two successor projects which would continue towardsthe goal.

(c) In the country context, (IBRD loans to a country not in distress), there are limits tothe Bank's ability to force the pace of reforms. Yet its role as a counsel and honestbroker has gained it high respect and acceptance and a good measure of influence.This should be sustained, in view of the relationship established with the Borrower,the sectoral knowledge gained, and the continuing importance of this sector in theMauritian economy.

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PROJECT COMPLETION REPORT

MAURITIUS

SUGAR INDUSTRY PROJECT(LOAN 2728-MAS)

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Project Identity

Project Name : Sugar Industry ProjectLoan Number 2728-MASRVP Unit Africa RegionCountry MauritiusSector : AgricultureSub-sector Sugar

2. Project Background

2.1 General. The origin of the sugar industry in Mauritius dates back over three centuries, anddespite the diversification of the economy into other sectors (mainly the textile industry in the ExportPromotion Zone), it continues to be crucial. Nearly 90 percent of the arable land of the country iscultivated with sugarcane, with 55 percent of the land and 60 percent of the production through 19milling companies and 21 estates, known as miller-planters (all but one privately owned). Thebalance of 45 percent of the land, producing 40 percent of the cane, is farmed by about 35,000 smallfarmers. Out of an average annual production of 650,000 tons of sugar, Mauritius exports all butabout 6 percent of its sugar production, and enjoys preferential market access in the European Union(EU; 510,000 tons) and the United States of America (USA; about 15,000 tons). The balance istraded on the world market at prevailing prices. The industry operates in a highly structuredenvironment, with private and public sector operators, and large and small cane growers.

2.2 Policy Context. By the end of the 1970s and early 1980s, the sugar sector was facing acrisis due to a variety of factors: the precipitous drop in the world sugar prices since the end of1976; cyclones in 1975 and 1980; and a poor macro-economic environment (high inflation andforeign debt) together with the worsening financial situation of the sector hampering investmentsneeded for rehabilitation and modernization. A conflict ensued between the Government of Mauritius(GOM) and the industry. The industry claimed that the fiscal and labor policies of the GOM wereleading to a financial crisis. GOM in turn questioned the industry's transparency and its financialaccounting systems. The tension rose in 1984 when the GOM appointed a Sugar EnquiryCommission that issued two sharply divergent reports: one-sided with the Government and the otherwith the industry.

2.3 The issues to be solved at that time were: (i) the financial viability and investment capacityof the private sector needed to be restored; (ii) the industry needed to be made more open andtransparent for its financial presentation to be credible; (iii) fiscal incentives were needed forincreasing productivity and diversification, while still taking full advantage of the EU and USA sugar

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regimes, within a target level of sugar production; (iv) the productivity of the small farmers had tobe increased through improved extension, etc.

2.4 Linkages between the project, sector and macro-policy objectives. The general macro-economic issues were addressed through World Bank and International Monetary Fund (IMF)supported adjustment programs in the early 1980s, leading to fiscal and monetary restraint. In thesugar sector the following measures were taken by 1985: rationalization of the export duty; liftingof the ban on the closure of unviable mills; the setting up of the Mauritius Sugar Authority (MSA)as the Government's technical wing in the sector; and the presentation by the GOM of acomprehensive Sugar Action Plan (SAP), which formed the basis of the project. The centralobjectives of the SAP were improving the productivity in the sugar industry within a target level ofsugar production, diversification of resources away from sugarcane to production of food and exportcrops, and strengthening the small-holder sector through services and technology. The projectobjectives were based on the SAP.

3. Project Objectives and Description

3.1 Project objectives. The project was aimed mainly at securing the long-term viability of thesector by the promotion of efficient use of resources in the sugar industry, raising the productivityof the smallholders, better use of sugar byproducts, and agricultural diversification. The specificobjectives for the project period were to: (i) rehabilitate and modernize the sugar mills; (ii)strengthen the financial performance of the sugar-mill sector, increase its transparency and broadenmill ownership; (iii) improve productivity of land, labor, fertilizer, machinery, and equipment insugar production; (iv) support the development of irrigation and the use of bagasse for powergeneration; (v) improve small farmer technology; and (vi) promote research on technologydevelopment.

3.2 The project components covered the provision of foreign exchange for: (i) acquisition andimportation of machinery, equipment, capital and intermediate goods, and raw materials required forthe rehabilitation of the sugar mills; (ii) importation of fertilizer and fertilizer materials; (iii) technicalassistance, office and logistics support for the MSA, mainly for the Sugar Industry Efficiency Study(SIES) to assess industry financial situation and recommend appropriate fiscal and other policies; (iv)establishment of the Farmer's Service Centers; (v) support to research programs of the MauritiusSugar Industry Research Institute (MSIRI); and (vi) strengthening the sector management capabilityof the Ministry of Agriculture (MOA).

4. Project Design and Organization

4.1 In 1984 the GOM commissioned the MSA to prepare an SAP for the restructuring of theindustry. The MSA associated the private sector in the exercise with the representative organization,the Mauritius Chamber of Agriculture (MCA), presenting a Master Plan to the MSA in November1984. The SAP was forwarded by the GOM to the Bank in March 1985. The MSA, with Bankfinanced consultants, prepared the project, in close collaboration with the private sector, leading toownership and commitment on the part of the Borrower.

4.2 There was a clear conceptual foundation for the project. The project was well prepared, andwas timely: it took advantage of the determined efforts initiated by the Governrment to arrest thegeneral economic decline and the opportunity to dove-tail it to reforms in the sugar sector. The

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project had a judicious mix, firstly, of foreign exchange support for the private sector and physicalinvestments and secondly, in institution building and improving the policy framework. Finally, theproject design covered all facets of the industry as a result of the focus on long range objectives. Butto an extent there was a gap in distinguishing clearly between short and long run objectives, andspelling out the specific results expected in each within the project period.

5. Project Implementation: Overall and by Components

5.1 The Loan Agreement was signed on July 11, 1986 and the project became effective onJanuary 15, 1987, about three months behind schedule. The nominal delay was due to the completionof formalities in the recruitment of two expatriates and a local candidate for three positions. Theproject was originally scheduled to be closed on June 30,1992, but was extended by twelve months,mainly to provide financing for the second phase of the Farmer's Service Centers (FSC) program andthe Sugar Waste Study. Delays in implementation (which at least in part were due to the optimisticdeadlines set in the Staff Appraisal Report, SAR), did not amount to critical divergence from plannedoutput.

5.2 The Sugar Unit of the MOA, under a Bank seconded expatriate Sugar Industry Specialistwas in overall charge of coordination of the work of the implementing agencies: MSA, MSIRI, FSC,the Irrigation Authority (IA) and the Bank of Mauritius (BOM). It played a crucial role in projectimplementation and policy dialogue with the GOM for fiscal reforms. The individual componentswere implemented as below.

5.3 Mill modernization and fertilizer imports. The BOM, with the MSA as its technicaladvisor on mill investments, was responsible for these components. Following an initial restructuringof the export duty and in the climate of growing confidence within the private sector, investmentsincreased and the loan amount was fully utilized (US$15 million), as was the provision for fertilizerimports (US$9.4 million).

5.4 Institutional support to MSA. MSA has been strengthened to become the primary technicaladvisor to the GOM in the sector, as a crucial link between the private sector and the Government,and as a coordinator among the various public agencies. A full time Executive Director (a conditionof effectiveness) and three departmental heads were appointed. The MSA, with technical assistanceprovided under the project, completed the SIES, covering industry accounting norms and presentationrequirements, revaluation of the assets of the industry, broadening of mill ownership, and laborproductivity. The study led to comprehensive policy measures, through the Sugar Industry EfficiencyAct (SIEA) of 1988, including the export duty, and tax concessions for modernization and utilizationof by-products. In addition, project funds were utilized for project preparation of the AgriculturalManagement and Services Project (AMSP, Loan 3333-MAS, signed on June 5, 1991) and the SugarEnergy Development Project (SEDP, Loan 3458-MAS, signed on July 1, 1992), for the SmallPlanters Efficiency Study and the study on the Characterization of Sugar Waste. Despite asatisfactory overall record, implementation lagged behind in the following.

(a) Bank's efforts to strengthen the MSA structure, particularly with reference toeconomic assessment of policy needs, have been only partially successful. MSA isstill an institution dependent on a few key competent and dedicated staff, who lacksupport.

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(b) The reforms under the SIEA were intended to provide for annual, and transparent,assessments of the industry situation and policy adjustments. Partly through alukewarm response of the industry to submit returns and partly due to the MSA'sweakness in providing support, this is not being done annually. With recentlegislative changes linking the claims for tax concessions to the submission ofreturns, and the increasing association with the private sector in annual financialassessments of the sector, there is room for optimism.

(c) The assessment and implementation of the recommendations of the Small PlantersStudy were not executed in a structured and coordinated manner.

5.5 Farmer's Service Centers. As against appraisal targets of sixteen centers, only four hadbeen established by mid-1987, and construction of buildings for five more was started in 1992, afterthe Mid-Term Review (MTR), jointly by the Bank and Overseas Development Administration (ODA)(who co-financed this component to provide three experts for managerial positions). The last fivecenters could not be completed within the project period. (One was completed in September 1993,and the others are expected to be commissioned by February 1994). The African Development Bank,after a feasibility study by FAO on its behalf, is considering the financing of three more centers, tocomplete coverage of the entire island. Under the Farmers Service Corporation Act of 1991, the FSCis now a statutory organization. It has become a crucial actor in the sector and its role towards thesmall farmers qualitatively has been endorsed by the Bank/ODA MTR, ADB/FAO study and othersunder the project, in respect of provision of inputs, research dissemination, and organization forbetter productivity (mainly, the consolidation of fragmented holdings through Land Area ManagementUnits). Through this pilot experiment in the project, the Bank has facilitated an infrastructure fora one-stop service center for the small farmers. The technical assistant provided by ODA ensuredthat local counterparts would be trained to take over the responsibilities in the three managerialpositions of the General Manager (now designated as Director), the Agricultural Engineer, and theTraining Manager. However, this component faced many problems during implementation. TheSAR arrangement, in view of the pilot nature, of leaving the institutional structure ad hoc, pendingMTR, was understandable. But it inadequately appreciated the need, in the interim, to securearrangements for counterpart funds, and recruitment of personnel. The MTR was not followed upby the Bank to interact with the GOM on positive measures to address the issues of organization,funding, staffing and the relative roles of the various entities in the Ministry as regards extension.The constitution of the entity as a corporation, by legislation, has not as yet led to operationalautonomy, and the FSC continues to have difficulties in personnel matters and securing finances. Asthe MSA, it is operating today basically on the leadership provided by one individual- the presentDirector.

5.6 The FSC has an important role to play in the future of the sector, but a financial, economicand performance audit is needed to assess its contribution to small holder productivity, define its rolerelative to other organizations and make it a cost effective service entity.

5.7 Research. While the MSIRI is an internationally acclaimed research institution, it was heldto have paid inadequate attention to the needs of smallholders, or to generate economically viablenew technology. The research wing of the MOA lacked resources, in personnel and finance. Theproject sought to remedy the situation by providing resources for both. In the end, the MOA chosenot to make any use of these funds. It did not prepare an agricultural diversification sub-project asrequired under the project. The MSIRI engaged in ten research schemes, utilizing about US$0.70million out of the available US$1.70 million. An economic and financial analysis of the impact ofits research, on small-holder productivity, needs to be undertaken. Its work for the land indexing

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of small farms and socio-economic studies are of significance in this context, but needs measures forcontinuity. In technology advance, it was left to the Food and Agricultural Research Council(FARC), outside the project, and somewhat transgressing its mandate, to make a beginning in onedirection: tissue culture. Project financing was available for this, but it could not be availed of byFARC because of Bank procurement guidelines.

5.8 Procurement. The Sugar Unit was in overall charge, with the project entities responsible,under its guidance, for the preparation of the bid documents, bid invitations and evaluation, andrecommendations on award of contracts. Delays were experienced in the initial period of inductionof the entities into the Bank guidelines and procedures, and in the second phase of the FSC program.But overall procurement activities posed no major problem. The Sugar Unit ensured the dualcompliance with Bank guidelines and GOM's internal procedures. There was no recourse to ICB andgoods were procured under the procedure of invitation of three quotations. Civil works, mainly forthe FSC, conformed to the norms of local competitive bidding.

5.9 Accounts and Audit. Project accounts, centralized under the Sugar Unit, are up to date.Audits by the Director of Audit, GOM, caused delays in the first half of the project period.Subsequent agreed arrangements with GOM to expedite audits, ahead of the normal schedule for theMinistry's audit by the Director, through special measures were fruitful. Audits through FY1991-92are up to date and accepted by the Bank, and the accounts for the last year of the project (up to June30, 1993) are due by December 31, 1993.

5.10 Project Costs and Financing. The cost of investments were estimated at US$44.9 million,comprised of 67 percent foreign and 33 percent local costs. The loan covered the foreign cost ofUS$30 million. No co-financing arrangements were made. But subsequent to loan signing, the Bankagreed with the Borrower's request to avail of grant financing from ODA for technical assistance tothe FSC for three managerial positions. Actual project costs at completion were US$43.46 million,made up of US$13.45 in local funding, US$28.38 million in Bank funding and US$1.63 million asgrant from ODA. Table 5.1 in Part III gives details of the estimated and the actual costs.

5.11 The breakup of project financing by category as at appraisal and the actuals is summarizedin Table 5.2. The provisions for mill machinery and fertilizer were fully utilized (in fact marginallyoverdrawn). Civil works, essentially for the buildings of the FSC, exceeded the loan provision, whilethere was a shortfall in the utilization of funds for equipment and TA. There was a cost-overrun incivil works, largely in the FSC buildings, even though (as against SAR provision for 16 centers),only nine (four fully and five partly) were financed. This was due to the delay, and consequentincrease in costs, in the construction start up for the last five, as also the more elaborate buildingdesign adopted. For consultant services, the unutilized provision almost corresponds to the ODAgrant towards the FSC management team, originally intended to be covered by Bank financing.

5.12 Disbursements. The disbursements arrangements were as follows: (i) mill investment andfertilizer imports to be administered by the BOM; (ii) for other components the disbursementsrequests were to be through the MOA; (iii) two special accounts for a total of US$2.3 million wouldbe operated; and (iv) expenditures under US$20,000 would be on the basis Statements ofExpenditures (SOE). It was estimated that 80 percent of the loan would be disbursed in the first fouryears. The BOM and the MOA adequately organized themselves in this. But the GOM did not availof the facilities of either the Special Accounts or the SOE procedure. After initial start up delays,in the first year, disbursements were ahead of estimates in the next two. Thereafter they laggedbehind in the remaining years (on average by about 7 percent). On the last disbursement date,October 29, 1993, an amount of US$28.38 million (representing 94.6 percent of the loan amount)

6

had been disbursed; the undisbursed balance in the amount of US$1.62 million was cancelled on thisdate. Table 3 summarizes the estimated and actual disbursements.

6. Project Results

6.1 The basic objective of the project was to secure the long-term viability of the sector on thebasis of efficient resource allocation. Central to it was the sharing of rent in a protected marketenvironment with intense mistrust between the sector partners: the industry (millers and growers),labor and the government. In an industry subject to the vagaries of agro-climatic conditions, andgiven the gestation period needed for adoption of technological innovations, it is too early to quantifythe results in terms of productivity improvements. The results, which should to be judged againstthis background, coupled to the highly sensitive socio-political environment in which the sectoroperates, are as follows.

(a) Policy Reforms. Overall, the most significant project achievement was fostering andcementing a rapport between the private sector and the GOM. Measures were takenfor constructive dialogue for partnership in sector development: the close associationbetween the MSA and the industry, and the setting up of the Joint Public and PrivateSector Committee for sector planning. Systems were installed to enable problemsolving within a more stable and predictable policy environment: export duty,taxation of bagasse energy and irrigation management.

(b) The mill sector. The project was highly instrumental in restoring financial viabilityto the sector through the restructuring of the fiscal policy (SIES). The export dutywas reduced from an average level of 20 percent to 13.5 percent in 1989, and to 9percent in 1993. The financial performance of the industry improved continuously.Against losses of US$84.5 million in 1983, profits rose to a peak of US$415 millionin 1989. Profitability since then has been going down, mainly due to minimum wageincreases given by GOM, in 1990 and 1991 (Table 1lb). The project providedneeded support to the private sector in ensuring foreign exchange for investments.Mill investments rose from an average of Rs. 150 million annually in 1982-86 to Rs.340 million in 1987-92. Mill performance improved in sugar production andreduction of losses in manufacture (Tables 10 and I la). The SIE Act has providedfiscal incentives for improvement in recovery beyond 86 percent of sugar in cane andabout 6 of the 19 factories have exceeded the norm. Following the adoption of theSIES Act, systems were installed to increase the transparency of the closely heldprivate sector. Annual returns are being compiled by the MSA, in consultation withthe industry. But mill ownership could not be broadened. The amendments to theSIE Act in 1993 structured the rationalization of the export duty to the objective ofclosure of uneconomic smaller units. The protective exemption from duty for thefirst 3000 tons of production was removed. The industry is already starting torespond to the signals set: one unit has applied for closure and another is negotiatingwith a neighboring mill for merger.

(c) Land. Yield of sugarcane per hectare increased during 1987-92 by 6.73 percentcompared to the 1980-86 average (Table 9). The increase was marked in thecorporate sector (9.03 percent) as against individual planters (4.34 percent). Therehas been, at the same time a reduction in the cane area by about 2.64 percent infavor of food and other export crops.

7

(d) Labor. The Bank was not able to effectively influence labor policies in the sector.Wage increases, after a period of restraint until 1990, have exceeded productivityincreases. With wages constituting about 50 percent of the cost of production ofsugar, the burden is pronounced, considering that basic wages between 1987 and1991 increased by 80 percent. Further, the SIE Act did not remove the burden onthe industry of having to maintain a "supplementary labor force" during the inter-crop season, irrespective of requirements. Despite these restraints, there has beena natural shift away from labor: a reduction of about 16.5 percent in 1992 comparedto 1986 (Table 12). Due to labor costs, the industry has increasingly mechanizedloading operations in cane fields, with 52 percent of cane now being mechanicallyloaded.

(e) Baase The project substantially contributed to promote the utilization of thisbyproduct for energy generation. It ensured a policy change in the taxation ofbagasse generated electricity (Bagasse Transfer Price) so as to provide a greater sharefor the producers of energy. A Bagasse Energy Development Committee wasconstituted for integrating the use of this byproduct in the national energy policy.Fiscal incentives in the SIE Act were provided for the saving and use of bagasse forenergy production. Following these policy initiatives, the project provided technicalassistance for the preparation of the SEDP (Ln. 3458-MAS, signed on July 1, 1992).

(f) Irrigation. Water resource allocation among competing users in the major basinGrand River South East was settled, assuring for the sugarcane planters in the northan equitable share. A study on the irrigation requirements of the sector led to thefollowing recommendations: development of cost-effective surface irrigation for thes.mall-holders; strengthening of the IA for planning and execution of works; and,transfer of certain irrigation maintenance responsibilities from the Central WaterAKuthority to the IA. Implementation of these are presently being followed up in theAMSP (Ln. 3333-MAS, signed in June 1991).

(g) The institutional objectives of the project were substantially achieved in respect of theMSA and the FSC, but would require further steps towards sustainability. MSAneeds to be more broadbased, and the FSC has to be more operationally sure of itsfinances and independence in personnel management. Also the FSC's role will haveto be in unison with other institutions engaged in extension and research, and itscontribution assessed in economic terms (Paras 5.4 and 5.5).

(h) Research and Diversification. MSIRI's impact on the improvement in small farmertechnology is yet to be assessed (Para 5.7). The research wing of the MOA was notgeared to presenting a diversification study and a sub-project for implementation.The project has influenced incorporation in the SIE Act 1988 and the amendmentsin 1993 of provision of incentives for use of cane lands for non-sugar use. It is tooearly to assess the impact.

7. Sustainability

7.1 The sugar sector will continue to be crucial for the economy of Mauritius, despitereservations in many quarters about the future of the EU Sugar regime. The negotiations under theUruguay Round of the General Agreement on Tariffs and Trade (GAIT) allay fears of a sudden and

8

abrupt change in the near future. The viability of the sector will continue to be a matter of priority.The sustainability of the results appear assured because: (a) Government has set up a machinery forcontinuous dialogue with the private sector, and has advanced further positive encouragement throughrestructuring the export duty on sugar and tax concessions. These are specifically focussed ondiversification, discouraging continuance of uneconomic units and improvements in efficiency; (b)the industry is reacting positively to consolidation and the utilization of bagasse for energy generation;and (c) the response of the small-holder to the consolidation of holdings in Land Area ManagementUnits, though in an early stage, is encouraging.

7.2 Given the continuance of such positive responses, the main risks will be the following: (a)a set-back in institutional development will be severely adverse. The MSA, the FSC and the researchand extension wings of the MOA are crucial in this. (See paras 5.4-5.7). The successor projects the(AMSP and the SEDP, and an associated Global Environment Fund Project) are instruments throughwhich the Bank could exercise its influence to maintain continuity; (b) labor policy of the GOM,unless it shifts away from the current tendency to award wage increases unrelated to productivity andpreserve constraints on the shifting of surplus labor away from the sector, will erode the viability ofthe industry.

8. Bank Performance

8.1 The main strength of Bank's performance related to a clear conceptual understanding of thesector problems and the actions needed. It was instrumental in bringing the private and the publicsectors together to work out an action plan on the basis of consensus. This was particularly strongin the preparatory and start up phases of the SIES. Inputs into supervision were adequate, in themandatory and facilitator functions. The main weaknesses were the following: (a) inadequateappreciation of inter-departmental relationships and internal procedures within the GOM hamperingimplementation; (b) inconsistency in following up institution building; and (c) limits to influencingGOM policies in certain areas (eg. labor, departmental reorganization).

9. Borrower Performance

9.1 Borrower commitment was high from the preparation stage. Despite delays in implementationof individual components, the overall performance was satisfactory. Major policy reforms wereinitiated and in the developments since the completion of the SIES, further signals in the rightdirection for productivity improvement and long-term viability of the sector have been given.Consultant resources were well deployed. The private sector was closely associated. However, themain weaknesses were: (a) inconsistency in systematic follow up of policy initiatives (eg. annualfinancial review of the sector; sugar labor remuneration; small planter productivity); (b) bureaucraticdelays in processing project proposals; and (c) slow pace of institutional reforms.

10. Relationship between Borrower and Bank

10.1 The success of the project was above all due to the working relationship the Bank establishedwith the Borrower, the private sector and the co-financier (ODA). Supervision missions, withoutdiluting the Borrower's responsibility for implementation, facilitated and provided substantiveimplementation assistance. As a counsel and honest broker, the Bank brought the private and thepublic sectors together, gaining acceptance and respect. But it still was not adequate enough to

9

influence all facets of GOM's policies, or private sector's response to certain of the signals set by theGOM.

11. Consultants

11.1 The consultants provided valuable assistance in project implementation. The technicalassistance provided was mainly for the MOA and the MSA. The former was essentially for projectimplementation by the Sugar Unit, which was instrumental in keeping the process on track andresolution of differences. The latter was for studies, installation of systems, legal and technicaladvice to the private sector and the Central Electricity Board on contract for supply of bagassegenerated energy. (See Table 6 for status and impact of the studies).

12. Project Documentation and Data

12.1 The loan agreement was appropriate and adequate for achieving the project objectives. TheSAR provided the basic guidance, subject to adaptation to changing needs, as agreed to between theBank and Borrower. The Sugar Unit maintained the overall project data, while the MSA had builtup an information system for technical and financial data of the sector. The FSC, in collaborationwith the MSIRI, is building up a database in respect of sugarcane in the small holder sector.

10

PROJECT COMPLETION REPORT

MAURITIUS

SUGAR INDUSTRY PROJECT(LOAN 2728-MAS)

PART Il: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE

COMMENTS BY THE MINISTRY OF AGRICULTURE AND NATURAL RESOURCES

1. The Project Completion Report (PCR) has put together facts and figures to enable a quickprofessional judgement to be formed about not only the impact of the Project but also the lessonslearnt from it. We concur with the assessment of the Bank that the Project did manage, albeittemporarily, to restore the financial viability of the sugar sub-sector. However, given the continuingimportance of sugar in the national economy and the imperative of diversification, what is morerelevant is the economic viability of the agriculture sector as a whole in the long run. To borrowfrom the terminology of the PCR, what is important is not merely the short-term redistribution of rentamong the sector players but a conscious and systematic augmentation of that rent itself throughproductivity improvements within of course the limitations imposed by the emerging global traderegime. Only a more detailed evaluation of the structural changes brought about within the sugarsub-sector would enable us to appreciate whether the restoration of financial viability fostered by theProject remained the essential first step or led to complementary changes elsewhere in a manner thatwould ensure the long-term economic viability of the Mauritian sugar industry in a more competitiveworld trade environment. Such concurrent and continuous evaluation is within the mandate of theMSA and would be carried out.

2. By creating through the Farmer's Service Center (FSC) the institutional infrastructure to bringthe small planter within the framework of productivity gains due to better research and extensionsupport, the Project had again taken the essential first step. However, at this juncture, consolidation,rather than expansion appears to be called for. The FSC needs to prove itself and the sector partnersthat its approach to closing the productivity gaps between the large and the small planters has not onlybeen successful but cost-effective. The benefits, direct and indirect, of the FSC experiment, wouldhave to be quantified carefully and analyzed dispassionately. This again would have to be taken upas part of the current re-appraisal of and by the FSC.

3. It was perhaps unavoidable, given the relative priorities, that agricultural diversification andresearch support thereof did not get as much fillip under the project as they could have. We do notagree that these issues have been addressed in greater detail in the Agricultural Management andServices Project (AMSP). It is our intention to dovetail the follow up requirements of the SugarIndustry Project into the programs and activities of the AMSP and Bagasse Energy DevelopmentProject.

4. We have noted the factors which, in the assessment of the Bank, adversely affected Projectimplementation. Our hope is that with greater exposure to project management in the coming years,the required capacities would be built up within all the participating organizations. The observations

11

regarding the strengths and weaknesses of the individual organizations and the suggestions regardingremedial measures are well taken and would be acted upon.

12

PROJECT COMPLETION REPORT

MAURITIUS

SUGAR INDUSTRY PROJECT(LOAN 2728-MAS)

PART III: STATISTICAL DATA

Table 1: Related Bank Loans

1 Year ofLoan TitLe Purpose Approval Status Comments

Agricultural Services Support to modernization of 1991 Effective; WiLL address issues on theManagement Project the agricultural sector, in on-going reorganization of MOA, agricultural(Loan 3333-MAS) organization of sector diversification, irrigation, agri-

management and delivery of business, and extension-researchservices linkage

Sugar Energy UtiLization of renewable bio- 1992 Effectivenes This project along with the relatedDeveLopment Project mass of sugar cane for energy s pending Sugar bio-energy Technology Project(Loan 3458 MAS) generation, with attendant (GEF), will be of crucial

environmental benefits importance to the sector to set on-track Long-term measures for by-product utilization andenvirornental monitoring

13

Table 2: Project Timetable

I I ~~~~~~~~Planned IActualIdentification May 1984

Preparation April 1985

Appraisal August 19, 1985 September 1985

Negotiations March 20, 1986 May 13, 1986

Board Approval May 1986 June 26, 1986

Loan Signature July 11, 1986

Loan Effectiveness October 9, 1986 January 15, 1987

Loan Closing June 30, 1992 June 30, 1993

Last Disbursement October 29, 1993

14

Table 3: Loan Disbursements

Cumulative estimates and actual disbursements(US$ million)

l § l Disbursements (cumulative)Bank AppraisalF.Y. Estimate Actual Actual as al

I % of estimate

1987 3.80 0.02 0.53

1988 11.80 16.95 143.64

1989 18.70 20.07 107.33

1990 24.00 22.86 95.25

1991 28.00 26.46 94.50

1992 30.00 26.97 89.90

1993 27.88 As % of Loan amount92.93

1994 28.38 As X of loan amount1994 __________ ________-______ I_________________ 94.86

The undisbursed balance (US$1,623,316) was cancelled effective October 29, 1993.

15

Table 4: Project Implementation

Component CorpLetlon date

Plamed Actual

1. Mill modernization imports June 1991

2. Fertilizer Imports June 1989 June 1988

3. Mauritius Sugar Authoritv

a) Appointment of E.D.b) Departmental heads Condition of effectiveness December 1986c) Completion of SIES October 31, 1986 June 1988d) Bagasse transfer price July 31, 1987 JuLy 1988

April 30, 1987 March 1993

4. Interministerial committee January 31, 1988 December 1988and policy measure

5. Establishment of FarmersService centers

a) Pilot Phase March 31, 1987 May 1987b) Expansion June 1991 Started but not coapleted by

Loan cLosing date

6. AlLocation of water June 30, 1987 August 1988resources of G.R.S.E.

7. Mid Term Review September 1988 August 1989

8. M.0.A.

a) diversification: study December 31, 1986preparation Not implemented

b) Sub-project for October 31, 1986diversification research

16

Table 5: Project Costs and Financing

A. Project Costs

Copents |R Apraisal Estiintes -| Actual Costs

Local T Foreign J Total Local Foreign Total

1. Factory Investments 10.00 15.00 25.00 10.00 15.23 25.23

L 2. Fertitizer Imports 9.40 9.40 _ 9.42 9.42

|_3. MSA 0.07 0.96 1.03 0.03 1.26 1.29

|_4. MSIRI 1.98 1.70 3.68 1.27 0.93 2.20

| 5. MOA 0.27 0.51 0.78 0.05 0.28 0.33

| 6. FSC 2.57 2.43 5.00 2.10 1.26 3.36

Total 14.89 30.00 44.89 13.45 28.38 41.83

______________ ODA_____ 0.00 0.00 0.00 1.63 1.63

Total 14.89 30.00 44.89 13.45 30.01 43.46

B. Project Financing

Category Appraisal Estinates Actual I

Local ODA Loan | Total Local | ODA Loan Total

1. Factory Investments 10.00- 14.50 24.50 10.00 | 15.23 25.23

2. Fertilizer Imo rts 9.40 9.40 _ _ 9.42 9.42

3. Equipment & Vehicles 0.94 1.40 2.34 0.76 | 0.99 1.75

4. Civit Works 0.48 1.00 1.48 0.79 | 1.23 2.02

5. TA & Training 0.08 2.80 2.88 _ 1.63 1.51 3.14

6. Incremental Operating Costs 3.39 3.39 1.90 _ _ 1.90

7. PPF 0.30 0.30 _ _ | 0.00

8. Unallotted 0.60 0.60 _ _ | 0.00

Total 14.89 0.00 30.00 44.89 13.45 1.63 28.38 43.46

Note: ODA was originally not a project partner.

17

Table 6: Studies

Name Purpose Status Impact of the Study ]Sugar Industry To formulate and impLement CompLeted in This study, which Led to the enactment of the SIEAEfficiency Study reforms under the SAP to JuLy 1988 in December 1988, was crucial to the central

assess major policy issues, objective of the project: securing the long-termviability of the sugar sector. The Act resultedin fiscal measures, setting signals forproductivity improvements, diversification and byproduct utilization. It installed systems withinthe NSA, on basis agreed with the private sector,for regular review of industry financialsituation.

Small Planters' To formulate proposals for the Completed A 22-point action plan was recommended.Efficiency Study improvement of productivity in Implementation is underway and a few measures(SPES) the small-holder sector in given effect to in the amendments to the SIEA

sugar cane accounting for 40 (1988) in 1993. But requires to be given a sensepercent of cane production, of direction and purpose. It will need to be

followed up as part of supervision of the AMSP.

Sugar Industry To analyze the optimal On-going Started in 3/93 and scheduled to be completed byCharacterization treatment of the effluents in 3/94, in three phases (design, trials andof Waste Study the process of sugar milling, evaLuation). The first phase completed under the(SICWS) and recommend appropriate project. Assessment of outcome is not yet due.

measures for abatement, The other phases, and the implementation ofcontrol and monitoring, necessary administration and legislative measures,

l__________________________ could be followed up by the SEDP.

Irrigation a) to recommend least cost Completed proposals to test 3 pilot centers for least-coststrategy for development of April 1990 surface irrigation, and for TA to strengthen IA.irrigation, particularly with Followed up in the AMSP.reference to the needs ofsmall-farmers.b) Reorganization of the IAfor inproving planning andmanagement capabilities. .

18

Table 7: Status of Legal Covenants

Section Status | Completion Date | Description of Covenant Comments

2.01 (c) OK Promptty after Repayment of PPF. PPF was not used.effectiveness(1/15/87)

3.01 lImpLementation program,including studies.

3.03 OK June 1991 Parts A & B: fertiLizer and Completed by June 88 for fertilizers andmachinery imports. June 1991 for machinery, supervision of

the SOM.

OK December 1988 Studies under NSA for promoting NSA has evolved a system, followingindustry efficiency and for completion of the study for annualchanges in fiscal policy. revaluation of assets of the industry and

financial analysis.

3.05 OK June 1988 Appointment of departmental In position.heads of MSA.

OK August 1989 Farmers' service centers: pilot (i) Pilot phase of 4 centers successfullyproject. completed and reviewed by Bank in the

mid-term review. Expansion of theprogram by way of 5 more additionalcenters was started but not completed byJune 93.(ii) FSC management staff initially underODA assistance; since repLaced byMauritians (Sec. 3.03).

OK Mauritius Sugar Industry Grants to MSIRI sustained research andResearch Institute (MSIRI) studies as: land indexing, economic

research, small-scale irrigation, caneimprovement, crop diversification andsugar technology. Sub-components forbagasse energy and researchdiversification were, however, expandedinto preparation of two stand-aloneprojects, since approved by the Bank in6/91 and 7/92.

3.07 OK August 1989 Mid-term review. Completed, jointly with ODA for the FSCcomponent.

4.01 OK Annual Accounts and audits. Audit compliance is up to date.

4.01 (b) OK Annual SOE SOE procedure was not avaied of.

5.01 OK Annual reviews. Progress reports duly furnished.

5.02 OK December 1988 Interministerial Comnmittee for Reviewed studies under the project andPolicy Review. led to fiscal poticy changes and

enactment of SIEA.

5.03 (a) OK 1987 Least cost power expansion Completed (under the Ministry of Energy).study.

5.03 (b) OK March 1993 Bagasse Energy Development Studies and project preparationincluding bagasse pricing. activities financed under the project

have led to a stand-alone project onEnergy Development and research on Bio-mass utilization (SEDP: MAS loanagreement: 7/1/92). Included Bankapproval formula for bagasse pricing.

19

Section ! Status CompLetion Date Description of Covenant Comments

503 (c) OK1 August 1988 Allocation of water resources Agreement reached between MOA and MOE onbetween power and irrigation. sharing and transfer of assets. Physical

transfer wilL be compLeted shortly.

5.04 OK December 1989 FinanciaL viability of the sugar Fiscal and other measures incorporated insector, the SIEA, and reviewed by the Bank.

7.01 (a) OK February 1987 Appointment of sugar industryspecialist for project_management.

7.01 (b) OK December 1986 Appointment of GM for FSC pilotproject.

7.01 (b) OK December 1986 Appointment of a full-timeExecutive Director for NSA.

Note: Expenditure incurred on the civil works and related contracts in respect of five additionalcenters up to June 30, 1993 was financed under the project.

20

Table 8: Use of Bank Resources

A. Staff Inputs

Stq of Project Cycle Ptumed Revised Final | Catnts

Through AppraisaL _ _ _ _ __50.8 _ _ _ _ _ _ _ _ _ _

Apprfisel through Board Approval 49.8 TBoard Approval through 5.4Effectiverms

Suervision 87.0 85.5 149.7

TotaL 87.0 85.5 255.7

B. Missions

Stage of Project CycLe 1 Month/Year N umber of Days in peciaization Perfor ence Rating | Types of Problems 3/_____ _ | Persons Field Represented / Status

Through Appraisal 05/06/84 2 10 1,6

12/84 2 5 1,6 Identification, Preparation

04/85 3 11 1.2,6

Appraisal through Board 09/85 4 1,2,3,6 AppraisaLApprovaL

Board Approval through 07/86 2 13 1,6 Project start-upEffectiveness

l_______________________ 10/86 2 3 1,3 Project start-up

Supervision 06/87-07/87 1 10 I Project start-up

12/87 2 12 1,5 1 1,2,4

09/88 2 17 1,3 1 4,5,6

08/89 3 12 1,5,5 1 5

10/89-11/89 3 14 1,3,6 1 1,4

02/90-03/90 1 2 4 2,4,6

06/90 1 6 1 1 2,4,5

08/90-09/90 1 18 4 2,4,5

11/90-12/90 1 22 4 1,5,6

03/91-04/91 2 36 4,7 1 2,4,6

08/91 3 19 1,4,7 1 1,5

05/92-06/92 3 12 1,4,8 1 2,4

10/92 3 20 4,6,8 1 2,4

02/93-03/93 2 29 4,8 1 4,5

1/ Keys to Specialization: I = Economist; 2 =Agronomist; 3 =Financial Analyst; 4= Sugar Industry Specialist; 5 = ExtensionSpecialist; 6=Management; 7-Financial Economist; and 8=Agricultural Economist.

2/ Overall Status.

3/ Keys to Problems: 1 = Policy Reforms; 2 =Procurement; 3 = Disbursements; 4= Studies; 5 =Institutional; 6= Audit.

22

Table 9: Sugarcane area, production and yields, 1980 through 1992

Yest Area (ha) Prodaction | Yield tans hectare(miLLion tars)

Ni iter Omerr Tennnt Isltwdptants plants

1980 79,193 4.564 60.00 50.00 38.40 57.60

1981 78,291 5.303 77.70 55.00 48.80 67.70

1982 79,908 6.582 91.00 72.80 57.40 82.40

1983 78,435 5.255 76.30 56.70 47.80 67.00

1984 78,003 5.009 75.10 52.40 43.60 64.20

1985 78,028 5.583 80.00 62.90 50.50 71.60

1986 77,709 6.025 86.10 69.70 53.40 77.50

1987 77,552 6.231 88.80 72.60 55.90 80.30

1988 76.919 5.517 84.70 59.00 48.30 71.70

1989 76.785 5.436 80.80 61.20 43.50 70.80

| 1990 76,303 5.548 85.90 59.60 42.80 72.70

1991 75,966 5.621 89.50 57.80 50.90 74.00

1992 75,077 5.791 88.50 65.00 48.10 77.20

(a) Average yields Nilter plants Ovmer plants Tenant Island(tons/ha)

O) 1980-86 78.03 59.93 48.56 69.73

it) 1987-92 86.37 62.53 48.25 74.42

iii) Percent increase of ii) 10.69 4.34 -0.64 6.73over i)

(b) Average Area Harvested (ha)

(i) 1980-86: 78,510 (ii) 1987-92: 76,434 (iii) percentage decLine: 2.64

Source: MCA Annual Reports.

23

Table 10: Sugar Production, Sales and Unit Revenue 1985-1986 to 1992-1993

j Year | Local and Exports | Total Unit Price EU Pricestock (tons) MRU/Ton MRIECU/Ton

1985-86 37,348 608,449 645,797 3897 5,950 448.7

1986-87 44,079 662,760 706,839 4213 7,213 449.2

1987-88 32,654 658,480 691,134 4807 7,988 449.2

1988-89 35,011 599,212 634,223 5399 8,064 449.2

1989-90 35,861 532,440 568,301 6526 8,890 440.2

1990-91 38,961 585,341 624,302 6714 9,746 439.4

1991-92 44,707 565,858 610,565 6884 9,894 439.4

1992-93 43,407 599,761 643,168 7194 10,726 433.7

Source: (i) MCA; (ii) Mauritius Sugar Syndicate (MSS).

Note: The preferential quota arrangements as at present cover about 510,000 tons underEU/ACP Agreement, and 15,000 tons under U.S. Sugar regime annually. The current price forexports to USA is around US$0.22 per pound. After allowing for about 40,000 - 42,000 tonsfor local consumption (domestic and industrial), and carry over stocks, the balance is exportedto the "free-market" at prices which today are around US$0.10 - US$0.11 per pound.

24

Table 11: Technical and Financial Performance: 1983-92

A. Factory Technical Performance: 1983-92

Year Recovery ROR[___ ~~% Cane I__1982 10.45 85.70

1983 11.51 85.30

1984 11.49 85.20

1985 11.57 85.40

1986 11.73 85.70

1987 11.09 85.60

1988 11.50 85.40

1989 10.65 84.90

1990 11.25 85.10

1991 10.88 85.00

1992 11.13 86.90

Note: ROR: Reduced Overall Recovery

B. Industry Financial Performance

Year | Profit/(Loss) Before Income Tax (MRU million)

1983 -84.50

1984

1985 79.00

1986 222.00

1987 178.60

1988 138.50

1989 414.90

1990 303.20

1991 62.00

1992 35.00

25

Table 12: Employment in the Sugar Industry

Year Number of workers

1980 47,493

1986 47,005

1991 40,138

1992 39,272

Source: Central Statistical Office; MCA.

Note: There has been an overall decline in workforce by 17.3 percent and16.45 percent in 1992 compared to the years 1980 and 1986 respectively.

27

ANNEX

COMMENTS BYUNITED KINGDOM OVERSEAS DEVELOPMENT ADMINISTRATION (ODA)

TECHNICAL ASSISTANCE IN SUPPORT OF THEFARMER SERVICE CENTERS

Background

1. At the request of the Government of Mauritius, ODA provided technical assistance in supportof the Farmer's Service Center (FSC) component of the World Bank financed Mauritius SugarIndustry Project. UK consultants Booker-Tate Ltd were appointed as managing agents on ODA'sbehalf. The three long-term consultants - General Manager, Agricultural Engineer and TrainingManager - were attached to the Project Management Unit (PMU) for a period of some four yearsfrom December 1986 to December 1990.

Project Objectives

2. The Staff Appraisal Report, Mauritius Sugar Industry Project of 5 June 1986 states thefollowing:

"These centers would be established to help small-scale planters (with less than 100 arpentscane) to improve production of sugar and related crops. The centers would serve about33,000 planters who grow about 66,000 arpents cane. A typical center would serve roughly2,000 planters growing 4,000 arpents cane by intensifying extension services, and by helpingplanters to organize harvesting, cane transport, replanting and inputs supplies. The Centerwould house, under one roof, existing suppliers and agencies dealing with inputs and servicesto make them more accessible to planters."

Project Results

3. The project selected four sites namely St. Felix, Rose Belle, Solitude and L'Unite at whichto establish the first pilot FSCs. The four centers now serve the needs of over 10,000 small-scaleplanters, some 30 percent of the total. The FSCs provide:

(a) extension advice on the growing of sugar cane, interline and rotation crops;

(b) advice on seedcrop supply and on establishing seedcane nurseries;

(c) inputs, including fertilizer, insecticides, pest control chemicals etc.;

(d) contractors' services eg. for de-rocking, land preparation, cane harvesting andtransportation;

(e) a soils analysis service (in conjunction with Ministry of Agriculture's AgriculturalChemistry Division); and

(f) advice on available credit for small-planters.

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4. In general, it is felt that activities are correctly geared towards relieving the constraints toimproved small-scale planter yields and should feed through into increased efficiency of production.There are still uncertainties, however, about the economics of some of the technicalrecommendations. Further work needs to be done, for example, in assessing the returns to de-rocking, the most profitable cane length cycle for planters and the optimum yield level that plantersshould aim for given the other opportunities for income generation.

5. Included in the total ODA grant of US$1.63 million were overseas training awards whichhave enabled the counterpart staff to gain the necessary skills and confidence to take responsibilityfor the continued management and expansion of the FSCs.

6. ODA will continue to provide follow-up to the FSCs through its technical assistance supportto the Agricultural management and Services Project.